Unmatched technical expertise to develop tailored products. â« Global direct sales force and field technical teams. â«
Focused.
Company Overview Innovative.
December 2016
Performance Driven.
Disclaimer
Statement Regarding Safe Harbor For Forward-Looking Statements This presentation contains forward-looking statements, that is, information related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without limitation, expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities. For these statements, Grace claims the protection of the safe harbor for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Like other businesses, Grace is subject to risks and uncertainties that could cause its actual results to differ materially from its projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual results to materially differ from those contained in the forward-looking statements include, without limitation: risks related to foreign operations, especially in emerging regions; the cost and availability of raw materials and energy; the effectiveness of its research and development and growth investments; acquisitions and divestitures of assets and gains and losses from dispositions; developments affecting Grace’s outstanding indebtedness; developments affecting Grace's funded and unfunded pension obligations; its legal and environmental proceedings; uncertainties that may delay or negatively impact the separation transaction or cause the separation transaction to not occur at all; uncertainties related to the company’s ability to realize the anticipated benefits of the spin-off; the inability to establish or maintain certain business relationships and relationships with customers and suppliers or the inability to retain key personnel; costs of compliance with environmental regulation; and those additional factors set forth in Grace's most recent Annual Report on Form 10-K, quarterly report on Form 10-Q and current reports on Form 8-K, which have been filed with the Securities and Exchange Commission and are readily available on the Internet at www.sec.gov. Reported results should not be considered as an indication of future performance. Readers are cautioned not to place undue reliance on Grace's projections and forward-looking statements, which speak only as the date thereof. Grace undertakes no obligation to publicly release any revision to the projections and forward-looking statements contained in this announcement, or to update them to reflect events or circumstances occurring after the date of this presentation. Non-GAAP Financial Terms In this presentation, Grace presents financial information in accordance with U.S. generally accepted accounting principles (U.S. GAAP), as well as the non-GAAP financial information described in the Appendix. Grace believes that this non-GAAP financial information provides useful supplemental information about the performance of its businesses, improves period-to-period comparability and provides clarity on the information management uses to evaluate the performance of its businesses. In the Appendix, Grace has provided reconciliations of these nonGAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. These non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully.
2
© 2016 W. R. Grace & Co.
Company Snapshot We are a $2 Billion Technology Leader Catalysts Technologies 25%
Materials Technologies Chemical Process
SC
26% ART Coatings
77% Sales
Consumer/ Pharma
32%
Total 27% $0.5b
Total $1.6b(1)
RT 49%
Leadership Positions
1
29%
12% Other
#1 in FCC catalysts #1 in resid hydroprocessing catalysts #2 in hydrocracking catalysts #1 in polyolefin catalysts #2 in polypropylene process technology licensing #1 in specialty silica gel, pioneer in multiple segments
23% Sales
Connected Through our Materials Science Expertise Refining Catalysts
Polyolefin Polyolefin Catalysts Catalysts
Organic Chemicals
MgCl2
BioPharma
1
3
Includes sales of unconsolidated ART joint venture © 2016 W. R. Grace & Co.
(FCC and HPC)
Silica
Silica Alumina
Materials Technologies
Alumina
Chemical Catalysts
Raney Metal
Strategic Direction With Winning Strategic Positions in Both Segments Catalysts Technologies
Materials Technologies
Value creating products in Refining and Polyolefin catalysts
Leading position in high value niches
Unmatched technical expertise to develop tailored products
Proven innovation and application knowledge across many end uses
Global direct sales force and field technical teams Long history with blue-chip customers Strong partnerships with leading customers and technology providers
How We Win
Global direct sales force and field technical teams Infrastructure in mature and emerging regions
Leading segment positions – #1 or #2 in over 80% of sales 4
© 2016 W. R. Grace & Co.
Strategic Direction Focused on Value Leveraging the separation We are now leaner, more focused, and more strategically nimble
Maintaining ROIC discipline Timing of capacity additions matched with demand Tight working capital management reduces cash impact of slower growth
Focusing on productivity Manufacturing excellence
High return opportunities for capital allocation Growth and productivity investments Synergistic, bolt-on acquisitions Share repurchases and dividends
Focusing on growth In our end markets Through synergistic bolt-on acquisitions
Nimble company with proven track record in challenging environments 5
© 2016 W. R. Grace & Co.
Strategic Direction Return on “Focus:” Marking Progress Since Separation Across Grace Executing on Strategic Framework Focus on creating a less complex organization that scales efficiently with growth
Return cash to shareholders through dividend and buyback
Catalysts Technologies
Materials Technologies
Closed polyolefin catalysts acquisition from BASF
Fine Chemicals expected up double digits YoY New products growth strategy in key markets:
Positive average FCC price movement QoQ and positive indicators in the bid process
Architectural coatings
New MTO reference account
Automotive catalysts
Custom catalysts in edible oil space
Started supplying the world’s largest FCC unit
M&A pipeline remains robust
New products in ART with good progress on hydro cracking
Productivity focus
Productivity focus, including removal of 10,000 mt of our least efficient capacity
6
Maintain disciplined leverage ratios while investing in growth
© 2016 W. R. Grace & Co.
Adapting to the Global Operating Environment 2011-2015
7
2016-2020
Developed Regions
Weak economic growth Refining consolidation
Slow moderate growth
Emerging Regions
Growth at a declining rate
Slow rebound in growth
Interest Rates
Historic lows
Slowly rising rates – moderating growth of emerging regions
Energy
Before oil price crash, many new projects Low natural gas price After oil decline in ’15, strong refining margins driving by robust fuels demand
Petrochemicals
Middle East and China investments Oil primary feedstock
Middle East continues to successfully compete $100B build out of US gulf coast Low cost gas, naphtha and alternative feedstocks
Construction Market
Weak environment following recession in mature markets
Moderate increase drives additional polymer consumption
Inflation
Significant deflationary trends with pockets of volatility
Increasing inflation over long term as demand and economy improve
Competitive Intensity
2011-12 Rare earth hyperinflation 2013-15 Heavy price competition
© 2016 W. R. Grace & Co.
Oil demand continues to shift east Strong transportation fuels demand Product overhang due to refining overcapacity Low oil price delays refining and shale gas projects
Industry capacity utilization improving More focus on technology & value
Adapting to the Global Operating Environment Paths to Growth and Earnings Grow sales with technology-oriented customers
Position organization to serve growing regions
Ongoing focus on productivity and margins
Leverage our Adjusted Free Cash Flow
8
© 2016 W. R. Grace & Co.
Summary 1
Performance-Driven Management Team
2
Strong Track Record through Tough Economic Environments
3
Leading Strategic Positions in Both Segments
4
Exceptional R&D and Technological Differentiation
5
Solid Long-Term Growth Potential
6
High Profitability and Cash Flow
7
High Return on Invested Capital
Growth
Profitability
Return on Invested Capital (ROIC)
Unique strategic position, track record, and profitability make Grace a compelling investment 9
© 2016 W. R. Grace & Co.
Cash Flow
For more information visit grace.com or contact: Tania Almond Investor Relations Officer +1 410.531.4590
[email protected]
10
© 2016 W. R. Grace & Co.
Appendix
11
© 2016 W. R. Grace & Co.
Business Overview
12
© 2016 W. R. Grace & Co.
Catalysts Technologies 2015 Financial Highlights
$1.2 billion sales 42.2% Adjusted Gross Margin $415 million Adjusted EBITDA 35.7% Adjusted EBITDA margin
Large Global Opportunity
Refining Catalysts 2-4% CAGR
$3.8 $6.7
$16 billion $5.5
13
© 2016 W. R. Grace & Co.
Polymer Catalysts 3-4% CAGR
Petrochemical Catalysts 2-3% CAGR
Business Overview
Catalysts Technologies Product Offering
Financial Overview
Refining Technologies (RT) FCC catalysts and additives for petroleum refiners Advanced Refining Technologies (ART) Hydroprocessing catalysts Specialty Catalysts (SC) Catalysts, supports, and technology licensing for polyolefins and specialty chemicals Key Industries Oil Refining Polyolefins
By Region
SC 34%
North America 33%
© 2016 W. R. Grace & Co.
$1,162 35.7%
35.7%
$445
$415
34.0%
2014A Adj EBITDA
2015A Adj EBITDA Margin
Constant currency
Grow sales with technology oriented customers Continue focus on growth regions Develop new FCC profit pools and grow polyolefin catalysts Curtail least profitable capacity in FCC
Sales $1.2b
Emerging Regions 38%
14
$1,247
Key Strategies
Western Europe 18% Total $1.2b
4.2% CAGR at Constant Currency
$1,222
$1,124
2013A Sales
2015 Sales
RT 66%
$1,247
$382
Petrochemicals and Biochemicals
By Product
$1,125
Support customer investment decisions with product and process technology Developed Asia 11%
Build or buy required growth capacity
Business Overview
Catalysts Technologies Application
2009
2015
Segment earnings mixing toward high growth Specialty Catalysts
FCC Refining
HPC EB Resid
~8-9% CAGR
HPC FB Resid HPC Distillate
~13% CAGR
HPC Hydrocracking Polyethylene (PE) Catalyst
Specialty
72%
Polypropylene (PP) Catalyst PP Process Technology Licensing
-
PE / PP Single Site Catalyst
2009
Future
Zeolite Technology
Technology Leader
Strong Position
Developing Position
A strong portfolio getting stronger with a more diversified earnings base 15
© 2016 W. R. Grace & Co.
64%
2015
Refining Technologies
Chemical Catalysts
MTO Catalysts
36%
28%
PE Catalyst Support
40%
60%
2020E Specialty Catalysts
Completed Polyolefin Catalysts Acquisition
The Leader in Polyolefin Catalysts and Licensing #1 in Polyolefin Catalysts #2 in Polypropylene Process Technology Licensing Broadest Catalysts Portfolio Gas phase and bulk process PP and PE catalysts Sixth-generation non-phthalate gas phase and bulk process PP catalysts Catalysts optimized for UNIPOL® PP process Chromium PE catalysts Custom Ziegler-Natta PE and PP catalysts Custom Single-Site PE and PP catalysts Global Catalysts Manufacturing Flexibility, capability, process knowledge, and capacity
Acquisition Brings Strong Synergies Creates the world’s broadest portfolio of polypropylene and polyethylene catalysts technologies Strengthens our ability to innovate as a strategic partner to our customers Well-defined cost and operational synergies, increasing operational flexibility to optimize global manufacturing network Expect to achieve full synergies by end of 2018
Track Record of Building Leadership Position 2016 – Acquired BASF PO Catalyst business 2013 – Acquired UNIPOL business 2010 – Acquired Synthetech for single site and PP catalyst manufacturing
2006 – Acquired PP catalyst manufacturing capacity 2005 – Acquired single site technology for PE and PP catalysts Newly acquired sites 16
Polyolefin Catalysts Acquisition | July 2016
2002 – Acquired Z-N technology for PE and PP © 2016 W. R. Grace & Co. | Confidential
Materials Technologies 2015 Financial Highlights*
$0.5 billion sales 38.8% Adjusted Gross Margin $120 million Adjusted EBITDA 25.8% Adjusted EBITDA margin
Large Global Opportunity
Consumer/Pharma 2-3% CAGR
Other 2-3% CAGR
Coatings 2-4% CAGR $1.1 $1.3
$5.7 billion $0.6 $2.7
* 2015 data on discontinued operations basis, available in 8-K filed April 13, 2016
17
© 2016 W. R. Grace & Co.
Chemical Process 3-4% CAGR
Business Overview
Materials Technologies Product Offering
Financial Overview1
Coatings Functional additives across a broad range of specialized coatings applications
$485
Chemical Process Adsorbents and surface modifiers for plastics, petrochemical, and other broad industrial end uses
$485
Consumer/Pharma Processing aids and customized, high purity products for beverage, personal care, and pharmaceutical end uses 2015 Sales1 By End Market Coatings 29%
Consumer/ Pharma 27%
Total $0.5b
Chemical Process 32% 1
18
25.1%
$119 2013 Sales
$466
$128 2014 Adj EBITDA
25.8%
$120
2015 Adj EBITDA Margin
Constant currency
Grow new applications in high margin end uses
By Region North America 24%
Western Europe 37%
Emerging Regions 33%
New product pipeline to sustain above market rate Build or buy for growth Continue to expand geographic and end use diversification Capitalize on regulatory changes driving growth in sustainable technologies
Developed Asia 6%
2015 data on discontinued operations basis, available in 8-K filed April 13, 2016 © 2016 W. R. Grace & Co.
$511 24.5%
3.2% CAGR at Constant Currency
$517
Key Strategies
Total $0.5b
Other 12%
$512
Business Overview
Materials Technologies
Product Strategy Focused on High-Value Specialty Applications
Specialty Applications Product Value and Differentiation
Continuous product innovation drives margin improvement Products translate very well into high-growth emerging markets
Semi-specialty Applications
Commodity Applications (No play zone)
19
~70% of segment sales are generated from high-margin specialty applications
© 2016 W. R. Grace & Co.
Business Overview
Materials Technologies Key Competitive Advantages
Products we use everyday
Strong technology base and market positions Broad scope of industries with high value niches Strong application knowledge and technical service programs Proven innovation in material sciences, instrumentation and laboratory consumables
Global footprint to support emerging regions growth
Furniture
Toothpaste
Beer
Coatings
Abrasives
Clarification
Petrochemical
Pharma
Personal Care
Gas purification
Manufacturing
Ingredients
Overview of Key Customers Paint and coatings companies Consumer products companies Plastics manufacturers Pharmaceutical and biotech companies
20
© 2016 W. R. Grace & Co.
Business Overview
Materials Technologies – End Uses Coatings Functional additives that provide matting effects in a variety of specialty coatings such as: In wood coatings, to provide matting without impacting clarity or applications properties In coil coatings, to provide matting without impact on film properties such as durability or chemical resistance In high-performance architectural coatings, to provide superior film smoothness, burnish, and stain resistance Environmentally friendly corrosion inhibitors providing corrosion protection for metal surface coatings Specialty additives to enhance print quality in ink jet coatings applied to paper Desiccant or moisture adsorption protection for moisture sensitive paints Consumer/Pharma In consumer applications: In food and personal care products, as processing aids as free-flow agent or carrier In edible oils, for purification; and in beer and other beverages, for stabilization In toothpaste, as an abrasive or thickener that can carry medicinal ingredients In Pharma applications, such as: In chromatography, to provide chemical purification in drug discovery and production In custom pharmaceutical intermediates, for oncology and other drug therapies Chemical Process Surface modifiers for thin polymer films, to prevent inter-film adhesion without impacting clarity of food and consumer materials packaging Molecular sieve adsorbents to remove moisture in a range of industrial gases including natural gas, cracked gas, and ethanol; also as a specialty desiccant in glass Colloidal dispersions of silica which provide chemical inertness and heat resistance in precision investment castings and industrial catalysts Processing aid in the production of edible oils and bio-diesel 21
© 2016 W. R. Grace & Co.
Business Overview
Businesses Connected Through Materials Science Fluid Cracking Catalysts Environmental Single Site Catalysts Ziegler Natta Catalysts
Polypropylene Catalysts
Fixed Bed Light Olefins
Chromium Catalysts Polyolefin Catalysts
UNIPOL® Licensing
Organometallic Components
Ebullating Bed
FCC Additives
Hydroprocessing Catalysts
Refining Catalysts
Distillate Hydrocracking
Organic Chemicals
MgCl2
Silica
Silica Alumina
Raney Metal
Alumina
Molecular Sieve Adsorbents BioPharma
Coatings Additives
Pharmaceutical Intermediates
Materials Technologies
Reinforcement / Binder Agents Chromatography Products Food/Beverage/Personal Care Processing Aids
Basic Science
22
© 2016 W. R. Grace & Co.
Applications
Chemical Catalysts
Catalyst Carriers
Hydrogenation Catalysts Surface Modifiers
Zeolite Catalysts
Catalysts Technologies
Materials Technologies
Business Overview
Exceptional R&D and Technological Differentiation Market Dynamic FCC
HPC
Technology Challenges
Heavy resid processing, primarily in Middle East and Asia
Heavy crudes
Growth in resid-to-propylene applications, primarily Asia
Activity
Shale: important component of North American crude diet
Stability
Contaminants Selectivity
Heavy resid treating and conversion
Heavy crudes
Growing demand for low-sulfur diesel fuel
Contaminants
Investment in hydrocrackers
Selectivity
Activity Stability
Specialty Catalysts
Population growth
Strength
Increased consumer consumption – emerging economies
Flexibility
Substitution of other materials
Processability
Feedstock cost position
Clarity
Offerings ACHIEVE® FCC catalyst family – maximize product yield and octane from opportunity crudes Midas® GOLD FCC catalysts – heavy resid ICR® catalyst systems for hydrocracking and fixed bed resid hydrotreating SmART Catalyst System® for ultra-low sulfur diesel production MAGNAPORE® chromium PE catalysts CONSISTA® 6th generation nonphthalate PP catalysts UNIPOL® Polypropylene Process technology
Helping customers with innovative products drives growth 23
© 2016 W. R. Grace & Co.
Business Overview
Exceptional R&D and Technological Differentiation Market Dynamic Materials Technologies
Technology Solutions
Environmentally friendly coatings with improved performance attributes
Unique additives to enhance coatings performance
Outsourcing of drug intermediates manufacture
Sophisticated custom chemistries to meet pharmaceutical requirements
Growth of environmental and custom catalysts Banning of plastic microbeads in personal care applications High cleaning/low abrasivity toothpastes
Customized materials to improve catalyst performance
Offerings SYLOID® silica matting SHIELDEX® corrosion inhibitors SYLOSIV® adsorbents Synthetech pharmaceutical intermediates LUDOX® colloidal silica SYLOID® silica gels SYLODENT® silicas
Specialized silicas with tailored particles Specialized materials for personal care
Helping customers with innovative products drives growth 24
© 2016 W. R. Grace & Co.
Business Overview
Solid Long-Term Growth Potential High Margin Organic Investment Opportunities …
Focused Growth Programs
Projected Industry Annual Growth
FCC Invest to maintain #1 position
2-4%
Hydroprocessing Invest to improve position
4-5%
Focused on expanding existing portfolio Risk
Return
Investment criteria based on: Strategic fit (technology, capacity, market access) Scalability and global application Hard cost and capital synergies Risk-adjusted return Investment criteria can be widened for specific opportunities Track Record of Execution1
Polyolefins Aggressively grow
4-5%
Materials Grow in adjacent markets
2-4%
High
… Supported by Acquisitions
Medium
1
Over $1.5B invested between 2003-2015 22 acquisitions and 7 divestitures Increased Adj EBIT ROIC 1,770 basis points Increased Adj EBITDA margins 1,100 basis points UNIPOL sales and earnings ahead of acquisition plan Integration completed in four months Multiple 11x pre-synergies and 7x after realized synergies
Data is based on Old Grace performance pre-spin
Visible pipeline of growth opportunities 25
© 2016 W. R. Grace & Co.
Capital Allocation and Structure
26
© 2016 W. R. Grace & Co.
Capital Allocation and Structure
Disciplined Capital Allocation Approach
1
Annual Business Planning
Establish long term sales, earnings, and cash flow targets Determine R&D and plant maintenance requirements Identify growth and productivity investment opportunities
2
Corporate Financial Planning
Confirm leverage targets and liquidity requirements Set pension funding strategy Update company and business segment valuations
3
Capital Allocation Decisions
Prioritize highest return investments above risk-adjusted return requirement
Dynamically manage capital allocation as conditions change and opportunities arise Grow dividend, continue share repurchase
Investments 27
© 2016 W. R. Grace & Co.
Acquisitions
Return Cash to Shareholders
Capital Allocation and Structure
High Return Opportunities for Capital Allocation Growth and Productivity Investments
Synergistic, Bolt-on Acquisitions
Typically our best opportunities
Small bolt-ons: Returns as good as internal investments
High return projects in both segments Large projects with returns >2x WACC
Larger bolt-ons: Returns above riskadjusted return requirement
Share Repurchases and Dividends
Framed as an investment opportunity with an expected return requirement Returned over $1.3 billion to shareholders since 2014 $490 million warrant settlement equivalent to buying 10 million shares at $66/share (pre-spin value)
Capital allocation focused on the highest expected return opportunities 28
© 2016 W. R. Grace & Co.
Capital Allocation and Structure
Investing to Grow Top Line and Increase Shareholder Return
Reinvest in the Business
Capital Investment
Acquisitions
Adjusted Free Cash Flow
Dividends Return Cash to Shareholders Share Repurchases
© 2016 W. R. Grace & Co.
Bolt-on opportunities with returns above risk adjusted requirements Completed polyolefin catalysts acquisition in 2Q16
Optimal Net Leverage 2x-3x Adjusted EBITDA
29
~ 8-10% of sales High return opportunities in each segment
$0.17/share regular quarterly cash dividend
Programmatic share repurchase
Capital Allocation and Structure
Capital Structure Summary of Leverage Profile (US$ in Millions)
Cash and cash equivalents $300 million revolving credit facility
Capital Structure Net 1 Leverage
9/30/2016
Liquidity well over $400 million ~$81 million in 2016 interest expense 3
$ 204 0
Low leverage provides flexibility for growth and investment
Term Loan B
491
5.125% Senior Notes due 2021
692
X
5.625% Senior Notes due 2024
296
X
Other borrowings
112
x
Total debt
$ 1,590
3.2x
Net Debt
$ 1,386
2.8x
Total Liquidity 2
$ 458
1 Assumes
Adj. EBITDA at middle of 2016 outlook range liquidity is cash plus available amount under revolving credit facility 3 Excludes ~$11 million of accelerated amortized financing fees (non-cash) due to debt prepayment 2 Total
Low leverage provides strategic, operational and financial flexibility 30
© 2016 W. R. Grace & Co.
Capital Allocation and Structure
Valuation considerations for Grace We use our 2016 outlook range for valuation Grace’s tax attributes are worth $6-$7 per share today Currently provides an annual $50 to $60 million favorable impact on cash flow
EBITDA Approach
Adjusted EBITDA Net debt 9/30/2016
Grace
$500-505M $1,386M
Share count
~70M
Tax attributes
+ $6-$7/share1
Present value of Grace tax attributes is greater than $470 million on current tax law or $6$7/share In a 25% corporate tax rate scenario it would be worth ~$400 million or $5-$6/share Grace dividend $0.17/share regular quarterly cash dividend
1
31
P/E Approach
Adjusted EPS
$3.05-3.10
Tax attributes
+ $0.78 1
Total
$6-$7 is the per share present value of Grace’s tax attributes. $0.78 is the per share value of the mid-point of Grace’s tax attributes expected to be utilized in 2016. © 2016 W. R. Grace & Co.
Grace
$3.83-3.88
Appendix – Additional Information
Trademark Notices GRACE®, ACHIEVE®, MIDAS® GOLD, MAGNAPORE®, CONSISTA®, SmART Catalyst System® (Stylized), SYLOID®, SYLOBLOC®, LUDOX®, SYLOBEAD®, CBA®, ADVA®, HEA2®, DCI®, are trademarks, registered in the United States and/or other countries, of W. R. Grace & Co.-Conn. VYDAC® and REVELERIS® are trademarks, registered in the United States and/or other countries, of Alltech Associates, Inc. TALENT | TECHNOLOGY | TRUST™ is a trademark of W. R. Grace & Co.-Conn. UNIPOL® is a trademark of The Dow Chemical Company or an affiliated company of Dow. W. R. Grace & Co.Conn. and/or its affiliates are licensed to use the UNIPOL trademark in the area of polypropylene. SIX SIGMA® is a trademark, registered in the United States and/or other countries, of Motorola, Inc. This trademark list has been compiled using available published information as of the publication date of this brochure and may not accurately reflect current trademark ownership or status. © Copyright 2016 W. R. Grace & Co.-Conn. All rights reserved.
32
© 2016 W. R. Grace & Co.
Appendix: Definitions and Reconciliations of Non-GAAP Measures
Non-GAAP Financial Terms Adjusted EBIT means income from continuing operations attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to Chapter 11, and legacy product and environmental; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines, and certain other investments; third-party acquisition-related costs; and certain other unusual or infrequent items that are not representative of underlying trends. Adjusted EBITDA means Adjusted EBIT adjusted for depreciation and amortization. Adjusted Free Cash Flow means net cash provided by or used for operating activities from continuing operations minus capital expenditures plus cash flows related to Chapter 11, and legacy product and environmental; cash paid for restructuring and repositioning; capital expenditures related to repositioning; cash paid for third-party acquisition-related costs; and accelerated payments under defined benefit pension arrangements. Adjusted Earnings Per Share (EPS) means diluted EPS from continuing operations adjusted for costs related to Chapter 11, and legacy product and environmental; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines, and certain other investments; third-party acquisition-related costs; certain other unusual or infrequent items that are not representative of underlying trends; and certain discrete tax items. Adjusted EBIT Return On Invested Capital means Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities. Adjusted Gross Margin means gross margin adjusted for pension-related costs included in cost of goods sold. Adjusted EBIT, Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, Adjusted EPS and Adjusted Free Cash Flow do not purport to represent income or liquidity measures as defined under U.S. GAAP, and should not be considered as alternatives to such measures as an indicator of Grace's performance or liquidity. Grace uses Adjusted EBIT as a performance measure in significant business decisions and in determining certain incentive compensation. Grace uses Adjusted EBIT as a performance measure because it provides improved period-to-period comparability for decision making and compensation purposes, and because it better measures the ongoing earnings results of its strategic and operating decisions by excluding the earnings effects of the Chapter 11 proceedings, legacy product and environmental matters, restructuring and repositioning activities, and divested businesses. Grace uses Adjusted EBITDA, Adjusted EBIT Return On Invested Capital, Adjusted Gross Margin, and Adjusted EPS as performance measures and may use these measures in determining certain incentive compensation. Grace uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing business operations, to invest in its businesses, and to provide a return of capital to shareholders. Grace also uses Adjusted Free Cash Flow as a performance measure in determining certain incentive compensation. These measures are provided to investors and others to improve the period-to-period comparability and peer-to-peer comparability of Grace’s financial results, and to ensure that investors and others understand the information Grace uses to evaluate the performance of its businesses. They distinguish the operating results of Grace's current business base from the costs of Grace's Chapter 11 proceedings, legacy product and environmental matters, restructuring and repositioning activities, and divested businesses. These measures may have material limitations due to the exclusion or inclusion of amounts that are included or excluded, respectively, in the most directly comparable measures calculated and presented in accordance with U.S. GAAP and thus investors and others should review carefully the financial results calculated in accordance with U.S. GAAP.
33
© 2016 W. R. Grace & Co.
Appendix – Reconciliation of Non-GAAP Financial Measures
Adjusted EBIT by Operating Segment: Catalysts Technologies segment operating income
2013 $
Materials Technologies segment operating income Corporate costs Gain on termination and curtailment of postretirement plans related to current businesses Certain pension costs
327.5
$
2015 378.3
$
347.3
93.2
101.7
96.9
(82.7)
(95.3)
(79.9)
—
23.6
1.9
(22.1)
(24.5)
(20.4) 345.8
Adjusted EBIT
315.9
383.8
Costs related to Chapter 11 and asbestos, net
(46.1)
(26.3)
(5.6)
58.8
(137.6)
(30.5)
Pension MTM adjustment and other related costs, net
Gain on termination and curtailment of postretirement plans related to divested businesses Restructuring expenses and asset impairments Repositioning expenses
—
15.9
2.6
(5.1)
(4.3)
(11.3) (9.1)
—
—
Gain on sale of product line
(1.0)
0.2
—
Income and expense items related to divested businesses
(4.1)
(5.2)
1.0
Default interest settlement
(129.0)
—
—
Interest expense, net
(39.8)
(121.9)
(99.1)
Provision for income taxes
(29.2)
12.4
(69.8)
Net income from continuing operations attributable to W. R. Grace & Co. shareholders
34
2014
© 2016 W. R. Grace & Co.
$
120.4
$
117.0
$
124.0
Appendix – Reconciliation of Non-GAAP Financial Measures (continued)
Adjusted profitability performance measures: Gross margin: Catalysts Technologies Materials Technologies Adjusted gross margin Certain pension costs in cost of goods sold Total Grace Adjusted EBIT: Catalysts Technologies Materials Technologies Corporate Total Grace Depreciation and amortization: Catalysts Technologies Materials Technologies Corporate Total Grace Adjusted EBITDA: Catalysts Technologies Materials Technologies Corporate Total Grace Adjusted EBIT margin: Catalysts Technologies Materials Technologies Total Grace Adjusted EBITDA margin: Catalysts Technologies Materials Technologies Total Grace
35
© 2016 W. R. Grace & Co.
2013
2014 40.1% 36.3% 38.9% 0.7% 39.6%
2015 42.8% 37.9% 41.4% -3.6% 37.8%
42.2% 38.8% 41.2% -1.2% 40.0%
$
327.5 93.2 (104.8) 315.9
$
378.3 101.7 (96.2) 383.8
$
347.3 96.9 (98.4) 345.8
$
54.2 25.7 7.9 87.8
$
66.3 26.2 10.2 102.7
$
68.1 23.2 7.9 99.2
$
381.7 118.9 (96.9) 403.7
$
444.6 127.9 (86.0) 486.5
$
415.4 120.1 (90.5) 445.0
29.1% 19.2% 19.6%
30.3% 19.9% 21.8%
29.9% 20.8% 21.2%
34.0% 24.5% 25.1%
35.7% 25.1% 27.7%
35.7% 25.8% 27.3%