<PAGE>
--------------------------------------------------------------------------------

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-Q/A


(Mark One)

[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       OR

[ ]             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                                      65-0773649
----------------------------------                ---------------------------
    (State of Incorporation)                          (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 [X]                  No [ ]

67,494,869 shares of Common Stock, $.01 par value, were outstanding at April 28,
2000.
--------------------------------------------------------------------------------


<PAGE>


                                PORTIONS AMENDED

The Registrant hereby amends its report on Form 10-Q for the quarterly period
ended March 31, 2000 for the restatement of the Registrant's consolidated
financial statements as of March 31, 2000 and December 31, 1999. Except as set
forth in Note 2 to the accompanying consolidated financial statements, no other
changes are made to the Registrant's report on Form 10-Q for the quarterly
period ended March 31, 2000.



<PAGE>


                       W. R. GRACE & CO. AND SUBSIDIARIES

                                Table of Contents
                                -----------------


<TABLE>
<CAPTION>

                                                                                Page No.
                                                                                --------
<S>                                                                        <C>
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Report of Independent Accountants                                       I - 1

         Consolidated Statement of Operations                                    I - 2

         Consolidated Statement of Cash Flows                                    I - 3

         Consolidated Balance Sheet                                              I - 4

         Consolidated Statement of Shareholders' Equity                          I - 5

         Consolidated Statement of Comprehensive Income (Loss)                   I - 5

         Notes to Consolidated Financial Statements                         I - 6 to I - 13

Item 2.  Management's Discussion and Analysis of Results of Operations and
         Financial Condition                                                I - 14 to I - 21

Item 3.  Quantitative and Qualitative Disclosures About Market Risk              I - 22


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                       II - 1

Item 6.  Exhibits and Reports on Form 8-K                                        II - 1

</TABLE>


As used in this Report, the term "Company" refers to W. R. Grace & Co. (a
Delaware corporation formerly named "Grace Specialty Chemicals, Inc."), and the
term "Grace" refers to the Company and/or one or more of its subsidiaries and,
in certain cases, their respective predecessors.

<PAGE>

                          PART I. FINANCIAL INFORMATION

--------------------------------------------------------------------------------
ITEM 1.  FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

                        REPORT OF INDEPENDENT ACCOUNTANTS

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,  2000,  and the related  consolidated
statements of operations, of comprehensive income, of shareholders' equity and
of cash flows for the three-month  period ended March 31, 2000.  These financial
statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, 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.

We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 1999, and the related consolidated statements of operations, of
comprehensive income, of shareholders' equity, and of cash flows for the year
then ended (not presented herein), and in our report dated February 1, 2000,
except as to Note 2 which is as of December 1, 2000, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet information
as of December 31, 1999, after the restatement described in Note 2, 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
Baltimore, Maryland
May 11, 2000, except as to Note 2 which is as of December 1, 2000

                                      I-1

<PAGE>


<TABLE>
<CAPTION>

=========================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                                            THREE MONTHS ENDED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)                                                  MARCH 31,

=========================================================================================================================
Amounts in millions, except per share amounts                                               2000              1999
                                                                                      -----------------------------------
<S>                                                                                     <C>               <C>
Net sales..........................................................................     $    364.9        $    345.4
Other income...................................................................               10.2               9.0
                                                                                      -----------------------------------
                                                                                             375.1             354.4
                                                                                      -----------------------------------

Cost of goods sold, exclusive of depreciation and amortization shown
    separately below...........................................................              212.9             208.3
Selling, general and administrative expenses...................................               85.6              79.7
Research and development expenses .............................................               11.3              11.1
Depreciation and amortization .................................................               22.2              22.6
Interest expense and related financing costs ..................................                5.3               3.3
                                                                                      -----------------------------------
                                                                                             337.3             325.0
                                                                                      -----------------------------------

Income from continuing operations before income taxes..........................               37.8              29.4
(Provision for) income taxes ..................................................              (13.6)            (10.6)
                                                                                      -----------------------------------

    INCOME FROM CONTINUING OPERATIONS..........................................               24.2              18.8
Income from discontinued operations, net of tax ($1.1) ........................               --                 1.2
                                                                                      -----------------------------------

    NET INCOME ................................................................         $     24.2        $     20.0
=========================================================================================================================

BASIC EARNINGS PER SHARE:
    Continuing operations .....................................................         $     0.35       $      0.26
    Net income.................................................................         $     0.35       $      0.28

Weighted average number of basic shares .......................................              68.2              71.7

DILUTED EARNINGS PER SHARE:
    Continuing operations .....................................................         $     0.35       $      0.25
    Net income ................................................................         $     0.35       $      0.27

Weighted average number of diluted shares .....................................              69.4              74.7
=========================================================================================================================

</TABLE>

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

                                      I-2


<PAGE>

<TABLE>
<CAPTION>

======================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                                          THREE MONTHS ENDED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)                                                 MARCH 31,

======================================================================================================================
Dollars in millions                                                                         2000             1999
                                                                                    ----------------------------------
<S>                                                                                   <C>              <C>
OPERATING ACTIVITIES
Income from continuing operations before income taxes .............................   $     37.8       $      29.4
Reconciliation to net cash (used for) operating activities:
     Depreciation and amortization ................................................         22.2              22.6
     Gain on disposal of assets....................................................         --                (4.4)
     Changes in assets and liabilities, excluding effect of businesses
         acquired/divested and foreign currency exchange:
         Increase in notes and accounts receivable, net............................         (2.9)             (4.2)
         Increase in inventories ..................................................         (1.0)             (8.8)
         (Increase) decrease in subordinated interest of accounts receivable sold .         (0.5)             40.7
         Decrease in accounts payable .............................................        (13.3)             (6.7)
         Decrease in accrued liabilities ..........................................        (13.5)            (21.5)
         Expenditures for asbestos-related litigation .............................        (38.3)            (25.6)
         Proceeds from asbestos-related insurance .................................         24.2              13.1
         Expenditures for environmental remediation ...............................        (12.4)             (8.1)
         Expenditures for postretirement benefits .................................         (5.1)             (4.6)
         Other ....................................................................         (6.2)             (1.2)
                                                                                    ----------------------------------
     NET PRE-TAX CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES
     OF  CONTINUING OPERATIONS.....................................................         (9.0)             20.7
Net pre-tax cash used for retained obligations of discontinued operations..........         (7.0)            (10.4)
                                                                                    ----------------------------------
     NET PRE-TAX CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES .................        (16.0)             10.3
Income taxes paid, net of refunds .................................................        (11.4)            (20.6)
                                                                                    ----------------------------------
     NET CASH (USED FOR) OPERATING ACTIVITIES .....................................        (27.4)            (10.3)
                                                                                    ----------------------------------

INVESTING ACTIVITIES
Capital expenditures ..............................................................        (12.5)            (17.0)
Businesses acquired in purchase transactions, net of cash acquired ................        (25.0)             (0.5)
Net investment in life insurance policies .........................................        (11.7)             (3.2)
Proceeds from disposals of assets .................................................          0.4              20.4
                                                                                    ----------------------------------
     NET CASH (USED FOR) INVESTING ACTIVITIES .....................................        (48.8)             (0.3)
                                                                                    ----------------------------------
FINANCING ACTIVITIES
Borrowings under credit facilities, net of repayments .............................        158.7              22.3
Repayment of long-term debt .......................................................        (24.7)             --
Exercise of stock options .........................................................          1.7               0.8
Purchase of treasury stock ........................................................        (25.4)            (26.0)
                                                                                    ----------------------------------
     NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES .........................        110.3              (2.9)
                                                                                    ----------------------------------

Effect of currency exchange rate changes on cash and cash equivalents .............         (4.0)             (1.9)
                                                                                    ----------------------------------
     INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............................         30.1             (15.4)
Cash and cash equivalents, beginning of period ....................................        199.8              65.3
                                                                                    ----------------------------------
Cash and cash equivalents, end of period ..........................................   $    229.9       $      49.9
======================================================================================================================

</TABLE>

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


                                      I-3

<PAGE>


<TABLE>
<CAPTION>

=============================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                                         MARCH 31, 2000     December 31,
CONSOLIDATED BALANCE SHEET (RESTATED)                                                        (Unaudited)         1999
=============================================================================================================================
<S>                                                                                      <C>                <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................................................        $        229.9     $        199.8
Notes and accounts receivable, net ..............................................                 190.3              193.6
Inventories .....................................................................                 135.4              128.2
Deferred income taxes ...........................................................                 117.3              111.7
Asbestos-related insurance expected to be realized within one year ..............                  62.5               75.2
Other current assets.............................................................                  63.7               71.3
                                                                                         ------------------------------------
     TOTAL CURRENT ASSETS .......................................................                 799.1              779.8

Properties and equipment, net of accumulated depreciation and
     amortization of $917.0 (1999 - $908.3) .....................................                 611.3              617.3
Goodwill, less accumulated amortization of $7.2 (1999 - $7.2) ...................                  34.2               25.4
Cash value of life insurance policies, net of policy loans.......................                  95.2               81.6
Deferred income taxes ...........................................................                 310.4              328.3
Asbestos-related insurance expected to be realized after one year................                 284.9              296.2
Other assets ....................................................................                 351.2              346.5
                                                                                         ------------------------------------
     TOTAL ASSETS ...............................................................        $      2,486.3     $      2,475.1
                                                                                         ------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt .................................................................        $         13.6     $         13.0
Accounts payable ................................................................                 111.4              124.1
Income taxes payable ............................................................                 132.8              146.7
Asbestos-related liability expected to be satisfied within one year..............                 200.1              199.3
Other current liabilities .......................................................                 257.7              286.3
                                                                                         ------------------------------------
     TOTAL CURRENT LIABILITIES ..................................................                 715.6              769.4

Long-term debt ..................................................................                 256.6              123.2
Deferred income taxes ...........................................................                  19.6               20.5
Asbestos-related liability expected to be satisfied after one year ..............                 845.7              884.7
Other liabilities ...............................................................                 554.7              566.2
                                                                                         ------------------------------------
     TOTAL LIABILITIES ..........................................................               2,392.2            2,364.0
                                                                                         ------------------------------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
Common stock issued, par value $.01; 300,000,000 shares authorized;
     outstanding: 2000 - 67,362,000 shares (1999 - 69,414,000) ..................                   0.8                0.8
Paid in capital .................................................................                 425.2              422.6
Accumulated deficit..............................................................                (102.5)            (126.7)
Deferred compensation trust .....................................................                  (0.8)              (0.6)
Treasury stock, at cost:  8,923,600 common shares (1999 - 6,628,500) ............                (114.5)             (89.1)
Accumulated other comprehensive loss ............................................                (114.1)             (95.9)
                                                                                         ------------------------------------
     TOTAL SHAREHOLDERS' EQUITY .................................................                  94.1              111.1
                                                                                         ------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................        $      2,486.3     $      2,475.1
=============================================================================================================================
</TABLE>


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

                                      I-4
<PAGE>


<TABLE>
<CAPTION>

=================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
=================================================================================================================================
                                  Common Stock                                                  Accumulated
                                       and                         Deferred                        Other            TOTAL
                                     Paid in      Accumulated    Compensation     Treasury     Comprehensive     SHAREHOLDERS'
Dollars in millions                  Capital       Deficit           Trust         Stock           Loss             EQUITY
--------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>                <C>            <C>          <C>               <C>
BALANCE, DECEMBER 31, 1999,
  as restated ..................  $   423.4     $  (126.7)         $    (0.6)     $   (89.1)   $   (95.9)        $   111.1
Net income .....................       --            24.2                --            --            --               24.2
Purchase of common stock .......       --             --                 --           (25.4)         --              (25.4)
Shares issued under stock plans         2.6           --                (0.2)          --            --                2.4
Other comprehensive loss........       --             --                 --            --          (18.2)            (18.2)
                                  ----------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2000
   as restated .................  $   426.0     $  (102.5)         $    (0.8)     $  (114.5)   $  (114.1)         $   94.1
================================================================================================================================

<CAPTION>
================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                                                      THREE MONTHS ENDED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)                                                   MARCH 31,
================================================================================================================================
Dollars in millions                                                                                    2000            1999
                                                                                                   -----------------------------
<S>                                                                                                   <C>             <C>
Net income.....................................................................................       $  24.2         $  20.0
                                                                                                   -----------------------------

Other comprehensive income (loss):
Foreign currency translation adjustments.......................................................         (12.6)          (15.1)
Net unrealized (loss) gain on investment.......................................................          (5.6)            8.1
                                                                                                   -----------------------------
Total other comprehensive (loss)...............................................................         (18.2)           (7.0)
                                                                                                   -----------------------------
Comprehensive income ..........................................................................      $    6.0         $  13.0
================================================================================================================================
</TABLE>

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

                                      I-5

<PAGE>




W. R. GRACE & CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF  SIGNIFICANT ACCOUNTING AND FINANCIAL
   REPORTING POLICIES
--------------------------------------------------------------------------------

W. R. Grace & Co., through its subsidiaries, is primarily engaged in specialty
chemicals and specialty materials businesses on a worldwide basis. These
businesses consist of catalysts and silica products (Davison Chemicals) and
construction chemicals, building materials and container products (Performance
Chemicals).

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.,
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. Grace has classified certain
businesses as discontinued operations.

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 1999 Form 10-K/A. Such interim consolidated financial
statements reflect all adjustments that, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented; all such adjustments are of a normal recurring nature. All
significant intercompany accounts and transactions have been eliminated. Certain
amounts in the consolidated financial statements for prior periods have been
reclassified to conform to the current period's basis of presentation.


The results of operations for the three-month interim period ended March 31,
2000 are not necessarily indicative of the results of operations for the year
ending December 31, 2000.

Balance sheet information relating to a discontinued business is not restated
for periods prior to the date of classification as a discontinued operation.
Accordingly, "Net pre-tax cash used for retained obligations of discontinued
operations" excludes the effects of changes in working capital of discontinued
operations prior to their classification as such. The net investing and
financing activities of discontinued operations represent cash flows of
discontinued operations subsequent to the respective dates of such
classifications.

RECLASSIFICATIONS

Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to the 2000 presentation and as required with respect to
discontinued operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
affecting the assets and liabilities (including contingent assets and
liabilities) reported at the date of the consolidated financial statements and
the revenues and expenses reported for the periods presented. Actual amounts
could differ from those estimates.


--------------------------------------------------------------------------------
2. PRIOR PERIOD RESTATEMENT
--------------------------------------------------------------------------------

The Company's financial statements as of December 31, 1998, have been restated
to reflect management's reassessment of the realization of certain deferred
tax assets. The effect of the restatement on the accompanying consolidated
financial statements is as follows:

================================================================================
                                   MARCH 31, 2000           DECEMBER 31, 1999
                              --------------------------------------------------
                                   AS                       AS
(DOLLARS IN                    PREVIOUSLY       AS      PREVIOUSLY       AS
  MILLIONS)                     REPORTED     RESTATED    REPORTED     RESTATED
================================================================================
Deferred income tax
 assets, noncurrent ........    $  327.9     $  310.4    $  345.8     $  328.3
Total assets ...............     2,503.8      2,486.3     2,492.6      2,475.1
Income taxes payable .......       104.8        132.8       118.7        146.7
Total liabilities ..........     2,364.2      2,392.2     2,366.0      2,364.0
Accumulated deficit ........       (57.0)      (102.5)      (81.2)      (126.7)
Total shareholders'
 equity ....................       139.6         94.1       156.6        111.1
================================================================================

The restatement has no effect on the Consolidated Statements of Operations or of
Cash Flows for the year ended December 31, 1999, or for the three-month periods
ended March 31, 2000 and 1999. The restatement does not affect the financial
position or results of operations of Grace's operating segments as previously
reported.

                                      I-6
<PAGE>


--------------------------------------------------------------------------------
3. ASBESTOS-RELATED LITIGATION
--------------------------------------------------------------------------------


Grace is a defendant in property damage and bodily injury lawsuits relating to
previously sold asbestos-containing products and expects that it will be named
as a defendant in additional asbestos-related lawsuits in the future. Grace was
a defendant in 51,509 asbestos-related lawsuits on March 31, 2000 (13 involving
claims for property damage and the remainder involving 108,841 claims for bodily
injury), as compared to 50,342 lawsuits on December 31, 1999 (11 involving
claims for property damage and the remainder involving 105,670 claims for bodily
injury).

PROPERTY DAMAGE LITIGATION

The plaintiffs in property damage lawsuits generally seek to have the defendants
absorb the cost of removing, containing, or repairing the asbestos-containing
materials in the affected buildings. Each property damage case is unique in that
the age, type, size and use of the building, and the difficulty of asbestos
abatement, if necessary, vary from structure to structure. Thus, the amounts
involved in prior dispositions of property damage cases are not necessarily
indicative of the amounts that may be required to dispose of cases in the
future. Information regarding product identification, the amount of product in
the building, the age, type, size and use of the building, the jurisdictional
history of prior cases and the court in which the case is pending provide
meaningful guidance as to the range of potential costs. Grace has recorded an
accrual for all existing property damage cases for which sufficient information
is available to form a reasonable estimate of such exposure.

Through March 31, 2000, 140 asbestos property damage cases were dismissed
without payment of any damages or settlement amounts; judgments were entered in
favor of Grace in nine cases (excluding cases settled following appeals of
judgments in favor of Grace); judgments were entered in favor of the plaintiffs
in seven cases for a total of $60.3 million; and 203 property damage cases were
settled for a total of $604.2 million.

==============================================================
PROPERTY DAMAGE CASE ACTIVITY
==============================================================
Cases outstanding, December 31, 1999 .........          11
New cases filed ..............................           2
Settlements ..................................          --
Dismissals ...................................          --
                                                   -----------
     Cases outstanding, March 31, 2000 .......          13
==============================================================

BODILY INJURY LITIGATION

Bodily injury claims are generally similar to each other (differing primarily in
the type of asbestos-related illness allegedly suffered by the plaintiff).
However, Grace's estimated liability for such claims is influenced by numerous
variables, including the solvency of other producers of asbestos-containing
products, cross-claims by and financial condition of co-defendants, the rate at
which new claims are filed, the jurisdiction in which the filings are made, and
the defense and disposition costs associated with these claims. Grace's bodily
injury liability reflects management's estimate of the number and ultimate cost
of present and future bodily injury claims expected to be asserted against
Grace, given demographic assumptions of possible exposure to asbestos products
manufactured by Grace.

Through March 31, 2000, approximately 14,840 asbestos bodily injury lawsuits
involving 33,073 claims were dismissed without payment of any damages or
settlement amounts (primarily on the basis that Grace products were not
involved), and approximately 49,434 lawsuits involving 129,166 claims were
disposed of (through settlement and judgments) for a total of $428.8 million.

==============================================================
BODILY INJURY CLAIM ACTIVITY
==============================================================
Claims outstanding, December 31, 1999 ........       105,670
New claims filed .............................         7,667
Settlements ..................................        (4,302)
Dismissals ...................................          (194)
Judgments ....................................            --
                                                   -----------
     Claims outstanding, March 31, 2000 ......       108,841
==============================================================


ASBESTOS-RELATED LIABILITY

Grace estimates its property damage and bodily injury liabilities based on its
experience with, and recent trends in, asbestos litigation. These estimates
include property damage and bodily injury indemnity as well as defense costs.
Grace regularly evaluates its financial exposure to asbestos-related lawsuits
and the adequacy of related recorded liabilities. The amounts recorded at each
balance sheet date reflect Grace's best estimate of probable and estimable
liabilities in all material respects. However, changes to estimates of probable
liabilities may occur as new information becomes available and as actual
experience is gained over time.


                                      I-7
<PAGE>

=============================================================
ESTIMATED LIABILITY FOR
ASBESTOS-RELATED LITIGATION       MARCH 31,    December 31,
(Dollars in millions)               2000           1999
=============================================================
Asbestos-related liability
  expected to be satisfied
  within one year..............  $   200.1    $     199.3
Asbestos-related liability
  expected to be satisfied
  after one year...............      845.7          884.7
                                 ----------------------------
Total asbestos-related
  liability ...................   $1,045.8    $   1,084.0
=============================================================

The current portion of Grace's asbestos-related liability is based on
management's estimate of indemnity payments and defense costs expected to be
paid within one year.

ASBESTOS-RELATED INSURANCE

Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Activity in Grace's notes receivable from
insurance carriers and asbestos-related insurance receivable during the three
months ended March 31, 2000 was as follows:

=============================================================
ESTIMATED INSURANCE RECOVERY ON
ASBESTOS-RELATED LIABILITIES
(Dollars in millions)
=============================================================

NOTES RECEIVABLE
Notes receivable from insurance carriers,
  beginning of year, net of discount of $0.8...   $    5.3
Proceeds received under asbestos-related
  insurance settlements .......................       (2.2)
Current year amortization of discount .........        0.2
-------------------------------------------------------------
   Notes receivable from insurance carriers,
     end of quarter, net of discount of $0.6 ..        3.3
-------------------------------------------------------------

INSURANCE RECEIVABLE
Asbestos-related insurance receivable,
  beginning of  year ..........................      366.1
Proceeds received under asbestos-related
  insurance settlements .......................      (22.0)
-------------------------------------------------------------
   Asbestos-related insurance receivable, end        344.1
    of quarter ................................
-------------------------------------------------------------
    Total amounts due from insurance carriers..      347.4
    Expected to be realized within one year ...      (62.5)
-------------------------------------------------------------
    Expected to be realized after one year ....   $  284.9
=============================================================

Grace has settled with and has been paid by its primary insurance carriers with
respect to both property damage and bodily injury cases and claims. Grace has
also settled with its excess insurance carriers that wrote policies available
for property damage cases; those settlements involve amounts paid and to be paid
to Grace. In addition, Grace has settled with many excess insurance carriers
that wrote policies available for bodily injury claims. Grace is currently in
litigation with certain remaining excess insurance carriers whose policies
generally represent layers of coverage Grace has not yet reached. Such policies
are believed by Grace to be available for asbestos-related bodily injury
lawsuits. Insurance coverage for asbestos-related liabilities has not been
commercially available since 1985.

The asbestos-related insurance asset represents amounts expected to be received
from carriers under settlement agreements for defense and disposition costs to
be paid by Grace. Estimated insurance reimbursements relate directly to Grace's
estimated liabilities for property damage and bodily injury cases and claims
pending at March 31, 2000 and bodily injury claims expected to be filed in the
future.

Grace's ultimate exposure with respect to its asbestos-related cases and claims
partly depends on the extent to which its insurance will cover damages for which
it may be held liable, amounts paid in settlement and litigation costs. In
Grace's opinion, it is probable that recoveries from its insurance carriers
(including amounts reflected in the receivable discussed above), along with
other funds, will be available to satisfy the property damage and bodily injury
cases and claims pending at March 31, 2000, as well as bodily injury claims
expected to be filed in the future.

--------------------------------------------------------------------------------
4. DISCONTINUED OPERATIONS
--------------------------------------------------------------------------------

CROSS COUNTRY STAFFING

In July 1999, the Company completed the sale of substantially all of its
interest in Cross Country Staffing (CCS), a provider of temporary nursing and
other healthcare services. The Company's investment in CCS had been accounted
for under the equity method. The operations of CCS prior to the sale are
included in "Income from discontinued operations, net of tax" in the
accompanying Consolidated Statement of Operations. Certain contingent
liabilities, primarily related to tax liabilities of CCS, are being retained by
the Company and are included in other current liabilities in the accompanying
Consolidated Balance Sheet.

RETAINED OBLIGATIONS

Under certain divestiture agreements, the Company has retained contingent
obligations that could develop into situations where accruals for estimated
costs of defense or loss would be recorded in a period subsequent to divestiture
under generally accepted accounting principles. The Company assesses its
retained risks quarterly and accrues amounts estimated to be payable related to
these obligations when probable and estimable. As of March 31, 2000 and December
31, 1999 Grace had recorded $90.5 million and $99.1 million, respectively, to
satisfy such obligations.

                                      I-8
<PAGE>

--------------------------------------------------------------------------------
5. ACQUISITIONS
--------------------------------------------------------------------------------

In January 2000, Grace acquired Crosfield Group's hydroprocessing catalyst
business from Imperial Chemical Industries PLC. In March 2000, Grace acquired
International Protective Coatings Corp. These acquisitions have been accounted
for as purchase business combinations, and accordingly, the results of
operations of the acquired businesses have been included in the Consolidated
Statement of Operations from the date of acquisition. Grace does not consider
the effects of either of these acquisitions significant for pro forma disclosure
purposes, as combined assets related to the acquisitions represent less than 20%
of consolidated assets.

--------------------------------------------------------------------------------
6. OTHER INCOME
--------------------------------------------------------------------------------

Components of other income are as follows:

===============================================================
OTHER INCOME                             THREE MONTHS ENDED
(Dollars in millions)                        MARCH 31,
===============================================================
                                         2000         1999
                                      -------------------------
Investment income................       $  4.8         $2.1
Net gains on dispositions of assets       --            4.4
Tolling revenue..................          1.6          1.1
Interest income..................          2.3          0.6
Other miscellaneous income ......          1.5          0.8
---------------------------------------------------------------
     Total other income .........        $10.2         $9.0
===============================================================

--------------------------------------------------------------------------------
7. OTHER BALANCE SHEET ACCOUNTS
--------------------------------------------------------------------------------

==============================================================
                                     MARCH 31,   December 31,
(Dollars in millions)                   2000         1999
==============================================================

NOTES AND ACCOUNTS RECEIVABLE, NET
Trade receivables, less allowance
  of $4.0 (1999 - $3.8)..........      $ 163.7   $  165.7
Other receivables, less allowance
  of $0.3 (1999 - $0.3)..........         26.6       27.9
                                     -------------------------
                                       $ 190.3   $  193.6
==============================================================
INVENTORIES
Raw materials ...................      $  39.4   $   38.0
In process ......................         11.7       10.1
Finished products ...............         90.9       87.1
General merchandise .............         20.6       20.2
Less:  Adjustment of certain
  inventories to a
  last-in/first-out (LIFO) basis         (27.2)     (27.2)
                                     -------------------------
                                       $ 135.4   $  128.2
==============================================================
OTHER ASSETS
Plan assets in excess of defined
  benefit pension obligation.....      $ 302.7   $  298.9
Unamortized costs of overfunded
  pension plans .................        (26.6)     (27.6)
Deferred charges ................         50.9       52.4
Long-term receivables, less
  allowances of $0.8 (1999 - $0.8)         2.4        2.6
Long-term investments ...........          2.0       --
Patents, licenses and other
  intangible assets .............         19.8       20.2
                                     -------------------------
                                       $ 351.2   $  346.5
==============================================================
OTHER CURRENT LIABILITIES
Retained obligations of divested
  businesses ....................      $  76.5   $   85.1
Accrued compensation ............         35.5       36.9
Costs of business restructurings           8.3       13.6
Environmental remediation .......         40.2       43.9
Accrued interest ................          5.3        5.7
Other accrued liabilities .......         91.9      101.1
                                     -------------------------
                                       $ 257.7   $  286.3
==============================================================

OTHER LIABILITIES
Other postretirement benefits ...      $ 198.9    $ 201.4
Environmental remediation .......        165.6      171.6
Defined benefit obligation in
  excess of pension plan assets .        159.1      161.8
Unamortized costs of underfunded
  pension plans .................        (32.4)     (33.1)
Deferred compensation ...........         31.2       32.1
Long-term self insurance reserve           7.3        7.8
Retained obligations of divested
  businesses ....................         14.0       14.0
Other accrued liabilities .......         11.0       10.6
                                     -------------------------
                                       $ 554.7    $ 566.2
==============================================================

The Company recognizes repairs and maintenance expenses on planned major
maintenance activities in the period in which the expense is incurred.


                                      I-9

<PAGE>

--------------------------------------------------------------------------------
8. LIFE INSURANCE
--------------------------------------------------------------------------------

Grace is the beneficiary of life insurance policies on current and former
employees with net cash surrender value of $95.2 million at March 31, 2000. The
policies were acquired to fund various employee benefit programs and other
long-term liabilities and are structured to provide cash flow (primarily
tax-free) over the next 40-plus years. The following table summarizes activity
in these policies for the three months ended March 31, 2000 and the year ended
December 31, 1999:

============================================================
ACTIVITY SUMMARY -
LIFE INSURANCE                    MARCH 31,   December 31,
(Dollars in millions)                2000         1999
============================================================

Earnings on policy assets.......   $  8.9        $  31.6
Interest on policy loans........     (7.4)         (29.5)
Policy loan repayments..........      0.4            3.4
Premiums........................     --              2.4
Net investing activity..........     11.7           (3.3)
                                  --------------------------
   Change in net cash value.....   $ 13.6        $   4.6
============================================================
Gross cash value................   $441.3         $432.4
Principal - policy loans........   (330.6)        (331.0)
Accrued interest - policy loans.    (15.5)         (19.8)
                                  --------------------------
Net cash value..................   $ 95.2        $  81.6
============================================================
Tax-free proceeds received......   $  0.5        $  15.3
============================================================

Policy loans bore interest at an average annualized rate of 8.5% during the
three months ended March 31, 2000, compared to an average of 8.4% for the year
ended December 31, 1999. Policy assets are invested primarily in general
accounts of the insurance carriers and earned returns at an average annualized
rate of 8.2% during the three months ended March 31, 2000, compared to an
average of 7.3% for the year ended December 31, 1999.

The Company's financial statements display income statement activity and balance
sheet amounts on a net basis, reflecting the contractual interdependency of
policy assets and liabilities.

--------------------------------------------------------------------------------
9. DEBT
--------------------------------------------------------------------------------

On March 31, 2000, and December 31, 1999, the Company's short-term and long-term
debt was as follows:

=============================================================
COMPONENTS OF DEBT                MARCH 31,    December 31,
(Dollars in millions)                2000          1999
=============================================================

SHORT-TERM DEBT
Bank borrowings ...............   $   --        $  --
Other short-term borrowings ...       13.6         13.0
                                 ----------------------------
                                  $   13.6      $  13.0
                                 ============================

LONG-TERM DEBT
Bank borrowings ...............   $  248.0      $  89.7
8.0% Notes Due 2004............        5.7          5.7
7.4% Notes Due 2000............       --           24.7
7.75% Notes Due 2002...........        2.0          2.0
Sundry indebtedness............        0.9          1.1
                                 ----------------------------
                                   $ 256.6      $ 123.2
=============================================================

In May 1999, Grace entered into a $250.0 million credit facility under a 364-day
credit agreement expiring May 2000. In May 2000, this facility was renewed for
an additional 364-day term. In addition, Grace maintains a $250.0 million
long-term facility expiring in May 2003. At March 31, 2000, the Company had
$248.0 million of bank borrowings outstanding under the long-term facility. The
aggregate amount of net unused and unreserved borrowings under these credit
facilities at March 31, 2000 was $252.0 million.


--------------------------------------------------------------------------------
10. SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------

The Company is authorized to issue 300,000,000 shares of common stock. Of the
common stock unissued on March 31, 2000, approximately 12,400,000 shares were
reserved for issuance pursuant to stock options and other stock incentives. In
the first three months of 2000, the Company granted a total of


                                      I-10


<PAGE>

10,000 options with an average exercise price of $11.75. For the year ended
December 31, 1999, the Company granted a total of 2,332,290 options with an
average exercise price of $13.21.

In April 1998, the Company's Board of Directors approved a program to repurchase
up to 20% of the Company's outstanding shares in the open market (approximately
15,165,000 shares). Through March 31, 2000, the Company had acquired 14,400,400
shares of common stock for $202.9 million under the program (an average price
per share of $14.09). In January 1999, Grace retired 5,476,800 shares of
treasury stock with a cost basis of $88.4 million.

For additional information, see Notes 15 and 17 to the Consolidated Financial
Statements in the 1999 Form 10-K/A.

--------------------------------------------------------------------------------
11. EARNINGS PER SHARE
--------------------------------------------------------------------------------


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

=============================================================
EARNINGS PER SHARE
(Amounts in millions, except per         THREE MONTHS ENDED
share amounts)                               MARCH 31,
=============================================================
                                          2000       1999
                                        ---------------------
NUMERATORS
  Income from continuing operations      $   24.2   $  18.8
                                        =====================
DENOMINATORS
  Weighted average common shares -
  basic calculation .............            68.2      71.7

  Effect of dilutive securities:
  Employee compensation-related shares        1.2       3.0
                                        ---------------------

  Weighted average common shares -
  diluted calculation............            69.4      74.7
                                        =====================

BASIC EARNINGS PER SHARE - CONTINUING
  OPERATIONS.....................        $   0.35   $  0.26
                                        =====================

DILUTED EARNINGS PER SHARE -
  CONTINUING OPERATIONS..........        $   0.35   $  0.25
=============================================================

--------------------------------------------------------------------------------
12. COMPREHENSIVE INCOME
--------------------------------------------------------------------------------

The tables below present the pre-tax, tax and after-tax components of the
Company's other comprehensive income (loss) for the three months ended March 31,
2000 and 1999:

=============================================================
THREE MONTHS ENDED                                  After-
MARCH 31, 2000               Pre-tax      Tax         Tax
(Dollars in millions)        Amount     Benefit     Amount
=============================================================
Unrealized gains (losses)
  on security.............    $ (5.9)    $  2.1      $ (3.8)
Reclassification
  adjustment for gains
  realized in net income..      (2.8)       1.0        (1.8)
                            ---------------------------------
Net unrealized gains......      (8.7)       3.1        (5.6)
Foreign currency
  translation adjustments.     (12.6)      --         (12.6)
                            ---------------------------------
Other comprehensive loss..    $(21.3)      $3.1     $ (18.2)
=============================================================

=============================================================
Three Months Ended                        Tax       After-
March 31, 1999               Pre-tax   (Expense)      Tax
(Dollars in millions)        Amount     Benefit     Amount
=============================================================
Unrealized gains (losses)
  on security.............    $ 15.1    $  (5.3)    $   9.8
Reclassification
  adjustment for gains
  realized in net income..      (2.6)       0.9        (1.7)
                            ---------------------------------
Net unrealized gains......      12.5       (4.4)        8.1
Foreign currency
  translation adjustments.     (15.1)      --         (15.1)
                            ---------------------------------
Other comprehensive loss..    $ (2.6)   $  (4.4)     $ (7.0)
=============================================================

The table below presents the components of Grace's accumulated other
comprehensive loss at March 31, 2000 and December 31, 1999:

=============================================================
COMPONENTS OF ACCUMULATED
OTHER COMPREHENSIVE
LOSS                               MARCH 31,    December 31,
(Dollars in millions)                2000          1999
=============================================================
Foreign currency translation
  adjustments .................    $(118.7)     $(106.1)
Net unrealized gains on
  investments .................       12.4         18.0
Minimum pension liability
  adjustments .................       (7.8)        (7.8)
                                 ----------------------------
Total accumulated other
  comprehensive loss...........    $(114.1)     $ (95.9)
=============================================================

                                      I-11
<PAGE>

--------------------------------------------------------------------------------
13. COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------------------------------------------------

ASBESTOS

In the first quarter of 2000, class action lawsuits were filed against the
Company on behalf of all owners of homes containing Zonolite(R) attic fill
insulation, a product previously sold by Grace that is alleged to contain trace
amounts of asbestos. These actions seek damages and equitable relief, including
the removal, replacement and/or disposal of all such insulation. While Grace has
not completed its investigation of the claims described in these lawsuits, and
therefore is not able to assess the extent of any possible liability related to
these matters, it believes that this product is safe for its intended purpose
and poses little or no threat to human health.

ENVIRONMENTAL

In February 2000, a class action lawsuit was filed in U.S. District Court in
Missoula, Montana against Grace on behalf of all owners of real property
situated within 12 miles from Libby, Montana that are improved private
properties. The action alleges that the class members have suffered harm in the
form of environmental contamination and loss of property rights resulting from
Grace's former vermiculite mining and processing operations. The complaint seeks
remediation, property damages and punitive damages. While Grace has not
completed its investigation of the claims, and therefore is not able to assess
the extent of any possible liability related to this lawsuit, it has no reason
to believe that its former activities caused damage to the environment or
property.

INCOME TAXES

Grace has received notification from the Internal Revenue Service (IRS) on two
matters. As a result of recent tax legislation, beginning in 1998, interest
costs on policy loans for corporate-owned life insurance are not deductible for
tax purposes. Furthermore, the IRS has asserted that Grace's past interest
deductions are not allowable. The Company is contesting the IRS's position on
the grounds that these insurance policies and related loans had, and continue to
have, an important and valid business purpose to fund current and future
obligations of Grace.

In the other matter, the IRS has assessed additional federal income tax
withholding and Federal Insurance Contributions Act taxes plus interest and
related penalties for calendar years 1993 through 1995 related to CCHP, Inc., a
subsidiary of Grace that formerly held Grace's interest in Cross County
Staffing. The assessments were made in connection with a meal and incidental
expense per diem plan for travelling nurses. In July of 1999, Grace sold the
business and assets of CCHP but retained the potential tax liability. The matter
is currently in the U.S. Court of Claims, where both CCHP and the Department of
Justice are conducting discovery.

Grace has received notification from a foreign taxing authority assessing tax
deficiencies plus interest relating to the purchase and sale of foreign bonds in
1989 and 1990. This assessment is related to the Bekaert Group which Grace sold
in 1991 but retained liability for tax deficiencies attributable to tax periods
prior to the sale. The matter is currently before the foreign tax authorities
where protests have been filed but no decision has been rendered.


--------------------------------------------------------------------------------
14. BUSINESS SEGMENT INFORMATION
--------------------------------------------------------------------------------

The table below presents information related to Grace's business segments for
the three months ended March 31, 2000 and 1999.

=============================================================
BUSINESS SEGMENT DATA                  THREE MONTHS ENDED
(Dollars in millions)                       MARCH 31,
=============================================================
                                        2000         1999
                                     ------------------------
NET SALES
Davison Chemicals..................  $   185.7    $   171.9
Performance Chemicals..............      179.2        173.5
                                     ------------------------

TOTAL..............................  $   364.9    $   345.4
                                     ========================

PRE-TAX OPERATING INCOME

Davison Chemicals..................  $    32.9    $    21.7
Performance Chemicals..............       19.1         16.8
                                     ------------------------

TOTAL..............................   $   52.0    $    38.5
=============================================================

                                      I-12
<PAGE>

The table below presents information related to the geographic areas in which
Grace operated for the three months ended March 31, 2000 and 1999.

=============================================================
 GEOGRAPHIC AREA DATA                  THREE MONTHS ENDED
(Dollars in millions)                       MARCH 31,
=============================================================
                                        2000         1999
                                     ------------------------
NET SALES
  United States....................  $   186.7    $    166.8
  Canada and Puerto Rico...........        7.8           6.3
  Germany..........................       64.7          69.4
  Europe, other than Germany.......       34.5          36.3
  Asia Pacific.....................       46.0          47.1
  Latin America....................       25.2          19.5
                                     ------------------------
TOTAL..............................   $  364.9    $    345.4
=============================================================

The pre-tax operating income for Grace's business segments for the three months
ended March 31, 2000 and 1999 is reconciled below to amounts presented in the
accompanying Consolidated Statement of Operations.

=============================================================
RECONCILIATION OF BUSINESS
SEGMENT DATA TO FINANCIAL
STATEMENTS                             THREE MONTHS ENDED
(Dollars in millions)                       MARCH 31,
=============================================================
                                        2000         1999
                                     ------------------------

Pre-tax operating income -
  business segments................  $    52.0    $    38.5
Interest expense and related
  financing costs..................       (5.3)        (3.3)
Interest income....................        2.3          0.6
Corporate operating costs..........      (12.2)       (13.0)
Other, net.........................        1.0          6.6
                                     ------------------------
Income from continuing operations
  before income taxes..............   $   37.8    $    29.4
=============================================================

                                      I-13
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

--------------------------------------------------------------------------------
CONTINUING OPERATIONS
--------------------------------------------------------------------------------

Grace is engaged in specialty chemicals and specialty materials businesses on a
global basis. The principal business segments are Davison Chemicals, which
produces catalysts and silica products, and Performance Chemicals, which
produces construction chemicals, building materials and container products. Set
forth below is a chart that lists key operating statistics and percentage
changes for the three months ended March 31, 2000 and 1999, which should be
referenced when reading management's discussion and analysis of the results of
continuing operations. The chart below, as well as the financial information
presented throughout this discussion, divides Grace's financial results between
"core operations" and "noncore activities." Core operations comprise the
financial results of Davison Chemicals, Performance Chemicals and the costs of
corporate activities that directly or indirectly support business operations. In
contrast, noncore activities comprise all other events and transactions that are
not directly related to the generation of customer revenue or the support of
core operations. The Company's financial strategy is to maximize returns and
cash flows from core operations to fund business growth and to provide resources
to satisfy its obligations that remain from past businesses, products and
events.

<TABLE>
<CAPTION>

====================================================================================================================================
ANALYSIS OF CONTINUING OPERATIONS                                                           THREE MONTHS ENDED        % Change Fav
 (Dollars in millions)                                                                           MARCH 31,               (Unfav)
====================================================================================================================================
                                                                                            2000           1999
                                                                                       -------------- ---------------
<S>                                                                                        <C>           <C>              <C>
NET SALES
    DAVISON CHEMICALS
    Refining catalysts..........................................................           $105.7        $ 94.5           11.9%
    Chemical catalysts..........................................................             28.8          26.4            9.1%
    Silica products.............................................................             51.2          51.0            0.4%
                                                                                       ---------------------------------------------
  TOTAL DAVISON CHEMICALS.......................................................            185.7         171.9            8.0%
                                                                                       ---------------------------------------------
    PERFORMANCE CHEMICALS
    Construction chemicals......................................................             70.9          64.9            9.2%
    Building materials..........................................................             52.9          49.5            6.9%
    Container products..........................................................             55.4          59.1           (6.3%)
                                                                                       ---------------------------------------------
  TOTAL PERFORMANCE CHEMICALS...................................................            179.2         173.5            3.3%
                                                                                       ---------------------------------------------
TOTAL GRACE SALES - CORE OPERATIONS.............................................           $364.9        $345.4            5.6%
====================================================================================================================================

    Davison Chemicals...........................................................           $ 32.9        $ 21.7           51.6%
    Performance Chemicals.......................................................             19.1          16.8           13.7%
    Corporate operating costs...................................................            (12.2)        (13.0)           6.2%
                                                                                       ---------------------------------------------
PRE-TAX INCOME FROM CORE OPERATIONS.............................................             39.8          25.5           56.1%
                                                                                       ---------------------------------------------
PRE-TAX INCOME FROM NONCORE ACTIVITIES..........................................              1.0           6.6          (84.8%)
Interest expense................................................................             (5.3)         (3.3)         (60.6%)
Interest income.................................................................              2.3           0.6            NM
                                                                                       ---------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES...........................             37.8          29.4           28.6%
(Provision for) income taxes....................................................            (13.6)        (10.6)         (28.3%)
                                                                                       ---------------------------------------------
INCOME FROM CONTINUING OPERATIONS...............................................           $ 24.2        $ 18.8           28.7%
====================================================================================================================================
KEY FINANCIAL MEASURES:

   Pre-tax income from core operations as a percentage of sales.................             10.9%          7.4%           3.5 pts.
   Pre-tax income from core operations before depreciation and amortization.....            $62.0        $ 48.1           28.9%
       As a percentage of sales.................................................             17.0%         13.9%           3.1 pts.
====================================================================================================================================
NET SALES BY REGION:
North America...................................................................           $194.5        $173.1           12.4%
Europe..........................................................................             99.2         105.7           (6.1%)
Asia Pacific....................................................................             46.0          47.1           (2.3%)
Latin America...................................................................             25.2          19.5           29.2%
                                                                                       ---------------------------------------------
TOTAL NET SALES.................................................................           $364.9        $345.4            5.6%
====================================================================================================================================
   NM = Not meaningful.

</TABLE>

                                      I-14
<PAGE>

NET SALES

The following table identifies the quarter-over-quarter increase or decrease in
sales attributable to changes in product volume, product price and/or mix, and
the impact of foreign currency translation.

================================================================
                       THREE MONTHS ENDED MARCH 31, 2000 AS A
NET SALES            PERCENTAGE INCREASE (DECREASE) FROM THREE
VARIANCE ANALYSIS           MONTHS ENDED MARCH 31, 1999
================================================================
                      VOLUME   PRICE/MIX   TRANSLATION   TOTAL
                     -------------------------------------------
Davison Chemicals..     7.9%      5.0%        (4.9%)     8.0%
Performance
  Chemicals .......     4.6%      0.1%        (1.4%)     3.3%
Net sales..........     6.2%      2.5%        (3.1%)     5.6%
----------------------------------------------------------------
By Region:
  North America....     7.7%      4.4%         0.3%     12.4%
  Europe...........     3.8%      1.4%       (11.3%)    (6.1%)
  Asia Pacific.....    (5.3%)     0.2%         2.8%     (2.3%)
  Latin America....    33.3%     (1.0%)       (3.1%)    29.2%
----------------------------------------------------------------

Grace's net sales increased 5.6% to $364.9 million in the first quarter of 2000
compared to the same period in 1999. Substantially all of this increase can be
attributed to volume as the 2.5% increase in price/mix was offset by the
negative translation impacts of sales denominated in foreign currencies that had
weakened against the U.S. dollar. The negative foreign currency impact was
experienced principally in Europe where sales were negatively impacted 11.3%

In the first quarter of 2000, all product groups, except for container products,
experienced volume growth. The most significant volume increase was experienced
in refining catalysts. North American and Latin American volumes were strong and
were supplemented by the acquisition of Crosfield Group's hydroprocessing
catalyst business. Construction chemicals also experienced strong volume growth,
driven primarily by the continued penetration of high performance products and
the addition of sales from the Polchem acquisition in Chile.

PRE-TAX INCOME FROM CORE OPERATIONS

Pre-tax operating income improved in each business segment for the first quarter
of 2000 compared to the respective period of 1999. Pre-tax income from core
operations was $39.8 million for the first quarter of 2000, compared to $25.5
million for the first quarter 1999, a 56.1% increase quarter-over-quarter.

Operating income of Davison Chemicals for the first quarter of 2000 was $32.9
million, up 51.6% versus 1999, and its operating margin of 17.7% was 5.1
percentage points better than the prior year. Operating income of Performance
Chemicals for the first quarter of 2000 was $19.1 million, up 13.7% from 1999
with an operating margin of 10.7%, up 1.0 percentage points from 1999. These
improvements are due to both sales and productivity improvement.

The following table identifies the percentage improvement in the cost per dollar
of sales for each business segment and Grace's core operations in total. The
index is calculated using 1998 as the base year and carving out selling price
changes, currency movement and cost inflation in every year since the base year.
The resulting change in cost per dollar of sales is Grace's productivity
measure. Changes in product volume and mix remain in the productivity equation.

=============================================================
                                   THREE MONTHS ENDED
PRODUCTIVITY INDEX                      MARCH 31,
=============================================================
                               2000       1999       1998
                             --------------------------------

COST PER $ OF SALES ON A
CONSTANT $ BASIS WITH
1998 AS BASE YEAR:

Davison Chemicals .........     $0.807     $0.841     $0.879
Performance Chemicals......      0.872      0.909      0.949
Corporate operating costs..      0.033      0.039      0.041
-------------------------------------------------------------
Total core operations......     $0.871     $0.912      0.954
-------------------------------------------------------------
PERCENTAGE IMPROVEMENT
 FROM PRIOR YEAR ..........       4.5%       4.4%      --
=============================================================



As reflected in the table above, on a constant dollar basis with 1998, Grace
produced a 4.5% reduction in unit costs during the first quarter of 2000,
consistent with the 4.4% reduction achieved in the first quarter 1999. Most of
the first quarter of 2000 improvement was attributable to improvements in
manufacturing processes and infrastructure integration.

Corporate operating costs include expenses incurred by corporate headquarters
functions in support of core operations. During 1999, many of these functions
were relocated from Boca Raton, Florida to the Davison Chemicals Headquarters in
Columbia, Maryland. As such, the annual 1999 cost structure included incremental
relocation costs, employee separation costs and duplicative salaries that
occurred during the transition. These expenses should not reoccur in 2000.
Corporate operating costs in the first quarter of 2000 were $12.2 million,
compared to $13.0 million in first quarter 1999, a 6.2% reduction.

PRE-TAX INCOME FROM NONCORE ACTIVITIES

Income from noncore activities totaled $1.0 million for the first quarter of
2000 compared to $6.6 million for the same period of 1999. In the first quarter
of 2000 income from noncore activities includes accruals for environmental
contingencies related to the Company's former operations in Libby, Montana. The
first quarter 1999



                                      I-15

<PAGE>


income from noncore activities included $4.4 million gain from the sale of a
corporate aircraft. Other significant items included in noncore activities, such
as gains from the sales of marketable securities and pension credits, are
consistent with the first quarter of 1999.

INTEREST AND INCOME TAXES

Net interest expense for the first quarter of 2000 was $3.0 million, an increase
of $0.3 million, or 11.1%, over the first quarter of 1999. This increase is
attributable to an increased average debt level on Grace's revolving credit
facilities during the first quarter of 2000 of approximately $90 million. This
increased average debt level was used to fund the share repurchase program,
business acquisitions and working capital requirements.

The Company's effective tax rate was 36.0% for the first quarter of 2000 and
1999.

DAVISON CHEMICALS

Recent Acquisition

On January 31, 2000 Grace acquired Crosfield Group's hydroprocessing catalyst
business from Imperial Chemical Industries PLC. This acquisition has been
accounted for as a purchase business combination, and accordingly, the results
of operations of the acquired business has been included in the consolidated
statement of operations from the date of acquisition. This business had $4.6
million of sales in the first quarter of 2000.

Sales

Davison Chemicals is a leading global supplier of catalysts and silica products.
Refining catalysts, which represent approximately 29% of the first quarter of
2000 total Grace sales (27% - first quarter 1999), include fluid cracking
catalysts (FCCs) used by petroleum refiners to convert distilled crude oil into
transportation fuels and other petroleum-based products, hydroprocessing
catalysts which upgrade heavy oils and remove certain impurities, and chemical
additives for treatment of feedstock impurities. Chemical catalysts, which
represent 8% of the first quarter of 2000 and 1999 total Grace sales, include
polyolefin catalysts which are essential components in the manufacturing of
polyethylene resins used in products such as plastic film, high performance
plastic pipe and plastic household containers. Silica products, which represent
14% of the first quarter of 2000 total Grace sales (15% - first quarter 1999),
are used in a wide variety of industrial and consumer applications such as
coatings, food processing, plastics, adsorbents and personal care products.

In the first quarter of 2000, refining catalysts sales were $105.7 million, an
increase of 11.9% compared to the same period in 1999. Excluding the acquisition
discussed above, refining catalysts sales were $101.1 million, or a 7.0%
increase over first quarter 1999. This increase is primarily a result of volume
gains experienced in North America and Latin America. These volume gains are
primarily due to continued improvement in gasoline demand over last year, as
well as positive market dynamics.


Chemical catalysts sales increased 9.1% to $28.8 million in the first quarter of
2000 reflecting favorable product mix in polyolefin catalysts.

Silica products sales for the first quarter of 2000 were relatively flat as
compared to the same period of 1999 as volume gains were offset by negative
translation impact. Excluding the negative impacts of currency translations,
sales were up 7.3%. This negative translation effect is primarily due to the
fact that a significant portion of this business is based in Europe.

Operating Earnings

Pre-tax operating income of $32.9 million was 51.6% better than first quarter
1999. Operating margins improved 5.1 percentage points to 17.7%, as a result of
sales increases coupled with raw material cost reductions and manufacturing
efficiencies derived from Grace's productivity improvement program.

PERFORMANCE CHEMICALS

Recent Acquisitions

In December 1999, Grace acquired Sociedad Petreis S.A.'s "Polchem" concrete
admixture and construction chemicals business from Cemento Polpaico S.A. Chile,
an affiliate of Holderbank of Switzerland. For the first quarter of 2000, this
business had sales of $1.5 million. In March 2000, Grace acquired International
Protective Coatings Corp. These acquisitions have been accounted for as a
purchase business combination, and accordingly, the results of operations of the
acquired businesses have been included in the consolidated statement of
operations from the date of acquisition.

Sales

Performance Chemicals was formed in 1999 by combining the previously separate
business segments



                                      I-16

<PAGE>



of Grace Construction Products and Darex Container Products. These businesses
were consolidated under one management team to capitalize on infrastructure
synergies from co-location of headquarters and production facilities around the
world. The major product groups of this business segment include specialty
construction chemicals and specialty building materials used primarily by the
nonresidential construction industry; and container sealants and coatings for
food and beverage packaging, and other related products. Construction chemicals,
which represent 19% of the first quarter of 2000 and 1999 total Grace sales add
strength, control corrosion, and enhance the handling and application of
concrete. Building materials, which represent 15% of the first quarter of 2000
total Grace sales (14% - first quarter 1999), prevent water damage to structures
and protect structural steel against collapse due to fire. Container products,
which represent 15% of the first quarter of 2000 total Grace sales (17% - first
quarter 1999), seal beverage and food cans, and glass and plastic bottles, and
protect metal packaging from corrosion and the contents from the influences of
metal.

In the first quarter of 2000, sales of construction chemicals were $70.9
million, an increase of 9.2% over the same period in 1999. Excluding the
"Polchem" acquisition discussed above, sales of construction chemicals were
$69.4 million, or a 6.9% increase over first quarter 1999. This increase was
driven by volume growth across all regions as price/mix and exchange had little
impact on this business during the first quarter of 2000.

Sales of building materials increased 6.9% to $52.9 million compared to first
quarter 1999, primarily reflecting increases in North American volume. Volume
increases in Europe were largely offset by the negative impact of currency
translation.

Sales of container products declined 6.3% to $55.4 million in the first quarter
of 2000. This decline is attributable to both volume decreases primarily in
Latin America and Asia Pacific and negative currency translation impact.
Excluding the negative impacts of currency translations, sales were down 2.9%
compared to first quarter 1999.

Operating Earnings

Pre-tax operating income increased 13.7% to $19.1 million in the first quarter
of 2000. This increase was driven by sales increases, value-added product
penetration and substitution, manufacturing cost reductions, and consolidation
of infrastructure.

--------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
--------------------------------------------------------------------------------

CROSS COUNTRY STAFFING

In July 1999, the Company completed the sale of substantially all of its
interest in Cross Country Staffing (CCS), a provider of temporary nursing and
other healthcare services. The operations of CCS during the first quarter 1999
are included in "Income from discontinued operations, net of tax" in the
Consolidated Statement of Operations.

--------------------------------------------------------------------------------
FINANCIAL CONDITION
--------------------------------------------------------------------------------

The charts below are intended to enhance the readers' understanding of the
Company's overall financial position by separately showing assets, liabilities
and cash flows related to core operations from those related to noncore
activities. The Company's management structure and activities are tailored to
the separate focus and accountability of core operations and noncore activities.

=============================================================
CORE OPERATIONS
(Dollars in millions)
---------------------------------
CAPITAL INVESTED IN CORE           MARCH 31,   December 31,
OPERATIONS                            2000         1999
=============================================================
BOOK VALUE OF INVESTED CAPITAL
Receivables ......................  $  180.6   $  181.9
Inventory ........................     135.4      128.2
Properties and equipment, net ....     605.4      611.2
Intangible assets and other.......     377.7      345.9

                                   --------------------------
ASSETS SUPPORTING CORE OPERATIONS.   1,299.1    1,267.2
Accounts payable and accruals.....    (317.3)    (358.1)
                                   --------------------------
CAPITAL INVESTED IN CORE            $  981.8   $  909.1
     OPERATIONS...................
After-tax return on average
     invested capital (trailing        13.1%       12.5%
     four quarters)...............
=============================================================

=============================================================
                                      THREE MONTHS ENDED
NET CASH FLOW FROM CORE                    MARCH 31,
OPERATIONS                         --------------------------
                                      2000       1999
=============================================================
CASH FLOWS:

Pre-tax operating income .........   $  39.8      $25.5
Depreciation and amortization ....      22.2       22.6
                                   --------------------------
PRE-TAX EARNINGS BEFORE
DEPRECIATION AND AMORTIZATION ....      62.0       48.1
Capital expenditures .............     (12.5)     (17.0)
Businesses acquired ..............     (25.0)      (0.5)
Working capital and other changes      (57.9)     (11.0)
                                   --------------------------
NET CASH FLOW FROM CORE
OPERATIONS .......................   $ (33.4)     $19.6
=============================================================

The Company has a net asset position supporting its core operations of $981.8
million at March 31, 2000 compared to $909.1 million at December 31, 1999
including the cumulative translation account reflected in Shareholders' Equity
of $118.7 million at March 31, 2000 and $106.1 million at December 31, 1999.

                                      I-17

<PAGE>


Weighted average capital over the past four quarters was $939.4 million. The
change in the net asset position is primarily due to increased foreign currency
translation adjustments, an increase in net assets due to business acquisitions
and a reduction in core liabilities due to payments made in the first quarter of
2000 including the payment of accruals that had built up over the course of the
prior fiscal year for items such as bonuses, customer rebates and taxes.
After-tax return on capital invested in core operations (calculated based on a
trailing four quarters) increased 0.6 percentage points.

The Company has a number of financial exposures originating from past
businesses, products and events. These obligations arose from transactions
and/or business practices that date back to when Grace was a much larger
company, when it produced products or operated businesses that are no longer
part of its revenue base, and when government regulations and scientific
knowledge were much less advanced than today. Grace's current core operations,
together with other available assets, are being managed to generate sufficient
cash flow to fund these obligations over time.

=============================================================
NONCORE ACTIVITIES
(Dollars in millions)              MARCH 31,   December 31,
---------------------------------    2000         1999
NET NONCORE LIABILITY              (Restated)   (Restated)
=============================================================

BOOK VALUE OF ASSETS AVAILABLE TO
FUND NONCORE OBLIGATIONS:
Cash and other financial assets ..   $ 375.7   $  345.8
Properties and investments .......       8.6        8.8
Asbestos-related insurance
receivable .......................     347.4      371.4
Tax assets, net...................     310.5      318.3

-------------------------------------------------------------
ASSETS AVAILABLE TO FUND NONCORE
   OBLIGATIONS(1).................   1,042.2    1,044.3
-------------------------------------------------------------
Noncore liabilities:
Asbestos-related litigation.......  (1,045.8)  (1,084.0)
Environmental remediation.........    (205.8)    (215.5)
Postretirement benefits...........    (198.9)    (201.4)
Retained obligations and other....     (90.5)     (99.1)
-------------------------------------------------------------
TOTAL NONCORE LIABILITIES.........  (1,541.0)  (1,600.0)
-------------------------------------------------------------
NET NONCORE LIABILITY............. $  (498.8)  $ (555.7)
=============================================================

NET CASH FLOW FROM NONCORE            THREE MONTHS ENDED
     ACTIVITIES                            MARCH 31,
                                   --------------------------
                                       2000       1999
=============================================================

Pre-tax income from noncore
     activities................... $     1.0    $   6.6
Proceeds from noncore asset sales       --         20.4
Other changes.....................       6.4       (1.4)
Cash spending for:
  Asbestos-related litigation,
     net of insurance recovery....     (14.1)     (12.5)
  Environmental remediation.......     (13.9)      (9.7)
  Postretirement benefits.........      (5.1)      (4.6)
  Retained obligations and other..      (5.5)     (25.8)
-------------------------------------------------------------
NET CASH FLOW FOR NONCORE
     ACTIVITIES .................. $   (31.2)    $(27.0)
=============================================================
1  The Company also had committed, unused credit facilities of $252 million
   at March 31, 2000 and $410 million at December 31, 1999.


The table above displays the book value of Grace's noncore liabilities and the
assets available to fund those liabilities at March 31, 2000 and December 31,
1999. Each liability has different characteristics, risks and expected
liquidation profile. Taken together, these liabilities represent $1,541.0
million of Grace's total liabilities as reflected on its balance sheet at March
31, 2000. Assets available to fund noncore liabilities consist of cash and cash
equivalents, net cash value of life insurance where Grace is the beneficiary,
property and investments not used in core operations, insurance coverage for
asbestos-related litigation and net tax assets related to noncore liabilities.
These assets, which in the aggregate total $1,042.2 million at March 31, 2000,
are not required to support base core operating activities and, thus, are
available to fund noncore liabilities.


ASBESTOS-RELATED MATTERS

Grace is a defendant in lawsuits relating to previously sold asbestos-containing
products. In the first quarter of 2000, Grace paid $14.1 million for the defense
and disposition of asbestos-related property damage and bodily injury
litigation, net of amounts received under settlements with insurance carriers.
The amount of spending in the first quarter of 2000 is consistent with Grace's
expectation that spending throughout 2000 will be higher than 1999 due to the
timing and adjudication of certain cases.

At March 31, 2000 Grace's balance sheet reflects a net liability after insurance
and after recorded tax benefits of $446.5 million, which represents management's
best estimate (in conformity with generally accepted accounting principles) of
the undiscounted net cash outflows in satisfaction of Grace's current and
expected asbestos-related litigation. The net present value of such net
liability (based on cash flow projections that are inherently imprecise but
represent management's best current estimate) is approximately $340 million
(discounted at 5.2% - estimated after-tax investment rate) at March 31, 2000.

The Consolidated Balance Sheet at March 31, 2000 includes total amounts due from
insurance carriers of $347.4 million pursuant to settlement agreements with
insurance carriers and net tax assets of $252.0 million related to future net
tax deductions for asbestos-related matters.


See Note 3 to the Consolidated Financial Statements for further information
concerning asbestos related lawsuits and claims.


                                      I-18

<PAGE>


ENVIRONMENTAL MATTERS

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 and disposition of hazardous wastes
and other materials. Grace made cash payments to remediate environmentally
impaired sites during the first quarter of 2000 and 1999 of $13.9 million and
$9.7 million, respectively. These amounts have been charged against previously
established reserves. At March 31, 2000, Grace's liability for environmental
investigatory and remediation costs related to continuing and discontinued
operations totaled $205.8 million, as compared to $215.5 million at December 31,
1999. In the first quarter of 2000 cash payments were higher than the first
quarter 1999 due to a settlement for a particular site. Grace continues to
expect pre-tax cash outlays for remediation costs to average between $38 and $43
million for 2000.

Grace is in litigation with two excess insurance carriers regarding the
applicability of the carriers' policies to environmental remediation costs. The
outcome of such litigation, as well as the amounts of any recoveries that Grace
may receive, is presently uncertain. Accordingly, Grace has not recorded a
receivable with respect to such insurance coverage.

See Note 13 to the Consolidated Financial Statements for further information
concerning environmental matters.


POSTRETIREMENT BENEFITS

Grace provides certain postretirement health care and life insurance benefits
for retired employees, a large majority of which pertains to retirees of
previously divested businesses. These plans are unfunded, and Grace pays the
costs of benefits under these plans as they are incurred.

Spending under this program during the first quarter of 2000 was $5.1 million.
This amount is consistent with expected spending of approximately $20 million
for the year ended December 31, 2000. Grace's recorded liability of $198.9
million at March 31, 2000 is stated at net present value discounted at 8%.

RETAINED OBLIGATIONS OF DIVESTED BUSINESSES

The principal retained obligations of divested businesses relate to contractual
indemnification and to contingent liabilities not passed on to the new owner. At
March 31, 2000, Grace had recorded $90.5 million to satisfy such obligations. Of
this total, $14.0 million will be paid over periods ranging from 2 to 10 years.
The remainder represents estimates of probable cost to satisfy specific
contingencies expected to be paid within one year.

--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

Cash flows from core operations during the first quarter of 2000 was an outflow
of $33.4 million compared to an inflow in first quarter 1999 of $19.6 million.
This reduction in cash flows from core operations was primarily attributable to
working capital comparisons, which in the first quarter of 1999 were favorably
impacted by sales of receivables, and income taxes paid related to core
operations.

The net cash flow of noncore activities was $(31.2) million in the first quarter
of 2000 compared to $(27.0) million in first quarter 1999. As mentioned
previously, asbestos related spending and environmental spending were higher in
the first quarter of 2000 than first quarter 1999. The timing of these
expenditures is impacted in part by Grace's legal and cash management
strategies. Postretirement benefit payments were consistent with the prior year
as these payments are based on comparable year-over-year benefit programs. In
the first quarter of 2000, the payments for retained obligations of divested
businesses and other were favorable by $20.3 million compared to first quarter
1999. This is primarily attributable to the fact that Grace made a significant
tax payment in first quarter 1999 related to a noncore activity. Net cash flow
of noncore activities in first quarter 1999 included the $20.4 million of
proceeds from sale of the corporate aircraft.

The final disbursement under Grace's long-term incentive compensation program
was made in the first quarter of 2000. This payment of $2.4 million is
classified as an operating activity on the Consolidated Statement of Cash Flows.

Cash flows used for investing activities during the first quarter of 2000 were
$48.8 million, compared to $0.3 million during first quarter 1999. Net cash
outflow during the first quarter of 2000 was impacted by capital expenditures,
$25.0 million used for business acquisitions, and $11.7 million net investment
in life insurance policies. Total capital expenditures during the first quarter
of 2000 and 1999 were $12.5 million and $17.0 million, respectively,
substantially all of which was directed toward its business segments. Net cash
outflow during first quarter 1999 was impacted by capital expenditures and $3.2
million net


                                      I-19



<PAGE>




investment in life insurance policies partially offset by proceeds from
disposals of assets of $20.4 million.

Net cash provided by financing activities during the first quarter of 2000 was
$110.3 million, principally representing $158.7 million in net borrowings
against the Company's credit facility partially offset by $24.7 million
repayment of long term debt and $25.4 million used to purchase shares of the
Company's stock. The net borrowing against the credit facility was used
primarily to fund the share repurchases, business acquisitions and working
capital requirements. Cash used for financing activities during first quarter
1999 was $2.9 million, principally representing $22.3 million in net borrowings
against the Company's credit facility offset by $26.0 million used to purchase
shares of the Company's stock.

At March 31, 2000, Grace had committed borrowing facilities totaling $500.0
million, consisting of $250.0 million expiring in May 2000 and $250.0 million
under a long-term facility expiring in May 2003. The facility that expired in
May 2000 was renewed for an additional 364-day term. These facilities support
the issuance of commercial paper and bank borrowings, of which $248.0 million
was outstanding at March 31, 2000. The aggregate amount of net unused and
unreserved borrowings under short-term and long-term facilities at March 31,
2000 was $252.0 million. Total debt was $270.2 million at March 31, 2000, an
increase of $134.0 million from December 31, 1999.

Grace is the beneficiary of life insurance policies on current and former
employees with net cash surrender value of $95.2 million at March 31, 2000,
comprised of $441.3 million in policy gross cash value offset by $346.1 million
of principal and accrued interest on policy loans. The policies were acquired to
fund various employee benefit programs and other long-term liabilities and are
structured to provide cash flows (primarily tax-free) over the next 40-plus
years.

The Company intends to utilize policy cash flows, which are actuarially
projected to range from $15 million to $50 million annually over the policy
terms, to fund (partially or fully) noncore liabilities and to earmark gross
policy cash value as a source of funding for noncore obligations. The Company
also intends to explore structuring options for the policies and policy loans to
enhance returns on assets, to reduce policy expenses and to better match policy
cash flows with payments of noncore liabilities.

In April 1998, the Company's Board of Directors approved a program to repurchase
up to 20% of the Company's outstanding shares in the open market (approximately
15,165,000 shares). Through March 31, 2000, the Company had acquired 14,400,400
shares of common stock for $202.9 million under the program (an average price
per share of $14.09). During the first quarter of 2000, the Company acquired
2,295,100 shares for $25.4 million (an average price per share of $11.08).

Grace believes that its current cash position together with cash flow generated
from core operations, assets available to fund noncore obligations and committed
borrowing facilities will be sufficient to meet its cash requirements and fund
business growth for the foreseeable future.

--------------------------------------------------------------------------------
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
--------------------------------------------------------------------------------

Grace achieved the rollover to the new millenium without experiencing any
significant Year 2000 related issues. Essentially all IT and non-IT systems
Grace- wide have functioned normally since January 1, 2000. Only a few minor
isolated Year 2000 issues occurred, and these were all remedied promptly without
any impact to operations. At the present time, Grace is not aware of any
significant unresolved Year 2000 issues with any vendor or customer.

--------------------------------------------------------------------------------
ACCOUNTING PRONOUNCEMENTS
--------------------------------------------------------------------------------

In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of SFAS No. 133." This statement defers the effective date of
SFAS 133 for one year. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. Based on analysis to date, it is not expected that adoption of this
statement will have a material effect on the Company's financial statements.



                                      I-20

<PAGE>

--------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
--------------------------------------------------------------------------------

The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. In addition to the uncertainties referred to in
Management's Discussion of Results of Operations and Financial Condition, other
uncertainties include the impact of worldwide economic conditions; pricing of
both the Company's products and raw materials; customer outages and customer
demand; factors resulting from fluctuations in interest rates and foreign
currencies; the impact of competitive products and pricing; success of Grace's
process improvement initiatives; and the impact of tax and legislation and other
regulations in the jurisdictions in which the Company operates. Also, see
"Introduction and Overview - Projections and Other Forward-Looking Information"
in Item 1 of Grace's 1999 Annual Report on Form 10-K.

                                      I-21
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
--------------------------------------------------------------------------------

Grace had no outstanding interest rate swap agreements on March 31, 2000. For
further information concerning Grace's quantitative and qualitative disclosures
about market risk, refer to Note 12 in the Consolidated Financial Statements in
the 1999 Form 10-K/A.


                                     I-22


<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
--------------------------------------------------------------------------------

     (a) Note 3 to the interim consolidated financial statements in Part I of
         this Report is incorporated herein by reference.

     (b) Reference is made to the section entitled "Asbestos Litigation" in Item
         3 of the Company's 1999 10-K for information concerning the lawsuit
         Lindholm v. W. R. Grace & Co. Since this action was filed, additional
         lawsuits have been filed as class actions against the Company asserting
         similar claims and seeking similar damages to those described in the
         Lindholm case.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------------

     (a) Exhibits. The following is a list of Exhibits filed as part of this
         Quarterly Report on Form 10-Q/A.

         15.   Accountants' Awareness Letter

         27.   Financial Data Schedule.

     (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during
         the first quarter of 2000.

                                      II-1
<PAGE>

                                    SIGNATURE

         In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                  W. R. GRACE & CO.
                                                  -----------------
                                                    (Registrant)


Date: December 1, 2000                            By /s/ Robert M. Tarola
                                                     --------------------
                                                         Robert M. Tarola
                                                      Chief Financial Officer
                                                  (Principal Accounting Officer)



<PAGE>

                                  EXHIBIT INDEX

EXHIBIT NO.       DESCRIPTION OF EXHIBIT
-----------       ----------------------

     15.          Accountants' Awareness Letter

     27.          Financial Data Schedule.