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UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.20549

FORM 10-Q

(MarkOne)

    QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934

    FOR THE QUARTERLY PERIOD ENDED MARCH 31,2006

OR

    TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT OF 1934

Commission File Number1-13953

W. R. GRACE &CO.

|                         |  |                                     |  |  |  |  |
|-------------------------|--|-------------------------------------|--|--|--|--|
| Delaware                |  | 65-0773649                          |
| (Stateof Incorporation) |  | (I.R.S. Employer IdentificationNo.) |
|                         |

7500 Grace DriveColumbia,Maryland 21044(410) 531-4000(Address andphone number of principal executive offices)

Indicateby check mark whether the registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90days.

|                             |  |                            |  |  |  |  |
|-----------------------------|--|----------------------------|--|--|--|--|
| Yes     |  | No     |
|                             |

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of‘‘accelerated filer and large acceleratedfiler’’ in Rule 12b-2 of the ExchangeAct.

Large acceleratedfiler    Accelerated filer    Non-accelerated filer    

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 ofthe ExchangeAct).

|                             |  |                            |  |  |  |  |
|-----------------------------|--|----------------------------|--|--|--|--|
| Yes     |  | No     |
|                             |

67,848,221shares of Common Stock, $0.01 par value, were outstanding atApril  30,  2006.

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W.R. GRACE & CO. AND SUBSIDIARIES

TABLE OFCONTENTS

|                                                                      |  |                                                                                          |  |             |  |  |  |  |  |  |
|----------------------------------------------------------------------|--|------------------------------------------------------------------------------------------|--|-------------|--|--|--|--|--|--|
|                                                                 |  |                                                                                     |  | PageNo.     |
| PART   I.    FinancialInformation |  | I-1                                                                                      |
| Item 1.                                                              |  | Financial Statements                                                                     |  | I-1         |
|                                                                 |  | Report of IndependentRegistered Public AccountingFirm                                    |  | I-2         |
|                                                                 |  | ConsolidatedStatements ofOperations                                                      |  | I-3         |
|                                                                 |  | ConsolidatedStatements of CashFlows                                                      |  | I-4         |
|                                                                 |  | ConsolidatedBalanceSheets                                                                |  | I-5         |
|                                                                 |  | ConsolidatedStatements of Shareholders’ Equity(Deficit)                            |  | I-6         |
|                                                                 |  | ConsolidatedStatements of Comprehensive Income(Loss)                                     |  | I-6         |
|                                                                 |  | Notes toConsolidated Financial Statements                                                |  | I-7 toI-30  |
| Item 2.                                                              |  | Management’sDiscussion and Analysis of Financial Condition andResults ofOperations |  | I-31 toI-51 |
| Item 3.                                                              |  | Quantitative andQualitative Disclosures About MarketRisk                                 |  | I-52        |
| Item 4.                                                              |  | ControlsandProcedures                                                                    |  | I-52        |
| PART   II.    OtherInformation    |  | II-1                                                                                     |
| Item1.                                                               |  | LegalProceedings                                                                         |  | II-1        |
| Item1A.                                                              |  | Risk Factors                                                                             |  | II-1        |
| Item6.                                                               |  | Exhibits                                                                                 |  | II-1        |
|                                                                      |

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PARTI.    FINANCIAL INFORMATION

Item 1.    FINANCIALSTATEMENTS

Review by Independent Registered PublicAccounting Firm

A review of the interim consolidatedfinancial statements included in this Quarterly Report on Form 10-Q forthe three months ended March  31,  2006 and 2005 has beenperformed by PricewaterhouseCoopers LLP, the company’sindependent registered public accounting firm. Their report on theinterim consolidated financial statements follows. This report is notconsidered a ‘‘report’’ within the meaningof Sections 7 and 11 of the Securities Act of 1933, and, therefore, theindependent accountants’ liability under Section 11 does notextend to it.

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Report of Independent Registered PublicAccounting Firm

To the Shareholders and Board of Directorsof W. R. Grace & Co.:

We have reviewed theaccompanying consolidated balance sheets of W. R. Grace & Co. andits subsidiaries as of March  31,  2006, and the relatedconsolidated statements of operations, cash flows, shareholders’equity (deficit) and comprehensive income (loss) for each of thethree-month periods ended March  31,  2006 and March31,  2005. These interim financial statements are theresponsibility of the Company’s management.

We conductedour review in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). A review of interimfinancial information consists principally of applying analyticalprocedures and making inquiries of persons responsible for financialand accounting matters. It is substantially less in scope than an auditconducted in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the objective of which isthe expression of an opinion regarding the financial statements takenas a whole. Accordingly, we do not express such an opinion.

Basedon our review, we are not aware of any material modifications thatshould be made to the accompanying interim consolidated financialstatements for them to be in conformity with accounting principlesgenerally accepted in the United States of America.

Theaccompanying interim consolidated financial statements have beenprepared assuming that the Company will continue as a going concern. Asdiscussed in Notes 1 and 2 to the interim consolidated financialstatements, on April  2,  2001, the Company andsubstantially all of its domestic subsidiaries voluntarily filed forprotection under Chapter 11 of the United States Bankruptcy Code, whichraises substantial doubt about the Company’s ability to continueas a going concern in its present form. Management’s intentionswith respect to this matter are also described in Notes 1 and 2. Theaccompanying interim consolidated financial statements do not includeany adjustments that might result from the outcome of thisuncertainty.

We have previously audited, in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates), the consolidated balance sheet as of December31,  2005, and the related consolidated statements of operations,cash flows, shareholders’ equity (deficit) and comprehensiveincome (loss) for the year then ended, management’s assessmentof the effectiveness of the Company’s internal control overfinancial reporting as of December  31,  2005 and theeffectiveness of the Company’s internal control over financialreporting as of December  31,  2005; and in our reportdated March  10,  2006, we expressed (i) an unqualifiedopinion on those consolidated financial statements with an explanatoryparagraph relating to the Company’s ability to continue as agoing concern and, (ii) unqualified opinions on management’sassessment of the effectiveness of the Company’s internalcontrol over financial reporting and on the effectiveness of theCompany’s internal control over financial reporting. Theconsolidated financial statements and management’s assessment ofthe effectiveness of internal control over financial reporting referredto above are not presented herein. In our opinion, the information setforth in the accompanying consolidated balance sheet as ofDecember  31,  2005, is fairly stated in all materialrespects in relation to the consolidated balance sheet from which ithas been derived.

/s/ PricewaterhouseCoopers LLPMcLean,VirginiaMay  9,  2006

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|                                                                                                                            |  |                            |        |         |  |        |        |         |  |  |
|----------------------------------------------------------------------------------------------------------------------------|--|----------------------------|--------|---------|--|--------|--------|---------|--|--|
| W.R. Grace & Co. and Subsidiaries Consolidated Statements ofOperations (Unaudited)In millions, except per shareamounts |  | Three Months EndedMarch31, |
| 2006                                                                                                                       |  | 2005                       |
| Netsales                                                                                                                   |  | $                          | 658.6  |    |  | $      | 603.2  |    |
| Costof goods sold, exclusive of depreciation and amortization shownseparatelybelow                                         |  |                       | 438.0  |    |  |   | 392.7  |    |
| Selling, generaland administrative expenses, exclusive of net pension expense shownseparatelybelow                         |  |                       | 128.2  |    |  |   | 119.3  |    |
| Depreciation andamortization                                                                                               |  |                       | 28.1   |    |  |   | 28.8   |    |
| Research anddevelopment expenses                                                                                           |  |                       | 15.5   |    |  |   | 15.1   |    |
| Netpension expense                                                                                                         |  |                       | 14.8   |    |  |   | 17.6   |    |
| Interestexpense and related financingcosts                                                                                 |  |                       | 15.8   |    |  |   | 14.6   |    |
| Other (income)expense                                                                                                      |  |                       | (1.9   | )  |  |   | (6.1   | )  |
|                                                                                                                       |  |                       | 638.5  |    |  |   | 582.0  |    |
| Income(loss) before Chapter 11 expenses, income taxes, and minorityinterest                                                |  |                       | 20.1   |    |  |   | 21.2   |    |
| Chapter 11expenses, net                                                                                                    |  |                       | (8.7   | )  |  |   | (6.0   | )  |
| Benefitfrom (provision for) incometaxes                                                                                    |  |                       | (4.5   | )  |  |   | (8.6   | )  |
| Minority interestin consolidatedentities                                                                                   |  |                       | (6.8   | )  |  |   | (3.5   | )  |
| Netincome(loss)                                                                                                            |  | $                          | 0.1    |    |  | $      | 3.1    |    |
| Basicearnings (loss) pershare:                                                                                             |  |                       |   |    |  |   |   |    |
| Net income(loss)                                                                                                           |  | $                          | 0.00   |    |  | $      | 0.05   |    |
| Weightedaverage number of basicshares                                                                                      |  |                       | 67.0   |    |  |   | 66.6   |    |
| Dilutedearnings (loss) pershare:                                                                                           |  |                       |   |    |  |   |   |    |
| Net income(loss)                                                                                                           |  | $                          | 0.00   |    |  | $      | 0.05   |    |
| Weightedaverage number of dilutedshares                                                                                    |  |                       | 67.3   |    |  |   | 67.3   |    |
|                                                                                                                            |

TheNotes to Consolidated Financial Statements are an integral part ofthese statements.

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|                                                                                                                                    |  |                            |         |         |  |        |        |         |  |  |
|------------------------------------------------------------------------------------------------------------------------------------|--|----------------------------|---------|---------|--|--------|--------|---------|--|--|
| W.R. Grace & Co. and Subsidiaries Consolidated Statements of CashFlows (Unaudited)In millions                                  |  | Three MonthsEnded March31, |
| 2006                                                                                                                               |  | 2005                       |
| OPERATINGACTIVITIES                                                                                                                |  |                       |    |    |  |   |   |    |
| Income (loss) before Chapter 11expenses, income taxes, and minorityinterest                                                        |  | $                          | 20.1    |    |  | $      | 21.2   |    |
| Reconciliationto net cash provided by (used for) operatingactivities:                                                              |  |                       |    |    |  |   |   |    |
| Depreciation andamortization                                                                                                       |  |                       | 28.1    |    |  |   | 28.8   |    |
| Interestaccrued on pre-petition liabilities subject tocompromise                                                                   |  |                       | 15.4    |    |  |   | 13.3   |    |
| Net(gain) loss on sales of investments and disposals ofassets                                                                      |  |                       | 1.8     |    |  |   | (0.9   | )  |
| Net pensionexpense                                                                                                                 |  |                       | 14.8    |    |  |   | 17.6   |    |
| Payments tofund defined benefit pensionarrangements                                                                                |  |                       | (13.3   | )  |  |   | (3.0   | )  |
| Netincome from life insurancepolicies                                                                                              |  |                       | (1.2    | )  |  |   | (1.3   | )  |
| Provisionfor uncollectiblereceivables                                                                                              |  |                       | — |    |  |   | 0.6    |    |
| Paymentsunder postretirement benefitplans                                                                                          |  |                       | (2.2    | )  |  |   | (2.3   | )  |
| Expendituresfor environmentalremediation                                                                                           |  |                       | (2.1    | )  |  |   | (1.2   | )  |
| Expendituresfor retained obligations of divestedbusinesses                                                                         |  |                       | (0.7    | )  |  |   | (0.3   | )  |
| Changesin assets and liabilities, excluding effect of businessesacquired/divested and foreign currencytranslation:                 |  |                       |    |    |  |   |   |    |
| Working capital items (tradeaccounts receivable, inventories and accountspayable)                                             |  |                       | (49.8   | )  |  |   | (27.9  | )  |
| Otheraccruals and non-cashitems                                                                                                    |  |                       | (37.8   | )  |  |   | (57.9  | )  |
| Netcash provided by (used for) operating activities before income taxes,Chapter 11 expenses and settlement of noncorecontingencies |  |                       | (26.9   | )  |  |   | (13.3  | )  |
| Cashpaid to settle noncorecontingencies                                                                                            |  |                       | — |    |  |   | (8.3   | )  |
| Chapter11 expenses paid                                                                                                            |  |                       | (10.5   | )  |  |   | (4.4   | )  |
| Incometaxes paid, net ofrefunds                                                                                                    |  |                       | (2.8    | )  |  |   | (5.4   | )  |
| Netcash provided by (used for) operatingactivities                                                                                 |  |                       | (40.2   | )  |  |   | (31.4  | )  |
| INVESTINGACTIVITIES                                                                                                                |  |                       |    |    |  |   |   |    |
| Capitalexpenditures                                                                                                                |  |                       | (21.0   | )  |  |   | (12.4  | )  |
| Businessesacquired, net of cashacquired                                                                                            |  |                       | — |    |  |   | (2.5   | )  |
| Proceedsfrom termination of life insurancepolicies                                                                                 |  |                       | — |    |  |   | 14.8   |    |
| Netinvestment in life insurancepolicies                                                                                            |  |                       | (0.2    | )  |  |   | 2.0    |    |
| Proceeds fromsales of investments and disposals ofassets                                                                           |  |                       | 0.1     |    |  |   | 0.1    |    |
| Netcash provided by (used for) investingactivities                                                                                 |  |                       | (21.1   | )  |  |   | 2.0    |    |
| FINANCINGACTIVITIES                                                                                                                |  |                       |    |    |  |   |   |    |
| Net payment of loans secured by cashvalue of lifeinsurance                                                                         |  |                       | — |    |  |   | (0.5   | )  |
| Net(repayments) borrowings under creditarrangements                                                                                |  |                       | (0.2    | )  |  |   | (2.0   | )  |
| Fees underdebtor-in-possession creditfacility                                                                                      |  |                       | (0.5    | )  |  |   | (0.6   | )  |
| Proceeds fromexercise of stockoptions                                                                                              |  |                       | 2.0     |    |  |   | 3.0    |    |
| Netcash provided by (used for) financingactivities                                                                                 |  |                       | 1.3     |    |  |   | (0.1   | )  |
| Effectof currency exchange rate changes on cash and cashequivalents                                                                |  |                       | 0.7     |    |  |   | (6.1   | )  |
| Increase(decrease) in cash and cashequivalents                                                                                     |  |                       | (59.3   | )  |  |   | (35.6  | )  |
| Cashand cash equivalents, beginning ofperiod                                                                                       |  |                       | 474.7   |    |  |   | 510.4  |    |
| Cashand cash equivalents, end ofperiod                                                                                             |  | $                          | 415.4   |    |  | $      | 474.8  |    |
|                                                                                                                                    |

TheNotes to Consolidated Financial Statements are an integral part ofthese statements.

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|                                                                                                                                                          |  |              |         |                  |  |        |         |         |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------|---------|------------------|--|--------|---------|---------|--|--|
| W.R. Grace & Co. and Subsidiaries Consolidated Balance Sheets(Unaudited)In millions, except par value andshares                                      |  | March31,2006 |         | December 31,2005 |
| ASSETS                                                                                                                                                   |  |         |    |             |  |   |    |    |
| CurrentAssets                                                                                                                                            |  |         |    |             |  |   |    |    |
| Cash and cashequivalents                                                                                                                                 |  | $            | 415.4   |             |  | $      | 474.7   |    |
| Tradeaccounts receivable, less allowance of $4.9 (2005 –$5.0)                                                                                      |  |         | 432.4   |             |  |   | 401.7   |    |
| Inventories                                                                                                                                              |  |         | 301.2   |             |  |   | 278.3   |    |
| Deferredincome taxes                                                                                                                                     |  |         | 26.7    |             |  |   | 27.3    |    |
| Other currentassets                                                                                                                                      |  |         | 57.9    |             |  |   | 71.6    |    |
| TotalCurrentAssets                                                                                                                                       |  |         | 1,233.6 |             |  |   | 1,253.6 |    |
| Propertiesand equipment, net of accumulated depreciation and    amortization of $1,448.5 (2005 –$1,420.2)                      |  |         | 631.4   |             |  |   | 632.9   |    |
| Goodwill                                                                                                                                                 |  |         | 104.5   |             |  |   | 103.9   |    |
| Cashvalue of life insurance policies, net of policyloans                                                                                                 |  |         | 86.2    |             |  |   | 84.8    |    |
| Deferred incometaxes                                                                                                                                     |  |         | 715.2   |             |  |   | 703.9   |    |
| Asbestos-relatedinsurance                                                                                                                                |  |         | 500.0   |             |  |   | 500.0   |    |
| Otherassets                                                                                                                                              |  |         | 235.1   |             |  |   | 238.1   |    |
| TotalAssets                                                                                                                                              |  | $            | 3,506.0 |             |  | $      | 3,517.2 |    |
| LIABILITIESAND SHAREHOLDERS’ EQUITY(DEFICIT)                                                                                                       |  |         |    |             |  |   |    |    |
| LiabilitiesNot Subject toCompromise                                                                                                                      |  |         |    |             |  |   |    |    |
| CurrentLiabilities                                                                                                                                       |  |         |    |             |  |   |    |    |
| Debt payablewithin one year                                                                                                                              |  | $            | 2.2     |             |  | $      | 2.3     |    |
| Accountspayable                                                                                                                                          |  |         | 167.4   |             |  |   | 166.8   |    |
| Income taxespayable                                                                                                                                      |  |         | 19.4    |             |  |   | 10.1    |    |
| Other currentliabilities                                                                                                                                 |  |         | 164.0   |             |  |   | 197.9   |    |
| TotalCurrentLiabilities                                                                                                                                  |  |         | 353.0   |             |  |   | 377.1   |    |
| Debtpayable after oneyear                                                                                                                                |  |         | 0.4     |             |  |   | 0.4     |    |
| Deferred incometaxes                                                                                                                                     |  |         | 55.6    |             |  |   | 54.3    |    |
| Minority interest inconsolidatedaffiliates                                                                                                               |  |         | 44.4    |             |  |   | 36.4    |    |
| Unfundeddefined benefit pensionliability                                                                                                                 |  |         | 450.3   |             |  |   | 447.5   |    |
| Otherliabilities                                                                                                                                         |  |         | 29.9    |             |  |   | 41.7    |    |
| TotalLiabilities Not Subject toCompromise                                                                                                                |  |         | 933.6   |             |  |   | 957.4   |    |
| LiabilitiesSubject to Compromise – Note2                                                                                                           |  |         | 3,165.3 |             |  |   | 3,155.1 |    |
| TotalLiabilities                                                                                                                                         |  |         | 4,098.9 |             |  |   | 4,112.5 |    |
| CommitmentsandContingencies                                                                                                                              |  |         |    |             |  |   |    |    |
| Shareholders’Equity (Deficit)                                                                                                                      |  |         |    |             |  |   |    |    |
| Common stockissued, par value $0.01; 300,000,000 shares authorized;    outstanding: 2006 – 67,141,568 (2005 –66,922,196) |  |         | 0.8     |             |  |   | 0.8     |    |
| Paid-incapital                                                                                                                                           |  |         | 422.7   |             |  |   | 423.4   |    |
| Accumulateddeficit                                                                                                                                       |  |         | (505.8  | )           |  |   | (505.9  | )  |
| Treasurystock, at cost: shares: 2006 – 9,838,192; (2005 –10,057,564)                                                                         |  |         | (117.1  | )           |  |   | (119.7  | )  |
| Accumulatedother comprehensive income(loss)                                                                                                              |  |         | (393.5  | )           |  |   | (393.9  | )  |
| TotalShareholders’ Equity(Deficit)                                                                                                                 |  |         | (592.9  | )           |  |   | (595.3  | )  |
| TotalLiabilities and Shareholders’ Equity(Deficit)                                                                                                 |  | $            | 3,506.0 |             |  | $      | 3,517.2 |    |
|                                                                                                                                                          |

TheNotes to Consolidated Financial Statements are an integral part ofthese statements.

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|                                                                                                                                                   |  |                                |         |                    |  |               |         |                                           |  |                                          |         |         |  |        |         |         |  |        |        |         |  |  |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------------------------|---------|--------------------|--|---------------|---------|-------------------------------------------|--|------------------------------------------|---------|---------|--|--------|---------|---------|--|--------|--------|---------|--|--|
| W.R. Grace & Co. and SubsidiariesConsolidated Statements ofShareholders’     Equity (Deficit) (Unaudited)Inmillions |  | CommonStock and Paid-inCapital |         | AccumulatedDeficit |  | TreasuryStock |         | AccumulatedOtherComprehensiveIncome(Loss) |  | TotalShareholders’ Equity(Deficit) |
| Balance, December  31,2005                                                                                                                        |  | $                              | 424.2   |               |  | $             | (505.9  | )                                    |  | $                                        | (119.7  | )  |  | $      | (393.9  | )  |  | $      | (595.3 | )  |
| Netincome(loss)                                                                                                                                   |  |                           | — |               |  |          | 0.1     |                                      |  |                                     | — |    |  |   | — |    |  |   | 0.1    |    |
| Stockplanactivity                                                                                                                                 |  |                           | (0.7    | )             |  |          | — |                                      |  |                                     | 2.6     |    |  |   | — |    |  |   | 1.9    |    |
| Othercomprehensive income(loss)                                                                                                                   |  |                           | — |               |  |          | — |                                      |  |                                     | — |    |  |   | 0.4     |    |  |   | 0.4    |    |
| Balance,March  31,2006                                                                                                                            |  | $                              | 423.5   |               |  | $             | (505.8  | )                                    |  | $                                        | (117.1  | )  |  | $      | (393.5  | )  |  | $      | (592.9 | )  |
|                                                                                                                                                   |

|                                                                                                                   |  |                            |        |         |  |        |         |         |  |  |
|-------------------------------------------------------------------------------------------------------------------|--|----------------------------|--------|---------|--|--------|---------|---------|--|--|
| W.R. Grace & Co. and Subsidiaries Consolidated Statements ofComprehensive Income (Loss) (Unaudited)Inmillions |  | Three Months EndedMarch31, |
| 2006                                                                                                              |  | 2005                       |
| Netincome(loss)                                                                                                   |  | $                          | 0.1    |    |  | $      | 3.1     |    |
| Othercomprehensive income(loss):                                                                                  |  |                       |   |    |  |   |    |    |
| Foreigncurrency translationadjustments                                                                            |  |                       | 1.0    |    |  |   | (13.0   | )  |
| Commodityhedgingactivities                                                                                        |  |                       | (0.6   | )  |  |   | — |    |
| Totalother comprehensive income (loss)                                                                            |  |                       | 0.4    |    |  |   | (13.0   | )  |
| Comprehensiveincome(loss)                                                                                         |  | $                          | 0.5    |    |  | $      | (9.9    | )  |
|                                                                                                                   |

TheNotes to Consolidated Financial Statements are an integral part ofthese statements.

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W.R. Grace & Co. and SubsidiariesNotes to Consolidated FinancialStatements (Unaudited)

|          |                                                                                            |
|----------|--------------------------------------------------------------------------------------------|
| 1.  | Basis of Presentation andSummary of Significant Accounting and Financial ReportingPolicies |

W. R. Grace & Co., through its subsidiaries, isengaged in specialty chemicals and specialty materials businesses on aworldwide basis through two operating segments: ‘‘GraceDavison,’’ which includes silica- and alumina-basedcatalysts and materials used in a wide range of industrialapplications; and ‘‘Grace PerformanceChemicals,’’ which includes specialty chemicals andmaterials used in commercial and residential construction and in rigidfood and beverage packaging.

W. R. Grace & Co. conductssubstantially all of its business through a direct, wholly-ownedsubsidiary, W. R. Grace & Co.-Conn.(‘‘Grace-Conn.’’). Grace-Conn. ownssubstantially all of the assets, properties and rights of W. R. Grace& Co. on a consolidated basis, either directly or throughsubsidiaries.

As used in these notes, the term‘‘Company’’ refers to W. R. Grace & Co.The term ‘‘Grace’’ refers to the Companyand/or one or more of its subsidiaries and, in certain cases, theirrespective predecessors.

Voluntary Bankruptcy Filing– During 2000 and the first quarter of 2001, Grace experiencedseveral adverse developments in its asbestos-related litigation,including: a significant increase in personal injury claims, higherthan expected costs to resolve personal injury and certain propertydamage claims, and class action lawsuits alleging damages from ZonoliteAttic Insulation (‘‘ZAI’’) a former Graceattic insulation product.

After a thorough review of thesedevelopments, the Board of Directors concluded that a federalcourt-supervised bankruptcy process provided the best forum availableto achieve fairness in resolving these claims and on April2,  2001 (the ‘‘Filing Date’’), Graceand 61 of its United States subsidiaries and affiliates, includingGrace-Conn. (collectively, the‘‘Debtors’’), filed voluntary petitions forreorganization (the ‘‘Filing’’) underChapter 11 of the United States Bankruptcy Code in the United StatesBankruptcy Court for the District of Delaware (the‘‘Bankruptcy Court’’). The cases wereconsolidated and are being jointly administered under case number01-01139 (the ‘‘Chapter 11 Cases’’).Grace’s non-U.S. subsidiaries and certain of its U.S.subsidiaries were not included in the Filing.

Under Chapter 11,the Debtors have continued to operate their businesses asdebtors-in-possession under court protection from creditors andclaimants, while using the Chapter 11 process to develop and implementa plan for addressing the asbestos-related claims. Since the Filing,all motions necessary to conduct normal business activities have beenapproved by the Bankruptcy Court. (See Note 2 for Chapter 11 RelatedInformation.)

Basis of Presentation – The interimConsolidated Financial Statements presented herein are unaudited andshould be read in conjunction with the Consolidated FinancialStatements presented in the Company’s 2005 Annual Report on Form10-K. Such interim Consolidated Financial Statements reflect alladjustments that, in the opinion of management, are necessary for afair presentation of the results of the interim periods presented; allsuch adjustments are of a normal recurring nature. Potential accountingadjustments discovered during normal reporting and accounting processesare evaluated on the basis of materiality, both individually and in theaggregate, and are recorded in the accounting period discovered, unlessa restatement of a prior period is necessary. All significantintercompany accounts and transactions have been eliminated.

Theresults of operations for the three-month interim period endedMarch  31,  2006 are not necessarily indicative of theresults of operations for the year ending December  31,2006.

Reclassifications – Certain amounts in prioryears’ Consolidated Financial Statements have been reclassifiedto conform to the 2006 presentation.

Use of Estimates– The preparation of financial statements in conformity with U.S.generally accepted accounting principles requires that management makeestimates and assumptions affecting the assets and liabilities reportedat the date of the Consolidated Financial Statements, and the revenuesand 

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expenses reported for the periods presented.Actual amounts could differ from those estimates. Changes in estimatesare recorded in the period identified. Grace’s accountingmeasurements that are most affected by management’s estimates offuture events are:

|              |                                                                                                                                                                              |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Contingentliabilities such as asbestos-related matters (see Notes 2 and 3),environmental remediation (see Note 12), income taxes (see Note 12),and litigation (see Note 12). |

|              |                                                                                                                                             |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Pensionand postretirement liabilities that depend on assumptions regardingdiscount rates and total returns on invested funds. (See Note13.) |

|              |                                                                     |
|--------------|---------------------------------------------------------------------|
| •  | Liabilities for employeeincentive compensation and customerrebates. |

|              |                                                                                                                           |
|--------------|---------------------------------------------------------------------------------------------------------------------------|
| •  | Depreciation andamortization periods for long-lived assets, including property andequipment, intangible, and otherassets. |

|              |                                                                                                                                                                   |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Realization values of variousassets such as net deferred tax assets, trade receivables, inventories,insurance receivables, properties and equipment, andgoodwill. |

The accuracy of these and other estimates may also bematerially affected by the uncertainties arising under Grace’sChapter 11 proceeding.

Effect of New AccountingStandards – In December  2004, the FASB issuedStatement of Financial Accounting Standards(‘‘SFAS’’) No. 123(R),‘‘Share-Based Payment,’’ to requirecompanies to measure and recognize in operations the cost of employeeservices received in exchange for an award of equity instruments basedon the grant-date fair value. The provisions of this standard areeffective for Grace in 2006. Grace implemented SFAS 123(R) in the firstquarter of 2006. Under the transition method selected, the onlyoutstanding awards affected were stock appreciation rights granted toGrace’s former Chief Executive Officer. Grace has chosen toadopt the standard using the modified prospective method. Followingthis guidance, the award was measured at fair value of $2.6million using a Black Scholes model at March  31,  2006 andwas recognized as compensation cost (included in selling, general andadministrative expenses) in the current quarter. The cumulative effectof this new rule was $1.4  million at the beginning of the firstquarter of 2006. Grace has not granted equity options or rights whilein Chapter 11.

In November  2004, the FASB issued SFAS No.151, ‘‘Inventory Costs – an Amendment of ARB No.43, Chapter 4,’’ to provide clarification that abnormalamounts of idle facility expense, freight, handling costs, and wastedmaterial be recognized as current-period costs. In addition, thisstandard requires that the allocation of fixed production overheads tothe costs of inventory be based on the normal capacity of theproduction facilities. The provisions of this standard are effectivefor Grace in 2006 and do not have a material impact on Grace’sConsolidated Financial Statements.

|          |                               |
|----------|-------------------------------|
| 2.  | Chapter 11 RelatedInformation |

Plan of Reorganization – OnNovember  13,  2004 Grace filed a plan of reorganization,as well as several associated documents, including a disclosurestatement, with the Bankruptcy Court. On January  13,2005, Grace filed an amended plan of reorganization (the‘‘Plan’’) and related documents to addresscertain objections of creditors and other interested parties. The Planis supported by committees representing general unsecured creditors andequity holders, but is not supported by committees representingasbestos personal injury claimants and asbestos property damageclaimants.

Under the terms of the Plan, a trust would beestablished under Section 524(g) of the Bankruptcy Code to which allpending and future asbestos-related claims would be channeled forresolution. Grace has requested that the Bankruptcy Court conduct anestimation hearing to, among other things, determine the amount thatwould need to be paid into the trust on the effective date of the Planto satisfy the estimated liability for all classes of asbestosclaimants and trust administration costs and expenses over time. ThePlan provides that Grace’s asbestos-related liabilities would besatisfied using cash and securities from Grace and third parties.

The Plan will become effective only after a vote of eligiblecreditors and with the approval of the Bankruptcy Court and the U.S.District Court for the District of Delaware. Votes on the Plan may notbe 

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solicited until the Bankruptcy Court approvesthe disclosure statement. The Bankruptcy Court has indicated that itwill not consider the approval of the disclosure statement until aftercompletion of estimation hearings on the amount of Grace’sasbestos-related liability. The Debtors have received extensions oftheir exclusive right to propose a plan of reorganization throughJuly  24,  2006.

Under the terms of the Plan, claimswould be satisfied under the Chapter 11 cases asfollows:

Asbestos-Related Claims andCosts

A trust would be established under Section 524(g) ofthe Bankruptcy Code to which all pending and future asbestos-relatedclaims would be channeled for resolution. The trust would utilizespecified trust distribution procedures to satisfy the followingallowed asbestos-related claims andcosts:

|          |                                                                                                                                                                                                                                                                                                                                                        |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.  | Personal injury claims that meetspecified exposure and medical criteria (Personal Injury-SymptomaticEligible or ‘‘PI-SE’’ Claims) –In order to qualify for this class, claimants would have to prove thattheir health is impaired from meaningful exposure toasbestos-containing products formerly manufactured byGrace. |

|          |                                                                                                                                                                                                                                                                                                                                                                                                                           |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.  | Personal injury claims that donot meet the exposure and medical criteria necessary to qualify asPI-SE Claims (Personal Injury-Asymptomatic and Other or‘‘PI-AO’’ Claims) – This classwould contain all asbestos-related personal injury claims against Gracethat do not meet the specific requirements to be PI-SE Claims, but domeet certain other specified exposure and medicalcriteria. |

|          |                                                                                                                                                                                                                                                                                                                                   |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.  | Property damage claims,including claims related to ZAI (‘‘PD Claims’’) – In order to qualify for this class, claimantswould have to prove Grace liability for loss of property value orremediation costs related to products formerly manufactured by Gracethat claimants allege containedasbestos. |

|          |                                              |
|----------|----------------------------------------------|
| 4.  | Trust administration costs andlegal expenses |

The pending asbestos-related legal proceedingsare described in ‘‘Asbestos-RelatedLitigation’’ (see Note 3). The claims arising from suchproceedings would be subject to this classification process as part ofthe Plan.

The Bankruptcy Court has entered case management ordersfor estimating liability for personal injury claims and property damageclaims (excluding ZAI claims). The case management orders originallycontemplated that estimation hearings would take place inSeptember  2006. However, in connection with the latestextensions of the Debtors' exclusive right to propose a plan ofreorganization, the Bankruptcy Court has deferred the estimationprocess to provide the Debtors and the other stakeholders in theChapter 11 proceeding with an opportunity to negotiate a resolution ofall or a portion of the Debtors' asbestos-related liabilities.The Bankruptcy Court has appointed a mediator to facilitate suchnegotiations. As a result of this deferral, if negotiations are notsuccessful and the Bankruptcy Court resumes the estimation process, theDebtors would not expect estimation hearings to take place until2007.

The Debtors expect that the Bankruptcy Court will use theestimated liability to determine the amounts to be paid into the truston the effective date of the Plan. The amounts to fund PI-SE Claims, PDClaims and the expense of trust administration would be capped at theamount determined by the Bankruptcy Court. Amounts required to fundPI-AO Claims would not be capped, so if the amount funded in respectthereof later proved to be inadequate, Grace would be responsible forcontributing additional funds into the asbestos trust to satisfy PI-AOClaims.

Asbestos personal injury claimants, including both PI-SEand PI-AO claims, would have the option either to litigate their claimsagainst the trust in federal court in Delaware or, if they meetspecified eligibility criteria, accept a settlement amount based on theseverity of their condition. Asbestos property damage claimants wouldbe required to litigate their claims against the trust in federal courtin Delaware. The Plan provides that, as a condition precedent toconfirmation, the maximum estimated aggregate funding amount for allasbestos-related liabilities (PI-SE, PI-AO and PD including ZAI) andtrust administration costs and expenses as determined by the BankruptcyCourt cannot exceed $1,613  million, which Grace believes wouldfund over $2  billion in claims, costs and expenses overtime.

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The PI-SE Claims, the PD Claims and therelated trust administration costs and expenses would be funded with(1) a payment of $512.5  million in cash (plus interest at5.5% compounded annually from December  21,  2002)and nine million shares of common stock of Sealed Air Corporation(‘‘Sealed Air’’) to be made directly byCryovac, Inc., a wholly owned subsidiary of Sealed Air,(‘‘Cryovac’’) to the asbestos trustpursuant to the terms of a settlement agreement resolvingasbestos-related, successor liability and fraudulent transfer claimsagainst Sealed Air and Cryovac and (2) Grace common stock. The amountof Grace common stock required to satisfy these claims will depend onthe liability measures approved by the Bankruptcy Court and the valueof the Sealed Air settlement, which changes daily with the accrual ofinterest and the trading value of Sealed Air common stock. The SealedAir settlement agreement has been approved by the Bankruptcy Court, butremains subject to the fulfillment of specified conditions.

ThePI-AO Claims would be funded with warrants exercisable for that numberof shares of Grace common stock which, when added to the shares issueddirectly to the trust on the effective date of the Plan, wouldrepresent 50.1% of Grace’s voting securities. If thecommon stock issuable upon exercise of the warrants is insufficient topay all PI-AO Claims (the liability for which is uncapped under thePlan), then Grace would pay any additional liabilities incash.

Other Claims

The Plan provides thatall allowed administrative or priority claims would be paid 100%in cash and all general unsecured claims, other than those covered bythe asbestos trust, would be paid 85% in cash and 15% inGrace common stock. Grace estimates that claims with a recorded valueof approximately $1,168  million, including interest accruedthrough March  31,  2006, would be satisfied in this mannerat the effective date of the Plan. Grace would finance these paymentswith cash on hand, cash from Fresenius Medical Care Holdings, Inc.(‘‘Fresenius’’) paid in settlement ofasbestos and other Grace-related claims, new Grace debt, and Gracecommon stock. Grace would satisfy other non-asbestos relatedliabilities and claims (primarily certain environmental, tax, pensionand retirement medical obligations) as they become due and payable overtime using cash flow from operations, insurance proceeds from policiesand settlement agreements covering asbestos-related liabilities, andnew credit facilities. Proceeds from available product liabilityinsurance applicable to asbestos-related claims would supplementoperating cash flow to service new debt and liabilities not paid on theeffective date of the Plan.

Effect on Grace CommonStock

The Plan provides that Grace common stock will remainoutstanding at the effective date of the Plan, but that the interestsof existing shareholders would be subject to dilution by additionalshares of common stock issued under the Plan. In addition, in order topreserve significant tax benefits from net operating loss carryforwards(‘‘NOLs’’), which are subject toelimination or limitation in the event of a change in control (asdefined by the Internal Revenue Code) of Grace, the Plan placesrestrictions on the purchase of Grace common stock. The restrictionswould prohibit (without the consent of Grace), for a period of threeyears, a person or entity from acquiring more than 4.75% of theoutstanding Grace common stock or, for those persons already holdingmore than 4.75%, prohibit them from increasing their holdings.The Bankruptcy Court has also approved the trading restrictionsdescribed above until the effective date of the Plan.

Graceintends to address all pending and future asbestos-related claims andall other pre-petition claims as outlined in the Plan. However, Gracemay not be successful in obtaining approval of the Plan by theBankruptcy Court and other interested parties. For example, theasbestos creditors committees and future asbestos claimantsrepresentative have challenged the confirmability of the Plan, arguingthat the Plan impairs the rights of asbestos creditors andimpermissibly denies them voting rights, and have asserted thatGrace’s asbestos-related liabilities exceed the fair value ofGrace’s assets. As a result of these challenges and otherBankruptcy Court rulings, a materially different plan of reorganizationmay ultimately be approved and, under the ultimate plan ofreorganization, the interests of the Company’s shareholderscould be substantially diluted or cancelled. The value of Grace commonstock following a plan of reorganization, and the extent of anyrecovery by non-asbestos-related creditors, will depend principally onthe allowed value of Grace’s asbestos-related claims asdetermined by the Bankruptcy Court.

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Official Parties to Grace’sChapter 11 Proceedings – Three creditors’ committees,two representing  asbestos claimants and the third representingother unsecured creditors, and a committee representing shareholders,have been appointed in the Chapter 11 Cases. These committees, and alegal representative of future asbestos claimants, have the right to beheard on all matters that come before the Bankruptcy Court and arelikely to play important roles in the Chapter 11 Cases. The Debtors arerequired to bear certain costs and expenses of the committees and ofthe future asbestos claimants’ representative, including thoseof their counsel and financial advisors.

Claims Filings– The Bankruptcy Court established a bar date of March31,  2003 for claims of general unsecured creditors,asbestos-related property damage claims and medical monitoring claimsrelated to asbestos. The bar date did not apply to asbestos-relatedpersonal injury claims or claims related to ZAI, which will be dealtwith separately.

Approximately 14,900 proofs of claim were filedby the bar date. Of these claims, approximately 9,400 were non-asbestosrelated, approximately 4,300 were for asbestos-related property damage,and approximately 1,000 were for medical monitoring. The medicalmonitoring claims were made by individuals who allege exposure toasbestos through Grace’s products or operations. These claims,if sustained, would require Grace to fund ongoing health monitoringcosts for qualified claimants. In addition, approximately 769 proofs ofclaim were filed after the bar date.

Approximately 7,000 of thenon-asbestos related claims involve claims by employees or formeremployees for future retirement benefits such as pension and retireemedical coverage. Grace views most of these claims as contingent andhas proposed a plan of reorganization that would retain such benefits.The other non-asbestos related claims include claims for payment ofgoods and services, taxes, product warranties, principal and interestunder pre-petition credit facilities, amounts due under leases andother contracts, leases and other executory contracts rejected in theBankruptcy Court, environmental remediation, indemnification orcontribution to actual or potential co-defendants in asbestos-relatedand other litigation, pending non-asbestos-related litigation, andnon-asbestos-related personal injury.

The Debtors have analyzedthe claims as filed and have found that many are duplicates, representthe same claim filed against more than one of the Debtors, lack anysupporting documentation, or provide insufficient supportingdocumentation. As of March  31,  2006, the Debtors hadfiled objections to approximately 5,400 claims (approximately 100 ofwhich were subsequently withdrawn), approximately 3,950 of which wereasbestos property damage claims. Of the 5,300 claims, approximately2,200 have been expunged, approximately 200 have been resolved,approximately 1,900 have been withdrawn by claimants, and the remainingapproximately 1,000 will be addressed through the claims objectionprocess and the dispute resolution procedures approved by theBankruptcy Court.

Grace believes that its recorded liabilitiesfor claims subject to the bar date represent a reasonable estimate ofthe ultimate allowable amount for claims that are not in dispute orhave been submitted with sufficient information to both evaluate themerit and estimate the value of the claim. The asbestos-related claimsare considered as part of Grace’s overall asbestos liability andare being accounted for in accordance with the conditions precedentunder the Plan, as described in ‘‘AccountingImpact’’ below. As claims are resolved, or where betterinformation becomes available and is evaluated, Grace will makeadjustments to the liabilities recorded on its financial statements asappropriate. Any such adjustments could be material to its consolidatedfinancial position and results of operations.

LitigationProceedings in Bankruptcy Court – In September  2000,Grace was named in a purported class action lawsuit filed in CaliforniaSuperior Court for the County of San Francisco, alleging that the 1996reorganization involving a predecessor of Grace and Fresenius AG andthe 1998 reorganization involving a predecessor of Grace and Sealed Airwere fraudulent transfers. The Bankruptcy Court authorized the OfficialCommittee of Asbestos Personal Injury Claimants and the OfficialCommittee of Asbestos Property Damage Claimants to proceed with claimsagainst Fresenius and Sealed Air and Cryovac on behalf of theDebtors’ bankruptcy estate.

On November  29,2002, Sealed Air (and Cryovac) and Fresenius each announced that theyhad reached agreements in principle with such Committees to settleasbestos, successor liability and fraudulent transfer claims related tosuch transactions (the ‘‘litigation settlementagreements’’). Under the 

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terms of the Fresenius settlement, subject tothe fulfillment of certain conditions, Fresenius would contribute$115.0  million to the Debtors’ estate as directed by theBankruptcy Court upon confirmation of the Debtors’ plan ofreorganization. In July  2003, the Fresenius settlement wasapproved by the Bankruptcy Court. Under the terms of the Sealed Airsettlement, subject to the fulfillment of certain conditions, Cryovacwould make a payment of $512.5  million (plus interest at5.5% compounded annually, commencing on December21,  2002) and nine million shares of Sealed Air common stock(collectively valued at $1,131.6  million as of March31,  2006), as directed by the Bankruptcy Court upon confirmationof the Debtors’ plan of reorganization. In June  2005, theSealed Air settlement was approved by the BankruptcyCourt.

Debt Capital – All of the Debtors’pre-petition debt is in default due to the Filing. The accompanyingConsolidated Balance Sheets reflect the classification of theDebtors’ pre-petition debt within ‘‘liabilitiessubject to compromise.’’

The Debtors have enteredinto a debtor-in-possession post-petition loan and security agreementwith Bank of America, N.A. (the ‘‘DIPfacility’’) in the aggregate amount of $250million. The term of the DIP facility expires on April  1,2008.

Accounting Impact – The accompanyingConsolidated Financial Statements have been prepared in accordance withStatement of Position 90-7 (‘‘SOP 90-7’’),‘‘Financial Reporting by Entities in Reorganization Underthe Bankruptcy Code,’’ promulgated by the AmericanInstitute of Certified Public Accountants. SOP 90-7 requires thatfinancial statements of debtors-in-possession be prepared on a goingconcern basis, which contemplates continuity of operations, realizationof assets and liquidation of liabilities in the ordinary course ofbusiness. However, as a result of the Filing, the realization ofcertain of the Debtors’ assets and the liquidation of certain ofthe Debtors’ liabilities are subject to significant uncertainty.While operating as debtors-in-possession, the Debtors may sell orotherwise dispose of assets and liquidate or settle liabilities foramounts other than those reflected in the Consolidated FinancialStatements. Further, the ultimate plan of reorganization couldmaterially change the amounts and classifications reported in theConsolidated Financial Statements.

Pursuant to SOP 90-7,Grace’s pre-petition liabilities that are subject to compromiseare required to be reported separately on the balance sheet at anestimate of the amount that will ultimately be allowed by theBankruptcy Court. As of March  31,  2006, such pre-petitionliabilities include fixed obligations (such as debt and contractualcommitments), as well as estimates of costs related to contingentliabilities (such as asbestos-related litigation, environmentalremediation, and other claims). Obligations of Grace subsidiaries notcovered by the Filing continue to be classified on the ConsolidatedBalance Sheets based upon maturity dates or the expected dates ofpayment. SOP 90-7 also requires separate reporting of certain expenses,realized gains and losses, and provisions for losses related to theFiling as reorganization items.

Grace has not recorded thebenefit of any assets that may be available to fund asbestos-relatedand other liabilities under the litigation settlements with Sealed Airand Fresenius, as such agreements are subject to conditions which,although expected to be met, have not been satisfied and confirmed bythe Bankruptcy Court. The value available under these litigationsettlement agreements as measured at March  31,  2006, was$1,246.6  million comprised of $115.0  million in cash fromFresenius and $1,131.6  million in cash and stock from Cryovac.Payments under the Sealed Air settlement will be made directly to theasbestos trust by Cryovac, and will be accounted for as a satisfactionof a portion of Grace’s recorded asbestos-related liability anda credit to shareholder’s equity.

Grace’sConsolidated Balance Sheets separately identify the liabilities thatare ‘‘subject to compromise’’ as a resultof the Chapter 11 proceedings. In Grace’s case,‘‘liabilities subject to compromise’’represent pre-petition liabilities as determined under U.S. generallyaccepted accounting principles. Changes to the recorded amount of suchliabilities will be based on developments in the Chapter 11 Cases andmanagement’s assessment of the claim amounts that willultimately be allowed by the Bankruptcy Court. Changes to pre-petitionliabilities subsequent to the Filing Date reflect: 1) cash paymentsunder approved court orders; 2) the terms of Grace’s proposedplan of reorganization, as discussed above, including the accrual ofinterest on pre-petition debt and other fixed obligations; 3) accrualsfor employee-related programs; and 4) changes in estimates related toother pre-petition contingent liabilities.

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Components of liabilities subject tocompromise are asfollows:

|                                           |  |               |         |                  |  |        |         |        |  |  |
|-------------------------------------------|--|---------------|---------|------------------|--|--------|---------|--------|--|--|
| (Inmillions)                              |  | March 31,2006 |         | December 31,2005 |
| Debt,pre-petition plus accruedinterest    |  | $             | 696.8   |             |  | $      | 684.7   |   |
| Asbestos-relatedliability                 |  |          | 1,700.0 |             |  |   | 1,700.0 |   |
| Incometaxes                               |  |          | 137.4   |             |  |   | 136.5   |   |
| Environmentalremediation                  |  |          | 339.9   |             |  |   | 342.0   |   |
| Postretirementbenefits other thanpension  |  |          | 97.6    |             |  |   | 101.3   |   |
| Unfunded specialpensionarrangements       |  |          | 86.9    |             |  |   | 86.4    |   |
| Retainedobligations of divestedbusinesses |  |          | 17.5    |             |  |   | 18.1    |   |
| Accountspayable                           |  |          | 31.5    |             |  |   | 31.5    |   |
| Other accruedliabilities                  |  |          | 57.7    |             |  |   | 54.6    |   |
| TotalLiabilities Subject toCompromise     |  | $             | 3,165.3 |             |  | $      | 3,155.1 |   |
|                                           |

Notethat the unfunded special pension arrangements reflected above excludenon-U.S. plans and qualified U.S. plans that became underfundedsubsequent to the Filing. Contributions to qualified U.S. plans aresubject to Bankruptcy Court approval.

Change inLiabilities Subject to Compromise

Set forth below is areconciliation of the changes in pre-filing date liability balances forthe period from the Filing Date through March  31,2006.

|                                                                                                 |  |                        |         |         |  |  |
|-------------------------------------------------------------------------------------------------|--|------------------------|---------|---------|--|--|
| (Inmillions)                                                                                    |  | Cumulative SinceFiling |
| Balance, Filing Date April  2,2001                                                              |  | $                      | 2,366.0 |    |
| Cash disbursementsand/or reclassifications under Bankruptcy Courtorders:                        |  |                   |    |    |
| Freight and distributionorder                                                                   |  |                   | (5.7    | )  |
| Trade accounts payableorder                                                                     |  |                   | (9.1    | )  |
| Settlements of noncorecontingencies                                                             |  |                   | (119.7  | )  |
| Other courtorders including employee wages and benefits, sales and use tax, andcustomerprograms |  |                   | (303.5  | )  |
| Expense/(income)items:                                                                          |  |                   |    |    |
| Interest on pre-petitionliabilities                                                             |  |                   | 219.0   |    |
| Employee-relatedaccruals                                                                        |  |                   | 34.6    |    |
| Change in estimate ofasbestos-relatedcontingencies                                              |  |                   | 744.8   |    |
| Change inestimate of environmentalcontingencies                                                 |  |                   | 265.6   |    |
| Change inestimate of income taxcontingencies                                                    |  |                   | (1.0    | )  |
| Balance sheetreclassifications                                                                  |  |                   | (25.7   | )  |
| Balance,end ofperiod                                                                            |  | $                      | 3,165.3 |    |
|                                                                                                 |

Additionalliabilities subject to compromise may arise due to the rejection ofexecutory contracts or unexpired leases, or as a result of theBankruptcy Court’s allowance of contingent or disputed claims.Beginning January  1,  2006, Grace has agreed to payinterest on pre-petition bank debt at the prime rate adjusted forperiodic changes, and compounded quarterly. The effective rate for thequarter ended March  31,  2006 was7.43%.

Chapter 11Expenses

|                                 |  |                            |      |         |  |        |      |         |  |  |
|---------------------------------|--|----------------------------|------|---------|--|--------|------|---------|--|--|
| (Inmillions)                    |  | Three Months EndedMarch31, |
|                            |  | 2006                       |      | 2005    |
| Legaland financial advisoryfees |  | $                          | 10.8 |    |  | $      | 7.8  |    |
| Interestincome                  |  |                       | (2.1 | )  |  |   | (1.8 | )  |
| Chapter11 expenses,net          |  | $                          | 8.7  |    |  | $      | 6.0  |    |
|                                 |

Pursuantto SOP 90-7, interest income earned on the Debtors’ cashbalances must be offset against Chapter 11expenses.

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CondensedFinancial Information of the Debtors

|                                                                                                                                          |  |                            |       |         |  |        |       |         |  |  |
|------------------------------------------------------------------------------------------------------------------------------------------|--|----------------------------|-------|---------|--|--------|-------|---------|--|--|
| W.R. Grace & Co. – Chapter 11 Filing EntitiesDebtor-in-Possession    Statements of Operations(In millions) |  | ThreeMonths Ended March31, |
| 2006                                                                                                                                     |  | 2005                       |
| Netsales, includingintercompany                                                                                                          |  | $                          | 353.8 |    |  | $      | 298.9 |    |
| Costof goods sold, including intercompany, exclusive of depreciation andamortization shown separatelybelow                               |  |                       | 274.3 |    |  |   | 202.8 |    |
| Selling, generaland administrative expenses, exclusive of net pension expense shownseparately below                                      |  |                       | 80.6  |    |  |   | 69.0  |    |
| Researchand developmentexpenses                                                                                                          |  |                       | 10.5  |    |  |   | 9.6   |    |
| Depreciation andamortization                                                                                                             |  |                       | 14.5  |    |  |   | 14.9  |    |
| Net pensionexpense                                                                                                                       |  |                       | 10.7  |    |  |   | 13.2  |    |
| Interest expenseand related financingcosts                                                                                               |  |                       | 15.7  |    |  |   | 14.4  |    |
| Other (income)expense                                                                                                                    |  |                       | (8.9  | )  |  |   | (12.0 | )  |
|                                                                                                                                     |  |                       | 397.4 |    |  |   | 311.9 |    |
| Income(loss) before Chapter 11 expenses, income taxes, and equity in netincome of non-filingentities                                     |  |                       | (43.6 | )  |  |   | (13.0 | )  |
| Chapter 11expenses, net                                                                                                                  |  |                       | (8.7  | )  |  |   | (5.9  | )  |
| Benefitfrom (provision for) incometaxes                                                                                                  |  |                       | 11.1  |    |  |   | (0.8  | )  |
| Income(loss) before equity in net income of non-filingentities                                                                           |  |                       | (41.2 | )  |  |   | (19.7 | )  |
| Equity in netincome of non-filingentities                                                                                                |  |                       | 41.3  |    |  |   | 22.8  |    |
| Netincome(loss)                                                                                                                          |  | $                          | 0.1   |    |  | $      | 3.1   |    |
|                                                                                                                                          |

|                                                                                                                                                     |  |                            |         |         |  |        |        |         |  |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--|----------------------------|---------|---------|--|--------|--------|---------|--|--|
| W.R. Grace & Co. – Chapter 11 Filing EntitiesDebtor-in-Possession     Condensed Statements of Cash Flows(In millions) |  | ThreeMonths Ended March31, |
| 2006                                                                                                                                                |  | 2005                       |
| OperatingActivities                                                                                                                                 |  |                       |    |    |  |   |   |    |
| Income (loss)before Chapter 11 expenses, income taxes, and equity in net income ofnon-filingentities                                                |  | $                          | (43.6   | )  |  | $      | (13.0  | )  |
| Reconciliationto net cash provided by (used for) operatingactivities:                                                                               |  |                       |    |    |  |   |   |    |
| Non-cash items,net                                                                                                                                  |  |                       | 30.5    |    |  |   | 26.9   |    |
| Contributionsto defined benefit pensionplans                                                                                                        |  |                       | (10.0   | )  |  |   | (1.1   | )  |
| Cash paidto settle noncorecontingencies                                                                                                             |  |                       | — |    |  |   | (8.3   | )  |
| Changesin other assets and liabilities, excluding the effect of businessesacquired/divested                                                         |  |                       | (74.4   | )  |  |   | (73.9  | )  |
| Netcash provided by (used for) operatingactivities                                                                                                  |  |                       | (97.5   | )  |  |   | (69.4  | )  |
| InvestingActivities                                                                                                                                 |  |                       |    |    |  |   |   |    |
| Capitalexpenditures                                                                                                                                 |  |                       | (16.6   | )  |  |   | (8.8   | )  |
| Loanrepayments andother                                                                                                                             |  |                       | 17.7    |    |  |   | 20.5   |    |
| Netcash provided by (used for) investingactivities                                                                                                  |  |                       | 1.1     |    |  |   | 11.7   |    |
| Netcash provided by (used for) financingactivities                                                                                                  |  |                       | (0.5    | )  |  |   | (1.1   | )  |
| Netincrease (decrease) in cash and cashequivalents                                                                                                  |  |                       | (96.9   | )  |  |   | (58.8  | )  |
| Cashand cash equivalents, beginning ofperiod                                                                                                        |  |                       | 269.2   |    |  |   | 340.0  |    |
| Cashand cash equivalents, end ofperiod                                                                                                              |  | $                          | 172.3   |    |  | $      | 281.2  |    |
|                                                                                                                                                     |

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|                                                                                                                                |  |              |         |                 |  |        |         |         |  |  |
|--------------------------------------------------------------------------------------------------------------------------------|--|--------------|---------|-----------------|--|--------|---------|---------|--|--|
| W.R. Grace & Co. – Chapter 11 Filing EntitiesDebtor-in-Possession     Balance Sheets(Inmillions) |  | March31,2006 |         | December31,2005 |
| ASSETS                                                                                                                         |  |         |
| CurrentAssets                                                                                                                  |  |         |    |            |
| Cash and cashequivalents                                                                                                       |  | $            | 172.3   |            |  | $      | 269.2   |    |
| Tradeaccounts receivable,net                                                                                                   |  |         | 122.7   |            |  |   | 108.0   |    |
| Receivables fromnon-filing entities,net                                                                                        |  |         | 79.9    |            |  |   | 62.3    |    |
| Inventories                                                                                                                    |  |         | 93.4    |            |  |   | 86.8    |    |
| Othercurrentassets                                                                                                             |  |         | 47.2    |            |  |   | 53.5    |    |
| TotalCurrentAssets                                                                                                             |  |         | 515.5   |            |  |   | 579.8   |    |
| Propertiesand equipment, net                                                                                                   |  |         | 380.0   |            |  |   | 378.9   |    |
| Cashvalue of life insurance policies, net of policyloans                                                                       |  |         | 86.2    |            |  |   | 84.8    |    |
| Deferred incometaxes                                                                                                           |  |         | 712.3   |            |  |   | 701.0   |    |
| Asbestos-relatedinsurance                                                                                                      |  |         | 500.0   |            |  |   | 500.0   |    |
| Loansreceivable from non-filing entities,net                                                                                   |  |         | 297.0   |            |  |   | 306.9   |    |
| Investment innon-filingentities                                                                                                |  |         | 570.8   |            |  |   | 527.9   |    |
| Otherassets                                                                                                                    |  |         | 75.8    |            |  |   | 79.3    |    |
| TotalAssets                                                                                                                    |  | $            | 3,137.6 |            |  | $      | 3,158.6 |    |
| LIABILITIESAND SHAREHOLDERS’ EQUITY(DEFICIT)                                                                             |  |         |    |            |  |   |    |    |
| Liabilities Not Subjectto Compromise                                                                                           |  |         |    |            |  |   |    |    |
| Currentliabilities                                                                                                             |  | $            | 158.8   |            |  | $      | 187.3   |    |
| Minorityinterest in consolidatedaffiliates                                                                                     |  |         | 39.1    |            |  |   | 32.6    |    |
| Otherliabilities                                                                                                               |  |         | 367.3   |            |  |   | 378.9   |    |
| TotalLiabilities Not Subject toCompromise                                                                                      |  |         | 565.2   |            |  |   | 598.8   |    |
| LiabilitiesSubject toCompromise                                                                                                |  |         | 3,165.3 |            |  |   | 3,155.1 |    |
| TotalLiabilities                                                                                                               |  |         | 3,730.5 |            |  |   | 3,753.9 |    |
| Shareholders’Equity(Deficit)                                                                                             |  |         | (592.9  | )          |  |   | (595.3  | )  |
| TotalLiabilities and Shareholders’ Equity (Deficit)                                                                      |  | $            | 3,137.6 |            |  | $      | 3,158.6 |    |
|                                                                                                                                |

Inaddition to Grace’s financial reporting obligations asprescribed by the U.S. Securities and Exchange Commission, the Debtorsare also required, under the rules and regulations of the BankruptcyCode, to periodically file certain statements and schedules and amonthly operating report with the Bankruptcy Court. This information isavailable to the public through the Bankruptcy Court. This informationis prepared in a format that may not be comparable to information inGrace’s quarterly and annual financial statements as filed withthe SEC. The monthly operating reports are not audited, do not purportto represent the financial position or results of operations of Graceon a consolidated basis, and should not be relied on for suchpurposes.

3.    Asbestos-Related Litigation

Grace is adefendant in property damage and personal injury lawsuits relating topreviously sold asbestos-containing products. As of the Filing Date,Grace was a defendant in 65,656 asbestos-related lawsuits, 17 involvingclaims for property damage (one of which has since been dismissed), andthe remainder involving 129,191 claims for personal injury. Due to theFiling, holders of asbestos-related claims are stayed from continuingto prosecute pending litigation and from commencing new lawsuitsagainst the Debtors. Separate creditors’ committees representingthe interests of property damage and personal injury claimants, and alegal representative of future personal injury claimants, have beenappointed in the Chapter 11 Cases. Grace’s obligations withrespect to present and future claims will be determined through theChapter 11 process.

Property Damage Litigation –The plaintiffs in asbestos property damage lawsuits generally seek tohave the defendants pay for the cost of removing, containing orrepairing the asbestos-containing materials in the affected buildings.Each property damage case is unique in that the age, type, size and useof the building, and the difficulty of asbestos abatement, ifnecessary, vary from structure to structure. Information regardingproduct identification, the amount of product in the building, the age,type, size and 

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use of the building, the legal status of theclaimant, the jurisdictional history of prior cases and the court inwhich the case is pending has provided meaningful guidance as to therange of potential costs.

Out of 380 asbestos property damagecases (which involved thousands of buildings) filed prior to the FilingDate, 140 were dismissed without payment of any damages or settlementamounts; judgments were entered in favor of Grace in nine cases(excluding cases settled following appeals of judgments in favor ofGrace); judgments were entered in favor of the plaintiffs in eightcases (one of which is on appeal) for a total of $86.1  million;207 property damage cases were settled for a total of $696.8million; and 16 cases remain outstanding (including the one on appeal).Of the 16 remaining cases, eight relate to ZAI and eight relate to anumber of former asbestos-containing products (two of which also arealleged to involve ZAI).

Approximately 4,300 additional propertydamage claims were filed prior to the March  31,  2003claims bar date established by the Bankruptcy Court. (The bar date didnot apply to ZAI claims.) Such claims were reviewed in detail by Grace,categorized into claims with sufficient information to be evaluated orclaims that require additional information and, where sufficientinformation existed, the estimated cost of resolution was considered aspart of Grace’s recorded asbestos-related liability.(Approximately 200 claims did not contain sufficient information topermit an evaluation.) Grace has objected to virtually all propertydamage claims on a number of different bases, including: noauthorization to file a claim; the claim was previously settled oradjudicated; no or insufficient documentation; failure to identify aGrace product; the expiration of the applicable statute of limitationsand/or statute of repose, and/or laches; and a defense that the productin place is not hazardous. As of March  31,  2006,following the reclassification, withdrawal or expungement of claims,approximately 890 property damage claims remainoutstanding.

Eight of the ZAI cases were filed as purported classaction lawsuits in 2000 and 2001. In addition, eight lawsuits werefiled as purported class actions in 2004 and 2005 with respect topersons and homes in Canada. These cases seek damages and equitablerelief, including the removal, replacement and/or disposal of all suchinsulation. The plaintiffs assert that this product is in millions ofhomes and that the cost of removal could be several thousand dollarsper home. As a result of the Filing, the eight U.S. cases have beentransferred to the Bankruptcy Court. Based on Grace’sinvestigation of the claims described in these lawsuits, and testingand analysis of this product by Grace and others, Grace believes thatthe product was and continues to be safe for its intended purpose andposes little or no threat to human health. The plaintiffs in the ZAIlawsuits (and the U.S. government in the Montana criminal proceedingdescribed in Note 12) dispute Grace’s position on the safety ofZAI. In July  2002, the Bankruptcy Court approved special counselto represent, at the Debtors’ expense, the ZAI claimants in aproceeding to determine certain threshold scientific issues regardingZAI. On October  18,  2004, the Bankruptcy Court held ahearing on motions filed by the parties to address a number ofimportant legal and factual issues regarding the ZAI claims, and hastaken the motions under advisement. The Bankruptcy Court has indicatedthat it may require further proceedings with respect to the mattersaddressed in the motions and no decision has yet been rendered. Giventhe early stage of litigation, Grace’s recorded asbestos-relatedliability at March  31,  2006 assumes the risk of loss fromZAI litigation is not probable. If Grace’s view as to risk ofloss were not sustained, management believes the cost to resolve thematter would be material.

Personal Injury Litigation– Asbestos personal injury claimants allege adverse healtheffects from exposure to asbestos-containing products formerlymanufactured by Grace. Claims are generally similar to each other,differing primarily in the type of asbestos-related illness allegedlysuffered by the plaintiff. Grace’s cost to resolve such claimshas been influenced by numerous variables, including the solvency ofother former producers of asbestos containing products, cross-claims byco-defendants, the rate at which new claims are filed, the jurisdictionin which the claims are filed, and the defense and disposition costsassociated with these claims.

Cumulatively through the FilingDate, 16,354 asbestos personal injury lawsuits involving approximately35,720 claims were dismissed without payment of any damages orsettlement amounts (primarily on the basis that Grace products were notinvolved) and approximately 55,489 lawsuits involving approximately163,698 claims were disposed of (through settlements and judgments) fora total of $645.6  million. As of the Filing Date, 129,191 claimsfor personal injury were pending against Grace. 

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Grace believes that a substantial number ofadditional personal injury claims would have been received between theFiling Date and March  31,  2006 had such claims not beenstayed by the Bankruptcy Court.

Asbestos-RelatedLiability – The total recorded asbestos-related liabilitybalance as of March  31,  2006 and December31,  2005 was $1,700.0  million and is included in‘‘liabilities subject to compromise.’’Grace adjusted its asbestos-related liability in the fourth quarter of2004 based on its proposed plan of reorganization as discussed in Note2. The amount recorded at March  31,  2006 includes the$1,613  million maximum amount reflected as a condition precedentto the Plan and $87  million related to pre-Chapter 11contractual settlements and judgments included in general unsecuredclaims.

Under the Plan, Grace is requesting that the BankruptcyCourt determine the aggregate dollar amount, on a net present valuebasis, that must be funded on the effective date of the Plan into anasbestos trust (established under Section 524(g) of the BankruptcyCode) to pay all allowed pending and future asbestos-related personalinjury and property damage claims (including ZAI) and related trustadministration costs and expenses on the later of the effective date ofthe Plan or when allowed (the ‘‘FundingAmount’’). It is a condition to confirmation of the Planthat the Bankruptcy Court shall conclude that the Funding Amount is notgreater than $1,613  million. This amount, which should besufficient to fund over $2  billion in pending and future claims,is based in part on Grace’s evaluation of (1) existing butunresolved personal injury and property damage claims, (2)actuarially-based estimates of future personal injury claims, (3) therisk of loss from ZAI litigation, (4) proposed claim payments reflectedin the Plan, and (5) the cost of the trust administration andlitigation. This amount may not be consistent with what the BankruptcyCourt may conclude would be a sufficient Funding Amount.

TheBankruptcy Court has issued separate case management orders forestimating liability for pending and future personal injury claims andpending property damage claims, excluding ZAI claims. The casemanagement orders originally contemplated that estimation hearingswould take place in September  2006. However, in connection withthe latest extensions of the Debtors' exclusive right to proposea plan of reorganization, the Bankruptcy Court has deferred theestimation process to provide the Debtors and the other stakeholders inthe Chapter 11 proceeding with an opportunity to negotiate a resolutionof all or a portion of the Debtors' asbestos-related liabilities.The Bankruptcy Court has appointed a mediator to facilitate suchnegotiations. As a result of this deferral, if negotiations are notsuccessful and the Bankruptcy Court resumes the estimation process, theDebtors would not expect estimation hearings to take place until2007.

For personal injury claims, the Court has ordered that allclaimants with claims pending as of the Filing Date must completedetailed questionnaires providing information on, among other things,their medical condition, including diagnostic support, exposure toGrace and non-Grace asbestos-containing products, employment history,and pending lawsuits against other companies. Such information will beanalyzed by experts and presented to the Bankruptcy Court, includingestimates of the number of personal injury claims expected to be filedin the future, as the basis for determining the Funding Amount inrespect of all pending and future asbestos personal injury claims.

For property damage claims, the case management order provides thatestimation will be preceded by litigation on certain common thresholdissues affecting a substantial majority of claims. Such litigation willconsist of determining the date by which building owners knew or shouldhave known of the reported hazards of asbestos-containing materials intheir buildings, which would provide the basis for a statute oflimitations defense, and the evidentiary admissibility of certainasbestos testing methodologies. During the period preceding theestimation hearing, Grace will also ask the Bankruptcy Court to rule onGrace’s specific objections to individual claims and groups ofclaims. Claims not resolved or expunged through the common issuelitigation or the objection process would be the subject of anestimation hearing, which would provide the basis for a BankruptcyCourt determination of the Funding Amount in respect of all propertydamage claims.

The Funding Amount will be primarily a functionof the number of allowed property damage and personal injury claims,and the amount payable per claim. Through the estimation process, Gracewill 

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seek to demonstrate that most claims shouldnot be allowed because they fail to establish any material propertydamage, health impairment or significant occupational exposure toasbestos from Grace’s operations or products. If the BankruptcyCourt agrees with Grace’s position on the number of, and theamounts to be paid in respect of, allowed personal injury and propertydamage claims, then Grace believes that the Funding Amount could beless than $1,613  million. However, this outcome is highlyuncertain and will depend on a number of Bankruptcy Court rulingsfavorable to Grace’s position.

Conversely, the asbestosclaimants committees and the future claimants representative continueto assert that Grace’s asbestos-related liabilities aresubstantially higher than $1,613  million, and in fact are inexcess of Grace’s business value. If the Court accepts theposition of the asbestos claimants committees, then any plan ofreorganization likely would result in the loss of all or substantiallyall equity value by current shareholders. Therefore, due to thesignificant uncertainties of this process and asbestos litigationgenerally, Grace is not able to estimate a probable Funding Amount thatwould be accepted by the Bankruptcy Court.

However, as Grace iswilling to proceed with confirmation of the Plan with a Funding Amountof up to $1,613  million (assuming that other conditionsprecedent to confirmation of the Plan are satisfied, including theavailability of the payment from Cryovac directly to the asbestos trustunder the settlement agreement described in Note 2), during the fourthquarter of 2004, Grace accrued and took a charge of $714.8million to increase its recorded asbestos-related liability to reflectthe maximum amount allowed as a condition precedent under the Plan.This amount, plus $87.0  million for pre-Chapter 11 contractualsettlements and judgments, brings the total recorded asbestos-relatedliability as of March  31,  2006 and December31,  2005 to $1,700  million. Any differences between thePlan as filed and as approved for confirmation could fundamentallychange the accounting measurement of Grace’s asbestos-relatedliability and that change could be material.

InsuranceRights – Grace previously purchased insurance policies thatprovide coverage for years 1962 to 1985 with respect toasbestos-related lawsuits and claims. Since 1985, insurance coveragefor asbestos-related liabilities has not been commercially available toGrace.

With one exception, coverage disputes regardingGrace’s primary insurance policies have been settled, and thesettlement amounts paid in full. Grace’s excess coverage is forloss above certain levels. The levels vary from policy to policy,creating ‘‘layers’’ of excess coverage,some of which are triggered before others. As of March31,  2006, after subtracting previous reimbursements by insurersand allowing for discounts pursuant to certain settlement agreements,there remains approximately $960 million of excess coverage frommore than 56 presently solvent insurers.

Grace has entered intosettlement agreements with various excess insurance carriers. Thesesettlements involve amounts paid and to be paid to Grace. The unpaidmaximum aggregate amount for settled insurers available under thesesettlement agreements is approximately $477  million. Withrespect to asbestos-related personal injury claims, the settlementagreements generally require that the claims be spread over theclaimant’s exposure period and that each insurer pay a pro rataportion of each claim based on the amount of coverage provided duringeach year of the total exposure period.

Presently, Grace has noagreements in place with insurers with respect to approximately$483 million of excess coverage, which is at layers of coveragethat have not yet been triggered, but certain layers would be triggeredif the Plan were approved at the recorded asbestos-related liability of$1,700  million. Grace believes that any allowed ZAI claims alsowould be covered under the settlement agreements and unsettled policiesdiscussed above to the extent they relate to installations of ZAIoccurring after July 1, 1973.

In addition to theapproximately $960  million of excess coverage with solventinsurers, Grace has approximately $317 million of excesscoverage with insolvent or non-paying insurance carriers. (Non-payingcarriers are those that, although technically not insolvent, are notcurrently meeting their obligations to pay claims.) Grace has filed andcontinues to file claims in the insolvency proceedings of 

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insolvent carriers. Grace is currentlyreceiving distributions from some of these insolvent carriers andexpects to receive distributions in the future. Settlement amounts arerecorded as income when received.

Grace estimates that, assumingan ultimate payout of asbestos-related claims equal to the recordedliability of $1,700  million, it should be entitled toapproximately $500  million, on a net present value basis, ofinsurance recovery.

4.    Acquisitions and JointVentures

In the first quarter of 2006, Grace did not completeany business combinations. In the first quarter of 2005, Gracecompleted two business combinations for a total cash cost of$2.5  million as follows:

|              |                                                                                                                                                                                                                                        |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | InFebruary  2005, Grace acquired certain assets of Midland DexterVenezuela, S.A. (‘‘Midevensa’’). Midevensasupplies coatings and sealants for rigid packaging in the local andexport markets of Latin America. |

|              |                                                                                                                                                                                                                                                                                                          |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | InMarch  2005, Grace acquired certain assets relating to theconcrete admixtures business of Perstorp Peramin AB(‘‘Perstorp’’) located in Sweden. Perstorpsupplies specialty chemicals and materials to the construction industryin Sweden and other Northern European countries. |

Goodwillrecognized in the 2005 transactions amounted to $0.2  million,which was assigned to Grace Performance Chemicals.

5.    Other(Income) Expense

Components of other (income) expense are asfollows:

|                                                               |  |                             |      |         |  |        |       |         |  |  |
|---------------------------------------------------------------|--|-----------------------------|------|---------|--|--------|-------|---------|--|--|
| Other(Income) Expense(In millions)                            |  | Three Months Ended March31, |
| 2006                                                          |  | 2005                        |
| COLIincome,net                                                |  | $                           | (1.2 | )  |  | $      | (1.3  | )  |
| Interestincome                                                |  |                        | (1.4 | )  |  |   | (0.7  | )  |
| Net (gain) losson sales of investments and disposals ofassets |  |                        | 1.8  |    |  |   | (0.9  | )  |
| Currencytranslation – intercompanyloan                  |  |                        | (3.0 | )  |  |   | 14.9  |    |
| Value of currencycontracts                                    |  |                        | 2.8  |    |  |   | (14.5 | )  |
| Other currencytransaction effects                             |  |                        | 1.0  |    |  |   | 0.2   |    |
| Othermiscellaneousincome                                      |  |                        | (1.9 | )  |  |   | (3.8  | )  |
| Totalother (income)expense                                    |  | $                           | (1.9 | )  |  | $      | (6.1  | )  |
|                                                               |

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6.    Other Balance SheetAccounts

|                                                                           |  |               |        |                 |  |        |        |         |  |  |
|---------------------------------------------------------------------------|--|---------------|--------|-----------------|--|--------|--------|---------|--|--|
| (Inmillions)                                                              |  | March 31,2006 |        | December31,2005 |
| Inventories                                                               |  |          |   |            |  |   |   |    |
| Rawmaterials                                                              |  | $             | 71.7   |            |  | $      | 67.3   |    |
| Inprocess                                                                 |  |          | 35.0   |            |  |   | 32.8   |    |
| Finishedproducts                                                          |  |          | 216.2  |            |  |   | 210.8  |    |
| Generalmerchandise                                                        |  |          | 32.7   |            |  |   | 33.2   |    |
| Less:Adjustment of certain inventories to a last-in/first-out (LIFO)basis |  |          | (54.4  | )          |  |   | (65.8  | )  |
|                                                                      |  | $             | 301.2  |            |  | $      | 278.3  |    |
| OtherAssets                                                               |  |          |   |            |  |   |   |    |
| Deferred pensioncosts                                                     |  | $             | 109.6  |            |  | $      | 108.8  |    |
| Deferredcharges                                                           |  |          | 18.9   |            |  |   | 20.8   |    |
| Long-termreceivables, less allowances of $0.8(2005-$0.7)                  |  |          | 7.5    |            |  |   | 7.6    |    |
| Patents,licenses and other intangible assets,net                          |  |          | 85.7   |            |  |   | 87.6   |    |
| Pension-unamortizedprior servicecost                                      |  |          | 12.7   |            |  |   | 12.7   |    |
| Investments inunconsolidated affiliates andother                          |  |          | 0.7    |            |  |   | 0.6    |    |
|                                                                      |  | $             | 235.1  |            |  | $      | 238.1  |    |
| OtherCurrent Liabilities                                                  |  |          |   |            |  |   |   |    |
| Accruedcompensation                                                       |  | $             | 55.6   |            |  | $      | 70.4   |    |
| Deferredtax liability                                                     |  |          | 0.8    |            |  |   | 0.8    |    |
| Customervolume rebates                                                    |  |          | 22.7   |            |  |   | 35.4   |    |
| Accruedcommissions                                                        |  |          | 6.3    |            |  |   | 11.1   |    |
| Accruedreorganization fees                                                |  |          | 16.2   |            |  |   | 18.0   |    |
| Otheraccruedliabilities                                                   |  |          | 62.4   |            |  |   | 62.2   |    |
|                                                                      |  | $             | 164.0  |            |  | $      | 197.9  |    |
|                                                                           |

Accruedcompensation in the table above includes current amounts due throughMarch  31,  2007 under the annual and long-term incentiveprograms. Other liabilities on the Consolidated Balance Sheet includesamounts expected to be paid under these programs after April1,  2007.

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|          |               |
|----------|---------------|
| 7.  | LifeInsurance |

Grace is the beneficiary of life insurance policies oncertain current and former employees with a net cash surrender value of$86.2  million and $84.8  million at March31,  2006 and December  31,  2005, respectively. Thepolicies were acquired to fund various employee benefit programs andother long-term liabilities and are structured to provide cash flow(primarily tax-free) over an extended number of years.

Thefollowing tables summarize activity in these policies for the threemonths ended March  31,  2006 and 2005, and the componentsof net cash value at March  31,  2006 and December31,2005:

|                                                    |  |                            |                 |         |  |        |       |         |  |  |
|----------------------------------------------------|--|----------------------------|-----------------|---------|--|--------|-------|---------|--|--|
| LifeInsurance – Activity Summary(Inmillions) |  | Three Months EndedMarch31, |
| 2006                                               |  | 2005                       |
| Earningson policyassets                            |  | $                          |   1.6 |    |  | $      | 3.1   |    |
| Intereston policy loans                            |  |                       | (0.4            | )  |  |   | (1.8  | )  |
| Policyloanrepayments                               |  |                       | —         |    |  |   | 0.5   |    |
| Proceedsfrom termination of life insurancepolicies |  |                       | —         |    |  |   | (14.8 | )  |
| Netinvestingactivity                               |  |                       | 0.2             |    |  |   | (2.0  | )  |
| Changein net cashvalue                             |  | $                          | 1.4             |    |  | $      | (15.0 | )  |
| Tax-freeproceedsreceived                           |  | $                          | 0.1             |    |  | $      | 2.0   |    |
|                                                    |

|                                     |  |          |       |             |  |        |       |         |  |  |
|-------------------------------------|--|----------|-------|-------------|--|--------|-------|---------|--|--|
| Componentsof Net Cash Value         |  | March31, |       | December31, |
| (Inmillions)                        |  |     | 2006  |        |  |   | 2005  |    |
| Grosscashvalue                      |  | $        | 110.9 |        |  | $      | 109.2 |    |
| Principal– policyloans        |  |     | (23.8 | )      |  |   | (23.7 | )  |
| Accrued interest– policyloans |  |     | (0.9  | )      |  |   | (0.7  | )  |
| Netcashvalue                        |  | $        | 86.2  |        |  | $      | 84.8  |    |
| Insurancebenefits inforce           |  | $        | 197.4 |        |  | $      | 196.3 |    |
|                                     |

Grace’sfinancial statements display income statement activity and balancesheet amounts on a net basis, reflecting the contractualinterdependency of policy assets and liabilities.

InJanuary  2005, Grace surrendered and terminated most of theselife insurance policies and received approximately $14.8  millionof net cash value from the termination. As a result of the termination,gross cash value of the policies was reduced by approximately$381  million and policy loans of approximately $365million were satisfied. Grace’s insurance benefits in force wasreduced by approximately $2  billion.

|          |      |
|----------|------|
| 8.  | Debt |

|                                                        |  |                |        |                  |  |        |        |         |  |  |
|--------------------------------------------------------|--|----------------|--------|------------------|--|--------|--------|---------|--|--|
| Componentsof Debt(In millions)                         |  | March 31, 2006 |        | December31, 2005 |
| Debt payable withinone year                            |  |           |   |             |  |   |   |    |
| Other short-termborrowings         |  | $              | 2.2    |             |  | $      | 2.3    |    |
|                                                   |  | $              | 2.2    |             |  | $      | 2.3    |    |
| Debtpayable after one year                             |  |           |   |             |  |   |   |    |
| Otherlong-termborrowings           |  | $              | 0.4    |             |  | $      | 0.4    |    |
|                                                   |  | $              | 0.4    |             |  | $      | 0.4    |    |
| DebtSubject to Compromise                              |  |           |   |             |  |   |   |    |
| Bankborrowings                                         |  | $              | 500.0  |             |  | $      | 500.0  |    |
| Otherborrowings                                        |  |           | 14.1   |             |  |   | 14.3   |    |
| Accruedinterest                                        |  |           | 182.7  |             |  |   | 170.4  |    |
|                                                   |  | $              | 696.8  |             |  | $      | 684.7  |    |
| Annualizedweighted average interest rates on totaldebt |  |           | 7.3    | %           |  |   | 6.1    | %  |
|                                                        |

InApril  2001, the Debtors entered into the DIP facility for atwo-year term in the aggregate amount of $250  million. The DIPfacility is secured by a priority lien on substantially all assets ofthe Debtors with the exclusion of foreign stock holdings, and bearsinterest based on the London Interbank Offered Rate 

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(LIBOR). The Debtors have extended the termof the DIP facility through April  1,  2008. Grace had nooutstanding borrowings under the DIP facility as of March31,  2006; however, $34.5  million of standby letters ofcredit were issued and outstanding under the facility. The letters ofcredit, which reduce available funds under the facility, were issuedprimarily for trade-related matters such as performance bonds, andcertain insurance and environmentalmatters.

|          |                                     |
|----------|-------------------------------------|
| 9.  | Shareholders’ Equity(Deficit) |

Under its Certificate of Incorporation, the Company isauthorized to issue 300,000,000 shares of common stock, $0.01 parvalue. Of the common stock unissued at March  31,  2006,approximately 6,376,135 shares were reserved for issuance pursuant tostock options and other stock incentives. Since the Filing Date, Gracehas not granted any stock options.

For additional information,see Notes 15 and 17 to the Consolidated Financial Statements inGrace’s 2005 Form 10-K.

|           |                          |
|-----------|--------------------------|
| 10.  | Earnings (Loss) PerShare |

The following table shows a reconciliation of thenumerators and denominators used in calculating basic and dilutedearnings (loss) pershare.

|                                                                |  |                            |        |        |  |        |        |        |  |  |
|----------------------------------------------------------------|--|----------------------------|--------|--------|--|--------|--------|--------|--|--|
| Earnings(Loss) Per Share(In millions, except per shareamounts) |  | Three Months EndedMarch31, |
|                                                           |  | 2006                       |        | 2005   |
| Numerators                                                     |  |                       |   |   |  |   |   |   |
| Netincome(loss)                                                |  | $                          | 0.1    |   |  | $      | 3.1    |   |
| Denominators                                                   |  |                       |   |   |  |   |   |   |
| Weightedaverage common shares – basiccalculation         |  |                       | 67.0   |   |  |   | 66.6   |   |
| Dilutiveeffect of employee stockoptions                        |  |                       | 0.3    |   |  |   | 0.7    |   |
| Weightedaverage common shares – dilutedcalculation       |  |                       | 67.3   |   |  |   | 67.3   |   |
| Basicearnings (loss) per share                                 |  | $                          | 0.00   |   |  | $      | 0.05   |   |
| Dilutedearnings (loss) per share                               |  | $                          | 0.00   |   |  | $      | 0.05   |   |
|                                                                |

|           |                            |
|-----------|----------------------------|
| 11.  | ComprehensiveIncome (Loss) |

The table below presents the pre-tax, tax andafter tax components of Grace’s other comprehensive income(loss) for the three months ended March  31,  2006 and2005:

|                                                 |  |               |       |            |  |                  |         |        |  |        |       |         |  |  |
|-------------------------------------------------|--|---------------|-------|------------|--|------------------|---------|--------|--|--------|-------|---------|--|--|
| ThreeMonths Ended March  31,  2006 (Inmillions) |  | Pre-TaxAmount |       | TaxBenefit |  | After-Tax Amount |
| Commodityhedgingactivities                      |  | $             | (0.9  | )     |  | $                | 0.3     |   |  | $      | (0.6  | )  |
| Foreigncurrency translationadjustments          |  |          | 1.0   |       |  |             | — |   |  |   | 1.0   |    |
| Othercomprehensive income(loss)                 |  | $             | 0.1   |       |  | $                | 0.3     |   |  | $      | 0.4   |    |
| ThreeMonths Ended March  31,  2005(Inmillions)  |  | Pre-TaxAmount |       | TaxBenefit |  | After-Tax Amount |
| Foreign currency translationadjustments         |  | $             | (13.0 | )     |  | $                | — |   |  | $      | (13.0 | )  |
| Othercomprehensive income(loss)                 |  | $             | (13.0 | )     |  | $                | — |   |  | $      | (13.0 | )  |
|                                                 |

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The following table presents thecomponents of Grace’s accumulated other comprehensive income(loss) at March  31,  2006 and December  31,2005:

|                                                                        |  |               |        |                   |  |        |         |         |  |  |
|------------------------------------------------------------------------|--|---------------|--------|-------------------|--|--------|---------|---------|--|--|
| Componentsof Accumulated Other Comprehensive Income (Loss)(Inmillions) |  | March 31,2006 |        | December 31, 2005 |
| Commodityhedging (net oftax)                                           |  | $             | (0.6   | )            |  | $      | — |    |
| Minimumpension liability (net oftax)                                   |  |          | (362.7 | )            |  |   | (362.7  | )  |
| Foreigncurrencytranslation                                             |  |          | (30.2  | )            |  |   | (31.2   | )  |
| Accumulatedother comprehensive income(loss)                            |  | $             | (393.5 | )            |  | $      | (393.9  | )  |
|                                                                        |

Graceuses forward contracts and options to mitigate the risk of volatilityof natural gas prices in the U.S. During the first quarter of 2006,Grace purchased forward contracts and options for a portion of itsexpected requirements. The outstanding options were treated as aneffective cash flow hedge for accounting purposes and revalued at theend of the quarter. An adjustment of $0.6  million, net of tax,was made to reduce the value of the derivative based on the fair valueof these options at March  31,  2006. A correspondingadjustment was made to other comprehensive income.

Grace is aglobal enterprise which operates in over 40 countries with localcurrency generally deemed to be the functional currency for accountingpurposes. The foreign currency translation amount represents theadjustment necessary to translate the balance sheets valued in localcurrencies to the U.S. dollar as of the end of each periodpresented.

The decline in equity market returns in 2000-2002,coupled with a decline in interest rates from 2000-2004, as well asupdated assumptions for expected life-spans and the longevity ofGrace’s active work force, created a shortfall between theaccounting measurement of Grace’s obligations under certain ofits qualified pension plans for U.S. employees and the market value ofdedicated pension assets. This condition required Grace to record aminimum pension liability for these plans equal to the fundingshortfall and to offset related deferred costs againstshareholders’ equity (deficit) at December  31,2005.

|           |                                       |
|-----------|---------------------------------------|
| 12.  | Commitments and ContingentLiabilities |

Asbestos-Related Litigation – SeeNote 3

Environmental Remediation – Grace issubject to loss contingencies resulting from extensive and evolvingfederal, state, local and foreign environmental laws and regulationsrelating to the generation, storage, handling, discharge anddisposition of hazardous wastes and other materials. Grace accrues foranticipated costs associated with investigative and remediation effortswhere an assessment has indicated that a probable liability has beenincurred and the cost can be reasonably estimated. These accruals donot take into account any discounting for the time value of money.

Grace’s environmental liabilities are reassessed whenevercircumstances become better defined or remediation efforts and theircosts can be better estimated. These liabilities are evaluated based oncurrently available information, including the progress of remedialinvestigation at each site, the current status of discussions withregulatory authorities regarding the method and extent of remediationat each site, existing technology, prior experience in contaminatedsite remediation and the apportionment of costs among potentiallyresponsible parties. Grace expects that the funding of environmentalremediation activities will be affected by the Chapter 11proceedings.

At March  31,  2006, Grace’sestimated liability for environmental investigative and remediationcosts totaled $339.9  million, as compared with $342.0million at December  31,  2005. The amount is based onfunding and/or remediation agreements in place and Grace’s bestestimate of its cost for sites not subject to a formal remediationplan. Grace’s estimated environmental liabilities are includedin ‘‘liabilities subject tocompromise.’’

Net cash expenditures charged againstpreviously established reserves for the three months ended March31,  2006 and 2005 were $2.1  million and $1.2million, respectively.

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Vermiculite Related Matters

EPA Lawsuit – In November  1999, Region 8 ofthe Environmental Protection Agency(‘‘EPA’’) began an investigation intoalleged excessive levels of asbestos-related disease in the Libbypopulation related to Grace’s former mining activities in Libby,Montana. This investigation led the EPA to undertake additionalinvestigative activity and to carry out response actions in and aroundLibby. On March  30,  2001, the EPA filed a lawsuit in U.S.District Court for the District of Montana, Missoula Division(United States v. W. R. Grace & Company et al.) under theComprehensive Environmental Response, Compensation and Liability Actfor the recovery of costs allegedly incurred by the United States inresponse to the release or threatened release of asbestos in the Libby,Montana area relating to such former mining activities. These costsinclude cleaning and/or demolition of contaminated buildings,excavation and removal of contaminated soil, health screening of Libbyresidents and former mine workers, and investigation and monitoringcosts. In this action, the EPA also sought a declaration ofGrace’s liability that would be binding in future actions torecover further response costs.

In December  2002, theDistrict Court granted the United States’ motion for partialsummary judgment on a number of issues that limited Grace’sability to challenge the EPA’s response actions. InJanuary  2003, a trial was held on the remainder of the issues,which primarily involved the reasonableness and adequacy ofdocumentation of the EPA’s cost recovery claims throughDecember  31,  2001. On August  28,  2003, theDistrict Court issued a ruling in favor of the United States thatrequires Grace to reimburse the government for $54.5  million(plus interest) in costs expended through December  2001, and forall appropriate future costs to complete the clean-up. The NinthCircuit Court of Appeals upheld the District Court’s rulings.Grace has appealed this case to the U.S. SupremeCourt.

Grace’s total estimated liability forvermiculite-related remediation, including the $54.5  millionmentioned above and the cost of remediation of vermiculite processingsites outside of Libby, at March  31,  2006 andDecember  31,  2005 was $226.1  million and$226.2  million, respectively. The estimate does not include thecost to clean-up the Grace-owned mine site at Libby, which is notcurrently estimable. Grace’s estimate of costs is based onpublic comments regarding the EPA’s spending plans, discussionsof spending forecasts with EPA representatives, analysis of otherinformation made available from the EPA, and evaluation of probableremediation costs at vermiculite processing sites. However, theEPA’s cost estimates have increased regularly and substantiallyover the course of this clean-up. Consequently, as the EPA’sspending on these matters increases, Grace’s liability forremediation will increase.

Montana Criminal Proceeding– On February  7,  2005, the United States Departmentof Justice announced the unsealing of a 10-count grand jury indictmentagainst Grace and seven current or former senior level employees(United States of America v. W. R. Grace & Co. et al)relating to Grace’s former vermiculite mining and processingactivities in Libby, Montana. Two of the counts have since beendismissed. The indictment accuses the defendants of (1) conspiracy toviolate environmental laws and obstruct federal agency proceedings; (2)violations of the federal Clean Air Act; and (3) obstruction ofjustice. The U.S. District Court for the District of Montana hasentered a scheduling order setting a trial date of September11,  2006.

Grace purchased the Libby mine in 1963 andoperated it until 1990; vermiculite processing activities continueduntil 1992. The grand jury charges that the conspiracy took place from1976 to 2002 and also charges that the alleged endangerment to theareas surrounding Libby continues to the present day. According to theU.S. Department of Justice, Grace could be subject to fines in anamount equal to twice the after-tax profit earned from its Libbyoperations or twice the alleged loss suffered by Libby victims, plusadditional amounts for restitution to victims. The indictment allegesthat such after tax profits were $140  million. Grace hascategorically denied any criminal wrongdoing and intends to vigorouslydefend itself at trial.

The U.S. Bankruptcy Court previouslygranted Grace's request to advance legal and defense costs to theemployees, subject to a reimbursement obligation if it is laterdetermined that the employees did not meet the standards forindemnification set forth under the appropriate state corporate law.For the three 

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months ended March  31,  2006,total expense for Grace and the employees was $10.1  million,which is included in selling, general and administrativeexpenses.

Grace is unable to assess whether the indictment, orany conviction resulting therefrom, will have a material adverse effecton the results of operations or financial condition of Grace or affectGrace's bankruptcy proceedings. However, Grace expects legal feesfor this matter could range from $10  million to $20million per quarter through the trial. Such costs will be expensed asincurred.

New Jersey Lawsuit – On June1,  2005, the New Jersey Department of Environmental Protection(‘‘DEP’’) filed a lawsuit against Grace andtwo former employees seeking civil penalties for allegedmisrepresentations and false statements made in a PreliminaryAssessment/Site Investigation Report and Negative Declarationssubmitted by Grace to the DEP in 1995 pursuant to the New JerseyIndustrial Site Recovery Act. Grace submitted the Report, which wasprepared by an independent environmental consultant, in connection withthe closing of Grace’s former plant in Hamilton Township, NewJersey. Grace is also aware that the State of New Jersey and U.S.Department of Justice each are conducting criminal investigationsrelated to Grace’s former operations of such plant.

Gracepurchased the Hamilton plant assets in 1963 and ceased operations in1994. During the operating period, Grace produced spray-on fireprotection products and vermiculite-based products at this plant. Thecurrent property owners are conducting remediation activities asdirected by the EPA. The property owners and the EPA have filed proofsof claim against Grace in the amount of approximately $4  millionwith respect to the Hamilton plant site.

Grace is unable at thistime to assess the effect of this lawsuit or the pending criminalinvestigations on Grace’s results of operations, cash flows, orliquidity, or on its bankruptcy proceeding.

Non-VermiculiteRelated Matters

At March  31,  2006 andDecember  31,  2005, Grace’s estimated liability forremediation of sites not related to its former vermiculite mining andprocessing activities was $113.8  million and $115.8million, respectively. This liability relates to Grace’s currentand former operations, including its share of liability for off-sitedisposal at facilities where it has been identified as a potentiallyresponsible party. Grace’s estimated liability is based upon anevaluation of claims for which sufficient information was available. AsGrace receives new information and continues its claims evaluationprocess, its estimated liability may change materially.

TaxMatters – On May  19,  2005, Grace received arevised examination report (the ‘‘1993-1996 ExaminationReport’’) from the Internal Revenue Service (the‘‘IRS’’) for the 1993-1996 tax periodsasserting, in the aggregate, approximately $77.3  million ofproposed tax adjustments, plus accrued interest. The most significantissue addressed in the 1993-1996 Examination Report concerns interestdeductions claimed with respect to corporate-owned life insurance(‘‘COLI’’) policies. Grace reached anagreement with the IRS with respect to all proposed tax adjustments inthe Examination Report (including settlement of COLI) with theexception of approximately $7.0  million of proposed adjustmentsrelating to research and development credits. On April14,  2005, Grace made a $90  million payment to the IRSwith respect to federal taxes and accrued interest for the 1993-1996tax periods, consistent with the revised Examination Report. OnJune  17,  2005, Grace filed its protest with respect tothe R&D matter with the IRS Office of Appeals. Grace expects tobegin negotiations with the IRS with respect to this matter during thesecond quarter of 2006.

As a consequence of having determinedfederal tax adjustments for the 1990-1996 tax periods, Grace becameliable for additional state taxes plus interest accrued thereon.Grace’s estimate for state taxes and interest to be paid forthese years is approximately $18.3  million, of which it hasalready paid approximately $6.3  million. The remainder isexpected to be paid in accordance with Grace’s bankruptcyproceedings.

In March  2006, Grace received examinationreports for the 1988-1989 and 1997-2001 tax periods, collectively, the‘‘Examination Reports’’ from the IRSasserting, in the aggregate, approximately $49  million

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of additional tax plus accrued interest. Themost significant issue addressed in the Examination Reports concernsthe carryback of a specified liability loss from the 1998 tax period tothe 1989 taxable year. Since Grace was in a net operating loss positionfor all but two of the other tax periods covered in the audit, most ofthe other issues addressed in the Examination Reports if determinedadversely to Grace should not result in any cash tax liability butrather would impact the amount of certain tax attributes claimed byGrace in those tax periods such as losses and credits. Grace intends toprotest the ten year carryback issue as well as certain computationalissues to IRS appeals.

Grace’s federal tax returnscovering 2002 and later years are open for future examination by theIRS. Grace believes that its recorded tax liability is adequate tocover the impact of probable tax return adjustments at March31,  2006.

The IRS has assessed additional federal incometax withholding and Federal Insurance Contributions Act taxes plusinterest and related penalties for calendar years 1993 through 1998against a Grace subsidiary that formerly operated a temporary staffingbusiness for nurses and other health care personnel. The assessments,aggregating $61.9  million, were made in connection with a mealand incidental expense per diem plan for traveling health carepersonnel, which was in effect through 1999, the year in which Gracesold the business. (The statute of limitations has expired with respectto 1999.) The IRS contends that certain per diem reimbursements shouldhave been treated as wages subject to employment taxes and federalincome tax withholding. Grace contends that its per diem and expenseallowance plans were in accordance with statutory and regulatoryrequirements, as well as other published guidance from the IRS. Gracehas a right to indemnification from its former partner in the businessfor approximately 36% of any tax liability (including interestthereon) for the period from July  1996 through December1998. The matter is currently pending in the United States Court ofClaims. Grace has agreed with the Department of Justice and IRS on asettlement amount and certain other terms that would resolve thematter. The settlement is subject to the execution of written closingagreements with the IRS and a written settlement agreement with theDepartment of Justice, the terms of which have been orally agreed upon,and to Bankruptcy Court approval.

Under federal income tax law,a corporation is generally permitted to deduct from taxable income inany year net operating losses (‘‘NOL’’)carried forward from prior years. Grace’s ability to deduct NOLcarryforwards could be subject to a significant limitation if it wereto undergo an ownership change for purposes of Section 382 of theInternal Revenue Code of 1986, as amended, during or as a result of itsChapter 11 cases. During the course of the bankruptcy proceeding, theBankruptcy Court entered an order that places certain limitations ontrading in Grace’s common stock or options convertible intocommon stock. Pursuant to these limitations, the Company intends toobject to any purchase of the Company’s stock or options thatwould potentially contribute to an ‘‘ownershipchange’’ for purposes of Section 382. However, Grace canprovide no assurance that these limitations will prevent an ownershipchange or that our ability to utilize net operating loss carryforwardsmay not be significantly limited as a result of Grace’sreorganization.

Purchase Commitments – Graceengages in purchase commitments to minimize the volatility of majorcomponents of direct manufacturing costs including natural gas, certainmetals, asphalt, amines and other materials. Such commitments are forquantities that Grace fully expects to use in its normaloperations.

Guarantees and Indemnification Obligations– Grace is a party to many contracts containing guarantees andindemnification obligations. These contracts primarily consistof:

|              |  |                                                                                                                                                                                                                                                                                                                                                                     |
|--------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  |  | Contracts providing for the sale of aformer business unit or product line in which Grace has agreed toindemnify the buyer against liabilities arising prior to the closing ofthe transaction, including environmental liabilities. These liabilitiesare included in ‘‘liabilities subject tocompromise’’ in the Consolidated BalanceSheets; |

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|              |  |                                                                                                                                                                                                                                                                                                                                                         |
|--------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  |  | Guarantees of realproperty lease obligations of third parties, typically arising out of(a) leases entered into by former subsidiaries of Grace, or (b) theassignment or sublease of a lease by Grace to a third party. Theseobligations are included in ‘‘liabilities subject tocompromise’’ in the Consolidated BalanceSheets; |

|              |  |                                                                                                                                                       |
|--------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  |  | Licenses of intellectual propertyby Grace to third parties in which Grace has agreed to indemnify thelicensee against third party infringementclaims; |

|              |  |                                                                                                                                                                                                                                                                                                                                                                                           |
|--------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  |  | Contracts entered into with thirdparty consultants, independent contractors, and other service providersin which Grace has agreed to indemnify such parties against certainliabilities in connection with their performance. Based on historicalexperience and the likelihood that such parties will ever make a claimagainst Grace, such indemnification obligations are immaterial; and |

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  |  | Product warranties with respect to certainproducts sold to customers in the ordinary course of business. Thesewarranties typically provide that product will conform tospecifications. Grace generally does not establish a liability forproduct warranty based on a percentage of sales or other formula. Graceaccrues a warranty liability on a transaction-specific basis dependingon the individual facts and circumstances related to each sale. Boththe liability and annual expense related to product warranties areimmaterial to the Consolidated FinancialStatements. |

Financial Assurances – Financialassurances have been established for a variety of purposes, includinginsurance and environmental matters, asbestos settlements and appeals,trade-related commitments and other matters. At March  31,2006, Grace had gross financial assurances issued and outstanding of$258.9  million, comprised of $135.0  million of suretybonds issued by various insurance companies, and $123.9  millionof standby letters of credit and other financial assurances issued byvarious banks. As discussed in Note 8, $34.5  million of thesefinancial assurances have been issued under the DIP facility.

Accounting for Contingencies – Although the outcomeof each of the matters discussed above cannot be predicted withcertainty, Grace has assessed its risk and has made accountingestimates as required under U.S. generally accepted accountingprinciples. As a result of the Filing, claims related to certain of theitems discussed above will be addressed as part of Grace’sChapter 11 proceedings. Accruals recorded for such contingencies havebeen included in ‘‘liabilities subject tocompromise’’ on the accompanying Consolidated BalanceSheets. The amounts of these liabilities as ultimately determinedthrough the Chapter 11 proceedings could be materially different fromamounts recorded at March  31,2006.

|           |                                                     |
|-----------|-----------------------------------------------------|
| 13.  | Pension Plans and Other Postretirement BenefitPlans |

Pension Plans – Grace maintainsdefined benefit pension plans covering employees of certain units whomeet age and service requirements. Benefits are generally based onfinal average salary and years of service. Grace funds its U.S.qualified pension plans (‘‘U.S. qualified pensionplans’’) in accordance with U.S. federal laws andregulations. Non-U.S. pension plans (‘‘non-U.S. pensionplans’’) are funded under a variety of methods, asrequired under local laws and customs.

Grace also provides,through nonqualified plans, supplemental pension benefits in excess ofU.S. qualified pension plan limits imposed by federal tax law. Theseplans cover officers and higher-level employees and serve to increasethe combined pension amount to the level that they otherwise would havereceived under the U.S. qualified pension plans in the absence of suchlimits. The nonqualified plans are unfunded and Grace pays the costs ofbenefits as they are incurred.

At the December  31, 2005measurement date for Grace’s defined benefit pension plans (the‘‘Plans’’), the accumulated benefitobligation (‘‘ABO’’) was approximately$1,386  million as measured under U.S. generally acceptedaccounting principles. At March  31,  2006, Grace’srecorded pension liability for underfunded plans was $537.2million ($450.3  million included in liabilities not subject tocompromise and $86.9  million related to supplemental pensionbenefits, included in ‘‘liabilities subject to

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compromise’’). The recordedliability reflects 1) the shortfall between dedicated assets and theABO of underfunded plans ($321.7  million); and 2) the ABO ofpay-as-you-go plans ($215.5  million).

PostretirementBenefits Other Than Pensions – Grace provides postretirementhealth care and life insurance benefits (referred to as otherpost-employment benefits or ‘‘OPEB’’) forretired employees of certain U.S. business units and certain divestedunits. The postretirement medical plan provides various levels ofbenefits to employees hired before 1991 and who retire from Grace afterage 55 with at least 10 years of service. These plans are unfunded andGrace pays a portion of the costs of benefits under these plans as theyare incurred. Grace applies SFAS No. 106,‘‘Employers’ Accounting for PostretirementBenefits Other Than Pensions,’’ which requires that thefuture costs of postretirement health care and life insurance benefitsbe accrued over the employees’ years of service.

Retireesand beneficiaries covered by the postretirement medical plan arerequired to contribute a minimum of 40% of the calculatedpremium for that coverage. During 2002, per capita costs under theretiree medical plans exceeded caps on the amount Grace was required tocontribute under a 1993 amendment to the plan. As a result, for 2003and future years, retirees will bear 100% of any increase inpremium costs.

For 2006 measurement purposes, per capita costs,before retiree contributions, were assumed to initially increase at arate of 8.5%. The rate is assumed to decrease gradually to5.0% through 2010 and remain at that level thereafter. A onepercentage point increase or decrease in assumed health care medicalcost trend rates would have a negligible impact on Grace’spostretirement benefit obligations.

The components of netperiodic benefit cost for the three months ended March31,  2006 and 2005 are as follows:

|                                                             |  |                            |         |         |  |        |         |          |  |        |         |         |  |        |       |         |  |        |         |         |  |        |         |         |  |  |
|-------------------------------------------------------------|--|----------------------------|---------|---------|--|--------|---------|----------|--|--------|---------|---------|--|--------|-------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
| Componentsof Net Periodic Benefit Cost (Income)(Inmillions) |  | Three Months EndedMarch31, |
| 2006                                                        |  | 2005                       |
| Pension                                                     |  |                       |         | Pension |  |   |
| U.S.                                                        |  | Non-U.S.                   |         | OPEB    |  | U.S.   |         | Non-U.S. |  | OPEB   |
| Servicecost                                                 |  | $                          | 4.3     |    |  | $      | 2.0     |     |  | $      | 0.1     |    |  | $      | 4.2   |    |  | $      | 1.9     |    |  | $      | 0.2     |    |
| Interestcost                                                |  |                       | 14.5    |    |  |   | 4.2     |     |  |   | 1.1     |    |  |   | 14.4  |    |  |   | 4.4     |    |  |   | 1.2     |    |
| Expectedreturn on planassets                                |  |                       | (13.9   | )  |  |   | (4.3    | )   |  |   | — |    |  |   | (12.8 | )  |  |   | (4.0    | )  |  |   | — |    |
| Amortizationof prior servicecost                            |  |                       | 0.6     |    |  |   | 0.1     |     |  |   | (3.2    | )  |  |   | 1.3   |    |  |   | 0.2     |    |  |   | (3.2    | )  |
| Amortizationof unrecognized actuarialloss                   |  |                       | 5.3     |    |  |   | 2.0     |     |  |   | 0.4     |    |  |   | 5.1   |    |  |   | 1.9     |    |  |   | 0.4     |    |
| Netcurtailment and settlementloss                           |  |                       | — |    |  |   | — |     |  |   | — |    |  |   | 1.0   |    |  |   | — |    |  |   | — |    |
| Netperiodic benefit cost (income)                      |  | $                          | 10.8    |    |  | $      | 4.0     |     |  | $      | (1.6    | )  |  | $      | 13.2  |    |  | $      | 4.4     |    |  | $      | (1.4    | )  |
|                                                             |

PlanContributions and Funding – Subject to the approval of theBankruptcy Court, Grace intends to satisfy its obligations under thePlans and to comply with all of the requirements of the EmployeeRetirement Income Security Act of 1974. Grace contributed approximately$9  million in January  2006 and approximately $20million in April  2006 to the trusts that hold assets of thePlans. However, there can be no assurance that the Bankruptcy Courtwill continue to approve arrangements to satisfy the funding needs ofthe Plans. Contributions to non-U.S. plans are not subject toBankruptcy Court approval and Grace intends to fund such plans based onactuarial and trustee recommendations.

Grace plans to paybenefits as they become due under virtually all pay-as-you-go plans andto maintain compliance with federal funding laws for its U.S. qualifiedpension plans.

|           |                              |
|-----------|------------------------------|
| 14.  | Operating SegmentInformation |

Grace is a global producer of specialty chemicalsand materials. It generates revenues from two operating segments: GraceDavison, which includes silica- and alumina-based catalysts andmaterials used in a wide range of industrial applications; and GracePerformance Chemicals, which includes specialty chemicals and materialsused in commercial and residential construction and in rigid food and

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beverage packaging. Intersegment sales,eliminated in consolidation, are not material. The table below presentsinformation related to Grace’s business segments for the threemonths ended March  31,  2006 and 2005. Only thosecorporate expenses directly related to the segment are allocated forreporting purposes. All remaining corporate items are reportedseparately and labeled assuch.

|                                    |  |                                                                              |        |                                                      |  |        |        |        |  |  |
|------------------------------------|--|------------------------------------------------------------------------------|--------|------------------------------------------------------|--|--------|--------|--------|--|--|
| OperatingSegment Data(In millions) |  | Three Months Ended March31,                                                  |
|                               |  |       2006       |        |     2005     |
| NetSales                           |  |                                                                         |   |                                                 |  |   |   |   |
| GraceDavison                       |  | $                                                                            | 356.4  |                                                 |  | $      | 334.7  |   |
| GracePerformanceChemicals          |  |                                                                         | 302.2  |                                                 |  |   | 268.5  |   |
| Total                              |  | $                                                                            | 658.6  |                                                 |  | $      | 603.2  |   |
| Pre-taxOperating Income            |  |                                                                         |   |                                                 |  |   |   |   |
| GraceDavison                       |  | $                                                                            | 36.0   |                                                 |  | $      | 37.7   |   |
| GracePerformanceChemicals          |  |                                                                         | 34.2   |                                                 |  |   | 27.3   |   |
| Total                              |  | $                                                                            | 70.2   |                                                 |  | $      | 65.0   |   |
|                                    |

Thefollowing table presents information related to the geographic areas inwhich Grace operated for the three months ended March  31,2006 and 2005,respectively.

|                                   |  |                              |        |                              |  |        |        |        |  |  |
|-----------------------------------|--|------------------------------|--------|------------------------------|--|--------|--------|--------|--|--|
| GeographicArea Data (In millions) |  | Three Months Ended March31,  |
|                              |  |   2006   |        |   2005   |
| NetSales                          |  |                         |   |                         |  |   |   |   |
| UnitedStates                      |  | $                            | 239.3  |                         |  | $      | 227.0  |   |
| Canadaand PuertoRico              |  |                         | 40.6   |                         |  |   | 33.2   |   |
| TotalNorthAmerica                 |  |                         | 279.9  |                         |  |   | 260.2  |   |
| Germany                           |  |                         | 30.3   |                         |  |   | 28.4   |   |
| Europe,other thanGermany          |  |                         | 216.7  |                         |  |   | 192.8  |   |
| TotalEurope                       |  |                         | 247.0  |                         |  |   | 221.2  |   |
| AsiaPacific                       |  |                         | 98.3   |                         |  |   | 88.1   |   |
| LatinAmerica                      |  |                         | 33.4   |                         |  |   | 33.7   |   |
| Total                             |  | $                            | 658.6  |                         |  | $      | 603.2  |   |
|                                   |

Thepre-tax operating income for Grace’s operating segments for thethree months ended March  31,  2006 and 2005, respectively,is reconciled below to income (loss) before Chapter 11 expenses, incometaxes, and minority interest presented in the accompanying ConsolidatedStatements ofOperations.

|                                                                                                     |  |                              |       |                              |  |        |       |         |  |  |
|-----------------------------------------------------------------------------------------------------|--|------------------------------|-------|------------------------------|--|--------|-------|---------|--|--|
| Reconciliationof Operating Segment Data to     FinancialStatements(In millions) |  | Three Months Ended March31,  |
|                                                                                                |  |   2006   |       |   2005   |
| Pre-taxoperating income – operatingsegments                                                   |  | $                            | 70.2  |                         |  | $      | 65.0  |    |
| Minorityinterest                                                                                    |  |                         | 6.8   |                         |  |   | 3.5   |    |
| Net gain (loss) onsales of investments and disposals ofassets                                       |  |                         | (1.8  | )                       |  |   | 0.9   |    |
| Interest expenseand related financingcosts                                                          |  |                         | (15.8 | )                       |  |   | (14.6 | )  |
| Corporatecosts                                                                                      |  |                         | (22.4 | )                       |  |   | (25.3 | )  |
| Other,net                                                                                           |  |                         | (16.9 | )                       |  |   | (8.3  | )  |
| Income(loss) before Chapter 11 expenses, income taxes, and minorityinterest                         |  | $                            | 20.1  |                         |  | $      | 21.2  |    |
|                                                                                                     |

Minorityinterest primarily pertains to Advanced Refining Technologies LLC(‘‘ART’’), a joint venture between Graceand Chevron Products Company where Grace has a 55% economicinterest.

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Corporate costs include expenses ofcorporate headquarters functions incurred in support of coreoperations, such as corporate financial and legal services, humanresources management, communications and regulatory affairs. This itemalso includes certain pension and postretirement benefits, includingthe amortization of deferred costs that are considered a core operatingexpense but not allocated to operatingsegments.

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Item2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

Financial Summary forMarch  31,  2006

Following is a summary analysis ofkey financial measures of our performance for the three months endedMarch  31,  2006 compared with the prior yearperiod.

|              |                                                                                                                                                                                                                        |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Sales increased 9.2%for the three months ended March  31,  2006 primarily as aresult of higher sales volume in most geographic regions, improvedproduct mix, and selling price increases in response to costinflation. |

|              |                                                                                                                                                                                                                         |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Net income for the threemonths ended March  31,  2006 and 2005 was $0.1million and $3.1  million, respectively. Net income includes thecosts of Chapter 11, litigation and other matters not related to coreoperations. |

|              |                                                                                                                                                                                                                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Net income for eachperiod has been primarily affected by: 1) the results of our businesses– which is categorized as ‘‘coreoperations’’; and 2) the impact of legal contingenciesand other nonoperating liabilities – which is categorized as‘‘noncoreactivities’’. |

|              |                                                                                                                                                                                                                                                                                                                       |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Pre-taxincome from core operations increased 20.4% for the three monthsended March  31,  2006 due to higher sales, costcontainment, and lower pension expense. Pre-tax income was negativelyimpacted by raw material and utility cost inflation that was partiallyoffset by increased selling prices andproductivity. |

|              |                                                                                                                                                                                                                                     |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Pre-tax operatingincome of our Grace Performance Chemicals operating segment increased25.3% for the three months ended March  31,  2006,attributable principally to higher sales of construction products andto productivity gains. |

|              |                                                                                                                                                                                                                                                                                                                                                                         |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Pre-taxoperating income of our Grace Davison operating segment decreased4.5% for the three months ended March  31,  2006 asstrong sales of catalysts used in petroleum refining and specialtymaterials used in scientific and industrial applications were offset byhigher costs of raw materials and energy, as well as costs of plantdisruptions andrationalizations. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Operating cash flowfor the three months ended March  31,  2006 was a negative$40.2  million compared with a negative $31.4  million forthe prior year period. The 2006 cash flow includes an increase inworking capital in response to higher sales, payments of annualaccruals for compensation and customer rebates, bankruptcycourt-approved payments for pensions, and higher costs of Chapter 11proceedings and defense costs for the criminal proceeding related toformer vermiculite mining operations in Libby,Montana. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | The pre-tax loss fromnoncore activities for the three months ended March  31,2006 was $20.1  million compared with $8.1  million in theprior year period. The increase is principally due to defense costs forthe Montana criminal proceeding. Our first quarter 2006 financialstatements include $10.1  million of legal costs (included aspart of selling, general and administrative expenses in theConsolidated Statement of Operations) for the defense of Grace and theother named individuals to this proceeding, compared with $6.0million in the first quarter of 2005. |

We are attempting toresolve noncore liabilities and contingencies through our Chapter 11proceeding. Our noncore liabilities include asbestos-relatedlitigation, environmental remediation, tax disputes and businesslitigation. Our operating statements include periodic adjustments toaccount for changes in estimates of such liabilities and developmentsin our Chapter 11 proceeding. These liabilities and contingencies mayresult in continued volatility in net income in thefuture.

Description of Core Business

We are engaged inspecialty chemicals and specialty materials businesses on a worldwidebasis through our two operating segments:

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Grace Davisonincludes:

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | catalysts and chemicaladditives used by petroleum refiners, including fluid catalyticcracking, or FCC, catalysts, that help to‘‘crack’’ the hydrocarbon chain indistilled crude oil to produce transportation fuels, such as gasolineand diesel fuels, and other petroleum-based products, and FCC additivesused to reduce sulfur in gasoline, maximize propylene production fromrefinery FCC units, and reduce emissions of sulfur oxides, nitrogenoxides and carbon monoxide from refinery FCCunits; |

|              |                                                                                                                                                                                                                                                                                 |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | hydroprocessing catalysts usedby petroleum refiners in process reactors to upgrade heavy oils intolighter, more useful products by removing impurities such as nitrogen,sulfur and heavy metals, allowing less expensive feedstocks to be usedin the petroleum refiningprocess; |

|              |                                                                                                                                                                                                                                                                        |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | specialty catalysts,including polyolefin catalysts and catalyst supports that are essentialcomponents in the manufacture of polyethylene and polypropylene resins,and other chemical catalysts used in a variety of industrial,environmental and consumerapplications; |

|              |                                                                   |
|--------------|-------------------------------------------------------------------|
| •  | silica-based andsilica-alumina-based engineered materials usedin: |

|  |              |                                                                                                                                                                          |
|--|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | industrial markets, such ascoatings, plastics and rubber, precision investment casting,refractory, insulating glass windows, desiccants, and gas and liquidspurification |

|  |              |                                                                                                                                                   |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | consumerapplications, such as food products, toothpaste, pharmaceutical andpersonal care products, and the processing of edible oils andbeverages |

|  |              |                                              |
|--|--------------|----------------------------------------------|
|  | •  | digital media coatingson ink jet papers; and |

|              |                                                                                                                                              |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------|
| •  | silica-basedmaterials and chromatography columns, instruments, consumables andaccessories used in life and analytical sciences applications. |

Weconduct our hydroprocessing catalyst business through Advanced RefiningTechnologies, LLC, or ART, our joint venture with Chevron ProductsCompany. We report 100% of the revenues of our ART jointventure, but only receive 55% of the income after the minorityinterest is allocated to Chevron.

Key external factors for ourFCC catalysts and hydroprocessing catalysts are the economics of thepetroleum refining industry, specifically the impacts of demand fortransportation fuels and petrochemical products, and crude oilsupply.

Sales of our other three Grace Davison product groupsare affected by general economic conditions including the underlyinggrowth rate of targeted end-use applications.

GracePerformance Chemicals, or GPC, includes:

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Construction materials and systems,including concrete admixtures and fibers used to improve the durabilityand working properties of concrete, additives used in cement processingto improve energy efficiency and enhance the characteristics offinished cement, waterproofing materials used in commercial andresidential construction and renovation to protect buildings from waterpenetration, and fireproofing materials used to protect buildings fromstructural failure in the event of fire;and |

|              |                                                                                                                                                                                                                                                                                                                                                                                     |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Packaging technologies, primarilyspecialty sealants and coatings used in rigid food and beveragepackages, including can and closure sealants used to seal and enhancethe shelf life of can and bottle contents, and coatings for cans andclosures that prevent metal corrosion, protect package contents fromthe influence of metal and ensure proper adhesion of sealingcompounds. |

Construction products sales are affected bynon-residential construction activity and, to a lesser extent,residential construction activity, which tend to lag the generaleconomy in both decline and 

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recovery. Waterproofing products sales arealso significantly affected by residential renovation activity. Asignificant portion of our sales of construction products are in theU.S., so we are strongly influenced by the level of U.S. constructionactivity.

Our packaging technologies sales are affected bygeneral economic conditions globally as well as an ongoing shift indemand from metal and glass to plastic packaging for foods andbeverages. This shift is causing a decline in can sealant usage, butprovides opportunities for closure sealants and other products forplastic packaging.

Global scope – We operate ourbusiness on a global scale with more than 60% of our revenue and40% of our operating properties outside the United States. Ourbusiness is conducted in more than 40 countries and in more than 20currencies. Our operating segments are managed on a global basis,serving global markets, with currency fluctuations in relation to theU.S. dollar affecting reported earnings, net assets and cashflows.

The table below shows the sales in each of our operatingsegments as a percentage of our totalsales.

|                                |  |                             |       |         |  |        |       |         |  |  |
|--------------------------------|--|-----------------------------|-------|---------|--|--------|-------|---------|--|--|
| Percentageof Total Grace Sales |  | Three Months Ended March31, |
|                           |  | 2006                        |       | 2005    |
| GraceDavison                   |  |                        | 54.1  | %  |  |   | 55.5  | %  |
| GracePerformanceChemicals      |  |                        | 45.9  | %  |  |   | 44.5  | %  |
| Total                          |  |                        | 100.0 | %  |  |   | 100.0 | %  |
| GraceU.S.                      |  |                        | 36.3  | %  |  |   | 37.6  | %  |
| Gracenon-U.S.                  |  |                        | 63.7  | %  |  |   | 62.4  | %  |
| Total                          |  |                        | 100.0 | %  |  |   | 100.0 | %  |
|                                |

VoluntaryBankruptcy Filing

In response to a sharply increasing number ofasbestos-related personal injury claims, on April  2,2001, Grace and 61 of our United States subsidiaries and affiliates,including W. R. Grace & Co. – Conn., filed voluntarypetitions for reorganization under Chapter 11 of the United StatesBankruptcy Code in the United States Bankruptcy Court for the Districtof Delaware. Our non-U.S. subsidiaries and certain of our U.S.subsidiaries were not included in the Chapter 11 filing.

UnderChapter 11, we have continued to operate as debtors-in-possession undercourt protection from creditors and claimants, while using the Chapter11 process to develop and implement a plan for addressing theasbestos-related claims. Since the Chapter 11 filing, all motionsnecessary to conduct normal business activities have been approved bythe bankruptcy court.

On January  13,  2005, wefiled an amended plan of reorganization and related documents with thebankruptcy court. The plan of reorganization is supported by committeesrepresenting general unsecured creditors and equity holders, but is notsupported by committees representing asbestos personal injury claimantsand asbestos property damage claimants. Under the terms of the plan ofreorganization, a trust would be established to which all pending andfuture asbestos-related claims would be channeled for resolution. Theplan of reorganization can become effective only after a vote ofeligible creditors and with the approval of the bankruptcy court andthe U.S. District Court for the District of Delaware. See‘‘Plan of Reorganization’’ below for moreinformation.

Critical Accounting Estimates

Thepreparation of financial statements in conformity with U.S. generallyaccepted accounting principles requires that we make estimates andassumptions affecting the assets and liabilities reported at the dateof the Consolidated Financial Statements, and the revenues and expensesreported for the periods presented. Actual amounts could differ fromthose estimates. Changes in estimates are recorded in the periodidentified. Accounting measurements that are most affected by ourestimates of future events are:

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|              |                                                                                                                                                                                                                                                                                                                                               |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Contingentliabilities such as asbestos-related matters (see Notes 2 and 3 to theConsolidated Financial Statements), environmental remediation (see Note12 to the Consolidated Financial Statements), income taxes (see Note 12to the Consolidated Financial Statements), and litigation (see Note 12to the Consolidated FinancialStatements). |

|              |                                                                                                                                                                                        |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Pension andpostretirement liabilities that depend on assumptions regardingdiscount rates and/or total returns on invested funds. (See Note 13 tothe Consolidated FinancialStatements.) |

|              |                                                                     |
|--------------|---------------------------------------------------------------------|
| •  | Liabilities for employeeincentive compensation and customerrebates. |

|              |                                                                                                                           |
|--------------|---------------------------------------------------------------------------------------------------------------------------|
| •  | Depreciation andamortization periods for long-lived assets, including property andequipment, intangible, and otherassets. |

|              |                                                                                                                                                                   |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Realization values of variousassets such as net deferred tax assets, trade receivables, inventories,insurance receivables, properties and equipment, andgoodwill. |

The accuracy of these and other estimates may also bematerially affected by the uncertainties arising under our Chapter 11proceeding.

Summary Financial Information and Metrics

Setforth on the next page is a chart that lists our key operatingstatistics, and dollar and percentage changes for the three monthsended March  31,  2006 and 2005. Please reference thischart when reading management’s discussion and analysis offinancial condition and the results ofoperations.

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|                                                                                 |  |                            |        |         |  |                    |        |                    |  |        |        |         |  |                                      |        |        |  |  |
|---------------------------------------------------------------------------------|--|----------------------------|--------|---------|--|--------------------|--------|--------------------|--|--------|--------|---------|--|--------------------------------------|--------|--------|--|--|
|                                                                            |  | ThreeMonths Ended March31, |
| Analysis ofContinuing Operations(Inmillions)                                    |  | 2006                       |        | 2005    |  | $Change Fav(Unfav) |        | % ChangeFav(Unfav) |
| NetSales:                                                                       |  |                       |   |    |  |               |   |               |  |   |   |    |  |                                 |   |   |
| GraceDavison                                                                    |  | $                          | 356.4  |    |  | $                  | 334.7  |               |  | $      | 21.7   |    |  |      6.5%   |
| GracePerformanceChemicals                                                       |  |                       | 302.2  |    |  |               | 268.5  |               |  |   | 33.7   |    |  |    12.6%              |
| TotalGrace netsales                                                             |  | $                          | 658.6  |    |  | $                  | 603.2  |               |  | $      | 55.4   |    |  |      9.2%   |
| Pre-taxoperatingincome:                                                         |  |                       |   |    |  |               |   |               |  |   |   |    |  |                                 |
| GraceDavison(1)                                                                 |  | $                          | 36.0   |    |  | $                  | 37.7   |               |  | $      | (1.7   | )  |  |      (4.5%) |
| GracePerformanceChemicals                                                       |  |                       | 34.2   |    |  |               | 27.3   |               |  |   | 6.9    |    |  |    25.3%              |
| Corporatecosts:                                                                 |  |                       |   |    |  |               |   |               |  |   |   |    |  |                                 |
| Supportfunctions                                                                |  |                       | (10.7  | )  |  |               | (9.5   | )             |  |   | (1.2   | )  |  |   (12.6%)                  |
| Pension,performance-related compensation, andother                              |  |                       | (11.7  | )  |  |               | (15.8  | )             |  |   | 4.1    |    |  |    25.9%              |
| TotalCorporatecosts                                                             |  |                       | (22.4  | )  |  |               | (25.3  | )             |  |   | 2.9    |    |  |    11.5%              |
| Pre-taxincome from coreoperations                                               |  |                       | 47.8   |    |  |               | 39.7   |               |  |   | 8.1    |    |  |    20.4%              |
| Pre-taxincome (loss) from noncoreactivities                                     |  |                       | (20.1  | )  |  |               | (8.1   | )             |  |   | (12.0  | )  |  | (148.1%)                             |
| Interestexpense                                                                 |  |                       | (15.8  | )  |  |               | (14.6  | )             |  |   | (1.2   | )  |  |      (8.2%) |
| Interestincome                                                                  |  |                       | 1.4    |    |  |               | 0.7    |               |  |   | 0.7    |    |  |  100.0%                         |
| Income(loss) before Chapter 11 expenses and incometaxes                         |  |                       | 13.3   |    |  |               | 17.7   |               |  |   | (4.4   | )  |  |   (24.9%)                  |
| Chapter11 expenses,net                                                          |  |                       | (8.7   | )  |  |               | (6.0   | )             |  |   | (2.7   | )  |  |   (45.0%)                  |
| Benefitfrom (provision for) incometaxes                                         |  |                       | (4.5   | )  |  |               | (8.6   | )             |  |   | 4.1    |    |  |    47.7%              |
| Netincome(loss)                                                                 |  | $                          | 0.1    |    |  | $                  | 3.1    |               |  | $      | (3.0   | )  |  |   (96.8%)                  |
| KeyFinancialMeasures:                                                           |  |                       |   |    |  |               |   |               |  |   |   |    |  |                                 |
| Pre-taxincome from core operations as a percentage ofsales:                     |  |                       |   |    |  |               |   |               |  |   |   |    |  |                                 |
| GraceDavison                                                                    |  |                       | 10.1   | %  |  |               | 11.3   | %             |  |   | NM     |    |  |   (1.2) pts           |
| GracePerformanceChemicals                                                       |  |                       | 11.3   | %  |  |               | 10.2   | %             |  |   | NM     |    |  |    1.1 pts       |
| TotalCoreOperations                                                             |  |                       | 7.3    | %  |  |               | 6.6    | %             |  |   | NM     |    |  |    0.7 pts       |
| TotalCore Operations adjusted for profit sharing of jointventures(2)            |  |                       | 8.3    | %  |  |               | 7.2    | %             |  |   | NM     |    |  |    1.1 pts       |
| Pre-taxincome from core operations before depreciation andamortization          |  | $                          | 75.9   |    |  | $                  | 68.5   |               |  | $      | 7.4    |    |  |  10.8%                          |
| Asa percentage ofsales                                                          |  |                       | 11.5   | %  |  |               | 11.4   | %             |  |   | NM     |    |  |    0.1 pts       |
| Depreciationandamortization                                                     |  |                       | 28.1   |    |  |               | 28.8   |               |  |   | (0.7   | )  |  |   (2.4%)                   |
| Grossprofit percentage (sales less cost of goods sold as a percent ofsales)(3): |  |                       |   |    |  |               |   |               |  |   |   |    |  |                                 |
| GraceDavison                                                                    |  |                       | 28.2   | %  |  |               | 30.4   | %             |  |   | NM     |    |  |   (2.2) pts           |
| GracePerformanceChemicals                                                       |  |                       | 33.5   | %  |  |               | 33.1   | %             |  |   | NM     |    |  |    0.4 pts       |
| TotalGrace                                                                      |  |                       | 30.5   | %  |  |               | 31.4   | %             |  |   | NM     |    |  |   (0.9) pts           |
| NetConsolidated Sales byRegion:                                                 |  |                       |   |    |  |               |   |               |  |   |   |    |  |                                 |
| NorthAmerica                                                                    |  | $                          | 279.9  |    |  | $                  | 260.2  |               |  | $      | 19.7   |    |  |    7.6%               |
| Europe                                                                          |  |                       | 247.0  |    |  |               | 221.2  |               |  |   | 25.8   |    |  |  11.7%                          |
| AsiaPacific                                                                     |  |                       | 98.3   |    |  |               | 88.1   |               |  |   | 10.2   |    |  |  11.6%                          |
| LatinAmerica                                                                    |  |                       | 33.4   |    |  |               | 33.7   |               |  |   | (0.3   | )  |  |   (0.9%)                   |
| Total                                                                           |  | $                          | 658.6  |    |  | $                  | 603.2  |               |  | $      | 55.4   |    |  |    9.2%               |
|                                                                                 |

|  |                    |
|--|--------------------|
|  | NM= Not meaningful |

|     |                                                                                                                             |
|-----|-----------------------------------------------------------------------------------------------------------------------------|
| (1) | GraceDavison pre-tax operating income includes minority interest related tothe Advanced Refining Technologies jointventure. |

|     |                                                                         |
|-----|-------------------------------------------------------------------------|
| (2) | Reflectsthe add-back of minority interests in consolidatedsubsidiaries. |

|     |                                                                            |
|-----|----------------------------------------------------------------------------|
| (3) | Includesdepreciation and amortization related to manufacturing ofproducts. |

The above chart, as well as the financialinformation presented throughout this discussion, divides our financialresults between ‘‘core operations’’ and‘‘noncore activities.’’ Core operationscomprise the financial results of Grace Davison, Grace PerformanceChemicals, and the costs of corporate activities that directly orindirectly support our business operations. In contrast, noncoreactivities comprise all other events and transactions not directlyrelated to the generation of operating revenue or the support of ourcore operations and generally relate to our former operations andproducts. See ‘‘Pretax Income (Loss) 

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from Noncore Activities’’ formore information about noncore activities. We use pre-tax income fromcore operations as a factor in determining certain incentivecompensation and as a key factor in our decision-makingprocess.

Neither pre-tax income from core operations nor pre-taxincome from core operations before depreciation and amortizationpurport to represent income or cash flow as defined under generallyaccepted accounting principles, and you should not consider them analternative to such measures as an indicator of our performance. Weprovide these measures so you can distinguish the operating results ofour current business base from the results and related assets andliabilities of our past businesses, discontinued products, andcorporate legacies including the effect of our Chapter 11proceedings.

Grace Overview

The following is an overviewof our financial performance for the three months ended March31,  2006 compared with the prior year period.

NetSales – The following table identifies thequarter-over-quarter increase or decrease in sales attributable tochanges in product volume, product price and/or mix, and the impact offoreign currencytranslation.

|                            |  |                                                                                                         |  |           |  |                     |  |        |  |  |  |  |  |  |  |  |  |  |
|----------------------------|--|---------------------------------------------------------------------------------------------------------|--|-----------|--|---------------------|--|--------|--|--|--|--|--|--|--|--|--|--|
| NetSales Variance Analysis |  | Three Months EndedMarch 31, 2006 as aPercentage Increase (Decrease) fromThreeMonths Ended March 31,2005 |
|                       |  | Volume                                                                                                  |  | Price/Mix |  | CurrencyTranslation |  | Total  |
| GraceDavison               |  | 5.8%                                                                                                    |  | 4.5%      |  | (3.8%)              |  | 6.5%   |
| GracePerformanceChemicals  |  | 10.7%                                                                                                   |  | 5.0%      |  | (3.1%)              |  | 12.6%  |
| Netsales                   |  | 8.0%                                                                                                    |  | 4.6%      |  | (3.4%)              |  | 9.2%   |
| ByRegion:                  |  |                                                                                                    |  |      |  |                |  |   |
| NorthAmerica               |  | 4.2%                                                                                                    |  | 3.2%      |  | 0.2%                |  | 7.6%   |
| Europe                     |  | 15.1%                                                                                                   |  | 6.2%      |  | (9.6%)              |  | 11.7%  |
| AsiaPacific                |  | 9.8%                                                                                                    |  | 3.2%      |  | (1.4%)              |  | 11.6%  |
| LatinAmerica               |  | (7.1%)                                                                                                  |  | 2.9%      |  | 3.3%                |  | (0.9%) |
|                            |

Salesfor the three months ended March  31,  2006 were favorablyimpacted by higher volume (including acquisitions), product mix, andselling price increases in response to cost inflation. Acquisitionscontributed $0.9  million or 0.1 percentage points of the salesgrowth.

Grace Net Sales ($ inmillions)

Pre-tax Incomefrom Core Operations – Operating profit for the three monthsended March  31,  2006 improved due to sales volume growthand selling price increases, partially offset by raw material costinflation.

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Corporate costs include corporatefunctional costs (such as financial and legal services, humanresources, communications and information technology), the cost ofcorporate governance (including directors and officers liabilityinsurance) and pension costs related to both corporate employees and tothe effects of changes in assets and liabilities for all of our pensionplans. Corporate costs for the three months ended March31,  2006 decreased compared with the prior year period primarilydue to lower pension expense from the effect of contributions made todefined benefit pension plans in recent years.

We value our U.S.inventories under the last-in/first-out method, or LIFO, and ournon-U.S. inventories under the first-in/first-out, or FIFO, method.LIFO was selected in 1974 for U.S. financial reporting and tax purposesbecause it generally results in a better matching of current revenuewith current costs during periods of inflation. We have not electedLIFO for our non-U.S. inventories due to statutory restrictions.However, if we valued our U.S. inventories using the FIFO method,consistent with our non-U.S. subsidiaries, our pre-tax income from coreoperations would have been approximately 14% lower for thequarter ended March 31, 2006 and 5% higher for the quarter endedMarch  31,  2005 (6% higher for all of 2005). Thesignificant change in inventory valuations between FIFO and LIFO relateprimarily to the price volatility, over the past several quarters, ofcommodity metals and natural gas used in our Davison products andproduction processes. We attempt to mitigate the price volatilitythrough hedging techniques such as layering our needed supply underfixed delivery contracts and by negotiating sales contracts that permitthe partial pass-through of market prices for these volatile commodityitems.

GraceOperating Income and Margin($ inmillions)

Pre-tax Income (Loss) from Noncore Activities –Pre-tax income (loss) from noncore activities reflects financialmatters unrelated to our core operating units. This category of costsand income is expected to be volatile as potentially material items areaddressed through our Chapter 11 proceedings and/or as the financialimplications of our legal contingencies become apparent. Some noncoreactivities are shown as separate items on the Consolidated Statement ofOperations. Those not separately listed are primarily included inselling, general and administrative expenses and in other (income)expense. The following table shows the components of noncoreactivities:

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|                                                                    |  |                             |       |         |  |        |         |         |  |  |
|--------------------------------------------------------------------|--|-----------------------------|-------|---------|--|--------|---------|---------|--|--|
| Pre-taxIncome (Loss) from Noncore Activities(Inmillions)           |  | Three Months Ended March31, |
| 2006                                                               |  | 2005                        |
| Asbestosadministration,net                                         |  | $                           | (2.9  | )  |  | $      | (2.3    | )  |
| COLIincome, net                                                    |  |                        | 1.2   |    |  |   | 1.3     |    |
| D&Oinsurance cost – portion related to Chapter11         |  |                        | (1.5  | )  |  |   | (1.5    | )  |
| Pension andpostretirement benefit costs – divestedbusinesses |  |                        | (1.8  | )  |  |   | (1.3    | )  |
| Translationeffects – intercompanyloan                        |  |                        | 3.0   |    |  |   | (14.9   | )  |
| Value of currencycontracts                                         |  |                        | (2.8  | )  |  |   | 14.5    |    |
| Stockappreciationrights                                            |  |                        | (2.6  | )  |  |   | — |    |
| Legal defensecosts                                                 |  |                        | (10.4 | )  |  |   | (6.0    | )  |
| Other                                                              |  |                        | (2.3  | )  |  |   | 2.1     |    |
|                                                               |  | $                           | (20.1 | )  |  | $      | (8.1    | )  |
|                                                                    |

Changesto pre-tax income (loss) from noncore activities were attributableprimarily to: (1) legal defense costs of $10.4  million relatedto the Montana and New Jersey legal proceedings (see Note 12 to theConsolidated Financial Statements for more information), and (2) anaccrual for stock appreciation rights of $2.6  million asdiscussed in Note 1 to the Consolidated Financial Statements.

InMarch  2004, we began accounting for currency fluctuations on a€293  million intercompany loan between oursubsidiaries in the United States and Germany as a component ofoperating results instead of as a component of other comprehensiveincome. This change was prompted by our analysis of new tax laws inGermany and our cash flow planning in connection with our Chapter 11reorganization, which together indicated that we should no longerconsider this loan as part of our permanent capital structure inGermany. In May  2004, we entered into a series of foreigncurrency forward contracts to mitigate future currency fluctuations onthe remaining loan balance. Contract amounts of€200.7  million were extended in June  2005and have varying rates that coincide with loan repayments dueperiodically through December  2008. For the three months endedMarch  31,  2006, €11  million of loanprincipal was repaid. For the three months ended March31,  2006, a $2.8  million contract loss was recognized,offset by a $3.0  million foreign currency gain, and was reportedin other (income) expense. These forward contracts are derivativeinstruments that we use as risk management tools. We do not use themfor trading or speculative purposes.

Chapter 11Expenses – Although we are unable to measure precisely theimpact of the Chapter 11 proceedings on our overall financialperformance, we incur certain added costs that are directlyattributable to operating in Chapter 11. Net Chapter 11 expensesconsist primarily of legal, financial and consulting fees that we, andthe three creditors’ committees, incur. They fluctuate with theactivity in our Chapter 11 proceedings.

Our pre-tax income fromcore operations included expenses for Chapter 11-related compensationcharges of $3.2  million and $2.9  million for the threemonths ended March  31,  2006 and 2005, respectively. Poorperformance of Grace common stock in the period leading up to and afterthe Chapter 11 filing diminished the value of our stock option programas an incentive compensation tool for current and prospectiveemployees, which caused us to change our long-term incentivecompensation from an equity-based to a cash-based program.

Weincur numerous other indirect costs to manage the Chapter 11proceedings such as: management time devoted to Chapter 11 matters;added cost of debt capital; added costs of general business insurance,including D&O liability insurance premiums; and lost business andacquisition opportunities due to the complexities and restrictions ofoperating under Chapter 11.

Interest Expense – Netinterest expense is higher as of March  31,  2006 comparedwith the prior year period due to the interest to which generalunsecured creditors would be entitled under the plan of reorganization.The plan of reorganization states that each holder of an allowedgeneral unsecured claim shall be paid in full, plus post-petitioninterest. Post-petition interest shall accrue through the date ofpayment as follows:

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|              |                                                                                                                                                                                                                                                                                 |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | for the holdersof pre-petition bank credit facilities, at a rate of 6.09% perannum, compounded quarterly through December  31,  2005and, for periods after January  1,  2006, at the floatingprime rate compounded quarterly. That rate was 7.43% for thefirst quarter of 2006; |

|              |                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | for the holdersof claims who, but for the Chapter 11 filing, would be entitled under acontract or otherwise to accrue or be paid interest on such claim in anon-default (or non-overdue payment) situation under applicablenon-bankruptcy law, the rate provided in the contract between the Graceentity and the claimant or such rate as may otherwise apply underapplicable non-bankruptcy law; or |

|              |                                                                                                             |
|--------------|-------------------------------------------------------------------------------------------------------------|
| •  | forall other holders of allowed general unsecured claims, at a rate of4.19% per annum, compounded annually. |

Such interest,which under the plan of reorganization is payable 85% in cashand 15% in Grace common stock, will not be paid until the planof reorganization is confirmed and funded.

Income Taxes– Income tax benefit (provision) at the federal corporate rate of35% for the three months ended March  31,  2006 and2005 was $2.0  million and $4.1  million, respectively. Theprimary differences between these amounts and the overall provision forincome taxes is due to interest on tax contingencies and thenon-deductibility of certain Chapter 11 expenses.

OperatingSegment Overview

The following is an overview of financialmeasures of the performance of our operating segments for the threemonths ended March  31,  2006.

GraceDavison

|                                |  |                            |       |        |  |                     |       |                     |  |        |      |         |  |        |       |          |  |  |
|--------------------------------|--|----------------------------|-------|--------|--|---------------------|-------|---------------------|--|--------|------|---------|--|--------|-------|----------|--|--|
|                           |  | ThreeMonths Ended March31, |
| NetSales by Region(Inmillions) |  | 2006                       |       | 2005   |  | $Change Fav (Unfav) |       | % ChangeFav (Unfav) |
| NorthAmerica                   |  | $                          | 132.7 |   |  | $                   | 130.0 |                |  | $      | 2.7  |    |  |   | 2.1   | %   |
| Europe                         |  |                       | 154.4 |   |  |                | 137.4 |                |  |   | 17.0 |    |  |   | 12.4  | %   |
| AsiaPacific                    |  |                       | 58.1  |   |  |                | 50.3  |                |  |   | 7.8  |    |  |   | 15.5  | %   |
| LatinAmerica                   |  |                       | 11.2  |   |  |                | 17.0  |                |  |   | (5.8 | )  |  |   | (34.1 | %)  |
| TotalGraceDavison              |  | $                          | 356.4 |   |  | $                   | 334.7 |                |  | $      | 21.7 |    |  |   | 6.5   | %   |
|                                |

Sales

The key factors contributing to the Grace Davison saleschange were:

|              |                                                                                   |
|--------------|-----------------------------------------------------------------------------------|
| •  | continued strong demandfor hydroprocessing catalysts that upgrade heavy crudeoil; |

|              |                                                                                                           |
|--------------|-----------------------------------------------------------------------------------------------------------|
| •  | selling price increases andsurcharges to partially offset natural gas and raw material costinflation; and |

|              |                                                                                                                                            |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------|
| •  | higher volume inengineered materials and discovery sciences product groups fromstronger economic activity, particularly in Europe andAsia. |

Sales increases were partially offset by unfavorablecurrency translation, which lowered the increase by 3.8 percentagepoints.

Sales in Asia Pacific were up due to strong demand in allproduct groups resulting from economic activity in China. Europeansales were higher due to higher demand for refining catalysts, whichmore than 

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offset the effects of lower economic activityin parts of that region. Sales in North America were negativelyaffected by continued shutdowns of several petroleum refineries fromlast year’s hurricanes and for preventive maintenance atcustomer sites. Sales in Latin America were down primarily due tocustomer order patterns.

Grace Davison Net Sales ($ inmillions)

OperatingIncome and Margin

Grace Davison 2006 pretax operating incomedecreased compared with 2005, as higher selling prices, lower expensesand a better product mix were more than offset by inflation in rawmaterials and energy costs and by costs to rationalize certainmanufacturing operations in North America. We report 100% ofsales for the Advanced Refining Technologies LLC joint venture, butonly account for 55% of the income in our measure of operatingperformance.

Grace Davison Operating Income andMargin($ inmillions)

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Grace PerformanceChemicals

|                                 |  |                            |       |        |  |                    |       |                     |  |        |      |        |  |       |  |  |  |  |
|---------------------------------|--|----------------------------|-------|--------|--|--------------------|-------|---------------------|--|--------|------|--------|--|-------|--|--|--|--|
|                            |  | ThreeMonths Ended March31, |
| Net Sales byRegion (Inmillions) |  | 2006                       |       | 2005   |  | $Change Fav(Unfav) |       | %Change Fav (Unfav) |
| NorthAmerica                    |  | $                          | 147.2 |   |  | $                  | 130.2 |                |  | $      | 17.0 |   |  | 13.1% |
| Europe                          |  |                       | 92.6  |   |  |               | 83.8  |                |  |   | 8.8  |   |  | 10.5% |
| AsiaPacific                     |  |                       | 40.2  |   |  |               | 37.8  |                |  |   | 2.4  |   |  | 6.3%  |
| LatinAmerica                    |  |                       | 22.2  |   |  |               | 16.7  |                |  |   | 5.5  |   |  | 32.9% |
| TotalPerformanceChemicals       |  | $                          | 302.2 |   |  | $                  | 268.5 |                |  | $      | 33.7 |   |  | 12.6% |
|                                 |

Sales

Thekey factors contributing to the increase in sales from our GracePerformance Chemicals operating segmentwere:

|              |                                                             |
|--------------|-------------------------------------------------------------|
| •  | continued steady constructionactivity in the United States; |

|              |                                         |
|--------------|-----------------------------------------|
| •  | improvedconstruction activity inEurope; |

|              |                                                                                                    |
|--------------|----------------------------------------------------------------------------------------------------|
| •  | increased volume of productsdirected at high-growth industry, geographic and customer segments;and |

|              |                                                                      |
|--------------|----------------------------------------------------------------------|
| •  | higher selling prices in responseto increases in raw material costs. |

Sales growth was strong inall regions, reflecting geographic expansion and other growthinitiatives.

Grace Performance Chemicals Net Sales($ inmillions)

OperatingIncome and Margin

Grace Performance Chemicals 2006 operatingincome increased compared with 2005, reflecting higher sales volume andselling price increases, partially offset by raw material costinflation.

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Grace Performance ChemicalsOperating Income and Margin ($ inmillions)

OperatingReturns on Assets Employed – The following charts set forththe Grace Davison and Grace Performance Chemicals total asset positionand pre-tax return on average total assets as of March31,  2006 and December  31,  2005. We devotesignificantly higher capital to the manufacture of Grace Davisonproducts than to the manufacture of Grace Performance Chemicalsproducts. Conversely, nonmanufacturing costs, particularly sellingexpenses, are significantly higher for Grace Performance Chemicals thanfor GraceDavison.

|                                      |  |               |         |                  |  |        |         |         |  |  |
|--------------------------------------|--|---------------|---------|------------------|--|--------|---------|---------|--|--|
| GraceDavison(Inmillions)             |  | March31, 2006 |         | December 31,2005 |
| Tradereceivables                     |  | $             | 201.1   |             |  | $      | 178.2   |    |
| Inventory                            |  |          | 197.0   |             |  |   | 177.6   |    |
| Othercurrentassets                   |  |          | 18.6    |             |  |   | 24.3    |    |
| Totalcurrentassets                   |  |          | 416.7   |             |  |   | 380.1   |    |
| Properties andequipment, net         |  |          | 385.1   |             |  |   | 390.7   |    |
| Goodwilland other intangibleassets   |  |          | 97.4    |             |  |   | 98.2    |    |
| Otherassets                          |  |          | — |             |  |   | — |    |
| Totalassets                          |  | $             | 899.2   |             |  | $      | 869.0   |    |
| Pre-taxreturn on average totalassets |  |          | 17.7    | %           |  |   | 17.9    | %  |
|                                      |

GraceDavison’s total assets increased by $30.2  million in 2006compared with December  31,  2005. The increase was due tohigher trade receivables caused by increased sales and higher inventoryin response to sales growth andseasonality.

|                                        |  |               |       |                  |  |        |       |         |  |  |
|----------------------------------------|--|---------------|-------|------------------|--|--------|-------|---------|--|--|
| GracePerformance Chemicals(Inmillions) |  | March31, 2006 |       | December 31,2005 |
| Tradereceivables                       |  | $             | 230.6 |             |  | $      | 222.7 |    |
| Inventory                              |  |          | 104.1 |             |  |   | 100.7 |    |
| Othercurrentassets                     |  |          | 12.7  |             |  |   | 15.7  |    |
| Totalcurrentassets                     |  |          | 347.4 |             |  |   | 339.1 |    |
| Properties andequipment, net           |  |          | 229.3 |             |  |   | 226.4 |    |
| Goodwilland other intangibleassets     |  |          | 92.9  |             |  |   | 93.5  |    |
| Otherassets                            |  |          | 7.2   |             |  |   | 6.6   |    |
| Totalassets                            |  | $             | 676.8 |             |  | $      | 665.6 |    |
| Pre-taxreturn on average totalassets   |  |          | 23.3  | %           |  |   | 22.4  | %  |
|                                        |

GracePerformance Chemicals’ total assets increased by $11.2million, mainly due to higher trade receivables as a result ofincreased sales and higher inventory to support salesgrowth.

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Noncore Liabilities

We have anumber of financial exposures originating from past businesses,products and events. These obligations arose from transactions and/orbusiness practices that date to when Grace was a much larger company,when we produced products or operated businesses that are no longerpart of our revenue base, and when government regulation was lessstringent and scientific knowledge with respect to such businesses andproducts was much less advanced than today.

Thefollowing table summarizes our net noncore liabilities at March31,  2006 and December  31,2005:

|                                     |  |              |          |                 |  |        |          |         |  |  |
|-------------------------------------|--|--------------|----------|-----------------|--|--------|----------|---------|--|--|
| NetNoncore Liabilities(Inmillions)  |  | March31,2006 |          | December31,2005 |
| Asbestos-relatedliabilities         |  | $            | (1,700.0 | )          |  | $      | (1,700.0 | )  |
| Asbestos-relatedinsurancereceivable |  |         | 500.0    |            |  |   | 500.0    |    |
| Asbestos-relatedliability,net       |  |         | (1,200.0 | )          |  |   | (1,200.0 | )  |
| Environmentalremediation            |  |         | (339.9   | )          |  |   | (342.0   | )  |
| Postretirementbenefits              |  |         | (97.6    | )          |  |   | (101.3   | )  |
| Incometaxes                         |  |         | (137.4   | )          |  |   | (136.5   | )  |
| Retainedobligations andother        |  |         | (22.8    | )          |  |   | (23.4    | )  |
| Netnoncoreliability                 |  | $            | (1,797.7 | )          |  | $      | (1,803.2 | )  |
|                                     |

Theresolution of most of these noncore recorded and contingent liabilitieswill be determined through the Chapter 11 proceedings. We cannotpredict with any certainty how, and for what amounts, any of thesecontingencies will be resolved. The amounts of these liabilities asultimately determined through the Chapter 11 proceedings could bematerially different from amounts recorded at March  31,2006.

Plan of Reorganization

As described under‘‘Voluntary Bankruptcy Filing’’ in Notes 1and 2 to the Consolidated Financial Statements, Grace and our principalU.S. operating subsidiary are debtors-in-possession under Chapter 11 ofthe bankruptcy code. Our non-U.S. subsidiaries, although not part ofthe Chapter 11 filing, are owned directly or indirectly by ourprincipal operating subsidiary or other filing entities. Consequently,we expect that any Chapter 11 plan of reorganization, including ourproposed plan of reorganization, will involve the combined value of ourglobal businesses and other assets to fund (with cash and/orsecurities) our obligations as adjudicated through the bankruptcyprocess. We have analyzed our cash flow and capital needs to continueto fund our businesses and believe that, while in Chapter 11,sufficient cash flow and credit facilities are available to support ourbusiness strategy.

On January  13,  2005, we filed aplan of reorganization and related documents that amended our originalplan of reorganization and disclosure statement filed onNovember  13,  2004 to address certain objections ofcreditors and other interested parties. The plan of reorganization issupported by committees representing general unsecured creditors andequity holders, but is not supported by committees representingasbestos personal injury claimants and asbestos property damageclaimants. See Note 2 to the Consolidated Financial Statements for moreinformation on the plan of reorganization.

Risks of the planof reorganization – We intend to address all pending andfuture asbestos-related claims and all other pre-petition claims asoutlined in the plan of reorganization. However, we may not besuccessful in obtaining approval of the plan of reorganization by theBankruptcy Court. Instead, a materially different plan ofreorganization may ultimately be approved and, under the ultimate planof reorganization, the interests of Grace shareholders could besubstantially diluted or cancelled. The value of Grace common stockfollowing a plan of reorganization, and the extent of any recovery bynon-asbestos-related creditors, will depend principally on the allowedvalue of our asbestos-related claims as determined by the BankruptcyCourt.

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Our proposed plan of reorganizationassumes several fundamental conditions includingthat:

|              |                                                                                                                                                                                                                                                                                                                                                                                     |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | our asbestos-related liabilitiescan be resolved at a net present value cost of no more than$1,700  million (including $87  million for pre-petitionasbestos-related contractual settlements and judgments), including allproperty damage claims (including claims related to our former ZonoliteAttic Insulation, or ZAI, product) and all pending and future personalinjury claims |

|              |                                                                                                                                                                                                                                            |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | the benefit of assetsfrom litigation settlement agreements with Sealed Air Corporation andits subsidiary, Cryovac, Inc., and Fresenius Medical Care Holdings,Inc. will be available to satisfy liabilities under the plan ofreorganization |

There can be no guarantee that these twofundamental conditions can be met. The measure of our asbestos-relatedliabilities could be settled by the bankruptcy court (in conformitywith the plan of reorganization or otherwise), by a negotiation withinterested parties, and/or by legislation (currently being consideredby the U.S. Congress) for the personal injury component of thiscontingency.

In May  2005, the U.S. Senate JudiciaryCommittee reported the Specter-Leahy Fairness in Asbestos InjuryResolution Act of 2005, or FAIR, to the U.S. Senate. The FAIR bill isintended to create a fair and efficient system to resolve claims ofvictims for personal injury caused by asbestos exposure. FAIR, asreported, provides for the creation of a government-administered trust,to be funded by payments from insurers and defendant companies. It alsoincludes medical criteria against which monetary values have beenassigned so that people with an asbestos-related condition will receivecompensation under a no-fault system.

Under the current versionof FAIR, our required payments to the fund would be approximately$30.4  million payable annually over a period of up to 30years.

Whether FAIR, as reported or as it may be amended, isenacted into law is highly uncertain. Legislation to provide aresolution for asbestos personal injury mass tort litigation has beenconsidered many times before and in no instance has legislation passedboth houses of Congress. A resolution of personal injury claims basedon FAIR may not satisfy the conditions precedent under the litigationsettlement agreements with Sealed Air and Fresenius and, therefore, mayreduce or eliminate the availability of those assets to fund a plan ofreorganization.

Any resolution, other than that reflected in theplan of reorganization, could have a material adverse effect on thepercentage of Grace common stock to be retained by current Graceshareholders beyond that reflected in the proforma financialinformation presented below. We will adjust our financial statementsand the proforma effects of the plan of reorganization as facts andcircumstances warrant.

Proforma Financial Information– The unaudited proforma financial information presented belowreflects the accounting effects of our proposed plan of reorganization(1) as if it were put in effect on the date of our most recentconsolidated balance sheet  –  March  31,2006, and (2) as if it were in effect for (a) the full year endedDecember  31,  2005, and (b) the three months endedMarch  31,  2006. The proforma financial informationincluded herein, may not be consistent with the plan of reorganizationdocuments filed on January  13,  2005 due to subsequentchanges in operations and accounting estimates. Such proforma financialstatements reflect how our assets, liabilities, equity and income wouldbe affected by the plan of reorganization asfollows:

|          |                                                       |
|----------|-------------------------------------------------------|
| A.  | Borrowings Under New DebtAgreements and Contingencies |

The plan of reorganization reflectsthe assumed establishment of a new $1,000  million debt facilityto fund settled claims payable at the effective date of the plan ofreorganization (approximately $800  million) and to provideworking capital (approximately $200  million) for continuingoperations. Proforma expenses reflect an assumed 7% interestrate on outstanding borrowings. No such facility currently exists but,we expect, based on our discussions with prospective lenders, that wecan obtain a facility before the effective 

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date of the plan of reorganization. Inaddition, the proforma financial information reflects $150.0million in contingencies to pay professional and bank fees, othernon-operating liabilities and their related tax effects that will notbecome liabilities until the effective date of the plan ofreorganization.

|          |                                     |
|----------|-------------------------------------|
| B.  | Fresenius andSealed Air Settlements |

The plan of reorganization reflects thevalue, in the form of cash and securities, expected to be realizedunder litigation settlement agreements as follows: $115.0million of cash from Fresenius; and, $1,131.6  million ofestimated value from Cryovac, Inc., a subsidiary of Sealed Air(calculated as of March  31,  2006) in the form of$512.5  million of cash plus accrued interest at 5.5% fromDecember  21,  2002 compounded annually (approximately$98.3  million), and nine million shares of Sealed Air commonstock valued at $57.87 per share (approximately $520.8  million).Tax accounts have been adjusted to reflect the satisfaction of ourrecorded liabilities by way of these third-party agreements. TheFresenius settlement amount will be payable directly to Grace and willbe accounted for as income. Payments under the Sealed Air settlementwill be paid directly to the asbestos trust by Cryovac and will beaccounted for as satisfaction of a portion of our recordedasbestos-related liability and a credit to shareholder’s equity.In addition, the valuation allowance related to our federal deferredtax assets will not be required as a result of these settlements andhas therefore been reversed. Both the Sealed Air and Freseniussettlements are subject to the fulfillment of specifiedconditions.

|          |                                    |
|----------|------------------------------------|
| C.  | Payment of Pre-PetitionLiabilities |

The plan of reorganization reflects the transfer offunds and securities to settle estimated obligations payable under theplan of reorganization at the effective date. We have adjusted taxaccounts to reflect the change in nature of our tax assets frompredominately temporary differences to predominately time-limited taxnet operating losses. We have assumed non-asbestos pass-throughliabilities will be paid in cash when due.

|          |                                                                    |
|----------|--------------------------------------------------------------------|
| D.  | Proforma Consolidated Statement ofOperations and Capital Structure |

The proforma income adjustmentsreflect the elimination from our March  31,  2006 andDecember  31,  2005 Consolidated Statements of Operationsof:

|              |                                                     |
|--------------|-----------------------------------------------------|
| •  | charges and expenses directlyrelated to Chapter 11; |

|              |                                                                                                     |
|--------------|-----------------------------------------------------------------------------------------------------|
| •  | other expensesand income related to matters expected to be resolved before emergingfrom Chapter 11; |

|              |                                                                                               |
|--------------|-----------------------------------------------------------------------------------------------|
| •  | the accounting forestimates and provisions directly related to the plan ofreorganization; and |

|              |                                                                                                                             |
|--------------|-----------------------------------------------------------------------------------------------------------------------------|
| •  | the addition ofinterest and new shares of Grace common stock related to the assumedfinancing of the plan of reorganization. |

For purposes of proformaearnings per share and proforma share capital, we used the tradingprice of $13.30 per share as of March  31,  2006 forcalculating issued and outstanding shares. At this per share valuation,we assume that 38.6  million shares will be issued at theeffective date of the plan of reorganization to fund asbestos andgeneral unsecured claims, 9.8  million shares would be issuableupon exercise of warrants to satisfy our estimate of PI-AO claims, and2.5  million shares would be issued upon exercise of in-the-moneystock options. We present the trading value solely to show a proformaConsolidated Statement of Operations. This trading value may not beindicative of the actual trading value of Grace common stock followingthe effective date of the plan of reorganization. If our distributablevalue per share at the effective date of the plan of reorganization isbelow approximately $7.50 per share, we would be required to revalueour balance sheet for a change in control. (The trading value of Gracecommon stock over the twelve-month period ended March  31,2006 was between $6.75 and $13.85 per share.) These proforma financialstatements reflect no change in assets or income related to thispotential accounting outcome.

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|          |                           |
|----------|---------------------------|
| E.  | Non-asbestosContingencies |

The accompanying proforma financial informationassumes all non-asbestos related contingencies (includingenvironmental, tax and civil and criminal litigation) are settled forrecorded amounts as of March  31,  2006. Certainliabilities are assumed to be paid at the effective date based on ourestimate of amounts that will be determinable and payable. Theremainder, which would also be subject to the plan of reorganization,if approved, is assumed to be paid subsequent to the effective date asamounts are either not due until a later date or will be determinedthrough post-effective-date litigation. The ultimate value of suchclaims may change materially as Chapter 11 and other legal proceedingsfurther define our non-asbestos relatedobligations.

|                                                                                                                                               |  |                                  |          |                                   |  |                      |         |         |  |        |          |         |  |        |          |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--|----------------------------------|----------|-----------------------------------|--|----------------------|---------|---------|--|--------|----------|---------|--|--------|----------|---------|--|--------|---------|---------|--|--|
| W.R. Grace & Co and Subsidiaries     Proforma CondensedConsolidated     Balance Sheet(Inmillions) |  | March 31,2006 As Reported        |          | ProformaAdjustments               |  |                 |
| BorrowingsUnderNew DebtAgreementsandContingencies                                                                                             |  | Sealed Air/Fresenius Settlements |          | Paymentof Pre-PetitionLiabilities |  | March31,2006Proforma |
| ASSETS                                                                                                                                        |  |                             |     |                              |  |                 |    |    |  |   |     |    |  |   |     |    |  |   |    |    |
| CurrentAssets                                                                                                                                 |  |                             |     |                              |  |                 |    |    |  |   |     |    |  |   |     |    |  |   |    |    |
| Cashand cashequivalents                                                                                                                       |  | $                                | 415.4    |                              |  | $                    | 800.0   |    |  | $      | 115.0    |    |  | $      | (1,006.4 | )  |  | $      | 324.0   |    |
| Othercurrentassets                                                                                                                            |  |                             | 818.2    |                              |  |                 | — |    |  |   | —  |    |  |   | —  |    |  |   | 818.2   |    |
| TotalCurrentAssets                                                                                                                            |  |                             | 1,233.6  |                              |  |                 | 800.0   |    |  |   | 115.0    |    |  |   | (1,006.4 | )  |  |   | 1,142.2 |    |
| Non-currentoperatingassets                                                                                                                    |  |                             | 971.0    |                              |  |                 | — |    |  |   | —  |    |  |   | —  |    |  |   | 971.0   |    |
| Cashvalue of lifeinsurance                                                                                                                    |  |                             | 86.2     |                              |  |                 | — |    |  |   | —  |    |  |   | —  |    |  |   | 86.2    |    |
| Deferredincometaxes:                                                                                                                          |  |                             |     |                              |  |                 |    |    |  |   |     |    |  |   |     |    |  |   |    |    |
| Netoperating losscarryforwards                                                                                                                |  |                             | 39.4     |                              |  |                 | — |    |  |   | (40.3    | )  |  |   | 97.5     |    |  |   | 96.6    |    |
| Temporarydifferences, net of valuationallowance                                                                                               |  |                             | 675.8    |                              |  |                 | 26.3    |    |  |   | (348.1   | )  |  |   | (97.5    | )  |  |   | 256.5   |    |
| Asbestos-relatedinsurance                                                                                                                     |  |                             | 500.0    |                              |  |                 | — |    |  |   | —  |    |  |   | —  |    |  |   | 500.0   |    |
| TotalAssets                                                                                                                                   |  | $                                | 3,506.0  |                              |  | $                    | 826.3   |    |  | $      | (273.4   | )  |  | $      | (1,006.4 | )  |  | $      | 3,052.5 |    |
| LIABILITIESAND SHAREHOLDERS’ EQUITY(DEFICIT)                                                                                            |  |                             |     |                              |  |                 |    |    |  |   |     |    |  |   |     |    |  |   |    |    |
| Totalcurrentliabilities                                                                                                                       |  | $                                | 353.0    |                              |  | $                    | — |    |  | $      | —  |    |  | $      | —  |    |  | $      | 353.0   |    |
| Long-termdebt                                                                                                                                 |  |                             | 0.4      |                              |  |                 | 800.0   |    |  |   | —  |    |  |   | —  |    |  |   | 800.4   |    |
| Othernoncurrentliabilities                                                                                                                    |  |                             | 580.2    |                              |  |                 | — |    |  |   | —  |    |  |   | —  |    |  |   | 580.2   |    |
| TotalLiabilities Not Subject toCompromise                                                                                                     |  |                             | 933.6    |                              |  |                 | 800.0   |    |  |   | —  |    |  |   | —  |    |  |   | 1,733.6 |    |
| Bankdebt/letters of credit/capitalleases                                                                                                      |  |                             | 696.8    |                              |  |                 | — |    |  |   | —  |    |  |   | (695.1   | )  |  |   | 1.7     |    |
| Liabilityfor asbestos-related litigation andclaims                                                                                            |  |                             | 1,700.0  |                              |  |                 | — |    |  |   | (1,131.6 | )  |  |   | (438.4   | )  |  |   | 130.0   |    |
| Liabilityfor environmentalremediation                                                                                                         |  |                             | 339.9    |                              |  |                 | — |    |  |   | —  |    |  |   | (227.4   | )  |  |   | 112.5   |    |
| Liabilityfor postretirement health and specialpensions                                                                                        |  |                             | 184.5    |                              |  |                 | — |    |  |   | —  |    |  |   | (11.6    | )  |  |   | 172.9   |    |
| Liabilityfor accounts payable andlitigation                                                                                                   |  |                             | 106.7    |                              |  |                 | — |    |  |   | —  |    |  |   | (84.7    | )  |  |   | 22.0    |    |
| Liabilityfor tax claims andcontingencies                                                                                                      |  |                             | 137.4    |                              |  |                 | — |    |  |   | —  |    |  |   | (12.0    | )  |  |   | 125.4   |    |
| Othernonoperating liabilities, including plan of reorganizationcontingencies                                                                  |  |                             | —  |                              |  |                 | 150.0   |    |  |   | —  |    |  |   | (50.0    | )  |  |   | 100.0   |    |
| LiabilitiesSubject toCompromise                                                                                                               |  |                             | 3,165.3  |                              |  |                 | 150.0   |    |  |   | (1,131.6 | )  |  |   | (1,519.2 | )  |  |   | 664.5   |    |
| TotalLiabilities                                                                                                                              |  |                             | 4,098.9  |                              |  |                 | 950.0   |    |  |   | (1,131.6 | )  |  |   | (1,519.2 | )  |  |   | 2,398.1 |    |
| Shareholder’sEquity(Deficit)                                                                                                            |  |                             |     |                              |  |                 |    |    |  |   |     |    |  |   |     |    |  |   |    |    |
| Sharecapital                                                                                                                                  |  |                             | 423.5    |                              |  |                 | — |    |  |   | —  |    |  |   | 512.8    |    |  |   | 936.3   |    |
| Retainedearnings and other equityitems                                                                                                        |  |                             | (1,016.4 | )                            |  |                 | (123.7  | )  |  |   | 858.2    |    |  |   | —  |    |  |   | (281.9  | )  |
| TotalShareholders’ Equity(Deficit)                                                                                                      |  |                             | (592.9   | )                            |  |                 | (123.7  | )  |  |   | 858.2    |    |  |   | 512.8    |    |  |   | 654.4   |    |
| TotalLiabilities and Shareholders’ Equity(Deficit)                                                                                      |  | $                                | 3,506.0  |                              |  | $                    | 826.3   |    |  | $      | (273.4   | )  |  | $      | (1,006.4 | )  |  | $      | 3,052.5 |    |
|                                                                                                                                               |

|       |                                                                                                                                                     |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| Note: | Proformaamounts in liabilities subject to compromise will be reclassed toliabilities not subject to compromise after the proposed plan is ineffect. |

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|                                                                                                                                                                                                                                     |  |                             |         |                                        |  |            |         |                     |  |          |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|-----------------------------|---------|----------------------------------------|--|------------|---------|---------------------|--|----------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
| W.R. Grace & Co. and     Subsidiaries  Proforma    Consolidated Statements of     Operations(In millions,except per share    amounts) |  | Year EndedDecember 31, 2005 |         | Three Month Period Ended March31, 2006 |
| AsReported                                                                                                                                                                                                                          |  | Proforma Adjustments        |         | Proforma                               |  | AsReported |         | ProformaAdjustments |  | Proforma |
| NetSales                                                                                                                                                                                                                            |  | $                           | 2,569.5 |                                   |  | $          | — |                |  | $        | 2,569.5 |    |  | $      | 658.6   |    |  | $      | — |    |  | $      | 658.6   |    |
| Costof goods sold, exclusive of depreciation and amortization shownseparatelybelow                                                                                                                                                  |  |                        | 1,689.8 |                                   |  |       | — |                |  |     | 1,689.8 |    |  |   | 438.0   |    |  |   | — |    |  |   | 438.0   |    |
| Selling,general and administrative expenses, exclusive of net pension expenseshown separatelybelow                                                                                                                                  |  |                        | 481.1   |                                   |  |       | (39.4   | )              |  |     | 441.7   |    |  |   | 128.2   |    |  |   | (18.2   | )  |  |   | 110.0   |    |
| Depreciationandamortization                                                                                                                                                                                                         |  |                        | 114.0   |                                   |  |       | — |                |  |     | 114.0   |    |  |   | 28.1    |    |  |   | — |    |  |   | 28.1    |    |
| Researchand developmentexpenses                                                                                                                                                                                                     |  |                        | 59.2    |                                   |  |       | — |                |  |     | 59.2    |    |  |   | 15.5    |    |  |   | — |    |  |   | 15.5    |    |
| Netpensionexpense                                                                                                                                                                                                                   |  |                        | 71.9    |                                   |  |       | — |                |  |     | 71.9    |    |  |   | 14.8    |    |  |   | — |    |  |   | 14.8    |    |
| Interestexpense and related financingcosts                                                                                                                                                                                          |  |                        | 55.3    |                                   |  |       | 1.6     |                |  |     | 56.9    |    |  |   | 15.8    |    |  |   | (1.5    | )  |  |   | 14.3    |    |
| Provisionfor environmentalremediation                                                                                                                                                                                               |  |                        | 25.0    |                                   |  |       | (25.0   | )              |  |     | — |    |  |   | — |    |  |   | — |    |  |   | — |    |
| Other(income)expense                                                                                                                                                                                                                |  |                        | (67.4   | )                                 |  |       | 44.5    |                |  |     | (22.9   | )  |  |   | (1.9    | )  |  |   | — |    |  |   | (1.9    | )  |
| Totalcosts andexpenses                                                                                                                                                                                                              |  |                        | 2,428.9 |                                   |  |       | (18.3   | )              |  |     | 2,410.6 |    |  |   | 638.5   |    |  |   | (19.7   | )  |  |   | 618.8   |    |
| Income(loss) before Chapter 11 expenses, income taxes, andminorityinterest                                                                                                                                                          |  |                        | 140.6   |                                   |  |       | 18.3    |                |  |     | 158.9   |    |  |   | 20.1    |    |  |   | 19.7    |    |  |   | 39.8    |    |
| Chapter11 expenses,net                                                                                                                                                                                                              |  |                        | (30.9   | )                                 |  |       | 30.9    |                |  |     | — |    |  |   | (8.7    | )  |  |   | 8.7     |    |  |   | — |    |
| Benefitfrom (provision for) incometaxes                                                                                                                                                                                             |  |                        | (21.3   | )                                 |  |       | (26.9   | )              |  |     | (48.2   | )  |  |   | (4.5    | )  |  |   | (7.1    | )  |  |   | (11.6   | )  |
| Minorityinterest in consolidatedentities                                                                                                                                                                                            |  |                        | (21.1   | )                                 |  |       | — |                |  |     | (21.1   | )  |  |   | (6.8    | )  |  |   | — |    |  |   | (6.8    | )  |
| Netincome(loss)                                                                                                                                                                                                                     |  | $                           | 67.3    |                                   |  | $          | 22.3    |                |  | $        | 89.6    |    |  | $      | 0.1     |    |  | $      | 21.3    |    |  | $      | 21.4    |    |
| Basicearnings (loss) per commonshare                                                                                                                                                                                                |  | $                           | 1.01    |                                   |  |       |    |                |  | $        | 0.83    |    |  | $      | 0.00    |    |  |   |    |    |  | $      | 0.20    |    |
| Weightedaverage number of basicshares                                                                                                                                                                                               |  |                        | 66.8    |                                   |  |       | 41.1    |                |  |     | 107.9   |    |  |   | 67.0    |    |  |   | 41.1    |    |  |   | 108.1   |    |
| Dilutedearnings (loss) per commonshare                                                                                                                                                                                              |  | $                           | 1.00    |                                   |  |       |    |                |  | $        | 0.76    |    |  | $      | 0.00    |    |  |   |    |    |  | $      | 0.18    |    |
| Weightedaverage number of dilutedshares                                                                                                                                                                                             |  |                        | 67.3    |                                   |  |       | 50.9    |                |  |     | 118.2   |    |  |   | 67.3    |    |  |   | 50.9    |    |  |   | 118.2   |    |
|                                                                                                                                                                                                                                     |

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FinancialCondition

Asbestos-Related Litigation – See Note3 to the Consolidated Financial Statements.

EnvironmentalMatters – See Note 12 to the Consolidated FinancialStatements.

Defined Benefit Pension Plans – Wesponsor defined benefit pension plans for our employees in the UnitedStates, Canada, the United Kingdom, Australia, Germany, Italy, France,Spain, Denmark, Japan, Philippines, South Korea, Taiwan, South Africa,Brazil and Mexico and fund government sponsored programs in othercountries where we operate. Certain of our sponsored plans areadvance-funded and others are pay-as-you-go. The advance-funded plansare administered by trustees who direct the management of plan assetsand arrange to have obligations paid when due out of a trust. The mostsignificant advance-funded plans cover our salaried employees in theU.S. and U.K. and employees covered by collective bargaining agreementsat certain of our U.S. facilities.

At the December31,  2005 measurement date for the U.S. advance-funded definedbenefit pension plans, the accumulated benefit obligation, or ABO, wasapproximately $965  million as measured under U.S. generallyaccepted accounting principles. The ABO is measured as the presentvalue (using a 5.5% discount rate as of December31,  2005) of vested and non-vested benefits earned from employeeservice to date, based upon current salary levels. Such discount rateis based on a high quality bond portfolio designed to meet the payoutpattern of the pension plans. Of the participants in the pension plans,approximately 80% are current retirees or employees of ourformer businesses, making the payout pattern skewed to the nearer term.Assets available to fund the ABO at December  31,  2005were approximately $645  million, or approximately $320million less than the measured obligation.

Assets available atMarch  31,  2006 to fund the ABO of the U.S. advance-fundeddefined benefit pension plans totaled approximately $652  millionup $7  million from December  31,  2005, primarilydue to contributions. It is our intention to satisfy our obligationsunder the pension plans and to comply with all of the requirements ofthe Employee Retirement Income Security Act of 1974. In that regard, wewill seek Bankruptcy Court approval to fund minimum required paymentsof approximately $105  million for the July  2006 toApril  2007 period. We contributed approximately $9million in January  2006 and approximately $20  million inApril  2006 to the trusts that hold assets of the pension plans.Contributions to non-U.S. plans are not subject to bankruptcy courtapproval and we intend to fund such plans based on actuarial andtrustee recommendations; $3.3  million was funded during thethree months ended March  31,  2006.

See Note 13 tothe Consolidated Financial Statements for the components of netperiodic benefit cost for each of the three-month periods endedMarch  31,  2006 and 2005. We expect total pension expensefor 2006 to be approximately $59  million, and benefit paymentsto retirees to aggregate to approximately $96  million for allpension programs in 2006. At March  31,  2006, our recordedpension liability for U.S. and non-U.S. underfunded plans was$537.2  million ($450.3  million included in liabilitiesnot subject to compromise and $86.9  million related tosupplemental pension benefits, included in ‘‘liabilitiessubject to compromise’’) which includes the followingcomponents: (1) shortfall between dedicated assets and ABO ofunderfunded plans ($321.7  million); and (2) ABO of pay-as-you-goplans ($215.5  million).

Postretirement Benefits OtherThan Pensions – We provide certain health care and lifeinsurance benefits for retired employees, a large majority of whom areretirees of divested businesses. These plans are unfunded, and we paythe costs of benefits under these plans as they are incurred. Our shareof benefits under this program was $2.2  million during the threemonths ended March  31,  2006, compared with $2.3million in the prior year period. Our recorded liability forpostretirement benefits of $97.6  million at March31,  2006 is stated at net present value discounted at5.5% (as discussed under Defined Benefit Pension Plans). Ourproposed plan of reorganization provides for the continuation of thesebenefits.

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Liquidity and CapitalResources

Cash Resources and Available CreditFacilities – At March  31,  2006, we had$501.6  million in cash and cash-like assets ($415.4million in cash and cash equivalents and $86.2  million in netcash value of life insurance). In addition, we had access to committedcredit facilities in the U.S., Germany and France. In the U.S., underthe $250.0  million DIP facility, $207.0  million wasavailable at March  31,  2006 net of letters of credit andholdback provisions. The term of the DIP facility expires April1,  2008. In Germany, under a €10.0  millionline of credit, we had access to €5.7  million atMarch  31,  2006 net of bankers guarantees and otherholdbacks. The term of the facility expires January  17,2007. In France, under a €3.9  million line ofcredit, we had access to €0.1  million atMarch  31,  2006 net of bankers guarantees. The term of thefacility expires May  31,  2006 and is expected to berenewed for an additional one-year period. We believe that these fundsand credit facilities will be sufficient to finance our businessstrategy while in Chapter 11.

Debt and Other ContractualObligations – Total debt outstanding at March31,  2006 was $699.4  million, including $182.7million of accrued interest on pre-petition debt. As a result of theChapter 11 filing, we are now in default on $514.1  million ofpre-petition debt, which, together with accrued interest thereon, hasbeen included in ‘‘liabilities subject tocompromise’’ as of March  31,  2006. Theautomatic stay provided under the bankruptcy code prevents our lendersfrom taking any action to collect the principal amounts as well asrelated accrued interest. However, we will continue to accrue andreport interest on such debt during the Chapter 11 proceedings unlessfurther developments lead management to conclude that it is probablethat such interest will be compromised.

See Note 12 to theConsolidated Financial Statements for a discussion of financialassurances.

Analysis of Cash Flows

Our net cash flow fromoperating activities for the three months ended March  31,2006 was a negative $40.2  million, compared with a negative$31.4  million for the prior year period. The lower cash flow inthe first quarter of 2006 is attributable to an increase in workingcapital in response to higher sales, payments of annual accruals forcompensation and customer rebates, bankruptcy court-approved paymentsfor pensions, and higher costs of Chapter 11 proceedings andenvironmental-related litigation. Pre-tax income from core operationsbefore depreciation and amortization was $75.9  million,10.8% higher than in the prior year quarter, a result of theimproved income from core operations described above. Cash used forinvesting activities was $21.1  million, primarily reflectingcapital replacements and investments in new production capacity.

Cash Flow From Core Operations – The following tablepresents the components of net cash flow from core operations for thethree months ended March  31,  2006 and2005.

|                                                   |  |                             |         |         |  |        |        |         |  |  |
|---------------------------------------------------|--|-----------------------------|---------|---------|--|--------|--------|---------|--|--|
| CoreOperations                                    |  | Three Months EndedMarch 31, |
| (Inmillions)                                      |  | 2006                        |         | 2005    |
| Cashflows:                                        |  |                        |    |    |  |   |   |    |
| Pre-tax operatingincome                           |  | $                           | 47.8    |    |  | $      | 39.7   |    |
| Depreciationandamortization                       |  |                        | 28.1    |    |  |   | 28.8   |    |
| Pre-taxincome before depreciation andamortization |  |                        | 75.9    |    |  |   | 68.5   |    |
| Workingcapital and otherchanges                   |  |                        | (85.4   | )  |  |   | (65.5  | )  |
| Cashflow beforeinvesting                          |  |                        | (9.5    | )  |  |   | 3.0    |    |
| Capitalexpenditures                               |  |                        | (21.0   | )  |  |   | (12.4  | )  |
| Businessesacquired                                |  |                        | — |    |  |   | (2.5   | )  |
| Netcash flow from coreoperations                  |  | $                           | (30.5   | )  |  | $      | (11.9  | )  |
|                                                   |

Weexpect to continue to invest excess cash flow and/or other availablecapital resources in our core business base. These investments arelikely to be in the form of additional plant capacity, product lineextensions and geographic market expansions, and/or acquisitions inexisting product lines. Investments 

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that are outside the ordinary course ofbusiness may be subject to bankruptcy court approval and review by theChapter 11 creditor committees.

Cash Flow From NoncoreActivities – The cash flow from our noncore activities canbe volatile. Expenditures are generally governed by bankruptcy courtrulings and receipts are generally nonrecurring. Much of the noncorespending in the past three years has been under Chapter 11 first-daymotions that allow us to fund postretirement benefits and requiredenvironmental remediation on Grace-owned sites. Cash inflows have beenfrom asbestos-related insurance recovery on pre-Chapter 11 liabilitypayments, and unusual events.

|                                                                          |  |                             |         |         |  |        |        |         |  |  |
|--------------------------------------------------------------------------|--|-----------------------------|---------|---------|--|--------|--------|---------|--|--|
| NoncoreActivities                                                        |  | Three Months EndedMarch 31, |
| (Inmillions)                                                             |  | 2006                        |         | 2005    |
| Cashflows:                                                               |  |                        |    |    |  |   |   |    |
| Pre-tax income (loss)from noncoreactivities                              |  | $                           | (20.1   | )  |  | $      | (8.1   | )  |
| Othernon-cashcharges                                                     |  |                        | 7.4     |    |  |   | (5.0   | )  |
| Cashspendingfor:                                                         |  |                        |    |    |  |   |   |    |
| Noncorecontingencies:                                                    |  |                        |    |    |  |   |   |    |
|         Environmentalsettlements |  |                        | — |    |  |   | (8.3   | )  |
| Environmentalremediation                                                 |  |                        | (2.1    | )  |  |   | (1.2   | )  |
| Postretirementbenefits                                                   |  |                        | (2.2    | )  |  |   | (2.3   | )  |
| Retainedobligations andother                                             |  |                        | (0.7    | )  |  |   | (0.3   | )  |
| Netcash flow from noncore activities                                     |  | $                           | (17.7   | )  |  | $      | (25.2  | )  |
|                                                                          |

Netcash flow from core operations and net cash flow from noncoreactivities do not represent income or cash flow as defined undergenerally accepted accounting principles, and you should not considerthem to be an alternative to such measures as an indicator of ourperformance. We provide these measures to permit you to distinguishoperating results of our current business base from results and relatedassets and liabilities of past businesses, discontinued products, andcorporate legacies and the effect of our Chapter 11proceedings.

|                                                                                          |  |                             |       |         |  |        |       |         |  |  |
|------------------------------------------------------------------------------------------|--|-----------------------------|-------|---------|--|--------|-------|---------|--|--|
| Reconciliationto Consolidated Statements of Cash Flows                                   |  | Three Months Ended March31, |
| (Inmillions)                                                                             |  | 2006                        |       | 2005    |
| Netcash flow from coreoperations                                                         |  | $                           | (30.5 | )  |  | $      | (11.9 | )  |
| Netcash flow from noncoreactivities                                                      |  |                        | (17.7 | )  |  |   | (25.2 | )  |
| Cash paidfor interest, income taxes net of refunds, and Chapter 11expenses               |  |                        | (13.0 | )  |  |   | (9.2  | )  |
| Investingactivities related to life insurance and sales ofassets                         |  |                        | (0.1  | )  |  |   | 16.9  |    |
| Financingactivities                                                                      |  |                        | 1.3   |    |  |   | (0.1  | )  |
| Effect ofcurrency exchange rate changes on cash and cashequivalents                      |  |                        | 0.7   |    |  |   | (6.1  | )  |
| Increase(decrease) in cash and cash equivalents per ConsolidatedStatements of Cash Flows |  | $                           | (59.3 | )  |  | $      | (35.6 | )  |
|                                                                                          |

Seethe ‘‘Consolidated Statements of CashFlows’’ included in the Consolidated Financial Statementsfor more information.

Forward-Looking Statements

Thisdocument contains, and our other public communications may contain,forward-looking information, that is, information related to future,not past, events. Such information generally includes the words"believes,""plans," "intends,""targets," "will,""expects,""anticipates," or similar expressions.Forward-looking information includes all statements regarding ourChapter 11 proceeding (including the proforma financial statementsincluded in "Management's Discussion and Analysis ofFinancial Condition and Results of Operations"); expectedfinancial position; results of operations; cash flows; financing plans;business strategy; budgets; capital and other expenditures; competitivepositions; growth opportunities for existing products; benefits fromnew technology and cost reduction initiatives, plans and objectives;and markets for securities. For these statements, we claim theprotection of the safe harbor for 

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forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995. Factors that couldcause actual results to materially differ from those contained in theforward-looking statements include: our bankruptcy and proposed plan ofreorganization, our legal proceedings, especially the Montana criminalproceeding and the environmental proceedings, the cost and availabilityof raw materials, especially natural gas and petroleum-based rawmaterials, our unfunded pension obligations, risks related to foreignoperations, especially, security, regulation and currency risks, costsof compliance with environmental regulation and those factors set forthin our most recent Annual Report on Form 10-K, this quarterly report onForm 10-Q and current reports on Form 8-K, which have been filed withthe Securities and Exchange Commission. Like other businesses, we aresubject to risks and uncertainties that could cause our actual resultsto differ materially from our projections or that could cause otherforward-looking information to prove incorrect. Further, our reportedresults should not be considered as an indication of our futureperformance. Readers are cautioned not to place undue reliance on ourprojections and forward-looking information, which speak only as of thedate thereof. We undertake no obligation to publicly release anyrevisions to the projections and forward-looking information containedin this document, or to update them to reflect events or circumstancesoccurring after the date of this document.

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Item 3.    QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

Grace had outstanding derivativefinancial instruments (as discussed in Note 11 to the ConsolidatedFinancial Statements) that qualify for accounting treatment under SFASNo. 133, ‘‘Accounting for Derivative Instruments andHedging Activities’’ at March  31,  2006.Grace has also entered into foreign exchange forward contracts tomanage exposure to fluctuations in foreign currency exchange rates onan intercompany loan between Grace and a subsidiary in Germany. (See‘‘Pre-tax Income (Loss) from NoncoreActivities’’ in Management's Discussion andAnalysis of Financial Condition and Results of Operations.) For furtherinformation concerning Grace’s quantitative and qualitativedisclosures about market risk, refer to Note 8 in the ConsolidatedFinancial Statements in Grace’s 2005 Annual Report on Form10-K.

Item 4.    CONTROLS AND PROCEDURES

EVALUATIONOF DISCLOSURE CONTROLS AND PROCEDURES

As of March31,  2006, Grace carried out an evaluation of the effectivenessof the design and operation of its disclosure controls and procedurespursuant to Rule 13a-15 under the Securities Exchange Act of 1934, asamended (the ‘‘Exchange Act’’). Based uponthat evaluation, Grace’s Chief Executive Officer and ChiefFinancial Officer concluded that Grace's disclosure controls andprocedures are effective to ensure that information required to bedisclosed in Grace’s Exchange Act reports is recorded,processed, summarized and reported within the time periods specified inthe SEC’s rules and forms, and that material informationrelating to Grace is made known to management, including Grace’sChief Executive Officer and Chief Financial Officer, as appropriate toallow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIALREPORTING

There was no significant change in Grace’sinternal control over financial reporting during the quarter endedMarch  31,  2006 that has materially affected, or isreasonably likely to materially affect, Grace’s internal controlover financial reporting.

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PARTII.    OTHER INFORMATION

Item1.    LEGAL PROCEEDINGS

Notes 2, 3 and 12 to theinterim consolidated financial statements in Part I of this Report areincorporated herein by reference.

Item 1A.    RISKFACTORS

With respect to certain risk factorsdisclosed in the ‘‘Risk Factors’’ sectionof our Annual Report on Form 10-K for the year ended December31,  2005, more recent numerical measures are available in the‘‘Financial Statements’’ and‘‘Management's Discussion and Analysis of FinancialCondition and Results of Operations’’ sections of thisReport.

Item 6.    EXHIBITS

Exhibits.The following is a list of Exhibits filed as part of this QuarterlyReport on Form10-Q:

|          |  |                                                                                                                                          |  |  |  |  |
|----------|--|------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 4.1      |  | AmendmentNo. 2 and Limited Waiver to Post-Petition Loan and SecurityAgreement                                                            |
| 4.2      |  | Amendment No. 3 toPost-Petition Loan and SecurityAgreement                                                                               |
| 4.3      |  | Amendment No. 4 and LimitedWaiver to Post-Petition Loan and SecurityAgreement                                                            |
| 15       |  | Accountants’ AwarenessLetter                                                                                                       |
| 31.(i).1 |  | Certification of PeriodicReport by Chief Executive Officer under Section 302 of theSarbanes-Oxley Act of2002                             |
| 31.(i).2 |  | Certification of PeriodicReport by Chief Financial Officer under Section 302 of theSarbanes-Oxley Act of 2002                            |
| 32       |  | Certificationof Periodic Report by Chief Executive Officer and Chief FinancialOfficer under Section 906 of the Sarbanes-Oxley Act of2002 |
|          |

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SIGNATURE

Inaccordance with the requirements of the Securities Exchange Act of1934, the Registrant caused this Report to be signed on its behalf bythe undersigned, thereunto dulyauthorized.

|                     |  |                                                                                                                     |  |  |  |  |
|---------------------|--|---------------------------------------------------------------------------------------------------------------------|--|--|--|--|
|                |  | W.R. GRACE &CO.                                                                                                 |
|                |  | (Registrant)                                                                                                        |
| Date: May  9,  2006 |  | By /s/ A. E.FestaA. E. FestaPresidentandChief ExecutiveOfficer                                                      |
| Date: May9,  2006   |  | By /s/ Robert M.TarolaRobert M.  TarolaSenior VicePresident andChief Financial Officer(PrincipalAccounting Officer) |
|                     |

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EXHIBITINDEX

|            |  |                                                                                                                                          |  |  |  |  |
|------------|--|------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNo. |  | Description ofExhibit                                                                                                                    |
| 4.1        |  | AmendmentNo. 2 and Limited Waiver to Post-Petition Loan and SecurityAgreement                                                            |
| 4.2        |  | Amendment No. 3 toPost-Petition Loan and SecurityAgreement                                                                               |
| 4.3        |  | Amendment No. 4 and LimitedWaiver to Post-Petition Loan and SecurityAgreement                                                            |
| 15         |  | Accountants’ AwarenessLetter                                                                                                       |
| 31.(i).1   |  | Certification of PeriodicReport by Chief Executive Officer under Section 302 of theSarbanes-Oxley Act of2002                             |
| 31.(i).2   |  | Certification of PeriodicReport by Chief Financial Officer under Section 302 of theSarbanes-Oxley Act of 2002                            |
| 32         |  | Certificationof Periodic Report by Chief Executive Officer and Chief FinancialOfficer under Section 906 of the Sarbanes-Oxley Act of2002 |
|            |

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