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

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


                                    FORM 10-Q

(Mark One)

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

                                       OR

[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                         Commission File Number 1-13953

                                W. R. GRACE & CO.

            Delaware                                 65-0773649
----------------------------------           ---------------------------
    (State of Incorporation)                       (I.R.S. Employer
                                                  Identification No.)


                                7500 Grace Drive
                            Columbia, Maryland 21044
                                 (410) 531-4000
                    -----------------------------------------
                     (Address and phone number of principal
                               executive offices)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.



          Yes     [X]                               No   [ ]

65,542,679 shares of Common Stock, $0.01 par value, were outstanding at
April 30, 2003.



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



                       W. R. GRACE & CO. AND SUBSIDIARIES

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


<TABLE>
<CAPTION>

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

Item 1.    Financial Statements

           Report of Independent Accountants                                                   I - 1

           Consolidated Statement of Operations                                                I - 2

           Consolidated Statement of Cash Flows                                                I - 3

           Consolidated Balance Sheet                                                          I - 4

           Consolidated Statement of Shareholders' Equity (Deficit)                            I - 5

           Consolidated Statement of Comprehensive Income                                      I - 5

           Notes to Consolidated Financial Statements                                     I - 6 to I - 20

Item 2.    Management's Discussion and Analysis of Results of Operations and
           Financial Condition                                                           I - 21 to I - 32

Item 3.    Quantitative and Qualitative Disclosures About Market Risk                         I - 33

Item 4.    Controls and Procedures                                                            I - 33


PART II. OTHER INFORMATION
--------

Item 1.    Legal Proceedings                                                                  II - 1

Item 5.    Other Information                                                                  II - 1

Item 6.    Exhibits and Reports on Form 8-K                                               II - 1 - II - 2

</TABLE>

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS

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

We have reviewed the accompanying consolidated balance sheet of W. R. Grace &
Co. and its subsidiaries as of March 31, 2003, and the related consolidated
statements of operations, of cash flows and of comprehensive income (loss) for
each of the three-month periods ended March 31, 2003 and March 31, 2002, and the
consolidated statement of shareholders' equity (deficit) for the three-month
period ended March 31, 2003. These interim financial statements are the
responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

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

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

We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 2002, and the related consolidated statements of operations, of cash flows,
of shareholders' equity (deficit) and of comprehensive loss for the year then
ended (not presented herein). Our report, which was modified as to a matter
raising substantial doubt about the Company's ability to continue as a going
concern, was dated January 29, 2003. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 2002, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.


/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Baltimore, Maryland
April 22, 2003


                                      I-1

<PAGE>




<TABLE>
<CAPTION>
=============================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                               THREE MONTHS ENDED
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)                                     MARCH 31,
=============================================================================================================
-------------------------------------------------------------------------------------------------------------
Amounts in millions, except per share amounts                                  2003              2002
                                                                        -------------------------------------
<S>                                                                       <C>                <C>
Net sales...........................................................      $    444.8         $    412.9
Other income........................................................             5.8                6.1
                                                                        -------------------------------------
                                                                               450.6              419.0
                                                                        -------------------------------------


Cost of goods sold, exclusive of depreciation and amortization
    shown separately below..........................................           296.6              259.7
Selling, general and administrative expenses, exclusive of net
    pension expense shown separately below..........................            91.8               83.5
Depreciation and amortization ......................................            24.7               22.9
Research and development expenses ..................................            14.1               12.8
Net pension expense ................................................            13.5                5.1
Interest expense and related financing costs .......................             4.2                4.8
Provision for environmental remediation ............................             2.0                3.8
                                                                        -------------------------------------
                                                                               446.9              392.6
                                                                        -------------------------------------

Income before Chapter 11 expenses, income taxes, and minority
    interest........................................................             3.7               26.4
Chapter 11 expenses, net ...........................................            (2.7)              (4.4)
Provision for income taxes..........................................            (3.1)             (10.1)
Minority interest in consolidated entities..........................            (0.2)               0.5
                                                                        -------------------------------------

    NET (LOSS) INCOME ..............................................      $     (2.3)        $     12.4
=============================================================================================================

BASIC (LOSS) EARNINGS PER COMMON SHARE .............................      $    (0.04)        $     0.19

Average number of basic shares .....................................            65.5               65.4

DILUTED (LOSS) EARNINGS PER COMMON SHARE............................      $    (0.04)        $     0.19

Average number of diluted shares....................................            65.5               65.4
=============================================================================================================
</TABLE>


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











                                      I-2
<PAGE>



<TABLE>
<CAPTION>

====================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                                                     THREE MONTHS ENDED
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)                                                           MARCH 31,
====================================================================================================================================
Dollars in millions                                                                                 2003               2002
                                                                                             ---------------------------------------
<S>                                                                                         <C>                <C>
OPERATING ACTIVITIES
Income before Chapter 11 expenses, income taxes, and minority interest...................    $        3.7       $         26.4
Reconciliation to cash provided by operating activities:
     Depreciation and amortization ......................................................            24.7                 22.9
     Interest accrued on pre-petition debt subject to compromise.........................             2.9                  3.4
     Loss on disposals of assets.........................................................             0.3                  0.2
     Provision for environmental remediation.............................................             2.0                  3.8
     Net income from life insurance policies.............................................            (3.1)                (2.9)
     Changes in assets and liabilities, excluding effect of businesses
     acquired/divested and foreign currency translation:
         Increase in working capital items...............................................           (18.2)               (42.5)
         Expenditures for asbestos-related litigation ...................................            (2.3)                (1.5)
         Proceeds from asbestos-related insurance .......................................             1.0                  1.0
         Expenditures for environmental remediation .....................................            (2.8)                (3.8)
         Expenditures for postretirement benefits .......................................            (3.1)                (4.6)
         Expenditures for retained obligations of discontinued operations ...............            (0.3)                (1.0)
         Changes in accruals and other non-cash items....................................            12.7                 13.0
                                                                                             ---------------------------------------
     NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE INCOME TAXES AND CHAPTER 11
       EXPENSES .........................................................................            17.5                 14.4
Chapter 11 expenses paid, net ...........................................................            (3.8)                (2.9)
Income taxes paid, net of refunds .......................................................            (4.3)                (4.6)
                                                                                             ---------------------------------------
     NET CASH PROVIDED BY OPERATING ACTIVITIES ..........................................             9.4                  6.9
                                                                                             ---------------------------------------

INVESTING ACTIVITIES
Capital expenditures ....................................................................           (18.0)               (13.2)
Businesses acquired in purchase transactions, net of cash acquired ......................            --                  (25.0)
Investment in life insurance policies....................................................            (4.9)               (12.6)
Proceeds from life insurance policies....................................................             3.6                  6.2
Proceeds from disposals of assets .......................................................             0.7                  0.6
                                                                                             ---------------------------------------
     NET CASH USED FOR INVESTING ACTIVITIES .............................................           (18.6)               (44.0)
                                                                                             ---------------------------------------

FINANCING ACTIVITIES
Net payments of loans secured by cash value of life insurance ...........................            (0.9)                (2.1)
Borrowings under credit facilities, net of repayments....................................            (0.1)                (0.4)
Borrowings (fees paid) under debtor-in-possession facility ..............................            (2.2)                20.0
Repayments of borrowings under debtor-in-possession facility.............................            --                  (20.0)
                                                                                             ---------------------------------------
     NET CASH USED FOR FINANCING ACTIVITIES .............................................            (3.2)                (2.5)
                                                                                             ---------------------------------------
Effect of currency exchange rate changes on cash and cash equivalents ...................             4.4                 (0.6)
                                                                                             ---------------------------------------
     DECREASE IN CASH AND CASH EQUIVALENTS ..............................................            (8.0)               (40.2)
Cash and cash equivalents, beginning of period ..........................................           283.0                191.4
                                                                                             ---------------------------------------
Cash and cash equivalents, end of period ................................................    $      275.0       $        151.2
====================================================================================================================================
</TABLE>



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



                                      I-3
<PAGE>

<TABLE>
<CAPTION>
============================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                                        MARCH 31,         DECEMBER 31,
CONSOLIDATED BALANCE SHEET (UNAUDITED)                                                       2003               2002
============================================================================================================================
Amounts in millions, except par value and shares

<S>                                                                                    <C>               <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .........................................................    $       275.0     $        283.0
Accounts and other receivables, net ...............................................            313.2              311.3
Inventories .......................................................................            191.7              172.4
Deferred income taxes .............................................................             27.5               28.0
Other current assets...............................................................             25.2               35.7
                                                                                      --------------------------------------
     TOTAL CURRENT ASSETS .........................................................            832.6              830.4

Properties and equipment, net of accumulated depreciation and
     amortization of $1,101.2 (2002- $1,069.8).....................................            620.6              620.8
Goodwill ..........................................................................             65.9               65.2
Cash value of life insurance policies, net of policy loans.........................             87.7               82.4
Deferred income taxes .............................................................            573.6              566.7
Asbestos-related insurance receivable..............................................            281.6              282.6
Other assets ......................................................................            249.7              239.6
                                                                                      --------------------------------------
     TOTAL ASSETS .................................................................    $     2,711.7     $      2,687.7
                                                                                      ======================================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES
Debt payable within one year ......................................................    $         3.4     $          3.4
Accounts payable ..................................................................            118.6               98.2
Income taxes payable ..............................................................             11.8               11.4
Other current liabilities .........................................................            112.1              130.3
                                                                                      --------------------------------------
     TOTAL CURRENT LIABILITIES ....................................................            245.9              243.3

Deferred income taxes .............................................................             31.2               30.5
Other liabilities .................................................................            313.8              301.3
                                                                                      --------------------------------------
     TOTAL LIABILITIES NOT SUBJECT TO COMPROMISE...................................            590.9              575.1

LIABILITIES SUBJECT TO COMPROMISE - NOTE 2.........................................          2,335.7            2,334.7
                                                                                      --------------------------------------
     TOTAL LIABILITIES.............................................................          2,926.6            2,909.8
                                                                                      --------------------------------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIT)
Common stock issued, par value $0.01; 300,000,000 shares authorized;
     outstanding: 2003 - 65,542,679 (2002 - 65,466,725) ...........................              0.8                0.8
Paid-in capital ...................................................................            432.2              433.0
Accumulated deficit................................................................           (118.0)            (115.7)
Treasury stock, at cost:  shares: 2003 - 11,437,081 (2002 - 11,513,035)............           (136.1)            (137.0)
Accumulated other comprehensive loss...............................................           (393.8)            (403.2)
                                                                                      --------------------------------------
     TOTAL SHAREHOLDERS' EQUITY (DEFICIT) .........................................           (214.9)            (222.1)
                                                                                      --------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) .........................    $     2,711.7     $      2,687.7
============================================================================================================================
</TABLE>




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


                                      I-4

<PAGE>




<TABLE>
<CAPTION>
================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
================================================================================================================================
                                                             Retained                         Accumulated          TOTAL
                                          Common Stock       Earnings                            Other          SHAREHOLDERS'
                                               and         (Accumulated        Treasury       Comprehensive         EQUITY
Dollars in millions                     Paid-in Capital       Deficit)           Stock            Loss             (DEFICIT)
--------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>              <C>               <C>             <C>               <C>
BALANCE, DECEMBER 31, 2002...........   $        433.8   $     (115.7)     $     (137.0)   $     (403.2)     $       (222.1)
Net loss ............................             --             (2.3)             --              --                  (2.3)
Stock plan activity .................             (0.8)          --                 0.9            --                   0.1
Other comprehensive income...........             --             --                --               9.4                 9.4
                                        ----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 2003..............   $        433.0   $     (118.0)     $     (136.1)   $     (393.8)     $       (214.9)
================================================================================================================================
</TABLE>



<TABLE>
<CAPTION>
================================================================================================================================
W. R. GRACE & CO. AND SUBSIDIARIES                                                                  THREE MONTHS ENDED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)                                              MARCH 31,
================================================================================================================================
Dollars in millions                                                                             2003                2002
                                                                                           -------------------------------------
<S>                                                                                        <C>                   <C>
NET (LOSS) INCOME...................................................................       $         (2.3)        $      12.4
                                                                                           -------------------------------------

OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustments............................................                  9.4                (7.6)
                                                                                           -------------------------------------
COMPREHENSIVE INCOME ...............................................................       $          7.1         $       4.8
================================================================================================================================
</TABLE>


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


                                      I-5
<PAGE>

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

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

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

W. R. Grace & Co. conducts substantially all of its business through a direct,
wholly owned subsidiary, W. R. Grace & Co.-Conn. ("Grace-Conn."). Grace-Conn.
owns substantially all of the assets, properties and rights of W. R. Grace &
Co., either directly or through subsidiaries.

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

VOLUNTARY BANKRUPTCY FILING: In response to a sharply increasing number of
asbestos-related bodily injury claims, on April 2, 2001 (the "Filing Date"),
W. R. Grace & Co. and 61 of its United States subsidiaries and affiliates,
including Grace-Conn. (collectively, the "Debtors"), filed voluntary petitions
for reorganization (the "Filing") under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11" or the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). The
cases were consolidated and are being jointly administered under case number
01-01139 (the "Chapter 11 Cases"). Grace's non-U.S. subsidiaries and certain of
its U.S. subsidiaries were not included in the Filing.

During 2000 and the first quarter of 2001, Grace experienced several adverse
developments in its asbestos-related litigation, including: a significant
increase in bodily injury claims, higher than expected costs to resolve bodily
injury and certain property damage claims, and class action lawsuits alleging
damages from a former attic insulation product. (These claims are discussed in
more detail in Note 3 to the Consolidated Financial Statements.) After a
thorough review of these developments, the Board of Directors of Grace concluded
on April 2, 2001 that a federal court-supervised Chapter 11 filing provided the
best forum available to achieve predictability and fairness in the claims
settlement process.

By filing under Chapter 11, Grace expects to be able to both obtain a
comprehensive resolution of the claims against it and preserve the inherent
value of its businesses. Under Chapter 11, the Debtors expect to continue to
operate their businesses as debtors-in-possession under court protection from
their creditors and claimants, while using the Chapter 11 process to develop and
implement a plan for addressing the asbestos-related claims against them.

Consequence of Filing - As a consequence of the Filing, pending litigation
against the Debtors for pre-petition matters is generally stayed (subject to
certain exceptions in the case of governmental authorities), and no party may
take action to realize its pre-petition claims except pursuant to an order of
the Bankruptcy Court.

The Debtors intend to address all of their pending and future asbestos-related
claims and all other pre-petition claims in a plan of reorganization. Such a
plan of reorganization may include the establishment of a trust through which
all pending and future asbestos-related claims would be channeled for
resolution. However, it is currently impossible to predict with any degree of
certainty the amount that would be required to be contributed to the trust, how
the trust would be funded, how other pre-petition claims would be treated or
what impact any reorganization plan may have on the shares of common stock of
the Company. The interests of the Company's shareholders could be substantially
diluted or cancelled under a plan of reorganization. The formulation and
implementation of the plan of reorganization is expected to take a significant
period of time.

Status of Chapter 11 Proceedings - Since the Filing, all motions necessary to
conduct normal business activities have been approved by the Bankruptcy Court.
In addition, the Debtors have received approval from the Bankruptcy Court to pay
or otherwise honor certain of its pre-petition obligations in the ordinary
course of business, including employee wages and benefits, customer programs,
shipping charges, and a limited amount of claims of essential trade creditors.

As provided by the Bankruptcy Code, the Debtors had the exclusive right to
propose a plan of reorganization for a 120-day period following the Filing Date.
The Debtors have received an extension of their exclusivity

                                      I-6
<PAGE>

period during which to file a plan of reorganization through August 1, 2003, and
an extension of the Debtors' exclusive rights to solicit acceptances of a
reorganization plan through October 1, 2003.

Three creditors' committees, two representing asbestos claimants and the third
representing other unsecured creditors, and a committee representing
shareholders have been appointed in the Chapter 11 Cases. These committees will
have the right to be heard on all matters that come before the Bankruptcy Court
and, together with a legal representative of future asbestos claimants (whom
Grace expects to be appointed by the Bankruptcy Court in the future), are likely
to play important roles in the Chapter 11 Cases. The Debtors are required to
bear certain of the committees' and the future asbestos claimants
representative's costs and expenses, including those of their counsel and
financial advisors.

The Debtors' Chapter 11 cases have been assigned to Judge Alfred M. Wolin, a
senior federal judge who sits in Newark, New Jersey. Judge Wolin is presiding
over asbestos bodily injury matters and the fraudulent conveyance litigation
described below. He has assigned the Debtors' other bankruptcy matters to Judge
Judith Fitzgerald, a U.S. bankruptcy judge from the Western District of
Pennsylvania, sitting in Wilmington, Delaware.

The Bankruptcy Court established a bar date of March 31, 2003 for claims of
general unsecured creditors, asbestos property damage claims and medical
monitoring claims related to asbestos. The bar date did not apply to
asbestos-related bodily injury claims or claims related to Zonolite(R) Attic
Insulation ("ZAI"), which will be dealt with separately. Rust Consulting, the
court-approved claims handling agent for the Chapter 11 Cases, is maintaining a
register of all claims filed. Grace is cataloguing claims as filed and assessing
their validity. As a large portion of claims were filed in the two weeks prior
to the bar date, it will likely take several months to assess the validity of
all claims filed and to develop a plan to address these claims through the
bankruptcy process. At this time, it is not possible to estimate the value of
all claims that will ultimately be allowed by the Bankruptcy Court, due to the
uncertainties of the Chapter 11 process, the in-progress state of Grace's
investigation of submitted claims, and the lack of documentation submitted in
support of many claims.

In July 2002, the Bankruptcy Court approved special counsel to represent the ZAI
claimants, at the Debtors' expense, in a proceeding to determine certain
threshold scientific issues regarding ZAI. The court has set a litigation
schedule that would result in pretrial hearings on these issues in the third
quarter of 2003.

On November 29, 2002, Sealed Air Corporation ("Sealed Air") and Fresenius
Medical Care AG ("Fresenius") each announced that they had reached agreements in
principle with the Official Committee of Asbestos Personal Injury Claimants and
the Official Committee of Asbestos Property Damage Claimants to settle asbestos
and fraudulent conveyance claims related to the 1998 transaction involving
Grace's former packaging business and Sealed Air, and the 1996 transaction
involving Grace's former medical care business and Fresenius, respectively.
Under the terms of the proposed Sealed Air settlement, Sealed Air would make a
payment of $512.5 million (plus interest at 5.5% per annum, commencing on
December 21, 2002) and nine million shares of Sealed Air common stock, valued at
$361.2 million as of March 31, 2003, as directed by the Bankruptcy Court upon
confirmation of Grace's plan of reorganization. Under the terms of the proposed
Fresenius settlement, as subsequently revised, Fresenius would contribute $115.0
million to the Grace estate, or as otherwise directed by the Bankruptcy Court,
upon confirmation of a plan of reorganization. The Sealed Air and Fresenius
settlements are subject to the approval of the Bankruptcy Court and the
fulfillment of specified conditions. Grace is unable to predict how these
settlements may ultimately affect its plan of reorganization.

Impact on Debt Capital - All of the Debtors' pre-petition debt is in default
due to the Filing. The accompanying Consolidated Balance Sheet as of March 31,
2003 reflects the classification of the Debtors' pre-petition debt within
"liabilities subject to compromise."

The Debtors have entered into a debtor-in-possession post-petition loan and
security agreement with Bank of America, N. A. (the "DIP facility") in the
aggregate amount of $250 million. The term of the DIP facility, originally set
to expire April 1, 2003, has been extended for up to an additional three years
through April 2006.

Accounting Impact - The accompanying Consolidated Financial Statements have
been prepared in accordance with Statement of Position 90-7 ("SOP 90-7")
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,"
promulgated by the American Institute of Certified Public Accountants. SOP 90-7
requires that financial statements of debtors-

                                      I-7
<PAGE>

in-possession be prepared on a going concern basis, which contemplates
continuity of operations, realization of assets and liquidation of liabilities
in the ordinary course of business. However, as a result of the Filing, the
realization of certain Debtors' assets and the liquidation of certain Debtors'
liabilities are subject to significant uncertainty. While operating as
debtors-in-possession, the Debtors may sell or otherwise dispose of assets and
liquidate or settle liabilities for amounts other than those reflected in the
Consolidated Financial Statements. Further, a plan of reorganization could
materially change the amounts and classifications reported in the Consolidated
Financial Statements, which do not currently give effect to any adjustments to
the carrying value or classification of assets or liabilities that might be
necessary as a consequence of a plan of reorganization.

Pursuant to SOP 90-7, Grace's pre-petition liabilities that are subject to
compromise are required to be reported separately on the balance sheet at an
estimate of the amount that will ultimately be allowed by the Bankruptcy Court.
As of March 31, 2003, such pre-petition liabilities include fixed obligations
(such as debt and contractual commitments) as well as estimates of costs related
to contingent liabilities (such as asbestos-related litigation, environmental
remediation, and other claims). The recorded amounts of such liabilities
generally reflect accounting measurements as of the Filing Date, adjusted as
warranted for changes in facts and circumstances and/or rulings under Grace's
Chapter 11 proceedings subsequent to the Filing. (See Note 2 to the Consolidated
Financial Statements for detail of the liabilities subject to compromise as of
March 31, 2003, and as of the Filing Date.) Obligations of Grace subsidiaries
not covered by the Filing continue to be classified on the Consolidated Balance
Sheet based upon maturity dates or the expected dates of payment. SOP 90-7 also
requires separate reporting of certain expenses, realized gains and losses, and
provisions for losses related to the Filing as reorganization items.

BASIS OF PRESENTATION: The interim Consolidated Financial Statements presented
herein are unaudited and should be read in conjunction with the Consolidated
Financial Statements presented in the Company's 2002 Form 10-K. Such interim
Consolidated Financial Statements reflect all adjustments that, in the opinion
of management, are necessary for a fair presentation of the results of the
interim periods presented; all such adjustments are of a normal recurring
nature. Potential accounting adjustments discovered during normal reporting and
accounting processes are evaluated on the basis of materiality, both
individually and in the aggregate, and are recorded in the accounting period
discovered, unless a restatement of a prior period is necessary. All significant
intercompany accounts and transactions have been eliminated.

The results of operations for the three-month interim period ended March 31,
2003 are not necessarily indicative of the results of operations for the year
ending December 31, 2003.

RECLASSIFICATIONS: Certain amounts in prior years' Consolidated Financial
Statements have been reclassified to conform to the 2003 presentation.

EFFECT OF NEW ACCOUNTING STANDARDS: In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). Grace early adopted the provisions of FIN
46 in the fourth quarter of 2002. The adoption of FIN 46 required Grace to
consolidate Advanced Refining Technologies LLC. The impact of this consolidation
was insignificant.

In December 2002, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure, an amendment of SFAS Statement No. 123." SFAS No. 148 amends SFAS
No. 123 to provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Grace adopted the provisions of
SFAS No. 148 in December 2002. The adoption had no material impact on the
Consolidated Financial Statements.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements of Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). Grace adopted FIN 45 in the
first quarter of 2003. FIN 45 did not have a material effect on the Consolidated
Financial Statements. (See Note 13 for required disclosures.)

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses significant issues
relating to the

                                      I-8
<PAGE>

recognition, measurement, and reporting of costs associated with exit and
disposal activities, including restructuring activities. Grace adopted SFAS No.
146 in the first quarter of 2003. SFAS No. 146 did not have a material effect on
the Consolidated Financial Statements.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the accrual of asset retirement obligations
by increasing the initial carrying amount of the related long-lived asset, and
systematically expensing the cost of such obligations over the asset's useful
life. Grace adopted SFAS No. 143 in the first quarter of 2003. SFAS No. 143 did
not have a material effect on the Consolidated Financial Statements.

USE OF ESTIMATES: The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires that management make
estimates and assumptions affecting the assets and liabilities reported at the
date of the Consolidated Financial Statements, and the revenues and expenses
reported for the periods presented. Actual amounts could differ from those
estimates. Changes in estimates are recorded in the period identified. Grace's
accounting measurements that are most affected by management's estimates of
future events are:

o    Contingent liabilities such as asbestos-related matters, environmental
     remediation, income taxes, and retained obligations of divested businesses.
o    Pension and postretirement liabilities that depend on assumptions regarding
     discount rates and/or total returns on invested funds.
o    Depreciation and amortization periods for long-lived assets, including
     property and equipment, intangible, and other assets.
o    Realization values of various assets such as trade receivables,
     inventories, insurance receivables, income taxes, and goodwill.

The accuracy of these and other estimates may also be materially affected by the
uncertainties arising under the Chapter 11 Cases.

--------------------------------------------------------------------------------
2. CHAPTER 11 RELATED FINANCIAL INFORMATION
--------------------------------------------------------------------------------

As a result of the Filing, Grace's Consolidated Balance Sheet separately
identifies the liabilities that are "subject to compromise" as a result of the
Chapter 11 proceedings. In Grace's case, "liabilities subject to compromise"
represent pre-petition liabilities as determined under U.S. generally accepted
accounting principles. Changes to the recorded amount of such liabilities will
be based on developments in the Chapter 11 Cases and management's assessment of
the claim amounts that will ultimately be allowed by the Bankruptcy Court.
Changes to pre-petition liabilities subsequent to the Filing Date reflect: 1)
cash payments under approved court orders; 2) the accrual of interest on
pre-petition debt at the pre-petition contractual rate; 3) accruals for
employee-related programs; and 4) changes in estimates related to pre-petition
contingent liabilities and assets.

Components of liabilities subject to compromise are as follows:

==============================================================
(Dollars in millions)              MARCH 31,    December 31,
(Unaudited)                          2003           2002
==============================================================

Debt, pre-petition, plus
  accrued interest.............  $      541.7  $      538.8
Asbestos-related liability.....         970.9         973.2
Income taxes...................         232.6         227.8
Environmental remediation......         200.0         201.1
Postretirement benefits other
  than pension ................         144.4         147.2
Special pension
  arrangements ................          75.5          74.9
Retained obligations of
  divested businesses .........          56.0          55.3
Accounts payable ..............          32.1          32.4
Other accrued liabilities .....          82.5          84.0
                                 -----------------------------
                                 $    2,335.7  $    2,334.7
==============================================================

                                      I-9
<PAGE>


Set forth below is a reconciliation of the changes in pre-filing date liability
balances for the period from the Filing Date through March 31, 2003.

==============================================================
                                                 Cumulative
(Dollars in millions)                           Since Filing
==============================================================
Balance, Filing Date.......................   $    2,366.0
Cash disbursements and/or reclassifications
  under Bankruptcy Court orders:
   Freight and distribution order..........           (5.7)
   Trade accounts payable order............           (9.1)
Other court orders including employee wages
  and benefits, sales and use tax and
  customer programs........................         (154.2)
Expense/(income) items:
   Interest on pre-petition debt...........           38.5
   Current period employee-related
     accruals .............................           19.0
   Change in estimate of environmental
     contingencies.........................           78.5
   Change in estimate of income tax
     contingencies.........................           24.8
Balance sheet reclassifications............          (22.1)
                                              ----------------
Balance, end of period.....................   $    2,335.7
==============================================================

Additional liabilities subject to compromise may arise due to the rejection of
executory contracts or unexpired leases, or as a result of the allowance of
contingent or disputed claims.

The Debtors' Chapter 11 expenses for the three months ended March 31, 2003 and
2002 consist of:

===============================================================
                                        THREE MONTHS ENDED
(Dollars in millions)                     MARCH 31, 2003
===============================================================
                                       2003           2002
                                   ----------------------------
Legal and financial advisory fees. $      2.8    $       4.5
Interest income...................       (0.1)          (0.1)
                                   ----------------------------
Chapter 11 expenses, net ......... $      2.7    $       4.4
===============================================================

Pursuant to SOP 90-7, interest income earned on Grace's cash balances must be
offset against Chapter 11 expenses.

Condensed financial information of the Debtors is presented below:

===============================================================
W. R. GRACE & CO. - CHAPTER 11
FILING ENTITIES
DEBTOR-IN-POSSESSION STATEMENT
OF OPERATIONS                          THREE MONTHS ENDED
(Dollars in millions) (Unaudited)           MARCH 31,
===============================================================
                                        2003          2002
                                     ----------------------------
Net sales, including intercompany..  $    225.7  $    234.6
Other income.......................        17.7        14.8
                                     ----------------------------
                                          243.4       249.4
                                     ----------------------------
Cost of goods, including
   intercompany, exclusive of
   depreciation and amortization
   shown separately below..........       158.3       149.1
Selling, general and
   administrative expenses.........        71.1        63.9
Research and development expenses..        10.9        10.1
Depreciation and amortization .....        15.5        15.1
Interest expense and related
   financing costs.................         4.2         4.6
                                     ----------------------------
                                          260.0       242.8
                                     ----------------------------
(Loss) income before Chapter 11
   expenses, income taxes, and
   equity in net income of
   non-filing entities ............       (16.6)        6.6
Chapter 11 expenses, net ..........        (2.7)       (4.4)
Provision for income taxes ........         2.1        (3.8)
Equity in net income of
   non-filing entities ............        14.9        14.0
                                     ----------------------------
   NET (LOSS) INCOME ..............  $     (2.3) $     12.4
===============================================================



<PAGE>


===============================================================
W. R. GRACE & CO. - CHAPTER 11
FILING ENTITIES
DEBTOR-IN-POSSESSION CONDENSED
STATEMENT OF CASH FLOWS
(Dollars in millions)                    THREE MONTHS ENDED
(Unaudited)                                   MARCH 31,
===============================================================
                                       2003          2002
                                    ---------------------------
OPERATING ACTIVITIES
Net (loss) income...............    $    (2.3)    $    12.4
Reconciliation to net cash used
  for operating activities:
Non-cash items, net.............         18.1          18.9
Changes in other assets and
   liabilities, excluding the
   effect of businesses
   acquired/divested............        (29.5)        (33.3)
                                    ---------------------------
NET CASH USED FOR OPERATING
   ACTIVITIES...................        (13.7)         (2.0)

NET CASH USED FOR INVESTING
   ACTIVITIES...................        (13.8)        (15.6)

NET CASH USED FOR FINANCING
   ACTIVITIES...................         (8.0)         (6.4)
                                    ---------------------------

NET DECREASE IN CASH AND CASH
   EQUIVALENTS..................        (35.5)        (24.0)
Cash and cash equivalents,
   beginning of period..........         56.8          38.0
                                    ---------------------------
Cash and cash equivalents, end
   of period....................     $    21.3     $    14.0
===============================================================



                                      I-10
<PAGE>





===============================================================
W. R. GRACE & CO. - CHAPTER 11
FILING ENTITIES
DEBTOR-IN-POSSESSION BALANCE
SHEET
(Dollars in millions)                  MARCH 31,   DECEMBER 31,
(Unaudited)                               2003         2002
===============================================================
ASSETS
CURRENT ASSETS
Cash and cash equivalents .........    $     21.3   $     56.8
Accounts and other receivables,
   net ............................         110.1        115.0
Receivables from non-filing
   entities, net...................          39.7         41.3
Inventories........................          74.2         70.5
Other current assets...............          42.7         53.0
                                       -------------------------
   TOTAL CURRENT ASSETS............         288.0        336.6

Properties and equipment, net......         388.5        389.7
Cash value of life insurance
  policies, net of policy loans....          87.7         82.4
Deferred income taxes..............         573.9        567.0
Asbestos-related insurance
  expected to be realized after
  one year.........................         281.6        282.6
Loans receivable from non-filing
  entities, net....................         460.6        444.4
Investment in non-filing entities..         258.8        241.4
Other assets.......................         106.0         97.4
                                       -------------------------
   TOTAL ASSETS....................    $  2,445.7   $  2,441.5
---------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO
COMPROMISE
Current liabilities ...............    $     90.1   $     99.3
Other liabilities .................         234.8        229.6
                                       -------------------------
  TOTAL LIABILITIES NOT SUBJECT
  TO COMPROMISE....................         324.9        328.9

LIABILITIES SUBJECT TO
  COMPROMISE.......................       2,335.7      2,334.7
                                       -------------------------
  TOTAL LIABILITIES................       2,660.6      2,663.6

  SHAREHOLDERS' EQUITY (DEFICIT)...        (214.9)      (222.1)
                                       -------------------------
  TOTAL LIABILITIES AND
  SHAREHOLDERS'
  EQUITY (DEFICIT) ................    $  2,445.7   $  2,441.5
===============================================================

In addition to Grace's financial reporting obligations as prescribed by the U.S.
Securities and Exchange Commission ("SEC"), the Debtors are also required, under
the rules and regulations of the Bankruptcy Code, to periodically file certain
statements and schedules and a monthly operating report with the Bankruptcy
Court. This information is available to the public through the Bankruptcy Court.
This information is prepared in a format that may not be comparable to
information in Grace's quarterly and annual financial statements as filed with
the SEC. The monthly operating reports are not audited, do not purport to
represent the financial position or results of operations of Grace on a
consolidated basis, and should not be relied on for such purposes.

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

Grace is a defendant in property damage and bodily injury lawsuits relating to
previously sold asbestos-containing products. On April 2, 2001, Grace filed
voluntary petitions for reorganization under Chapter 11 to use the
court-supervised reorganization process to develop and implement a plan for
addressing pending and future asbestos-related claims. (See Note 1 for further
discussion.)

As of the Filing Date, Grace was a defendant in 65,656 asbestos-related
lawsuits, 17 involving claims for property damage (one of which has since been
dismissed), and the remainder involving 129,191 claims for bodily injury. Due to
the Filing, holders of asbestos-related claims are stayed from continuing to
prosecute pending litigation and from commencing new lawsuits against the
Debtors. Additional asbestos-related claims will be subject to the Chapter 11
claims process established by the Bankruptcy Court. Separate creditors'
committees representing the interests of property damage and bodily injury
claimants have been appointed in the Chapter 11 Cases. Grace's obligations with
respect to present and future claims will be determined through proceedings in
the Bankruptcy Court and negotiations with each of the official committees
appointed in the Chapter 11 Cases and a legal representative of future asbestos
claimants, which negotiations are expected to provide the basis for a plan of
reorganization.

<PAGE>

PROPERTY DAMAGE LITIGATION

The plaintiffs in asbestos property damage lawsuits generally seek to have the
defendants absorb the cost of removing, containing or repairing the
asbestos-containing materials in the affected buildings. Each property damage
case is unique in that the age, type, size and use of the building, and the
difficulty of asbestos abatement, if necessary, vary from structure to
structure. Information regarding product identification, the amount of product
in the building, the age, type, size and use of the building, the jurisdictional
history of prior cases and the court in which the case is pending has provided
meaningful guidance as to the range of potential costs. Grace has recorded an
accrual for all outstanding property damage cases for which sufficient
information is available to form a reasonable estimate of such exposure. (See
"Asbestos-Related Liability" below.)


                                      I-11
<PAGE>

Out of 380 asbestos property damage cases filed prior to the Filing Date, 141
were dismissed without payment of any damages or settlement amounts; judgments
were entered in favor of Grace in nine cases (excluding cases settled following
appeals of judgments in favor of Grace); judgments were entered in favor of the
plaintiffs in eight cases (one of which is on appeal) for a total of $86.1
million; 207 property damage cases were settled for a total of $696.8 million;
and 16 cases remain outstanding (including the one on appeal). Of the 16
remaining cases, eight relate to ZAI and eight relate to a number of former
asbestos-containing products (two of which also involve ZAI). Additional
asbestos property damage claims (other than claims with respect to ZAI) were
filed prior to the March 31, 2003 bar date established by the Bankruptcy Court.
The Debtors are in the process of analyzing the validity and potential liability
related to these additional claims; which will likely take several months before
any definitive assessment can be made.

The ZAI cases were filed as class action lawsuits in 2000 and 2001 on behalf of
owners of homes containing ZAI. These cases seek damages and equitable relief,
including the removal, replacement and/or disposal of all such insulation. The
plaintiffs assert that this product is in millions of homes throughout the U.S.
and that the cost of removal could be several thousand dollars per home. As a
result of the Filing, these cases have been transferred to the U.S. Bankruptcy
Court. While Grace has not completed its investigation of the claims described
in these lawsuits, testing and analysis of this product by Grace and others
supports Grace's belief that the product was and continues to be safe for its
intended purpose and poses little or no threat to human health. At this time,
Grace is not able to assess the extent of any possible liability related to this
matter. In July 2002, the Bankruptcy Court approved special counsel to represent
the ZAI claimants, at the Debtors' expense, in a proceeding to determine certain
threshold scientific issues regarding ZAI. The court has set a litigation
schedule that would result in pretrial hearings on these issues in the third
quarter of 2003.

BODILY INJURY LITIGATION

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

Through the Filing Date, 16,354 asbestos bodily injury lawsuits involving
approximately 35,720 claims were dismissed without payment of any damages or
settlement amounts (primarily on the basis that Grace products were not
involved), and approximately 55,489 lawsuits involving approximately 163,698
claims were disposed of (through settlement and judgments) for a total of $645.6
million. (See "Asbestos-Related Liability" below.)

ASBESTOS-RELATED LIABILITY

Asbestos-related litigation is stayed by the Chapter 11 Cases. Ongoing costs are
generally limited to claims administration costs and to defense costs incurred
in connection with litigation permitted by the Bankruptcy Court. Any other
adjustments to the recorded liability are based on developments in the Chapter
11 Cases. For periods prior to and as of the Filing Date, Grace's estimated
property damage and bodily injury liabilities were based on its experience with,
and recent trends in, asbestos litigation. Its recorded liabilities covered
indemnity and defense costs for pending property damage cases for which
sufficient information was available, and for pending and projected future
bodily injury claims. However, due to the Filing and the uncertainties of
asbestos-related litigation, actual amounts could differ materially from the
recorded liability. Since the Filing, Grace is aware that bodily injury claims
have continued to be filed against co-defendant companies, and at higher than
historical rates. Grace believes that had it not filed for Chapter 11
reorganization, it likely would have received thousands more claims than it had
previously projected.

The total asbestos-related liability balances as of March 31, 2003 and December
31, 2002 were $970.9 million and $973.2 million, respectively. The decrease in
the liability is primarily due to the payment of normal post-Filing
administrative costs relating to claims management and defense costs in
connection with litigation permitted by the Bankruptcy Court. The recorded
asbestos-related liability is included in "liabilities subject to compromise."


                                      I-12
<PAGE>

ASBESTOS INSURANCE

Grace previously purchased insurance policies with respect to its
asbestos-related lawsuits and claims. Insurance coverage for asbestos-related
liabilities has not been commercially available since 1985. Grace has settled
with and has been paid by all of its primary insurance carriers with respect to
both property damage and bodily injury cases and claims. Grace has also settled
with its excess insurance carriers that wrote policies available for property
damage cases; those settlements involve amounts paid and to be paid to Grace.
Grace believes that certain of these settlements may cover ZAI claims as well as
other property damage claims. In addition, Grace believes that additional
coverage for ZAI claims may exist under excess insurance policies not subject to
settlement agreements. Grace has settled with excess insurance carriers that
wrote policies available for bodily injury claims in layers of insurance that
Grace believes may be reached based on its current estimates.

The asbestos-related insurance asset represents amounts expected to be received
from carriers under settlement agreements for defense and disposition costs to
be paid by Grace. Estimated insurance reimbursements are based on the recorded
amount of the asbestos-related liability and are only collectible as liabilities
are satisfied. In the event that Grace's ultimate asbestos-related liability is
determined to exceed recorded amounts, insurance exists to cover a portion of
such incremental liability, but generally in a lower proportion than the
currently recorded insurance receivable bears to the currently recorded
liability.

--------------------------------------------------------------------------------
4. ACQUISITIONS AND JOINT VENTURES
--------------------------------------------------------------------------------

During the first quarter of 2003, Grace did not enter into any new business
combinations.

In the first quarter of 2002, Grace completed two business combinations for a
total cash cost of $25.0 million as follows:

o    In January 2002, Grace, through its Swedish subsidiary, acquired the
     catalyst manufacturing assets of Borealis A/S.

o    In March 2002, Grace acquired the business and assets of Addiment,
     Incorporated, a leading supplier of specialty chemicals to the concrete
     paver and masonry industries in the U.S. and Canada.

Goodwill recognized in those transactions amounted to $3.5 million, which was
assigned to the Davison Chemicals and Performance Chemicals segments in the
amounts of $0.6 million and $2.9 million, respectively.

Pro forma results of operations have not been presented because the effects of
these acquisitions were not material on either an individual or aggregate basis.

--------------------------------------------------------------------------------
5. OTHER INCOME
--------------------------------------------------------------------------------

Components of other income are as follows:

=================================================================
OTHER INCOME                             THREE MONTHS ENDED
(Dollars in millions)                         MARCH 31,
=================================================================
                                           2003          2002
                                       --------------------------
Investment income...................   $      3.1    $     2.9
Interest income.....................          1.2          0.8
Net gain on dispositions of assets .         (0.3)        (0.2)
Tolling revenue.....................          0.5          0.5
Equity in net income of
  affiliates........................          0.1         --
Other miscellaneous income .........          1.2          2.1
-----------------------------------------------------------------
Total other income..................   $      5.8    $     6.1
=================================================================


--------------------------------------------------------------------------------
6. OTHER BALANCE SHEET ACCOUNTS
--------------------------------------------------------------------------------

==============================================================
                                       MARCH 31,  December 31,
(Dollars in millions)                    2003         2002
--------------------------------------------------------------
ACCOUNTS AND OTHER RECEIVABLES, NET
Trade receivables, less allowance
  of $3.9 (2002 - $3.7).............   $   297.1  $   297.3
Other receivables, less allowance
  of $1.7 (2002 - $1.7).............        16.1       14.0
                                       -----------------------
                                       $   313.2  $   311.3
==============================================================

<PAGE>

INVENTORIES
Raw materials .....................    $    42.7  $    39.2
In process ........................         31.2       30.3
Finished products .................        128.0      109.6
General merchandise ...............         25.1       26.8
Less:  Adjustment of certain
  inventories to a last-in/
  first-out (LIFO) basis ..........        (35.3)     (33.5)
                                       -----------------------
                                       $   191.7  $   172.4
==============================================================
OTHER ASSETS
Deferred pension costs.............    $   101.1  $   104.2
Deferred charges ..................         42.7       38.3
Long-term receivables, less
  allowances of $0.8 (2002 - $0.8).         10.6        2.0
Investments in unconsolidated
  affiliates.......................          0.5        0.4
Patents, licenses and other
  intangible assets, net ..........         63.4       63.3
Pension-unamortized prior service
  cost ............................         26.4       26.4
Other assets ......................          5.0        5.0
                                       -----------------------
                                       $   249.7  $   239.6
==============================================================


                                      I-13
<PAGE>



==============================================================
                                       MARCH 31,  December 31,
(Dollars in millions)                     2003        2002
==============================================================
OTHER CURRENT LIABILITIES
Accrued compensation ..............    $    29.1  $    40.0
Accrued interest ..................          6.6        6.4
Deferred tax liability ............          0.8        0.8
Customer volume rebates ...........         11.8       21.2
Accrued commissions ...............          4.5        6.0
Accrued reorganization fees .......          7.9        9.4
Other accrued liabilities .........         51.4       46.5
                                       -----------------------
                                       $   112.1  $   130.3
==============================================================
OTHER LIABILITIES
Pension-underfunded plans .........     $  306.4  $   295.1
Other accrued liabilities .........          7.4        6.2
                                       -----------------------
                                       $   313.8  $   301.3
==============================================================

--------------------------------------------------------------------------------
7. LIFE INSURANCE
--------------------------------------------------------------------------------

Grace is the beneficiary of life insurance policies on certain current and
former employees with a net cash surrender value of $87.7 million and $82.4
million at March 31, 2003 and December 31, 2002, respectively. The policies were
acquired to fund various employee benefit programs and other long-term
liabilities and are structured to provide cash flow (primarily tax-free) over an
extended number of years. The following table summarizes activity in these
policies for the three months ended March 31, 2003 and 2002, and components of
the net cash value at March 31, 2003 and December 31, 2002:

===================================================================
LIFE INSURANCE -
ACTIVITY SUMMARY                         THREE MONTHS ENDED
(Dollars in millions)                         MARCH 31,
===================================================================
                                        2003             2002
                                   --------------------------------
Earnings on policy assets....      $      11.8      $      11.6
Interest on policy loans.....             (8.7)            (8.7)
Policy loan repayments.......              0.9              2.1
Net investing activity.......              1.3              6.4
                                   --------------------------------
  Change in net cash value ..      $       5.3      $      11.4
===================================================================
Tax-free proceeds received ..      $       3.6      $       6.2
===================================================================
COMPONENTS OF                         MARCH 31,      December 31,
NET CASH VALUE                          2003             2002
===================================================================
Gross cash value.............      $     472.9      $     471.3
Principal - policy loans.....           (367.7)          (365.4)
Accrued interest - policy
 loans.......................            (17.5)           (23.5)
                                   --------------------------------
   Net cash value............      $      87.7      $      82.4
===================================================================
Insurance benefits in force..      $   2,230.1      $   2,240.8
===================================================================

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

--------------------------------------------------------------------------------
8. DEBT
--------------------------------------------------------------------------------

On March 31, 2003, and December 31, 2002, Grace's debt was as follows:

==============================================================
COMPONENTS OF DEBT                MARCH 31,     December 31,
(Dollars in millions)               2003            2002
==============================================================

DEBT PAYABLE WITHIN ONE YEAR
Other short-term borrowings     $       3.4    $       3.4
                                -------------- ---------------
                                $       3.4    $       3.4
                                ============== ===============
DEBT PAYABLE AFTER ONE YEAR
DIP facility ..............     $      --      $      --

DEBT SUBJECT TO COMPROMISE
Bank borrowings ...........     $     500.0    $     500.0
Other borrowings ..........             1.0            1.0
Accrued interest ..........            40.7           37.8
                                -------------- ---------------
                                $     541.7    $     538.8
                                -------------- ---------------

<PAGE>

Annualized weighted average
  interest rates on total
  debt ....................            2.1%           2.8%
==============================================================

In April 2001, the Debtors entered into the DIP facility for a two year term in
the aggregate amount of $250 million. The DIP facility, is secured by a priority
lien on substantially all assets of the Debtors, and bears interest based on
LIBOR. The Debtors' have extended the term of the DIP facility for up to an
additional three years through April 2006, and modified certain other
provisions. Grace had no outstanding borrowings under the DIP facility as of
March 31, 2003; however, $13.5 million of standby letters of credit were issued
and outstanding under the facility. The letters of credit, which reduce
available funds under the facility, were issued mainly for trade-related matters
such as performance bonds, as well as certain insurance and environmental
matters.

--------------------------------------------------------------------------------
9. SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------

The Company is authorized to issue 300,000,000 shares of common stock. Of the
common stock unissued on March 31, 2003, approximately 10,021,851 shares were
reserved for issuance pursuant to stock option and other stock incentive plans.
In the first three months of 2003 and the year ended December 31, 2002, Grace
did not grant any stock options.

For additional information, see Notes 15 and 17 to the Consolidated Financial
Statements in Grace's 2002 Form 10-K.

                                      I-14
<PAGE>

--------------------------------------------------------------------------------
10. (LOSS) EARNINGS PER SHARE
--------------------------------------------------------------------------------

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

=============================================================
(LOSS) EARNINGS PER SHARE
(Amounts in millions, except per      THREE MONTHS ENDED
share amounts)                            MARCH 31,
=============================================================
                                      2003          2002
                                   --------------------------
NUMERATORS
  Net (loss) income ...........    $    (2.3)    $     12.4
                                   ==========================
DENOMINATORS
  Weighted average common shares
  - basic calculation .........         65.5           65.4

  Dilutive effect of employee
  stock options and restricted
  shares.......................         --             --
                                   --------------------------
  Weighted average common
  shares-diluted calculation...         65.5           65.4
                                   ==========================
BASIC (LOSS) EARNINGS PER SHARE    $   (0.04)     $    0.19
                                   ==========================
DILUTED (LOSS) EARNINGS PER
 SHARE ........................    $   (0.04)     $    0.19
=============================================================

--------------------------------------------------------------------------------
11. STOCK INCENTIVE PLANS
--------------------------------------------------------------------------------

SFAS No. 123, "Accounting for Stock-Based Compensation," permits the Company to
follow the measurement provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and not recognize compensation
expense for its stock-based incentive plans. Had compensation cost for the
Company's stock-based incentive compensation plans been determined based on the
fair value at the grant dates of awards under those plans, consistent with the
fair value methodology prescribed by SFAS No. 123, the Company's net (loss)
income and related (loss) earnings per share for the three months ended March
31, 2003 and 2002 would have been reduced to the pro forma amounts indicated
below:

=============================================================
PRO FORMA EARNINGS
UNDER SFAS NO. 123
(Amounts in millions, except per       THREE MONTHS ENDED
share amounts)                              MARCH 31,
-------------------------------------------------------------
                                       2003         2002
                                   --------------------------
Net (loss) income, as reported      $  (2.3)      $  12.4
Deduct:
Total stock-based employee
  compensation expense
  determined under fair value
  based method for all awards,
  net of related tax effects...        (0.4)         (1.1)
                                    --------------------------
Pro forma net income (1).......     $  (2.7)      $  11.3
                                    ==========================
Basic (loss) earnings per share:
As reported....................     $ (0.04)      $  0.19
Pro forma (1)..................       (0.04)         0.17
Diluted (loss) earnings per
  share:
As reported....................     $ (0.04)      $  0.19
Pro forma (1)..................       (0.04)         0.17
=============================================================

(1)  These pro forma amounts may not be indicative of future income (loss) and
     earnings (loss) per share due to Grace's Chapter 11 Filing.

To determine compensation cost under SFAS No. 123, the fair value of each option
is estimated on the date of grant using the Black-Scholes option pricing model,
with the following historical weighted average assumptions applied to grants in
2001 and 2000:

===========================================================
OPTION VALUE ASSUMPTIONS                2001       2000
-----------------------------------------------------------
Dividend yield...................        --%        --%
Expected volatility..............        61%        59%
Risk-free interest rate..........         5%         7%
Expected life (in years).........         4          4
===========================================================

Based upon the above assumptions, the weighted average fair value of each option
granted was $1.28 per share for 2001 and $6.86 per share for 2000.

<PAGE>

--------------------------------------------------------------------------------
12. COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------

The tables below present the pre-tax, tax and after-tax components of Grace's
other comprehensive income (loss) for the three months ended March 31, 2003 and
2002:

===========================================================
THREE MONTHS ENDED                                 After-
MARCH 31, 2003               Pre-tax      Tax        Tax
(Dollars in millions)         Amount    Benefit    Amount
===========================================================
Foreign currency
  translation adjustments.. $    9.4  $   --     $    9.4
                            -------------------------------
Other comprehensive
  income .................. $    9.4  $   --     $    9.4
===========================================================

===========================================================
THREE MONTHS ENDED                                After-
MARCH 31, 2002               Pre-tax     Tax        Tax
(Dollars in millions)         Amount   Benefit    Amount
===========================================================
Foreign currency
  translation adjustments.. $   (7.6)  $    --   $   (7.6)
                           --------------------------------
Other comprehensive
  loss..................... $   (7.6)  $    --   $   (7.6)
===========================================================


                                      I-15
<PAGE>

The table below presents the components of Grace's accumulated other
comprehensive loss at March 31, 2003 and December 31, 2002:

=============================================================
COMPONENTS OF ACCUMULATED
OTHER COMPREHENSIVE LOSS          MARCH 31,    December 31,
(Dollars in millions)               2003           2002
=============================================================
Foreign currency translation..  $  (110.1)    $   (119.5)
Minimum pension liability.....     (283.7)        (283.7)
                                -----------------------------
Accumulated other
  comprehensive loss..........  $  (393.8)    $   (403.2)
=============================================================

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

ASBESTOS-RELATED LITIGATION - SEE NOTE 3

ENVIRONMENTAL REMEDIATION

General Matters and Discussion

Grace is subject to loss contingencies resulting from extensive and evolving
federal, state, local and foreign environmental laws and regulations relating to
the generation, storage, handling, discharge and disposition of hazardous wastes
and other materials. Grace accrues for anticipated costs associated with
investigative and remediation efforts where an assessment has indicated that a
probable liability has been incurred and the cost can be reasonably estimated.
These accruals do not take into account any discounting for the time value of
money. At March 31, 2003, Grace's liability for environmental investigative and
remediation costs related to continuing and discontinued operations totaled
$200.0 million, as compared to $201.1 million at December 31, 2002. This
estimate of environmental cost is based on funding and/or remediation agreements
in place and Grace's best estimate of its cost for sites not subject to a formal
remediation plan. The amounts of cash expenditures below have been charged
against previously established reserves for the periods presented.

============================================================
                                   THREE MONTHS ENDED
(Dollars in millions)                   MARCH 31,
===========================================================
                                   2003          2002
                              -----------------------------
Continuing operations.....     $      2.8     $      3.8
Discontinued operations...            0.3            0.1
-----------------------------------------------------------
Total.....................     $      3.1     $      3.9
===========================================================

During the three months ended March 31, 2003, Grace recorded a pre-tax charge of
$2.0 million for Grace's current estimate of defense costs in connection with a
cost recovery lawsuit brought by the U.S. government relating to Grace's former
vermiculite mining and processing activities near Libby, Montana. The
environmental risks related to such activities could result in additional
material future charges to Grace's earnings, the amounts of which are not
currently determinable. (See discussion under "Vermiculite Related Matters"
below.)

Grace's environmental liabilities are reassessed whenever circumstances become
better defined or remediation efforts and their costs can be better estimated.
These liabilities are evaluated based on currently available information,
including the progress of remedial investigation at each site, the current
status of discussions with regulatory authorities regarding the method and
extent of remediation at each site, existing technology, prior experience in
contaminated site remediation and the apportionment of costs among potentially
responsible parties. Grace expects that the funding of environmental remediation
activities will be affected by the Chapter 11 proceedings; any such effect could
be material. Grace's environmental liabilities are included in "liabilities
subject to compromise" as of March 31, 2003.

Vermiculite Related Matters

From the 1920's until 1990, Grace and previous owners conducted vermiculite
mining and related activities near Libby, Montana. The vermiculite ore that was
mined contained varying amounts of asbestos as a contaminant, almost all of
which was removed during processing. Expanded vermiculite from Libby was used in
products such as fireproofing, insulation and potting soil. In November 1999,
Region 8 of the U.S. Environmental Protection Agency ("EPA") began an
investigation into alleged excessive levels of asbestos-related disease in the
Libby population related to these former mining activities. This investigation
led the EPA to undertake additional investigative activity and to carry out
response actions in and around Libby. 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 the Comprehensive Environmental
Response, Compensation and Liability Act for the recovery of costs allegedly
incurred by the United States in response to the release or threatened release
of asbestos in the Libby, Montana area relating to such former mining
activities. These costs include cleaning and/or demolition of contaminated
buildings, the excavation and removal of contaminated soil, health screening of
Libby residents and former mine workers, and investigation and monitoring costs.
In this action, the EPA also sought a declaration of

                                      I-16
<PAGE>

Grace's liability that would be binding in future actions to recover further
response costs.

In connection with its defense, Grace conducted its own investigation to
determine whether the EPA's actions and cost claims were justified and
reasonable. However, in December 2002, the District Court granted the United
States' motion for partial summary judgment on a number of issues that limited
Grace's ability to challenge the EPA's response actions. In January 2003, a
trial was held on the remainder of the issues, which primarily involved the
reasonableness and adequacy of documentation of the EPA's cost recovery claims
through December 31, 2001. No decision has yet been issued. This lawsuit is not
subject to the automatic stay provided under the Bankruptcy Code.

Based on a proof of claim form filed against Grace by the United States, the
EPA's Libby-related cost recovery claims through January 31, 2003 totaled
approximately $82 million and total cost recovery claims will likely exceed $100
million. Grace has $63 million accrued at March 31, 2003 with respect to this
lawsuit and future cost recovery claims expected to be made by the EPA, which
represents Grace's current best estimate of probable liability and defense
costs, pending the issuance of a decision of the trial court and the
availability of additional information about the EPA's 2002 costs and projected
future costs. Grace's liability for this matter is included in "liabilities
subject to compromise" and any payments would be subject to the outcome of the
Chapter 11 proceedings.

Since January 2000, Grace has spent approximately $13.8 million for remediation
of certain Libby area vermiculite processing sites and for health care of Libby
area residents diagnosed with asbestos-related illness.

The EPA is also evaluating environmental risks at vermiculite processing sites
throughout the U.S. that processed vermiculite from Libby, Montana, and has made
claims against Grace to carry out or fund remediation activities. Grace is
reviewing the EPA's actions and cost claims to determine whether they are
justified and reasonable and, in several instances, has remediated or agreed to
remediate certain sites. Costs associated with the above are included in
"provision for environmental remediation" included in the Consolidated Statement
of Operations.

Insurance Matters

Grace is a party to three environmental insurance coverage actions involving one
primary and one excess insurance carrier regarding the applicability of the
carriers' policies to Grace's environmental remediation costs. The outcome of
such litigation as well as the amounts of any recoveries that Grace may receive
is presently uncertain. Accordingly, Grace has not recorded a receivable with
respect to such insurance coverage.

TAX MATTERS

Grace has received the examination report from the Internal Revenue Service
("IRS") on tax periods 1993 through 1996 asserting, in the aggregate,
approximately $114.0 million of proposed tax adjustments. The most significant
contested issue addressed in such report concerns corporate-owned life insurance
("COLI") policies and is discussed below. Other proposed IRS tax adjustments
include Grace's tax position regarding research and development credits,
reporting of certain divestitures and other miscellaneous proposed adjustments.
The tax audit for the 1993 through 1996 tax period is under the jurisdiction of
IRS Appeals, where Grace has filed a protest. Grace's federal tax returns
covering periods 1997 and forward are either under examination by the IRS or
open for future examination. Grace believes that the expected impact of probable
tax return adjustments would not have a material effect upon Grace's financial
statements. Any cash payment would be subject to Grace's Chapter 11 proceedings.

In 1988 and 1990, Grace acquired COLI policies on the lives of certain of its
employees as part of a strategy to fund the cost of postretirement employee
health care benefits and other long-term liabilities. COLI premiums have been
funded in part by loans issued against the cash surrender value of the COLI
policies. The IRS is challenging deductions of interest on loans secured by COLI
policies for years prior to 1999. In 2000, Grace paid $21.2 million of tax and
interest related to this issue for tax years 1990 through 1992. Subsequent to
1992, Grace deducted approximately $163.2 million in interest attributable to
COLI policy loans. Although Grace continues to believe that the deductions were
legitimate, the IRS has successfully challenged interest deductions claimed by
other corporations with respect to broad-based COLI policies in three out of
four litigated cases. Given the level of IRS success in COLI cases, Grace
requested and was granted early referral to the IRS Office of Appeals for
consideration of possible

                                      I-17
<PAGE>

settlement alternatives of the COLI interest deduction issue.

On September 23, 2002, Grace filed a motion in its Chapter 11 bankruptcy
proceeding requesting that the Bankruptcy Court authorize Grace to enter into a
settlement agreement with the IRS with respect to Grace's COLI interest
deductions. The tax years at issue are 1989 through 1998. Under the terms of the
proposed settlement, the government would allow 20% of the aggregate amount of
the COLI interest deductions and Grace would owe federal income tax and interest
on the remaining 80%. Grace has accrued for the potential tax and interest
liability related to the disallowance of all COLI interest deductions and
continues to accrue interest as part of its quarterly income tax provision. On
October 22, 2002, the Bankruptcy Court issued an order authorizing Grace to
enter into settlement discussions with the IRS consistent with the
aforementioned terms and further ordered that any final agreement would be
subject to Bankruptcy Court approval. Grace is currently in negotiations with
the IRS concerning the proposed settlement, and the possible termination of the
COLI policies.

The IRS has assessed additional federal income tax withholding and Federal
Insurance Contributions Act taxes plus interest and related penalties for
calendar years 1993 through 1995 against a Grace subsidiary that formerly
operated a temporary staffing business for nurses and other health care
personnel. The assessments, aggregating $21.8 million, were made in connection
with a meal and incidental expense per diem plan for traveling health care
personnel, which was in effect through 1999. The IRS contends that certain per
diem reimbursements should have been treated as wages subject to employment
taxes and federal income tax withholding. Grace contends that its per diem and
expense allowance plans were in accordance with statutory and regulatory
requirements, as well as other published guidance from the IRS. Grace expects
that the IRS will make additional assessments for the 1996 through 1999 periods.
The matter is currently pending in the United States Court of Claims. Grace is
currently in discussions with the Department of Justice concerning possible
settlement options.

LITIGATION RELATED TO FORMER PACKAGING AND MEDICAL CARE BUSINESSES

In September 2000, Grace was named in a purported class action lawsuit filed in
California Superior Court for the County of San Francisco alleging that the 1996
reorganization involving a predecessor of Grace and Fresenius AG and the 1998
reorganization involving a predecessor of Grace and Sealed Air Corporation were
fraudulent transfers. The Bankruptcy Court authorized the Official Committee of
Asbestos Personal Injury Claimants and the Official Committee of Asbestos
Property Damage Claimants to proceed with claims against Sealed Air and
Fresenius on behalf of the Debtors' estates.

On November 29, 2002, Sealed Air Corporation and Fresenius Medical Care AG each
announced that they had reached agreements in principle with representatives of
the asbestos creditors committees to resolve all of the current and future
asbestos-related claims and the pending fraudulent transfer claims made against
them and their respective affiliates. Under the terms of the proposed Sealed Air
settlement, Sealed Air would make a payment of $512.5 million (plus interest at
5.5% per annum, commencing on December 21, 2002) and nine million shares of
Sealed Air common stock, valued at $361.2 million as of March 31, 2003, as
directed by the Bankruptcy Court upon confirmation of Grace's plan of
reorganization. Under the terms of the proposed Fresenius settlement, as
subsequently revised, Fresenius would contribute $115.0 million to the Grace
estate, or as otherwise directed by the Bankruptcy Court, upon confirmation of a
plan of reorganization. Both settlements are subject to Bankruptcy Court
approval and the fulfillment of specified conditions. Grace is unable to predict
how these settlements may ultimately affect its plan of reorganization.

PURCHASE COMMITMENTS

From time to time, Grace engages in purchase commitments in its various business
activities, all of which are expected to be fulfilled with no material adverse
consequences to Grace's operations or financial condition.

GUARANTEES AND INDEMNIFICATION OBLIGATIONS

Grace is a party to many contracts containing guarantees and indemnification
obligations. These contracts primarily consist of:

o    Contracts providing for the sales of a former business unit or product line
     in which Grace has agreed to indemnify the buyer against liabilities
     arising prior to the closing of the transaction, including environmental
     liabilities. These

                                      I-18
<PAGE>
     liabilities are included in "liabilities subject to compromise" in the
     Consolidated Balance Sheet;

o    Guarantees of real property lease obligations of third parties, typically
     arising out of (a) leases entered into by former subsidiaries of Grace, or
     (b) the assignment or sublease of a lease by Grace to a third party. These
     obligations are included in "liabilities subject to compromise" in the
     Consolidated Balance Sheet;

o    Contracts entered into with third party consultants, independent
     contractors, and other service providers in which Grace has agreed to
     indemnify such parties against certain liabilities in connection with their
     performance. Based on historical experience and the likelihood that such
     parties will ever make a claim against Grace, such indemnification
     obligations are immaterial;

o    Product warranties with respect to certain products sold to customers in
     the ordinary course of business. These warranties typically provide that
     product will conform to specifications. Grace generally does not establish
     a liability for product warranty based on a percentage of sales or other
     formula. Grace accrues a warranty liability on a transaction-specific basis
     depending on the individual facts and circumstances related to each sale.
     Both the liability and annual expense related to product warranties are
     immaterial to the Consolidated Financial Statements.

FINANCIAL ASSURANCES

Financial assurances have been established for a variety of purposes, including
insurance and environmental matters, asbestos settlements and appeals,
trade-related commitments and other matters. At March 31, 2003, Grace had gross
financial assurances issued and outstanding of $236.3 million, comprised of
$135.3 million of gross surety bonds issued by various insurance companies and
$101.0 million of standby letters of credit issued by various banks. Of the
standby letters of credit, $19.2 million act as collateral for surety bonds,
thereby reducing Grace's overall obligations under its financial assurances to a
net amount of $217.1 million. Of this net amount, approximately $7.7 million
were issued on behalf of non-Debtor entities and $209.4 million were issued on
behalf of the Debtors. Of the amounts issued by the Debtors, approximately
$193.2 million were issued before the Filing Date, with the remaining $16.2
million being issued subsequent to the Filing, of which $13.5 million was issued
under the DIP facility.

ACCOUNTING FOR CONTINGENCIES

Although the outcome of each of the matters discussed above cannot be predicted
with certainty, Grace has assessed its risk and has made accounting estimates as
required under U.S. generally accepted accounting principles. As a result of the
Filing, claims related to the items discussed above will be addressed as part of
Grace's Chapter 11 proceedings. Accruals recorded for such contingencies have
been included in "liabilities subject to compromise" on the accompanying
Consolidated Balance Sheet as of March 31, 2003. The amounts of these
liabilities as ultimately determined through the Chapter 11 proceedings could be
materially different from amounts recorded by Grace at March 31, 2003.

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

Grace is a global producer of specialty chemicals and specialty materials. It
generates revenues from two business segments: Davison Chemicals and Performance
Chemicals. Davison Chemicals produces a variety of catalysts and silica
products. Performance Chemicals produces specialty construction chemicals,
building materials and sealants and coatings. Intersegment sales, eliminated in
consolidation, are not material. The table below presents information related to
Grace's business segments for the three months ended March 31, 2003 and 2002.
Only those corporate expenses directly related to the segment are allocated for
reporting purposes. All remaining corporate items are reported separately and
labeled as such.

============================================================
BUSINESS SEGMENT DATA                 THREE MONTHS ENDED
(Dollars in millions)                      MARCH 31,
============================================================
                                        2003        2002
                                    ------------------------
NET SALES
Davison Chemicals..............     $     239.1   $  213.9
Performance Chemicals..........           205.7      199.0
                                    ------------------------
TOTAL..........................     $     444.8   $  412.9
                                    ========================

PRE-TAX OPERATING INCOME
Davison Chemicals..............     $      20.3   $   25.6
Performance Chemicals..........            12.1       18.6
                                    ------------------------
TOTAL..........................      $     32.4   $   44.2
============================================================

                                      I-19
<PAGE>


The table below presents information related to the geographic areas in which
Grace operated for the three months ended March 31, 2003 and 2002.

============================================================

GEOGRAPHIC AREA DATA                 THREE MONTHS ENDED
(Dollars in millions)                    MARCH 31,
============================================================
                                      2003          2002
                                 ---------------------------
NET SALES
  United States..............    $     188.6     $  192.6
  Canada and Puerto Rico.....           15.6         10.0
  Europe.....................          154.8        125.0
  Asia Pacific...............           61.4         59.7
  Latin America..............           24.4         25.6
                                 ---------------------------
TOTAL........................     $    444.8      $ 412.9
============================================================

The pre-tax operating income for Grace's business segments for the three months
ended March 31, 2003 and 2002 is reconciled below to income before Chapter 11
expenses, income taxes, and minority interest presented in the accompanying
Consolidated Statement of Operations.

============================================================
RECONCILIATION OF BUSINESS
SEGMENT DATA TO FINANCIAL
STATEMENTS                           THREE MONTHS ENDED
(Dollars in millions)                     MARCH 31,
============================================================
                                      2003          2002
                                 ---------------------------
Pre-tax operating income --
  business segments..........    $      32.4     $   44.2
Add back:
Minority Interest............            0.2         (0.5)
                                 ---------------------------
                                        32.6         43.7
Interest expense and related
  financing .................           (4.2)        (4.8)
Interest income..............            1.2          0.8
Corporate operating costs....          (18.9)       (10.4)
Other, net...................           (7.0)        (2.9)
                                 ---------------------------
Income before Chapter 11
  expenses,  income taxes, and
  minority interest .........    $       3.7     $   26.4
============================================================

Corporate operating costs include expenses of corporate headquarters functions
incurred in support of core operations, such as corporate financial and legal
services, human resources management, communications and regulatory affairs.
This item also includes certain pension and postretirement benefits that are
considered a core operating cost but not allocated to business segments.

                                      I-20
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
--------------------------------------------------------------------------------

W. R. Grace & Co. and its subsidiaries are engaged in specialty chemicals and
specialty materials businesses on a global basis. Its business segments are
Davison Chemicals, which produces catalyst and silica products, and Performance
Chemicals, which produces construction chemicals, building materials and
sealants and coatings.

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

--------------------------------------------------------------------------------
VOLUNTARY BANKRUPTCY FILING
--------------------------------------------------------------------------------

In response to a sharply increasing number of asbestos-related bodily injury
claims, on April 2, 2001 (the "Filing Date"), W. R. Grace & Co. and 61 of its
United States subsidiaries and affiliates, including W. R. Grace & Co.-Conn.
(collectively, the "Debtors"), filed voluntary petitions for reorganization (the
"Filing") under Chapter 11 of the United States Bankruptcy Code ("Chapter 11" or
the "Bankruptcy Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). The cases were consolidated and are being
jointly administered under case number 01-01139 (the "Chapter 11 Cases").
Grace's non-U.S. subsidiaries and certain of its U.S. subsidiaries were not
included in the Filing.

During 2000 and the first quarter of 2001, Grace experienced several adverse
developments in its asbestos-related litigation, including: a significant
increase in bodily injury claims, higher than expected costs to resolve bodily
injury and certain property damage claims and class action lawsuits alleging
damages from a former attic insulation product. (These claims are discussed in
more detail in Note 3 to the Consolidated Financial Statements.) After a
thorough review of these developments, the Board of Directors of Grace concluded
on April 2, 2001 that a federal court-supervised Chapter 11 filing provided the
best forum available to achieve predictability and fairness in the claims
settlement process.

By filing under Chapter 11, Grace expects to be able to both obtain a
comprehensive resolution of the claims against it and preserve the inherent
value of its businesses. Under Chapter 11, the Debtors expect to continue to
operate their businesses as debtors-in-possession under court protection from
their creditors and claimants, while using the Chapter 11 process to develop and
implement a plan for addressing the asbestos-related claims against them.

Consequence of Filing - As a consequence of the Filing, pending litigation
against the Debtors for pre-petition matters is generally stayed (subject to
certain exceptions in the case of governmental authorities), and no party may
take action to realize its pre-petition claims except pursuant to an order of
the Bankruptcy Court.

The Debtors intend to address all of their pending and future asbestos-related
claims and all other pre-petition claims in a plan of reorganization. Such a
plan of reorganization may include the establishment of a trust through which
all pending and future asbestos-related claims would be channeled for
resolution. However, it is currently impossible to predict with any degree of
certainty the amount that would be required to be contributed to the trust, how
the trust would be funded, how other pre-petition claims would be treated or
what impact any reorganization plan may have on the shares of common stock of
the Company. The interests of the Company's shareholders could be substantially
diluted or cancelled under a plan of reorganization. The formulation and
implementation of the plan of reorganization is expected to take a significant
period of time.

Status of Chapter 11 Proceedings - Since the Filing, all motions necessary to
conduct normal business activities have been approved by the Bankruptcy Court.
In addition, the Debtors have received approval from the Bankruptcy Court to pay
or otherwise honor certain of its pre-petition obligations in the ordinary
course of business, including employee wages and benefits, customer programs,
shipping charges and a limited amount of claims of essential trade creditors.

As provided by the Bankruptcy Code, the Debtors had the exclusive right to
propose a plan of reorganization for a 120-day period following the Filing Date.
The Debtors have received an extension of their exclusivity period during which
to file a plan of reorganization through August 1, 2003, and an extension of the
Debtors' exclusive rights to solicit acceptances of a reorganization plan
through October 1, 2003.

Three creditors' committees, two representing asbestos claimants and the third
representing other unsecured creditors, and a committee representing
shareholders have been appointed in the Chapter 11 Cases. These committees will
have the right to be heard on all matters that come before the Bankruptcy Court
and, together with a legal representative of future asbestos

                                      I-21
<PAGE>

claimants (whom Grace expects to be appointed by the Bankruptcy Court in the
future), are likely to play important roles in the Chapter 11 Cases. The Debtors
are required to bear certain of the committees' and the future asbestos
claimants representative's costs and expenses, including those of their counsel
and financial advisors.

The Debtors' Chapter 11 cases have been assigned to Judge Alfred M. Wolin, a
senior federal judge who sits in Newark, New Jersey. Judge Wolin is presiding
over asbestos bodily injury matters and the fraudulent conveyance litigation
described below. He has assigned the Debtors' other bankruptcy matters to Judge
Judith Fitzgerald, a U.S. bankruptcy judge from the Western District of
Pennsylvania, sitting in Wilmington, Delaware.

The Bankruptcy Court established a bar date of March 31, 2003 for claims of
general unsecured creditors, asbestos property damage claims and medical
monitoring claims related to asbestos. The bar date did not apply to
asbestos-related bodily injury claims or claims related to Zonolite(R) Attic
Insulation ("ZAI"), which will be dealt with separately. Rust Consulting, the
court-approved claims handling agent for the Chapter 11 Cases, is maintaining a
register of all claims filed. Grace is cataloguing claims as filed and assessing
their validity. As a large portion of claims were filed in the two weeks prior
to the bar date, it will likely take several months to assess the validity of
all claims filed and to develop a plan to address these claims through the
bankruptcy process. At this time, it is not possible to estimate the value of
all claims that will ultimately be allowed by the Bankruptcy Court, due to the
uncertainties of the Chapter 11 process, the in-progress state of Grace's
investigation of submitted claims and the lack of documentation submitted in
support of many claims.

In July 2002, the Bankruptcy Court approved special counsel to represent the ZAI
claimants, at the Debtors' expense, in a proceeding to determine certain
threshold scientific issues regarding ZAI. The court has set a litigation
schedule that would result in pretrial hearings on these issues in the third
quarter of 2003.

On November 29, 2002, Sealed Air Corporation ("Sealed Air") and Fresenius
Medical Care AG ("Fresenius") each announced that they had reached agreements in
principle with the Official Committee of Asbestos Personal Injury Claimants and
the Official Committee of Asbestos Property Damage Claimants to settle asbestos
and fraudulent conveyance claims related to the 1998 transaction involving
Grace's former packaging business and Sealed Air, and the 1996 transaction
involving Grace's former medical care business and Fresenius, respectively.
Under the terms of the proposed Sealed Air settlement, Sealed Air would make a
payment of $512.5 million (plus interest at 5.5% per annum, commencing on
December 21, 2002) and nine million shares of Sealed Air common stock, valued at
$361.2 million as of March 31, 2003, as directed by the Bankruptcy Court upon
confirmation of Grace's plan of reorganization. Under the terms of the proposed
Fresenius settlement, as subsequently revised, Fresenius would contribute $115.0
million to the Grace estate, or as otherwise directed by the Bankruptcy Court,
upon confirmation of a plan of reorganization. The Sealed Air and Fresenius
settlements are subject to the approval of the Bankruptcy Court and the
fulfillment of specified conditions. Grace is unable to predict how these
settlements may ultimately affect its plan of reorganization.

Impact on Debt Capital - All of the Debtors' pre-petition debt is in default
due to the Filing. The accompanying Consolidated Balance Sheet as of March 31,
2003 reflects the classification of the Debtors' pre-petition debt within
"liabilities subject to compromise."

The Debtors have entered into a debtor-in-possession post-petition loan and
security agreement with Bank of America, N. A. (the "DIP facility") in the
aggregate amount of $250 million. The term of the DIP facility, originally set
to expire April 1, 2003, has been extended for up to an additional three years
through April 2006.

Accounting Impact - The accompanying Consolidated Financial Statements have
been prepared in accordance with Statement of Position 90-7 ("SOP 90-7")
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,"
promulgated by the American Institute of Certified Public Accountants. SOP 90-7
requires that financial statements of debtors-in-possession be prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Filing, the realization of certain Debtors' assets
and the liquidation of certain Debtors' liabilities are subject to significant
uncertainty. While operating as debtors-in-possession, the Debtors may sell or
otherwise dispose of assets, and liquidate or settle liabilities for amounts
other than those reflected in the Consolidated Financial Statements. Further, a
plan of reorganization could materially change the amounts and classifications
reported in the Consolidated Financial Statements, which do not currently give
effect to any

                                      I-22
<PAGE>

adjustments to the carrying value or classification of assets or liabilities
that might be necessary as a consequence of a plan of reorganization.

Pursuant to SOP 90-7, Grace's pre-petition liabilities that are subject to
compromise are required to be reported separately on the balance sheet at an
estimate of the amount that will ultimately be allowed by the Bankruptcy Court.
As of March 31, 2003, such pre-petition liabilities include fixed obligations
(such as debt and contractual commitments) as well as estimates of costs related
to contingent liabilities (such as asbestos-related litigation, environmental
remediation and other claims). The recorded amounts of such liabilities
generally reflect accounting measurements as of the Filing Date, adjusted as
warranted, for changes in facts and circumstances and/or rulings under Grace's
Chapter 11 proceedings subsequent to the Filing. (See Note 2 to the Consolidated
Financial Statements for detail of the liabilities subject to compromise as of
March 31, 2003, and as of the Filing Date.) Obligations of Grace subsidiaries
not covered by the Filing continue to be classified on the Consolidated Balance
Sheet based upon maturity dates or the expected dates of payment. SOP 90-7 also
requires separate reporting of certain expenses, realized gains and losses and
provisions for losses related to the Filing as reorganization items.

--------------------------------------------------------------------------------
CRITICAL ACCOUNTING ESTIMATES
--------------------------------------------------------------------------------

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires that management make estimates and
assumptions affecting the assets and liabilities reported at the date of the
Consolidated Financial Statements, and the revenues and expenses reported for
the periods presented. Actual amounts could differ from those estimates. Changes
in estimates are recorded in the period identified. Grace's accounting
measurements that are most affected by management's estimates of future events
are:

o   Contingent liabilities such as asbestos-related matters, environmental
    remediation, income taxes, and retained obligations of divested businesses.
o   Pension and postretirement liabilities that depend on assumptions regarding
    discount rates and/or total returns on invested funds.
o   Depreciation and amortization periods for long-lived assets, including
    property and equipment, intangible, and other assets.
o   Realization values of various assets such as trade receivables, inventories,
    insurance receivables, income taxes, and goodwill.

The accuracy of these and other estimates may also be materially affected by the
uncertainties arising under the Chapter 11 Cases.

--------------------------------------------------------------------------------
CONSOLIDATED OPERATIONS
--------------------------------------------------------------------------------

Set forth below is a chart that lists key operating statistics and percentage
changes for the three months ended March 31, 2003 and 2002. This chart should be
referenced when reading management's discussion and analysis of the results of
operations and financial condition. The financial information presented
throughout this discussion, divides Grace's financial results between "core
operations" and "noncore activities." Core operations comprise the financial
results of Davison Chemicals, Performance Chemicals and the costs of corporate
activities that directly or indirectly support business operations. In contrast,
noncore activities comprise all other events and transactions not directly
related to the generation of operating revenue or the support of core
operations.

Neither pre-tax income from core operations nor pre-tax income from core
operations before depreciation and amortization purport to represent income or
cash flow as defined under generally accepted accounting principles, and should
not be considered an alternative to such measures as an indicator of Grace's
performance. These measures are provided to distinguish operating results of
Grace's current business base from results and related assets and liabilities
of past businesses, discontinued products and corporate legacies.


                                      I-23
<PAGE>


<TABLE>
<CAPTION>
====================================================================================================================================
ANALYSIS OF CONSOLIDATED OPERATIONS                                                          THREE MONTHS ENDED
 (Dollars in millions)                                                                           MARCH 31,
====================================================================================================================================
                                                                                                                   % Change
                                                                                     2003            2002        Fav (Unfav)
                                                                              ------------------------------------------------
<S>                                                                           <C>              <C>                       <C>
NET SALES:
    DAVISON CHEMICALS
    Catalyst products..................................................       $        168.0   $         153.1           9.7%
    Silica products....................................................                 71.1              60.8          16.9%
                                                                              ------------------------------------------------
  TOTAL DAVISON CHEMICALS..............................................                239.1             213.9          11.8%
                                                                              ------------------------------------------------
    PERFORMANCE CHEMICALS
    Construction chemicals.............................................                 90.8              83.6           8.6%
    Building materials.................................................                 53.5              57.2          (6.5%)
    Sealants and coatings..............................................                 61.4              58.2           5.5%
                                                                              ------------------------------------------------
  TOTAL PERFORMANCE CHEMICALS..........................................                205.7             199.0           3.4%
                                                                              ------------------------------------------------
TOTAL GRACE SALES......................................................       $        444.8   $         412.9           7.7%
                                                                              ================================================
PRE-TAX OPERATING INCOME (a):
    Davison Chemicals (b)..............................................       $         20.3   $          25.6         (20.7%)
    Performance Chemicals..............................................                 12.1              18.6         (34.9%)
    Corporate operating costs..........................................                (18.9)            (10.4)        (81.7%)
                                                                              ------------------------------------------------
PRE-TAX INCOME FROM CORE OPERATIONS (c)................................                 13.5              33.8         (60.1%)
                                                                              ------------------------------------------------
PRE-TAX LOSS FROM NONCORE ACTIVITIES...................................                 (7.0)             (2.9)         NM
Interest expense.......................................................                 (4.2)             (4.8)         12.5%
Interest income........................................................                  1.2               0.8          50.0%
                                                                              ------------------------------------------------
INCOME BEFORE CHAPTER 11 REORGANIZATION EXPENSES AND INCOME TAXES......                  3.5              26.9         (87.0%)
Chapter 11 reorganization expenses, net................................                 (2.7)             (4.4)         38.6%
Provision for income taxes ............................................                 (3.1)            (10.1)         69.3%
                                                                              ------------------------------------------------
NET (LOSS) INCOME......................................................       $         (2.3)  $          12.4        (118.5%)
                                                                              ================================================

KEY FINANCIAL MEASURES:
  PRE-TAX INCOME FROM CORE OPERATIONS AS A
    PERCENTAGE OF SALES:
    Davison Chemicals (b)..............................................                  8.5%             12.0%         (3.5) pts
    Performance Chemicals..............................................                  5.9%              9.3%         (3.4) pts
    Consolidated.......................................................                  3.0%              8.2%         (5.2) pts
  PRE-TAX INCOME FROM CORE OPERATIONS BEFORE DEPRECIATION AND
    AMORTIZATION (c)...................................................       $         38.2   $          56.7         (32.6%)
  As a percentage of sales.............................................                  8.6%             13.7%         (5.1) pts
                                                                              ================================================
NET SALES BY REGION:
North America..........................................................       $        204.2   $         202.6           0.8%
Europe.................................................................                154.8             125.0          23.8%
Asia Pacific...........................................................                 61.4              59.7           2.8%
Latin America..........................................................                 24.4              25.6          (4.7%)
                                                                              ------------------------------------------------
TOTAL..................................................................       $        444.8   $         412.9           7.7%
====================================================================================================================================
</TABLE>

NM = Not meaningful    a = Pre-tax operating income for all periods presented
                           reflects a reallocation of the cost of annual accrued
                           pension benefits of active participants from
                           corporate to the respective business segments.
                       b = Davison Chemicals pre-tax operating income includes
                           minority interest related to the Advanced Refining
                           Technologies joint venture.
                       c = Neither pre-tax income from core operations nor
                           pre-tax income from core operations before
                           depreciation and amortization purport to represent
                           income or cash flow as defined under generally
                           accepted accounting principles, and should not be
                           considered an alternative to such measures as an
                           indicator of Grace's performance.


                                      I-24
<PAGE>


COSTS OF DOING BUSINESS IN CHAPTER 11

Although it is difficult to measure precisely how Chapter 11 has impacted
Grace's overall financial performance, there are certain added costs that are
directly attributable to operating under the Bankruptcy Code. Net reorganization
expenses of $2.7 million in the first three months of 2003 and $4.4 million in
the first three months 2002 consist primarily of legal, financial and consulting
fees incurred by Grace and three creditors' committees. In addition, for the
first quarter of 2003 and 2002, Grace's pre-tax income from core operations
included expenses of $3.7 million and $2.8 million, respectively, for Chapter
11-related compensation charges. Poor stock price performance in the period
leading up to and after the Filing diminished the value of Grace's stock option
program to current and prospective employees, which caused Grace to change its
long-term incentive compensation program into a cash-based program. Grace has
also sought to address employee retention issues by providing added compensation
to certain employees and increasing Grace's contribution to its savings and
investment plan.

There are numerous other indirect costs to manage Grace's Chapter 11 proceedings
such as: management time devoted to Chapter 11 matters; added cost of debt
capital; added costs of general business insurance, including directors and
officers liability insurance; and lost business and acquisition opportunities
due to complexities of operating under Chapter 11.

NET SALES

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

===============================================================
                      THREE MONTHS ENDED MARCH 31, 2003 AS A
NET SALES           PERCENTAGE INCREASE (DECREASE) FROM THREE
VARIANCE ANALYSIS          MONTHS ENDED MARCH 31, 2002
===============================================================
                     VOLUME   PRICE/MIX  TRANSLATION   TOTAL
                    -------------------------------------------

Davison Chemicals.   11.4%      (8.1%)       8.5%      11.8%
Performance
  Chemicals ......   (0.2%)      0.1%        3.5%       3.4%
Net sales.........    5.8%      (4.2%)       6.1%       7.7%
---------------------------------------------------------------
By Region:
  North America...   (0.8%)      1.4%        0.2%       0.8%
  Europe..........   13.9%     (11.1%)      21.0%      23.8%
  Asia Pacific....   12.5%     (15.1%)       5.4%       2.8%
  Latin America...    3.2%      10.9%      (18.8%)     (4.7%)
===============================================================

Grace's net sales increased 7.7% to $444.8 million in the three-month period
ended March 31, 2003 compared with the same period in 2002. Favorable currency
translation effects from a weaker U.S. dollar accounted for 6.1% of the
increase, with revenue from acquisitions and added volume in certain product
lines also contributing factors. Acquisitions contributed $7.9 million or 1.9
percentage points of the sales volume growth. The positive impact from foreign
currency translation occurred primarily in Europe.

PRE-TAX INCOME FROM CORE OPERATIONS

Pre-tax income from core operations was $13.5 million for the three months ended
March 31, 2003, compared with $33.8 million for the prior year period.

Operating income in the first three months of 2003 was adversely affected by:
continued weakness in the global economy and in U.S. commercial construction
activity; higher production costs; unfavorable regional and product mix; higher
selling and research and development expenses to support growth initiatives; and
higher costs for pensions, medical benefits, insurance and other operating
costs.

Corporate operating costs for the three months ended March 31, 2003 and March
31, 2002, were $18.9 million and $10.4 million, respectively. Corporate costs
include corporate functional costs (such as financial and legal services, human
resources, communications and information technology), the cost of corporate
governance (including directors and officers liability insurance) and pension
costs related to both corporate employees and to the effects of changes in
assets and liabilities for all Grace pension plans. The first quarter increase
is primarily attributable to higher pension expense, largely related to negative
economic factors impacting equity markets and interest rates in recent years.

PRE-TAX LOSS FROM NONCORE ACTIVITIES

The pre-tax loss from noncore activities totaled $7.0 million for the first
three months of 2003, compared with $2.9 million for the first three months of
2002. The expense increase was attributable to higher pension expense related to
employees of former businesses and higher environmental litigation costs.

CHAPTER 11 EXPENSES

Net reorganization expenses for the quarter ended March 31, 2003 were $2.7
million compared with $4.4 million for the same period in 2002. These expenses
are expected to continue to be variable based on activity in the Chapter 11
cases.

INTEREST

Net interest expense for the three months ended March 31, 2003 was $3.0 million,
a decrease of 25.0% from 2002. This decrease was attributable to a lower
contractual interest rate on pre-petition debt subject to

                                      I-25
<PAGE>

compromise, and lower borrowing levels. Average debt levels were $504.2 million
in the first three months of 2003 and $507.9 million in the first three months
of 2002. Payment of interest accrued on pre-petition debt is subject to the
outcome of Grace's Chapter 11 proceedings. Weighted average interest rates for
March 31, 2003 and 2002 were 2.1% and 2.7%, respectively.

INCOME TAXES

Grace's provision for income taxes at the federal corporate rate of 35% was $1.9
million for the three months ended March 31, 2003. The primary difference
between this amount and the overall provision for income taxes of $3.1 million
is attributable to current period interest on tax contingencies and the
non-deductibility of certain Chapter 11 expenses.

DAVISON CHEMICALS

Business Description

Davison Chemicals is a leading global supplier of catalyst and silica products.
Catalyst products represented approximately 38% of Grace's 2003 first quarter
sales (37% - 2002). This segment includes fluid cracking catalysts and additives
used in petroleum refineries to convert distilled crude oil into transportation
fuels and other petroleum-based products; hydroprocessing catalysts, which
upgrade heavy oils and remove certain impurities; polyolefin catalysts, which
are essential components in the manufacture of polyethylene and polypropylene
used in products such as plastic film, high-performance plastic pipe and other
plastic parts; and chemical catalysts, which are used in a variety of chemical
processes. Silica products, which represented 16% of Grace's 2003 first quarter
sales, (15% - 2002), are used in a wide range of industrial and consumer
applications, such as coatings, food processing, plastics, adsorbents, personal
care products and biotechnology separations.

Recent Acquisitions and Joint Ventures

During the first quarter of 2003, Davison did not enter into any new business
combinations. In January 2002, Grace, through its Swedish subsidiary, acquired
the catalyst manufacturing assets of Borealis A/S. This aquisition has been
integrated into Grace's global polyolefin catalysts business.

Sales

First quarter sales for the Davison Chemicals segment were $239.1 million, up
11.8% from the prior year quarter. Excluding favorable currency translation
impacts, sales were up 3.3% for the quarter, primarily attributable to catalyst
acquisitions and volume growth in silica products. Sales of catalyst products,
which include refining catalysts, polyolefin catalysts and other chemical
catalysts, were up 9.7% compared with the prior year quarter, as a result of
currency effects and acquisitions in polyolefin and hydroprocessing catalyst
segments. Sales of silica products were up 16.9% compared with the first quarter
of 2002 (5.9% excluding currency translation impacts), primarily from growth
programs in coatings, digital printing and separations applications, and added
volume in North America and Europe.

Sales in North America and Europe were up 9.3% and 24.4%, respectively. Sales in
Latin America and Asia Pacific were down 10.1% and 4.0%, respectively. In North
America and Europe, the increases in sales were attributable to growth in both
the catalyst and silica product lines and, with respect to Europe, favorable
currency translation impacts. The decrease in Latin America was primarily due to
an unfavorable impact from foreign currency as well as a reduction of sales in
silicas. The decrease in Asia Pacific was attributable to a reduction of sales
in catalyst and silica products, partly offset by a favorable currency
translation impact.

Operating Income

Operating income of the Davison Chemicals segment was $20.3 million, or 20.7%
lower than the 2002 first quarter; operating margin was 8.5%, about 3.5
percentage points lower than the prior year period. Operating income and margins
in the first quarter of 2003 were negatively affected by higher manufacturing
costs, primarily due to production difficulties and unusual maintenance
requirements, exacerbated by severe weather in the mid-Atlantic region of the
United States.

PERFORMANCE CHEMICALS

Business Description

The major product groups of the Performance Chemicals segment are (1) specialty
construction chemicals and specialty building materials, which are used
primarily by the nonresidential construction industry; and (2) container
sealants and coatings for food and beverage packaging, and other related
products. Specialty construction chemicals, which represented 20% of Grace's
2003 and

                                      I-26
<PAGE>

2002 first quarter sales, add strength, control corrosion, and enhance the
handling and application of concrete, and reduce the manufacturing cost and
improve the quality of cement. Specialty building materials, which represented
12% of Grace's 2003 first quarter sales (14% - 2002), prevent water damage to
structures and protect structural steel against collapse due to fire. Sealants
and coatings products, which represented 14% of Grace's 2003 and 2002 first
quarter sales are used to seal beverage and food cans, and glass and plastic
bottles, and protect metal packaging from corrosion and the contents from the
influences of metal.

Recent Acquisitions and Joint Ventures

During the first quarter of 2003, Performance Chemicals did not enter into any
new business combinations.

In March 2002, Grace acquired the business and the assets of Addiment,
Incorporated, a leading supplier of specialty chemicals to the concrete paver
and masonry industries in the U.S. and Canada. This business has been integrated
into the construction chemicals product line.

Sales

First quarter sales for the Performance Chemicals segment were $205.7 million,
up 3.4% from the prior year quarter, primarily from favorable currency
translation impacts. Volume gains outside of North America were offset by
weakness in North American commercial construction activity, which was about 10%
lower than last year. Sales of specialty construction chemicals, which include
concrete admixtures, cement additives and masonry products, were up 8.6% versus
the year-ago quarter (4.5% excluding currency translation impacts). Sales were
strong in geographic regions other than North America, reflecting the success of
new product programs and sales initiatives in key economies worldwide. Sales of
specialty building materials, which include waterproofing and fire protection
products, were down 6.5% (down 8.7% before translation impacts) compared with a
strong first quarter in 2002. The decline reflects softness in North American
construction and re-roofing activity, due partly to severe weather, and the
initial effects of new building codes that require less fire protection
materials for structural steel used in commercial buildings. Sales of specialty
sealants and coatings, which include container sealants, coatings and polymers,
were up 5.5% compared with the first quarter of 2002 (up 1.5% before the effect
of currency translation), reflecting growth initiatives in coatings and can
sealants, particularly in Europe and Asia.

Sales in North America were down 5.8%. Sales in Europe, Latin America, and Asia
Pacific increased by 22.8%, 0.8%, and 11.2%, respectively. Declines in North
America were primarily in specialty building materials reflecting the softness
in North American construction activity. In Europe and Asia Pacific, increases
were attributable to growth in all product lines. European sales were favorably
impacted by foreign exchange. Latin America experienced sales growth in
construction chemicals, offset by declines in specialty building materials and
sealants and coatings.

Operating Income

Operating income for the Performance Chemicals segment was $12.1 million,
compared with $18.6 million in the prior year quarter. Operating margin of 5.9%
was well below the 2002 first quarter margin of 9.3%, reflecting higher
transportation costs and petroleum-based and other raw material costs, and an
unfavorable regional and product mix. Operating income, although favorably
impacted by sales growth in construction chemicals (outside North America) and
sealants and coatings, was adversely affected by lower sales of building
materials.

FINANCIAL POSITION AND CASH FLOWS

The following chart sets forth Grace's net asset position supporting its core
operations and its net cash flows from core operations.

================================================================
CORE OPERATIONS                     MARCH 31,     December 31,
(Dollars in millions)                 2003            2002
----------------------------------------------------------------

BOOK VALUE OF INVESTED CAPITAL
Receivables....................  $   311.4       $   308.4
Inventory......................      191.7           172.4
Properties and equipment, net..      614.5           614.6
Intangible assets and other....      592.2           609.7
                                 -------------------------------
ASSETS SUPPORTING CORE
OPERATIONS.....................    1,709.8         1,705.1
Accounts payable and accruals..     (313.0)         (311.0)
                                 -------------------------------
CAPITAL INVESTED IN CORE
OPERATIONS.....................  $ 1,396.8       $  1,394.1
After-tax return on average
 invested capital (trailing
 twelve months)................        7.4%            8.3%
                                 ===============================

<PAGE>

                                      THREE MONTHS ENDED
                                           MARCH 31,
                                 -------------------------------
CASH FLOWS:                           2003            2002
                                 -------------------------------
Pre-tax operating income.......  $    13.5       $    33.8
Depreciation and amortization..       24.7            22.9
                                 -------------------------------
PRE-TAX EARNINGS BEFORE
 DEPRECIATION AND AMORTIZATION.       38.2            56.7
Working capital and other
changes........................      (10.6)          (32.9)
                                 -------------------------------
CASH FLOW BEFORE INVESTING.....       27.6            23.8
Capital expenditures...........      (18.0)          (13.2)
Businesses acquired............       --             (25.0)
                                 -------------------------------
NET CASH FLOW FROM CORE
OPERATIONS.....................  $     9.6       $   (14.4)
================================================================

Grace had a net asset position supporting its core operations of $1,396.8
million at March 31, 2003, compared with $1,394.1 million at December 31, 2002
(including the cumulative translation account reflected in Shareholders' Equity
(Deficit) of $110.1 million for 2003 and $119.5 million for 2002). The change in
invested capital supporting core operations was primarily due to:


                                      I-27
<PAGE>

a)      A decline in intangible assets and other of $17.5 million, which was
        caused primarily by net pension expense of $13.5 million for the
        quarter.

b)      An increase in receivables of $3.0 million, which was attributable to
        currency translation, primarily of European and Asian receivables,
        reflecting a weaker dollar.

c)      An overall increase in inventory of $19.3 million, consisting of
        increases in catalyst inventory to satisfy expected second quarter
        deliveries and favorable currency translation impacts, primarily in
        European and Asian inventories, reflecting a weaker dollar.

The after-tax return (trailing twelve months) on capital invested in core
operations decreased by 0.9 percentage points in the three-month period of 2003,
due to a 60.1% decline in pre-tax operating income. Net cash flows from core
operations increased due to the easing of working capital pressures that began
prior to the Filing, and a reduction in cash invested in business acquisitions,
partially offset by an increase in capital spending, primarily for continued
spending on a new catalyst facility during 2003.

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

EFFECT OF CHAPTER 11

As described under "Voluntary Bankruptcy Filing", the Company and its principal
U.S. operating subsidiary are debtors-in-possession under Chapter 11 of the
Bankruptcy Code. Grace's non-U.S. subsidiaries, although not part of the Filing,
are owned directly or indirectly by the Company's principal operating subsidiary
or other filing entities. Consequently, it is likely that a Chapter 11
reorganization plan will involve the combined value of Grace's global businesses
and its other assets to fund (with cash and/or securities) Grace's obligations
as adjudicated through the bankruptcy process. Grace has analyzed its cash flow
and capital needs to continue to fund its businesses and believes that, while in
Chapter 11, sufficient cash flow and credit facilities are available to support
its business strategy.

The following sections address Grace's financial condition in more detail and
describe the major contingencies that are being addressed as part of the Chapter
11 process. Grace's ability to present a plan of reorganization to the
Bankruptcy Court depends largely on the timing of resolution of these
contingencies.


LIABILITIES AND CONTINGENCIES

Grace has a number of financial exposures originating from past businesses,
products and events. These obligations arose from transactions and/or business
practices that date back to when Grace was a much larger company, when it
produced products or operated businesses that are no longer part of its revenue
base, and when government regulations and scientific knowledge were much less
advanced than today. The table below summarizes the net noncore liability at
March 31, 2003 and December 31, 2002 and the net cash flow from noncore
activities for the three months ended March 31, 2003 and 2002:

=================================================================
NONCORE ACTIVITIES                   MARCH 31,     December 31,
(Dollars in millions)                   2003            2002
-----------------------------------------------------------------
NET NONCORE LIABILITIES:
=================================================================
Asbestos-related liabilities.....   $  (970.9)      $  (973.2)
Asbestos-related insurance
receivable ......................       281.6           282.6
                                  -------------------------------
Asbestos-related liability, net..      (689.3)         (690.6)
Environmental remediation........      (200.0)         (201.1)
Postretirement benefits..........      (144.4)         (147.2)
Retained obligations and other...       (56.0)          (55.3)
                                  -------------------------------
NET NONCORE LIABILITY............   $(1,089.7)      $(1,094.2)
=================================================================
                                         THREE MONTHS ENDED
                                             MARCH 31,
NET CASH FLOWS FROM NONCORE       -------------------------------
ACTIVITIES:                             2003            2002
=================================================================
Pre-tax (loss) income from
noncore activities...............   $    (7.0)      $    (2.9)
Non-cash changes.................         5.9             4.2
Cash spending for:
  Asbestos-related litigation,
  net of insurance recovery......        (1.2)           (0.5)
  Environmental remediation......        (3.1)           (3.9)
  Postretirement benefits........        (3.1)           (4.6)
  Retained obligations and
  other..........................         --             (0.9)
-----------------------------------------------------------------
NET CASH FLOW FOR NONCORE
ACTIVITIES ......................   $    (8.5)      $    (8.6)
=================================================================

As described under "Voluntary Bankruptcy Filing," the resolution of most of
these noncore recorded and contingent liabilities will be determined through the
Chapter 11 proceedings. Grace cannot predict with any certainty how, and for
what amounts, any of such estimates will be resolved. The amounts of these
liabilities as ultimately determined through the Chapter 11 proceedings could be
materially different from amounts recorded by Grace at March 31, 2003.

ASBESTOS-RELATED MATTERS

Grace is a defendant in lawsuits relating to previously sold asbestos-containing
products. In the first three months of 2003, Grace paid $1.2 million for the
defense of asbestos-related property damage and bodily injury litigation, net of
amounts received under settlements with insurance carriers, compared to net
expenditures in the first three months of 2002 of $0.5 million. At March 31,
2003, Grace's balance sheet reflected a gross

                                      I-28
<PAGE>

asbestos-related liability of $970.9 million ($689.3 million net of insurance).
This liability represents management's estimate, based on facts and
circumstances existing prior to the Filing, of the undiscounted net cash
outflows necessary to satisfy Grace's pending property damage claims for which
sufficient information is available, and its pending and projected future bodily
injury claims. Changes to the recorded amount of such liability will be based on
Chapter 11 developments and management's assessment of the claim amounts that
will ultimately be allowed by the Bankruptcy Court.

The Consolidated Balance Sheet at March 31, 2003 includes total amounts due from
insurance carriers of $281.6 million pursuant to settlement agreements with
insurance carriers. The recovery of amounts due from insurance carriers is
dependent upon the timing, character and exposure periods of asbestos-related
claims. Grace's Chapter 11 proceedings could also affect recovery timing and
amounts.

Grace intends to address all of its pending and future asbestos-related claims
as part of a plan of reorganization under Chapter 11. Grace will seek to have
the Bankruptcy Court establish a process to assess and appropriately quantify
the numerous property damage and bodily injury claims against it. Measurement of
Grace's asbestos-related liabilities will be materially affected by Bankruptcy
Court rulings, the outcome of litigation and negotiations among interested
parties. Grace's ultimate liability for asbestos-related liabilities could be
materially higher than the amounts recorded.

ENVIRONMENTAL MATTERS

Grace is subject to loss contingencies resulting from extensive and evolving
federal, state, local and foreign environmental laws and regulations. Grace has
expended substantial funds to comply with such laws and regulations and expects
to continue to do so in the future. At March 31, 2003, Grace's recorded
liability for environmental investigative and remediation costs related to both
continuing and discontinued operations totaled $200.0 million, as compared with
$201.1 million at December 31, 2002. This estimate of environmental costs is
based on funding and/or remediation agreements in place, together with Grace's
best estimate of its cost for sites not subject to a formal remediation plan.

From the 1920's until 1990, Grace and previous owners conducted vermiculite
mining and related activities near Libby, Montana. The vermiculite ore that was
mined contained varying amounts of asbestos as a contaminant, almost all of
which was removed during processing. Expanded vermiculite from Libby was used in
products such as fireproofing, insulation and potting soil. In November 1999,
Region 8 of the U.S. Environmental Protection Agency ("EPA") began an
investigation into alleged excessive levels of asbestos-related disease in the
Libby population related to these former mining activities. This investigation
led the EPA to undertake additional investigative activity and to carry out
response actions in and around Libby. 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 the Comprehensive Environmental
Response, Compensation and Liability Act for the recovery of costs allegedly
incurred by the United States in response to the release or threatened release
of asbestos in the Libby, Montana area relating to such former mining
activities. These costs include cleaning and/or demolition of contaminated
buildings, the excavation and removal of contaminated soil, health screening of
Libby residents and former mine workers, and investigation and monitoring costs.
In this action, the EPA also sought a declaration of Grace's liability that
would be binding in future actions to recover further response costs.

In connection with its defense, Grace conducted its own investigation to
determine whether the EPA's actions and cost claims were justified and
reasonable. In December 2002, the District Court granted the United States'
motion for partial summary judgment on a number of issues that limited Grace's
ability to challenge the EPA's response actions. In January 2003, a trial was
held on the remainder of the issues, which primarily involved the reasonableness
and adequacy of documentation of the EPA's cost recovery claims through December
31, 2001. No decision has yet been issued. This lawsuit is not subject to the
automatic stay provided under the Bankruptcy Code.

Based on a proof of claim form filed against Grace by the United States, the
EPA's Libby-related cost recovery claims through January 31, 2003 totaled
approximately $82 million and total cost recovery claims will likely exceed $100
million. Grace has $63.0 million accrued at March 31, 2003, with respect to this
lawsuit and future cost recovery claims expected to be made by the EPA, which
represents Grace's current estimate of probable liability and defense costs,
pending the issuance of a decision of the trial court and the availability of
additional information about the EPA's 2002 costs and projected future costs.
Liabilities for recovery costs are included in "liabilities subject to
compromise" and any payments would be subject to the outcome of the Chapter 11
proceedings.


Since January 2000, Grace has spent approximately $13.8 million for remediation
of certain Libby area
                                      I-29
<PAGE>

vermiculite processing sites and for health care of Libby area residents
diagnosed with asbestos-related illness.

The EPA is also evaluating environmental risks at vermiculite processing sites
throughout the U.S. that processed vermiculite from Libby, Montana, and has made
claims against Grace to carry out or fund remediation activities. Grace is
reviewing the EPA's actions and cost claims to determine whether they are
justified and reasonable and, in several instances, has remediated or agreed to
remediate certain sites. Costs associated with the above are included in
"provision for environmental remediation" included in the Consolidated Statement
of Operations.

POSTRETIREMENT BENEFITS

Grace provides certain postretirement health care and life insurance benefits
for retired employees, a large majority of which pertain to retirees of
previously divested businesses. These plans are unfunded, and Grace pays the
costs of benefits under these plans as they are incurred. Spending under this
program during the first quarter of 2003 was $3.1 million. Grace's recorded
liability for postretirement benefits of $144.4 million at March 31, 2003 is
stated at net present value discounted at 6.75%. The continuing payment of these
benefits has been approved by the Bankruptcy Court, however, the program would
still be subject to the terms of a Chapter 11 reorganization plan.

RETAINED OBLIGATIONS OF DIVESTED BUSINESSES

The principal retained obligations of divested businesses relate to contractual
indemnification and to contingent liabilities not passed on to the new owner. At
March 31, 2003, Grace had recorded $56.0 million, as compared with $55.3 million
at December 31, 2002, to satisfy such obligations. Most of these matters are now
subject to the automatic stay of the Bankruptcy Court and are expected to be
resolved as part of Grace's Chapter 11 proceedings.

TAX MATTERS

Grace has received the examination report from the Internal Revenue Service
("IRS") on tax periods 1993 through 1996 asserting, in the aggregate,
approximately $114.0 million of proposed tax adjustments. The most significant
contested issue addressed in such report concerns corporate-owned life insurance
("COLI") policies and is discussed below. Other proposed IRS tax adjustments
include Grace's tax position regarding research and development credits,
reporting of certain divestitures and other miscellaneous proposed adjustments.
The tax audit for the 1993 through 1996 tax period is under the jurisdiction of
IRS Appeals, where Grace has filed a protest. Grace's federal tax returns
covering periods 1997 and forward are either under examination by the IRS or
open for future examination. Grace believes that the expected impact of probable
tax return adjustments would not have a material effect upon Grace's financial
statements. Any cash payment would be subject to Grace's Chapter 11 proceedings.

In 1988 and 1990, Grace acquired COLI policies on the lives of certain of its
employees as part of a strategy to fund the cost of postretirement employee
health care benefits and other long-term liabilities. COLI premiums have been
funded in part by loans issued against the cash surrender value of the COLI
policies. The IRS is challenging deductions of interest on loans secured by COLI
policies for years prior to 1999. In 2000, Grace paid $21.2 million of tax and
interest related to this issue for tax years 1990 through 1992. Subsequent to
1992, Grace deducted approximately $163.2 million in interest attributable to
COLI policy loans. Although Grace continues to believe that the deductions were
legitimate, the IRS has successfully challenged interest deductions claimed by
other corporations with respect to broad-based COLI policies in three out of
four litigated cases. Given the level of IRS success in COLI cases, Grace
requested and was granted early referral to the IRS Office of Appeals for
consideration of possible settlement alternatives of the COLI interest deduction
issue.

On September 23, 2002, Grace filed a motion in its Chapter 11 bankruptcy
proceeding requesting that the Bankruptcy Court authorize Grace to enter into a
settlement agreement with the IRS with respect to Grace's COLI interest
deductions. The tax years at issue are 1989 through 1998. Under the terms of the
proposed settlement, the government would allow 20% of the aggregate amount of
the COLI interest deductions and Grace would owe federal income tax and interest
on the remaining 80%. Grace has accrued for the potential tax and interest
liability related to the disallowance of all COLI interest deductions and
continues to accrue interest as part of its quarterly income tax provision. On
October 22, 2002, the Bankruptcy Court issued an order authorizing Grace to
enter into settlement discussions with the IRS consistent with the
aforementioned terms and further ordered that any final agreement would be
subject to Bankruptcy Court approval. Grace is currently in negotiations with
the IRS concerning the proposed settlement, and the possible termination of the
COLI policies.

                                      I-30
<PAGE>



The IRS has assessed additional federal income tax withholding and Federal
Insurance Contributions Act taxes plus interest and related penalties for
calendar years 1993 through 1995 against a Grace subsidiary that formerly
operated a temporary staffing business for nurses and other health care
personnel. The assessments, aggregating $21.8 million, were made in connection
with a meal and incidental expense per diem plan for traveling health care
personnel, which was in effect through 1999. The IRS contends that certain per
diem reimbursements should have been treated as wages subject to employment
taxes and federal income tax withholding. Grace contends that its per diem and
expense allowance plans were in accordance with statutory and regulatory
requirements, as well as other published guidance from the IRS. Grace expects
that the IRS will make additional assessments for the 1996 through 1999 periods.
The matter is currently pending in the United States Court of Claims. Grace is
currently in discussions with the Department of Justice concerning possible
settlement options.

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

CASH RESOURCES AND AVAILABLE CREDIT FACILITIES

At March 31, 2003, Grace had $362.7 million in cash and cash-like assets on hand
($275.0 million in cash and cash equivalents and $87.7 million in cash value of
life insurance). In addition, Grace had access to committed credit facilities
aggregating $250 million under the DIP facility, of which $225.4 million (net of
letters of credit and holdback provisions) was available at March 31, 2003. The
term of the DIP facility, originally set to expire on April 1, 2002, has been
extended for up to an additional three years through April 2006. Grace believes
that these funds and credit facilities will be sufficient to finance its
business strategy while in Chapter 11.

CASH FLOW

Grace's net cash flow provided by core operations before investing in the first
quarter of 2003 was $27.6 million, compared with $23.8 million in the first
quarter of 2002. Total capital expenditures for the first quarter of 2003 and
2002 were $18.0 million and $13.2 million, respectively. A substantial portion
of these expenditures was directed towards the business segments for routine
capital replacements and construction of a new catalyst facility in Lake
Charles, Louisiana. Acquisition investments totaled $25 million in 2002, none in
2003.

For the three months ended March 31, 2003 and 2002, pre-tax operating earnings
before depreciation and amortization were $38.2 million and $56.7 million,
respectively. Grace expects to continue to invest excess cash flow and/or other
available capital resources in its core business base. These investments are
likely to be in the form of added plant capacity, product line extensions,
geographic market expansions and acquisitions. Investments that are outside the
ordinary course of business may be subject to Bankruptcy Court approval and
Chapter 11 creditor committee review.

The pre-tax cash outflow from noncore activities for the three months ended
March 31, 2003 and 2002 was $8.5 million and $8.6 million, respectively.
Expenditures for environmental remediation were lower in the first three months
of 2003 due in part to Grace's Chapter 11 proceedings and the completion of
remediation work at certain sites. Postretirement benefits were lower reflecting
higher cost sharing by retirees.

Cash flows used for investing activities for the three months ended March 31,
2003 and 2002 were $18.6 million and $44.0 million, respectively. Net cash
outflows for investing activities in the first three months of 2003 consisted
primarily of $18.0 million for capital expenditures, and net investment in life
insurance policies of $1.3 million. Net cash outflows for investing activities
in the first three months of 2002 consisted of $25.0 million for acquisitions,
$13.2 million for capital expenditures, and net investments in life insurance
policies of $6.4 million.

Net cash used for financing activities in the first three months of 2003 and
2002 were $3.2 million and $2.5 million, respectively. In 2003, cash outflows
were principally composed of $2.2 million for fees related to the renewal of the
DIP facility and $0.9 million in net repayments for loans secured by the cash
value of life insurance policies. In 2002, cash outflows principally consisted
of net repayments for loans secured by the cash value of life insurance
policies.

DEBT AND OTHER CONTRACTUAL OBLIGATIONS

Total debt outstanding at March 31, 2003 was $545.1 million, including $40.7
million of accrued interest on pre-petition debt. As a result of the Filing,
Grace is now in default on $501.0 million of pre-petition debt, which, together
with accrued interest thereon, has been included in "liabilities subject to
compromise" as of March 31, 2003. The automatic stay provided under the
Bankruptcy Code prevents Grace's lenders from taking any action to collect the
principal amounts as well as related accrued interest. However, Grace will
continue to accrue and report interest on such debt

                                      I-31
<PAGE>

during the Chapter 11 proceedings (unless further developments lead
management to conclude that it is probable that such interest will be
compromised).

Financial assurances have been established for a variety of purposes, including
insurance and environmental matters, asbestos settlements and appeals,
trade-related commitments and other matters. At March 31, 2003, Grace had gross
financial assurances outstanding of $236.3 million, comprised of $135.3 million
of gross surety bonds issued by various insurance companies and $101.0 million
of standby letters of credit issued by various banks. Of the standby letters of
credit, $19.2 million act as collateral for surety bonds, thereby reducing
Grace's overall obligations under its financial assurances to a net amount of
$217.1 million. Of this net amount, approximately $7.7 million were issued on
behalf of non-Debtor entities and $209.4 million were issued on behalf of the
Debtors. Of the amounts issued by the Debtors, approximately $193.2 million were
issued before the Filing Date, with the remaining $16.2 million being subsequent
to the Filing, of which $13.5 million was issued under the DIP facility.

FORWARD-LOOKING STATEMENTS

The forward-looking statements contained in this document are based on current
expectations regarding important risk factors. Actual results may differ
materially from those expressed. In addition to the uncertainties referred to in
Management's Discussion and Analysis of Results of Operations and Financial
Condition, other uncertainties include: the impact of worldwide economic
conditions; pricing of both Grace's products and raw materials; customer outages
and customer demand; factors resulting from fluctuations in interest rates and
foreign currencies; the impact of competitive products and pricing; the
continued success of Grace's process improvement initiatives; the impact of tax,
legislation and other regulations in the jurisdictions in which the Company
operates; and development in and the outcome of the Chapter 11 proceedings
discussed above. Also, see "Introduction and Overview - Projections and Other
Forward-Looking Information" in Item 1 of Grace's current Annual Report on Form
10-K.


                                      I-32
<PAGE>


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Grace had no outstanding derivative financial instruments on March 31, 2003. For
further information concerning Grace's quantitative and qualitative disclosures
about market risk, refer to Notes 13 and 15 in the Consolidated Financial
Statements in Grace's 2002 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

GENERAL STATEMENT OF RESPONSIBILITY

The management of Grace is responsible for the preparation, integrity and
objectivity of the Consolidated Financial Statements and the other information
included in this report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and accordingly include certain amounts that represent management's best
estimates and judgments. Actual amounts could differ from those estimates.
Management maintains internal control systems to assist it in fulfilling its
responsibility for financial reporting. These systems include business,
accounting and reporting policies and procedures, selection of personnel,
segregation of duties and an internal audit function. In 2002, a Disclosure
Committee was established to oversee Grace's public financial reporting process
and key managers are required to confirm their compliance with Grace's policies
and internal control systems. While no system can ensure elimination of all
errors and irregularities, Grace's systems, which are reviewed and modified in
response to changing conditions, have been designed to provide reasonable
assurance that assets are safeguarded, policies and procedures are followed,
transactions are properly executed and reported and appropriate disclosures are
made. The concept of reasonable assurance is based on the recognition that there
are limitations in all systems of internal control and that the costs of such
systems should not exceed their benefits.


EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, Grace carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Rule 13a-14 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation,
Grace's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in ensuring that
information required to be disclosed in the Company's periodic filings under the
Exchange Act is accumulated and communicated to such officers to allow timely
decisions regarding required disclosures. There have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect internal controls subsequent to the date the Company completed its
evaluation.

                                      I-33

<PAGE>




                           PART II. OTHER INFORMATION


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

Notes 1, 3 and 12 to the interim consolidated financial statements in Part I of
this Report are incorporated herein by reference.

ITEM 5.  OTHER INFORMATION
--------------------------------------------------------------------------------

The following information is being provided in accordance with Item 11 of Form
8-K:

On March 26, 2003, Fidelity Management Trust Company, the administrator of the
W. R. Grace & Co. Savings and Investment Plan (the "Plan"), a plan qualified
under section 401 of the Internal Revenue Code, temporarily suspended the
ability of participants in the New Grace Common Stock Fund to redeem (i.e., sell
or transfer to another fund) any interests in the Fund. The Fund invests in
W. R. Grace & Co. common stock. This temporary suspension was necessitated due
to heavy requests for redemptions and market conditions that did not provide
sufficient liquidity to execute each redemption request. The suspension enabled
the Fund to sell off the backlog of orders and to replenish the Fund's cash
component in accordance with its investment objectives and policies.

Fidelity notified Grace on March 26, 2003 that the period of the blackout began
at 12:00 p.m. on March 26, 2003, and was expected to end during the week
beginning April 13, 2003. Fidelity determined that it was not able to provide
advance written notice of the beginning of the blackout period without violating
its fiduciary duties under Section 404(a)(1) of the Employee Retirement Income
Security Act of 1974, as amended. The blackout ended on April 14, 2003.

Shareholders and other interested persons may contact Fidelity Participant
Services Center at 300 Puritan Way, Marlborough, MA 01752, or by calling toll
free at 1-800-835-5096, with any questions regarding the blackout.

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

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

              4    Amendment No. 1 and Limited Waiver to Post-Petition Loan and
                   Security Agreement

              15   Accountants' Awareness Letter

              99.1 Certification of Periodic Report by Chief Executive Officer
                   under Section 906 of the Sarbanes-Oxley Act of 2002

              99.2 Certification of Periodic Report by Chief Financial Officer
                   under Section 906 of the Sarbanes-Oxley Act of 2002

                                      II-1
<PAGE>


         (b)  Reports on Form 8-K. The following reports on Form 8-K were filed
              during the first quarter of 2003:

              March 17, 2003 -- Notification to participants in the W. R.
              Grace & Co. Savings and Investment Plan that participants would no
              longer be permitted to contribute to, or make transfers from,
              other funds into the Grace common stock funds.



                                      II-2
<PAGE>

                                    SIGNATURE

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


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

<TABLE>
<CAPTION>
<S>                                     <C>
Date:  May 13, 2003                      By /s/ Paul J. Norris
                                            ------------------
                                            Paul J. Norris
                                            Chairman, President and
                                            Chief Executive Officer

Date:  May 13, 2003                      By /s/ Robert M. Tarola
                                            --------------------
                                            Senior Vice President and
                                            Chief Financial Officer
                                            (Principal Accounting Officer)
</TABLE>



                                      II-3
<PAGE>

                 CERTIFICATIONS UNDER RULES 13a-14 AND 15d-14 OF
                       THE SECURITIES EXCHANGE ACT OF 1934


I, Paul J. Norris, certify that:

    1.  I have reviewed this quarterly report on Form 10-Q of W. R. Grace & Co.;

    2.  Based on my knowledge, this quarterly report does not contain any
        untrue statement of a material fact or omit to state a material fact
        necessary to make the statements made, in light of the circumstances
        under which such statements were made, not misleading with respect to
        the period covered by this quarterly report;

    3.  Based on my knowledge, the financial statements, and other financial
        information included in this quarterly report, fairly present in all
        material respects the financial condition, results of operations and
        cash flows of the registrant as of, and for, the periods presented in
        this quarterly report;

    4.  The registrant's other certifying officers and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
        we have:

             (a) designed such disclosure controls and procedures to ensure
                 that material information relating to the registrant,
                 including its consolidated subsidiaries, is made known to us
                 by others within those entities, particularly during the
                 period in which this quarterly report is being prepared;

             (b) evaluated the effectiveness of the registrant's disclosure
                 controls and procedures as of a date within 90 days prior to
                 the filing date of this quarterly report (the "Evaluation
                 Date"); and

             (c) presented in this quarterly report our conclusions about the
                 effectiveness of the disclosure controls and procedures based
                 on our evaluation as of the Evaluation Date;

    5.  The registrant's other certifying officers and I have disclosed, based
        on our most recent evaluation, to the registrant's auditors and the
        audit committee of registrant's board of directors (or persons
        performing the equivalent function):

             (a) all significant deficiencies in the design or operation of
                 internal controls which could adversely affect the
                 registrant's ability to record, process, summarize and report
                 financial data and have identified for the registrant's
                 auditors any material weaknesses in internal controls; and

             (b) any fraud, whether or not material, that involves management
                 or other employees who have a significant role in the
                 registrant's internal controls; and

    6.  The registrant's other certifying officers and I have indicated in this
        quarterly report whether or not there were significant changes in
        internal controls or in other factors that could significantly affect
        internal controls subsequent to the date of our most recent evaluation,
        including any corrective actions with regard to significant deficiencies
        and material weaknesses.

        Date:  May 13, 2003
                                                       /s/ Paul J. Norris
                                                       ------------------
                                                       Paul J. Norris
                                                       Chairman, President and
                                                       Chief Executive Officer


                                      II-4
<PAGE>

                 CERTIFICATIONS UNDER RULES 13a-14 AND 15d-14 OF
                       THE SECURITIES EXCHANGE ACT OF 1934

I, Robert M. Tarola, certify that:

    1.  I have reviewed this quarterly report on Form 10-Q of W. R. Grace & Co.;

    2.  Based on my knowledge, this quarterly report does not contain any untrue
        statement of a material fact or omit to state a material fact necessary
        to make the statements made, in light of the circumstances under which
        such statements were made, not misleading with respect to the period
        covered by this quarterly report;

    3.  Based on my knowledge, the financial statements, and other financial
        information included in this quarterly report, fairly present in all
        material respects the financial condition, results of operations and
        cash flows of the registrant as of, and for, the periods presented in
        this quarterly report;

    4.  The registrant's other certifying officers and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
        we have:

              (a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this quarterly report is being prepared;

              (b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

              (c) presented in this quarterly report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

    5.  The registrant's other certifying officers and I have disclosed, based
        on our most recent evaluation, to the registrant's auditors and the
        audit committee of registrant's board of directors (or persons
        performing the equivalent function):

              (a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

              (b) any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

    6.  The registrant's other certifying officers and I have indicated in this
        quarterly report whether or not there were significant changes in
        internal controls or in other factors that could significantly affect
        internal controls subsequent to the date of our most recent evaluation,
        including any corrective actions with regard to significant deficiencies
        and material weaknesses.


        Date:  May 13, 2003
                                                    /s/ Robert M. Tarola
                                                    --------------------
                                                    Robert M. Tarola
                                                    Senior Vice President and
                                                    Chief Financial Officer


                                      II-5
<PAGE>


                                  EXHIBIT INDEX




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


   4            Amendment No. 1 and Limited Waiver to Post-Petition Loan and
                Security Agreement

  15            Accountants' Awareness Letter


  99.1          Certification of Periodic Report by Chief Executive Officer
                under Section 906 of the Sarbanes-Oxley Act of 2002


  99.2          Certification of Periodic Report by Chief Financial Officer
                under Section 906 of the Sarbanes-Oxley Act of 2002


                                      II-6