Sales for the fourth quarter were $768.4 million compared with $803.7 million in the prior year quarter, a 4.4% decrease (0.8% decrease before the effects of currency translation). The sales decrease was attributable primarily to lower volumes and unfavorable currency translation, partially offset by higher selling prices in both operating segments. Price increases yielded about $55 million in the fourth quarter, increasing sales by 6.8% over the prior year quarter. Sales were down 1.4% in North America and 15.0% in Europe Africa, and up 6.3% in Asia Pacific and 23.2% in Latin America.

Net income for the fourth quarter was $43.4 million, or $0.60 per diluted share, compared with net income of $37.2 million, or $0.52 per diluted share, in the prior year quarter. The fourth quarter 2008 and 2007 results were negatively affected by Chapter 11 expenses, litigation and other matters not related to core operations. Excluding Chapter 11 expenses, the loss on noncore activities, and their tax effects, net income would have been $25.0 million for the fourth quarter of 2008 compared with $27.4 million calculated on the same basis for the prior year quarter, an 8.8% decrease.

Pre-tax income from core operations was $47.4 million in the fourth quarter compared with $54.9 million in the prior year quarter, a 13.7% decrease. Inflation on raw materials (excluding molybdenum and other metals) and energy costs totaled about $53 million in the fourth quarter, increasing costs about 19% when compared with the prior year quarter.

Excluding Chapter 11 expenses, the loss on noncore activities, and their tax effects, net income would have been $169.5 million for the year ended December 31, 2008 compared with $151.3 million calculated on the same basis for the prior year, a 12.0% increase. Pre-tax income from core operations was $299.7 million for the year ended December 31, 2008, up 0.8% from the prior year. Price increases totaled about $150 million in the year ended December 31, 2008, increasing sales about 4.8% when compared with the prior year. Inflation on raw materials (excluding metals) and energy costs totaled about $160 million in the year ended December 31, 2008, increasing costs about 15% when compared with the prior year.

“We are proud of the way we executed in a difficult operating environment this quarter,” said Fred Festa, Grace’s chairman, president and chief executive officer. “We tightened our operations, reduced working capital, and added $135 million of cash to our balance sheet. We’ve become leaner, more agile, and better positioned for changing market conditions – without sacrificing our ability to deliver the value our customers expect from us.”

In response to lower customer demand during the fourth quarter, production at over 50 Grace Plants worldwide was stopped or slowed and raw materials purchases were significantly reduced. As a result of these actions and ongoing cash productivity initiatives, net working capital decreased by $132 million during the quarter.

The company is cautious in its outlook for customer demand in 2009, and will continue its focus on reducing working capital and maximizing cash productivity. In addition, cost reduction actions expected to be completed in the first half of 2009 are targeted to save $22 to $30 million in operating costs. Together with cost reduction actions completed in 2008, these actions are expected to produce over $40 million of annualized cost savings by 2010. Grace expects a pre-tax charge of about $17 million related to identify 2009 actions.

CORE OPERATIONS:

Grace Davison:

Fourth quarter sales for the Grace Davison operating segment, which includes specialty catalysts and materials used in a wide range of industrial applications, were $507.0 million, down 3.6% from the prior year quarter. Sales of this operating segment are reported by product group as follows:

Refining Technologies: sales of catalysts and chemical additives used by petroleum refineries were $271.1 million in the fourth quarter, up 1.9% from the prior year quarter. Fourth quarter sales in the product group were primarily affected by the favorable impact of price increases in FCC and hydroprocessing catalysts. However, sales volumes of hydroprocessing catalysts in the fourth quarter of 2008 were down compared to the prior year quarter due to uneven order patterns.

Materials Technologies: sales of engineered materials, coatings and sealants used in numerous industrial, consumer and packaging applications were $146.5 million in the fourth quarter, down 10.8% from the prior year quarter. Fourth quarter sales in the product group were unfavorably affected by lower customer demand, partially offset by improved pricing. Sales were also unfavorably affected by foreign currency translation.

Specialty Technologies: sales of highly specialized catalysts and materials used in unique or proprietary applications and markets were $89.4 million in the fourth quarter, down 6.5% from the prior year quarter. Improved pricing in the product group was more than offset by lower demand and by unfavorable foreign currency translation.

Pre-tax operating income of Grace Davison for the fourth quarter was $45.9 million compared with $52.2 million in the prior year quarter, a 12.1% decrease. Pricing actions initiated in the third quarter across all product groups yielded significant benefits in the fourth quarter. However, pre-tax operating income for the fourth quarter was negatively affected by continued high raw material costs and lower customer demand. Operating margin was 9.1% compared with 9.9% in the prior year quarter.

Molybdenum is a key raw material in Grace Davison’s ART hydroprocessing catalysts. Generally, the cost of molybdenum is passed through to customers. However, during the fourth quarter, molybdenum prices decreased so rapidly and significantly that the actual amounts paid by Grace for molybdenum were not fully passed through, primarily due to the timing of molybdenum purchases and finished product sales. Margins in the fourth quarter were unfavorably affected. The unfavorable effect is expected to continue in the first quarter of 2009.

Sales of the Grace Davison operating segment for the year ended December 31, 2008 were $2,168.6 million, up 7.9% over the prior year. Full year pre-tax operating income was $255.7 million, a 1.8% increase over the prior year, with operating margins at 11.8%, compared with 12.5% for the prior year. Full year operating margins were adversely affected by raw material cost inflation.

Grace Construction Products:

Fourth quarter sales for the Grace Construction Products operating segment, which includes specialty chemicals and building materials used in commercial, infrastructure and residential construction, were $261.4 million, down 5.9% from the prior year quarter. Sales in the fourth quarter were unfavorably affected by the market slowdowns in North America and Western Europe and by foreign currency translation, partly offset by higher selling prices in all major geographic regions and product lines. Sales of this operating segment are reported by geographic region as follows:

Americas: sales of products to customers in North, Central and South America were $134.7 million in the fourth quarter, down 6.9% from the prior year quarter. Lower sales of construction chemicals and building materials were partly offset by the favorable mpact of pricing actions across all product lines in the region. Fourth quarter sales were down 8.4% in North America and were up 6.4% in Latin America, when compared with the prior year quarter.