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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-137533
GCP Applied Technologies Inc.
Delaware
(State of Incorporation)
47-3936076
(I.R.S. Employer Identification No.)
62 Whittemore Avenue, Cambridge, Massachusetts 02140-1623
(617) 876-1400
(Address and phone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value
Name of each exchange on which registered
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§229.405 of this chapter) is not
contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and
"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting
company
Emerging growth
company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of GCP Applied Technologies' voting and non-voting common equity held by non-affiliates as of June 29,
2018 (the last business day of the registrant's most recently completed second fiscal quarter) based on the closing sale price of $28.95 as
reported on the New York Stock Exchange was $1,645,429,963.
At February 20, 2019, there were 72,330,420 shares of GCP Applied Technologies Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our 2019 Annual Meeting of Stockholders are incorporated by reference in Part III of this
Form 10-K.
Table of Contents
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Registrant
PART II
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
SIGNATURES
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Presentation of Information
Unless the context requires otherwise, references to "GCP Applied Technologies Inc.", "GCP", "we", "us",
"our" and "the Company" refer to GCP Applied Technologies Inc., and its consolidated subsidiaries for periods
subsequent to its separation from W.R. Grace & Co. on February 3, 2016. For periods prior to February 3, 2016,
these terms refer to the combined historical business and operations of W.R. Grace & Co.’s construction products
and packaging technologies businesses as they were historically managed as part of W.R. Grace & Co. Unless
the context requires otherwise, references to "Grace" refer to W.R. Grace & Co., and its consolidated subsidiaries,
which is the Company’s former parent company. References in this Annual Report on Form 10-K to the
"Separation" refer to the legal separation and transfer of Grace’s construction products and packaging
technologies businesses to the Company through a dividend distribution of all of the then-outstanding common
stock of GCP to Grace shareholders on February 3, 2016. Our references to "advanced economies" and
"emerging regions" refer to classifications established by the International Monetary Fund.
Forward-Looking Statements
This document contains, and our other public communications may contain, forward-looking statements, that
is, information related to future, not historical events. Such statements generally include the words "believes,"
"plans," "intends," "targets," "will," "expects," "suggests," "anticipates," "outlook," "continues" or similar
expressions. Forward-looking statements include, without limitation, expected financial positions; results of
operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures;
competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction
initiatives, plans and objectives; and markets for securities. Like other businesses, we are subject to risks and
uncertainties that could cause our actual results to differ materially from our projections or that could cause other
forward-looking statements to prove incorrect. Factors that could cause actual results to materially differ from
those contained in the forward-looking statements, or that could cause other forward-looking statements to prove
incorrect, include, without limitation, risks related to: the cyclical and seasonal nature of the industries that GCP
serves; foreign operations, especially in emerging regions; changes in currency exchange rates; the cost and
availability of raw materials and energy; the effectiveness of GCP’s research and development, new product
introductions and growth investments; acquisitions and divestitures of assets and gains and losses from
dispositions; developments affecting GCP’s outstanding liquidity and indebtedness, including debt covenants and
interest rate exposure; developments affecting GCP’s funded and unfunded pension obligations; warranty and
product liability claims; legal proceedings; the inability to establish or maintain certain business relationships and
relationships with customers and suppliers or the inability to retain key personnel; the handling of hazardous
materials and the costs of compliance with environmental regulation. These and other factors are identified and
described in more detail in Item 1A of this Annual Report on Form 10-K, and GCP's Quarterly Reports on Form
10-Q and Current Reports on Form 8-K, which have been filed with the Securities and Exchange Commission
("SEC") and are available online at www.sec.gov. Our reported results should not be considered as an indication
of our future performance. Readers are cautioned not to place undue reliance on GCP's projections and forward-
looking statements, which speak only as of the date thereof. GCP undertakes no obligation to publicly release any
revision to the projections and forward-looking statements contained in this document, or to update them to reflect
events or circumstances occurring after the date of this document.
Trademarks and Trade Names
We own or have rights to trademarks, service marks, copyrights and trade names that we use in conjunction
with the operation of our business, including, except as otherwise indicated, the trademarks, service marks or
trade names used in this report. A mark designated with a circled “R” (e.g., ADVA®) means that the mark has been
registered in the USA or other countries where we sell products. This report may also include trademarks, service
marks and trade names of other companies. Each trademark, service mark or trade name of any other company
appearing in this Annual Report on Form 10-K belongs to its holder. Unless otherwise indicated, use or display by
us of other parties’ trademarks, service marks or trade names is not intended to and does not imply a relationship
with the trade name owner, or endorsement or sponsorship by us of the trademark, service mark or trade name
owner.
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PART I.
ITEM 1. BUSINESS
BUSINESS OVERVIEW
GCP Applied Technologies Inc. is a global provider of construction products technologies that include
admixtures and additives for concrete and cement, the VERIFI® in-transit concrete management system, high-
performance waterproofing products and specialty systems. The Company is a leader in its two global operating
segments. Specialty Construction Chemicals ("SCC") operating segment produces concrete admixtures, which
enhance the properties of concrete and other cementitious construction materials, and cement additives, which
improve the performance of Portland cement, the most widely used construction material in the world. Specialty
Building Materials ("SBM") operating segment produces building envelope, residential and specialty construction
products that protect structures from water, vapor transmission, air penetration and fire damage.
GCP Applied Technologies Inc. was incorporated on May 1, 2015 for the purpose of holding the construction
products and packaging technologies businesses of W. R. Grace & Co. On February 3, 2016, Grace shareholders
received one common share of GCP for every one common share of Grace held and the construction products
and packaging technologies businesses of Grace were transferred to GCP, thereby completing our legal
separation from Grace ("the Separation"). On February 4, 2016, we began "regular way" trading on the New York
Stock Exchange under the ticker symbol "GCP." On July 3, 2017, we completed the sale of our Darex Packaging
Technologies ("Darex") business to Henkel AG & Co. KGaA (“Henkel”) for $1.06 billion in cash.
During the year ended December 31, 2018, we generated net sales of $1,125.4 million, income from
continuing operations before income taxes of $10.5 million and net income of $15.5 million. Approximately 52% of
our 2018 sales were generated outside of the United States. We operate in more than 30 countries.
Business Strategy
GCP's objective is to deliver value to our shareholders by growing our sales, earnings, cash flows and return
on invested capital through the implementation of our business strategies. Our SCC and SBM segments produce
and market a portfolio of high-performance products for leading global concrete and cement producers, architects,
engineers, developers and contractors. Our products must satisfy our customers’ well-defined performance
requirements and specifications to provide high value, although they typically represent a low percentage of the
total cost of our customers’ end-products or projects.
We implement the following growth strategies to accelerate progress toward achieving our objectives:
• Leverage Global Presence and Data Analytics to Generate Sales Growth — We utilize our worldwide
manufacturing operations, technical service and support footprint, research and development capabilities,
and our sales and marketing organization to increase our geographic and customer penetration
worldwide. We make targeted investments to expand our capabilities in geographies and segments where
trends and economic cycles present the best opportunities.
• Strengthen and Enhance Our Segment Positions with Product Innovation — We seek to strengthen
our position as an industry innovator by investing in research and development activities focused on
commercializing differentiated products and services as well as creating new product categories. We
introduce and support new technologies and categories at our centralized research and development
center in Cambridge, Massachusetts and at our regional global applications labs. Examples of our
category creation and technology development successes include our multi-patented VERIFI®, intelligent
concrete monitoring system, which provides in-transit data monitoring relative to concrete quality and
truck delivery status, our PREPRUFE® fully-bonded pre-applied waterproofing technology, and our ICE &
WATER SHIELD® self-adhesive underlayment for sloped roofs.
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• Maintain Strong Customer Focus — A key aspect of our strategy is to deliver product and technology
solutions to our customers that help improve the performance of their products or the structures they
build, as well as the productivity of their manufacturing operations or product application processes. We
believe that maintaining a close partnership with our customers, which includes providing on-site
technical support, allows us to effectively focus our innovation efforts and respond to their changing
demands at a global, regional and local level. Our goal is to demonstrate the layers of value we provide,
which include outstanding product performance and technical service, as well as savings through reduced
application cost and improved life-cycle performance.
• Grow through Strategic Acquisitions — Consistent with our business strategies, we seek strategic,
bolt-on acquisitions and alliances to accelerate our customer and geographic penetration, extend our
product portfolio, advance our technological capabilities, and bolster our manufacturing capacity and
capability. During 2018, we acquired RIW Limited (the "RIW"), a U.K.-based supplier of waterproofing
solutions for commercial and residential construction applications. We have now completed six
acquisitions since our separation from Grace, adding unique capabilities with each transaction.
•
Increase Productivity by Optimizing Global Operations and Supply Chain — Our productivity
strategies focus on our global operations, including our logistics and supply chains. We have developed
procurement and product formulation expertise to manage our product costs and production efficiencies.
Product formulations are optimized at our regional development labs. These formulations are designed to
meet specific customer needs while also considering the costs of different raw material inputs. Our global
supply chain organization balances local raw material supply with global contracts that maximize our
buying power while ensuring our supply requirements. Our global manufacturing network also maximizes
production and delivery efficiencies.
• Drive Cash Flow Conversion and Adjusted EBIT Return on Invested Capital to Deliver Long-Term
Value to Our Shareholders — We believe our strategies will allow us to accelerate our cash flow
conversion to invest in product development, research and development activities, strategic acquisitions,
technical service and sales organizations, manufacturing operations, and to return excess capital to
shareholders over time.
PRODUCTS AND SEGMENTS
Specialty Construction Chemicals Operating Segment
We supply concrete admixtures, polymer fibers and in-transit monitoring systems to concrete producers.
These products are used to improve the rheology, workability, quality, durability and other engineering properties
of concrete, mortar, masonry and other cementitious construction materials. We also supply additives to cement
manufacturers that are used to improve energy efficiency and reduce carbon dioxide in cement processing,
enhance the characteristics of finished cement and improve ease of use.
We compete with several large international suppliers and regionally with smaller competitors. Competition for
our products is based on product performance, technical support, the breadth of our manufacturing and
distribution infrastructure and our ability to bring value to our customers in the construction industry. Our major
global competitors are BASF and Sika.
The following table sets forth SCC sales as a percentage of GCP total revenue during the years ended
December 31, 2018, 2017 and 2016:
(In millions)
Concrete
Cement
Total SCC Revenue
Year Ended December 31,
2018
2017
2016
Sales
478.9
164.6
643.5
$
$
% of GCP
Revenue
42.6% $
14.6%
57.2% $
Sales
455.6
160.1
615.7
% of GCP
Revenue
42.0% $
14.8%
56.8% $
Sales
469.1
154.7
623.8
% of GCP
Revenue
44.7%
14.8%
59.5%
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The following table sets forth SCC sales by geographic region as a percentage of SCC total revenue during
the years ended December 31, 2018, 2017 and 2016:
Year Ended December 31,
2018
2017
2016
(In millions)
North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total SCC Revenue
Sales
% of SCC
Revenue
Sales
% of SCC
Revenue
Sales
% of SCC
Revenue
$
$
286.7
131.4
165.9
59.5
643.5
44.6% $
20.4%
25.8%
9.2%
100.0% $
256.4
133.3
160.9
65.1
615.7
41.6% $
21.7%
26.1%
10.6%
100.0% $
243.0
136.2
179.0
65.6
623.8
39.0%
21.8%
28.7%
10.5%
100.0%
SCC consists of two product groups which include concrete and cement.
Concrete
The concrete product group includes concrete and decorative admixtures, as well as concrete production
management and engineered systems.
Concrete admixtures allow concrete producers to use a limited selection of locally-sourced raw materials,
such as cement and aggregates, to produce concrete and meet a wide variety of performance specifications. Our
products are based on a set of core platform technologies formulated regionally into admixtures tailored to local
end-use requirements.
Examples of our products include CONCERA® admixtures which enable the production of control flow
concrete, a high-flowing, segregation-resistant concrete that allows for easier placement while using conventional
mix designs. Our CLARENA® admixture product is a chemical additive that mitigates the effects of clay, which
helps quarry owners extend the functional lifespan of their property, and, for ready mix producers, adds
controllability to concrete containing aggregates with a high clay content. MIRA® admixtures allow concrete to be
produced with a lower amount of water, which improves the compressive strength and the long-term durability of
the concrete. ADVA® admixtures are used to make flowable "self-compacting concrete" which is popular in
precast concrete manufacturing where the rapid filling of large molds is a major driver of economics. ECLIPSE®
admixtures are used to minimize the formation of shrinkage cracks in critical applications, such as bridge decks.
STRUX® polymeric fibers are designed to improve the ductility of concrete which is a naturally brittle material. In
some cases, STRUX® polymeric fibers may be used to replace steel reinforcement near the surface of concrete
that will be exposed to corrosive de-icing salts.
Admixtures for decorative concrete are used to enhance the surface appearance and aesthetics of concrete.
PIERI® surface retarders are used to obtain exposed aggregate finishes in precast and cast-in-place concrete,
achieving the desired surface appearance. PIERI® release agents allow for the efficient removal of mold forms
with a resulting higher-quality concrete surface.
Concrete production management systems provide sophisticated process monitoring and control while
concrete is in transit to the point of placement. Engineered systems combine proprietary products into high-
performance offerings that further reduce installation costs. Our patented concrete production management
system, sold under the VERIFI® brand name, measures, monitors and manages critical concrete properties and
systematically adds water or admixtures to maintain optimum concrete flow properties. Use of VERIFI® also
results in increased product quality, lower material costs, fewer rejected loads, increased logistics and jobsite
efficiencies, and minimization of costly project delays.
Our patented engineered floor system, which is marketed and sold under the DUCTILCRETE® brand name,
enables the placement and long-term performance of smooth and level floors which is a necessity in modern
industrial and commercial buildings. The flooring system provides customers with more sustainable, cost-
effective, and low-maintenance surfaces with higher load-bearing capacity than traditional construction. The
DUCTILCRETE® system is installed by our network of licensed contractors. The system offers labor and time
savings while providing customers with higher quality flat floors.
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Cement
Portland cement is the binding agent for concrete. National standards usually dictate the compressive
strength and other properties that must be met by cement. Cement additives are used to reduce the energy
required to mill cement to the desired fineness and improve the handling characteristics of the powdered material.
These products are also used to adjust the performance of Portland cement, permitting our customers to optimize
production economics.
Examples of our products include OPTEVA® HE quality improvers, which are cement additives that provide
options for gaining higher early (HE) strength and are particularly effective for challenging cements. TAVERO® VM
grinding aid additives help stabilize vertical roller mills during production by reducing water injection requirements
and cement pre-hydration, while at the same time improving cement performance by delivering higher strengths
and shorter setting time. HEA2® Cement Additives are used around the world to improve the energy efficiency of
cement grinding operations. CBA® Cement Additives are used to produce higher cement strength, which provides
a high level of process flexibility to the cement manufacturer. Increasingly, cement manufacturers seek to reduce
the environmental impact of their manufacturing processes. Our additives provide greater flexibility in raw
materials, enabling customers to achieve improvements such as reductions in energy use and CO2 emissions.
The SCC product portfolio includes the following products:
Products
Concrete
admixtures
Admixtures for
decorative
concrete
Concrete
production
management
and engineered
systems
Cement
additives
Uses
Customers
Key Brands
Chemicals and polymeric fibers used to
reduce the production and in-place
costs of concrete, increase the
performance of concrete and improve
the life cycle cost of structures
Products for architectural concrete
include surface retarders, coatings,
pigments and release agents used by
concrete producers and contractors to
enhance the surface appearance and
aesthetics of concrete
Proprietary sensors, algorithms and
control systems which monitor and
adjust the flow properties while in transit
to construction sites, providing concrete
producers quality control and
operational efficiencies
Formulated chemicals added to the
milling stage of the cement
manufacturing process to improve plant
energy efficiency, enhance the
performance of the finished cement and
help our customers meet environmental
regulations and reduce their CO2
footprints
Ready-mix and precast
concrete producers, engineers
and specifiers
CONCERA®, CLARENA®, ADVA®,
STRUX®, MIRA®, TYTRO®, POLARSET®,
ECLIPSE®, DARACEM®, DARASET®,
DCI®, RECOVER®, WRDA®, ZYLA®
Precast concrete producers
and architects
PIERI®
Ready-mix concrete
manufacturers, engineers,
specifiers and contractors
VERIFI®, DUCTILCRETE®
Cement manufacturers
OPTEVA® HE, TAVERO® VM, CBA®,
SYNCHRO®, HEA2®, TDA®, ESE®
Specialty Building Materials Operating Segment
We manufacture and sell building and flooring materials used in both new construction and renovation/repair
projects for the commercial, residential and infrastructure markets. Our products protect structures from water,
vapor transmission, air penetration and fire damage, while reducing energy usage and improving the long-term
durability of structures. They include waterproofing membranes, roofing underlayments, polymeric grouts for use
in waterproofing and soil stabilization applications, air and vapor barriers, cementitious grouts, passive fire
protection, a flooring barrier system and flooring installation products.
Our products are specified and installed on commercial, residential and infrastructure projects around the
world. Our technology platforms, project selling competencies and international reach are the foundation of our
industry leadership. We are dedicated to understanding local codes and construction practices so that our
technology solutions address the regional needs of our customers. Our global specification sales organization
emphasizes its technical expertise and has established relationships with key influencers and decision makers
across the entire project selling value chain, including architects, engineers, general contractors, specialty
contractors and other channel partners. We continue to expand our international presence in targeted regions
with our core product lines and by adding new technologies.
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Our specialty building materials product sales are global. We engage with global architectural and contracting
firms, as well as local specifiers, engineers, contractors and building material distributors that influence the buying
decisions for our products. We compete globally with several large international construction materials suppliers,
as well as regionally and locally with numerous smaller competitors. Competition for our products is based on
product performance, technical support and service, brand name recognition and price. Our major competitors are
Sika, RPM and Carlisle.
The following table sets forth SBM sales as a percentage of GCP total revenue during the years ended
December 31, 2018, 2017 and 2016:
(In millions)
Building Envelope
Residential Building Products
Specialty Construction Products
Total SBM Revenue
Year Ended December 31,
2018
2017
2016
Sales
% of GCP
Revenue
Sales
% of GCP
Revenue
Sales
% of GCP
Revenue
$
$
284.4
80.9
116.6
481.9
25.3% $
7.2%
10.3%
42.8% $
263.3
80.3
125.1
468.7
24.3% $
7.4%
11.5%
43.2% $
236.3
89.2
97.2
422.7
22.7%
8.5%
9.3%
40.5%
The following table sets forth SBM sales by geographic region as a percentage of SBM total revenue during
the years ended December 31, 2018, 2017 and 2016:
Year Ended December 31,
2018
2017
2016
(In millions)
North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total SBM Revenue
Sales
% of SBM
Revenue
Sales
% of SBM
Revenue
Sales
% of SBM
Revenue
$
$
284.3
109.3
79.7
8.6
481.9
59.0% $
22.7%
16.5%
1.8%
100.0% $
283.8
111.3
68.3
5.3
468.7
60.6% $
23.7%
14.6%
1.1%
100.0% $
265.9
89.5
62.2
5.1
422.7
62.9%
21.2%
14.7%
1.2%
100.0%
SBM consists of three product groups which include building envelope, residential building products and
specialty construction products.
Building Envelope Products
Building envelope products protect structures from water and help manage air and vapor transmission through
building walls. The majority of sales in this product group are waterproofing products that protect commercial
structures, residential structures and infrastructure. Our waterproofing products are used in both above-grade and
below-grade applications. Above grade, our products protect the material to which they are applied and minimize
water infiltration into occupied spaces. Below grade, our products enable the construction of structures in
challenging sites, such as locations with a high existing water table. Examples of these products include our
BITUTHENE® self-adhesive rubberized asphalt membrane, our innovative PREPRUFE® pre-applied sheet
membrane, and our ELIMINATOR® liquid applied waterproofing system.
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Our BITUTHENE® product line is manufactured globally and has a long track record of providing waterproofing
in the most challenging conditions. Designers and contractors have relied on BITUTHENE® products for over 40
years and continue to specify our products by using the BITUTHENE® brand name. We also pioneered the pre-
applied waterproofing category with our Advanced Bond Technology™ brand in association with PREPRUFE®
products. Our unique technology allows a waterproofing membrane to be installed on the ground or on walls
before concrete is placed for a foundation. This technology also allows waterproofing of walls normally
inaccessible during the construction of a building, such as foundations in densely populated cities. Major projects
around the world have successfully installed our PREPRUFE® waterproofing systems which continue to gain
recognition for waterproofing performance. Our ELIMINATOR® liquid applied waterproofing systems are used to
protect and extend the life of bridges. Major bridge projects in North America, Europe and Asia have used our
ELIMINATOR® systems over the last 20 years.
Residential Building Products
Residential building products consist of roofing underlayments, flashings and weather barriers. Roofing
underlayments are placed below the outermost roof covering, such as shingles, to protect sloped roofs from water
damage caused by wind-driven rain and ice dams. Our ICE & WATER SHIELD® roofing underlayments are known
throughout the industry and are sold in North America through a network of distributors. The VYCOR® flashing
portfolio consists of high performance self-adhered flashing products that provide premium protection against
water infiltration in critical areas such as windows and doors. Our VYCOR® flashing products reduce the risk of
mold and rot development, and contribute to energy efficiency by sealing air leakages in the building envelope.
Specialty Construction Products
Specialty construction products include fire protection, chemical grouts, cementitious grouts and mortars, as
well as specialty flooring products. Passive fire protection products are marketed under the MONOKOTE® brand.
Chemical grouts are sold under the DE NEEF® brand and used for repairing cracks in concrete, sealing water
leaks in commercial buildings and infrastructure and stabilizing soil. BETEC® cementitious grouts and mortars are
used in applications where specific strength and/or flow are required. Examples of these applications include
assembly of concrete precast elements for wind turbines, filling under rails for railroads and providing a high-
strength surface for heavy machinery in industrial settings. Our KOVARA® flooring membrane is a branded
moisture mitigation membrane that is installed between a concrete subfloor and surface flooring to protect the
finished flooring from moisture and alkalinity related damage. Other flooring installation products include seam
tapes, underlayments and tools and accessories used for the installation of carpet, ceramic, laminate, stone and
other surface flooring.
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The SBM product portfolio includes the following products:
Products
Building
envelope
products
Residential
building
products
Uses
Customers
Structural barrier systems to prevent
above and below ground water, vapor
and air infiltration of the building
envelope of commercial structures,
including self-adhered sheet and liquid
membranes, joint sealing materials,
drainage composites and waterstops.
Architects, consultants and
structural engineers; specialty
waterproofing, masons, dry wall
contractors and general
contractors; specialty
distributors
Specialty roofing membranes and
flexible flashings for windows, doors,
decks and detail areas, including fully
adhered roofing underlayments,
synthetic underlayments and self-
adhered flashing
Roofing contractors, home
builders and remodelers;
building material distributors,
lumberyards and home centers;
architects and specifiers
Key Brands
BITUTHENE®, PREPRUFE®, ADPRUFE®,
HYDRODUCT®, ADCOR®, SILCOR®,
PERM-A-BARRIER®, ELIMINATOR®,
INTEGRITANK®
ICE & WATER SHIELD®, TRI-FLEX®,
VYCOR®
Fire protection
materials
Fire protection products spray-applied to
the structural steel frame, encasing and
insulating the steel and protecting the
building in the event of fire and
enhancing the heat resistance during a
fire
Local contractors and specialty
subcontractors and applicators;
building materials distributors;
industrial manufacturers;
architects and structural
engineers
MONOKOTE®
Chemical grouts Products for repair and remediation in
waterproofing applications and soil
stabilization
Cementitious
grouts and
mortars
Cementitious grouts and mortars used
for under filling and gap filling
Specialty
flooring
products
Flooring moisture barriers and
installation products
SALES AND MARKETING
Contractors; specialty
distributors; municipalities; and
other owners of large
infrastructure facilities
Specialty contractors engaged
in the repair of concrete,
installation of new precast
concrete elements and
infrastructure repair
Distributors; contractors; home
centers; flooring manufacturers;
and large commercial end
users
DE NEEF®, HYDRO ACTIVE®,
SWELLSEAL®, DE NEEF® PURe™
BETEC®
KOVARA®, ORCON®
Our two operating segments maintain global direct sales and technical service teams made up of
approximately 660 employees supporting customers in over 130 countries worldwide. Our global team sells
products under annual and multi-year global, regional and local agreements and has developed deep segment
and product application knowledge. We believe that our in depth understanding of our customers' needs,
challenges and operations, as well as our ability to service at a high standard throughout the world, give both of
our segments a competitive advantage. The majority of our products require local, regional, country and
international code approvals related to their use, storage and performance. Our commercial organization supports
and consults on committees and technical associations in order to ensure codes and product standards are
consistently applied.
Our sales professionals work with leading architects, engineers and contractors across the globe seeking to
have our products specified for use in thousands of projects on an annual basis. Our products have been used to
build some of the world's most renowned structures. As part of our "go to market" strategy, the SCC team
provides technical services to nearly 9,000 concrete and cement production facilities worldwide. In many cases,
we also provide product dispensing equipment to our customers as an integral part of the concrete and cement
production process.
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MANUFACTURING, RAW MATERIALS AND SUPPLY CHAIN
Our operating segments share global supply chain processes, manufacturing facilities, as well as technical
service and sales centers around the world, which provides cost efficiency.
We utilize internal and third-party manufacturing to produce our products to our specifications. Our low capital
intensive plants along with third-party manufacturers provide us with flexibility in servicing our customers. Several
of our plants ship products internationally, but most of our facilities are positioned to serve local market demand.
We have the ability to respond quickly to changes in local demand by establishing or expanding manufacturing
capacity with low capital investment. We have numerous multi-year supply and purchasing agreements with both
our vendors and customers which helps us minimize volume disruptions. Construction demand is seasonal,
resulting in demand variations requiring effective management of our manufacturing and distribution assets. For
many of our SCC customers, we install and maintain a chemical dispensing and storage system for our products
at their production facilities. We periodically replenish the on-site systems to give our customers instant access to
our SCC products in the amounts they require twenty-four hours a day. We also install equipment on ready-mix
trucks to monitor and manage concrete in transit to jobsites. This customer-based equipment accounted for
approximately 34% of our 2018 annual capital spend.
The raw materials we use in our products are obtained from a variety of suppliers, including basic chemical
and petrochemical producers. Many of our raw materials are organic chemicals derived from olefins, including
specialty films and fibers. We also make significant purchases of inorganic materials, such as lignin and specialty
materials, including plasticizers, films, ethylene derivatives, and rubber. We have multiple raw material sources
and balance our purchasing requirements between local and global sources seeking to maximize performance
and profitability. Global supply and demand factors, changes in currency exchange rates and petroleum prices
can significantly impact the price of our key raw materials.
Our global supply chain team monitors the global market to identify cost and productivity opportunities. We
seek to leverage our overall purchasing volumes for all regions. Since we manufacture a portion of our products in
emerging regions using raw materials from suppliers in the U.S., Europe and other advanced economies,
changes in the values of the currencies of these emerging regions versus the U.S. dollar and the euro may
adversely affect our raw material costs. This effect is partially mitigated by our reliance on local sourcing for some
raw materials.
The construction business is cyclical in response to economic conditions, as well as seasonal since it is
driven by weather conditions. Demand for our products is primarily driven by global non-residential and
infrastructure construction activity and U.S. residential construction activity. We seek to increase profitability and
minimize the impact of cyclical downturns in regional economies by introducing technically advanced high-
performance products and rationalizing non-profitable geographies.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
Disclosure of financial information about industry segments and geographic areas for the years ended
December 31, 2018, 2017 and 2016 is provided in this Annual Report on Form 10-K in Item 8, "Financial
Statements and Supplementary Data" under Note 15 "Operating Segment and Geographic Information" to the
Consolidated Financial Statements, which is incorporated herein by reference. Disclosure of risks attendant to our
foreign operations is provided in Item 1A, "Risk Factors".
BACKLOG OF ORDERS
While at any given time there may be some backlog of orders, backlog is not material in respect to our total
annual sales. The changes in the backlog taking place from time to time are not significant.
RESEARCH ACTIVITIES AND INTELLECTUAL PROPERTY
We believe success in our industry is driven by technology and innovation. Growing our businesses and
maintaining our margins is dependent on our ability to introduce new products and enhance existing products
based on innovative technology, as well as our ability to obtain patent or other intellectual property protection. Our
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research and development programs emphasize development of new products and processes, improvement of
existing products and processes and application of existing products and processes to new industries and uses.
Our world-class Global Technology Center in Cambridge, Massachusetts houses the product research
activities that support both of our operating segments. The global marketing resources that we believe are
essential to a successful product development process are also located with our research and development group
in Cambridge.
Technologies developed by our Global Technology Center are customized for each region and supported in
the field by a network of Regional Technical Centers, including facilities in Sorocaba, Brazil; Toh Guan, Singapore;
Beijing, China; Atsugi, Japan; Lügde, Germany; and Heist, Belgium.
We have approximately 270 research and development and technical service employees globally and
approximately 13% of our workforce is focused on technology. We believe the collective technical expertise,
industry knowledge and professionalism of this team is a significant differentiator for us.
We file patent applications globally on a routine basis and obtain grants in numerous countries around the
world in support of our products, formulations, manufacturing processes, monitoring systems, equipment, and
improvements. We also benefit from technological and commercial advantages protected under trade secret laws,
including know-how and other proprietary information related to many of our products, technologies and internal
quality control and testing methodologies. Entering 2019, we have approximately 865-900 active patents and
patent applications pending in countries around the world, including approximately 150-160 in the U.S. We
estimate that our filing rate is between 50 and 90 patent applications globally on an annual basis, including priority
and national stage application filings. The average number of patents filed, pending, granted, and maintained
could go up or down from year to year, depending on various factors, some of which may not be within our
control. It is our intent to continue to file for patents to protect our proprietary innovations and investments in
research.
Research and development expenses were $20.2 million, $20.0 million and $18.4 million, respectively, during
the years ended December 31, 2018, 2017 and 2016. These amounts include depreciation and amortization
expenses related to research and development assets and expenses incurred in funding external research
projects. The amount of research and development expenses relating to government- and customer-sponsored
projects (rather than projects that we sponsor) was not material during these periods.
ENVIRONMENT, HEALTH AND SAFETY MATTERS
We are subject, along with other manufacturers of specialty chemicals, to stringent regulations under
numerous U.S. federal, state and local, as well as foreign environmental, health and safety laws and regulations
related to the generation, storage, handling, discharge, disposition and stewardship of hazardous wastes and
other materials. Environmental laws require that certain responsible parties, as defined in the relevant statute,
fund remediation actions regardless of legality of original disposal or ownership of a disposal site. We are involved
in remediation actions to address hazardous wastes or other materials as required by U.S. federal, state and local
and foreign laws.
We continuously seek to improve our environment, health and safety performance. We have expended funds
to comply with environmental laws and regulations and expect to continue to do so in the future.
EMPLOYEE RELATIONS
As of December 31, 2018, we had approximately 2,100 employees, of which approximately 750 were
employed in the United States. Of our total employees, approximately 1,750 were salaried and 350 were hourly.
Approximately 50 of our manufacturing employees in the United States are represented by five different local
collective bargaining groups. We have operated without a labor work stoppage for more than 11 years.
We have works councils representing eight of the European countries in which we do business covering
approximately 270 employees.
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AVAILABLE INFORMATION
We maintain an Internet website at www.gcpat.com. Our Annual Report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, on our
website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the
Securities and Exchange Commission, or "SEC." Further, the SEC's website, www.sec.gov, contains reports and
other information regarding our filings. These reports may be accessed through our website's investor relations
page.
In addition, the charters for the Audit, Compensation, Nominating and Governance, and Corporate
Responsibility Committees of our Board of Directors, our corporate governance principles and code of ethics are
available, free of charge, on our website at http://investor.gcpat.com/corporate-governance/governance-
documents. Printed copies of the charters, governance guidelines and code of ethics may be obtained free of
charge by contacting GCP Shareholder Services by emailing investors@gcpat.com or by calling (617) 876-1400.
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any
other filings we make with the SEC.
ITEM 1A. RISK FACTORS
Our operations are subject to a number of risks, including those listed below. When considering investments
in our company, you should carefully consider each of the following risk factors and all of the other information set
forth in this Annual Report on Form 10-K. Based on the information currently known to us, we believe that the
following information identifies the most significant risk factors affecting the Company and our business in each of
these categories of risks. However, the risks and uncertainties the Company faces are not limited to those set
forth in the risk factors described below. Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also adversely affect our business and may be material. In addition, past
financial performance may not be a reliable indicator of future performance, and historical trends should not be
used to anticipate results or trends in future periods.
If any of the following risks and uncertainties develops into actual events, these events could have a material
adverse effect on our business, financial condition or results of operations. In such case or in the case that an
additional risk or uncertainty not presently known to us or that we currently believe to be immaterial develops into
actual events or the materiality increases, the trading price of our common stock could decline.
Risks Relating to Our Business
We face significant competition and, if we are not able to respond to competition, our revenues may
decrease.
We face significant competition from a variety of competitors in each of our markets. Some of our competitors
have substantially greater financial, marketing, personnel and other resources than we do. New competitors also
could enter our markets, certain or our competitors could consolidate and/ or certain of our customers could
decide to self-manufacture or otherwise enter our markets, which may result in increased competitive pressures.
We consider product quality, performance, customer service, on-time delivery, price, distribution capabilities and
breadth of product offerings to be the primary competitive factors in our markets. Our competitors may be able to
offer more attractive pricing, duplicate our strategies, or develop enhancements to products that could offer
performance features that are superior to our products. Competitive pressures, including those described above,
could adversely affect our competitive position, leading to a loss of market share or decreases in prices, either of
which could have a material adverse effect on our business, financial condition or results of operations.
If we are not able to continue our technological innovation and successful introduction of new products,
our customers may turn to other suppliers to meet their requirements.
The specialty chemicals and building materials industries, as well as the end-use applications into which we
sell our products, experience ongoing technological change and product improvements. A key element of our
business strategy is to invest in research and development activities with the goal of introducing new high-
performance, technically differentiated products and innovative Internet of Things (IoT) solutions. We may not be
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successful in developing new technology and products that successfully compete with products introduced by our
competitors, and our customers may not accept or may have lower demand for our new products. If we fail to
keep pace with evolving technological innovations or fail to improve our products in response to our customers’
needs, then our business, financial condition and results of operations could be adversely affected as a result of
reduced sales of our products.
When consistent with our business strategies, we intend to pursue acquisitions, joint ventures and other
transactions that complement or expand our businesses. We may not be able to complete proposed
transactions and even if completed, the transactions may not achieve the earnings, cash flows or returns
on investment that we had contemplated.
We have recently completed a number of acquisitions that we believe will contribute to our future success. We
intend to continue to pursue opportunities to buy other businesses or technologies that could complement,
enhance or expand our current businesses or product lines or might otherwise offer us growth opportunities. We
may have difficulty identifying appropriate opportunities or, if we do identify opportunities, we may not be
successful in completing transactions for a number of reasons. Any transactions that we are able to identify and
complete may involve a number of risks, including:
•
•
•
•
the diversion of management's attention from our existing businesses to integrate the operations and
personnel of the acquired or combined business or joint venture;
possible adverse effects on our operating results during the integration process;
failure of the acquired business to achieve expected operational objectives; and
our possible inability to achieve the intended objectives of the transaction.
In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage any
newly acquired operations or their employees. We may not be able to maintain uniform standards, controls,
procedures and policies, which may lead to operational inefficiencies.
The length and depth of product and industry business cycles in our segments may result in periods of
reduced sales, earnings and cash flows, and portions of our business are subject to seasonality and
weather-related effects.
Our construction business is cyclical in response to economic conditions and construction demand and is also
seasonal and dependent on favorable weather conditions, with a decrease in construction activity during the
winter months.
Prices for certain raw materials are volatile and can have a significant effect on our manufacturing and
supply chain strategies as we seek to maximize our profitability. If we are unable to successfully adjust
our strategies in response to volatile raw material prices, such volatility could have a negative effect on
our earnings.
We use petroleum-based materials, natural gas derivatives and other materials to manufacture our products.
Prices for these materials are volatile and can have a significant effect on our pricing, sales, manufacturing and
supply chain strategies as we seek to maximize our profitability. Our ability to successfully adjust strategies in
response to volatile raw material prices by increasing prices for our products and services, reducing costs or
taking other actions is a significant factor in maintaining or improving our profitability. If we are unable to
successfully adjust our strategies in response to volatile raw material prices, such volatility could have a negative
effect on our sales and earnings in future periods.
A substantial portion of our raw materials are commodities whose prices fluctuate as market supply and
demand fundamentals change. We attempt to manage exposure to price volatility of major commodities through:
•
•
long-term supply contracts;
customer contracts that permit adjustments for changes in prices of commodity-based materials and
energy; and
•
forward buying programs that layer in our expected requirements systematically over time;
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Although we regularly assess our exposure to raw material price volatility, we cannot always predict the
prospects of volatility and we cannot always cover the risks we face in a cost-effective manner.
We have a policy of maintaining, when available, multiple sources of supply for raw materials. However,
certain of our raw materials may be provided by single sources of supply. We may not be able to obtain sufficient
raw materials due to unforeseen developments that would cause an interruption in supply. Even if we have
multiple sources of supply for raw materials, these sources may not make up for the loss of a major supplier.
The global scope of our operations subjects us to the risks of doing business in foreign countries, which
could adversely affect our business, financial condition and results of operations.
We operate our business on a global scale with approximately 52% of our 2018 sales generated outside of
the United States. We operate in over 30 countries and in over 30 currencies. We currently have many production
facilities, technical centers and administrative and sales offices located outside of North America, including
facilities and offices in Europe, Middle East, Africa, Asia Pacific and Latin America. We expect non-U.S. sales to
continue to represent a majority of our revenue. Accordingly, our business is subject to risks related to the differing
legal, political, social and economic conditions and regulatory requirements of many jurisdictions, as well as risks
related to the political relationship between the foreign countries in which we conduct business and the United
States. Risks inherent in non-U.S. operations include the following:
•
•
commercial agreements may be more difficult to enforce and receivables more difficult to collect;
intellectual property rights may be more difficult to enforce;
• we may experience increased shipping costs, disruptions in shipping or reduced availability of freight
transportation;
• we may have difficulty transferring our profits or capital from foreign operations to other countries
where such funds could be more profitably deployed;
• we may experience unexpected adverse changes in export duties, quotas and tariffs and difficulties in
obtaining export licenses;
•
•
•
some foreign countries have adopted, and others may impose, additional withholding taxes or other
restrictions on foreign trade or investment, including currency exchange and capital controls;
foreign governments may nationalize private enterprises;
our business and profitability in a particular country could be affected by differing legal systems and
customs and by political or economic repercussions on a domestic, country specific or global level
from terrorist activities and the response to such activities.
In addition, our international sales and operations are subject to risks associated with changes in local
government laws, regulations and policies, including those related to tariffs and trade barriers, investments,
taxation, exchange controls, capital controls, employment regulations, and repatriation of earnings. Government
policies on international trade and investments, such as import quotas, capital controls, taxes or tariffs, whether
adopted by individual governments or regional trade blocs, can affect demand for our products and services,
impact the competitive position or our products or prevent us from being able to manufacture or sell products in
certain countries. The implementation of more restrictive trade policies, including the imposition of tariffs, or the
renegotiation of existing trade agreements by the U.S. or by countries where we sell large quantities of products
and services or procure supplies and other materials incorporated into our products, including in connection with
the U.K.'s pending withdrawal from the EU ("Brexit"), could negatively impact our business, results of operations
and financial condition. For example, a government's policies on tariffs and trade, or retaliation by another
government against such policies, could have a negative impact on our results of operations. Our international
sales and operations are also sensitive to changes in foreign national priorities, as well as to political and
economic instability. Our success as a global business will depend, in part, upon our ability to succeed in differing
legal, regulatory, economic, social and political conditions by developing, implementing and maintaining policies
and strategies that are effective in each location where we do business.
We are exposed to currency exchange rate changes that impact our profitability and these risks could
increase as a result of global political uncertainty and other risks in international markets.
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We are exposed to currency exchange rate risk through our U.S. and non-U.S. operations. Changes in
currency exchange rates may materially affect our operating results. For example, changes in currency exchange
rates may affect the relative prices at which we and our competitors sell products in the same region and the cost
of materials used in our operations. A substantial portion of our net sales and assets are denominated in
currencies other than the U.S. dollar. When the U.S. dollar strengthens against other currencies, at a constant
level of business, our reported sales, earnings, assets and liabilities are reduced because the foreign currencies
translate into fewer U.S. dollars. In addition, since we manufacture a portion of our construction products in
emerging regions using raw materials from suppliers in the U.S., Europe and other advanced economies,
changes in the values of the currencies of these emerging regions versus the U.S. dollar, the euro and the
currencies of other advanced economies in which we purchase raw materials, may adversely affect our raw
material costs.
We incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or
a sales transaction using a currency different from the operating subsidiary's functional currency. Given the
volatility of exchange rates, we may not be able to manage our currency transaction risks effectively, which may
expose our financial condition or results of operations to significant additional risk.
Our operations in Venezuela have been adversely affected by political and economic instability in the
country.
Our ability to manage our Venezuelan operations has been negatively affected by difficult conditions in
Venezuela, including continuing high inflation and the significant devaluation of the Venezuelan bolivar.
Government regulations regarding price increases limited our ability to offset the effects of high inflation and the
currency devaluations. Import authorization controls and the limited availability of foreign exchange limited our
ability to import raw materials needed for the production of our products. In addition, labor laws limited our ability
to manage overhead costs and, at times, production has been negatively impacted by local labor issues. As a
result of these conditions, combined with the loss of scale in Venezuela resulting from the sale of our Darex-
related operations and assets in Venezuela, we deconsolidated our Venezuelan operations as of July 3, 2017.
During the year ended December 31, 2018, we sold our remaining SCC operations within the Venezuela
subsidiary. As of December 31, 2018, the remaining operations in Venezuela represent the Darex operations
expected to be sold to Henkel within the next 12 months under a delayed close arrangement. Our operations in
Venezuela were not significant to our financial condition, results of operations and cash flows during the year
ended December 31, 2018.
Certain of our customer relationships outside of the United States are with governmental entities and we
could be materially and adversely affected by violations of the U.S. Foreign Corrupt Practices Act
("FCPA") and similar worldwide anti-bribery laws in non-U.S. jurisdictions.
The FCPA and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and
their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining
business. Because certain of our customer relationships outside of the United States are with governmental
entities, we are subject to such anti-bribery laws. Our policies mandate compliance with these anti-bribery laws.
We operate in many parts of the world that have experienced governmental corruption to some degree, and in
certain circumstances strict compliance with anti-bribery laws may conflict with local customs and practices.
Despite our training and compliance programs, our internal control policies and procedures may not always
protect us from reckless or criminal acts committed by our employees or agents. Violations of anti-bribery laws or
allegations of such violations, could disrupt our business and result in a material adverse effect on our results of
operations, financial condition and cash flows.
We have debt obligations that could restrict our business, adversely impact our financial condition,
results of operations or cash flows or restrict our ability to return cash to shareholders.
As of December 31, 2018, we had $356.7 million of indebtedness outstanding. The amount of and terms
governing the Company's indebtedness may have material effects on our business, including to:
•
require us to dedicate a substantial portion of our cash flow to debt payments, thereby reducing funds
available for working capital, capital expenditures, acquisitions, research and development,
distributions to holders of company common stock and other purposes;
•
restrict us from making strategic acquisitions or taking advantage of favorable business opportunities;
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•
limit our flexibility in planning for or reacting to, changes in our business and the industries in which
we operate;
•
increase our vulnerability to adverse economic, credit and industry conditions, including recessions;
• make it more difficult for us to satisfy our debt service and other obligations;
•
•
place us at a competitive disadvantage compared to our competitors that have relatively less debt;
and
limit our ability to borrow additional funds or to dispose of assets to raise funds, if needed, for working
capital, capital expenditures, acquisitions, research and development and other purposes.
We may also incur substantial additional indebtedness in the future. If we incur additional debt, the risks
related to our indebtedness may intensify.
We require liquidity to service the Company's debt and fund operations, capital expenditures, research
and development efforts, acquisitions and other corporate expenses.
Our ability to fund operations, capital expenditures, research and development efforts, acquisitions and other
corporate expenses, including repayment of our debt, depends on our ability to generate cash through future
operating performance, which is subject to economic, financial, competitive, legislative, regulatory and other
factors. Many of these factors are beyond our control. We cannot be certain that our businesses will generate
sufficient cash or that future borrowings will be available to us in the amounts sufficient to fund all of our
requirements. If we are unable to generate sufficient cash to fund all of our requirements, we may need to pursue
one or more alternatives, such as to:
•
•
•
•
reduce or delay planned capital expenditures, research and development spending or acquisitions;
obtain additional financing or restructure or refinance all or a portion of our debt on or before maturity;
sell assets or businesses; and
sell additional equity.
Any reduction or delay in planned capital expenditures, research and development spending or acquisitions or
sales of assets or businesses may materially and adversely affect our future revenue prospects. In addition, we
cannot be certain that we will be able to raise additional equity capital, restructure or refinance any of our debt or
obtain additional financing on commercially favorable or reasonable terms or at all.
Restrictions imposed by agreements governing our indebtedness limit our ability to operate our
business, finance our future operations or capital needs or engage in other business activities. If we fail
to comply with certain restrictions under these agreements, our debt could be accelerated and the
Company may not have sufficient cash to pay the accelerated debt.
The agreements governing our indebtedness contain various covenants that limit, among other things, our
ability, and the ability of certain of our subsidiaries, to:
•
•
•
incur certain liens;
enter into sale and leaseback transactions; and
consolidate, merge or sell all or substantially all of our assets or the assets of our guarantors.
As a result of these covenants, we are limited in the manner in which we can conduct our business, and may
be unable to engage in favorable business activities or finance future operations or capital needs. Accordingly,
these restrictions may limit our flexibility to operate our business. A failure to comply with the restrictions
contained in these agreements, including maintaining the financial ratios required by our credit facilities, could
lead to an event of default which could result in an acceleration of the indebtedness. We cannot assure you that
our future operating results will be sufficient to enable us to comply with the covenants contained in the
agreements governing our indebtedness or to remedy any such default. In addition, in the event that repayment of
our debt is accelerated pursuant to the terms of these agreements, we may not have or be able to obtain sufficient
funds to make such accelerated payments.
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Our indebtedness exposes us to interest expense increases if interest rates increase.
As of December 31, 2018, we had approximately $11 million, or 3%, of our borrowings at variable interest
rates exposing us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate
indebtedness would increase even though the amount borrowed would remain the same, and our net income
would decrease.
We have unfunded and underfunded pension plan liabilities. We will require future operating cash flow to
fund these liabilities. We have no assurance that we will generate sufficient cash to satisfy these
obligations.
We maintain U.S. and non-U.S. defined benefit pension plans covering current and former employees who
meet or met age and service requirements. Our net pension liability and cost is materially affected by the discount
rate used to measure pension obligations, the longevity and actuarial profile of our workforce, the level of plan
assets available to fund those obligations and the actual and expected long-term rate of return on plan assets.
Significant changes in investment performance or a change in the portfolio mix of invested assets can result in
corresponding increases and decreases in the valuation of plan assets or in a change in the expected rate of
return on plan assets. In addition, any changes in the discount rate could result in a significant increase or
decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans, as well
as the net periodic pension cost in the following years. Similarly, changes in the expected return on plan assets
can result in significant changes in the net periodic pension cost in the following years.
The divestiture of our Darex business could adversely affect our results of operations.
In July 2017, we completed the sale of our Darex business to Henkel AG & Co. KGaA. Following the
divestiture of our Darex business, we have become a smaller, less diversified company with a narrower business
focus and lower operational scale, and we may be more vulnerable to changing market conditions, which could
adversely affect our business and results of operations.
Our results of operations could be adversely affected by warranty claims and product liability.
We provide standard warranties that our products perform according to their specifications and do not have
material defects. In particular, for a limited number of high value construction projects we warrant the performance
of some products for periods of 5 to 25 years. Our products are generally sold to the commercial, residential and
infrastructure construction markets, and they often constitute an integral part of our customers’ products. If our
products do not meet specifications, are otherwise defective, or are used contrary to our instructions or in
applications for which they are not designed, they may contribute to damage to our customers’ products, the end
users of our customers’ products and buildings and other installations that contain our products. Although we take
measures to avoid product defects and instruct our customers on the proper use of our products, if a substantial
warranty claim or product liability lawsuit is brought against us, the cost of defending the claim or lawsuit could be
significant and any adverse determination could have a material adverse effect on our results of operations.
We manufacture and sell products into many global jurisdictions where our efforts to contractually limit our
liability (e.g., by defining a maximum liability, disclaiming implied or other statutory forms of liability or by waiving
certain types of damages, including consequential, indirect and non-proximately caused damages) may not be
enforceable or may be found by a court to not apply in a particular situation.
We work with dangerous materials that can injure our employees, damage our facilities and disrupt our
operations.
Some of our operations involve the handling of hazardous materials that may pose the risk of fire, explosion
or the release of hazardous substances. Such events could result from terrorist attacks, natural disasters or
operational failures, and might cause injury or loss of life to our employees and others, environmental
contamination, and property damage. These events might cause a temporary shutdown of an affected plant or
portion thereof, and we could be subject to penalties or claims as a result. A disruption of our operations caused
by these or other events could have a material adverse effect on our results of operations.
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We may be required to spend significant amounts of financial resources on environmental compliance.
As a manufacturer of specialty chemicals and specialty building materials, we are subject to stringent
regulations under numerous U.S. federal, state, local and foreign environmental, health and safety laws and
regulations relating to the generation, storage, handling, discharge, disposition and stewardship of hazardous
wastes and other materials. We expend funds to comply with such laws and regulations and attempt to implement
sustainable practices across our global operations, including the minimization of our emissions to the
environment. Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential
laws and regulations pertaining to climate change) make it difficult for us to project future spending for these
purposes and we may be required to expend additional funds to remain in compliance.
Our business could be adversely affected if we are unable to retain or motivate key personnel or hire
qualified personnel.
The market for highly-skilled workers and leaders in our industry is competitive. We believe that our future
success depends in substantial part on our ability to recruit and retain talented and highly-skilled personnel for all
areas of our organization. Doing so may be impacted by a number of factors, including fluctuations in economic
and industry conditions, competitors’ hiring practices, and the effectiveness of our compensation programs. Our
continued ability to compete effectively depends on our ability to retain and motivate our executives and other
existing employees and attract new employees. If we do not succeed in retaining and motivating our existing key
employees and attracting new key personnel, our results of operations could be negatively impacted.
Some of our employees are unionized, represented by works councils or employed subject to local laws
that are less favorable to employers than the laws in the United States.
As of December 31, 2018, we had approximately 2,100 total employees, of which approximately 750 were
employed in the United States. Of our total U.S. employees, approximately 50 are unionized. In addition, a large
number of our employees are employed in countries in which employment laws provide greater bargaining or
other rights to employees than the laws in the United States. Such employment rights require us to work
collaboratively with the legal representatives of the employees to effect any changes to labor arrangements. For
example, most of our employees in Europe are represented by works councils that have co-determination rights
on any changes in conditions of employment, including salaries and benefits and staff changes, and may impede
efforts to restructure our workforce. A strike, work stoppage or slowdown by our employees or significant dispute
with our employees, whether or not related to these negotiations, could result in a significant disruption of our
operations or higher ongoing labor costs.
We may be subject to claims of infringement of the intellectual property rights of others, which could hurt
our business or financial performance.
Although each of our core businesses monitors and conducts watches on third-party patents, conducts global
trademark clearance searches as part of new product branding exercises, and otherwise creates its own product
and promotional literature under its own copyrights in an attempt to avoid encroaching upon the intellectual
property of others, from time to time we may receive claims from our competitors or others alleging that their
patents, trademarks, copyrights, or other intellectual property rights have been infringed. Any claims that our
products or processes or promotional materials infringe or interfere with the intellectual property rights of others,
regardless of the merit or resolution of the claims, could cause us to incur significant costs in responding to,
defending and resolving the claims, and may divert the efforts and attention of our management and technical
personnel from our business. For example, a third-party could file an action against our company and/or its
customers and allege that it is entitled to damages for the sale, use, or manufacture of company products
believed to infringe the third-party patent, for the sale of non-infringing product used by the customer in a manner
that infringes a third-party use patent, or for the sale of non-infringing products to a customer who combines the
products with customer materials which in combination are believed to give rise to contributory type infringement
of the third-party patent. We may experience delays as we pursue one or more of our commercial options: e.g.,
cease selling or manufacturing the allegedly infringing product, contest the validity or enforceability of the
third-party patent, redesign our products or processes to avoid the third-party patent, pay a license fee in order to
commercialize under the third-party patent, obtain a legal opinion regarding non-infringement and/or invalidity of
the third-party patent, and/or take other measures (e.g., negotiating a cross-license under one of our patent
families as desired by the third-party) to avoid costs of litigation. Even if we ultimately prevail, the existence of the
lawsuit could prompt our customers to switch to products that are not the subject of infringement suits.
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We are subject to business continuity risks associated with centralization of certain administrative
functions.
We have centralized certain administrative functions in designated centers around the world to improve
efficiency and reduce costs. To the extent that these central locations are disrupted or disabled, key business
processes, such as invoicing, payments and general management operations, could be interrupted.
A failure of our information technology infrastructure could adversely impact our business and
operations.
We rely upon the capacity, reliability and security of our information technology (IT) infrastructure and our
ability to expand and continually update this infrastructure in response to the changing needs of our business. If
we experience a problem with the functioning of an important IT system or a security breach of our IT systems,
the resulting disruptions could have an adverse effect on our business.
We and certain of our third-party vendors receive and store personal information in connection with our
human resources operations and other aspects of our business. Despite our implementation of security
measures, our IT systems are vulnerable to damages from computer viruses, malware or other malicious code,
unauthorized access, cyber-attack, phishing attacks, ransomware, account takeovers, denial of service attacks,
human error, disruption, loss or destruction of data, natural disasters, power outages and other similar disruptions.
Any system failure, accident or security breach could result in disruptions to our operations. A material network
breach in the security of our IT systems could include the theft of our intellectual property, trade secrets or
customer information. To the extent that any disruptions or security breaches result in a loss or damage to our
data or an inappropriate disclosure of confidential or customer information, it could cause significant damage to
our reputation, affect our relationships with our customers, lead to claims against us and ultimately harm our
business. In addition, we may be required to incur significant costs to protect against damage caused by these
disruptions or security breaches in the future.
If we are unable to realize expected benefits from our cost reduction and restructuring efforts, our results
of operations may be adversely impacted
In order to operate more efficiently, reduce costs and improve profitability, we announce from time to time
restructuring plans which include workforce reductions, global facility consolidations and other cost reduction
initiatives. We announced restructuring plans in 2018, 2017 and on February 22, 2019 and may undertake further
workforce reductions or restructuring actions in the future. These types of restructuring activities and initiatives are
complex. If we do not successfully manage our current or future restructuring plans, we may not realize expected
cost savings, operating efficiencies and profitability improvements and our operations could be adversely affected.
Risks associated with these actions include workforce management issues, additional unexpected costs,
unforeseen delays in the implementation of anticipated workforce reductions, adverse impact on employee morale
and failure to meet operational targets due to the loss of employees. Any of such risks may impair our ability to
achieve anticipated cost reductions or have a material adverse impact on our competitive position, results of
operations, cash flows or financial condition.
Risks Relating to the Separation
If the distribution and certain related transactions fail to qualify under applicable Internal Revenue Code
provisions, Grace, the Company and Grace shareholders could be subject to significant tax liabilities and,
in certain circumstances, the Company could be required to indemnify Grace for taxes and other related
amounts, which may be material, pursuant to indemnification obligations under the Tax Sharing
Agreement.
As a condition to the distribution that effected the Separation, Grace was required to receive an opinion of
counsel, in form and substance satisfactory to Grace in its sole discretion, regarding the U.S. federal income tax
treatment of the distribution and certain related transactions. The opinion of counsel was based upon and relied
on, among other things, certain facts and assumptions, as well as certain representations, statements and
undertakings of Grace and us, including those relating to our and Grace's past and future conduct. If any of these
representations, statements or undertakings were, or become, inaccurate or incomplete, or if Grace or we breach
any of its or our covenants in the Separation documents, such as the Tax Sharing Agreement, the opinion of
counsel may be invalid and the conclusions reached therein could be jeopardized.
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Notwithstanding the opinion of counsel, the Internal Revenue Service (the “IRS”) could determine that the
distribution and certain related transactions failed to qualify under applicable Internal Revenue Code provisions if
it determines that any of the representations, assumptions or undertakings upon which the opinion of counsel
were based were false or have been violated, or if it disagrees with the conclusions in the opinion of counsel. The
opinion of counsel is not binding on the IRS and there can be no assurance that the IRS will not assert a contrary
position.
If the distribution is determined to fail to qualify under applicable Internal Revenue Code provisions, then, in
general, Grace may recognize taxable gain as if it had sold our common stock in a taxable sale for its fair market
value (unless Grace and GCP jointly make an election under Section 336(e) of the Internal Revenue Code (the
“Code”) with respect to the distribution, in which case, in general, we would (i) recognize taxable gain as if we had
sold all of our assets in a taxable sale in exchange for an amount equal to the fair market value of our common
stock and the assumption of all of our liabilities and (ii) obtain a related step up in the basis of our assets), and
Grace shareholders at the time of the distribution who received shares of our common stock in the distribution
would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
Under the Tax Sharing Agreement entered into between Grace and GCP, we may be required to indemnify
Grace against any additional taxes and related amounts resulting from (1) an acquisition under certain
circumstances of all or a portion of our equity securities or assets, whether by merger or otherwise (and
regardless of whether we participated in or otherwise facilitated the acquisition), (2) other actions that we may
take or fail to, or (3) any of our representations or undertakings made in connection with the Separation and the
distribution being incorrect or violated. Any such indemnity obligations could be material. In addition, Grace, GCP
and our respective subsidiaries may incur certain tax costs in connection with the Separation, including non-U.S.
tax costs resulting from Separations in non-U.S. jurisdictions, which may be material.
In connection with the Separation, Grace agreed to indemnify the Company for certain liabilities and we
have agreed to indemnify Grace for certain liabilities. If the Company is required to act on these
indemnities to Grace, we may need to divert cash to meet those obligations and our financial results
could be negatively impacted. The Grace indemnity may not be sufficient to insure the Company against
the full amount of liabilities for which it may be allocated responsibility, and Grace may not be able to
satisfy its indemnification obligations in the future.
Pursuant to the Separation and Distribution Agreement and the Tax Sharing Agreement, Grace agreed to
indemnify us for certain liabilities, and we agreed to indemnify Grace for certain liabilities, and we agreed to
indemnify Grace in each case for uncapped amounts, as discussed further in Note 13, "Related Party
Transactions and Transactions with Grace,” to the Consolidated Financial Statements included under "Item 8,
Financial Statements and Supplementary Data" of this Form 10 K. Indemnities that we may be required to
provide Grace are not subject to any cap, may be significant and could negatively impact our business,
particularly indemnities relating to our actions that could impact the U.S. federal income tax treatment of the
distribution and certain related transactions. Third parties could also seek to hold us responsible for any of the
liabilities that Grace has agreed to retain. Further, the indemnity from Grace may not be sufficient to protect us
against the full amount of such liabilities, and Grace may not be able to fully satisfy its indemnification obligations
in the future. Moreover, even if we ultimately succeed in recovering from Grace any amounts for which we are
held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively
affect our business, results of operations and financial condition.
Certain of Grace’s insurance policies may not cover us for losses associated with occurrences prior to
the Separation.
In connection with the Separation, we entered into agreements with Grace to address several matters
associated with the Separation, including insurance coverage. Post-Separation, some of Grace’s insurance
policies may not cover us for certain losses associated with occurrences prior to the Separation.
Risks Relating to Ownership of GCP Common Stock
Our share price may fluctuate significantly.
The market price of our common stock could fluctuate significantly due to a number of factors, many of which
are beyond our control, including:
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•
•
•
•
•
•
•
•
•
fluctuations in our quarterly or annual earnings results or those of other companies in our industry;
failures of our operating results to meet the estimates of security analysts or the expectations of
shareholders or changes by security analysts in their estimates of our future earnings;
announcements made by us or our customers, suppliers or competitors;
changes in laws or regulations which adversely affect us or our industry;
changes in accounting standards, policies, guidance, interpretations or principles;
general economic, industry and stock market conditions;
future sales of company common stock by shareholders;
future issuances of our common stock by us; and
the other factors described in these “Risk Factors” and other parts of this Annual Report on this Form
10-K.
Provisions in the Company’s corporate documents, the Tax Sharing Agreement and Delaware law could
delay or prevent a change-in-control of the Company, even if that change may be considered beneficial by
some Company shareholders.
The existence of some provisions in our certificate of incorporation, our bylaws and of Delaware law could
discourage, delay or prevent a change in control of the Company that a shareholder may consider favorable.
These provisions include:
•
•
•
authorization of a large number of shares of common stock that are not yet issued, which may permit
our Board of Directors to issue shares to persons friendly to current management, thereby protecting
the continuity of the Company's management, or which could be used to dilute the stock ownership of
persons seeking to obtain control of the Company;
prohibition on shareholders calling special meetings and taking action by written consent;
advance notice requirements for nominations of candidates for election to the Company's Board of
Directors and for proposing matters to be acted on by shareholders at the annual shareholder
meetings; and
•
the temporary classification of our Board of Directors.
In addition, the Company is subject to Section 203 of the Delaware General Corporation Law, which may
have an anti-takeover effect with respect to transactions not approved in advance by the Company's Board of
Directors, including discouraging takeover attempts that might result in a premium over the market price for
shares of company common stock.
We believe these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by
requiring potential acquirers to negotiate with our Board of Directors and by providing the Board of Directors with
more time to assess any acquisition proposal as compared to its long-term plan as a standalone company.
However, these provisions apply even if a proposal may be considered beneficial by some shareholders and
could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of GCP
and our shareholders.
In addition, an acquisition or further issuance of our stock could trigger the application of Section 355(e) of the
Code. Under the Tax Sharing Agreement, the Company would be required to indemnify Grace for any resulting tax
and related amounts, and this indemnity obligation might discourage, delay or prevent a change of control that
you may consider favorable.
Our bylaws include a forum selection clause, which could limit our stockholders' ability to obtain a
favorable judicial forum for disputes with us.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and
exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim
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of breach or a fiduciary duty owed by any of our directors or officers or other employees to us or to our
stockholders, (iii) any action asserting a claim against us or any of our directors or officers or other employees
arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or
bylaws or (iv) any action asserting a claim against us or any of our directors or officers or other employees
governed by the internal affairs doctrines, will be a state court located within the State of Delaware (or, if no state
court located within the State of Delaware has jurisdiction, the United States District Court for the District of
Delaware). This forum selection provision of our bylaws may limit the ability of our stockholders to obtain a
favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause
included in our bylaws, a court could rule that such a provision in inapplicable or unenforceable.
Our U.S. and non-U.S. tax liabilities are dependent, in part, upon the distribution of income among various
jurisdictions in which we operate.
Our future results of operations could be adversely affected by changes in our effective tax rate as a result of
a change in the mix of earnings in countries with differing statutory tax rates, changes in tax laws, regulations and
judicial rulings (or changes in the interpretation thereof), changes in generally accepted accounting principles,
changes in the valuation of deferred tax assets and liabilities, changes in the amount of earnings permanently
reinvested offshore, the results of audits and examinations of previously filed tax returns and continuing
assessments of our tax exposures and various other governmental enforcement initiatives. Our tax expense
includes estimates of tax reserves and reflects other estimates and assumptions, including assessments of future
earnings of the Company which could impact the valuation of our deferred tax assets. Changes in tax laws or
regulations, including further regulatory developments arising from U.S. tax reform legislation as well as multi-
jurisdictional changes enacted in response to the action items provided by the Organization for Economic Co-
operation and Development (OECD), will increase tax uncertainty and impact our provision for income taxes.
The Company may issue preferred stock with terms that could dilute the voting power or reduce the value
of company common stock.
Our certificate of incorporation authorizes us to issue, without the approval of our shareholders, one or more
classes or series of preferred stock having such designation, powers, preferences and relative, participating,
optional and other special rights, including preferences over our common stock respecting dividends and
distributions, as our Board of Directors generally may determine. The terms of one or more classes or series of
preferred stock could dilute the voting power or reduce the value of company common stock. For example, we
could grant holders of preferred stock the right to elect some number of directors in all events or on the happening
of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or
liquidation preferences that we could assign to holders of preferred stock could affect the residual value of the
common stock.
The Company does not expect to pay any cash dividends for the foreseeable future.
We currently intend to retain future earnings to finance our business. As a result, GCP does not expect to pay
any cash dividends for the foreseeable future. All decisions regarding the payment of dividends by GCP will be
made by our Board of Directors from time to time in accordance with applicable law. There can be no assurance
that we will have sufficient surplus under Delaware law to be able to pay any dividends at any time in the future.
This may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of
capital expenditures, increases in reserves or other currently unknown reasons. If we do not pay dividends, the
price of our common stock must appreciate in order for your investment to increase in value. This appreciation
may not occur. Further, you may have to sell some or all of your shares of our common stock in order to generate
cash flow from your investment.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We operate manufacturing plants and other facilities (including offices, warehouses, labs and other service
facilities) throughout the world. Some of these plants and facilities are shared between our operating segments.
We consider our major operating properties to be in good operating condition and suitable for their current use. We
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believe that, after taking into consideration planned expansion and exits of unprofitable geographic markets, the
productive capacity of our plants and other facilities is generally adequate for current operations. Please refer to
Note 11, "Restructuring, Repositioning Expenses, and Asset Impairments" to our Consolidated Financial
Statements included under "Item 8, Financial Statements and Supplementary Data" of this Form 10 K for further
information on the strategic actions we are taking related to our properties.
The following tables summarize our primary facilities by operating segment and region as of December 31,
2018.
Specialty Construction Chemicals
Specialty Building Materials
Shared Facilities
Specialty Construction Chemicals
Specialty Building Materials
Shared Facilities
Specialty Construction Chemicals
Specialty Building Materials
Shared Facilities
Total Number of Facilities—Occupied
North America
9
5
3
17
Europe Middle
East Africa
(EMEA)
6
4
1
11
Asia Pacific
14
2
4
20
Latin America
7
—
—
7
Number of Facilities—Leased
North America
3
1
—
4
Europe Middle
East Africa
(EMEA)
2
4
1
7
Asia Pacific
11
1
4
16
Latin America
4
—
—
4
Number of Facilities—Owned
North America
6
4
3
13
Europe Middle
East Africa
(EMEA)
4
—
—
4
Asia Pacific
3
1
—
4
Latin America
3
—
—
3
Total
36
11
8
55
Total
20
6
5
31
Total
16
5
3
24
Our global corporate headquarters is located in Cambridge, Massachusetts. Our EMEA principal regional
office is located in Slough, United Kingdom and our Asia Pacific principal regional offices are located in Shanghai,
China and Toh Guan, Singapore. We own our principal manufacturing facilities located in Chicago, Illinois; Ezhou,
China; and Mount Pleasant, Tennessee. We maintain other facilities which we either own, lease or hold under land
lease arrangements. We operate numerous smaller facilities around the world. SCC requires a greater number of
facilities than SBM to service its customers since many SCC products are water-based and are delivered to
numerous distributors, concrete production locations, cement production locations and job sites. Please refer to
Note 4, "Properties and Equipment," to our Consolidated Financial Statements included under "Item 8, Financial
Statements and Supplementary Data" of this Form 10 K for further information on our owned facilities.
In connection with our credit agreement, we have executed security agreements with respect to certain of our
larger facilities located in the United States. As of December 31, 2018, mortgages or deeds of trust were in effect
with respect to our facilities in Mount Pleasant, Tennessee and Chicago, Illinois. Please refer to Note 6, "Debt and
Other Borrowings,” to our Consolidated Financial Statements included under "Item 8, Financial Statements and
Supplementary Data" of this Form 10 K for further information on our debt arrangements.
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ITEM 3. LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 10, "Commitments and Contingencies," to the
Consolidated Financial Statements included under "Item 8, Financial Statements and Supplementary Data" of this
Form 10 K, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers as of February 1, 2019 are listed in the following table. Each executive officer was
elected by our Board of Directors to serve for a term of one year and until his successor is elected and qualified or
until his earlier resignation or removal.
Name
G. E. Poling
R. S. Dearth
D. P. Freeman
J. W. Kapples
K. R. Holland
N. B. Srinivasan
Age
63
Position
Chief Executive Officer
55
55
59
57
46
President and Chief Operating Officer
Vice President and Chief Financial Officer
Vice President, General Counsel and Secretary
Vice President and Chief Human Resources Officer
Vice President, Chief Strategy, Marketing and Business Development
Officer
Gregory E. Poling has served as GCP’s Chief Executive Officer since our separation from W.R. Grace & Co.
(“Grace”) in February of 2016. Mr. Poling had been employed with Grace since 1977. He held positions in sales,
marketing, business development and general management across all of Grace's operating segments. From 1977
to 1999, Mr. Poling held positions of increasing responsibility in Grace's construction products business. In 2005,
Mr. Poling became President of Grace Davison (one of Grace's two operating segments at the time which
included Darex) and a Vice President of W. R. Grace & Co. On November 3, 2011, Mr. Poling was elected
President and Chief Operating Officer of W. R. Grace & Co.
Randall S. Dearth has served as GCP’s President and Chief Operating Officer since September of 2018.
Prior to joining GCP, Mr. Dearth served as President, Chief Executive Officer and Chairman of the Board of
Calgon Carbon Corporation, a NYSE-listed company that manufactures and markets products that remove
contaminants from liquids and gases, from May 2014 to July 2018, and as President and Chief Executive Officer
of Calgon Carbon from August 2012 to May 2014. From 2004 through July 2012, Mr. Dearth served as President
and Chief Executive Officer of LANXESS Corporation (North America), a specialty chemicals company. Prior
thereto, Mr. Dearth was President and Chief Executive Officer of Bayer Chemicals Corporation (North America)
and held a number of global marketing roles with Bayer, both in the United States and Germany. Mr. Dearth has
served on the Board of Directors of Stepan Company, a global chemical solutions company, since April 2012.
Dean P. Freeman has served as GCP’s Vice President and Chief Financial Officer since our separation from
Grace on February 3, 2016. Mr. Freeman joined Grace in September of 2015 as Vice President, GCP Finance.
He previously served as Interim Chief Executive Officer and President, from January to May 2014, and as
Executive Vice President and Chief Financial Officer, from 2012 to October 2014, at Watts Water Technologies, a
global provider of products and solutions for the residential, commercial and industrial markets. Mr. Freeman
served as Senior Vice President of Finance and Treasurer of Flowserve Corporation from 2009 to 2011 and as
Vice President, Finance and Chief Financial Officer of the Flowserve Pump Division from 2006 to 2009. Prior to
Flowserve, Mr. Freeman served as Chief Financial Officer, Europe for The Stanley Works Corporation and held
financial and management roles of increasing responsibility with United Technologies Corporation and SPX
Corporation.
John W. Kapples has served as GCP’s Vice President, General Counsel and Secretary since our separation
from Grace in February of 2016. Mr. Kapples joined Grace in December 2015 as Vice President and General
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Counsel, GCP. He previously served as Vice President at Medtronic plc from February 2015 to August 2015,
where he assisted with legal transition and integration matters related to Medtronic's acquisition of Covidien plc.
From 2006 to 2015, Mr. Kapples served as Vice President and Secretary at Covidien, a medical device company.
Prior to Covidien, Mr. Kapples served in management and legal roles of increasing responsibility at Raytheon
Company. On January 25, 2019, Mr. Kapples notified GCP of his resignation as the Company’s Vice President,
General Counsel and Secretary effective in March 2019. Mr. Kapples has agreed to stay with the Company
through March 2019 to assist in a smooth transition.
Kevin R. Holland joined GCP in January of 2017 as Vice President and Chief Human Resources Officer.
Prior to joining GCP, he served during 2016 as a Senior Vice President and Chief Human Resources Officer at
BrightStar Corporation, a $12 billion mobile technology services company. From 2005 to 2016, Mr. Holland was
employed at Chiquita Brands International, where he served in management roles of increasing responsibility
culminating in his position as Executive Vice President and Chief Administrative Officer. Previous positions include
senior human resource roles with global businesses, including Molson Coors Brewing Company (2003 to 2005)
and FedEx Kinko's (1999 to 2003).
Naren B. Srinivasan served as GCP’s Vice President, Strategy and Corporate Development from February
of 2016, the date of our separation from Grace, through September 2017. Since October 2017, Mr. Srinivasan has
served as Vice President, Chief Strategy, Marketing and Business Development Officer. Mr. Srinivasan joined
Grace in October 2015 as Vice President, Strategy and Corporate Development, GCP. Prior to joining GCP, Mr.
Srinivasan led the strategy and corporate development functions at The Hertz Corporation from July 2011 to
September 2015 and MeadWestvaco Corporation from 2004 to 2011. Prior to that he worked in mergers and
acquisitions and private equity at Rothschild & Co, Evercore Partners, and Dillon, Read & Co.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange ("NYSE") under the ticker symbol "GCP." There
were 4,188 stockholders of record of our common stock as of December 31, 2018.
Since the Separation, we have not paid a dividend to holders of our common stock since we currently intend
to retain future earnings to finance our business. As a result, we do not expect to pay any cash dividends for the
foreseeable future. All decisions regarding the payment of dividends to our shareholders will be made by our
Board of Directors from time to time in accordance with applicable law.
Recent Sales of Unregistered Equity Securities
None.
Issuer's Purchases of Equity Securities
None
24
STOCK PERFORMANCE GRAPH AND CUMULATIVE TOTAL RETURN
The graph below shows the cumulative total stockholder return, assuming the investment of $100 on
February 4, 2016 (and the reinvestment of dividends thereafter), in each of GCP common stock, the Standard &
Poor's (S&P) 1000 Index and the S&P 1500 Specialty Chemicals Index. The comparisons in the graph below are
based on historical data and are not indicative of, or intended to forecast, future performance of our common
stock.
GCP Applied Technologies Inc.
S&P 1500 Specialty Chemicals Index
S&P 1000 Index
ITEM 6. SELECTED FINANCIAL DATA
2/4/16
12/31/16
12/31/17
$
100 $
158 $
189 $
12/31/18
145
100
100
118
131
147
152
138
136
The following selected consolidated financial data should be read in conjunction with the information
contained in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
and the Consolidated Financial Statements and notes thereto included in Item 8 "Financial Statements and
Supplementary Data" of this Annual Report on Form 10-K, which are incorporated herein by reference, in order to
understand the factors that may affect the comparability of the information presented below.
25
On July 3, 2017 (the "Closing Date"), GCP completed the sale of its Darex business to Henkel for $1.06 billion
in cash. As discussed further in Note 1, "Basis of Presentation and Summary of Significant Accounting and
Financial Reporting Policies," to the Consolidated Financial Statements included under Item 8, "Financial
Statements and Supplementary Data" of this Form 10 K, the results of operations for Darex have been excluded
from continuing operations and segment results for all periods presented. As discussed further in Note 18,
"Discontinued Operations," to the Consolidated Financial Statements, the assets and liabilities of the Darex
business in certain delayed close countries are categorized as “Assets held for sale” or “Liabilities held for sale” in
the Consolidated Balance Sheets as of December 31, 2018 and 2017. Additionally, Darex has been reclassified
and reflected as "discontinued operations" on the Consolidated Statements of Operations and Consolidated
Statements of Cash Flows for all periods presented.
The statement of operations data for each of the years ended December 31, 2018, 2017 and 2016, and the
balance sheet data as of December 31, 2018 and 2017 set forth below are derived from our audited Consolidated
Financial Statements included under Item 8, "Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K. We derived the statement of operations data for the years ended December 31, 2015 and
2014 and the balance sheet data as of December 31, 2016 and 2015 set forth below from our audited
Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data" in our
December 31, 2016 Annual Report on Form 10-K. We derived the balance sheet data as of December 31, 2014
set forth below from information that is included in our Registration Statement on Form 10, as filed with the SEC
on January 12, 2016.
Prior to the Separation, our financial statements included expense allocations for certain functions provided
by Grace as well as other Grace employees not solely dedicated to GCP, including, but not limited to, general
corporate expenses related to finance, legal, information technology, human resources, communications, ethics
and compliance, shared services, employee benefits and incentives and stock-based compensation. These
expenses were allocated to GCP on the basis of direct usage when identifiable, with the remainder allocated on
the basis of revenue, employee headcount or other measures. Management of the Company considers these
allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, the Company.
The allocations may not, however, reflect the expense the Company would have incurred as a standalone
company for the periods presented prior to February 3, 2016. Actual costs that may have been incurred if the
Company had been a standalone company would depend on a number of factors, including the chosen
organizational structure, what functions were outsourced or performed by employees and strategic decisions
made in areas such as information technology and infrastructure.
The selected consolidated financial data in this section are not intended to replace the Consolidated Financial
Statements and are qualified in their entirety by the Consolidated Financial Statements and related notes included
elsewhere in this Annual Report on Form 10-K.
26
(In millions, except per share amounts)
2018
2017
2016
2015
2014
Year Ended December 31,
Statement of Operations
Net sales
(Loss) income from continuing operations(1)
Income from discontinued operations, net of income
taxes(2)
Net income(1)(2)
Net income attributable to noncontrolling interests
Net income attributable to GCP shareholders(1)(2)
(Loss) income from continuing operations attributable
to GCP shareholders
$ 1,125.4 $ 1,084.4 $ 1,046.5 $ 1,092.4 $ 1,105.6
84.9
(110.4)
(15.8)
28.6
0.6
31.3
15.5
(0.3)
15.2
664.3
553.9
(0.5)
553.4
45.2
73.8
(1.0)
72.8
40.1
40.7
(0.6)
40.1
50.5
135.4
(1.1)
134.3
(16.1)
(110.9)
27.6
—
83.8
Basic earnings per share(3)
(Loss) income from continuing operations attributable
to GCP shareholders
Income from discontinued operations, net of income
taxes
Net income attributable to GCP shareholders(4)
Weighted average number of basic shares
Diluted earnings per share(3)(5)
(Loss) income from continuing operations attributable
to GCP shareholders
Income from discontinued operations, net of income
taxes
Net income attributable to GCP shareholders(4)
Weighted average number of diluted shares
$
$
$
$
$
$
(0.22) $
(1.55) $
0.39 $
— $
1.19
0.43 $
0.21 $
72.1
9.29 $
0.64 $
0.57 $
7.74 $
1.03 $
71.5
70.8
0.57
70.5
0.72
1.90
70.5
(0.22) $
(1.55) $
0.38 $
— $
1.19
0.43 $
0.21 $
72.1
9.29 $
0.63 $
0.57 $
7.74 $
1.02 $
0.57 $
71.5
71.7
70.5
0.72
1.90
70.5
Financial Position
Total assets
Long-term debt
_____________________________________________________________________________
$ 1,281.9 $ 1,703.0 $ 1,089.8 $ 833.1 $ 981.5
—
783.0
520.3
346.1
—
(1)
(2)
(3)
(4)
(5)
GCP recognized a loss on debt refinancing of $59.8 million during the year ended December 31, 2018 and incurred an $81.7
million charge associated with the 2017 Tax Act during the year ended December 31, 2017.
GCP recognized a net gain on the sale of Darex of approximately $678.9 million during the year ended December 31, 2017.
GCP's earnings per share amounts for 2015 and 2014 were calculated using the shares that were distributed to Grace shareholders
immediately following the Separation. For periods prior to February 3, 2016, it is assumed that there are no dilutive equity
instruments as there were no GCP equity awards outstanding prior to the legal separation from Grace.
Amounts may not sum due to rounding.
Dilutive effect only applicable to periods where there is net income from continuing operations.
27
Table of Contents
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Management’s Discussion and Analysis of Financial Condition and Results of Operations, (the "MD&A"),
describes principal factors affecting the results of our operations, financial condition and liquidity, as well as our
critical accounting policies and estimates that require significant judgment and thus have the most significant
potential impact on our Consolidated Financial Statements. Our MD&A is organized as follows:
• Results of Operations: This section provides an analysis of our financial results for the year ended
December 31, 2018 ("2018") compared to the year ended December 31, 2017 ("2017") and for the year
ended December 31, 2017 compared to the year ended December 31, 2016 ("2016").
• Financial Condition, Liquidity and Capital Resources: This section provides an analysis of our liquidity and
changes in cash flows, as well as a discussion of available borrowings and contractual commitments.
• Critical Accounting Policies and Estimates. This section discusses accounting policies and estimates that
require us to exercise subjective or complex judgments in their application. We believe these accounting
policies and estimates are important to understanding the assumptions and judgments incorporated in our
reported financial results.
You should read the MD&A in conjunction with our Consolidated Financial Statements and related notes in
this Form 10-K. In addition to historical information, the MD&A contains forward-looking statements that involve
risks and uncertainties. You should read “Information Related to Forward-Looking Statements” included above in
this Form 10 K and Item 1A, "Risk Factors" for a discussion of important factors that could cause our actual
results to differ materially from our expectations.
See "Analysis of Operations" for a discussion of our non-GAAP performance measures.
On July 3, 2017, we completed the sale of our Darex business to Henkel AG & Co. KGaA ("Henkel"). The
results of operations of the Darex segment are presented as discontinued operations and, as such, have been
excluded from continuing operations and segment results for all periods presented. Unless otherwise noted, the
following discussion and analysis pertains only to our continuing operations.
RESULTS OF OPERATIONS
Business Description Summary
We are engaged in the production and sale of specialty construction chemicals and specialty building materials
through two global operating segments:
• Specialty Construction Chemicals. Our Specialty Construction Chemicals ("SCC") operating segment
provides products, technologies, and services that reduce the cost and improve the performance and
quality of cement, concrete, mortar, masonry and other cementitious-based construction materials.
• Specialty Building Materials. Our Specialty Building Materials ("SBM") operating segment produces and
sells sheet and liquid membrane systems and other products that protect both new and existing structures
from water, air, and vapor penetration, as well as from fire damage. We also manufacture and sell
specialized cementitious and chemical grouts used for soil consolidation and leak-sealing applications in
addition to a moisture barrier system and installation tools for the flooring industry.
We operate our business on a global scale. Approximately 52% of our sales were generated outside of the U.S.
during the year ended December 31, 2018. We conduct business in over 30 countries and in over 30 currencies.
We manage our operating segments on a global basis to serve global markets. Currency fluctuations affect our
reported results of operations, cash flows and financial position.
On January 27, 2016, we entered into a separation and distribution agreement pursuant to which W.R. Grace &
Co. ("Grace") agreed to transfer to us its Grace Construction Products operating segment and the packaging
technologies business, operated under the “Darex” name, of its Grace Materials Technologies operating segment
(the "Separation"). The Separation occurred on February 3, 2016, by means of a pro rata distribution to Grace
28
Table of Contents
stockholders of all of the then-outstanding shares of Company common stock, at which time we became an
independent public company and our common stock listed and began trading under the symbol "GCP" on the New
York Stock Exchange.
2018 Performance Summary
Following is a summary of our financial performance for 2018 compared with the prior year.
• Net sales increased 3.8% to $1,125.4 million.
• Net loss from continuing operations attributable to GCP shareholders was $16.1 million, or $0.22 per
diluted share, compared to a net loss of $110.9 million, or $1.55 per diluted share, for the prior year. The
change was primarily due to lower income taxes, lower expenses as a result of a loss recognized during
the prior-year due to the deconsolidation of our Venezuela operations, as well as higher "other (income)
expense, net", partially offset by a loss on debt refinancing.
• Adjusted EPS was $0.91 per diluted share compared to $0.64 in the prior year.
• Adjusted EBIT decreased 6.7% to $118.9 million.
• Adjusted EBITDA decreased 2.0% to $160.9 million.
• Adjusted EBIT Return On Invested Capital was 18.0% on a trailing four quarters basis compared with
20.2% for 2017.
2017 Performance Summary
Following is a summary of our financial performance for 2017 compared with the prior year.
• Net sales increased 3.6% to $1,084.4 million.
• Net loss from continuing operations attributable to GCP shareholders was $110.9 million or $1.55 per
diluted share, compared to net income of $27.6 million, or $0.38 per diluted share, for the prior year. The
change was primarily due to increases in income tax expense due to The Tax Cuts and Jobs Act of 2017
("2017 Tax Act"), losses in Venezuela, as well as selling, general and administrative expenses compared
with the prior year.
• Adjusted EPS was $0.64 per diluted share compared to $0.79 in the prior year.
• Adjusted EBIT decreased 9.6% to $127.4 million.
• Adjusted EBITDA decreased 3.9% to $164.2 million.
• Adjusted EBIT Return On Invested Capital was 20.2% on a trailing four quarters basis compared with
30.2% for 2016.
Analysis of Operations for 2018, 2017 and 2016
We have set forth in the table below our key operating statistics with percentage changes for 2018, 2017 and
2016. Please refer to the Analysis of Operations (the "table") when reviewing our MD&A. In the table, we present
financial information in accordance with U.S. GAAP, as well as certain non-GAAP financial measures, which we
describe below in further detail. We believe that the non-GAAP financial information supplements our discussions
about the performance of our businesses, improves year-to-year comparability, as well as provides insight to the
information that our management uses to evaluate the performance of our businesses. Our management uses
non-GAAP measures in financial and operational decision-making processes, for internal reporting, and as part of
forecasting and budgeting processes since these measures provide additional transparency to our core
operations.
In the table, we have provided reconciliations of these non-GAAP financial measures to the most directly
comparable financial measures calculated and presented in accordance with U.S. GAAP. These non-GAAP
financial measures should not be considered substitutes for financial measures calculated in accordance with
29
Table of Contents
U.S. GAAP, and the financial results that we calculate and present in the table in accordance with U.S. GAAP, as
well as the corresponding reconciliations from those results, should be carefully evaluated as part of our MD&A.
The following are the non-GAAP financial measures presented in the table:
• Adjusted EBIT (a non-GAAP financial measure)- is defined as net income (loss) from continuing
operations attributable to GCP shareholders adjusted for: (i) gains and losses on sales of businesses,
product lines and certain other investments; (ii) currency and other financial losses in Venezuela (iii)
costs related to legacy product, environmental and other claims; (iv) restructuring expenses,
repositioning and asset impairments; (v) defined benefit plan costs other than service and interest
costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-party
and other acquisition-related costs; (vii) other financing costs associated with the modification or
extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax
indemnification adjustments; (x) interest income, interest expense and related financing costs; (xi)
income taxes; and (xii) certain other items that are not representative of underlying trends. We use
Adjusted EBIT to assess and measure our operating performance and determine performance-based
compensation. We use Adjusted EBIT as a performance measure because it provides improved year-
over-year comparability for decision-making and compensation purposes and allows management to
measure the ongoing earnings results of our strategic and operating decisions.
• Adjusted EBITDA (a non-GAAP financial measure)- is defined as Adjusted EBIT adjusted for
depreciation and amortization. We use Adjusted EBITDA as a performance measure in making
significant business decisions.
• Adjusted Earnings Per Share (a non-GAAP financial measure)- is defined as earnings per share
("EPS") from continuing operations on a diluted basis adjusted for: (i) gains and losses on sales of
businesses, product lines and certain other investments; (ii) currency and other financial losses in
Venezuela; (iii) costs related to legacy product, environmental and other claims; (iv) restructuring and
repositioning expenses and asset impairments; (v) defined benefit plan costs other than service and
interest costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-
party and other acquisition-related costs; (vii) other financing costs associated with the modification or
extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax
indemnification adjustments; (x) certain other items that are not representative of underlying trends; and
(xi) certain discrete tax items. We use Adjusted EPS as a performance measure to review our diluted
earnings per share results on a consistent basis and in determining certain performance-based
employee compensation.
• Adjusted Gross Profit (a non-GAAP financial measure)- is defined as gross profit adjusted for: (i)
corporate and pension-related costs included in cost of goods sold; (ii) loss in Venezuela included in
cost of goods sold; and (iii) amortization of acquired inventory fair value adjustment. Adjusted Gross
Margin means Adjusted Gross Profit divided by net sales. We use this performance measure to
understand trends and changes and to make business decisions regarding core operations.
• Adjusted EBIT Return On Invested Capital (a non-GAAP financial measure)- is defined as Adjusted
EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and
equipment and certain other assets and liabilities. We use Adjusted EBIT Return On Invested Capital as
a performance measure to review investments and to make capital allocation decisions.
Adjusted EBIT, Adjusted EBITDA, Adjusted EPS, Adjusted EBIT Return On Invested Capital, Adjusted Gross
Profit and Adjusted Gross Margin do not purport to represent income measures as defined under U.S. GAAP.
These measures are provided to investors and others to improve the year-to-year and peer-to-peer comparability
of our financial results and to ensure that investors understand the information we use to evaluate the
performance of our businesses.
30
Table of Contents
Adjusted EBIT has material limitations as an operating performance measure because it excludes costs
related to income and expenses from restructuring and repositioning activities which historically has been a
material component of our net income (loss) from continuing operations attributable to GCP shareholders.
Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the
impact of depreciation and amortization expense. Our business is substantially dependent on the successful
deployment of capital, and depreciation and amortization expense is a necessary element of our costs. We
compensate for the limitations of these measurements by using these indicators together with net income (loss)
measured under GAAP to present a complete analysis of our results of operations. Adjusted EBIT and Adjusted
EBITDA should be evaluated together with net income (loss) from continuing operations attributable to GCP
shareholders measured under GAAP for a complete understanding of our results of operations.
31
Table of Contents
We have provided in the following tables a reconciliation of these non-GAAP measures to the most directly
comparable financial measures calculated and presented in accordance with U.S. GAAP.
Total net sales by region
$
1,125.4
$ 1,084.4
$ 1,046.5
Analysis of Operations
(In millions, except per share amounts)
Net sales:
Specialty Construction Chemicals
Specialty Building Materials
Total GCP net sales
Net sales by region:
North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Profitability performance measures:
Adjusted EBIT(A):
Specialty Construction Chemicals segment operating
income
Specialty Building Materials segment operating income
Corporate costs(B)
Certain pension costs(C)
Adjusted EBIT (non-GAAP)
Loss on sale of product line
Currency and other financial losses in Venezuela
Currency losses in Argentina
Litigation settlement
Legacy product, environmental and other claims(D)
Repositioning expenses
Restructuring expenses and asset impairments
Pension MTM adjustment and other related costs, net
Gain on termination and curtailment of pension and
other postretirement plans
Third-party and other acquisition-related costs
Other financing costs
Amortization of acquired inventory fair value
adjustment
Tax indemnification adjustments
Interest expense, net
Income tax expense
Year Ended December 31,
2018
2017
2016
% Change
2018 vs
2017
% Change
2017 vs
2016
$
$
$
643.5
$
615.7
$
623.8
481.9
468.7
422.7
1,125.4
$ 1,084.4
$ 1,046.5
571.0
$
540.7
$
509.1
240.7
245.6
68.1
244.5
229.2
70.0
225.6
241.2
70.6
4.5 %
2.8 %
3.8 %
5.6 %
(1.6)%
7.2 %
(2.7)%
3.8 %
(1.3)%
10.9 %
3.6 %
6.2 %
8.4 %
(5.0)%
(0.8)%
3.6 %
$
40.2
$
63.4
$
72.6
(36.6)%
(12.7)%
113.6
(27.3)
(7.6)
109.4
(36.4)
(9.0)
114.0
(38.4)
(7.2)
$
118.9
$
127.4
$
141.0
—
—
(1.1)
—
—
(9.6)
(14.8)
8.7
0.2
(2.5)
—
(0.2)
(0.5)
(88.9)
(26.3)
(2.1)
(39.1)
—
(4.0)
(0.6)
(9.8)
(13.5)
(14.1)
6.6
(6.8)
(6.0)
(2.9)
(2.8)
(61.1)
(82.1)
3.8 %
25.0 %
15.6 %
(6.7)%
(4.0)%
5.2 %
(25.0)%
(9.6)%
100.0 %
(100.0)%
100.0 %
(100.0)%
(100.0)%
NM
100.0 %
(100.0)%
100.0 %
(100.0)%
2.0 %
(9.6)%
NM
(97.0)%
63.2 %
100.0 %
93.1 %
82.1 %
(45.5)%
68.0 %
85.5 %
85.8 %
42.2 %
35.9 %
NM
37.6 %
NM
NM
NM
NM
(100.0)%
5.4 %
NM
NM
NM
(19.0)%
—
—
—
—
—
(15.3)
(1.9)
(22.6)
0.8
(0.6)
(1.2)
(1.3)
—
(64.6)
(6.7)
27.6
0.38
0.79
Net (loss) income from continuing operations
attributable to GCP shareholders (GAAP)
Diluted EPS from continuing operations (GAAP)
Adjusted EPS (non-GAAP)
$
$
$
(16.1) $
(110.9) $
(0.22) $
(1.55) $
0.91
$
0.64
$
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Table of Contents
Analysis of Operations
(In millions)
Adjusted profitability performance measures:
Gross Profit:
Specialty Construction Chemicals
Specialty Building Materials
Adjusted Gross Profit (non-GAAP)
Amortization of acquired inventory fair value
adjustment
Loss in Venezuela in cost of goods sold
Corporate costs and pension costs in cost of
goods sold
Total GCP Gross Profit (GAAP)
Gross Margin:
Specialty Construction Chemicals
Specialty Building Materials
Adjusted Gross Margin (non-GAAP)
Amortization of acquired inventory fair value
adjustment
Loss in Venezuela in cost of goods sold
Corporate costs and pension costs in cost of
goods sold
Total GCP Gross Margin (GAAP)
Adjusted EBIT(A)(B)(C):
Specialty Construction Chemicals segment
operating income
Specialty Building Materials segment operating
income
Corporate and certain pension costs
Total GCP Adjusted EBIT (non-GAAP)
Depreciation and amortization:
Specialty Construction Chemicals
Specialty Building Materials
Corporate
Total GCP
Adjusted EBITDA:
Specialty Construction Chemicals
Specialty Building Materials
Corporate and certain pension costs
Total GCP Adjusted EBITDA (non-GAAP)
Adjusted EBIT Margin:
Specialty Construction Chemicals
Specialty Building Materials
Total GCP Adjusted EBIT Margin (non-GAAP)
Adjusted EBITDA Margin:
Specialty Construction Chemicals
Specialty Building Materials
Total GCP Adjusted EBITDA Margin (non-GAAP)
Year Ended December 31,
2018
2017
2016
% Change
2018 vs 2017
% Change
2017 vs 2016
$
$
$
206.9
205.3
412.2
(0.2)
—
(1.9)
410.1
$
$
$
218.8
204.1
422.9
(2.9)
(0.8)
(2.1)
417.1
$
$
$
229.9
196.7
426.6
(1.3)
—
(7.7)
417.6
(5.4)%
0.6 %
(2.5)%
(4.8)%
3.8 %
(0.9)%
93.1 %
100.0 %
NM
(100.0)%
9.5 %
(1.7)%
72.7 %
(0.1)%
32.2 %
42.6 %
36.6 %
— %
— %
(0.2)%
36.4 %
35.5 %
43.5 %
39.0 %
(0.3)%
(0.1)%
(0.2)%
38.4 %
36.9 %
46.5 %
40.8 %
(0.1)%
— %
(0.7)%
40.0 %
(3.3) pts
(0.9) pts
(2.4) pts
0.3 pts
0.1 pts
0.0 pts
(2.0) pts
(1.4) pts
(3.0) pts
(1.8) pts
(0.2) pts
(0.1) pts
0.5 pts
(1.6) pts
$
40.2
$
63.4
$
72.6
(36.6)%
(12.7)%
3.8 %
23.1 %
(6.7)%
13.6 %
11.4 %
34.8 %
14.1 %
(24.0)%
4.6 %
26.2 %
(2.0)%
(4.1) pts
0.3 pts
(1.1) pts
(3.8) pts
0.4 pts
(0.8) pts
(4.0)%
0.4 %
(9.6)%
6.5 %
37.5 %
NM
23.5 %
(8.5)%
(0.8)%
5.1 %
(3.9)%
(1.3) pts
(3.7) pts
(1.8) pts
(1.0) pts
(3.0) pts
(1.2) pts
113.6
(34.9)
118.9
24.2
14.7
3.1
42.0
64.4
128.3
(31.8)
160.9
$
$
$
$
$
109.4
(45.4)
127.4
21.3
13.2
2.3
36.8
84.7
122.6
(43.1)
164.2
$
$
$
$
$
114.0
(45.6)
141.0
20.0
9.6
0.2
29.8
92.6
123.6
(45.4)
170.8
$
$
$
$
$
10.3 %
23.3 %
11.7 %
13.8 %
26.2 %
15.1 %
11.6 %
27.0 %
13.5 %
14.8 %
29.2 %
16.3 %
6.2 %
23.6 %
10.6 %
10.0 %
26.6 %
14.3 %
33
Table of Contents
Analysis of Operations
(In millions)
Calculation of Adjusted EBIT Return On Invested Capital (trailing four
quarters):
Adjusted EBIT
Invested Capital:
Trade accounts receivable
Inventories
Accounts payable
Invested working capital
Other current assets (excluding income taxes)
Properties and equipment, net
Goodwill
Technology and other intangible assets, net
Other assets (excluding capitalized financing fees)
Other current liabilities (excluding income taxes, restructuring, repositioning,
accrued interest and liabilities incurred in association with the Darex
divestiture)
Other liabilities (excluding other postretirement benefits liability and liabilities
incurred in association with the Darex divestiture)
Total invested capital
Adjusted EBIT Return On Invested Capital (non-GAAP)
___________________________________________________________________________________________________________________
Four Quarters Ended
December
31, 2018
December
31, 2017
December
31, 2016
$
118.9
$
127.4
$
141.0
198.6
110.5
217.1
106.3
(121.4)
(134.8)
187.7
34.2
225.1
207.9
89.0
23.9
188.6
42.6
216.6
198.2
91.8
20.6
166.6
89.3
(95.9)
160.0
32.3
192.6
114.9
52.6
18.2
(95.1)
(106.0)
(90.3)
(13.8)
(20.7)
(13.9)
$
658.9
$
631.7
$
466.4
18.0%
20.2%
30.2%
(A)
(B)
(C)
(D)
NM
Our segment operating income includes only our share of income of consolidated joint ventures.
Management allocates certain corporate costs to each operating segment to the extent such costs are directly attributable to the
segments. For the years ended December 31, 2017 and 2016, corporate costs include approximately $5.4 million and $10.3 million,
respectively, that were not allocated to the Darex operating segment as such costs did not meet the criteria to be reclassified to
discontinued operations. Beginning in the third quarter of 2017, we began allocating these costs to our SCC and SBM operating
segments.
Certain pension costs include only ongoing costs, recognized quarterly, which include service and interest costs, expected returns
on plan assets and amortization of prior service costs/credits. SCC and SBM segment operating income and corporate costs do not
include any amounts for pension expense. Other pension-related costs, including annual mark-to-market adjustments, gains or
losses from curtailments and terminations, as well as other related costs, are excluded from Adjusted EBIT. These amounts are not
used by management to evaluate the performance of our businesses and significantly affect the peer-to-peer and period-to-period
comparability of our financial results. Mark-to-market adjustments and other related costs relate primarily to changes in financial
market values and actuarial assumptions and are not directly related to the operation of our businesses.
Legacy product, environmental and other claims include costs relating to businesses that are no longer part of our core business
portfolio. These businesses were divested or otherwise ceased operations; however, we retain certain risks and obligations, which
include certain legacy liabilities. The principal legacy liabilities are product and environmental liabilities.
Not meaningful.
34
Table of Contents
Adjusted EPS
The following table reconciles our Diluted EPS (GAAP) to our Adjusted EPS (non-GAAP).
(In millions, except per share amounts)
Diluted Earnings Per Share (GAAP)
Loss on sale of product line
Currency and other financial losses in
Venezuela(1)
Litigation settlement
Currency losses in Argentina
Loss on debt refinancing
Legacy product, environmental and other
claims
Repositioning expenses
Restructuring expenses
Pension MTM adjustment and other
related costs, net
Gain on termination and curtailment of
Year Ended December 31,
2018
2017
Pre-Tax
Tax
Effect
After-
Tax
Pre-Tax
Tax
Effect
After-
Tax
Per
Share
$ (0.22)
$ — $ — $ —
— $
2.1
$
0.8
$
1.3
Per
Share
$ (1.55)
0.02
—
—
1.1
59.8
—
9.6
14.8
—
—
—
14.8
—
2.4
3.3
—
—
1.1
45.0
—
7.2
11.5
—
—
0.02
0.62
—
0.10
0.16
39.1
4.0
—
—
0.6
9.8
13.5
(8.7)
(2.1)
(6.6)
(0.09)
14.1
12.9
1.5
26.2
2.5
—
—
0.2
3.9
4.6
6.0
—
—
0.4
5.9
8.9
8.1
0.37
0.03
—
—
0.01
0.08
0.12
0.11
pension and other postretirement plans
(0.2)
(0.1)
(0.1)
—
(6.6)
(2.8)
(3.8)
(0.05)
Third-party and other acquisition-related
costs
Other financing costs
Amortization of acquired inventory fair
value adjustment
Tax indemnification adjustments
Discrete tax items, including adjustments
to uncertain tax positions(2)
Adjusted EPS (non-GAAP)
2.5
—
0.2
0.5
0.6
—
—
(0.1)
1.9
—
0.2
0.6
—
(20.7)
20.7
0.03
—
—
0.01
0.28
$ 0.91
6.8
6.0
2.9
2.8
1.3
2.3
0.9
0.8
5.5
3.7
2.0
2.0
0.08
0.05
0.03
0.03
—
(93.9)
93.9
1.31
$ 0.64
__________________________
(1)
Tax effect amount represents the benefit resulting from outside basis differences in Venezuela. Please refer to Note 7, "Income
Taxes," to our Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Form
10-K for further information
(2)
Discrete tax items relate primarily to the charges of $17.9 million and $81.7 million, respectively, which were recorded in 2018 and
2017 and associated with 2017 Tax Act. Please refer to Note 7, "Income Taxes," to our Consolidated Financial Statements included
in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K and "Income Taxes" below for additional discussion of
the impact of the 2017 Tax Act.
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GCP Overview
Following is an overview of our financial performance for 2018, 2017 and 2016.
During these periods, we benefited from acquisitions, as well as increased construction spending in North
America, Asia Pacific and EMEA. Sales volumes in North America and Asia Pacific increased in 2018, while
EMEA volumes decreased primarily due to the exit of non-profitable markets within SCC. We generally expect
modest construction spending growth in 2019. Raw material costs increased significantly in 2017 and 2018, which
resulted in lower gross margin. We anticipate raw material inflation to moderate in 2019 compared to 2018. On
April 10, 2018, we refinanced our 9.5% Senior Notes with the issuance of the 5.5% Senior Notes which lowered
our interest expense in 2018. We expect the full-year effect of the refinancing to further reduce interest expense in
2019. We incurred a loss on debt extinguishment in the second quarter of 2018 relating to the debt refinancing.
Our Venezuela operations impacted our overall financial results in 2016 and 2017 until the time we
deconsolidated our Venezuela operations ("GCP Venezuela") on July 3, 2017. Selling, general, and administrative
expenses decreased in 2018 due to savings associated with restructuring and lower employee incentive
compensation after increasing in 2017 due to acquisitions and the build-out of our stand-alone corporate functions
post-Separation.
Net Sales and Gross Margin
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The following table identifies the year-over-year increase or decrease in sales attributable to changes in
volume and/or mix, product price, and the impact of currency exchange for 2018.
Net Sales Variance Analysis
Volume
Price
Currency
Translation
Total Change
Year Ended December 31, 2018 as a Percentage Increase (Decrease)
from the Year Ended December 31, 2017
Specialty Construction Chemicals
Specialty Building Materials
Net sales
By Region:
North America
Europe Middle East Africa
Asia Pacific
Latin America
4.4 %
0.4 %
2.7 %
4.1 %
(4.5)%
7.0 %
2.1 %
1.4 %
1.7 %
1.5 %
1.5 %
1.9 %
(0.8)%
7.3 %
(1.2)%
0.7 %
(0.4)%
— %
0.9 %
1.0 %
(12.4)%
4.6 %
2.8 %
3.8 %
5.6 %
(1.7)%
7.2 %
(3.0)%
Net sales of $1,125.4 million for 2018 increased $41.0 million, or 3.8%, compared with the prior year. The
increase was primarily due to higher sales volumes and price increases in both SCC and SBM, partially offset by
the unfavorable impact of foreign currency translation, mainly in Latin America. Higher sales volumes were driven
by stronger product demand within SCC and the impact of acquisitions, including Ductilcrete within SCC, as well
as Stirling Lloyd and RIW within SBM.
GCP's gross margin of 36.4% decreased 200 basis points and GCP's Adjusted Gross Margin of 36.6%
decreased 240 basis points in 2018 compared with the prior year. The declines were primarily due to higher raw
material and logistics costs, which were partially offset by price increases and productivity gains.
The following table identifies the year-over-year increase or decrease in net sales attributable to changes in
volume and/or mix, product price, and the impact of currency exchange for 2017.
Net Sales Variance Analysis
Volume
Price
Currency
Translation
Total Change
Year Ended December 31, 2017 as a Percentage Increase (Decrease)
from the Year Ended December 31,2016
Specialty Construction Chemicals
Specialty Building Materials
Net sales
By Region:
North America
Europe Middle East Africa
Asia Pacific
Latin America
(1.9)%
10.2 %
3.0 %
5.4 %
9.7 %
(3.5)%
(13.1)%
2.9 %
1.0 %
2.1 %
0.7 %
1.8 %
(1.4)%
24.9 %
(2.3)%
(0.3)%
(1.5)%
0.1 %
(3.1)%
(0.1)%
(12.6)%
(1.3)%
10.9 %
3.6 %
6.2 %
8.4 %
(5.0)%
(0.8)%
Net sales of $1,084.4 million for 2017 increased $37.9 million, or 3.6%, compared with the prior year.
The increase was primarily due to increased sales volumes and price, partially offset by unfavorable currency
translation. Sales volumes benefited from the acquisitions of Halex in the fourth quarter of 2016, Stirling Lloyd in
the second quarter of 2017 and Ductilcrete in the fourth quarter of 2017, which, in aggregate, contributed $56.8
million of incremental sales in 2017 compared to the prior year. Price increases and unfavorable currency
translation were primarily due to the results of Venezuela within SCC during the first half of 2017 and the
weakening of the Turkish lira against the U.S. dollar.
GCP's gross margin of 38.4% decreased 160 basis points compared with the prior year, as price increases
were more than offset by higher raw material costs.
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(Loss) Income from Continuing Operations Attributable to GCP Shareholders
Loss from continuing operations attributable to GCP shareholders was $16.1 million for 2018, compared to
$110.9 million for the prior year. The change was primarily attributable to: (i) lower income taxes due to higher tax
expense associated with the 2017 Tax Act in the prior year, (ii) loss on the deconsolidation of GCP's Venezuela
operations recognized during the prior year, (iii) lower interest expense and related financing costs due to the
refinancing of our 9.5% Senior Notes in 2018 and full repayment of the Term Loan previously outstanding under
our Credit Agreement during 2017, and (iv) higher income within "Other (income) expense, net" which included
income from pension mark-to-market adjustments. The impact of such items was partially offset by a loss on debt
extinguishment of $59.4 million resulting from the refinancing of our 9.5% Senior Notes in 2018 which was
included within "Interest expense and related financing costs" in the Consolidated Statements of Operations.
Loss from continuing operations attributable to GCP shareholders was $110.9 million for 2017, compared to
net income from continuing operations attributable to GCP shareholders of $27.6 million for the prior year. The
change was primarily due to: (i) higher expenses in 2017 for income taxes, (ii) losses in Venezuela and (iii)
increased selling, general and administrative expenses. The impact of such items was partially offset by higher
income within "Other (income) expense, net".
Adjusted EBIT
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Adjusted EBIT was $118.9 million for 2018, a decrease of 6.7%, compared with the prior year. The decrease
was primarily due to lower SCC operating income, partially offset by higher SBM operating income and lower
corporate and certain pension costs. Adjusted EBIT margin of 10.6% declined 110 basis points from the prior year
primarily due to lower gross margin in both SCC and SBM.
Adjusted EBIT was $127.4 million for 2017, a decrease of 9.6% compared with the prior year. The decrease
was primarily due to higher selling, general and administrative expenses and lower Adjusted Gross Profit, partially
offset by income generated from our transition services agreements related to the sale of Darex, which is included
in "Other (income) expense, net." Adjusted EBIT Margin of 11.7% declined 180 basis points from the prior year.
Adjusted EBITDA
Adjusted EBITDA was $160.9 million for 2018, a decrease of 2.0%, compared with the prior year. The
decrease was primarily due to lower Adjusted EBIT, partially offset by higher intangible asset amortization due to
acquisitions and higher depreciation expense due to our capital investments in facilities, information technology
infrastructure, and VERIFI®. Adjusted EBITDA margin of 14.3% declined 80 basis points from the prior year.
Adjusted EBITDA was $164.2 million for 2017, a decrease of 3.9% compared with the prior year. The
decrease was primarily due to lower Adjusted EBIT, partially offset by higher depreciation expense due to the
build-out of our stand-alone information technology infrastructure post-Separation, higher intangible asset
amortization due to acquisitions and higher depreciation expense due to our capital investments in VERIFI®.
Adjusted EBITDA Margin of 15.1% declined 120 basis points from the prior year.
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Adjusted EBIT Return On Invested Capital
Adjusted EBIT Return On Invested Capital for 2018 was 18.0%, a decrease from 20.2% in 2017. The
decrease was primarily due to lower Adjusted EBIT, an increase in invested capital resulting from lower accounts
payable and acquisition of RIW in the second quarter of 2018, partially offset by lower accounts receivable, as
well as current and other liabilities.
Adjusted EBIT Return On Invested Capital for 2017 was 20.2%, a decrease from 30.2% in 2016.
The decrease was primarily due to lower Adjusted EBIT, an increase in invested capital resulting from our
acquisitions of Stirling Lloyd in the second quarter of 2017 and Ductilcrete in the fourth quarter of 2017 and higher
accounts receivable, partially offset by higher accounts payable.
We manage our operations with the objective of maximizing sales, earnings and cash flow over time which
requires that we successfully balance our growth, profitability and working capital and other investments to
support sustainable, long-term financial performance. We use Adjusted EBIT Return On Invested Capital as a
performance measure in evaluating operating results, in making operating and investment decisions and in
balancing the growth and profitability of our operations. Generally, we favor those businesses and investments
that provide the highest return on invested capital.
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Operating Segment Overview—Specialty Construction Chemicals (SCC)
Following is an overview of the financial performance of SCC for 2018, 2017 and 2016.
Net Sales and Gross Margin—SCC
Net sales were $643.5 million for 2018, an increase of $27.8 million, or 4.5%, compared with the prior year.
The increase was primarily due to higher sales volumes as described below and increased pricing in all regions
except Asia Pacific, partially offset by unfavorable currency translation mainly due to the strengthening of the U.S.
dollar compared to currencies in Latin America.
Sales volumes increased 4.4% in 2018 compared to the prior year primarily due to acquisitions in North
America and stronger demand in North America and Asia Pacific, partially offset by sales volume declines in Latin
America and in EMEA mostly due to our strategy to exit unprofitable geographic markets.
Sales volumes increased 5.6% in our Concrete business due to stronger demand in North America as well as
the acquisition of Ductilcrete, partially offset by lower sales in Venezuela which was deconsolidated during the
third quarter of 2017. Sales volumes in our Cement business increased 1.0% primarily due to stronger demand in
Asia Pacific and EMEA.
Gross profit was $206.9 million for 2018, a decrease of $11.9 million, or 5.4%, compared with the prior year.
Gross margin was 32.2% compared with 35.5% for the prior year. The decrease in gross margin was primarily
due to increases in raw material and logistics costs, partially offset by price increases and the impact of the
acquisition of Ductilcrete.
Net sales were $615.7 million for 2017, a decrease of $8.1 million, or 1.3%, compared with the prior year. The
decrease was primarily due to lower sales volumes attributable to the impact of weather events in North America,
share loss in Asia Pacific, the deconsolidation of Venezuela, and unfavorable currency translation, partially offset
by improved pricing. Sales volume increases in North America and EMEA were more than offset by volume
declines in Asia Pacific and Latin America. Price increases and unfavorable currency translation resulted primarily
from our Venezuela operations prior to deconsolidation in the third quarter of 2017.
Concrete sales volume decreased 3.5% compared with the prior-year. Increased sales volumes in North
America were more than offset by decreases in EMEA due to first half macro-economic conditions, in Asia Pacific
due to share loss and in Latin America due to the impact of Venezuela. Increased sales volumes in North America
reflected improved economic conditions, which more than offset the impact of weather events, while sales growth
of VERIFI® and the impact of the Ductilcrete acquisition also contributed. Sales volumes increased by 3.2% in
Cement compared to the prior year with growth in all regions.
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Gross profit was $218.8 million for 2017, a decrease of $11.1 million, or 4.8%, compared with the prior year
and gross margin was 35.5% compared with 36.9% for the prior year. Both gross profit and gross margins were
negatively impacted by increases in raw material and logistics costs, partially offset by productivity gains.
Segment Operating Income and Operating Margin—SCC
Segment operating income was $40.2 million for 2018, a decrease of $23.2 million, or 36.6%, compared with
the prior year. Segment operating margin of 6.2% decreased 410 basis points compared with the prior year. The
decrease in segment operating margin was primarily due to lower gross margin, higher operating expenses and
the deconsolidation of GCP Venezuela in 2017, partially offset by the accretive impact of the Ductilcrete
acquisition. Operating expenses benefited from restructuring savings which were more than offset by higher
corporate cost allocations and increased cost to support the growth of VERIFI®. During 2017, SCC’s Venezuelan
operations contributed net sales of $6.2 million and operating income of $4.3 million. The Venezuelan entity was
deconsolidated on July 3, 2017 and no longer contributed to net sales or operating income beyond that date.
Segment operating income was $63.4 million for 2017, a decrease of $9.2 million, or 12.7%, compared with
the prior year. Segment operating margin of 10.3% decreased 130 basis points compared with the prior year. The
decreases were primarily due to lower gross profit.
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Operating Segment Overview—Specialty Building Materials (SBM)
Following is an overview of the financial performance of SBM for 2018, 2017 and 2016.
Net Sales and Gross Margin—SBM
Net sales were $481.9 million for 2018, an increase of $13.2 million, or 2.8%, compared with the prior year.
The increase was due to price increases in North America and EMEA, the favorable impact of currency translation
and higher sales volumes, as described below.
Sales volumes increased 0.4% primarily due to the growth in Asia Pacific and Latin America, partially offset by
lower sales volumes in EMEA and North America. Building Envelope volumes increased 5.6% due to increased
project activity and the impact of the Stirling Lloyd and RIW acquisitions. Specialty Construction Products volumes
declined 9.4% primarily due to the divestiture of the non-core Halex tack strip business in the second quarter of
2017. Residential volumes remained consistent with the prior year.
Gross profit was $205.3 million for 2018, an increase of $1.2 million, or 0.6%, compared with the prior year.
Gross margin was 42.6% compared with 43.5% for the prior year primarily due to increased raw material and
logistics costs, partially offset by price increases and productivity gains.
Net sales were $468.7 million for 2017, an increase of $46.0 million, or 10.9%, compared with the prior year.
The increase was primarily due to higher sales volumes which increased in North America and EMEA primarily
due to the acquisitions of Halex and Stirling Lloyd, as well as increases in price. The acquisitions of Halex and
Stirling Lloyd contributed $55.6 million of incremental sales volume in 2017, which was partially offset by volume
declines in Residential. Currency translation had minimal impact on net sales.
Sales volumes in Building Envelope increased 11.4% primarily due to the Stirling Lloyd acquisition, partially
offset by project timing. Residential volumes decreased 11.8% primarily due to the timing of promotions, weather
impacts and a reduction in customer inventory levels. Volume in our Specialty Construction Products increased
27.6% primarily due to the Halex acquisition. Sales volumes increased in all regions compared with the prior year.
Gross profit was $204.1 million for 2017, an increase of $7.4 million, or 3.8%, compared with the prior year,
primarily due to the impact of our acquisitions, which was partially offset by increases in raw material cost and
unfavorable product mix. Gross margin was 43.5% compared with 46.5% for the prior year primarily due to raw
material cost inflation and unfavorable product mix, partially offset by productivity gains.
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Segment Operating Income and Operating Margin—SBM
Segment operating income was $113.6 million for 2018, an increase of $4.2 million, or 3.8%, compared with
the prior year. Segment operating margin for 2018 was 23.6%, an increase of 30 basis points, compared with the
prior year. The increase in segment operating margin was primarily due to lower operating expenses, partially
offset by lower gross margin. Operating expenses benefited from restructuring savings and an acquisition-related
settlement related to Stirling Lloyd, partially offset by higher corporate cost allocations.
Segment operating income was $109.4 million for 2017, a decrease of $4.6 million, or 4.0%, compared with
the prior year, primarily due to lower gross margin and increased operating expenses due to the acquisitions.
Segment operating margin for 2017 was 23.3%, a decrease of 370 basis points compared with the prior year.
Corporate Overview
Corporate costs include certain functional support costs, the impacts of foreign exchange, certain
performance-based employee incentive compensation, public company costs, and other costs that are not
allocated to our operating segments.
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Corporate costs were $27.3 million for 2018, a decrease of $9.1 million, or 25.0%, compared with 2017. The
decrease was primarily due to lower general corporate expenses previously allocated to Darex, lower employee
incentive compensation and lower foreign exchange losses primarily from Venezuela. These decreases were
partially offset by increases in corporate functional support and public company costs.
Corporate costs were $36.4 million for 2017, a decrease of $2.0 million, or 5.2%, compared with 2016.
The decrease was primarily due to lower general corporate expenses previously allocated to Darex, lower foreign
exchange losses in Venezuela and lower performance-based incentive compensation, partially offset by higher
public company costs compared to the prior year.
Defined Benefit Pension and Gain on Termination and Curtailments
Defined benefit pension expense includes costs relating to U.S. and non-U.S. defined benefit pension and
other postretirement benefit (the "OPEB") plans that provide benefits to retirees and former employees of divested
businesses where we retained these obligations.
In accordance with mark-to-market (the "MTM") accounting, our pension costs recognized in our results of
operations consist of the following two components: (i) "certain pension costs," which represent ongoing costs
recognized quarterly, including service and interest costs, expected return on plan assets and amortization of prior
service costs/credits; and (ii) "pension MTM adjustment and other related costs, net," which represent mark-to-
market gains and losses recognized annually during the fourth quarter or during interim periods when significant
events occur, such as plan amendments or curtailments. Mark-to-market gains and losses result from changes in
actuarial assumptions, such as discount rates and the difference between actual and expected returns on plan
assets. Additionally, we recognize applicable material events within "gain on termination and curtailment of
pension and other postretirement plans" during the period in which they occur.
The following table summarizes pension costs for 2018, 2017 and 2016:
Years Ended December 31,
(In millions)
2018
2017
2016
Certain pension costs
Pension MTM adjustment and other related costs, net(1)
Gain on termination and curtailment of pension and other
postretirement plans
_______________________________
$
(7.6) $
8.7
0.2
(9.0) $
(14.1)
6.6
(7.2)
(22.6)
0.8
(1)
2018 includes $1.2 million of other related costs from the initial recognition of a liability for a non-U.S. OPEB retiree heath care plan,
2016 includes $2.7 million of other related costs for the recognition of a liability relating to withdrawal assessment for two union
plans in the U.S.
Certain pension costs decreased by $1.4 million in 2018 as compared to 2017 primarily due to higher
discount rates as well as better than expected return on plan assets due to the $40 million contribution we made
to our U.S. plans at the end of 2017. Certain pension costs increased by $1.8 million in 2017 as compared to
2016 due to lower discount rates and demographic factors relating to plan participants.
Pension MTM adjustment and other related costs, net amounted to an income of $8.7 million in 2018
compared to a loss of $14.1 million in the prior year. The change of $22.8 million was primarily attributable to an
increase in discount rates and a change in compensation rates for plan participants, partially offset by a lower
actual return on plan assets. During 2018, we recognized an aggregate expense of $0.9 million which consisted
of $1.2 million related to a recognition of a liability for an OPEB retiree health care plan offset by a MTM
remeasurement gain of $0.3 million related to a non-U.S. pension plan. During 2017, we recognized plan
remeasurement losses of $3.0 million related to the sale of Darex offset by a MTM remeasurement gain of $0.1
million related to a non-U.S. pension plan.
Pension MTM adjustment and other related costs, net amounted to an expense of $14.1 million and $22.6
million, respectively, in 2017 and 2016. The change of $8.5 million was primarily due to higher discount rates and
demographic changes in the areas in which we operate.
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For the years ended December 31, 2018, 2017 and 2016, the components of pension costs presented in
"Corporate costs and pension costs in costs of goods sold" in our Analysis of Operations were $1.9 million, $1.7
million, and $7.1 million respectively, and represent service costs related to our manufacturing employees. During
the first quarter of 2017, we adopted Accounting Standards Update ("ASU") 2017-07, Compensation—
Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost in accordance with which we no longer record a portion of our pension MTM
adjustments in inventory and expense in cost of goods sold. During 2016, we allocated a portion of all
components of net periodic benefit costs to costs of goods sold for a total of $7.1 million, of which $5.9 million
related to mark-to-market adjustments and $1.2 million related to certain pension costs allocated to manufacturing
employees.
Please refer to Note 8, "Pension Plans and Other Postretirement Benefit Plans" in the Notes to the
Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this
Annual Report on Form 10 K for further information on pension plans.
Gain on termination and curtailment of pension and other postretirement plans of $0.2 million was recognized
in "Other (income) expense, net" during 2018.
Gain on termination and curtailment of pension and other postretirement plans of $6.6 million was recognized
in "Other (income) expense, net" during 2017, of which $5.1 million was related to U.S. pension plan curtailments
due to a plan amendment that closed the GCP Applied Technologies Inc. Retirement Plan for Salaried Employees
to new hires effective January 1, 2018, and froze the accrual of plan benefits for all plan participants as of
December 31, 2022. The total gain of $6.6 million in 2017 also included a curtailment gain of $0.7 million due to
U.S. restructuring activities and a curtailment gain of $0.8 million in connection with a plan amendment to another
U.S. plan.
Gain on termination and curtailment of pension and other postretirement plans of $0.6 million was recognized
in "Other (income) expense, net" during 2016 and primarily related to non-U.S. pension plan curtailment and
termination gains and losses. Such gain was comprised of a $1.4 million curtailment gain due to a plan
termination and a $0.2 million curtailment gain due to a plan amendment, offset by a $1.0 million curtailment loss
due to a plan termination.
Restructuring and Repositioning Expenses
2019 Restructuring and Repositioning Plan (the “2019 Plan”)
On February 22, 2019, our Board of Directors approved a business restructuring and repositioning plan (the
“2019 Plan”). The 2019 Plan is focused on GCP’s global supply chain strategy, processes and execution,
including our manufacturing, purchasing, logistics, and warehousing operations. The plan also addresses GCP’s
service delivery model primarily in North America to streamline the Company’s pursuit of combined admixture and
VERIFI® opportunities. We expect to incur total pre-tax costs in connection with the 2019 Plan of approximately
$15 million to $20 million, of which approximately $5 million to $8 million represent restructuring costs and
approximately $10 million to $12 million represent repositioning costs. In addition, we expect to incur $2 million of
capital expenditures associated with the program.
Approximately $3 million to $5 million of the estimated pretax restructuring costs represent employee
severance and other employee-related costs, while the remaining $2 million to $3 million represents facility exit
costs, asset write-offs, and other-related costs. Repositioning costs primarily consist of consulting services to
assist us in advancing our technology strategy. With the exception of asset write-offs, substantially all of the cost
and capital expenditures associated with the 2019 Plan are expected to result in cash expenditures.
We expect to realize total annualized pre-tax cost savings associated with the 2019 Plan of approximately
$22 million to $28 million in 2020. These savings are expected to benefit both the SCC and SBM operating
segments. Substantially all of the restructuring actions under the 2019 Plan are expected to be completed by the
end of 2020.
The 2019 Plan is separate and in addition to the 2018 and 2017 Plans that were approved by the Board of
Directors on August 1, 2018, and June 28, 2017, respectively. The 2018 Plan is expected to generate
approximately $25 million of annualized savings in 2019, while the 2017 Plan generated $29 million in annualized
savings as of the end of 2018, of which $14 million benefited continuing operations.
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2018 Restructuring and Repositioning Plan (the “2018 Plan”)
On August 1, 2018, our Board of Directors approved a business restructuring and repositioning plan. The
2018 Plan is designed to streamline operations and improve profitability primarily within the concrete admixtures
product line of our SCC segment by focusing on our core markets, rationalizing non-profitable geographies,
reducing our global cost structure and accelerating the integration of VERIFI® into our global admixtures business.
We expect to incur total pre-tax costs in connection with the 2018 Plan of approximately $31 million to $35
million, of which approximately $20 million to $24 million represents restructuring costs and asset impairments,
and approximately $11 million represents repositioning costs.
We expect to realize total annualized pre-tax cost savings associated with the 2018 Plan of approximately
$25 million in 2019. Approximately 75% and 25% of the total pre-tax cost savings is expected in SCC and SBM,
respectively. During 2018, we achieved pre-tax cost savings of approximately $5.6 million, or approximately $11.2
million on an annualized basis through a reduction in cost of goods sold and selling, general and administrative
expenses. We expect a total annualized SCC revenue reduction of $65 million to $75 million by the end of 2019
as a result of exiting non-profitable geographic markets under the 2018 Plan. Such revenue reductions amounted
to approximately $10 million in 2018.
2017 Restructuring and Repositioning Plan (the “2017 Plan”)
On June 28, 2017, our Board of Directors approved a restructuring and repositioning plan that includes
actions to streamline our operations, reduce our global cost structure and reposition us as a construction products
technologies company.
We expect to incur total costs under the 2017 Plan of approximately $30 million, of which $20 million is
related to restructuring activities and asset impairments, and $10 million is related to repositioning activities. As of
December 31, 2018, we have incurred cumulative costs of $18.9 million related to restructuring and asset
impairments and $8.8 million related to repositioning.
Restructuring activities were substantially completed as of December 31, 2018 and we achieved net
annualized cost reductions of approximately $29 million, of which approximately $14 million was included within
continuing operations and approximately $15 million was included within discontinued operations. These net cost
reductions were primarily related to selling, general and administrative expenses. The net cost reductions were
phased-in over the completion of the 2017 Plan, and the cost recovery generated from the Transition Services
Agreement with Henkel, as described in Note 18, "Discontinued Operations" in the Notes to the Consolidated
Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this Annual Report on
Form 10 K, largely offset the costs that were eliminated upon completion of the program.
Restructuring Expenses
The following table summarizes restructuring expenses and asset impairments related to the 2017 and 2018
Plans and other plans:
(In millions)
Severance and other employee costs
Facility exit costs
Asset impairments
Total restructuring expenses and asset impairments
Less: restructuring and asset impairments reflected in discontinued
operations
Total restructuring expenses and asset impairments from continuing
operations
Year Ended December 31,
2018
2017
$
$
$
10.1 $
0.6
4.5
15.2 $
0.4
14.8 $
19.9
0.2
1.2
21.3
7.8
13.5
For further information on our restructuring activities, please refer to Note 11, "Restructuring Expenses, Asset
Impairments and Repositioning Expenses" in the Notes to the Consolidated Financial Statements included in Item
8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10 K.
Repositioning Expenses - 2018 Plan and 2017 Plan
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Repositioning expenses associated with the 2018 and 2017 Plans primarily relate to consulting, other
professional services and employee-related costs associated with our organizational realignment. Due to the
scope and complexity of our repositioning activities, the range of estimated repositioning expenses could increase
or decrease and the timing of incurrence could change.
During 2018, we incurred repositioning expenses related to the 2018 Plan of $5.3 million, substantially all of
which were related to consulting and other professional service fees and employee-related costs associated with
our organizational realignment. Total cash payments made under the 2018 Plan were $0.2 million during 2018.
During 2018 and 2017, we incurred repositioning expenses related to the 2017 Plan of $4.3 million and $4.5
million, respectively, substantially all of which were related to consulting and other professional service fees and
employee-related costs associated with our organizational realignment. As of December 31, 2018, the cumulative
repositioning activity costs recognized under the 2017 Plan were approximately $8.8 million.
As of December 31, 2018, cumulative cash payments for repositioning made under the 2017 Plan from
inception to date were $14.1 million. Total cash payments made under the 2017 Plan were $12.1 million during
2018. As of December 31, 2018, cumulative capital expenditures incurred from inception to date were $7.4
million.
Separation-Related Repositioning Expenses
Post-Separation from Grace, we incurred expenses related to our transition to a stand-alone public company.
As of December 31, 2017, we completed these activities and incurred total cumulative costs of $20.6 million. We
did not incur any costs related to such activities during 2018. For further information on this action and the related
costs, please refer to Note 11, "Restructuring Expenses, Asset Impairments and Repositioning Expenses" in the
Notes to the Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary
Data" of this Annual Report on Form 10 K.
We exclude restructuring, asset impairments, and repositioning expenses from Adjusted EBIT, as discussed
in the "Results of Operations" section above.
Interest and Financing Expenses
"Interest expense and related financing costs" included in the Consolidated Statements of Operations were
$92.4 million and $70.2 million, respectively, for 2018 and 2017. The increase of $22.2 million during 2018
compared to the prior year resulted primarily from a loss on debt extinguishment of $59.4 million due to the
redemption of our 9.5% Senior Notes and the origination of the 5.5% Senior Notes on April 10, 2018. Such loss
was partially offset by lower interest expense and related financing costs due to the debt refinancing and full
repayment of the Term Loan during 2017.
Interest expense and related financing costs were $70.2 million and $65.8 million, respectively, for 2017 and
2016. The increase of $4.4 million during 2017 compared to the prior year resulted primarily from the write-off of
the net unamortized debt issuance costs of $3.9 million and the net unamortized discount of $2.1 million
associated with the repayment and extinguishment of our Term Loan on July 31, 2017, as well as increased
Revolving Credit Facility borrowings in 2017 compared to 2016.
Please refer to the "Debt and Other Contractual Obligations" section below and Note 6 " Debt and Other
Borrowings" in the Notes to the Consolidated Financial Statements included in Item 8 "Financial Statements and
Supplementary Data" of this Annual Report on Form 10 K for further information on our debt obligations related to
the senior notes and other borrowings at December 31, 2018 and December 31, 2017.
Income Taxes
Income tax expense for 2018, 2017 and 2016 was $26.3 million, $82.1 million and $6.7 million respectively,
on income (loss) from continuing operations before income taxes of $10.5 million, $(28.3) million and $35.3
million, respectively, in 2018, 2017 and 2016.
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Tax Reform
The 2017 Tax Act, which was signed into law on December 22, 2017, has resulted in significant changes to
the Internal Revenue Code. These significant changes include, but are not limited to, the federal corporate tax
rate being reduced from 35% to 21%, the elimination or reduction of certain domestic deductions and credits,
along with limitations on deductions for interest expense and executive compensation. The 2017 Tax Act also
transitions international taxation from a worldwide system to a modified territorial system and includes base
erosion prevention measures on non-US earnings, which has the effect of subjecting certain earnings of our
foreign subsidiaries to US taxation as global intangible low-taxed income (GILTI). We have elected to recognize
the tax on GILTI as a period expense in the period the tax is incurred.
During 2017, we recorded a provisional net charge of $81.7 million related to the provisions of the 2017 Tax
Act, which is comprised of a $70.5 million Transition Tax and an $11.2 million revaluation of net deferred tax
assets. Changes in tax rates and tax laws are accounted for in the period of enactment.
During 2018, we recorded an increase to the provisional net charge of $17.9 million which is comprised of an
expense of $20.2 million related to certain capital gains recognized resulting from the application of the Transition
Tax (see Unrecognized Tax Benefits - Subsequent Event paragraph below), a $2.5 million benefit related to the
Transition Tax, and an expense of $0.2 million for the effect on U.S. deferred taxes.
Transition Tax
The 2017 Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by
imposing the Transition Tax, which is a one-time mandatory deemed repatriation tax on undistributed earnings.
The Transition Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign
earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a
15.5% and all other earnings will be taxed at 8.0%.
At December 31, 2017 the provisional Transition Tax recorded was $70.5 million. Upon further analysis of the
Act, Notices and Regulations issued and proposed by the U.S. Department of the Treasury and the Internal
Revenue Service, we decreased our December 31, 2017 amount by $2.5 million, which is included in 2018. As of
December 31, 2018, we completed the recording of the amount for our one-time Transition Tax totaling $68.0
million, net of foreign tax credits generated. We elected to pay the Transition Tax over the eight-year period
provided in the Act. As of December 31, 2018, the unpaid balance of our Transition Tax obligation is $37.7 million
net of overpayments and foreign tax credits, and is payable between April 2022 and April 2025.
Status of Our Assessment of the 2017 Tax Act
As of December 31, 2018, we are complete with accounting for the income tax effects of the Act.
Unrecognized Tax Benefit - Subsequent Event
On January 15, 2019, the Internal Revenue Service (IRS) issued final regulations under Code Section 965,
the Transition Tax Provision. During the fourth quarter of 2018, the Company recorded an unrecognized tax
benefit related to certain capital gains recognized as a result of the application of the transition tax of $20.2
million. Due to clarifications provided in the final Treasury Regulations on the transition tax , GCP expects its
liability for unrecognized tax benefits to decrease by approximately $20.2 million in the first quarter of 2019, offset
by a current income tax payable amount of $2.6 million. These amounts are subject to change as further review
and analysis is performed over the final regulations.
Effective Tax Rate
Our effective tax rate was approximately 250%, 290% and 19% in 2018, 2017 and 2016, respectively.
The decrease in our effective tax rate for 2018 compared to 2017 was primarily due to impacts from the 2017
Tax Act including the decrease in the statutory tax rate and offsetting unrecognized tax benefits recorded, as well
as valuation allowance expense. The increase in our effective tax rate for 2017 compared to 2016 was primarily
due to the provisions of the 2017 Tax Act, an increase in valuation allowances due to the sale of Darex, partially
off-set by a benefit for taxes related to outside basis differences in foreign subsidiaries.
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Our 2018 effective tax rate of 250% was higher than the 21% U.S. statutory rate primarily due to an increase
in the impact of the 2017 Tax Act recorded of $17.9 million and an increase in valuation allowance of $6.8 million
primarily due to un-benefited losses in Germany, France, India, Turkey and Mexico.
Our 2017 effective tax rate of approximately 290% was higher than the 35% U.S. statutory rate primarily due
to net expenses recognized during the year comprised of $81.7 million due to the 2017 Tax Act, $11.5 million due
to non-deductible charges for the Venezuela deconsolidation, $11.4 million due to an increase in valuation
allowance primarily due to the sale of Darex, offset by a $13.9 million benefit due to differences between book and
tax basis in Venezuela and Mexico.
Our 2016 effective tax rate of approximately 19% was lower than the 35% U.S. statutory rate primarily due to
benefits recognized during the year, including $4.5 million benefit due to lower taxes in non-U.S. jurisdictions, $0.7
million benefit related to income tax credits and $1.6 million benefit related to the release of reserves for
unrecognized tax benefits and $2.5 million expense for non-deductible expenses.
Income taxes paid in cash, net of refunds, were $23.1 million, $11.2 million, and $24.4 million, respectively, in
2018, 2017 and 2016. Our annual cash tax rate was approximately 220%, 40%, and 69%, respectively, in 2018,
2017, and 2016.
Please refer to Note 7, "Income Taxes," in the Notes to the Consolidated Financial Statements included in
Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10 K for additional
information regarding income tax.
Other (Income) Expense, Net
Other (income) expense, net was income of $26.7 million and $2.9 million, respectively, for 2018 and 2017.
The increase of $23.8 million was primarily attributable to: (i) pension mark-to-market gains recognized in 2018
compared to mark-to-market losses during the prior year, (ii) acquisition-related settlement proceeds received
from the sellers of Stirling Lloyd during 2018, as well as (iii) a loss on the divestiture of Halex’s non-core tack strip
business recognized during the prior year. These items were partially offset by lower gain on termination and
curtailment of pension and other postretirement plans, higher foreign currency transaction and remeasurement
losses and lower TSA income related to the sale of Darex which began during the prior year and substantially
ended during the second quarter of 2018.
Other (income) expense, net was income of $2.9 million in 2017 compared to expense of $14.6 million in
2016. The change of $17.5 million was primarily attributable to: (i) an increase in gain on termination and
curtailment of pension and other post retirement plans recognized in 2017, (ii) a decrease in pension market-to-
market losses compared to the prior-year, as well as (iii) a decrease in net foreign currency transaction and
remeasurement losses recognized in 2017 compared to the prior-year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Following is an analysis of our financial condition, liquidity and capital resources at December 31, 2018.
Our principal uses of cash generally have been capital investments, acquisitions and working capital
investments. In connection with our Separation from Grace, we incurred $800.0 million of indebtedness, including
$750.0 million borrowed to pay a distribution to Grace prior to the Separation and approximately $50 million
retained to meet operating requirements and to pay Separation-related fees. We believe our liquidity and capital
resources, including cash on hand and cash we expect to generate during 2019 and thereafter, future borrowings,
if any, as well as other available liquidity and capital resources discussed further below, are sufficient to finance
our operations and growth strategy and meet our debt obligations.
Divestiture of Darex
Upon the closing of the sale of Darex on July 3, 2017, we received proceeds of approximately $1.06 billion
before deal and other one-time costs. We have used a portion of these proceeds primarily to repay indebtedness,
for acquisitions, and for general corporate purposes.
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The agreement governing our sale of Darex provides for a series of delayed closings in certain non-U.S.
jurisdictions, including Argentina, China, Colombia, Indonesia, Peru and Venezuela for which sales proceeds of
$68.7 million were received on the July 3, 2017 closing date. The delayed closings will implement the legal
transfer of the Darex business in the delayed closing jurisdictions in accordance with local law. During 2018, we
completed the delayed closings in Argentina, Colombia, Peru, and China and recognized a gain associated with
these delayed closings of $43.5 million on a pre-tax basis and $31.5 million on an after-tax basis based on $55.4
million of proceeds received. During 2017, we recognized a gain of $880.8 million on a pre-tax basis and $678.9
million on an after-tax basis based on $1.0 billion of proceeds received on the sale of Darex entities that closed on
July 3, 2017.
In January 2019, the delayed closing in Indonesia was completed. We expect to record a pre-tax gain in the
first quarter of 2019 of approximately $8 million to $11 million based on $13.1 million of proceeds received on July
3, 2017, subject to normal and customary closing adjustments.
We expect to complete the remaining delayed closing for Venezuela over the following 12 months. Up to the
time of the delayed closings, the results of the operations of the Darex business within the delayed close
countries are reported as “Income (loss) from discontinued operations, net of income taxes” in the Consolidated
Statements of Operations, which are adjusted for an economic benefit payable to or recovered from Henkel. The
assets and liabilities of the Darex business in the remaining delayed close countries are categorized as assets or
liabilities held for sale in the Consolidated Balance Sheets as of December 31, 2018 and 2017.
Cash Resources and Available Credit Facilities
At December 31, 2018, we had available liquidity of $712.9 million, consisting of $326.1 million in cash and
cash equivalents, of which $122.8 million was held in the U.S., $345.0 million under our revolving credit facility,
and $41.8 million under various non-U.S. credit facilities.
Our non-U.S. credit facilities are extended to various subsidiaries that use them primarily to issue bank
guarantees supporting trade activity and to provide working capital during occasional cash shortfalls. We
generally renew these credit facilities as they expire.
We expect to meet our U.S. cash and liquidity requirements with cash on hand, cash we expect to generate
during 2019 and thereafter, future borrowings, if any, and other available liquidity, including royalties and service
fees from our foreign subsidiaries. We may also repatriate future earnings from foreign subsidiaries if that results
in minimal or no U.S. tax consequences. We expect to have sufficient cash and liquidity to finance our U.S.
operations and growth strategy and to meet our debt obligations in the U.S. Please refer to Note 1, "Basis of
Presentation and Summary of Significant Accounting and Financial Reporting Policies" in the Notes to the
Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this
Annual Report on Form 10 K for a discussion of our cash and cash equivalents.
The following table summarizes our non-U.S. credit facilities as of December 31, 2018.
(In millions)
China
India
Canada
Korea
Mexico
Brazil
United Arab Emirates
Other countries
Total
Expiration Date
2/3/2021
2/3/2021
2/3/2021
2/3/2021
3/31/2019
Open ended
12/31/2018
Open ended
Maximum
Borrowing
Amount
Available
Liquidity
$
12.0 $
11.2
1.5
5.5
5.0
2.3
2.3
2.2
11.8
41.8
12.0
5.5
5.0
2.3
2.3
2.5
12.4
$
54.0 $
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Analysis of Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2018, 2017 and 2016.
(In millions)
Net cash provided by (used in) operating activities from continuing operations(1)
Net cash used in investing activities from continuing operations
Net cash (used in) provided by financing activities from continuing operations
(Decrease) increase in cash and cash equivalents from continuing operations
(Decrease) Increase in cash and cash equivalents from discontinued operations
(132.9)
1,010.1
Effect of currency exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Less: cash and cash equivalents of discontinued operations
Cash and cash equivalents, beginning of period
Cash and cash equivalents of continuing operations, end of period
_______________________________
Year Ended December 31,
2018
2017
2016
(1.0) $
75.8
$
75.4 $
(86.9)
(247.3)
(258.8)
(160.9)
(292.0)
(453.9)
(3.7)
2.0
(395.4)
558.2
—
—
721.5
98.6
$ 326.1 $ 721.5 $ 147.0
163.3
(86.3)
37.5
27.0
41.9
(4.2)
64.7
16.3
(1)
During 2018, we identified an immaterial error related to the presentation of the effect of currency exchange rate changes on cash
and cash equivalents in our Consolidated Statements of Cash Flows in the filed 2017 Annual Report on Form 10-K. The correction of
this error resulted in a reclassification of $4.4 million between “cash provided by (used in) operating activities from continuing
operations” and “effect of currency exchange rate changes on cash and cash equivalents” in the Consolidated Statements of Cash
Flows for the year ended December 31, 2017. The revisions for these corrections are reflected in the financial information for 2017 in
the table above. Please refer to Note 1, "Basis of Presentation and Summary of Significant Accounting and Financial Reporting
Policies" in the Notes to the Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of
this Annual Report on Form 10 K for further information on this reclassification.
2018 Compared to 2017
Net cash provided by operating activities from continuing operations for 2018 was $75.4 million, compared with
net cash used in operating activities from continuing operations of $1.0 million for 2017. The year-over-year
increase was primarily attributable to lower cash paid for pension plan contributions and debt interest, as well as
higher cash inflows from accounts receivable as a result of stronger cash collections during 2018 compared to
2017. These items were partially offset by increased cash outflows from accounts payable due to the timing of
payments and higher cash paid for taxes.
Included in net cash provided by (used in) by operating activities from continuing operations for 2018 and 2017
are restructuring payments of $9.1 million and $6.8 million, respectively, and repositioning payments of $5.5 million
and $6.2 million, respectively.
Net cash used in investing activities from continuing operations for 2018 was $86.9 million compared to $160.9
million for 2017. The year-over-year decrease was primarily due to lower cash payments for acquisitions, partially
offset by higher capital expenditures during 2018 compared to 2017 due to capital investments in facilities and
information technology infrastructure, as well as the VERIFI®.
Net cash used in financing activities from continuing operations for 2018 was $247.3 million, compared to
$292.0 million for 2017. During 2018, we redeemed the 9.5% Senior Notes for $587.9 million, in part using $350.0
million in proceeds from the issuance of the 5.5% Senior Notes. During 2017, we repaid the Term Loan principal
balance outstanding under the Credit Agreement for $272.6 million.
2017 Compared to 2016
Net cash used in operating activities from continuing operations for 2017 was $1.0 million, compared with net
cash provided by operating activities from continuing operations of $75.8 million for 2016. The year-over-year
change was primarily due to the impact of accelerated pension plan contributions of $40 million in 2017, increases
in trade accounts receivable and cash paid for interest related to our Credit Agreement and Senior Notes, as well
as changes in other assets and liabilities. These items were partially offset by an increase in accounts payable and
decreases in cash paid for taxes and repositioning.
Included in net cash provided by operating activities from continuing operations for 2016 are restructuring
payments of $3.6 million and repositioning payments of $17.7 million.
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Net cash used in investing activities from continuing operations for 2017 was $160.9 million, compared with
$86.3 million for 2016. The year-over-year change was primarily due to the acquisitions of Stirling Lloyd and
Ductilcrete in 2017.
Net cash used in financing activities from continuing operations for 2017 was $292.0 million, compared with
net cash provided by financing activities from continuing operations of $37.5 million in 2016. The year-over-year
change is primarily due the $272.6 million repayment and extinguishment of the Term Loan principal balance,
during 2017, as described above.
Debt and Other Contractual Obligations
Total debt outstanding at December 31, 2018 and 2017 was $356.7 million and $544.3 million, respectively.
On April 10, 2018, we redeemed our then existing 9.5% Senior Notes with an aggregate principal amount of
$525.0 million due in 2023 (the “9.5% Senior Notes”), issued 5.5% Senior Notes with an aggregate principal
amount of $350.0 million maturing on April 15, 2026 (the "5.5% Senior Notes") and entered into an amendment to
our Credit Agreement to, among other things, (i) increase the aggregate principal amount available under our
revolving credit facility to $350.0 million, (ii) extend the maturity date of the revolving credit facility thereunder to
April 2023 and (iii) make certain other changes to the covenants and other provisions therein. Additionally, we
borrowed $50.0 million in aggregate principal amount of revolving loans under the Credit Agreement, which was
fully repaid during 2018. The aggregate cash payment of $587.9 million, which consisted of: (i) proceeds of
$350.0 million from the issuance of the 5.5% Senior Notes, net of loan origination fees of $3.1 million, (ii)
borrowings of $50.0 million under the Credit Agreement, and (iii) a cash payment of $191.0 million was used to
redeem all of the then outstanding 9.5% Senior Notes in accordance with the terms of the indenture governing the
9.5% Senior Notes.
During 2018, we recognized a loss on debt extinguishment of $59.4 million related to the 9.5% Senior Notes
which was included in "Interest expense and related financing costs" in the Consolidated Statements of
Operations. In connection with the redemption of our 9.5% Senior Notes with the then outstanding principal
balance of $525.0 million, we paid total cash proceeds of $587.9 million, including $53.3 million of a redemption
premium and $9.6 million of accrued interest unpaid thereon through the redemption date, and wrote off $6.1
million of previously deferred debt issuance costs.
5.5% Senior Notes
The 5.5% Senior Notes were issued pursuant to an Indenture (the “Indenture”), at $346.9 million, or 99.1% of
their par value, resulting in a discount of $3.1 million, or 0.9%, which represented loan origination fees paid at the
closing. We incurred additional deferred financing costs of $1.6 million during 2018. Interest is payable semi-
annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2018. An interest
payment of $9.9 million was paid on October 15, 2018. Our debt service requirements are expected to be funded
through our existing sources of liquidity and operating cash flows.
Subject to certain conditions stated in the Indenture, we may, at our option and at any time and from time to
time, redeem the 5.5% Senior Notes prior to their maturity date in whole or in part at certain redemption prices, as
discussed in Note 6, "Debt and Other borrowings," in the Notes to the Consolidated Financial Statements
included in Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10 K. Upon
occurrence of a change of control, as defined in the Indenture, we will be required to make an offer to repurchase
the 5.5% Senior Notes at a price equal to 101.00% of their aggregate principal amount repurchased plus accrued
and unpaid interest, if any, to, but excluding, the date of repurchase.
The Indenture contains certain covenants and provides for customary events of default subject to customary
grace periods in certain cases. Please refer to Note 6, "Debt and Other borrowings," in the Notes to the
Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this
Annual Report on Form 10 K for additional information regarding our debt. As of December 31 2018, we were in
compliance with all covenants and conditions under the Indenture. There are no events of default under the
Indenture as of December 31, 2018.
Credit Agreement
On April 10, 2018, we entered into an amendment to our Credit Agreement and borrowed $50 million in
aggregate principal amount of revolving loans under the Credit Agreement, as discussed above. The Credit
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Agreement contains conditions that would require mandatory principal payments in advance of the maturity date
of the Revolving Credit Facility, as well as certain customary affirmative and negative covenants and events of
default, as described in Note 6, "Debt and Other Financial Instruments," to our Consolidated Financial
Statements. We were in compliance with all covenant terms as of December 31, 2018 and December 31, 2017.
There are no events of default as of December 31, 2018 or December 31, 2017.
The interest rate per annum applicable to the Revolving Credit Facility is equal to, at our option, either: (i) a
base rate plus a margin ranging from 0.5% to 1.0%, or (ii) LIBOR plus a margin ranging from 1.5% to 2.0%, based
upon our total leverage ratio and our restricted subsidiaries' in both scenarios. During 2018, we made aggregate
payments of $50.0 million on the Revolving Credit Facility. As of December 31, 2018, there were no outstanding
borrowings on the Revolving Credit Facility and $5.0 million in outstanding letters of credit, which resulted in
available credit of $345.0 million under the Revolving Credit Facility. As of December 31, 2017, there were no
outstanding borrowings under the Revolving Credit Facility. During 2018, interest payments made on the
Revolving Credit Facility were $0.2 million. Please refer to Note 6, "Debt and Other borrowings," in the Notes to
the Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this
Annual Report on Form 10 K for additional information regarding our debt.
On July 3, 2017, we completed the sale of Darex to Henkel for approximately $1.06 billion in cash, subject to
working capital and certain other adjustments. The sale of Darex is a permitted transaction under our Credit
Agreement and the Indenture governing the 9.5% Senior Notes which were redeemed on April 10, 2018. Under
the Credit Agreement and the Indenture governing the 9.5% Senior Notes, we were required to use net cash
proceeds from the sale to prepay debt or make investments in the business over a period of approximately 18
months. During 2017, we fully repaid the outstanding principal balance on the Term Loan together with accrued
and unpaid interest and extinguished the Term Loan under the Credit Agreement.
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Contractual Obligations
The following is a summary of our contractual obligations as of December 31, 2018.
(In millions)
Contractual Cash Obligations:
Debt and other borrowings(1)
Expected interest payments on debt and other borrowings(2)
Lease obligations(3)
Transition income tax liability(4)
Operating commitments(5)
Pension funding requirements per ERISA (U.S.)(6)
Pension funding requirements for pension plans (non-U.S.)(7)
Total contractual cash obligations
Other Commercial Commitments:
Standby letters of credit
Total commitments
______________________________________
$
$
$
Payments Due By Period
Less than
1 Year
1-3
Years
3-5
Years
More Than
5 Years
Total
$ — $
38.5
345.6
57.8
$ 356.7
157.5
5.4
12.4
—
21.0
$
0.5
39.6
17.0
—
2.0
3.6
10.6
21.6
16.4
—
2.3
—
2.4
53.3
5.6
$ 68.3
6.2
$ 83.5
2.0
55.3
3.0
$ 71.3
—
$ 83.5
32.1
25.3
—
—
70.9
37.7
4.3
24.6
—
460.8
14.2
$ 665.9
—
460.8
5.0
$ 670.9
$
$
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Debt and other borrowings include principal maturities of the $350.0 million 5.5% Senior Notes due in 2026 and borrowings under
various lines of credit, primarily by non-U.S. subsidiaries. Such amounts represent contractual cash obligations payable at maturity
and do not include debt issuance cost reductions. Please refer to Note 6, "Debt and Other Financial Instruments," in the Notes to the
Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this Annual Report on
Form 10 K for further information on these arrangements.
Amounts are based on a 5.5% fixed interest rate for the 5.5% Senior Notes and variable interest rates in effect at December 31,
2018 for the borrowings under various lines of credit, for principal debt outstanding as of December 31, 2018.
Includes capital lease obligations with aggregate lease payments of $1.5 million that will be paid over two years.
Represents the Company's income tax liability of $37.7 million associated with the 2017 Tax Act, which will be paid over seven
years.
Amounts do not include open purchase commitments, which are routine in nature and normally settle within 90 days.
Based on the U.S. qualified pension plans' status as of December 31, 2018, minimum funding requirements under ERISA have
been estimated for the next five years. Amounts in subsequent years or additional payments we may make at our discretion have
not yet been determined.
Based on the non-U.S. pension plans' status as of December 31, 2018, funding requirements have been estimated for the next five
years. Amounts in subsequent years have not yet been determined.
As of December 31, 2018, we had approximately $52.8 million of unrecognized tax benefits and $10.4
million of the associated interest and penalties pertaining to unrecognized tax benefits. Included in these amounts
are $3.0 million indemnified by Grace, as well as unrecognized tax benefits and the associated interest and
penalties on the items that have historically been included in tax returns filed by Grace. Due to clarifications
provided in the final Treasury Regulations on the Transition Tax issued on January 15, 2019, we expect our
liability for unrecognized tax benefits to decrease by approximately $20.2 million in the first quarter of 2019. We
also believe it is reasonably possible that in the next 12 months due to expiration of statute of limitation that the
amount of the liability for unrecognized tax benefits could further decrease by approximately $1.5 million, of which
$0.6 million is indemnified by Grace. Unrecognized tax benefits represent a potential future cash outlay. We are
unable to make a reasonably reliable estimate of the timing of the cash settlement for this liability since the timing
of future tax examinations by various tax jurisdictions and the related resolution is uncertain. Please refer to Note
7, "Income Taxes", in the Notes to the Consolidated Financial Statements included in Item 8 "Financial
Statements and Supplementary Data" of this Annual Report on Form 10 K for further information on our
unrecognized tax benefit.
The letters of credit of approximately $5.0 million are related primarily to customer advances and other
performance obligations as of December 31, 2018. Please refer to Note 10, "Commitments and Contingent
Liabilities," to the Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary
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Data" of this Annual Report on Form 10 K for further information on guarantees, indemnification obligations and
financial assurances, none of which were material at December 31, 2018.
Off-Balance-Sheet Arrangements
As of December 31, 2018, we had no significant off-balance-sheet arrangements other than guarantees,
indemnification obligations and financial assurances which are described in Note 10, "Commitments and
Contingent Liabilities," to the Consolidated Financial Statements included in Item 8 "Financial Statements and
Supplementary Data" of this Annual Report on Form 10 K. These arrangements are not material to our overall
financial condition, results of operations, liquidity and capital resources, as well as market risk support or credit
risk support.
Employee Benefit Plans
Defined Contribution Retirement Plan
We have a defined contribution retirement plan for GCP employees in the U.S. Currently, GCP contributes an
amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. This plan
is qualified under section 401(k) of the U.S. tax code. We incurred costs for this plan totaling $4.6 million, $4.8
million, and $4.1 million for the years ended December 31, 2018, 2017, and 2016 respectively.
Defined Benefit Pension Plans
We sponsor defined benefit pension plans for our employees in the U.S., the U.K. and a number of other
countries. We also fund government-sponsored programs in other countries in which we operate. A portion of our
defined benefit pension plans are advance-funded, and others are pay-as-you-go. The advance-funded plans are
administered by trustees who direct the management of plan assets and arrange to have obligations paid when
due. Our most significant advance-funded plans cover current and former salaried employees in the U.K. and
certain of our U.S. employees who are covered by collective bargaining agreements. Our U.S. advance-funded
plans are qualified under the U.S. tax code.
Fully-funded plans include several advance-funded plans where the fair value of the plan assets exceeds the
projected benefit obligation ("PBO"). This group of plans was overfunded by $22.5 million as of December 31,
2018, and the overfunded status is reflected as "Overfunded defined benefit pension plans" in the Consolidated
Balance Sheets. Underfunded plans include a group of advance-funded plans that are underfunded on a PBO
basis by a total of $24.2 million as of December 31, 2018. Additionally, we have several plans that are funded on
a pay-as-you-go basis; and therefore, the entire PBO of $26.9 million at December 31, 2018 is unfunded. The
combined balance of the underfunded and unfunded plans was $49.4 million as of December 31, 2018. This
amount is presented as $1.3 million in "Other current liabilities" and $48.1 million in "Underfunded and unfunded
defined benefit pension plans" on the Consolidated Balance Sheets.
Based on the U.S. advance-funded plans' status as of December 31, 2018, there were no minimum required
payments under ERISA. We made accelerated contributions to the trusts that hold assets of the U.S. qualified
pension plans of $40.0 million and $1.0 million, respectively, in 2017 and 2016. We made no contributions to
these plans in 2018. We intend to fund non-U.S. pension plans based upon applicable legal requirements as well
as actuarial and trustee recommendations. We contributed $5.0 million, $3.4 million and $5.9 million, respectively,
to the non-U.S. pension plans in 2018, 2017 and 2016. The increase of $1.6 million during 2018 as compared to
2017 was primarily due to a $2.9 million discretionary contribution to a pension plan in Brazil.
Please refer to Note 8, "Pension Plans and Other Postretirement Benefit Plans," in the Notes to the
Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this
Annual Report on Form 10 K for further discussion on our pension and other postretirement benefit plans.
Inflation
We recognize that inflationary pressures may have an adverse effect on us through higher asset replacement
costs and higher raw materials and other operating costs. We try to minimize these impacts through effective
control of operating expenses and productivity improvements, as well as price increases to customers.
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We estimate that the cost of replacing our property and equipment today is greater than its historical cost.
Accordingly, our depreciation expense would be greater if the expense were stated on a current cost basis.
Venezuela
On July 3, 2017, we deconsolidated our GCP Venezuela subsidiary and recognized a corresponding pre-tax
charge of $36.7 million. Such charge was reflected in “Loss in Venezuela” in the Consolidated Statements of
Operations and primarily related to the recognition of unfavorable currency translation adjustments of $33.4
million for periods prior to January 1, 2010. In the periods subsequent to the deconsolidation, we began
accounting for GCP Venezuela using the cost method and we no longer included the operating results of the
Venezuela subsidiary in our consolidated financial results. During 2017, GCP Venezuela contributed net sales of
$6.2 million and operating income of $3.2 million within continuing operations.
During 2018 we sold the remaining SCC operations within our Venezuela subsidiary. Both the proceeds from
the sale and the loss on the sale did not have a material impact to the Consolidated Financial Statements. As of
December 31, 2018, the remaining operations in GCP Venezuela represent the Darex operations expected to be
sold to Henkel within the next 12 months under the delayed close arrangement. The remaining investment in GCP
Venezuela is classified as held for sale within the Company's Consolidated Balance Sheets as of December 31,
2018 and 2017 and is not material.
Argentina
As of June 30, 2018, we concluded that Argentina is a highly inflationary economy since the three-year
cumulative inflation rates commonly used to evaluate Argentina’s inflation currently exceed 100%. As a result, we
began accounting for our operations in Argentina as a highly inflationary economy starting with July 1, 2018.
Effective July 1, 2018, the functional currency of our subsidiary operating in Argentina became the U.S. dollar
and all remeasurement adjustments after the effective date are reflected in our results operations in the
Consolidated Statements of Operations. During 2018, we incurred losses of $1.1 million, which are included in
"Other (income) expense, net" in the Consolidated Statement of Operations, related to the remeasurement of
these monetary net assets. During 2018, net sales generated by the Argentina subsidiary were not material to our
consolidated net sales. Monetary net assets denominated in local currency within our Argentina subsidiary were
not material to our consolidated total assets as of December 31, 2018.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, as well as related
disclosures of contingent assets and liabilities within the Consolidated Financial Statements. Changes in
estimates are recognized in the period in which they are identified. We believe that our accounting estimates are
appropriate and the related balances included within the Consolidated Financial Statements are reasonable.
Actual amounts could differ from the initial estimates which may require adjustments in future periods that could
have a material impact on our financial condition and results of operations. A description of our accounting
policies is included in Note 1, "Basis of Presentation and Summary of Significant Accounting and Financial
Reporting Policies" in the Notes to the Consolidated Financial Statements included in Item 8 "Financial
Statements and Supplementary Data" of this Form 10 K.
We believe that the assumptions and estimates associated with the critical accounting policies and estimates
described in this section involve significant judgment and thus have the most significant potential impact on our
Consolidated Financial Statements. An accounting estimate is considered critical if management is required to
make assumptions and judgments about matters that were highly uncertain at the time the estimate was made, if
different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur
from period to period that could have a material impact on our financial condition or results of operations. As part
of our disclosure controls and procedures, management has discussed the development, selection and disclosure
of the critical accounting estimates with the Audit Committee of the GCP Board of Directors.
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Contingent Liabilities
Contingent liabilities may arise from circumstances, such as legal disputes, environmental remediation,
product liability and warranty claims, material commitments and income taxes. We establish liabilities for loss
contingencies associated with these matters when we determine that it is probable that a liability has been
incurred and its amount can be reasonably estimated. We base our assessment of probabilities on the facts and
circumstances known at the time the financial statements are prepared. If we determine that a loss is probable,
but only an estimated range of the potential loss amount exists, we record a liability equal to the minimum amount
of the range and make subsequent adjustments, if necessary, as further information becomes available. Please
refer to Item 3, "Legal Proceedings" and Note 10, "Commitments and Contingent Liabilities" in the Notes to the
Consolidated Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this
Form 10 K for further information on contingent liabilities.
Goodwill and Indefinite-lived Intangible Assets
Goodwill represents the excess of purchase price over the fair value of identifiable net assets of businesses
acquired. Indefinite-lived intangible assets consist primarily of purchased technology, trademarks and trade
names.
We review our goodwill and indefinite-lived intangible assets for impairment annually, and whenever events or
changes in circumstances indicate that the carrying amounts may not be fully recoverable. We assess goodwill for
impairment at the reporting unit level, which we define as Specialty Construction Chemicals and Specialty
Building Materials, by performing either a qualitative evaluation or a quantitative test.
Application of the goodwill impairment assessment requires judgment based on market and operational
conditions at the time of the assessment. We first assess qualitative factors to determine whether the existence of
events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is less than its
carrying value. Qualitative factors may include, but are not limited to, economic, market and industry conditions,
cost factors and overall financial performance of the reporting unit. If we determine, based on this assessment,
that it is more likely than not that the fair value of the reporting unit is less than its carrying value, we perform a
quantitative goodwill impairment test by comparing these amounts. If the fair value of the reporting unit exceeds
the carrying amount, no impairment loss is recognized. However, if the carrying amount exceeds its fair value, the
goodwill of the reporting unit may be impaired. The amount of impairment loss, if any, is measured based upon
the implied fair value of goodwill at the valuation date. Goodwill is deemed to be impaired when its carrying
amount exceeds its implied fair value.
Fair value of each reporting unit is determined using a combined weighted average of the income-based
approach and the market-based approach. In applying the income-based approach, the fair value of each
reporting unit is determined in accordance with a discounted projected cash flow valuation model based on the
estimated projected future cash flows and terminal value discounted at a rate which reflects the weighted average
costs of capital. The inputs and assumptions that are most likely to impact the reporting unit's fair value include
the discount rate, long-term sales growth rates and forecasted operating margins. In applying the market-based
approach, we determine the reporting unit’s business enterprise fair value based on inputs and assumptions
related to average revenue multiples and EBITDA multiples derived from our peer group which are weighted and
adjusted for size, risk and growth of the individual reporting unit. Changes in these estimates and assumptions or
a continued decline in general economic conditions could change our conclusions regarding goodwill impairment
and potentially result in a non-cash impairment loss recognized in our results of operations in future periods.
Indefinite-lived intangible assets are assessed for impairment by performing either a qualitative evaluation or
a quantitative test which requires judgment based on market and operational conditions at the time of the
assessment. We first assess qualitative factors to determine whether the existence of events or circumstances
indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If we determine, based
on this assessment, that it is more likely than not that the asset is impaired, we perform a quantitative impairment
test by comparing the asset's fair value with its carrying value. No impairment loss is recognized if the fair value
exceeds the carrying value. However, if the carrying value of the indefinite-lived intangible asset exceeds its fair
value, the amount of such excess is recognized as an impairment loss and the asset's carrying value is written
down to its fair value.
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Fair value of the indefinite-lived intangible assets is determined based on a relief-from-royalty valuation
method. The inputs and assumptions that are most likely to impact the intangible assets' fair value include the
discount rate, royalty rate and long-term sales growth rates.
We performed our annual impairment assessment related to goodwill and the indefinite-lived intangible assets
as of October 31, 2018. We determined, based upon the results of our qualitative assessments, that it was not
likely that the fair values of the reporting units and the indefinite-lived intangible assets were less than their
carrying amounts. As such, we did not perform quantitative assessments as a part of the impairment test and did
not recognize impairment losses as a result of our analysis. We last performed a quantitative assessment as part
of the impairment test in 2017, and the fair value of our reporting units was significantly in excess of their carrying
values. If events occur or circumstances change that would more likely than not reduce the fair values of the
reporting units and the indefinite-lived intangible assets below their carrying values, goodwill and the indefinite-
lived intangible assets will be evaluated for impairment between annual tests. There were no impairment charges
recognized during any of the periods presented in the Consolidated Statements of Operations.
Pension and Other Postretirement Benefits Expenses and Liabilities
We sponsor defined benefit pension plans for our employees in the United States, the United Kingdom, and a
number of other countries, and fund government-sponsored programs in other countries where we operate.
Please refer to Note 8, "Pension Plans and Other Postretirement Benefit Plans," in the Notes to the Consolidated
Financial Statements included in Item 8 "Financial Statements and Supplementary Data" of this Form 10 K and
"Employee Benefit Plans" section presented above for a detailed discussion of our pension plans and other
postretirement benefit plans.
In order to estimate our pension and other postretirement benefits expenses and liabilities, we select from a
range of possible assumptions derived from participant demographics, past experiences and market indices.
These assumptions are updated annually and primarily include discount rates, expected return on plan assets,
mortality rates, retirement rates, and rate of compensation increase. The independent actuaries review our
assumptions for reasonableness and use such assumptions to calculate our estimated liability and future pension
expense. We review the actuarial reports for reasonableness and adjust our expenses, assets and liabilities to
reflect the amounts calculated in the actuarial reports.
The two key assumptions used in determining our pension benefit obligations and pension expense are the
discount rate and expected return on plan assets. Our most significant pension assets and pension liabilities are
related to U.S. and U.K. pension plans.
The assumed discount rates for pension plans reflect currently available market rates for high-quality
corporate bonds. For the U.S. pension plans, the assumed weighted average discount rate was selected in
consultation with our independent actuaries based on a yield curve constructed from a portfolio of high quality
bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. For the
U.K. pension plan, the assumed weighted average discount rate was selected in consultation with our
independent actuaries based on a yield curve constructed from a portfolio of sterling-denominated high quality
bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan.
We selected the expected return on plan assets for the U.S. qualified pension plans for 2018 in consultation
with our independent actuaries using an expected return model. The model determines the weighted average
return for an investment portfolio based on the target asset allocation and expected future returns for each asset
class which were developed using a building block approach based on observable inflation, available interest rate
information, current market characteristics and historical results. For the expected return on plan assets for the
U.K. pension plan, we considered the trustees' strategic investment policy together with long-term historical
returns and investment community forecasts for each asset class.
Income Taxes
We are a global enterprise with operations in over 30 countries. This global reach results in a complexity of
tax regulations, which require assessments of applicable tax law and judgments in estimating our ultimate income
tax liability. Please refer to Note 7, "Income Taxes," in the Notes to the Consolidated Financial Statements
included in Item 8 "Financial Statements and Supplementary Data" of this Form 10 K for additional details
regarding our estimates used in accounting for income tax matters including unrecognized tax benefits.
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We recognize the tax benefit from an unrecognized tax benefit only if it is more likely than not that the tax
position will be sustained upon examination by the taxing authorities based on the technical merits of the position.
We measure tax benefits in our financial statements from such position as the largest benefit that has a greater
than fifty percent likelihood of being realized upon ultimate settlement. Unrecognized tax benefits are tax benefits
claimed in our tax returns that do not meet these recognition and measurement standards.
We record a liability for unrecognized tax benefits when it is more likely than not that a tax position we have
taken will not be sustained upon audit. We evaluate such likelihood based on relevant facts and tax law. We
adjust our recorded liability for income tax matters due to changes in circumstances or new uncertainties, such as
amendments to existing tax law. Our ultimate tax liability depends upon many factors, including negotiations with
taxing authorities in the jurisdictions in which we operate, outcomes of tax litigation and resolution of disputes
arising from federal, state, and foreign tax audits. Due to the varying tax laws in each jurisdiction, management,
with the assistance of local tax advisers on an as needed basis, assesses individual matters in each jurisdiction
on a case-by-case basis. We research and evaluate our income tax positions, including the reasons we believe
they are compliant with income tax regulations. Such positions are documented as appropriate.
Deferred income taxes result from the differences between the financial and tax basis of our assets and
liabilities and are adjusted for changes in tax rates and tax laws when such changes are enacted. If it is more
likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established.
At December 31, 2018 and 2017, we recorded a valuation allowance of $18.5 million and $23.9 million
respectively, to reduce our net deferred tax assets to the amount that is more likely than not to be realized. The
realization of deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate
tax jurisdictions. We believe it is more likely than not that deferred tax assets, net of valuation allowances will be
realized. If we were to determine that we would not be able to realize in the future a portion of our deferred tax
assets for which currently there is no valuation allowance, an adjustment to the deferred tax assets would be
recognized as a reduction of earnings during the period such determination was made. Conversely, if we were to
make a determination that it is more likely than not that we will realize in the future deferred tax assets for which
there is currently a valuation allowance, the related valuation allowance would be reduced and a benefit would be
recognized in earnings during the period such determination was made.
Stock-Based Compensation
We grant equity awards to certain key employees which include stock options, restricted share units (“RSUs”)
and performance-based units (“PBUs”) with or without market conditions in accordance with provisions of the
GCP Applied Technologies Inc. Equity and Incentive Plan (the "Plan"), as amended and restated on February 28,
2017.
We estimate the fair value of equity awards issued at the grant date. The fair value of the awards is
recognized as stock-based compensation expense on a straight line basis, net of estimated forfeitures, for each
separately vesting portion of the award over the employee’s requisite service period. We use the Black-Scholes
option pricing model for determining the fair value of stock options granted and the Monte Carlo simulation model
to estimate the fair value of PBUs with market conditions, both of which require management to make significant
judgments and estimates regarding participant activity and market results. The use of different assumptions and
estimates could have a material impact on the estimated fair value of these awards and the related stock-based
compensation expense recognized during each period. The inputs and assumptions used in determining fair
values of equity awards are the expected life, expected volatility, risk-free interest rate, expected dividend yield
and correlation coefficient.
We make estimates of the expected forfeiture rate and recognize stock-based compensation expense during
each reporting period based on the number of equity awards expected to vest which requires significant
judgment. Stock-based compensation expense is adjusted as changes are made to the estimated forfeiture rate
based on actual forfeiture activity during the vesting period. We consider many factors in developing estimated
forfeiture rates, including voluntary termination behavior and future workforce reduction programs. Estimated
forfeitures are trued up to actual forfeitures as each equity award vests.
We make estimates related to the likelihood of achieving performance goals for PBUs that vest upon the
satisfaction of these goals. The number of shares ultimately provided to employees who received a PBU grant will
be based on the level of achievement of these Company targets. PBUs are remeasured during each reporting
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period based on the expected payout of the award, which may range from 0% to 200% of the targets for such
awards. PBUs granted in 2016 are based on a three-year cumulative adjusted earnings per share measure. PBUs
granted in 2017 and 2018 are based on a three-year cumulative adjusted diluted earnings per share measure that
is modified, up or down, based on the Company's total shareholder return relative to the performance of the
Russell 3000 Index. As a result, these awards are subject to volatility until the payout is determined at the end of
the performance period.
Acquisitions
We account for business acquisitions using the purchase method of accounting, in accordance with which
assets acquired and liabilities assumed are recorded at their respective fair values at the acquisition date. The fair
value of the consideration paid, including contingent consideration, is assigned to the assets acquired and
liabilities assumed based on their respective fair values. Goodwill represents the excess of the purchase price
over the estimated fair values of the assets acquired and liabilities assumed.
Significant judgment is used in determining fair values of assets acquired and liabilities assumed, including
definite-lived intangible assets and their estimated useful lives. Fair value and useful life determinations are based
on, among other factors, estimates of future expected cash flows, customer relationship attrition rates, royalty cost
savings and appropriate discount rates used in computing present values. These judgments may materially
impact the estimates used in allocating the purchase price based on acquisition date fair values to assets
acquired and liabilities assumed, as well as our current and future operating results. Actual results may vary from
these estimates that may result in adjustments to goodwill and acquisition date fair values of assets and liabilities
during a measurement period or upon a final determination of asset and liability fair values, whichever occurs first.
Adjustments to fair values of assets and liabilities made after the end of the measurement period are recorded
within our operating results. Changes in the fair value of a contingent consideration liability resulting from a
change in the underlying inputs are recognized in our operating results until such liability is settled.
Recent Accounting Pronouncements
Effective January 1, 2018, we adopted Accounting Standard Update (the "ASU") 2014-09, Revenue from
Contracts with Customers (Topic 606). The impact of this adoption was deemed immaterial to our net sales,
income from continuing operations before income taxes, loss from continuing operations, and net income during
2018. For a summary of recently issued accounting pronouncements applicable to our Consolidated Financial
Statements which is incorporated here by reference, please refer to Note 1, "Basis of Presentation and Summary
of Significant Accounting and Financial Reporting Policies" in the Notes to the Consolidated Financial Statements
included in Item 8 "Financial Statements and Supplementary Data" of this Form 10 K.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our global operations, raw materials and energy requirements and debt obligations expose us to various
market risks. The following is a discussion of our primary market risk exposures, how these exposures may be
managed and certain quantitative data pertaining to these exposures. We use derivative financial instruments to
mitigate certain of these risks.
Currency Exchange Rate Risk
We operate in over 30 countries, and, as a result, our results of operations are exposed to changes in
currency exchange rates. We minimize exposure to these changes by matching revenue streams in volatile
currencies with expenditures in the same currencies using currency forward contracts or swaps. However, we do
not have a policy of hedging all exposures, as management does not believe that such a level of hedging would
be cost-effective. We do not hedge translation exposures that are not expected to affect cash flows in the near-
term.
Commodity Price Risk
We operate in markets where the prices of raw materials and energy are commonly affected by cyclical
movements in the economy and other factors. The principal raw materials used in our products include amines,
polycarboxylates, rubber and latex, solvents, naphthalene, sulfonate, lignins and saccharides. These commodities
are generally available to be purchased from more than one supplier. In order to minimize the risk of increasing
prices on certain raw materials and energy, we use a centralized supply chain organization for sourcing in order to
optimize procurement activities. We have a risk management committee to review proposals to hedge purchases
of raw materials and energy, but we do not currently use financial instruments to hedge these costs.
Interest Rate Risk
As of December 31, 2018 and 2017, approximately $11 million and $23 million, respectively, of our
borrowings were at variable interest rates. As a result, we are subject to interest rate risk. A 100 basis point
increase in the interest rates payable on our variable rate debt as of December 31, 2018 and 2017 would increase
our annual interest expense by approximately $0.1 million and $0.2 million, respectively.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2018, 2017
and 2016
Consolidated Statements of Stockholders' Equity (Deficit) for the three years ended December 31, 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Inventories
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies
2. Revenue from Contracts with Customers
3.
4. Properties and Equipment
5. Goodwill and Other Intangible Assets
6. Debt and Other Financial Instruments
7.
8. Pension Plans and Other Postretirement Benefit Plans
9. Other Balance Sheet Accounts
Income Taxes
10. Commitments and Contingent Liabilities
11. Restructuring Expenses, Asset Impairments and Repositioning Expenses
12. Other Comprehensive (Loss) Income
13. Related Party Transactions and Transactions with Grace
14. Stock Incentive Plans
15. Operating Segment Information
16. Earnings Per Share
17. Acquisitions
18. Discontinued Operations
19. Quarterly Summary and Statistical Information (Unaudited)
20. Subsequent Event
Financial Statement Schedule II—Valuation and Qualifying Accounts and Reserves for the years ended
December 31, 2018, 2017 and 2016
SIGNATURES
___________________________________________________________
The Financial Statement Schedule II should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of GCP Applied Technologies Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of GCP Applied Technologies Inc. and its
subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of
operations, of comprehensive (loss) income, of stockholders’ equity (deficit) and of cash flows for each of the
three years in the period ended December 31, 2018, including the related notes and financial statement schedule
listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and
on the Company's internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded
RIW Limited from its assessment of internal control over financial reporting as of December 31, 2018 because it
was acquired by the Company in a purchase business combination during 2018. We have also excluded RIW
Limited from our audit of internal control over financial reporting. RIW Limited is a wholly-owned subsidiary whose
total assets and total revenues excluded from management’s assessment and our audit of internal control over
financial reporting represent approximately 1% and 1%, respectively, of the related consolidated financial
statement amounts as of and for the year ended December 31, 2018.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 2019
We have served as the Company’s auditor since 2015.
Table of Contents
GCP Applied Technologies Inc.
Consolidated Statements of Operations
(In millions, except per share amounts)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development expenses
Interest expense and related financing costs
Repositioning expenses
Restructuring expenses and asset impairments
Loss in Venezuela
Other (income) expense, net
Total costs and expenses
Income (loss) from continuing operations before income taxes
Provision for income taxes
(Loss) income from continuing operations
Income from discontinued operations, net of income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to GCP shareholders
Amounts Attributable to GCP Shareholders:
(Loss) income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
(Loss) Earnings Per Share Attributable to GCP Shareholders:
Basic (loss) earnings per share:
(Loss) income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders(1)
Weighted average number of basic shares
Diluted (loss) earnings per share:(2)
(Loss) income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders(1)
Weighted average number of diluted shares
______________________________
Year Ended December 31,
2018
2017
2016
$ 1,125.4
$ 1,084.4
$ 1,046.5
715.5
409.9
289.1
20.2
92.4
9.6
14.8
—
(26.7)
399.4
10.5
(26.3)
(15.8)
31.3
15.5
(0.3)
667.3
417.1
296.5
20.0
70.2
9.8
13.5
38.3
(2.9)
445.4
(28.3)
(82.1)
(110.4)
664.3
553.9
(0.5)
$
$
$
$
$
$
$
$
$
15.2
$
553.4
$
(16.1) $
(110.9) $
31.3
15.2
664.3
$
553.4
$
(0.22) $
(1.55) $
$
$
0.43
0.21
72.1
$
$
9.29
7.74
71.5
(0.22) $
(1.55) $
$
$
0.43
0.21
72.1
$
$
9.29
7.74
71.5
628.9
417.6
266.3
18.4
65.8
15.3
1.9
—
14.6
382.3
35.3
(6.7)
28.6
45.2
73.8
(1.0)
72.8
27.6
45.2
72.8
0.39
0.64
1.03
70.8
0.38
0.63
1.02
71.7
(1)
(2)
Amounts may not sum due to rounding.
Dilutive effect is only applicable to the years during which GCP generated net income from continuing operations.
The Notes to Consolidated Financial Statements are an integral part of these statements.
66
Table of Contents
(In millions, except par value and shares)
ASSETS
Current Assets
Cash and cash equivalents
GCP Applied Technologies Inc.
Consolidated Balance Sheets
December 31,
2018
December 31,
2017
Trade accounts receivable (net of allowances of $5.8 million and $5.7 million, respectively)
Inventories, net
Other current assets
Current assets held for sale
Total Current Assets
Properties and equipment, net
Goodwill
Technology and other intangible assets, net
Deferred income taxes
Overfunded defined benefit pension plans
Other assets
Non-current assets held for sale
Total Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Debt payable within one year
Accounts payable
Other current liabilities
Current liabilities held for sale
Total Current Liabilities
Debt payable after one year
Income taxes payable
Deferred income taxes
Unrecognized tax benefits
Underfunded and unfunded defined benefit pension plans
Other liabilities
Non-current liabilities held for sale
Total Liabilities
Commitments and Contingencies - Note 10
Stockholders' Equity
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding:
72,176,324 and 71,754,344, respectively
Paid-in capital
Accumulated earnings
Accumulated other comprehensive loss
Treasury stock
Total GCP Stockholders' Equity
Noncontrolling interests
Total Stockholders' Equity
$
326.1
$
198.6
110.5
44.6
3.4
683.2
225.1
207.9
89.0
25.5
22.5
28.0
0.7
1,281.9
$
$
10.6
$
121.4
145.5
—
277.5
346.1
37.7
12.4
62.8
48.1
15.5
0.4
$
$
721.5
217.1
106.3
48.6
19.7
1,113.2
216.6
198.2
91.8
30.2
26.4
23.8
2.8
1,703.0
24.0
134.8
316.2
7.8
482.8
520.3
58.3
14.7
42.4
57.1
35.1
0.3
800.5
1,211.0
0.7
39.6
563.9
(120.0)
(4.8)
479.4
2.0
481.4
0.7
29.9
548.7
(85.7)
(3.4)
490.2
1.8
492.0
Total Liabilities and Stockholders' Equity
$
1,281.9
$
1,703.0
The Notes to Consolidated Financial Statements are an integral part of these statements.
67
Table of Contents
GCP Applied Technologies Inc.
Consolidated Statements of Comprehensive (Loss) Income
(In millions)
Net income
Other comprehensive (loss) income:
Year Ended December 31,
2018
2017
2016
$
15.5
$
553.9
$
73.8
Defined benefit pension and other postretirement plans, net of income taxes
Currency translation adjustments
Gain (loss) from hedging activities, net of income taxes
Other comprehensive income attributable to noncontrolling interests
Total other comprehensive (loss) income
Comprehensive (loss) income
Less: Comprehensive income attributable to noncontrolling interests
(2.6)
(31.8)
0.1
—
(34.3)
(18.8)
(0.3)
0.3
61.7
(0.1)
—
61.9
615.8
(0.5)
Comprehensive (loss) income attributable to GCP shareholders
$
(19.1) $
615.3
$
—
(19.9)
—
0.2
(19.7)
54.1
(1.0)
53.1
The Notes to Consolidated Financial Statements are an integral part of these statements.
68
Table of Contents
GCP Applied Technologies Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock
Treasury Stock
Number
of
Shares
Par
Value
Number
of
Shares
Cost
Additional
Paid-In
Capital
Accumulated
Earnings /
(Deficit)
Net Parent
Investment
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
Total
Stockholders'
Equity (Deficit)
(In millions)
Balance, December 31, 2015
Net income
Net transfer to parent
Issuance of common stock and reclassification of net
parent investment in connection with Separation
Issuance of common stock in connection with stock plans(1)
Share-based compensation
Exercise of stock options
Treasury stock purchased under GCP 2016 Stock
Incentive Plan
Other comprehensive (loss) income
Dividends and other changes in noncontrolling interest
Balance, December 31, 2016
Net income
Issuance of common stock in connection with stock plans(1)
Share-based compensation
Exercise of stock options
Share repurchases(2)
Other comprehensive income
Other changes to additional paid in capital(3)
Dividends and other changes in noncontrolling interest
Balance, December 31, 2017
Net income
Issuance of common stock in connection with stock plans(1)
Share-based compensation
Exercise of stock options
Share repurchases(2)
Other comprehensive loss
Dividends and other changes in noncontrolling interest
Balance, December 31, 2018
______________________________
— $
—
—
—
—
—
70.5
0.7
—
—
—
—
—
—
0.1
—
0.6
—
—
—
71.2
—
0.1
—
0.6
—
—
—
—
$
71.9
—
0.2
—
0.3
—
—
—
— $ — $
— $
— $
598.3
$
(127.7) $
—
—
—
—
—
—
0.1
—
—
—
—
—
—
—
—
(2.1)
—
—
—
—
—
6.4
4.6
—
—
—
65.6
—
7.2
(675.1)
(70.3)
69.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(19.9)
—
$
0.7
0.1
$
(2.1) $
11.0
$
(4.7) $
— $
(147.6) $
—
—
—
—
—
—
—
—
0.7
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.1
—
—
—
—
0.1
—
—
—
—
—
—
(1.3)
—
—
—
$
(3.4) $
—
—
—
—
(1.4)
—
—
—
—
8.6
8.6
—
—
1.7
—
29.9
—
—
4.2
5.5
—
—
—
553.4
—
—
—
—
—
—
$
—
548.7
15.2
—
—
—
—
—
—
—
—
—
—
—
—
—
$
— $
—
—
—
—
—
—
—
—
—
—
61.9
—
—
(85.7) $
—
—
—
—
—
(34.3)
—
72.4
$
0.7
0.2
$
(4.8) $
39.6
$
563.9
$
— $
(120.0) $
$
3.5
1.0
—
—
—
—
—
—
0.2
(1.0)
3.7
0.5
$
—
—
—
—
—
—
(2.4)
1.8
0.3
$
—
—
—
—
—
(0.1)
2.0
$
474.1
73.8
(675.1)
—
—
6.4
4.6
(2.1)
(19.7)
(1.0)
(139.0)
553.9
—
8.6
8.6
(1.3)
61.9
1.7
(2.4)
492.0
15.5
—
4.2
5.5
(1.4)
(34.3)
(0.1)
481.4
(1)
(2)
(3)
The par value of shares issued is not included in the table due to rounding.
During the years ended December 31, 2018 and 2017, GCP withheld and retained approximately 45,100 and 47,000 shares, respectively, of Company common stock in a non-cash
transaction with a cost of $1.4 million and $1.3 million, respectively, in connection with fulfilling statutory tax withholding requirements for employees under the provisions of the Company's
equity compensation programs. The number of shares repurchased during the year ended December 31, 2017 is not included in the table above due to rounding. During the years ended
December 31, 2018 and 2017, payments for tax withholding obligations related to employee equity awards were $1.4 million and $1.3 million, respectively.
During 2017, GCP assumed certain net pension assets in accordance with the final division of the Grace plan.
The Notes to Consolidated Financial Statements are an integral part of these statements.
69
Table of Contents
GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows
(In millions)
OPERATING ACTIVITIES
Net income
Less: Income from discontinued operations
(Loss) income from continuing operations
Reconciliation to net cash (used in) provided by operating activities:
Depreciation and amortization
Amortization of debt discount and financing costs
Unrealized loss on foreign currency
Stock-based compensation expense
Gain on termination and curtailment of pension and other postretirement benefit plans
Currency and other losses in Venezuela
Deferred income taxes
Loss on debt refinancing
(Gain) loss on disposal of property and equipment
Loss on sale of product line
Changes in assets and liabilities, excluding effect of currency translation:
Trade accounts receivable
Inventories
Accounts payable
Pension assets and liabilities, net
Other assets and liabilities, net
Net cash provided by (used in) operating activities from continuing operations
Net cash (used in) provided by operating activities from discontinued operations
Net cash (used in) provided by operating activities
INVESTING ACTIVITIES
Capital expenditures
Businesses acquired, net of cash acquired
Proceeds from sale of product line
Other investing activities
Net cash used in investing activities from continuing operations
Net cash provided by (used in) investing activities from discontinued operations
Net cash (used in) provided by investing activities
FINANCING ACTIVITIES
Borrowings under credit arrangements
Repayments under credit arrangements
Proceeds from issuance of long term note obligations
Repayments of long term note obligations
Cash paid for debt financing costs
Payments of tax withholding obligations related to employee equity awards
Proceeds from exercise of stock options
Noncontrolling interest dividend
Transfers to parent, net
Other financing activities
Net cash (used in) provided by financing activities from continuing operations
Net cash provided by (used in) financing activities from discontinued operations
Net cash (used in) provided by financing activities
Effect of currency exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Less: Cash and cash equivalents of discontinued operations
Cash and cash equivalents of continuing operations, end of period
Supplemental cash flow disclosures:
Cash paid for income taxes, net of refunds
Cash paid for interest on note and credit arrangements
Year Ended December 31,
2017
2016
2018
$
15.5
31.3
(15.8)
$ 553.9
664.3
(110.4)
$
73.8
45.2
28.6
42.0
1.6
0.6
3.7
(0.2)
—
3.2
59.8
(0.9)
—
9.3
(7.8)
(9.7)
(7.0)
(3.4)
75.4
(133.0)
(57.6)
(55.0)
(29.5)
—
(2.4)
(86.9)
0.1
(86.8)
56.3
(69.6)
350.0
(578.3)
(6.9)
(1.4)
5.5
(0.1)
—
(2.8)
(247.3)
—
(247.3)
(3.7)
(395.4)
721.5
326.1
—
$ 326.1
36.8
2.7
2.0
8.5
(6.6)
40.1
70.9
—
(0.3)
2.1
(45.1)
(11.3)
30.9
(26.0)
4.7
(1.0)
(34.1)
(35.1)
(45.0)
(121.2)
2.9
2.4
(160.9)
1,043.1
882.2
122.8
(419.5)
—
—
—
(1.3)
8.0
(2.0)
—
—
(292.0)
1.1
(290.9)
2.0
558.2
163.3
721.5
—
$ 721.5
29.8
2.8
—
6.6
(0.8)
3.0
(17.7)
—
0.9
—
(10.4)
(4.3)
5.7
21.5
10.1
75.8
52.1
127.9
(40.9)
(47.0)
—
1.6
(86.3)
(4.4)
(90.7)
321.1
(32.9)
525.0
—
(18.2)
(2.1)
4.3
(1.0)
(758.7)
—
37.5
(5.8)
31.7
(4.2)
64.7
98.6
163.3
16.3
$ 147.0
$
$
23.1
46.3
$
$
11.2
59.6
$
$
24.4
39.3
The Notes to Consolidated Financial Statements are an integral part of these statements.
70
Table of Contents
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies
GCP is engaged in the production and sale of specialty construction chemicals and specialty building
materials through two operating segments. Specialty Construction Chemicals ("SCC") manufactures and markets
concrete admixtures and cement additives. Specialty Building Materials ("SBM") manufactures and markets sheet
and liquid membrane systems that protect structures from water, air and vapor penetration, fireproofing and other
products designed to protect the building envelope.
On July 3, 2017 (the "Closing Date"), GCP completed the sale of its Darex Packaging Technologies ("Darex")
business to Henkel AG & Co. KGaA (“Henkel”) for $1.06 billion in cash. As discussed further below under
"Discontinued Operations," the results of operations for Darex have been excluded from continuing operations
and segment results for all periods presented.
Basis of Presentation
The accompanying Consolidated Financial Statements are presented on a consolidated basis and include all
of the accounts and operations of GCP and its majority-owned subsidiaries, except as noted below with respect to
the Company's Venezuela subsidiary. All intercompany balances and transactions have been eliminated in
consolidation. The financial statements reflect the financial position, results of operations and cash flows of GCP
in accordance with generally accepted accounting principles in the United States ("GAAP") and with the
instructions to Form 10-K.
Discontinued Operations
On July 3, 2017, the Company completed the sale of Darex to Henkel. In conjunction with this transaction and
applicable GAAP, the assets and liabilities related to Darex in the applicable delayed close countries have been
reclassified and reflected as held for sale in the Consolidated Balance Sheets as of December 31, 2018 and
2017, as discussed further in Note 18, "Discontinued Operations". Additionally, Darex results of operations and
cash flows have been reclassified and reflected as "discontinued operations" in the Consolidated Statements of
Operations and Consolidated Statements of Cash Flows for all periods presented.
Unless otherwise noted, the information throughout the Notes to the Consolidated Financial Statements
pertains only to the continuing operations of GCP. Please refer to Note 18, "Discontinued Operations" for further
discussion of discontinued operations.
Deconsolidation of Venezuelan Operations
Prior to July 3, 2017, the Company included the results of its Venezuelan operations (“GCP Venezuela”) in the
Consolidated Financial Statements using the consolidation method of accounting. Venezuelan exchange control
regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and
U.S. dollar, and have restricted GCP Venezuela’s ability to pay dividends and meet obligations denominated in
U.S. dollars. These exchange regulations, combined with other regulations, have constrained availability of raw
materials and have significantly limited GCP Venezuela’s ability to maintain normal production. As a result of
these conditions, combined with the loss of scale in Venezuela resulting from the sale of the Company’s Darex-
related operations and assets in Venezuela, GCP deconsolidated its Venezuelan operations as of July 3, 2017 in
accordance with provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") 810, Consolidation. During the year ended December 31, 2017, GCP recognized a pre-tax loss of $36.7
million which is included in “Loss in Venezuela” in the Consolidated Statements of Operations. The loss is
primarily related to the recognition of unfavorable cumulative translation adjustments of $33.4 million associated
with the Venezuelan business.
Subsequent to the deconsolidation, the Company began accounting for GCP Venezuela using the cost
method of accounting in accordance with which the Company's financial results no longer include the operating
results of GCP Venezuela. The Company records cash and recognizes income from its Venezuelan operations in
the Consolidated Financial Statements to the extent GCP is paid for inventory sold to or dividends are received
from GCP Venezuela.
71
Table of Contents
Notes to Consolidated Financial Statements (Continued)
During the three months ended December 31, 2018, the Company sold its remaining SCC operations within
its Venezuela subsidiary. Both the proceeds from the sale and the loss on the sale did not have a material impact
to the Consolidated Financial Statements. As of December 31, 2018, the remaining operations within GCP
Venezuela represent the Darex operations expected to be sold to Henkel within the next 12 months under a
delayed close arrangement. The remaining investment in GCP Venezuela is classified as held for sale within the
Company's Consolidated Balance Sheets as of December 31, 2018 and 2017 and is not material.
Separation from Grace
On January 27, 2016, GCP entered into a separation and distribution agreement pursuant to which W.R.
Grace & Co. ("Grace") agreed to transfer its Grace Construction Products operating segment and the packaging
technologies business, operated under the “Darex” name, of its Grace Materials Technologies operating segment
to GCP (the "Separation"). The Separation occurred on February 3, 2016, by means of a pro rata distribution to
Grace stockholders of all of the then-outstanding shares of Company common stock, at which time GCP became
an independent public company and its common stock listed and began trading under the symbol "GCP" on the
New York Stock Exchange.
Subsequent to the Separation, Grace continued providing to GCP certain general corporate services related
to finance, information technology, human resources and other services under a transition services agreement
which remained in place for a period of 18 months from the Separation. During the year ended December 31,
2017, the activities related to the transition services agreement were complete. Please refer to Note 13, "Related
Party Transactions" for further information on the transition services agreement between GCP and Grace.
Subsequent to the Separation, Grace no longer represents a related party of the Company. All transactions
between GCP and Grace have been included in these Consolidated Financial Statements.
Noncontrolling Interests
GCP conducts certain business through joint ventures with unaffiliated third parties. GCP consolidates the
results of joint ventures in which it has controlling financial interest in the Consolidated Financial Statements. GCP
reduces its consolidated net income (loss) by the amount of net income attributable to noncontrolling interests.
Summary of Significant Accounting and Financial Reporting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and
expenses for the periods presented. The Company assesses the estimates on an ongoing basis and records
changes in estimates in the period they occur and become known. Actual results could differ from these
estimates.
GCP's accounting measurements that are most affected by management's estimates related to future events
are as follows:
•
•
Goodwill and indefinite-lived intangible assets, which are subject to an impairment assessment on an
annual basis or more frequently if events occur or circumstances change that would more likely than not
reduce their fair values below carrying values. Such impairment assessment requires judgment based on
market and operational conditions at the time it is conducted since it is based on estimates and
assumptions related to determining fair values of reporting units and indefinite-lived intangible assets,
including future expected cash flow projections, discount and royalty rates, as well as long term sales
growth rate forecasts (please refer to Note 5, "Goodwill and Other Intangible Assets");
Realization values of net deferred tax assets which depend on projections of future taxable income
(please refer to Note 7, "Income Taxes");
72
Table of Contents
Notes to Consolidated Financial Statements (Continued)
•
•
•
•
Contingent liabilities, which depend on an assessment of the probability of loss occurrence and an
estimate of ultimate resolution cost, that may arise from circumstances such as legal disputes,
environmental remediation, product liability claims, material commitments (please refer to Note 10,
"Commitments and Contingencies") and income taxes (please refer to Note 7, "Income Taxes");
Pension and postretirement liabilities that depend on assumptions regarding participant life spans, future
inflation, discount rates and return on plan assets (please refer to Note 8, "Pension Plans and Other
Postretirement Benefit Plans");
Fair values of assets acquired and liabilities assumed in a business combination recognized based on the
purchase method of accounting, including definite-lived intangible assets and their useful lives. Such fair
value estimates depend on assumptions related to future expected cash flow projections, customer
attrition rates, royalty cost savings, and appropriate discount rates used in computing present values
(please refer to Note 17, "Acquisitions and Dispositions"); and
Stock-based compensation expense which requires making estimates of fair value of equity awards
issued at the grant date, as well as expected forfeiture rates and awards expected to vest. Such
estimates require significant judgment since they are based on the assumptions related to participant
activity, market results and employee voluntary termination behavior. Additionally, the Company makes
estimates related to the likelihood of achieving performance goals for performance-based units (the
"PBUs") that vest upon the satisfaction of these goals. PBUs are remeasured during each reporting
period based on the expected payout of the award. As a result, stock-based compensation expense
related to these awards is subject to volatility until the payout is determined at the end of the performance
period (please refer to Note 14, "Stock Incentive Plans").
Acquisitions
The Company accounts for business acquisitions that meet the definition of a business combination using the
acquisition method of accounting, in accordance with which assets acquired and liabilities assumed are recorded
at their respective fair values at the acquisition date. The fair value of the consideration transferred in a business
combination, including any contingent consideration, is allocated to the assets acquired and liabilities assumed
based on their respective fair values. Goodwill represents excess of the purchase price over the estimated fair
values of the assets acquired and liabilities assumed. Acquisitions that do not meet the definition of a business
combination are accounted for as asset acquisitions, and the purchase price is allocated to the net assets
acquired based on their relative fair values without recognizing goodwill.
Significant judgments are used in determining fair values of assets acquired and liabilities assumed. Fair
value and intangible asset useful life determinations are based on, among other factors, estimates of future
expected cash flows, customer attrition rates, royalty cost savings, and appropriate discount rates used in
computing present values. These judgments may materially impact the estimates used in allocating the purchase
price to assets acquired and liabilities assumed, as well as the Company’s current and future operating results.
Actual results may vary from these estimates which may result in adjustments to goodwill and acquisition date fair
values of assets and liabilities during a measurement period or upon a final determination of asset and liability fair
values, whichever occurs first. Adjustments to fair values of assets and liabilities made after the end of the
measurement period are recorded within the Company’s operating results.
Operating Segments
GCP reports financial results of each of its operating segments that engage in business activities that
generate revenues and expenses. Operating segments represents GCP's operations that engage in business
activities for which discrete financial information is available and regularly reviewed by GCP's chief operating
decision maker in deciding how to allocate resources and assess the segments' performance.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid instruments with original maturities of three
months or less that are readily convertible to known amounts of cash. The recorded amounts approximate fair
value. As of December 31, 2018 cash equivalents were approximately $111.2 million and consisted primarily of
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Bank Certificate of Deposits which were classified within Level 2 of the fair value hierarchy because they are not
actively traded. Cash equivalents were immaterial as of December 31, 2017.
Accounts Receivable, Allowance for Doubtful Accounts
Trade accounts receivable include amounts billed and currently due from customers. The amounts due are
stated at their estimated net realizable value. The Company maintains an allowance for doubtful accounts to
recognize the estimated amount of receivables that will not be collected. The allowance is based upon an
assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and
collateral to the extent applicable. The Company reviews its allowance for doubtful accounts on a quarterly basis
and adjusts the balance based on the Company’s estimates of the receivables’ recoverability in the period the
changes in estimates occur and become known. Accounts receivable balances are written off against the
allowance for doubtful accounts when the Company determines that the balances are not recoverable. Provisions
for doubtful accounts are recorded in "Selling, general and administrative expenses" in the Consolidated
Statements of Operations. As of December 31, 2018 and 2017, allowance for doubtful accounts was $5.8 million
and $5.7 million, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value. Costs are determined on a first-in, first-out
("FIFO") basis and include direct and certain indirect costs of materials and production. GCP provides allowances
for excess, obsolete or damaged inventories based on their expected selling price, net of completion and disposal
costs. Abnormal costs of production are expensed as incurred.
Contract Assets and Contract Liabilities
Contract assets consist of unbilled amounts typically resulting from sales under long-term contracts when the
revenue recognized exceeds the amount billed to the customer. Contract liabilities consist of advance customer
payments and billings for revenue not meeting the criteria to be recognized and/or in excess of costs incurred.
The Company’s contract assets and liabilities resulting from its contracts in the SCC or SBM operating segments
were not material as of December 31, 2018 and 2017. Additionally, the amounts recorded in the Statements of
Operations for the years ended December 31, 2018 and 2017 related to changes in the contract assets and
liabilities during the periods were not material.
Costs to Obtain a Contract
GCP pays external sales agents certain commissions based on actual customer sales and has determined
that such amounts represent incremental costs incurred in obtaining such customer contracts. The performance
obligations associated with these costs are satisfied at a point in time and accordingly the amortization period of
such costs is less than one year. The Company expenses these costs as incurred in accordance with the practical
expedient that allows for such treatment, as prescribed by ASC Topic 340-40, Costs to obtain or fulfill a contract.
Such costs were not material during the year ended December 31, 2018.
Long-Lived Assets
Properties and equipment are stated at cost, net of accumulated depreciation. Depreciation expense for
properties and equipment is computed using the straight-line method and charged to results of operations to
allocate the cost of the assets over their estimated useful lives. Estimated useful lives for properties and
equipment range from: (i) 20 to 40 years for buildings, (ii) 3 to 7 years for information technology equipment, (iii) 3
to 10 years for operating machinery and equipment and (iv) 5 to 10 years for furniture and fixtures. Interest costs
are capitalized as part of the historical cost of acquiring properties and equipment that constitute major project
expenditures and require a period of time to get them ready for their intended use. Fully depreciated assets are
retained in properties and equipment and related accumulated depreciation accounts until they are removed from
service. Cost of disposed assets, net of accumulated depreciation, are derecognized upon their retirement or at
the time of disposal, and the corresponding amount, net of any proceeds from disposal, is reflected in the
Company's results of operations. Costs related to legal obligations associated with asset retirements, such as
restoring a site to its original condition, are recognized as liabilities and corresponding assets at amounts equal to
the net present value of estimated future cash flows that will be required to settle such liabilities. Capitalized asset
costs are depreciated over the related asset's estimated useful life.
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Intangible assets with finite lives consist of technology, customer relationships, trademarks and other
intangibles and are amortized over their estimated useful lives, ranging from 1 to 20 years. Fair value and useful
life determinations are based on, among other factors, estimates of future expected cash flows, customer attrition
rates, royalty cost savings and appropriate discount rates used in computing present values.
GCP reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable based on indicators of impairment. For purposes of this
test, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and liabilities. If the Company determines that
indicators of potential impairment are present, it assesses the recoverability of a long-lived asset group by
comparing the sum of its undiscounted future cash flows to its carrying value. The future cash flow period is based
on the future service life of the primary asset within the long-lived asset group. If the carrying value of the long-
lived asset group exceeds its future cash flows, the Company determines fair values of the individual net assets
within the long-lived asset group to assess for potential impairment. If the aggregate fair values of the individual
net assets of the group are less than their carrying values, an impairment loss is recognized for an amount in
excess of the group’s aggregate carrying value over its fair value. The loss is allocated to the assets within the
group based on their relative carrying values, with no asset reduced below its fair value.
During the years ended December 31, 2018 and 2017, the Company recorded impairment charges of $4.5
million and $1.2 million, respectively, related to GCP's 2018 and 2017 Restructuring and Repositioning Plans.
Please refer to Note 11, "Restructuring Expenses, Asset Impairments and Repositioning Expenses" for further
information on impairment charges recognized during the years ended December 31, 2018 and 2017. There were
no impairment charges recognized during the year ended December 31, 2016.
Goodwill
Goodwill arises from certain business combinations and represents the excess of a purchase price over the
fair value of net tangible and identifiable intangible assets of the businesses acquired. GCP reviews its goodwill
for impairment at the reporting unit level on an annual basis, or more often if impairment indicators are present
based on events or changes in circumstances indicating that the carrying amount of goodwill may not be fully
recoverable. Recoverability is assessed at the reporting unit level which is most directly associated with the
business combination that resulted in the recognition of the goodwill. For the purpose of the goodwill impairment
assessment based on the provisions of ASC 350, Intangibles—Goodwill and Other ("ASC 350"), GCP has
determined that it has two reporting units which are its operating segments.
In accordance with ASC 350, the Company first assesses qualitative factors to determine whether the
existence of events or circumstances indicates that it is more likely than not that the fair value of a reporting unit is
less than its carrying value. If the Company determines, based on this assessment, that it is more likely than not
that the fair value of the reporting unit is less than its carrying value, it performs a quantitative goodwill impairment
test by comparing these amounts. If the fair value exceeds the carrying amount, no impairment loss is recognized.
However, if the carrying amount of the reporting unit exceeds its fair value, the goodwill of the reporting unit may
be impaired. The amount of impairment loss, if any, is measured based upon the implied fair value of goodwill as
of the valuation date. Goodwill is deemed to be impaired when its carrying amount exceeds its implied fair value.
Fair value of a reporting unit is determined using a combined weighted average of a market-based approach
(utilizing fair value multiples of comparable publicly traded companies) and an income-based approach (utilizing
discounted projected cash flows model). In applying the income-based approach, the fair value of each reporting
unit is determined in accordance with the discounted projected cash flow valuation model based on the estimated
projected future cash flows and terminal value discounted at the rate which reflects the weighted average costs of
capital. The inputs and assumptions that are most likely to impact the reporting unit's fair value include the
discount rate, long-term sales growth rates and forecasted operating margins. In applying the market-based
approach, GCP determines the reporting unit’s business enterprise fair value based on inputs and assumptions
related to average revenue multiples and earnings before interest, tax, depreciation and amortization multiples
derived from its peer group which are weighted and adjusted for size, risk and growth of the individual reporting
unit.
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Application of the goodwill impairment assessment requires judgment based on market and operational
conditions at the time of the evaluation, including management’s best estimates of the reporting unit’s future
business activity and the related estimates and assumptions of future cash flows from the assets that include the
associated goodwill. Different estimates and assumptions of forecasted long-term sales growth rates, operating
margins, future cash flows, weighted average cost of capital discount rate, as well as peer company multiples
used in the valuation models could result in different estimates of the reporting unit’s fair value as of each testing
date. These periodic evaluations could cause management to conclude that impairment factors exist, requiring an
adjustment of these assets to their then-current fair market values. Future business conditions could differ
materially from the projections made by management which could result in additional adjustments and impairment
charges.
GCP performed its annual impairment test as of October 31, 2018 for the two reporting units and, based upon
the results of the qualitative assessment, determined that it was not likely that their fair values were less than their
carrying amounts. As such, the Company did not perform the two-step goodwill impairment test and did not
recognize impairment losses as a result of its analysis. If events occur or circumstances change that would more
likely than not reduce the fair values of the reporting units below their carrying values, goodwill will be evaluated
for impairment between annual tests. There were no goodwill impairment charges recognized in any of the
periods presented in the Consolidated Statements of Operations.
Indefinite-Lived Intangible Assets
GCP reviews its indefinite-lived intangible assets for impairment annually, or whenever events or changes in
circumstances indicate that the carrying amounts may not be fully recoverable. Indefinite-lived intangible assets
are tested for impairment by performing either a qualitative evaluation or a quantitative test which requires
judgment based on market and operational conditions at the time of the evaluation. GCP first assesses qualitative
factors to determine whether the existence of events or circumstances indicates that it is more likely than not that
indefinite-lived intangible assets are impaired. If GCP determines, based on this assessment, that it is more likely
than not that the assets are impaired, it perform a quantitative impairment test by comparing the assets' fair
values with their carrying values. No impairment loss is recognized if the fair values exceed the carrying values.
However, if the carrying values of the indefinite-lived intangible assets exceed their fair values, the amount of
such excess is recognized as an impairment loss during the period identified and the assets' carrying values are
written down to their fair values.
Fair values of the indefinite-lived intangible assets are determined based on a relief-from-royalty valuation
method. The inputs and assumptions that are most likely to impact the intangible assets' fair values due to their
sensitivity include the discount rate, royalty rate and long-term sales growth rates.
GCP performed its annual impairment assessment related to the indefinite-lived intangible assets as of
October 31, 2018. The Company determined, based upon the results of the qualitative assessment, that it was not
likely that the fair values of the indefinite-lived intangible assets were less than their carrying amounts. As such, it
did not perform the quantitative assessment as a part of the impairment test and did not recognize impairment
losses as a result of its analysis. If events occur or circumstances change that would more likely than not reduce
the fair values of the indefinite-lived intangible assets below their carrying values, the indefinite-lived intangible
assets will be evaluated for impairment between annual tests. There were no impairment charges recognized
during any of the periods presented in the Consolidated Statements of Operations.
Income Tax
As a global enterprise, GCP is subject to a complex array of tax regulations and needs to make assessments
of applicable tax law and judgments in estimating its ultimate income tax liability. Income tax expense and income
tax balances represent GCP’s federal, state and foreign income taxes as an independent company. GCP files a
U.S. consolidated income tax return, along with foreign and state corporate income tax filings, as required. GCP's
deferred taxes and effective tax rate may not be comparable to those of historical periods prior to the Separation.
Please refer to Note 7, "Income Taxes," for details regarding estimates used in accounting for income tax matters
including unrecognized tax benefits.
Deferred tax assets and liabilities are recognized with respect to the expected future tax consequences of
events that have been recorded in the Consolidated Financial Statements. If it is more likely than not that all or a
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portion of deferred tax assets will not be realized, a valuation allowance is provided against such deferred tax
assets. The assessment of realization of deferred tax assets is performed based on the weight of the positive and
negative evidence available to indicate whether the asset is recoverable, including tax planning strategies that are
prudent and feasible.
Tax benefits from an uncertain tax position are recognized only if it is more likely than not that the tax position
will be sustained upon examination by the taxing authorities based on the technical merits of the position. Tax
benefits recognized in the financial statements from such a position are measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized upon ultimate settlement. GCP evaluates such
likelihood based on relevant facts and tax law.
Revenue Recognition
Effective January 1, 2018, GCP has adopted FASB issued Accounting Standards Update ("ASU") 2014-09,
Revenue from Contracts with Customers (Topic 606). Revenue is recognized upon transfer of control of products
or services promised to customers in an amount that reflects the consideration the Company expect to receive in
exchange for these products or services. Please refer to Note 2, "Revenue from Contracts with Customers" for
further information on the Company's revenue recognition policies.
Pension Benefits
GCP's method of accounting for actuarial gains and losses relating to its global defined benefit pension plans
is referred to as "mark-to-market accounting." In accordance with mark-to-market accounting, GCP's pension
costs consist of two elements: 1) ongoing costs recognized quarterly, which include service and interest costs,
expected returns on plan assets and amortization of prior service costs/credits; and 2) mark-to-market gains and
losses recognized annually in the fourth quarter resulting from changes in actuarial assumptions, such as
discount rates and the difference between actual and expected returns on plan assets. If a significant event
occurs, such as a major plan amendment or curtailment, GCP's pension obligations and plan assets would be
remeasured at an interim period and the mark-to-market gains or losses on remeasurement would be recognized
in that period.
The net periodic pension costs and the defined benefit pension plan obligation are determined based on
certain assumptions related to the estimated future benefits that employees earn while providing services, the
amount of which cannot be completely determined until the benefit payments cease. Key assumptions used in
accounting for employee benefit plans include the discount rate and the expected return on plan assets.
Assumptions are determined based on Company data and appropriate market indicators in consultation with third-
party actuaries, and are evaluated each year as of the plans’ measurement date. A change in any of these
assumptions would have an effect on net periodic pension costs and the defined benefit pension plan obligation.
Stock-Based Compensation Expense
GCP grants equity awards, including stock options, restricted stock units (the "RSUs") and PBUs with or
without market conditions which vest upon the satisfaction of a performance condition and/or a service
condition. GCP estimates the fair value of equity awards issued at the grant date. The fair value of the awards is
recognized as stock-based compensation expense on a straight line basis, net of estimated forfeitures, for each
separately vesting portion of the award over the employee’s requisite service period which may be a stated
vesting period during which employees render services in exchange for equity and/or liability instruments of the
Company. Estimates related to equity award forfeitures are adjusted to their actual amounts at the end of the
vesting period resulting in the recognition of cumulative stock-based compensation expense only for those awards
that actually vest.
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Notes to Consolidated Financial Statements (Continued)
The fair value of RSUs is determined based on the number of shares granted and the market closing price of
the Company’s common stock on the date of grant. The fair value of stock options is determined using the Black-
Scholes option-pricing model which incorporates the assumptions related to the risk-free rate, options' expected
term, expected stock price volatility and expected dividend yield. The risk-free rate is based on the U.S. Treasury
yield curve published as of the grant date, with maturities approximating the expected term of the options. GCP
estimates the expected term of the options based on the simplified method in accordance with the provisions
of ASC Topic 718-20, Awards Classified as Equity, determined as the average term between the options’ vesting
period and their contractual term. GCP estimates the expected stock price volatility based on an industry peer
group’s historic stock prices over a period commensurate with the options’ expected term. The expected dividend
yield is zero based on the Company’s history and expectation of not paying dividends on common shares.
During the years ended December 31, 2018, 2017 and 2016, the Company granted performance-based
restricted stock units (“PBUs”) to certain key employees. PBUs are performance-based units which are granted by
the Company either with or without market conditions. Such PBUs are expected to cliff vest over three years and
will be settled in GCP common stock. PBUs granted prior to 2017 are recorded at fair value on the grant date.
Beginning with the annual PBU grant during the three months ended March 31, 2017, the performance criteria for
PBUs included a 3-year cumulative adjusted diluted earnings per share metric that is modified, up or down, based
on the Company's total shareholder return ("TSR") relative to the performance of the Russell 3000 Index ("the
Index"). PBUs are remeasured during each reporting period based on their expected payout which may range
between 0% to 200% based on the achievement of performance targets required for the awards' vesting.
Therefore, the stock-based compensation expense recognized for these awards during each reporting period is
subject to volatility until the final payout target is determined at the end of the applicable performance period.
PBUs granted during the years ended December 31, 2018 and 2017 were valued using a Monte Carlo
simulation, which is commonly used for assessing the grant date fair value of equity awards with a relative TSR
modifier. The risk-free rate is a continuous rate based on the U.S. Treasury yield curve published as of the grant
date, based on maturity commensurate with the remaining performance period (expected term) of the PBUs.
Expected volatility is based on the annualized historical volatility of GCP's stock price. Historical volatility is
calculated based on a look-back period commensurate with the remaining performance period of the PBUs, or the
longest available based on the Company's trading history as a public company. Correlation coefficients are used
in the Monte Carlo valuation to simulate future stock prices. This includes correlations between: (i) the Company's
stock price and the Index, and (ii) the stock price of each constituent included in the Index and the Index itself.
The correlation coefficient is based on daily stock returns of the Company and the Index using a look-back period
commensurate with the remaining performance period of the PBUs, or the longest available based on the
Company's trading history as a public company. The expected dividend yield is zero based on the Company’s
history and expectation of not paying dividends on common shares.
Stock compensation costs are included within "Selling, general and administrative expenses" in the
Consolidated Statements of Operations. Please refer to Note 14, "Stock Incentive Plans" for further information on
equity awards.
Research and Development Expense
Research and development costs are expensed as incurred and consist primarily of personnel expenses
related to development of new products and enhancements to existing products. Research an development costs
also include depreciation and amortization expenses related to research and development assets and expenses
incurred in funding external research projects.
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Notes to Consolidated Financial Statements (Continued)
Restructuring and Repositioning Expenses
The Company records restructuring and repositioning expenses associated with the restructuring and
repositioning actions approved by the Board of Directors. Restructuring actions are related to streamlining
operations and improving profitability. Restructuring expenses generally include severance and other employee-
related costs, contract or lease termination costs, asset impairments, facility exit costs, moving and relocation,
and other related costs. For the ongoing employee benefit arrangements provided to Company employees, GCP
records severance and other employee termination costs associated with restructuring actions when the likelihood
of future settlement is probable and the related benefit amounts can be reasonably estimated. For the one-time
employee termination benefit arrangements, a liability for the termination benefits is measured at fair value and
recognized on the communication date. Asset impairments are recorded in accordance with the Company's
significant accounting policy on Long-Lived Assets described above.
Repositioning activities generally represent major strategic or transformational actions to enhance the value
and performance of the Company, improve business efficiency or optimize the Company’s footprint. Repositioning
expenses include professional fees for legal, consulting, accounting and tax services, employment-related costs,
such as recruitment, relocation and compensation, as well as other expenses incurred that are directly associated
with the repositioning activity. Repositioning activities may also include capital expenditures.
GCP recognizes restructuring and repositioning expenses in the period the related liabilities are incurred and
records them in "Restructuring and asset impairments" and “Repositioning expenses,” or in those captions within
discontinued operations, in the Consolidated Statements of Operations. Restructuring expenses, asset
impairments and repositioning expenses are excluded from segment operating income. Please refer to Note 11,
"Restructuring and Repositioning Expenses" for further information on restructuring and repositioning actions.
Foreign Currency Transactions and Translation
Certain transactions of the Company and its subsidiaries are denominated in currencies other than their
functional currency. Foreign currency exchange gains (losses) generated from the settlement and remeasurement
of these transactions are recognized in earnings and presented within “Other (income) expense, net” in the
Company’s Consolidated Statements of Operations. Net foreign currency transaction and remeasurement gains
(losses) reflected in “Other (income) expense, net” for the years ended December 31, 2018, 2017 and 2016 were
losses of $2.9 million, $1.0 million and $4.4 million, respectively.
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at current exchange rates, while
revenues, costs and expenses are translated at average exchange rates during each reporting period. The
resulting currency translation adjustments are included in "Accumulated other comprehensive loss" in the
Consolidated Balance Sheets. The financial statements of any subsidiaries located in countries with highly
inflationary economies are remeasured based on the currency designated as the functional currency, typically the
U.S. dollar. Translation adjustments recognized as a result of such remeasurements are reflected in the results of
operations in the Consolidated Statements of Operations.
Argentina
As of June 30, 2018, GCP concluded that Argentina is a highly inflationary economy since the three-year
cumulative inflation rates commonly used to evaluate Argentina’s inflation currently exceed 100%. As a result,
GCP began accounting for its operations in Argentina as a highly inflationary economy. Effective July 1, 2018, the
functional currency of the Company's subsidiary operating in Argentina became the U.S. dollar and all
remeasurement adjustments after the effective date are reflected in GCP's results operations in the Consolidated
Statements of Operations. For the year ended December 31, 2018 the Company incurred losses of $1.1
million related to the remeasurement of these monetary net assets which are included in "Other (income)
expense, net" in the Consolidated Statements of Operations for the year ended December 31, 2018. Net sales
generated by the Argentina subsidiary were not material to the Company's consolidated net sales during the year
ended December 31, 2018. Monetary net assets denominated in local currency within the Company's Argentina
subsidiary were not material to GCP's consolidated total assets as of December 31, 2018.
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Venezuela
Notes to Consolidated Financial Statements (Continued)
GCP deconsolidated its Venezuelan operations as of July 3, 2017 and, as a result, the Company's financial
results no longer include the operations of GCP Venezuela, including currency translation adjustments, beyond
that date.
During the three months ended March 31, 2016, a floating exchange rate (the "DICOM") was established in
Venezuela due to the changes to the currency exchange systems. During the year ended December 31, 2016,
GCP recorded a $3.0 million loss within “Other (income) expense, net,” in the Consolidated Statements of
Operations to reflect the remeasurement of the Venezuela subsidiary’s net monetary assets to U.S. dollars.
In May of 2017, the Venezuela government announced that it had completed its first auction under the new
DICOM exchange mechanism at a rate of 2,010 bolivars per U.S. dollar, an increase of 176.1% from the
previously published rate of 728 bolivar per U.S. dollar. As a result of the change in the exchange mechanism and
devaluation of the bolivar, the Company recorded a foreign exchange remeasurement and impairment loss of
$7.1 million, of which $2.4 million was from continuing operations and $4.7 million was from discontinued
operations. Of the $2.4 million from continuing operations, $1.6 million is reflected in “Loss in Venezuela” and $0.8
million is reflected in “Cost of goods sold” within the Consolidated Statement of Operations for the year ended
December 31, 2017. During the three months ended June 30, 2017, the DICOM rate increased to 2,640 bolivars
per U.S. dollar. As a result, the Company recorded a foreign exchange remeasurement loss of $1.2 million during
the year ended December 31, 2017, of which $0.3 million was recognized in continuing operations and reflected
in “Other (income) expense, net” within the Consolidated Statement of Operations and $0.9 million was
recognized in discontinued operations.
Earnings per Share
GCP computes basic earnings (loss) per share by dividing net income (loss) by the weighted average
common shares outstanding during the period. Diluted earnings (loss) per share is determined by dividing net
income (loss) by diluted weighted average shares outstanding during the period. Diluted weighted average shares
reflect the dilutive effect, if any, of potential common shares which consist of employee equity awards. To the
extent their effect is dilutive, employee equity awards are included in the calculation of diluted income per share
based on the treasury stock method. Potential common shares are excluded from the calculation of dilutive
weighted average shares outstanding if their effect would be anti-dilutive at the balance sheet date based on a
treasury stock method or due to a net loss.
Reclassifications
Certain amounts in prior period financial statements have been reclassified to conform to the current period
presentation. Such reclassifications have not materially affected previously reported amounts.
Revision of Prior Period Financial Statements
During the year ended December 31, 2018, GCP identified an error related to the presentation of the effect of
currency exchange rate changes on cash and cash equivalents in its Consolidated Statements of Cash Flows in
its filed 2017 Annual Report on Form 10-K for the year ended December 31, 2017. The correction of this error
resulted in a reclassification between “cash provided by (used in) operating activities from continuing operations”
and “effect of currency exchange rate changes on cash and cash equivalents” in the Consolidated Statements of
Cash Flows filed during these periods. There was no impact on the Consolidated Statements of Operations,
Consolidated Statements of Comprehensive (Loss) Income, Consolidated Balance Sheets, or Consolidated
Statements of Stockholders’ Equity during this period as a result of the error.
The Company considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC
Topic 250-10-S99-1, Assessing Materiality, and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements in evaluating whether the
Company’s previously issued consolidated financial statements were materially misstated. The Company
concluded this error was not material individually or in the aggregate to the financial statements presented during
any of the prior reporting periods, and therefore, amendments of previously filed 2017 Annual Report on Form 10-
K for the year ended December 31, 2017 was not required. The revisions for these corrections to the applicable
prior periods are reflected in the financial information herein.
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Notes to Consolidated Financial Statements (Continued)
The following table summarizes the effects of the error on the Consolidated Statement of Cash Flows for the
year ended December 31, 2017:
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Year Ended,
December 31, 2017
As
Previously
Reported
Adjustment
As
Revised
Net cash (used in) provided by operating activities from continuing operations
$
(5.4) $
4.4
$
(1.0)
Effect on currency exchange rate changes on cash and cash equivalents
6.4
(4.4)
2.0
Recently Issued Accounting Standards
Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815). The amendments in
this update improve the financial reporting of hedging relationships to better portray the economic results of an
entity's risk management activities in its financial statements by expanding and refining hedge accounting for both
non-financial and financial risk components and aligning the recognition and presentation of the effects of the
hedging instrument and the hedged item in the financial statements. The standard is effective for the Company as
of January 1, 2019, and early adoption is permitted. GCP is currently evaluating the potential impact on its
Consolidated Financial Statements and related disclosures, but it does not expect the adoption of this standard to
have a material effect on its Consolidated Financial Statements.
Goodwill
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). The
amendments in this update modify the concept of impairment from the condition that exists when the carrying
amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a
reporting unit exceeds its fair value, which eliminates Step 2 from the goodwill impairment test. The standard is
effective for the Company for annual or any interim goodwill impairment tests to be performed beginning on or
after January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on
testing dates after January 1, 2017. GCP is currently evaluating the potential impact on its Consolidated Financial
Statements and related disclosures, but it does not expect the adoption of this standard to have a material effect
on its Consolidated Financial Statements.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. The amendments in this update introduce a new
"expected loss" impairment model which applies to most financial assets measured at amortized cost and certain
other instruments, including trade and other receivables, loans, held-to-maturity debt securities and other financial
assets. Entities are required to estimate expected credit losses over the life of financial assets and record an
allowance against the assets’ amortized cost basis to present them at the amount expected to be collected.
Additionally, the guidance amends the impairment model for available for sale debt securities and requires entities
to determine whether all or a portion of the unrealized loss on such debt security is a credit loss. The guidance is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early
adoption of the newly issued guidance is permitted for fiscal years, and interim periods within those years,
beginning after December 15, 2018. The standard should be applied as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is effective. GCP expects to adopt
the guidance during the first quarter of fiscal year 2020 and is currently evaluating the impact of this guidance on
its financial position and results of operations.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase
transparency and comparability among organizations by recognizing lease assets and lease liabilities on the
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Notes to Consolidated Financial Statements (Continued)
balance sheet and disclosing key information about leasing arrangements. In accordance with provisions of Topic
842, a lessee will be required to recognize in the statement of financial position a lease liability related to making
lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term,
including optional payments that are reasonably certain to occur. In July 2018, the FASB issued two amendment
to ASU 2016-02. The first amendment clarifies the application of certain aspects of ASU 2016-02 related to: (i) the
rate implicit in the lease, (ii) impairment of the net investment in the lease, (iii) lessee reassessment of lease
classification, (iv) lessor reassessment of lease term and purchase options, (v) variable payments that depend on
an index or rate and (vi) certain transition adjustments, among other things. The second amendment includes a
transition option allowing entities to forgo the application of ASU 2016-02 in the comparative periods presented in
the financial statements during the year of adoption. Additionally, the amendment includes a practical expedient
which provides lessors with an option to not separate non-lease components from the associated lease
components when certain criteria are met and requires lessors to account for the combined component in
accordance with provisions of ASC Topic 606 if the associated non-lease components are the predominant
components in the arrangement. The guidance and the related amendments are effective for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption being
permitted. GCP will adopt Topic 842 effective January 1, 2019.
As of December 31, 2018, GCP continued the evaluation of the impact of adopting Topic 842 on its financial
position, results of operations and related disclosures, but has not yet completed such assessment. The Company
determined that it will elect a transition option allowing to forgo the application of Topic 842 in the comparative
periods presented in its financial statements during the year of adoption. The Company will also elect a package
of practical expedients which will allow it for forgo the reassessment for expired or existing contracts to determine
their lease classification, initial direct costs and whether any of such contracts represent or contain leases.
Additionally, the Company will elect a practical expedient related to an accounting policy election allowing it to
forgo separating non-lease and lease components. Each separate lease component will be accounted for as a
separate element and combined with the associated non-lease components into one unit of accounting. Such
policy will be elected for each class of underlying assets for the arrangements in which GCP is a lessee. The
Company has determined that it will not elect the hindsight practical expedient related to determining the lease
term. GCP has established a steering committee, and implementation team responsible for analyzing GCP's
current contracts portfolio to determine the impact of adopting Topic 842 on the Company's financial position,
results of operations and related disclosures. The implementation team is also responsible for evaluating and
designing the necessary changes to the Company’s business processes, policies, systems and controls to
support recognition and disclosure under the new guidance. During the year ended December 31, 2018, GCP
launched a comprehensive data collection initiative related to the population of arrangements containing leases
which was substantially completed as of December 31, 2018.
Other new pronouncements issued but not effective until after December 31, 2018 are not expected to have a
material impact on the Company's financial position, results of operations or liquidity.
Recently Adopted Accounting Standards
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). GCP has
adopted Topic 606 effective January 1, 2018 using the modified retrospective approach in accordance with which
GCP has elected to apply the guidance to all open contracts that are not completed or that are active as of
January 1, 2018 and not to retrospectively restate any of its contracts for modifications that occurred prior to the
date of the adoption. Accordingly, such modifications are reflected in the amounts reported for satisfied and
unsatisfied performance obligations, transaction price of such performance obligations, and allocations of the
transaction price among contract components, as of the date of the initial application. The impact of applying this
practical expedient was immaterial to the Company’s Consolidated Financial Statements.
The impact of the adoption of Topic 606 on the Company's net sales, income (loss) from continuing
operations before income taxes, and income (loss) from continuing operations was immaterial for the year ended
December 31, 2018. The cumulative impact on the Company's retained earnings at January 1, 2018 was also not
material. Please refer to Note 2, "Revenue from Contracts with Customers" for further information on the
Company's revenue recognition policies.
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Stock Compensation
Notes to Consolidated Financial Statements (Continued)
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718), which
provides guidance related to the changes to the terms or conditions of a share-based payment award that require
an application of modification accounting pursuant to Topic 718. GCP adopted the standard effective January 1,
2018. Such adoption did not have a material impact on its financial position as of December 31, 2018 and results
of operations for the year ended December 31, 2018.
Business Combinations
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition
of a Business, which clarifies the definition of a business when evaluating whether transactions should be
accounted for as acquisitions (or disposals) of assets or business combinations. The amendments in this update
indicate that the transaction does not meet a definition of a business if substantially all of the fair value of the
gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If the
threshold is not met, entities need to evaluate whether the set of assets and activities acquired meets the
definition of a business and includes, at a minimum, an input and a substantive process that together significantly
contribute to the entity's ability to create outputs. The standard should be adopted prospectively and is effective
for the Company as of January 1, 2018, with early adoption permitted for certain transactions. GCP elected the
early adoption of this standard during the year ended December 31, 2017 in conjunction with its acquisition of
Stirling Lloyd Plc. Please refer to Note 17, "Acquisitions and Dispositions" for further information on this
transaction.
Statement of Cash Flows
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of
Certain Cash Receipts and Payments, which addresses a number of specific cash flow presentation issues with
the objective of reducing existing diversity in practice. GCP adopted the standard effective January 1, 2018 and
classified within the cash flows from financing activities a $53.3 million payment related to the redemption
premium on the extinguishment of its 9.5% Senior Notes, consistent with the provisions of the guidance. Such
payment was included in "Repayments of long term note obligations" in the Consolidated Statements of Cash
Flows. Please refer to Note 6, "Debt and Other Borrowings" for further discussion of this transaction. There was
no other material impact on the Company's Consolidated Statements of Cash Flows for the year ended December
31, 2018 as a result of the standard adoption.
Income Taxes
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets
Other Than Inventory. This ASU requires recognition of the current and deferred income tax effects of an intra-
entity asset transfer, other than inventory, when the transfer occurs, as opposed to current GAAP, which requires
companies to defer the income tax effects until the asset has been sold to an outside party. GCP adopted the
standard effective January 1, 2018 which did not have a material impact on the Company's financial position as of
December 31, 2018 and results of operations for the year ended December 31, 2018.
2. Revenue from Contracts with Customers
Short-Term Arrangements
The majority of the Company’s revenue is generated from short-term arrangements associated with the
production and sale of concrete admixtures and cement additives within its SCC operating segment, as well as
sheet and liquid membrane systems and other specialty products designed to protect the building envelope within
its SBM operating segment. The products sold are priced based on the costs of producing goods and the value
delivered to the customer. In these arrangements, the customer generally pays GCP for the contract price agreed
upon within a short period of time, which is between thirty and sixty days. For such arrangements, the transfer of
control takes place at a point in time when products are shipped to the customer. The evaluation of transfer of
control for these goods does not involve significant judgment. Revenue from these contracts with customers is
therefore typically recognized upon shipment of the product or delivery at the customer’s site depending on the
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Notes to Consolidated Financial Statements (Continued)
shipping terms, provided the transaction price can be estimated appropriately and the Company expects to collect
the consideration to which it is entitled in exchange for the products it ships.
The Company generates revenue from short-term arrangements within its SCC operating segment which
involve selling concrete admixtures and providing dispensers to customers. GCP has determined that the
dispensers represent a lease and has allocated revenue between the lease and non-lease components based on
the relative stand-alone selling price of each component which is determined based on a cost plus a reasonable
margin approach for the lease component and standalone selling prices for the non-lease component. The
Company recognizes revenue for the non-lease component at a point of time when the control is transferred to
the customer. The lease component is considered a short-term obligation which is generally thirty days or less.
The Company recognizes revenue for the lease component over the term of the lease in accordance with
provisions of ASC Topic 840, Leases ("Topic 840"). GCP records dispensers as fixed assets and depreciates them
over their estimated useful life.
Long-Term Arrangements
The Company generates revenue from long-term arrangements within its SCC operating segment, which
generally consist of VERIFI® and Ductilcrete sales arrangements. VERIFI® sales arrangements involve installing
equipment on the customers’ trucks and at their plants, as well as performing slump management and truck
location tracking services. The Company has determined that the installed equipment represents a lease. The
Company allocates the transaction price in a VERIFI® sales arrangement between the lease and non-lease
components based on valuation techniques that estimate a relative stand-alone selling price of each component.
The services included within the non-lease component represent the Company’s stand-ready promise to perform
a series of daily distinct services, which is combined into a single performance obligation. The Company
recognizes revenue associated with such services over time since the customer simultaneously receives and
consumes the benefits provided by such services. The transaction price in a VERIFI® sales arrangement consists
of installation fees and slump management fees which are dependent on the quantity of materials poured and
represent variable consideration. The Company records the amount of variable consideration at the time of the
transfer of services to its customers, which is constrained by the amount for which a significant revenue reversal
is not probable to occur. Revenue for the lease component is recognized over the term of the lease in accordance
with provisions of Topic 840. Revenue generated from VERIFI® sales arrangements represented less than 10% of
the Company's consolidated revenue during the year ended December 31, 2018.
Ductilcrete sales arrangements include licenses without significant standalone functionality and usage fees
received upfront, both of which represent separate performance obligations for which revenue is recognized over
the period of related services. Additional performance obligations included in these arrangements are related to
other fees and product sales for which revenue is recognized at a point in time once such performance obligations
are satisfied. Revenue generated from Ductilcrete sales arrangements represented less than 10% of the
Company's consolidated revenue during the year ended December 31, 2018.
Lease elements within sales arrangements
Certain sales arrangements within the SCC operating segment related to VERIFI® and certain admixture
contracts include lease components, as discussed above. Revenue for the lease components is recognized over
the term of the leases in accordance with provisions of Topic 840. During the year ended December 31, 2018, the
Company recognized revenue of $33.1 million related to the lease components of the arrangements within the
SCC operating segment. During the year ended December 31, 2018, installation and slump management fees
revenue attributable to the VERIFI® non-lease components was $4.3 million.
As of December 31, 2018 and 2017, the Company’s total trade accounts receivable balance was $198.6
million and $217.1 million, respectively, of which $4.7 million and $5.6 million, respectively, was related to trade
accounts receivable associated with rental revenue generated from leases within certain SCC contracts and
accounted for within the provisions of ASC Topic 840, Leases ("Topic 840").
Other revenue considerations
The Company generally provides warranties that its products will function as intended. GCP accrues a
general warranty liability at the time of sale based on historical experience and on a transaction-specific basis
according to individual facts and circumstances.
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The Company accepts returns for certain products sales. These returns are at the discretion of the Company
Notes to Consolidated Financial Statements (Continued)
and typically are only granted within six months from the date of sale. GCP records these returns at the time of
the sale based on historical experience and recognizes them as a reduction of transaction price.
Certain long-term agreements with customers may include one-time, upfront payments made to customers.
GCP defers these costs and recognizes them as assets which get amortized over the term of the agreement as a
reduction of gross sales.
Certain customer arrangements include conditions for volume rebates. GCP records a rebate allowance and
reduces transaction price for anticipated selling price adjustments at the time of sale. GCP regularly reviews and
estimates rebate accruals based on actual and anticipated sales patterns. The Company also evaluates contracts
with customers that contain early payment discounts and reduces transaction price by the amount not expected to
be collected due to such discounts in any given period.
The Company does not include any taxes (i.e. sales, use, value added and some excise taxes) in the
transaction price that is allocated among its products or services. The Company has elected to account for
shipping and handling costs as fulfillment activities based on the provisions of Topic 606 allowing it to continue its
current treatment of the associated revenue and costs based on the new standard. GCP expenses shipping and
handling costs in the period they are incurred and presents them within "Cost of goods sold" in the accompanying
Consolidated Statements of Operations.
The Company’s revenue is principally recognized as goods and services are delivered and performance
obligations are satisfied upon delivery. The Company has certain long-term arrangements resulting in remaining
obligations for which the work has not been performed or has been partially performed. As of December 31, 2018,
the aggregate amount of the transaction price allocated to remaining performance obligations was $5.1 million,
including the estimated transaction price to be earned as revenue over the remaining term of these contracts,
which is generally one to five years.
3. Inventories, net
The following is a summary of inventories presented in GCP's Consolidated Balance Sheets at December 31,
2018 and December 31, 2017:
(In millions)
Raw materials
In process
Finished products and other
Total inventories
December 31,
2018
2017
$
$
46.0 $
4.6
59.9
41.9
3.5
60.9
110.5 $
106.3
The "Finished products and other" category presented in the table above includes "other" inventories, which
consist of finished products purchased rather than produced by GCP of $12.9 million and $11.1 million,
respectively, as of December 31, 2018 and December 31, 2017.
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Notes to Consolidated Financial Statements (Continued)
4. Properties and Equipment
The following is a summary of properties and equipment presented in GCP's Consolidated Balance Sheets at
December 31, 2018 and December 31, 2017:
(In millions)
Land
Buildings
Machinery, equipment and other
Information technology and equipment
Projects under construction
Properties and equipment, gross
Accumulated depreciation and amortization
Properties and equipment, net
December 31,
2018
2017
$
$
8.5 $
136.7
407.8
79.2
18.3
650.5
(425.4)
225.1 $
6.3
131.9
388.9
76.6
20.4
624.1
(407.5)
216.6
Depreciation and amortization expense related to properties and equipment was $32.5 million, $30.4 million
and $25.9 million, respectively, for the years ended December 31, 2018, 2017 and 2016.
5. Goodwill and Other Intangible Assets
Goodwill
The carrying amount of goodwill attributable to each operating segment and the changes in those balances
during the years ended December 31, 2018 and 2017, are as follows:
(In millions)
Balance, December 31, 2016
Foreign currency translation
Acquisitions
Divestitures
Balance, December 31, 2017
Foreign currency translation
Acquisitions
Balance, December 31, 2018
SCC
SBM
Total
GCP
45.8 $
3.8
15.5
— $
65.1 $
(2.8)
—
62.3 $
69.1 $
6.9
58.4
(1.3)
133.1 $
(7.4)
19.9
145.6 $
114.9
10.7
73.9
(1.3)
198.2
(10.2)
19.9
207.9
$
$
$
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Notes to Consolidated Financial Statements (Continued)
Other Intangible Assets
As of December 31, 2018 and 2017, technology and other intangible assets of $89.0 million and $91.8 million,
respectively, consisted of finite-lived intangible assets of $85.1 million and $86.2 million, respectively, and
indefinite-lived intangible assets of $3.9 million and $5.6 million, respectively.
The following is a summary of the finite-lived intangible assets presented in Consolidated Balance Sheets as
of December 31, 2018 and 2017.
(In millions)
Gross Carrying
Amount
Accumulated
Amortization
Net Book Value
Gross Carrying
Amount
Accumulated
Amortization
Net Book Value
December 31, 2018
December 31, 2017
$
Customer
relationships
Technology(1)
Trademarks(1)
Other
Total
_______________________________
$
87.3 $
40.2
12.4
6.6
146.5 $
29.8 $
16.9 $
9.8 $
4.9 $
61.4 $
57.5 $
23.3
2.6
1.7
85.1 $
82.4 $
39.4
13.0
5.9
140.7 $
25.4 $
14.2
10.0
4.9
54.5 $
57.0
25.2
3.0
1.0
86.2
(1)
During the year ended December 31, 2017, technology and trademarks in the table above included $1.5 million and $4.1 million,
respectively, of indefinite-lived intangible assets. During the year ended December 31, 2018, such technology and trademarks were
excluded from the table since they are not finite-lived intangible assets.
Total indefinite-lived intangible assets consisted of purchased technology, trademarks and trade names, as
well as in-process research and development assets and amounted to $3.9 million and $5.6 million, respectively,
at December 31, 2018 and 2017. During the year ended December 31, 2017, GCP acquired the intellectual
property and related assets of Contek Shilstone Inc., including $1.5 million of goodwill and $1.5 million of in-
process research and development assets which were included in the indefinite-lived intangible assets of $5.6
million at December 31, 2017. During the year ended December 31, 2018, the in-process research and
development assets of $1.5 million were reclassified into amortizable technology intangible assets since the
related research and development activities were completed. Please refer to Note 17, "Acquisitions and
Dispositions" for further information on the intangible assets and goodwill acquired during the years ended
December 31, 2018 and 2017.
Amortization expense related to finite-lived intangible assets was $9.5 million, $6.4 million and $3.9 million,
respectively, for the years ended December 31, 2018, 2017 and 2016.
As of December 31, 2018, the estimated future annual amortization expense for intangible assets is as
follows:
(In millions)
Year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Amount
$
$
9.4
9.1
8.7
8.7
8.6
40.6
85.1
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Notes to Consolidated Financial Statements (Continued)
6. Debt and Other Borrowings
Components of Debt
The following is a summary of obligations related to the senior notes and other borrowings at December 31,
2018 and December 31, 2017:
(In millions)
5.5% Senior Notes due in 2026, net of unamortized debt issuance costs of
$4.4 million at December 31, 2018
9.5% Senior Notes due in 2023, net of unamortized debt issuance costs of
$6.4 million at December 31, 2017
Revolving credit facility due in 2023(1)
Other borrowings(2)
Total debt
Less debt payable within one year
Debt payable after one year
December 31,
2018
2017
$
345.6
$
—
—
11.1
356.7
10.6
346.1
$
$
—
518.6
—
25.7
544.3
24.0
520.3
Weighted average interest rates on total debt obligations outstanding at
December 31, 2018 and 2017
__________________________
5.7%
9.4%
(1)
(2)
Represents borrowings under the Revolving Credit Facility with an aggregate available principal amount of $350.0 million and
$250.0 million, respectively, as of December 31, 2018 and December 31, 2017.
Represents borrowings under various lines of credit and other borrowings, primarily by non-U.S. subsidiaries.
The principal maturities of debt obligations outstanding, net of debt issuance costs, were as follows at
December 31, 2018:
(In millions)
Year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total debt
Debt Refinancing
Amount
10.6
0.5
—
—
—
345.6
356.7
$
$
On April 10, 2018, GCP redeemed its then existing 9.5% Senior Notes with an aggregate principal amount of
$525.0 million due in 2023 (the “9.5% Senior Notes”). On April 10, 2018, the Company also issued 5.5% Senior
Notes with an aggregate principal amount of $350.0 million maturing on April 15, 2026 (the "5.5% Senior Notes")
and amended its Credit Agreement to, among other things, (i) increase the aggregate principal amount available
under its revolving credit facility to $350.0 million, (ii) extend the maturity date of the revolving credit facility
thereunder to April 2023 and (iii) make certain other changes to the covenants and other provisions therein.
Additionally, on April 10, 2018, the Company borrowed $50.0 million in aggregate principal amount of revolving
loans under the Credit Agreement which was fully repaid during the three months ended June 30, 2018. The
aggregate cash payment of $587.9 million, which consisted of: (i) proceeds of $350.0 million from the issuance of
the 5.5% Senior Notes, net of loan origination fees of $3.1 million, (ii) borrowings of $50.0 million under the Credit
Agreement, and (iii) a cash payment of $191.0 million was used to redeem all of the then outstanding 9.5% Senior
Notes in accordance with the terms of the indenture governing the 9.5% Senior Notes.
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Notes to Consolidated Financial Statements (Continued)
The redemption of the 9.5% Senior Notes was accounted for as a debt extinguishment in accordance with
provisions of ASC Topic 470-50, Debt Modifications and Extinguishments. During the year ended December 31,
2018, GCP recognized a loss on debt extinguishment of $59.4 million which was included in "Interest expense
and related financing costs" in the Consolidated Statements of Operations. In connection with the redemption of
the 9.5% Senior Notes with then outstanding principal balance of $525.0 million, GCP paid total cash proceeds of
$587.9 million, including $53.3 million of a redemption premium and $9.6 million of accrued interest unpaid
thereon through the redemption date, and wrote off $6.1 million of previously deferred debt issuance costs.
The amendment to the Credit Agreement among GCP and a syndicate of financial institutions resulted in an
increase in a maximum borrowing capacity under the Revolving Credit Facility from $250.0 million to $350.0
million and extension of its maturity date to April 2023. During the year ended December 31, 2018, GCP wrote off
$0.4 million of deferred debt issuance costs related to a financial institution that exited the syndicate upon
amendment of the Credit Agreement. As of December 31, 2018, debt issuance costs of $4.3 million related to the
financial institutions that remained in the syndicate are presented within "Other assets" in the Consolidated
Balance Sheets and amortized over the term of the Revolving Credit Facility.
The total loss recognized on the debt refinancing transaction was $59.8 million which was included in
"Interest expense and related financing costs" in the Consolidated Statements of Operations and consisted of
$59.4 million related to the extinguishment of the 9.5% Senior Notes and $0.4 million related to a deferred
issuance costs write-off in connection with the amendment of the Credit Agreement.
5.5% Senior Notes
On April 10, 2018, GCP issued 5.5% Senior Notes with an aggregate principal amount of $350.0 million
maturing on April 15, 2026. The 5.5% Senior Notes were issued at $346.9 million, or 99.1% of their par value,
resulting in a discount of $3.1 million, or 0.9%, which represented loan origination fees paid at the closing. The
Company incurred additional deferred financing costs of $1.6 million related to the issuance. Interest is payable
semi-annually in arrears on April 15 and October 15 of each year, which commenced on October 15, 2018.
The 5.5% Senior Notes were issued pursuant to an Indenture (the “Indenture”), by and among GCP, the
guarantors party thereto (the “Note Guarantors”) and Wilmington Trust, National Association, as trustee. The 5.5%
Senior Notes and the related guarantees rank equally with all of the existing and future unsubordinated
indebtedness of GCP and the Note Guarantors and senior in right of payment to any existing and future
subordinated indebtedness of GCP and the Note Guarantors. The 5.5% Senior Notes and related guarantees are
effectively subordinated to any secured indebtedness of GCP or the Note Guarantors, as applicable, to the extent
of the value of the assets securing such indebtedness and structurally subordinated to all existing and future
indebtedness and other liabilities of GCP’s non-guarantor subsidiaries.
Subject to certain conditions stated in the Indenture, GCP may, at its option and at any time and from time to
time prior to April 15, 2021, redeem the 5.5% Senior Notes in whole or in part at a redemption price equal to: (i)
100% of their principal amount redeemed, plus (ii) the applicable premium, as defined in the Indenture, plus (iii)
accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, GCP may, at its
option, redeem up to 40% of the outstanding principal amount of the 5.5% Senior Notes at any time and from time
to time prior to April 15, 2021 with the net cash proceeds from certain equity offerings at a redemption price equal
to: (i) 105.5% of the principal amount redeemed, plus (ii) accrued and unpaid interest, if any, to, but excluding, the
applicable redemption date. At any time and from time to time on or after April 15, 2021, GCP may, at its option,
redeem the 5.5% Senior Notes in whole or in part at the redemption price equal: (i) 102.8% of the par value if
redeemed after April 15, 2021, (ii) 101.4% of the par value if redeemed after April 15, 2022, and (iii) 100.0% of the
par value if redeemed after April 15, 2023 and thereafter. Upon occurrence of a change of control, as defined in
the Indenture, GCP will be required to make an offer to repurchase the 5.5% Senior Notes at a price equal to
101.0% of their aggregate principal amount repurchased plus accrued and unpaid interest, if any, to, but
excluding, the date of repurchase.
The Indenture contains covenants that limit the ability of GCP and its subsidiaries, subject to certain
exceptions and qualifications set forth therein, to (i) create or incur liens on certain assets, (ii) incur additional
debt, (iii) make certain investments and acquisitions, (iv) consolidate, merge, or convey, transfer, or lease all or
substantially all of their assets, (v) sell certain assets, (vi) pay dividends on or make distributions in respect of
GCP’s capital stock or make other restricted payments, (vii) enter into certain transactions with GCP’s affiliates
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Notes to Consolidated Financial Statements (Continued)
and (viii) place restrictions on distributions from and other actions by subsidiaries. As of December 31, 2018, the
Company was in compliance with all covenants and conditions under the Indenture.
The Indenture provides for customary events of default which are subject in certain cases to customary grace
periods and include, among others: (i) nonpayment of principal or interest, (ii) breach of other agreements in the
Indenture, (iii) failure to pay certain other indebtedness, (iv) certain events of bankruptcy or insolvency, (v) failure
to discharge final judgments aggregating in excess of $50.0 million rendered against GCP or certain of its
subsidiaries, (vi) and failure of the guarantee of the 5.5% Senior Notes by any of GCP’s significant subsidiaries to
be in full force and effect. There are no events of default under the Indenture as of December 31, 2018.
Credit Agreement
On February 3, 2016, GCP entered into a Credit Agreement that provides for senior secured credit facilities
(the “Credit Facilities”) in an aggregate principal amount of $525.0 million, which consisted of: (i) the term loan
(the "Term Loan") with an aggregate principal amount of $275.0 million and (ii) a revolving credit facility (the
"Revolving Credit Facility") of $250.0 million due in 2021. During 2017, the Company fully repaid the outstanding
principal balance on the Term Loan together with accrued and unpaid interest and extinguished the Term Loan
under the Credit Agreement.
On April 10, 2018, GCP entered into an amendment to its Credit Agreement and borrowed $50.0 million in
aggregate principal amount of revolving loans under the Credit Agreement, as discussed above, which was fully
repaid during the three months ended June 30, 2018.
The Credit Agreement contains conditions that would require mandatory principal payments in advance of the
maturity date of the Revolving Credit Facility, as well as certain customary affirmative and negative covenants and
events of default. Customary affirmative covenants include, but are not limited to (i) maintenance of legal
existence and compliance with laws and regulations; (ii) delivery of consolidated financial statements and other
information; (iii) payment of taxes; (iv) delivery of notices of defaults and certain other material events; and (v)
maintenance of adequate insurance. Customary negative covenants include, but are not limited to (i) restrictions
on dividends on and redemptions of, equity interests and other restricted payments; (ii) liens; (iii) loans and
investments; (iv) the sale, transfer or disposition of assets and businesses; (v) transactions with affiliates; and (vi)
a maximum total leverage ratio. Certain debt covenants may restrict the Company's ability as it relates to
dividends, acquisitions and other borrowings. Events of default under the Credit Agreement include, but are not
limited to: (i) failure to pay principal, interest, fees or other amounts under the Credit Agreement when due, taking
into account any applicable grace period; (ii) any representation or warranty proving to have been incorrect in any
material respect when made; (iii) failure to perform or observe covenants or other terms of the Credit Agreement
subject to certain grace periods; (iv) a cross-default and cross-acceleration with certain other material debt; (v)
bankruptcy events; (vi) certain defaults under ERISA; and (vii) the invalidity or impairment of security
interests. The Company was in compliance with all covenant terms as of December 31, 2018 and December 31,
2017. There are no events of default as of December 31, 2018 and December 31, 2017.
The Revolving Credit Facility is secured on a first priority basis by a perfected security interest in, and
mortgages on substantially all U.S. tangible and intangible personal property, financial assets and real property
owned by the Company in Chicago, Illinois and Mount Pleasant, Tennessee; a pledge of 100% of the equity of
each material U.S. subsidiary of the Company; and 65% of the equity of a U.K. holding company.
The interest rate per annum applicable to the Revolving Credit Facility is equal to, at GCP’s option, either: (i)
a base rate plus a margin ranging from 0.5% to 1.0%, or (ii) LIBOR plus a margin ranging from 1.5% to 2.0%,
based upon the total leverage ratio of GCP and its restricted subsidiaries in both scenarios. During the year ended
December 31, 2018, GCP made aggregate payments of $50.0 million on the Revolving Credit Facility. As of
December 31, 2018, there were no outstanding borrowings on the Revolving Credit Facility and approximately
$5.0 million in outstanding letters of credit, which resulted in available credit of $345.0 million under the Revolving
Credit Facility. As of December 31, 2017, there were no outstanding borrowings under the Revolving Credit
Facility. Interest payments on the Revolving Credit Facility amounted to $0.2 million and $1.0 million, respectively,
during the year ended December 31, 2018 and 2017.
During 2017, the Company repaid the outstanding principal balance and extinguished the Term Loan under
the Credit Agreement, which, together with accrued and unpaid interest, was $272.6 million. In conjunction with
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the debt repayment, GCP wrote-off the net unamortized discount of $2.1 million and the net unamortized debt
issuance costs of $3.9 million related to the Term Loan, which are reflected in "Interest expense and related
financing costs" in the Consolidated Statements of Operations.
9.5% Senior Notes
On January 27, 2016, GCP issued $525.0 million aggregate principal amount of 9.5% Senior Notes maturing
in 2023. Interest was payable semi-annually in arrears on February 1 and August 1 of each year. The 9.5% Senior
Notes became callable at a premium over their face amount on February 1, 2019 and were redeemable prior to
February 1, 2019 at a price that reflected a yield to the first call that was equivalent to the applicable Treasury
bond yield plus 0.5 percentage points.
On April 10, 2018, GCP redeemed all of the then outstanding 9.5% Senior Notes, as described above, and
paid $9.6 million of accrued interest unpaid thereon through their redemption date.
The 9.5% Senior Notes were subject to covenants that limited GCP's and certain of its subsidiaries’ ability,
subject to certain exceptions and qualifications, to (i) create or incur liens on assets; (ii) incur additional debt; (iii)
sell certain assets; and (iv) make certain investments and acquisitions, merge or sell or otherwise dispose of all or
substantially all assets.
Debt Issuance Costs
GCP recognizes expenses directly associated with obtaining the Revolving Credit Facility as debt issuance
costs which are presented within "Other assets" in the accompanying Consolidated Balance Sheets. Such costs
are amortized over the term of the Revolving Credit Facility and included in “Interest expense and related
financing costs” in the accompanying Consolidated Statements of Operations. Debt issuance costs related to the
Revolving Credit Facility were $4.1 million and $3.2 million, respectively, as of December 31, 2018 and 2017.
During the year ended December 31, 2018, GCP wrote off $0.4 million of debt issuance costs related to a
financial institution that exited the syndicate upon amendment of the Credit Agreement which governs the
Revolving Credit Facility. During the year ended December 31, 2018, GCP incurred debt issuance costs of $2.2
million due to the amendment of the Credit Agreement.
Debt issuance costs of $4.7 million, including loan origination fees of $3.1 million paid at the closing, are
directly associated with issuing the 5.5% Senior Notes and presented as a reduction of the principal balance in
the Consolidated Balance Sheets. Such costs are amortized over the term of the 5.5% Senior Notes and included
in “Interest expense and related financing costs” in the Consolidated Statements of Operations. At December 31,
2018, the remaining unamortized debt issuance costs related to the 5.5% Senior Notes were $4.4 million.
During the year ended December 31, 2018, GCP wrote off $6.1 million of previously deferred debt issuance
costs related to the 9.5% Senior Notes in connection with their redemption.
Debt Fair Value
At December 31, 2018, the carrying amounts and fair values of GCP's debt are as follows:
(In millions)
5.5% Senior Notes due in 2026
9.5% Senior Notes due in 2023
Other borrowings
Total debt
December 31, 2018
December 31, 2017
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
$
$
345.6 $
344.2 $
— $
—
11.1
—
11.1
518.6
25.7
356.7 $
355.3 $
544.3 $
—
584.5
25.7
610.2
Fair value is determined based on Level 2 inputs, including expected future cash flows (discounted at market
interest rates), estimated current market prices and quotes from financial institutions. The decrease in fair value
compared to the carrying value as of December 31, 2018 was primarily due to the increasing interest rates.
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Notes to Consolidated Financial Statements (Continued)
7. Income Taxes
Provision for Income Taxes
The components of income before income taxes and the related provision for income taxes for 2018, 2017
and 2016 are as follows:
(In millions)
Income (loss) before income taxes:
Domestic
Foreign
Total
Provision for income taxes:
Federal—current
Federal—deferred
State and local—current
State and local—deferred
Foreign—current
Foreign—deferred
Total
Tax Reform
Year Ended December 31.
2018
2017
2016
$
$
$
$
5.5 $
5.0
10.5 $
16.8 $
(0.6)
(0.2)
(0.4)
12.1
(1.4)
26.3 $
(27.4) $
(0.9)
(28.3) $
27.2 $
39.4
(3.8)
2.7
5.7
10.9
82.1 $
(5.9)
41.2
35.3
(4.2)
0.5
(0.5)
—
10.4
0.5
6.7
The 2017 Tax Act (the "Act"), which was signed into law on December 22, 2017, has resulted in significant
changes to the Internal Revenue Code. These changes include, but are not limited to, the federal corporate tax
rate being reduced from 35% to 21%, the elimination or reduction of certain domestic tax deductions and credits,
along with limitations on interest expense and executive compensation. The 2017 Tax Act also transitions
international taxation from a worldwide system to a modified territorial system and includes base erosion
prevention measures on non-US earnings, which subjects certain earnings of our foreign subsidiaries to US
taxation as global intangible low-taxed income ("GILTI"). The Company has elected to recognize the tax on GILTI
as expense in the period the tax is incurred.
During the year ended December 31, 2017, the Company recorded a provisional net charge of $81.7 million
related to the provisions of the 2017 Tax Act, which was comprised of a $70.5 million Transition Tax and a $11.2
million revaluation of net deferred tax assets. Changes in tax rates and tax laws are accounted for in the period of
enactment.
During the year ended December 31, 2018, the Company recorded an increase to the provisional net charge
of $17.9 million which is comprised of an expense of $20.2 million related to certain capital gains recognized
resulting from the application of the Transition Tax (see Unrecognized Tax Benefits - Subsequent Event paragraph
below), a $2.5 million benefit related to the Transition Tax, and an expense of $0.2 million for the effect on U.S.
deferred taxes.
Transition Tax
The 2017 Tax Act eliminates the deferral of U.S. income tax on the historical unrepatriated earnings by
imposing the Transition Tax, which is a one-time mandatory deemed repatriation tax on undistributed earnings.
The Transition Tax is assessed on the U.S. shareholder's share of the foreign corporation's accumulated foreign
earnings that have not previously been taxed. Earnings in the form of cash and cash equivalents will be taxed at a
15.5% and all other earnings will be taxed at 8.0%.
At December 31, 2017 the provisional Transition Tax recorded was $70.5 million. During the year ended
December 31, 2018 the Company further analyzed the Act, as well as Notices and Regulations issued and
proposed by the U.S. Department of the Treasury and the Internal Revenue Service, which resulted in a $2.5
million reduction to the provisional Transition Tax. As of December 31, 2018, the Company completed the
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Notes to Consolidated Financial Statements (Continued)
recording of the amount for its one-time Transition Tax totaling $68.0 million, net of foreign tax credits generated.
The Company elected to pay the Transition Tax over the eight-year period provided in the Act. As of December
31, 2018, the unpaid balance of the Transition Tax obligation is $37.7 million net of overpayments and foreign tax
credits. After considering overpayments, the outstanding payable is due between April 2022 and April 2025.
Status of Company's Assessment of the 2017 Tax Act
As of December 31, 2018, the Company has completed the accounting for the income tax effects of the Act.
Effective Tax Rate
The difference between the provision for income taxes at the U.S. federal income tax rates of 21% and 35%
and GCP's overall income tax provision are as follows:
(In millions)
Tax (benefit) provision at U.S. federal income tax rate
Change in provision resulting from:
Deconsolidation of Venezuela(1)
Devaluation in Venezuela
2017 Tax Act
Recognition of outside basis differences
U.S. foreign income inclusions
Effect of tax rates in foreign jurisdictions
Valuation allowance
State and local income taxes, net
Return to provision – change in estimate
Nondeductible expenses and non-taxable items
Research and other state credits
Unrecognized tax benefits (2)
Equity compensation
Other
Provision for income taxes
__________________________
Year Ended December 31,
2018
2017
2016
$
2.2 $
(9.9) $
12.4
—
—
(2.5)
0.3
0.7
1.5
6.8
0.6
(5.4)
2.7
(1.1)
20.7
(0.5)
0.3
$
26.3 $
11.5
1.4
81.7
(13.9)
1.1
(1.0)
11.4
(1.2)
0.4
3.5
(0.8)
(0.7)
(1.2)
(0.2)
82.1 $
—
—
—
—
—
(4.5)
0.4
—
—
2.5
(0.7)
(1.6)
(1.7)
(0.1)
6.7
(1) Amount in 2017 is offset by the benefit resulting from outside basis differences in primarily Mexico and Venezuela, which is included in
the table above in "Recognition of outside basis differences."
(2) Amount primarily relates to unrecognized tax benefits due to the 2017 Tax Act.
The income tax provision for the years ended December 31, 2018, 2017, and 2016 was $26.3 million, $82.1
million and $6.7 million, respectively, representing effective tax rates of 250.5%, 290.1%, and 19.0%, respectively.
The decrease in the Company's effective tax rate for the year ended December 31, 2018 compared to the
same period in 2017 was primarily due to impacts from the 2017 Tax Act including the decrease in the statutory
tax rate and offsetting unrecognized tax benefits recorded, as well as valuation allowance expense. The increase
in the Company's effective tax rate for the year ended December 31, 2017 compared to the same period in 2016
was primarily due to the provisions of the 2017 Tax Act, an increase in valuation allowances due to the sale of
Darex, partially off-set by a benefit for taxes related to outside basis differences in foreign subsidiaries.
The Company's 2018 effective tax rate of 250.5% was higher than the 21% U.S. statutory rate primarily due to
impacts of the 2017 Tax Act of $17.9 million and an increase in valuation allowance of $6.8 million resulting from
un-benefited losses in Germany, France, India, Turkey and Mexico.
The Company's 2017 effective tax rate of 290.1% was higher than the 35% U.S. statutory rate primarily due to
net expenses recognized during the year comprised of $81.7 million due to the 2017 Tax Act, $11.5 million due to
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Notes to Consolidated Financial Statements (Continued)
non-deductible charges for the Venezuela deconsolidation, $11.4 million due to an increase in valuation allowance
primarily due to the sale of Darex, offset by a $13.9 million benefit due to differences between book and tax basis
in Venezuela and Mexico.
The Company's 2016 effective tax rate of approximately 19.0% was lower than the 35% U.S. statutory rate
primarily due to benefits recognized during the year, including $4.5 million benefit due to lower taxes in non-U.S.
jurisdictions, $0.7 million benefit related to income tax credits and $1.6 million benefit related to the release of
reserves for unrecognized tax benefits and $2.5 million expense for non-deductible expenses.
Deferred Tax Assets and Liabilities
The components of the deferred tax assets and liabilities at December 31, 2018 and 2017 are as follows:
(In millions)
Deferred tax assets:
Foreign net operating loss carryforwards
Research and development
Reserves and allowances
Pension benefits
Intangible assets/goodwill
Stock compensation
Interest Limitation Carryover
Other
Total deferred tax assets
Deferred tax liabilities:
Properties and equipment
Other
Outside basis difference in Verifi®
Total deferred tax liabilities
Valuation Allowance:
Foreign net operating loss carryforwards
Net deferred tax assets
December 31,
2018
December 31,
2017
$
19.0 $
1.0
9.4
5.9
0.1
3.1
12.2
1.3
52.0 $
(14.5) $
(2.2)
(3.7)
(20.4) $
(18.5)
13.1 $
$
$
$
$
24.5
2.4
12.5
8.3
1.4
3.8
—
2.5
55.4
(12.1)
(2.5)
(1.4)
(16.0)
(23.9)
15.5
In evaluating GCP's ability to realize its deferred tax assets, GCP considers all reasonably available positive
and negative evidence, including recent earnings experience, expectations of future taxable income and the tax
character of that income, the period of time over which temporary differences become deductible and the
carryforward and/or carryback periods available to GCP for tax reporting purposes in the related jurisdiction. In
estimating future taxable income, GCP relies upon assumptions and estimates about future activities, including
the amount of future federal, state and foreign pretax operating income that GCP will generate; the reversal of
temporary differences; and the implementation of feasible and prudent tax planning strategies. GCP records a
valuation allowance to reduce deferred tax assets to the amount that it believes is more likely than not to be
realized.
At December 31, 2018, GCP recorded a deferred tax asset of $12.2 million on carryover interest, the current
deductibility of which is limited under the new Tax Act. The carryover is largely driven by the one-time expense
incurred during 2018 of $53.3 million in redemption premium as discussed further in Note 6, Debt and Other
Borrowings. The interest limitation may be carried over indefinitely and GCP believes it is more likely than not that
it will utilize the full carryover amount.
At December 31, 2018 and 2017, GCP has recorded a valuation allowance of $18.5 million and $23.9 million
respectively, to reduce its net deferred tax assets to the amount that is more likely than not to be realized. The
realization of deferred tax assets is dependent on the generation of sufficient taxable income in the appropriate
tax jurisdictions. GCP believes it is more likely than not that the remaining deferred tax assets will be realized. If
GCP were to determine that it would not be able to realize a portion of its deferred tax assets in the future, for
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Notes to Consolidated Financial Statements (Continued)
which there is currently no valuation allowance, an adjustment to the deferred tax assets would be charged to
earnings in the period such determination was made. Conversely, if GCP were to make a determination that it is
more likely than not that deferred tax assets, for which there is currently a valuation allowance, would be realized,
the related valuation allowance would be reduced and a benefit to earnings would be recorded.
In 2018, the Company recorded valuation allowance charges of $6.8 million resulting primarily from
unbenefited losses in Germany, France, India, Turkey and Mexico. In 2017 the Company recorded a valuation
allowance against deferred tax assets in Brazil, France and Germany, predominantly due to the sale of the Darex
business. As part of sale of Darex, a capital loss was recognized in Japan on the sale of stock of the Company's
Japanese subsidiary. Although a capital loss can be carried over in Japan, the Company determined it would likely
not have sufficient income to utilize this asset and recorded a valuation allowance in 2017. In 2018, the deferred
tax asset on the loss carryforward and the associated valuation allowance were written off due to a forfeiture of
the Company’s ability to carry forward the loss. No tax benefit or expense resulted from the write offs.
As of December 31, 2018, the company had net operating losses for income tax purposes of approximately
$61.5 million. These net operating losses consist primarily of Brazil, France and Germany net operating losses of
$26.7 million, $8.2 million and $8.6 million respectively, each with an unlimited carryover period, and $9.8 million
of India net operating losses that begin to expire in 2019.
Repatriation
In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and
repatriate earnings only when the tax impact is minimal and that position has not changed subsequent to the one-
time transition tax under the Tax Act. Accordingly, no deferred taxes have been provided for withholding taxes or
other taxes that would result upon repatriation of our approximately $532.3 million of undistributed earnings from
foreign subsidiaries to the U.S. as those earnings continue to be permanently reinvested. The estimated
unrecorded tax liability associated with these earnings is $6.7 million.
Tax Sharing Agreement
In connection with the Separation, GCP and Grace entered into various agreements that govern the
relationship between the parties going forward, including a tax matters agreement (the "Tax Sharing Agreement").
Under the Tax Sharing Agreement, which was entered into on the distribution date, GCP and Grace will indemnify
and hold each other harmless in accordance with the principles outlined therein.
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Notes to Consolidated Financial Statements (Continued)
Unrecognized Tax Benefits
A reconciliation of the unrecognized tax benefits excluding interest and penalties, for the three years ended
December 31, 2018, is presented below.
(In millions)
Balance, December 31, 2015
Transfers from Parent
Additions for prior year tax positions
Reductions for prior year tax positions and reclassifications
Reductions for expirations of statute of limitations
Settlements
Balance, December 31, 2016
Additions for prior year tax positions
Additions for current year tax positions
Reductions for expirations of statute of limitations
Reductions for prior year tax positions and reclassifications
Balance, December 31, 2017
Additions for prior year tax positions
Additions for current year tax positions
Reductions for expirations of statute of limitations
Reductions for prior year tax positions and reclassifications
Balance, December 31, 2018
Unrecognized
Tax Benefits
3.9
4.1
2.5
—
(1.1)
(2.0)
7.4
7.0
26.0
(1.0)
(5.3)
34.1
21.0
—
(2.0)
(0.3)
52.8
$
$
$
$
The balance of unrecognized tax benefits as of December 31, 2018, 2017 and 2016, that if recognized, would
affect GCP’s effective tax rate are $52.4 million, $33.4 million and $7.4 million, respectively, GCP accrues
potential interest and any associated penalties related to unrecognized tax benefit within "Provision for income
taxes" in the Consolidated Statements of Operations. The balances of unrecognized tax benefits in the preceding
table do not include accrued interest and penalties. The total amount of interest and penalties accrued on
unrecognized tax benefit and included in the Consolidated Balance Sheets as of December 31, 2018 and 2017
was $10.4 million and $9.0 million, respectively, net of applicable federal income tax benefits.
Unrecognized tax benefits from GCP's operations are reflected in its Consolidated Financial Statements,
including those that in certain jurisdictions have historically been included in tax returns filed by Grace. In such
instances, unrecognized tax benefit related to GCP's operations may be indemnified by Grace. As of
December 31, 2018, 2017 and 2016, the amount of unrecognized tax benefits considered obligations of Grace
(including both interest and penalties) were $3.0 million, $3.8 million and $3.7 million, respectively. The
Company has a corresponding receivable of the same amount from Grace.
The Company believes it is reasonably possible that in the next 12 months due to expiration of statute of
limitation that the amount of the liability for unrecognized tax benefits could further decrease by approximately
$1.5 million, of which $0.6 million is indemnified by Grace.
GCP files U.S. federal income tax returns as well as income tax returns in various state and foreign
jurisdictions. Unrecognized tax benefits relate to income tax returns for tax years that remain subject to
examination by the relevant tax authorities.
As of December 31, 2018, the tax years for which we remain subject to United States federal income tax
assessment and state and local income tax assessment upon examination are 2015 and thereafter. We are
currently under examination by the Internal Revenue Service (“IRS”) for the period ended December 31, 2016.
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Notes to Consolidated Financial Statements (Continued)
We are also subject to taxation in various foreign jurisdictions including in Europe, the Middle East, Africa,
Asia Pacific, Canada and Latin America. We are under, or may be subject to, audit or examination and additional
assessments in respect of these particular jurisdictions in general for tax years 2012 and thereafter.
Foreign jurisdiction audits that have been initiated and/or are ongoing include two German audits relating to
GCP Darex GmbH and GCP Germany GmbH for taxable years 2014-2015, an Indian audit relating to GCP
Applied Technologies (India) Private Limited for taxable years 2016-2017, and a Canadian audit relating to GCP
Canada, Inc. for taxable years 2015-2016. Since GCP Darex Germany was sold in July 2017, any assessments
pursuant to the audit will be reimbursed by GCP to the buyer.
Unrecognized Tax Benefit - Subsequent Event
On January 15, 2019, the Internal Revenue Service (IRS) issued final regulations under Code Section 965,
the Transition Tax Provision. During the year ended December 31, 2018, the Company recorded an unrecognized
tax benefit related to certain capital gains recognized as a result of the application of the transition tax of $20.2
million. Due to clarifications provided in the final treasury regulations on the transition tax issued in January 2019,
GCP expects its liability for unrecognized tax benefits to decrease by approximately $20.2 million in the first
quarter of 2019, offset by a current income tax payable amount of $2.6 million. These amounts are subject to
change as further review and analysis is performed over the final regulations.
8. Pension Plans and Other Postretirement Benefit Plans
The following discussion of GCP's pension plans and other postretirement benefit plans includes amounts
related to continuing operations and discontinued operations. Amounts attributed to results from discontinued
operations in the current and prior years are distinguished below.
Pension Plans
GCP sponsors defined benefit pension plans, primarily in the U.S. and the U.K., in which GCP employees and
former employees participate. These plans cover current and former employees of certain business units and
divested business units who meet age and service requirements. Benefits are generally based on final average
salary and years of service. GCP funds its U.S. qualified pension plans in accordance with U.S. federal laws and
regulations. Non-U.S. pension plans are funded under a variety of methods as required under local laws and
customs.
Overfunded and underfunded plans include several advance-funded plans for which the fair value of the plan
assets offset the projected benefit obligation ("PBO"). Of this group, the overfunded plans hold plan assets
measured at fair value that exceeds the PBO. In contrast to overfunded plans, the PBO of the underfunded plans
is greater than the fair value of the plan assets. These plans are presented in the Consolidated Balance Sheets
along with unfunded plans. Unfunded plans are funded on a pay-as-you-go basis and therefore, their PBO is
unfunded entirely.
The following table presents the funded status of GCP's overfunded, underfunded and unfunded defined
pension plans in continuing operations:
(In millions)
Overfunded defined benefit pension plans
Underfunded defined benefit pension plans
Unfunded defined benefit pension plans
Total underfunded and unfunded defined benefit pension plans
Pension liabilities included in other current liabilities
Net funded status
December 31,
2018
December 31,
2017
$
$
22.5
$
(24.2)
(23.9)
(48.1)
(1.3)
(26.9) $
26.4
(26.6)
(30.5)
(57.1)
(1.0)
(31.7)
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U.S. Pension Plans
Notes to Consolidated Financial Statements (Continued)
On May 3, 2017, the Board of Directors approved an amendment to the GCP Applied Technologies Inc.
Retirement Plan for Salaried Employees that closed the plan to new employees effective January 1, 2018 and
froze the accrual of plan benefits for all plan participants as of December 31, 2022.
There were no curtailment gains in the years ended December 31, 2018 and 2016. The Company recognized
the following curtailment gain amounts related to U.S. plans for the year ended December 31, 2017:
(In millions)
Net curtailment gains:
Plan amendments
Restructuring activities
Total net curtailment gains from continuing operations
Total net curtailment gains from discontinued operations
Total net curtailment gains
Year Ended
December 31, 2017
$
$
$
5.9
0.7
6.6
2.6
9.2
The Company recognized the following pension mark-to-market (MTM) gains (losses) relating to the interim
and annual remeasurements of the U.S. plans' PBO and plan assets.
(In millions)
Total MTM gains(losses) from continuing operations
Total MTM (losses) from discontinued operations
Total MTM gains(losses)
Non-U.S. Pension Plans
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Year Ended
December 31, 2016
$
$
$
9.5
—
9.5
$
(18.7) $
—
(18.7) $
(11.5)
(0.4)
(11.9)
A High Court judgment on October 26, 2018 ruled that certain U.K. pension plans must gender-equalize a
statutory minimum benefit (“Guaranteed Minimum Pension” or “GMP”) that is provided by most U.K. plans. This
judgment requires increases to the pension benefits for many U.K. plan participants and was accounted for as a
plan amendment resulting in the recognition of a prior service cost of $2.7 million in "Accumulated Other
Comprehensive Loss" as of December 31, 2018. Such amount will be recognized in the Company's results of
operations in future periods and recorded annually as an amortization expense of $0.1 million over 19 years
which represents expected lifetime of the affected participants.
The Company recognized the following curtailment gains related to non-U.S. pension plans:
(In millions)
Net curtailment gains:
Total net curtailment gains(losses) from continuing
operations
Total net curtailment gains from discontinued operations
Total net curtailment gains
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Year Ended
December 31, 2016
0.2
$
—
0.2
$
— $
14.3
14.3
$
(0.8)
1.4
0.6
$
$
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Notes to Consolidated Financial Statements (Continued)
The Company recognized the following mark-to-market gains (losses) relating to interim and annual
remeasurement of the non-U.S. plans' PBO and plan assets.
(In millions)
Total MTM gains(losses) from continuing operations
Total MTM (losses) from discontinued operations
Total MTM gains(losses)
$
Year Ended
December 31, 2018
0.4
$
Year Ended
December 31, 2017
4.6
$
Year Ended
December 31, 2016
$
(8.4)
—
0.4
$
0.1
4.7
$
(0.2)
(8.6)
During the years ended December 31, 2018 and 2017, adjustment for curtailments and pension mark-to-
market remeasurements for both the U.S. and non-U.S. plans are presented in "Other (income) expense, net" in
the Consolidated Statements of Operations. During the year ended December 31, 2016, the remeasurement of
$5.9 million was presented in "Cost of goods sold", and $14.0 million was presented in "Other (income) expense,
net" in the Consolidated Statements of Operations.
Darex Divestiture Pension Plans Impact - U.S. and non-U.S.
In connection with the divestiture of the Darex operating segment, the Company recognized curtailment and
settlement gains totaling $2.1 million in the U.S. and $14.3 million outside of the U.S during the year ended
December 31, 2017 in "Income from discontinued operations, net of income taxes" in the Consolidated
Statements of Operations. Additionally, GCP also recognized a non-U.S. mark-to-market gain of $0.1 million in
"Income from discontinued operations, net of income taxes" related to remeasurement at the time of the Darex
sale during the year ended December 31, 2017.
During the year ended December 31, 2016, the Company has included in "Income from discontinued
operations, net of income taxes" mark-to-market adjustments related to a U.S. plan which resulted in losses of
$0.4 million, as well as a loss of $0.2 million related to non-U.S. plans.
The Company has also included non-U.S. plan service cost, interest cost and expected return on plan assets
totaling $0.5 million and $1.2 million for the years ended December 31 2017 and 2016, respectively, in "Income
from discontinued operations, net of income taxes" in the Consolidated Statements of Operations.
No material transactions related to discontinued operations for pensions plans occurred during the year
ended December 31, 2018.
Analysis of Plan Accounting and Funded Status
The PBO reflects the present value of vested and non-vested benefits earned from employee services to
date, based upon current services and estimated future pay increases for active employees. As of December 31,
2018, the measurement date for GCP's defined benefit pension plans, the PBO was $388.3 million compared to
$438.3 million as of December 31, 2017. The decrease in the PBO was primarily due to an increase in discount
rates and changes in compensation rates of plan participants partially offset by updates to mortality assumptions.
As of December 31, 2018, the PBO was determined using the weighted average discount rates for U.S. plans and
non-U.S. plans, which were 4.33%, and 2.49%, respectively. The increase in the discount rates was primarily due
to the increase in market rates for U.S. and non-U.S. high quality corporate bonds.
The underfunded status of the U.S. defined pension plans decreased to $31.0 million for the year ended
December 31, 2018 compared to $34.6 million in the prior year, while the overfunded status of the non-U.S.
defined pension plans increased to $3.6 million for the year ended December 31, 2018 compared to $2.6 million
in the prior year. The changes in funded status for both the U.S. and non-U.S. plans was primarily due to the
lower PBO partially offset by lower plan assets.
A full remeasurement of pension assets and pension liabilities is performed annually based on GCP's
estimates and actuarial valuations. Remeasurements may also occur during interim periods when significant
events occur such as plan curtailments or terminations. These valuations reflect the terms of the plan and use
participant-specific information, as well as key assumptions provided by management.
99
Table of Contents
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the changes in benefit obligations and the fair values of retirement plan
assets during the years ended December 31, 2018 and 2017, including amounts presented in both continuing and
discontinued operations. Settlements and curtailments directly related to the sale of Darex are presented within
"Divestitures" below:
(In millions)
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants' contributions
Amendments
Settlements/curtailments
Divestitures
Actuarial loss
Benefits paid
Assumption of plan liabilities
Currency exchange translation adjustments
Benefit obligation at end of year
Change in Plan Assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants' contributions
Settlements
Divestitures
Benefits paid
Assumption of plan assets
Currency exchange translation adjustments
Fair value of plan assets at end of year
Funded status at end of year (PBO basis)
Amounts recognized in the Consolidated Balance Sheets:
Non-current assets
Current liabilities
Current liabilities held-for-sale
Non-current liabilities
Non-current liabilities held-for-sale
Net amount recognized
Defined Benefit Pension Plans
U.S.
Non-U.S.
Total
2018
2017
2018
2017
2018
2017
$ 163.8
7.9
5.6
—
—
—
—
(23.9)
(11.9)
—
—
$ 141.5
$ 147.6
6.8
5.5
—
(6.4)
(0.8)
(8.7)
25.5
(10.6)
4.9
—
$ 163.8
$ 274.5
3.0
5.6
—
2.8
(0.5)
—
(7.3)
(19.4)
—
(11.9)
$ 246.8
$ 86.3
12.4
40.0
—
—
(6.7)
(10.6)
7.8
—
$ 129.2
$ 129.2
(6.8)
—
—
—
—
(11.9)
—
—
$ 110.5
$ (31.0) $ (34.6) $
$ 277.1
(0.3)
5.0
—
(0.3)
—
(19.4)
—
(11.7)
$ 250.4
3.6
$
0.1
(0.1)
—
(31.0)
—
$
0.5
(0.2)
—
(34.9)
—
$ (31.0) $ (34.6) $
$ 22.4
(1.2)
—
(17.2)
(0.4)
3.6
$ 276.0
3.9
5.7
0.2
(0.7)
(2.2)
(16.3)
0.9
(16.7)
—
23.7
$ 274.5
$ 259.3
12.3
3.8
0.2
(2.2)
(2.1)
(16.7)
—
22.5
$ 277.1
2.6
$
$ 438.3
10.9
11.2
—
2.8
(0.5)
—
(31.2)
(31.3)
—
(11.9)
$ 388.3
$ 423.6
10.7
11.2
0.2
(7.1)
(3.0)
(25.0)
26.4
(27.3)
4.9
23.7
$ 438.3
$ 345.6
$ 406.3
24.7
(7.1)
43.8
5.0
0.2
—
(2.2)
(0.3)
(8.8)
—
(27.3)
(31.3)
7.8
—
22.5
(11.7)
$ 406.3
$ 360.9
$ (27.4) $ (32.0)
$ 25.9
(0.8)
—
(22.2)
(0.3)
2.6
$
$ 22.5
(1.3)
—
(48.2)
(0.4)
$ 26.4
(1.0)
—
(57.1)
(0.3)
$ (27.4) $ (32.0)
Amounts recognized in Accumulated Other Comprehensive
Loss:
Prior service credit
Net amount recognized
—
—
$ — $ — $
2.1
2.1
$
(0.6)
(0.6) $
2.1
2.1
$
(0.6)
(0.6)
100
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Weighted Average Assumptions Used to Determine Benefit
Obligations as of December 31:
Discount rate
Rate of compensation increase
Weighted Average Assumptions Used to Determine Net
Periodic Benefit Cost for Years Ended December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
Defined Benefit Pension Plans
U.S.
Non-U.S.
2018
2017
2018
2017
4.33%
4.10%
3.68%
6.00%
4.10%
3.68%
4.70%
4.27%
6.25%
4.70%
2.49%
3.58%
2.30%
2.45%
3.54%
2.30%
3.13%
2.42%
2.60%
3.49%
(In millions)
Year Ended December 31,
Components of Net Periodic Benefit Cost (Income) and
Other Amounts Recognized in Other Comprehensive
Loss (Income)
Net Periodic Benefit Cost (Income):
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost (credit)
Amortization of net deferred actuarial loss
Gain on termination, curtailment and settlement of pension and
other postretirement plans
Pension mark-to-market adjustment
Net periodic benefit cost (income)
2018
2017
U.S.
Non-
U.S.
U.S.
Non-
U.S.
U.S.
2016
Non-
U.S.
Other
$ 7.9
$ 3.0
$ 6.8
$ 3.9
$ 6.1
$ 3.3
$ —
5.6
(7.6)
—
—
—
(9.5)
5.6
(6.9)
—
—
(0.2)
(0.4)
5.5
(5.6)
—
—
5.7
(6.8)
—
—
4.7
(5.0)
0.1
—
(9.2)
(14.3)
—
18.7
(4.7)
11.9
7.8
(8.6)
—
—
(0.6)
8.6
—
—
(0.1)
0.1
(0.2)
—
$ (3.6) $ 1.1
$ 16.2
$(16.2) $ 17.8
$ 10.5
$ (0.2)
Less: Discontinued operations (income) cost
—
—
(2.6)
(13.9)
0.4
1.4
—
Net periodic benefit cost (income) from continuing
operations
$ (3.6) $ 1.1
$ 18.8
$ (2.3) $ 17.4
$ 9.1
$ (0.2)
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Loss (Income):
Net prior service credit
Amortization of prior service cost
Assumption of prior service credit
$ — $ 2.7
$ — $ (0.7) $ — $ — $ —
—
—
—
—
—
—
0.2
—
(0.1)
—
—
—
—
—
Total recognized in other comprehensive loss(income)
$ — $ 2.7
$ — $ (0.5) $ (0.1) $ — $ —
Total recognized in net periodic benefit (income) cost and other
comprehensive loss (income)
$ (3.6) $ 3.8
$ 16.2
$(16.7) $ 17.7
$ 10.5
$ (0.2)
101
Table of Contents
Notes to Consolidated Financial Statements (Continued)
The accumulated benefit obligation for all defined benefit pension plans, including those with related assets
and liabilities presented as held for sale in the Consolidated Balance Sheets, was approximately $375 million and
$415 million, respectively, as of December 31, 2018 and 2017.
(In millions)
Estimated Expected Future Benefit Payments Reflecting Future Service for
the Years Ending December 31:
2019
2020
2021
2022
2023
2024 - 2028
________________________________________
Pension Plans
U.S.
Benefit
Payments
Non-U.S.(1)
Benefit
Payments
Total
Payments
$
$
5.4
6.1
7.0
7.7
8.1
45.9
$
11.5
11.0
11.2
11.5
12.0
61.0
16.9
17.1
18.2
19.2
20.1
106.9
(1)
Non-U.S. estimated benefit payments for 2019 and future periods have been translated at the applicable December 31, 2018
exchange rates.
Discount Rate Assumption
The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds
currently available and is subject to change based on overall market interest rates. For the U.S. qualified pension
plans, the assumed weighted average discount rate of 4.33% as of December 31, 2018 was selected in
consultation with independent actuaries and is based on a yield curve constructed from a portfolio of high quality
bonds for which the timing and amount of cash outflows approximates the estimated payouts of the plans.
As of December 31, 2018 and 2017, the benefit obligations of the U.K. pension plan represented
approximately 84%, for both years, of the total benefit obligation of the non-U.S. pension plans. As of
December 31, 2018, the assumed weighted average discount rate of 2.20% for the U.K. plan was selected in
consultation with independent actuaries based on a yield curve constructed from a portfolio of sterling-
denominated high quality bonds for which the timing and amount of cash outflows approximates the estimated
payouts of the plan. The assumed discount rates for the remaining non-U.S. pension plans were determined
based on the nature of the liabilities, local economic environments and available bond indices.
Investment Guidelines for Advance-Funded Pension Plans
The investment goal for the U.S. qualified pension plans subject to advance funding is to earn a long-term
rate of return consistent with the related cash flow profile of the underlying benefit obligation. The plans are
pursuing a well-defined risk management strategy designed to reduce investment risks as their funded status
improves.
The U.S. qualified pension plans have adopted a diversified set of portfolio management strategies to
optimize the risk reward profile of the plans:
•
Liability hedging portfolio: primarily invested in intermediate-term and long-term investment grade
corporate bonds in actively managed strategies.
• Growth portfolio: invested in a diversified set of assets designed to deliver performance in excess of the
underlying liabilities with controls regarding the level of risk.
•
•
U.S. equity securities: the portfolio contains domestic equities, a portion of which are passively
managed and benchmarked to the S&P 500 and Russell 2000 and the remainder of which is
allocated to an active portfolio benchmarked to the Russell 2000.
Non-U.S. equity securities: the portfolio contains non-U.S. equities in an actively managed strategy.
Currency futures and forward contracts may be held for the sole purpose of hedging existing
currency risk in the portfolio.
102
Table of Contents
Notes to Consolidated Financial Statements (Continued)
•
Other investments: may include (a) high yield bonds - fixed income portfolio of securities below
investment grade; and (b) bank loans and other floating-rate securities. These portfolios combine
income generation and capital appreciation opportunities from developed markets globally.
•
Liquidity portfolio: invested in short-term assets intended to pay periodic plan benefits and expenses.
The expected long-term rate of return on assets for the U.S. qualified pension plans was 6.00% for the year
ended December 31, 2018.
The expected return on plan assets for the U.S. qualified pension plans for 2018 was selected in consultation
with GCP's independent actuaries using an expected return model. The model determines the weighted average
return for an investment portfolio based on the target asset allocation and expected future returns for each asset
class, which were developed using a building block approach based on observable inflation, available interest rate
information, current market characteristics and historical results.
The target allocation of investment assets at December 31, 2018 and the actual allocation at December 31,
2018 and 2017 for GCP's U.S. qualified pension plans were as follows:
U.S. Qualified Pension Plans Asset Category:
U.S. equity securities
Non-U.S. equity securities
Short-term debt securities(1)
Intermediate-term debt securities
Debt securities
Other investments
Total
_________________________________________________
Target
Allocation
2018
Percentage of Plan Assets
December 31,
2018
2017
26%
13%
—%
—%
55%
6%
23%
13%
—%
—%
59%
5%
18%
9%
32%
—%
37%
4%
100%
100%
100%
(1)
In December 2017, the Company made a $40.0 million accelerated contribution to the U.S. pension plans. As of December 31,
2017, these funds were held in short-term debt securities within common/collective trust funds. Subsequently, these funds were
invested in accordance with the Investment Policy Statement asset allocation targets. For the year ended December 31, 2018, the
actual plan assets are being invested in line with target allocations.
The following tables present the fair value hierarchy for GCP's proportionate share of the U.S. qualified
pension plan assets measured at fair value, which are held in a trust by GCP, as of December 31, 2018 and 2017.
Fair Value Measurements at December 31, 2018, Using
(In millions)
U.S. equity group trust funds
Non-U.S. equity group trust funds
Corporate bond group trust funds
Other fixed income group trust funds
Common/collective trust funds
Total Assets
Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
$
— $
—
—
—
—
Total
$
25.8
13.8
37.1
5.6
28.2
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
25.8
13.8
37.1
5.6
28.2
—
—
—
—
—
—
$
110.5
$
— $
110.5
$
103
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Fair Value Measurements at December 31, 2017, Using
(In millions)
U.S. equity group trust funds
Non-U.S. equity group trust funds
Corporate bond group trust funds—long-term
Other fixed income group trust funds
Common/collective trust funds
Total Assets
Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
$
— $
—
—
—
—
Total
$
23.5
11.5
48.0
5.2
41.0
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
23.5
11.5
48.0
5.2
41.0
—
—
—
—
—
—
$
129.2
$
— $
129.2
$
Non-U.S. pension plans accounted for approximately 69% and 68%, respectively, of total global pension
assets at December 31, 2018 and 2017. Each of these plans, where applicable, follows local requirements and
regulations. Some of the local requirements include the establishment of a local pension committee, a formal
statement of investment policy and procedures and routine valuations by plan actuaries.
The target allocation of investment assets for non-U.S. pension plans varies depending on the investment
goals of the individual plans. The plan assets of the U.K. pension plan represent approximately 92% of the total
non-U.S. pension plan assets for both years ended December 31, 2018 and 2017. In determining the expected
rate of return for the U.K. pension plan, the trustees' strategic investment policy has been considered together
with long-term historical returns and investment community forecasts for each asset class. The expected return by
sector has been combined with the actual asset allocation to determine the 2018 expected long-term return
assumption of 2.21%.
The target allocation of investment assets at December 31, 2018 and the actual allocation at December 31,
2018 and 2017, for the U.K. pension plan are as follows:
United Kingdom Pension Plan Asset Category:
Diversified growth funds
U.K. gilts
U.K. corporate bonds
Insurance contracts
Total
Target
Allocation
2018
Percentage of Plan Assets
December 31,
2018
2017
10%
34%
2%
54%
100%
10%
33%
2%
55%
100%
10%
33%
3%
54%
100%
The plan assets for the other countries represent approximately 8%, in the aggregate, of total non-U.S.
pension plan assets for both years ended December 31, 2018 and 2017.
The following table presents the fair value hierarchy for the non-U.S. pension plan assets measured at fair
value as of December 31, 2018:
104
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions)
Common/collective trust funds
Government and agency securities
Corporate bonds
Insurance contracts and other investments(1)
Cash
Total Assets
_________________________________________
Fair Value Measurements at December 31, 2018, Using
Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
111.2
$
— $
111.2
$
3.3
7.9
123.3
4.7
$
250.4
$
—
—
—
4.7
4.7
3.3
7.9
—
—
$
122.4
$
—
—
—
123.3
—
123.3
(1)
At December 31, 2018, the fair value of the insurance contract has been determined using a discounted cash flow approach that
maximizes observable inputs, such as current yields on similar instruments, but includes adjustments for certain risks that may not
be observable, such as credit and liquidity risks.
The following table presents a summary of the changes in the fair value of the plans' Level 3 assets for the
years ended December 31, 2018 and 2017:
(In millions)
Balance, December 31, 2016
Actual return on plan assets relating to assets still held at year-end
Transfers in for premium
Transfers out for benefits paid
Currency exchange translation adjustments
Balance, December 31, 2017
Actual return on plan assets relating to assets still held at year-end
Transfers out for benefits paid
Currency exchange translation adjustments
Balance, December 31, 2018
Insurance Contracts
116.5
4.7
10.2
(6.8)
12.1
136.7
1.0
(9.0)
(5.4)
123.3
$
$
$
105
Table of Contents
Notes to Consolidated Financial Statements (Continued)
The following table presents the fair value hierarchy for the non-U.S. pension plan assets measured at fair
value as of December 31, 2017:
(In millions)
Common/collective trust funds
Government and agency securities
Corporate bonds
Insurance contracts and other investments(1)
Cash
Total Assets
__________________________________________________
Fair Value Measurements at December 31, 2017, Using
Quoted
Prices in
Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
127.5
$
— $
127.5
$
1.2
8.5
136.8
3.2
$
277.2
$
—
—
—
3.2
3.2
1.2
8.5
0.1
—
$
137.3
$
—
—
—
136.7
—
136.7
(1)
At December 31, 2017, the fair value of the insurance contract has been determined using a discounted cash flow approach that
maximizes observable inputs, such as current yields on similar instruments, but includes adjustments for certain risks that may not
be observable, such as credit and liquidity risks.
Other Postretirement Benefit (OPEB) Plans
GCP provides postretirement health care benefits for certain qualifying retired employees. During the year
ended December 31, 2018, GCP recognized a long-term liability of $2.0 million; accumulated other
comprehensive income of $0.6 million, net of related tax impact of $0.2 million; as well as expense of $1.2 million,
for the initial recognition of a non-U.S. OPEB retiree health care plan. As of December 31, 2018, the related long-
term liability of $1.7 million, accumulated other comprehensive income of $0.4 million, net of related tax impact of
$0.1 million, are included within the Consolidated Balance Sheets. The related expense for the year ended
December 31, 2018 was $1.3 million. GCP had no OPEB activity in the year ending December 31, 2017.
Plan Contributions and Funding
GCP intends to satisfy its funding obligations under the U.S. qualified pension plans and to comply with all of
the requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). For ERISA
purposes, funded status is calculated on a different basis than under GAAP. During the year ended December 31,
2017, GCP made an accelerated contribution to the trusts that hold assets of the U.S. qualified pension plans of
approximately $40 million. No accelerated contributions were made during the year ended December 31, 2018.
Based on the U.S. qualified pension plans' status as of December 31, 2018, there are no minimum requirements
under ERISA for 2019.
GCP intends to fund non-U.S. pension plans based on applicable legal requirements, as well as actuarial and
trustee recommendations. GCP expects to contribute $2.4 million to non-U.S. pension plans during the year
ended December 31, 2019.
Defined Contribution Retirement Plan
GCP sponsors a defined contribution retirement plan for its employees in the U.S. which is a qualified plan
under section 401(k) of the U.S. tax code. Under this plan, GCP contributes an amount equal to 100% of
employee contributions, up to 6% of an individual employee's salary or wages. Effective January 1, 2018, GCP
amended the defined contribution plan whereby GCP contributes up to an additional 2% of 100% of applicable
employee compensation subject to a three year vesting requirement. Applicable employees include those
beginning employment with GCP on or after January 1, 2018 who are not eligible to participate in GCP Applied
Technologies Inc. Retirement Plan for Salaried Employees, which closed to new hires effective January 1, 2018.
GCP's costs related to these benefit plans amounted to $4.6 million, $4.8 million and $4.1 million, respectively, for
the years ended December 31, 2018, 2017 and 2016 and are included in "Selling, general and administrative
expenses" and "Cost of goods sold" in the Consolidated Statements of Operations.
106
Table of Contents
Notes to Consolidated Financial Statements (Continued)
9. Other Balance Sheet Accounts
The following is a summary of other current assets at December 31, 2018 and 2017:
(In millions)
Other Current Assets:
Non-trade receivables
Prepaid expenses and other current assets
Income taxes receivable
Marketable securities
Total other current assets
December 31,
2018
December 31,
2017
$
$
25.0
$
9.2
10.4
—
44.6
$
28.4
13.8
6.0
0.4
48.6
The following is a summary of other current liabilities at December 31, 2018 and 2017:
(In millions)
Other Current Liabilities:
Accrued customer volume rebates
Accrued compensation(1)
Income taxes payable(2)
Accrued interest
Restructuring liability
Pension liabilities
Other accrued liabilities(3)
Total other current liabilities
________________________________
December 31,
2018
December 31,
2017
$
$
$
35.3
16.4
17.2
4.0
10.2
1.3
61.1
145.5
$
31.5
27.1
115.1
20.8
12.8
1.0
107.9
316.2
(1)
(2)
(3)
Accrued compensation presented in the table above includes salaries and wages, as well as estimated current amounts due under
the annual and long-term employee incentive programs.
The change in income taxes payable between December 31, 2018 and 2017 is primarily due to the payment of $105.0 million in
2018 related to the Company's 2017 domestic income tax liability which was impacted by the sale of Darex and the 2017 Tax Act.
Other accrued liabilities presented in the table above as of December 31, 2018 and 2017 include $13.6 million and $55.1 million,
respectively, representing the current portion of the liability related to the delayed closings associated with the Company's divestiture
of Darex, as discussed in Note 18, "Discontinued Operations."
10. Commitments and Contingent Liabilities
GCP enters into certain purchase commitments and is a party to many contracts containing guarantees and
indemnification obligations, as described below.
Purchase Commitments
GCP uses purchase commitments to ensure supply and minimize the volatility of certain key raw materials,
including lignins, polycarboxylates, amines and other materials. Such commitments are for quantities that GCP
fully expects to use in the course of its normal operations.
Guarantees and Indemnification Obligations
GCP is a party to many contracts containing guarantees and indemnification obligations which consist
primarily of the following arrangements:
• Product warranties with respect to certain products sold to customers in the ordinary course of business.
These warranties typically provide assurances that products will conform to their specifications. GCP
107
Table of Contents
Notes to Consolidated Financial Statements (Continued)
accrues a general warranty liability at the time of sale based on historical experience and on a
transaction-specific basis according to individual facts and circumstances. As of December 31, 2018 and
2017 and during the periods then ended, warranty-related liabilities and the associated expenses were
immaterial to the Consolidated Financial Statements.
• Performance guarantees offered to customers. GCP has not established a liability for these arrangements
based on historical experience.
• Contracts providing for the sale of a business unit or a product line in which GCP has agreed to indemnify
the buyer against certain liabilities for conditions that existed prior to the closing of the transaction,
including environmental and tax liabilities.
• The Tax Sharing Agreement, which may require GCP, in certain circumstances, to indemnify Grace if the
Separation, together with certain related transactions, does not qualify under Section 355 and certain
other relevant provisions of the Internal Revenue Code (the "Code"). If GCP is required to indemnify
Grace under the Tax Sharing Agreement, it could be subject to significant tax liabilities. Please refer to
Note 7, "Income Taxes", for further information on this arrangement.
Environmental Matters
GCP 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, disposition and
stewardship of hazardous waste and other materials. GCP recognizes accrued liabilities for anticipated costs
associated with response efforts if, based on the results of the assessment, it concluded that a probable liability
has been incurred and the cost can be reasonably estimated. As of December 31, 2018 and 2017, GCP did not
have any material environmental liabilities.
GCP's environmental liabilities are reassessed whenever circumstances become better defined or response
efforts and their costs can be better estimated. These liabilities are evaluated based on currently available
information, including the progress of remedial investigations 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.
Financial Assurances
Financial assurances have been established for a variety of purposes, including insurance, environmental and
other matters. At December 31, 2018 and 2017, GCP had gross financial assurances issued and outstanding of
approximately $5 million and $10 million, respectively, which were composed of standby letters of credit. The
letters of credit of are related primarily to customer advances and other performance obligations as of
December 31, 2018 and 2017. These arrangements guarantee the refund of advance payments received from
customers in the event that the product is not delivered or warranty obligations are not fulfilled in accordance with
the contract terms. These obligations could be called by the beneficiaries at any time before the expiration date of
the particular letter of credit if the Company fails to meet certain contractual requirements.
Lawsuits and Investigations
In Re: Library Gardens Balcony Litigation, Lead Case Beary v. Blackrock, Inc. Case No. RG15793054 was
filed on November 12, 2015 in Alameda County Superior Court in California. It was the lead case in a
consolidated lawsuit filed on behalf of six individuals who died and an additional seven individuals who were
injured in a balcony collapse, which occurred on June 16, 2015 in Berkeley, California. The consolidated
complaint named the Company as the sole party in the category of suppliers of materials and names twenty
additional defendants in other categories, including categories for property owners, property managers,
construction defendants and development and design defendants. The consolidated complaint alleged product
liability against the Company concerning one of its products. The plaintiffs sought unspecified monetary damages
against all defendants and punitive damages only against the building owners, building manager and two
construction company defendants. During the year ended December 31, 2017, GCP reached an agreement with
the plaintiffs to settle this matter for $4.0 million which was paid by the Company during the period then ended
and recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
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Notes to Consolidated Financial Statements (Continued)
In addition to the matters identified above, GCP and its subsidiaries, from time to time, are parties to, or
targets of, lawsuits, claims, investigations and proceedings which are managed and defended in the ordinary
course of business. While GCP is unable to predict the outcome of these matters, it does not believe, based upon
currently available facts, that the ultimate resolution of any of such pending matters will have a material adverse
effect on its overall financial condition, results of operations or cash flows.
Accounting for Contingencies
Although the outcome of each of the matters discussed above cannot be predicted with certainty, GCP has
assessed its risk and has made accounting estimates and disclosures as required under GAAP.
Operating Leases
The Company leases manufacturing and office facilities, as well as certain vehicles and equipment under
non-cancelable operating leases with certain lease terms exceeding 40 years. GCP may extend the lease terms
upon exercising renewal and extension options subject to the terms and conditions of the lease agreements. Base
annual rent for the leased facilities, vehicles and equipment is subject to escalating payments over the lease
terms and annual increases based on market rates. Additional payments under the terms and conditions of the
lease agreements include GCP's proportionate share of operating expenses and real estate taxes for the leased
facilities and certain variable payments related to excess mileage and usage charges for the leased vehicles and
equipment.
At December 31, 2018, future minimum noncancelable payments for operating leases are as follows:
(in millions)
Year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Amount
12.1
8.3
4.6
2.6
1.9
28.1
57.6
$
$
GCP's rent expense for operating leases was $14.3 million, $15.1 million and $14.0 million, respectively,
during the years ended December 31, 2018, 2017 and 2016.
11. Restructuring Expenses, Asset Impairments and Repositioning Expenses
GCP's Board of Directors approves all major restructuring and repositioning programs. Restructuring may
involve the discontinuation of significant product lines or the shutdown of significant facilities. From time to time,
GCP takes additional restructuring actions, including involuntary employee terminations that are not a part of a
major program. Repositioning activities generally represent major strategic or transformational actions to enhance
the value and performance of the Company, improve business efficiency or optimize the Company’s footprint.
2018 Restructuring and Repositioning Plan (the “2018 Plan”)
On August 1, 2018, the Company's Board of Directors approved a business restructuring and repositioning
plan. The 2018 Plan is designed to streamline operations and improve profitability primarily within the concrete
admixtures product line of the SCC segment by focusing on the Company's core markets, rationalizing non-
profitable geographies, reducing its global cost structure and accelerating the integration of VERIFI® into the
Company’s global admixtures business.
The Company expects to incur total costs in connection with the 2018 Plan ranging from approximately $31
million to $35 million, of which costs ranging from approximately $20 million to $24 million are related to
restructuring activities, and costs of approximately $11 million are related to repositioning activities.
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Notes to Consolidated Financial Statements (Continued)
Total expected restructuring activity costs consist of approximately $13 million to $15 million of severance and
other employee-related costs, $4 million of asset impairment charges, $1 million to $2 million of facility exit costs
and $2 million to $3 million of other associated costs. Total expected restructuring activity costs are attributable as
follows: (i) $18.0 million to $21.0 million to the SCC segment and (ii) $2.0 million to $3.0 million to the SBM
segment. Substantially all of the restructuring actions are expected to be completed by December 31, 2019 and
result in the net reduction of approximately 8%-10% of the Company's workforce.
Repositioning costs consist primarily of consulting services to assist GCP in advancing its technology
strategy. Total costs expected to be incurred for repositioning activities are approximately $11 million, of which
$5.3 million has been incurred as of December 31, 2018. Substantially all of the repositioning activities are
expected to be completed by December 31, 2019.
As of December 31, 2018, the cumulative restructuring activity costs recognized under the 2018 Plan since its
inception were $16.0 million, of which $13.6 million were attributable to the SCC segment and $2.4 million were
attributable to the SBM segment. Cumulative restructuring activity costs of $16.0 million incurred to date consisted
of $11.4 million of severance and employee-related costs, $0.6 million of facility exit costs, as well as $4.0 million
of asset impairment charges.
With the exception of asset impairments, the Company expects to settle in cash substantially all of the
restructuring and repositioning costs related to the 2018 Plan.
2017 Restructuring and Repositioning Plan (the “2017 Plan”)
On June 28, 2017, the Board of Directors approved a restructuring and repositioning plan that includes
actions to streamline GCP's operations, reduce its global cost structure and reposition itself as a construction
product technologies company.
GCP expects to incur total costs in connection with the 2017 Plan of approximately $30 million, of which $20
million is related to restructuring activities and asset impairments, and $10 million is related to repositioning
activities.
Total expected restructuring activity costs consist of approximately $18 million of severance and other
employee-related costs, and $2 million of asset impairments and facility exit costs. Total expected restructuring
activity costs are attributable as follows: (i) $5 million to the SCC segment, (ii) $3 million to the SBM segment, (iii)
$3 million to the Corporate function and (iv) $9 million to discontinued operations. The restructuring activities were
substantially completed as of December 31, 2018. Total costs expected to be incurred for repositioning activities
are $10 million. Additionally, GCP expects to incur approximately $10 million to $15 million of capital expenditures
related to repositioning activities, which includes the build-out of two manufacturing plants in Asia Pacific that will
replace shared facilities sold as a part of the Darex divestiture. GCP expects all of its repositioning activities to be
classified within continuing operations, and such repositioning activities should be substantially completed by
March 31, 2020.
As of December 31, 2018, the cumulative restructuring activity costs recognized under the 2017 Plan since its
inception were $18.9 million which were attributable as follows: (i) $4.6 million to the SCC segment, (ii) $3.3
million to the SBM segment, (iii) $2.9 million to the Corporate function and (iv) $8.1 million to discontinued
operations. Cumulative restructuring activity costs of $18.9 million incurred to date consisted of $17.4 million of
severance and employee-related costs, as well as $1.3 million of asset impairment charges and $0.2 million of
facility exit costs. As of December 31, 2018, the cumulative repositioning activity costs and capital expenditures
recognized for the 2017 Plan since its inception were approximately $8.8 million and $7.4 million, respectively. As
of December 31, 2018, cumulative cash payments made for repositioning under the 2017 Plan from its inception
amounted to $14.1 million, including capital expenditures. The Company expects to settle in cash substantially all
of the costs related to the 2017 Plan.
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Notes to Consolidated Financial Statements (Continued)
Restructuring Expenses and Asset Impairments
The following restructuring expenses and asset impairment charges were incurred under the 2018 and 2017
Plans and other plans during each period:
(In millions)
Severance and other employee costs
Facility exit costs
Asset impairments
Total restructuring expenses and asset impairments $
Less: restructuring expenses and asset impairments
reflected in discontinued operations
Total restructuring expenses and asset impairments
from continuing operations
$
Year Ended December 31,
2018
2017
2016
$
10.1 $
19.9 $
0.6
4.5
0.2
1.2
15.2 $
21.3 $
0.4
7.8
14.8 $
13.5 $
1.9
—
—
1.9
—
1.9
GCP incurred restructuring expenses and asset impairment charges related to its two operating segments
and Corporate function as follows:
(In millions)
SCC
SBM
Corporate
Total restructuring expenses and asset impairments
from continuing operations
Restructuring expenses and asset impairments reflected
in discontinued operations
$
$
Total restructuring expenses and asset impairments $
Year Ended December 31,
2018
2017
2016
12.5 $
6.2 $
1.9
0.4
4.1
3.2
14.8 $
13.5 $
0.4
15.2 $
7.8
21.3 $
1.2
0.7
—
1.9
—
1.9
Restructuring liabilities were $10.2 million and $12.8 million, respectively, as of December 31, 2018 and 2017.
These liabilities are included within “Other current liabilities” in the Consolidated Balance Sheets. GCP expects to
settle in cash substantially all of the remaining liabilities related to the 2017 Plan by March 31, 2019, and
substantially all of the remaining liabilities related to the 2018 Plan by December 31, 2019.
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Notes to Consolidated Financial Statements (Continued)
The following table summarizes the Company’s restructuring liability activity:
2018 Plan
2017 Plan
Severance
and other
employee
costs
Facility
exit costs
Severance
and other
employee
costs
Facility
exit costs
Other
plans
Total
$
— $
—
— $
—
— $
—
— $
1.4 $
1.9 $
1.4
1.9
(In millions)
Balance, December 31, 2015
Expenses
Payments
Impact of foreign currency and other
Balance, December 31, 2016
Expenses(1)
Payments
Impact of foreign currency and other
Balance, December 31, 2017
Expenses(1)
Payments
Impact of foreign currency and other
Balance, December 31, 2018
$
__________________________
—
—
—
—
—
—
—
11.4
(3.6)
(0.1)
7.7 $
—
—
—
—
—
—
—
0.6
(0.4)
—
0.2
—
—
—
19.5
(8.0)
0.1
11.6
(1.9)
(7.5)
(0.4)
—
—
—
—
0.1
—
—
0.1
—
(3.6) $
(3.6)
1.4 $
1.1 $
0.5 $
(0.5) $
— $
1.1 $
0.6 $
1.4
1.1
20.1
(8.5)
0.1
12.8
10.7
(0.1)
(1.2) $
(12.8)
—
— $
(0.5)
10.2
$
1.8 $
— $
0.5 $
(1) Asset impairment charges are not recorded through the restructuring liability and therefore, are not included in the table above. Asset
impairment charges of $4.5 million and $1.2 million, respectively, for the years ended December 31, 2018 and 2017 are related to the
2018 and 2017 Plans as well as other plans and recorded as a reduction to "Properties and equipment, net" in the Consolidated Balance
Sheets. During the year ended December 31, 2018, GCP recognized asset impairment charges of $4.5 million, of which $4.3 million was
attributable to the SCC segment and $0.2 million was attributable to the SBM segment. During the year ended December 31, 2017, GCP
recognized asset impairment charges of $1.2 million which were attributable to the SCC segment.
Repositioning Expenses
Repositioning Expenses - 2018 Plan and 2017 Plan
Repositioning expenses associated with the 2018 and 2017 Plans are primarily related to consulting, other
professional services and recruitment costs associated with the Company's organizational realignment and
advancing its technology strategy. Due to the scope and complexity of the Company’s repositioning activities, the
range of estimated repositioning expense and capital expenditures could increase or decrease and the timing of
incurrence could change.
During the year ended December 31, 2018, GCP incurred repositioning expenses of $5.3 million and made
cash payments of $0.2 million related to the 2018 Plan.
During the years ended December 31, 2018 and 2017, GCP incurred repositioning expenses of $4.3 million
and $4.5 million, respectively, related to the 2017 Plan. During the years ended December 31, 2018 and 2017,
total cash payments related to such repositioning expenses were $5.3 million and $2.0 million, respectively.
Additionally, cash paid for capital expenditures related to the 2017 Plan were $6.8 million in 2018.
Separation-Related Repositioning Expenses
Post-Separation, GCP incurred expenses related to its transition to a stand-alone public company and
completed these activities as of December 31, 2017. Total costs incurred in connection with such activities were
$20.6 million. The Company did not incur any costs related to such activities during the year ended December 31,
2018.
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Notes to Consolidated Financial Statements (Continued)
The following separation-related repositioning expenses were incurred during the periods presented:
(In millions)
Professional fees
Software and IT implementation fees
Employee-related costs
Total
Year Ended December 31,
2017
2016
$
$
3.4 $
0.9
1.0
5.3 $
7.8
3.0
4.5
15.3
Total cash payments for the year ended December 31, 2017 were $4.2 million for professional fees and
employee-related costs, as well as $1.9 million for capital-related expenditures. Total cash payments for the year
ended December 31, 2016 were $17.7 million for professional fees and employee-related costs, $6.9 million for
capital-related expenditures and $2.5 million for taxes.
12. Other Comprehensive (Loss) Income
The following tables present the pre-tax, tax and after-tax components of GCP's other comprehensive (loss)
income for the years ended December 31, 2018, 2017 and 2016.
(In millions)
Defined benefit pension and other postretirement plans
Assumption of net prior service cost
Benefit plans, net
Currency translation adjustments(1)
Gain from hedging activities
Year Ended December 31, 2018
Pre-Tax
Amount
Tax
Benefit/
(Expense)
After-Tax
Amount
$
(3.2) $
(3.2)
(31.8)
0.1
$
0.6
0.6
—
—
(2.6)
(2.6)
(31.8)
0.1
Other comprehensive loss attributable to GCP shareholders
$
(34.9) $
0.6
$
(34.3)
Year Ended December 31, 2017
Pre-Tax
Amount
Tax
(Expense)/
Benefit
After-Tax
Amount
$
(0.2) $
— $
(0.2)
0.7
0.5
61.7
(0.2)
(0.2)
(0.2)
—
0.1
0.5
0.3
61.7
(0.1)
61.9
(In millions)
Defined benefit pension and other postretirement plans
Amortization of net prior service credit
Assumption of net prior service credit
Benefit plans, net
Currency translation adjustments(1)
Loss from hedging activities
Other comprehensive income attributable to GCP shareholders
$
62.0
$
(0.1) $
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Notes to Consolidated Financial Statements (Continued)
(In millions)
Defined benefit pension and other postretirement plans
Amortization of net prior service credit
Amortization of net actuarial gain
Assumption of net prior service credit
Assumption of net actuarial loss
Other changes in funded status
Benefit plans, net
Currency translation adjustments(1)
Gain from hedging activities
Year Ended December 31, 2016
Pre-Tax
Amount
Tax
(Expense)/
Benefit
After-Tax
Amount
$
(0.1) $
— $
(0.1)
0.1
1.2
(1.1)
(0.1)
—
(19.9)
—
—
(0.4)
0.4
—
—
—
—
0.1
0.8
(0.7)
(0.1)
—
(19.9)
—
Other comprehensive loss attributable to GCP shareholders
$
(19.9) $
— $
(19.9)
__________________________
(1) Currency translation adjustments did not have a corresponding tax effect.
The following tables present the changes in accumulated other comprehensive (loss) income, net of tax, for
the years ended December 31, 2018, 2017 and 2016.
(In millions)
Balance, December 31, 2017
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from accumulated
other comprehensive income (loss)
Net current-period other comprehensive
(loss) income
Balance, December 31, 2018
Defined Benefit
Pension and Other
Postretirement
Plans
Currency
Translation
Adjustments
Hedging
Activities
Total
$
$
0.4
$
(86.0) $
(0.1) $
(2.6)
—
(2.6)
(2.2) $
(31.8)
—
(31.8)
(117.8) $
0.2
(0.1)
0.1
— $
(85.7)
(34.2)
(0.1)
(34.3)
(120.0)
(In millions)
Balance, December 31, 2016
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from accumulated
other comprehensive income
Net current-period other comprehensive
income (loss)
Balance, December 31, 2017
Defined Benefit
Pension and Other
Postretirement
Plans
Currency
Translation
Adjustments
Hedging
Activities
Total
$
$
0.1
$
(147.7) $
— $
(147.6)
61.7
—
61.7
$
(86.0) $
(0.7)
0.6
(0.1)
(0.1) $
61.3
0.6
61.9
(85.7)
0.3
—
0.3
0.4
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Notes to Consolidated Financial Statements (Continued)
(In millions)
Balance, December 31, 2015
Other comprehensive loss before
reclassifications
Amounts reclassified from accumulated
other comprehensive income
Net current-period other comprehensive loss
Balance, December 31, 2016
Defined Benefit
Pension and Other
Postretirement
Plans
Currency
Translation
Adjustments
Hedging
Activities
Total
$
$
0.1
$
(127.8) $
— $
(127.7)
—
—
—
0.1
$
(19.9)
—
(19.9)
(147.7) $
(1.2)
1.2
—
— $
(21.1)
1.2
(19.9)
(147.6)
GCP is a global enterprise operating in over 30 countries with local currency generally deemed to be the
functional currency for accounting purposes. The currency translation adjustments reflect translation of the
balance sheets valued in functional currencies to the U.S. dollar as of the end of each period presented and
translation of revenues and expenses at average exchange rates for each period presented.
As of June 30, 2018, GCP concluded that Argentina is a highly inflationary economy since the three-year
cumulative inflation rates commonly used to evaluate Argentina’s inflation currently exceed 100%. As a result,
GCP began accounting for its operations in Argentina as a highly inflationary economy effective July 1, 2018.
Please refer to Note 1, "Basis of Presentation and Summary of Significant Accounting and Financial Reporting
Policies" for further discussion of foreign currency translation of highly inflationary economies.
Please refer to Note 8, "Pension Plans and Other Postretirement Benefit Plans" for a discussion of pension
plans and other postretirement benefit plans.
13. Related Party Transactions and Transactions with Grace
Related Parties
All contracts with related parties are at rates and terms that GCP believes are comparable with those that
could be entered into with independent third parties. Subsequent to the Separation, transactions with Grace
represent third-party transactions.
Transition Services Agreement
In connection with the Separation, the Company entered into a transition services agreement pursuant to
which GCP and Grace provided various services to each other on a temporary, transitional basis. The services
provided by Grace to GCP included information technology, treasury, tax administration, accounting, financial
reporting, human resources and other services. Following the Separation, Grace and GCP provided some of
these services on a transitional basis, generally for a period of up to 18 months. During the year ended December
31, 2017, the activities related to the transition services agreement were complete.
Tax Sharing Agreement
In connection with the Separation, the Company and Grace entered into a Tax Sharing Agreement which
governs the parties’ respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax
attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, as well as
other matters regarding taxes. In general, and subject to the terms of the Tax Sharing Agreement, GCP is
responsible for all U.S. federal, state and foreign taxes, including any related interest, penalties or audit
adjustments, reportable on a GCP separate return (a return that does not include Grace or any of its subsidiaries).
Grace is responsible for all U.S. federal, state and foreign income taxes, including any related interest, penalties
or audit adjustments, reportable on a consolidated, combined or unitary return that includes Grace or any of its
subsidiaries and GCP or any of its subsidiaries up to the Separation date. As of December 31, 2018 and 2017,
GCP has recorded $3.9 million and $7.2 million, respectively, of indemnified receivables in "Other assets" and
$1.8 million and $2.7 million, respectively, of indemnified payables in "Other current liabilities" in the Consolidated
Balance Sheets
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Notes to Consolidated Financial Statements (Continued)
In addition, the Tax Sharing Agreement imposes certain restrictions on GCP and its subsidiaries, including
restrictions on share issuances, business combinations, sales of assets and similar transactions, that are
designed to preserve the qualification of the Distribution, together with certain related transactions, under Section
355 and certain other relevant provisions of the Code. In the event that the Distribution, together with certain
related transactions, does not qualify under Section 355 and certain other relevant provisions of the Code, then
the Tax Sharing Agreement provides specific rules for allocating tax liabilities. In general, under the Tax Sharing
Agreement, each party is expected to be responsible for any taxes imposed on and certain related amounts
payable by GCP or Grace that arise from the failure of the Distribution and certain related transactions to qualify
under Section 355 and certain other relevant provisions of the Code, to the extent that the failure to so qualify is
attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a
breach of the relevant representations or covenants made by such party in the Tax Sharing Agreement.
Parent Company Equity
Net transfers to parent are included within "Net parent investment" on the Consolidated Statements of
Stockholders' Equity (Deficit). The components of the "Net transfer to parent" as of December 31, 2016 is
presented below.
(In millions)
Cash pooling and general financing activities
GCP expenses funded by parent
Corporate costs allocations
Provision for income taxes
Total "Net transfer to parent", per Consolidated Statements of Stockholders' Equity (Deficit)
Other, net
"Transfers to parent, net" per Consolidated Statements of Cash Flows
Year Ended
December 31, 2016
$
$
(688.0)
6.6
2.0
4.3
(675.1)
(83.6)
(758.7)
During the years ended December 31, 2018 and 2017, there were no adjustments to the parent company
equity. During the year ended December 31, 2016, "Other, net" presented in the table above was related to the
non-cash transfer from the parent which consisted primarily of: (i) approximately $44 million of net pension
liabilities, (ii) approximately $23 million of fixed assets and (iii) the non-cash settlement of approximately $36
million of the related-party debt, deferred tax items, and other items.
GCP used proceeds from the Notes and Credit Facilities to fund a distribution to Grace in an amount of
$750.0 million related to the Separation. This distribution is reflected as a component of transfers to parent in the
table above.
14. Stock Incentive Plans
On May 11, 2017, GCP filed a Registration Statement on Form S-8 with the SEC for the purpose of
registering an additional 8,000,000 shares of Common Stock, par value $0.01 per share, that may be issued
under the GCP Applied Technologies Inc. Equity and Incentive Plan (the "Plan"), as amended and restated on
February 28, 2017. GCP provides certain key employees equity awards in the form of stock options, restricted
stock units (“RSUs”) and performance-based stock units (“PBUs”) under the Plan. Certain employees and
members of the Board of Directors are eligible to receive stock-based compensation, including stock, stock
options, RSUs and PBUs.
Stock-Based Compensation Accounting
Total stock-based compensation expense related to cash settled and non-cash settled awards is included in
"Income (loss) from continuing operations before income taxes" in the Consolidated Statements of Operations
and was $3.7 million, $9.2 million and $7.2 million, respectively, during the years ended December 31, 2018, 2017
and 2016. During the year ended December 31, 2018, the Company recorded a stock-based compensation
expense reduction of $5.2 million related to remeasurement of PBUs granted in 2017 and 2018 based on their
estimated expected payout at the end of the applicable performance period.
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Notes to Consolidated Financial Statements (Continued)
The total income tax benefits recognized for stock-based compensation arrangements were $0.6 million, $4.8
million and $4.7 million, respectively, during the years ended December 31, 2018, 2017 and 2016. During the year
ended December 31, 2016, the Company elected the early adoption of ASU 2016-9 which resulted in the
recognition of additional tax benefits of $2.0 million during the year ended December 31, 2016.
Upon Separation from Grace on February 3, 2016, previously outstanding stock-based compensation awards
granted under Grace’s equity compensation programs were adjusted to reflect the impact of the Separation. To
preserve the aggregate intrinsic value of those Grace awards, as measured immediately before and immediately
after the Separation, each holder of Grace stock-based compensation awards generally received an adjusted
award consisting of either (i) both a stock-based compensation award denominated in Grace equity as it existed
subsequent to the Separation and a stock-based compensation award denominated in GCP equity or (ii) solely a
stock-based compensation award denominated in the equity of the company at which the person was employed
following the Separation. Adjusted awards consisting of stock-based compensation awards denominated in GCP
equity are considered issued under the Plan. These adjusted awards generally will be subject to the same vesting
conditions and other terms that applied to the original Grace awards before the Separation. In accordance with
provisions of the Employee Matters Agreement, GCP is obligated to settle all of the stock-based compensation
awards denominated in GCP equity, regardless of whether the holders are employees of GCP or Grace. Likewise,
Grace is obligated to settle all of the stock-based compensation awards denominated in Grace shares, regardless
of whether the holders are employees of GCP or Grace. As a result, GCP recorded a liability for cash-settled
awards held by Grace employees.
The Company issues new shares of common stock upon exercise of stock options. In accordance with certain
provisions of the Plan, GCP withholds and retains shares issued to certain holders of GCP awards in order to
fulfill statutory tax withholding requirements for the employees. During the years ended December 31, 2018 and
2017, GCP retained approximately 45,100 and 47,000 shares, respectively, in a non-cash transaction under such
provisions which were reflected as "Share Repurchases" in the Consolidated Statements of Equity (Deficit).
As of December 31, 2018, approximately 8.4 million shares of common stock were reserved and available for
future grant under the Plan.
On February 21, 2019, the compensation committee and the Board of Directors authorized and approved the
2019 annual grant which had a value of approximately $10.4 million and consisted of approximately 240,000
options, 113,000 RSUs and a certain number of PSUs with a grant date of February 21, 2019. The Company is
currently estimating the grant date fair value of PBUs and the number of PSUs included in the 2019 annual grant.
Stock Options
Stock options are non-qualified and are granted at exercise prices not less than 100% of the fair market value
on the grant date. The awards issued before February 28, 2017 were granted at the exercise price equal to fair
market value on the grant date determined as the average of the high market price and low market price of the
Company’s stock from that trading day. The awards issued after February 28, 2017 were granted at the exercise
price equal to fair market value on the grant date determined as the market closing price of the Company’s stock
on that date. Stock option awards granted typically have a contractual term of five to ten years from the original
date of grant. Generally, stock options vest in substantially equal amounts each year over three years from the
date of grant.
The following assumptions were utilized in the Black-Scholes option pricing model for estimating the fair value
of GCP's stock options granted during the years ended December 31, 2018, 2017 and 2016:
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Notes to Consolidated Financial Statements (Continued)
Assumptions used to calculate expense for stock options:
Risk-free interest rate
Average life of options (years)
Volatility
Year Ended December 31,
2017
2016
2018
2.68 - 2.80%
1.83 - 2.11%
0.93 - 1.24%
5.5 - 6.5
5.5 - 6.5
4 - 5
27.91 - 30.65% 31.42 - 31.96%
29.6 – 33.2%
Weighted average grant date fair value per stock option
$10.63
$9.17
$4.89
The following table sets forth the information related to stock options denominated in GCP stock during the
year ended December 31, 2018:
Stock Option Activity
Outstanding, December 31, 2017
Options exercised
Options forfeited/expired/canceled
Options granted
Outstanding, December 31, 2018
Exercisable, December 31, 2018
Vested and expected to vest, December 31, 2018
Number Of
Shares
(in
thousands)
Weighted
Average
Exercise
Price
1,636
$
(324)
(35)
241
1,518
967
1,505
$
$
$
18.94
16.85
26.29
31.31
21.18
18.89
21.12
Weighted
Average
Remaining
Contractual
Term (years)
Aggregated
Intrinsic
Value
(in
thousands)
3.78
$
21,597
3.75
2.53
3.73
$
$
$
7,145
5,687
7,132
The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value, determined as the
difference between GCP's closing stock price on the last trading day of December 31, 2018 and the exercise
price, multiplied by the number of in-the-money options that would have been received by the option holders had
all option holders exercised their in-the-money options at period end. The amount changes based on the fair
market value of GCP's stock. Total intrinsic value of all options exercised during the years ended December 31,
2018, 2017 and 2016 was $4.8 million, $9.8 million and $9.3 million, respectively.
At December 31, 2018, total unrecognized stock-based compensation expense for stock options outstanding
was $0.9 million and is expected to be recognized over the weighted-average period of approximately one year.
Restricted Stock Units and Performance Based Units
RSUs and PBUs are granted with the exercise price equal to zero and are converted to shares immediately
upon vesting. In accordance with the Employee Matters Agreement, certain previously outstanding RSUs and
PBUs granted under Grace's equity compensation programs prior to the Separation were adjusted upon
Separation such that holders of these original Grace RSUs and PBUs received RSUs denominated in GCP equity.
As of December 31, 2018, $2.9 million of total unrecognized compensation expense related to the RSU and
PBU awards is expected to be recognized over the remaining weighted-average service period of approximately
one year.
RSUs
The Company grants RSUs which are time-based, non-performance units. RSUs generally vest over a three
year period, with some awards vesting in substantially equal amounts each year over three years and some
awards vesting 100% after the third year from the date of grant. A smaller number of RSUs were designated as
sign-on awards which are used for purposes of attracting key employees and covering outstanding awards from
prior employers. Such awards vest 100% after two years from the date of grant.
RSUs are recorded at fair value on the date of grant. The common stock-settled awards are considered equity
awards, with the stock compensation expense being determined based on GCP’s stock price on the grant date.
The cash settled awards are considered liability awards, with the liability being remeasured each reporting period
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Notes to Consolidated Financial Statements (Continued)
based on GCP’s then current stock price. The expense related to the liability awards was not material during the
years ended December 31, 2018, 2017 and 2016. All liability awards were settled in cash during the year ended
December 31, 2018.
The following table sets forth the RSU activity for the year ended December 31, 2018:
RSU Activity:
Outstanding, December 31, 2017
RSU's settled
RSU's forfeited
RSU's granted
Outstanding, December 31, 2018
Expected to vest as of December 31, 2018
Number Of
Shares
(in thousands)
Weighted
Average
Grant Date
Fair Value
406
$
(159)
(13)
129
363
355
$
$
19.15
18.42
28.20
29.28
22.76
22.70
The weighted average grant date fair value of RSUs granted during the years ended December 31, 2018,
2017 and 2016 was $29.28, $26.44 and $17.36 per share, respectively. During the years ended December 31,
2018, 2017 and 2016, GCP distributed 117,000 shares, 107,000 shares and 25,000 shares, respectively, and
used $1.2 million, $0.9 million and $0.5 million of cash, respectively, to settle RSUs upon vesting. GCP expects to
settle in stock all future RSU vestings. The fair value of RSUs vested during the years ended December 31, 2018,
2017 and 2016 was $4.8 million, $3.8 million and $0.7 million, respectively.
PBUs
PBUs are performance-based units which are granted by the Company either with or without market
conditions. PBUs granted prior to 2017 are recorded at fair value on the grant date. The performance criteria for
PBUs granted in 2016 is based on a 3-year cumulative adjusted earnings per share measure. The number of
shares earned by employees who receive 2016 PBU grants is based on the achievement of applicable
performance targets related to such measure and can range between 0% to 200%. These awards will be settled
in 2019 once the actual performance against the cumulative adjusted earnings per share measure based on fiscal
years 2016-2018 is certified by the Compensation Committee. Beginning with the annual PBU grant during the
three months ended March 31, 2017, the performance criteria for PBUs included a 3-year cumulative adjusted
diluted earnings per share metric that is modified, up or down, based on the Company's total shareholder return
("TSR") relative to the performance of the Russell 3000 Index ("the Index"). The number of shares that ultimately
vest, if any, is based on Company performance against these metrics, and can range from 0% to 200% of the
target number of shares granted to the employee. The 2018 and 2017 awards will become vested, if at all, three
years from the grant date once actual performance is certified by the Board's Compensation Committee. Vesting
is also subject to the employees' continued employment through the vesting date.
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Notes to Consolidated Financial Statements (Continued)
The following table summarizes the assumptions used in the Monte Carlo simulations for estimating the grant
date fair values of PBUs granted during the years ended December 31, 2018 and 2017:
Assumptions used to calculate expense for PBUs:
Expected term (remaining performance period)
Expected volatility
Risk-free interest rate
Expected dividends
Correlation coefficient
Average correlation coefficient of constituents
Year Ended December 31,
2018
2.86 years
28.56%
2.38%
—
38.98%
39.96%
2017
2.84 years
28.00%
1.41%
—
46.83%
42.33%
During the year ended December 31, 2018, GCP granted 149,974 PBUs to the Company employees. The
weighted average grant date fair value of PBUs granted during the year ended December 31, 2018 was $34.20.
During the year ended December 31, 2018, 6,177 of these PBUs were forfeited. None of these PBUs vested
during the year ended December 31, 2018.
PBUs that were granted during the year ended December 31, 2017 to the Company employees remain
outstanding as of December 31, 2018 and the weighted average grant date fair value of these awards was
$28.29. During the year ended December 31, 2018, 12,524 of these awards were forfeited. None of these PBUs
vested during the year ended December 31, 2018.
PBUs that were granted during the year ended December 31, 2016 to the Company employees remain
outstanding as of December 31, 2018 and the weighted average grant date fair value of these awards was
$17.04. During the year ended December 31, 2018, none of these awards were forfeited or vested.
15. Operating Segment and Geographic Information
GCP is engaged in the production and sale of specialty construction chemicals and specialty building
materials through its two operating and reportable segments. Specialty Construction Chemicals ("SCC") operating
segment manufactures and markets concrete admixtures and cement additives. Specialty Building Materials
("SBM") operating segment manufactures and markets sheet and liquid membrane systems that protect
structures from water, air and vapor penetration, as well as fireproofing and other products designed to protect the
building envelope.
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Operating Segment Data
Notes to Consolidated Financial Statements (Continued)
The following table presents information related to GCP's operating segments:
(In millions)
Net Sales
Specialty Construction Chemicals
Specialty Building Materials
Total net sales
Segment Operating Income
Year Ended December 31,
2018
2017
2016
$
$
643.5 $
481.9
1,125.4 $
615.7 $
468.7
1,084.4 $
623.8
422.7
1,046.5
Specialty Construction Chemicals segment operating income $
Specialty Building Materials segment operating income
Total segment operating income
Depreciation and Amortization
Specialty Construction Chemicals
Specialty Building Materials
Corporate
Total depreciation and amortization
Capital Expenditures
Specialty Construction Chemicals
Specialty Building Materials
Corporate
Total capital expenditures
Total Assets
Specialty Construction Chemicals
Specialty Building Materials
Corporate
Assets held for sale
Total assets
$
$
$
$
$
$
$
40.2 $
113.6
153.8 $
24.2 $
14.7
3.1
63.4 $
109.4
172.8 $
21.3 $
13.2
2.3
42.0 $
36.8 $
28.8 $
12.8
13.4
55.0 $
408.6 $
427.8
441.4
4.1
1,281.9 $
23.9 $
8.5
12.6
45.0 $
419.9 $
409.3
851.3
22.5
72.6
114.0
186.6
20.0
9.6
0.2
29.8
23.6
5.7
11.6
40.9
335.9
273.3
317.2
163.4
1,703.0 $
1,089.8
Reconciliation of Operating Segment Data to Financial Statements
Corporate expenses directly related to the operating segments are allocated to the segment's operating
income. GCP excludes from the segments' operating income certain functional costs, certain impacts of foreign
currency exchange (related primarily to Argentina for the year ended December 31, 2018 and Venezuela for
periods up through its deconsolidation date of July 3, 2017, as discussed in Note 1, "Basis of Presentation and
Summary of Significant Accounting and Financial Reporting Policies"), as well as other corporate costs included in
the table below. GCP also excludes from the segment's operating income certain ongoing defined benefit pension
costs recognized during each reporting period, which include service and interest costs, the effect of expected
returns on plan assets and amortization of prior service costs/credits. GCP believes that the exclusion of certain
corporate costs and pension costs provides a better indicator of its operating segment performance since such
costs are not managed at an operating segment level.
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Notes to Consolidated Financial Statements (Continued)
Total segment operating income for the years ended December 31, 2018, 2017 and 2016 are reconciled
below to "Income (loss) from continuing operations before income taxes" presented in the Consolidated
Statements of Operations:
(In millions)
Total segment operating income
Corporate costs(1)
Certain pension costs
Loss on sale of product line
Currency and other financial losses in Venezuela
Litigation settlement
Legacy product, environmental and other claims
Repositioning expenses
Restructuring expenses and asset impairments
Pension MTM adjustment and other related costs, net
Gain on termination and curtailment of pension and other
postretirement plans
Third-party and other acquisition-related costs
Other financing costs
Amortization of acquired inventory fair value adjustment
Tax indemnification adjustments
Interest expense, net(2)
Currency losses in Argentina
Net income attributable to noncontrolling interests
Year Ended December 31,
2018
2017
2016
$
153.8 $
(27.3)
(7.6)
—
—
—
—
(9.6)
(14.8)
8.7
0.2
(2.5)
—
(0.2)
(0.5)
(88.9)
(1.1)
0.3
172.8 $
(36.4)
(9.0)
(2.1)
(39.1)
(4.0)
(0.6)
(9.8)
(13.5)
(14.1)
6.6
(6.8)
(6.0)
(2.9)
(2.8)
(61.1)
—
0.5
186.6
(38.4)
(7.2)
—
—
—
—
(15.3)
(1.9)
(22.6)
0.8
(0.6)
(1.2)
(1.3)
—
(64.6)
—
1.0
35.3
Income (loss) from continuing operations before income taxes
$
10.5 $
(28.3) $
______________________________
(1)
(2)
Management allocates certain corporate costs to each operating segment to the extent such costs are directly attributable to the
segments. For the years ended December 31, 2017 and 2016, corporate costs include approximately $5.4 million and $10.3 million,
respectively, that were not allocated to the Darex operating segment as such costs did not meet the criteria to be reclassified to
discontinued operations. During the three months ended September 30, 2017, the Company began allocating these costs to the
SCC and SBM operating segments.
Interest expense, net includes a loss of $59.8 million as a result of debt refinancing transaction completed on April 10, 2018. Please
refer to Note 6, "Debt and Other Borrowings" for further information on the transaction.
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Notes to Consolidated Financial Statements (Continued)
Sales by Product Group
The following table sets forth sales by product group within the SCC operating segment and the SBM
operating segment during the years ended December 31, 2018, 2017 and 2016:
(In millions)
Specialty Construction Chemicals:
Concrete
Cement
Total SCC Sales
Specialty Building Materials:
Building Envelope
Residential Building Products
Specialty Construction Products
Total SBM Sales
Total Sales
Disaggregation of Total Net Sales
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
478.9 $
164.6
643.5 $
455.6 $
160.1
615.7 $
469.1
154.7
623.8
284.4 $
263.3 $
80.9
116.6
481.9 $
1,125.4 $
80.3
125.1
468.7 $
1,084.4 $
236.3
89.2
97.2
422.7
1,046.5
The Company disaggregates its revenue from contracts with customers by operating segments, which it
believes best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by
economic factors.
Geographic Area Data
The following table sets forth net sales information related to the geographic areas in which GCP operates:
(In millions)
Net Sales
United States
Canada and Puerto Rico
Total North America
Europe Middle East Africa
Asia Pacific
Latin America
Total
Year Ended December 31,
2018
2017
2016
$
$
538.8 $
32.2
571.0
240.7
245.6
68.1
1,125.4 $
509.2 $
31.5
540.7
244.5
229.2
70.0
1,084.4 $
476.6
32.5
509.1
225.6
241.2
70.6
1,046.5
Sales are attributed to geographic areas based on customer locations. With the exception of the U.S.
presented in the table above, there were no individually significant countries with sales exceeding 10% of total
sales during the years ended December 31, 2018, 2017 and 2016. There were no customers within the SCC and
SBM segments that individually accounted for 10% or more of the Company’s consolidated operating revenues
for the years ended December 31, 2018, 2017, or 2016. There were no customers that individually accounted for
10% or more of the Company's accounts receivable balance as of December 31, 2018 and 2017.
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Notes to Consolidated Financial Statements (Continued)
The following table sets forth long-lived asset information related to the geographic areas in which GCP
operates:
(In millions)
Properties and Equipment, net
United States
Canada and Puerto Rico
Total North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total
Goodwill, Intangibles and Other Assets
United States
Canada and Puerto Rico
Total North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total
Year Ended December 31,
2018
2017
$
$
$
150.1 $
3.0
153.1
27.6
35.0
9.4
225.1 $
107.4 $
7.8
115.2
169.8
17.5
22.4
$
324.9 $
138.5
3.1
141.6
32.1
31.4
11.5
216.6
109.0
7.7
116.7
151.2
18.6
27.3
313.8
Total long-lived assets located in the United Kingdom represented approximately 20% of total long-lived
assets as of December 31, 2018 and 2017. With the exception of the U.S. and the United Kingdom, there are no
other individually significant countries with long-lived assets exceeding 10% of total long-lived assets as of
December 31, 2018 and 2017.
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16. Earnings Per Share
Notes to Consolidated Financial Statements (Continued)
The following table sets forth a reconciliation of the numerators and denominators used in calculating basic
and diluted (loss) earnings per share:
(In millions, except per share amounts)
Numerators
(Loss) income from continuing operations attributable to GCP
shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Denominators
Weighted average common shares—basic calculation
Dilutive effect of employee stock awards (1)
Weighted average common shares—diluted calculation
Basic (loss) earnings per share
(Loss) income from continuing operations attributable to GCP
shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders(2)
Diluted (loss) earnings per share(1)
(Loss) income from continuing operations attributable to GCP
shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders(2)
_______________________________
Year Ended December 31,
2018
2017
2016
$
$
$
$
$
$
$
$
(16.1) $
31.3
15.2 $
(110.9) $
664.3
553.4 $
72.1
—
72.1
71.5
—
71.5
(0.22) $
0.43 $
0.21 $
(1.55) $
9.29 $
7.74 $
(0.22) $
0.43 $
0.21 $
(1.55) $
9.29 $
7.74 $
27.6
45.2
72.8
70.8
0.9
71.7
0.39
0.64
1.03
0.38
0.63
1.02
(1)
(2)
Dilutive effect not applicable to the periods in which GCP generated a loss from continuing operations.
Amounts may not sum due to rounding.
GCP uses the treasury stock method to compute diluted (loss) earnings per share. During the years ended
December 31, 2018 and 2017, there were no anti-dilutive shares based on the treasury stock method as a result
of a loss from continuing operations incurred during the periods then ended. During the year ended December 31,
2016, 0.2 million of anti-dilutive stock awards were excluded from the computation of diluted earnings per share
based on the treasury stock method as a result of an income from continuing operations generated during the
period.
As of December 31, 2018 and 2017, total outstanding options of 1.5 million and 1.6 million, respectively, and
total outstanding RSUs of 0.4 million as of the end of each period were excluded from the computation of diluted
loss per share due to a loss from continuing operations incurred during the years ended December 31, 2018 and
2017.
The following table sets forth the weighted average options and RSUs excluded from the computation of
dilutive shares and diluted loss per share that would've been reflected in the "Dilutive effect of employee stock
awards" line in the table above:
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Notes to Consolidated Financial Statements (Continued)
(In millions of shares)
Dilutive effect:
Options(1)
RSUs(1)(2)
________________________________
Year Ended December 31,
2018
2017
2016
0.4
0.3
0.6
0.4
N/A
N/A
(1) N/A - Dilutive effect is included in computation of diluted earnings per share under the treasury stock method for periods in which GCP
generated income from continuing operations.
(2) For the year ended December 31, 2018, shares include the weighted average PBU's outstanding relating to the 2016 PBU grant, as the
measurement period has ended.
During the years ended December 31, 2018 and 2017, GCP withheld and retained approximately 45,100 and
47,000 shares, respectively, of Company common stock in a non-cash transaction with a cost of $1.4 million and
$1.3 million, respectively, in connection with fulfilling statutory tax withholding requirements for employees under
the provisions of the Company's equity compensation programs. During the years ended December 31, 2018 and
2017, payments for tax withholding obligations related to employee equity awards were $1.4 million and $1.3
million, respectively.
17. Acquisitions and Dispositions
Acquisitions Completed in 2018
Clydebridge Holdings Limited
On May 4, 2018, GCP acquired 100% of the outstanding capital stock of Clydebridge Holdings Limited which
owns 100% of RIW Limited (the "RIW"), a U.K.-based supplier of waterproofing solutions for commercial and
residential construction applications. The acquisition is expected to strengthen GCP’s position in the U.K.
waterproofing market and complement its product portfolio within the SBM operating segment by adding
waterproofing capabilities for a wider range of projects. The aggregate purchase price of $29.7 million (at the date
of acquisition), net of cash acquired of $10.0 million, consisted of a net cash payment of $29.8 million, which was
reduced by working capital adjustments of $0.1 million. The purchase price is subject to normal and customary
purchase price adjustments.
At the closing of the acquisition of RIW, a portion of the consideration was placed into escrow which was
ascribed to the purchase price and will be released to the sellers no later than December 30, 2020. The escrow
was related to the sellers’ satisfaction of indemnity claims and general representations and warranties. There
were no amounts released from the escrow to the sellers as of December 31, 2018.
The Company accounted for the acquisition as a business combination in accordance with provisions of ASC
805, Business Combinations ("ASC 805"). The operating results of RIW have been reflected in the results of
operations for the SBM operating segment from the date of the acquisition.
The Company used a market participant approach to record the assets acquired and liabilities assumed in the
RIW acquisition. The purchase price allocation is based on a preliminary valuation and is subject to further
adjustments within the measurement period as additional information becomes available related to the fair value
of such assets acquired and liabilities assumed. The fair values of inventory, intangible assets, accrued liabilities,
tax-related matters and residual goodwill were preliminary as of December 31, 2018. The Company will refine
such fair value estimates as new information becomes available during the measurement period. Any adjustments
to the purchase price allocation will be made as soon as practicable, but no later than one year from the
acquisition date.
Goodwill represents the excess of the consideration transferred over the fair value of the net assets acquired
and has been assigned to the SBM operating segment. Goodwill is primarily the result of expected synergies from
combining the operations of RIW with GCP's operations and is not deductible for tax purposes.
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Notes to Consolidated Financial Statements (Continued)
The following table summarizes the updated allocation of the purchase price paid and the amounts of assets
acquired and liabilities assumed for the acquisition based upon its estimated fair value at the date of acquisition.
Such balances are reflected in the Consolidated Balance Sheets as of December 31, 2018:
(In millions)
Accounts receivable (approximates contractual value)
Inventories
Property, plant and equipment
Intangible assets
Goodwill
Accounts payable
Accrued liabilities
Deferred tax liabilities
Net assets acquired
Net Assets Acquired
$
$
1.3
0.5
0.1
10.7
19.9
(1.0)
(0.1)
(1.9)
29.5
During the year ended December 31, 2018, the Company finalized certain closing adjustments with the seller
and its purchase price allocation by recording a $0.2 million reduction in both consideration paid and inventories.
The following table presents the fair values of the intangible assets acquired and their weighted average
amortization periods:
Customer relationships
Developed technology
Trademarks and trade names
Total
Amount
(in millions)
Weighted-Average
Amortization Period
(in years)
$
$
8.8
0.8
1.1
10.7
9
15
10
The Company used the income approach in accordance with the excess-earnings method to estimate the fair
value of customer relationships, equal to the present value of the incremental after-tax cash flows attributable to
the intangible asset. The Company used the income approach in accordance with the relief-from-royalty method
to estimate the fair values of the trademarks and trade names, as well as developed technology which is equal to
the present value of the after-tax royalty savings attributable to owning the intangible asset.The total weighted
average amortization period of the intangible assets acquired is 10 years using methods that approximate the
pattern in which the economic benefits are expected to be realized.
Acquisition-related costs incurred for the RIW acquisition during the year ended December 31, 2018 were
included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations and
were not material.
The Company did not present a proforma information summary for its consolidated results of operations for
the year ended December 31, 2018 as if the acquisition of RIW occurred on January 1, 2017 because such
results were not material.
Acquisitions Completed in 2017
Ductilcrete Technologies
On October 31, 2017, GCP acquired 100% of the share capital of Ductilcrete Technologies (the "Ductilcrete"),
a U.S.-based technology leader for concrete engineered systems, for total consideration of $31.8 million, net of
$1.5 million of cash acquired. The Company believes that the acquisition of Ductilcrete expands its technology
platform with new product categories and engineered systems that will allow it to access a wider range of
customers.
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Notes to Consolidated Financial Statements (Continued)
The Company accounted for the acquisition as a business combination in accordance with provisions of ASC
805, and reflected Ductilcrete's operating results from the date of the acquisition within the operating results of the
SCC operating segment. The Company allocated the acquisition purchase price to the assets acquired and
liabilities assumed determined from a market participant perspective and recognized the excess as goodwill.
The Company allocated the acquisition purchase price to the assets acquired and liabilities assumed
determined from a market participant perspective and recognized the excess as goodwill which has been
assigned to the SCC operating segment. As of December 31, 2017, the Company recognized $14.0 million of
goodwill, which is tax-deductible and will be amortized for tax purposes over 15 years. The goodwill is attributable
to the revenue growth and operating synergies that GCP expects to realize from this acquisition.
During the year ended December 31, 2018, the Company finalized certain closing adjustments with the seller
and its purchase price allocation by recording a $0.3 million reduction in both consideration paid and accounts
receivable.
The following table summarizes the final allocation of the purchase price paid and the amounts of assets
acquired and liabilities assumed for the acquisition based upon their estimated fair values at the date of the
acquisition. Such balances are reflected in the Consolidated Balance Sheets as of December 31, 2018:
(In millions)
Accounts receivable
Other current assets
Properties and equipment
Goodwill
Intangible assets
Accounts payable
Net assets acquired
Net Assets Acquired
2.2
0.2
0.1
14.0
15.5
(0.2)
31.8
$
$
The following table presents the fair values of the intangible assets acquired and their weighted average
amortization periods:
Customer relationships
Technology
Trademarks
Total
Stirling Lloyd Plc
Amount
(In millions)
Weighted-Average
Amortization Period
(in years)
$
$
10.2
4.5
0.8
15.5
11
13
10
On May 17, 2017, GCP acquired 100% of the share capital of Stirling Lloyd Plc (the "Stirling Lloyd"), a UK-
based global supplier of high-performance liquid waterproofing and coatings products, for total consideration of
$91.1 million, net of $16.1 million of cash acquired. The Company believes that the addition of Stirling Lloyd and
its products, which are used for the protection of infrastructure and buildings, opens new growth opportunities by
offering additional selling channels for specialized end-market applications.
128
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Notes to Consolidated Financial Statements (Continued)
The Company elected the early adoption of ASU 2017-01, Business Combinations (Topic 805): Clarifying the
Definition of a Business, in conjunction with the acquisition of Stirling Lloyd, as described in Note 1, "Basis of
Presentation and Summary of Significant Accounting and Financial Reporting Policies", and accounted for the
acquisition as a business combination. Stirling Lloyd's operating results have been reflected within the operating
results of the SBM operating segment from the date of the acquisition. The Company allocated the acquisition
purchase price to the assets acquired and liabilities assumed determined from a market participant perspective
and recognized the excess of $59.6 million as goodwill which has been assigned to the SBM operating segment.
Goodwill is attributable to the revenue growth and operating synergies that GCP expects to realize from this
acquisition and is not deductible for tax purposes. During the year ended December 31, 2017, the Company
finalized its purchase price allocation.
The following table summarizes the final allocation of the purchase price paid and the amounts of assets
acquired and liabilities assumed for the acquisition based upon its estimated fair value at the date of acquisition.
Such balances are reflected in the Consolidated Balance Sheets as of December 31, 2018 and 2017:
(In millions)
Accounts receivable
Other current assets
Inventories
Properties and equipment
Goodwill
Intangible assets
Accounts payable
Other current liabilities
Other liabilities
Net assets acquired
$
Net Assets Acquired
6.8
3.1
4.2
3.4
59.6
26.9
(2.9)
(4.2)
$
(5.8)
91.1
The following table presents the fair values of the intangible assets acquired and their weighted average
amortization periods:
Customer relationships
Technology
Trademarks
Total
Amount
(In millions)
Weighted-Average
Amortization Period
(in years)
$
$
15.0
9.8
2.1
26.9
10
11
10
During the year ended December 31, 2018, the Company reached a settlement with the sellers of Stirling
Lloyd related to certain warranty claims and received $3.1 million of proceeds released from an escrow account
as a result of such settlement. The proceeds of $3.1 million were received after finalizing the purchase price
allocation and completion of the measurement period. GCP recognized the proceeds in the results of operations
during the year ended December 31, 2018, of which $2.6 million was included in "Other (income) expense, net" in
the Consolidated Statements of Operations.
Revenue from RIW, Ductilcrete and Stirling Lloyd was not material individually, or in the aggregate, to the
Company's consolidated revenue during the year ended December 31, 2018. Net income from RIW, Ductilcrete
and Stirling Lloyd was not individually material to the Company’s consolidated (loss) income from continuing
operations during the year ended December 31, 2018. In the aggregate, net income from RIW, Ductilcrete and
Stirling Lloyd was $13.5 million during year ended December 31, 2018.
Supplemental Pro Forma Information
During the year ended December 31, 2017, GCP completed acquisitions of Ductilcrete and Stirling Lloyd,
which when considered in aggregate, were material to the Company's Consolidated Financial Statements. Stirling
129
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Notes to Consolidated Financial Statements (Continued)
Lloyd contributed revenue of $33.1 million and income from continuing operations of $2.8 million to GCP for the
period from May 17, 2017 to December 31, 2017, and Ductilcrete contributed revenue of $1.2 million and income
from continuing operations of $0.1 million to GCP for the period from October 31, 2017 to December 31, 2017.
The following unaudited pro forma summary presents consolidated results of operations for GCP and these
business combinations as if they had occurred on January 1, 2016:
(In millions)
Revenue
(Loss) income from continuing operations
Pro forma year ended
December 31, 2017
(unaudited)
Pro forma year ended
December 31, 2016
(unaudited)
$
$
1,108.9 $
(103.4) $
1,101.3
28.3
GCP reflected non-recurring pro forma adjustments directly attributable to the business combinations in the
pro forma revenue and loss (income) from continuing operations reported above. The unaudited pro forma
financial information is presented for informational purposes only and is not necessarily indicative of the results of
operations that would have been achieved if these acquisitions had taken place on January 1, 2016. The non-
recurring proforma adjustments are related to prepaid compensation expense, recognition of step-up in value of
the acquired inventories adjusted to fair value on the acquisition date, interest expense and acquisition-related
costs. These pro forma amounts have been calculated after applying GCP's accounting policies and adjusting the
results of Stirling Lloyd and Ductilcrete to reflect the additional amortization expense that would have been
charged assuming the intangible assets had been acquired on January 1, 2016.
During the year ended December 31, 2017, GCP incurred $2.1 million of acquisition-related costs for the
Ductilcrete and Stirling Lloyd acquisitions, which are included in "Selling, general and administrative expenses" in
the Consolidated Statements of Operations for the year ended December 31, 2017 and reflected in the pro forma
income from continuing operations for the year ended December 31, 2016 in the table above.
Acquisitions Completed in 2016
Acquisition of Halex Corporation
On November 9, 2016, GCP acquired 100% of the stock of Halex Corporation ("Halex"), a North American
supplier of specialty moisture barrier flooring underlayment products, seam tapes, as well as other flooring and
accessories, for total consideration of $46.0 million, net of $2.4 million of cash acquired. The acquisition has
expanded GCP's building envelope product portfolio and provided growth opportunities within the SBM operating
segment.
The acquisition of Halex was accounted for as a business combination. Goodwill of $14.7 million is tax-
deductible and will be amortized for tax purposes over 15 years. The goodwill is attributable to the revenue growth
and operating synergies that GCP expects to realize from this acquisition. Halex's operating results have been
reflected within the operating results of the SBM operating segment from the date of the acquisition. The
Company allocated the acquisition purchase price to the assets acquired and liabilities assumed determined from
a market participant perspective and recognized the excess as goodwill which has been assigned to the SBM
operating segment.
During the years ended December 31, 2018, 2017 and 2016 revenue and net income from Halex were not
material to the Company's consolidated revenue and (loss) income from continuing operations. Acquisition-related
costs incurred for the Halex acquisition during the year ended December 31, 2016 were included in "Selling,
general and administrative expenses" in the Consolidated Statements of Operations and were not material.
Disposal of Non-core Halex Net Assets
During the second quarter of 2017, the Company completed the sale of non-core carpet tack strip and
plywood underlayment product lines that were acquired with Halex for approximately $3 million in cash. The
Company recorded a $2.1 million loss related to the disposal of these non-core Halex net assets which is
reflected in "Other (income) expense, net" in the Consolidated Statements of Operations. The transaction
included the disposal of $1.3 million in related goodwill and $1.5 million in customer relationships intangible
assets within the SBM segment.
130
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Notes to Consolidated Financial Statements (Continued)
18. Discontinued Operations
On July 3, 2017, the Company completed the sale of Darex to Henkel for $1.06 billion in cash (the
“Disposition”). The agreement with Henkel governing the Disposition (the “Amended Purchase Agreement”)
provides for a series of delayed closings in certain non-U.S. jurisdictions, including Argentina, China, Colombia,
Indonesia, Peru and Venezuela for which sale proceeds were received on the July 3, 2017 closing date. The
delayed closings will implement the legal transfer of the Darex business in the delayed closing jurisdictions in
accordance with local law. During the year ended December 31, 2018, the Company completed the delayed
closings in Argentina, Colombia, Peru and China and recorded an after-tax gain of $31.5 million on the sale of the
delayed close entities in these countries. During the year ended December 31, 2017, the Company recorded an
after-tax gain of $678.9 million on the sale of the Darex entities that closed on July 3, 2017. In January 2019, the
delayed closing in Indonesia was completed. The Company estimates that it will record a pre-tax gain during the
three months ended March 31, 2019 ranging between approximately $8.0 million to $11.0 million based on $13.1
million of proceeds received on July 3, 2017 related to the Darex business in Indonesia, subject to normal and
customary closing adjustments. The remaining delayed closing in Venezuela is expected to be completed during
the year ended December 31, 2019. Up to the time of the delayed closings, the results of the operations of the
Darex business within the delayed close countries are reported as “Income from discontinued operations, net of
income taxes” in the Consolidated Statements of Operations, which are adjusted for an economic benefit payable
to or recovered from Henkel, as applicable for each reporting period.
As of December 31, 2017, a liability of $55.1 million and $13.6 million, respectively, related to the
consideration received by GCP for the delayed closings was recognized in “Other current liabilities” and “Other
liabilities." During the year ended December 31, 2018, GCP reduced the liability by $55.1 million which consisted
primarily of the sale proceeds received on July 3, 2017 for the delayed closings in Argentina, Colombia, Peru, and
China completed during the period then ended. The remaining liability of $13.6 million for the consideration
received on the closing date related to the remaining delayed closing countries is recorded in “Other current
liabilities” as of December 31, 2018.
The following table includes a reconciliation of the gain on the sale of the Darex business related to delayed
close entities recorded during the years ended December 31, 2018 and 2017:
(In millions)
Net proceeds included in gain
Less: Transaction costs
Less: Net assets derecognized
Gain recognized before income taxes
Less: Tax effect of gain recognized
Gain recognized after income taxes
Year Ended December 31,
2018
2017
55.4 $
—
11.9
43.5
12.0
31.5 $
996.3
15.9
99.6
880.8
201.9
678.9
$
$
In connection with the Disposition and related tax gain, as noted above, the Company recorded tax expense
of $12.0 million and $201.9 million, respectively, within discontinued operations during the years ended December
31, 2018 and 2017. The tax effect of the gain for the year ended December 31, 2018 reflects the Company's final
calculations based on the filing of its U.S. income tax returns in October, 2018. As a result of the Disposition, GCP
recorded an unrecognized tax benefit of $32.4 million, which is reflected in the tax effect of the gain and within
income tax expense in discontinued operations for the year ended December 31, 2017. There was no
unrecognized tax benefit recorded in discontinued operations during the year ended December 31, 2018.
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Notes to Consolidated Financial Statements (Continued)
In connection with the Disposition, the Company and Henkel also entered into a Transition Services
Agreement pursuant to which Henkel and the Company will provide various services to each other in connection
with the transition of the Darex business to Henkel. The Company and Henkel expect to perform these services,
which relate to real estate, information technology, accounts payable, payroll and other financial functions and
administrative services, for various periods up to 24 months following the closing date. The charges for such
services generally allow the servicing party to recover all out-of-pocket costs and expenses and are recorded in
"Other (income) expense, net" on the Consolidated Statements of Operations.
Additionally, in connection with the Disposition, the Company and Henkel entered into a Master Tolling
Agreement, whereby Henkel will operate certain equipment at facilities being sold in order to manufacture and
prepare for shipping certain products related to product lines that the Company continues to own. The Company
and Henkel expect these services to be provided for a period of 24 months following the closing date.
Under the Amended Purchase Agreement, GCP is required to indemnify Henkel for certain possible future tax
liabilities. GCP has recorded an indemnification payable of $0.9 million and $3.3 million, respectively, in this
regard as a result of the Disposition as of December 31, 2018 and 2017.
The following table sets forth the components of "Income from discontinued operations, net of income taxes"
in the Statements of Operations:
Year Ended December 31,
2018
2017
2016
$
15.7 $
15.9
(0.2)
5.8
—
0.4
—
(43.5)
(4.1)
41.2
(9.9)
—
31.3 $
169.5 $
111.9
57.6
44.9
2.3
7.8
1.1
(880.8)
7.7
874.6
(210.2)
(0.1)
664.3 $
309.3
198.2
111.1
33.4
4.6
—
—
—
2.4
70.7
(25.5)
—
45.2
(In millions)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Research and development expenses
Restructuring expenses
Loss in Venezuela
Gain on sale of business
Other (income) expenses, net
Income from discontinued operations before income taxes
Provision for income taxes
Less: Net income attributable to noncontrolling interests
Income from discontinued operations, net of income taxes
$
132
Table of Contents
Notes to Consolidated Financial Statements (Continued)
The following table sets forth carrying amounts of the major classes of assets and liabilities of Darex classified
as held for sale in the Consolidated Balance Sheets as of December 31, 2018 and 2017:
(In millions)
Trade accounts receivable
Inventories
Other current assets
Current assets held for sale
Properties and equipment, net
Other assets
Non-current assets held for sale
Accounts payable
Other current liabilities
Current liabilities held for sale
Underfunded and unfunded defined benefit pension plans
Non-current liabilities held for sale
19. Quarterly Summary and Statistical Information (Unaudited)
December 31, 2018
December 31, 2017
8.4
2.2 $
1.2
—
3.4 $
0.2
0.5
0.7 $
—
—
— $
0.4
0.4 $
10.6
0.7
19.7
2.2
0.6
2.8
6.4
1.4
7.8
0.3
0.3
$
$
$
$
$
On July 3, 2017, the Company completed the sale of Darex to Henkel. In conjunction with this transaction and
applicable GAAP, the results of operations for Darex have been excluded from continuing operations and reflected
as "discontinued operations" in the Consolidated Statements of Operations for all periods presented. Please refer to
Note 18, "Discontinued Operations" for further information on the transaction.
The following tables present quarterly unaudited consolidated statement of operations information for the years
ended December 31, 2018 and 2017:
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Table of Contents
(In millions, except per share amounts)
March 31,
2018(2)
June 30,
2018(1)
September
30, 2018(2)
December
31, 2018
December
31, 2018
Three Months Ended,
Year Ended,
$
250.2
$
302.8
$
296.3
$
276.1
$
1,125.4
Net sales
Gross profit
Net (loss) income
(Loss) income from continuing operations
attributable to GCP shareholders
Income from discontinued operations, net of
income taxes:
(Loss) income attributable to GCP shareholders
(Loss) income per share:
Basic (loss) earnings per share:
(Loss) income from continuing operations
attributable to GCP shareholders
Income from discontinued operations, net
of income taxes
Net (loss) income attributable to GCP
shareholders
Diluted (loss) earnings per share(3):
(Loss) income from continuing operations
Income from discontinued operations, net
of income taxes
Net (loss) income attributable to GCP
shareholders
________________________________
$
$
$
$
$
$
$
87.5
(6.5)
111.7
(27.8)
(13.8)
(29.2)
7.2
1.3
(6.6) $
(27.9) $
(0.19) $
(0.40) $
0.10
$
0.02
$
(0.09) $
(0.39) $
(0.19) $
(0.40) $
0.10
$
0.02
$
(0.09) $
(0.39) $
110.4
25.5
7.2
18.2
25.4
0.10
0.25
0.35
0.10
0.25
0.35
$
$
$
$
$
$
$
100.3
24.3
19.7
4.6
24.3
$
0.27
0.06
0.34
0.27
0.06
0.33
$
$
$
$
$
$
409.9
15.5
(16.1)
31.3
15.2
(0.22)
0.43
0.21
(0.22)
0.43
0.21
(1)
(2)
(3)
GCP recognized a loss on debt refinancing of $59.8 million during the three months ended June 30, 2018. Please refer to Note 6, "Debt
and Other Borrowings" for further information on this transaction.
During the three months ended March 31, 2018 and the three months ended September 30, 2018, GCP recognized an after tax gain of
$10.3 million and $18.8 million, respectively, on the sale of the delayed close entities in Argentina, Colombia, Peru and China. Please
refer to Note 18, "Discontinued Operations" for further information on these transactions.
Dilutive effect is only applicable to the periods during which GCP generated net income from continuing operations. Per share results for
the four quarters may differ from full-year per share results, as a separate computation of the weighted average number of shares
outstanding is made for each quarter presented.
134
Table of Contents
(In millions, except per share amounts)
Three Months Ended,
March 31,
2017
June 30,
2017
September 30,
2017(1)(2)
December
31, 2017(3)
Year Ended,
December
31, 2017
Net sales
Gross profit
Net (loss) income
(Loss) income from continuing operations
attributable to GCP shareholders
Income (loss) from discontinued operations, net of
income taxes
(Loss) income attributable to GCP shareholders
(Loss) income per share:(4)
Basic (loss) earnings per share:
(Loss) income from continuing operations
attributable to GCP shareholders
Income (loss) from discontinued operations,
net of income taxes
Net (loss) income attributable to GCP
shareholders
Diluted (loss) earnings per share:(5)
(Loss) income from continuing operations
Income (loss) from discontinued operations,
net of income taxes
Net (Loss) income attributable to GCP
shareholders
________________________________
$
225.3
$
287.2
$
282.4
$
289.5
$
1,084.4
85.3
(16.9)
(25.0)
8.1
115.0
(4.6)
1.3
(6.0)
106.5
659.3
110.3
(83.9)
417.1
553.9
(18.1)
(69.1)
(110.9)
$
(16.9) $
(4.7) $
659.2
$
(84.2) $
677.3
(15.1)
664.3
553.4
$
$
$
$
$
$
(0.35) $
0.02
$
(0.25) $
(0.96) $
(1.55)
0.11
$
(0.08) $
(0.24) $
(0.07) $
9.46
9.21
$
$
(0.21) $
(1.17) $
9.29
7.74
(0.35) $
0.02
$
(0.25) $
(0.96) $
(1.55)
0.11
$
(0.08) $
(0.24) $
(0.07) $
9.46
9.21
$
$
(0.21) $
(1.17) $
9.29
7.74
(1)
(2)
(3)
(4)
(5)
GCP recognized a net gain on the sale of Darex of approximately $678.9 million during the three months ended September 30, 2017.
Please refer to Note 18, "Discontinued Operations" for further information on the Company's sale of Darex.
During the three months ended September 30, 2017, GCP recorded an out-period-adjustment to correct the misclassification of a $3.4
million foreign exchange remeasurement loss that was incorrectly included within discontinued operations during the three months
ended June 30, 2017. The impact of this correction, of which $2.9 million is reflected in "Loss on Venezuela" and $0.5 million is reflected
in "Other (income) expense, net" in the Consolidated Statements of Operations, resulted in an increase in "(Loss) income from
continuing operations." There was no tax impact associated with this adjustment. GCP has assessed the impact of this error and
concluded that the amount was not material to any prior-period financial statements and the impact of correcting this error during the
three months ended September 30, 2017 is not material.
During the three months ended December 31, 2017, GCP recorded a pension mark-to-market adjustment loss of $11.2 million. Please
refer to Note 8, "Pension Plans and Other Postretirement Benefit Plans" for further information.
Per share results for the four quarters may differ from full-year per share results, as a separate computation of the weighted average
number of shares outstanding is made for each quarter presented.
Dilutive effect only applicable to the periods during which GCP generated net income from continuing operations.
20. Subsequent Events
2019 Restructuring and Repositioning Plan
On February 22, 2019, the Company’s Board of Directors approved a business restructuring and repositioning
plan (the “2019 Plan”). The 2019 Plan is focused on GCP’s global supply chain strategy, processes and
execution, including our manufacturing, purchasing, logistics, and warehousing operations. The plan also
addresses GCP’s service delivery model primarily in North America to streamline the Company’s pursuit of
combined admixture and VERIFI® opportunities. The Company expects to incur total pre-tax costs in connection
with the 2019 Plan of approximately $15 million to $20 million, of which approximately $5 million to $8 million
represent restructuring costs and approximately $10 million to $12 million represent repositioning costs. In
addition, the Company expects to incur $2 million of capital expenditures associated with the program.
Approximately $3 million to $5 million of the estimated pretax restructuring costs represent employee
severance and other employee-related costs, while the remaining $2 million to $3 million represents facility exit
135
Table of Contents
Notes to Consolidated Financial Statements (Continued)
costs, asset write-offs, and other-related costs. Repositioning costs primarily consist of consulting services to
assist GCP in advancing its technology strategy. With the exception of asset write-offs, substantially all of the cost
and capital expenditures associated with the 2019 Plan are expected to result in cash expenditures. Substantially
all of the restructuring actions under the 2019 Plan are expected to be completed by the end of December 31,
2020.
The 2019 Plan is separate and in addition to the 2018 and 2017 Plans that were approved by the Board of
Directors on August 1, 2018, and June 28, 2017, respectively.
136
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GCP APPLIED TECHNOLOGIES AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)
For the Year Ended December 31, 2018
Valuation and qualifying accounts deducted from
assets:
Allowances for notes and accounts receivable
Inventory obsolescence reserve
Valuation allowance for deferred tax assets
Balance at
beginning
of period
Additions
charged to
costs and
expenses
Deductions(1) Other, net(2)
Balance at
end of
period
$
$
5.7
2.4
23.9
$
1.6
5.0
6.8
(1.1) $
(4.7)
(10.8)
(0.4) $
—
(1.4)
5.8
2.7
18.5
___________________________________________________________________________________________________________________
(1)
(2)
Deductions from Valuation allowance for deferred tax assets include $10.6 million related to the forfeiture of the Company’s 2017
Japan net operating loss from the sale of Darex Japan.
Various miscellaneous adjustments against reserves and effects of currency translation.
For the Year Ended December 31, 2017
Valuation and qualifying accounts deducted from
assets:
Allowances for notes and accounts receivable
Inventory obsolescence reserve
Valuation allowance for deferred tax assets
Balance at
beginning
of period
Additions
charged to
costs and
expenses
Deductions Other, net(1)
Balance at
end of
period
$
$
4.5
2.6
2.3
0.8
4.7
21.8
$
— $
(4.8)
(0.3)
$
0.4
(0.1)
0.1
5.7
2.4
23.9
___________________________________________________________________________________________________________________
(1)
Various miscellaneous adjustments against reserves and effects of currency translation.
For the Year Ended December 31, 2016
Valuation and qualifying accounts deducted from
assets:
Allowances for notes and accounts receivable
Inventory obsolescence reserve
Valuation allowance for deferred tax assets
Balance at
beginning
of period
Additions
charged to
costs and
expenses
Deductions Other, net(1)
Balance at
end of
period
$
$
5.8
2.7
2.0
$
0.2
—
0.4
(1.9) $
(0.1)
(0.1)
$
0.4
—
—
4.5
2.6
2.3
___________________________________________________________________________________________________________________
(1)
Various miscellaneous adjustments against reserves and effects of currency translation.
137
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Management's Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our principal executive officer and principal financial
officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based on the evaluation as
of December 31, 2018, our principal executive officer and principal financial officer concluded that our disclosure
controls and procedures were effective to provide reasonable assurance that the information required to be
disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to
management, and made known to our principal executive officer and principal financial officer, on a timely basis to
ensure that it is recorded, processed, summarized and reported within the time periods specified in the SEC’s
rules and forms.
Management’s Report on Internal Control Over Financial Reporting
Our management, with the participation of our principal executive officer and principal financial officer, is
responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act as a process designed by,
or under the supervision of, the company’s principal executive and principal financial officers and effected by the
company’s board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Our internal control over financial reporting includes those policies
and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our
transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2018. In making this assessment, our management used the criteria set forth by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework
(2013).
Management’s evaluation of internal control over financial reporting did not include an assessment of the
effectiveness of internal control over financial reporting at RIW Limited. This entity was acquired during 2018
(please refer to Note 17, "Acquisitions and Dispositions", to the Consolidated Financial Statements). Total assets
and total revenues of the acquired entity represent less than 1% of the Company's related consolidated financial
statement amounts reported in its Consolidated Balance Sheets and Consolidated Statements of Operations as of
and for the year ended December 31, 2018. In accordance with the Company’s integration efforts, the Company
is in the process of incorporating the acquired entity’s operations into its internal control over financial reporting.
Based on our assessment, management, with the participation of our Chief Executive Officer and Chief
Financial Officer, concluded that, as of December 31, 2018, our internal control over financial reporting was
effective based on those criteria.
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The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in
their report which is included under Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of 2018 that
have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding members of our Board of Directors will be contained in our definitive proxy statement
for the 2019 Annual Meeting of Stockholders ("2019 Proxy Statement") under the captions “Proposal One:
Election of Directors” and “Corporate Governance” and is incorporated herein by reference. Information regarding
our executive officers is contained in Part I of this Form 10-K under the caption "Executive Officers of the
Registrant." The information contained in the 2019 Proxy Statement under the captions “Corporate Governance -
Section 16(a) Beneficial Ownership Reporting Compliance” and ”Corporate Governance - Audit Committee” is
incorporated herein by reference.
We have adopted a code of ethics that applies to all of our directors, officers, employees and representatives.
Information regarding our code of ethics will be contained in our 2019 Proxy Statement under the caption
“Corporate Governance-Code of Ethics and Conflicts of Interest” and is incorporated herein by reference.
Information regarding the procedures by which our stockholders may recommend nominees to our Board of
Directors will be contained in our 2019 Proxy Statement under the caption “Corporate Governance - Director
Nomination Process; Shareholder Recommendations for Director Nominees” and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in our 2019 Proxy Statement under the captions “Executive Compensation”
and “Corporate Governance - Director Compensation” and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table provides certain information as of December 31, 2018 concerning the shares of the
Company’s Common Stock that may be issued under existing equity compensation plans.
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)(1)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)(2)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
2,522,876
$
—
2,522,876
$
139
21.18
—
21.18
8,371,507
—
8,371,507
Table of Contents
__________________________
(1) Under the Equity and Incentive Plan, there are 1,518,091 shares of GCP common stock to be issued upon the exercise of
outstanding options, 641,885 shares to be issued upon completion of the performance period for stock-settled PBUs,
based on achievement against the performance targets for PBUs granted during the year ended December 31, 2016, and
the maximum number of shares that could be earned with respect to PBUs granted during the years ended December 31,
2018 and 2017, and 362,900 shares to be issued upon completion of the vesting period for stock-settled restricted stock
unit awards (“RSUs”).
(2) The calculation of weighted-average exercise price does not include outstanding PBUs and RSUs.
The additional information regarding security ownership of certain beneficial owners, as well as for directors
and executive officers will be contained in our 2019 Proxy Statement under the caption “Other Information - Stock
Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
This information will be contained in our 2019 Proxy Statement under the captions “Other Information -
Transactions with Related Persons,” “Proposal One: Election of Directors” and “Corporate Governance - Number
and Independence of Directors” and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
This information will be contained in our 2019 Proxy Statement under the caption “Proposal Two: Ratification
of the Appointment of Independent Registered Public Accounting Firm - Principal Accountant Fees and Services”
and is incorporated herein by reference.
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PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and Schedules.
(1) and (2)
The required information is set forth in Item 8—"Financial Statements and Supplementary
Data."
(3)
Exhibit Index:
Exhibit No.
Exhibit Description
2.1 Separation and Distribution Agreement, dated as of January 27,
2016, by and among W.R. Grace & CO., W.R. Grace & Co. -
Conn., and GCP Applied Technologies Inc.
2.2 Amended and Restated Stock and Asset Purchase Agreement
dated as of June 30, 2017, between GCP Applied Technologies
Inc. and Henkel AG & Co. KGaA.
Incorporated by Reference
Form
8-K
Exhibit
2.1
Filing Date
1/28/16
8-K
2.1
7/3/17
3.1 Certificate of Amendment of the Amended and Restated Certificate
8-K
3.1
5/3/18
of Incorporation of GCP Applied Technologies Inc. dated May 3,
2018
3.2 Amended and Restated Bylaws of GCP Applied Technologies Inc.
effective as of May 3, 2018.
4.1
Indenture, dated as of April 10, 2018, among GCP Applied
Technologies Inc., the guarantors party thereto and Wilmington
Trust, National Association, as trustee.
4.2 Form of 5.500% Note due 2026 (included as Exhibit A to Exhibit
4.1).
10.1 Tax Sharing Agreement, dated January 27, 2016, by and among
W.R. Grace & Co., W.R. Grace & Co. - Conn. and GCP Applied
Technologies Inc.
10.2 Employee Matters Agreement, dated January 27, 2016, by and
among W.R. Grace & Co., W.R. Grace & Co. - Conn. and GCP
Applied Technologies Inc.
8-K
8-K
8-K
8-K
3.2
4.1
4.2
10.1
5/3/18
4/10/18
4/10/18
1/28/16
8-K
10.2
1/28/16
10.3 Transition Services Agreement, dated January 27, 2016, by and
8-K
10.3
1/28/16
between W.R. Grace & Co. - Conn. and GCP Applied
Technologies Inc.
10.4 Cross-License Agreement, dated January 27, 2016, by and among
8-K
10.4
1/28/16
GCP Applied Technologies Inc., W.R. Grace & Co. - Conn. and
Grace GmbH & Co. KG.
10.5 Grace Transitional License Agreement, dated January 27, 2016,
8-K
10.5
1/28/16
by and between W.R. Grace & Co. - Conn. and GCP Applied
Technologies Inc.
10.6 Credit Agreement, dated February 3, 2016, by and among GCP
8-K
10.1
2/4/16
Applied Technologies, Grace Construction Products Limited,
Grace NV, the lenders party thereto from time to time and
Deutsche Bank AG New York Branch, as the administrative agent.
10.7 First Amendment to Credit Agreement, dated August 25, 2016, by
and among GCP Applied Technologies, Grace Construction
Products Limited, GCP Applied Technologies NV (Formerly Grace
NV), the lenders party thereto from time to time and Deutsche
Bank AG New York Branch, as the administrative agent.
8-K
10.1
8/25/16
10.8 Second Amendment to Credit Agreement, dated as of April 10,
8-K
10.1
4/10/18
2018, by and among GCP Applied Technologies Inc., GCP Applied
Technologies (UK) Limited, GCP Applied Technologies N.V., the
guarantors party thereto, the lenders party thereto and Deutsche
Bank AG New York Branch, as administrative agent.
10.9 GCP Applied Technologies Inc. 2016 Stock Incentive Plan.*
10.10 Severance Plan for Leadership Team Officers of GCP Applied
8-K
8-K
10.5
10.2
2/4/16
2/4/16
Technologies Inc.*
141
Table of Contents
10.11 GCP Applied Technologies Inc. Supplemental Executive
Retirement Plan.*
10.12 GCP Applied Technologies Inc. Executive Salary Protection Plan.*
10.13 Form of GCP Applied Technologies Inc. Change in Control
Severance Agreement.*
Incorporated by Reference
3/2/17
10.10
10-K
8-K
8-K
10.3
10.4
2/4/16
2/4/16
10.14 GCP Applied Technologies Inc. Executive Annual Incentive
10-K
10.11
3/30/16
Compensation Plan.*
10.15 Form of 2014 Nonstatutory Stock Option Agreement.*
10.16 Form of 2015 Nonstatutory Stock Option Agreement.*
10.17 Form of 2015 Restricted Stock Unit Agreement.*
10.18 Form of Leadership Grant Nonstatutory Stock Option Agreement.*
10.19 Form of Leadership Grant Restricted Stock Unit Agreement.*
S-8
S-8
S-8
8-K
8-K
4.4
4.5
4.6
10.2
10.1
10.20 Form of GCP Applied Technologies Inc. Restricted Stock Unit
10-K
10.17
Award Agreement.*
1/28/16
1/28/16
1/28/16
2/11/16
2/11/16
3/30/16
10.21 Form of GCP Applied Technologies Inc. Stock Option Award
10-K
10.18
3/30/16
Agreement.*
10.22 Form of GCP Applied Technologies Inc. Performance-Based Stock
10-K
10.19
3/30/16
Unit Award Agreement.*
10.23 Kevin R. Holland Offer Letter dated November 29, 2016*
10.24 GCP Applied Technologies Inc. Equity and Incentive Plan as
amended and restated on February 28, 2017*
10-K
8-K
10.23
10.1
10.25 Form of GCP Applied Technologies Inc. Stock Option Award
10-Q
10.1
Agreement.*
10.26 Form of GCP Applied Technologies Inc. Restricted Stock Unit
10-Q
10.2
Award Agreement.*
10.27 Form of GCP Applied Technologies Inc. Performance-Based Stock
10-Q
10.3
Unit Award Agreement.*
3/2/17
5/5/17
5/9/17
5/9/17
5/9/17
10.28 Randall S. Dearth Letter Agreement dated July 11, 2018.*
8-K
10.1
7/12/18
21
List of Subsidiaries of GCP Applied Technologies Inc.
23 Consent of PricewaterhouseCoopers LLP, Independent Registered
Public Accounting Firm.
24 Powers of Attorney.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended (the
Exchange Act).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
of the Exchange Act.
32 Certification of the Chief Executive Officer and the Chief Financial
Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
_____________________________________________________________________________________
* Management contract or compensatory plan.
(b) See Item 15(a)(3) above.
(c) See Item 15(a)(1) and (2) above.
142
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Table of Contents
ITEM 16. FORM 10-K SUMMARY
Not applicable.
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Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
GCP Applied Technologies Inc.
(Registrant)
By:
By:
By:
/s/ GREGORY E. POLING
Gregory E. Poling
Chief Executive Officer
(Principal Executive Officer)
/s/ DEAN P. FREEMAN
Dean P. Freeman
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ KENNETH S. KOROTKIN
Kenneth S. Korotkin
Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
Dated: February 27, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on February 27, 2019.
Signature
Marcia J. Avedon*
Ronald C. Cambre*
Gerald G. Colella*
Janice K. Henry*
James F. Kirsch*
Phillip J. Mason*
Elizabeth Mora*
Danny R. Shepherd*
Title
Director
Non-Executive Chairman of the Board
Director
Director
Director
Director
Director
Director
/s/ GREGORY E. POLING
(Gregory E. Poling)
/s/ DEAN P. FREEMAN
(Dean P. Freeman)
/s/ KENNETH S. KOROTKIN
(Kenneth S. Korotkin)
Chief Executive Officer and Director (Principal Executive
Officer)
Vice President and Chief Financial Officer (Principal Financial
Officer)
Vice President, Controller and Chief Accounting Officer
(Principal Accounting Officer)
________________________________________________________________________________________________________________
* By signing his name hereto, John W. Kapples is signing this document on behalf of each of the persons indicated above
pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission
By:
/s/ JOHN W. KAPPLES
John W. Kapples
(Attorney-in-Fact)
144