Table of Contents
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, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-37533
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:
Trading Symbol
GCP
Title of Class
Common Stock, $.01 par value
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No ý
Securities registered pursuant to Section 12(g) of the Act:
None
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 ý No o
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 ý No o
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.
Non-accelerated filer ☐
☒ Accelerated filer ☐
Large 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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ý
The aggregate market value of GCP Applied Technologies' voting and non-voting common equity held by non-affiliates as of June 30, 2020 (the last business day of the
registrant's most recently completed second fiscal quarter) based on the closing sale price of $18.58 as reported on the New York Stock Exchange was $747,523,975.
At March 3, 2021, there were 73,197,953 shares of GCP Applied Technologies Common Stock, $.01 par value, outstanding.
Portions of the definitive proxy statement for our 2021 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
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.
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
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
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
PART IV
Item 15.
Item 16.
SIGNATURES
Exhibits and Financial Statement Schedules
Form 10-K Summary
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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.
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; strategic alternatives; 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; business disruptions due to public health or safety emergencies, such as the novel strain of coronavirus
("COVID-19") pandemic; 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 regulations; extreme weather events and natural disasters. 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,
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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 and technologies that include admixtures and additives for concrete
and cement, the in-transit concrete monitoring and management system, high-performance waterproofing products and specialty construction
products. The Company is a leader in its two global operating segments. The Specialty Construction Chemicals ("SCC") operating segment
produces concrete admixtures, which enhance the properties of concrete and other cementitious construction materials, cement additives, which
improve the performance of Portland cement, the most widely used construction material in the world, as well as in-transit concrete monitoring and
management and specialty systems. The 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.
During the year ended December 31, 2020, we generated net sales of $903.2 million, income from continuing operations before income taxes of
$137.7 million and net income of $100.7 million. Approximately 48% of our 2020 sales were generated outside of the United States. We operate in
more than 30 countries.
Business Strategy
Our objective is to grow our sales, earnings, and cash flows through the implementation of our business strategies. We strive to deliver value to
our various stakeholders, such as our stockholders, customers and employees, and manage our business operations and facilities in a sustainable
manner. 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
design 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 Construction Product Capabilities to Generate Sales Growth — We utilize our worldwide sales and
marketing organization, technical service and product support, research and development capabilities, and our manufacturing and sourcing
operations to create value for our customers. We expect to make targeted investments to expand our capabilities in product and market
segments, technology and data analytics where trends and economic cycles present the best opportunities.
• 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 and longevity 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 creating
efficiencies in our supply chain and manufacturing process and providing on-site technical support, allow us to effectively focus our
innovation efforts and respond to changing demands. Our goal is to demonstrate the value we provide, which includes outstanding product
performance, technical service and customer service, as well as savings through reduced application cost and improved life-cycle
performance.
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•
•
Increase Productivity by Optimizing Global Operations and Supply Chain Procurement — Our productivity strategies and processes
focus on our global and regional operations, including our global procurement, logistics and other supply chain operations, as well as our
general and administrative functions. We have developed procurement and product formulation expertise to manage our product costs and
production efficiencies and seek to improve our overall operating cost structure. Product formulations are optimized at our regional and
global development labs. These formulations are designed to meet specific customer needs while also considering the costs of different raw
material inputs. Our global procurement 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.
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 solutions as well as
creating new product categories. We expect to introduce and support new construction material, chemistry, and technologies through our
research and development and our application expertise. For example, we developed our PREPRUFE fully-bonded pre-applied
waterproofing technology, and our ICE & WATER SHIELD self-adhesive underlayment for sloped roofs
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Strategic Initiatives — Consistent with our business strategies, we may seek selective strategic acquisitions, partnerships and alliances to
accelerate our customer and geographic penetration, extend our product portfolio, advance our technological capabilities, and bolster our
manufacturing capacity and capability or divest businesses that fail to meet our targets or do not fit our long-term strategy. For example, in
2017, we sold our Darex business, which was a supplier of can and closure sealants for food and beverage, personal care and industrial
packaging.
• Drive Cash Flow to Deliver Long-Term Value to Our Shareholders — Our objective is to grow our revenues, improve our operating
margins, and lower our selling general and administrative expenses. By implementing these strategies, we believe we will increase our cash
flow which will allow us 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
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.
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Specialty Construction Chemicals Operating Segment
We supply concrete admixtures, polymer fibers and in-transit monitoring and management 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.
Our cement additives and concrete admixtures help improve the environmental footprint of cement and concrete, and help our customers
achieve their sustainability goals. Cement manufacturing is a significant source of carbon dioxide as it is energy intensive and the chemical reaction
that takes place in the kiln generates carbon dioxide. Our cement additives make the grinding process more energy efficient and allow for use of
supplemental cementitious materials. Our concrete additives disperse the cement particles more evenly, improving the workability during placement.
For a given strength requirement, less cement produced in the kiln is needed reducing the carbon footprint of the concrete.
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 MBCC Group and Sika.
The following table sets forth SCC sales as a percentage of GCP total revenue during the years ended December 31, 2020, 2019 and 2018:
(In millions)
Concrete
Cement
Total SCC Revenue
2020
% of GCP
Revenue
43.5 % $
14.0 %
57.5 % $
Sales
393.1
125.8
518.9
$
$
Year Ended December 31,
2019
Sales
434.8
144.3
579.1
% of GCP
Revenue
42.9 % $
14.2 %
57.1 % $
Sales
478.9
164.6
643.5
2018
% of GCP
Revenue
42.6 %
14.6 %
57.2 %
The following table sets forth SCC sales by geographic region as a percentage of SCC total revenue during the years ended December 31,
2020, 2019 and 2018:
(In millions)
North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total SCC Revenue
2020
Year Ended December 31,
2019
2018
Sales
% of SCC
Revenue
Sales
% of SCC
Revenue
Sales
% of SCC
Revenue
$
$
265.8
81.5
126.4
45.2
518.9
51.2 % $
15.7 %
24.4 %
8.7 %
100.0 % $
278.0
91.0
152.5
57.6
579.1
48.0 % $
15.7 %
26.3 %
10.0 %
100.0 % $
286.7
131.4
165.9
59.5
643.5
44.6 %
20.4 %
25.8 %
9.2 %
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 in-transit concrete monitoring and 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.
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Examples of our products include CONCERA admixtures which enable the production of control flow concrete, a high-flowing, segregation-
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resistant concrete that allows for easier placement while using conventional mix designs. Our CLARENA MC 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. Our recently introduced CLARENA RC40 admixture product is an
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environmentally-friendly solution for recycling and re-using returned concrete which significantly reduces concrete waste for our customers. 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 enable higher compressive strengths, better slump retention, improved rheology, enhanced air control, superior
finishability and robustness across a wide range of materials, including both flowable and self-consolidating concrete. 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.
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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.
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Concrete production monitoring and 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 monitoring and 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, optimized mix designs that reduce required cement content, fewer rejected loads resulting in less
waste, increased logistics and jobsite efficiencies, and minimization of costly project delays. The use of VERIFI significantly reduces the carbon
footprint of a batch of concrete.
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Our patented engineered floor system, which is marketed and sold under the DUCTILCRETE brand name, enables the placement and long-
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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)
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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 cement
manufacturers who increasingly 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 CO emissions.
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The SCC product portfolio includes the following products:
Products
Concrete admixtures
Admixtures for
decorative concrete
Concrete production
management and
control systems
Engineered concrete
slab systems
Cement additives
Uses
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
Proprietary systems designed to reduce the
placement and life cycle cost of concrete slabs
Formulated chemicals added to the milling
stage of the cement manufacturing process to
improve plant energy efficiency, enhance the
performance of the finished cement, help our
customers meet environmental regulations and
reduce their CO footprint
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Customers
Ready-mix and precast concrete
producers, engineers and specifiers
Precast concrete producers and
architects
Key Brands
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CONCERA , CLARENA , ADVA , CLARENA
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RC40, STRUX , MIRA , TYTRO , POLARSET ,
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ECLIPSE , DARACEM , DARASET , DCI ,
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RECOVER , WRDA , ZYLA
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PIERI
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Ready-mix concrete manufacturers,
engineers, specifiers and contractors
VERIFI
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DUCTILCRETE®
OPTEVA HE, TAVERO VM, CBA , SYNCHRO ,
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HEA2 , TDA , ESE
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Contractors, engineers and specifiers;
developers and owners of industrial
warehouses and manufacturing facilities
Cement manufacturers
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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 sheet and liquid applied membranes,
weather barriers, roofing underlayments, polymeric injection systems and 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, infrastructure and residential 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 owners, architects, engineers, consultants, general contractors, specialty contractors and other channel partners. We maintain our
international presence in targeted regions with our core product lines and by adding new technologies.
As a global leader in waterproofing, air barrier and fireproofing technologies, our products are regularly specified and utilized to achieve the
performance and sustainability goals of contractors, designers and building owners. Developed and produced with performance and durability
criteria in mind, many of our solutions contribute to sustainable construction. Our systems enable environmentally responsible design and contribute
to long-standing industry rating systems, such as LEED. We remain committed to developing our solutions with sustainability at the forefront and
supporting the evolution of highly efficient and long-lasting structures.
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. Sales to a certain customer
represented approximately 10% of SBM revenue during 2020, 2019 and 2018.
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, Soprema and Carlisle.
The following table sets forth SBM sales as a percentage of GCP total revenue during the years ended December 31, 2020, 2019 and 2018:
(In millions)
Building Envelope
Residential Building Products
Specialty Construction Products
Total SBM Revenue
Sales
206.3
73.8
104.2
384.3
$
$
Year Ended December 31,
2019
Sales
246.3
81.2
106.9
434.4
% of GCP
Revenue
24.3 % $
8.0 %
10.5 %
42.8 % $
Sales
284.4
80.9
116.6
481.9
2018
% of GCP
Revenue
25.3 %
7.2 %
10.3 %
42.8 %
2020
% of GCP
Revenue
22.8 % $
8.2 %
11.5 %
42.5 % $
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The following table sets forth SBM sales by geographic region as a percentage of SBM total revenue during the years ended December 31,
2020, 2019 and 2018:
(In millions)
North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total SBM Revenue
2020
Year Ended December 31,
2019
2018
Sales
% of SBM
Revenue
Sales
% of SBM
Revenue
Sales
% of SBM
Revenue
$
$
236.7
91.1
54.4
2.1
384.3
61.6 % $
23.7 %
14.2 %
0.5 %
100.0 % $
259.4
102.5
70.0
2.5
434.4
59.7 % $
23.6 %
16.1 %
0.6 %
100.0 % $
284.3
109.3
79.7
8.6
481.9
59.0 %
22.7 %
16.5 %
1.8 %
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 sheet and liquid applied 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 air and 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 innovative PREPRUFE
waterproofing sheet membranes, BITUTHENE self-adhesive rubberized asphalt membrane, and our ELIMINATOR liquid applied waterproofing
system.
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We pioneered the pre-applied waterproofing category through the inclusion of GCP's Advanced Bond Technology™ brand in our PREPRUFE
products, a system which now includes pre-applied and post-applied membrane options. Our unique technology allows a waterproofing membrane
to be installed on the bottom or on walls of a foundation before concrete is placed. This technology 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 that continue to gain recognition for waterproofing performance. Our BITUTHENE product line
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. Our PERM-A-BARRIER membranes
protect the building structure from the damaging effects of the elements. By minimizing air and water vapor flow through the building exterior,
PERM-A-BARRIER membranes prevent premature deterioration of the building envelope and enhance thermal performance of the structure to
save energy costs. 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.
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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 GRACE 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 and weather barrier products reduce the risk of mold and rot development, and
contribute to energy efficiency by sealing air leakages in the building envelope.
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Specialty Construction Products
Specialty construction products include fire protection, chemical injection systems and grouts, cementitious grouts and mortars, as well as
specialty flooring products. Passive fire protection products are marketed under the MONOKOTE brand. MONOKOTE products reduce the rate of
temperature rise in steel or concrete in the event of a fire, thereby prolonging the structural integrity of the building. Chemical injection systems and
grouts are sold under the DE NEEF brand and are 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 moisture mitigation membrane installed between
a concrete subfloor and surface flooring to protect the finished flooring from moisture and alkalinity related damage. Other flooring installation
products include carpet seam tapes, underlayments and tools and accessories used for the installation of carpet, ceramic, laminate, stone and other
surface flooring.
®
®
®
®
The SBM product portfolio includes the following products:
Products
Building envelope
products
Residential building
products
Uses
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.
Specialty roofing membranes and flexible
flashings for windows, doors, decks and detail
areas, including fully adhered roofing
underlayments, synthetic underlayments and
self-adhered flashing
Fire protection materials Fire protection products spray-applied to a
structural steel frame, encasing and insulating
the steel and protecting the building in the event
of fire
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
Customers
Key Brands
®
PREPRUFE , BITUTHENE , ADPRUFE ,
®
HYDRODUCT , ADCOR , SILCOR , PERM-A-
®
BARRIER , ELIMINATOR , INTEGRITANK RIW
®
®,
®
®
®
®
®
ICE & WATER SHIELD , TRI-FLEX , VYCOR ,
®
®
ULTRA
®
®
MONOKOTE
®
DE NEEF , HYDRO ACTIVE , SWELLSEAL , DE
NEEF PURe™
®
®
®
®
BETEC
®
KOVARA , ORCON
®
®
Architects, consultants and structural
engineers; specialty waterproofing,
masons, dry wall contractors and general
contractors; specialty distributors
Roofing contractors, windows and siding
contractors home builders and
remodelers; building material
distributors, lumberyards and home
centers; architects and specifiers
Local contractors and specialty
subcontractors and applicators; building
materials distributors; industrial
manufacturers; architects and structural
engineers
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
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SALES AND MARKETING
Our two operating segments maintain global direct sales and technical service teams supporting customers in over 120 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
provide 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, supported by a field-based technical service team, work with leading architects, engineers, consultants 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 several thousand
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.
MANUFACTURING, RAW MATERIALS AND SUPPLY CHAIN
Our operating segments share global supply chain procurement 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 job sites. Total customer-based equipment accounted for approximately 44% of our 2020 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 strive to 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 procurement 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 in multiple global locations, some of our products rely on raw materials from suppliers
from other regions. Changes in the values of these regions' currencies compared to 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.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS
Disclosure of financial information about industry segments and geographic areas for the years ended December 31, 2020, 2019 and 2018 is
provided in this Annual Report on Form 10-K in Item 8, "Financial Statements and Supplementary Data" under Note 18, "Operating Segment and
Geographic Information" to the Consolidated Financial Statements, which is incorporated herein by reference. Disclosure of risks related to our
foreign operations is provided in Item 1A, "Risk Factors".
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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 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 Innovation 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. Our Regional Technical Centers collaborate with Global Innovation Center to develop
global technologies, as well as customized products and technologies for each region. Our technologies are supported in the field by a network of
Regional Technical Centers, including facilities in Sorocaba, Brazil; Toh Guan, Singapore; Beijing, China; Atsugi, Japan; Epping, Australia;
Manchester UK; Larnaud, France and Heist, Belgium.
We maintain a global research and development and technical service workforce. We believe the collective technical expertise, industry
knowledge and professionalism of the 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 2021, we have over 1,000 active patents and patent applications pending in
countries around the world, including over 150 patents or patents pending in the USA alone. We estimate that our filing rate is within the range of
100-125 patent applications globally on an annual basis, including priority filings as well as 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 R&D investments.
Research and development expenses were $17.9 million, $18.4 million and $20.2 million, respectively, during the years ended December 31,
2020, 2019 and 2018. 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 regional, national, provincial,
state and local environmental, health and safety laws and regulations related to the manufacture, storage, handling, disposal, disposition and
stewardship of chemicals 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 response actions to address the
presence of hazardous substances or other materials as required by applicable laws.
We continuously seek to improve our environment, health and safety performance. We have expended funds to comply with environmental and
safety laws and regulations and expect to continue to do so in the future.
HUMAN CAPITAL
As of December 31, 2020, we had approximately 1,950 employees globally in more than 30 countries, including union employees, of which
approximately 40% are based in the US. 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 13 years. We have works councils representing
two of the European countries in which we do business covering approximately 150 employees. The vast majority of our employees are full-time
employees.
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We conduct a global annual talent review of managers through executive officers to build a sustainable pipeline for talent succession throughout
the organization and to identify career development opportunities for employees. We engage in a robust performance management process with
goals set by the executive officers and cascaded down throughout the organization. We apply performance ratings that drive compensation
decisions as a part of our evolving pay-for-performance culture. We drive training across functions and regions to further develop our employees
expertise as a part of our learning environment. We are an equal opportunity employer and apply a competitive recruitment strategy to attract talent
from both our industry and beyond to meet our needs for professional and technical talent. Our compensation and benefits programs are designed
to be competitive within our industry and local labor markets offering a competitive base pay, annual incentive awards when the individual and the
company meet their established goals, and long-term incentives for senior level and strategic roles within GCP. We recognize the diversity of our
customers, partners and the communities we work within, and believe in creating an inclusive and equitable environment that represents a broad
spectrum of backgrounds and cultures. Our executive leadership team and Board of Directors exercise oversight of certain human capital matters,
including our Inclusion and Diversity programs and initiatives. We conduct an annual employee engagement survey to measure key employee
engagement metrics and our executive leadership team oversees the implementation of action plans based on the survey results.
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 Sections 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 at investor.gcpat.com.
In addition, the charters for the Audit, Compensation, Nominating, Governance and Environmental and Social Responsibility, and Strategy,
Operating and Risk 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
Risks Related to Customer Relationship
The loss of a significant customer relationship or the delay of large or multiple contracts or a strategic project may negatively impact our
financial performance.
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A significant portion of our product sales are based on individual purchase orders with no guaranteed volumes and no committed purchase times
beyond the specifics of the particular order. The loss of a significant customer relationship could adversely affect our operating results. Additionally,
customers may not place expected orders or delay them for a variety of reasons, including, but not limited to:
•
•
•
delay in overall project timing, which may be due to a wide variety of economic, political, project-specific, weather-related, or other
factors;
customer decisions to switch to a competitor, which may be driven by product quality, performance, pricing or service;
a decision by a customer to self-manufacture, thereby replacing our products;
• merger or acquisition activities by or involving our customer;
•
significant downturn in the overall construction demand;
Risks Related to Macroeconomic Conditions
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, weather-related effects and other adverse events outside our control
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, periods of wet weather and times when other
weather and climate conditions would impair construction activity. Extreme weather events, natural disasters and public health or safety
emergencies on a global, regional or national level could also have material adverse impacts on our business and financial results. Moreover, it is
possible that weather and climate volatilities and associated events could increase significantly in the future.
The COVID-19 pandemic has adversely affected, and may in the future continue to adversely affect, our results of operations, financial
condition and liquidity
In December 2019, the COVID-19 virus was first identified in China and has since spread to a number of countries in which we conduct our
business operations, including countries in North America, Asia Pacific, EMEA and Latin America. In March 2020, the World Health Organization
declared COVID-19 a global pandemic.
The global spread of COVID-19 has created significant worldwide economic uncertainty which has adversely affected, and may in the future
continue to adversely affect, demand for our products due to delays in construction projects and reduced construction activity, especially commercial
construction. Our results of operations in 2020 have been negatively impacted by COVID-19 and may continue to be negatively impacted in future
periods. We may also be negatively impacted by reductions in accounts receivable collections, customer and vendor bankruptcies, increased raw
material and transportation costs, as well as significant reduction in the availability of or substantial delays or interruptions in the supply or
transportation of raw materials which could negatively impact our ability to sell our products and have a material adverse effect on our financial
condition, results of operations and cash flows.
The COVID-19 outbreak has also significantly increased economic uncertainty and has led to disruption and volatility in the global capital
markets, which could increase the cost of and accessibility to capital. If we need to access the capital markets, there can be no assurance that
financing may be available on attractive terms, if at all. The COVID-19 outbreak has caused a significant economic slowdown, which could be of an
unknown duration, could lead to increased unemployment, reduced discretionary consumer spending and a corresponding reduction in demand for
our products, and could result in a material adverse effect on our business, financial condition and operating results.
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The virus also impacted our workforce, moving a large portion of our employees to working-from-home and adding administrative complexity to
our everyday business activities. Disruption caused by business responses to the COVID-19 outbreak, including working-from-home arrangements,
may create increased vulnerability to cybersecurity incidents, including breaches of information systems security, which could damage our
reputation and commercial relationships, disrupt operations, increase costs and/or decrease net revenues, and expose us to claims from customers,
suppliers, financial institutions, regulators, payment card associations, employees and others, any of which could have a material adverse effect on
our business, financial condition and operating results.
We operate facilities around the world which have been and may continue to be adversely affected by the pandemic as a result of disruptions to
our supplies of raw materials, as well as the production, transportation and delivery of our products. We may not be able to supply products or
services to our customers in a timely manner due to travel and transportation restrictions, as well as temporary closures of our facilities or those of
our suppliers or customers as a result of regulations imposed by local governments to contain COVID-19. Our ability to adequately staff our
operations may be adversely impacted by certain temporary restrictions, such as mandatory facility closures imposed by government authorities in
certain countries where we operate, as well as voluntary facility closures or other measures, such as work-from-home orders and social distancing
protocols, imposed for the safety of our employees or in response to actual or potential positive diagnoses for COVID-19. Despite our best efforts to
protect the health, safety and well-being of our employees in accordance with guidelines issued by national and other health and safety authorities,
there can be no assurance that the numbers of infected employees will not increase, and that such infections would not have a material adverse
impact on our operations.
Furthermore, our efforts to mitigate the impact of COVID-19 through social distancing measures, enhanced cleaning measures, the increased
use of personal protective equipment and COVID-19 testing at our facilities, as well as other steps taken to protect the health, safety and financial
security of our employees, may result in other negative impacts on our operations, including increased costs, reduced efficiency levels or labor
disputes resulting in a strike or other work stoppage or interruption.
Governments around the world have implemented fiscal stimulus measures to counteract the effects of the COVID-19 outbreak, however, the
magnitude and overall effectiveness of these actions remain uncertain. Further, the full extent of the impact of COVID-19, including the extent of its
impact on our business and financial condition, will depend on numerous evolving factors that we may not be able to accurately predict. We cannot
predict with any certainty whether and to what degree the disruption caused by the COVID-19 outbreak and reactions thereto will continue, and we
expect to face difficulty in accurately predicting our internal financial forecasts.
Risks Related to Internal Control Over Financial Reporting
We have identified material weaknesses in our internal control over financial reporting and we may identify additional material
weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, which may result in decline in the
market price of our common stock, material misstatements of our consolidated financial statements, cause us to fail to meet our periodic
reporting obligations, or cause our access to the capital markets to be impaired.
Management’s assessment has identified material weaknesses in our internal control over financial reporting- see Item 9A, “Controls and
Procedures,” below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on
a timely basis. Management is developing a remediation plan intended to address the deficiencies which resulted in the material weaknesses. We
may identify deficiencies or other material weaknesses, in addition to the ones already identified, which we may not be able to remediate in a timely
manner. If we continue to have one or more material weaknesses in our internal control over financial reporting, we will not be able to conclude that
we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and
maintain an effective internal control environment, or delays in completing our internal control audit and financial statement audit, could cause
investors to lose confidence in our reported financial information, which could result in a decline in the market price of our common stock, and cause
us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise equity financing if needed in the future. While
we believe our reported balances within our consolidated financial statements are accurate, until these material weaknesses are remediated, it is
possible that internal control over financial reporting may not prevent or detect material misstatements reflected in our financial statements.
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Risks Related to Raw Materials and Supply Chain
Prices of certain raw materials used in our production processes are volatile and can have a significant effect on our manufacturing and
supply chain procurement 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.
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 or sole sources of supply. We may experience shortages of raw materials, other unforeseen developments that would cause an
interruption in supply, or experience fluctuations in the prices of our raw materials due to COVID-19. Even if we have multiple sources of supply for
raw materials, these sources may not make up for the loss of a major supplier.
Some of our products are either tolled or contract manufactured by third party providers, and similar potential exposures exist where these are
single or sole supply relationships.
Risks Related to Operating a Global Business
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 half of our 2020 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 significant portion 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.
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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 economic and trade sanctions against certain countries,
governments and/or individuals, employment regulations, repatriation of earnings, import quotas, capital controls, taxes or tariffs, whether adopted
by individual governments or regional trade blocs, can affect our business, including: demand for our products and services, impact on the
competitive position of our products, difficulty enforcing commercial agreements, obtaining export licenses or transferring our profits or capital from
foreign operations to other countries where such funds could be more profitably deployed, increase our shipping costs, prevent us from being able to
procure supplies and materials, or 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 between the U.S. and other countries, such as the People’s Republic of
China, or between any other countries where we sell large quantities of products and services or procure supplies and other materials incorporated
into our products, including changes in applicable trade regulations as a result of the U.K.'s 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, may result in decreased revenue, gross margin, earnings or growth rates and difficulty in managing inventory
levels and collection of customer receivables. 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.
We are exposed to currency exchange rate risk through our global 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 and results of operations.
We incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sale 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.
Certain of business activities outside of the United States require direct or indirect interaction with governmental entities, subjecting us
to the U.S. Foreign Corrupt Practices Act ("FCPA") and similar worldwide anti-bribery laws in non-U.S. jurisdictions. For example, in some
countries our direct customer or one or several key stakeholders in projects that we sell products to would be state-controlled entities
(SOEs).
The FCPA and other 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;
however, these regulations are complex and vary from jurisdiction to jurisdiction. We operate in many parts of the world that have experienced
governmental corruption to some degree, and pose a high risk for such 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.
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Risks Related to Indebtedness and Liquidity
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, 2020, we had $351.7 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;
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;
place us at a competitive disadvantage compared to our competitors that have relatively less debt; and
limit our ability to borrow additional funds, dispose of assets to raise funds, incur certain liens, or enter into certain sale and leaseback
transactions, if needed, for working capital, capital expenditures, acquisitions, research and development and other purposes.
If we fail to comply with certain restrictions imposed by our debt agreements, including maintaining the financial ratios required by our credit
facilities, our debt could be accelerated and the Company may not have sufficient cash to pay the accelerated debt. Please refer to Note 8, "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 the information related to our debt obligations.
We may also incur additional indebtedness in the future. If we incur additional debt, the risks related to our indebtedness may intensify.
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 which would potentially impact our financial results.
Risks Related to Innovation and Intellectual Property
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.
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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 solutions. 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. Moreover, for these innovative products, market adoption may
face challenges relative to customer acceptance or technical or regulatory hurdles.
Our business and financial condition could be adversely affected if we are unable to protect our material intellectual property or there is a
loss in the actual or perceived value of our brands.
Our business and financial condition could be adversely affected if we are unable to protect our material patents, trademarks and other
proprietary information. We have numerous valuable patents, trade secrets and know-how, domain names, trademarks and trade names, including
certain marks that are significant to our business. We routinely seek to protect our patents, trademarks, and other confidential information and know-
how by taking appropriate preventive and enforcement measures. Despite our efforts, unauthorized use or disclosure of our intellectual property
could negatively impact our business and financial condition.
The reputation of our branded products depends on numerous factors, including the successful advertising and marketing of our brand names,
consumer acceptance, continued trademark validity, the availability of similar products from our competitors, and our ability to maintain our products’
quality and technological advantages and claims of superior performance. A loss of a brand or the actual or perceived value of our brands could limit
or reduce the demand for our products, and could negatively impact our business and financial condition. IP protection varies from jurisdiction to
jurisdiction and such inconsistencies may pose a threat to the value of our IP.
We may be subject to infringement claims relative to third party intellectual property ("IP") rights that could adversely affect our business, despite
our efforts to monitor the published patent and trademark applications of our competitors. Any claims that our products or processes infringe the IP
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. If we are found to be
infringing on the IP rights of others, we may be held liable for damages, and we may be required to change our processes, redesign our products,
pay others to obtain a license under their IP rights, stop using the contested trademark or technology, or stop producing or selling the infringing
product. On the other hand, even if we were to prevail in establishing non-infringement, invalidity, and/or non-enforceability of the IP rights being
asserted against us, the existence of the lawsuit could prompt our customers to switch to products that are not the subject of the lawsuit.
Risks Related to Workforce
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. In late 2020, we changed our Chief Executive Officer and several
other senior executives. These changes may result in changes in our business strategy. 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.
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As of December 31, 2020, approximately 50 of our U.S. employees 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. In some, such
employment rights require us to work collaboratively with legal representatives of employees to effect any changes to labor arrangements. 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.
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 2017, 2018 and in 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 Related to Cybersecurity and Data Privacy
A failure of our information technology systems 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. 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. 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. 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 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 and to alleviate problems caused
by such breaches, such as investigative and remediation costs, the costs of providing individuals and/or data owners with notice of the breach, legal
fees, the costs of any additional fraud detection activities, or the costs of prolonged system disruptions or shutdowns.
We are subject to data privacy regulations.
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. Regulations around data protection and data privacy in the U.S., Europe, including but not limited to the California
Consumer Privacy Act (“CCPA”) and the General Data Protection Regulation (“GDPR”), and elsewhere in the world can be complex and
interpretations of such regulations are evolving. Despite our internal controls and processes designed to protect sensitive information, there can be
no assurance that such controls and processes will ensure we are fully compliant with all data protection and data privacy laws. Failure to
adequately protect sensitive information and timely report any security incident may result in financial penalties that may be material to our financial
results. In addition, our business may be materially impacted if a security incident causes significant damage to our relationships with our customers,
employees, vendors or others.
Risks Related to Environmental, Health and Safety impacts of our operations
We may be required to spend significant amounts of financial resources on environmental compliance.
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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. Legislative and regulatory uncertainties make it difficult for us to project future spending and we
may be required to make substantial or unanticipated investments to remain in compliance.
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 operational failures, natural disasters or terrorist attacks, 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.
Other Risks
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. We are still engaged in post-acquisition matters with
Henkel in certain regions, which could negatively affect our results of operations. The Purchase and Sale Agreement with Henkel KGaA regarding
the sale of our Darex Business dated July 3, 2017, contains obligations for us as sellers to indemnify Henkel as buyer for certain matters, such as
breaches of representations and warranties, taxes, as well as certain covenants and liabilities. We cannot predict the nature of and amount of any
indemnity obligations we may have to the purchaser. Such payments may be costly and may adversely impact our financial condition.
We are subject to business continuity risks associated with centralization of certain functions.
We have centralized our manufacturing for certain Specialty Building Material products in single locations, such as Wuhan, China and Mount
Pleasant, Tennessee, and certain administrative functions in designated centers around the world, such as Manila, Philippines, to improve efficiency
and reduce costs. To the extent that these central locations are disrupted or disabled, manufacturing of certain SBM products or key business
processes, such as invoicing, payments and general management operations, could be interrupted.
Our growth strategy may include the acquisition and successful integration of other businesses.
As part of our growth strategy, we may acquire companies to be integrated within an existing business or that may operate independent of
existing businesses. Acquisitions of these types involve numerous risks, which may include a failure to realize expected revenue growth and
operating and cost synergies from integration initiatives, increasing dependency on the markets served by the combined businesses or increased
debt to finance the acquisitions. Further, acquisitions of new businesses could increase the possibility of diverting corporate management’s attention
from its existing operations.
The successful execution of our acquisition strategy with respect to existing businesses, and within acquired standalone businesses, and
increases in profitability overall, is dependent upon successful integration. If these integration initiatives do not occur, there may be a negative effect
on our business, financial condition, results of operations and cash flows.
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Such acquisitions and their subsequent integration involve a number of risks, including, but not limited to:
•
•
•
•
•
•
•
•
inaccurate assessments of disclosed liabilities and the potentially adverse effects of undisclosed liabilities;
unforeseen difficulties in assimilating acquired companies, their products, and their culture into our existing business;
unforeseen delays in realizing the benefits from acquired companies or product lines, including projected efficiencies, cost savings,
revenue synergies and profit margins;
unforeseen diversion of our management’s time and attention from other business matters;
unforeseen difficulties resulting from insufficient prior experience in any new markets we may enter;
unforeseen difficulties in retaining key employees and customers of acquired businesses; and
increases in our indebtedness and contingent liabilities, which could in turn restrict our ability to raise additional capital when needed or to
pursue other important elements of our business strategy.
Our effective income tax rate may fluctuate from quarter to quarter, which may affect our earnings and earnings per share.
Our quarterly effective income tax rate is influenced by our annual projected profitability in the various taxing jurisdictions in which we operate.
Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate, which in
turn could have a material adverse effect on our results of operations and our stock price. Factors that affect the effective income tax rate include,
but are not limited to:
•
•
•
•
•
the requirement to exclude from our quarterly worldwide effective income tax calculations losses in jurisdictions in which no tax benefit
can be recognized;
actual and projected full-year pretax income;
changes in tax laws in various taxing jurisdictions;
audits by taxing authorities;
the establishment of valuation allowances against deferred tax assets if it is determined that it is more likely than not that future tax
benefits will not be realized.
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 GCP breach any of its 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.
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
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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 16, "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.
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:
•
•
•
•
•
•
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;
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•
•
•
•
•
future sales of company common stock by shareholders;
future issuances of our stock by us;
repurchases under our share repurchase program;
stockholder activism, which may disrupt operations, divert management and employee attention, cause uncertainty that could adversely
affect our relationships with customers, suppliers and employees, and require us to incur significant fees and expenses; and
the other factors described in these “Risk Factors” and other parts of this Annual Report on this Form 10-K.
During 2020, Starboard Value LP and certain of its affiliates ('Starboard") with an ownership interest of approximately 9% of our outstanding
common shares, filed a proxy statement with the SEC seeking an election of eight of its nominees to the GCP Board of Directors at our 2020 Annual
Meeting of Shareholders (the “Annual Meeting”). At the Annual Meeting held on May 28, 2020, our stockholders voted to elect all eight nominees
designated by Starboard to serve on GCP's Board of Directors. In the latter half of 2020, we changed our Chief Executive Officer and several other
senior executives. During 2020, we incurred $9.5 million of shareholder activism and other related costs.
Our share repurchase program may not be the most effective use of our capital and, if shares are repurchased under the program, could
increase the volatility of the price of our common stock. While the Board authorized a share repurchase program, no shares have been
repurchased to date
On July 30, 2020, the Board authorized a program to repurchase up to a maximum of $100 million of our common stock through July 30, 2022.
Share repurchases under the program may be made from time to time at the Board's discretion through open market purchases or privately
negotiated transactions in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act. The share repurchase
program is subject to a periodic review by the Board and may be suspended periodically or discontinued at any time. We plan to fund repurchases
from our existing cash balance. No shares were repurchased during 2020.There can be no assurance that we will buy shares of our common stock
under the share repurchase program or that any repurchases will have a positive impact on our stock price or earnings per share. We could
discontinue or decrease our share repurchases due to unfavorable market conditions, the market price of our common stock, the nature of other
investment opportunities presented to us from time to time that would require significant cash outlays, and the availability of funds necessary to
continue purchasing shares.
Provisions in the Company’s corporate documents, the Stockholder Rights Plan, 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, our stockholder rights plan 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 or preferred 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; and
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
We adopted a stockholder rights plan on March 15, 2019. The rights plan is not intended to prevent a takeover, and we believe it will enable all
GCP stockholders to realize the full potential value of their investment in the Company and protect the Company and its stockholders from efforts to
obtain control of GCP that are inconsistent with the best interests of GCP and its stockholders. The rights plan may impose a significant penalty
upon any person or group that attempts to acquire us (or a significant percentage of our outstanding common stock) without the approval of the
Board of Directors. The rights under the plan were initially set to expire on
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March 14, 2020. On March 13, 2020, the Board extended the final expiration date of the Rights Agreement to March 14, 2023, subject to
stockholders' approval at GCP's 2020 Annual Meeting of Shareholders which was obtained on May 28, 2020.
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 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.
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.
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Item 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
We operate manufacturing plants and other facilities, including offices, warehouses, labs and other service facilities, throughout the world which
we may lease or own. 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 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.
The following tables summarize our primary manufacturing facilities and principal regional office locations by operating segment and region as
of December 31, 2020:
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
3
1
10
Asia Pacific
14
1
4
19
North America
3
1
1
5
North America
6
4
2
12
Number of Facilities—Leased
Europe Middle East
Africa (EMEA)
2
3
1
6
Asia Pacific
10
—
4
14
Number of Facilities—Owned
Europe Middle East
Africa (EMEA)
4
—
—
4
Asia Pacific
4
1
—
5
Latin America
7
—
1
8
Latin America
4
—
—
4
Latin America
3
—
1
4
Total
36
9
9
54
Total
19
4
6
29
Total
17
5
3
25
Our global corporate headquarters is located in Cambridge, Massachusetts. Our EMEA principal regional office is located in Slough, United
Kingdom, our Asia Pacific principal regional offices are located in Shanghai, China and Jurong, Singapore and our Latin America principal regional
office is located in Sorocaba, Brazil. 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
delivered to numerous distributors, concrete production locations, cement production locations and job sites. Please refer to Note 5, "Properties and
Equipment" and Note 6, "Lessee Arrangements", 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 and leased 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, 2020, mortgages or deeds of trust were in effect with respect to our facilities in Mount Pleasant, Tennessee and
Chicago, Illinois. Please refer to Note 8, "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.
During 2020, we sold our corporate headquarters located in Cambridge, Massachusetts and entered into a leaseback transaction with the
buyer. The lease commenced on July 31,2020 for an initial term of eighteen months and can be extended for additional six months at our option. We
intend to locate suitable leased space for our new corporate headquarters in 2021.
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ITEM 3. LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 12, "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, 2021 are listed in the following table. Each executive officer was elected by our Board of Directors to
serve until their respective successor is duly appointed or until their earlier resignation, removal or death.
Name
S. M. Bates
C. A. Merrill
M. W. Valente
B. Van Lent
J. M. Waddell
Age
54
57
52
58
58
Position
President and Chief Executive Officer
Vice President, Chief Financial Officer
Vice President, General Counsel and Secretary
Executive Vice President, Global Head of Specialty Construction Chemicals
Chief Accounting Officer
Simon M. Bates has served as GCP’s Chief Executive Officer since October 1, 2020. Prior to joining GCP, Mr. Bates served as President,
Infrastructure Products Group of Oldcastle Infrastructure (a division of CRH plc.), a global business with numerous locations in Asia, Europe and
North America, from May 2017 to October 2020. Mr. Bates has 25 years of building products and specialty chemicals experience with publicly
traded companies, including roles as Senior Vice President, Building Products at Westlake Chemical from August 2016 to April 2017 and Axiall
Corporation, from March 2009 to August 2016. Mr. Bates began his building products career in Europe joining Hanson plc in 1996. He held a variety
of commercial roles before transferring to North America in 2002, where he had both commercial and operational roles before leading Hanson’s
building products businesses (now a part of Heidelberg Cement) in the western United States.
Craig A. Merrill has served as Chief Financial Officer of GCP since August 4, 2020. Prior to being appointed as Chief Financial Officer, he
served as Interim Chief Financial Officer since October 15, 2019 and during that time continued in the role as Vice President, Finance, Analytics and
Strategy. Prior to becoming GCP’s Vice President, Finance, Analytics and Strategy, Mr. Merrill served as GCP’s Vice President, Global Marketing
and Vice President & General Manager, Global Cement and Emerging Markets following the Company’s separation from W.R. Grace & Co. in 2016.
At W.R. Grace & Co., he served as Vice President & General Manager in the Specialty Construction Chemicals division prior to the commencement
of his service with GCP. Mr. Merrill began his career at W.R. Grace & Co. in 1990.
Boudewijn Van Lent joined GCP as Executive Vice President, Global Head of Specialty Construction Chemicals in March 2019. He leads
GCP's Specialty Construction Chemicals segment. Prior to joining GCP, between September 2013 and February 2019, Mr. Van Lent served as
Chief Executive Officer at Bilfinger Industrial Services Inc., an industrial services provider. He also held the role of President of North and South
America at Rhein Chemie Corporation, a global manufacturer of specialty chemicals, as well as leadership positions at Celerant Consulting, Lanxess
Corporation and Bayer.
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Michael W. Valente joined GCP as Vice President, General Counsel and Secretary on January 18, 2021. Mr. Valente leads GCP’s global legal
team and oversees all aspects of legal strategy, corporate governance, compliance, commercial transactions, intellectual property, environmental,
health and safety, and government relations. Prior to joining GCP, Mr. Valente served as Senior Vice President, Law and Human Resources,
General Counsel and Secretary of Versum Materials, Inc., a global supplier of specialty chemicals, gases and equipment to the semiconductor
industry, from October 2016 until its sale in October 2019. Prior to Versum Materials, Inc, Mr. Valente served as General Counsel- Materials
Technologies business of Air Products and Chemicals, Inc. from June 2015 until its spin-off as Versum Materials, Inc. Prior thereto, Mr. Valente held
several roles, including Vice President, General Counsel and Assistant Secretary, at Rockwood Holdings, Inc., a provider of specialty chemicals and
advanced materials, from June 2002 to May 2015.
James M. Waddell joined GCP as Chief Accounting Officer and principal accounting officer in October 2020. Prior to joining GCP, from January
2020 to October 2020, he served as the Chief Financial Officer of Ageless Innovation, a company specializing in providing health and wellness
products to older adults. Prior to that, Mr. Waddell served in various roles at Bose Corporation, including as the Corporate Controller from April 2014
to December 2019, Finance Director, International Sales and Marketing, from August 2010 to March 2014 and Internal Audit Director from August
2004 to August 2010. Mr. Waddell received a B.S. in accounting and an M.B.A. from Babson College. Mr. Waddell is a Certified Internal Auditor.
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 3,639 stockholders of
record of our common stock as of December 31, 2020.
Recent Sales of Unregistered Equity Securities
None.
Issuer's Purchases of Equity Securities
On July 30, 2020, our Board of Directors authorized a program to repurchase up to $100 million of our common stock which is effective through
July 30, 2022. We did not repurchase any shares during the three months and the year ended December 31, 2020.
Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III
of this Annual Report.
28
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
Reserved
02/04/16
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
$
100 $
158 $
189 $
145 $
134 $
100
100
118
131
147
152
138
136
163
170
140
190
192
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations, (the "MD&A"), describes the 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 generally includes a discussion
of results of operations, financial condition, liquidity and capital resources related to year-over-year comparisons between December 31, 2020
("2020") and December 31, 2019 ("2019"), as well as December 31, 2019 and December 31, 2018 ("2018"). Our MD&A is organized as follows:
•
•
•
Results of Operations: This section provides an analysis of our financial results compared to the prior year.
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 significant
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.
The MD&A should be read 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. See “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.
The consolidated financial statements for the year ended December 31, 2019 have been revised to correct prior period errors as discussed in
Note 1, “Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies” and Note 22, “Revisions of Previously
Issued Consolidated Financial Statements” 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. Accordingly, the tables presented in the MD&A reflect the impact of those revisions. The
errors had no impact on the discussions related to year-over-year comparisons between 2019 and 2018 which are included in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2019 and incorporated herein by reference.
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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, services and
technologies to the concrete and cement industries, including concrete add-mixtures and cement, as well as in-transit monitoring and
management systems, which 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 48% of our sales were generated outside of the U.S. We operate and have locations
in over 30 countries, and transact in over 30 currencies. We manage our operating segments on a global basis, and serve our markets on a regional
basis. Currency fluctuations affect our reported results of operations, cash flows and financial position.
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) outbreak to be a global pandemic. The global health
crisis caused by the COVID-19 outbreak, including any resurgences, has and will continue to negatively impact global economic activity. We have
been closely monitoring the impact of COVID-19 and managing its effects on our business globally as the situation continues to evolve.
COVID-19 began emerging at the end of 2019 resulting in temporary mandated closures of our manufacturing operations, primarily in China.
During 2020, the pandemic spread and intensified throughout the world resulting in mandated and voluntary closures of some of our manufacturing
operations and administrative offices. During this time, we focused on protecting the health, safety and well-being of our employees in accordance
with guidelines issued by national and other health and safety authorities, while seeking to meet the needs of our global customers and suppliers.
Responsive measures we adopted include working remotely when possible, establishing procedures for deep cleaning of facilities, restricting
business travel, providing personal protective equipment, using appropriate social distancing practices, and restricting visitor access to our facilities.
COVID-19 has negatively impacted our operating results in 2020 primarily due to periodic closures of our facilities in all regions in which we
operate, and periodic mandatory halts of construction activity in specific cities and countries around the world by government authorities or voluntary
closures due to safety concerns. Some of our customers have experienced similar disruptions as a result of the pandemic. During the second half of
the year, while construction activity levels remained below those that existed prior to COVID-19, we saw business conditions and construction
market activity improve as global economies began to slowly reopen which favorably impacted our revenue volumes. The impact of COVID-19 on
our business varied across different geographies and product lines during 2020. We have taken actions to preserve our liquidity by reducing
discretionary spending and certain planned capital expenditures.
It is difficult for us to predict at this time the duration and extent of the impact of COVID-19 on the global construction industry and our business,
financial position, results of operations, and liquidity although we expect that managing the impacts of the pandemic will be a part of our ongoing
operations for the foreseeable future. Factors we are monitoring to assess the potential duration and extent of the impact of COVID-19 on our
operations include the health of the global economy and construction industry, specifically on demand drivers for our construction products, as well
as operational disruptions including those resulting from government actions, such as mandatory halts of construction activity, travel restrictions, as
well as facility and work site closures. We will continue to prioritize the health and safety of our employees and serving our customers while
minimizing disruption to the extent possible. We will also continue to monitor the health of the construction industry in the geographic markets in
which we operate and respond accordingly.
Results of Operations
The following is an overview of our financial performance in 2020, 2019 and 2018.
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(In millions, except per share amounts)
Net sales
Cost of goods sold
Gross profit
Gross margin
Selling, general and administrative expenses
Research and development expenses
Interest expense and related financing costs
Repositioning expenses
Restructuring expenses and asset write offs
Gain on sale of corporate headquarters
Other (income) expenses, net
Total costs and expenses
Income from continuing operations before income taxes
(Provision) benefit from income taxes
Income (loss) from continuing operations
(Loss) income from discontinued operations, net of income taxes
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to GCP shareholders
Income (loss) from continuing operations attributable to GCP
shareholders
Diluted EPS from continuing operations attributable to GCP
shareholders
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
Total net sales by region
2020 Performance Summary
Year Ended December 31,
2020
903.2
545.3
357.9
$
2019
1,013.5
629.8
383.7
$
2018
1,125.4
715.3
410.1
39.6 %
37.9 %
36.4 %
264.5
17.9
21.5
5.4
24.9
110.2
(3.8)
220.2
137.7
(36.7)
101.0
(0.3)
100.7
(0.5)
100.2
100.5
1.37
518.9
384.3
903.2
502.5
172.6
180.8
47.3
903.2
$
$
$
$
$
272.8
18.4
22.7
20.4
9.9
—
4.3
348.5
35.2
6.0
41.2
5.7
46.9
(0.4)
46.5
40.8
0.56
579.1
434.4
1,013.5
537.4
193.5
222.5
60.1
1,013.5
$
$
$
$
$
289.6
20.2
92.4
9.6
14.8
—
(26.7)
399.9
10.2
(26.3)
(16.1)
31.3
15.2
(0.3)
14.9
(16.4)
(0.23)
643.5
481.9
1,125.4
571.0
240.7
245.6
68.1
1,125.4
$
$
$
$
$
$
% Change 2020
vs 2019
% Change 2019
vs 2018
(10.9)%
(13.4)%
(6.7)%
1.7 pts
(3.0)%
(2.7)%
(5.3)%
(73.5)%
NM
100.0 %
NM
(36.8)%
NM
NM
NM
NM
NM
25.0 %
NM
NM
NM
(10.4)%
(11.5)%
(10.9)%
(6.5)%
(10.8)%
(18.7)%
(21.3)%
(10.9)%
(9.9)%
(12.0)%
(6.4)%
1.5 pts
(5.8)%
(8.9)%
(75.4)%
NM
(33.1)%
— %
NM
(12.9)%
NM
NM
NM
(81.8)%
NM
33.3 %
NM
NM
NM
(10.0)%
(9.9)%
(9.9)%
(5.9)%
(19.6)%
(9.4)%
(11.7)%
(9.9)%
Following is a summary of our financial performance for 2020 compared to 2019.
•
Net sales decreased 10.9% to $903.2 million.
• Gross profit decreased 6.7% to $357.9 million; gross margin increased approximately 170 basis points to 39.6%.
•
•
Selling, general, and administrative expenses decreased 3.0% to $264.5 million.
Income from continuing operations attributable to GCP shareholders was $100.5 million, or $1.37 per diluted share, compared to $40.8
million, or $0.56 per diluted share, in 2019. The increase of $59.7 million was primarily attributable to a gain on sale of corporate
headquarters.
32
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GCP Overview
Following is an overview of our financial performance for 2020, 2019 and 2018. A discussion of results of operations related to year-over-year
comparisons between 2020 and 2019 is included below.
Net Sales and Gross Margin
33
Table of Contents
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 2020:
Net Sales Variance Analysis
Specialty Construction Chemicals
Specialty Building Materials
Net sales
By Region:
North America
Europe Middle East Africa
Asia Pacific
Latin America
Year Ended December 31,2020 a Percentage Increase (Decrease) from the Year Ended
December 31, 2019
Volume/ Mix
Price
Currency Translation
Total Change
(9.3)%
(11.4)%
(10.2)%
(6.1)%
(11.9)%
(18.1)%
(12.5)%
0.4 %
(0.2)%
0.2 %
(0.3)%
0.2 %
(0.5)%
6.7 %
(1.5) %
0.1 %
(0.9) %
(0.1) %
0.9 %
(0.1) %
(15.5) %
(10.4)%
(11.5)%
(10.9)%
(6.5)%
(10.8)%
(18.7)%
(21.3)%
Net sales of $903.2 million in 2020 decreased $110.3 million, or 10.9%, compared to 2019 primarily due to lower sales volumes in SCC and
SBM and the unfavorable impact of foreign currency translation. Sales volumes decreased within SCC and SBM in all regions resulting primarily
from lower construction activity due to the impact of COVID-19 on the global economy, as well as our growth rate being below the construction
industry.
Gross profit of $357.9 million in 2020 decreased $25.8 million, or 6.7%, compared to 2019 primarily due to lower sales volumes in SCC and
SBM. Gross margin increased 170 basis points to 39.6% primarily due to lower raw material and logistics costs, partially offsetting the unfavorable
impact of lower volumes.
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Table of Contents
Selling, General, and Administration Expenses
Selling, general and administrative costs of $264.5 million decreased $8.3 million, or 3.0%, in 2020 compared to 2019 primarily due to reduced
discretionary spending, benefits from our productivity initiatives and lower pension costs. These favorable impacts were partially offset by increased
expenses related to shareholder activism and other related costs and our growth initiatives.
Restructuring, Asset Write offs and Repositioning Expenses
2019 Phase 2 Restructuring and Repositioning Plan (the “2019 Phase 2 Plan")
On July 31, 2019, the Board approved a business restructuring and repositioning plan to further optimize the design and footprint of the
Company's global organization, primarily with respect to its general administration and business support functions. Substantially all of the
restructuring and repositioning activities under the 2019 Phase 2 Plan are expected to be completed by March 31, 2021.
During 2020, we increased our previously estimated total costs by $2 million to approximately $32-$37 million due to higher severance and
other employee-related costs associated with the departure from the Company of our CEO, as well as certain executives and key employees. The
initial estimates related to costs incurred and savings expected to be achieved through a reduction in general and administrative expenses were
developed based on the business structure at that time. During 2020, we achieved pre-tax cost savings of approximately $9.3 million. Due to a
reduced number of actions taken relative to the original scope of the plan, the total estimated cost savings have been reduced from $30- $35 million
to $20- $25 million.
2019 Restructuring and Repositioning Plan (the “2019 Plan”)
On February 22, 2019, our Board of Directors (the "Board") approved a business restructuring and repositioning plan (the “2019 Plan”). The
2019 Plan is focused on our global supply chain strategy, processes and execution, including our manufacturing, purchasing, logistics, and
warehousing operations. The plan also addresses our service delivery model, primarily in North America, to streamline the Company’s pursuit of
combined admixture and VERIFI
opportunities. Substantially all of the restructuring and repositioning activities under the 2019 Plan have been
completed as of December 31, 2020.
®
During 2020, we reduced our previously estimated total costs of the 2019 Plan by $2 million to approximately $13- $14 million due to lower
severance and other associated costs. During 2020, we achieved pre-tax cost savings of approximately $9.6 million through a reduction in cost of
goods sold as a result of supply chain, warehouse operations, and logistical enhancements that benefit both the SCC and SBM operating segments.
During 2020, we reduced our estimated cost savings from $22- $28 million to $19 million due to lower sales volumes.
2018 Restructuring and Repositioning Plan (the “2018 Plan”)
On August 1, 2018, the Board approved a business restructuring and repositioning plan. The 2018 Plan was 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.
Substantially all of the restructuring and repositioning activities under the 2018 Plan were completed as of December 31, 2019.
Cumulative costs incurred under the 2018 Plan since its inception were $32.4 million. We achieved annualized pre-tax cost savings of $25
million under the 2018 Plan. Approximately 75% and 25% of the total pre-tax cost savings were attributable to SCC and SBM, respectively, and
related primarily to a reduction in cost of goods sold and selling, general and administrative expenses. SCC revenue reductions were related to
exiting non-profitable geographic markets under the 2018 Plan.
For further information on the restructuring and repositioning expenses and asset write offs, please refer to Note 14, "Restructuring and
Repositioning Expenses, Asset Write Offs", 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.
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Table of Contents
Defined Benefit Pension Expense, Gain on Termination and Curtailments of Pension and Other Postretirement Plans
Defined benefit pension expenses include costs related 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, 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 2020, 2019 and 2018:
(In millions)
Certain pension costs
Pension MTM adjustment and other related costs, net
Gain on termination and curtailment of pension and other postretirement plans
(1)
Total pension costs
_______________________________
2020
Years Ended December 31,
2019
2018
$
$
(5.2) $
(2.8)
—
(8.0) $
(7.8) $
(13.3)
1.2
(19.9) $
(7.6)
8.7
0.2
1.3
(1)
During 2018, we recognized $1.2 million of other related costs from the initial recognition of a liability for a non-U.S. OPEB retiree health care plan.
Certain pension costs were $5.2 million and $7.8 million, respectively, in 2020 and 2019. The decreases were primarily due to lower interest
cost for the U.S plans resulting from lower discount rates and the amendment of the GCP Applied Technologies Inc. UK Retirement Plan to freeze
plan benefit accruals effective December 31, 2019.
Pension MTM adjustment and other related costs, net were losses of $2.8 million and $13.3 million, respectively, in 2020 and 2019. The change
was primarily attributable to lower market rates for a portfolio of U.S. and non-U.S. high quality corporate bonds for which the amount and timing of
cash outflows approximate estimated payouts for the pension plans.
Gain on termination and curtailment of pension and other postretirement plans presented in "Other (income) expenses, net" was $1.2 million in
2019. The curtailment gain resulted from the freeze of the accrual of plan benefits for all plan participants under the U.K. Retirement Plan in 2019.
Please refer to Note 10, "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.
Employee Benefit Plans
Defined Contribution Retirement Plan
We sponsor a defined contribution retirement plan for our employees in the U.S. which is a qualified plan under section 401(k) of the U.S. tax
code. Under this plan, we contribute an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages.
Additionally, we contribute up to 2% of a full amount of applicable employee compensation subject to a three year vesting requirement. Applicable
employees include those beginning employment with us 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. Costs related to this plan were $4.6 million during
each of 2020, 2019 and 2018.
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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 $29.7 million as of December 31, 2020, 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 $33.3 million as of December 31, 2020. Additionally, we have several plans that are funded on a pay-as-
you-go basis; and therefore, the entire PBO of $29.6 million at December 31, 2020 is unfunded. The combined balance of the underfunded and
unfunded plans was $64.3 million as of December 31, 2020. This amount is presented as $1.4 million in "Other current liabilities" and $62.9 million in
"Underfunded and unfunded defined benefit pension plans" on the Consolidated Balance Sheets.
Based on the U.S. funded plans' status as of December 31, 2020, there were no minimum required payments under ERISA. We made a
contribution of $15.9 million to the U.S. pension plans in 2020 and $0.1 million in 2019. The increase is primarily due to a $15.0 million voluntary
contribution to the U.S. qualified pension plans in 2020. We intend to fund non-U.S. pension plans based upon applicable legal requirements, as well
as actuarial and trustee recommendations. We expect to contribute $1.4 million to non-U.S. pension plans in 2021. We contributed $1.5 million and
$2.6 million, respectively, to the non-U.S. pension plans in 2020 and 2019.
Please refer to Note 10, "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.
Other (Income) Expenses, Net
Other (income) expenses, net consists primarily of interest income, foreign currency exchange gains (losses), defined benefit pension expenses
exclusive of service costs, income from our Transition Services Agreement related to the sale of Darex, and other items.
Other (income) expenses, net was $(3.8) million and $4.3 million, respectively, in 2020 and 2019. The increase of $8.1 million was primarily due
to lower Pension MTM losses, as well as foreign currency exchange gains in 2020 compared to foreign currency exchange losses in 2019. The
impact of these items was partially offset by lower interest income.
Income Taxes
(Provision) benefit from income taxes was ($36.7) million, $6.0 million and ($26.3) million, respectively, in 2020, 2019 and 2018, while income
from continuing operations before income taxes was $137.7 million, $35.2 million and $10.2 million, respectively, in 2020, 2019 and 2018.
Tax Reform
The 2017 Tax Act (the "Act") continues to impact the Company as the Internal Revenue Service ("IRS") publishes additional guidance and
regulations around the global intangible low-taxed income ("GILTI"), foreign derived intangible income ("FDII"), foreign tax credits, and the deduction
of the interest expense. On March 27, 2020, then President Trump signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security
(CARES) Act, which aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19
pandemic and generally supporting the U.S. Economy. The CARES Act allows for increased net operating loss periods, alternative minimum tax
credit refunds, and favorable modifications to the net interest deduction limitation. Additionally, the CARES Act made technical corrections to tax
depreciation methods for qualified improvement property.
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During 2020, as a result of the additional deductions and net operating loss carryback allowable to the Company under the CARES Act along
with the application of the final regulations, we recorded a net benefit of $5.5 million, an increase in current US income tax receivable of $1.8 million,
a decrease in US deferred tax assets of $9.3 million, and a decrease to the Company's long term payable by $13.0 million. As of December 31,
2020, the unpaid balance of the Transition Tax obligation, which was a one-time mandatory deemed repatriation tax on undistributed earnings, is
$28.4 million, net of overpayments and foreign tax credits. After considering overpayments, the outstanding payable is due between April 2023 and
April 2025.
During 2019, as a result of clarifications issued in January 2019 by the Internal Revenue Service (IRS) in the final treasury regulations under
Code Section 965, we decreased our liability for unrecognized tax benefits by $20.2 million. In addition, the application of the final regulations
resulted in an increase to our long-term tax payable by $3.7 million and an increase of our short-term tax payable by $0.2 million. We have elected to
pay the Transition Tax over the eight-year period as provided in the 2017 Tax Act. As of December 31, 2019, the unpaid balance of the Transition
Tax obligation was $41.4 million, net of overpayments and foreign tax credits. After considering overpayments, the outstanding payable was due
between April 2022 and April 2025.
During 2018, we recorded an increase to the provisional net charge of $17.9 million which was comprised of an expense of $20.2 million related
to certain capital gains recognized resulting from the application of the Transition Tax, a $2.5 million benefit related to the Transition Tax, and an
provision of $0.2 million for the effect on U.S. deferred taxes.
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 efficient. This position has not changed subsequent to the one-time transition tax under the Tax Act.
Effective Tax Rate
Our effective tax rate was approximately 27%, 17% and 258%, respectively, in 2020, 2019 and 2018.
The change in the effective tax rate for 2020 compared to the same period in 2019 was primarily due to higher state taxes as a result of the gain
on sale of the corporate headquarters, the non-recurrence of the 2019 unrecognized tax benefit from the finalization of Transition Tax regulations
issued in January 2019, as well as the 2020 non-deductibility of executive compensation, and a UK tax rate change, offset by tax benefits resulting
from the carryback of losses at the higher 35% U.S. tax rate applicable in prior years.
The change in the effective tax rate for 2019 compared to the same period in 2018 was primarily due to the reversal of unrecognized tax
benefits from the finalization of Transition Tax regulations issued in January 2019, as well as the benefit of a Brazilian income tax refund and a lower
valuation allowance charge.
Our 2020 effective tax rate of 27% differed from the 21% U.S. statutory rate primarily due to the non-deductibility of executive compensation of
$1.9 million, the gain on sale of the corporate headquarters resulted in state tax of $5.2 million, and rate changes in UK of $1.0 million partially offset
by a US tax benefit $5.5 million due to the net operating losses carrybacks to earlier years at the higher 35% tax rate allowed under the CARES Act.
Our 2019 effective tax rate of 17% differed from the 21% U.S. statutory rate primarily due to the reversal of unrecognized tax benefits from the
finalization of Transition Tax regulations issued in January 2019, resulting in a tax benefit of $20.2 million, as well as the benefit of a Brazilian
income tax refund of $3.2 million, and U.S. foreign tax credits generated of $2.0 million. These benefits were partially offset by a tax provision of
$3.9 million due to changes to our 2017 income tax liability and Transition Tax, as well as the effect of foreign rate differential of $3.6 million, non-
deductible expenses of $1.7 million and a valuation allowance increase of $1.0 million
.
Our 2018 effective tax rate of 258% differed from 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 net operating losses in Germany, France, India, Turkey and Mexico, that do not
benefit the effective tax rate.
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Table of Contents
Income taxes paid in cash, net of refunds, were $35.4 million, $12.7 million, and $23.1 million, respectively, in 2020, 2019 and 2018. Our annual
cash tax rate was approximately 26%, 36%, and 226%, respectively, in 2020, 2019, and 2018.
Please refer to Note 9, "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.
Income (Loss) from Continuing Operations Attributable to GCP Shareholders
Income from continuing operations attributable to GCP shareholders was $100.5 million in 2020 compared to $40.8 million in 2019. The
increase was primarily attributable to a gain on sale of corporate headquarters, lower selling, general and administrative expenses, and lower
pension mark-to-market losses, partially offset by higher income tax expense resulting primarily from the sale of the corporate headquarters and
lower gross profit.
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.
Operating Segment Overview
The following is an overview of the financial performance of the SCC and SBM operating segments for 2020, 2019, and 2018. For further
information on our accounting policies related to allocating certain functional and corporate costs and measuring segment operating income, please
refer to Note 18, “Operating Segment and Geographic Information” 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. Please refer to the table in the “Analysis of Operations”
section below for the related segment financial performance information.
Segment operating margin is defined as segment operating income divided by segment net sales. It represents an operating performance
measure related to ongoing earnings and trends in our operating segments that are engaged in revenue generation and other core business
activities. We use this metric to allocate resources between the segments and assess our strategic and operating decisions related to core
operations of our business.
39
Table of Contents
Specialty Construction Chemicals (SCC)
Net Sales and Gross Margin
Net sales were $518.9 million in 2020, a decrease of $60.2 million, or 10.4%, compared to 2019. The decrease was primarily due to lower sales
volumes in all regions and the unfavorable impact of foreign currency translation in Latin America, partially offset by improved pricing in Latin
America.
Sales volumes decreased 9.3% in 2020 compared to 2019 primarily due to lower construction and manufacturing activity resulting from the
impact of COVID-19 on the global economy, including the impact of strategic country exits. Concrete and Cement volumes decreased 8.8% and
11.2%, respectively, in 2020 compared to 2019.
Gross profit was $202.8 million in 2020, a decrease of $5.5 million, or 2.6%, compared to 2019 primarily due to lower sales volumes. Gross
margin increased 310 basis points to 39.1% due to raw materials deflation, favorable impacts from operational and logistics productivity, partially
offsetting the unfavorable impact of lower volumes.
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Table of Contents
Segment Operating Income and Operating Margin
Segment operating income was $52.9 million in 2020, a decrease of $4.0 million, or 7.0%, compared to 2019 primarily due to lower gross profit,
partially offset by lower operating expenses due to reduced discretionary spending. Operating expense reductions were partially offset by higher
depreciation and amortization costs and increased expenses related to growth initiatives. Segment operating margin of 10.2% increased 40 basis
points on higher gross margin, partially offset by lower sales volumes negatively impacting operating leverage.
Specialty Building Materials (SBM)
Net Sales and Gross Margin
Net sales were $384.3 million in 2020, a decrease of $50.1 million, or 11.5%, compared to 2019. The decrease was primarily due to lower sales
volumes in all regions.
Sales volumes decreased 11.4% due to lower construction and manufacturing activity in all regions resulting primarily from the impact of
COVID-19 on the global economy. Building Envelope, Residential and Specialty Construction Products volumes declined 16.0%, 9.0% and 2.7%,
respectively, in 2020 compared to 2019.
41
Table of Contents
Gross profit was $156.6 million for 2020, a decrease of $20.4 million, or 11.5%, compared to 2019 primarily due to lower sales volumes. Gross
margin of 40.7% remained consistent with 2019 as lower raw material costs were partially offset by the unfavorable impact of lower volumes
resulting in reduced operating leverage.
Segment Operating Income and Operating Margin
Segment operating income was $71.1 million in 2020, a decrease of $15.2 million, or 17.6%, compared to 2019 primarily due to lower gross
profit, partially offset by lower operating expenses due to reduced discretionary spending. Segment operating margin for 2020 was 18.5%, a
decrease of 140 basis points compared to 2019. The decrease was primarily due to lower sales volumes negatively impacting operating leverage,
partially offset by lower operating expenses.
Analysis of Operations for 2020, 2019 and 2018
We have set forth in the table below our key operating statistics with percentage changes for 2020, 2019 and 2018. 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 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.
42
Table of Contents
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 and repositioning
expenses, and asset write offs; (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; (xii) shareholder activism and other related costs; (xiii)
gain on sale of corporate headquarters, net of related costs; and (xiii) certain other items that are not representative of underlying trends.
Adjusted EBIT Margin is defined as Adjusted EBIT divided by net sales. We use Adjusted EBIT to assess and measure our operating
performance and determine performance-based employee 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. Adjusted
EBITDA Margin is defined as Adjusted EBITDA divided by net sales. 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 write offs; (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) shareholder activism and other related costs; (xi) certain discrete tax items; (xii) gain on sale of corporate headquarters, net of related
costs; and (xiii) certain other items that are not representative of underlying trends. 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; (iii) amortization of acquired inventory fair value
adjustment; and (iv) certain other items that are not representative of underlying trends. 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, Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EPS, Adjusted Gross Profit and Adjusted Gross
Margin do not purport to represent income measures as defined in accordance with 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.
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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 in accordance with 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 in
accordance with GAAP for a complete understanding of our results of operations.
44
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.
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
Total net sales by region
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)
Gain on sale of corporate headquarters
Shareholder activism and other related costs (D)
Gain on Brazil tax recoveries, net (E)
Repositioning expenses
Restructuring expenses and asset write offs
Pension MTM adjustment and other related costs, net
Gain on termination and curtailment of pension and other
postretirement plans
Legacy product, environmental and other claims
Third-party and other acquisition-related costs
Tax indemnification adjustments
Interest expense, net
Income tax (expense) benefit
Currency losses in Argentina
Amortization of acquired inventory fair value adjustment
Income (loss) from continuing operations attributable to GCP
shareholders
Income (loss) from continuing operations attributable to GCP
shareholders as a percentage of net sales
Diluted EPS from continuing operations (GAAP)
Adjusted EPS (non-GAAP)
Year Ended December 31,
2020
2019
2018
% Change 2020
vs 2019
% Change 2019
vs 2018
579.1
434.4
1,013.5
537.4
193.5
222.5
60.1
1,013.5
56.9
86.3
(32.8)
(7.8)
102.6
—
(5.3)
0.6
(20.4)
(9.9)
(13.3)
1.2
(0.1)
(0.1)
(0.5)
(20.0)
6.0
—
—
40.8
4.0 %
0.56
0.82
$
$
$
$
$
$
$
$
$
643.5
481.9
1,125.4
571.0
240.7
245.6
68.1
1,125.4
40.2
113.4
(27.4)
(7.6)
118.6
—
—
—
(9.6)
(14.8)
8.7
0.2
—
(2.5)
(0.5)
(88.9)
(26.3)
(1.1)
(0.2)
(16.4)
(1.5)%
(0.23)
0.90
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
518.9
384.3
903.2
502.5
172.6
180.8
47.3
903.2
52.9
71.1
(26.2)
(5.2)
92.6
110.2
(9.5)
—
(5.4)
(24.9)
(2.8)
—
(0.6)
(0.7)
(1.6)
(20.1)
(36.7)
—
—
100.5
11.1 %
1.37
0.73
45
(10.4)%
(11.5)%
(10.9)%
(6.5)%
(10.8)%
(18.7)%
(21.3)%
(10.9)%
(7.0)%
(17.6)%
(20.1)%
(33.3)%
(9.7)%
100.0 %
79.2 %
(100.0)%
(73.5)%
NM
(78.9)%
(100.0)%
NM
NM
NM
0.5 %
NM
— %
—
NM
7.1 pts
NM
(11.0)%
(10.0)%
(9.9)%
(9.9)%
(5.9)%
(19.6)%
(9.4)%
(11.7)%
(9.9)%
41.5 %
(23.9)%
19.7 %
2.6 %
(13.5)%
— %
(100.0)%
100.0 %
NM
(33.1)%
NM
NM
(100.0)%
(96.0)%
— %
(77.5)%
NM
100.0 %
100.0 %
NM
5.5 pts
NM
(8.9)%
Table of Contents
Analysis of Operations
(In millions)
Gross Profit:
Specialty Construction Chemicals
Specialty Building Materials
Adjusted Gross Profit (non-GAAP)
Amortization of acquired inventory fair value adjustment
Corporate costs and pension costs in cost of goods sold (C)
Total GCP Gross Profit (GAAP)
$
$
$
Gross Margin:
Specialty Construction Chemicals
Specialty Building Materials
Adjusted Gross Margin (non-GAAP)
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 depreciation and amortization
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,
2020
2019
2018
% Change 2020 vs
2019
% Change 2019 vs
2018
$
$
$
$
$
$
$
$
$
208.3
177.0
385.3
—
(1.6)
383.7
36.0 %
40.7 %
38.0 %
(0.2)%
37.9 %
56.9
86.3
(40.6)
102.6
24.4
14.8
4.0
43.2
81.3
101.1
(36.6)
145.8
9.8 %
19.9 %
10.1 %
14.0 %
23.3 %
14.4 %
206.9
205.6
412.5
(0.2)
(2.2)
410.1
32.2 %
42.7 %
36.7 %
(0.2)%
36.4 %
40.2
113.4
(35.0)
118.6
24.2
14.7
3.1
42.0
64.4
128.1
(31.9)
160.6
6.2 %
23.5 %
10.5 %
10.0 %
26.6 %
14.3 %
$
$
$
$
$
$
$
$
$
202.8
156.6
359.4
—
(1.5)
357.9
39.1 %
40.7 %
39.8 %
(0.2)%
39.6 %
52.9
71.1
(31.4)
92.6
27.6
14.9
3.9
46.4
80.5
86.0
(27.5)
139.0
10.2 %
18.5 %
10.3 %
15.5 %
22.4 %
15.4 %
46
(2.6)%
(11.5)%
(6.7)%
— %
(6.3)%
(6.7)%
3.1 pts
— pts
1.8 pts
— pts
1.7 pts
(7.0)%
(17.6)%
(22.7)%
(9.7)%
13.1 %
0.7 %
(2.5)%
7.4 %
(1.0)%
(14.9)%
(24.9)%
(4.7)%
0.4 pts
(1.4) pts
0.2 pts
1.5 pts
(0.9) pts
1.0 pts
0.7 %
(13.9)%
(6.6)%
100.0 %
(27.3)%
(6.4)%
3.8 pts
(2.0) pts
1.3 pts
— pts
1.5 pts
41.5 %
(23.9)%
16.0 %
(13.5)%
0.8 %
0.7 %
29.0 %
2.9 %
26.2 %
(21.1)%
14.7 %
(9.2)%
3.6 pts
(3.6) pts
(0.4) pts
4.0 pts
(3.3) pts
0.1 pts
Table of Contents
(A)
(B)
(C)
(D)
(E)
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.
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. “Corporate costs and pension costs in cost of goods sold" represent service costs related to our manufacturing employees. 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 are primarily attributable to changes in financial market values and actuarial assumptions and are not directly related to the operation of our
businesses.
Shareholder activism and other related costs consist primarily of professional fees incurred in connection with the actions by certain of our shareholders seeking changes
in the composition of our Board of Directors and nomination of candidates to stand for election at the 2019 and 2020 Annual Shareholders' Meetings, as well as other
related matters. For further information, please refer to Note 16, "Related Party Transactions and Transactions with Grace" 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.
Gain on Brazil tax recoveries, net primarily consists of a $1.7 million pre-tax gain related to indirect tax recoveries, and $1.1 million of legal fees and other charges relating
to indirect and income tax recoveries.
NM•
Not meaningful.
Corporate Costs
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.
Corporate costs were $26.2 million in 2020, a decrease of $6.6 million, or 20.1%, compared to 2019. The decrease was primarily due to lower
costs resulting from our restructuring programs and organization realignment resulting in certain direct costs being allocated directly to operating
segments, and favorable impact related to foreign currency exchange gains compared to losses in 2019.
47
Table of Contents
Adjusted EBIT
Adjusted EBIT was $92.6 million in 2020, a decrease of $10.0 million, or 9.7%, compared to 2019. The decrease was primarily due to lower
SCC and SBM operating income, partially offset by lower corporate costs.
Adjusted EBIT margin of 10.3% in 2020 remained consistent with 2019 primarily due to higher gross margin which was partially offset by lower
sales volumes negatively impacting operating leverage.
Adjusted EBITDA
Adjusted EBITDA was $139.0 million in 2020, a decrease of $6.8 million, or 4.7%, compared to 2019. The decrease was primarily due to lower
segment operating income, partially offset by lower corporate costs. Adjusted EBITDA margin was 15.4% in 2020, an increase of 100 basis points
compared to 2019, primarily due to higher gross margin, partially offset by lower sales volumes impacting operating leverage.
Adjusted EPS
Adjusted EPS was $0.73 per diluted share in 2020 compared to $0.82 in the prior year period.
The following table reconciles our Diluted EPS (GAAP) to our Adjusted EPS (non-GAAP).
Year Ended December 31,
(In millions, except per share amounts)
Diluted EPS from continuing operations (GAAP)
Legacy product, environmental and other claims
Repositioning expenses
Gain on termination and curtailment of pension and other
postretirement plans
Restructuring expenses
Pension MTM adjustment and other related costs, net
Third-party and other acquisition-related costs
Shareholder activism and other related costs
Gain on sale of corporate headquarters
Tax indemnification adjustments
Gain on Brazil tax recoveries, net
Discrete tax and other items, including adjustments to
(1)
uncertain tax positions
Adjusted EPS (non-GAAP)
__________________________
Pre-Tax
2020
Tax Effect After-Tax
$
0.6 $
5.4
0.2 $
1.3
0.4
4.1
Per Share
1.37
$
0.01 $
0.06
—
24.9
2.8
0.7
9.5
(110.2)
1.6
—
—
6.3
0.9
0.2
2.4
(28.0)
—
—
—
18.6
1.9
0.5
7.1
(82.2)
1.6
—
—
(0.3)
0.3
$
—
0.25
0.03
0.01
0.10
(1.12)
0.02
—
—
0.73
Pre-Tax
2019
Tax Effect After-Tax
$
Per Share
0.56
—
0.21
0.1 $
20.4
(1.2)
9.9
13.3
0.1
5.3
—
0.5
(0.6)
— $
5.1
0.1
15.3
(0.3)
1.1
3.5
—
1.3
—
—
(0.2)
(0.9)
8.8
9.8
0.1
4.0
—
0.5
(0.4)
—
18.2
(18.2)
$
(0.01)
0.12
0.13
—
0.05
—
0.01
—
(0.25)
0.82
(1)
Discrete tax items consist primarily of tax benefits of $20.2 million in 2019 due to the release of uncertain tax benefit liabilities related to the 2017 Tax Act. Please
refer to Note 9, "Income Taxes," to our Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data” of this Form 10-K and
"Income Taxes" above for additional discussion of the impact of the 2017 Tax Act and related uncertain tax benefits.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Following is an analysis of our financial condition, liquidity and capital resources at December 31, 2020.
48
Table of Contents
At December 31, 2020 and 2019, we had $482.7 million and $325.0 million, respectively, in cash and cash equivalents. Cash inflows (outflows)
from operating, investing and financing activities related to continuing operations were $73.3 million, $87.1 million and $(2.0) million, respectively,
during 2020. Cash inflows (outflows) from operating, investing and financing activities related to continuing operations were $77.7 million, ($60.8)
million and ($5.0) million, respectively, during 2019. Our principal uses of cash generally have been capital investments, acquisitions and working
capital investments. It is difficult for us to predict at this time the duration and extent of the impact of COVID-19 on our business, financial position,
results of operations, or liquidity. Due to this uncertainty, we believe our results of operations and cash flows may be significantly impacted in future
periods. We have significant liquidity and capital resources, and we are actively managing our cash flow by reducing planned capital expenditures
and managing operating expenses and discretionary spending. We believe our liquidity and capital resources, including cash on hand and cash we
expect to generate during 2021 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 pre-tax 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.
The agreement governing our sale of Darex provides for a series of delayed closings in certain non-U.S. jurisdictions for which sales proceeds
were received on the July 3, 2017 closing date. The delayed closings implement the legal transfer of the Darex business in the delayed closing
jurisdictions in accordance with local law. During 2020, we completed the delayed closing in Venezuela which did not result in a gain or a loss
recognized based on $0.5 million of proceeds received. During 2019, we completed the delayed closing in Indonesia and recognized a gain of $9.6
million on a pre-tax basis and $7.2 million on an after-tax basis based on $12.7 million of proceeds received. 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.
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
“(Loss) income from discontinued operations, net of income taxes” in the Consolidated Statements of Operations and adjusted for an economic
benefit payable to or recovered from Henkel with the exception of operations in Venezuela which were deconsolidated during 2017.
Sale of Corporate Headquarters
On July 31, 2020, we sold our corporate headquarters located at 62 Whittemore Avenue, Cambridge, Massachusetts 02140 to IQHQ, L.P,
entered into a leaseback transaction with the buyer, and received from the buyer cash proceeds of $122.5 million, net of the related transaction
costs and commissions of $2.5 million, pursuant to the sale of the property. During 2020, we made cash tax payments of approximately $15 million
related to the gain on sale and expect to make additional cash tax payments of approximately $13 million in future years. The lease commenced on
July 31, 2020 and has an initial rent-free term of eighteen months which can be extended for an additional six months at our option, subject to
monthly rental payments of $0.6 million. The exercise of the extension option was not reasonably certain as of December 30, 2020. Pursuant to the
terms of the lease, we are required to make certain payments for real estate taxes and other operating expenses related to the property.
Share Repurchase Program
On July 30, 2020, the Board authorized a program to repurchase up to $100 million of our common stock which is effective through July 30,
2022. Share repurchases under the program may be made from time to time at Board's discretion through open market purchases or privately
negotiated transactions in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act. The share repurchase
program is subject to a periodic review by the Board and may be suspended periodically or discontinued at any time. We plan to fund repurchases
from our existing cash balance. We did not repurchase any shares during the fourth quarter.
Cash Resources and Available Credit Facilities
At December 31, 2020, we had available liquidity of $871.2 million, consisting of $482.7 million in cash and cash equivalents, of which $326.1
million was held in the U.S., $347.4 million under our revolving credit facility (the "Revolving Credit Facility"), and $41.1 million under various non-
U.S. credit facilities.
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Our non-U.S. credit facilities are extended to various subsidiaries that use them primarily to issue bank guarantees supporting trade activity and
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 2020 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, 2020.
(In millions)
Hong Kong
Singapore
Australia
Canada
China
India
Korea
Other countries
Total
Maximum
Borrowing Amount
$
Available Liquidity
3.0
6.0
4.9
5.9
5.0
2.9
4.0
9.4
41.1
3.0 $
6.0
5.5
5.9
6.0
5.0
4.0
10.1
45.5 $
$
50
Expiration Date
4/15/2023
4/15/2023
4/15/2023
4/15/2023
4/15/2023
4/15/2023
4/15/2023
Open ended
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Analysis of Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2020, 2019 and 2018:
(In millions)
Net cash provided by operating activities from continuing operations
Net cash provided by (used in) investing activities from continuing operations
Net cash used in financing activities from continuing operations
2020 Compared to 2019
Year Ended December 31,
2019
2018
2020
$
73.3 $
87.1
(2.0)
77.7 $
(60.8)
(5.0)
75.4
(86.9)
(247.3)
Net cash provided by operating activities from continuing operations during 2020 was $73.3 million compared to $77.7 million for 2019. The year-
over-year change was primarily due to higher cash payments for taxes, the change in inventory, and higher cash payments for pension
contributions, partially offset by the change in accounts payable, lower cash payments for repositioning and restructuring, and the change in accrued
compensation. During 2020 and 2019, repositioning payments were $10.3 million and $21.2 million, respectively, and restructuring payments were
$4.8 million and $11.3 million, respectively. Restructuring liabilities were $18.0 million as of December 31, 2020 and are expected to be settled in
cash within one year.
Net cash provided by investing activities from continuing operations during 2020 was $87.1 million compared to $60.8 million of cash used for
2019. The year-over-year change was primarily due to proceeds received from the sale of the corporate headquarters and lower capital
expenditures in the current period.
Net cash used in financing activities from continuing operations during 2020 was $2.0 million compared to $5.0 million for 2019. The year-over-
year change was primarily due to lower payments under credit arrangements and partially offset by lower proceeds from the exercise of stock
options.
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Debt and Other Contractual Obligations
Total debt outstanding at December 31, 2020 and 2019 was $351.7 million and $349.2 million, respectively.
5.5% Senior Notes
The 5.5% Senior Notes maturing on April 15, 2026 were issued pursuant to an Indenture (the “Indenture”), at $346.9 million, or 99.1% of their
$350.0 million 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. During 2020 and 2019, we made interest payments of $19.3 million and $19.2 million, respectively. 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 8, "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 8, "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 2020
and 2019, 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, 2020 and 2019.
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 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 8, "Debt and Other Borrowings," to our Consolidated Financial Statements. We were in compliance with all covenant
terms as of December 31, 2020 and December 31, 2019. There are no events of default as of December 31, 2020 or December 31, 2019.
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. As of December 31, 2020 and 2019, there were no outstanding borrowings on the Revolving Credit Facility and $2.6 million and $5.9
million, respectively, in outstanding letters of credit, which resulted in available credit of $347.4 million and $344.1 million, respectively, under the
Revolving Credit Facility. There were no interest payments on the Revolving Credit Facility during 2020 and 2019. Please refer to Note 8, "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.
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Contractual Obligations
As of December 31, 2020, our contractual obligations consist of: (i) $458.3 million related to principal and interest payments on 5.5% Senior
Notes, finance lease obligations and borrowings outstanding under various lines of credit, primarily by non-U.S. subsidiaries, based on variable
interest rates in effect on that date; (ii) $45.7 million of undiscounted operating lease payments, of which $9.4 million is payable in 2021 and
$36.3 million thereafter; (iii) $28.4 million of income tax liability associated with the 2017 Tax Act payable over the next two to five years; (iv)
$4.1 million related to pension funding requirements over the next five years, of which no minimum amount is payable in 2021 and $4.1 million is
payable thereafter, due to minimum funding requirements under ERISA based on the U.S. qualified pension plans' status as of December 31, 2020;
(v) $6.8 million related to pension funding requirements over the next five years, of which $1.4 million is payable in 2021 and $5.4 million thereafter,
based on the non-U.S. qualified pension plans' status as of December 31, 2020. Please refer to Note 8, "Debt and Other Borrowings" and Note 6,
“Lessee Arrangements,” 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 the schedule of principal maturities of debt and lease obligations.
As of December 31, 2020, we had approximately $30.8 million of unrecognized tax benefits and $11.0 million of associated interest and penalties
pertaining to unrecognized tax benefits. Included in these amounts are $1.2 million indemnified by Grace. Our liability for unrecognized tax benefits
decreased by $0.6 million during 2020. We also believe it is reasonably possible that in the next 12 months due to expiration of the statute of
limitation that the amount of the liability for unrecognized tax benefits could further decrease by approximately $2.6 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 9, "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 $6.8 million are related primarily to customer advances and other performance obligations as of
December 31, 2020. Please refer to Note 12, "Commitments and Contingencies," 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 guarantees, indemnification
obligations and financial assurances, none of which were material at December 31, 2020, as well as other contingencies as of the year then ended.
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 a 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 12, "Commitments and Contingencies" 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
Goodwill represents the excess of purchase price over the fair value of identifiable net assets of businesses acquired. We review our goodwill
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 its carrying amount, no impairment loss is recognized. However, if the carrying amount
exceeds the fair value, the goodwill of the reporting unit is impaired, and the amount of such excess is recognized as an impairment loss upon
writing down goodwill to its 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.
We performed our annual impairment assessments related to goodwill as of October 31, 2020 and 2019. We performed a quantitative
assessment as part of the impairment test in 2020, and the fair values of our reporting units were significantly in excess of their carrying values. As
such, we did not recognize impairment losses as a result of our analysis. We performed qualitative assessment as a part of the impairment test in
2019 and determined that it was not likely that the fair values of the reporting units were less than their carrying amounts. As such, we did not
perform quantitative assessments and did not recognize impairment losses as a result of our 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 impairment losses recognized during any of the periods presented in the Consolidated Statements of Operations.
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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 10, "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. The assumed weighted average discount rate for the U.S. and non-U.S. pension plans was 2.61% and 1.17%, respectively, in
2020 compared to 3.26% and 1.80%, respectively, in 2019. Such rates were 4.33% and 2.49%, respectively, in 2018. We recognized a loss of $2.8
million and $13.3 million, respectively, in 2020 and 2019 compared to a gain of $9.9 million in 2018 in Pension MTM adjustments primarily due to a
change in assumed weighted average discount rates. A hypothetical 100 basis point increase or decrease in the weighted average discount rate for
the U.S. and a 100 basis point increase or decrease for the non-U.S. pension plans could result in an increase or a decrease in pension MTM
adjustments and other related costs by approximately $32.3 million and $27.3 million, respectively.
We selected the expected return on plan assets for the U.S. qualified pension plans for 2020 and 2019 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 1, "Basis of Presentation and
Summary of Significant Accounting and Financial Reporting Policies" and Note 9, "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.
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 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, and the GCP Applied Technologies Inc. 2020 Inducement Plan (the “Inducement Plan”) adopted on
October 1, 2020.
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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 options and 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 rates 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 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 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 ("TSR") relative to the performance of the Russell 3000 Index. PBUs granted in 2020 and 2019 are
based on a three-year cumulative adjusted diluted earnings per share measure that is modified, up or down, based on the Company's TSR relative
to the performance of the Russell 3000 Specialty Chemicals and Building Materials Indices. As a result, these awards are subject to volatility until
the payout is determined at the end of the performance period. During 2020, 2019 and 2018, we recorded stock-based compensation expense
reductions of $0.6 million, $2.4 million and $5.2 million, respectively, related to remeasurement of PBUs based on their estimated expected payout
at the end of the applicable performance period. A hypothetical change in the expected payout target of PBUs granted in 2020 from 100% to 0%
would result in a stock-based compensation expense reduction of $1.1 million in 2020.
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 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
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.
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Recent Accounting Pronouncements
Effective January 1, 2020, we adopted Accounting Standard Update (the "ASU") 2016-13, Financial Instruments- Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments using the modified retrospective approach. The adoption of Topic 326 did not have a
material impact on our financial position, results of operations and cash flows during 2020. We did not recognize any cumulative effect adjustments
to the retained earnings as of January 1, 2020 as a result of the adoption.
Effective January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). The adoption of Topic 842 resulted in a recognition of operating lease
right-of-use assets of $40.8 million and operating lease obligations of $40.9 million in the Consolidated Balance Sheets as of January 1, 2019. The
adoption of Topic 842 did not result in significant accounting changes for finance leases which were not material as of January 1, 2019 and
December 31, 2019. The adoption of Topic 842 related to lease arrangements in which the Company is a lessee did not have a material impact on
the Company's results of operations and cash flows during 2019.
Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The impact of this adoption was
deemed immaterial to our net sales, loss 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, 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 attempt to
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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies
2. Revenue from Lessor Arrangements and Contracts with Customers
3. Inventories, net
4. Derivative Instruments
5. Properties and Equipment
6. Lessee Arrangements
7. Goodwill and Other Intangible Assets
8. Debt and Other Borrowings
9. Income Taxes
10. Pension Plans and Other Postretirement Benefit Plans
11. Other Balance Sheet Accounts
12. Commitments and Contingencies
13. Stockholder's Equity
14. Restructuring and Repositioning Expenses, Asset Write Offs
15. Other Comprehensive Income (Loss)
16. Related Party Transactions and Transactions with Grace
17. Stock Incentive Plans
18. Operating Segment and Geographic Information
19. Earnings Per Share
20. Acquisitions
21. Discontinued Operations
22. Revisions of Previously Issued Consolidated Financial Statements
23. Quarterly Financial Information (Unaudited)
Financial Statement Schedule II—Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2020, 2019 and
2018
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, 2020 and 2019, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders' equity and
of cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not
maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of
that date related to (i) the Company not designing and maintaining an effective control environment commensurate with the Company’s financial
reporting requirements, as the Company did not maintain a sufficient complement of professionals with an appropriate degree of internal controls
and accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately, which
contributed to additional material weaknesses in that the Company did not design and maintain (ii) formal accounting policies, procedures and
controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including segregation of duties and controls over
the preparation and review of account reconciliations and journal entries; (iii) effective controls over the completeness and accuracy of price and
quantity information for revenue recognition; and (iv) effective controls over certain information technology general controls for an online order entry
system.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material
weaknesses referred to above are described in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. We
considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated
financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our
opinion on those consolidated financial statements.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
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 referred to above.
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.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment
As described in Notes 1 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $215 million as of
December 31, 2020. Management reviews its goodwill for impairment at the reporting unit level on an annual basis as of October 31, or more often if
impairment indicators are present. Fair value 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 a discounted projected cash flows model).
Management’s 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
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.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit
matter are (i) the significant judgment by management when determining the fair value measurement of the reporting units; (ii) a high degree of
auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the long-term
sales growth rates and the weighted average cost of capital discount rates; and (iii) the audit effort involved the use of professionals with specialized
skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment
assessment, including controls over the valuation of the reporting units. These procedures also included, among others (i) testing management’s
process for determining the fair value estimates of the reporting units; (ii) evaluating the appropriateness of the market-based and income-based
valuation approaches; (iii) testing the completeness and accuracy of underlying data used in the fair value estimates; and (iv) evaluating
management’s significant assumptions related to the long-term sales growth rates and the weighted average cost of capital discount rates.
Evaluating management’s assumptions related to the long-term sales growth rates and the weighted average cost of capital discount rates involved
evaluating whether the assumptions used were reasonable considering (i) the current and past performance associated with the related reporting
units; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in
other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating management’s market-based
approach, income-based approach, and discount rate assumptions.
Revenue recognition
As described in Note 2 to the consolidated financial statements, 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. 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. Revenue from these contracts with customers is typically recognized upon shipment of the product or delivery at the customer’s site
depending on the shipping terms, provided the transaction price can be estimated appropriately and management expects to collect the
consideration to which it is entitled in exchange for the products it ships. The Company’s consolidated net sales were $903.2 million for the year
ended December 31, 2020.
The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are a high
degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence over the completeness and accuracy of price and
quantity information for revenue recognition. As described above in the “Opinions on the Financial Statements and Internal Control over Financial
Reporting” section, a material weakness was identified as of December 31, 2020 related to controls over the completeness and accuracy of price
and quantity information for revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included, among others, (i) for a sample of transactions, obtaining and inspecting source
documents, including a combination of customer agreements, cash receipts, purchase order information, and other documentation and (ii)
evaluating and determining the nature and extent of audit procedures performed and evidence obtained related to revenue recognition.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 8, 2021
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 write offs
Gain on sale of corporate headquarters
Other (income) expenses, net
Total costs and expenses
Income from continuing operations before income taxes
(Provision) benefit from income taxes
Income (loss) from continuing operations
(Loss) 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:
Income (loss) from continuing operations attributable to GCP shareholders
(Loss) income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (Loss) Per Share Attributable to GCP Shareholders:
Basic earnings (loss) per share:
Income (loss) from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Weighted average number of basic shares
(1)
Diluted earnings (loss) per share:
(2)
Income (loss) from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Weighted average number of diluted shares
(1)
______________________________
(1)
Amounts may not sum due to rounding.
Year Ended December 31,
2019
2018
2020
903.2 $
545.3
357.9
264.5
17.9
21.5
5.4
24.9
(110.2)
(3.8)
220.2
137.7
(36.7)
101.0
(0.3)
100.7
(0.5)
100.2 $
100.5 $
(0.3)
100.2 $
1.38 $
— $
1.37 $
73.0
1.37 $
— $
1.37 $
73.1
1,013.5 $
629.8
383.7
272.8
18.4
22.7
20.4
9.9
—
4.3
348.5
35.2
6.0
41.2
5.7
46.9
(0.4)
46.5 $
40.8 $
5.7
46.5 $
0.56 $
0.08 $
0.64 $
72.6
0.56 $
0.08 $
0.64 $
72.9
1,125.4
715.3
410.1
289.6
20.2
92.4
9.6
14.8
—
(26.7)
399.9
10.2
(26.3)
(16.1)
31.3
15.2
(0.3)
14.9
(16.4)
31.3
14.9
(0.23)
0.43
0.21
72.1
(0.23)
0.43
0.21
72.1
$
$
$
$
$
$
$
$
$
$
(2)
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.
63
Table of Contents
GCP Applied Technologies Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In millions)
Net income
Other comprehensive income (loss):
Defined benefit pension and other postretirement plans, net of income taxes
Currency translation adjustments, net of income taxes
Gain (loss) from hedging activities, net of income taxes
Total other comprehensive income (loss)
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to GCP shareholders
Year Ended December 31,
2019
2020
2018
$
100.7 $
46.9 $
15.2
(0.4)
6.8
0.1
6.5
107.2
(0.5)
106.7 $
$
(0.5)
3.6
(0.1)
3.0
49.9
(0.4)
49.5 $
(2.6)
(31.8)
0.1
(34.3)
(19.1)
(0.3)
(19.4)
The Notes to Consolidated Financial Statements are an integral part of these statements.
64
Table of Contents
(In millions, except par value and shares)
ASSETS
Current Assets
GCP Applied Technologies Inc.
Consolidated Balance Sheets
December 31, 2020
December 31,
2019
Cash and cash equivalents
Trade accounts receivable, net of allowance for credit losses of $7.0 million and $7.5 million, respectively
Inventories, net
Other current assets
Total Current Assets
Properties and equipment, net
Operating lease right-of-use assets
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
Operating lease obligations payable within one year
Accounts payable
Other current liabilities
Total Current Liabilities
Debt payable after one year
Operating lease obligations
Income taxes payable
Deferred income taxes
Unrecognized tax benefits
Underfunded and unfunded defined benefit pension plans
Other liabilities
Total Liabilities
Commitments and Contingencies (Note 12)
Stockholders' Equity
Preferred stock, par value $0.01; 50,000,000 shares authorized; no shares issued or outstanding (Note 13)
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 73,082,066 and
72,850,268, respectively
Paid-in capital
Accumulated earnings
Accumulated other comprehensive loss
Treasury stock
Total GCP Stockholders' Equity
Noncontrolling interests
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$
$
$
$
482.7 $
169.4
98.4
41.2
791.7
225.6
40.0
215.0
70.9
9.6
29.7
35.1
—
1,417.6 $
2.8 $
8.0
87.8
125.8
224.4
348.9
26.2
28.4
14.9
41.0
62.9
16.8
763.5
—
0.7
61.9
710.3
(110.5)
(10.7)
651.7
2.4
654.1
1,417.6 $
325.0
183.7
95.9
43.2
647.8
245.0
29.3
208.9
80.7
26.1
25.0
38.0
0.5
1,301.3
2.7
8.1
88.4
112.9
212.1
346.5
21.6
41.4
13.1
42.2
67.5
15.9
760.3
—
0.7
53.4
610.1
(117.0)
(8.6)
538.6
2.4
541.0
1,301.3
The Notes to Consolidated Financial Statements are an integral part of these statements.
65
Table of Contents
(In millions)
Balance, December 31, 2017
(1)
Net income
Issuance of common stock in connection with stock
plans
Share-based compensation
Exercise of stock options
(1)
Share repurchases
Other comprehensive loss
Dividends and other changes in noncontrolling interest
(3)
Balance, December 31, 2018
(1)
Net income
Issuance of common stock in connection with stock
plans
Share-based compensation
Exercise of stock options
(1)
Share repurchases
Other comprehensive income
Dividends and other changes in noncontrolling interest
(3)
Balance, December 31, 2019
(1)
Net income
Issuance of common stock in connection with stock
plans
Share-based compensation
Exercise of stock options
(1)
Share repurchases
Other comprehensive income
Dividends and other changes in noncontrolling interest
(2)
(3)
Balance, December 31, 2020
______________________________
GCP Applied Technologies Inc.
Consolidated Statements of Stockholders' Equity
Treasury Stock
Common Stock
Number of
Shares
Cost
Additional
Paid-In
Capital
Accumulated
Earnings
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interests
Total
Stockholders'
Equity
Number
of Shares
Par
Value
71.9 $ 0.7
—
—
0.1 $ (3.4) $
—
—
29.9 $
—
548.7 $
14.9
0.2
—
0.3
—
—
—
—
—
—
—
—
—
72.4 $ 0.7
—
—
0.4
—
0.4
—
—
—
—
—
—
—
—
—
73.2 $ 0.7
—
—
—
—
—
(1.4)
—
—
—
—
—
0.1
—
—
0.2 $ (4.8) $
—
—
—
—
—
(3.8)
—
—
—
—
—
0.1
—
—
0.3 $ (8.6) $
—
—
0.2
—
0.1
—
—
—
—
—
—
—
—
—
73.5 $ 0.7
—
—
—
(2.1)
—
—
—
—
—
0.1
—
—
0.4 $ (10.7) $
—
4.2
5.5
—
—
—
39.6 $
—
—
6.2
7.6
—
—
—
53.4 $
—
—
7.0
1.5
—
—
—
61.9 $
—
—
—
—
—
—
563.6 $
46.5
—
—
—
—
—
610.1 $
100.2
—
—
—
—
—
—
710.3 $
(85.7) $
—
—
—
—
—
(34.3)
—
(120.0) $
—
—
—
—
—
3.0
—
(117.0) $
—
—
—
—
—
6.5
—
(110.5) $
1.8 $
0.3
—
—
—
—
—
(0.1)
2.0 $
0.4
—
—
—
—
—
—
2.4 $
0.5
—
—
—
—
—
(0.5)
2.4 $
492.0
15.2
—
4.2
5.5
(1.4)
(34.3)
(0.1)
481.1
46.9
—
6.2
7.6
(3.8)
3.0
—
541.0
100.7
—
7.0
1.5
(2.1)
6.5
(0.5)
654.1
(1)
(2)
(3)
The par value of shares issued is not included in the table due to rounding.
During 2020, $2.4 million of the stock-based compensation expense is included in "Restructuring expenses and asset write offs" related to accelerated vesting of
stock options and RSUs due to the departure from the Company of its CEO, as well as certain executives and key employees.
Refer to Note 17, “Stock Incentive Plans”, for further information.
The Notes to Consolidated Financial Statements are an integral part of these statements.
66
Table of Contents
GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows
(In millions)
OPERATING ACTIVITIES
Net income
Less: (Loss) income from discontinued operations
Income (loss) from continuing operations
Reconciliation to net cash provided by (used in) 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
Deferred income taxes
Loss on debt refinancing
Gain on disposal of property and equipment
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 operating activities from continuing operations
Net cash used in operating activities from discontinued operations
Net cash provided by (used in) operating activities
INVESTING ACTIVITIES
Capital expenditures
Businesses acquired, net of cash acquired
Proceeds from sale of corporate headquarters, net of transaction costs
Other investing activities
Net cash provided by (used in) investing activities from continuing operations
Net cash (used in) provided by investing activities from discontinued operations
Net cash provided by (used in) 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
Payments on finance lease obligations
Other financing activities
Net cash used in financing activities from continuing operations
Effect of currency exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds
Cash paid for interest on note and credit arrangements
Supplemental disclosure of non-cash investing activities:
Property and equipment purchases unpaid and included in accounts payable
Year Ended December 31,
2019
2020
2018
$
100.7 $
(0.3)
101.0
46.9 $
5.7
41.2
15.2
31.3
(16.1)
42.0
1.6
0.6
3.7
(0.2)
3.2
59.8
(0.9)
9.0
(7.8)
(9.7)
(7.0)
(2.8)
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)
(3.7)
(395.4)
721.5
326.1
46.4
1.5
5.1
4.6
—
1.3
—
(110.0)
17.0
(1.5)
(2.3)
(9.1)
19.3
73.3
(2.7)
70.6
(36.0)
—
122.5
0.6
87.1
—
87.1
43.2
1.4
0.1
6.2
(1.2)
(18.7)
—
(0.7)
13.1
13.9
(26.8)
18.9
(12.9)
77.7
(13.7)
64.0
(61.3)
—
—
0.5
(60.8)
(0.4)
(61.2)
2.2
(1.9)
—
—
—
(1.7)
1.1
(0.5)
(0.8)
(0.4)
(2.0)
2.0
157.7
325.0
482.7 $
—
(7.6)
—
—
—
(3.8)
7.6
—
(0.8)
(0.4)
(5.0)
1.1
(1.1)
326.1
325.0 $
$
$
$
$
35.4 $
19.5 $
12.7 $
19.9 $
23.1
46.3
5.9 $
5.7 $
10.3
The Notes to Consolidated Financial Statements are an integral part of these statements.
67
Table of Contents
Notes to Consolidated Financial Statements (Continued)
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 and supplies in-transit monitoring
systems for concrete producers. 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. 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, 2019, as discussed further in Note 21, "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 21, "Discontinued Operations" for further discussion of discontinued operations.
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. Please refer to Note 16,
"Related Party Transactions and Transactions with Grace" for further information on the Tax Sharing Agreement between GCP and Grace related to
Separation.
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 (loss) attributable to noncontrolling interests.
Summary of Significant Accounting and Financial Reporting Policies
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Revisions of Previously Issued Consolidated Financial Statements
In connection with the preparation of the consolidated financial statements for the year ended December 31, 2020, the Company identified
freight expense accrual and other errors in its previously filed 2019 and 2018 annual consolidated financial statements and unaudited quarterly
consolidated financial statements for the first three quarterly periods of 2020 and each of the quarterly periods of 2019.
The Company considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections (“ASC 250”), 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, (“ASC 250-10-S99-2”) in evaluating whether the Company’s previously issued consolidated financial statements
were materially misstated. The Company concluded the errors were not material individually or in the aggregate to the previously issued
consolidated financial statements. In accordance with ASC 250-10-S99-2, the Company has corrected these errors by revising previously filed 2019
and 2018 annual consolidated financial statements in connection with the filing of this 2020 Annual Report on Form 10-K.
The accompanying footnotes have been corrected to reflect the impact of the revisions of the previously filed annual consolidated financial
statements. Please refer to Note 22, “Revisions of Previously Issued Consolidated Financial Statements” and Note 23, "Quarterly Financial
Information (Unaudited)” for reconciliations between as previously reported and as revised annual and quarterly amounts, respectively.
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 forecasts of long term sales growth rates (please refer to Note 7, "Goodwill and Other
Intangible Assets");
Realization values of net deferred tax assets which depend on projections of future taxable income (please refer to Note 9, "Income Taxes");
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 12, "Commitments and Contingencies") and income taxes (please refer to Note 9, "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 10, "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 finite-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 20, "Acquisitions"); and
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•
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 17, "Stock Incentive Plans").
On March 11, 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus ("COVID-19") a global pandemic
and recommended a number of restrictive measures to contain the spread. Many governments in the regions where GCP generates the majority of
its revenue have adopted such policies. GCP has been closely monitoring the impact of COVID-19 and working to manage the effects on its
business globally. It is difficult to estimate with reasonable certainty at this time the duration and extent of the impact of the pandemic on the global
economy, the Company's business, financial position and results of operations. GCP has made certain estimates within its financial statements
related to the impact of COVID-19, including allowances for credit losses related to the estimated amount of receivables not expected to be collected
and excess, obsolete or damaged inventories, future expected cash flows related to impairment assessments of goodwill and long-lived assets,
incentive compensation accruals, contingent liabilities, and sales allowances related to volume rebates recognized based on anticipated sales
volume. There may be changes to the Company's estimates in future periods due to uncertainty associated with the impact of COVID-19, the extent
of which will depend largely on future developments, including new information which may emerge concerning the resurgence of the pandemic, as
well as additional and unanticipated actions by government authorities to further contain the spread of COVID-19.
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 and reportable segments that engage in business activities that generate revenues and
expenses. GCP is engaged in the production and sale of specialty construction chemicals and specialty building materials through its two operating
and reportable segments. 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.
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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 are presented at amortized cost within the "Cash and cash equivalents" in the
Company's Consolidated Balance Sheets and approximate fair value.
Accounts Receivable, Allowance for Credit Losses
Trade accounts receivable are amounts due from customers for products sold or services performed in the ordinary course of business and are
stated at their estimated net realizable value representing amounts expected to be collected. Allowance for credit losses is recorded upon the initial
recognition of trade accounts receivable and reviewed during each reporting period over their contractual life. Allowance for credit losses is
measured based on historical loss rates and the impact of current and future conditions, including an assessment of customer creditworthiness,
historical payment experience, the age of outstanding receivables and collateral to the extent applicable. The Company evaluates the allowance for
credit losses for the entire portfolio of trade accounts receivable on an aggregate basis due to similar risk characteristics of its customers based on
similar industry and historical loss patterns. Accounts receivable balances are written off against the allowance for credit losses when the Company
determines that the balances are not recoverable. Provisions for expected credit losses are recorded in "Selling, general and administrative
expenses" in the Consolidated Statements of Operations. As of December 31, 2020 and 2019, allowance for credit losses was $7.0 million and $7.5
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, 2020 and 2019. Additionally, the amounts recorded in the Consolidated Statements of
Operations for the years ended December 31, 2020 and 2019 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 years ended December 31, 2020, 2019 and 2018.
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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.
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
determined in accordance with an income-based approach utilizing projected discounted cash flows model.
During the years ended December 31, 2020, 2019 and 2018, the Company recorded asset write off charges of $1.1 million, $4.3 million and
$4.5 million, respectively, related to its long-lived assets in connection with its Restructuring and Repositioning Plans. The remaining fair values of
these assets were insignificant subsequent to write offs. Additionally, GCP recognized asset write off charges of $1.5 million related to technology
intangibles during the year ended December 31, 2020. The remaining fair value of these technology intangibles was zero subsequent to a write off.
Please refer to Note 14, "Restructuring and Repositioning Expenses, Asset Write Offs" for further information on asset write off charges recognized
during the years ended December 31, 2020, 2019 and 2018.
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Lessee Arrangements
Effective January 1, 2019, GCP has adopted FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). GCP determines
at contract inception whether the contract represents or contains a lease and conveys the right to control the use of an identified asset over a period
of time in exchange for consideration. For leases with terms greater than 12 months, the Company recognizes right-of-use assets and lease
obligations at the lease commencement date based on a present value of lease payments over the lease term. Lease payments included in the
measurement of right-of-use assets and lease obligations consist of: (i) fixed payments, including periodic rent increases and excluding any lease
incentives paid or payable to the Company by a lessor, and (ii) certain variable payments that depend on an index or a market rate measured on the
commencement date. The Company estimates its incremental borrowing rate based on the remaining lease term and remaining lease payments, as
well as other information available at lease commencement since a readily determinable implicit rate is not provided in the Company's leases. The
Company has elected to utilize a portfolio approach as it pertains to the application of the appropriate discount rates to its portfolios of leases. The
weighted average discount rate for operating leases was 5.50% and 5.33%, respectively, as of December 31, 2020 and 2019. Right-of-use assets
for operating leases are initially measured on the lease commencement date and include any initial direct costs incurred, as well as lease obligation
amounts, net of any lease incentives received from a lessor. Lease expense for operating leases is recognized on a straight-line basis over the
lease term which includes: (i) a non-cancelable term during which the Company has a right to use an underlying asset, (ii) renewal options that
extend the lease, are in the control of the lessor and reasonably certain to be exercised, and (iii) options to terminate the lease before the end of its
non-cancelable term that are not reasonably certain to be exercised. Variable payments that are excluded from the measurement of right-of-use
assets and lease obligations consist primarily of non-lease related services, the Company's proportionate share of operating expenses for the
leased facilities and certain payments related to excess mileage and usage charges for the leased vehicles and equipment. Such variable payments
are recognized as lease expense in the results of operations when the obligation is incurred. The Company does not record right-of-use assets and
lease obligations for leases with an initial term of 12 months or less and recognizes lease expense on a straight-line basis over the lease term.
Finance leases are included in "Properties and equipment, net", "Debt payable within one year" and "Debt payable after one year" in the Company's
Consolidated Balance Sheets and are not material at December 31, 2020 and 2019.
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 of the reporting unit exceeds its carrying amount, no impairment loss is recognized.
However, if the carrying amount exceeds the fair value, the goodwill of the reporting unit is impaired, and the amount of such excess is recognized
as an impairment loss upon writing down goodwill to its fair value.
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Fair value of a reporting unit is determined based on Level 3 inputs 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.
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, 2020 and 2019 for the two reporting units. The Company performed a quantitative
assessment as part of the impairment test in 2020, and the fair values of the reporting units were significantly in excess of their carrying values. As
such, GCP did not recognize impairment losses as a result of the analysis. The Company performed qualitative assessment as a part of the
impairment test in 2019 and determined that it was not likely that the fair values of the reporting units were less than their carrying amounts. As
such, the Company did not perform quantitative assessments and did not recognize impairment losses as a result of the 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 impairment losses 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
performs 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.
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Fair values of the indefinite-lived intangible assets are determined based on Level 3 inputs using 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, 2020 and 2019. The Company performed a quantitative assessment as part of the impairment test in 2020, and the fair values of the indefinite-
lived intangible assets were significantly in excess of their carrying values. As such, GCP did not recognize impairment losses as a result of the
analysis. The Company performed qualitative assessment as a part of the impairment test in 2019 and determined 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 losses 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 9, "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 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 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 expects to receive in
exchange for these products or services. Please refer to Note 2, "Revenue from Lessor Arrangements and 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.
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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 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"), PBUs with market conditions which vest upon the
satisfaction of a performance condition and/or a service condition, as well as stock options with market conditions which vest upon the satisfaction of
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.
The fair value of RSUs is determined based on the number of shares granted and the closing market 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 year ended December 31, 2020, GCP granted stock options with market conditions to the newly appointed CEO. Such options are
expected to cliff vest in three years based on the achievement of certain targets ranging between 0% and 200% related to the Company’s common
stock market price performance over a certain time period relative to the closing market price on the grant date. The fair value of stock options was
determined using a Monte Carlo simulation based on the weighted-average value of options determined for each performance target and the
assumptions related to the risk-free rate, options' expected term and expected stock price volatility computed based on the methodology consistent
with the Black-Scholes option-pricing model.
During the years ended December 31, 2020, 2019 and 2018, the Company granted performance-based restricted stock units (“PBUs”) to certain
key employees. PBUs are performance-based units which are granted by the Company with market conditions. Such PBUs are expected to cliff vest
over three years and will be settled in GCP common stock. PBUs granted in 2020 and 2019 are based on a three-year cumulative adjusted diluted
earnings per share measure that is modified, up or down, based on the Company's TSR relative to the performance of the Russell 3000 Specialty
Chemicals and Building Materials Indices. PBUs granted in 2018 are based on 3-year cumulative adjusted diluted earnings per share measure that
is modified, up or down, based on the Company's total shareholder return ("TSR") relative to the performance of the Russell 3000 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.
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PBUs granted during the years ended December 31, 2020, 2019 and 2018 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 17, "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 and development costs also include depreciation and amortization expenses related to research
and development assets and expenses incurred in funding external research projects.
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 termination costs, asset write offs, 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 write offs are recorded in accordance with the Company's 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
expenses and asset write offs" and “Repositioning expenses,” or in those captions within discontinued operations, in the Consolidated Statements of
Operations. Restructuring expenses, asset write offs and repositioning expenses are excluded from segment operating income. Please refer to Note
14, "Restructuring and Repositioning Expenses, Asset Write Offs" for further information on restructuring and repositioning actions.
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Notes to Consolidated Financial Statements (Continued)
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) expenses, net” in the Company’s Consolidated Statements of Operations. Net foreign currency transaction and remeasurement
gains (losses) of $1.5 million, $(0.3) million and $(2.9) million, respectively, are reflected in “Other (income) expenses, net” for the years ended
December 31, 2020, 2019 and 2018.
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.
Highly Inflationary Economies
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. 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 is 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. During
the years ended December 31, 2020, 2019 and 2018, the Company incurred losses of $0.5 million, $1.1 million, and $1.1 million, respectively,
related to the remeasurement of these monetary net assets which are included in "Other (income) expenses, net" in the Consolidated Statements of
Operations. Net sales generated by the Argentina subsidiary were not material to the Company's consolidated net sales during the years ended
December 31, 2020, 2019 and 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, 2020 and 2019.
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 from continuing operations.
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.
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Notes to Consolidated Financial Statements (Continued)
Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board ("FASB") amended Accounting Standards Codification ("ASC") 740, Income
Taxes (issued under Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes). This amendment removes
certain exceptions to the general principles of ASC 740, and clarifies and amends existing guidance to improve consistent application. GCP expects
to adopt the guidance on January 1, 2021 and does not expect for it to have a material impact on its results of operations, financial position and
cash flows.
Other accounting pronouncements recently issued, but not effective until after December 31, 2020 are not expected to have a material impact
on the Company's financial position, results of operations or liquidity.
Recently Adopted Accounting Standards
Credit Losses
In June 2016, FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which applies to most financial assets measured at amortized cost, as well as certain other instruments, including trade receivables,
other receivables and other financial assets. Topic 326 replaces the incurred credit loss methodology with the expected credit loss model which
requires recognition of an allowance against the assets’ amortized cost to reflect the amount expected to be collected. Expected credit losses are
estimated over the contractual life of financial assets and recognized at inception. GCP has adopted Topic 326 effective January 1, 2020 using the
modified retrospective approach. The adoption did not have a material impact on its financial position as of December 31, 2020 and results of
operations and cash flows for the year ended December 31, 2020. GCP did not recognize any cumulative effect adjustments to the retained
earnings as of January 1, 2020 as a result of the adoption.
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Goodwill
Notes to Consolidated Financial Statements (Continued)
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). The amendments in this update eliminate the
requirement to calculate the implied fair value of goodwill (Step 2) when measuring a goodwill impairment loss which is based on the excess of a
reporting unit’s carrying amount over its fair value. The standard is effective for the Company for its annual or any interim goodwill impairment tests
performed beginning on or after January 1, 2020. GCP adopted the standard effective January 1, 2020. The adoption did not have a material impact
on its financial position, results of operations and cash flows upon adoption.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) whereas a lessee is 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 control the use of the underlying asset
during the lease term, including optional payments that are reasonably certain to occur. The Company adopted Topic 842 effective January 1, 2019
and elected a package of practical expedients allowing it to forgo the reassessment of expired or existing contracts to determine their lease
classification, initial direct costs and whether any of such contracts represent or contain leases. The Company also made an accounting policy
election to combine lease and non-lease components into a single lease component for each class of underlying assets for the arrangements in
which GCP is a lessee, with the exception of a non-lease component related to inventory purchases. The Company separates purchases of raw
materials, labor and certain other inventory-related costs from lease components based on their relative standalone values determined based on
observable market information. Upon adoption of Topic 842, the Company elected a transition option allowing it to forgo the application of
comparative period presentation in the financial statements during the year of adoption. The Company's Consolidated Financial Statements for the
years ended December 31, 2020 and 2019 are presented in accordance with Topic 842, while the comparative periods have not been recast based
on the new standard. The Company did not elect the hindsight practical expedient related to determining the lease term.
The adoption of Topic 842 related to lease arrangements in which the Company is a lessee resulted in a recognition of operating lease right-of-
use assets of $40.8 million and operating lease obligations of $40.9 million as of January 1, 2019. The adoption of Topic 842 did not result in
significant accounting changes for finance leases which were not material as of January 1, 2019 and December 31, 2019. The adoption of Topic 842
related to lease arrangements in which the Company is a lessee did not have a material impact on the Company's results of operations and cash
flows during the year ended December 31, 2019, as described in Note 6, "Lessee Arrangements."
The Company generates revenue from certain sales arrangements within the SCC operating segment related to VERIFI and certain admixture
®
contracts that include lease components, as discussed in Note 2, "Revenue from Lessor Arrangements and Contracts with Customers." Topic 842
provides a practical expedient which allows lessors to combine lease and non-lease components and account for them as one component if they
have the same timing and pattern of transfer and the lease component is classified as an operating lease. The combined component is accounted
for in accordance with Topic 842 if the lease component is predominant, and in accordance with Topic 606 if the non-lease component is
predominant. The Company elected to apply the practical expedient prospectively based on a portfolio approach for certain classes of underlying
assets. The Company does not include taxes (i.e. sales, use, value added or some excise taxes) in the contract consideration, variable lease
payments or transaction price that are allocated among its products or services. The adoption of Topic 842 for the arrangements in which GCP is a
lessor did not have a material impact on the Company's financial position as of December 31, 2019 and its results of operations and cash flows
during the period then ended. Please refer to Note 2, "Revenue from Lessor Arrangements and Contracts with Customers" for further information on
lease arrangements in which the Company is a lessor.
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Notes to Consolidated Financial Statements (Continued)
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. GCP adopted the standard effective January 1, 2019. The
standard did not have a material impact on the Company's financial position and its results of operations and cash flows upon adoption.
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 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 Lessor Arrangements and Contracts with Customers" for further
information on the Company's revenue recognition policies.
Stock Compensation
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 then ended.
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 8, "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 its
results of operations for the year then ended.
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Notes to Consolidated Financial Statements (Continued)
2. Revenue from Lessor Arrangements and 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 or delivered 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
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. Such arrangements contain a lease element due to the customer’s right to control the use of the dispensers over
a period of time in exchange for consideration. The Company has elected to apply the practical expedient to the dispenser asset class and combine
lease and non-lease components related to dispenser maintenance services which are accounted for as one component due to the same timing and
pattern of transfer and the lease component being classified as an operating lease. The combined component is accounted for in accordance with
Topic 842 since the lease component is predominant. Concrete admixtures sold as a part of these arrangements do not get combined with the lease
component since they do not meet the defined criteria. The Company allocates contract consideration between the lease component and concrete
admixtures based on their relative stand-alone selling prices determined based on a cost plus a reasonable margin approach for the lease
component and standalone selling prices for the concrete admixtures. The Company recognizes revenue for the concrete admixtures at a point of
time when the control is transferred to the customer. The lease component is considered to have a short non-cancelable lease term which is
generally thirty days or less and classified as an operating lease. GCP records dispensers as fixed assets and depreciates them over their estimated
useful life of 10 years.
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 installed equipment represents a lease since the customer has the right to control the equipment use over
a period of time in exchange for consideration. Slump management and truck location tracking services represent a non-lease component. The
Company classifies these leases as operating and accounts for the lease and the non-lease components separately since it did not elect to apply
the practical expedient to combine them for the VERIFI equipment asset class. Contract consideration for VERIFI sales arrangements consists
primarily of fixed installation fees and other fixed payments and gets allocated between the lease and non-lease components based on valuation
techniques that estimate a relative stand-alone selling price of each component. The Company recognizes revenue for the lease component on a
straight line basis over the lease term. VERIFI equipment is recorded within "Properties and equipment, net" in the Consolidated Balance Sheets
and depreciated over an estimated useful life of 7 years. 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 fixed installation fees and other fixed payments included in the contract
consideration, as well as slump management fees which are dependent on the quantity of material poured and represent variable consideration. The
Company allocates the contract consideration and the variable consideration between the lease and non-lease components based on their relative
stand-alone selling prices. Revenue related to variable consideration for the lease and non-lease components is recorded at the time
®
®
®
®
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Notes to Consolidated Financial Statements (Continued)
the services are performed and constrained by the amount for which a significant revenue reversal is not probable to occur. Revenue generated
from VERIFI sales arrangements represented less than 10% of the Company's consolidated revenue during the years ended December 31, 2020,
2019 and 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 years ended December 31, 2020, 2019 and 2018.
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, 2020, the aggregate amount of transaction price allocated to remaining performance obligations was
immaterial and will be earned as revenue over the remaining term of these contracts, which is generally one to four years.
Lease elements within sales arrangements
Certain sales arrangements within the SCC operating segment related to certain admixture contracts and VERIFI include lease components, as
discussed above.
®
The following table summarizes the revenue recognized for these sales arrangements for the years ended December 31, 2020, 2019 and 2018
and distinguishes between the lease and non-lease components:
(In millions)
(1)
Lease revenue :
Lease payments revenue
Variable lease revenue
Total lease revenue
(2)
Service revenue :
Fixed installation revenue
Variable revenue
Total service revenue
Total revenue
________________________________
2020
Year Ended December 31,
2019
2018
$
$
$
$
$
28.8 $
10.3
39.1 $
1.2 $
6.4
7.6 $
46.7 $
26.8 $
7.8
34.6 $
0.1 $
4.9
5.0 $
39.6 $
26.4
6.7
33.1
0.1
4.1
4.2
37.3
(1)
(2)
Lease revenue consists of dispensers lease revenue, as well as an allocated portion of VERIFI® fixed fees and variable slump management fees. Lease revenue is
included within "Net Sales" in the Consolidated Statements of Operations.
Service revenue consists of an allocated portion of VERIFI® fixed fees and variable slump management fees. Service revenue is included within "Net Sales" in the
Consolidated Statements of Operations.
The future minimum lease payments receivable under the operating leases were not material as of December 31, 2020.
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.
The Company accepts returns for certain products sales. These returns are at the discretion of the Company and typically are granted only
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.
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Notes to Consolidated Financial Statements (Continued)
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 standard. GCP expenses shipping and handling
costs in the period they are incurred and presents them within "Cost of goods sold" in the Consolidated Statements of Operations.
3. Inventories, net
The following is a summary of inventories presented in the Consolidated Balance Sheets at December 31, 2020 and December 31, 2019:
(In millions)
Raw materials
In process
Finished products and other
Total inventories
December 31,
2020
2019
41.3 $
4.2
52.9
98.4 $
40.0
4.0
51.9
95.9
$
$
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 $9.1 million and $10.6 million, respectively, as of December 31, 2020 and December 31, 2019.
4. Derivative Instruments
The Company uses derivative instruments to partially offset its business exposure to foreign currency risk on net investments in certain foreign
subsidiaries. The Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting
considerations or significant economic cost of hedging particular exposures. To protect the net investment in a foreign operation from fluctuations in
foreign currency exchange rates, the Company may enter into foreign currency forward contracts to offset a portion of the changes in the carrying
amounts of these investments due to fluctuations in foreign currency exchange rates.
As of December 31, 2020, the Company was a party to four forward contracts with an aggregate notional amount of €40.0 million to hedge
foreign currency exposure on net investments in certain of its European subsidiaries whose functional currency is the Euro. These forward contracts
are designated as hedging instruments and recognized at fair value as assets or liabilities in the Consolidated Balance Sheets. Each contract has a
notional amount of €10.0 million and matures annually starting on June 14, 2021 through June 17, 2024. During the year ended December 31, 2020,
GCP settled one contract with a notional amount of €10.0 million upon its maturity and entered into a new contract with a notional amount of
€10.0 million maturing on June 17, 2024. These contracts will settle in US Dollars upon maturity.
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Notes to Consolidated Financial Statements (Continued)
The forward contracts are designated and qualify as net investment hedges for which effectiveness is assessed based on the spot rate method.
Changes in hedge fair values attributable to the differences between the forward rate and the spot rate at inception are excluded from the
effectiveness assessment. The initial value of such amounts is measured at contract inception and recognized in earnings within “Other (income)
expenses, net” in the Consolidated Statements of Operations, consistent with the Company's accounting policy election to amortize it on a straight-
line basis over the hedging instruments' contractual term. The change in the fair value of the net investment hedges included in their effectiveness
assessment is recognized within "Currency translation adjustments, net of income taxes" of Other Comprehensive Income (Loss) until the hedged
net investments in foreign operations are sold or substantially liquidated.
The following table summarizes the fair value of the Company’s derivative instruments designated as net investment hedges as of December 31,
2020 and 2019:
(In millions)
Derivative asset
(1)
:
Foreign exchange forward contracts
(1)
Derivative liability :
Foreign exchange forward contracts
__________________________
December 31, 2020
December 31, 2019
$
$
— $
(1.8) $
1.1
—
(1)
The fair value of derivative instruments is measured based on expected future cash flows discounted at market interest rates using observable market inputs and
classified as Level 2 within the fair value hierarchy. As of December 31, 2020, fair value of derivative liabilities of $0.4 million and $1.4 million, respectively, is recorded
within "Other Current Liabilities" and "Other Liabilities" in the accompanying Consolidated Balance Sheets. As of December 31, 2019, fair value of derivative assets of
$0.3 million and $0.8 million, respectively, is recorded within "Other Current Assets" and "Other Assets" in the accompanying Consolidated Balance Sheets.
The following table summarizes the amounts recorded in the Company's Consolidated Statements of Operations and Consolidated Statements
of Comprehensive Income (Loss) related to forward contracts designated as net investment hedges for the year ended December 31, 2020 and
2019:
(In millions)
Gains (losses) on foreign exchange forward
contracts
$
__________________________
Year Ended December 31,
2020
2019
Other (income)
expenses, net
Currency Translation
Adjustments
(1)
Other (income)
expenses, net
Currency Translation
Adjustments
(1)
1.0 $
(2.6) $
0.6 $
0.4
(1)
The amount is presented net of tax benefit of $0.9 million and net of tax expense of $0.1 million, respectively, for the years ended December 31, 2020 and 2019.
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Notes to Consolidated Financial Statements (Continued)
5. Properties and Equipment
The following is a summary of properties and equipment presented in the Consolidated Balance Sheets at December 31, 2020 and
December 31, 2019:
(In millions)
Land
Buildings
Machinery, equipment and other
Information technology and equipment
Projects under construction
Properties and equipment, gross
Accumulated depreciation
Properties and equipment, net
December 31,
2020
2019
8.1 $
116.7
455.8
86.5
12.9
680.0
(454.4)
225.6 $
8.5
138.1
436.1
82.5
24.8
690.0
(445.0)
245.0
$
$
Depreciation expense related to properties and equipment was $37.4 million, $33.7 million and $32.5 million, respectively, for the years ended
December 31, 2020, 2019 and 2018.
6. Lessee Arrangements
The Company leases manufacturing and office facilities, as well as certain vehicles and equipment, under operating leases. Certain manufacturing
facilities are leased under land and building lease arrangements where lease terms as of December 31, 2020 consist of a remaining non-cancelable
lease term of up to 3.5 years and renewal options that are reasonably certain to be exercised for an additional term of up to 17.6 years. The
weighted average remaining lease term for operating leases was 12.8 years and 13.5 years, respectively, as of December 31, 2020 and 2019.
During the year ended December 31, 2019, the Company reassessed a lease term for one of its office facilities since it was no longer reasonably
certain that the lease would be extended beyond its non-cancelable term ending on September 30, 2020. The lease liability and the right-of-use
asset were each decreased by $4.2 million due to the lease term decrease of 30.8 years. As of December 31, 2019, the lease liability and the right-
of-use asset were immaterial following the lease term reassessment.
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Notes to Consolidated Financial Statements (Continued)
The following table summarizes components of lease expense for the years ended December 31, 2020 and 2019:
(In millions)
Operating lease expense
Variable lease expense
Short-term lease expense
Total lease expense
Year Ended December 31,
2020
2019
$
$
13.7 $
5.9
3.0
22.6 $
The following table summarizes lease liability maturities as of December 31, 2020:
(In millions)
2021
2022
2023
2024
2025
Thereafter
Total undiscounted lease payments
Less: imputed interest
Present value of lease payments
Less: operating lease obligations payable within one year
Long-term operating lease obligations
$
$
$
Amount
12.6
4.4
2.4
19.4
9.4
6.5
4.0
2.5
2.0
21.3
45.7
(11.5)
34.2
(8.0)
26.2
The following table summarizes supplemental cash flow information related to leases during the years ended December 31, 2020 and 2019:
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating lease right of use assets obtained in exchange for new lease obligations:
Upon adoption of Topic 842
During the remainder of the period
Total
Year Ended December 31,
2020
2019
$
$
$
11.2 $
— $
14.8
14.8 $
12.6
40.8
5.9
46.7
GCP's rent expense for operating leases was $14.3 million during the year ended December 31, 2018.
Sale of Corporate Headquarters
On July 31, 2020, GCP sold its corporate headquarters located at 62 Whittemore Avenue, Cambridge, Massachusetts to IQHQ, L.P, entered
into a leaseback transaction with the buyer, and received from the buyer cash proceeds of $122.5 million, net of the related transaction costs and
commissions of $2.5 million, pursuant to the sale of the property. The gain on sale of the corporate headquarters of $110.2 million was recognized
based on the assets' fair value of $133.6 million and carrying value of $20.9 million, net of related transaction costs of $2.5 million, upon transfer of
control to the buyer at the time of the sale.
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Notes to Consolidated Financial Statements (Continued)
The lease of GCP's corporate headquarters is classified as an operating lease and has an initial rent-free term of eighteen months. The lease
commenced on July 31, 2020 and can be extended for an additional six months at GCP's option, subject to monthly rental payments of $0.6 million.
The exercise of the extension option was not reasonably certain as of December 31, 2020. Pursuant to the terms of the lease, GCP is required to
make certain payments for real estate taxes and other operating expenses related to the leased property which are recognized as variable lease
expenses over the lease term. Fair value of $8.6 million related to the initial rent-free lease term was recognized as an Operating lease right-of-use
asset in the Consolidated Balance Sheets on the lease commencement date as a result of a non-cash transaction and is being amortized as
operating lease expense on a straight-line basis over the lease term.
The fair value of assets sold and the fair value of the Operating lease right-of-use asset related to free rent were determined based on Level 3
inputs. In determining fair value, the highest and best use of the assets sold differs from GCP’s current use of the assets as its’ corporate
headquarters due to higher lease income that could potentially be generated by market participants based on the highest and best use of the
premises.
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Table of Contents
Notes to Consolidated Financial Statements (Continued)
7. 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, 2020 and 2019, are as follows:
(In millions)
Balance, December 31, 2018
Foreign currency translation
Balance, December 31, 2019
Foreign currency translation
Balance, December 31, 2020
Other Intangible Assets
SCC
SBM
Total
GCP
62.3 $
(0.7)
61.6 $
1.6
63.2 $
145.6 $
1.7
147.3 $
4.5
151.8 $
207.9
1.0
208.9
6.1
215.0
$
$
$
As of December 31, 2020 and 2019, technology and other intangible assets of $70.9 million and $80.7 million, respectively, consisted of finite-
lived intangible assets of $66.5 million and $76.5 million, respectively, and indefinite-lived intangible assets of $4.4 million and $4.2 million,
respectively.
The following is a summary of the finite-lived intangible assets presented in the Consolidated Balance Sheets as of December 31, 2020 and 2019:
(In millions)
Customer relationships
Technology
Trademarks
Other
Total
Gross Carrying
Amount
December 31, 2020
Accumulated
Amortization
Net Book Value
Gross Carrying
Amount
December 31, 2019
Accumulated
Amortization
Net Book Value
$
$
88.4 $
39.5
12.9
6.7
147.5 $
42.0 $
22.8
10.8
5.4
81.0 $
46.4 $
16.7
2.1
1.3
66.5 $
87.4 $
41.0
11.9
6.5
146.8 $
35.3 $
20.0
9.9
5.1
70.3 $
52.1
21.0
2.0
1.4
76.5
Total indefinite-lived intangible assets consisted of purchased technology, trademarks and trade names and amounted to $4.4 million and $4.2
million, respectively, at December 31, 2020 and 2019. Amortization expense related to finite-lived intangible assets was $9.0 million, $9.5 million and
$9.5 million, respectively, for the years ended December 31, 2020, 2019 and 2018.
As of December 31, 2020, the estimated future annual amortization expense for intangible assets is as follows:
(In millions)
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
89
Amount
8.9
8.9
8.5
8.4
7.8
24.0
66.5
$
$
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8. Debt and Other Borrowings
Components of Debt
Notes to Consolidated Financial Statements (Continued)
The following is a summary of obligations related to the senior notes and other borrowings at December 31, 2020 and December 31, 2019:
(In millions)
5.5% Senior Notes due in 2026, net of unamortized debt issuance costs of $3.3 million and $3.9
million, respectively, at December 31, 2020 and 2019
Revolving credit facility due in 2023
(2)
Other borrowings
Total debt
Less debt payable within one year
Debt payable after one year
Weighted average interest rates on total debt obligations outstanding
(1)
$
$
__________________________
Year Ended December 31,
2020
2019
346.6
—
5.1
351.7
2.8
348.9
$
$
346.1
—
3.1
349.2
2.7
346.5
5.5 %
5.5 %
(1)
(2)
Represents borrowings under the Revolving Credit Facility with an aggregate principal amount of $350.0 million as of December 31, 2020 and 2019.
Represents borrowings of $2.1 million and $1.8 million, respectively, at December 31, 2020 and 2019, under various lines of credit and other borrowings, primarily by
non-U.S. subsidiaries, as well as $3.0 million and $1.3 million, respectively, of finance lease obligations.
The principal maturities of debt obligations outstanding, net of debt issuance costs, were as follows at December 31, 2020:
(In millions)
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total debt
Debt Refinancing
Amount
2.8
0.8
0.8
0.6
0.1
346.6
351.7
$
$
On April 10, 2018, GCP fully 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 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 of deferred issuance costs write-off related to a financial institution that exited the
syndicate upon the Credit Agreement amendment.
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 and (viii) place restrictions on
distributions from and other actions by subsidiaries. As of December 31, 2020 and 2019, 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, 2020 and 2019.
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Credit Agreement
Notes to Consolidated Financial Statements (Continued)
On April 10, 2018, GCP amended its Credit Agreement and increased the aggregate principal amount available under its Revolving Credit Facility
from $250.0 million and to $350.0 million. GCP incurred debt issuance costs of $4.8 million due to the amendment of the Credit Agreement.
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) maintaining a maximum total leverage ratio and a minimum interest coverage 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, 2020 and 2019. There are no events of default as of December 31, 2020 and 2019.
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. As of December 31, 2020 and 2019, there were no outstanding borrowings on the Revolving Credit Facility and approximately
$2.6 million and $5.9 million, respectively, in outstanding letters of credit, which resulted in available credit of $347.4 million and $344.1 million,
respectively, under the Revolving Credit Facility. There were no interest payments on the Revolving Credit Facility during the years ended
December 31, 2020 and 2019.
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 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 Consolidated Statements of Operations. The remaining unamortized debt issuance costs related to the
Revolving Credit Facility were $2.2 million and $3.1 million, respectively, as of December 31, 2020 and 2019.
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. As of
December 31, 2020 and 2019, the remaining unamortized debt issuance costs related to the 5.5% Senior Notes were $3.3 million and $3.9 million,
respectively.
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Debt Fair Value
Notes to Consolidated Financial Statements (Continued)
At December 31, 2020 and 2019, the carrying amounts and fair values of GCP's debt are as follows:
December 31, 2020
December 31, 2019
(In millions)
5.5% Senior Notes due in 2026
Other borrowings
Total debt
Carrying Amount
$
346.6 $
5.1
351.7 $
Fair Value
Carrying Amount
Fair Value
362.0 $
5.1
367.1 $
346.1 $
3.1
349.2 $
366.3
3.1
369.4
$
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. As of December 31, 2020, the fair value was higher than the carrying amount due to higher
bond market prices. The carrying amount represents the aggregate principal amount at maturity reduced by the unamortized debt issuance costs.
93
9. Income Taxes
Provision for Income Taxes
The components of income from continuing operations before income taxes and the related provision (benefit) for income taxes for 2020, 2019
and 2018 are as follows:
(In millions)
Income from continuing operations before income taxes:
Domestic
Foreign
Total
Provision (benefit) 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,
2019
2020
2018
$
$
$
$
103.1 $
34.6
137.7 $
2.7 $
14.0
3.9
3.0
10.9
2.2
36.7 $
15.2 $
20.0
35.2 $
(13.4) $
1.4
1.0
(0.4)
6.4
(1.0)
(6.0) $
5.6
4.6
10.2
16.8
(0.6)
(0.2)
(0.4)
12.1
(1.4)
26.3
The 2017 Tax Act (the "Act") continues to impact the Company as the Internal Revenue Service ("IRS") publishes additional guidance and
regulations around the global intangible low-taxed income ("GILTI"), foreign derived intangible income ("FDII"), foreign tax credits, and deduction of
the interest expense. On March 27, 2020, then President Trump signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security
("CARES") Act, which aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19
pandemic and generally supporting the U.S. Economy. The CARES Act allows for increased net operating loss periods, alternative minimum tax
credit refunds, and favorable modifications to the net interest deduction limitation. Additionally, the CARES Act made technical corrections to tax
depreciation methods for qualified improvement property.
During the year ended December 31, 2020, as a result of the additional deductions and net operating loss carryback allowable to GCP under
the CARES Act, GCP recorded a net tax benefit of $5.5 million, an increase in current US income tax receivable of $1.8 million, a decrease in US
deferred tax assets of $9.3 million, and a decrease to GCP’s long-term tax payable of $13.0 million.
During the year ended December 31, 2019, as a result of clarifications issued in January 2019 by the Internal Revenue Service (IRS) in the final
treasury regulations under Code Section 965, GCP decreased its liability for unrecognized tax benefits by $20.2 million. In addition, the application
of the final regulations resulted in an increase to GCP’s long-term tax payable by $3.7 million and an increase of GCP's short-term tax payable by
$0.2 million.
During the year ended December 31, 2018, the Company recorded an increase to the provisional net charge of $17.9 million which was
comprised of an expense of $20.2 million related to certain capital gains recognized resulting from the application of the Transition Tax, 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.
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Transition Tax
Notes to Consolidated Financial Statements (Continued)
The 2017 Tax Act eliminated the deferral of U.S. income tax on the historical unrepatriated earnings by imposing the Transition Tax, which was
a one-time mandatory deemed repatriation tax on undistributed earnings. The Transition Tax was assessed on the U.S. shareholder's share of the
foreign corporation's accumulated foreign earnings that had not previously been taxed. Earnings in the form of cash and cash equivalents was taxed
at a 15.5% and all other earnings were taxed at 8.0%.
As of December 31, 2020, the unpaid balance of the Transition Tax obligation is $28.4 million long term income tax payable, net of
overpayments and foreign tax credits. After considering overpayments, the outstanding payable is due between April 2023 and April 2025.
Effective Tax Rate
The difference between the provision for income taxes at the U.S. federal income tax rates of 21% and GCP's overall income tax provision
(benefit) are as follows:
(In millions)
Tax provision at U.S. federal income tax rate
Change in provision resulting from:
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
Nondeductible expenses and non-taxable items
U.S. foreign income tax credits
Research and other state credits
Brazil refund
Change in rate
Unrecognized tax benefits
Equity compensation
Other
(1)
Provision (benefit) for income taxes
__________________________
2020
Year Ended December 31,
2019
2018
$
28.9 $
7.4 $
—
1.1
(0.7)
2.6
1.1
5.5
3.7
(1.5)
(0.8)
—
(4.5)
(1.1)
0.4
2.0
36.7 $
3.9
(0.3)
1.2
3.6
1.0
0.9
1.7
(2.0)
(1.3)
(3.2)
—
(20.3)
(0.2)
1.6
(6.0) $
$
2.1
(2.5)
0.3
0.7
3.2
6.8
(0.3)
—
(5.7)
(1.2)
—
0.7
20.7
(0.5)
2.0
26.3
(1)
Amounts in 2018 and 2019 are primarily related to an unrecognized tax benefit increase of $20.2 million in 2018 and the subsequent $20.2 million reversal in 2019
due to the regulatory clarification of the 2017 Tax Act in January 2019.
Provision (benefit) for income taxes for the years ended December 31, 2020, 2019, and 2018 was $36.7 million, ($6.0) million and $26.3 million,
respectively, representing effective tax rates of 26.7%, 17.0%, and 257.8%, respectively.
The change in the Company's effective tax rate for the year ended December 31, 2020 compared to 2019 was primarily due to higher state
taxes as a result of the gain on sale of corporate headquarters, the non-recurrence of the 2019 unrecognized tax benefit from the finalization of
Transition Tax regulations issued in January 2019, as well as the 2020 non-deductibility of executive compensation, and a UK rate change, offset by
tax benefits resulting from the carryback of losses at the higher 35% U.S. tax rate applicable in prior years.
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Table of Contents
Notes to Consolidated Financial Statements (Continued)
The Company's 2020 effective tax rate of 26.7% differed from the 21% U.S. statutory rate primarily due to tax provisions from non-deductible
executive compensation of $1.9 million, the gain on sale of corporate headquarters which resulted in a higher blended state tax provision of
$5.2 million and rate changes in the UK of $1.0 million, partially offset by a U.S. tax benefit of $5.5 million due to the net operating loss carrybacks to
earlier years at the higher 35% U.S. tax rate as allowed under the CARES Act.
The change in the Company's tax rate for the year ended December 31, 2019 compared to 2018 was primarily due to the unrecognized benefit
from the finalization of Transition Tax regulations issued in January 2019, as well as the benefit in 2019 of a Brazilian income tax refund and a lower
valuation allowance.
The Company's 2019 effective tax rate of 17.0% differed from the 21% U.S. statutory rate primarily due to the reversal of unrecognized benefits
from the finalization of Transition Tax regulations issued in January 2019, resulting in a tax benefit of $20.2 million, as well as the benefit of a
Brazilian income tax refund of $3.2 million and U.S. foreign tax credits generated of $2.0 million. These benefits were partially offset by a tax
provision of $3.9 million due to changes to GCP's 2017 income tax liability and Transition Tax as well as the effect of foreign rate differential of $3.6
million, non-deductible expenses of $1.7 million and a valuation allowance increase of $1.0 million.
The Company's 2018 effective tax rate of 257.8% differed from 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 net operating losses in Germany, France, India, Turkey and Mexico that
do not benefit the effective tax rate.
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Notes to Consolidated Financial Statements (Continued)
Deferred Tax Assets and Liabilities
The components of the deferred tax assets and liabilities at December 31, 2020 and 2019 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
Operating Lease Obligations
Foreign tax credit carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Properties and equipment
Other
Operating Lease Right of Use
Intangible assets/goodwill
Outside basis difference in Verifi
Total deferred tax liabilities
Valuation Allowance:
®
Foreign net operating loss carryforwards
Foreign tax credit carryforwards
Total Valuation Allowance
Net deferred tax assets (liabilities)
December 31,
2020
December 31,
2019
$
14.8 $
—
13.1
8.8
—
1.9
0.1
8.7
1.5
2.1
51.0
(18.3)
(1.5)
(8.7)
(2.2)
(9.3)
(40.0)
(14.8)
(1.5)
(16.3)
$
(5.3) $
16.8
0.7
10.2
11.0
—
2.2
10.3
7.4
1.2
1.3
61.1
(14.3)
(1.2)
(7.4)
(1.1)
(6.9)
(30.9)
(16.0)
(1.2)
(17.2)
13.0
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, 2020, GCP recorded a deferred tax asset of $0.3 million for excess U.S. foreign tax credit carryovers. These credits may be
carried back one year and forward ten years. Management believes it is not more likely than not that these credits will be utilized and has recorded a
full valuation allowance against the deferred tax asset.
At December 31, 2019, GCP recorded a deferred tax asset of $1.2 million for excess U.S. foreign tax credit carryovers. These credits may be
carried back one year and forward ten years. Management believes it is not more likely than not that these credits will be utilized and has recorded a
full valuation allowance against the deferred tax asset.
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Notes to Consolidated Financial Statements (Continued)
At December 31, 2020 and 2019, GCP has recorded a valuation allowance of $16.3 million and $17.2 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 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 2020, the Company decreased valuation allowances by $0.9 million. Valuation allowances on foreign net operating losses decreased by a
net $1.2 million which was comprised of decreases of $1.2 million related to foreign exchange impact primarily in Brazil. Foreign valuation
allowances also decreased by $0.5 million due to releases of valuation allowances, the impact of which was offset by valuation allowance increases
on U.S foreign tax credit carryovers of $0.3 million and valuation allowance increases on foreign net operating losses of $1.3 million. Foreign
valuation allowances were further reduced by $0.8 million due to an unrecognized tax benefit recorded as a reduction in GCP's foreign deferred tax
assets.
In 2019, the Company decreased valuation allowances by $1.3 million. Valuation allowances on foreign net operating losses decreased by
$2.5 million in total which was due to a $1.1 million rate change impact reducing France net operating losses, foreign exchange impacts of $1.2
million and a $0.2 million benefit on net valuation releases. The impact of such items was offset by a valuation allowance increase on U.S foreign tax
credit carryovers of $1.2 million.
As of December 31, 2020, the Company had net operating losses available for carryforward of approximately $53.8 million. These net
operating losses consist primarily of Australia, Brazil, Chile, France, and Germany net operating losses of $1.2 million, $17.5 million, $3.9 million,
$11.6 million, and $6.6 million respectively, each with an unlimited carryover period, and $8.8 million of India net operating losses that begin to
expire in 2021. As of December 31, 2020, the Company had U.S. foreign tax credit carryovers of $1.5 million that will expire in 2029.
Repatriation
In general, it is the Company's practice and intention to permanently reinvest the earnings of its 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 approximately $558.7 million of
unremitted earnings from foreign subsidiaries to the U.S. as those earnings continue to be permanently reinvested. The estimated unrecorded tax
liability associated with these unremitted earnings is $7.8 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. Please refer to
Note 16, "Related Party Transactions and Transactions with Grace" for further information on the Tax Sharing Agreement.
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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, 2020, is presented
below.
(In millions)
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
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, 2019
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, 2020
Unrecognized
Tax Benefits
34.1
21.0
—
(2.0)
(0.3)
52.8
—
—
(1.5)
(19.5)
31.8
0.9
—
(1.9)
—
30.8
$
$
$
$
The balance of unrecognized tax benefits as of December 31, 2020, 2019 and 2018, that if recognized, would affect GCP’s effective tax rate are
$30.0 million, $31.6 million and $52.4 million, respectively, GCP accrues potential interest and any associated penalties related to unrecognized tax
benefit within "(Provision) benefit from 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 benefits
and included in the Consolidated Balance Sheets as of December 31, 2020 and 2019 was $11.0 million and $10.6 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 benefits related to GCP's operations
may be indemnified by Grace. As of December 31, 2020, 2019 and 2018, the amount of unrecognized tax benefits considered obligations of Grace
(including both interest and penalties) were $1.2 million, $2.6 million and $3.0 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 $2.6 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, 2020, the tax years for which the Company remains subject to United States federal income tax assessment and state and
local income tax assessment upon examination are 2017 and thereafter.
The Company is also subject to taxation in various foreign jurisdictions, including in Europe, the Middle East, Africa, Asia Pacific, Canada and
Latin America. As of December 31, 2020, the Company is under, or may be subject to, audit or examination and additional assessments in respect
of these particular jurisdictions for tax years 2012 and thereafter.
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Notes to Consolidated Financial Statements (Continued)
Foreign jurisdiction audits that have been initiated and/or are ongoing include (i) a Turkish audit relating to GCP Turkey A.S. for taxable year
2018, (ii) a Canadian audit relating to GCP Canada, Inc. for taxable years 2015-2016, (iii) a French audit relating to GCP Produits de Construction
SAS for taxable years 2016-2018, (iv) a Vietnam audit relating to GCP Vietnam Company Limited for taxable years 2012-2018, (v) an Indian audit
relating to GCP Applied Technologies (India) Pte. Ltd. for taxable years 2019-2020, (vi) a Spain audit relating to GCP Applied Technologies Iberia
SL (a Darex entity) for taxable years 2013-2015, and (vi) a Philippines audit relating to GCP Applied Technologies (Philippines) Inc. (a Darex entity)
for taxable years 2016. Since GCP Applied Technologies Iberia SL and GCP Applied Technologies (Philippines) Inc. were sold in July 2017, any
assessments pursuant to this audit will be reimbursed by GCP to the buyer .
10. 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 as 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"). The overfunded plans hold plan assets measured at fair value that exceeds the PBO. In contrast to the 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
Long-term pension liabilities:
Underfunded defined benefit pension plans
Unfunded defined benefit pension plans
Total long-term pension liabilities related to underfunded and unfunded defined benefit pension plans
Pension liabilities included in other current liabilities
Net funded status
U.S. Pension Plans
December 31, 2020
December 31,
2019
$
$
29.7 $
(33.3)
(29.6)
(62.9)
(1.4)
(34.6) $
25.0
(40.8)
(26.7)
(67.5)
(1.2)
(43.7)
On May 3, 2017, the Board of Directors approved an amendment to the GCP Applied Technologies Inc. Retirement Plan for Salaried
Employees that closes the plan to new employees effective January 1, 2018 and freezes the accrual of plan benefits for all plan participants as of
December 31, 2022.
There were no curtailment gains recognized during the years ended December 31, 2020, 2019 and 2018 for the U.S. plans.
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Notes to Consolidated Financial Statements (Continued)
During the years ended December 31, 2020, 2019 and 2018, pension mark-to-market (MTM) (losses) gains from continuing operations related
to annual remeasurements of the U.S. plans' PBO and plan assets were ($3.4) million, ($12.3) million and $9.5 million, respectively.
Non-U.S. Pension Plans
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 resulted in 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.
In December 2019, the Board of Directors approved an amendment to the GCP Applied Technologies Inc. UK Retirement Plan that freezes the
accrual of plan benefits for all plan participants starting December 31, 2019. As a result, the Company recognized a curtailment gain of $1.2 million
in continuing operations.
The Company recognized the following curtailment gains related to non-U.S. pension plans:
(In millions)
Net curtailment gains:
Total net curtailment gains from continuing operations
Total net curtailment gains from discontinued operations
Total net curtailment gains
Year Ended December 31,
2019
2018
$
$
1.2 $
0.2
1.4 $
0.2
—
0.2
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Notes to Consolidated Financial Statements (Continued)
During the years ended December 31, 2020, 2019 and 2018, pension mark-to-market (MTM) gains (losses) from continuing operations related
to annual remeasurements of the Non-U.S. plans' PBO and plan assets were $0.6 million, ($1.0) million and $0.4 million, respectively.
During the years ended December 31, 2020, 2019 and 2018, adjustments for curtailments and pension mark-to-market remeasurements for
both the U.S. and non-U.S. plans are presented in "Other income (expenses), net" in the Consolidated Statements of Operations.
Analysis of Plan Accounting and Funded Status
The following table summarizes the changes in benefit obligations, the fair values of retirement plan assets, and funded status during the years
ended December 31, 2020 and 2019, including amounts presented in both continuing and discontinued operations.
(In millions)
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Amendments
Settlements/curtailments
Actuarial loss (gain)
Benefits paid
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
Benefits paid
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
Non-current liabilities
Net amount recognized
Amounts recognized in Accumulated Other Comprehensive Loss:
Prior service credit
Net amount recognized
U.S.
Defined Benefit Pension Plans
Non-U.S.
Total
2020
2019
2020
2019
2020
2019
$
$
$
$
$
$
$
$
171.9 $
6.1
5.0
—
—
19.1
(16.8)
—
185.3 $
123.0 $
22.2
15.9
(16.8)
—
144.3 $
141.5 $
6.3
5.8
—
—
27.8
(9.5)
—
171.9 $
110.5 $
21.9
0.1
(9.5)
—
123.0 $
265.6 $
1.0
4.1
0.3
—
28.3
(14.7)
7.9
292.5 $
270.8 $
33.8
1.5
(14.7)
7.5
298.9 $
246.8 $
2.6
5.4
0.2
(1.4)
20.2
(15.4)
7.2
265.6 $
250.4 $
25.1
2.6
(15.4)
8.1
270.8 $
437.5 $
7.1
9.1
0.3
—
47.4
(31.5)
7.9
477.8 $
393.8 $
56.0
17.4
(31.5)
7.5
443.2 $
388.3
8.9
11.2
0.2
(1.4)
48.0
(24.9)
7.2
437.5
360.9
47.0
2.7
(24.9)
8.1
393.8
(41.0) $
(48.9) $
6.4 $
5.2 $
(34.6) $
(43.7)
1.4 $
(0.6)
(41.8)
(41.0) $
— $
(0.4)
(48.5)
(48.9) $
28.3 $
(0.8)
(21.1)
25.0 $
(0.8)
(19.0)
6.4 $
5.2 $
29.7 $
(1.4)
(62.9)
(34.6) $
25.0
(1.2)
(67.5)
(43.7)
—
— $
—
— $
2.5
2.5 $
2.3
2.3 $
2.5
2.5 $
2.3
2.3
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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
(In millions)
Components of Net Periodic Benefit Cost (Income) and
Other Amounts Recognized in Other Comprehensive
(Income) Loss
Net Periodic Benefit Cost (Income):
(1)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Gain on termination, curtailment and settlement of
pension plans
Pension mark-to-market adjustment
Net periodic benefit cost (income)
Less: Net periodic benefit income from discontinued
operations
Net periodic benefit cost (income) from continuing
operations
Defined Benefit Pension Plans
U.S.
Non-U.S.
2020
2019
2020
2019
2.61 %
3.91 %
3.26 %
5.50 %
4.10 %
3.26 %
4.00 %
4.33 %
6.00 %
4.10 %
Year Ended December 31,
1.17 %
2.47 %
1.80 %
1.85 %
3.13 %
1.80 %
3.12 %
2.48 %
2.44 %
3.03 %
2020
Non-U.S.
U.S.
Total
U.S.
2019
Non-U.S.
Total
U.S.
2018
Non-U.S.
Total
$
$
6.1 $
5.0
(6.5)
—
1.0 $
4.1
(4.7)
0.2
7.1 $
9.1
(11.2)
0.2
6.3 $
5.8
(6.5)
—
—
3.4
8.0 $
—
(0.6)
— $
—
2.8
8.0 $
—
12.3
17.9 $
2.6 $
5.4
(5.9)
0.1
(1.4)
1.0
1.8 $
8.9 $
11.2
(12.4)
0.1
(1.4)
13.3
19.7 $
7.9 $
5.6
(7.6)
—
—
(9.5)
(3.6) $
3.0 $
5.6
(6.9)
—
(0.2)
(0.4)
1.1 $
—
—
—
—
(0.2)
(0.2)
—
—
10.9
11.2
(14.5)
—
(0.2)
(9.9)
(2.5)
—
$
8.0 $
— $
8.0 $
17.9 $
2.0 $
19.9 $
(3.6) $
1.1 $
(2.5)
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive (Income) Loss:
Net prior service cost
Total recognized in net periodic benefit cost (income) and
other comprehensive (income) loss
$
$
________________________________
— $
0.3 $
0.3 $
— $
0.2 $
0.2 $
— $
2.7 $
2.7
8.0 $
0.3 $
8.3 $
17.9 $
2.2 $
20.1 $
(3.6) $
3.8 $
0.2
(1)
Service cost component of net periodic benefit cost (income) is included in "Selling, general and administrative expenses" and "Cost of goods sold" in the
Consolidated Statements of Operations. All other components of net periodic benefit cost (income) are presented in "Other (income) expenses, net," within the
Consolidated Statements of Operations.
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, 2020, the measurement date for GCP's defined benefit pension plans, the
PBO was $477.8 million compared to $437.5 million as of December 31, 2019. The increase in the PBO was primarily due to a decrease in discount
rates. As of December 31, 2020, the PBO was determined using the weighted average discount rates for U.S. plans and non-U.S. plans, which were
2.61%, and 1.17%, respectively. The decrease in the discount rates was primarily due to the lower market rates for a portfolio of U.S. and non-U.S.
high quality corporate bonds for which the amount and timing of cash outflow approximate estimated payouts for the pension plans.
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Notes to Consolidated Financial Statements (Continued)
The underfunded status of the U.S. defined pension plans decreased to $41.0 million for the year ended December 31, 2020 compared to $48.9
million in the prior year, while the overfunded status of the non-U.S. defined pension plans increased to $6.4 million for the year ended December
31, 2020 compared to $5.2 million in the prior year. The changes in funded status for the U.S. and non-US pension plans were primarily due to the
higher plan assets, partially offset by higher PBO.
A full remeasurement of pension assets and pension liabilities is performed annually based on GCP's estimates and actuarial valuations.
Remeasurements may also be performed during interim periods when significant events occur, such as plan curtailments or terminations. These
remeasurements reflect the terms of the plan and use participant-specific information, as well as key assumptions provided by management.
The accumulated benefit obligation for all defined benefit pension plans, was approximately $473 million and $431 million, respectively, as of
December 31, 2020 and 2019.
(In millions)
Information for pension plans with projected benefit obligation in excess of plan assets
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
(In millions)
Information for pension plans with accumulated benefit obligation in excess of plan assets
Projected benefit obligations
Accumulated benefit obligations
Fair value of plan assets
$
$
Year Ended December 31,
2020
2019
201.0 $
197.3
136.7
Year Ended December 31,
2020
2019
198.3 $
195.5
134.3
199.5
193.4
130.9
197.1
191.9
128.8
As of December 31, 2020, the estimated expected future benefit payments related to future services are as follows:
(In millions)
Year ending December 31,
2021
2022
2023
2024
2025
2026 - 2030
Pension Plans
U.S.
Benefit
Payments
Non-U.S.
(1)
Benefit
Payments
$
$
8.1 $
8.3
8.7
8.7
8.9
42.9 $
11.0 $
11.5
11.5
11.8
12.3
60.9 $
Total
Payments
19.1
19.8
20.2
20.5
21.2
103.8
________________________________________
(1)
Non-U.S. estimated benefit payments for 2021 and future periods have been translated at the applicable December 31, 2020 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 2.61% as of
December 31, 2020 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, 2020 and 2019, the benefit obligations of the U.K. pension plan represented approximately 85% of the total benefit
obligation of the non-U.S. pension plans. As of December 31, 2020, the assumed weighted average discount rate of 0.98% for the U.K. plan was
selected in consultation with
104
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Notes to Consolidated Financial Statements (Continued)
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.
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 5.50% for the year ended December 31, 2020. The
expected return on plan assets for the U.S. qualified pension plans for 2020 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, 2020 and the actual allocation at December 31, 2020 and 2019 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
Debt securities
Other investments
Total
Target
Allocation
2020
Actual Allocation of Plan Assets
December 31,
2020
2019
24 %
11 %
65 %
— %
100 %
24 %
12 %
60 %
4 %
100 %
27 %
13 %
55 %
5 %
100 %
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Table of Contents
Notes to Consolidated Financial Statements (Continued)
The following tables present the fair value hierarchy for the U.S. qualified pension plan assets measured at fair value, which are held in a trust
by GCP, as of December 31, 2020 and 2019.
(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
Total Assets
(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
Fair Value Measurements at December 31, 2020, 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)
$
$
34.8 $
17.2
70.0
22.3
144.3 $
—
—
—
—
—
$
$
34.8 $
17.2
70.0
22.3
144.3 $
—
—
—
—
—
Fair Value Measurements at December 31, 2019, 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)
$
$
32.7 $
16.4
26.6
6.8
40.5
123.0 $
—
—
—
—
—
—
$
$
32.7 $
16.4
26.6
6.8
40.5
123.0 $
—
—
—
—
—
—
Non-U.S. pension plans accounted for approximately 67% of total global pension assets at December 31, 2020 and 2019. 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% and 91%, respectively, of the total non-U.S. pension plan assets for years ended
December 31, 2020 and 2019. 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 2020 expected long-term return assumption of 1.57%.
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Notes to Consolidated Financial Statements (Continued)
The target allocation of investment assets at December 31, 2020 and the actual allocation at December 31, 2020 and 2019, for the U.K. pension
plan are as follows:
United Kingdom Pension Plan Asset Category:
Diversified growth funds
Return-seeking fixed income investment
U.K. gilts
U.K. corporate bonds
Insurance contracts
Total
Target
Allocation
2020
Actual Allocation of Plan Assets
December 31,
2020
2019
5 %
5 %
34 %
4 %
52 %
100 %
5 %
5 %
37 %
3 %
50 %
100 %
5 %
5 %
34 %
3 %
53 %
100 %
The plan assets for the other countries in aggregate represent approximately 8% and 9%, respectively, of total non-U.S. pension plan assets for
years ended December 31, 2020 and 2019.
The following table presents the fair value hierarchy for the non-U.S. pension plan assets measured at fair value as of December 31, 2020:
(In millions)
Common/collective trust funds
Government and agency securities
Corporate bonds
Insurance contracts and other investments
Cash
(1)
Total Assets
_________________________________________
Fair Value Measurements at December 31, 2020, Using
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
144.3 $
2.9
10.5
139.0
2.2
298.9 $
— $
—
—
—
2.2
2.2 $
144.3 $
2.9
10.5
0.3
—
158.0 $
—
—
—
138.7
—
138.7
(1)
At December 31, 2020, 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.
107
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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, 2019:
(In millions)
Common/collective trust funds
Government and agency securities
Corporate bonds
Insurance contracts and other investments
Cash
(1)
Total Assets
__________________________________________________
Fair Value Measurements at December 31, 2019, Using
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
123.0 $
3.5
9.9
128.2
6.2
270.8 $
— $
—
—
—
6.2
6.2 $
123.0 $
3.5
9.9
0.3
—
136.7 $
—
—
—
127.9
—
127.9
(1)
At December 31, 2019, 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, 2020 and
2019:
(In millions)
Balance, December 31, 2018
Actual return on plan assets
Transfers out for premium
Currency exchange translation adjustments
Balance, December 31, 2019
Actual return on plan assets
Purchases, sales and settlements, net
Transfers out for premium
Currency exchange translation adjustments
Balance, December 31, 2020
Other Postretirement Benefit (OPEB) Plans
$
$
$
Insurance Contracts
123.3
8.2
(7.7)
4.1
127.9
13.7
—
(7.5)
4.6
138.7
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, 2020 and 2019, the
related long-term liability of $2.6 million and $2.2 million, respectively, accumulated other comprehensive income of $0.9 million and $0.7 million,
respectively, net of related tax impact of $0.3 million and $0.2 million, respectively, are included within the Consolidated Balance Sheets. The related
expense for the years ended December 31, 2020, 2019 and 2018 was $0.2 million, $0.1 million, and $1.3 million, respectively.
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Notes to Consolidated Financial Statements (Continued)
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. Based on the U.S. qualified pension plans' status as of December 31, 2020, there are no minimum requirements under ERISA for 2021.
GCP made contributions of $15.9 million and $0.1 million, respectively, to the U.S. pension plans in 2020 and 2019. During the year ended
December 31, 2020, GCP made an accelerated contribution of $15.0 million to the trusts that hold assets of the U.S. qualified pension plans.
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 $1.4 million to non-U.S. pension plans during the year ended December 31, 2021. During the years ended December 31, 2020
and 2019, GCP contributed $1.5 million and $2.6 million, respectively, to these non-U.S. plans.
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.
Additionally, GCP contributes up to 2% of a full amount of applicable employee compensation subject to a three year vesting requirement.
Applicable employees include those beginning employment with us 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 for each of the years ended December 31, 2020, 2019 and 2018 and are included in "Selling, general and
administrative expenses" and "Cost of goods sold" in the Consolidated Statements of Operations.
11. Other Balance Sheet Accounts
The following table summarizes the activity for the allowance for credit losses during the years ended December 31, 2020, 2019 and 2018:
(In millions)
Beginning balance
Provision for expected credit losses
Write offs
Foreign currency translation adjustments
Ending balance
2020
Year Ended December 31,
2019
2018
7.5 $
0.9
(1.4)
—
7.0 $
5.8 $
3.5
(1.7)
(0.1)
7.5 $
5.7
1.6
(1.1)
(0.4)
5.8
$
$
109
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Notes to Consolidated Financial Statements (Continued)
The following is a summary of other current assets at December 31, 2020 and 2019:
(In millions)
Other Current Assets:
Non-trade receivables
Prepaid expenses and other current assets
Income taxes receivable
Total other current assets
The following is a summary of other current liabilities at December 31, 2020 and 2019:
(In millions)
Other Current Liabilities:
(1)
Accrued customer volume rebates
Accrued compensation
Income taxes payable
Accrued interest
Restructuring liability
Pension liabilities
Other accrued liabilities
Total other current liabilities
________________________________
December 31, 2020
December 31,
2019
20.4 $
11.1
9.7
41.2 $
22.1
13.4
7.7
43.2
December 31, 2020
December 31,
2019
24.4 $
25.0
7.1
4.0
18.0
1.4
45.9
125.8 $
28.4
16.2
10.4
4.2
2.7
1.2
49.8
112.9
$
$
$
$
(1)
Accrued compensation presented in the table above includes salaries and wages, as well as estimated amounts due under the annual employee incentive programs.
12. Commitments and Contingencies
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 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, 2020 and 2019 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.
110
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Notes to Consolidated Financial Statements (Continued)
•
•
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 9,
"Income Taxes", for further information on this arrangement.
The Purchase and Sale Agreement with Henkel KGaA regarding the sale of the Darex Business dated July 3, 2017, contains obligations for
GCP as sellers to indemnify Henkel as a buyer for certain matters, such as breaches of representations and warranties, taxes, as well as
certain covenants and liabilities.
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, 2020 and 2019, 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,
2020 and 2019, GCP had gross financial assurances issued and outstanding of approximately $6.8 million and $5.9 million, respectively, which were
comprised of standby letters of credit. The letters of credit are related primarily to customer advances and other performance obligations as of
December 31, 2020 and 2019. 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
From time to time, GCP and its subsidiaries 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 such pending matters, it does not believe, based
upon currently available facts, that the ultimate resolution of any of such matters will have a material adverse effect on its overall financial condition,
results of operations or cash flows for the year ended December 31, 2020. However, the results of such pending legal matters and claims cannot be
predicted with sufficient certainty since unfavorable resolutions are possible and could materially affect GCP's financial position, results of
operations, or cash flows. In the event of unexpected subsequent developments and due to the inherent unpredictability of these matters, there can
be no assurance that the Company’s assessment of any claim will reflect the ultimate outcome. An adverse outcome in certain matters could, from
time to time, have a material adverse effect on GCP's consolidated financial position, results of operations and cash flows in particular quarterly or
annual periods.
GCP Brazil Indirect Tax Claim
During the year ended December 31, 2019, the Superior Judicial Court of Brazil (the "Court") filed its final ruling in favor of GCP Brazil related to
a claim whether a certain state value-added tax should be included in the calculation of federal gross receipts taxes. The Court decision is final and
not subject to any appeals. The ruling allows the Company the right to recover, through offset of federal tax liabilities, amounts collected by the
government from May 2012 to September 2017, including interest. Timing of the realization of these tax credits is dependent upon the generation of
federal tax liabilities eligible for the offset. The Brazilian tax authorities have
111
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Notes to Consolidated Financial Statements (Continued)
sought before the Court clarification of certain matters, including whether these credits should be recognized on a gross or net basis, and certain
other matters that could affect the rights of Brazilian taxpayers regarding these credits. During the year ended December 31, 2019, the Company
recorded in "Other (income) expenses, net" a pre-tax gain of $1.3 million, net of $0.4 million of legal fees and other charges, as a result of the
favorable Court decision. No amounts have been recognized in GCP's results of operations for the credits calculated based on the higher gross
basis due to uncertainty related to the recoverability of such amounts and the timing of the recovery. As of December 31, 2020, GCP has fully
utilized the tax credits previously recognized on a net basis.
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.
13. Stockholders' Equity
Stockholder Rights Plan
On March 15, 2019, the Board of Directors (the "Board") declared a dividend of one preferred share purchase right (a “Right”) for each
outstanding share of GCP common stock with par value $0.01 per share and adopted a stockholder rights plan (the “Rights Agreement”). The
dividend was distributed in a non-cash transaction on March 25, 2019 to the stockholders of record on that date. Each Right will allow its holder to
purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (a “Preferred
Share”) for $150 (the “Exercise Price”), once the Rights become exercisable. This portion of a Preferred Share will give the stockholder
approximately the same dividend, voting and liquidation rights as would one share of GCP common stock. Prior to exercise, the Right does not give
its holder any dividend, voting, or liquidation rights. The fair value of the dividend was not material on March 15, 2019.
The Rights will not be exercisable until 10 days after the public announcement that a person or group has become an “Acquiring Person” (as
defined in the Rights Agreement) by obtaining beneficial ownership of 15% or more of the Company’s outstanding shares of common stock
(provided, that if a stockholder’s beneficial ownership as of the Company’s announcement of the adoption of the Rights Agreement was at or
above 15%, that stockholder’s existing ownership percentage would be grandfathered, but the Rights would become exercisable if at any time after
such announcement, the stockholder increases its ownership percentage by 0.001% or more) (the “Distribution Date”). If a person or group
becomes an Acquiring Person, all holders of Rights except the Acquiring Person may, for the Exercise Price, purchase shares of the Company’s
common stock with a market value of $300, based on the market price of the common stock prior to such acquisition. In addition, after a person or
group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the Company’s outstanding shares of common stock,
the Board may extinguish the Rights by exchanging one share of common stock or an equivalent security for each Right, other than Rights held by
the Acquiring Person. In addition, if the Company is later acquired in a merger or similar transaction after the Distribution Date, all holders of Rights
except the Acquiring Person may, for $150, purchase shares of the acquiring corporation with a market value of $300 based on the market price of
the acquiring corporation’s stock, prior to such merger. The Rights were initially set to expire on March 14, 2020.
On March 13, 2020, the Board approved an amendment to the Rights Agreement which raised the level of beneficial ownership for an Acquiring
Person to 20% of the Company's outstanding shares of common stock and extended the final expiration date of the Rights Agreement to March 14,
2023, subject to stockholders' approval at GCP's 2020 Annual Meeting of Shareholders (the “Annual Meeting”). If a stockholder's beneficial
ownership on March 15, 2019 was at or above 20%, that stockholder's existing ownership percentage would be grandfathered, but the Rights would
become exercisable if the stockholder increases its ownership percentage by 0.001% or more. The amendment to the Rights Agreement was
approved at the Annual Meeting held on May 28, 2020.
Preferred Stock
The Company is authorized to issue up to 50,000,000 shares of Preferred Stock with a par value of $0.01 per share. On March 15, 2019, GCP
designated 10,000,000 shares of its Preferred Stock with a par value of $0.01 per share as Series A Junior Participating Preferred Stock.
Share Repurchase Program
112
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Notes to Consolidated Financial Statements (Continued)
On July 30, 2020, the Board authorized a program to repurchase up to $100 million of the Company’s common stock which is effective through
July 30, 2022. Share repurchases under the program may be made from time to time at the Board's discretion through open market purchases or
privately negotiated transactions in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act. The share
repurchase program is subject to a periodic review by the Board and may be suspended periodically or discontinued at any time. The Company
plans to fund repurchases from its existing cash balance. No shares were repurchased by the Company during the year ended December 31, 2020.
14. Restructuring and Repositioning Expenses, Asset Write Offs
GCP's Board of Directors (the "Board") approves all major restructuring and repositioning programs. Major restructuring programs may involve
reorganizations, the discontinuation of significant product lines, the shutdown of significant facilities, or other major strategic initiatives. 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.
Repositioning expenses associated with the Plans discussed below, as well as a review of strategic, financial and operational alternatives, are
primarily related to consulting, professional services, and other employee-related 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 expenses and capital expenditures could increase or decrease and the timing of incurrence could change.
2019 Phase 2 Restructuring and Repositioning Plan (the “2019 Phase 2 Plan")
On July 31, 2019, the Board approved a business restructuring and repositioning plan to further optimize the design and footprint of the
Company's global organization, primarily with respect to its general administration and business support functions, and streamline cross-functional
activities (the “2019 Phase 2 Plan”). The 2019 Phase 2 Plan is expected to result in the net reduction of approximately 8%-10% of the Company's
workforce. The program is expected to be substantially completed by March 31, 2021.
2019 Restructuring and Repositioning Plan (the “2019 Plan”)
On February 22, 2019, the Board 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 its 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 program was substantially completed as of December 31, 2020.
Strategic Alternatives Plan
On February 27, 2019, the Company announced a comprehensive review of strategic alternatives to enhance shareholder value. Over the
course of this review, GCP contacted and engaged with both strategic industry and private equity investors. This process did not result in a
transaction that would provide adequate value to the Company's shareholders, and as a result, GCP determined that it will pursue its standalone
strategic and financial plan (the "Strategic Alternatives Plan").
2018 Restructuring and Repositioning Plan (the “2018 Plan”)
On August 1, 2018, the Board approved a business restructuring and repositioning plan. The 2018 Plan was 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. Substantially all of the restructuring actions were completed as of December 31, 2019 and resulted in the net reductions of
approximately 8%-10% of the Company's workforce.
®
113
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Notes to Consolidated Financial Statements (Continued)
2017 Restructuring and Repositioning Plan (the “2017 Plan”)
On June 28, 2017, the Board approved a restructuring and repositioning plan to streamline GCP's operations, reduce its global cost structure
and reposition itself as a construction product technologies company. Restructuring activities were substantially completed as of December 31,
2018.
The following table illustrates a summary of the charges incurred and planned in connection with restructuring and repositioning plans discussed
above:
(In millions)
2019 Plan:
(1)
Estimated Total
Costs
Cumulative Costs
incurred to Date
2019 Phase 2 Plan:
(2)
Estimated Total
Costs
Cumulative Costs
incurred to Date
2018 Plan:
Cumulative Costs
incurred to Date
2017 Plan:
Cumulative Costs
incurred to Date
Severance
/Employee Costs
Asset Write
Offs
Other Associated
Costs
Total Restructuring
Repositioning
Total Costs
Capital
Expenditures
$1
$0.9
$25-29
$25.2
$1
$0.9
$1
$0.4
$11.5
$7.9
$17.4
$1.4
$0-1
$0.3
$—
$—
$2.3
$0.2
$2-3
$2.1
$26-30
$25.6
$21.7
$19.0
114
$11
$10.5
$6-7
$6.0
$13-14
$12.6
$32-37
$31.6
$10.7
$32.4
$2-3
$2.1
$2
$0.4
$1.5
$9.6
$28.6
$13.5
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(1)
(2)
As of December 31, 2020, the cumulative restructuring costs incurred under the 2019 Plan since its inception were $2.1 million, of which $1.7 million was related to
the SCC segment and $0.4 million was related to the SBM segment. During 2020, estimated total pre-tax costs expected to be incurred in connection with the 2019
Plan decreased by $2.0 million due to lower severance and other associated costs.
As of December 31, 2020, the cumulative restructuring costs recognized under the 2019 Phase 2 Plan since its inception were $25.6 million, of which $6.9 million
was attributable to the SCC segment, $6.9 million was attributable to the SBM segment, and $11.8 million was attributable to the Corporate. During 2020, estimated
total pre-tax costs expected to be incurred in connection with the 2019 Phase 2 Plan increased by approximately $2.0 million from the prior estimate due to higher
severance and other employee-related costs associated with the departure from the Company of its CEO, as well as certain executives and key employees. During
2020, the Company incurred $15.4 million of severance and employee-related costs in connection with such separation, including $2.4 million associated with
accelerated vesting of stock options and RSUs.
The following tables represent the repositioning expenses incurred and cash payments made under the plans discussed above and other plans
during each period:
(In millions)
Repositioning Expenses
Cash Paid for Repositioning Expenses
Capital Expenditures
Cash Paid for Capital Expenditures
(In millions)
Repositioning Expenses
Cash Paid for Repositioning Expenses
Capital Expenditures
Cash Paid for Capital Expenditures
(In millions)
Repositioning Expenses
Cash Paid for Repositioning Expenses
Capital Expenditures
Cash Paid for Capital Expenditures
$
$
$
2019 Plan
2019 Plan Phase
2
Strategic
Alternatives Plan
2018 Plan
2017 Plan
Total
December 31, 2020
1.7 $
4.9
1.3
1.4
3.6 $
4.1
0.3
0.4
— $
1.1
—
—
0.1 $
—
0.6
0.7
— $
0.2
1.1
1.6
2019 Plan
2019 Plan Phase
2
Strategic
Alternatives Plan
2018 Plan
2017 Plan
Total
December 31, 2019
8.8 $
5.6
0.8
0.6
2.4 $
1.0
0.1
—
3.1 $
2.0
—
—
5.3 $
10.5
0.9
0.8
0.8 $
2.1
5.0
4.6
2019 Plan
2019 Plan Phase
2
Strategic
Alternatives Plan
2018 Plan
2017 Plan
Total
December 31, 2018
— $
—
—
—
5.3 $
0.2
—
—
4.3 $
5.3
5.5
6.8
— $
—
—
—
— $
—
—
—
115
5.4
10.3
3.3
4.1
20.4
21.2
6.8
6.0
9.6
5.5
5.5
6.8
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions)
Cumulative Repositioning Expenses
Cumulative Cash Paid for Repositioning
Expenses
Cumulative Capital Expenditure
Cumulative Cash Paid for Capital
Expenditures
2019 Plan
2019 Plan Phase 2
As of December 31, 2020
Strategic Alternatives
Plan
2018 Plan
2017 Plan
$
10.5 $
6.0 $
3.1 $
10.7 $
10.5
2.1
2.0
5.1
0.4
0.4
3.1
—
—
10.7
1.5
1.5
Restructuring Expenses and Asset Write Offs
The following restructuring expenses and asset write off charges were incurred during each period:
(In millions)
Severance and other employee costs
Facility exit costs
Asset write offs
Other associated costs
Total restructuring expenses and asset write offs
Less: restructuring expenses and asset write offs reflected in discontinued
operations
Total restructuring expenses and asset write offs from continuing
operations
$
$
$
2020
Year Ended December 31,
2019
2018
22.3 $
—
2.6
(0.1) $
24.8 $
(0.1)
24.9 $
4.1 $
—
4.3
1.8 $
10.2 $
0.3
9.9 $
GCP incurred restructuring expenses and asset write off charges related to its two operating segments and Corporate function as follows:
(In millions)
SCC
SBM
Corporate
Total restructuring expenses and asset write offs from continuing
operations
Restructuring expenses and asset write offs reflected in discontinued operations
Total restructuring expenses and asset write offs
$
$
$
2020
Year Ended December 31,
2019
2018
7.8 $
5.3
11.8
24.9 $
(0.1)
24.8 $
4.5 $
3.9
1.5
9.9 $
0.3
10.2 $
9.6
9.6
13.5
12.9
10.1
0.6
4.5
—
15.2
0.4
14.8
12.5
1.9
0.4
14.8
0.4
15.2
Restructuring liabilities were $18.0 million and $2.7 million, respectively, as of December 31, 2020 and 2019. These liabilities are included within
“Other current liabilities” in the Consolidated Balance Sheets. GCP settled in cash substantially all of the remaining liabilities related to the 2017 Plan
during the year ended December 31, 2019.
116
Table of Contents
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the Company’s restructuring liability activity:
2019 Plan
Severance and
Other
Employee
Costs
2019 Phase 2
Plan
Severance
and Other
Employee
Costs
Other
Costs
2018 Plan
2017 Plan
Severance and
Other
Employee
Costs
Severance and
Other
Employee
Costs
Other
Costs
Other
Costs
Other
Plans
Total
— $
—
—
—
— $
0.7
(0.5)
—
0.2 $
0.2
(0.3)
—
0.1 $
— $
—
—
—
— $
—
—
—
— $
0.3
(0.2)
0.1 $
— $
—
—
—
— $
3.1
(2.2)
—
0.9 $
19.7
(3.3)
—
17.3 $
— $
11.4
(3.6)
(0.1)
7.7 $
0.1
(6.6)
(0.2)
1.0 $
—
(0.4)
(0.1)
0.5 $
— $
0.6
(0.4)
—
0.2 $
0.7
(0.5)
—
0.4 $
0.1
(0.4)
(0.1)
— $
11.6 $
(1.9)
(7.5)
(0.4)
1.8 $
—
(1.7)
0.1
0.2 $
—
(0.2)
—
— $
0.1 $
—
(0.1)
—
— $
—
—
—
— $
—
—
—
— $
1.1 $
0.6
(1.2)
—
0.5 $
0.2
(0.6)
(0.1)
— $
—
—
—
— $
12.8
10.7
(12.8)
(0.5)
10.2
4.8
(12.1)
(0.2)
2.7
20.3
(4.8)
(0.2)
18.0
(In millions)
Balance, December 31, 2017 $
(1)
Expenses
Payments
Impact of foreign currency
and other
Balance, December 31, 2018 $
(1)
Expenses
Payments
Impact of foreign currency
and other
Balance, December 31, 2019 $
(1)
Expenses
Payments
Impact of foreign currency
and other
Balance, December 31, 2020 $
__________________________
(1)
Asset write off charges of $2.6 million, $4.3 million and $4.5 million, respectively, for the years ended December 31, 2020, 2019 and 2018 related to the restructuring
activities described above are recorded with a corresponding reduction to "Properties and equipment, net" in the Consolidated Balance Sheets. During the year
ended December 31, 2020, GCP recognized asset write off charges of $2.6 million, of which $2.5 million was attributable to the SCC segment and $0.1 million was
attributable to the SBM segment. During the year ended December 31, 2019, GCP recognized asset write off charges of $4.3 million, of which $1.2 million was
attributable to the SCC segment and $3.1 million was attributable to the SBM segment. During the year ended December 31, 2018, GCP recognized asset write off
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, 2020, other associated costs of $(0.4) million related to the 2018 Plan were attributable to the SBM segment and recorded with
a corresponding reduction to "Operating Lease Obligation" in the Consolidated Balance Sheet. During the year ended December 31, 2019, other associated costs of
$1.1 million related to the 2018 Plan were attributable to the SCC segment and consisted of: (i) $0.6 million of inventory write-offs recorded with a corresponding
reduction to "Inventories, net" in the Consolidated Balance Sheets and (ii) $0.5 million of accounts receivable write-offs recorded with a corresponding reduction to
"Trade Accounts Receivable" in the Consolidated Balance Sheets. These expenses are not recorded with a corresponding reduction to the restructuring liability and
therefore, are not included in the table above.
Stock based compensation expense of $2.4 million for the year ended December 31, 2020 is related to accelerated vesting of stock options and RSUs resulting from
the termination of certain executive leadership members. Such expense is not recognized as a corresponding adjustment to the restructuring liability and therefore, is
not included in the table above.
117
15. Other Comprehensive Income (Loss)
The following tables present the pre-tax, tax benefit (expense) and after-tax components of GCP's other comprehensive income (loss) for the
years ended December 31, 2020, 2019 and 2018.
(In millions)
Defined benefit pension and other postretirement plans:
Net unrealized actuarial loss and prior service cost
Benefit plans, net
Currency translation adjustments
Gain from hedging activities
(1)
Other comprehensive income attributable to GCP shareholders
(In millions)
Defined benefit pension and other postretirement plans:
Net unrealized actuarial loss and prior service cost
Benefit plans, net
Currency translation adjustments
Loss from hedging activities
(1)
Other comprehensive income attributable to GCP shareholders
(In millions)
Defined benefit pension and other postretirement plans:
Assumption of net prior service credit
Benefit plans, net
Currency translation adjustments
Gain from hedging activities
Other comprehensive loss attributable to GCP shareholders
__________________________
$
$
$
$
$
$
Year Ended December 31, 2020
Pre-Tax
Amount
Tax Benefit
After-Tax
Amount
(0.5) $
(0.5)
5.9
0.1
5.5 $
0.1 $
0.1
0.9
—
1.0 $
(0.4)
(0.4)
6.8
0.1
6.5
Year Ended December 31, 2019
Tax Benefit
/(Expense)
After-Tax
Amount
Pre-Tax
Amount
(0.6) $
(0.6)
3.7
(0.1)
3.0 $
0.1 $
0.1
(0.1)
—
— $
(0.5)
(0.5)
3.6
(0.1)
3.0
Year Ended December 31, 2018
Tax (Expense)
/Benefit
After-Tax
Amount
Pre-Tax
Amount
(3.2) $
(3.2)
(31.8)
0.1
(34.9) $
0.6 $
0.6
—
—
0.6 $
(2.6)
(2.6)
(31.8)
0.1
(34.3)
(1)
Currency translation adjustments related to the net investment hedge are presented net of income taxes, as discussed in Note 4, "Derivative Instruments."
118
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Notes to Consolidated Financial Statements (Continued)
The following tables present the changes in accumulated other comprehensive loss, net of tax, for the years ended December 31, 2020, 2019
and 2018.
(In millions)
Balance, December 31, 2019
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive (loss) income
Balance, December 31, 2020
Defined Benefit Pension
and Other Postretirement
Plans
Currency Translation
Adjustments
Hedging Activities
Total
$
$
(2.7)
(0.4)
—
(0.4)
(3.1)
$
$
(114.2) $
6.8
—
6.8
(107.4) $
(0.1) $
(0.1)
0.2
0.1
— $
(In millions)
Balance, December 31, 2018
Current-period other comprehensive (loss) income
Balance, December 31, 2019
Defined Benefit Pension
and Other Postretirement
Plans
Currency Translation
Adjustments
Hedging Activities
Total
$
$
(2.2)
(0.5)
(2.7)
$
$
(117.8) $
3.6
(114.2) $
— $
(0.1)
(0.1) $
(In millions)
Balance, December 31, 2017
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other
comprehensive income
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
(2.6)
—
(2.6)
(2.2)
$
$
(86.0) $
(31.8)
—
(31.8)
(117.8) $
(0.1) $
0.2
(0.1)
0.1
— $
(117.0)
6.3
0.2
6.5
(110.5)
(120.0)
3.0
(117.0)
(85.7)
(34.2)
(0.1)
(34.3)
(120.0)
Please refer to Note 10, "Pension Plans and Other Postretirement Benefit Plans" for a discussion of pension plans and other postretirement benefit
plans.
16. Related Party Transactions and Transactions with Grace
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.
Related Party Transaction
During the year ended December 31, 2020, Starboard Value LP and certain of its affiliates ('Starboard") with an ownership interest of
approximately 9% of the Company's outstanding common shares, filed a proxy statement with the SEC seeking an election of eight of its nominees
to the GCP Board of Directors at the Company’s 2020 Annual Meeting of Shareholders (the “Annual Meeting”). At the Annual Meeting held on May
28, 2020, GCP stockholders voted to elect all eight nominees designated by Starboard to serve on GCP's Board of Directors. During the year ended
December 31, 2020, the Company reimbursed Starboard for $2.0 million of fees and expenses it incurred in connection with the election of its
nominees.
119
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Notes to Consolidated Financial Statements (Continued)
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, 2020 and 2019, GCP has recorded $1.8 million
and $3.5 million, respectively, of indemnified receivables in "Other assets" and $1.0 million and $1.0 million, respectively, of indemnified payables in
"Other current liabilities" in the Consolidated Balance Sheets.
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, 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 qualify as such 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.
17. Stock Incentive Plans
On October 1, 2020, GCP's Board of Directors adopted the GCP Applied Technologies Inc. 2020 Inducement Plan (the “Inducement Plan”) to
reserve 1,000,000 shares of its common stock to be used exclusively for grants of awards to induce highly-qualified prospective employees to
accept employment and to provide them with a proprietary interest in the Company. On October 1, 2020, GCP filed a Registration Statement on
Form S-8 with the SEC for the purpose of registering an additional 1,000,000 shares of Common Stock, par value $0.01 per share, that may be
issued under the Inducement Plan. Awards that could be granted under the Inducement Plan consist of stock options, stock appreciation rights,
restricted units, restricted stock, or deferred stock units. In accordance with Section 303A.08 of the New York Stock Exchange Listed Company
Manual, the Company did not seek approval of the Inducement Plan by its stockholders. On October 1, 2020, the Company awarded to the new
GCP CEO upon joining the Company, a grant with a value of approximately $5.0 million that consisted of 143,128 shares of restricted stock and
388,348 of stock options pursuant to the terms and conditions of the Inducement Plan.
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 GCP Applied Technologies Inc. Equity and Incentive Plan (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.
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Notes to Consolidated Financial Statements (Continued)
Stock-Based Compensation Accounting
Total stock-based compensation expense is included in "Income from continuing operations before income taxes" in the Consolidated Statements
of Operations and was $7.0 million, $6.2 million and $3.7 million, respectively, during the years ended December 31, 2020, 2019 and 2018. During
the year ended December 31, 2020, $2.4 million of the stock-based compensation expense is included in "Restructuring expenses and asset write
offs" related to accelerated vesting of stock options and RSUs due to the departure from the Company of its CEO, as well as certain executives and
key employees. During the years ended December 31, 2020, 2019 and 2018, the Company recorded stock-based compensation expense
reductions of $0.6 million, $2.4 million and $5.2 million, respectively, related to remeasurement of PBUs granted in 2020, 2019, 2018 and 2017
based on their estimated expected payout at the end of the applicable performance period.
The total income tax benefits recognized for stock-based compensation arrangements were $0.5 million, $1.5 million and $0.6 million,
respectively, during the years ended December 31, 2020, 2019 and 2018.
The Company issues new shares of common stock upon exercise of stock options and vesting of RSUs. 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, 2020, 2019 and 2018, GCP withheld and retained approximately 75,000 shares, 151,900
shares and 45,100 shares, respectively, in a non-cash transaction with a cost of $1.7 million, $3.8 million and $1.4 million, respectively, under such
provisions which were reflected as "Share Repurchases" in the Consolidated Statements of Equity. During the years ended December 31, 2020,
2019 and 2018, cash payments for such tax withholding obligations were $1.7 million, $3.8 million, and $1.4 million, respectively.
As of December 31, 2020, approximately 7.7 million shares and 0.5 million shares of common stock, respectively, were reserved and available
for future grant under the Plan and the Inducement Plan.
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 are granted in
three separate vesting tranches, with each tranche vesting over one, two and three years, respectively, from the date of grant. There were no stock
option awards granted during 2020.
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, 2019 and 2018:
Assumptions used to calculate expense for stock options:
Risk-free interest rate
Average life of options (years)
Volatility
Weighted average grant date fair value per stock option
Year Ended December 31,
2019
1.70 - 2.64%
5.5 - 6.5
28.02 - 28.59%
$8.66
2018
2.68 - 2.80%
5.5 - 6.5
27.91 - 30.65%
$10.63
121
Table of Contents
Notes to Consolidated Financial Statements (Continued)
The following table sets forth the information related to stock options denominated in GCP stock during the year ended December 31, 2020:
Stock Option Activity
Outstanding, December 31, 2019
Options exercised
Options forfeited/expired/canceled
Options granted
Outstanding, December 31, 2020
Exercisable, December 31, 2020
Vested and expected to vest, December 31, 2020
Number Of
Shares
(in thousands)
Weighted
Average
Exercise
Price
1,284
84
289
—
911
836
908
$
$
$
$
22.66
18.29
19.98
—
23.91
23.49
23.90
Weighted
Average
Remaining
Contractual
Term (years)
Aggregated
Intrinsic Value
(in thousands)
3.18 $
3,171
2.49 $
2.42 $
2.49 $
2,234
2,234
2,234
The weighted average grant date fair value of options granted during the years ended December 31, 2019 and 2018 was $8.66 and $10.63,
respectively. 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, 2020 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, 2020, 2019 and
2018 was $0.4 million, $3.0 million and $4.8 million, respectively.
Stock Options with Market Conditions
During the year ended December 31, 2020, GCP granted 388,348 stock options with market conditions to the newly appointed CEO. Such
options are expected to cliff vest in three years based on the achievement of certain targets ranging between 0% and 200% related to the
Company’s common stock market price performance over a certain time period relative to the closing market price on the grant date.
The fair value of stock options was determined using a Monte Carlo simulation based on the weighted-average value of options calculated for
each performance target based on the following assumptions:
Assumptions used to calculate expense for stock options:
Risk-free interest rate
Average life of options (years)
Volatility
Weighted average grant date fair value per stock option
Year Ended December 31, 2020
0.22%
4.0
40%
$5.15
As of December 31, 2020, weighted average exercise price was $20.96. As of December 31, 2020, there were 388,348 of options outstanding
which had a weighted average contractual term of 4.8 years and an aggregate intrinsic value of $1.0 million. Total unrecognized stock-based
compensation expense was $1.9 million and is expected to be recognized over the weighted-average period of approximately 2.8 years.
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.
As of December 31, 2020, $5.3 million of total unrecognized compensation expense related to the RSU and PBU awards is expected to be
recognized over the remaining service period of approximately 2 years.
122
Table of Contents
RSUs
Notes to Consolidated Financial Statements (Continued)
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. The majority of 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 following table sets forth the RSU activity for the year ended December 31, 2020:
RSU Activity:
Outstanding, December 31, 2019
RSU's settled
RSU's forfeited
RSU's granted
Outstanding, December 31, 2020
Expected to vest as of December 31, 2020
Number Of
Shares
(in thousands)
Weighted
Average
Grant Date
Fair Value
156
184
2
335
305
285
$
$
$
27.33
24.46
22.83
21.06
22.14
22.18
The weighted average grant date fair value of RSUs granted during the years ended December 31, 2020, 2019 and 2018 was $21.06, $26.77 and
$29.28 per share, respectively. During the years ended December 31, 2020, 2019 and 2018, GCP distributed 184,000 shares, 302,000 shares and
117,000 shares, respectively, to settle RSUs upon vesting. During the year ended December 31, 2018, GCP also used $1.2 million of cash 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,
2020, 2019 and 2018 was $4.2 million, $7.4 million and $4.8 million, respectively.
PBUs
PBUs are performance-based units which are granted by the Company with market conditions. The performance criteria for PBUs granted in
2020 and 2019 include a 3-year cumulative adjusted diluted earnings per share metric that is modified, up or down, based on the Company's TSR
relative to the performance of the Russell 3000 Specialty Chemicals and Building Materials Indices. For PBUs granted in 2017, such metric is
modified, up or down, based on the Company's total shareholder return ("TSR") relative to the performance of the Russell 3000 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 employees. The 2020, 2019 and 2018 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.
123
Table of Contents
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, 2020, 2019 and 2018:
Assumptions used to calculate expense for PBUs:
Expected term (remaining performance period)
Expected volatility
Risk-free interest rate
Expected dividends
Correlation coefficient
Median correlation coefficient of constituents
2020
2.85 years
29.85%
1.21%
—
53.43%
54.01%
The following table sets forth the PBU activity for the year ended December 31, 2020:
PBU Activity:
Outstanding, December 31, 2019
PBU's forfeited
PBU's granted
Outstanding, December 31, 2020
Year Ended December 31,
2019
2.86 years
28.46%
2.48%
—
54.81%
57.09%
Number Of
Shares
(in thousands)
2018
2.86 years
28.56%
2.38%
—
38.98%
39.96%
Weighted
Average
Grant Date
Fair Value
382
186
147
343
$
$
29.51
26.49
22.43
28.10
The weighted average grant date fair value of PBUs granted during the years ended December 31, 2020, 2019 and 2018 was $22.43, $27.19 and
$34.20 per share, respectively. GCP expects to settle in stock all future PBU vestings. The fair value of PBUs vested during the year ended
December 31, 2019 was $2.0 million.
18. 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 provides products, services and technologies to the concrete
and cement industries, including concrete add-mixtures and cement, as well as in-transit monitoring and management systems, which reduce the
cost and improve the performance and quality of cement, concrete, mortar, masonry, and other cementitious-based construction materials. 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.
Operating Segment Data
The following table presents information related to GCP's operating segments:
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Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions)
Net Sales
Specialty Construction Chemicals
Specialty Building Materials
Total net sales
Segment Operating Income
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
2020
Year Ended December 31,
2019
2018
$
$
$
$
$
$
$
$
$
$
518.9 $
384.3
903.2 $
52.9 $
71.1
124.0 $
27.6 $
14.9
3.9
46.4 $
25.5 $
4.9
5.7
36.1 $
444.4 $
408.3
564.9
—
1,417.6 $
579.1 $
434.4
1,013.5 $
56.9 $
86.3
143.2 $
24.4 $
14.8
4.0
43.2 $
44.2 $
7.9
4.6
56.7 $
431.9 $
424.1
444.8
0.5
1,301.3 $
643.5
481.9
1,125.4
40.2
113.4
153.6
24.2
14.7
3.1
42.0
28.8
12.8
13.4
55.0
408.6
428.1
441.5
4.1
1,282.3
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, as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies"), as
well as certain corporate costs and other 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.
Total segment operating income for the years ended December 31, 2020, 2019 and 2018 is reconciled below to "Income from continuing
operations before income taxes" presented in the Consolidated Statements of Operations:
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Notes to Consolidated Financial Statements (Continued)
(2)
(1)
(In millions)
Total segment operating income
Corporate costs
Certain pension costs
Gain on sale of corporate headquarters
Shareholder activism and other related costs
Gain on Brazil tax recoveries, net
Repositioning expenses
Restructuring expenses and asset write offs
Pension MTM adjustment and other related costs, net
Gain on termination and curtailment of pension and other postretirement plans
Legacy product, environmental and other claims
Third-party and other acquisition-related costs
Tax indemnification adjustments
Currency losses in Argentina
Amortization of acquired inventory fair value adjustment
Interest expense, net
Net income attributable to noncontrolling interests
(3)
Income from continuing operations before income taxes
______________________________
2020
Year Ended December 31,
2019
2018
124.0 $
(26.2)
(5.2)
110.2
(9.5)
—
(5.4)
(24.9)
(2.8)
—
(0.6)
(0.7)
(1.6)
—
—
(20.1)
0.5
137.7 $
143.2 $
(32.8)
(7.8)
—
(5.3)
0.6
(20.4)
(9.9)
(13.3)
1.2
(0.1)
(0.1)
(0.5)
—
—
(20.0)
0.4
35.2 $
153.6
(27.4)
(7.6)
—
—
—
(9.6)
(14.8)
8.7
0.2
—
(2.5)
(0.5)
(1.1)
(0.2)
(88.9)
0.3
10.2
$
$
(1)
(2)
(3)
Gain on Brazil tax recoveries, net primarily consists of a $1.7 million pre-tax gain related to indirect tax recoveries, and $1.1 million of legal fees and other charges
relating to indirect and income tax recoveries. Please refer to Note 9, "Income Taxes" and Note 12, "Commitments and Contingencies" for further information.
Shareholder activism and other related costs consist primarily of professional fees incurred in connection with the actions by certain of GCP shareholders seeking
changes in the composition of the Company's Board of Directors and nomination of candidates to stand for election at the 2019 and 2020 Annual Shareholders'
Meetings, as well as other related matters.
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 8, "Debt and Other
Borrowings" for further information on the transaction.
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, 2020, 2019 and 2018:
(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
2020
Year Ended December 31,
2019
2018
$
$
$
$
$
393.1 $
125.8
518.9 $
206.3 $
73.8
104.2
384.3 $
903.2 $
434.8 $
144.3
579.1 $
246.3 $
81.2
106.9
434.4 $
1,013.5 $
478.9
164.6
643.5
284.4
80.9
116.6
481.9
1,125.4
126
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Disaggregation of Total Net Sales
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 Other
Total North America
Europe Middle East Africa
Asia Pacific
Latin America
Total
2020
Year Ended December 31,
2019
2018
$
$
474.0 $
28.5
502.5
172.6
180.8
47.3
903.2 $
505.0 $
32.4
537.4
193.5
222.5
60.1
1,013.5 $
538.8
32.2
571.0
240.7
245.6
68.1
1,125.4
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, 2020, 2019 and 2018. There were
no customers that individually accounted for 10% or more of the Company’s consolidated operating revenues for the years ended December 31,
2020, 2019 and 2018. There were no customers that individually accounted for 10% or more of the Company's accounts receivable balance as of
December 31, 2020 and 2019.
127
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Disaggregation of Long-Lived Assets
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 Other
Total North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total
Operating lease right-of-use assets
United States
Canada
Total North America
Europe, Middle East, and Africa
Asia Pacific
Latin America
Total
Goodwill, Intangibles and Other Assets
United States
Canada and Other
Total North America
Europe Middle East Africa (EMEA)
Asia Pacific
Latin America
Total
Year Ended December 31,
2020
2019
145.4 $
3.0
148.4
25.5
45.4
6.3
225.6 $
18.0 $
0.4
18.4
11.7
9.4
0.5
40.0 $
100.6 $
7.4
108.0
171.9
19.8
21.3
321.0 $
166.7
3.1
169.8
24.8
41.9
8.5
245.0
12.7
0.1
12.8
7.0
8.4
1.1
29.3
107.9
7.9
115.8
167.9
17.9
26.0
327.6
$
$
$
$
$
$
Total long-lived assets located in the United Kingdom represented approximately 20% of total long-lived assets as of December 31, 2020 and
2019. 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, 2020 and 2019.
128
Table of Contents
Notes to Consolidated Financial Statements (Continued)
19. Earnings Per Share
The following table sets forth a reconciliation of the numerators and denominators used in calculating basic and diluted earnings (loss) per
share:
(In millions, except per share amounts)
Numerators
Income (loss) from continuing operations attributable to GCP shareholders
(Loss) 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
(2)
Weighted average common shares—diluted calculation
Basic earnings (loss) per share
Income (loss) from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
(1)
Diluted earnings (loss) per share
(2)
Income (loss) from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
(1)
Year Ended December 31,
2019
2020
2018
$
$
$
$
$
$
$
$
100.5 $
(0.3)
100.2 $
73.0
0.1
73.1
1.38 $
— $
1.37 $
1.37 $
— $
1.37 $
40.8 $
5.7
46.5 $
72.6
0.3
72.9
0.56 $
0.08 $
0.64 $
0.56 $
0.08 $
0.64 $
(16.4)
31.3
14.9
72.1
—
72.1
(0.23)
0.43
0.21
(0.23)
0.43
0.21
_______________________________
Amounts may not sum due to rounding.
Dilutive effect not applicable to the periods in which GCP generated a loss from continuing operations.
(1)
(2)
GCP uses the treasury stock method to compute diluted earnings (loss) per share. During each of the years ended December 31, 2020 and
2019, 0.6 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 income from continuing operations generated during the periods. During the year ended December 31, 2018, there were no anti-
dilutive shares based on the treasury stock method as a result of a loss from continuing operations incurred during the period then ended. As of
December 31, 2018, total outstanding options of 1.5 million and total outstanding RSUs of 0.4 million were excluded from the computation of diluted
loss per share.
20. Acquisitions
The Company did not complete any material acquisitions during the year ended December 31, 2020 and 2019. Please refer to Note 1, "Basis of
Presentation and Summary of Significant Accounting and Financial Reporting Policies" for further discussion regarding the accounting treatment for
business acquisitions.
129
Table of Contents
Notes to Consolidated Financial Statements (Continued)
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 has strengthened
GCP’s position in the U.K. waterproofing market and has complemented 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. During the year
ended December 31, 2018, the Company finalized certain closing adjustments with the seller by recording a $0.2 million reduction in both
consideration paid and inventories. The Company finalized the purchase price allocation and fair values of assets acquired and liabilities assumed
during the year ended December 31, 2019.
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 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 acquisition.
(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
$
$
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 fully
released to the sellers subsequent to December 31, 2020 based on the provisions of the related agreement. The escrow was related to the sellers’
satisfaction of indemnity claims and general representations and warranties.
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.
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
$
$
130
Table of Contents
Notes to Consolidated Financial Statements (Continued)
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.
Other Acquisitions
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. 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) expenses, net" in the Consolidated Statements of Operations
131
Table of Contents
Notes to Consolidated Financial Statements (Continued)
21. 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 implement the legal transfer of the Darex business in the delayed closing jurisdictions in accordance with local law. During the year ended
December 31, 2020, the Company completed the final remaining delayed closing in Venezuela which did not result in a gain or a loss recognized
during the period then ended. During the year ended December 31, 2019, the Company completed the delayed closing in Indonesia and recorded
an after-tax gain of $7.2 million. 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. 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 “(Loss) income from
discontinued operations, net of income taxes” in the Consolidated Statements of Operations, with the exception of operations in Venezuela which
were deconsolidated during 2017.
As of December 31, 2019, an asset of $0.5 million related to operations in Venezuela and a liability of $0.5 million related to the deferred sale
proceeds received on July 3, 2017 were recognized in "Non-current assets held for sale" and “Other current liabilities” in the Consolidated Balance
Sheets. During the year ended December 31, 2020, GCP derecognized the entire asset and liability amounts due to completing the delayed closing
in Venezuela and recognizing the related sale proceeds. As of December 31, 2020, there were no remaining assets held for sale and no remaining
liabilities for the consideration received on July 3, 2017 related to the delayed closings in connection with the sale of Darex.
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, 2019, and 2018:
(In millions)
Net proceeds included in gain
Transaction costs
Net assets derecognized
Gain recognized before income taxes
Tax effect of gain recognized
Gain recognized after income taxes
Year Ended December 31,
2018
2019
12.7 $
—
(3.1)
9.6
(2.4)
7.2 $
55.4
—
(11.9)
43.5
(12.0)
31.5
$
$
In connection with the Disposition and the related gain, as noted above, the Company recorded tax expense of $2.4 million and $12.0 million,
respectively, within discontinued operations during the years ended December 31, 2019 and 2018.
In connection with the Disposition, the Company and Henkel also entered into a Transition Services Agreement pursuant to which Henkel and
the Company were to provide various services to each other in connection with the transition of the Darex business to Henkel. The services were
related to real estate, information technology, accounts payable, payroll and other finance functions, as well as administrative services and covered
various periods up to 36 months following the closing date. The services substantially ended during the year ended December 31, 2018. 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)
expenses, net" in 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 agreement expires in June 2024.
132
Table of Contents
Notes to Consolidated Financial Statements (Continued)
Under the Amended Purchase Agreement, GCP is required to indemnify Henkel for certain possible future tax liabilities. As of December 31,
2020 and 2019, GCP has recorded an indemnification payable of $0.6 million and $0.9 million, respectively, as a result of the Disposition.
The following table sets forth the components of "(Loss) income from discontinued operations, net of income taxes" in the Consolidated
Statements of Operations:
(In millions)
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Restructuring expenses and asset impairments
Gain on sale of business
Other expenses (income), net
(Loss) income from discontinued operations before income taxes
Benefit (provision) for income taxes
(Loss) income from discontinued operations, net of income taxes
Year Ended December 31,
2019
2020
2018
— $
—
—
0.4
(0.1)
—
0.1
(0.4)
0.1
(0.3) $
— $
—
—
1.6
0.3
(9.6)
0.1
7.6
(1.9)
5.7 $
15.7
15.9
(0.2)
5.8
0.4
(43.5)
(4.1)
41.2
(9.9)
31.3
$
$
133
Table of Contents
Notes to Consolidated Financial Statements (Continued)
22. Revisions of Previously Issued Consolidated Financial Statements
As described in Note 1, “Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies,” in connection with the
preparation of the consolidated financial statements for the year ended December 31, 2020, the Company identified freight expense accrual and
other errors in its previously filed 2019 and 2018 annual consolidated financial statements and unaudited quarterly consolidated financial statements
for the first three quarterly periods of 2020 and each of the quarterly periods of 2019.
The Company has corrected the immaterial errors by revising previously filed 2019 and 2018 annual consolidated financial statements in
connection with the filing of this 2020 Annual Report on Form 10-K. The following tables present the impact of the revisions on the previously filed
2019 and 2018 annual consolidated financial statements to correct the prior period errors. Additionally, please refer to Note 23, “Quarterly Financial
Information (Unaudited),” for the impact of these revisions on each of the quarterly periods.
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 write offs
Other expenses, net
Total costs and expenses
Income from continuing operations before income taxes
Benefit from income taxes
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:
Income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings Per Share Attributable to GCP Shareholders:
Basic earnings per share:
Income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Weighted average number of basic shares
Diluted earnings per share:
Income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Weighted average number of diluted shares
134
Year Ended December 31, 2019
As Previously
Reported
Adjustments
As Revised
$
$
$
$
$
$
$
$
$
$
1,013.5 $
630.4
383.1
273.0
18.4
22.7
20.4
9.9
4.3
348.7
34.4
6.6
41.0
5.7
46.7
(0.4)
46.3 $
40.6 $
5.7
46.3 $
0.56 $
0.08 $
0.64 $
72.6
0.56 $
0.08 $
0.64 $
72.9
$
$
$
$
$
$
$
$
$
$
—
(0.6)
0.6
(0.2)
—
—
—
—
—
(0.2)
0.8
(0.6)
0.2
—
0.2
—
0.2
0.2
—
0.2
—
—
—
—
—
—
—
—
1,013.5
629.8
383.7
272.8
18.4
22.7
20.4
9.9
4.3
348.5
35.2
6.0
41.2
5.7
46.9
(0.4)
46.5
40.8
5.7
46.5
0.56
0.08
0.64
72.6
0.56
0.08
0.64
72.9
Table of Contents
Notes to Consolidated Financial Statements (Continued)
GCP Applied Technologies Inc.
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive income:
Defined benefit pension and other postretirement plans, net of income taxes
Currency translation adjustments, net of income taxes
Loss from hedging activities, net of income taxes
Total other comprehensive income
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to GCP shareholders
$
135
Year Ended December 31, 2019
As Previously
Reported
Adjustments
As Revised
$
46.7 $
0.2
$
(0.5)
3.6
(0.1)
3.0
49.7
(0.4)
49.3 $
—
—
—
—
0.2
—
0.2
$
46.9
(0.5)
3.6
(0.1)
3.0
49.9
(0.4)
49.5
Table of Contents
Notes to Consolidated Financial Statements (Continued)
GCP Applied Technologies Inc.
Consolidated Balance Sheets
As of Year Ended December 31, 2019
As Previously
Reported
Adjustments
As Revised
(In millions, except par value and shares)
ASSETS
Current Assets
Cash and cash equivalents
Trade accounts receivable (net of allowances of $7.5 million)
Inventories, net
Other current assets
Total Current Assets
Properties and equipment, net
Operating lease right-of-use assets
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
Operating lease obligations payable within one year
Accounts payable
Other current liabilities
Total Current Liabilities
Debt payable after one year
Operating lease obligations
Income taxes payable
Deferred income taxes
Unrecognized tax benefits
Underfunded and unfunded defined benefit pension plans
Other liabilities
Total Liabilities
Commitments and Contingencies
Stockholders' Equity
Preferred stock, par value $0.01; 50,000,000 shares authorized; no shares issued or outstanding
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 72,850,268
Paid-in capital
Accumulated earnings
Accumulated other comprehensive loss
Treasury stock
Total GCP Stockholders' Equity
Noncontrolling interests
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
136
$
$
$
$
325.0 $
183.7
95.9
43.7
648.3
245.3
29.3
208.9
80.7
26.1
25.0
38.0
0.5
1,302.1 $
2.7 $
8.1
88.4
113.6
212.8
346.5
21.6
41.4
13.1
42.2
67.5
15.9
761.0
—
0.7
53.4
610.2
(117.0)
(8.6)
538.7
2.4
541.1
1,302.1 $
— $
—
—
(0.5)
(0.5)
(0.3)
—
—
—
—
—
—
—
(0.8) $
— $
—
—
(0.7)
(0.7)
—
—
—
—
—
—
—
(0.7)
—
—
—
(0.1)
—
—
(0.1)
—
(0.1)
(0.8) $
325.0
183.7
95.9
43.2
647.8
245.0
29.3
208.9
80.7
26.1
25.0
38.0
0.5
1,301.3
2.7
8.1
88.4
112.9
212.1
346.5
21.6
41.4
13.1
42.2
67.5
15.9
760.3
—
0.7
53.4
610.1
(117.0)
(8.6)
538.6
2.4
541.0
1,301.3
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions)
Total Stockholders' Equity:
Balance, December 31, 2018
Net income
Issuance of common stock in connection with stock plans
Share-based compensation
Exercise of stock options
Share repurchases
Other comprehensive income
Balance, December 31, 2019
GCP Applied Technologies Inc.
Consolidated Statements of Stockholders' Equity
As Previously
Reported
Adjustments
As Revised
$
$
481.4 $
46.7
—
6.2
7.6
(3.8)
3.0
541.1 $
(0.3) $
0.2
—
—
—
—
—
(0.1) $
481.1
46.9
—
6.2
7.6
(3.8)
3.0
541.0
137
Table of Contents
Notes to Consolidated Financial Statements (Continued)
GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows
(In millions)
OPERATING ACTIVITIES
Net income
Less: Income from discontinued operations
Income from continuing operations
Reconciliation to net cash provided by (used in) 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
Deferred income taxes
Gain on disposal of property and equipment
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 operating activities from continuing operations
Net cash used in operating activities from discontinued operations
Net cash provided by operating activities
INVESTING ACTIVITIES
Capital expenditures
Other investing activities
Net cash used in investing activities from continuing operations
Net cash used in investing activities from discontinued operations
Net cash used in investing activities
FINANCING ACTIVITIES
Repayments under credit arrangements
Payments of tax withholding obligations related to employee equity awards
Proceeds from exercise of stock options
Payments on finance lease obligations
Other financing activities
Net cash used in financing activities from continuing operations
Effect of currency exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds
Cash paid for interest on note and credit arrangements
Supplemental disclosure of non-cash investing activities:
Property and equipment purchases unpaid and included in accounts payable
Year Ended December 31, 2019
As Previously
Reported
Adjustments
As Revised
$
46.7 $
5.7
41.0
43.2
1.4
0.1
6.2
(1.2)
(19.3)
(0.7)
13.1
13.9
(26.8)
18.9
(11.8)
78.0
(13.7)
64.3
(61.6)
0.5
(61.1)
(0.4)
(61.5)
(7.6)
(3.8)
7.6
(0.8)
(0.4)
(5.0)
1.1
(1.1)
326.1
325.0 $
12.7 $
19.9 $
5.7 $
$
$
$
$
0.2
—
0.2
—
—
—
—
—
0.6
—
—
—
—
—
(1.1)
(0.3)
—
(0.3)
0.3
—
0.3
—
0.3
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
46.9
5.7
41.2
43.2
1.4
0.1
6.2
(1.2)
(18.7)
(0.7)
13.1
13.9
(26.8)
18.9
(12.9)
77.7
(13.7)
64.0
(61.3)
0.5
(60.8)
(0.4)
(61.2)
(7.6)
(3.8)
7.6
(0.8)
(0.4)
(5.0)
1.1
(1.1)
326.1
325.0
12.7
19.9
5.7
138
Table of Contents
Notes to Consolidated Financial Statements (Continued)
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 write offs
Other income, net
Total costs and expenses
Income from continuing operations before income taxes
Provision for income taxes
Loss 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 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 from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Weighted average number of basic shares
(1)
Diluted (loss) earnings per share:
(2)
Loss from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Weighted average number of diluted shares
(1)
139
Year Ended December 31, 2018
As Previously
Reported
Adjustments
As Revised
$
$
$
$
$
$
$
$
$
$
1,125.4 $
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)
15.2 $
(16.1) $
31.3
15.2 $
(0.22) $
0.43 $
0.21 $
72.1 $
(0.22) $
0.43 $
0.21 $
72.1 $
— $
(0.2)
0.2
0.5
—
—
—
—
—
0.5
(0.3)
—
(0.3)
—
(0.3)
—
(0.3) $
(0.3) $
—
(0.3) $
(0.01) $
— $
— $
—
(0.01) $
— $
— $
—
1,125.4
715.3
410.1
289.6
20.2
92.4
9.6
14.8
(26.7)
399.9
10.2
(26.3)
(16.1)
31.3
15.2
(0.3)
14.9
(16.4)
31.3
14.9
(0.23)
0.43
0.21
72.1
(0.23)
0.43
0.21
72.1
Table of Contents
Notes to Consolidated Financial Statements (Continued)
GCP Applied Technologies Inc.
Consolidated Statements of Comprehensive Loss
(In millions)
Net income
Other comprehensive loss:
Defined benefit pension and other postretirement plans, net of income taxes
Currency translation adjustments
Gain from hedging activities, net of income taxes
Total other comprehensive loss
Comprehensive loss
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive loss attributable to GCP shareholders
Year Ended December 31, 2018
As Previously
Reported
15.5 $
(2.6)
(31.8)
0.1
(34.3)
(18.8)
(0.3)
(19.1) $
$
$
Adjustments
As Revised
(0.3) $
—
—
—
—
(0.3)
—
(0.3) $
15.2
(2.6)
(31.8)
0.1
(34.3)
(19.1)
(0.3)
(19.4)
140
Table of Contents
Notes to Consolidated Financial Statements (Continued)
GCP Applied Technologies Inc.
Consolidated Statements of Stockholders' Equity
(In millions)
Balance, December 31, 2017
Net income
Issuance of common stock in connection with stock plans
Share-based compensation
Exercise of stock options
Share repurchases
Other comprehensive loss
Dividends and other changes in noncontrolling interest
Balance, December 31, 2018
As Previously Reported
Year Ended December 31, 2018
Adjustments
As Revised
492.0 $
15.5
—
4.2
5.5
(1.4)
(34.3)
(0.1)
481.4 $
—
(0.3)
—
—
—
—
—
—
(0.3)
$
$
492.0
15.2
—
4.2
5.5
(1.4)
(34.3)
(0.1)
481.1
$
$
141
Table of Contents
Notes to Consolidated Financial Statements (Continued)
GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows
(In millions)
OPERATING ACTIVITIES
Net income
Less: Income from discontinued operations
Loss 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
Deferred income taxes
Loss on debt refinancing
Gain on disposal of property and equipment
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 operating activities from continuing operations
Net cash used in operating activities from discontinued operations
Net cash used in operating activities
INVESTING ACTIVITIES
Capital expenditures
Businesses acquired, net of cash acquired
Other investing activities
Net cash used in investing activities from continuing operations
Net cash provided by investing activities from discontinued operations
Net cash used in 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
Other financing activities
Net cash used in by financing activities
Effect of currency exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental cash flow disclosures:
Cash paid for income taxes, net of refunds
Cash paid for interest on note and credit arrangements
Supplemental disclosure of non-cash investing activities:
Property and equipment purchases unpaid and included in accounts payable
142
Year Ended December 31, 2018
As Previously
Reported
Adjustments
As Revised
$
15.5 $
31.3
(15.8)
(0.3) $
—
(0.3)
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)
(3.7)
(395.4)
721.5
326.1 $
23.1 $
46.3 $
10.3 $
$
$
$
$
—
—
—
—
—
—
—
—
(0.3)
—
—
—
0.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
— $
— $
15.2
31.3
(16.1)
42.0
1.6
0.6
3.7
(0.2)
3.2
59.8
(0.9)
9.0
(7.8)
(9.7)
(7.0)
(2.8)
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)
(3.7)
(395.4)
721.5
326.1
23.1
46.3
10.3
Table of Contents
Notes to Consolidated Financial Statements (Continued)
23. Quarterly Financial Information (Unaudited)
The amounts presented below reflect the revisions to previously filed unaudited interim consolidated financial data to correct immaterial prior
period errors as discussed in Note 1, “Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies” and Note 22,
“Revisions of Previously Issued Consolidated Financial Statements”. The revisions to the 2020 first, second and third quarterly unaudited interim
consolidated financial statements, including the correction of the previously issued unaudited Consolidated Statements of Operations, Consolidated
Statements of Comprehensive Income, Consolidated Statements of Stockholders’ Equity, Consolidated Statements of Cash Flows and related
footnote disclosures, will be made in connection with the Company's future filings of its unaudited interim consolidated financial statements on Form
10-Q in 2021.
(In millions, except per share amounts)
March 31, 2020
June 30, 2020
September 30, 2020
(1)
December 31, 2020 December 31, 2020
Three Months Ended,
Year Ended,
Net sales
Gross profit
Net income (loss)
Income (loss) from continuing operations attributable to
GCP shareholders
Loss (income) from discontinued operations, net of
income taxes
Net income (loss) attributable to GCP shareholders
Earnings (loss) per share attributable to GCP
shareholders
Basic earnings (loss) per share:
:
Income (loss) from continuing operations attributable to
GCP shareholders
Loss (income) from discontinued operations, net of
income taxes
Net income (loss) attributable to GCP shareholders
:
Diluted earnings (loss) per share
(2):
Income (loss) from continuing operations attributable to
GCP shareholders
Loss (income) from discontinued operations, net of
income taxes
Net income (loss) attributable to GCP shareholders
:
$
$
$
$
$
$
$
$
________________________________
216.7 $
82.8
1.8
2.0
(0.3)
1.7 $
0.03 $
— $
0.02 $
0.03 $
— $
0.02 $
195.4 $
77.4
(0.6)
(0.7)
—
(0.7) $
(0.01) $
— $
(0.01) $
(0.01) $
— $
(0.01) $
248.4 $
101.8
100.1
100.0
(0.1)
99.9 $
1.37 $
— $
1.37 $
1.37 $
— $
1.36 $
242.7 $
95.9
(0.6)
(0.8)
0.1
(0.7) $
(0.01) $
— $
(0.01) $
(0.01) $
— $
(0.01) $
903.2
357.9
100.7
100.5
(0.3)
100.2
1.38
—
1.37
1.37
—
1.37
(1)
(2)
During the three months ended September 30, 2020, GCP recognized a gain of $110.2 million on the sale of its corporate headquarters. Please refer to Note 6,
"Lessee Arrangements" for further information on this transaction.
Dilutive effect is only applicable to the periods during which GCP generated net income from continuing operations.
143
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions, except per share amounts)
Net sales
Gross profit
Net income
Income from continuing operations attributable to GCP
shareholders
:
Income (loss) from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic earnings (loss) per share:
Income from continuing operations attributable to GCP
shareholders
Income (loss) from discontinued operations, net of income
taxes
Net income attributable to GCP shareholders
Diluted earnings (loss) per share
(3):
Income from continuing operations attributable to GCP
shareholders
Income (loss) from discontinued operations, net of income
taxes
Net income attributable to GCP shareholders
$
$
$
$
$
$
$
$
Three Months Ended,
March 31,
2019
(1)(2)
June 30, 2019
September 30,
2019
December 31,
2019
226.1 $
82.0
21.2
14.2
6.8
21.0 $
262.2 $
98.8
2.9
3.4
(0.5)
2.9 $
266.9 $
104.8
16.3
16.6
(0.4)
16.2 $
258.3 $
98.1
6.5
6.6
(0.2)
6.4 $
0.20 $
0.05 $
0.23 $
0.09 $
0.09 $
0.29 $
(0.01) $
0.04 $
(0.01) $
0.22 $
— $
0.09 $
0.20 $
0.05 $
0.23 $
0.09 $
0.09 $
0.29 $
(0.01) $
0.04 $
(0.01) $
0.22 $
— $
0.09 $
Year Ended,
December 31,
2019
1,013.5
383.7
46.9
40.8
5.7
46.5
0.56
0.08
0.64
0.56
0.08
0.64
(1)
(2)
(3)
During the three months ended March 31, 2019, GCP recognized a tax benefit of $20.2 million from the release of an uncertain tax position due to the finalization of
the Transition Tax regulations issued in January 2019.
During the three months ended March 31, 2019, GCP recognized an after tax gain of $7.2 million on the sale of the delayed close entity in Indonesia related to Darex.
Please refer to Note 21, "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.
The following tables set forth the effects of the revisions of previously issued unaudited quarterly consolidated financial data to correct the prior
period errors, as discussed in Note 1, “Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies” and Note 22,
“Revisions of Previously Issued Consolidated Financial Statements”:
144
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions, except per share amounts)
Net sales
Gross profit
Net income
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic earnings (loss) per share:
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
:
Diluted earnings (loss) per share
Income from continuing operations
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
(In millions, except per share amounts)
Net sales
Gross profit
Net loss
Loss from continuing operations attributable to GCP shareholders
Net loss attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic loss per share:
Loss from continuing operations attributable to GCP shareholders
Net loss attributable to GCP shareholders
:
Diluted loss per share
Loss from continuing operations attributable to GCP shareholders
Net loss attributable to GCP shareholders
Three Months Ended September 30, 2020
As Previously
Reported
Adjustments
As Revised
248.4 $
101.4
99.6
99.5
(0.1)
99.4 $
1.36 $
— $
1.36 $
1.36 $
— $
1.36 $
— $
0.4
0.5
0.5
—
0.5 $
0.01 $
— $
0.01 $
0.01 $
— $
— $
248.4
101.8
100.1
100.0
(0.1)
99.9
1.37
—
1.37
1.37
—
1.36
Three Months Ended June 30, 2020
As Previously
Reported
Adjustments
As Revised
195.4 $
76.4
(1.2)
(1.3)
(1.3) $
(0.02) $
(0.02) $
(0.02) $
(0.02) $
— $
1.0
0.6
0.6
0.6 $
0.01 $
0.01 $
0.01 $
0.01 $
195.4
77.4
(0.6)
(0.7)
(0.7)
(0.01)
(0.01)
(0.01)
(0.01)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
145
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions, except per share amounts)
Net sales
Gross profit
Net income
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic earnings per share:
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
:
Diluted earnings per share
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
(In millions, except per share amounts)
Net sales
Gross profit
Net income
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic earnings (loss) per share:
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
:
Diluted earnings (loss) (loss per share
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Three Months Ended March 31, 2020
As Previously
Reported
Adjustments
As Revised
216.7 $
81.9
1.2
1.4
(0.3)
1.1 $
0.02 $
— $
0.02 $
0.02 $
— $
0.02 $
— $
0.9
0.6
0.6
—
0.6 $
0.01 $
— $
— $
0.01 $
— $
— $
216.7
82.8
1.8
2.0
(0.3)
1.7
0.03
—
0.02
0.03
—
0.02
Three Months Ended December 31, 2019
As Previously
Reported
Adjustments
As Revised
258.3 $
96.8
5.8
5.9
(0.2)
5.7 $
0.08 $
— $
0.08 $
0.08 $
— $
0.08 $
— $
1.3
0.7
0.7
—
0.7 $
0.01 $
— $
0.01 $
0.01 $
— $
0.01 $
258.3
98.1
6.5
6.6
(0.2)
6.4
0.09
—
0.09
0.09
—
0.09
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
146
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions, except per share amounts)
Net sales
Gross profit
Net income
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic earnings (loss) per share:
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
:
Diluted earnings (loss) per share
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
(In millions, except per share amounts)
Net sales
Gross profit
Net income
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic earnings (loss) per share:
Income from continuing operations attributable to GCP shareholders
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
:
Diluted earnings (loss) per share
Income from continuing operations
Loss from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Three Months Ended September 30, 2019
As Previously
Reported
Adjustments
As Revised
266.9 $
105.1
16.7
17.0
(0.4)
16.6 $
0.23 $
(0.01) $
0.23 $
0.23 $
(0.01) $
0.23 $
— $
(0.3)
(0.4)
(0.4)
—
(0.4) $
— $
— $
(0.01) $
— $
— $
(0.01) $
266.9
104.8
16.3
16.6
(0.4)
16.2
0.23
(0.01)
0.22
0.23
(0.01)
0.22
Three Months Ended June 30, 2019
As Previously
Reported
Adjustments
As Revised
262.2 $
99.0
2.6
3.1
(0.5)
2.6 $
0.04 $
(0.01) $
0.04 $
0.04 $
(0.01) $
0.04 $
— $
(0.2)
0.3
0.3
—
0.3 $
0.01 $
— $
— $
0.01 $
— $
— $
262.2
98.8
2.9
3.4
(0.5)
2.9
0.05
(0.01)
0.04
0.05
(0.01)
0.04
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
147
Table of Contents
Notes to Consolidated Financial Statements (Continued)
(In millions, except per share amounts)
Net sales
Gross profit
Net income
Income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Earnings (loss) per share attributable to GCP shareholders
Basic earnings (loss) per share:
Income from continuing operations attributable to GCP shareholders
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
:
Diluted earnings (loss) per share
Income from continuing operations
Income from discontinued operations, net of income taxes
Net income attributable to GCP shareholders
Three Months Ended March 31, 2019
As Previously
Reported
Adjustments
As Revised
$
$
$
$
$
$
$
$
226.1 $
82.2
21.6
14.6
6.8
21.4 $
0.20 $
0.09 $
0.30 $
0.20 $
0.09 $
0.29 $
— $
(0.2)
(0.4)
(0.4)
—
(0.4) $
— $
— $
(0.01) $
— $
— $
— $
226.1
82.0
21.2
14.2
6.8
21.0
0.20
0.09
0.29
0.20
0.09
0.29
148
Table of Contents
GCP APPLIED TECHNOLOGIES AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)
For the Year Ended December 31, 2020
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
$
$
$
7.5
3.8
17.2
0.9
5.8
1.6
Deductions
Other, net
(1)
Balance at end
of period
(1.4)
(4.5)
(0.5)
— $
— $
(2.0) $
7.0
5.1
16.3
___________________________________________________________________________________________________________________
(1)
Various miscellaneous adjustments against reserves and effects of currency translation.
For the Year Ended December 31, 2019
Balance at
beginning of
period
Additions
charged to costs
and expenses
Deductions
Other, net
(1)
Balance at end
of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable
Inventory obsolescence reserve
Valuation allowance for deferred tax assets
$
$
$
5.8
2.7
18.5
3.5
5.5
2.3
(1.7)
(4.4)
(1.3)
(0.1) $
— $
(2.3) $
7.5
3.8
17.2
___________________________________________________________________________________________________________________
(1)
Various miscellaneous adjustments against reserves and effects of currency translation.
For the Year Ended December 31, 2018
Balance at
beginning of
period
Additions
charged to costs
and expenses
Deductions
(1)
Other, net
(2)
Balance at end
of period
Valuation and qualifying accounts deducted from assets:
Allowances for notes and accounts receivable
Inventory obsolescence reserve
Valuation allowance for deferred tax assets
$
$
$
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 resulting
from the sale of Darex Japan.
Various miscellaneous adjustments against reserves and effects of currency translation.
149
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed by, or under the
supervision of, the Company’s principal executive and principal financial officers including the Chief Executive Officer, Chief Financial Officer and
Chief Accounting Officer 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 and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of
the Company;
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
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.
Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) as of December 31, 2020.
During the 2020 financial close process, the finance and accounting team identified material weaknesses in our internal control over financial
reporting. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we did not
consistently maintain a sufficient complement of professionals with an appropriate degree of internal controls and accounting knowledge, training
and experience to appropriately analyze, record and disclose accounting matters timely and accurately. This material weakness contributed to the
following additional material weaknesses:
• We did not design and maintain formal accounting policies, procedures and controls to achieve complete, accurate and timely financial
accounting, reporting and disclosures, including segregation of duties and
controls over the preparation and review of account reconciliations and journal entries. This material weakness resulted in the revisions of
our consolidated financial statements as of and for the years ended December 31, 2019 and 2018 and our quarterly condensed
consolidated financial information for the first three quarters of the year ended December 31, 2020 and for each of the quarters in the year
ended December 31, 2019.
• We did not design and maintain effective controls over the completeness and accuracy of price and quantity information for revenue
recognition. Specifically, we did not design and maintain effective controls to verify sales orders are approved and validated against
agreements with customers. The timeliness, level of precision, and appropriate segregation of duties in our review processes over revenue
transactions was not sufficient to timely identify and correct potential misstatements. This material weakness did not result in misstatements
to our interim or annual financial statements.
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• We did not design and maintain effective controls over certain information technology (“IT”) general controls for our online order entry
system which processed approximately 7% of net sales in 2020. Specifically, we did not (i) design and maintain program change
management controls to ensure that information technology program and data changes affecting financial IT applications and underlying
accounting records are identified, tested, authorized and implemented appropriately; (ii) design and maintain user access controls to ensure
appropriate segregation of duties and that adequately restrict user access and data to appropriate personnel; and (iii) design and maintain
computer operations controls to ensure that a critical interface was monitored. This material weakness did not result in misstatements to our
interim or annual financial statements.
Additionally, these material weaknesses could result in a misstatement of substantially all account balances or disclosures that would result in a
material misstatement to the annual or interim consolidated financials that would not be prevented or detected.
Because of these material weaknesses, management concluded that the Company did not maintain effective internal control over financial
reporting as of December 31, 2020 based on the criteria in Internal Control Integrated Framework (2013) issued by the COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP,
an independent registered public accounting firm, as stated in their report included in Part II, Item 8 of this Annual Report on Form 10-K.
Evaluation of Disclosure Controls and Procedures
Management conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer
(our principal executive officer and principal financial officer, respectively), of the effectiveness of the design and operation of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2020.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer
concluded that, as of such date, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control
over financial reporting as described above in Management’s Report on Internal Control over Financial Reporting under Item 308 of Regulation S-K.
Remediation Activities
During 2020, as part of other changes in the senior management at the Company, the Company named a new chief financial officer in August,
and hired a new chief accounting officer in October, and additional members of the finance and accounting team. During the 2020 year end close
process, with this reorganization in accounting, the team completed a review of the Company’s accounting policies and controls and discovered that
certain internal controls were not effective. Based upon the evaluation and as a result of the material weaknesses noted above, the principal
executive officer, principal financial officer and principal accounting officer concluded that our internal control over financial reporting is not effective
as of December 31, 2020.
The revenue recognition and IT remediation will include:
•
Redesigning and maintaining effective controls over the completeness and accuracy of price and quantity information as compared to
agreements with customers that is used for revenue recognition. This will include appropriate IT access, interface and change controls over
our online order entry system, segregation of duties and enhanced sales order review processes.
The close process remediation will include:
•
Redesigning and maintaining formal accounting policies, procedures and controls to achieve complete, accurate and timely financial
accounting, reporting and disclosures, including controls over the preparation and review of account reconciliations and journal entries.
Management will report regularly to the Audit Committee regarding the status of the implementation activities and continue to review and make
necessary changes to the overall design of the Company’s internal control environment to improve the overall effectiveness of internal control over
financial reporting. Management believes the measures described above and others that will be implemented will remediate the material
weaknesses identified and strengthen the Company’s internal control over financial reporting. The material weaknesses will not be considered
remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these
controls are operating effectively.
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Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that
have materially affected, or are reasonably likely to materially affect, the Company’s 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 2021 Annual Meeting of
Stockholders ("2021 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 2021 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 2021 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
2021 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 2021 Proxy Statement under the captions “Executive Compensation” and “Corporate Governance -
Director Compensation” and is incorporated herein by reference.
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Table of Contents
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, 2020 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 (GCP Applied Technologies Inc. 2020
Inducement Plan)
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)
1,538,190 $
531,476
2,069,666 $
23.91
20.96
23.03
7,660,736
468,524
8,129,260
(1)
Under the Equity and Incentive Plan, there are 910,850 shares of GCP common stock to be issued upon the exercise of outstanding options, 465,558
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, 2018, and the maximum number of shares that could be earned with respect to PBUs granted
during the years ended December 31, 2020 and 2019, and 161,782 shares to be issued upon completion of the vesting period for stock-settled
restricted stock unit awards (“RSUs”). Under the GCP Applied Technologies Inc. 2020 Inducement Plan, there are 388,348 shares of GCP common
stock to be issued upon the exercise of outstanding options and 143,128 shares to be issued upon completion of the vesting period for stock-settled
RSUs. Please refer to Note 17, "Stock Incentive 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 additional information regarding the GCP Applied Technologies Inc. 2020
Inducement Plan.
(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 2021 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 2021 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 2021 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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Table of Contents
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.
3.1 Amended and Restated Certificate of Incorporation of GCP Applied
Technologies Inc., dated February 3, 2016.
3.2 Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of GCP Applied Technologies Inc. dated May 3, 2018
3.3 Certificate of Designations of Series A Junior Participating Preferred Stock of
GCP Applied Technologies Inc.
3.4 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).
4.3 Rights Agreement, dated as of March 15, 2019, between GCP Applied
Technologies Inc. and Equiniti Trust Company, which includes the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Preferred
Shares as Exhibit C.
4.4 First Amendment to Rights Agreement, dated as of March 13, 2020, between
GCP Applied Technologies Inc. and Equiniti Trust Company
4.5 Description of Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934.
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.
10.3 Transition Services Agreement, dated January 27, 2016, by and between W.R.
Grace & Co. - Conn. and GCP Applied Technologies Inc.
10.4 Cross-License Agreement, dated January 27, 2016, by and among GCP Applied
Technologies Inc., W.R. Grace & Co. - Conn. and Grace GmbH & Co. KG.
10.5 Grace Transitional License Agreement, dated January 27, 2016, by and
between W.R. Grace & Co. - Conn. and GCP Applied Technologies Inc.
Incorporated by Reference
Form
8-K
Exhibit
2.1
Filing Date
1/28/16
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
10-K
8-K
8-K
8-K
8-K
8-K
2.1
3.1
3.1
3.1
3.2
4.1
4.2
4.1
4.1
4.4
10.1
10.2
10.3
10.4
10.5
7/3/17
2/4/16
5/3/18
3/15/19
5/3/18
4/10/18
4/10/18
3/15/19
3/13/20
2/27/20
1/28/16
1/28/16
1/28/16
1/28/16
1/28/16
154
Table of Contents
10.6 Credit Agreement, dated February 3, 2016, by and among GCP 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.
10.8 Second Amendment to Credit Agreement, dated as of April 10, 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 Technologies Inc.*
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.*
10.14 GCP Applied Technologies Inc. Executive Annual Incentive 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.*
10.20 Form of GCP Applied Technologies Inc. Restricted Stock Unit Award Agreement.*
10.21 Form of GCP Applied Technologies Inc. Stock Option Award Agreement.*
10.22 Form of GCP Applied Technologies Inc. Performance-Based Stock Unit Award
Agreement.*
10.23 GCP Applied Technologies Inc. Equity and Incentive Plan as amended and
restated on February 28, 2017*
10.24 Form of GCP Applied Technologies Inc. Stock Option Award Agreement.*
10.25 Form of GCP Applied Technologies Inc. Restricted Stock Unit Award Agreement.*
10.26 Form of GCP Applied Technologies Inc. Performance-Based Stock Unit Award
Agreement.*
10.27 GCP Applied Technologies 2020 Inducement Plan*
10.29 Employment Agreement between GCP Applied Technologies Inc. and Simon
Bates, dated as of September 11, 2020*
Incorporated by Reference
8-K
10.1
2/4/16
8-K
10.1
8/25/16
8-K
10.1
4/10/18
8-K
8-K
10-K
8-K
8-K
10-K
S-8
S-8
S-8
8-K
8-K
10-K
10-K
10-K
8-K
10-Q
10-Q
10-Q
S-8
8-K
10.5
10.2
10.10
10.3
10.4
10.11
4.4
4.5
4.6
10.2
10.1
10.17
10.18
10.19
10.1
10.1
10.2
10.3
99.1
10.1
2/4/16
2/4/16
3/2/17
2/4/16
2/4/16
3/30/16
1/28/16
1/28/16
1/28/16
2/11/16
2/11/16
3/30/16
3/30/16
3/30/16
5/5/17
5/9/17
5/9/17
5/9/17
10/1/20
9/14/20
2/27/20
Filed herewith
11/6/20
7/8/20
10.30 Form of GCP Applied Technologies Inc. Change in Control Agreement for
10-K
10.32
Executive Officers appointed on or after September 18, 2019.
10.31 GCP Applied Technologies Inc. Form of Change in Control Severance Agreement
for Executive Officers appointed on or after January 18, 2021*
10.32 GCP Applied Technologies Inc. Amended and Restated Equity Incentive Plan*
10.33 Real Estate Purchase and Sale Agreement by and between GCP Applied
Technologies Inc. and IQHQ, L.P. with an effective date of July 2, 2020
10-Q
8-K
10.4
10.1
155
Table of Contents
10.34 Lease, by and between GCP Applied Technologies Inc. and IQHQ-Alewife, LLC, with
an effective date of July 31, 2020
21 List of Subsidiaries of GCP Applied Technologies Inc.
23 Consent of PricewaterhouseCoopers LLP, Independent Registered Public
Accounting Firm.
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 Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy
extension information contained in Exhibits 101.*)
_____________________________________________________________________________________
* Management contract or compensatory plan.
(b) See Item 15(a)(3) above.
(c) See Item 15(a)(1) and (2) above.
156
Incorporated by Reference
10-Q
10.2
11/6/20
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.
157
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/ SIMON M. BATES
Simon M. Bates
President and Chief Executive Officer
(Principal Executive Officer)
/s/ CRAIG A. MERRILL
Craig A. Merrill
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ JAMES M. WADDELL
James M. Waddell
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Dated: March 8, 2021
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 March 8, 2021.
/s/ SIMON M. BATES
(Simon M. Bates)
/s/ CRAIG A. MERRILL
(Craig A. Merrill)
/s/ JAMES M. WADDELL
(James M. Waddell)
/s/ MARRAN H. OGILVIE
(Marran H. Ogilvie)
/s/ CLAY H. KIEFABER
(Clay H. Kiefaber)
/s/ PETER A. FELD
(Peter A. Feld)
/s/ JANET P. GIESSELMAN
(Janet P. Giesselman)
/s/ ARMAND F. LAUZON
(Armand F. Lauzon)
/s/ LINDA J. WELTY
(Linda J. Welty)
/s/ ROBERT H. YANKER
(Robert H. Yanker)
/s/ ANDREW M. ROSS
(Andrew M. Ross)
President and Chief Executive Officer (Principal Executive Officer)
Vice President and Chief Financial Officer (Principal Financial Officer)
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Non-Executive Chairman of the Board
Director
Director
Director
Director
Director
158
Exhibit 10.31*
CONFIDENTIAL
__________, 2021
GCP Applied Technologies Inc.
62 Whittemore Avenue
Cambridge, MA 02140
Name
Address
Dear __________:
GCP Applied Technologies Inc., a Delaware corporation (the "Company"), considers it essential to the best interests of its stockholders to
foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board")
recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the
detriment of the Company, its subsidiaries and other business units, and its stockholders.
Accordingly, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is now contemplated.
In order to induce you to remain in the employ of GCP (as hereafter defined), the Company agrees that you shall be eligible to receive the
severance benefits set forth in this letter agreement ("Agreement") in the event your employment with GCP is terminated within 12 months following
a Change in Control of the Company (as hereinafter defined) under the circumstances provided in this Agreement.
1. Definitions. When used in this Agreement as capitalized terms, the following defined terms shall have the meanings set forth or specified in
this Section.
(a) "Board" shall have the meaning specified in the first paragraph of this Agreement.
(b) "Change in Control of the Company" means (i) the sale of all or substantially all of the assets of the Company on a consolidated
basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding
voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding
stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such
transaction, (iii) the Company determines that any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a
trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, has become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% or more of the outstanding common stock of the Company, or (iv)
any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a
majority of the
Exhibit 10.31*
outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the
acquisition of securities directly from the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended and in effect at the time of a Change in Control of the Company.
(d) "Company" means GCP Applied Technologies Inc., a Delaware corporation, and any successor as provided in Section 6(a).
(e) "Date of Termination" shall have the meaning specified in Section 3(e).
(f) "Disability" shall have the meaning specified in Section 3(a).
(g)“Exchange Act" means the Securities Exchange Act of 1934, as amended
(h) "Excise Tax" means the excise tax imposed by Section 4999 of the Code and/or any interest or penalties with respect to such
excise tax.
(i) "GCP" means the Company and/or one or more of its subsidiaries
(j) "Good Reason" shall have the meaning specified in Section 3(c).
(k) "Notice of Termination" means a written notice indicating the specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so
indicated.
(l) "Other Payments" means payments and/or the value of benefits to which you are entitled (other than the Severance Payment)
pursuant to any agreement (including this Agreement) that constitute "parachute payments" (as defined in Section 280G of the Code and the
regulations thereunder).
(m) “Restrictive Covenants” means those covenants set forth on the Appendix attached to this Agreement. For the avoidance of doubt,
such covenants shall be in addition to, and not in lieu of, any other similar covenants to which you are also subject that are contained in any other
agreement or plan of the Company under which you have any rights to payments or benefits.
(n) “Retirement" shall have the meaning specified in Section 4(a).
(o) "Retirement Plans" means the GCP Applied Technologies Inc. Savings and Investment Plan and any other qualified or nonqualified
defined contribution or defined benefit pension plans of GCP.
(p) "Retirement Arrangements" means Retirement Plans and agreements of GCP relating to retirement benefits, including, to the
extent in existence or in which you participate at the relevant date for purposes of this Agreement, the survivor benefit under any GCP deferred
compensation program and the Executive Salary Protection Plan, and "Benefit Plans" means GCP's basic medical, dental and vision plans.
(q) "Severance Payment" means a single, lump sum payment, in accordance with Section 4(c)(ii).
(r) "Tax Advisor" means a tax advisor that, in the reasonable judgment of the Company, is familiar with and experienced in the tasks
required of the "tax advisor" hereunder, and is selected by the Company to perform those tasks. The Company shall pay all of the fees and
expenses of the Tax Advisor.
2. Term of Agreement. This Agreement shall become effective on ________________, 2020 and shall continue in effect through December
31, 2021; provided, however, that commencing on each January 1 thereafter, the term of this Agreement shall automatically be extended for one
additional year
Exhibit 10.31*
unless, not later than September 30 of the preceding year, the Company shall have given notice that it does not wish to extend this Agreement or
you shall have given such notice to the Company; provided, further, if a Change in Control of the Company shall have occurred during the original or
any extended term of this Agreement, this Agreement shall continue in effect for a period of 12 months beyond the month in which such Change in
Control of the Company occurred. This Agreement shall terminate upon your ceasing to be an officer of the Company unless prior thereto a Change
in Control of the Company shall have occurred.
3. Termination Following Change in Control. No benefits shall be payable hereunder unless there shall have been a Change in Control of the
Company during the term of this Agreement. If any of the events described in Section 1(b) constituting a Change in Control of the Company shall
have occurred, you shall, subject to the terms of this Agreement, be entitled to the benefits provided in Section 4 upon the subsequent termination of
your employment within 12 months following such Change in Control and during the term of this Agreement unless such termination is (i) because of
your death, Disability or Retirement, (ii) by the Company for Cause, or (iii) by you other than for Good Reason, as specified below.
(a) Disability. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time
performance of your duties with GCP for six consecutive months, and within 30 days after written notice of termination is given you shall not have
returned to the full-time performance of your duties, your employment may be terminated for "Disability".
(b) Cause. The Company shall be entitled to terminate your employment for Cause. For the purposes of this Agreement, "Cause"
means (i) conduct by you constituting a material act of misconduct in connection with the performance of your duties, including, without limitation,
(A) willful failure or refusal to perform material responsibilities that have been requested by the Board; (B) dishonesty to the Board with respect to
any material matter; or (C) misappropriation of funds or property of the Company or any of its subsidiaries or affiliates other than the occasional,
customary and de minimis use of Company property for personal purposes; (ii) your commission of acts satisfying the elements of (A) any felony or
(B) a misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (ii) any misconduct by you, regardless of whether or not in the course of
your employment, that would reasonably be expected to result in material injury or reputational harm to the GCP or its affiliates if you were to
continue to be employed in the same position; (iv) continued non-performance by you of your duties to GCP (other than by reason of your physical
or mental illness, incapacity or Disability) which has continued for more than 30 days following written notice of such unsatisfactory performance or
non-performance from the Board; (v) your breach of any of any agreement with the Company relating to confidential information, non-competition or
non-solicitation; (vi) material violation by you of any of the Company’s written employment policies; or (vii) your failure to cooperate with a bona fide
internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate, or the
willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the inducement of others to fail to
cooperate or to produce documents or other materials in connection with such investigation.
(c) Good Reason. You shall be entitled to terminate your employment for "Good Reason". For purposes of this Agreement, "Good
Reason" means the occurrence after a Change in Control of the Company of any of the following conditions without your written consent (each, a
“Good Reason Condition”), provided that you have completed all steps of the Good Reason Process (hereinafter defined) following the occurrence
of any of the following events: (i) a material diminution in your responsibilities, authority or duties; (ii) a material diminution in your base salary except
for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior management
employees of the Company; (iii) a material change in the geographic location at which you provide services to GCP, such that there is an increase of
at least 30 miles of driving distance to such location from your principal residence as of such change; or (iv) a material breach of this Agreement by
the Company.
Exhibit 10.31*
The “Good Reason Process” consists of the following steps: (i) you reasonably determine in good faith that a Good Reason Condition
has occurred; (ii) you notify the Company in writing of the first occurrence of the Good Reason Condition within 60 days of the first occurrence of
such condition; (iii) you cooperate in good faith with the Company’s efforts, for a period of not less than 30 days following such notice (the “Cure
Period”), to remedy the Good Reason Condition; (iv) notwithstanding such efforts, the Good Reason Condition continues to exist; and (v) you
terminate your employment within 60 days after the end of the Cure Period.
If the Company cures the Good Reason Condition during the Cure Period, Good Reason shall be deemed not to have occurred.
(d) Notice of Termination. Any purported termination of your employment by GCP or by you following a Change in Control of the Company
shall be communicated by a Notice of Termination to the other party hereto in accordance with Sections 1(k) and 7.
(e) Date of Termination, Etc. "Date of Termination" means (i) if your employment is terminated by death, the date of death; (ii) if your
employment is terminated on account of Disability under Section 3(a) or by the Company for Cause under Section 3(b), the date on which Notice of
Termination is given; (iii) if your employment is terminated by the Company without Cause, the date on which a Notice of Termination is given or the
date otherwise specified by the Company in the Notice of Termination; (iv) if your employment is terminated by you other than for Good Reason, 30
days after the date on which a Notice of Termination is given, and (v) if your employment is terminated by you under Section 3(c) for Good Reason,
the date on which a Notice of Termination is given after the end of the Cure Period. Notwithstanding the foregoing, in the event that you give a
Notice of Termination to the Company, the Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a
termination by the Company for purposes of this Agreement.
4. Compensation during Disability and upon Termination. Following a Change in Control of the Company, upon termination of your
employment or during a period of disability you shall be entitled to the following benefits:
(a) Disability; Retirement. During any period that you fail to perform your full-time duties with GCP as a result of incapacity due to physical or
mental illness, you shall continue to receive your full base salary at the rate in effect at the commencement of any such period, plus all other
amounts to which you are entitled under any compensation plan or program of GCP in effect during such period, until your employment is
terminated for Disability pursuant to Section 3(a). Thereafter your benefits shall be determined under the Retirement Arrangements, Benefit Plans
and other compensation plans and programs then in effect in accordance with the terms of such plans and programs.
If your employment is terminated by your Retirement, or by reason of your death, the Company shall pay, or cause a subsidiary to pay, you
your full base salary through the Date of Termination or the date of your death plus all other amounts to which you are entitled under any
compensation plan or program of GCP through such date. Thereafter your benefits shall be determined in accordance with the Retirement
Arrangements, Benefit Plans and other compensation plans and programs then in effect in accordance with the terms of such plans and programs.
As used herein, "Retirement" means termination of employment due to your “retirement” (whether normal or early retirement) as defined under a
Retirement Plan in which you participated prior to such termination but shall not include termination of employment for Good Reason.
(b) Cause; Voluntary Termination. If your employment is terminated by the Company for Cause or by you other than for Good Reason,
Disability, Retirement or death, the Company shall pay, or cause a subsidiary to pay, you your full base salary through the Date of Termination at
the rate in effect at the time the Notice of Termination is given, plus all other amounts to which you are entitled under any compensation plan or
program of the Company at the time such payments are due, and the Company shall have no further obligations to you under this Agreement except
as provided in Section 4(g) below.
Exhibit 10.31*
(c) Involuntary Termination. If your employment shall be terminated by you for Good Reason, or by the Company other than for Cause or due
to your death, Disability or Retirement, you shall be entitled to the benefits provided below:
(i) The Company shall pay, or cause a subsidiary to pay you your full base salary and vacation pay accrued (but not taken) through the Date
of Termination at the rate in effect at the time Notice of Termination is given, within 30 days after the Date of Termination;
(ii) All other amounts to which you are entitled under any compensation plan or program of GCP at the time such payments are due;
(iii) Subject to your subject your execution of a separation agreement and release in a form and manner satisfactory to the Company, which
shall include, without limitation, a general release of claims against the Company and all related persons and entities (the “Separation Agreement
and Release”), the Separation Agreement and Release becoming irrevocable, all within 60 days after the Date of Termination (or such shorter
period as set forth in the Separation Agreement and Release), which shall include a seven business day revocation period, and your compliance
with the Restrictive Covenants: (A) your total "targeted" annual incentive compensation award (under the annual incentive compensation program of
the Company as in effect at the time Notice of Termination is given) for the calendar year immediately preceding the year in which the Date of
Termination occurs, but only if you have not received such an award for such preceding calendar year; (B) a pro-rata portion of your total "targeted"
annual incentive compensation award (under the annual incentive compensation program of the Company as in effect at the time Notice of
Termination is given) for the calendar year in which the Date of Termination occurs (determined by reference to your base salary and salary grade
on the day before the Date of Termination), calculated by multiplying such total "targeted" award by a fraction of which the numerator is the number
of days in such calendar year prior to your Date of Termination, and the denominator is 365; (D) an independent, third-party outplacement service
provider to provide you (at your request) with outplacement services that are the same as (or substantially similar to) outplacement services
generally offered to Company officers; (E) a “Severance Payment” equal to 1.50 multiplied by the sum of (x) your annual base salary in effect on the
day immediately preceding the Date of Termination plus (y) an amount equal to your total "targeted" annual incentive compensation award (under
the annual incentive compensation program of the Company as in effect prior to the time Notice of Termination is given) for the calendar year in
which the Date of Termination occurs (determined by reference to your base salary and salary grade on the day before the Date of Termination);
and (F) for a 12-month period following the Date of Termination, the Company shall arrange to provide you, on a taxable basis, with medical, dental
and vision benefits substantially similar to those you are receiving under Benefit Plans immediately prior to the Notice of Termination.
(d) Excise Tax.
(i) In the event that the payments or benefits provided for in this Agreement, when aggregated with any other payments or benefits received
by you (the “Aggregate Benefits”), would result in the imposition of the Excise Tax, then your Aggregate Benefits shall be reduced (but not below
zero) by the amount necessary to avoid the imposition of the Excise Tax with regard to such Aggregate Benefits being subject to the Excise Tax;
provided that such reduction shall only be effective if, as calculated in accordance with this Agreement, the total amount of the Aggregate Benefits,
as so reduced (the "Reduced Payment") would be greater than the total amount of the Aggregate Benefits, without regard to any such reduction,
after reducing the amount of both the Reduced Payment and the Aggregate Benefits by the total of all applicable federal, state, local and foreign
taxes (including, but not limited to, the Excise Tax). Any such reduction shall be applied in the following order: (i) cash payments that may not be
valued under Treas. Reg. § 1.280G-1, Q&A-24(c) (“24(c)”), (ii) equity-based payments that may not be valued under 24(c), (iii) cash payments that
may be valued under 24(c), and (iv) other types of benefits. With respect to each category of the foregoing, such reduction shall occur first with
respect to amounts that are not “deferred compensation” within the meaning of Code Section 409A and next with respect to payments that are
Exhibit 10.31*
deferred compensation, in each case, beginning with payments or benefits that are to be paid the farthest in time from the applicable transaction.
Notwithstanding the foregoing, in the event that no stock of the Company or its applicable affiliates is readily tradable on an established securities
market or otherwise (within the meaning of Code Section 280G) as of immediately prior to an applicable transaction that constitutes a “change in
ownership or control” for purposes of Code Section 280G, the Company shall submit to a vote of shareholders for approval the portion of the
Aggregate Benefits that equal or exceeds three times your “base amount” (the “Excess Parachute Payments”) in accordance with Treas. Reg.
§1.280G-1; provided, that you have first, in your sole discretion, executed a customary waiver of such Excess Parachute Payments. If such
shareholder approval is obtained in accordance with Code Section 280G, then the Aggregate Benefits shall not be subject to reduction as described
above.
(ii) The applicable federal, state, local and foreign taxes described in Section 4(d)(i) shall be those taxes that, in the opinion of the Tax
Advisor, will be imposed upon you as a result of the receipt or enjoyment of the Aggregate Benefits and shall be calculated based upon the highest
possible marginal tax rates that could be applicable to you for the year in which you receive the Aggregate Benefits, unless you inform the Tax
Advisor that a different marginal tax rate is applicable with respect to you for any such tax for that year.
(iii) The calculations necessary to effectuate the provisions of this Section 4(d) shall be performed by the Tax Advisor prior to the date the
Severance Payment is made to you pursuant to Section 4(e). All issues with regard to those calculations that are not specifically provided for by this
Agreement shall be decided in a manner that provides you with the greatest net after-tax benefit with respect to the Aggregate Benefits, taking into
consideration the above-mentioned applicable federal, state, local and foreign taxes (the “After-Tax Total Payment”).
(e) Payment of Severance Payment and Other Payments
(i) Unless otherwise provided in this Agreement and except for the amounts due under Section 4(c)(i) or (ii) of this Agreement, all
payments and benefits due hereunder shall be paid or provided by the Company no later than 60 days after the Date of Termination.
(ii) If it is determined in a court of law that you have violated any Restrictive Covenant in any material respect, the Company shall be
entitled to cease any payments due hereunder and/or the provision of any payment or benefit hereunder, and/or require immediate repayment by
you of all or any portion of such payment and/or benefit you may have already received prior to such violation.
(f) No Mitigation. You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment
or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the
result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owing by you to the Company, or
otherwise.
(g) Retirement Benefits. In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits
payable to you under all Retirement Arrangements.
(h) Tax Advisor. Each calculation necessary to effectuate the provisions of Section 4 shall be performed by the Tax Advisor within the
appropriate time periods specified herein for such calculation or, absent such specification, prior to the date the Severance Payment is made to you
pursuant to Section 4(e) above. All issues with regard to those calculations that are not specifically provided for by this Agreement shall be decided
in a manner that provides you with the greatest After-Tax Total Payment. Any determination by the Tax Advisor shall be binding upon you and the
Company.
5. Relationship to Other Agreements and Plans. To the extent that any provision of any other agreement between GCP and you shall limit,
qualify or be inconsistent with any provision of this Agreement, then for the purposes of this Agreement (while this Agreement remains in effect) the
provision of this Agreement (including the Appendix hereto which is incorporated by reference herein) shall control
Exhibit 10.31*
and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement
had been formally amended to the extent necessary to accomplish such purpose. The Severance Payment and no other payments referenced
herein (other than the pro-rated annual incentive payment under Section 4(c)(iii)(B)) shall be considered
to be compensation for the purpose of any Retirement Arrangements, Benefit Plans or compensation plans of GCP.
6. Successors
(a) Successors to the Company. The Company shall require any successor (whether direct or indirect, by purchase or merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would have been required to perform it if no such succession had taken place. Failure
of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement
and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled hereunder if you
terminate your employment for Good Reason following a Change in Control of the Company, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination (provided you shall have delivered a
Notice of Termination to the Company). As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and/or any
successor to the Company's business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or
otherwise.
(b) Your Successors. This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if
you had continued to live, all such amounts, unless otherwise provided herein, such payments shall be paid in accordance with the terms of this
Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate.
7. Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly
given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.
8. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the
Commonwealth of Massachusetts. With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the
law as it would be interpreted and applied by the United States Court of Appeals for the First Circuit.
9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Arbitration.
(a) Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association. Such arbitration, whether commenced by you or the Company, shall
be conducted in any forum and form agreed upon by the parties or, in the absence of such an agreement, in the city and state in which the
Company maintains its principal offices. Any arbitration pursuant to this provision shall
Exhibit 10.31*
be conducted before an arbitrator to be selected by the Company from a list of three arbitrators to be provided by you to the Company. Judgment
may be entered on an award issued pursuant to this Section in any court of competent jurisdiction. You understand that you may only bring claims
under this Section 10 in your individual capacity, and not as a plaintiff or class member in any purported class proceeding or any purported
representative proceeding. You further understand that, by signing this Agreement, the Company and you are giving up any right they may have to a
jury trial on all claims they may have against each other. This Section 10 shall be specifically enforceable. Notwithstanding the foregoing, this
Section 10 shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a
preliminary injunction in circumstances in which such relief is appropriate, including without limitation relief to enforce the Restrictive Covenants;
provided that any other relief shall be pursued through an arbitration proceeding pursuant to this Section 10.
(b) You shall be required to pay an arbitration fee to initiate any arbitration equal to what you would be charged as a first appearance fee in
court. The Company shall advance the remaining fees and costs of the arbitrator. However, to the extent permissible under the law, and following
the arbitrator’s ruling on the matter, the arbitrator may rule that the arbitrator’s fees and costs be distributed in an alternative manner. Each party
shall pay its own costs and attorneys’ fees, if any. If, however, any party prevails on a statutory or contractual claim that affords the prevailing party
attorneys’ fees (including pursuant to this Agreement), the arbitrator may award attorneys’ fees to the prevailing party to the extent permitted by law.
11. General. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by you and such officer as may be specifically designated by the Board or its Compensation Committee or any successor to
such Committee. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time.
No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement.
The section and subsection headings contained in this Agreement are for convenient reference only, and shall not in any way affect the
meaning or interpretation of this Agreement.
Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state, local or foreign law.
Nothing in this Agreement shall be construed to require the Company to make any payments to compensate you for any adverse tax effect
associated with any payments or benefits or for any deduction or withholding from any payment or benefit. The obligations of the Company under
Section 4 shall survive the expiration of the term of this Agreement.
12. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the
Secretary of the Company the enclosed copy of this letter which will then constitute our agreement on this subject. By your signing this Agreement,
you agree that, as of the date hereof, this Agreement supersedes any and all prior agreements between you and the Company setting forth your
severance benefits in the event of a Change in Control of the Company.
13. 409 Provisions.
(a) Anything in this Agreement to the contrary notwithstanding, if at the time of your separation from service within the meaning of Code
Section 409A, the Company determines that you are a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i), then to the extent
any payment or benefit to which you become entitled to under this Agreement or otherwise on account of you separation from
Exhibit 10.31*
service would be considered deferred compensation otherwise subject to the 20 percent additional tax imposed pursuant to Code Section 409A(a)
as a result of the application of Code Section 409A(a)(2)(B)(i), such payment shall not be payable and such benefit shall not be provided until the
date that is the earlier of (A) six months and one day after your separation from service, or (B) your death. If any such delayed cash payment is
otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been
paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with
their original schedule.
(b) All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall be provided by the Company or incurred
by you during the time periods set forth in this Agreement. All reimbursements shall be paid as soon as administratively practicable, but in no event
shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of
in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the expenses
eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses). Such right
to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(c) To the extent that any payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Code
Section 409A, and to the extent that such payment or benefit is payable upon you termination of employment, then such payments or benefits shall
be payable only upon your “separation from service.” The determination of whether and when a separation from service has occurred shall be made
in accordance with the presumptions set forth in Treasury Regulation Section 1.409A 1(h).
(d) The parties intend that this Agreement will be administered in accordance with Code Section 409A. To the extent that any provision of this
Agreement is ambiguous as to its compliance with Code Section 409A, the provision shall be read in such a manner so that all payments hereunder
comply with Code Section 409A. Each payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury
Regulation Section 1.409A 2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may
be necessary to fully comply with Code Section 409A and all related rules and regulations in order to preserve the payments and benefits provided
hereunder without additional cost to either party.
(e) The Company makes no representation or warranty and shall have no liability to you or any other person if any provisions of this
Agreement are determined to constitute deferred compensation subject to Code Section 409A but do not satisfy an exemption from, or the
conditions of, such Section.
14. Protected Disclosures and Other Protected Action. Nothing in this Agreement shall be interpreted or applied to prohibit you from making
any good faith report to any governmental agency or other governmental entity (a “Government Agency”) concerning any act or omission that you
reasonably believe constitutes a possible violation of federal or state law or making other disclosures that are protected under the anti-retaliation or
whistleblower provisions of applicable federal or state law or regulation. In addition, nothing contained in this Agreement limits your ability to
communicate with any Government Agency or otherwise participate in any investigation or proceeding that may be conducted by any Government
Agency, including your ability to provide documents or other information, without notice to the Company. In addition, for the avoidance of doubt,
pursuant to the federal Defend Trade Secrets Act of 2016, you shall not be held criminally or civilly liable under any federal or state trade secret law
or under this Agreement or the Restrictive Covenants for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state, or local
government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of
law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
[signatures on next page]
Exhibit 10.31*
Sincerely,
GCP Applied Technologies Inc.
By: _______________________________
Name:
Accepted and agreed to this _____ day of _________, 2020.
___________________________
Name:
Exhibit 10.31*
1. Covenants.
Appendix
Restrictive Covenants
(a) Non-Competition. You agree that, during the Non-Compete Restricted Period (as defined below), you shall not, directly or
indirectly, other than as an employee or agent of the Company or one of its affiliates, whether as shareholder, owner, member, advisor, principal,
partner, director, trustee, officer, employee, agent, consultant, contractor, or otherwise, engage or invest in, own, manage, operate, finance, control,
or participate in the ownership, management, operation, financing, or control of, be employed by, or otherwise provide services to or be associated
with any Person that provides advisory services that are also provided by, or are substantially similar to those provided by, the Protected Business in
any geographical or market area where the Company or its affiliates engages in the Protected Business; provided that ownership of up to a 1%
equity interest in any such Person shall not be deemed a breach or violation of this Section 1(a).
(b) Client Non-Solicitation; No Employment by Clients. You agree that, during the Non-Solicit Restricted Period (as defined below),
you shall not, directly or indirectly, (i) induce or attempt to induce any Protected Client (as defined below), customer, vendor or other business
relation of the Company or of its affiliates to cease doing business with the Company or such affiliate, or in any way interfere with the relationship
between any such Protected Client, customer, vendor or business relation, on the one hand, and the Company or any affiliate of the Company, on
the other hand, (ii) solicit business from any Protected Client, attempt to solicit business from any Protected Client, or accept any unsolicited request
from the Protected Client to do business with, for, or on behalf of any Person other than the Company or one of its affiliates or (iii) accept
employment or a service arrangement with or otherwise associate with any Protected Client under circumstances where you will provide services of
the same or similar type to those which you or the Company or one of its affiliates provided to the Protected Client during your employment with the
Company and its affiliates.
(c) Employee Non-Solicitation. During the Non-Solicit Restricted Period, you shall not directly or indirectly, solicit, attempt to solicit,
knowingly assist others to solicit, hire or knowingly assist others to hire for employment or for the performance of services, any person who is (in his
or her own capacity, or through an entity controlled by such person), or within the preceding 12 months was, a member, officer, manager, employee,
consultant, or independent contractor of the Company or any of its affiliates (other than general solicitations of employment not specifically targeted
at such individuals).
(d) Subsequent Employment. For so long as any of your obligations under this Appendix remains in effect, you hereby agree that
prior to accepting employment with any other person or entity, you will provide such prospective employer with written notice of the provisions of this
Appendix.
(e) Non-Disparagement. You shall, during and after employment, refrain from making any statements or comments (orally or in
writing) of a defamatory or disparaging nature to any third party regarding the Company or any of its affiliates, or any of the Company’s officers,
directors, personnel, policies or products, other than to comply with applicable law and only after first notifying the Company in advance of the
compelling reason.
2. General.
(a) If any of the Restrictive Covenants is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such
Restrictive Covenant deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining
Restrictive Covenants shall not be
Exhibit 10.31*
affected thereby; provided, however, that if any such Restrictive Covenant is finally held to be invalid, illegal or unenforceable because it exceeds
the maximum scope determined to be acceptable to permit such provision to be enforceable, such Restrictive Covenant will be deemed to be
modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder.
(b) You acknowledge and agree that: (i) the purposes of the Restrictive Covenants are to protect the ownership interests in and/or
goodwill of the Company and its affiliates (or of any person or entity deriving from the Company or one of its affiliates title to the goodwill of, or the
ownership interest in, the Company or one of its affiliates), and to prevent you from interfering with the business of the Company and its affiliates; (ii)
you are agreeing to be bound by the Restrictive Covenants in part in consideration for the Severance Payment and other payments and benefits that
may become due to you under the Agreement and your receipt of Confidential Information during your employment with the Company and its
affiliates; (iii) because of the nature of the businesses in which the Company and its affiliates are engaged and because of the nature of the
Confidential Information to which you have access, it would be impractical and excessively difficult to determine the actual damages of the Company
and its affiliates in the event you breached any of the Restrictive Covenants; and (iv) remedies at law (such as monetary damages) for any breach of
the Restrictive Covenants would be inadequate. You therefore agree and consent that if you commit any breach of any Restrictive Covenant or
threaten to commit any such breach, the Company and its affiliates (or any person or entity deriving from the Company or one of its affiliates title to
the goodwill of, or the ownership interest in, the Company or one of its affiliates) shall have the right (in addition to, and not in lieu of, any other right
or remedy that may be available to each of them) to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting
any bond or other security and without the necessity of proof of actual damage.
termination of your employment with the Company and its affiliates.
(c) This Appendix shall remain in full force and effect until the expiration of the period specified herein notwithstanding the earlier
(d) You understand that the Restrictive Covenants may limit your ability to earn a livelihood in a business similar to the business of
the Company and you agree that this understanding was expressly considered and taken into account by you in making the decision to enter into
this Agreement.
(e) For purposes of this Appendix, the following terms shall mean the following:
“Confidential Information” means any confidential, proprietary and/or private information relating to the Company and its affiliates, their
clients, their business and third parties with whom the Company or its affiliates does or did business (including, but not limited to, trade secrets,
client lists, passwords, marketing strategies, financial information, royalty information, contracts with third parties and the terms thereof, contracts
with employees and advisors, contract proposals and negotiations, government, legislative and regulatory activities, litigation matters, personnel
matters, Company policies and information concerning activities, conduct, or statements of or concerning, officers, employees, directors, advisors,
agents or contractors of the Company or any affiliate in the course of their employment or service to the Company or its affiliates).
“Non-Compete Restricted Period” means the period commencing on the Date of Termination and ending on the [first] anniversary thereof.
“Non-Solicit Restricted Period” means the period commencing on the Date of Termination and ending on the [first] anniversary thereof.
Exhibit 10.31*
“Person” means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated association, corporation, limited liability
company, entity or government (whether federal, state, county, city or otherwise, including any instrumentality, division, agency or department
thereof).
“Protected Business” means the business of the Company and its affiliates in which the Company and its affiliates are engaged in at any
time during your employment with the Company and its affiliates.
“Protected Client” means any prior, current or prospective client of the Company or one of its affiliates for whom you performed services on
behalf of the Company or one of its affiliates, to whom you marketed or promoted the services of the Company or its affiliates, or about whom you
acquired non-public information during your employment with the Company.
[signatures on next page]
GCP Applied Technologies Inc.
By: _______________________________
Name:
Accepted and agreed to this _____ day of _________, 20__.
___________________________
Name:
Exhibit 21
GCP APPLIED TECHNOLOGIES INC.
U.S. SUBSIDIARIES
SUBSIDIARY NAME
AP Chem Incorporated
Construction Products Dubai, Inc.
Darex Puerto Rico, Inc.
De Neef Construction Chemicals (US) Inc.
Dewey and Almy, LLC
GCP International Inc.
GCP Chemicals Inc.
GCP Europe Inc.
Hanover Square Corporation
Verifi LLC
Water Street Corporation
STATE OF INCORPORATION
MD
DE
DE
TX
DE
DE
DE
DE
DE
DE
DE
1
Exhibit 21
GCP APPLIED TECHNOLOGIES INC.
NON-U.S. SUBSIDIARIES
ARGENTINA
GCP Argentina S.A.
AUSTRALIA
GCP Australia Pty. Ltd.
BELGIUM
De Neef Construction Chemicals BV
GCP Applied Technologies N.V./S.A.
GCP Construction Products N.V.
Inverco Benelux N.V.
BRAZIL
GCP Brasil Indústria e Comércio de Produtos Químicos Ltda
CANADA
GCP Canada Inc.
CHILE
GCP Quimica Compania Limitada
CHINA - PEOPLE’S REPUBLIC OF
GCP Applied Technologies (China) Company Limited
COLOMBIA
GCP Colombia S.A.
FRANCE
De Neef France S.A.R.L.
GCP Produits de Construction SAS
GERMANY
De Neef Deutschland GmbH
GCP Applied Technologies Holdings Germany GmbH
GCP Germany GmbH
GREECE
GCP Applied Technologies Hellas LLC
HONG KONG
GCP (Hong Kong) Limited
INDIA
GCP Applied Technologies (India) Private Limited
INDONESIA
PT. GCP Applied Technologies Indonesia
IRELAND
GCP Products (Ireland) Limited
ITALY
GCP Italiana S.p.A.
JAPAN
GCP Applied Technologies Holdings Japan GK
GCP Chemicals Kabushiki Kaisha
2
Exhibit 21
KOREA
GCP Korea Inc.
MALAYSIA
GCP Applied Technologies (Malaysia) Sendiran Berhad
MEXICO
GCP Applied Technologies S.A. de C.V.
NEW ZEALAND
GCP (New Zealand) Limited
PANAMA
W. R. Grace (Panama) S.A.
PHILIPPINES
GCP Applied Technologies Operations Center, Inc.
GCP Applied Technologies Products (Phils.) Inc.
POLAND
GCP (Poland) Sp.z o.o.
PORTUGAL
De Neef Portugal, LDA
RUSSIA
GCP Rus LLC
SINGAPORE
GCP (Singapore) Private Limited
SOUTH AFRICA
GCP Applied Technologies Africa (Pty) Ltd.
SPAIN
De Neef Technologies S.L.
GCP Construction Materials Spain, S.L.
SWEDEN
De Neef Scandinavia AB
GCP Sweden AB
GCP Applied Technologies Sweden AB
SWITZERLAND
De Neef (CH) AG
GCP Switzerland S.A.
Union Société Financière S.à.r.l.
TAIWAN
GCP Taiwan, Inc.
THAILAND
GCP Applied Technologies Holdings (Thailand) Limited
TURKEY
GCP Uygulamalı Teknolojiler ve Yapi Kimyasallari Sanayi ve Ticaret A.S
UNITED KINGDOM
De Neef UK Ltd.
GCP Applied Technologies Holdings (UK) Limited
GCP Applied Technologies (UK) Limited
GCP Construction Products Holdings (UK) Limited
3
Exhibit 21
GCP International Holdings (UK) Limited
GCP Products UK Limited
GCP (UK) Holdings Limited
GCP RIW Holdings Limited
RIW Holdings Limited
R.I.W. Limited
Stirling Lloyd Group Limited
Stirling Lloyd Holdings Limited
Stirling Lloyd Limited
Stirling Lloyd Polychem Limited
Stirling Lloyd Products International Limited
VIETNAM
GCP Vietnam Company Limited
4
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-249244, 333-217892, 333-209158) of
GCP Applied Technologies Inc. of our report dated March 8, 2021 relating to the financial statements and financial statement schedule and the
effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 8, 2021
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Simon M. Bates, certify that:
1.
I have reviewed this annual report on Form 10-K of GCP Applied Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: March 8, 2021
/s/ SIMON M. BATES
Simon M. Bates
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Craig A. Merrill, certify that:
1.
I have reviewed this annual report on Form 10-K of GCP Applied Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: March 8, 2021
/s/ CRAIG A. MERRILL
Craig A. Merrill
Vice President and Chief Financial Officer
(Principal Financial Officer)
Exhibit 32
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned certifies that (1) this Annual Report of
GCP Applied Technologies Inc. (the "Company") on Form 10-K for the period ended December 31, 2020, as filed with the Securities and Exchange
Commission on the date hereof (this "Report"), fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and (2) the information contained in this Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ SIMON M. BATES
Simon M. Bates
President and Chief Executive Officer
(Principal Executive Officer)
/s/ CRAIG A. MERRILL
Craig A. Merrill
Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: March 8, 2021
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.