0001644440-18-000098.txt : 20181106 0001644440-18-000098.hdr.sgml : 20181106 20181106162608 ACCESSION NUMBER: 0001644440-18-000098 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 112 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181106 DATE AS OF CHANGE: 20181106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GCP Applied Technologies Inc. CENTRAL INDEX KEY: 0001644440 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 473936076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37533 FILM NUMBER: 181163340 BUSINESS ADDRESS: STREET 1: 62 WHITTEMORE AVENUE CITY: CAMBRIDGE STATE: MA ZIP: 02140 BUSINESS PHONE: 617-876-1400 MAIL ADDRESS: STREET 1: 62 WHITTEMORE AVENUE CITY: CAMBRIDGE STATE: MA ZIP: 02140 10-Q 1 a2018q310-q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2018
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-137533
GCP Applied Technologies Inc.
Delaware
(State of Incorporation)
 
47-3936076
(I.R.S. Employer Identification No.)
62 Whittemore Avenue, Cambridge, Massachusetts 02140-1623
(617) 876-1400
(Address and phone number of principal executive offices)
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 and post 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.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o

 
Smaller reporting company o
 
Emerging growth company o
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
 
Outstanding at October 31, 2018
Common Stock, $0.01 par value per share
 
72,166,406 shares
 



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_______________________________________________________________________________

2


Presentation of Information
Unless the context requires otherwise, references to "GCP Applied Technologies Inc.", "GCP", "we", "us", "our" and "the Company" refer to GCP Applied Technologies Inc., and its consolidated subsidiaries for periods subsequent to its separation from W.R. Grace & Co. on February 3, 2016. For periods prior to February 3, 2016, these terms refer to the combined historical business and operations of W.R. Grace & Co.’s construction products and packaging technologies businesses as they were historically managed as part of W.R. Grace & Co. Unless the context requires otherwise, references to "Grace" refer to W.R. Grace & Co., and its consolidated subsidiaries, which is the Company’s former parent company. References in this Quarterly Report on Form 10-Q 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.


3


PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
GCP Applied Technologies Inc.
Consolidated Statements of Operations (unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions, except per share amounts)
2018
 
2017
 
2018
 
2017
Net sales
$
296.3

 
$
282.4

 
$
849.3

 
$
794.9

Cost of goods sold
185.9

 
175.9

 
539.7

 
488.1

Gross profit
110.4

 
106.5

 
309.6

 
306.8

Selling, general and administrative expenses
67.3

 
76.3

 
219.8

 
221.9

Research and development expenses
5.2

 
5.2

 
15.4

 
15.2

Interest expense and related financing costs
5.9

 
21.6

 
86.4

 
56.1

Repositioning expenses
3.7

 
1.1

 
5.8

 
6.8

Restructuring expenses and asset impairments
14.3

 
2.1

 
13.2

 
13.0

Loss in Venezuela

 
36.7

 

 
38.3

Other income, net
(0.9
)
 
(4.0
)
 
(11.3
)
 
(6.6
)
Total costs and expenses
95.5

 
139.0

 
329.3

 
344.7

Income (loss) from continuing operations before income taxes
14.9

 
(32.5
)
 
(19.7
)
 
(37.9
)
(Provision for) benefit from income taxes
(7.6
)

14.5

 
(15.8
)
 
(3.7
)
Income (loss) from continuing operations
7.3

 
(18.0
)
 
(35.5
)
 
(41.6
)
Income from discontinued operations, net of income taxes
18.2

 
677.3

 
26.7

 
679.4

Net income (loss)
25.5

 
659.3

 
(8.8
)
 
637.8

Less: Net income attributable to noncontrolling interests
(0.1
)
 
(0.1
)
 
(0.3
)
 
(0.2
)
Net income (loss) attributable to GCP shareholders
$
25.4

 
$
659.2

 
$
(9.1
)
 
$
637.6

Amounts Attributable to GCP Shareholders:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to GCP shareholders
7.2

 
(18.1
)
 
(35.8
)
 
(41.8
)
Income from discontinued operations, net of income taxes
18.2

 
677.3

 
26.7

 
679.4

Net income (loss) attributable to GCP shareholders
$
25.4

 
$
659.2

 
$
(9.1
)
 
$
637.6

Earnings (Loss) Per Share Attributable to GCP Shareholders
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to GCP shareholders
$
0.10

 
$
(0.25
)
 
$
(0.50
)
 
$
(0.59
)
Income from discontinued operations, net of income taxes
$
0.25

 
$
9.46

 
$
0.37

 
$
9.54

Net income (loss) attributable to GCP shareholders(1)
$
0.35

 
$
9.21

 
$
(0.13
)
 
$
8.96

Weighted average number of basic shares
72.2


71.6

 
72.1

 
71.2

Diluted earnings (loss) per share:(2)
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to GCP shareholders
$
0.10

 
$
(0.25
)
 
$
(0.50
)
 
$
(0.59
)
Income from discontinued operations, net of income taxes
$
0.25

 
$
9.46

 
$
0.37

 
$
9.54

Net income (loss) attributable to GCP shareholders(1)
$
0.35

 
$
9.21

 
$
(0.13
)
 
$
8.96

Weighted average number of diluted shares
72.7

 
71.6

 
72.1


71.2

______________________________
(1)     Amounts may not sum due to rounding.
(2)     Dilutive effect only applicable to periods where there is income from continuing operations.


The Notes to Consolidated Financial Statements are an integral part of these statements.
4


GCP Applied Technologies Inc.
Consolidated Balance Sheets (unaudited)
(In millions, except par value and shares)
September 30,
2018
 
December 31,
2017
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
301.0

 
$
721.5

Trade accounts receivable (including allowances of $5.9 million and $5.7 million, respectively)
213.1

 
217.1

Inventories, net
115.9

 
106.3

Other current assets
47.2


48.6

Current assets held for sale
3.1

 
19.7

Total Current Assets
680.3

 
1,113.2

Properties and equipment, net
220.2

 
216.6

Goodwill
210.1

 
198.2

Technology and other intangible assets, net
91.9

 
91.8

Deferred income taxes
29.1

 
30.2

Overfunded defined benefit pension plans
26.1

 
26.4

Other assets
31.7


23.8

Non-current assets held for sale
0.9

 
2.8

Total Assets
$
1,290.3

 
$
1,703.0

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities
 

 
 
Debt payable within one year
$
10.9

 
$
24.0

Accounts payable
125.8

 
134.8

Other current liabilities
156.8

 
316.2

Current liabilities held for sale
1.2

 
7.8

Total Current Liabilities
294.7

 
482.8

Debt payable after one year
346.7

 
520.3

Income taxes payable
49.2

 
58.3

Deferred income taxes
15.4

 
14.7

Unrecognized tax benefits
43.2

 
42.4

Underfunded and unfunded defined benefit pension plans
56.6

 
57.1

Other liabilities
19.5

 
35.1

Non-current liabilities held for sale
0.3

 
0.3

Total Liabilities
825.6

 
1,211.0

Commitments and Contingencies - Note 8

 

Stockholders' Equity
 
 
 
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 72,161,545 and 71,754,344, respectively
0.7

 
0.7

Paid-in capital
40.4

 
29.9

Accumulated earnings
539.6

 
548.7

Accumulated other comprehensive loss
(113.3
)
 
(85.7
)
Treasury stock
(4.7
)
 
(3.4
)
Total GCP's Shareholders' Equity
462.7

 
490.2

Noncontrolling interests
2.0

 
1.8

Total Stockholders' Equity
464.7

 
492.0

Total Liabilities and Stockholders' Equity
$
1,290.3

 
$
1,703.0


The Notes to Consolidated Financial Statements are an integral part of these statements.
5


GCP Applied Technologies Inc.
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Net income (loss)
$
25.5

 
$
659.3

 
$
(8.8
)
 
$
637.8

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Defined benefit pension and other postretirement plans, net of income taxes
0.2

 
(0.3
)
 
(0.4
)
 
(0.3
)
Currency translation adjustments
(9.1
)
 
46.2

 
(27.3
)
 
63.0

Gain (loss) from hedging activities, net of income taxes

 
0.5

 
0.1

 
(0.1
)
Total other comprehensive (loss) income
(8.9
)
 
46.4

 
(27.6
)
 
62.6

Comprehensive income (loss)
16.6

 
705.7

 
(36.4
)
 
700.4

Less: Comprehensive income attributable to noncontrolling interests
(0.1
)
 
(0.1
)
 
(0.3
)
 
(0.2
)
Comprehensive income (loss) attributable to GCP shareholders
$
16.5

 
$
705.6

 
$
(36.7
)
 
$
700.2



The Notes to Consolidated Financial Statements are an integral part of these statements.
6


GCP Applied Technologies Inc.
Consolidated Statements of Stockholders' Equity (Deficit) (unaudited)
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
(In millions)
Number of Shares
 
Par Value
 
Number of Shares
 
Cost
 
Additional Paid-in Capital
 
Accumulated Earnings / (Deficit)
 
Accumulated Other Comprehensive Loss
 
Noncontrolling Interests
 
Total Stockholders' Equity (Deficit)
Balance, December 31, 2016
71.2

 
$
0.7

 
0.1

 
$
(2.1
)
 
$
11.0

 
$
(4.7
)
 
$
(147.6
)
 
$
3.7

 
$
(139.0
)
Net income

 

 

 

 

 
637.6

 

 
0.2

 
637.8

Issuance of common stock in connection with stock plans
0.1

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 
7.5

 

 

 

 
7.5

Exercise of stock options
0.4

 

 

 

 
6.6

 

 

 

 
6.6

Share repurchases(1)

 

 

 
(1.0
)
 

 

 

 

 
(1.0
)
Other comprehensive income

 

 

 

 

 

 
62.6

 

 
62.6

Dividends and other changes in noncontrolling interest

 

 

 

 

 

 

 
(2.3
)
 
(2.3
)
Balance, September 30, 2017
71.7

 
$
0.7

 
0.1

 
$
(3.1
)
 
$
25.1

 
$
632.9

 
$
(85.0
)
 
$
1.6

 
$
572.2

Balance, December 31, 2017
71.9

 
$
0.7

 
0.1

 
$
(3.4
)
 
$
29.9

 
$
548.7

 
$
(85.7
)
 
$
1.8

 
$
492.0

Net (loss) income

 

 

 

 

 
(9.1
)
 

 
0.3

 
(8.8
)
Issuance of common stock in connection with stock plans
0.1

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 
5.3

 

 

 

 
5.3

Exercise of stock options
0.4

 

 

 

 
5.2

 

 

 

 
5.2

Share repurchases(1)

 

 
0.1

 
(1.3
)
 

 

 

 

 
(1.3
)
Other comprehensive loss

 

 

 

 

 

 
(27.6
)
 

 
(27.6
)
Dividends and other changes in noncontrolling interest

 

 

 

 

 

 

 
(0.1
)
 
(0.1
)
Balance, September 30, 2018
72.4

 
$
0.7

 
0.2

 
$
(4.7
)
 
$
40.4

 
$
539.6

 
$
(113.3
)
 
$
2.0

 
$
464.7

________________________________
(1) 
During the nine months ended September 30, 2018 and 2017, GCP repurchased approximately 45,000 shares and 37,000 shares of Company common stock for $1.3 million and $1.0 million, respectively, in connection with its equity compensation programs.


The Notes to Consolidated Financial Statements are an integral part of these statements.
7


GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows (unaudited)
 
Nine Months Ended September 30,
(In millions)
2018
 
2017
OPERATING ACTIVITIES
 
 
 
Net (loss) income
$
(8.8
)
 
$
637.8

Less: Income from discontinued operations
26.7

 
679.4

Loss from continuing operations
(35.5
)
 
(41.6
)
Reconciliation to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
31.3

 
26.9

Amortization of debt discount and financing costs
1.2

 
2.2

Stock-based compensation expense
4.6

 
7.1

Unrealized loss on foreign currency

 
0.7

Gain on termination and curtailment of pension and other postretirement benefit plans
(0.1
)
 
(5.8
)
Currency and other losses in Venezuela

 
40.1

Deferred income taxes
(2.5
)
 
(5.6
)
Loss on debt refinancing
59.8

 

Gain on disposal of property and equipment
(1.1
)
 
(0.6
)
Loss on sale of product line

 
2.1

Changes in assets and liabilities, excluding effect of currency translation:
 
 
 
Trade accounts receivable
(6.3
)
 
(40.0
)
Inventories
(13.1
)
 
(13.3
)
Accounts payable
(2.3
)
 
18.8

Pension assets and liabilities, net

 
7.2

Other assets and liabilities, net
(6.4
)
 
(7.3
)
Net cash provided by (used in) operating activities from continuing operations
29.6

 
(9.1
)
Net cash used in operating activities from discontinued operations
(130.4
)
 
(15.3
)
Net cash used in operating activities
(100.8
)
 
(24.4
)
INVESTING ACTIVITIES
 
 
 
Capital expenditures
(40.7
)
 
(32.4
)
Businesses acquired, net of cash acquired
(29.7
)
 
(87.7
)
Proceeds from sale of product line

 
2.9

Other investing activities
(2.9
)
 
2.4

Net cash used in investing activities from continuing operations
(73.3
)
 
(114.8
)
Net cash provided by investing activities from discontinued operations
0.1

 
1,038.3

Net cash (used in) provided by investing activities
(73.2
)
 
923.5

FINANCING ACTIVITIES
 
 
 
Borrowings under credit arrangements
54.6

 
120.0

Repayments under credit arrangements
(66.4
)
 
(416.6
)
Proceeds from issuance of long term note obligations
350.0

 

Repayments of long term note obligations
(578.3
)
 

Cash paid for debt financing costs
(6.9
)
 

Share repurchases
(1.3
)
 
(1.0
)
Proceeds from exercise of stock options
5.2

 
6.1

Noncontrolling interest dividend
(0.1
)
 
(2.0
)
Other financing activities
(0.7
)
 

Net cash used in financing activities from continuing operations
(243.9
)
 
(293.5
)
Net cash provided by financing activities from discontinued operations

 
1.1

Net cash used in financing activities
(243.9
)
 
(292.4
)
Effect of currency exchange rate changes on cash and cash equivalents
(2.6
)
 
1.4

(Decrease) increase in cash and cash equivalents
(420.5
)
 
608.1

Cash and cash equivalents, beginning of period
721.5

 
163.3

Cash and cash equivalents, end of period
$
301.0

 
$
771.4


The Notes to Consolidated Financial Statements are an integral part of these statements.
8


GCP Applied Technologies Inc.
Notes to Consolidated Financial Statements (unaudited)

1. Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies
GCP is engaged in the production and sale of specialty construction chemicals and specialty building materials through two operating segments. Specialty Construction Chemicals ("SCC") manufactures and markets concrete admixtures and cement additives. Specialty Building Materials ("SBM") manufactures and markets sheet and liquid membrane systems that protect structures from water, air and vapor penetration, fireproofing and other products designed to protect the building envelope.
On July 3, 2017 (the "Closing Date"), GCP completed the sale of its Darex Packaging Technologies ("Darex") business to Henkel AG & Co. KGaA (“Henkel”) for $1.06 billion in cash. As discussed further below under "Discontinued Operations," the results of operations for Darex have been excluded from GCP's continuing operations and segment results for all periods presented.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements are presented on a consolidated basis and include all of the accounts and operations of GCP and its majority-owned subsidiaries, except as noted below with respect to the Company's Venezuela subsidiary. 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 of America ("GAAP") and the instructions to Form 10-Q and Article 10 of SEC Regulation S-X for interim financial information.
The interim financial statements presented herein are unaudited and should be read in conjunction with the audited Consolidated Financial Statements and notes thereto contained in GCP's Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2017 (the "2017 Annual Report on Form 10-K"). The accompanying Consolidated Balance Sheet as of December 31, 2017 was derived from the audited annual consolidated financial statements as of the period then ended. Certain information and footnote disclosures typically included in GCP's annual consolidated financial statements have been condensed or omitted. The accompanying unaudited financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All such adjustments are of a normal recurring nature except for the impacts of adopting new accounting standards discussed below. All significant intercompany accounts and transactions have been eliminated. The results of operations for the three and nine-months period ended September 30, 2018 are not necessarily indicative of the results of operations for the year ending December 31, 2018.
Discontinued Operations 
As noted above, 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 accompanying unaudited Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017, as discussed further in Note 15, "Discontinued Operations". Additionally, Darex results of operations and cash flows have been reclassified and reflected as "discontinued operations" in the accompanying unaudited Consolidated Statements of Operations and accompanying unaudited Consolidated Statements of Cash Flows for all periods presented.
As of December 31, 2017, a liability of $55.1 million and $13.6 million, respectively, related to the consideration received by GCP for the delayed closings was recognized in “Other current liabilities” and “Other liabilities." During the nine months ended September 30, 2018, GCP reduced the liability by $55.1 million which consisted primarily of the sale proceeds received on July 3, 2017 for the delayed closings in Argentina, Colombia, Peru, and China completed during the period then ended. The remaining liability of $13.1 million and $0.5 million, respectively, for the consideration received on the closing date related to the remaining delayed closing countries is recorded in “Other current liabilities” and "Other liabilities" as of September 30, 2018.
Unless otherwise noted, the information throughout the Notes to the accompanying unaudited Consolidated Financial Statements pertains only to the continuing operations of GCP. Please refer to Note 15, "Discontinued Operations" for further discussion of discontinued operations.

9


Notes to Consolidated Financial Statements (unaudited) - Continued

Deconsolidation of Venezuelan Operations
Prior to July 3, 2017, the Company included the results of its Venezuelan operations (“GCP Venezuela”) in the Consolidated Financial Statements using the consolidation method of accounting. Venezuelan exchange control regulations have resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar, and have restricted GCP Venezuela’s ability to pay dividends and meet obligations denominated in U.S. dollars. These exchange regulations, combined with other regulations, have constrained availability of raw materials and have significantly limited GCP Venezuela’s ability to maintain normal production. As a result of these conditions, combined with the loss of scale in Venezuela resulting from the sale of the Company’s Darex-related operations and assets in Venezuela, GCP has deconsolidated its Venezuelan operations as of July 3, 2017 in accordance with provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, Consolidation. During the three months ended September 30, 2017, GCP recognized a pre-tax loss of $36.7 million which was $23.8 million after tax. Such loss is primarily related to unfavorable cumulative translation adjustments of $33.4 million associated with the Venezuelan business and presented as a “Loss in Venezuela” in the accompanying unaudited Consolidated Statements of Operations during the three and nine months ended September 30, 2017. Subsequent to July 3, 2017, the Company began accounting for GCP Venezuela using the cost method of accounting in accordance with which the Company’s financial results do not include the operating results of GCP Venezuela. The Company records cash and recognizes income from its Venezuelan operations in the accompanying unaudited Consolidated Financial Statements to the extent GCP is paid for inventory sold to or dividends are received from GCP Venezuela. The remaining investment on the Company's accompanying unaudited Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 is immaterial.
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 and disclosure of contingent assets and liabilities at the date of the unaudited Consolidated Financial Statements, and the reported amounts of revenues and expenses for the periods presented. Actual amounts could differ from those estimates, and the differences could be material. Changes in estimates are recorded in the period identified. GCP's accounting measurements that are most affected by management's estimates of future events are disclosed in its 2017 Annual Report on Form 10-K. There have been no significant changes to management's assumptions and estimates underlying those measurements as reported in these interim financial statements, except as discussed in Note 5, "Income Taxes".
Reclassifications    
Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications have not materially affected previously reported amounts.
Revision of Prior Period Financial Statements  
During the nine months ended September 30, 2018 GCP identified an error related to the presentation of the effect of currency exchange rate changes on cash and cash equivalents in its unaudited Consolidated Statements of Cash Flows filed in its Form 10-Q for the quarterly period ended September 30, 2017 and Consolidated Statements of Cash Flows in its 2017 Annual Report on Form 10-K for the year ended December 31, 2017. The correction of this error resulted in a reclassification between “cash provided by (used in) operating activities from continuing operations” and “effect of currency exchange rate changes on cash and cash equivalents” on the Consolidated Statements of Cash Flows filed during these periods. There was no impact on the Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, Consolidated Balance Sheets, or Consolidated Statements of Stockholders’ Equity during these periods as a result of these errors.


10


Notes to Consolidated Financial Statements (unaudited) - Continued

The Company considered the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-10-S99-1, Assessing Materiality, and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements in evaluating whether the Company’s previously issued consolidated financial statements were materially misstated. The Company concluded this error was not material individually or in the aggregate to the financial statements presented during any of the prior reporting periods, and therefore, amendments of previously filed Form 10-Q for the quarterly period ended September 30, 2017 and the 2017 Annual Report on Form 10-K for the year ended December 31, 2017 were not required. The revisions for these corrections to the applicable prior periods are reflected in the financial information herein and will be reflected in future filings containing such financial information.

The following table summarizes the effects of the error on the interim and annual prior-period financial statements:
 
Nine Months Ended,
 
Year Ended,
 
September 30, 2017
 
December 31, 2017
(in millions)
As Previously Reported
 
Adjustment
 
As Revised
 
As Previously Reported
 
Adjustment
 
As Revised
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities from continuing operations
$
(11.7
)
 
$
2.6

 
$
(9.1
)
 
$
(5.4
)
 
$
4.4

 
$
(1.0
)
Effect on currency exchange rate changes on cash and cash equivalents
4.0

 
(2.6
)
 
1.4

 
6.4

 
(4.4
)
 
2.0

Income Tax    
As a global enterprise, GCP is subject to a complex array of tax regulations and is required to make assessments of applicable tax laws and judgments in estimating its ultimate income tax liability. Please refer to Note 5, "Income Taxes," for further discussion regarding estimates used in accounting for income tax matters, including unrecognized tax benefits.
Currency Translation    
Assets and liabilities of foreign subsidiaries (other than those located in countries with highly inflationary economies) 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 accompanying unaudited Consolidated Balance Sheets. The financial statements of any subsidiaries located in countries with highly inflationary economies are remeasured as if the functional currency were the U.S. dollar. Translation adjustments recognized as a result of such remeasurements are reflected in the results of operations in the unaudited Consolidated Statements of Operations.
As of July 3, 2017, GCP deconsolidated its Venezuelan operations and, as a result, the Company's financial results no longer include the operations of GCP Venezuela, including currency translation adjustments, beyond that date.

11


Notes to Consolidated Financial Statements (unaudited) - Continued

As of June 30, 2018, GCP concluded that Argentina is a highly inflationary economy since the three-year cumulative inflation rates commonly used to evaluate Argentina’s inflation currently exceed 100%. As a result, GCP began accounting for its operations in Argentina as a highly inflationary economy during the three months ended September 30, 2018. Effective July 1, 2018, the functional currency of the Company's subsidiary operating in Argentina became the U.S. dollar and all remeasurement adjustments after the effective date are reflected in GCP's results operations in the accompanying unaudited Consolidated Statements of Operations. During the three months ended September 30, 2018, the Company incurred losses of $1.1 million related to the remeasurement of these monetary net assets which are included in "Other income, net" in the accompanying unaudited Consolidated Statements of Operations. Net sales generated by the Argentina subsidiary were not material to the Company's consolidated net sales during the three and nine months ended September 30, 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 September 30, 2018.
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 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 September 30, 2018 and December 31, 2017. Additionally, the amounts recorded in the accompanying unaudited Statements of Operations for the three and nine months ended September 30, 2018 related to changes in the contract assets and liabilities during the periods were immaterial.
Trade accounts receivable include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables and collateral to the extent applicable. As of September 30, 2018 and December 31, 2017, the Company’s total trade accounts receivable balance was $213.1 million and $217.1 million, respectively, of which $5.0 million and $5.6 million, respectively, was related to trade accounts receivable associated with rental revenue generated from leases within certain SCC contracts and accounted for within the provisions of ASC Topic 840, Leases ("Topic 840").
Costs to Obtain a Contract
GCP pays external sales agents certain commissions based on actual customer sales and it 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.

12


Notes to Consolidated Financial Statements (unaudited) - Continued

Recently Issued Accounting Standards
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In accordance with provisions of Topic 842, a lessee will be required to recognize in the statement of financial position a lease liability related to making lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term, including optional payments that are reasonably certain to occur. In July 2018, the FASB issued two amendments to ASU 2016-02. The first amendment clarifies the application of certain aspects of ASU 2016-02 related to: (i) the rate implicit in the lease, (ii) impairment of the net investment in the lease, (iii) lessee reassessment of lease classification, (iv) lessor reassessment of lease term and purchase options, (v) variable payments that depend on an index or rate and (vi) certain transition adjustments, among other things. The second amendment includes a transition option allowing entities to forgo the application of ASU 2016-02 in the comparative periods presented in the financial statements during the year of adoption. Additionally, the amendment includes a practical expedient which provides lessors with an option to not separate non-lease components from the associated lease components when certain criteria are met and requires lessors to account for the combined component in accordance with provisions of ASC Topic 606 if the associated non-lease components are the predominant components in the arrangement. The guidance and the related amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption being permitted. GCP will adopt Topic 842 during the first quarter of 2019.
As of September 30, 2018, GCP initiated the evaluation of the potential impact of adopting Topic 842 on its financial position, results of operations and related disclosures, but has not yet completed such assessment or determined whether it will elect the practical expedients upon adoption or the transition option allowing companies to forgo the application of Topic 842 in the comparative periods presented in its financial statements during the year of adoption. GCP has established a steering committee, a project plan and an implementation team which will analyze GCP's current contracts portfolio to determine the impact of adopting Topic 842 on the Company's financial position, results of operations and related disclosures. The implementation team is also responsible for evaluating and designing the necessary changes to the Company’s business processes, policies, systems and controls to support recognition and disclosure under the new guidance. During the three months ended September 30, 2018, GCP launched a comprehensive data collection initiative related to the population of arrangements containing leases and made a significant progress on collecting a portion of such data as of September 30, 2018. The Company also began the initial assessment of its lease contracts to determine the impact of adopting Topic 842 on its financial position, results of operations and related disclosures, but has not reached final conclusions related to such assessment as of September 30, 2018. Additionally, the Company completed a third party vendor selection process related to the lease accounting and management software solution to facilitate the adoption of Topic 842 and streamline the related accounting, contract tracking and disclosure reporting processes.
Other new pronouncements issued but not effective until after September 30, 2018 are not expected to have a material impact on the Company's financial position, results of operations or liquidity.
Recently Adopted Accounting Standards
Revenue from Contracts with Customers
In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). This update is intended to remove inconsistencies and weaknesses in revenue requirements; provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; provide more useful information to users of financial statements through improved disclosure requirements; and simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. The revised standard allows for two methods of adoption: (a) full retrospective adoption, in accordance with which the standard is applied to all periods presented, or (b) modified retrospective adoption, in accordance with which the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance.

13


Notes to Consolidated Financial Statements (unaudited) - Continued

GCP has adopted Topic 606 effective January 1, 2018 using the modified retrospective approach. Under this transition method, 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 has elected not to retrospectively restate any of its contracts for modifications that occurred prior to the date of adoption of Topic 606. 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 is immaterial to the Company’s accompanying unaudited Consolidated Financial Statements.
The impact of the adoption of Topic 606 on the Company's three and nine months ended September 30, 2018 net sales, income (loss) from continuing operations before income taxes, and income (loss) from continuing operations was immaterial. The cumulative impact on the Company's retained earnings at January 1, 2018 was also not material. Such impact is disclosed in Note 2, "Revenue from Contracts with Customers."
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 September 30, 2018 and results of operations for the three and nine months ended September 30, 2018.
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 accompanying unaudited Consolidated Statements of Cash Flows. Please refer to Note 4, "Debt and Other Borrowings" for further discussion of this transaction. There was no other material impact on the Company's unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 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. It did not have a material impact on the Company's financial position as of September 30, 2018 and results of operations for the three and nine months ended September 30, 2018.
Other
During the three and nine months ended September 30, 2018, except as discussed above, there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the Annual Report on Form 10-K for the year ended December 31, 2017. For further information with regard to the Company’s Significant Accounting Policies, please refer to Note 1, "Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies," to the Company’s Consolidated Financial Statements included in the 2017 Annual Report on Form 10-K.

14


Notes to Consolidated Financial Statements (unaudited) - Continued

2. Revenue from Contracts with Customers
Short-Term Arrangements
The majority of the Company’s revenue is generated from short-term arrangements associated with the production and sale of concrete admixtures and cement additives within its SCC operating segment, as well as sheet and liquid membrane systems and other specialty products designed to protect the building envelope within its SBM operating segment. The products sold are priced based on the costs of producing goods and the value delivered to the customer. In these arrangements, the customer generally pays GCP for the contract price agreed upon within a short period of time, which is between thirty and sixty days. For such arrangements, the transfer of control takes place at a point in time when products are shipped to the customer. The evaluation of transfer of control for these goods does not involve significant judgment. Revenue from these contracts with customers is therefore typically recognized upon shipment of the product or delivery at the customer’s site depending on the shipping terms, provided the transaction price can be estimated appropriately and the Company expects to collect the consideration to which it is entitled in exchange for the products it ships.
The Company generates revenue from short-term arrangements within its SCC operating segment which involve selling concrete admixtures and providing dispensers to customers. GCP has determined that the dispensers represent a lease and has allocated revenue between the lease and non-lease components based on the relative stand-alone selling price of each component which is determined based on a cost plus a reasonable margin approach for the lease component and standalone selling prices for the non-lease component. The Company recognizes revenue for the non-lease component at a point of time when the control is transferred to the customer. The lease component is considered a short-term obligation which is generally thirty days or less. The Company recognizes revenue for the lease component over the term of the lease in accordance with provisions of Topic 840. GCP records dispensers as fixed assets and depreciates them over their estimated useful life.
Long-Term Arrangements
The Company generates revenue from long-term arrangements within its SCC operating segment, which generally consist of VERIFI® and Ductilcrete sales arrangements.
VERIFI® sales arrangements involve installing equipment on the customers’ trucks and at their plants, as well as performing slump management and truck location tracking services. The Company has determined that the installed equipment represents a lease. The Company allocates the transaction price in a VERIFI® sales arrangement between the lease and non-lease components based on valuation techniques that estimate a relative stand-alone selling price of each component. The services included within the non-lease component represent the Company’s stand-ready promise to perform a series of daily distinct services, which is combined into a single performance obligation. The Company recognizes revenue associated with such services over time since the customer simultaneously receives and consumes the benefits provided by such services. The transaction price in a VERIFI® sales arrangement consists of installation fees and slump management fees which are dependent on the quantity of materials poured and represent variable consideration. The Company records the amount of variable consideration at the time of the transfer of services to its customers, which is constrained by the amount for which a significant revenue reversal is not probable to occur. Revenue for the lease component is recognized over the term of the lease in accordance with provisions of Topic 840. Revenue generated from VERIFI® sales arrangements represented less than 10% of the Company's consolidated revenue during the three and nine months ended September 30, 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 three and nine months ended September 30, 2018.

15


Notes to Consolidated Financial Statements (unaudited) - Continued

Lease elements within sales arrangements
Certain sales arrangements within the SCC operating segment related to VERIFI® and certain admixture contracts include lease components, as discussed above. Revenue for the lease components are recognized over the term of the leases in accordance with provisions of Topic 840.
During the three and nine months ended September 30, 2018, the Company recognized revenue of $8.6 million and $25.0 million, respectively, related to the lease components of the arrangements within the SCC operating segment.
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 only granted within six months from the date of sale. GCP accrues for these returns at the time of the sale based on historical experience and records them as a reduction of transaction price.
Certain long-term agreements with customers may include one-time, upfront payments made to customers. GCP defers these costs and recognizes them as assets which get amortized over the term of the agreement as a reduction of gross sales.
Certain customer arrangements include conditions for volume rebates. GCP records a rebate allowance and reduces transaction price for anticipated selling price adjustments at the time of sale. GCP regularly reviews and estimates rebate accruals based on actual and anticipated sales patterns. The Company also evaluates contracts with customers that contain early payment discounts and reduces transaction price by the amount not expected to be collected due to such discounts in any given period.
The Company does not include any taxes (i.e. sales, use, value added and some excise taxes) in the transaction price that is allocated among its products or services. The Company has elected to account for shipping and handling costs as fulfillment activities under the provisions of Topic 606 allowing it to continue its current treatment of the associated revenue and costs under the new standard. GCP expenses shipping and handling costs in the period they are incurred and presents them within "Cost of goods sold" in the accompanying unaudited Consolidated Statements of Operations.
The Company’s revenue is principally recognized as goods and services are delivered and performance obligations are satisfied upon delivery. The Company has certain long-term arrangements resulting in remaining obligations for which the work has not been performed or has been partially performed. As of September 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $4.5 million, including the estimated transaction price to be earned as revenue over the remaining term of these contracts, which is generally one to five years.

16


Notes to Consolidated Financial Statements (unaudited) - Continued

3. Inventories, net
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out ("FIFO") basis. GCP provides reserves for excess, obsolete or damaged inventories based on their expected selling price, net of completion and disposal costs.
The following is a summary of inventories presented on GCP's accompanying unaudited Consolidated Balance Sheets at September 30, 2018 and December 31, 2017:
(In millions)
September 30,
2018
 
December 31,
2017
Raw materials
$
47.3

 
$
41.9

In process
4.4

 
3.5

Finished products and other
64.2

 
60.9

Total inventories, net
$
115.9

 
$
106.3

The "Finished products and other" category presented in the table above includes "other" inventories, which consist of finished products purchased rather than produced by GCP of $14.2 million and $11.1 million, respectively, as of September 30, 2018 and December 31, 2017.

17


Notes to Consolidated Financial Statements (unaudited) - Continued

4. Debt and Other Borrowings
Components of Debt
The following is a summary of obligations under senior notes and other borrowings at September 30, 2018 and December 31, 2017:
(In millions)
September 30,
2018
 
December 31,
2017
5.5% Senior Notes due in 2026, net of unamortized debt issuance costs of $4.5 million at September 30, 2018
$
345.5

 
$

9.5% Senior Notes due in 2023, net of unamortized debt issuance costs of $6.4 million at December 31, 2017

 
518.6

Revolving credit facility due 2023(1)

 

Other borrowings(2)
12.1

 
25.7

Total debt
357.6

 
544.3

Less debt payable within one year
10.9

 
24.0

Debt payable after one year
$
346.7

 
$
520.3

Weighted average interest rates on total debt obligations
5.7
%
 
9.4
%
__________________________
(1) 
Represents borrowings under the Revolving Credit Facility with an aggregate available principal amount of $350.0 million and $250.0 million, respectively, as of September 30, 2018 and December 31, 2017.
(2) 
Represents borrowings under various lines of credit and other borrowings, primarily by non-U.S. subsidiaries.
The principal maturities of debt obligations outstanding, net of debt issuance costs, were as follows at September 30, 2018:
(In millions)
 
 
Year ending December 31,
 
Amount
2018
 
$
10.4

2019
 
1.2

2020
 
0.5

2021
 

2022
 

Thereafter
 
345.5

Total debt
 
$
357.6


18


Notes to Consolidated Financial Statements (unaudited) - Continued

Debt Refinancing
On April 10, 2018, GCP redeemed its then existing 9.5% Senior Notes with an aggregate principal amount of $525.0 million due in 2023 (the “9.5% Senior Notes”). On April 10, 2018, the Company also issued 5.5% Senior Notes with an aggregate principal amount of $350.0 million maturing on April 15, 2026 (the "5.5% Senior Notes") and amended its Credit Agreement to, among other things, (i) increase the aggregate principal amount available under its revolving credit facility to $350.0 million, (ii) extend the maturity date of the revolving credit facility thereunder to April 2023 and (iii) make certain other changes to the covenants and other provisions therein. Additionally, the Company borrowed $50.0 million in aggregate principal amount of revolving loans under the Credit Agreement on April 10, 2018 which was fully repaid during the second quarter of 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.
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 nine months ended September 30, 2018, GCP recognized a loss on debt extinguishment of $59.4 million which was included in "Interest expense and related financing costs" in the accompanying unaudited Consolidated Statements of Operations. In connection with the redemption of the 9.5% Senior Notes with then outstanding principal balance of $525.0 million, GCP paid total cash proceeds of $587.9 million, including $53.3 million of a redemption premium and $9.6 million of accrued interest unpaid thereon through the redemption date, and wrote off $6.1 million of previously deferred debt issuance costs.
The amendment to the Credit Agreement among GCP and a syndicate of financial institutions resulted in an increase in a maximum borrowing capacity under the Revolving Credit Facility from $250.0 million to $350.0 million and extension of the maturity date to April 2023. During the nine months ended September 30, 2018, GCP wrote off $0.4 million of deferred debt issuance costs related to a financial institution that exited the syndicate upon amendment of the Credit Agreement. As of September 30, 2018, debt issuance costs of $4.3 million related to the financial institutions that remained in the syndicate are presented within "Other assets" in the accompanying unaudited Consolidated Balance Sheets and amortized over the term of the Revolving Credit Facility.
The total loss recognized on the debt refinancing transaction was $59.8 million which was included in "Interest expense and related financing costs" in the accompanying unaudited Consolidated Statements of Operations and consisted of $59.4 million related to the extinguishment of the 9.5% Senior Notes and $0.4 million related to a deferred issuance costs write-off in connection with the amendment of the Credit Agreement.
5.5% Senior Notes
On April 10, 2018, GCP issued 5.5% Senior Notes with an aggregate principal amount of $350.0 million maturing on April 15, 2026. The 5.5% Senior Notes were issued at $346.9 million, or 99.1% of their par value, resulting in a discount of $3.1 million, or 0.9%, which represented loan origination fees paid at the closing. The Company incurred additional deferred financing costs of $1.6 million related to the issuance. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2018. An interest payment of $9.9 million was due and paid 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.

19


Notes to Consolidated Financial Statements (unaudited) - Continued

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 September 30, 2018, the Company was in compliance with all covenants and conditions under the Indenture.
The Indenture provides for customary events of default which are subject in certain cases to customary grace periods and include, among others: (i) nonpayment of principal or interest, (ii) breach of other agreements in the Indenture, (iii) failure to pay certain other indebtedness, (iv) certain events of bankruptcy or insolvency, (v) failure to discharge final judgments aggregating in excess of $50.0 million rendered against GCP or certain of its subsidiaries, (vi) and failure of the guarantee of the 5.5% Senior Notes by any of GCP’s significant subsidiaries to be in full force and effect. There are no events of default under the Indenture as of September 30, 2018.
Credit Agreement
On February 3, 2016, GCP entered into a Credit Agreement that provides for senior secured credit facilities (the “Credit Facilities”) in an aggregate principal amount of $525.0 million, which consisted of: (i) the term loan (the "Term Loan") with an aggregate principal amount of $275.0 million and (ii) a revolving credit facility (the "Revolving Credit Facility") of $250.0 million due in 2021. During 2017, the Company fully repaid the outstanding principal balance on the Term Loan together with accrued and unpaid interest and extinguished the Term Loan under the Credit Agreement.
On April 10, 2018, GCP entered into an amendment to its Credit Agreement and borrowed $50.0 million in aggregate principal amount of revolving loans under the Credit Agreement, as discussed above, which was fully repaid during the second quarter of 2018.
The Credit Agreement contains conditions that would require mandatory principal payments in advance of the maturity date of the Revolving Credit Facility, as well as certain customary affirmative and negative covenants and events of default, as described in Note 5, "Debt and Other Financial Instruments," to the Company's Consolidated Financial Statements included in the 2017 Annual Report in the Form 10-K. The Company was in compliance with all covenant terms as of September 30, 2018 and December 31, 2017. There are no events of default as of September 30, 2018 and December 31, 2017.
The Revolving Credit Facility is secured on a first priority basis by a perfected security interest in, and mortgages on substantially all U.S. tangible and intangible personal property, financial assets and real property owned by the Company in Chicago, Illinois and Mount Pleasant, Tennessee; a pledge of 100% of the equity of each material U.S. subsidiary of the Company; and 65% of the equity of a U.K. holding company.

20


Notes to Consolidated Financial Statements (unaudited) - Continued

The interest rate per annum applicable to the Revolving Credit Facility is equal to, at GCP’s option, either: (i) a base rate plus a margin ranging from 0.5% to 1.0%, or (ii) LIBOR plus a margin ranging from 1.5% to 2.0%, based upon the total leverage ratio of GCP and its restricted subsidiaries in both scenarios. During the three and nine months ended September 30, 2018, the weighted average interest rate paid on the Revolving Credit Facility was 0.0% and 3.4%, respectively. During the nine months ended September 30, 2018, GCP made aggregate payments of $50.0 million on the Revolving Credit Facility. As of September 30, 2018, there were no outstanding borrowings on the Revolving Credit Facility and approximately $5.7 million in outstanding letters of credit, which resulted in available credit of $344.3 million under the Revolving Credit Facility. As of December 31, 2017, there were no outstanding borrowings under the Revolving Credit Facility. There were no interest payments on the Revolving Credit Facility during the three months ended September 30, 2018. Such interest payments were $0.2 million during the nine months ended September 30, 2018.
9.5% Senior Notes
On January 27, 2016, GCP issued $525.0 million aggregate principal amount of 9.5% Senior Notes maturing in 2023. Interest was payable semi-annually in arrears on February 1 and August 1 of each year. The 9.5% Senior Notes became callable at a premium over their face amount on February 1, 2019 and were redeemable prior to February 1, 2019 at a price that reflected a yield to the first call that was equivalent to the applicable Treasury bond yield plus 0.5 percentage points.
On April 10, 2018, GCP redeemed all of the then outstanding 9.5% Senior Notes, as described above, and paid $9.6 million of accrued interest unpaid thereon through their redemption date.
The 9.5% Senior Notes were subject to covenants that limited GCP's and certain of its subsidiaries’ ability, subject to certain exceptions and qualifications, to (i) create or incur liens on assets; (ii) incur additional debt; (iii) sell certain assets; and (iv) make certain investments and acquisitions, merge or sell or otherwise dispose of all or substantially all assets.
Debt Issuance Costs
GCP recognizes expenses directly associated with obtaining the Revolving Credit Facility as debt issuance costs which are presented within "Other assets" in the accompanying unaudited Consolidated Balance Sheets. Such costs are amortized over the term of the Revolving Credit Facility and included in “Interest expense and related financing costs” in the accompanying unaudited Consolidated Statements of Operations. Debt issuance costs related to the Revolving Credit Facility were $4.3 million as of September 30, 2018 and $3.2 million as of December 31, 2017. During the nine months ended September 30, 2018, GCP wrote off $0.4 million of debt issuance costs related to a financial institution that exited the syndicate upon amendment of the Credit Agreement which governs the Revolving Credit Facility. During the nine months ended September 30, 2018, GCP incurred debt issuance costs of $2.2 million due to the amendment of the Credit Agreement.
Debt issuance costs of $4.7 million, including loan origination fees of $3.1 million paid at the closing, are directly associated with issuing the 5.5% Senior Notes and presented as a reduction of the principal balance in the accompanying unaudited Consolidated Balance Sheets. Such costs are amortized over the term of the 5.5% Senior Notes using the effective interest rate method and included in “Interest expense and related financing costs” in the accompanying unaudited Consolidated Statements of Operations. At September 30, 2018, the remaining unamortized debt issuance costs related to the 5.5% Senior Notes were $4.5 million.
During the nine months ended September 30, 2018, GCP wrote off $6.1 million of previously deferred debt issuance costs related to the 9.5% Senior Notes in connection with their redemption.

21


Notes to Consolidated Financial Statements (unaudited) - Continued

Debt Fair Value
At September 30, 2018, the carrying amounts and fair values of GCP's debt were as follows:
 
September 30, 2018
 
December 31, 2017
(In millions)
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
9.5% Senior Notes due in 2023
$

 
$

 
$
518.6

 
$
584.5

5.5% Senior Notes due in 2026
345.5

 
344.0

 

 

Other borrowings
12.1

 
12.1

 
25.7

 
25.7

Total debt
$
357.6

 
$
356.1

 
$
544.3

 
$
610.2

Fair value is determined based on Level 2 inputs, including expected future cash flows discounted at market interest rates, estimated current market prices and quotes from financial institutions. The decrease in fair value as of September 30, 2018 was primarily due to the market trend of increasing interest rates.
5. Income Taxes
Income tax expense (benefit) attributable to continuing operations during the three months ended September 30, 2018 and 2017 was $7.6 million and ($14.5 million), respectively, representing effective tax rates of 51.0% and 44.6%, respectively. The difference between the provision for income taxes at the U.S. federal income tax rate of 21.0% and GCP’s overall income tax rate for the three months ended September 30, 2018 was primarily attributable to valuation allowances recorded of $3.6 million, the effect of tax rates in foreign jurisdictions of $0.2 million, and permanent book-to-tax differences and other items of $0.7 million. The difference between the provision for income taxes at the U.S. federal income tax rate of 35.0% and GCP's overall income tax rate for the three months ended September 30, 2017 was primarily due to $2.9 million of tax benefit on undistributed foreign earnings.

Income tax expense attributable to continuing operations during the nine months ended September 30, 2018 and 2017 was $15.8 million and $3.7 million, respectively, representing effective tax rates of 80.2% and 9.8%, respectively. The difference between the provision for income taxes at the U.S. federal income tax rate of 21.0% and GCP’s overall income tax rate for the nine months ended September 30, 2018 was primarily attributable to changes in estimates related to the 2017 Tax Act in the amount of $12.5 million, income tax valuation allowances of $4.7 million, tax rates in foreign jurisdictions of $0.9 million, and permanent book-to-tax differences and other items of $1.8 million. The difference in income tax at the U.S. federal income rate of 35.0% and GCP's overall income tax rate for the nine months ended September 30, 2017 was primarily due to an income tax valuation allowance of $13.9 million, tax expense on undistributed foreign earnings of $3.6 million, and tax benefit on permanent book-to-tax differences and other items of $0.5 million.
During the three and nine months ended September 30, 2018, GCP recorded income tax expense attributable to discontinued operations of $6.1 million and $14.0 million, respectively, compared to $200.0 million and $199.7 million, respectively, for the three and nine months ended September 30, 2017. Please refer to Note 15, "Discontinued Operations," to the accompanying unaudited Consolidated Financial Statements for further details regarding the Darex transaction.
Tax Reform
During the year ended December 31, 2017, the Company recorded a provisional net charge of $81.7 million related to the provisions of the 2017 Tax Act, which was comprised of a $70.5 million Transition Toll Tax and a $11.2 million revaluation of net deferred tax assets. Changes in tax rates and tax laws are accounted for in the period of enactment.

22


Notes to Consolidated Financial Statements (unaudited) - Continued

In the first quarter of 2018, the Company recorded an increase to the provisional net charge related to the 2017 Tax Act provisions of $12.5 million. This change consisted of an increase of $17.4 million related to capital gain treatment triggered in 2017 due to the 2017 Tax Act, an increase of $0.3 million deferred tax expense related to executive compensation, and a decrease of $5.2 million related to the 2017 Transition Toll Tax. There were no adjustments to the provisional net charge recorded during the second or third quarters of 2018.
The Company's preliminary estimate of the Transition Toll Tax and the remeasurement of its deferred tax assets and liabilities is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the 2017 Tax Act, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of the Company's tax returns. U.S. Treasury regulations, administrative interpretations or court decisions interpreting the 2017 Tax Act may require further adjustments and changes in our estimates.
The 2017 final determination of the Transition Toll Tax and remeasurement of our deferred assets and liabilities will be completed as additional information becomes available, but no later than one year from the enactment of the 2017 Tax Act.
The 2017 Tax Act subjects a U.S. shareholder to tax on Global Intangible Low Taxed Income (GILTI) earned by foreign subsidiaries. The Company has not determined its accounting policy with respect to GILTI and has therefore included the estimate of current year GILTI as a period cost and included it as part of the estimated 2018 annual effective tax rate. The 2018 estimated annual effective tax rate also includes the 2018 impact of all other U.S. tax reform provisions that were effective on January 1, 2018.
For additional information related to the 2017 Tax Act, please refer to Note 6, "Income Taxes," to the Company's Consolidated Financial Statements included in the 2017 Annual Report on Form 10-K.
Repatriation
As of December 31, 2017, no provision has been made for income taxes on certain undistributed earnings of foreign subsidiaries the Company provisionally intends to permanently reinvest or that may be remitted substantially tax-free. Due to the transition tax on deemed repatriation required by the 2017 Tax Act, the Company has been subject to tax on substantially all of its previously undistributed earnings from foreign subsidiaries, which it provisionally recorded in the fourth quarter of 2017. Beginning in 2018, the Act will generally provide a 100% deduction for U.S. federal tax purposes of all dividends received by the Company from its foreign subsidiaries. However, the Company is currently evaluating the potential foreign and U.S. state tax liabilities that would result from future repatriations, if any, and how the 2017 Tax Act will affect the Company's existing accounting position with regard to its indefinite reinvestment of undistributed foreign earnings assertion. The Company expects to complete this evaluation and determine the impact the legislation may have on its indefinite reinvestment assertion within the measurement period provided by SAB 118.
During the nine months ended September 30, 2017, GCP determined it could no longer assert it was indefinitely reinvested in Mexico and Venezuela because these entities were anticipated to be sold as part of the Darex transaction. The tax associated with its outside book and tax basis differences in Mexico and Venezuela were recorded as discrete items resulting in a tax benefit of $2.9 million for the three months ended September 30, 2017 and a tax expense of $3.6 million for the nine months ended September 30, 2017.
GCP will continually analyze and evaluate its cash needs to determine the appropriateness of its indefinite reinvestment assertion, including further assessment under the 2017 Tax Act. The Company considers its assertion of indefinite reinvestment provisional as of September 30, 2018.

23


Notes to Consolidated Financial Statements (unaudited) - Continued

Valuation Allowance
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.
During the three and nine months ended September 30, 2018, GCP incurred income tax expense of $3.6 million and $4.7 million for valuation allowances recorded on losses generated in certain countries; primarily Brazil, Turkey, France, Germany, India and Singapore.
During the nine months ended September 30, 2017, GCP determined it was more likely than not a portion of its deferred tax assets would not be realized. As a result, during that period, GCP recorded $13.8 million of valuation allowances on those deferred tax assets during the period as discrete items, as they are significant, unusual and infrequent in nature. The valuation allowances were recorded against U.S. foreign tax credit carryovers of $4.3 million, and deferred tax assets primarily related to net operating loss carryovers in Brazil and Turkey of $9.1 million and $0.4 million, respectively. The determination to record the valuation allowances was made predominantly due to the anticipated sale of Darex and its impact on future taxable income and the ability to utilize those tax assets.
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.
During the nine months ended September 30, 2017, GCP reached a proposed favorable settlement with the Canada Revenue Agency for tax years 2007 through 2015. As a result, a tax benefit of $1.5 million, primarily for an anticipated refund of previously paid tax, was recorded during the period. GCP is required to pay Grace for the amount of the expected tax refund pursuant to the Tax Sharing Agreement. GCP also recorded a charge to its U.S. deferred tax assets of $1.6 million in the period related to the settlement due to the reduction of its step-up in tax basis. Both adjustments were recorded as discrete tax items. During the nine months ended September 30, 2018, GCP filed amended tax returns with the Canada Revenue Agency reflecting the anticipated refunds.
As discussed in Note 4, "Debt and Other Borrowings", GCP recognized a loss during the nine months ended September 30, 2018 of $59.8 million associated with its debt refinancing. Because this loss is unusual and infrequent in nature, the tax effect of the loss was recorded as a discrete tax item in the second quarter. The tax benefit recorded associated with the loss is $14.8 million.
6. Pension Plans and Other Postretirement Benefit Plans
Pension Plans    
GCP sponsors certain defined benefit pension plans, primarily in the U.S. and the U.K., in which GCP employees participate. GCP records an asset or a liability to recognize the funded status of these pension plans in its accompanying unaudited Consolidated Balance Sheets.

24


Notes to Consolidated Financial Statements (unaudited) - Continued

The following table presents the funded status of GCP's overfunded, underfunded and unfunded defined pension plans related to continuing operations:
(In millions)
September 30,
2018
 
December 31,
2017
Overfunded defined benefit pension plans
$
26.1

 
$
26.4

Underfunded defined benefit pension plans
(26.4
)
 
(26.6
)
Unfunded defined benefit pension plans
(30.2
)
 
(30.5
)
Total underfunded and unfunded defined benefit pension plans
(56.6
)
 
(57.1
)
Pension liabilities included in other current liabilities
(2.0
)
 
(1.0
)
Net funded status
$
(32.5
)
 
$
(31.7
)
Overfunded plans include several advance-funded plans for which the fair value of the plan assets exceeds the projected benefit obligation (the "PBO"). The overfunded status is reflected as assets in "Overfunded defined benefit pension plans" in the accompanying unaudited Consolidated Balance Sheets. Underfunded plans include a group of advance-funded plans that are underfunded on a PBO basis. Unfunded plans include several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO is unfunded. As of September 30, 2018 and December 31, 2017, the underfunded and unfunded plans are included as liabilities in the accompanying unaudited Consolidated Balance Sheets.
There were no curtailment or mark-to-market gains or losses recorded during the three months ended September 30, 2018. During the three months ended September 30, 2017, certain pension plans were curtailed and/or terminated resulting in consolidated curtailment gains of $17.1 million and consolidated mark-to-market losses of $2.9 million, of which $16.4 million and $0.1 million are presented in "Income from discontinued operations, net of income taxes" in the accompanying unaudited Consolidated Statements of Operations. Such curtailment gains and mark-to-market losses were primarily attributable to the divestiture of the Darex operating segment and restructuring activities.
During the nine months ended September 30, 2018, curtailment and mark-to-market remeasurement amounts include $0.4 million of gains recorded during the second quarter of 2018 related to a non-U.S pension plan. During the nine months ended September 30, 2017, consolidated curtailment gains amounted to $22.7 million and consolidated mark-to-market losses amounted to $2.8 million which were primarily attributable to the divestiture of the Darex operating segment, amendment to the GCP Applied Technologies, Inc. Retirement Plan for Salaried Employees that closed the plan to new hires effective January 1, 2018, as well as restructuring activities. Of those amounts, $16.9 million and $0.1 million, respectively, are presented in "Income from discontinued operations, net of income taxes" in the accompanying unaudited Consolidated Statements of Operations, in addition to expense of $0.5 million for service cost, interest cost, and expected return on plan assets. Please refer to Note 7, "Pension Plans and Other Postretirement Benefit Plans" to the Company's Consolidated Financial Statements included in the 2017 Annual Report in the Form 10-K for further information on these transactions.
Components of Net Periodic Benefit Cost
The components of GCP's net periodic benefit cost for the three and nine months ended September 30, 2018 and 2017 are as follows:

25


Notes to Consolidated Financial Statements (unaudited) - Continued

 
Three Months Ended September 30,
 
2018
 
2017
 
Pension
 
 
Pension
(In millions)
U.S.
 
Non-U.S.
 
 
U.S.
 
Non-U.S.
Service cost
$
2.0

 
$
0.8

 
 
$
1.6

 
$
0.8

Interest cost
1.4

 
1.4

 
 
1.3

 
1.4

Expected return on plan assets
(1.9
)
 
(1.7
)
 
 
(1.4
)
 
(1.6
)
Mark-to-market adjustment

 

 
 
1.2

 
1.7

Gain on curtailments, settlements, and terminations

 

 
 
(2.8
)
 
(14.3
)
Net periodic benefit cost (income)
$
1.5

 
$
0.5

 
 
$
(0.1
)
 
$
(12.0
)
Less: Discontinued operations net periodic benefit income

 

 
 
(2.1
)
 
(14.4
)
Net periodic benefit cost from continuing operations
$
1.5

 
$
0.5

 
 
$
2.0

 
$
2.4

 
Nine Months Ended September 30,
 
2018
 
2017
 
Pension
 
 
Pension
(In millions)
U.S.
 
Non-U.S.
 
 
U.S.
 
Non-U.S.
Service cost
$
6.0

 
$
2.4

 
 
$
5.3

 
$
3.0

Interest cost
4.2

 
4.2

 
 
4.2

 
4.3

Expected return on plan assets
(5.7
)
 
(5.3
)
 
 
(4.2
)
 
(5.1
)
Mark-to-market adjustment

 
(0.3
)
 
 
1.2

 
1.6

Gain on curtailments, settlements, and terminations

 
(0.1
)
 
 
(8.4
)
 
(14.3
)
Net periodic benefit cost (income)
$
4.5

 
$
0.9

 
 
$
(1.9
)
 
$
(10.5
)
Less: Discontinued operations net periodic benefit income

 

 
 
(2.6
)
 
(13.9
)
Net periodic benefit cost from continuing operations
$
4.5

 
$
0.9

 
 
$
0.7

 
$
3.4

Other Postretirement Benefit (OPEB) Plans
GCP provides postretirement health care benefits for certain qualifying retired employees. During the second quarter of 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, which are included within the accompanying unaudited Consolidated Balance Sheets and the accompanying unaudited Consolidated Statements of Operations. As of September 30, 2018, the related long-term liability of $1.8 million, accumulated other comprehensive income of $0.4 million, net of related tax impact of $0.1 million, are included within the accompanying unaudited Consolidated Balance Sheets. The related expense for the three and nine months ended September 30, 2018 was $0.1 million and $1.3 million, respectively.
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.
GCP intends to fund non-U.S. pension plans based on applicable legal requirements, as well as actuarial and trustee recommendations. During the three and nine months ended September 30, 2018, GCP contributed $0.4 million and $4.3 million, respectively, to these non-U.S. plans, including a discretionary contribution of $2.9 million to a pension plan in Brazil. During the three and nine months ended September 30, 2017, such contributions amounted to $0.2 million and $1.9 million, respectively.

26


Notes to Consolidated Financial Statements (unaudited) - Continued

Defined Contribution Retirement Plan
GCP sponsors a defined contribution retirement plan for its employees in the U.S. which is a qualified plan under section 401(k) of the U.S. tax code. Under this plan, GCP contributes an amount equal to 100% of employee contributions, up to 6% of an individual employee's salary or wages. Effective January 1, 2018, GCP established an additional defined contribution plan whereby GCP contributes up to an additional 2% of 100% of applicable employee contributions. Applicable employees include those beginning employment with GCP on or after January 1, 2018 who are not eligible to participate the 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 are included in "Selling, general and administrative expenses" and "Cost of goods sold" in the accompanying unaudited Consolidated Statements of Operations and amounted to $1.0 million and $3.5 million, respectively, during the three and nine months ended September 30, 2018 and $1.1 million and $3.6 million, respectively, during the three and nine months ended September 30, 2017.
7. Other Balance Sheet Accounts
The following is a summary of other current assets at September 30, 2018 and December 31, 2017:
(In millions)
September 30,
2018
 
December 31,
2017
Other Current Assets:
 
 
 
Non-trade receivables
$
26.4

 
$
28.4

Prepaid expenses and other current assets
9.6

 
13.8

Income taxes receivable
11.2

 
6.0

Marketable securities

 
0.4

Total other current assets
$
47.2

 
$
48.6

The following is a summary of other current liabilities at September 30, 2018 and December 31, 2017:
(In millions)
September 30,
2018
 
December 31,
2017
Other Current Liabilities:
 
 
 
Accrued customer volume rebates
$
33.2

 
$
31.5

Accrued compensation(1)
16.7

 
27.1

Income taxes payable(2)
25.7

 
115.1

Accrued interest
9.4

 
20.8

Pension liabilities
2.0

 
1.0

Restructuring liability
13.3

 
12.8

Other accrued liabilities(3)
56.5

 
107.9

Total other current liabilities
$
156.8

 
$
316.2

________________________________
(1) 
Accrued compensation presented in the table above includes salaries and wages, as well as estimated current amounts due under the annual and long-term employee incentive programs.
(2) 
The change in income taxes payable between September 30, 2018 and December 31, 2017 is related primarily to the payment of $105.0 million related to the Company's provisional 2017 domestic income tax liability which was impacted by the sale of Darex and the 2017 Tax Act.
(3) 
Other accrued liabilities presented in the table above as of September 30, 2018 and December 31, 2017 include $13.1 million and $55.1 million, respectively, representing the current portion of the liability related to the delayed closings associated with the Company's divestiture of Darex, as discussed in Note 15, "Discontinued Operations."


27


Notes to Consolidated Financial Statements (unaudited) - Continued

8. Commitments and Contingent Liabilities
GCP enters into certain purchase commitments and is a party to many contracts containing guarantees and indemnification obligations, as described in Note 9, "Commitments and Contingent Liabilities" to the Company's Consolidated Financial Statements included in the 2017 Annual Report in the Form 10-K. There have been no material changes to these commitments and obligations during the three and nine months ended September 30, 2018.
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 wastes 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 September 30, 2018 and December 31, 2017, GCP did not have any material environmental liabilities.
GCP's environmental liabilities are reassessed whenever circumstances become better defined or response efforts and their costs can be better estimated. These liabilities are evaluated based on currently available information, including the progress of remedial investigations at each site, the current status of discussions with regulatory authorities regarding the method and extent of remediation at each site, existing technology, prior experience in contaminated site remediation and the apportionment of costs among potentially responsible parties.
Financial Assurances
Financial assurances have been established for a variety of purposes, including insurance, environmental matters and other matters. At September 30, 2018 and December 31, 2017, GCP had gross financial assurances issued and outstanding of approximately $6 million and $10 million, respectively, which were composed of standby letters of credit.
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 these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any of such pending matters will have a material adverse effect on its overall financial condition, results of operations or cash flows for the three and nine months ended September 30, 2018.
Accounting for Contingencies
Although the outcome of each of the matters discussed above cannot be predicted with certainty, GCP has assessed the risk and has made accounting estimates and disclosures as required under GAAP.
9. Restructuring and Repositioning Expenses
GCP's Board of Directors approves all major restructuring programs that may involve the discontinuation of significant product lines or the shutdown of significant facilities. From time to time, GCP takes additional restructuring actions, including involuntary employee terminations that are not a part of a major program. Restructuring programs generally include severance and other employee-related costs, contract or lease termination costs, asset impairments, facility exit costs, moving and relocation, and other related costs.
The Company may also undertake repositioning activities that 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.

28


Notes to Consolidated Financial Statements (unaudited) - Continued

GCP recognizes restructuring and repositioning costs in the period the related liabilities are incurred and records them in "Restructuring and asset impairments" and “Repositioning expenses,” or in those captions within discontinued operations, in the accompanying unaudited Consolidated Statements of Operations. Restructuring expenses, asset impairments and repositioning expenses are excluded from segment operating income.
2018 Restructuring and Repositioning Plan (the “2018 Plan”) 
On August 1, 2018, the Board of Directors of the Company approved a business restructuring and repositioning plan. The 2018 Plan is designed to streamline operations and improve profitability primarily within the concrete admixtures product line of the Specialty Construction Chemicals segment by focusing on the Company's core markets, rationalizing non-profitable geographies, reducing its global cost structure and accelerating the integration of VERIFI® into the Company’s global admixtures business.
The Company expects to incur total costs in connection with the 2018 Plan ranging from approximately $30 million to $35 million, of which costs ranging from approximately $20 million to $25 million are related to restructuring activities, and costs of approximately $10 million are related to repositioning activities.
Total expected restructuring activity costs consist of approximately $13 million to $16 million of severance and other employee-related costs, $4 million of asset impairments, $1 million to $2 million of facility exit costs and $3 million of other associated costs. Total expected restructuring activity costs are attributable as follows: (i) $18.0 million to $21.0 million to the SCC segment and (ii) $3.0 million to $4.0 million to the SBM segment. Substantially all of the restructuring actions are expected to be completed by December 31, 2019 and result in the net reduction of approximately 8%-10% of the Company's workforce.
Repositioning costs consist primarily of consulting services to assist GCP in advancing its technology strategy. Total costs expected to be incurred for repositioning activities are approximately $10 million. Substantially all of the repositioning activities are expected to be completed by December 31, 2019.
As of September 30, 2018, the cumulative restructuring activity costs recognized under the 2018 Plan since inception were $14.3 million, of which $12.0 million was attributable to the SCC segment and $2.3 million was attributable to the SBM segment. Of the $14.3 million incurred to date, $10.3 million was related to severance and employee-related costs and $4.0 million was related to asset impairments.
As of September 30, 2018, the cumulative repositioning activity costs recognized under the 2018 Plan since inception were approximately $2.6 million.
The Company expects to settle in cash approximately 70% of the restructuring costs and substantially all of the repositioning costs related to the 2018 Plan.
2017 Restructuring and Repositioning Plan (the “2017 Plan”)    
On June 28, 2017, the Board of Directors approved a restructuring and repositioning plan that includes actions to streamline GCP's operations, reduce its global cost structure and reposition itself as a construction products technologies company.
GCP expects to incur total costs in connection with the 2017 Plan of approximately $30 million, of which $20 million is related to restructuring activities, and $10 million is related to repositioning activities.
Total expected restructuring activity costs consist of approximately $18 million of severance and other employee-related costs, and $2 million of asset impairments and facility exit costs. Total expected restructuring activity costs are attributable as follows: (i) $5 million to the SCC segment, (ii) $3 million to the SBM segment, (iii) $3 million to the Corporate function and (iv) $9 million to discontinued operations. The restructuring activities are expected to be substantially completed by December 31, 2018. Total costs expected to be incurred for repositioning activities are $10 million. Additionally, GCP expects to incur approximately $10 million to $15 million of capital expenditures related to repositioning activities, which includes the build-out of three manufacturing plants in Asia Pacific that will replace shared facilities sold as a part of the Darex divestiture. GCP expects all of its repositioning activities to be classified within continuing operations and such repositioning activities should be substantially completed by December 31, 2019.

29


Notes to Consolidated Financial Statements (unaudited) - Continued

As of September 30, 2018, the cumulative restructuring activity costs recognized under the 2017 Plan since inception were $19.4 million, of which $4.6 million was attributable to the SCC segment, $3.3 million was attributable to the SBM segment, $2.9 million was attributable to the Corporate function and $8.6 million was attributable to discontinued operations. Of the $19.4 million incurred to date, $17.6 million related to severance and employee-related costs and $1.8 million related to asset impairments and facility exit costs. As of September 30, 2018, the cumulative repositioning activity costs and capital expenditures recognized under the 2017 Plan since inception were approximately $7.6 million and $6.7 million, respectively. As of September 30, 2018, cumulative cash payments for repositioning made under the 2017 Plan from inception to date, including capital expenditures were $12.0 million.
The Company expects to settle in cash substantially all of the costs related to the 2017 Plan.
Restructuring Expenses and Asset Impairments
The following table summarizes restructuring costs and asset impairment charges related to the 2017 and 2018 Plans and other plans incurred during each period:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2018
 
2017
 
2018
 
2017
Severance and other employee costs
$
10.0

 
$
2.1

 
9.3

 
$
19.0

Facility exit costs
0.2

 

 
0.2

 
0.1

Asset impairments
4.1

 
0.4

 
4.5

 
0.8

Total restructuring expenses and asset impairments
$
14.3

 
$
2.5

 
$
14.0

 
$
19.9

Less: restructuring expenses and asset impairments reflected in discontinued operations

 
0.4

 
0.8

 
6.9

Total restructuring expenses and asset impairments from continuing operations
$
14.3

 
$
2.1

 
$
13.2

 
$
13.0

GCP incurred restructuring costs and asset impairment charges related to its two operating segments and Corporate as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
2018
 
2017
 
2018
 
2017
SCC
$
11.9

 
$
0.7

 
$
10.9

 
$
6.2

SBM
2.3

 
(0.3
)
 
1.9

 
4.1

Corporate
0.1

 
1.7

 
0.4

 
2.7

Total restructuring expenses and asset impairments from continuing operations
$
14.3

 
$
2.1

 
$
13.2

 
$
13.0

Restructuring expenses and asset impairments reflected in discontinued operations

 
0.4

 
0.8

 
6.9

Total restructuring expenses and asset impairments
$
14.3

 
$
2.5

 
$
14.0

 
$
19.9

Restructuring liabilities were $13.3 million and $12.8 million, respectively, as of September 30, 2018 and December 31, 2017. These liabilities are included within “Other current liabilities” in the accompanying unaudited Consolidated Balance Sheets. GCP expects to settle in cash substantially all of the remaining liabilities related to the 2017 Plan by March 31, 2019, and all of the remaining liabilities related to the 2018 Plan by December 31, 2019.

30


Notes to Consolidated Financial Statements (unaudited) - Continued

The following table summarizes the Company’s restructuring liability activity:
 
2018 Plan
 
2017 Plan
 
 
 
 

(In millions)
Severance and other employee costs
 
Facility exit costs
 
Severance and other employee costs
 
Facility exit costs
 
Other plans
 
Total
Balance, December 31, 2017
$

 
$

 
$
11.6

 
$
0.1

 
$
1.1

 
$
12.8

Expense(1)
10.3

 

 
(1.7
)
 
0.2

 
0.7

 
9.5

Payments
(1.2
)
 

 
(6.1
)
 
(0.1
)
 
(1.1
)
 
(8.5
)
Impact of foreign currency and other

 

 
(0.3
)
 

 
(0.2
)
 
(0.5
)
Balance, September 30, 2018
$
9.1

 
$

 
$
3.5

 
$
0.2

 
$
0.5

 
$
13.3

________________________________
(1) 
Asset impairment charges of $4.5 million for the nine months ended September 30, 2018 related to the 2017 and 2018 Plans are recorded as a reduction to "Properties and equipment, net" in the accompanying unaudited Consolidated Balance Sheets. These expenses are not recorded to the restructuring liability and therefore, are not included in the table above.
Repositioning Expenses
Repositioning Expenses - 2017 Plan and 2018 Plan
Repositioning expenses associated with the 2017 and 2018 Plans are primarily related to consulting, other professional services and recruitment costs associated with the Company’s organizational realignment and advancing its technology strategy. Due to the scope and complexity of the Company’s repositioning activities, the range of estimated repositioning expense and capital expenditures could increase or decrease and the timing of incurrence could change.
During the three and nine months ended September 30, 2018, GCP incurred repositioning expenses of $2.6 million related to the 2018 Plan. During the nine months ended September 30, 2018, the Company did not make any cash payments related to such repositioning expenses.
During the three and nine months ended September 30, 2018, GCP incurred repositioning expenses related to the 2017 Plan of $1.1 million and $3.2 million, respectively. During the three and nine months ended September 30, 2017, GCP incurred repositioning expenses of $1.1 million and $1.5 million, respectively, related to the 2017 Plan. During the nine months ended September 30, 2018, total cash payments related to such repositioning expenses were $10.0 million, which included $5.5 million for capital expenditures.
Separation-Related Repositioning Expenses
Post-Separation, GCP incurred expenses related to its transition to a stand-alone public company and completed these activities as of December 31, 2017. The Company did not incur any costs related to such activities during the three and nine months ended September 30, 2018. Please refer to Note 10, "Restructuring and Repositioning Expenses" to the Company's Consolidated Financial Statements included in the 2017 Annual Report in the Form 10-K for further information.
Separation-related repositioning expenses incurred for the three and nine months ended September 30, 2017 were as follows:
 
Three Months Ended September 30, 2017
 
Nine Months Ended September 30, 2017
(In millions)
 
Professional fees
$

 
$
3.4

Software and IT implementation fees

 
0.9

Employee-related costs

 
1.0

Total
$

 
$
5.3


31


Notes to Consolidated Financial Statements (unaudited) - Continued

Total cash payments for the nine months ended September 30, 2017 were $4.2 million for separation-related repositioning expenses and $1.9 million for capital-related expenditures. There were no such payments made during the three and nine months ended September 30, 2018.
10. Other Comprehensive (Loss) Income
The following tables present the pre-tax, tax and after-tax components of GCP's other comprehensive (loss) income for the three and nine months ended September 30, 2018 and 2017:
 
Three Months Ended September 30, 2018
(In millions)
Pre-Tax Amount
 
Tax (Expense)
 
After-Tax Amount
Defined benefit pension and other postretirement plans
$
0.3

 
$
(0.1
)
 
$
0.2

Currency translation adjustments (1)
(9.1
)
 

 
(9.1
)
Other comprehensive loss attributable to GCP shareholders
$
(8.8
)
 
$
(0.1
)
 
$
(8.9
)
 
Nine Months Ended September 30, 2018
(In millions)
Pre-Tax Amount
 
Tax
Benefit
 
After-Tax Amount
Defined benefit pension and other postretirement plans
$
(0.5
)
 
$
0.1

 
$
(0.4
)
Currency translation adjustments (1)
(27.3
)
 

 
(27.3
)
Gain from hedging activities
0.1

 

 
0.1

Other comprehensive loss attributable to GCP shareholders
$
(27.7
)
 
$
0.1

 
$
(27.6
)
 
Three Months Ended September 30, 2017
(In millions)
Pre-Tax Amount
 
Tax Expense
 
After-Tax Amount
Defined benefit pension and other postretirement plans
$
(0.3
)
 
$

 
$
(0.3
)
Currency translation adjustments (1)
46.2

 

 
46.2

Gain from hedging activities
0.8

 
(0.3
)
 
0.5

Other comprehensive income attributable to GCP shareholders
$
46.7

 
$
(0.3
)

$
46.4

 
Nine Months Ended September 30, 2017
(In millions)
Pre-Tax Amount
 
Tax Benefit
 
After-Tax Amount
Defined benefit pension and other postretirement plans
$
(0.3
)
 
$

 
$
(0.3
)
Currency translation adjustments (1)
63.0

 

 
63.0

Loss from hedging activities
(0.1
)
 

 
(0.1
)
Other comprehensive income attributable to GCP shareholders
$
62.6

 
$

 
$
62.6

(1) Currency translation adjustments did not have a corresponding tax effect.

32


Notes to Consolidated Financial Statements (unaudited) - Continued

The following tables present the changes in accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2018 and 2017:
(In millions)
Defined Benefit Pension and Other Postretirement Plans
 
Currency Translation Adjustments
 
Hedging Activities
 
Total
Balance, December 31, 2017
$
0.4

 
$
(86.0
)
 
$
(0.1
)
 
$
(85.7
)
Other comprehensive (loss) income before reclassifications
(0.4
)
 
(27.3
)
 
0.2

 
(27.5
)
Amounts reclassified from accumulated other comprehensive (loss) income

 

 
(0.1
)
 
(0.1
)
Current-period other comprehensive (loss) income
(0.4
)
 
(27.3
)
 
0.1

 
(27.6
)
Balance, September 30, 2018
$

 
$
(113.3
)
 
$

 
$
(113.3
)

(In millions)
Defined Benefit Pension and Other Postretirement Plans
 
Currency Translation Adjustments
 
Hedging Activities
 
Total
Balance, December 31, 2016
$
0.1

 
$
(147.7
)
 
$

 
$
(147.6
)
Other comprehensive (loss) income before reclassifications
(0.3
)
 
63.0

 
(0.7
)
 
62.0

Amounts reclassified from accumulated other comprehensive (loss) income

 

 
0.6

 
0.6

Net current-period other comprehensive (loss) income
(0.3
)
 
63.0

 
(0.1
)
 
62.6

Balance, September 30, 2017
$
(0.2
)
 
$
(84.7
)
 
$
(0.1
)
 
$
(85.0
)
GCP is a global enterprise operating in over 35 countries with the local currency generally deemed to be the functional currency for accounting purposes. The currency translation adjustments reflect translation of the balance sheets valued in functional currencies to the U.S. dollar as of the end of each period presented and translation of revenues and expenses at average exchange rates for each period presented.
As of June 30, 2018, GCP concluded that Argentina is a highly inflationary economy since the three-year cumulative inflation rates commonly used to evaluate Argentina’s inflation currently exceed 100%. As a result, GCP began accounting for its operations in Argentina as a highly inflationary economy effective July 1, 2018. Please refer to Note 1, "Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies" for further discussion of currency transaction of highly inflationary economies.
Please refer to Note 6, "Pension Plans and Other Postretirement Benefit Plans," for a discussion of pension plans and other postretirement benefit plans.
11. Stock Incentive Plans
GCP grants stock options, restricted stock units (the "RSUs") and performance-based units (the "PBUs") with or without market conditions which vest upon the satisfaction of a performance condition and/or a service condition. Please refer to Note 13, "Stock Incentive Plans" to the Company's Consolidated Financial Statements included in the 2017 Annual Report in the Form 10-K for further information on these awards.

33


Notes to Consolidated Financial Statements (unaudited) - Continued

Stock-Based Compensation Accounting
In accordance with U.S. GAAP, 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, over the employee’s requisite service period for each separately vesting portion of the award. Total stock-based compensation (benefit) expense related to cash and non-cash settled awards is included in "Income (loss) from continuing operations before income taxes" in the accompanying unaudited Consolidated Statements of Operations and was $(0.3) million and $4.6 million, respectively, for the three and nine months ended September 30, 2018 and $2.0 million and $7.7 million, respectively, for the three and nine months ended September 30, 2017. During the three months ended September 30, 2018, the Company recorded a stock-based compensation expense reduction of $2.8 million related to remeasurement of PBUs granted in 2017 based on their estimated expected payout at the end of the applicable performance period. For further information with regards to the valuation of PBUs, please refer to Note 13, “Stock Incentive Plans,” the Company’s Consolidated Financial Statements included in the 2017 Annual Report on Form 10-K.
The Company issues new shares of common stock upon exercise of stock options. In accordance with certain provisions of the GCP Equity and Incentive Plan (the "Plan"), GCP repurchases shares issued to certain holders of GCP awards in order to fulfill statutory tax withholding requirements for the employee. During the nine months ended September 30, 2018 and 2017, GCP repurchased approximately 45,000 shares and 37,000 shares, respectively, under the provisions of the Plan. These purchases are reflected as "Share Repurchases" in the accompanying unaudited Consolidated Statements of Equity (Deficit).
As of September 30, 2018, approximately 8.3 million shares of common stock were reserved and available for future grant under the Plan.
Stock Options
Stock options are non-qualified and granted at exercise prices not less than 100% of 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 that relate to Grace stock options originally granted prior to the Separation have a contractual term of five years from the original date of grant. Stock option awards granted post-Separation have a contractual term of seven or ten years from the original date of grant. Generally, stock options vest in substantially equal amounts each year over three years from the date of grant.
GCP values stock options using the Black-Scholes option pricing model for estimating the fair value of options granted. For further information with regards to the valuation of stock options, please refer to Note 13, “Stock Incentive Plans,” the Company’s Consolidated Financial Statements included in the 2017 Annual Report on Form 10-K.
The following summarizes GCP's assumptions for estimating the fair value of stock options granted during 2018 and 2017:
 
Nine Months Ended September 30,
Assumptions used to calculate expense for stock options:
2018
 
2017
Risk-free interest rate
2.68-2.90%
 
1.83 - 2.10%
Average life of options (years)
5.5-6.5
 
5.5 - 6.5
Volatility
27.91-30.65%
 
31.42 - 31.96%
Dividend yield
 
Weighted average fair value per stock option
$10.63
 
$9.16

34


Notes to Consolidated Financial Statements (unaudited) - Continued

The following table sets forth information relating to stock options denominated in GCP stock during the nine months ended September 30, 2018:
Stock Option Activity
Number Of
Shares
(in thousands)
 
Weighted
Average Exercise
Price
 
Weighted
Average
Remaining Contractual
Term (years)
 
Aggregated
Intrinsic Value
(in thousands)
Outstanding, December 31, 2017
1,636

 
$
18.94

 
3.78
 
$
21,597

Options exercised
314

 
16.76

 

 


Options forfeited/expired/canceled
25

 
25.41

 

 


Options granted
241

 
31.31

 

 


Outstanding, September 30, 2018
1,538

 
$
21.21

 
3.99
 
$
9,262

Exercisable, September 30, 2018
968

 
$
18.87

 
2.79
 
$
7,339

Vested and expected to vest, September 30, 2018
1,520

 
$
21.15

 
3.96
 
$
9,222

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 September 30, 2018 and the exercise price, multiplied by the number of in-the-money options that would have been received by the option holders had all option holders exercised their in-the-money options at period end. The amount changes based on the fair market value of GCP's stock. Total intrinsic value of all options exercised during the three and nine months ended September 30, 2018 was $0.1 million, and $4.8 million, respectively, and during the three and nine months ended September 30, 2017 was $0.2 million and $8.3 million, respectively.
At September 30, 2018, total unrecognized stock-based compensation expense for stock options outstanding was $1.3 million and is expected to be recognized over the weighted-average period of approximately 1.0 year.
Restricted Stock Units and Performance Based Units
RSUs and PBUs are granted with the exercise price equal to zero and are converted to shares immediately upon vesting.
As of September 30, 2018, $6.3 million of total unrecognized compensation expense related to the RSU and PBU awards is expected to be recognized over the remaining weighted-average service period of approximately 1.2 years.
RSUs
The Company grants RSUs which are time-based, non-performance units. RSUs generally vest over a three year period, with some awards vesting in substantially equal amounts each year over three years and some awards vesting 100% after the third year from the date of grant. A smaller number of RSUs were designated as sign-on awards which are used for the purposes of attracting key employees and covering outstanding awards from prior employers. Such awards vest 100% after two years from the date of grant.
RSUs are recorded at fair value on the date of grant. The common stock-settled awards are considered equity awards, with the stock compensation expense being determined based on GCP’s stock price on the grant date. The cash settled awards are considered liability awards, with the liability being remeasured each reporting period based on GCP’s then current stock price.

35


Notes to Consolidated Financial Statements (unaudited) - Continued

GCP’s RSU activity for the nine months ended September 30, 2018 is presented below:
RSU Activity
Number Of
Shares
(in thousands)
 
Weighted
Average
Grant Date
Fair Value
Outstanding, December 31, 2017
406

 
$
19.15

RSUs settled
158

 
18.36

RSUs forfeited
10

 
27.97

RSUs granted
129

 
29.28

RSUs outstanding, September 30, 2018
367

 
$
22.83

During the nine months ended September 30, 2018, GCP distributed 115,932 shares and $1.2 million of cash to settle RSUs upon vesting. GCP expects all future RSU vestings to settle in stock.
PBUs
PBUs are performance-based units which are granted by the Company either with or without market conditions. Such PBUs are expected to cliff vest over three years and will be settled in GCP common stock. PBUs are remeasured during each reporting period based on their expected payout, which may range from 0% to 200% of the targets for such awards. 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.
Beginning with the annual PBU grant in the first quarter of 2017, the performance criteria for PBUs included a 3-year cumulative adjusted diluted earnings per share metric that is modified, up or down, based on the Company's relative total shareholder return ("TSR") against the Russell 3000 Index ("the Index"). The number of shares that ultimately vest, if any, is based on Company performance against these metrics, and can range from 0% to 200% of the target number of shares granted to the employee. The 2018 and 2017 awards will become vested, if at all, three years from the grant date once actual performance is certified by the Board's Compensation Committee. Vesting is also subject to the employees' continued employment through the vesting date.
PBUs granted during the three and nine months ended September 30, 2018 and 2017 were valued using a Monte Carlo simulation, which is commonly used for assessing the grant date fair value of equity awards with relative TSR metrics. For further information with regards to the valuation of PBUs, please refer to Note 13, “Stock Incentive Plans,” the Company’s Consolidated Financial Statements included in the 2017 Annual Report on Form 10-K.
The following summarizes the assumptions used in the Monte Carlo simulations for estimating the grant date fair values of PBUs granted during the nine months ended September 30, 2018 and 2017: