Stock Incentive Plans

9 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Accounting

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 14, "Stock Incentive Plans" to the Company's Consolidated Financial Statements included in the 2018 Annual Report in the Form 10-K for further information on these awards.

GCP estimates the fair value of equity awards issued at the grant date which 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 expense is included in "Income (loss) from continuing operations before income taxes" in the accompanying unaudited Consolidated Statements of Operations and was $2.3 million and $7.3 million, respectively during the three and nine months ended September 30, 2019, and $(0.3) million and $4.6 million, respectively, during the three and nine months ended September 30, 2018. 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.

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 withholds and retains shares issued to certain holders of GCP awards in order to fulfill statutory tax withholding requirements for the employees. During the nine months ended September 30, 2019 and 2018, GCP withheld and retained approximately 130,900 shares and 45,000 shares, respectively, in a non-cash transaction with a cost of $3.3 million and $1.3 million, respectively, which were reflected as "Share Repurchases" in the accompanying unaudited Consolidated Statements of Stockholder's Equity. During the nine months ended September 30, 2019 and 2018, cash payments for such tax withholding obligations were $3.3 million and $1.3 million, respectively.

As of September 30, 2019, approximately 7.7 million shares of common stock were reserved and available for future grant under the Plan.

Stock Options

The following assumptions were utilized in the Black-Scholes option pricing model for estimating the fair value of GCP's stock options granted during the nine months ended September 30, 2019 and 2018:



	Nine Months Ended September 30,
Assumptions used to calculate expense for stock options:	2019	2018
Risk-free interest rate	1.70 -2.64%	2.68 - 2.90%
Average life of options (years)	5.5 - 6.5	5.5 - 6.5
Volatility	28.02 - 28.59%	27.91 - 30.65%
Dividend yield	—	—
Weighted average fair value per stock option	$8.66	$10.63

The following table sets forth information relating to stock options denominated in GCP stock during the nine months ended September 30, 2019:



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, 2018	1,518		21.18	3.75	$	7,145
Options exercised	(272	)	18.64
Options forfeited/expired/canceled	(51	)	27.57
Options granted	273		26.44
Outstanding, September 30, 2019	1,468		22.40	3.93	$	914
Exercisable, September 30, 2019	1,014		19.96	2.88	$	914
Vested and expected to vest, September 30, 2019	1,447		22.33	3.90	$	914

The weighted average grant date fair value of options granted during the three months ended September 30, 2019 and 2018 was $6.66 and $8.57, respectively. The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value, determined as the difference between GCP's closing stock price on the last trading day of September 30, 2019 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 nine months ended September 30, 2019 were $2.5 million, and during the three and nine months ended September 30, 2018 were $0.1 million and $4.8 million, respectively.

At September 30, 2019, total unrecognized stock-based compensation expense for stock options outstanding was $1.2 million and is expected to be recognized over the weighted-average period of approximately 1.2 years.

Restricted Stock Units and Performance Based Units

RSUs and PBUs are granted with the exercise price equal to zero and are converted to shares immediately upon vesting.

As of September 30, 2019, $5.7 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 1.7 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 generally vest 100% after two years from the date of grant.

RSUs are recorded at fair value on the grant date. The common stock-settled awards are considered equity awards, with the stock compensation expense being determined based on GCP’s stock price on the grant date.

The following table sets forth the RSU activity for the nine months ended September 30, 2019:



RSU Activity	Number Of Shares (in thousands)		Weighted Average Grant Date Fair Value
Outstanding, December 31, 2018	363		$	22.76
RSUs settled	(255	)	20.27
RSUs forfeited	(27	)	28.27
RSUs granted	137		26.77
RSUs outstanding, September 30, 2019	218		$	27.49
Expected to vest as of September 30, 2019	208		$	27.52

The weighted average grant date fair value of RSUs granted during the three months ended September 30, 2019 and 2018 was $21.52 and $25.20 per share, respectively. The weighted average grant date fair value of RSUs granted during the nine months ended September 30, 2019 and 2018 was $26.77 and $29.28 per share, respectively. During the nine months ended September 30, 2019, GCP distributed 255,000 shares to settle RSUs upon vesting. During the nine months ended September 30, 2018, GCP distributed approximately 115,932 shares and $1.2 million of cash to settle RSUs upon vesting. The fair value of RSUs vested during the nine months ended September 30, 2019 and 2018 was $6.4 million and $4.8 million, respectively.

PBUs

PBUs are performance-based units which are granted by the Company either with or without market conditions and recorded at fair value on the grant date. The performance criteria for PBUs granted in 2016 was based on a 3-year cumulative adjusted earnings per share measure. The number of shares earned by employees was based on the achievement of applicable performance targets related to such measure and could range between 0% to 200%. During the nine months ended September 30, 2019, PBUs granted in 2016 were settled by the distribution of 76,461 shares of GCP common stock based on the actual performance of 68.7% achieved against the cumulative adjusted earnings per share measure during the years 2016-2018. The actual performance measure for the 2016 PBU grants was certified by the Compensation Committee during the period then ended. The performance criteria for PBUs granted in 2017 and 2018 include a 3-year cumulative adjusted diluted earnings per share metric that is modified, up or down, based on the Company's total shareholder return ("TSR") relative to the performance of the Russell 3000 Index. For PBUs granted in 2019, such metric is modified, up or down, based on the Company's TSR relative to the performance of the Russell 3000 Specialty Chemicals and Building Materials Indices. The number of shares that ultimately vest, if any, is based on Company performance against these metrics, and can range from 0% to 200% of the target number of shares granted to employees. The 2019, 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.

The following table 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, 2019 and 2018:



	Nine Months Ended September 30,
Assumptions used to calculate expense for PBUs:	2019	2018
Expected Term (Remaining Performance Period)	2.86	2.86
Expected volatility	28.46%	28.56%
Risk-free interest rate	2.48%	2.38%
Expected dividends	—	—
Correlation coefficient	54.81%	38.98%
Average correlation coefficient of constituents	57.09%	39.96%

During the nine months ended September 30, 2019, GCP granted 174,302 PBUs to its employees with a weighted average grant date fair value of $27.19. During the nine months ended September 30, 2019, 6,180 of these PBUs were forfeited. As of September 30, 2019, 168,122 of these PBUs were outstanding with a weighted average grant date fair value of $27.20.

During 2018, GCP granted 149,974 PBUs to its employees, of which 143,797 PBUs with a weighted average grant date fair value of $34.14 were outstanding as of December 31, 2018. During the nine months ended September 30, 2019, 17,844 of these PBUs were forfeited. As of September 30, 2019, 125,953 of these PBUs were outstanding with a weighted average grant date fair value of $34.06.

During 2017, GCP granted 166,821 PBUs to its employees, of which 138,915 PBUs with a weighted average grant date fair value of $28.25 were outstanding as of December 31, 2018. During the nine months ended September 30, 2019, 14,479 of these PBUs were forfeited. As of September 30, 2019, 124,436 of these PBUs were outstanding with a weighted average grant date fair value of $28.22.

During the nine months ended September 30, 2019, 76,461 PBUs granted in 2016 with a weighted average grant date fair value of $17.04 vested and were released to Company employees. During the nine months ended September 30, 2019, 34,840 of these awards were forfeited.