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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period EndedJune 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number1-37533
GCP Applied Technologies Inc.
Delaware47-3936076
(State of Incorporation)(I.R.S. Employer Identification No.)
62 Whittemore Avenue, Cambridge, Massachusetts 02140-1623
(617876-1400
(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 filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No ☒
Securities registered pursuant to Section 12(b) of the Act:
ClassTrading SymbolExchange on which registered
Common Stock, $0.01 par value per shareGCPNew York Stock Exchange
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
ClassOutstanding at July 29, 2020
Common Stock, $0.01 par value per share72,974,610


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TABLE OF CONTENTS

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

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PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
GCP Applied Technologies Inc.
Consolidated Statements of Operations (unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In millions, except per share amounts)2020201920202019
Net sales$195.4  $262.2  $412.1  $488.3  
Cost of goods sold119.0  163.2  253.8  307.1  
Gross profit76.4  99.0  158.3  181.2  
Selling, general and administrative expenses65.7  71.4  133.8  140.4  
Research and development expenses3.7  4.6  8.6  9.3  
Interest expense and related financing costs5.0  5.7  10.7  11.6  
Repositioning expenses1.0  5.8  3.7  11.2  
Restructuring expenses and asset impairments0.4  4.4  3.5  5.0  
Other income, net(2.7) (1.7) (4.9) (3.5) 
Total costs and expenses73.1  90.2  155.4  174.0  
Income from continuing operations before income taxes3.3  8.8  2.9  7.2  
(Provision for) benefit from income taxes(4.5) (5.7) (2.6) 10.7  
(Loss) income from continuing operations(1.2) 3.1  0.3  17.9  
(Loss) income from discontinued operations, net of income taxes   (0.5) (0.3) 6.3  
Net (loss) income(1.2) 2.6    24.2  
Less: Net income attributable to noncontrolling interests(0.1)   (0.2) (0.2) 
Net (loss) income attributable to GCP shareholders$(1.3) $2.6  $(0.2) $24.0  
Amounts Attributable to GCP Shareholders:
(Loss) income from continuing operations attributable to GCP shareholders(1.3) 3.1  0.1  17.7  
(Loss) income from discontinued operations, net of income taxes  (0.5) (0.3) 6.3  
Net (loss) income attributable to GCP shareholders$(1.3) $2.6  $(0.2) $24.0  
Earnings (Loss) Per Share Attributable to GCP Shareholders
Basic earnings (loss) per share:(2)
(Loss) income from continuing operations attributable to GCP shareholders$(0.02) $0.04  $  $0.24  
(Loss) income from discontinued operations, net of income taxes$  $(0.01) $  $0.09  
Net (loss) income attributable to GCP shareholders(1)
$(0.02) $0.04  $  $0.33  
Weighted average number of basic shares72.9  72.6  72.9  72.5  
Diluted earnings (loss) per share:(2)
(Loss) income from continuing operations attributable to GCP shareholders$(0.02) $0.04  $  $0.24  
(Loss) income from discontinued operations, net of income taxes$  $(0.01) $  $0.09  
Net (loss) income attributable to GCP shareholders(1)
$(0.02) $0.04  $  $0.33  
Weighted average number of diluted shares72.9  73.0  73.0  72.9  
______________________________
(1)Amounts may not sum due to rounding.
(2)Dilutive effect is only applicable to the periods during which GCP generated net income from continuing operations.

The Notes to Consolidated Financial Statements are an integral part of these statements.
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GCP Applied Technologies Inc.
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2020201920202019
Net (loss) income$(1.2) $2.6  $  $24.2  
Other comprehensive income (loss):
Defined benefit pension and other postretirement plans, net of income taxes
    0.1    
Currency translation adjustments, net of income taxes
4.9  (3.9) (28.9) (0.6) 
(Loss) gain from hedging activities, net of income taxes
(0.1)   0.1  (0.1) 
Total other comprehensive income (loss) 4.8  (3.9) (28.7) (0.7) 
Comprehensive income (loss) 3.6  (1.3) (28.7) 23.5  
Less: Comprehensive income attributable to noncontrolling interests
(0.1)   (0.2) (0.2) 
Comprehensive income (loss) attributable to GCP shareholders
$3.5  $(1.3) $(28.9) $23.3  

The Notes to Consolidated Financial Statements are an integral part of these statements.
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GCP Applied Technologies Inc.
Consolidated Balance Sheets (unaudited)
(In millions, except par value and shares)June 30,
2020
December 31,
2019
ASSETS
Current Assets
Cash and cash equivalents$318.2  $325.0  
Trade accounts receivable, net of allowance for credit losses of $7.3 million and $7.5 million, respectively
148.9  183.7  
Inventories, net98.5  95.9  
Other current assets45.4  43.7  
Total Current Assets611.0  648.3  
Properties and equipment, net 243.1  245.3  
Operating lease right-of-use assets33.8  29.3  
Goodwill200.3  208.9  
Technology and other intangible assets, net72.7  80.7  
Deferred income taxes17.5  26.1  
Overfunded defined benefit pension plans23.6  25.0  
Other assets38.3  38.0  
Non-current assets held for sale  0.5  
Total Assets$1,240.3  $1,302.1  
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current Liabilities  
Debt payable within one year$2.7  $2.7  
Operating lease obligations payable within one year8.0  8.1  
Accounts payable73.1  88.4  
Other current liabilities92.1  113.6  
Total Current Liabilities175.9  212.8  
Debt payable after one year348.7  346.5  
Income taxes payable35.2  41.4  
Deferred income taxes11.9  13.1  
Operating lease obligations26.5  21.6  
Unrecognized tax benefits42.6  42.2  
Underfunded and unfunded defined benefit pension plans68.7  67.5  
Other liabilities15.6  15.9  
Total Liabilities725.1  761.0  
Commitments and Contingencies - Note 11
Stockholders' Equity  
Series A Junior Participating Preferred Stock, par value $0.01; 10,000,000 shares authorized, no shares issued or outstanding (Note 12)
    
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 72,974,610 and 72,850,268, respectively
0.7  0.7  
Paid-in capital56.9  53.4  
Accumulated earnings610.0  610.2  
Accumulated other comprehensive loss(145.7) (117.0) 
Treasury stock(8.9) (8.6) 
Total GCP's Shareholders' Equity513.0  538.7  
Noncontrolling interests2.2  2.4  
Total Stockholders' Equity515.2  541.1  
Total Liabilities and Stockholders' Equity$1,240.3  $1,302.1  

The Notes to Consolidated Financial Statements are an integral part of these statements.
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GCP Applied Technologies Inc.
Consolidated Statements of Stockholders' Equity (unaudited)
Common StockTreasury Stock
(In millions)
Number of Shares(1)
Par Value
Number of Shares(1)
CostAdditional Paid-in CapitalAccumulated EarningsAccumulated Other Comprehensive LossNoncontrolling InterestsTotal Stockholders' Equity
Balance, December 31, 201872.4  $0.7  0.2  $(4.8) $39.6  $563.9  $(120.0) $2.0  $481.4  
Net income—  —  —  —  —  24.0  —  0.2  24.2  
Issuance of common stock in connection with stock plans(1)
0.3  —  —  —  —  —  —  —  —  
Share-based compensation—  —  —  —  5.6  —  —  5.6  
Exercise of stock options0.3  —  —  —  5.0  —  —  —  5.0  
Share repurchases(2)
—  —  0.1  (3.2) —  —  —  —  (3.2) 
Other comprehensive income—  —  —  —  —  —  (0.7) —  (0.7) 
Balance, June 30, 201973.0  $0.7  0.3  $(8.0) $50.2  $587.9  $(120.7) $2.2  $512.3  
Balance, December 31, 201973.2  $0.7  0.3  $(8.6) $53.4  $610.2  $(117.0) $2.4  $541.1  
Net (loss) income—  —  —  —  —  (0.2) —  0.2    
Issuance of common stock in connection with stock plans(1)
0.1  —  —  —  —  —  —  —  —  
Share-based compensation—  —  —  —  2.8  —  —  —  2.8  
Exercise of stock options  —  —  —  0.7  —  —  —  0.7  
Share repurchases(2)
—  —  0.1  (0.3) —  —  —  —  (0.3) 
Other comprehensive loss—  —  —  —  —  —  (28.7) —  (28.7) 
Dividends and other changes in noncontrolling interest —  —  —  —  —  —  —  (0.4) (0.4) 
Balance, June 30, 202073.3  $0.7  0.4  $(8.9) $56.9  $610.0  $(145.7) $2.2  $515.2  
________________________________
(1)The par value of common shares issued may not be included in the table due to rounding. Total share amounts for common stock and treasury stock may not sum due to rounding.
(2)Refer to Note 15, “Stock Incentive Plans”, for further information.


The Notes to Consolidated Financial Statements are an integral part of these statements.
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GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30,
(In millions)20202019
OPERATING ACTIVITIES  
Net income$  $24.2  
Less: (Loss) income from discontinued operations(0.3) 6.3  
Income from continuing operations0.3  17.9  
Reconciliation to net cash provided by (used in) operating activities:  
Depreciation and amortization22.7  21.1  
Amortization of debt discount and financing costs0.7  0.7  
Stock-based compensation expense2.3  5.0  
Unrealized loss on foreign currency1.6    
Deferred income taxes(5.8) (15.5) 
Loss (gain) on disposal of property and equipment0.1  (0.2) 
Changes in assets and liabilities, excluding effect of currency translation:
Trade accounts receivable30.3  9.5  
Inventories(5.1) (6.8) 
Accounts payable(13.5) (17.6) 
Pension assets and liabilities, net1.6  2.5  
Other assets and liabilities, net(15.3) (17.3) 
Net cash provided by (used in) operating activities from continuing operations19.9  (0.7) 
Net cash used in operating activities from discontinued operations(2.3) (12.4) 
Net cash provided by (used in) operating activities17.6  (13.1) 
INVESTING ACTIVITIES  
Capital expenditures(18.8) (27.7) 
Other investing activities0.4  0.5  
Net cash used in investing activities from continuing operations(18.4) (27.2) 
Net cash used in investing activities from discontinued operations  (0.4) 
Net cash used in investing activities(18.4) (27.6) 
FINANCING ACTIVITIES  
Repayments under credit arrangements  (7.6) 
Payments on finance lease obligations(0.4) (0.4) 
Payments of tax withholding obligations related to employee equity awards(0.3) (3.2) 
Proceeds from exercise of stock options0.7  5.0  
Payments of dividends to noncontrolling interests (0.4)   
Net cash used in financing activities from continuing operations(0.4) (6.2) 
Effect of currency exchange rate changes on cash and cash equivalents(5.6) 0.6  
Decrease in cash and cash equivalents (6.8) (46.3) 
Cash and cash equivalents, beginning of period325.0  326.1  
Cash and cash equivalents, end of period$318.2  $279.8  
Supplemental disclosure of non-cash investing activities:
Property and equipment purchases unpaid and included in accounts payable$5.3  $12.3  


The Notes to Consolidated Financial Statements are an integral part of these statements.
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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 and supplies in-transit monitoring systems for concrete producers. Specialty Building Materials ("SBM") manufactures and markets sheet and liquid membrane systems that protect structures from water, air and vapor penetration, fireproofing and other products designed to protect the building envelope.
On July 3, 2017 (the "Closing Date"), GCP completed the sale of its Darex Packaging Technologies ("Darex") business to Henkel AG & Co. KGaA (“Henkel”) for $1.06 billion in cash. As discussed further below under "Discontinued Operations," the results of operations for Darex have been excluded from 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. All intercompany balances and transactions have been eliminated in consolidation. The financial statements reflect the financial position, results of operations and cash flows of GCP in accordance with generally accepted accounting principles in the United States ("GAAP") and with the instructions to Form 10-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, 2019 (the "2019 Annual Report on Form 10-K"). The Consolidated Balance Sheet as of December 31, 2019 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 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. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results of operations for the year ending December 31, 2020.
Discontinued Operations 
On July 3, 2017, the Company completed the sale of Darex to Henkel. The agreement with Henkel governing the Disposition (the “Amended Purchase Agreement”) provides for a series of delayed closings in certain non-U.S. jurisdictions. 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 December 31, 2019, as discussed further in Note 19, "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 unaudited Consolidated Statements of Cash Flows for all periods presented.
Unless otherwise noted, the information throughout the Notes to the accompanying unaudited Consolidated Financial Statements pertains only to the continuing operations of GCP.
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Notes to Consolidated Financial Statements (unaudited) - Continued
        Use of Estimates    
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. The Company assesses the estimates on an ongoing basis and records changes in estimates in the period they occur and become known. GCP's accounting measurements that are most affected by management's estimates of future events are disclosed in its 2019 Annual Report on Form 10-K. Actual results could differ from those estimates.
On March 11, 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus ("COVID-19") a global pandemic and recommended a number of restrictive measures to contain the spread. Many governments in the regions where GCP generates the majority of its revenue have adopted such policies, including social distancing and restrictions on construction activities deemed non-essential. GCP has been closely monitoring the impact of COVID-19 and working to manage the effects on its business globally. While certain restrictive measures in some of the regions where GCP operates have been lifted by government authorities during the three months ended June 30, 2020, it is difficult to estimate with reasonable certainty at this time the duration and extent of the impact of the pandemic on the global economy, the Company's business, financial position and results of operations. GCP has made certain estimates within its financial statements related to the impact of COVID-19, including allowances for credit losses related to the estimated amount of receivables not expected to be collected and excess, obsolete or damaged inventories, future expected cash flows related to impairment assessments of goodwill and long-lived assets, incentive compensation accruals, contingent liabilities, and sales allowances related to volume rebates recognized based on anticipated sales volume. There may be changes to the Company's estimates in future periods due to uncertainty associated with the impact of COVID-19, the extent of which will depend largely on future developments, including new information which may emerge concerning the severity, duration and resurgence of the pandemic, additional and unanticipated actions by government authorities to further contain the spread of COVID-19 or address its impact, as well as the timing of development of an antiviral vaccine or a medical treatment to prevent further spread of the virus and facilitate recovery, among other things.

Income Tax    
As a global enterprise, GCP is subject to a complex array of tax regulations and needs to make assessments of applicable tax law and judgments in estimating its ultimate income tax liability. Income tax expense and income tax balances represent GCP’s federal, state and foreign income taxes as an independent company. GCP files a U.S. consolidated income tax return, along with foreign and state corporate income tax filings, as required. Please refer to Note 8, "Income Taxes," for details regarding estimates used in accounting for income tax matters, including unrecognized tax benefits.
Foreign Currency Transactions and Translation
Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Foreign currency exchange gains (losses) generated from the settlement and remeasurement of these transactions are recognized in earnings and presented within “Other income, net” in the Company’s accompanying unaudited Consolidated Statements of Operations. Net foreign currency transaction and remeasurement gains (losses) reflected in “Other income, net” were $0.6 million and $0.8 million for the three and six months ended June 30, 2020. Foreign currency transaction and remeasurement gains (losses) were immaterial for the three and six months ended June 30, 2019.
Reclassifications    
Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications have not materially affected previously reported amounts.
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Notes to Consolidated Financial Statements (unaudited) - Continued
Recently Adopted Accounting Standards
Credit Losses
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which applies to most financial assets measured at amortized cost, as well as certain other instruments, including trade receivables, other receivables and other financial assets. Topic 326 replaces the incurred credit loss methodology with the expected credit loss model which requires recognition of an allowance against the assets’ amortized cost to reflect the amount expected to be collected. Expected credit losses are estimated over the contractual life of financial assets and recognized at inception. GCP has adopted Topic 326 effective January 1, 2020 using the modified retrospective approach. The adoption did not have a material impact on its financial position as of June 30, 2020 and results of operations and cash flows for the three and six months ended June 30, 2020. GCP did not recognize any cumulative effect adjustments to the retained earnings as of January 1, 2020 as a result of the adoption. The adoption of Topic 326 did not result in any significant modifications to the Company's policies related to recognizing allowance for trade receivables not expected to be collected which are disclosed in Note 1, "Basis of Presentation and Summary of Significant Accounting and Financial Reporting Policies," to the Company’s Consolidated Financial Statements included in the 2019 Annual Report on Form 10-K. Please refer to Note 3, "Accounts Receivable, Allowance for Credit Losses" for further information on the Company's policies and methodologies resulting from the adoption.

Goodwill
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). The amendments in this update eliminate the requirement to calculate the implied fair value of goodwill (Step 2) when measuring a goodwill impairment loss which is based on the excess of a reporting unit’s carrying amount over its fair value. The standard is effective for the Company for its annual or any interim goodwill impairment tests to be performed beginning on or after January 1, 2020. GCP adopted the standard effective January 1, 2020. The adoption did not have a material impact on its financial position, results of operations and cash flows upon adoption.
        Other
        During the three and six months ended June 30, 2020, 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, 2019. 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 2019 Annual Report on Form 10-K.
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Notes to Consolidated Financial Statements (unaudited) - Continued
2. Revenue from Lessor Arrangements and Contracts with Customers
        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. For such arrangements, the transfer of control takes place at a point in time when products are shipped to the customer.
        Short-term arrangements within its SCC operating segment involve selling concrete admixtures and providing dispensers to customers. Such arrangements contain a lease element due to the customer's right to control the use of dispensers over a period of time in exchange for consideration. Dispenser leases have a non-cancelable lease term of thirty days or less. The Company classifies leases as operating and recognizes revenue on a straight line basis over the lease term. Revenue for concrete admixtures is recognized at the point of time when control is transferred to the customer.
The Company generates revenue from long-term arrangements within its SCC operating segment, which generally consist of VERIFI® and Ductilcrete sales arrangements.
VERIFI® sales arrangements involve installing equipment on the customers’ trucks and at their plants, as well as performing slump management and truck location tracking services. The installed equipment represents a lease since the customer has the right to control its use over a period of time in exchange for consideration. Slump management and truck location tracking services represent a separate performance obligation for which revenue is recognized over the performance period. The Company classifies leases as operating and recognizes revenue on a straight line basis over the lease term. The transaction price in VERIFI® sales arrangements consists of fixed installation fees and other fixed payments included in the contract consideration, as well as slump management fees which are dependent on the quantity of material poured and represent variable consideration. The Company allocates the contract consideration and the variable consideration between the lease element and the services based on their relative stand-alone selling prices. Revenue related to variable consideration is recorded at the time the services are performed and constrained by the amount for which a significant revenue reversal is not probable to occur. Revenue generated from VERIFI® sales arrangements represented less than 10% of the Company's consolidated revenue during the three and six months ended June 30, 2020 and 2019.
The following table summarizes the revenue recognized for these sales arrangements for the three and six months ended June 30, 2020 and 2019 and distinguishes between the lease and the service revenue:
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Notes to Consolidated Financial Statements (unaudited) - Continued
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