C ONSOLIDATED F INANCIAL S TATEMENTS

Transcription

1 C ONSOLIDATED F INANCIAL S TATEMENTS CRH America, Inc. and Subsidiaries (Ultimately, Wholly Owned Subsidiaries of CRH plc, Years Ended December 31, 2016 and 2015 With Report of Independent Auditors

2 Consolidated Financial Statements Years Ended December 31, 2016 and 2015 Contents Report of Independent Auditors...1 Consolidated Financial Statements Consolidated Balance Sheets...3 Consolidated Statements of Operations...5 Consolidated Statements of Stockholder s Equity...6 Consolidated Statements of Cash Flows...7 Notes to Consolidated Financial Statements

3 Ernst & Young LLP Suite Ivan Allen Jr. Boulevard Atlanta, GA Tel: Fax: ey.com The Board of Directors and Shareholder CRH America, Inc. and Subsidiaries Report of Independent Auditors We have audited the accompanying consolidated financial statements of CRH America, Inc. and Subsidiaries (ultimately wholly-owned subsidiary of CRH plc, a Republic of Ireland corporation), which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholder s equity and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion A member firm of Ernst & Young Global Limited

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CRH America, Inc. and Subsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. April 25, 2017 EY A member firm of Ernst & Young Global Limited

5 Consolidated Balance Sheets Assets Current assets: Cash and cash equivalents 2,479 December $ $ 3,248 Accounts receivable, less allowance for doubtful accounts of $3,396 and $6,037, respectively 135, ,344 Inventories 106, ,117 Assets held for sale, net 3,985 4,358 Costs and estimated earnings in excess of billings 1,066 3,103 Interest rate swaps 10,047 Other current assets 16,705 30,250 Total current assets 266, ,467 Property, plant, and equipment, net 217, ,697 Due from Parent and affiliates, net 4,754,407 5,327,793 Interest rate swaps 13,930 31,908 Goodwill 134, ,720 Identifiable intangible assets, net 3,121 5,589 Total assets $ 5,389,732 $ 6,090,

6 Liabilities and stockholder s equity Current liabilities: Accounts payable 81,419 December (In Thousands, Except Share Data) $ $ 99,191 Accrued payroll 36,684 37,569 Accrued interest 46,829 57,075 Other accrued expenses 27,538 40,563 Billings in excess of costs and estimated earnings 9,426 6,186 Short-term borrowings 62 7,022 Current maturities of long-term debt 673,393 Total current liabilities 201, ,999 Long-term debt 3,073,553 3,084,630 Other liabilities 1,296 2,623 Stockholder s equity: Common stock, $0.01 par value: 10,000 shares authorized; 2,500 shares issued and outstanding Paid-in capital 1,565,053 1,564,589 Non-controlling interest 6,316 Retained earnings 547, ,017 Total stockholder s equity 2,112,925 2,081,922 Total liabilities and stockholder s equity $ 5,389,732 $ 6,090,174 See accompanying notes

7 Consolidated Statements of Operations Year Ended December Net sales $ 859,139 $ 931,403 Cost of sales 630, ,263 Gross profit 228, ,140 Selling, general, and administrative expenses 130, ,770 Operating income 98,359 65,370 Other income (expense): Interest income includes related-party transactions (Note 15) 301, ,840 Interest expense includes related-party transactions (Note 15) (280,213) (285,555) Premium on early redemption of bonds (Note 11) (58,499) Change in fair value of derivatives and fixed rate debt, net (19,824) (7,182) Other, net includes related-party transactions (Note 15) 3,240 3,122 5,092 (1,274) Income before provision for income taxes 103,451 64,096 Provision for income taxes 31,876 15,438 Net income 71,575 48,658 Non-controlling interests 13 Net income retained $ 71,575 $ 48,645 See accompanying notes

8 Consolidated Statements of Stockholder s Equity Non- Common Stock Paid-in Retained Controlling Shares Amount Capital Earnings Interest Total (In Thousands, Except Shares) Balance at January 1, ,500 $ $ 1,562,508 $ 462,372 $ $ 2,024,880 Employee stock compensation expense 2,081 2,081 Capital contribution 6,303 6,303 Net income 48, ,658 Balance at December 31, ,500 1,564, ,017 6,316 2,081,922 Employee stock compensation expense Transfer of interest to affiliate (34,720) (6,316) (41,036) Net income 71,575 71,575 Balance at December 31, ,500 $ $ 1,565,053 $ 547,872 $ $ 2,112,925 See accompanying notes

9 Consolidated Statements of Cash Flows Year Ended December Operating activities Net income $ 71,575 $ 48,645 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,253 26,297 Amortization of loan issuance costs and discounts 2,415 4,000 (Gain) loss on sale of property, plant, and equipment (506) 310 Gain on disposal of facilities (2,443) Employee stock compensation expense 464 2,081 Impairment of property, plant, and equipment 2,059 Amortization of adjustment to debt resulting from discontinued fair value hedges (10,475) (12,580) Change in fair value of derivatives and fixed rate debt, net 19,824 7,182 Changes in operating assets and liabilities, net of the effects of business acquisition: Accounts receivable, net (5,246) 1,529 Inventories (5,247) (10,058) Other assets 10,150 (5,640) Accounts payable, accrued expenses, and other liabilities (9,139) 16,441 Billings in excess of costs and estimated earnings and costs and estimated earnings in excess of billings on contracts in progress, net 6,217 (232) Net cash provided by operating activities 102,285 77,591 Investing activities Acquisition of businesses (7,520) (88) Purchases of property, plant, and equipment (33,112) (48,577) Proceeds from disposal of facilities 3,939 Proceeds from sales of property, plant, and equipment, net of disposal costs 1,045 8,777 Net cash used in investing activities (39,587) (35,949) Financing activities Proceeds from partial sale of subsidiary 6,750 Proceeds from short-term borrowings 5,775 Proceeds from long-term borrowings, net of issuance costs 1,734,297 Principal payments of short-term borrowings (6,960) Principal payments of long-term borrowings (668,209) (1,022,791) Premium on early redemption of bonds (58,499) Changes in due from Parent and affiliates, net 611,702 (733,812) Net cash used in financing activities (63,467) (68,280) Decrease in cash and cash equivalents (769) (26,638) Cash and cash equivalents at beginning of year 3,248 29,886 Cash and cash equivalents at end of year $ 2,479 $ 3,248 See accompanying notes

10 Notes to Consolidated Financial Statements December 31, Nature of Operations CRH America, Inc. (the Company) is a wholly owned subsidiary of Americas Products & Distribution, Inc., which is ultimately a wholly owned subsidiary of Oldcastle, Inc. (Oldcastle or Parent), a holding company whose ultimate parent is CRH plc, a Republic of Ireland corporation. Oldcastle and its subsidiaries (Group) are engaged in the production and supply of building materials to a wide and varied customer base within the United States. The Group is organized into three core product-based business groups: Building Products (primarily block, pavers, precast, fabricated glass, and lawn and garden products) Materials (primarily aggregates, ready-mixed concrete, and asphalt supply and paving) Distribution of roofing, siding, insulation, and interior products The Company consists of the operations of Building Products precast and certain treasury and financing activities of Oldcastle. The Company has extensive transactions and relationships with affiliates. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements which have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) comprise those of the Company, and its wholly owned subsidiary Oldcastle Precast, Inc. (Oldcastle Precast). For the year 2015, the consolidated financial statements consisted of the Company, its wholly owned subsidiaries CRH Finance America, Inc., and Oldcastle Precast, Inc. (Oldcastle Precast), and the latter s wholly owned subsidiary, Meadow Burke, LLC (MB), which wholly owns 62.5% of Composite Technologies Corporation (Thermomass); the remaining 37.5% non-controlled interest was owned by another CRH plc subsidiary. In August 2015, the Company sold the 37.5% interest of Thermomass for $6,750. All significant intercompany balances and transactions have been eliminated in consolidation

11 2. Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. In addition to accounting estimates related to uncertain tax provisions, we also make certain estimates for legal provisions and other contingencies. While we believe that these estimates and assumptions are reasonable under the circumstances, they are subject to uncertainties, some of which are beyond our control. Should any of these estimates and assumptions change or prove to have been incorrect, it could adversely affect our results of operations. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents were $2,479 and $3,248 at December 31, 2016 and 2015, respectively. Accounts Receivable and Allowances Accounts receivable consists of customer payments due but not received. Accounts receivable are recorded at their original amount less an estimated allowance for any doubtful accounts. An allowance is made when collection of the full amount is no longer considered probable. Financial Instruments The Company s financial instruments at December 31, 2016 and 2015, consist primarily of cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings, long-term debt, and interest rate swap agreements. Due to the short maturities of cash and cash equivalents, accounts receivable, accounts payable, and short-term borrowings, carrying amounts approximate the respective fair values. Accordingly, such financial instruments were valued based upon Level 1 measures within the valuation hierarchy. See Note 17 for disclosures regarding the fair value of the Company s financial assets and liabilities

12 2. Summary of Significant Accounting Policies (continued) Credit Risk Substantially all of the Company s accounts receivable are due from companies in, or related to, the construction industry in the United States. The Company performs periodic credit evaluations of its customers financial condition and generally does not require collateral. The Company does not believe significant credit risk exists at December 31, 2016 and 2015, related to accounts receivable. Receivables are generally due within 30 days, although extended terms may be granted. Financial instruments give rise to credit risk on amounts due from counterparties. Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty primarily depending on its credit rating and by regular review of these ratings. The Company transacts with counterparties that have high investment grade credit ratings. The maximum exposure arising in the event of default on the part of the counterparty is the carrying value of the relevant financial instrument. The Company places its temporary cash investments and investment grade short-term investments in high credit quality financial institutions, and limits the amount of credit exposure to any one entity. Inventories Inventories are stated at the lower of cost or market and are valued principally on the weighted average cost method. Elements of cost in inventories include raw materials, direct labor, and manufacturing overhead. To properly provide for potential exposure due to slow-moving, excess, obsolete or unusable inventory, inventory values are reduced based on forecasted usage, orders, and inventory aging. These factors are impacted by market conditions, and changes in strategic direction, and require estimates and management judgment that may include elements that are uncertain. Property, Plant, and Equipment Property, plant, and equipment are stated at cost. The depreciation of property, plant, and equipment is provided using the straight-line method over the estimated useful lives of the respective assets, which range from three to forty years

13 2. Summary of Significant Accounting Policies (continued) Assets classified as held for sale are stated at the lower of carrying amount or fair value less costs to sell. Depreciation ceases once an asset is classified as held for sale. Goodwill and Other Intangible Assets Goodwill represents the amount by which the total purchase price the Company has paid to acquire businesses exceeds the estimated fair value of the net identifiable assets acquired. Goodwill and intangible assets with indefinite lives are evaluated annually for impairment or whenever events or changes in circumstances indicate that impairment may have occurred. The Company has selected December 31 as the date for performing the annual impairment test. Oldcastle Precast is the only reporting unit with goodwill. As such, the Company has developed and completed an impairment test on the Oldcastle Precast reporting unit. When evaluating goodwill for impairment, the Company first compares the book value of the net assets of Oldcastle Precast to the fair value. If the fair value is determined to be less than book value, a second step is performed to compute the amount of impairment. The Company estimates fair value using a discounted cash flow methodology. At December 31, 2016 and 2015, no impairment adjustments were required. Intangible assets that have a finite life, which consist primarily of noncompete agreements, customer relationships, and trade names, are amortized over their useful lives (from one to ten years) using the straight-line method. Revenue Recognition The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the Company s price to the customer is fixed and determinable, and collectability is reasonably assured. Certain contracts, however, allow for building of stored materials and the Company records these transactions as receivables with an offset to deferred income

14 2. Summary of Significant Accounting Policies (continued) For the years ended December 31, 2016 and 2015, respectively, approximately 7% and 8% of Company revenues were derived under fixed-price contracts from operations that manufacture and erect precast/prestressed components used in construction. For such contracts, the Company recognizes revenue on a percent complete basis of cost incurred to final projected cost. Contract costs are usually recognized as an expense in the accompanying Consolidated Statements of Operations in the accounting periods in which the work to which they relate is performed. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, and repairs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated. Advertising Costs The Company expenses advertising and promotion costs as incurred. Advertising and promotional costs were approximately $1,933 and $2,490 during the years ended December 31, 2016 and 2015, respectively. Shipping and Handling Costs Shipping and handling costs are included as a component of cost of sales

15 2. Summary of Significant Accounting Policies (continued) Interest Rate Swaps The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates relating to the issuance of its debt and to manage the Company s overall level of fixed and variable rate debt to a targeted range. The Company recognizes interest rate swaps in the accompanying Consolidated Balance Sheets at fair value. Changes in fair value for interest rate swaps that are not designated in qualifying hedge accounting relationships are recorded in the Consolidated Statements of Operations. Changes in fair value for interest rate swaps that are designated as hedges of the fair value of fixed rate debt are offset against the related debt. Stock Compensation Certain of the Company s employees participate in stock compensation plans of the ultimate parent company, CRH plc. Stock compensation awards are measured based on fair value at each reporting date. For the years ended December 31, 2016 and 2015, the Company recorded stock compensation expense with a corresponding adjustment to additional paid-in capital of $464 and $2,081, respectively, under the CRH plc plans. Income Taxes Taxable income of the Company is included in the consolidated U.S. federal income tax return of Parent. Parent has allocated income taxes to the Company on a basis that considers the permanent and temporary differences related to the Company s operations. The aggregate amounts charged to the Company for current income tax amounts and deferred income tax amounts related to temporary differences applicable to the Company are included in Due from Parent and affiliates, net in the accompanying consolidated balance sheets. Due from Parent and affiliates, net includes $31,876 and $15,438 related to income tax expense for the years ended December 31, 2016 and 2015, respectively

16 2. Summary of Significant Accounting Policies (continued) The Company s income tax expense (benefit) consists of the following: Year Ended December Current $ 29,817 $ 23,061 Deferred 2,059 (7,623) Total income tax provision $ 31,876 $ 15,438 The Company s effective tax rate differs from the statutory rate principally due to state income taxes, changes in uncertain tax positions, the US domestic production deduction, and certain expenses not recognized for income tax purposes. The following table reconciles the statutory tax rate to the effective tax rate (current and deferred) of the Company: Percentage of Income Before Income Taxes Year Ended December Statutory income tax rate 35.0% 35.0% State income tax rate, net of federal income tax effect Uncertain tax positions (4.7) (2.3) U.S. domestic production deduction (2.9) Foreign currency transactions (9.2) Other items (comprising items not chargeable to tax/expenses not deductible for tax) 0.7 (1.1) Total effective tax rate 30.8% 24.1% Deferred income taxes are provided for all significant temporary differences between income reported for financial reporting and income reported for tax purposes. Deferred income tax assets arise primarily from the recording of accruals which are not currently deductible for tax purposes and the Fair Value Adjustments on debt and interest rate swaps

17 2. Summary of Significant Accounting Policies (continued) Deferred income tax liabilities arise primarily from the effect of the use, for income tax purposes, of accelerated methods of depreciation and the Company s interest rate swap activities. Deferred tax assets and liabilities attributable to the Company are included as a component of Due from Parent and affiliates, net as of December 31, 2016 and 2015, and consist of the following: December Accruals and other reserves $ 15,691 $ 17,798 Revaluation differences related to debt 28,473 35,009 Total deferred tax assets $ 44,164 $ 52,807 December Property, plant, and equipment $ (11,259) $ (12,448) Goodwill and intangible assets (17,188) (31,001) Revaluation differences related to interest rate swaps (27,850) (39,963) Total deferred tax liabilities $ (56,297) $ (83,412) The Company recognizes the benefit of uncertain tax positions when the position taken or expected to be taken in a tax return is more likely than not of being sustained upon examination by tax authorities. As of December 31, 2016 and 2015, the Company s liabilities for unrecognized tax benefits of $836 and $5,649, respectively, were recorded as a component of Due from Parent and affiliates, net. The Company is open to audit under the statute of limitations by the Internal Revenue Service for the tax year ended December 31, 2010 through The Company recognizes interest and penalties accrued related to unrecognized tax benefits as components of the income tax provision. The Company does not have any interest and penalties accrued as of December 31, 2016 and 2015, respectively, related to unrecognized tax benefits

18 2. Summary of Significant Accounting Policies (continued) Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of the assets may not be fully recoverable. When the carrying value of the asset exceeds the value of its expected undiscounted future cash flows, an impairment charge is recognized equal to the difference between the asset s carrying value and its fair value. During 2015, the Company identified certain assets which would not be utilized in its ongoing operations. As a result, the Company recorded an impairment charge of $2,059 for the year ended December 31, 2015, to reflect the loss in value of these assets, which is included in selling, general, and administrative expenses in the Company s Consolidated Statements of Operations. Comprehensive Income For the years ended December 31, 2016 and 2015, there were no material items that gave rise to other comprehensive income and net income equaled comprehensive income. Recently Adopted Accounting Standard In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require debt issuance costs to be presented as a deduction from the corresponding debt liability. The new US GAAP guidance simplifies financial reports by eliminating the different presentation requirements for debt issuance costs and debt discounts or premiums. It also addresses the long standing conflict with the conceptual framework and improves consistency with IFRS. In 2016, the Company adopted this change in accounting standard, which has also been applied retrospectively to prior year. The effect of the change on the prior year is the reduction of other assets by $14,070 and a corresponding decrease in debt

19 2. Summary of Significant Accounting Policies (continued) Recently Issued Accounting Standards Not Adopted In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Revenue from Contracts with Customers. The amendments in this ASU supersede the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To achieve that core principle, an entity should apply the following steps: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. In August 2015, the FASB issued ASU No , Revenue from Contracts with Customers. The amendments in this ASU defer the effective date of ASU No Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU No to annual reporting periods beginning after December 15, Earlier application is permitted only as of annual reporting periods beginning after December 15, All other entities should apply the guidance in ASU No to annual reporting periods beginning after December 15, The Company is currently evaluating the effect that the updated standard will have on the Company s financial statements and related disclosures. In February 2016, the FASB issued ASU No , Leases. The amendments in this ASU require the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases and affect any entity that enters into a lease, with some specified scope exemptions. For non-public entities, the amendments in this ASU are effective for fiscal years beginning after December 15, Early application of the amendments in this ASU is permitted for all entities. The Company is currently evaluating the effect that the updated standard will have on the Company s financial statements and related disclosures

20 3. Inventories Inventories consisted of the following: December Raw materials $ 17,362 $ 24,464 Finished goods 88,782 99,653 $ 106,144 $ 124, Assets Held for Sale The Company is committed to selling certain property, plant, and equipment that have underperformed. Based on the Company s knowledge of prospective buyers and offers tendered to date, the sale of these assets is probable and anticipated to occur within one year; as such, these assets have been classified as held for sale. December Land and improvements $ 3,207 $ 3,695 Buildings and improvements 2,846 4,150 Machinery and equipment ,407 8,280 Less accumulated depreciation (2,422) (3,922) $ 3,985 $ 4,

21 5. Property, Plant, and Equipment Property, plant, and equipment consisted of the following: December Land, buildings, and improvements $ 215,425 $ 216,325 Machinery and equipment 306, ,554 Construction in progress 13,626 13, , ,114 Less accumulated depreciation (317,794) (339,417) $ 217,640 $ 225,697 Depreciation expense for the years ended December 31, 2016 and 2015, was $21,549 and $24,823, respectively. 6. Acquisitions During 2016, the Company acquired the following businesses for total consideration of $7,520: Business Acquisition Date Colorado Precast Concrete, Inc. March 7 Cell Blocks, Inc. December 1 The Company obtained control of Colorado Precast Concrete, Inc. and Cell Block, Inc. businesses by entering into asset purchase agreements. The primary business function of these businesses is the manufacture of precast concrete products. These acquisitions were accounted for by the acquisition method of accounting and include no non-cash consideration. The results of operations are included in the accompanying financial statements since the respective acquisition dates

22 6. Acquisitions (continued) The principal factor contributing to the recognition of goodwill in the Colorado Precast and Cell Block acquisitions is the potential realization of cost savings and synergies with existing companies. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition: Accounts receivable $ 721 Inventories 1,045 Accounts payable (335) Property, plant, and equipment 4,469 Goodwill 1,000 Intangible assets 936 Other liabilities (316) Fair value of net assets acquired/purchase consideration $ 7,520 For the year ended December 31, 2016, the Company acquired intangible assets subject to amortization valued at $936 through the Colorado Precast and Cell Blocks acquisitions, which consist of the following: Gross Weighted- Average Amortization Period Non-contractual customer relationships $ Trade names 60 2 Non-compete Total intangible assets $

23 7. Disposal During 2015, the Company sold certain assets and liabilities related to two facilities to third parties for total consideration of $8,807. The Company incurred disposal costs of $30 in connection with the sale, which resulted in net proceeds from the sale of $8,777. The following table summarizes the two facilities carrying values of the assets and liabilities sold in 2015 and proceeds received. A net gain of $2,443 was recognized on the transactions, which is recorded in selling, general and administrative expenses in the accompanying consolidated statement of operations for the year ended December 31, Inventories $ 3,216 Property, plant, and equipment 125 Goodwill and other intangibles 3,115 Other payables (122) Carrying value of net assets sold 6,334 Net cash proceeds received 8,807 Disposal costs (30) Gain recognized on sale $ 2, Goodwill and Other Intangible Assets As of December 31, 2016, total intangible assets subject to amortization consisted of the following: Gross Accumulated Amortization Net Balance Non-compete agreements $ 2,836 $ 2,795 $ 41 Non-contractual customer relationships 8,652 7, Trade names 7,487 5,848 1,639 Backlog Total intangible assets $ 19,618 $ 16,497 $ 3,

24 8. Goodwill and Other Intangible Assets (continued) As of December 31, 2015, total intangible assets subject to amortization consisted of the following: Gross Accumulated Amortization Net Balance Non-compete agreements $ 2,898 $ 2,898 $ Non-contractual customer relationships 19,757 16,783 2,974 Trade names 10,787 8,172 2,615 Backlog Total intangible assets $ 33,770 $ 28,181 $ 5,589 Amortization expense for intangible assets for the years ended December 31, 2016 and 2015, was $704 and $1,474, respectively. The following represents the estimated amortization expense for intangible assets for each of the years indicated: 2017 $ Thereafter 213 The changes in the carrying value of goodwill for the years ended December 31, 2016 and December 31, 2015, are as follows: Balance as at the beginning of the year $ 170,720 $ 173,835 Add acquired on business combinations during the year 1,000 Less transferred to affiliate during the year (Note 15) (37,106) (3,115) Balance as at the end of the year $ 134,614 $ 170,

25 9. Pension and Profit Sharing Plans The Company has various defined contribution retirement plans. Total employer contributions related to the above plans were $8,662 and $7,085 for the years ended December 31, 2016 and 2015, respectively. The Company has no liability to these plans beyond the annual discretionary contributions. 10. Multi-employer Plans The Company participates in a number of multi-employer plans. Total employer expense related to those plans were $1,204 and $2,351 in 2016 and 2015, respectively. The Company withdrew from plans resulting in a withdrawal liability of $1,491 in

26 11. Long-Term Debt and Short-Term Borrowings As of December 31, 2016 and 2015, long-term debt consists of the following: December Senior note, guaranteed by CRH plc., due 2016; interest payable semiannually on May 30 and November 30 at an annual rate of 7.96% $ $ 36,000 Global bond, guaranteed by CRH plc, due 2016; interest payable semiannually on January 15 and July 15 at an annual rate of 4.13% 113,740 Global bond, guaranteed by CRH plc, due 2016; interest payable semiannually on March 30 and September 30 at an annual rate of 6.00% 523,653 Global bond, guaranteed by CRH plc, due 2018; interest payable semiannually on January 15 and July 15 at an annual rate of 8.13% 649, ,844 Global bond, guaranteed by CRH plc, due 2021; interest payable semiannually on January 15 and July 15 at an annual rate of 5.75% 398, ,545 Global bond, guaranteed by CRH plc, due 2025; interest payable semiannually on May 18 and November 18 at an annual rate of 3.88% 1,243,465 1,250,919 Global bond, guaranteed by CRH plc, due 2033; interest payable semiannually on April 15 and October 15 at an annual rate of 6.40% 379, ,126 Global bond, guaranteed by CRH plc, due 2045; interest payable semiannually on May 18 and November 18 at an annual rate of 5.13% 489, ,641 3,160,998 3,845,468 Included in due from Parent and affiliates, net (87,445) (87,445) Current maturities of long-term debt (673,393) Long-term debt $ 3,073,553 $ 3,084,

27 11. Long-Term Debt and Short-Term Borrowings (continued) The carrying value of long-term debt is adjusted for the effects of discounting on the original issue, the original issuance costs and interest rate swap agreements accounted for as fair value hedges, including those de-designated in prior years. The total adjustments of $61,000 and $77,260 at December 31, 2016 and 2015, respectively, are reflected as a net increase in the carrying value of the related debt. The total balance of $87,445 of global bonds held by CRH Belgard Limited as of December 31, 2016 and 2015, is classified in Due from Parent and affiliates, net in the accompanying Consolidated Balance Sheets. All senior notes and global bonds contain certain restrictive covenants including, maintenance of insurance on the Company s assets, limitations on disposal of fixed assets, prompt payments of taxes and assessments, limitations on sales and leaseback transactions, and limitations on the merger and/or sale of the Company. In addition, restrictive covenants are also placed on CRH plc, the guarantor and ultimate parent of the Company, including, maintenance of minimum leverage, and net worth ratios. In May 2015, the Company issued $1,750,000 of Global Bonds at a discount in two series comprised of $1,250,000 in 10 year notes paying a fixed coupon of 3.875% and $500,000 in 30 year notes paying a fixed coupon of 5.125%. A portion of the proceeds were used to repay outstanding bonds purchased via a bond tender. Of the $1,600,000 Global Bonds which were due in 2016, $967,791 in nominal value were purchased. The total cost of the bond retirement, inclusive of premiums paid of $58,499 and fees, was $42,537 and is recorded in the Consolidated Statement of Operations. Principal maturities of long-term debt are as follows at December 31, 2016: 2017 $ , ,834 Thereafter 2,112,866 $ 3,160,

28 11. Long-Term Debt and Short-Term Borrowings (continued) At December 31, 2016 and 2015, the par value of the Company s long-term debt, excluding adjustments to the carrying value for the effects of discounting on the original issue and interest rate swap agreements accounted for as fair value hedges, was $3,100,000 and $3,768,209, respectively, while the fair value of such debt approximated $3,295,546 and $3,991,762, respectively, based primarily upon Level 2 measures within the valuation hierarchy. Short-term borrowings primarily consist of bank overdrafts. The Company had unsecured lines of credit with three banks totaling $235,000 at December 31, 2016, and three banks totaling $235,000 at December 31, The various lines of credit have variable interest rates based on the prevailing interest rate at the time of borrowing as well as the length of time funds are borrowed. There were no outstanding balances under these lines of credit at December 31, 2016 and 2015; however, the Company had $95,203 and $120,625 of outstanding letters of credit under these agreements at December 31, 2016 and 2015, respectively. These letters of credit were issued on behalf of our operating companies. Additionally, the Company has a letter of credit facility of $40,000 of which $27,000 is outstanding at each year end. During 2016 and 2015, the Company and its subsidiaries paid interest on external debt, net of interest received on interest rate swaps, of $152,794 and $166,217, respectively. 12. Operating Leases The Company is obligated under various non-cancelable operating leases for equipment, automobiles, and office facilities with varying terms of five to ten years

29 12. Operating Leases (continued) The following is a schedule of the future minimum lease payments for the Company s operating leases with initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2016: 2017 $ 3, , , , ,587 Thereafter 11,332 $ 25,896 Rental expense for 2016 and 2015 was $5,755 and $10,482, respectively. 13. Contingencies and Litigation The Company is involved in a number of lawsuits that arose in the normal course of its business. In the opinion of management, based upon discussions with legal counsel, liabilities, if any, arising from these proceedings have not had, and are not expected to have, a material adverse effect on the Company s consolidated financial statements

30 14. Costs and Estimated Earnings on Uncompleted Contracts The details of the Company s costs and billings related to construction contracts, as well as a reconciliation to the line items in which such amounts are recorded in the accompanying consolidated balance sheets, are as follow: December Costs incurred on uncompleted contracts $ 91,455 $ 159,318 Estimated earnings 20,646 25,096 Revenue job to date on uncompleted contracts 112, ,414 Less: billings job to date 120, ,497 Net billings in excess of costs and estimated earnings $ (8,360) $ (3,083) Costs and estimated earnings in excess of billings $ 1,066 $ 3,103 Billings in excess of costs and estimated earnings (9,426) (6,186) $ (8,360) $ (3,083) For the years ended December 31, 2016 and 2015, accounts receivable balances include amounts billed but not paid by customers under retainage provisions in construction contracts of $5,152 and $10,650, respectively. 15. Related-Party Transactions The Company participates in a centralized cash management system with Oldcastle whereby excess cash is invested to maximize the return to system participants. The Company also performs certain treasury and finance functions on behalf of the Group

31 15. Related-Party Transactions (continued) The amounts due from Parent and affiliates included in the accompanying Consolidated Balance Sheets of $4,754,407 and $5,327,793 at December 31, 2016 and 2015, respectively, represent loans, income tax accounts, and related accrued interest due from Parent and affiliates. With the exception of the notes with CRH North America Luxembourg SARL, Oldcastle BuildingEnvelope Canada, Inc., and Oldcastle Building Products Canada, Inc., and bonds held by CRH Belgard Limited, these amounts are due on demand; however, it is the intention of management of Parent and CRH plc not to pay or call the amounts due or receivable within the next twelve months. At December 31, 2016 and 2015, the Company s outstanding balances (noted above) with Parent and affiliates included the following entities: Belgard Finance Company, Inc. CRH North America Luxembourg SARL CRH Luxembourg Finance Canada, Ltd. CRH Finance America, Inc. CRH America Finance, Inc. CRH Belgard Limited Oldcastle Investments Company LLC Oldcastle, Inc. Oldcastle Building Products, Inc. Oldcastle Building Products Canada, Inc. Oldcastle BuildingEnvelope Canada, Inc. Oldcastle Distribution, Inc. Oldcastle Finance, Inc. Oldcastle Holdings, Inc. Oldcastle BuildingEnvelope, Inc. Oldcastle Materials, Inc. and Subsidiaries The amounts due from Parent and affiliates include both a series of long-term notes payable to and long-term notes receivables from a wide array of the related parties noted above. At December 31, 2016, the outstanding long-term notes payable to Parent and affiliates ranged from $87,445 to $500,000, with maturity dates ranging from August 23, 2022 to October 15, 2033, and interest

32 15. Related-Party Transactions (continued) rates ranging from 5.00% to 6.40%. At December 31, 2016, the outstanding long-term notes receivable from Parent and affiliates ranged from $23,300 to $960,286, with maturity dates ranging from December 15, 2018 to December 31, 2023, and interest rates ranging from 0.74% of 5.5%. These balances are included in Due from Parent and affiliates, net in the consolidated balance sheets. At December 31, 2015, the outstanding long-term notes payable to Parent and affiliates ranged from $34,953 to $500,000, with maturity dates ranging from September 13, 2019 to October 15, 2033, and interest rates ranging from 5.00% to 6.40%. At December 31, 2015, the outstanding long-term notes receivable from Parent and affiliates ranged from $140,000 to $865,809, with maturity dates ranging from December 15, 2018 to August 23, 2022, and interest rates ranging from 0.56% of 5.00%. These balances are included in Due from Parent and affiliates, net in the consolidated balance sheets. For the years ended December 31, 2016 and 2015, the Company had the following significant transactions with the Parent and affiliates: The Company pays interest expense on amounts due and receives interest income on amounts owed to them from the Parent and affiliates. During 2016 and 2015, the Company and its subsidiaries paid (received) interest, net of $44,025 and ($10,426) respectively, on loans to the Parent and affiliates. Interest income, net presented in the accompanying Consolidated Statements of Operations includes interest earned on amounts due from the Parent and affiliates of $196,888 and $255,858 in 2016 and 2015, respectively. The interest income reimburses the Company for a portion of external interest expense incurred by the Company. The amount is determined at management s discretion. Interest expense presented in the accompanying Consolidated Statements of Operations includes interest incurred on amounts due to the Parent and affiliates of $39,087 and $45,592 in 2016 and 2015, respectively

33 15. Related-Party Transactions (continued) The Company participates in insurance plans administered by the Parent under which it is fully insured for general liability and worker compensation claims and pays an annual premium. Premiums paid to Parent for insurance in 2016 and 2015, were $8,394 and $9,477, respectively. The Company also participates in a health insurance plan administered by the Parent under which the Company is charged for actual claims incurred and records an accrual for estimated incurred but unreported claims. Claims expense under this health insurance plan in 2016 and 2015, was $24,803 and $27,129, respectively. Guarantee fees totaling $3,302 and $3,461 in 2016 and 2015, respectively, are included in other, net in the accompanying Consolidated Statements of Operations and reflect the net amount of guarantee fees charged by CRH plc and the amount charged to affiliated companies. Included in selling, general, and administrative expenses are management fees charged by CRH plc of $4,584 and $4,037 in 2016 and 2015, respectively. In 2015, CRH Finance America Inc., a wholly owned subsidiary, was transferred to another CRH plc subsidiary during the year. This transaction had an immaterial effect on the consolidated financial results of the Company. Effective January 1, 2016, all the membership interests in Oldcastle Light Building Products, Inc. were transferred at historical cost to Oldcastle Building Products, Inc., which is ultimately wholly owned by CRH plc. Net assets transferred totaled $41, Financial Instruments The Company accounts for derivative instruments in accordance with ASC 815, Derivatives and Hedging, which requires the recognition of all derivative instruments in the accompanying Consolidated Balance Sheets at fair value. The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates relating to the issuance of long-term debt and to manage the Company s overall level of fixed and variable interest rate debt to a targeted range

34 16. Financial Instruments (continued) The following table summarizes the types of derivative financial instruments utilized by the Company and the related fair values, which are recorded in the interest rate swap line items in the accompanying Consolidated Balance Sheets: Fair Value of Derivative Financial Instruments Assets Type of Derivative 2016 Financial Instrument Fair Value 2015 Fair Value Derivatives designated as hedging instruments Interest rate swaps $ 96 $ 8,382 Derivatives not designated as hedging instruments Interest rate swaps 13,834 33,573 Total $ 13,930 $ 41,955 The effect of derivative financial instruments in the accompanying Consolidated Statements of Operations for the years ended December 31, 2016 and 2015, include: Derivatives in Fair Value Hedging Relationships Interest rate swaps Location of Gain (Loss) Recognized in Income on Derivatives Amount of Gain (Loss) Recognized in Income on Derivatives Change in fair value of derivatives and fixed rate debt $ (8,286) $ 8,382 Hedged Items in Fair Value Hedge Relationships Fixed rate debt Derivatives Not Designated as Hedging Instruments Interest rate swaps Location of Gain (Loss) Recognized in Income on Related Hedged Item Amount of Gain (Loss) Recognized in Income on Related Hedged Items Change in fair value of derivatives and fixed rate debt $ 8,201 $ (7,935) Location of Loss Recognized in Income on Derivatives Amount of Loss Recognized in Income on Derivatives Change in fair value of derivatives and fixed rate debt $ (19,739) $ (24,665)

35 16. Financial Instruments (continued) Fair value adjustments made to the underlying bonds as a result of the bond redemption completed in May 2015, totaled approximately $16 million and are included in the Consolidated Statement of Operations. At December 31, 2016, the Company had six fixed-to-variable interest rate swap agreements outstanding with commercial banks having a total notional amount of $875,000 (2015: $875,000) that were designated as fair value hedges related to the Company s long-term debt. In addition, at December 31, 2016, the Company had one fixed-to-variable interest rate swap agreements outstanding with commercial banks having a total notional amount of $300,000 (2015: $850,000), that were not designated in hedge accounting relationships. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements; however, the Company does not anticipate nonperformance by the counterparties due to their high credit ratings. During 2016 and 2015, the fixed interest rate received exceeded the variable interest rate paid on all interest rate swap agreements, resulting in the Company receiving a weighted average interest rate, net of 2.76% and 3.48%, respectively. Weighted average variable rates are based on rates implied in the yield curve as of December 31, 2016 and 2015, which are primarily based upon London Interbank Offering Rate (LIBOR) indices. 17. Fair Value Measurements ASC 820, Fair Value Measurement, defines fair value as the exchange value of an asset or a liability in an orderly transaction between market participants and outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. The three broad fair value hierarchy levels are defined as follows: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 Consists of observable market data, other than that included in Level 1, which is either directly or indirectly observable