I NTERIM C ONSOLIDATED U NAUDITED F INANCIAL S TATEMENTS

Transcription

1 I NTERIM C ONSOLIDATED U NAUDITED F INANCIAL S TATEMENTS CRH America, Inc. and Subsidiaries (Ultimately, Wholly Owned Subsidiaries of CRH plc, Six Months Ended June 30, 2015

2 Condensed Consolidated Interim Financial Statements Six Months Ended June 30, 2015 Contents Interim Consolidated Unaudited Financial Statements Condensed Consolidated Balance Sheets...3 Condensed Statements of Operations...5 Condensed Statements of Stockholder s Equity...6 Condensed Statements of Cash Flows...7 Condensed Notes to Interim Consolidated Financial Statements...8

3 Condensed Consolidated Unaudited Balance Sheets Assets Current assets: Cash and cash equivalents 23,258 June 30 December Unaudited Audited $ $ 29,886 Accounts receivable, less allowance for doubtful accounts of $3,654 and $2,929, respectively 172, ,873 Inventories 130, ,246 Assets held for sale, net 4,593 8,063 Costs and estimated earnings in excess of billings 5,627 7,396 Other current assets 18,932 30,632 Total current assets 355, ,096 Property, plant, and equipment, net 212, ,465 Due from Parent and affiliates, net 5,228,011 4,535,361 Interest rate swaps 32,029 58,238 Goodwill 173, ,835 Identifiable intangible assets, net 6,301 7,064 Total assets $ 6,007,265 $ 5,330,059 3

4 Liabilities and stockholder s equity Current liabilities: Accounts payable 82,306 June 30 December Unaudited Audited (In Thousands, Except Share Data) $ $ 91,127 Accrued payroll 32,637 36,474 Accrued interest 64,934 64,599 Other accrued expenses 36,490 25,289 Billings in excess of costs and estimated earnings 11,865 10,711 Short-term borrowings 1,306 1,247 Current maturities of long-term debt 55,000 55,000 Total current liabilities 284, ,447 Long-term debt 3,702,995 3,017,574 Other liabilities 2,565 3,158 Stockholder s equity: Common stock, $0.01 par value: 10,000 shares authorized; 2,500 shares issued and outstanding Paid-in capital 1,562,508 1,562,508 Retained earnings 454, ,372 Total stockholder s equity 2,017,167 2,024,880 Total liabilities and stockholder s equity $ 6,007,265 $ 5,330,059 See accompanying notes. 4

5 Condensed Consolidated Unaudited Statements of Operations Half year ended 30 June Unaudited Net sales $ 433,793 $ 406,382 Cost of sales 332, ,918 Gross profit 101,697 85,464 Selling, general, and administrative expenses 75,077 67,828 Operating income 26,620 17,636 Other income (expense): Interest income, net 142, ,764 Interest expense (139,584) (118,749) Premium paid on redemption of debt (42,537) (39,279) 3,015 Income before provision for income taxes (12,659) 20,651 Provision for income taxes (4,946) 8,054 Net income $ (7,713) $ 12,597 See accompanying notes. 5

6 Consolidated Unaudited Statements of Stockholder s Equity Other Common Stock Paid-in Retained Comprehensive Shares Amount Capital Earnings Income Total (In Thousands, Except Shares) Balance at July 1, ,500 1,561, ,857 2,010,748 Employee stock compensation expense Net income 13,515 13,515 Balance at December 31, ,500 1,562, ,372 2,024,880 Employee stock compensation expense Net income (7,713) (7,713) Balance at June 30, ,500 $ $ 1,562,508 $ 454,659 $ $ 2,017,167 See accompanying notes. 6

7 Condensed Consolidated Unaudited Statements of Cash Flows Half year ended 30 June Unaudited Unaudited Operating activities Net income $ (7,713) $ 12,597 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,375 13,142 Loss on disposal of facilities 195 1,559 Changes in operating assets and liabilities, net of the effects of business acquisition: Accounts receivable, net (17,280) (23,328) Inventories (15,811) (16,308) Other assets 11,700 19,681 Accounts payable, accrued expenses, and other liabilities (2,276) 18,599 Billings in excess of costs and estimated earnings and costs and 3,205 (852) estimated earnings in excess of billings on contracts in progress, net Net cash provided by operating activities (14,605) 25,090 Investing activities Acquisition of businesses (19,528) Purchases of property, plant, and equipment (19,329) (10,827) Proceeds from sales of property, plant, and equipment 4,831 2,688 Net cash used in investing activities (14,498) (27,667) Financing activities Proceeds of long-term borrowings 1,750,000 Principal payments of long-term borrowings (967,791) Changes in due from Parent and affiliates, net (759,734) (207,437) Net cash used in financing activities 22,475 (207,437) Decrease in cash and cash equivalents (6,628) (210,014) Cash and cash equivalents at beginning of year 29, ,900 Cash and cash equivalents at end of year $ 23,258 $ 29,886 See accompanying notes. 7

8 Notes to the Condensed Consolidated Interim Financial Statements June 30, Nature of Operations CRH America, Inc. (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 concrete accessories businesses 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 unaudited financial statements comprise those of the Company, its wholly owned subsidiaries CRH Finance America, Inc., Oldcastle Precast, Inc. (Oldcastle Precast), and the latter s wholly owned subsidiary, Meadow Burke, LLC (MB), which wholly owns Composite Technologies Corporation (Thermomass), and have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). All significant intercompany balances and transactions have been eliminated in consolidation. The interim condensed consolidated financial statements do not include all information and disclosures required for full annual financial statements and should be read in conjunction with the 2014 Annual Report. The condensed financial statements have not been audited or subject to review by auditors. 8

9 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. Actual results could differ from those estimates. 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 $23,258 and $29,886 at 30 June 2015 and December 31, 2014, 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 June 30, 2015 and December 31, 2014, 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 15 for disclosures regarding the fair value of the Company s financial assets and liabilities. 9

10 2. Summary of Significant Accounting Policies (continued) Credit Risk Substantially all of the Company s accounts receivables 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 30 June 2015 and December 31, 2014 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. Property, Plant, and Equipment Property, plant, and equipment is 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 four to forty years. 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. 10

11 2. Summary of Significant Accounting Policies (continued) 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 impairment tests 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 June 30, 2015 and December 31, 2014, no impairment adjustments have been 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 products are shipped to its customers. Certain contracts, however, allow for billing of stored materials and the Company records these transactions as receivables with an offset to deferred income. For the 6 months ended June 30, 2015 and 2014, respectively, approximately 12% and 16% 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. 11

12 2. Summary of Significant Accounting Policies (continued) 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 $1,164 and $1,268 during the 6 months ended June 30, 2015 and 2014, respectively. Shipping and Handling Costs Shipping and handling costs are included as a component of cost of sales. Reclassifications Certain prior year balances have been reclassified to conform to the current year presentation. 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. 12

13 2. Summary of Significant Accounting Policies (continued) 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 6 months ended 30 June, 2015 and 2014, the Company recorded a stock compensation expense with a corresponding adjustment to paid-in capital of nil and $617, respectively, under the CRH plc plans. 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. Guarantees The Company has guarantees outstanding primarily for the benefit of affiliates to enter into lease agreements with third parties. Total maximum future payments under existing guarantees were approximately $854 and $1,098 as of June and December , respectively. Comprehensive Income The Company adopted the provisions of Accounting Standards Codification (ASC) 220, Comprehensive Income, effective January 1, For the 6 months ended June 2015 and 2014, there were no material items that gave rise to other comprehensive income and net income equaled comprehensive income. 13

14 3. Inventories Inventories consist of the following: June 30 December Raw materials $ 25,096 $ 23,443 Finished goods 105,389 93,803 $ 130,485 $ 117, 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 be completed within one year; as such, these assets have been classified as held for sale. June 30 December Land and improvements $ 3,695 $ 6,662 Buildings and improvements 4,150 6,884 Machinery and equipment 547 6,949 8,392 20,495 Less accumulated depreciation (3,799) (12,432) $ 4,593 $ 8,063 14

15 5. Property, Plant, and Equipment Property, plant, and equipment consist of the following: June 30 December Land, buildings, and improvements $ 206,800 $ 204,014 Machinery and equipment 321, ,644 Construction in progress 16,155 13, , ,160 Less accumulated depreciation (332,358) (319,695) $ 212,041 $ 207,465 Depreciation expense for the 6 months ended June 30, 2015 and 2014 was $12,613 and $12,303 respectively. 6. Acquisitions During 2015, the Company did not acquire any businesses. During 2014, the Company acquired the following businesses for total consideration of $35,182: Business Acquisition Date Kristar Enterprises, Inc January 6 MC Precast, Inc. May 16 Composite Technologies Corporation September 8 7. Disposal There were no significant disposals in 2015 or

16 8. Goodwill and Intangible Assets As of June 30, 2015, total intangible assets subject to amortization consisted of the following: Gross Accumulated Amortization Net Balance Non-compete agreements $ 2,898 $ 2,826 $ 72 Non-contractual customer relationships 19,757 16,398 3,359 Trade names 10,787 7,917 2,870 Backlog Total intangible assets $ 33,770 $ 27,469 $ 6,301 As of December 31, 2014, total intangible assets subject to amortization consisted of the following: Gross Accumulated Amortization Net Balance Non-compete agreements $ 2,898 $ 2,853 $ 45 Non-contractual customer relationships 19,757 15,905 3,852 Trade names 10,787 7,620 3,167 Backlog Total intangible assets $ 33,770 $ 26,706 $ 7,064 Amortization expense for intangible assets for the six months ended June 30, 2015 and 2014 was $762 and $839, respectively. The following represents the estimated amortization expense for intangible assets for each of the years indicated: Year ending June 30, 2016 $ 1,496 Year ending June 30, ,418 Year ending June 30, ,317 Year ending June 30, Year ending June 30, Thereafter

17 8. Goodwill and Other Intangible Assets (continued) The changes in the carrying value of goodwill for the six months ended June 30, 2015 and December 31, 2014 are as follows: Balance as at the beginning of the year $ 173,835 $ 157,456 Add: acquired on business combinations - 17,494 Less: disposals - (1,115) Balance as at the end of the period $ 173,835 $ 173, Defined Contribution Plans The Company has various defined contribution retirement plans. Total employer contributions related to the above plans were $3,780 and $3,244 for the six months ended June 30, 2015 and 2014, 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 contributions related to those plans were $1,772 and $442 for the six months ended June 30, 2015 and 2014, respectively. 17

18 11. Operating Leases The Company is obligated under various noncancelable operating leases for equipment, automobiles, and office facilities with varying terms of five to ten years. The following is a schedule of the future minimum lease payments for the Company s operating leases with initial or remaining noncancelable lease terms in excess of one year as of June 30, 2015: 2016 $ 5, , , , ,573 Thereafter 10,323 $ 27,744 Rental expense for the six months ending June 30, 2015 and 2014 was $4,932 and $5,388, respectively. 12. Contingencies and Litigation The Company is involved in a number of lawsuits that arise 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. 18

19 13. 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. The amounts due from Parent and affiliates included in the accompanying consolidated balance sheets of $5,228,011 and $4,535,361 at June 30, 2015 and December 31, 2014, respectively, represent loans, income tax accounts, and related accrued interest due from Parent and affiliates. 14. 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. 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 Financial Instrument 30 June 31 December Fair Value Fair Value Derivatives designated as hedging instruments Interest rate swaps $ 20,735 $ 23,150 Derivatives not designated as hedging instruments Interest rate swaps 11,294 35,088 Total $ 32,029 $ 58,238 19

20 15. 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 Observable inputs such as quoted prices in active markets; Level 2 Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The Company records assets and liabilities at fair value on a recurring and nonrecurring basis as required by U.S. GAAP. There were no material liabilities measured at fair value on a nonrecurring basis for the six month period ended June 30, 2015 and year ended December 31,

21 15. Fair Value Measurements (continued) The following financial assets were measured at fair value on a recurring basis: Year Ended Interest rate swaps Quoted Prices in Active Markets for Identical Assets (Level 1) Fair Value Measurements Using Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total June 30, 2015 $ $ 32,029 $ $ 32,029 December 31, 2014 $ $ 58,238 $ $ 58,238 The fair value of the Company s interest rate swaps is based on a model-driven valuation using the forward LIBOR yield curve and a credit valuation adjustment to incorporate counter-party credit risk. Generally, nonfinancial assets are recorded at fair value on a nonrecurring basis as a result of recording impairment charges. Assets measured on a nonrecurring basis for the period ended June 30 and December 31, 2014 included assets held for sale, which were valued using Level 3 inputs and resulted in the fair values disclosed in Note Workforce The Company had a workforce of 3,875 at June 30, 2015, of which 14% was subject to collective bargaining agreements. Of this 14%, 264 employees are subject to renegotiation in Negotiations will be ongoing throughout 2015 with the different parties, and the Company foresees no related work stoppages. At December 31, 2014, the Company had a workforce of 3,451, of which 16% was subject to collective bargaining agreements. 21

22 17. Long-Term Debt In May, 2015 the Company issued $1,750,000 of Global Bonds 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 due in 2016, $967,791 in nominal value were purchased. The total cost of the bond retirement, inclusive of premium and fees was $42,537 and is recorded in the Statement of Operations as premium paid on redemption of debt. 18. Subsequent Events The Company has evaluated whether any additional subsequent events have occurred that would require disclosure or recognition in the accompanying unaudited condensed consolidated financial statements and concluded that no additional disclosure or recognition is necessary. The evaluation was performed through August 24,