CRH America, Inc. and Subsidiaries (Ultimately, Wholly ...2016/08/30 · June 30, 2016, financial...

I N T E R I M C O N S O L I D A T E D U N A U D I T E D F I N A N C I A L

S T A T E M E N T S

CRH America, Inc. and Subsidiaries

(Ultimately, Wholly Owned Subsidiaries of CRH plc,

a Republic of Ireland Corporation)

Six Months Ended June 30, 2016

CRH America, Inc. and Subsidiaries (Ultimately Wholly Owned Subsidiaries of CRH plc,


Condensed Consolidated Interim Financial Statements

Six Months Ended June 30, 2016

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

June 30 December 31

2016 2015

Unaudited Audited

Assets

Current assets:

Cash and cash equivalents 1,437$ 3,248$

Accounts receivable, less allowance for doubtful

accounts of $2,979 and $6,037, respectively 144,923 153,344

Inventories 118,567 124,117

Assets held for sale, net 4,358 4,358

Costs and estimated earnings in excess of billings 1,281 3,103

Interest rate swaps 3,427 10,047

Other current assets 21,895 30,250

Total current assets 295,888 328,467

Property, plant, and equipment, net 211,874 225,697

Due from Parent and affiliates, net 5,247,076 5,327,793

Interest rate swaps 90,280 31,908

Goodwill 133,601 170,720

Identifiable intangible assets, net 3,205 5,589

Other assets 13,670 14,070

Total assets 5,995,594$ 6,104,244$

Condensed Consolidated Unaudited Balance Sheets

(In Thousands)



(Ultimately Wholly Owned Subsidiaries of CRH plc,

4

June 30 December 31

2016 2015

Unaudited Audited

Liabilities and stockholder’s equity

Current liabilities:

Accounts payable 83,457$ 99,191$

Accrued payroll 32,839 37,569

Accrued interest 60,636 57,075

Other accrued expenses 20,652 40,563

Billings in excess of costs and estimated earnings 10,244 6,186

Short-term borrowings 882 7,022

Current maturities of long-term debt 518,463 673,573

Total current liabilities 727,173 921,179

Long-term debt 3,159,081 3,098,520

Other liabilities 1,357 2,623

Stockholder’s equity:

Common stock, $0.01 par value: 10,000 shares

authorized; 2,500 shares issued and outstanding – –

Paid-in capital 1,564,589 1,564,589

Non- controlling interest 6,316

Retained earnings 543,394 511,017

Total stockholder’s equity 2,107,983 2,081,922

Total liabilities and stockholder’s equity 5,995,594$ 6,104,244$

See accompanying notes.

(In Thousands, Except Share Data)

CRH America, Inc. and Subsidiaries(Ultimately Wholly Owned Subsidiaries of CRH plc,


Condensed Consolidated Unaudited Balance Sheets

5

2016 2015

Net sales 400,997$ 433,793$

Cost of sales 292,717 332,096

Gross profit 108,280 101,697

Selling, general, and administrative expenses 61,494 75,077

Operating income 46,786 26,620

Other income (expense):

Interest income, net 202,599 142,842

Interest expense (196,307) (139,584)

Premium paid on redemption of debt (42,537)

6,292 (39,279)

Income before provision for income taxes 53,078 (12,659)

Provision for income taxes 20,701 (4,946)

Net income 32,377$ (7,713)$




(In Thousands)


Condensed Consolidated Unaudited Statements of Operations

Half year ended 30 June

Unaudited

6

Non-

Paid-in Retained Controlling

Shares Amount Capital Earnings Interest Total

Balance at July 1, 2015 2,500 – 1,562,508 454,659 2,017,167

Employee stock compensation expense – – 2,081 – 2,081

Capital contribution 6,303 6,303

Net income – – – 56,358 13 56,371

Balance at December 31, 2015 (Audited) 2,500 – 1,564,589 511,017 6,316 2,081,922

Net income – – – 32,377 32,377

Transfer of Meadow Burke LLC

to related party (6,316) (6,316)

Balance at June 30, 2016 2,500 –$ 1,564,589$ 543,394$ 6,316$ 2,114,299$


(In Thousands, Except Shares)

Common Stock

Consolidated Unaudited Statements of Stockholder’s Equity

CRH America, Inc. and Subsidiaries(Ultimately Wholly Owned Subsidiaries of CRH plc,


7

2016 2015

Unaudited Unaudited

Operating activities

Net income 32,377$ (7,713)$

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization 10,695 13,375

Loss (Gain) on disposal of facilities (185) 195

Changes in operating assets and liabilities, net of

the effects of business acquisition:

Accounts receivable, net (14,514) (17,280)

Inventories (17,482) (15,811)

Other assets 2,332 11,700

Accounts payable, accrued expenses, and other liabilities (10,189) (2,276)

Billings in excess of costs and estimated earnings and costs and

estimated earnings in excess of billings on contracts in progress, net 6,820 3,205

Net cash provided by operating activities 9,854 (14,605)

Investing activities

Acquisition of businesses (6,234) –

Purchases of property, plant, and equipment (12,700) (19,329)

Proceeds from sales of property, plant, and equipment 558 4,831

Net cash used in investing activities (18,376) (14,498)

Financing activities

Proceeds of long-term borrowings 1,750,000

Principal payments of short-term borrowings (6,140)

Principal payments of long-term borrowings (149,746) (967,791)

Changes in due from Parent and affiliates, net 162,597 (759,734)

Net cash used in financing activities 6,711 22,475

Decrease in cash and cash equivalents (1,811) (6,628)

Cash and cash equivalents at beginning of year 3,248 29,886

Cash and cash equivalents at end of period 1,437$ 23,258$


(In Thousands)


Condensed Consolidated Unaudited Statements of Cash Flows



Half year ended 30 June



Notes to Condensed Consolidated Interim Financial Statements (continued) (In Thousands)

8

1. 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 June 30, 2015, and audited December 31, 2015, 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

was prepared in conformity with U.S. generally accepted accounting principles (GAAP).

On January 1, 2016, the Company transferred Meadow Burke, LLC (MB) and Composite

Technologies Corporation (Thermomass) to a related company. On January 1, 2016, the Company

transferred certain assets to Sure Pods LLC, which was then transferred to a related party. The

presentation of the 2016 results exclude (MB) and (Thermomass) as the consolidated unaudited

June 30, 2016, financial statements comprise those of the Company and its wholly owned

subsidiary Oldcastle Precast, Inc. and have been prepare in conformity with U.S. generally

accepted accounting principles (GAAP).




9

2. Summary of Significant Accounting Policies (continued)

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 2015

Annual Report. The condensed financial statements have not been audited or subject to review by

our auditors.

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 $1,437 and $3,248 at June 30, 2016

and December 31, 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 June 30, 2016 and December 31, 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 15 for disclosures regarding the

fair value of the Company’s financial assets and liabilities.




10


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 June 30, 2016 and December 31, 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.

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 three 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.




11


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, 2016 and December 31, 2015, no impairment

adjustments have been required.

Intangible assets that have a finite life, which consist primarily of non-compete 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 six months ended June 30, 2016 and 2015, respectively, approximately 5% and 12% 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.




12


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 $949 and $1,164 during the six months ended June 30, 2016 and 2015,

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.




13


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. There was no expense recognized in the six month ending June 30, 2016 and 2015.

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.

Comprehensive Income

The Company adopted the provisions of Accounting Standards Codification (ASC) 220,

Comprehensive Income, effective January 1, 2013. For the six months ended June 2016 and 2015,

there were no material items that gave rise to other comprehensive income and net income equaled

comprehensive income.

3. Inventories

Inventories consist of the following:

June 30 December 31

2016 2015

Raw materials $ 20,199 $ 24,464

Finished goods 98,368 99,653

$ 118,567 $ 124,117




14

4. 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 31

2016 2015

Land and improvements $ 3,695 $ 3,695

Buildings and improvements 4,150 4,150

Machinery and equipment 435 435

8,280 8,280

Less accumulated depreciation (3,922) (3,922)

$ 4,358 $ 4,358

5. Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

June 30 December 31

2016 2015

Land, buildings, and improvements $ 207,785 $ 216,325

Machinery and equipment 303,216 335,554

Construction in progress 17,243 13,235

528,244 565,114

Less accumulated depreciation (316,370) (339,417)

$ 211,874 $ 225,697

Depreciation expense for the six months ended June 30, 2016 and 2015 was $10,362 and $12,613

respectively.




15

6. Acquisitions

On March 8th 2016, the Company acquired the assets of Colorado Precast Concrete for total

consideration $6,234:

The following table summarizes the fair values of the assets acquired and liabilities assumed at

date of acquisition:

Accounts receivable $ 735

Accounts payable (335)

Property, plant, and equipment 4,180

Intangible assets 636

Inventory 1,234

Other liabilities (216)

Fair value of net assets acquired/Purchase consideration $ 6,234

There were no acquisitions during the year ended December 31, 2015.




16

7. Disposal

There were no significant disposals in 2016.

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 disposals 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, 2015.

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 $ 2,443

8. Goodwill and Intangible Assets

As of June 30, 2016, 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 9,549 6,514 3,035

Trade names 5,907 5,737 170

Backlog 328 328 –

Total intangible assets $ 18,682 $ 16,127 $ 3,205




17

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 328 328 –

Total intangible assets $ 33,770 $ 28,181 $ 5,589

Amortization expense for intangible assets for the six months ended June 30, 2016 and 2015 was

$333 and $762, respectively. The following represents the estimated amortization expense for

intangible assets for each of the years indicated:

Year ending June 30, 2017 $ 710

Year ending June 30, 2018 710




Thereafter 309

$ 3,205

The changes in the carrying value of goodwill for the six months ended June 30, 2016 and

December 31, 2015 are as follows:

2016 2015

Balance at the beginning of the year $ 170,720 $ 173,835

Less: Transfer of Meadow Burke LLC to related company (37,119) –

Less: disposals – (3,115)

Balance as at end of the period $ 133,601 $ 170,720




18

9. Defined Contribution Plans

The Company has various defined contribution retirement plans. Total employer contributions

related to the above plans were $4,535 and $3,780 for the six months ended June 30, 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 contributions

related to those plans were $349 and $1,772 for the six months ended June 30, 2016 and 2015,

respectively.

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,

2016:

2017 $ 3,293

2018 2,516

2019 2,210

2020 2,221

2021 2,176

Thereafter 11,242

$ 23,658

Rental expense for the six months ending June 30, 2016 and 2015 was $2,954 and $4,932,

respectively.




19

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.

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.

On January 1, 2016, the Company transferred Meadow Burke, LLC (MB) and Composite

Technologies Corporation (Thermomass) to a related company. On January 1, 2016, the company

transferred certain assets to Sure Pods LLC, which was then transferred to a related party.

The amounts due from Parent and affiliates included in the accompanying consolidated balance

sheets of $5,247,076 and $5,327,793 at June 30, 2016 and December 31, 2015, respectively,

represent loans, income tax accounts, and related accrued interest due from Parent and affiliates.




20

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

June 30 31 December

Type of Derivative

Financial Instrument

2016

Fair Value

2015

Fair Value

Derivatives designated as

hedging instruments Interest rate swaps $ 68,362 $ 8,382

Derivatives not designated

as

hedging instruments Interest rate swaps 25,345 33,573

Total $ 93,707 $ 41,955

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.




21

15. Fair Value Measurements (continued)

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, 2016 and year ended December 31, 2015.

The following financial assets were measured at fair value on a recurring basis:

Fair Value Measurements Using

Year Ended

Quoted Prices in

Active Markets

for Identical

Assets

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3) Total

Interest rate swaps

June 30, 2016 $ – $ 93,707 $ – $ 93,707

December 31, 2015 $ – $ 41,955 $ – $ 41,955

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, 2016 and December 31, 2015 included assets held for sale, which were valued using Level 3

inputs and resulted in the fair values disclosed in Note 4.

16. Workforce

The Company had a workforce of 3,534 at June 30, 2016, of which 15% was subject to collective

bargaining agreements. Of this 15%, 224 employees are subject to renegotiation in 2016.

Negotiations will be ongoing throughout 2016 with the different parties, and the Company foresees

no related work stoppages. At December 31, 2015, the Company had a workforce of 3,680, of

which 12% was subject to collective bargaining agreements.




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.

In 2016, the company repaid long-term debt of $149,746 excluding accrued interest.

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, 2016.

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