C F S CRH America, Inc. and Subsidiaries (Ultimately ... · CRH America, Inc. and Subsidiaries (Ultimately Wholly Owned Subsidiaries of CRH plc, a Republic of Ireland Corporation)

C O N S O L I D A 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)Years Ended December 31, 2014 and 2013With Report of Independent Auditors

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

a Republic of Ireland Corporation)

Consolidated Financial Statements

Years Ended December 31, 2014 and 2013

Contents

Report of Independent Auditors .................................................................................................. 1

Consolidated Financial Statements

Consolidated Balance Sheets ....................................................................................................... 3Consolidated Statements of Operations ....................................................................................... 5Consolidated Statements of Stockholder’s Equity ........................................................................ 6Consolidated Statements of Cash Flows ...................................................................................... 7Notes to Consolidated Financial Statements ................................................................................ 8

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Report of Independent Auditors

The Board of Directors and StockholderCRH America, Inc.

We have audited the accompanying consolidated financial statements of CRH America, Inc. andSubsidiaries (ultimately wholly owned subsidiaries of CRH plc, a Republic of Irelandcorporation), which comprise the consolidated balance sheets as of December 31, 2014 and2013, and the related consolidated statements of operations, changes in stockholder’s equity, andcash flows for the years then ended, and the related notes to the consolidated financialstatements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statementsin conformity with U.S. generally accepted accounting principles; this includes the design,implementation, and maintenance of internal control relevant to the preparation and fairpresentation of financial statements that are free of material misstatement, whether due to fraudor error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits in accordance with auditing standards generally accepted in theUnited States. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor’sjudgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considersinternal control relevant to the entity’s preparation and fair presentation of the financialstatements in order to design audit procedures that are appropriate in the circumstances, but notfor 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 appropriatenessof accounting policies used and the reasonableness of significant accounting estimates made bymanagement, as well as evaluating the overall presentation of the financial statements.

A member firm of Ernst & Young Global Limited

Ernst & Young LLPSuite 100055 Ivan Allen Jr. BoulevardAtlanta, GA 30308

Tel: +1 404 874 8300Fax: +1 404 817 5589ey.com

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.

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, 2014and 2013, and the consolidated results of their operations and their cash flows for the years thenended in conformity with U.S. generally accepted accounting principles.

April 21, 2015

A member firm of Ernst & Young Global Limited

2014 2013

AssetsCurrent assets:

Cash and cash equivalents 29,886$ 239,900$Accounts receivable, less allowance for doubtful

accounts of $2,929 and $2,848, respectively 154,873 132,351Inventories 117,246 108,646Assets held for sale, net 8,063 11,271Costs and estimated earnings in excess of billings 7,396 8,595Other current assets 24,610 23,639

Total current assets 342,074 524,402

Property, plant, and equipment, net 207,465 200,064Due from Parent and affiliates, net 4,535,361 4,530,156Interest rate swaps 58,238 80,596Goodwill 173,835 157,456Identifiable intangible assets, net 7,064 2,205Other assets 6,022 9,583

Total assets 5,330,059$ 5,504,462$

Consolidated Balance Sheets

(In Thousands)

CRH America, Inc. and Subsidiaries

a Republic of Ireland Corporation)(Ultimately Wholly Owned Subsidiaries of CRH plc,

December 31

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2014 2013

Liabilities and stockholder’s equityCurrent liabilities:

Accounts payable 91,127$ 79,172$Accrued payroll 36,474 27,682Accrued interest 64,599 72,972Other accrued expenses 25,289 17,052Billings in excess of costs and estimated earnings 10,711 10,687Short-term borrowings 1,247 4,577Current maturities of long-term debt 55,000 201,000

Total current liabilities 284,447 413,142

Long-term debt 3,017,574 3,093,169Other liabilities 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 1,561,891Retained earnings 462,372 436,260

Total stockholder’s equity 2,024,880 1,998,151Total liabilities and stockholder’s equity 5,330,059$ 5,504,462$

See accompanying notes.

(In Thousands, Except Share Data)

December 31

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2014 2013

Net sales 893,625$ 830,935$Cost of sales 693,318 652,269Gross profit 200,307 178,666

Selling, general, and administrative expenses 152,358 131,773Operating income 47,949 46,893

Other income (expense):Interest income, net – includes related-party

transactions (Note 15) 253,117 258,974Interest expense – includes related-party transactions (Note 15) (251,982) (260,749)Change in fair value of derivatives and fixed rate debt, net (9,627) (21,196)Other, net – includes related-party transactions (Note 15) 3,135 2,672

(5,357) (20,299)

Income before provision for income taxes 42,592 26,594

Provision for income taxes 16,480 5,112Net income 26,112$ 21,482$


(Ultimately Wholly Owned Subsidiaries of CRH plc,a Republic of Ireland Corporation)

(In Thousands)


Year Ended December 31

Consolidated Statements of Operations

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OtherPaid-in Retained Comprehensive

Shares Amount Capital Earnings Income Total

Balance at January 1, 2013 2,500 –$ 1,561,931$ 414,778$ 42$ 1,976,751$Employee stock compensation (benefit) – – (40) – – (40)Recognized gain on derivatives – – – – (42) (42)Net income – – – 21,482 – 21,482

Balance at December 31, 2013 2,500 – 1,561,891 436,260 – 1,998,151Employee stock compensation expense – – 617 – – 617Net income – – – 26,112 – 26,112

Balance at December 31, 2014 2,500 –$ 1,562,508$ 462,372$ –$ 2,024,880$


(In Thousands, Except Shares)

Common Stock

Consolidated Statements of Stockholder’s Equity



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2014 2013

Operating activitiesNet income 26,112$ 21,482$Adjustments to reconcile net income to net cash

provided by operating activities:Depreciation and amortization 25,595 26,967Amortization of loan issuance costs and discounts 2,692 3,069Gain on sale of property, plant, and equipment (439) (219)Loss on disposal of facilities 250 3,661Employee stock compensation expense (benefit) 617 (40)Impairment of property, plant, and equipment – 1,800Amortization of adjustment to debt resulting from discontinued

fair value hedges (8,916) (8,916)Change in fair value of derivatives and fixed rate debt 9,627 21,196Changes in operating assets and liabilities, net of

the effects of business acquisition:Accounts receivable, net (15,213) (23,169)Inventories (5,118) (13,680)Other assets 353 2,603Accounts payable, accrued expenses, and other liabilities 18,151 8,921Billings in excess of costs and estimated earnings and costs and

estimated earnings in excess of billings on contracts in progress, net 1,223 2,422Net cash provided by operating activities 54,934 46,097

Investing activitiesAcquisition of businesses (35,182) (8,306)Purchases of property, plant, and equipment (25,388) (28,489)Proceeds from disposal of facilities 3,371 1,635Proceeds from sales of property, plant, and equipment 4,582 2,013Net cash used in investing activities (52,617) (33,147)

Financing activitiesPrincipal payments of short-term borrowings (3,330) (26,577)Principal payments of long-term borrowings (201,000) (700,000)Changes in due from Parent and affiliates, net (8,001) 201,352Net cash used in financing activities (212,331) (525,225)

Decrease in cash and cash equivalents (210,014) (512,275)Cash and cash equivalents at beginning of year 239,900 752,175Cash and cash equivalents at end of year 29,886$ 239,900$



(In Thousands)

Year Ended December 31

Consolidated Statements of Cash Flows

(Ultimately Wholly Owned Subsidiaries of CRH plc,a Republic of Ireland Corporation)

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Notes to Consolidated Financial Statements(In Thousands)

December 31, 2014

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 orParent), 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 buildingmaterials to a wide and varied customer base within the United States. The Group is organizedinto three core product-based business groups:

• Building Products (primarily block, pavers, precast, fabricated glass, and lawn andgarden 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 accessoriesbusinesses and certain treasury and financing activities of Oldcastle. The Company has extensivetransactions and relationships with affiliates.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements comprise those of the Company, its wholly ownedsubsidiaries CRH Finance America, Inc., Oldcastle Precast, Inc. (Oldcastle Precast), and thelatter’s wholly owned subsidiary, Meadow Burke, LLC (MB), which wholly owns CompositeTechnologies Corporation (Thermomass), and have been prepared in conformity with U.S.generally accepted accounting principles (GAAP). All significant intercompany balances andtransactions have been eliminated in consolidation.



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

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2. Summary of Significant Accounting Policies (continued)

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requiresmanagement to make estimates and assumptions that affect the amounts reported in theconsolidated financial statements and accompanying notes. Actual results could differ from thoseestimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three monthsor less to be cash equivalents. Cash and cash equivalents were $29,886 and $239,900 atDecember 31, 2014 and 2013, respectively.

Accounts Receivable and Allowances

Accounts receivable consists of customer payments due but not received. Accounts receivableare recorded at their original amount less an estimated allowance for any doubtful accounts. Anallowance is made when collection of the full amount is no longer considered probable.

Financial Instruments

The Company’s financial instruments at December 31, 2014 and 2013, consist primarily of cashand cash equivalents, accounts receivable, accounts payable, short-term borrowings, long-termdebt, and interest rate swap agreements. Due to the short maturities of cash and cash equivalents,accounts receivable, accounts payable, and short-term borrowings, carrying amountsapproximate the respective fair values. Accordingly, such financial instruments were valuedbased upon Level 1 measures within the valuation hierarchy. See Note 17 for disclosuresregarding the fair value of the Company’s financial assets and liabilities.




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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 evaluationsof its customers’ financial condition and generally does not require collateral. The Companydoes not believe significant credit risk exists at December 31, 2014 and 2013 related to accountsreceivable. Receivables are generally due within 30 days, although extended terms maybe granted.

Financial instruments give rise to credit risk on amounts due from counterparties. Credit risk ismanaged by limiting the aggregate amount and duration of exposure to any one counterpartyprimarily depending on its credit rating and by regular review of these ratings. The Companytransacts with counterparties that have high investment grade credit ratings. The maximumexposure arising in the event of default on the part of the counterparty is the carrying value of therelevant financial instrument. The Company places its temporary cash investments andinvestment grade short-term investments in high credit quality financial institutions, and limitsthe 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 weightedaverage cost method. Elements of cost in inventories include raw materials, direct labor, andmanufacturing overhead.

Property, Plant, and Equipment

Property, plant, and equipment is stated at cost. The depreciation of property, plant, andequipment is provided using the straight-line method over the estimated useful lives of therespective 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 coststo sell. Depreciation ceases once an asset is classified as held for sale.




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Goodwill and Other Intangible Assets

Goodwill represents the amount by which the total purchase price the Company has paid toacquire businesses exceeds the estimated fair value of the net identifiable assets acquired.Goodwill and intangible assets with indefinite lives are evaluated annually for impairment orwhenever events or changes in circumstances indicate that impairment may have occurred. TheCompany 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 developedand completed impairment tests on the Oldcastle Precast reporting unit. When evaluatinggoodwill for impairment, the Company first compares the book value of the net assets ofOldcastle Precast to the fair value. If the fair value is determined to be less than book value, asecond step is performed to compute the amount of impairment. The Company estimates fairvalue using a discounted cash flow methodology. At December 31, 2014 and 2013, noimpairment 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 tenyears) 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 asreceivables with an offset to deferred income.

For the years ended December 31, 2014 and 2013, respectively, approximately 14% and 19% ofCompany revenues were derived under fixed-price contracts from operations that manufactureand erect precast/prestressed components used in construction. For such contracts, the Companyrecognizes revenue on a percent complete basis of cost incurred to final projected cost. Contractcosts are usually recognized as an expense in the accompanying consolidated statements ofoperations in the accounting periods in which the work to which they relate is performed.




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Contract costs include all direct material and labor costs and those indirect costs related tocontract performance, such as indirect labor, supplies, tools, and repairs. Provisions for estimatedlosses 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 arisingfrom contract penalty provisions, and final contract settlements may result in revisions to costsand income and are recognized in the period in which the revisions are determined. Profitincentives are included in revenues when their realization is reasonably assured. An amountequal to contract costs attributable to claims is included in revenues when realization is probableand the amount can be reliably estimated.

Advertising Costs

The Company expenses advertising and promotion costs as incurred. Advertising andpromotional costs were approximately $2,317 and $2,293 during the years ended December 31,2014 and 2013, respectively.

Shipping and Handling Costs

Shipping and handling costs are included as a component of cost of sales.

Reclassifications

Certain prior year balances within Note 8 have been reclassified to conform to the current yearpresentation.

Interest Rate Swaps

The Company enters into interest rate swap agreements to reduce the impact of changes ininterest rates relating to the issuance of its debt and to manage the Company’s overall level offixed and variable rate debt to a targeted range. The Company recognizes interest rate swaps inthe accompanying consolidated balance sheets at fair value. Changes in fair value for interestrate swaps that are not designated in qualifying hedge accounting relationships are recorded inthe consolidated statements of operations. Changes in fair value for interest rate swaps that aredesignated as hedges of the fair value of fixed rate debt are offset against the related debt.




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Stock Compensation

Certain of the Company’s employees participate in stock compensation plans of the ultimateparent company, CRH plc. Stock compensation awards are measured based on fair value at eachreporting date. For the years ended December 31, 2014 and 2013, the Company recorded a stockcompensation expense in 2014 and benefit in 2013 with a corresponding adjustment to paid-incapital of $617 and ($40), respectively, under the CRH plc plans.

Income Taxes

Taxable income of the Company is included in the consolidated U.S. federal income tax return ofParent. Parent has allocated income taxes to the Company on a basis that considers thepermanent and temporary differences related to the Company’s operations. The aggregateamounts charged to the Company for current income tax amounts and deferred income taxamounts related to temporary differences applicable to the Company are included in Due fromParent and affiliates, net in the accompanying consolidated balance sheets. Due from Parent andaffiliates, net includes $16,480 and $5,112 related to income tax expense for the years endedDecember 31, 2014 and 2013, respectively.

The Company’s income tax expense (benefit) consists of the following:

Year Ended December 312014 2013

Current $ 18,528 $ 17,492Deferred (2,048) (12,380)Total income tax provision $ 16,480 $ 5,112

The Company’s effective tax rate differs from the statutory rate principally due to state incometaxes, changes in uncertain tax positions, and certain expenses not recognized for incometax purposes. The following table reconciles the statutory tax rate to the effective tax rate(current and deferred) of the Company:




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Percentage of IncomeBefore Income Taxes

Year Ended December 312014 2013

Statutory income tax rate 35.0% 35.0%State income tax rate, net of federal income tax effect 2.8 2.4Uncertain tax positions 0.5 (20.5)Other items (comprising items not chargeable to

tax/expenses not deductible for tax) 0.4 2.3Total effective tax rate 38.7% 19.2%

Deferred income taxes are provided for all significant temporary differences between incomereported for financial reporting and income reported for tax purposes. Deferred income tax assetsarise primarily from the recording of accruals which are not currently deductible for tax purposesand the Company’s interest rate swap activities.

Deferred income tax liabilities arise primarily from the effect of the use, for income taxpurposes, 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 ofDue from Parent and affiliates, net as of December 31, 2014 and 2013, and consist of thefollowing:

December 312014 2013

Accruals and other reserves $ 9,909 $ 9,051Revaluation differences related to debt 42,597 50,174Total deferred tax assets $ 52,506 $ 59,225

Property, plant, and equipment $ (13,201) $ (12,026)Goodwill and intangible assets (26,599) (20,529)Revaluation differences related to interest rate swaps (49,390) (60,409)Total deferred tax liabilities $ (89,190) $ (92,964)




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The Company recognizes the benefit of uncertain tax positions when the position taken orexpected to be taken in a tax return is more likely than not of being sustained upon examinationby tax authorities. As of December 31, 2014 and 2013, the Company’s liabilities forunrecognized tax benefits of $7,121 and $6,900, respectively, were recorded as a component ofDue from Parent and affiliates, net.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits ascomponents of the income tax provision. The Company does not have any interest and penaltiesaccrued as of December 31, 2014 and 2013, respectively, related to unrecognized tax benefits.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when circumstances indicate that the carryingvalue of the assets may not be fully recoverable. When the carrying value of the asset exceedsthe value of its expected undiscounted future cash flows, an impairment charge is recognizedequal to the difference between the asset’s carrying value and its fair value. During 2013, theCompany identified certain assets which would not be utilized in its ongoing operations. As aresult, the Company recorded an impairment charge of $1,800 for the year ended December 31,2013 to reflect the loss in value of these assets, which is included in selling, general, andadministrative expenses in the Company’s consolidated statements of operations.

Guarantees

The Company has guarantees outstanding primarily for the benefit of affiliates to enter into leaseagreements with third parties. Total maximum future payments under existing guarantees wereapproximately $1,098 and $1,355 as of December 31, 2014 and 2013, respectively.

Comprehensive Income

The Company adopted the provisions of Accounting Standards Codification (ASC) 220,Comprehensive Income, effective January 1, 2013. For the years ended December 31, 2014 and2013, there were no material items that gave rise to other comprehensive income and net incomeequaled comprehensive income.




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3. Inventories

Inventories consist of the following:


Raw materials $ 23,443 $ 21,760Finished goods 93,803 86,886

$ 117,246 $ 108,646

4. Assets Held for Sale

The Company is committed to selling certain property, plant, and equipment that haveunderperformed. Based on the Company’s knowledge of prospective buyers and offers tenderedto date, the sale of these assets is probable and anticipated to be completed within one year; assuch, these assets have been classified as held for sale.


Land and improvements $ 6,662 $ 5,108Buildings and improvements 6,884 8,916Machinery and equipment 6,949 11,687

20,495 25,711Less accumulated depreciation (12,432) (14,440)

$ 8,063 $ 11,271




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5. Property, Plant, and Equipment

Property, plant, and equipment consist of the following:


Land, buildings, and improvements $ 204,014 $ 197,239Machinery and equipment 309,644 304,275Construction in progress 13,502 15,487

527,160 517,001Less accumulated depreciation (319,695) (316,937)

$ 207,465 $ 200,064

Depreciation expense for the years ended December 31, 2014 and 2013 was $24,084 and$25,417, respectively.

6. Acquisitions

During 2014, the Company acquired the following businesses for total consideration of $35,182:

AcquisitionBusiness Date

Kristar Enterprises, Inc. January 6MC Precast, Inc. May 16Composite Technologies Corporation September 8

The Company obtained control of the Kristar Enterprises, Inc. and MC Precast, Inc. businessesby entering into asset purchase agreements and that of Composite Technologies Corporate byacquisition of 100% of the equity interests.




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6. Acquisitions (continued)

These acquisitions were accounted for by the purchase method of accounting and included nononcash consideration. The results of operations are included in the accompanying consolidatedstatement of operations from the respective acquisition dates. The primary business function ofthese businesses is the manufacture of concrete insulation systems (Thermomass), environmentalsolutions (Kristar) and precast concrete products (MC Precast).

The principal factor contributing to the recognition of goodwill in the Kristar and Thermomassacquisitions is the potential realization of cost savings and synergies with existing companies.

The following table summarizes the fair values (including preliminary acquisition accounting forThermomass) of the assets acquired and liabilities assumed at the date of acquisition:

Accounts receivable $ 7,309Inventories 4,013Accounts payable (4,731)Property, plant, and equipment 7,719Goodwill ($10,061 is tax deductible) 17,494Intangible assets 6,370Deferred tax liability (included in Due from Parent and affiliates, net) (2,420)Other assets 315Other liabilities (887)Fair value of net assets acquired $ 35,182

For the year ended December 31, 2014, the Company acquired intangible assets subject toamortization valued at $6,370 through two acquisitions, which consist of the following:




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6. Acquisitions (continued)

Gross

Weighted-Average

AmortizationPeriod

Non-contractual customer relationships $ 4,270 5Trade names 2,100 10Total intangible assets $ 6,370

On January 25, 2013, the Company acquired the assets of Modern Precast Concrete for totalconsideration of $9,435. The acquisition was accounted for by the purchase method ofaccounting and included no noncash consideration.

The results of operations are included in the accompanying consolidated financial statements asof the acquisition date. The primary business function of this business is the manufacture ofprecast concrete products. No goodwill or intangible assets were recorded in conjunction withthe acquisition.

The following table summarizes the fair values of the assets acquired and liabilities assumed atthe date of acquisition:

Accounts receivable $ 1,211Inventories 386Accounts payable (202)Property, plant, and equipment 7,941Other assets 99Fair value of net assets acquired $ 9,435




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7. Disposal

During 2014, the Company sold certain assets and liabilities related to two facilities to thirdparties for total consideration of $3,371.

The following table summarizes the two facilities’ carrying values of the assets and liabilitiessold in 2014 and proceeds received. A net loss of $250 was recognized on the transactions,which is recorded in selling, general and administrative expenses in the accompanyingconsolidated statement of operations for the year ended December 31, 2014.

Inventories $ 531Property, plant, and equipment 1,595Goodwill 1,115Other payables 380Carrying value of net assets sold 3,621Cash proceeds received 3,371Loss recognized on sale $ (250)

On July 1, 2013, certain assets and liabilities related to one facility were sold to a third party. Thefollowing table summarizes the book values of the assets and liabilities sold and proceedsreceived. A loss of $3,661 was recognized on the transaction which is recorded in selling,general, and administrative expenses in the consolidated statement of operations for the yearended December 31, 2013.

Accounts receivable $ 2,579Inventories 486Accounts payable (897)Property, plant, and equipment 111Goodwill 4,451Deferred consideration (1,409)Other payables (25)Carrying value of net assets sold 5,296Cash proceeds received 1,635Loss recognized on sale $ (3,661)




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8. Goodwill and Intangible Assets

As of December 31, 2014, total intangible assets subject to amortization consist of the following:

GrossAccumulatedAmortization

NetBalance

Noncompete agreements $ 2,898 $ 2,853 $ 45Non-contractual customer relationships 19,757 15,905 3,852Trade names 10,787 7,620 3,167Backlog 328 328 –Total intangible assets $ 33,770 $ 26,706 $ 7,064

As of December 31, 2013, total intangible assets subject to amortization consist of the following:

GrossAccumulatedAmortization

NetBalance

Noncompete agreements $ 2,898 $ 2,798 $ 100Non-contractual customer relationships 15,487 15,487 –Trade names 8,687 6,582 2,105Backlog 328 328 –Total intangible assets $ 27,400 $ 25,195 $ 2,205

Amortization expense for intangible assets for the years ended December 31, 2014 and 2013 was$1,511 and $1,550, respectively. The following represents the estimated future amortizationexpense for intangible assets for each of the years indicated:




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8. Goodwill and Intangible Assets (continued)

2015 $ 1,5762016 1,2222017 1,2162018 1,1732019 661Thereafter 1,216

$ 7,064

The changes in the carrying value of goodwill for the years ended December 31, 2014 and 2013are as follows:

2014 2013

Balance at the beginning of the year $ 157,456 $ 161,907Add: acquired on business combinations 17,494 –Less: disposals (1,115) (4,451)Balance at end of the year $ 173,835 $ 157,456

9. Defined Contribution Plans

The Company has various defined contribution retirement plans. Total employer contributionsrelated to the above plans were $6,284 and $5,206 for the years ended December 31, 2014 and2013, respectively. The Company has no liability to these plans beyond the annualdiscretionary contributions.

10. Multi-employer Plans

The Company participates in a number of multi-employer plans. Total employer contributionsand withdrawal liabilities related to those plans were $8,214 and $569 for the years endedDecember 31, 2014 and 2013, respectively. During 2014, the Company recognized liabilitiesresulting from withdrawals from two plans of $7,625.




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11. Long-Term Debt and Short-Term Borrowings

As of December 31, 2014 and 2013, long-term debt consists of the following:


Senior note, guaranteed by CRH plc., due 2014; interestpayable semiannually on March 22 and September 22 atan annual rate of 8.06% $ – $ 201,000

Senior note, guaranteed by CRH plc., due 2016; interestpayable semiannually on May 30 and November 30 at anannual rate of 7.96% 36,000 36,000

Senior note, guaranteed by CRH plc., due 2015; interestpayable semiannually on May 13 and November 13 at anannual rate of 8.40% 55,000 55,000

Global bond, guaranteed by CRH plc, due 2033; interestpayable semiannually on April 15 and October 15 at anannual rate of 6.40% 390,439 395,242

Global bond, guaranteed by CRH plc, due 2016; interestpayable semiannually on March 30 and September 30 atan annual rate of 6.00% 1,278,943 1,294,918

Global bond, guaranteed by CRH plc, due 2018; interestpayable semiannually on January 15 and July 15 at anannual rate of 8.13% 649,915 649,891



3,160,019 3,381,614Included in Due from Parent and affiliates, net (87,445) (87,445)Current maturities of long-term debt (55,000) (201,000)Long-term debt $ 3,017,574 $ 3,093,169




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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 originalissue and interest rate swap agreements accounted for as fair value hedges. The total adjustmentsof $119,020 and $139,614 at December 31, 2014 and 2013, respectively, are reflected as a netincrease in the carrying value of the related debt.

The total balance of $87,445 of senior notes held by CRH Belgard Limited as of December 31,2014 and 2013 is classified in Due from Parent and affiliates, net in the accompanyingconsolidated balance sheets.

All senior notes and global bonds contain certain restrictive covenants including, among otherthings, maintenance of insurance on the Company’s assets, limitations on disposal of fixedassets, prompt payments of taxes and assessments, limitations on sales and leasebacktransactions, and limitations on the merger and/or sale of the Company. In addition, restrictivecovenants are also placed on CRH plc, the guarantor and ultimate parent of the Company,including, among other things, maintenance of minimum leverage, and net worth ratios.

On September 22, 2014, the Company repaid the maturing $201,000 bond with a coupon rate of8.06%.

Principal maturities of long-term debt are as follows at December 31, 2014:

2015 $ 55,0002016 1,664,8002017 –2018 649,9152019 –Thereafter 790,304

$ 3,160,019




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11. Long-Term Debt and Short-Term Borrowings (continued)

At December 31, 2014 and 2013, the par value of the Company’s long-term debt, excludingadjustments to the carrying value for the effects of discounting on the original issue and interestrate swap agreements accounted for as fair value hedges, was $3,041,000 and $3,242,000,respectively, while the fair value of such debt approximated $3,390,000 and $3,597,000,respectively, based primarily upon Level 2 measures within the valuation hierarchy.

Short-term borrowings primarily consist of bank overdrafts. The Company had unsecured linesof credit with three banks totaling $235,000 at December 31, 2014 and three banks totaling$225,000 at December 31, 2013. The various lines of credit have variable interest rates based onthe prevailing interest rate at the time of borrowing as well as the length of time funds areborrowed. There were no outstanding balances under these lines of credit at December 31, 2014and 2013; however, the Company had $130,924 and $118,195 of outstanding letters of creditunder these agreements at December 31, 2014 and 2013, respectively.

During 2014 and 2013, the Company and its subsidiaries paid interest on external debt, net ofinterest received on interest rate swaps, of $171,145 and $181,977, respectively.

12. 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 operatingleases with initial or remaining noncancelable lease terms in excess of one year as ofDecember 31, 2014:

2015 $ 9,4242016 5,3432017 2,9592018 1,8472019 1,539Thereafter 11,005

$ 32,117




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12. Operating Leases (continued)

Rental expense for 2014 and 2013 was $10,917 and $10,653, respectively.

13. 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 adverseeffect on the Company’s consolidated financial statements.

14. Costs and Estimated Earnings on Uncompleted Contracts

The details of the Company’s costs and billings related to construction contracts, as well as areconciliation to the line items in which such amounts are recorded in the accompanyingconsolidated balance sheets, are as follows:


Costs incurred on uncompleted contracts $ 221,106 $ 165,232Estimated earnings 123 31,039

221,229 196,271Less billings to date (224,544) (198,363)Net billings in excess of costs and estimated earnings $ (3,315) $ (2,092)

Costs and estimated earnings in excess of billings $ 7,396 $ 8,595Billings in excess of costs and estimated earnings (10,711) (10,687)

$ (3,315) $ (2,092)

As of December 31, 2014 and 2013, accounts receivable balances include amounts billed but notpaid by customers under retainage provisions in construction contracts of $11,530 and $9,897,respectively. A majority of these retainage amounts are expected to be recovered in 2015.




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15. Related-Party Transactions

The Company participates in a centralized cash management system with Oldcastle wherebyexcess cash is invested to maximize the return to system participants. The Company alsoperforms certain treasury and finance functions on behalf of the Group.

The amounts due from Parent and affiliates included in the accompanying consolidated balancesheets of $4,535,361 and $4,530,156 at December 31, 2014 and 2013, respectively, representloans, income tax accounts, and related accrued interest due from Parent and affiliates. With theexception of the notes with CRH North America Luxembourg SARL, OldcastleBuildingEnvelope Canada, Inc., and Oldcastle Building Products Canada, Inc., and bonds heldby CRH Belgard Limited, these amounts are due on demand; however, it is the intention ofmanagement of Parent and CRH plc not to pay or call the amounts due or receivable within thenext twelve months.

At December 31, 2014 and 2013, the Company’s outstanding balances (noted above) with Parentand affiliates included the following entities:

CRH North America Luxembourg SARLCRH Canada Finance, Ltd.CRH Belgard LimitedOldcastle 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 SubsidiariesVicente Holdings Inc.




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15. Related-Party Transactions (continued)

The amounts due from Parent and affiliates include both a series of long-term notes payable toand long-term notes receivables from a wide array of the related parties noted above. AtDecember 31, 2014, the outstanding long-term notes payable to Parent and affiliates ranged from$87,445 to $500,000, with maturity dates ranging from March 30, 2020 to October 15, 2033, andinterest rates ranging from 4.950% to 6.400%. At December 31, 2014, the outstanding long-termnotes receivable from Parent and affiliates ranged from $30,216 to $302,165, with maturity datesranging from September 13, 2019 to March 15, 2020, and interest rates of 5.000%. Thesebalances are included in Due from Parent and affiliates, net in the consolidated balance sheets.

At December 31, 2013, the outstanding long-term notes payable to Parent and affiliates rangedfrom $87,445 to $500,000, with maturity dates ranging from March 30, 2020 to October 15,2033, and interest rates ranging from 4.950% to 6.400%. At December 31, 2013, the outstandinglong-term notes receivable from Parent and affiliates ranged from $32,152 to $329,000, withmaturity dates ranging from September 13, 2019 to March 15, 2020, and interest rates of5.000%. These balances are included in Due from Parent and affiliates, net in the consolidatedbalance sheets.

For the years ended December 31, 2014 and 2013, the Company had the following significanttransactions with Parent and affiliates.

On March 18, 2013, the Company issued two Canadian dollar denominated loans to OldcastleBuilding Products Canada, Inc. (OBPCI). One was a short-term, interest-free $51,002 loan (CAD$52,000); the other was $66,695 seven-year loan (CAD $68,000) at 5.000% interest per annum.The purpose of these loans was to finance a Canadian acquisition by a wholly owned subsidiaryof OBPCI.

On March 28, 2013, the $51,002 loan was repaid in full by OBPCI. On the same date, theCompany borrowed CAD $451,700 ($424,606 at December 31, 2013) from CRH North AmericaLuxembourg SARL and used the proceeds to settle a foreign exchange swap contract and torepay the existing Canadian dollar denominated interest-free loan with CRH Canada FinanceLtd.




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On October 11, 2013, a loan in the principal amount of $500,000 was made available to theCompany from CRH North America Luxembourg SARL (CRHNA) for the purposes ofrefinancing and to extend the tenor of its existing borrowings from CRHNA. The new loan, plusall other sums due, is required to be repaid on the last day of the term of the loan, October 11,2022.

The Company pays interest expense on amounts due and receives interest income on amountsowed to them from Parent and affiliates. During 2014 and 2013, the Company and itssubsidiaries paid (received) interest, net of $5,186 and ($23,813), respectively, on loans to Parentand affiliates.

Interest income, net presented in the accompanying consolidated statements of operationsincludes interest earned on amounts due from Parent and affiliates of $221,500 and $205,079 in2014 and 2013, respectively. The interest income reimburses the Company for a portion ofexternal interest expense incurred by the Company. The amount is determined at management’sdiscretion.

Interest expense presented in the accompanying consolidated statements of operations includesinterest incurred on amounts due to Parent and affiliates of $59,784 and $34,320 in 2014 and2013, respectively.

The Company participates in insurance plans administered by Parent under which it is fullyinsured for general liability and worker compensation claims and pays an annual premium.Premiums paid to Parent for insurance in 2014 and 2013, were $9,066 and $7,494, respectively.The Company also participates in a health insurance plan administered by Parent under whichthe Company is charged for actual claims incurred and records an accrual for estimated incurredbut unreported claims. Claims expense under this health insurance plan in 2014 and 2013, was$22,409 and $21,099, respectively.

Guarantee fees totaling $3,121 and $2,677 in 2014 and 2013, respectively, are included in Other,net in the accompanying consolidated statements of operations and reflect the net amount ofguarantee fees charged by CRH plc and the amount charged to affiliated companies.




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Included in selling, general, and administrative expenses are management fees charged byCRH plc of $4,778 and $1,803 in 2014 and 2013, respectively.

16. Financial Instruments

The Company accounts for derivative instruments in accordance with ASC 815, Derivatives andHedging, which requires the recognition of all derivative instruments in the accompanyingconsolidated balance sheets at fair value. The Company enters into interest rate swap agreementsto reduce the impact of changes in interest rates relating to the issuance of long-term debt and tomanage 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 theCompany and the related fair values, which are recorded in the interest rate swap line items inthe accompanying consolidated balance sheets:

Fair Value of Derivative Financial InstrumentsAssets

Type of DerivativeFinancial Instrument

2014Fair Value

2013Fair Value

Derivatives designated ashedging instruments Interest rate swaps $ 23,150 $ 35,881

Derivatives not designated ashedging instruments Interest rate swaps 35,088 44,715

Total $ 58,238 $ 80,596




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16. Financial Instruments (continued)

The effect of derivative financial instruments in the accompanying consolidated statements ofoperations for the years ended December 31, 2014 and 2013 include:

Derivatives in FairValue HedgingRelationships

Location of LossRecognized in Income

on Derivatives

Amount of Loss Recognizedin Income on Derivatives

2014 2013

Interest rate swapsChange in fair value of derivatives and

fixed rate debt $ (12,731) $ (34,567)

Hedged Items in FairValue Hedge Relationships

Location of GainRecognized in Income

on Related Hedged Item

Amount of Gain Recognizedin Income on Related

Hedged Items2014 2013

Fixed rate debtChange in fair value of derivatives and

fixed rate debt $ 12,731 $ 34,567

Derivatives Not Designatedas Hedging Instruments

Location of LossRecognized in Income

on Derivatives

Amount of Loss Recognized inIncome on Derivatives2014 2013

Interest rate swapsChange in fair value of derivatives and

fixed rate debt $ (9,627) $ (21,196)

At December 31, 2014 and 2013, the Company had two fixed-to-variable interest rate swapagreements outstanding with commercial banks having a total notional amount of $300,000 thatwere designated as fair value hedges related to the Company’s long-term debt. Both of theseinterest rate swaps mature in 2016. In addition, at December 31, 2014 and 2013, the Companyhad four fixed-to-variable interest rate swap agreements outstanding with commercial bankshaving a total notional amount of $550,000 that were not designated in hedge accountingrelationships.




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16. Financial Instruments (continued)

The Company is exposed to credit loss in the event of nonperformance by the other parties to theinterest rate swap agreements; however, the Company does not anticipate nonperformance by thecounterparties due to their high credit ratings. During 2014 and 2013, the fixed interest ratereceived exceeded the variable interest rate paid on all interest rate swap agreements, resulting inthe Company receiving a weighted average interest rate, net of 3.70% and 3.82%, respectively.Weighted average variable rates are based on rates implied in the yield curve as of December 31,2014 and 2013, 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 aliability in an orderly transaction between market participants and outlines a valuationframework and creates a fair value hierarchy in order to increase the consistency andcomparability of fair value measurements and the related disclosures. The three broad fair valuehierarchy 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 eitherdirectly or indirectly; and

Level 3 Unobservable inputs in which there is little or no market data, which require thereporting entity to develop its own assumptions.

The Company records assets and liabilities at fair value on a recurring and nonrecurring basis asrequired by U.S. GAAP. There were no material liabilities measured at fair value on anonrecurring basis for the years ended December 31, 2014 and 2013.




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17. Fair Value Measurements (continued)

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

Fair Value Measurements Using

Year Ended

Quoted Prices inActive Markets

for IdenticalAssets

(Level 1)

SignificantOther

ObservableInputs

(Level 2)

SignificantUnobservable

Inputs(Level 3) Total

Interest rate swapsDecember 31, 2014 $ – $ 58,238 $ – $ 58,238December 31, 2013 – 80,596 – 80,596

The fair value of the Company’s interest rate swaps is based on a model-driven valuation usingthe forward LIBOR yield curve and a credit valuation adjustment to incorporate counter-partycredit risk.

Generally, nonfinancial assets are recorded at fair value on a nonrecurring basis as a result ofrecording impairment charges. Assets measured on a nonrecurring basis for the years endedDecember 31, 2014 and 2013 included assets held for sale, which were valued using Level 3inputs and resulted in the fair values disclosed in Note 4.

18. Workforce

The Company had a workforce of 3,451 at December 31, 2014, of which 16% was subject tocollective bargaining agreements. Of this 16%, 264 employees are subject to renegotiation in2015. Negotiations will be ongoing throughout 2015 with the different parties, and the Companyforesees no related work stoppages. At December 31, 2013, the Company had a workforce of3,197, of which 17% was subject to collective bargaining agreements.




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19. Subsequent Events

The Company has evaluated whether any additional subsequent events have occurred that wouldrequire disclosure or recognition in the accompanying consolidated financial statements andconcluded that no additional disclosure or recognition is necessary. The evaluation wasperformed through April 21, 2015, the date the consolidated financial statements were availableto be issued.

Documents

C F S CRH America, Inc. and Subsidiaries (Ultimately ... · CRH America, Inc. and Subsidiaries (Ultimately Wholly Owned Subsidiaries of CRH plc, a Republic of Ireland Corporation)