| Significant Accounting Policies | 2. Significant Accounting Policies
Basis of Presentation—Successor
The accompanying consolidated financial statements for CBP have
been prepared in accordance with accounting principles generally
accepted in the United States (“U.S. GAAP”). The
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All intercompany
transactions have been eliminated.
The Company’s financial statements reflect the Acquisition of
the Predecessor that occurred on August 30, 2013, which was
accounted for as a business combination. In connection with the
Acquisition, $3.3 million in Acquisition related costs were
incurred, which are reported as selling and administrative costs in
the accompanying statement of operations of the Successor for the
period from July 26, 2013 to December 31, 2013. The
following table summarizes the fair values of the assets acquired
and liabilities assumed at the Acquisition date.
(in thousands)
Total current assets $ 70,371
Property, plant and equipment 392,809
Financial interest in Seven Hills JV 13,000
Trademarks 15,000
Customer Relationships 118,000
Goodwill 119,945
Total current liabilities (25,984 )
Total purchase price $ 703,141
The fair value of accounts receivables acquired was $31.9 million
(included in total current assets above), with the gross
contractual amount being $33.3 million. The Company expects $1.4
million to be uncollectible. There were no loss contingencies
identified as part of the Acquisition. The total Purchase Price
remained the same as the one previously provided for the year ended
December 31, 2013. The goodwill recognized is attributable
primarily to expected synergies and the assembled workforce of the
Company. These come from the synergies that are obtained in
operating the plants as part of a network, versus individually, and
from an experienced employee base skilled at managing a process
driven manufacturing environment. The goodwill was deductible for
income tax purposes.
The following represents the unaudited pro forma income statement
as if the Acquisition had occurred on January 1, 2012:
(in thousands) Year ended
Revenues $ 402,314
Net income (loss) $ 4,895
These amounts have been calculated by adjusting the results to
reflect the additional depreciation and amortization that would
have been charged assuming the fair value adjustments to property,
plant and equipment and intangible assets had been applied on
January 1, 2012, and to reflect the interest expense on the
debt used to finance the Acquisition (see Note 13, Debt) net of
proceeds received from the Initial Public Offering.
Basis of Presentation—Predecessor
The accompanying combined financial statements for the Predecessor
have been prepared in accordance with U.S. GAAP.
The Predecessor financial statements have been derived from the
consolidated financial statements and accounting records of Lafarge
N.A. using the historical results of operations and historical cost
basis of the assets and liabilities of Lafarge N.A. that comprise
the business acquired. These Predecessor financial statements have
been prepared to demonstrate the historical results of operations,
financial position, and cash flows for the indicated periods under
Lafarge N.A.’s management that were acquired by CBP. All
intercompany balances and transactions have been eliminated.
Transactions and balances between the Predecessor and Lafarge N.A.
and its subsidiaries are reflected as related party transactions
within these financial statements.
The accompanying Predecessor combined financial statements include
the assets, liabilities, revenues and expenses that are
specifically identifiable to the acquired business and reflect all
costs of doing business related to their operations, including
expenses incurred by other entities on the Predecessor’s
behalf. In addition, certain costs related to the Predecessor have
been allocated from Lafarge N.A. Those allocations are derived from
multiple levels of the organization including shared corporate
expenses from Lafarge N.A. and fees from Lafarge N.A.’s
parent company related to certain service and support functions.
The costs associated with these services and support functions
(indirect costs) have been allocated to the Predecessor using the
most meaningful respective allocation methodologies which were
primarily based on proportionate revenue, proportionate headcount,
or proportionate direct labor costs compared to Lafarge N.A. and/or
its subsidiaries. These allocated costs are primarily related to
corporate administrative expenses, employee-related costs including
pensions and other benefits for corporate and shared employees, and
rental and usage fees for shared assets for the following
functional groups: information technology, legal services,
accounting and finance services, human resources, marketing and
contract support, customer support, treasury, facility and other
corporate and infrastructural services. Income taxes have been
accounted for in the Predecessor financial statements on a separate
return basis as described in Note 9.
The Predecessor utilized Lafarge N.A.’s centralized processes
and systems for cash management, payroll, and purchasing. As a
result, all cash received by the Predecessor was deposited in and
commingled with Lafarge N.A.’s general corporate funds and
was not specifically allocated to the Predecessor. The net results
of these cash transactions between the Predecessor and Lafarge N.A.
are reflected within “Net capital contributions to Lafarge
N.A.” in the accompanying Combined Statements of Cash
Flows.
Management believes the assumptions and allocations underlying the
Predecessor combined financial statements are reasonable and
appropriate under the circumstances. The expenses and cost
allocations have been determined on a basis considered by Lafarge
N.A. to be a reasonable reflection of the utilization of services
provided to or the benefit received by the Predecessor during the
periods presented relative to the total costs incurred by Lafarge
N.A. However, the amounts recorded for these transactions and
allocations are not necessarily representative of the amount that
would have been reflected in the financial statements had the
Predecessor been an entity that operated independently of Lafarge
N.A. Consequently, future results of operations after the
Predecessor’s separation from Lafarge N.A. will include costs
and expenses incurred by the Company that may be materially
different than the Predecessor’s historical results of
operations. Accordingly, the financial statements for these periods
under the Predecessor are not indicative of the Company’s
future results of operations, financial position and cash
flows.
Earnings Per Share
Earnings per share for the period from July 26, 2013 to
December 31, 2013 are calculated after taking into account the
32,304 for one stock split that occurred on February 3, 2014.
For the years ended December 31, 2015 and 2014, basic earnings
and loss per share are based on the weighted average number of
shares of common stock outstanding assuming the 32,304 for one
stock split occurred as of January 1, 2014 and the issuance of
11,765,000 new shares on February 10, 2014 in connection with
the Initial Public Offering. Diluted earnings and loss per share
are based on the weighted average number of shares outstanding plus
the dilutive effect, if any, of outstanding restricted stock,
restricted stock units and stock options.
The following is a reconciliation of the share amounts included in
basic and diluted earnings per share computations:
Year Ended Year Ended July 26 -
Weighted average shares outstanding used to computed basic earnings
per share 43,172,528 42,940,849 32,304,000
Dilutive effect of Restricted Stock Awards 12,081 11,173
—
Dilutive effect of Restricted Stock Units 7,000
—
—
Dilutive effect of Performance Restricted Stock Units 3,188
—
—
Dilutive effect of Stock Options 23,527
—
—
Weighted average shares outstanding and dilutive securities used to
compute diluted earnings per share 43,218,324 42,952,022 32,304,000
Cost of Goods Sold and Selling and Administrative
Expenses
Cost of goods sold includes costs of production, depreciation,
amortization of acquired intangibles, inbound freight charges for
raw materials, outbound freight to customers, purchasing and
receiving costs, inspection costs, warehousing at plant facilities,
and internal transfer costs. Costs associated with third-party
warehouses are included in selling and administrative expenses.
Selling and administrative costs also include expenses for sales,
marketing, legal, accounting and finance services, human resources,
customer support, treasury, other general corporate services and
amortization of software development cost.
Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses. Actual results may differ from these estimates.
Foreign Currency Translation
The Company uses the U.S. dollar as its functional currency for
operations in the United States and the Canadian dollar for the
Company’s operations in Canada. The assets and liabilities of
the Company’s Canadian operations are translated at the
exchange rate prevailing at the balance sheet date. Related
revenues and expense accounts for the Canadian operations are
translated using the average exchange rate during the year.
Cumulative foreign currency translation adjustment of $5.3 million,
$2.2 million and $0.3 million at December 31, 2015, 2014 and
2013, respectively, is included in “Accumulated Other
Comprehensive Loss” in the Balance Sheets and in the
Consolidated/Combined Statements of Changes in Equity.
Cash
Cash and cash equivalents include highly liquid investments with
maturities of three months or less at the time of purchase
maintained at financial institutions in the United States and
Canada. At times the amounts may exceed federally insured deposit
limits. The Company has not experienced any losses and does not
believe it is exposed to any significant credit risk related to
demand deposits.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily receivables. The
Company performs ongoing credit evaluations of its customers’
financial condition and generally requires no collateral from its
customers. The allowances for non-collection of receivables are
based upon analysis of economic trends in the construction
industry, detailed analysis of the expected collectability of
accounts receivable that are past due and the expected
collectability of overall receivables.
The Company’s significant customers, as measured by
percentage of total revenues for the periods presented, were as
follows:
Successor
Predecessor
Year Ended Year Ended July 26 -
January 1 - August 30,
Lowes 16 % 15 % 12 %
15 %
The Company’s significant customers, as measured by
percentage of total accounts receivable, were as follows:
Successor
Year Ended Year Ended Year Ended
Lowes 26 % 23 % 27 %
Receivables
Trade receivables are recorded at net realizable value, which
includes allowances for cash discounts and doubtful accounts, and
are reflected net of customer incentives. The Company reviews the
collectability of trade receivables on an ongoing basis. The
Company reserves for trade receivables determined to be
uncollectible. This determination is based on the delinquency of
the account, the financial condition of the customer and the
Company’s collection experience.
Inventories
Inventories are valued at the lower of cost or market. Virtually
all of the Company’s inventories are valued under the average
cost method. Inventories include materials, labor and applicable
factory overhead costs. The value of inventory is adjusted for
damaged, obsolete, excess and slow-moving inventory. Market value
of inventory is estimated based on the impact of market trends, an
evaluation of economic conditions and the value of current orders
relating to the future sales of this type of inventory.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation of property, plant and equipment is
computed for financial reporting purposes using the straight-line
method over the estimated useful lives of the assets. These lives
range from 20 to 25 years for buildings, 5 to 25 years for plant
machinery, and 5 to 8 years for mobile equipment. For plant
machinery, the large majority of the existing assets are being
amortized over an estimated remaining life of approximately 8
years. Repair and maintenance costs are expensed as incurred.
Substantially all of the Company’s depreciation expenses are
recorded in “Cost of goods sold” in the Statements of
Operations.
The Company capitalizes interest during the active construction of
major projects. Capitalized interest is added to the cost of the
underlying assets and is depreciated over the useful lives of those
assets. The amount of interest capitalized during 2015 was nominal
and there was no interest capitalized during the years ended
December 31, 2014 and 2013.
Impairment or Disposal of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets
in accordance with the provisions of Accounting Standards
Codification 360 Property, Plant and Equipment (“ASC
360”). ASC 360 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets is measured
by comparing the carrying amount of an asset to future undiscounted
net cash flows expected to be generated by the asset. Such
evaluations for impairment are significantly impacted by estimates
of future prices for its products, capital needs, economic trends
in the construction sector and other factors. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds their fair value. Assets to be disposed of by sale are
reflected at the lower of their carrying amount or fair value less
cost to sell.
The Company assesses impairment of the Company’s long-lived
assets at the lowest level for which identifiable cash flows are
largely independent of the cash flows of other assets and
liabilities. At December 31, 2015, the Company grouped the
wallboard plants as an asset group. The plants within each group
were used together to generate cash flows. The Company’s two
joint compound plants were also grouped as an asset group.
Goodwill and Intangible Assets
The goodwill and intangibles reflected in the Successor financial
statements relates solely to the Acquisition.
Goodwill represents the excess of costs over the fair value of
identifiable assets of businesses acquired. The Company evaluates
goodwill and intangible assets in accordance with ASC 350, Goodwill
and Other Intangible Assets (“ASC 350”). ASC 350
requires goodwill to be either qualitatively or quantitatively
assessed for impairment annually (or more frequently if impairment
indicators arise) for each reporting unit. The Company performs its
annual impairment testing of goodwill as of October 1st of
each year.
Intangible assets that are deemed to have definite lives are
amortized over their useful lives. The cost of internal-use
software purchased or developed internally, is accounted for in
accordance with ASC 350-40, Internal-Use Software. The weighted
average useful life of capitalized software is 3 years.
Amortization of customer relationships is done over a 15 year
period using an accelerated method that reflects the expected
future cash flows from the acquired customer-related intangible
asset. Trademarks identified as having definite lives are amortized
on a straight-line basis over the estimated useful life of 15
years.
Fair Value Measurements
U.S. GAAP provides a framework for measuring fair value,
establishes a fair value hierarchy of the valuation techniques used
to measure the fair value and requires certain disclosures relating
to fair value measurements. Fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants in a market
with sufficient activity.
The three-tier fair value hierarchy which prioritizes the inputs
used in measuring fair value is as follows:
• Level 1—Observable inputs such
as quoted prices (unadjusted) in active markets for identical
assets or liabilities that a Company has the ability to
access;
• Level 2—Inputs, other than the
quoted market prices included in Level 1, which are observable for
the asset or liability, either directly or indirectly; and
• Level 3—Unobservable inputs for
the asset or liability which is typically based on an
entity’s own assumptions when there is little, if any,
related market data available.
The Company evaluates assets and liabilities subject to fair value
measurements on a recurring and non-recurring basis to determine
the appropriate level to classify them for each reporting period.
This determination requires significant judgments to be made by the
Company. The fair values of receivables, accounts payable, accrued
costs and other current liabilities approximate the carrying values
as a result of the short-term nature of these instruments.
The Company estimates the fair value of its debt by discounting the
future cash flows of each instrument using estimated market rates
of debt instruments with similar maturities and credit profiles.
These inputs are classified as Level 3 within the fair value
hierarchy. As of December 31, 2015 and 2014, the carrying
value reported in the consolidated balance sheet for the
Company’s notes payable approximated its fair value.
The only assets or liabilities the Company had at December 31,
2015 that are recorded at fair value on a recurring basis are the
interest rate cap that the Company entered into on March 31,
2014 that had zero fair value as of December 31, 2015 and a
fair value of $0.03 million as of December 31, 2014, and
natural gas hedges that had a negative fair value of $0.1 million
at December 31, 2015, net of tax amount of $0.03 million, and
$0.9 million at December 31, 2014, net of tax amount of $0.5
million. Both the interest rate cap and the natural gas hedges are
classified within Level 2 of the fair value hierarchy as they are
valued using third party pricing models which contain inputs that
are derived from observable market data. Generally, the Company
obtains its Level 2 pricing inputs from its counterparties.
Substantially all of these assumptions are observable in the
marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels
at which transactions are executed in the marketplace.
Assets and liabilities that are measured at fair value on a
non-recurring basis include intangible assets and goodwill. These
items are recognized at fair value when they are considered to be
impaired.
There were no fair value adjustments for assets and liabilities
measured on a non-recurring basis. The Company discloses fair value
information about financial instruments for which it is practicable
to estimate that value.
Environmental Remediation Liabilities
When the Company determines that it is probable that a liability
for environmental matters has been incurred, an undiscounted
estimate of the required remediation costs is recorded as a
liability in the financial statements, without offset of potential
insurance recoveries. Costs that extend the life, increase the
capacity or improve the safety or efficiency of company-owned
assets or are incurred to mitigate or prevent future environmental
contamination are capitalized. Other environmental costs are
expensed when incurred. The Company has no environmental
liabilities recorded at December 31, 2015.
Income Taxes
For the Predecessor financial statements, the provision for income
taxes is calculated as if the Company completed a separate tax
return apart from its Parent, although the Company was included in
the Parent’s U.S. federal and state income tax returns and
non-U.S. (Canada) jurisdiction tax returns. As of the date of
Acquisition, the Successor financial statements reflect a new tax
basis of accounting and the Company is a tax filer independent of
Lafarge N.A. Deferred tax assets and liabilities are recognized
principally for the expected tax consequences of temporary
differences between the tax basis of assets and liabilities and
their reported amounts, using currently enacted tax rates.
In the Successor financial statements, no net operating losses were
carried over from the Predecessor as part of the Acquisition.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees and
directors based on the estimated fair value of the award generally
determined on the date of grant. The associated expense, net of
estimated forfeitures, is generally recognized ratably over the
requisite service period, which is generally the vesting period of
the award. For awards with graded vesting that only contain a
service condition, we recognize expense on a straight-line basis
over the service period.
Collective Bargaining Agreement
Some of the Company’s employees at its Buchanan wallboard
plant, representing approximately 14% of its workforce, are
represented by two unions. The collective bargaining agreements
with these unions expire on November 30, 2017. Its remaining
employees are non-union. The Company believes its relationships
with both its union and non-union employees are good.
Defined Contribution Pension
Plans—Successor
Subsequent to the Acquisition, the Company’s employees were
able to participate in a 401K defined contribution pension plan.
The Company contributes funds into this plan depending on each
employee’s years of service and subject to certain limits.
For the periods ended December 31, 2015 and 2014, the Company
recorded an expense of $1.4 million and $1.9 million, respectively,
for these contributions. From July 26, 2013 to
December 31, 2013, the Company recorded an expense of $0.5
million.
Defined Benefit Pension Plans and Other Post-Retirement
Benefits—Predecessor
Prior to the Acquisition, the Company’s salaried employees
and union hourly employees participated in defined benefit pension
plans sponsored by the Parent. These plans include other Parent
employees that are not employees of the Company. The Parent also
provides certain retiree health and life insurance benefits to
eligible employees who have retired from the Company. Salaried
participants generally become eligible for retiree health care
benefits when they retire from active service at age 55 or later.
Benefits, eligibility and cost-sharing provisions for hourly
employees vary by location and/or bargaining unit. Generally, the
health care plans pay a stated percentage of most medical and
dental expenses reduced for any deductible, co-payment and payments
made by government programs and other group coverage. For the
period from January 1, 2013 to August 30, 2013
(Predecessor), the Company recorded approximately $7.5 million in
pension and other post-retirement benefits expense related to its
employees, which has been reflected within “Cost of goods
sold” and “Selling and administrative” in the
accompanying Combined Statements of Operations. The related pension
and post-retirement benefit liability has not been allocated to the
Company and has not been presented in the accompanying Combined
Balance Sheets since the obligation remained a liability of Lafarge
N.A after the Acquisition of the Company by Lone Star.
Revenue Recognition
Revenue from the sale of gypsum products is recorded when title and
ownership are transferred upon shipment of the products. Amounts
billed to a customer in a sales transaction related to shipping and
handling are included in “Net sales,” and costs
incurred for shipping and handling are classified as “Cost of
goods sold” in the Consolidated/Combined Statements of
Operations. The revenues reported in these financial statements
relate to specifically identifiable historical activities of the
plants, warehouses, and other assets that comprise the Company. The
Company records estimated reductions to revenue for customer
programs and incentive offerings, including promotions and other
volume-based incentives, in the period in which the sale
occurs.
Derivative Instruments
The company uses derivative instruments to manage selected
commodity price and interest rate exposures. The Company does not
use derivative instruments for speculative trading purposes, and
typically does not hedge beyond one year. All derivative
instruments must be recorded on the balance sheet at fair
value.
Currently, the Company is using natural gas swap contracts manage
commodity price increase exposure. The Company elected to designate
these derivative instruments as cash flow hedges in accordance with
ASC 815-20, Derivatives – Hedging. For derivative contracts
designated as cash flow hedges, the effective portion of changes in
the fair value of the derivative is recorded to accumulated other
comprehensive income, and is reclassified to earnings when the
underlying forecasted transaction affects earnings. The ineffective
portion of the changes in the fair value of the derivative is
recorded in cost of goods sold. Gains and losses on these contracts
that are designated as cash flow hedges are reclassified into
earnings when the underlying forecasted transaction affect
earnings. The Company reassesses the probability of the underlying
forecasted transactions occurring on a quarterly basis.
In addition, the Company is using an interest rate cap to protect
against extreme market interest rate changes. Changes in the fair
value of the interest rate cap are expected to be perfectly
effective in offsetting the changes in cash flow of interest
payments. The hedge is being accounted for as a cash flow hedge.
Changes in the time value of the interest rate cap are reflected
directly in earnings through “other income/expense” in
non-operating income.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the
“FASB”) issued ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606) Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date
In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going
Concern
In April 2015, the FASB issued ASU 2015-03, Interest—Imputation
of Interest (Subtopic 835-30): Simplifying the Presentation of Debt
Issuance Costs,
In November 2015, the FASB issued ASU 2015-17, Balance Sheet
Classification of Deferred Taxes |
