Exhibit 99.6
James Hardie Industries plc
Condensed Consolidated Financial Statements
as of and for the Three and Six Months Ended 30 September 2020
James Hardie Industries plc
Index
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of James Hardie Industries plc
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of James Hardie Industries plc (“the Company”) as of 30 September 2020, the related condensed consolidated statements of operations and comprehensive income for the three and six-month periods ended 30 September 2020 and 2019, the condensed consolidated statements of cash flows for the six-month periods ended 30 September 2020 and 2019, the condensed consolidated statements of changes in shareholders' equity for the three and six-month periods ended 30 September 2020 and 2019, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of 31 March 2020, the related consolidated statements of operations and comprehensive income, cash flows and changes in shareholders' equity for the year then ended, and the related notes (not presented herein); and in our report dated 19 May 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of 31 March 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ Ernst & Young LLP
Irvine, California
10 November 2020
James Hardie Industries plc
Condensed Consolidated Balance Sheets
| | | | | | | | | | | |
| (Millions of US dollars) | (Unaudited)
30 September
2020 | | 31 March
2020 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 390.6 | | | $ | 144.4 | |
| Restricted cash and cash equivalents | 5.0 | | | 5.0 | |
| Restricted cash and cash equivalents - Asbestos | 55.8 | | | 36.4 | |
| Restricted short-term investments - Asbestos | — | | | 21.6 | |
| Accounts and other receivables, net | 305.5 | | | 363.3 | |
| Inventories | 230.2 | | | 305.1 | |
| Prepaid expenses and other current assets | 35.3 | | | 26.1 | |
| Insurance receivable - Asbestos | 5.7 | | | 5.0 | |
| Workers’ compensation - Asbestos | 1.7 | | | 1.5 | |
| Total current assets | 1,029.8 | | | 908.4 | |
| Property, plant and equipment, net | 1,360.1 | | | 1,341.7 | |
| Operating lease right-of-use-assets | 39.7 | | | 40.5 | |
| Finance lease right-of-use-assets | 2.6 | | | 1.7 | |
| Goodwill | 209.8 | | | 196.9 | |
| Intangible assets, net | 175.7 | | | 166.7 | |
| Insurance receivable - Asbestos | 42.7 | | | 38.5 | |
| Workers’ compensation - Asbestos | 23.8 | | | 20.7 | |
| Deferred income taxes | 961.0 | | | 989.4 | |
| Deferred income taxes - Asbestos | 351.3 | | | 319.1 | |
| Other assets | 3.1 | | | 4.7 | |
| Total assets | $ | 4,199.6 | | | $ | 4,028.3 | |
| Liabilities and Shareholders’ Equity | | | |
| Current liabilities: | | | |
| Accounts payable and accrued liabilities | $ | 291.1 | | | $ | 274.7 | |
| Accrued payroll and employee benefits | 81.0 | | | 87.1 | |
| Operating lease liabilities | 15.1 | | | 14.3 | |
| Finance lease liabilities | 1.1 | | | 0.5 | |
| Accrued product warranties | 7.2 | | | 7.0 | |
| Income taxes payable | 9.1 | | | 8.9 | |
| Asbestos liability | 119.7 | | | 103.9 | |
| Workers’ compensation - Asbestos | 1.7 | | | 1.5 | |
| Other liabilities | 19.2 | | | 12.1 | |
| Total current liabilities | 545.2 | | | 510.0 | |
| Long-term debt | 1,254.8 | | | 1,354.6 | |
| Deferred income taxes | 86.6 | | | 81.9 | |
| Operating lease liabilities | 39.6 | | | 41.4 | |
| Finance lease liabilities | 1.8 | | | 1.5 | |
| Accrued product warranties | 35.7 | | | 35.4 | |
| Income taxes payable | 21.3 | | | 21.3 | |
| Asbestos liability | 965.0 | | | 882.5 | |
| Workers’ compensation - Asbestos | 23.8 | | | 20.7 | |
| Other liabilities | 45.5 | | | 43.7 | |
| Total liabilities | 3,019.3 | | | 2,993.0 | |
| Commitments and contingencies (Note 8) | | | |
| Shareholders’ equity: | | | |
| Common stock, Euro 0.59 par value, 2.0 billion shares authorized; 443,936,919 shares issued and outstanding at 30 September 2020 and 443,144,740 shares issued and outstanding at 31 March 2020 | 231.2 | | | 230.6 | |
| Additional paid-in capital | 214.9 | | | 207.3 | |
| Retained earnings | 755.7 | | | 659.5 | |
| Accumulated other comprehensive loss | (21.5) | | | (62.1) | |
| Total shareholders’ equity | 1,180.3 | | | 1,035.3 | |
| Total liabilities and shareholders’ equity | $ | 4,199.6 | | | $ | 4,028.3 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
James Hardie Industries plc
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months
Ended 30 September | | Six Months
Ended 30 September |
| (Millions of US dollars, except per share data) | 2020 | | 2019 | | 2020 | | 2019 |
| Net sales | $ | 736.8 | | | $ | 660.1 | | | $ | 1,363.1 | | | $ | 1,316.9 | |
| Cost of goods sold | (467.6) | | | (420.0) | | | (874.4) | | | (843.7) | |
| Gross profit | 269.2 | | | 240.1 | | | 488.7 | | | 473.2 | |
| Selling, general and administrative expenses | (98.0) | | | (98.1) | | | (185.6) | | | (199.6) | |
| Research and development expenses | (8.4) | | | (8.2) | | | (15.7) | | | (15.8) | |
| Restructuring expenses | — | | | — | | | (11.1) | | | — | |
| Asbestos adjustments | (16.3) | | | 18.8 | | | (80.0) | | | 27.3 | |
| Operating income | 146.5 | | | 152.6 | | | 196.3 | | | 285.1 | |
| Interest, net | (12.7) | | | (14.2) | | | (25.3) | | | (27.9) | |
| | | | | | | |
| | | | | | | |
| Other (expense) income | (0.2) | | | 0.1 | | | — | | | (0.1) | |
| Income before income taxes | 133.6 | | | 138.5 | | | 171.0 | | | 257.1 | |
| Income tax expense | (46.8) | | | (35.4) | | | (74.8) | | | (67.5) | |
| Net income | $ | 86.8 | | | $ | 103.1 | | | $ | 96.2 | | | $ | 189.6 | |
| Income per share: | | | | | | | |
| Basic | $ | 0.20 | | | $ | 0.23 | | | $ | 0.22 | | | $ | 0.43 | |
| Diluted | $ | 0.20 | | | $ | 0.23 | | | $ | 0.22 | | | $ | 0.43 | |
| Weighted average common shares outstanding (Millions): | | | | | | | |
| Basic | 443.4 | | | 442.3 | | | 443.3 | | | 442.3 | |
| Diluted | 444.8 | | | 444.5 | | | 444.7 | | | 444.3 | |
| Comprehensive income, net of tax: | | | | | | | |
| Net income | $ | 86.8 | | | $ | 103.1 | | | $ | 96.2 | | | $ | 189.6 | |
| | | | | | | |
| | | | | | | |
| Currency translation adjustments | 15.4 | | | (14.8) | | | 40.6 | | | (15.4) | |
| Comprehensive income | $ | 102.2 | | | $ | 88.3 | | | $ | 136.8 | | | $ | 174.2 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
James Hardie Industries plc
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| Six Months
Ended 30 September |
| (Millions of US dollars) | 2020 | | 2019 |
| Cash Flows From Operating Activities | | | |
| Net income | $ | 96.2 | | | $ | 189.6 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 63.1 | | | 63.6 | |
| Lease expense | 8.5 | | | 9.1 | |
| Deferred income taxes | 37.1 | | | 34.3 | |
| Stock-based compensation | 8.2 | | | 5.5 | |
| Asbestos adjustments | 80.0 | | | (27.3) | |
| Excess tax benefits from share-based awards | (2.2) | | | — | |
| Other, net | 10.8 | | | 7.5 | |
| Changes in operating assets and liabilities: | | | |
| Accounts and other receivables | 70.6 | | | 8.2 | |
| Inventories | 83.7 | | | 2.6 | |
| Lease assets and liabilities, net | (9.7) | | | (7.4) | |
| Prepaid expenses and other assets | (10.4) | | | (7.7) | |
| Insurance receivable - Asbestos | 1.6 | | | 4.0 | |
| Accounts payable and accrued liabilities | 12.0 | | | 30.5 | |
| Claims and handling costs paid - Asbestos | (49.7) | | | (53.5) | |
| Income taxes payable | 3.2 | | | (0.4) | |
| Other accrued liabilities | 13.8 | | | (6.8) | |
| Net cash provided by operating activities | $ | 416.8 | | | $ | 251.8 | |
| Cash Flows From Investing Activities | | | |
| Purchases of property, plant and equipment | $ | (44.7) | | | $ | (123.4) | |
| Proceeds from sale of property, plant and equipment | 1.0 | | | 8.0 | |
| Capitalized interest | (4.9) | | | (4.4) | |
| Purchase of restricted short-term investments - Asbestos | — | | | (75.5) | |
| Proceeds from restricted short-term investments - Asbestos | 23.2 | | | 17.5 | |
| Net cash used in investing activities | $ | (25.4) | | | $ | (177.8) | |
| Cash Flows From Financing Activities | | | |
| Proceeds from credit facilities | $ | — | | | $ | 240.0 | |
| Repayments of credit facilities | (130.0) | | | (180.0) | |
| | | |
| Repayment of finance lease obligations and borrowings | (0.4) | | | (0.2) | |
| Dividends paid | — | | | (113.9) | |
| Net cash used in financing activities | $ | (130.4) | | | $ | (54.1) | |
| Effects of exchange rate changes on cash and cash equivalents, restricted cash and restricted cash - Asbestos | $ | 4.6 | | | $ | (4.6) | |
| Net increase in cash and cash equivalents, restricted cash and restricted cash - Asbestos | 265.6 | | | 15.3 | |
| Cash and cash equivalents, restricted cash and restricted cash - Asbestos at beginning of period | 185.8 | | | 123.6 | |
| Cash and cash equivalents, restricted cash and restricted cash - Asbestos at end of period | $ | 451.4 | | | $ | 138.9 | |
| Non-Cash Investing and Financing Activities | | | |
| Capital expenditures incurred but not yet paid | $ | 7.5 | | | $ | 9.6 | |
| Supplemental Disclosure of Cash Flows Activities | | | |
| Cash paid to AICF | $ | 38.3 | | | $ | 108.9 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
James Hardie Industries plc
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended 30 September 2020 |
| (Millions of US dollars) | Common Stock | | Additional Paid-in Capital | | Accumulated Equity | | Accumulated Other Comprehensive Loss | | Total |
| Balances at 30 June 2020 | $ | 230.6 | | | $ | 211.6 | | | $ | 668.9 | | | $ | (36.9) | | | $ | 1,074.2 | |
| Net income | — | | | — | | | 86.8 | | | — | | | 86.8 | |
| Other comprehensive gain | — | | | — | | | — | | | 15.4 | | | 15.4 | |
| Stock-based compensation | 0.6 | | | 3.3 | | | — | | | — | | | 3.9 | |
| Balances at 30 September 2020 | $ | 231.2 | | | $ | 214.9 | | | $ | 755.7 | | | $ | (21.5) | | | $ | 1,180.3 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended 30 September 2020 |
| (Millions of US dollars) | Common Stock | | Additional Paid-in Capital | | Accumulated Equity | | Accumulated Other Comprehensive Loss | | Total |
| Balances at 31 March 2020 | $ | 230.6 | | | $ | 207.3 | | | $ | 659.5 | | | $ | (62.1) | | | $ | 1,035.3 | |
| Net income | — | | | — | | | 96.2 | | | — | | | 96.2 | |
| Other comprehensive gain | — | | | — | | | — | | | 40.6 | | | 40.6 | |
| Stock-based compensation | 0.6 | | | 7.6 | | | — | | | — | | | 8.2 | |
| Balances at 30 September 2020 | $ | 231.2 | | | $ | 214.9 | | | $ | 755.7 | | | $ | (21.5) | | | $ | 1,180.3 | |
| | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
James Hardie Industries plc
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended 30 September 2019 |
| (Millions of US dollars) | Common Stock | | Additional Paid-in Capital | | Accumulated Equity | | Accumulated Other Comprehensive Loss | | Total |
| Balances at 30 June 2019 | $ | 230.0 | | | $ | 200.2 | | | $ | 548.8 | | | $ | (30.9) | | | $ | 948.1 | |
| Net income | — | | | — | | | 103.1 | | | — | | | 103.1 | |
| Other comprehensive loss | — | | | — | | | — | | | (14.8) | | | (14.8) | |
| Stock-based compensation | 0.3 | | | 2.6 | | | — | | | — | | | 2.9 | |
| Balances at 30 September 2019 | $ | 230.3 | | | $ | 202.8 | | | $ | 651.9 | | | $ | (45.7) | | | $ | 1,039.3 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended 30 September 2019 |
| (Millions of US dollars) | Common Stock | | Additional Paid-in Capital | | Accumulated Equity | | Accumulated Other Comprehensive Loss | | Total |
| Balances at 31 March 2019 | $ | 230.0 | | | $ | 197.6 | | | $ | 577.1 | | | $ | (30.3) | | | $ | 974.4 | |
| Net income | — | | | — | | | 189.6 | | | — | | | 189.6 | |
| Other comprehensive loss | — | | | — | | | — | | | (15.4) | | | (15.4) | |
| Stock-based compensation | 0.3 | | | 5.2 | | | — | | | — | | | 5.5 | |
| Adoption of ASU 2016-02 | — | | | — | | | 0.2 | | | — | | | 0.2 | |
| Dividends declared | — | | | — | | | (115.0) | | | — | | | (115.0) | |
| Balances at 30 September 2019 | $ | 230.3 | | | $ | 202.8 | | | $ | 651.9 | | | $ | (45.7) | | | $ | 1,039.3 | |
| | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements
1. Organization and Significant Accounting Policies
Nature of Operations
James Hardie Industries plc ("JHI plc") manufactures and sells fiber cement, fiber gypsum and cement-bonded building products for interior and exterior building construction applications, primarily in the United States, Australia, Europe, New Zealand, the Philippines and Canada.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto, included in the Company’s Annual Report on Form 20-F for the fiscal year ended 31 March 2020 from which the prior year balance sheet information herein was derived. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosures. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, we continue to use the best information available to assess our critical accounting estimates. Actual results could differ from those estimates.
The condensed consolidated financial statements represent the financial position, results of operations and cash flows of JHI plc and its wholly-owned subsidiaries and variable interest entity (“VIE”). Unless the context indicates otherwise, JHI plc and its direct and indirect wholly-owned subsidiaries and VIE (as of the time relevant to the applicable reference) are collectively referred to as “James Hardie”, the “James Hardie Group” or the “Company”. All intercompany transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of the results for the interim periods presented.
The Company has recorded on its balance sheet certain foreign assets and liabilities, including asbestos related assets and liabilities under the terms of the Amended and Restated Final Funding Agreement (“AFFA”), that are denominated in foreign currencies and subject to translation (foreign entities) or remeasurement (Asbestos Injuries Compensation Fund (“AICF”) entity and Euro denominated debt) into US dollars at each reporting date. Unless otherwise noted, the Company converts foreign currency denominated assets and liabilities into US dollars at the current spot rate at the end of the reporting period; while revenues and expenses are converted using an average exchange rate for the period. The Company records gains and losses on its Euro denominated debt which are economically offset by foreign exchange gains and losses on loans between subsidiaries, resulting in a net immaterial translation gain or loss which is recorded in the Selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
Significant Accounting Policies
During the six months ended 30 September 2020, there were no changes to our significant accounting policies as described in our Annual Report on Form 20-F for the fiscal year ended 31 March 2020, except as described in recently adopted accounting pronouncements below.
Recent Accounting Pronouncements
Recently Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. As required, the Company adopted the standard starting with the fiscal year beginning 1 April 2020 using a modified retrospective approach noting no material differences to the condensed consolidated financial statements for the three and six months ended 30 September 2020. The Company estimates its allowance for credit losses on our trade receivables as described in our Accounts Receivables policy below.
Accounts Receivables
The Company evaluates the collectability of accounts receivables on an ongoing basis based on historical bad debts, customer credit-worthiness, current and forward-looking economic trends and changes in the Company's customer payment activity. An allowance for doubtful accounts is provided for known and estimated bad debts. Although credit losses have historically been within expectations, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has had in the past. Because the Company's accounts receivables are concentrated in a relatively small number of customers, a significant change in the liquidity or financial position of any of these customers could impact their ability to make payments and result in the need for additional allowances.
Recently Issued
In December 2019, the FASB issued ASU No. 2019-12, Income taxes (Topic 740). The amendments in the standard are being issued to simplify the accounting for income taxes and are effective for fiscal years and interim periods within those fiscal years, beginning after 15 December 2020 with early adoption permitted. The Company will adopt ASU No. 2019-12 starting with the fiscal year beginning 1 April 2021 and does not expect the adoption of this standard to have a material impact on its consolidated financial statements.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
Earnings Per Share
Basic earnings per share ("EPS") is calculated using net income divided by the weighted average number of common shares outstanding during the period. Diluted EPS is similar to basic EPS except that the weighted average number of common shares outstanding is increased to include the number of additional common shares calculated using the Treasury Method that would have been outstanding if the dilutive potential common shares, such as restricted stock units ("RSUs"), had been issued.
Basic and dilutive common shares outstanding used in determining net income per share are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended 30 September | | Six Months
Ended 30 September |
| (Millions of shares) | 2020 | | 2019 | | 2020 | | 2019 |
| Basic common shares outstanding | 443.4 | | | 442.3 | | | 443.3 | | 442.3 |
| Dilutive effect of stock awards | 1.4 | | | 2.2 | | | 1.4 | | 2.0 |
| Diluted common shares outstanding | 444.8 | | | 444.5 | | | 444.7 | | | 444.3 | |
There were no potential common shares which would be considered anti-dilutive for the three and six months ended 30 September 2020 and 2019.
Potential common shares of 1.0 million for the three and six months ended 30 September 2020 and 2019, respectively, have been excluded from the calculation of diluted common shares outstanding as they are considered contingent shares which are not expected to vest.
2. Revenues
The following represents the Company's disaggregated revenues:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended 30 September 2020 |
| (Millions of US dollars) | North America
Fiber Cement | | Asia Pacific
Fiber Cement | | Europe Building
Products | | Consolidated |
| Fiber cement revenues | $ | 515.0 | | | $ | 122.1 | | | $ | 15.0 | | | $ | 652.1 | |
| Fiber gypsum revenues | — | | | — | | | 84.7 | | | 84.7 | |
| Total revenues | $ | 515.0 | | | $ | 122.1 | | | $ | 99.7 | | | $ | 736.8 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended 30 September 2019 |
| (Millions of US dollars) | North America
Fiber Cement | | Asia Pacific
Fiber Cement | | Europe Building
Products | | Consolidated |
| Fiber cement revenues | $ | 459.6 | | | $ | 112.6 | | | $ | 12.4 | | | $ | 584.6 | |
| Fiber gypsum revenues | — | | | — | | | 75.5 | | | 75.5 | |
| | | | | | | |
| Total revenues | $ | 459.6 | | | $ | 112.6 | | | $ | 87.9 | | | $ | 660.1 | |
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended 30 September 2020 |
| (Millions of US dollars) | North America
Fiber Cement | | Asia Pacific
Fiber Cement | | Europe Building
Products | | Consolidated |
| Fiber cement revenues | $ | 966.8 | | | $ | 213.4 | | | $ | 25.1 | | | $ | 1,205.3 | |
| Fiber gypsum revenues | — | | | — | | | 157.8 | | | 157.8 | |
| Total revenues | $ | 966.8 | | | $ | 213.4 | | | $ | 182.9 | | | $ | 1,363.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended 30 September 2019 |
| (Millions of US dollars) | North America
Fiber Cement | | Asia Pacific
Fiber Cement | | Europe Building
Products | | Other Businesses 1 | | Consolidated |
| Fiber cement revenues | $ | 911.9 | | | $ | 220.6 | | | $ | 24.9 | | | $ | — | | | $ | 1,157.4 | |
| Fiber gypsum revenues | — | | | — | | | 158.9 | | | — | | | 158.9 | |
| Other revenues | — | | | — | | | — | | | 0.6 | | | 0.6 | |
| Total revenues | $ | 911.9 | | | $ | 220.6 | | | $ | 183.8 | | | $ | 0.6 | | | $ | 1,316.9 | |
1 Effective 31 March 2020, the Other Businesses segment no longer qualifies as a reportable segment. |
The process by which the Company recognizes revenues is consistent across each of the Company's reportable segments. Fiber cement and fiber gypsum revenues are primarily generated from the sale of siding and various boards used in internal and external applications, as well as accessories. Fiber gypsum revenues also includes the sale of cement-bonded boards in the Europe Building Products segment. Other revenues in the Other Businesses segment were generated from the sale of fiberglass products and windows in North America.
3. Cash and Cash Equivalents, Restricted Cash and Restricted Cash - Asbestos
The following table provides a reconciliation of Cash and cash equivalents, Restricted cash and Restricted cash - Asbestos reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
| | | | | | | | | | | | | | | |
| (Millions of US dollars) | 30 September
2020 | | 31 March
2020 | | | | |
| Cash and cash equivalents | $ | 390.6 | | | $ | 144.4 | | | | | |
| Restricted cash | 5.0 | | | 5.0 | | | | | |
| Restricted cash - Asbestos | 55.8 | | | 36.4 | | | | | |
| Total cash and cash equivalents, restricted cash and restricted cash - Asbestos | $ | 451.4 | | | $ | 185.8 | | | | | |
Restricted cash relates to an insurance policy which restricts the cash from general corporate purposes.
Restricted cash - Asbestos is restricted to the settlement of asbestos claims and for the payment of the operating costs of AICF.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
4. Inventories
Inventories consist of the following components:
| | | | | | | | | | | |
| (Millions of US dollars) | 30 September
2020 | | 31 March
2020 |
| Finished goods | $ | 164.7 | | | $ | 224.4 | |
| Work-in-process | 7.6 | | | 8.1 | |
| Raw materials and supplies | 67.8 | | | 87.0 | |
| Provision for obsolete finished goods and raw materials | (9.9) | | | (14.4) | |
| Total inventories | $ | 230.2 | | | $ | 305.1 | |
5. Long-Term Debt
The following table represents the Company's Long-Term debt obligations:
| | | | | | | | | | | |
| (Millions of US dollars) | 30 September
2020 | | 31 March
2020 |
| Senior unsecured notes: | | | |
| Principal amount 4.750% notes due 2025 | $ | 400.0 | | | $ | 400.0 | |
Principal amount 3.625% notes due 2026 (€400 million) | 469.4 | | | 440.7 | |
| Principal amount 5.000% notes due 2028 | 400.0 | | | 400.0 | |
| Total | 1,269.4 | | | 1,240.7 | |
| | | |
| Unsecured revolving credit facility | — | | | 130.0 | |
| Unamortized debt issuance costs | (14.6) | | | (16.1) | |
| Total Long-term debt | $ | 1,254.8 | | | $ | 1,354.6 | |
| | | |
| Weighted average interest rate | 4.4 | % | | 4.3 | % |
| Weighted average term | 4.8 years | | 5.3 years |
| | | |
| Fair value of Senior unsecured notes (Level 1) | $ | 1,301.1 | | | $ | 1,147.7 | |
At 30 September 2020, the Company had a total borrowing base capacity of US$500.0 million under the unsecured revolving credit facility which expires December 2022. Letters of credit and bank guarantees drawn at 30 September 2020 total US$4.7 million leaving the Company with US$495.3 million of available borrowing capacity under the unsecured revolving credit facility.
At 30 September 2020, the Company was in compliance with all covenants contained in the senior unsecured notes and the unsecured revolving credit facility agreement.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
6. Asbestos
In February 2007, the Company’s shareholders approved the AFFA, an agreement pursuant to which the Company provides long-term funding to the AICF.
Asbestos Adjustments
The following table sets forth the Asbestos adjustments included in the condensed consolidated statements of operations and comprehensive income:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended 30 September | | Six Months
Ended 30 September |
| (Millions of US dollars) | 2020 | | 2019 | | 2020 | | 2019 |
| Effect of foreign exchange on Asbestos net liabilities | $ | (20.2) | | | $ | 18.9 | | | $ | (82.4) | | | $ | 26.5 | |
| Gain (loss) on foreign currency forward contracts | 3.9 | | | (0.1) | | | 2.4 | | | 0.8 | |
| Total Asbestos Adjustments | $ | (16.3) | | | $ | 18.8 | | | $ | (80.0) | | | $ | 27.3 | |
Claims Data
The following table shows the activity related to the numbers of open claims, new claims and closed claims during each of the past five years and the average settlement per settled claim and case closed:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months
Ended | | For the Years Ended 31 March |
| | 30 September 2020 | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Number of open claims at beginning of period | 393 | | | 332 | | | 336 | | | 352 | | | 426 | | | 494 | |
| Number of new claims | | | | | | | | | | | |
| Direct claims | 196 | | | 449 | | | 430 | | | 422 | | | 402 | | | 431 | |
| Cross claims | 93 | | | 208 | | | 138 | | | 140 | | | 155 | | | 146 | |
| Number of closed claims | 311 | | | 596 | | | 572 | | | 578 | | | 631 | | | 645 | |
| Number of open claims at end of period | 371 | | | 393 | | | 332 | | | 336 | | | 352 | | | 426 | |
| Average settlement amount per settled claim | A$227,000 | | A$277,000 | | A$262,000 | | A$253,000 | | A$224,000 | | A$248,000 |
| Average settlement amount per case closed | A$207,000 | | A$245,000 | | A$234,000 | | A$217,000 | | A$168,000 | | A$219,000 |
| | | | | | | | | | | |
| Average settlement amount per settled claim | US$156,000 | | US$189,000 | | US$191,000 | | US$196,000 | | US$168,000 | | US$183,000 |
| Average settlement amount per case closed | US$142,000 | | US$167,000 | | US$171,000 | | US$168,000 | | US$126,000 | | US$161,000 |
Under the terms of the AFFA, the Company has rights of access to actuarial information produced for AICF by the actuary appointed by AICF, which is currently KPMG Actuarial. The Company’s disclosures with respect to claims statistics are subject to it obtaining such information, however, the AFFA does not provide the Company an express right to audit or otherwise require independent verification of such information or the methodologies to be adopted by the approved actuary. As such, the Company relies on the accuracy and completeness of the information provided by AICF to the approved actuary and the resulting information and analysis of the approved actuary when making disclosures with respect to claims statistics.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
Asbestos-Related Assets and Liabilities
The following is a detailed rollforward of the Net Unfunded AFFA liability, net of tax, for the six months ended 30 September 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of US dollars) | Asbestos Liability | | Insurance
Receivables | | Restricted
Cash and Investments | | Other
Assets
and Liabilities | | Net Unfunded AFFA Liability | | Deferred Tax
Assets | | Income
Tax
Payable | | Net Unfunded AFFA Liability, net of tax |
| Balance - 31 March 2020 | $ | (986.4) | | | $ | 43.5 | | | $ | 58.0 | | | $ | (2.0) | | | $ | (886.9) | | | $ | 319.1 | | | $ | 23.4 | | | $ | (544.4) | |
Asbestos claims paid1 | 49.2 | | | — | | | (49.2) | | | — | | | — | | | — | | | — | | | — | |
Payment received in accordance with AFFA2 | — | | | — | | | 38.3 | | | — | | | 38.3 | | | — | | | — | | | 38.3 | |
AICF claims-handling costs incurred (paid) | 0.5 | | | — | | | (0.5) | | | — | | | — | | | — | | | — | | | — | |
AICF operating costs paid - non claims-handling | — | | | — | | | (0.6) | | | — | | | (0.6) | | | — | | | — | | | (0.6) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Insurance recoveries | — | | | (1.6) | | | 1.6 | | | — | | | — | | | — | | | — | | | — | |
| Movement in income tax payable | — | | | — | | | — | | | — | | | — | | | (16.1) | | | (10.0) | | | (26.1) | |
| Other movements | — | | | — | | | 0.2 | | | (0.3) | | | (0.1) | | | 0.2 | | | (0.1) | | | — | |
| Effect of foreign exchange | (148.0) | | | 6.5 | | | 8.0 | | | (0.2) | | | (133.7) | | | 48.1 | | | 3.2 | | | (82.4) | |
| Balance - 30 September 2020 | $ | (1,084.7) | | | $ | 48.4 | | | $ | 55.8 | | | $ | (2.5) | | | $ | (983.0) | | | $ | 351.3 | | | $ | 16.5 | | | $ | (615.2) | |
____________
1Claims paid of US$49.2 million reflects A$71.7 million converted at the average exchange rate for the period based on the assumption that these transactions occurred evenly throughout the period.
AICF Funding
The AICF payment of A$220.9 million which represents 35% of the Company's free cash flow plus interest, as defined by the AFFA, for fiscal year 2020 will be made by the Company in quarterly installments during fiscal year 2021 as follows:
| | | | | |
| Payment Date | A$ Millions |
| 1 July 2020 | 55.2 |
| 1 October 2020 | 55.2 |
| 4 January 2021 | 55.2 |
| 23 March 2021 | 55.3 |
For the three and six months ended 30 September 2020, the Company did not provide financial or other support to AICF that it was not previously contractually required to provide.
Free cash flow as defined in the AFFA, for the six months ended 30 September 2020 is US$424.5 million, which is equivalent to operating cash flows of US$416.8 million, plus adjustments of US$7.7 million.
AICF – NSW Government Secured Loan Facility
AICF may borrow, subject to certain conditions, up to an aggregate amount of A$320.0 million (US$227.7 million, based on the exchange rate at 30 September 2020). The AICF Loan Facility is available to be drawn for the payment of claims through 1 November 2030, at which point, all outstanding borrowings must be repaid. Borrowings made under the AICF Loan Facility are classified as current, as AICF intends to repay the debt within one year.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
At 30 September 2020 and 31 March 2020, AICF had no amounts outstanding under the AICF Loan Facility.
7. Derivatives
The Company uses derivatives for risk management purposes and does not engage in speculative activity. A risk management objective for the Company is to mitigate interest rate risk associated with the Company’s external credit facilities and foreign currency risk primarily with respect to forecasted transactions denominated in foreign currencies. The determination of whether the Company enters into a derivative transaction to achieve these risk management objectives depends on a number of factors, including an evaluation of the extent to which derivative instruments will achieve such risk management objectives of the Company.
The Company may from time to time enter into interest rate swap contracts to protect against upward movements in US Dollar LIBOR and the associated interest the Company pays on its external credit facilities. Interest rate swaps are recorded in the financial statements at fair value. Changes in fair value are recorded in the condensed consolidated statements of operations and comprehensive income in Other (expense) income.
Interest Rate Swaps
The fair value of interest rate swap contracts is calculated based on the fixed rate, notional principal, settlement date and present value of the future cash inflows and outflows based on the terms of the agreement and the future floating interest rates as determined by a future interest rate yield curve. The model used to value the interest rate swap contracts is based upon well recognized financial principles, and interest rate yield curves can be validated through readily observable data by external sources. Although readily observable data is used in the valuations, different valuation methodologies could impact the estimated fair value. Accordingly, the interest rate swap contracts are categorized as Level 2 within the fair value hierarchy.
The notional amount of interest rate swap contracts was nil and US$25.0 million at 30 September 2020 and 31 March 2020, respectively, and represents the basis upon which payments are calculated and are reported on a net basis when a legal and enforceable right of set-off exists. For the three and six months ended 30 September 2020 and 2019, the unrealized and realized gains and losses recorded on interest rate swap contracts are immaterial and are included in Other (expense) income.
Foreign Currency Forward Contracts
The Company’s foreign currency forward contracts are valued using models that maximize the use of market observable inputs including interest rate curves and both forward and spot prices for currencies and are categorized as Level 2 within the fair value hierarchy. At 30 September 2020, the Company had foreign currency forward contracts with a notional value of US$191.3 million, which are entirely related to upcoming AICF payments.
For the three and six months ended 30 September 2020 and 2019, the gains and losses recorded on these forward contracts are immaterial. Refer to Note 6 for further details.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
8. Commitments and Contingencies
Legal Matters
The Company is involved from time to time in various legal proceedings and administrative actions related to the normal conduct of its business, including general liability claims, putative class action lawsuits and litigation concerning its products.
Although it is impossible to predict the outcome of any pending legal proceeding, management believes that such proceedings and actions should not, individually or in the aggregate, have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows, except as they relate to asbestos as described in these condensed consolidated financial statements.
New Zealand Weathertightness Claims
Since fiscal year 2002, the Company’s New Zealand subsidiaries are joined in a number of weathertightness claims in New Zealand that relate to residential buildings (single dwellings and apartment complexes) and a small number of non-residential buildings, primarily constructed from 1998 to 2004.
In 2015 the Company and/or its subsidiaries were named as the sole defendants in four claims on behalf of multiple defendants, three of which are still pending and each of which allege that the New Zealand subsidiaries’ products were inherently defective. The Company believes it has substantial factual and legal defenses to these claims and is defending the claims vigorously. For further details, refer to the Form 20-F filed on 19 May 2020.
In August 2020, phase one of the first claim commenced in Wellington, New Zealand to solely determine whether the Company’s New Zealand subsidiaries had a duty to the plaintiffs and breached that duty. This phase of the trial is expected to be completed in fiscal year 2021, with a court decision expected to be announced in early fiscal year 2022.
While the outcome of this phase of the first claim cannot be predicted, management does not believe this matter will have a material adverse effect on our business or financial position. As of 30 September 2020, we had no estimated loss accrued related to the legal matter discussed above because we believe the chance of loss from this matter is not probable and the amount of loss, if any, cannot be reasonably estimated.
Environmental
The operations of the Company, like those of other companies engaged in similar businesses, are subject to several laws and regulations on air and water quality, waste handling and disposal. The Company’s policy is to accrue for environmental costs when it is determined that it is probable that an obligation exists and the amount can be reasonably estimated.
9. Income Taxes
Income taxes payable represents taxes currently payable which are computed at statutory income tax rates applicable to taxable income derived in each jurisdiction in which the Company conducts business. During the six months ended 30 September 2020, the Company received net tax refunds of US$39.0 million.
Income tax expense differs from the statutory rate primarily due to the Company’s mix of pre-tax income by jurisdiction, foreign taxes on domestic income and foreign exchange on asbestos.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
Deferred income taxes include net operating loss carry-forwards. At 30 September 2020, the Company had tax loss carry-forwards in Australia, New Zealand, Europe and the US of approximately US$59.9 million that are available to offset future taxable income in the respective jurisdiction. The Company establishes a valuation allowance against a deferred tax asset if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
The Australian tax loss carry-forwards primarily result from current and prior year tax deductions for contributions to AICF. James Hardie 117 Pty Limited, the performing subsidiary under the AFFA, is able to claim a tax deduction for its contributions to AICF over a five-year period commencing in the year the contribution is incurred. At 30 September 2020, the Company recognized a tax deduction of US$52.9 million (A$77.2 million) for the current year relating to total contributions to AICF of US$558.5 million (A$771.7 million) incurred in tax years 2017 through 2021.
10. Stock-Based Compensation
Total stock-based compensation expense consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months
Ended 30 September | | Six Months
Ended 30 September |
| (Millions of US dollars) | 2020 | | 2019 | | 2020 | | 2019 |
| Liability Awards Expense | $ | 6.1 | | | $ | 2.6 | | | $ | 12.9 | | | $ | 4.0 | |
| Equity Awards Expense | 3.9 | | | 2.9 | | | 8.2 | | | 5.5 | |
| Total stock-based compensation expense | $ | 10.0 | | | $ | 5.5 | | | $ | 21.1 | | | $ | 9.5 | |
At 30 September 2020, the unrecorded future stock-based compensation expense related to outstanding equity awards was US$17.7 million and will be recognized over an estimated weighted average amortization period of 2.2 years.
11. Segment Information
The Company has reported its segment information in the format that the information is available to and evaluated by the Chief Operating Decision Maker. The North America Fiber Cement segment manufactures fiber cement interior linings, exterior siding products and related accessories in the United States; these products are sold in the United States and Canada. The Asia Pacific Fiber Cement segment includes all fiber cement products manufactured in Australia, New Zealand and the Philippines, and sold in Australia, New Zealand, Asia, the Middle East and various Pacific Islands. The Europe Building Products segment includes the Fermacell business and fiber cement product manufactured in the United States that is sold in Europe. The Other Businesses segment ceased to be an operating and reportable segment effective 31 March 2020 due to the Company's completion of its exit of its non-fiber cement manufacturing and sales activities in North America, including fiberglass windows. The Research and Development segment represents the cost incurred by the research and development centers. General Corporate costs primarily consist of Asbestos adjustments, officer and employee compensation and related benefits, professional and legal fees, administrative costs and rental expense, net of rental income, on the Company’s corporate offices. The Company does not report net interest expense for each segment as the segments are not held directly accountable for interest expense.
James Hardie Industries plc
Notes to Condensed Consolidated Financial Statements (continued)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Net Sales
Three Months Ended 30 September | | Net Sales
Six Months Ended 30 September |
| (Millions of US dollars) | 2020 | | 2019 | | 2020 | | 2019 |
| North America Fiber Cement | $ | 515.0 | | | $ | 459.6 | | | $ | 966.8 | | | $ | 911.9 | |
| Asia Pacific Fiber Cement | 122.1 | | | 112.6 | | | 213.4 | | | 220.6 | |
| Europe Building Products | 99.7 | | | 87.9 | | | 182.9 | | | 183.8 | |
| Other Businesses | — | | | — | | | — | | | 0.6 | |
| Worldwide total | $ | 736.8 | | | $ | 660.1 | | | $ | 1,363.1 | | | $ | 1,316.9 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Operating Income
Three Months Ended 30 September | | Operating Income
Six Months Ended 30 September |
| (Millions of US dollars) | 2020 | | 2019 | | 2020 | | 2019 |
| North America Fiber Cement | $ | 148.6 | | | $ | 124.7 | | | $ | 277.0 | | | $ | 238.2 | |
| Asia Pacific Fiber Cement | 38.7 | | | 27.0 | | | 57.6 | | | 51.8 | |
| Europe Building Products | 11.1 | | | 5.8 | | | 8.4 | | | 13.7 | |
| Other Businesses | — | | | (0.5) | | | — | | | (0.1) | |
Research and Development 1 | (6.4) | | | (6.9) | | | (12.5) | | | (13.1) | |
| Segments total | 192.0 | | | 150.1 | | | 330.5 | | | 290.5 | |
| General Corporate | (45.5) | | | 2.5 | | | (134.2) | | | (5.4) | |
| Total operating income | $ | 146.5 | | | $ | 152.6 | | | $ | 196.3 | | | $ | 285.1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
____________
1.For the three and six months ended 30 September 2020, the Research and Development segment also included Selling, general and administrative expenses of US$0.5 million and US$1.3 million, respectively. For the three and six months ended 30 September 2019, the Research and Development segment also included Selling, general and administrative expenses of US$0.9 million and US$1.6 million, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| Research and Development Expenses |
| | Three Months Ended 30 September | | Six Months Ended 30 September |
| (Millions of US dollars) | 2020 | | 2019 | | 2020 | | 2019 |
| North America Fiber Cement | $ | 1.7 | | | $ | 1.4 | | | $ | 2.8 | | | $ | 2.7 | |
| Asia Pacific Fiber Cement | 0.3 | | | 0.4 | | | 0.6 | | | 0.9 | |
| Europe Building Products | 0.5 | | | 0.4 | | | 1.1 | | | 0.7 | |
| Research and Development | 5.9 | | | 6.0 | | | 11.2 | | | 11.5 | |
| $ | 8.4 | | | $ | 8.2 | | | $ | 15.7 | | | $ | 15.8 | |
12. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is comprised of the following at 30 September 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Millions of US dollars) | | Cash Flow
Hedges | | Pension
Actuarial Gain | | Foreign
Currency
Translation
Adjustments | | Total |
| Balance at 31 March 2020 | | $ | 0.2 | | | $ | 0.8 | | | $ | (63.1) | | | $ | (62.1) | |
| Other comprehensive gain | | — | | | — | | | 40.6 | | | 40.6 | |
| Balance at 30 September 2020 | | $ | 0.2 | | | $ | 0.8 | | | $ | (22.5) | | | $ | (21.5) | |