| Operating Segment Information and Concentrations of Risk |
17. Operating Segment
Information and Concentrations of Risk
The Company has reported its
operating segment information in the format that the operating
segment information is available to and evaluated by senior
management. USA and Europe Fibre Cement manufactures fibre cement
interior linings, exterior siding products and related accessories
in the United States; these products are sold in the United States,
Canada and Europe. Asia Pacific Fibre Cement includes all fibre
cement manufactured in Australia, New Zealand and the Philippines
and sold in Australia, New Zealand, Asia, the Middle East (Israel,
Kuwait, Qatar and United Arab Emirates), and various Pacific
Islands. Research and Development represents the cost incurred by
the research and development centres.
Operating Segments
The following are the Company’s
operating segments and geographical information:
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Net Sales to
Customers1
Years Ended 31
March
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(Millions of US
dollars)
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2014 |
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2013 |
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2012 |
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USA & Europe Fibre
Cement
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$ |
1,127.6 |
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$ |
951.4 |
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$ |
862.0 |
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Asia Pacific Fibre Cement
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366.2 |
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369.9 |
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375.5 |
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Worldwide total
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$ |
1,493.8 |
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$ |
1,321.3 |
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$ |
1,237.5 |
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Income Before Income Taxes
Years Ended 31 March |
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(Millions of US
dollars)
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2014 |
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2013 |
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2012 |
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USA & Europe Fibre
Cement2,
3
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$ |
237.0 |
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$ |
145.6 |
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$ |
148.4 |
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Asia Pacific Fibre
Cement2,
8
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81.1 |
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61.7 |
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80.3 |
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Research and
Development2
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(24.4 |
) |
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(26.0 |
) |
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(20.7 |
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Segments total
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293.7 |
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181.3 |
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208.0 |
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General Corporate4
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(240.6 |
) |
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(151.8 |
) |
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(52.5 |
) |
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Total operating income
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53.1 |
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29.5 |
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155.5 |
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Net interest
expense5
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(1.1 |
) |
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2.4 |
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(7.4 |
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Other income
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2.6 |
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1.8 |
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3.0 |
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Worldwide total
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$ |
54.6 |
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$ |
33.7 |
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$ |
151.1 |
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Total Identifiable
Assets
31 March
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(Millions of US
dollars)
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2014 |
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2013 |
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USA & Europe Fibre
Cement
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$ |
782.6 |
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$ |
730.6 |
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Asia Pacific Fibre Cement
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237.6 |
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230.7 |
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Research and Development
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19.7 |
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20.9 |
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Segments total
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1,039.9 |
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982.2 |
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General Corporate6,
7
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1,066.6 |
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1,131.0 |
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Worldwide total
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$ |
2,106.5 |
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$ |
2,113.2 |
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Net Sales to
Customers1
Years Ended 31
March
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(Millions of US
dollars)
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2014 |
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2013 |
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2012 |
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USA
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$ |
1,094.6 |
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$ |
923.8 |
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$ |
833.9 |
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Australia
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259.2 |
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272.0 |
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282.4 |
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New Zealand
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63.0 |
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56.1 |
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54.4 |
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Other Countries
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77.0 |
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69.4 |
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66.8 |
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Worldwide total
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$ |
1,493.8 |
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$ |
1,321.3 |
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$ |
1,237.5 |
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Total Identifiable
Assets
31 March
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(Millions of US
dollars)
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2014 |
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2013 |
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USA
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$ |
785.8 |
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$ |
739.8 |
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Australia
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176.3 |
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156.3 |
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New Zealand
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29.4 |
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39.8 |
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Other Countries
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48.4 |
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46.3 |
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Segments total
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1,039.9 |
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982.2 |
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General Corporate6,
7
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1,066.6 |
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1,131.0 |
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Worldwide total
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$ |
2,106.5 |
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$ |
2,113.2 |
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| 1 |
Export
sales and inter-segmental sales are not significant.
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| 2 |
Research
and development costs of US$9.6 million, US$11.9 million and
US$10.1 million in fiscal years 2014, 2013 and 2012, respectively,
were expensed in the USA and Europe Fibre Cement segment. Research
and development costs of US$1.3 million, US$1.7 million and US$1.6
million in fiscal years 2014, 2013 and 2012, respectively, were
expensed in the Asia Pacific Fibre Cement segment. Research and
development costs of US$22.2 million, US$23.6 million and US$18.7
million in fiscal years 2014, 2013 and 2012, respectively, were
expensed in the Research and Development segment. The Research and
Development segment also included selling, general and
administrative expenses of US$2.2 million, US$2.4 million and
US$2.0 million in fiscal years 2014, 2013 and 2012,
respectively.
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Research and development expenditures are expensed as
incurred and in total amounted to US$33.1 million, US$37.2 million
and US$30.4 million for the years ended 31 March 2014, 2013
and 2012, respectively. |
| 3 |
Included
in the USA and Europe Fibre Cement segment for the years ended
31 March 2014, 2013 and 2012 are asset impairment charges of
nil, US$16.9 million and US$14.3 million, respectively. See Note 7
for further information.
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| 4 |
The
principal components of the General Corporate segment are officer
and employee compensation and related benefits, professional and
legal fees, administrative costs, and rental expense on the
Company’s corporate offices. Included in the General
Corporate segment for the year ended 31 March 2014 are
unfavourable asbestos adjustments of US$195.8 million and AICF
SG&A expenses of US$2.1 million. Included in the General
Corporate segment for the year ended 31 March 2013 are
unfavourable asbestos adjustments of US$117.1 million, AICF
SG&A expenses of US$1.7 million and ASIC expenses of US$2.6
million. Included in the General Corporate segment for the year
ended 31 March 2012 are unfavourable asbestos adjustments of
US$15.8 million, AICF SG&A expenses of US$2.8 million and ASIC
expenses of US$1.1 million.
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| 5 |
The
Company does not report net interest expense for each operating
segment as operating segments are not held directly accountable for
interest expense. Included in net interest (expense) income is AICF
interest income of US$2.9 million, US$7.0 million and US$3.3
million in fiscal years 2014, 2013 and 2012, respectively. See Note
11 for more information.
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| 6 |
The
Company does not report deferred tax assets and liabilities for
each operating segment as operating segments are not held directly
accountable for deferred income taxes. All deferred income taxes
are included in the General Corporate segment.
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| 7 |
Asbestos-related assets at 31 March 2014 and 2013 are
US$812.4 million and US$882.8 million, respectively, and are
included in the General Corporate segment.
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| 8 |
Included
in the Asia Pacific Fibre Cement segment for the years ended
31 March 2014, 2013 and 2012 are expenses related to the
legacy New Zealand product liability claims of US$1.7 million,
US$13.2 million and US$5.4 million, respectively. See Note 13 for
more information.
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Concentrations of
Risk
The distribution channels for the
Company’s fibre cement products are concentrated. If the
Company were to lose one or more of its major customers, there can
be no assurance that the Company will be able to find a
replacement. Therefore, the loss of one or more customers could
have a material adverse effect on the Company’s consolidated
financial position, results of operations and cash
flows.
The Company has two major customers
that individually account for over 10% of the Company’s net
sales in one or all of the past three fiscal years.
These two customers’ accounts
receivable represented 14% and 22% of the Company’s trade
accounts receivable at 31 March 2014 and 2013, respectively.
The following are gross sales generated by these two customers,
which are all from the USA and Europe Fibre Cement
segment:
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Years Ended 31 March |
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(Millions of US
dollars)
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2014 |
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2013 |
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2012 |
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% |
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% |
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% |
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Customer A
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$ |
174.2 |
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11.7 |
% |
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$ |
223.0 |
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16.9 |
% |
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$ |
207.4 |
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16.8 |
% |
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Customer B
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139.6 |
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9.3 |
% |
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137.7 |
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10.4 |
% |
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135.7 |
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11.0 |
% |
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$ |
313.8 |
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$ |
360.7 |
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$ |
343.1 |
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Approximately 27% and 30% of the
Company’s net sales in fiscal year 2014 and 2013,
respectively, were derived from outside the United States.
Consequently, changes in the value of foreign currencies could
significantly affect the consolidated financial position, results
of operations and cash flows of the Company’s non-US
operations on translation into US dollars.
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