Operations and Summary of Significant Accounting Policies

Nature of Operations and Organization

Euramax Holdings, Inc. and Subsidiaries (the "Company") is an international producer of residential and commercial building materials and recreational vehicle, or RV, exterior components. The Company's core building products include aluminum, steel, vinyl and copper roof drainage products, steel roofing and siding, and specialty coated aluminum coil. In addition, the Company sells an extensive line of accessory products, including roofing and siding hardware, trim parts and roof drainage accessories. The Company's core RV products include aluminum siding and roofing. The Company sells its products to a wide range of customers, including distributors, contractors, and home improvement retailers, as well as RV and transportation original equipment manufacturers, or OEMs. The Company's manufacturing and distribution network consists of 35 strategically located facilities, of which 30 are located in North America and five are located in Europe. The Company's sales volumes have historically been higher in the second and third quarters due to the seasonal demand of the building products markets served.

Liquidity and Capital Resources

The Company's ability to make payments on and to refinance the indebtedness, to fund planned capital expenditures and to satisfy other capital and commercial commitments will depend on the Company's ability to generate cash flow in the future. The Senior Secured Notes (the "Notes") become due on April 1, 2016 with amounts outstanding, as of December 31, 2014, of $375 million. In the event the Notes are not refinanced prior to December 31, 2015, the ABL Credit Facility becomes due on January 31, 2016. See Note 5 for further disclosures related to Long-Term Debt. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company's control. The Company believes December 31, 2014 cash levels, together with cash from operations and borrowings under the ABL Credit Facility, will be adequate to fund cash requirements based on the current level of operations for at least twelve months from December 31, 2014. The Company cannot assure that its business will generate sufficient cash flow from operations, that net sales growth and operating improvements will be realized or that future borrowings will be available under the ABL Credit Facility in an amount sufficient to enable the Company to service its indebtedness or to fund its other liquidity needs. In particular, the availability under the ABL Credit Facility is determined based on a borrowing base which can decline due to various factors. The Company may not be able to generate sufficient cash to service all of the indebtedness, including the Notes, and may not be able to refinance the indebtedness on favorable terms. If the Company is unable to do so, the Company may be forced to take other actions to satisfy its obligations under the indebtedness, which may not be successful.

Basis of Presentation and Consolidation

The consolidated financial statements of the Company are prepared in conformity with U.S. generally accepted accounting principles and include the accounts of the Company and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

On August 14, 2012, the Company acquired Cleveland Tubing, Inc. ("CTI") for approximately $6.4 million, net of cash acquired. CTI was a developer and manufacturer of corrugated plastic parts, including collapsible and flexible specialty drainage products, sold through the Company's U.S. Residential Products segment. The results of operations for CTI have been included in the Company’s consolidated financial statements as of and from the date of the acquisition. The Company allocated the purchase price to the assets acquired and liabilities assumed based on their fair values as of the acquisition date. The acquired assets of CTI consisted primarily of accounts receivable, property, plant and equipment, and inventories. The liabilities assumed generally consisted of accounts payable and accrued liabilities.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts of certain assets, liabilities, revenues and expenses and disclosure of contingencies in the Company's consolidated financial statements. Although these estimates and assumptions are based on the Company's knowledge of current events and actions the Company may take in the future, actual results could ultimately differ from those estimates and assumptions, and the differences could be material.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. Certain cash overdrafts of the Company have been netted with positive cash balances held with the same financial institutions.

Accounts Receivable

Accounts receivable are comprised of trade accounts receivable and other receivables. Trade accounts receivable are recorded at net realizable value and totaled $77.1 million and $69.8 million as of December 31, 2014 and December 31, 2013, respectively. This value includes an allowance for estimated uncollectible accounts, returns and allowances, cash discounts and other adjustments. The allowance for doubtful accounts is based on historical experience, the level of past-due accounts based on the contractual terms of the receivables, current economic conditions and an evaluation of the customers' credit worthiness. Accounts receivable are charged against the allowance for doubtful accounts when it is probable that the receivable will not be recovered.

Activity in the allowance for doubtful accounts was as follows:



	2014			2013			2012
Balance, beginning of year	$	2,235		$	2,751		$	4,391
Charges to costs and expenses	35			290			364
Write-offs and other activity	(664		)	(838		)	(2,037		)
Foreign currency translation	(84		)	32			33
Balance, end of year	$	1,522		$	2,235		$	2,751

Inventories

Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out (FIFO) method. Cost of manufactured inventory includes direct labor and manufacturing overhead. Market with respect to all inventories is replacement cost subject to a floor for an approximate normal profit margin on disposition. Abnormal amounts of idle facility expense, freight, handling costs, and wasted materials are recorded as current period charges.

Property, Plant, and Equipment

Property, plant, and equipment is recorded at cost. Cost of property, plant, and equipment acquired in a business combination is recorded at fair value based on the age and current replacement cost for similar assets on the date of the acquisition. Repair and maintenance costs are generally expensed unless they extend the useful lives of assets. Depreciation of property, plant, and equipment is computed principally on the straight-line method over the estimated useful lives of the assets ranging from 3 years to 37 years for equipment and from 10 years to 25 years for buildings. When events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, management assesses whether there has been an impairment in the value of the asset by comparing the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition to the carrying amount of the asset. If the expected future cash flows are less than the carrying amount of the asset, an impairment loss is recognized based on the excess of the asset's carrying value over its fair value. Fair value is estimated based on discounted cash flows, independent appraisals or comparable market transactions.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and identifiable intangible assets acquired. Goodwill has been assigned to multiple reporting units at either the operating segment, or one level below, primarily based upon the nature of discrete businesses comprising the Company's operations. We test our goodwill for impairment annually on the first day of our fourth quarter or more frequently if events or circumstances indicate the potential for impairment. The implied fair value of goodwill is determined by estimating the fair value of the reporting units and allocating such value to the tangible and identifiable intangible assets of each reporting unit. The Company's fair value estimate is based upon estimates of the future cash flows of the reporting units and market valuations of comparable companies. Significant judgments are made in estimating the future cash flows of the reporting units and determining comparable companies upon which fair values of the Company's reporting units are based. No goodwill impairment charges were recorded during fiscal years 2014, 2013, or 2012. The carrying value of goodwill at the valuation date is not representative of current fair value.

The Company has recognized intangible assets, apart from goodwill, acquired in business combinations and resulting from certain shareholder transactions, at fair value on the date of the transactions. Indefinite lived intangible assets are not amortized, but are tested for impairment annually, or more frequently if events or circumstances indicate the potential for impairment. The Company amortizes its intangible assets with finite lives over their useful lives based upon the pattern in which the economic benefits of the intangible assets are recognized. If that pattern cannot be determined, a straight-line amortization method is used. Intangible assets with finite lives are tested for impairment when there are indications that the carrying amount of an intangible asset may not be recoverable. The Company utilizes an income approach to estimate the fair value of its definite and indefinite lived intangible assets to test for impairment.

No intangible asset impairment charges were recorded in fiscal years 2014, 2013, or 2012. See Note 4 for further disclosures related to goodwill and other intangible assets.

Income Taxes

The Company accounts for income taxes using the asset and liability method of accounting. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable for future years to differences between financial statement and tax bases of existing assets and liabilities. Valuation allowances are established if the Company believes it is more likely than not that some or all of the deferred tax assets will not be realized. A tax benefit is not recognized unless the Company concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, a tax benefit is recognized and measured as the largest amount of the tax benefit that in the Company's judgment is greater than 50 percent likely to be realized. Interest and penalties related to unrecognized tax positions are recorded in benefit from income taxes in the accompanying consolidated statements of operations. See Note 9 for further disclosures related to income taxes.

Financial Instruments and Risk Management

The Company measures fair value based on a hierarchy disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value.

Market price observability is impacted by a number of factors, including the type of asset or liability and their characteristics. This hierarchy prioritizes the inputs into three broad levels as follows:


Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities.


Level 2	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.


Level 3	Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

All derivative instruments are recognized on the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and the type of hedging relationship. Derivative instruments that qualify as hedging instruments are designated based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of net investment in a foreign operation. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk is recognized in current earnings during the period of the change in fair values. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of Other Comprehensive Income ("OCI") and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss related to the ineffective portion of the derivative instrument, if any, is recognized in current earnings during the period of change. For derivative instruments that are designated and qualify as a hedge of a net investment in a foreign operation, the gain or loss is reported in OCI as part of the cumulative translation adjustment to the extent it is effective. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. Should a financial instrument designated as a hedge be terminated while the underlying hedged transaction remains outstanding, or reasonably possible of occurring, the gain or loss would be deferred and amortized over the shorter of the remaining life of the underlying or the agreement.

The Company has used derivative financial instruments primarily to reduce its exposure to fluctuations in foreign currency exchange rates. These derivatives are not designated as hedging instruments and are recorded on the consolidated balance sheet at fair value as either other current assets or accrued expenses. The Company calculates the fair value of its derivatives using quoted exchange rates from financial institutions. The earnings impact resulting from the derivative instruments is recorded in the other (loss) income line item within the consolidated statement of operations.

The carrying amounts of cash and cash equivalents; receivables; accounts payable and accrued expenses; and loans and notes payable approximate their fair values because of the relatively short-term maturities of these instruments.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an agreement exists, delivery has occurred, the Company's price to the buyer is fixed and determinable and collectability is reasonably assured. Delivery is not considered to have occurred until the customer takes title and assumes the risks and rewards of ownership. Revenue is recorded net of provisions for returns, allowances, rebates, and discounts.

The Company provides warranties on certain products. The warranty periods differ depending on the product, but generally range from one year to limited lifetime warranties. The Company provides accruals for warranties based on historical experience and expectations of future occurrence. Warranty costs are recorded as a component of cost of goods sold and are classified as accrued expenses or other liabilities depending on the timing of expected payments.

Shipping and Handling Costs

The Company classifies all shipping and handling charges as cost of goods sold.

Advertising Costs

The Company expenses all advertising costs as incurred. Advertising costs for 2014, 2013, and 2012 were $3.1 million, $3.1 million, and $3.3 million, respectively.

Translation of Foreign Currencies

Assets and liabilities of non-U.S. subsidiaries are translated to U.S. dollars at the rate of exchange in effect on the balance sheet date. Income and expenses are translated to U.S. dollars at the weighted average rates of exchange prevailing during the year. Foreign currency gains and losses resulting from the remeasurement of inter-company amounts that are not of a long-term investment nature into local currencies and certain indebtedness of foreign subsidiaries denominated in U.S. dollars are included in other (loss) income, net and amounted to losses of $24.2 million in 2014 and income of $7.6 million and $4.9 million in 2013 and 2012, respectively. Foreign currency gains and losses resulting from transactions in the ordinary course of business are recorded in selling and general expenses. Foreign currency translation gains and losses recorded in selling and general expenses were not significant for any period presented.

Recent Accounting Pronouncements

In May 2014, the FASB issued new revenue recognition guidance, which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently assessing the impact of implementing this guidance on the Company's financial position, results of operations, and cash flows.