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SEC Filings

10-Q
FORTERRA, INC. filed this Form 10-Q on 11/09/2017
Entire Document
 

Gross Profit

Gross profit was $86.3 million in the nine months ended September 30, 2017, a decrease of $4.3 million or 4.7% from $90.6 million in the nine months ended September 30, 2016. The decrease in gross profit was primarily related to a $24.0 million decrease related to our U.S. and Canada concrete and steel pressure pipe business due partially to the completion of a significant high margin project in Canada in the fourth quarter of 2016, partially offset by an increase of $19.7 million in gross profit attributable to a full nine months of U.S. Pipe operations in the 2017 period compared to a partial period in 2016. 

Other

For the nine months ended September 30, 2017, income (loss) from continuing operations before taxes and EBITDA decreased by $31.6 million due to the loss generated by the U.S. Pressure Pipe Divestiture in July 2017. In addition, for nine months ended September 30, 2017, EBITDA decreased by $3.0 million for a goodwill impairment and $7.5 million for long-lived asset impairment charges.

Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash from operations and borrowings under our credit agreements. We believe these sources will be sufficient to fund our planned operations and capital expenditures in the next 24 months.

We are currently engaged in a dispute with HeidelbergCement regarding the earn-out provision in the purchase agreement entered into in connection with the Acquisition. HeidelbergCement has asserted that a payment should be made in the amount of $100.0 million. Resolution may be determined by a neutral accountant pursuant to the terms of the purchase agreement, however, it is currently the subject of dispute in court. If it is determined that we are required to make a significant payment to HeidelbergCement, we may not have sufficient cash to make such payment and may be required to incur additional indebtedness. This dispute is discussed in greater detail in Note 14, Commitments and contingencies to the condensed consolidated financial statements.

As of September 30, 2017 and December 31, 2016, we had approximately $41.1 million and $40.0 million of cash and cash equivalents, respectively, of which $15.0 million and $33.7 million, respectively, were held by foreign subsidiaries. All of the cash and cash equivalents as of September 30, 2017 and December 31, 2016 were readily convertible as of such dates into currencies used in the Company’s operations, including the U.S. dollar.  We are not aware of legal or economic restrictions on our ability to repatriate funds in the form of cash dividends, loans or advances. We do not have any present intention to repatriate these funds. However, if these funds are repatriated to the United States, we will be subject to additional taxes including withholdings tax applied by the country of origin and an incremental U.S. income tax, net of allowable foreign tax credits.

In connection with the IPO, we entered into a tax receivable agreement with Lone Star that provides for the payment by us to Lone Star of specified amounts in respect of any cash savings as a result of the utilization of certain tax benefits. The actual utilization of the relevant tax benefits as well as the timing of any payments under the tax receivable agreement will vary depending upon a number of factors, including the amount, character and timing of our and our subsidiaries’ taxable income in the future. However, we expect that the payments we make under the tax receivable agreement could be substantial. The tax receivable agreement also includes provisions which restrict the incurrence of debt and that require that we make an accelerated payment to Lone Star equal to the present value of all future payments due under the tax receivable agreement, in each case under certain circumstances. Because of the foregoing, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. See Note 14, Commitments and contingencies to the condensed consolidated financial statements for additional information regarding the tax receivable agreement.
Total debt related to the 2016 Senior Term Loan as of September 30, 2017 was $1,238.5 million. As of September 30, 2017, the Company had no borrowings outstanding under the 2016 Revolver. The 2016 Revolver had available borrowing capacity as of September 30, 2017 of $284.3 million.

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