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    FRTA   US34960W1062

FORTERRA, INC.

(FRTA)
Delayed Nasdaq  -  03/17 04:00:01 pm EDT
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FORTERRA, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

10/28/2021 | 06:14am EDT
The following discussion and analysis should be read in conjunction with our
Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed
with the SEC on February 25, 2021, or the 2020 10-K.

  This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. See the section entitled "Cautionary
Statement Concerning Forward-Looking Statements" for a discussion of the risks,
uncertainties and assumptions associated with those statements.

Unless otherwise specified or where the context otherwise requires, references in this Report to "our," "we," "us," "Forterra", the "Company" and "our business" refer to Forterra, Inc., together with its consolidated subsidiaries.


                                    Overview

Our Company

  We are a manufacturer of ductile iron pipe and concrete pipe and precast
products in the United States and Eastern Canada for a variety of essential
water-related infrastructure applications. We provide critical infrastructure
components for a broad spectrum of construction projects across infrastructure,
residential and non-residential markets. Our suite of products ranges from large
diameter pipe that transports water to and from treatment centers and manages
drainage along major transportation corridors, to smaller diameter pipe that
delivers potable water to, and removes wastewater from, end users in residential
and commercial settings.


Our Segments

Our operations are organized into the following reportable segments:

•Drainage Pipe & Products - We are a producer of concrete drainage pipe and precast products.

•Water Pipe & Products - We are a producer of ductile iron pipe, or DIP.

•Corporate and Other - Corporate, general and administrative expenses not allocated to our revenue-generating segments such as certain shared services, executive and other administrative functions.

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COVID-19 Pandemic


During March 2020, a global pandemic was declared by the World Health
Organization and a National Emergency was declared by the President of the
United States related to the rapidly growing outbreak of COVID-19. The pandemic
has significantly impacted economic conditions in the United States, as federal,
state, and local governments reacted to the public health crisis, creating
significant uncertainties in the United States, as well as the global economy.
In the interest of public health and safety, U.S. jurisdictions (national,
state, and local) where our primary operations and those of many of our
customers are located required mandatory business closures, capacity
limitations, or other restrictions for those permitted to continue to operate or
allowed to reopen since the initial shut-downs in March 2020. Despite these
events and the related uncertainty, we continued to operate as an essential
business under the government orders, and the COVID-19 pandemic has not
materially and adversely affected our liquidity, financial results or business
operations thus far. We did, however, utilize the option under the CARES Act to
defer the employer portion of the social security taxes that would otherwise
have been due in 2020, which was delayed with 50%, or approximately $5.5
million, paid in September 2021 and the remaining 50% due by December 31, 2022.

Although our revenues have increased for the three and nine months ended
September 30, 2021, as compared to the prior year periods, the situation is
still rapidly changing and additional impacts to the business may arise that we
are not aware of or may not anticipate currently, which could have an adverse
impact on revenues, results of operations, and cash flows for the fourth quarter
and full 2021 fiscal year and into 2022. We cannot predict whether, when, or the
manner in which the conditions surrounding COVID-19 will change, including the
ultimate duration and scope of the pandemic; the severity of the virus,
including the emergence and spread of new variants; the impact of the COVID-19
vaccines, including the speed at which they are disseminated, the rate at which
individuals choose to receive the vaccine (including our team members) and their
continued effectiveness against the disease or new variants; the actions taken
by governments to contain the virus or treat its impact; and how quickly and to
what extent normal economic and operating conditions can resume. Due to the
evolving situation, our business and future results of our operations could be
impacted in ways that we are not able to predict currently. In addition, there
is still considerable uncertainty in the U.S. economy, as well as the industry
we are in, in particular due to the uncertainty of future funding of and demand
in our infrastructure and municipal end-markets, as well as challenges to the
availability of raw materials used in our products due to strains on global
supply chains and significantly increased costs of raw materials we purchase and
the labor we employ.

Quikrete Merger Agreement

On February 19, 2021, we entered into an Agreement and Plan of Merger, or the
Merger Agreement, with Quikrete Holdings, Inc. and one of its wholly-owned
subsidiaries. Pursuant to the Merger Agreement, subject to the satisfaction or
waiver of specified conditions, Quikrete's subsidiary will merge with and into
the Company, with the Company surviving the Merger as a wholly-owned subsidiary
of Quikrete. At the effective time of the Merger, subject to limited exceptions,
each issued and outstanding share of Forterra common stock will be automatically
canceled and converted into the right to receive $24.00 in cash, without
interest, subject to deduction for any required withholding tax. Outstanding
Company equity awards will be converted into Merger consideration as provided
for in the Merger Agreement. We incurred transaction costs of approximately $4.1
million and $8.0 million for the three and nine months ended September 30, 2021,
respectively, in connection with the Merger.

See Note 3, Mergers and dispositions, to the condensed consolidated financial
statements and Item 7, Management's Discussion and Analysis in the 2020 10-K for
a more fulsome description of the Merger, the Merger Agreement and its terms and
expected impact on our business.

Barbour Concrete Acquisition


On July 1, 2021, we acquired the business of Barbour Concrete Company & Barbour
Building Systems ("Barbour"), a manufacturer of precast concrete products used
in drainage, stormwater, utility and other infrastructure applications. Based in
Independence, Missouri, Barbour primarily serves the greater Kansas City
metropolitan area. We expect to continue operating the business as Barbour
Concrete & Barbour Building
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Systems for the foreseeable future and believe this acquisition will gain access to new opportunities for growth in the strong and expanding Kansas City infrastructure and residential markets.

Principal Factors Affecting Our Results of Operations


  Our financial performance and results of operations are influenced by a
variety of factors, including conditions in the residential, non-residential and
infrastructure construction markets, general economic conditions, availability
of and significant inflation in the cost of raw materials and transportation,
availability and cost of labor, seasonality and weather conditions. In addition
to the Merger and the items discussed below, some of these other more important
factors are discussed in the 2020 10-K, to which there were no material changes
during the period covered by this report, except as discussed below.

During 2021, prices for certain of our raw material costs, including costs for
scrap metal, steel, cement, as well as other key materials needed in smaller
amounts to produce and sell our products, such as coke, nitrogen gas, rubber
gaskets, and magnesium ferrosilicon, which have historically fluctuated
depending on, among other things, overall market supply and demand and general
business conditions, were negatively impacted by both global and industry-wide
supply chain disruptions, resulting in increases to our costs of goods sold and
disruption in supply for some materials in certain of our areas. We have also
experienced rising costs in transportation, which is included as part of our
delivered pricing to customers. In addition, we have experienced rising costs
and difficulty in obtaining labor across many of our facilities. In response, we
have implemented a combination of price increases and productivity initiatives
aimed at mitigating the impact of these events and other inflationary pressures.
We expect these macroeconomic inflationary pressures and supply chain
disruptions will continue to impact our cost of goods sold for the remainder of
fiscal 2021 and that the combination of our price increases and productivity
initiatives will mitigate these costs later in the year. See Item 1A. Risk
Factors in the 2020 10-K regarding specific risks on supply chain and labor
disruptions.

Principal Components of Results of Operations

Net Sales


  Net sales consist of the consideration which we expect to be entitled to for
the sale of products in the ordinary course of business and include the billable
costs of delivery of our products to customers. Net sales include any outbound
freight charged to the end user. Revenue for certain contracts related to our
structural precast products that are designed and engineered specifically for
the customer is recognized over time using an acceptable input method which
utilizes our cost incurred to date relative to total estimated costs at
completion to measure progress.

Cost of Goods Sold


  Cost of goods sold includes raw materials (cement, aggregates, scrap, steel
and clay) and supplies, labor (including contract labor), freight (including
outbound freight for delivery of products to end users and other charges such as
inbound freight), energy, depreciation and amortization, repairs and maintenance
and other cost of goods sold.

Selling, General and Administrative Expenses


  Selling, general and administrative expenses include expenses for sales,
marketing, legal, accounting and finance services, human resources, customer
support, treasury and other general corporate services. Selling, general and
administrative expenses also include transaction costs directly related to the
Merger and any other business combinations or disposition and other costs
incurred with respect to cost savings initiatives.

Impairment and Exit Charges

Impairment and exit charges are primarily comprised of severance and other charges incurred to consolidate certain plants in an effort to optimize our portfolio, as well as asset impairment charges.

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Other Operating Income, Net


  The remaining categories of operating income and expenses consist of scrap
income (associated with scrap from the manufacturing process or remaining scrap
after plants are closed), insurance gains, rental income and the gain or loss
generated on the sale of assets including property, plant and equipment.

Interest Expense


  Interest expense represents interest on indebtedness, including finance lease
obligations, the amortization of deferred financing costs, as well as the gain
and loss associated with our interest rate swaps.

Earnings from Equity Method Investee


  Earnings from equity method investee represents our share of the income of the
CP&P joint venture. CP&P is engaged primarily in the manufacture, marketing,
sale and distribution of concrete pipe and precast products in Virginia, West
Virginia, Maryland, North Carolina, Pennsylvania and South Carolina with sales
to contiguous states. See Note 6, Investment in Equity Method Investee, to the
condensed consolidated financial statements for additional information on CP&P.

Income Tax Expense

Income tax expense consists of federal, state, provincial, local and foreign taxes based on income in the jurisdictions in which we operate.

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Results of Operations

Three Months Ended September 30, 2021 as Compared to Three Months Ended September 30, 2020

Total Company

The following table summarizes certain financial information relating to our operating results for the three months ended September 30, 2021 and September 30, 2020 (in thousands).


                                                    Three months ended       Three months ended
 Statements of Income Data:                         September 30, 2021       September 30, 2020                       % Change

 Net sales                                          $       526,640          $       457,557                                15.1  %
 Cost of goods sold                                         410,072                  331,284                                23.8  %
 Gross profit                                               116,568                  126,273                                (7.7) %
 Selling, general and administrative expenses               (51,830)                 (57,050)                               (9.1) %
 Impairment and exit charges                                    (19)                  (1,389)                              (98.6) %
 Other operating income, net                                    414                      224                                84.8  %
                                                            (51,435)                 (58,215)                              (11.6) %
 Income from operations                                      65,133                   68,058                                (4.3) %
 Other income (expenses)
Interest expense                                            (19,001)                 (20,055)                               (5.3) %
Loss on extinguishment of debt                                    -                  (11,547)                             *
Earnings from equity method investee                          3,337                    2,295                                45.4  %

Income before income taxes                                   49,469                   38,751                                27.7  %
 Income tax expense                                         (13,701)                  (9,924)                               38.1  %

 Net income                                         $        35,768          $        28,827                                24.1  %

* Represents positive or negative change in excess of 100%

Net Sales


Net sales for the three months ended September 30, 2021 were $526.6 million, an
increase of $69.0 million, or 15.1%, from $457.6 million in the three months
ended September 30, 2020. The increase in sales was the combination of $38.3
million increase in the Drainage Pipe & Products segment compared to prior year
primarily due to higher shipment volumes, and a $30.8 million increase in the
Water Pipe & Products segment driven by both higher average selling prices and
higher shipment volumes.

Cost of Goods Sold

  Cost of goods sold were $410.1 million for the three months ended
September 30, 2021, an increase of $78.8 million, or 23.8%, from $331.3 million
in the three months ended September 30, 2020. The increase in cost of goods sold
was the combination of a $48.4 million increase in the Water Pipe & Products
segment and a $30.4 million increase in the Drainage Pipe & Products segment
compared to prior year. These increases were primarily driven by higher shipment
volumes, coupled with higher raw material costs in both segments.

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Gross Profit


  Gross profit was $116.6 million for the three months ended September 30, 2021,
a decrease of $9.7 million, or 7.7%, from $126.3 million in the three months
ended September 30, 2020. The decrease was the net effect of a $17.6 million
decrease in the Water Pipe & Products segment primarily due to higher raw
material costs, offset by a $7.9 million increase in the Drainage Pipe &
Products segment primarily due to higher shipment volumes.

Selling, General and Administrative Expenses


  Selling, general and administrative expenses were $51.8 million for the three
months ended September 30, 2021, a decrease of $5.3 million, or 9.1%, from $57.1
million in the three months ended September 30, 2020. During the third quarter
of 2020, we recorded a non-recurring legal accrual which caused most of the
higher selling, general and administrative expenses in the prior year period.
Interest Expense

  Interest expense for the three months ended September 30, 2021 was $19.0
million, a decrease of $1.1 million or 5.3% from $20.1 million in the three
months ended September 30, 2020. The decrease in interest expense was primarily
due to lower outstanding debt balances in the three months ended September 30,
2021 compared to prior year.

Income Tax Expense


  Income tax expense in the three months ended September 30, 2021 was $13.7
million, an increase of $3.8 million from $9.9 million in the three months ended
September 30, 2020. The change is primarily due to the higher federal tax
expense based on the greater pretax income during the three months ended
September 30, 2021 and releases to the federal and state valuation allowance
during the period ended September 30, 2020 that did not reoccur in 2021.
                                       34

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Segments
                                                       For the three months ended September 30,
(in thousands)                                                2021                  2020(2)                      % Change
Net sales:
Drainage Pipe & Products                               $       299,423          $     261,139                          14.7  %
Water Pipe & Products                                          227,217                196,418                          15.7  %
Corporate and Other                                                  -                      -                        *
Total                                                  $       526,640          $     457,557                          15.1  %

Gross profit (loss):
Drainage Pipe & Products                                        81,597                 73,698                          10.7  %
Water Pipe & Products                                           35,014                 52,580                         (33.4) %
Corporate and Other                                                (43)                    (5)                       *
Total                                                  $       116,568          $     126,273                          (7.7) %

Segment EBITDA(1):
Drainage Pipe & Products                                        75,609                 66,797                          13.2  %
Water Pipe & Products                                           31,958                 44,978                         (28.9) %
Corporate and Other                                            (18,290)               (30,606)                        (40.2) %





Key Operational Statistics       % Change
  Drainage Pipe & Products(3)
   Shipment Volumes                +16%
   Average Selling Prices           +2%
  Water Pipe & Products(4)
   Shipment Volumes                 +5%
   Average Selling Prices          +10%



(1)   For the purposes of evaluating segment performance, the Company's chief
operating decision maker reviews earnings before interest, taxes, depreciation
and amortization ("EBITDA") as a basis for making the decisions to allocate
resources and assess performance. Our discussion below includes the primary
drivers of EBITDA. See Note 17, Segment Reporting, to the condensed consolidated
financial statements for segment EBITDA reconciliation to income (loss) before
income taxes.
(2)   During the fourth quarter of 2020, we reclassified the pressure pipe
business from Water segment to Drainage segment to better align with our
organizational structure. The US and Canadian Pressure Pipe businesses were
formerly managed by the Water segment management team, however Forterra changed
its internal management structure to include the remaining Canadian Pressure
Pipe plant under the same management team that oversees the Canadian Pipe &
Precast operations. As a result, historical segment data were updated to reflect
the current segment compositions.
(3)   Operational statistics only pertain to pipe and precast products and do
not include other services, non-volume-based products, or non-core products.
Pipe and precast products revenue accounted for more than 85% of Drainage
segment revenue.
(4)   Operational statistics only pertain to ductile iron pipe products and do
not include other services, non-volume-based products, or non-core products.
Ductile iron pipe products revenue accounted for more than 85% of Water segment
revenue.

*  Represents positive or negative change in excess of 100%.





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Drainage Pipe & Products

Net Sales


Net sales in the three months ended September 30, 2021 were $299.4 million, an
increase of $38.3 million, or 14.7%, compared to $261.1 million in the three
months ended September 30, 2020. The increase was primarily due to higher
shipment volumes of our pipe and precast products while average selling prices
remain relatively flat. Pipe and precast products sales accounted for about 90%
of Drainage Pipe & Products segment net sales.

Gross Profit

Gross profit in the three months ended September 30, 2021 was $81.6 million, an increase of $7.9 million or 10.7% from $73.7 million in the three months ended September 30, 2020. The increase was primarily due to higher shipment volumes.



Water Pipe & Products

Net Sales

  Net sales in the three months ended September 30, 2021 was $227.2 million, an
increase of $30.8 million or 15.7% from $196.4 million in the three months ended
September 30, 2020. The increase was primarily the combination of a $17.3
million increase driven by higher shipment volumes of our ductile iron pipe
products and a $8.2 million increase related to higher average selling prices of
our ductile iron pipe products. Ductile iron pipe sales accounted for more than
85% of Water Pipe & Products segment net sales.

Gross Profit


  Gross profit in the three months ended September 30, 2021 was $35.0 million, a
decrease of $17.6 million, or 33.4% from $52.6 million in the three months ended
September 30, 2020. The decrease was primarily due to higher raw material costs,
partially offset by higher shipment volumes and higher average selling prices.
                                       36

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Nine Months Ended September 30, 2021 as Compared to Nine Months Ended September 30, 2020


Total Company

  The following table summarizes certain financial information relating to our
operating results for the nine months ended September 30, 2021 and September 30,
2020 (in thousands).
                                                    Nine months ended       Nine months ended
                                                      September 30,           September 30,
 Statements of Income Data:                               2021                    2020                              % Change

 Net sales                                          $    1,387,554          $    1,214,619                                14.2  %
 Cost of goods sold                                      1,069,150                 924,025                                15.7  %
 Gross profit                                              318,404                 290,594                                 9.6  %
 Selling, general and administrative expenses             (163,131)               (164,573)                               (0.9) %
 Impairment and exit charges                                  (493)                 (2,478)                              (80.1) %
 Other operating income, net                                12,917                    (447)                             *
                                                          (150,707)               (167,498)                              (10.0) %
 Income from operations                                    167,697                 123,096                                36.2  %
 Other income (expenses)
Interest expense                                           (56,421)                (60,502)                               (6.7) %
Loss on extinguishment of debt                                   -                 (11,481)                             *
Earnings from equity method investee                         9,498                   8,220                                15.5  %

Income before income taxes                                 120,774                  59,333                              *
 Income tax expense                                        (30,265)                (17,457)                               73.4  %

 Net income                                         $       90,509          $       41,876                              *

* Represents positive or negative change in excess of 100%

Net Sales


  Net sales for the nine months ended September 30, 2021 were $1,387.6 million,
an increase of $173.0 million, or 14.2%, from $1,214.6 million in the nine
months ended September 30, 2020. The increase in sales was the combination of a
$99.6 million increase in the Water Pipe & Products segment primarily driven by
both higher shipment volumes and higher average selling prices, and a $73.3
million increase in the Drainage Pipe & Products segment compared to prior year,
primarily due to higher shipment volumes.

Cost of Goods Sold


  Cost of goods sold were $1,069.2 million for the nine months ended
September 30, 2021, an increase of $145.2 million, or 15.7%, from $924.0 million
in the nine months ended September 30, 2020. The increase in cost of goods sold
was the combination of a $100.4 million increase in the Water Pipe & Products
segment primarily
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driven by both higher shipment volumes and higher production and delivery costs,
and a $44.8 million increase in the Drainage Pipe & Products segment compared to
prior year, primarily due to higher shipment volumes.

Gross Profit


  Gross profit was $318.4 million for the nine months ended September 30, 2021,
an increase of $27.8 million, or 9.6%, from $290.6 million in the nine months
ended September 30, 2020. The increase was the net impact of a $28.5 million
increase in the Drainage Pipe & Products segment primarily due to higher
shipment volumes, partially offset by a $0.7 million decrease in the Water Pipe
& Products segment due to higher production and delivery costs, partially offset
by higher average selling prices.

Selling, General and Administrative Expenses


  Selling, general and administrative expenses were $163.1 million for the nine
months ended September 30, 2021, a slight decrease of $1.5 million, or 0.9%,
from $164.6 million in the nine months ended September 30, 2020. The slight
decrease was primarily due to a non-recurring legal accrual recorded in the
prior year, partially offset by higher staff costs.

Other Operating Income, Net


  Other operating income in the nine months ended September 30, 2021 was $12.9
million, an increase of $13.4 million, from an other operating loss of $0.4
million in the nine months ended September 30, 2020. The increase in 2021 was
primarily driven by $10.3 million net gains on asset sales as we continue
optimizing our asset portfolio and disposing of idle properties.

Interest Expense


  Interest expense for the nine months ended September 30, 2021 was $56.4
million, a decrease of $4.1 million or 6.7% from $60.5 million in the nine
months ended September 30, 2020. The decrease in interest expenses was the net
effect of a $9.0 million decrease primarily due to both lower LIBOR and lower
outstanding debt balances in the nine months ended September 30, 2021 compared
to prior year; a $0.8 million decrease in loss on derivatives related to our
interest rate hedge; the absence of a $0.7 million write-off of deferred debt
issuance cost that was recorded in last year but did not recur in current year;
partially offset by $6.7 million incremental interest expense from the $500
million senior secured notes at a higher rate as compared to the debt it was
used to retire in July 2020.

Income Tax Expense

  Income tax expense in the nine months ended September 30, 2021 was $30.3
million, an increase of $12.8 million from $17.5 million in the nine months
ended September 30, 2020. The change is primarily due to the higher federal and
state tax expense based on the greater pretax income during the nine months
ended September 30, 2021, partially offset by the valuation allowance movement
in 2020 that did not reoccur in 2021 and the current period benefit related to
equity compensation.







                                       38
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Segments
                                                        For the nine months ended September 30,
(in thousands)                                               2021                   2020(2)                      % Change
Net sales:
Drainage Pipe & Products                               $      749,774          $      676,471                         10.8  %
Water Pipe & Products                                         637,780                 538,148                         18.5  %
Corporate and Other                                                 -                       -                       *
Total                                                  $    1,387,554          $    1,214,619                         14.2  %

Gross profit (loss):
Drainage Pipe & Products                                      194,907                 166,354                         17.2  %
Water Pipe & Products                                         123,550                 124,217                         (0.5) %
Corporate and Other                                               (53)                     23                       *
Total                                                  $      318,404          $      290,594                          9.6  %

Segment EBITDA(1):
Drainage Pipe & Products                                      186,066                 147,859                         25.8  %
Water Pipe & Products                                         112,352                 109,973                          2.2  %
Corporate and Other                                           (59,401)                (70,727)                       (16.0) %




Key Operational Statistics        % Change
  Drainage Pipe & Products (3)
   Shipment Volumes                 +13%
   Average Selling Prices            +1%
  Water Pipe & Products (4)
   Shipment Volumes                 +10%
   Average Selling Prices            +9%




(1)   For the purposes of evaluating segment performance, the Company's chief
operating decision maker reviews earnings before interest, taxes, depreciation
and amortization ("EBITDA") as a basis for making the decisions to allocate
resources and assess performance. Our discussion below includes the primary
drivers of EBITDA. See Note 17, Segment Reporting, to the condensed consolidated
financial statements for segment EBITDA reconciliation to income (loss) before
income taxes.
(2)   During the fourth quarter of 2020, we reclassified the pressure pipe
business from Water segment to Drainage segment to better align with our
organizational structure. The US and Canadian Pressure Pipe businesses were
formerly managed by the Water segment management team, however Forterra changed
its internal management structure to include the remaining Canadian Pressure
Pipe plant under the same management team that oversees the Canadian Pipe &
Precast operations. As a result, historical segment data were updated to reflect
the current segment compositions.
(3)   Operational statistics only pertain to pipe and precast products and do
not include other services, non-volume-based products, or non-core products.
Pipe and precast products revenue accounted for more than 85% of Drainage
segment revenue.
(4)   Operational statistics only pertain to ductile iron pipe products and do
not include other services, non-volume-based products, or non-core products.
Ductile iron pipe products revenue accounted for more than 85% of Water segment
revenue.

*  Represents positive or negative change in excess of 100%.


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Drainage Pipe & Products

Net Sales

Net sales in the nine months ended September 30, 2021 were $749.8 million, an increase of $73.3 million, or 10.8%, compared to $676.5 million in the nine months ended September 30, 2020. The increase was mostly driven by higher shipment volumes while average selling prices remained relatively flat.

Gross Profit


  Gross profit in the nine months ended September 30, 2021 was $194.9 million,
an increase of $28.5 million or 17.2% from $166.4 million in the nine months
ended September 30, 2020. The increase was primarily due to higher shipment
volumes.


Water Pipe & Products

Net Sales

  Net sales in the nine months ended September 30, 2021 was $637.8 million, an
increase of $99.7 million or 18.5% from $538.1 million in the nine months ended
September 30, 2020. The increase was primarily the combination of a $46.1
million increase related to higher average selling prices of our ductile iron
pipe products and a $43.1 million increase driven by higher shipment volumes of
our ductile iron pipe products. Ductile iron pipe sales accounted for more than
85% of Water Pipe & Products segment net sales.

Gross Profit


  Gross profit in the nine months ended September 30, 2021 was $123.5 million, a
decrease of $0.7 million, or 0.5% from $124.2 million in the nine months ended
September 30, 2020. The decrease was primarily due to higher production and
delivery costs, partially offset by higher shipment volumes and higher average
selling prices.

Liquidity and Capital Resources


  Our available cash and cash equivalents, borrowing availability under our
$350.0 million Revolver, and funds generated from operations are our most
significant sources of liquidity. While we believe these sources will be
sufficient to finance our working capital requirements, planned capital
expenditures that are essential, debt service obligations and other cash
requirements for at least the next 12 months, our future liquidity will depend
in part upon our operating performance, which will be affected by prevailing
economic conditions, including those related to the COVID-19 pandemic, and
financial, business and other factors, some of which are beyond our control. See
Item 1A, Risk Factors, in the 2020 10-K.
  As of September 30, 2021 and December 31, 2020, we had approximately $24.0
million and $25.7 million of cash and cash equivalents, respectively, of which
$10.1 million and $12.5 million, respectively, were held by foreign
subsidiaries. All of the cash and cash equivalents as of September 30, 2021 and
December 31, 2020 were readily convertible as of such dates into currencies used
in the Company's operations, including the U.S. dollar.

  We have 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
                                       40

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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. Our forecasted payments under the tax receivable agreement
in 2021, pertaining to the 2020 tax year, are expected to be in the range of $7
million to $9 million. We expect that future annual payments under the tax
receivable agreement will decline each year in accordance with our tax basis
depreciation and amortization schedule unless future unplanned transactions
result in an acceleration of our tax benefits under the agreement. It is
expected that if the Quikrete Merger is completed under the terms of the Merger
Agreement, payments to Lone Star will continue to be made by the surviving
entity under the Merger Agreement according to the terms of the TRA.

  During the nine months ended September 30, 2021, we borrowed and repaid $40
million under our $350 million Revolver to fund seasonal working capital needs.
As of September 30, 2021, we had $405.5 million outstanding balance under our
senior term loan as amended, or the Term Loan, and no borrowings outstanding
under the Revolver. Availability under the Revolver, based on draws, outstanding
letters of credit of $18.8 million, as well as allowable borrowing base as of
September 30, 2021, was $320.0 million.

Our $350 million Revolver will expire on June 17, 2025, subject to earlier
maturity if greater than $75.0 million of our Term Loan remains outstanding 91
days prior to the scheduled maturity of the term loan credit facility or any
refinancing thereof. Outstanding borrowings under the Revolver have interest
rates equal to LIBOR or CDOR plus a margin ranging from 1.75% to 2.25% per
annum, or an alternate base rate, Canadian prime rate or Canadian base rate plus
a margin ranging from 0.75% to 1.25% per annum, in each case, based upon the
average excess availability under the Revolver for the most recently completed
calendar quarter and our total leverage ratio as of the end of the most recent
fiscal quarter for which financial statements have been delivered.

  Subject to the conditions set forth in the revolving credit agreement, as
amended, the Revolver may be increased by up to the greater of (i) $100.0
million and (ii) such amount as would not cause the aggregate borrowing base to
be exceeded by more than $50.0 million. Borrowings under the Revolver may not
exceed a borrowing base equal to the sum of (i) 100% of eligible cash, (ii) 85%
of eligible accounts receivable and (iii) the lesser of (a) 75% of eligible
inventory and (b) 85% of the orderly liquidation value of eligible inventory,
with the U.S. and Canadian borrowings being subject to separate borrowing base
limitations.

  Our Term Loan provides for a $1.25 billion senior secured term loan. Subject
to the conditions set forth in the term loan agreement, the Term Loan may be
increased by (i) up to the greater of $285.0 million and 1.0x consolidated
EBITDA of Forterra, Inc. and its restricted subsidiaries for the four quarters
most recently ended prior to such incurrence plus (ii) the aggregate amount of
any voluntary prepayments, plus (iii) an additional unlimited amount, provided
(x) in the case of any incremental debt that is secured by a lien that is pari
passu with the liens securing the Term Loan, the first lien leverage ratio does
not exceed 4.10 to 1.00, (y) in the case of incremental debt that is secured by
a lien that is junior to the liens securing the Term Loan, the total leverage
ratio does not exceed 5.50 to 1.00 and (z) in the case of incremental debt that
is unsecured, the total leverage ratio does not exceed 5.75 to 1.00, in each
case, determined on a pro forma basis. The Term Loan matures on October 25, 2023
and is subject to quarterly amortization equal to 0.25% of the initial principal
amount. Interest will accrue on outstanding borrowings thereunder at a rate
equal to adjusted LIBOR (with a floor of 1.0%) or an alternate base rate, in
each case plus a margin of 3.00% or 2.00%, respectively.

  The Revolver and the Term Loan contain customary representations and
warranties, and affirmative and negative covenants, that, among other things,
restrict our ability to incur additional debt, incur or permit liens on assets,
make investments and acquisitions, consolidate or merge with any other company,
engage in asset sales and pay dividends and make distributions. The Revolver
contains a financial covenant restricting us from allowing our fixed charge
coverage ratio to drop below 1.00:1.00 during a compliance period, which is
triggered when the availability under the Revolver falls below a threshold. The
fixed charge coverage ratio is the ratio of consolidated earnings before
interest, depreciation, and amortization, less cash payments for capital
expenditures and income taxes to consolidated fixed charges (interest expense
plus scheduled payments of principal on indebtedness).
                                       41

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The Term Loan does not contain any financial covenants. Obligations under the
Revolver and the Term Loan may be accelerated upon certain customary events of
default (subject to grace periods, as appropriate). As of September 30, 2021, we
were in compliance with all applicable covenants under the Revolver and the Term
Loan.

Our $500 million senior secured notes issued in July 2020, or the Notes, will
mature on July 15, 2025 and have a fixed annual interest rate of 6.50%.
Obligations under the Notes are guaranteed by us and our existing and future
subsidiaries (other than the issuers) that guarantee the Term Loan and the
obligations of the U.S. borrowers under the Revolver. The Notes and the related
guarantees are secured by first-priority liens on the collateral that secures
the Term Loan on a first-priority basis (which is generally all assets other
than those that secure the Revolver on a first-priority basis as set forth
below) and second-priority liens on the collateral that secures the Revolver on
a first-priority basis (which is generally inventory, accounts receivable,
deposit accounts, securities accounts, certain intercompany loans and related
assets), which second-priority liens is ratable with the liens on such assets
securing the obligations under the Term Loan and junior to the liens on such
assets securing the Revolver. Upon closing, we used the net proceeds from this
offering to repay $492.5 million of the principal amount of the Term Loan at
par, plus accrued interest.

Parent Issuer and Subsidiary Guarantor Summarized Financial Information

The following information contains the summarized financial information for the parent (Forterra, Inc.) and subsidiary guarantors of the Notes.


This consolidated summarized financial information has been prepared from the
Company's financial information on the same basis of accounting as the Company's
consolidated financial statements. Transactions between the parent and
subsidiary guarantors presented on a combined basis have been eliminated. The
principal elimination entries relate to investments in subsidiaries and
intercompany balances and transactions. Certain costs have been partially
allocated to all of the subsidiaries of the Company.

The subsidiary guarantors are 100% owned by the Company. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its U.S. subsidiaries, including the guarantors.

Summarized financial information for the year-to-date interim period and the most recent annual period was as follows (in thousands):

                                                         Parent - Forterra, Inc. and Subsidiary
                                                                       Guarantors

                                                        September 30, 2021     December 31, 2020
Current assets                                        $           581,782    $          443,839
Intercompany payable to non-guarantor subsidiaries                  8,533                 8,384
Non-current assets                                              1,087,580             1,115,191
Current liabilities                                               301,189               267,672
Non-current liabilities                                         1,164,977             1,176,492




                                       42
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                                                               Parent - Forterra, Inc. and Subsidiary
                                                                             Guarantors

                                                              Nine months ended    Year ended December
                                                             September 30, 2021          31, 2020
Net sales                                                   $        1,308,312    $         1,514,556
Gross profit                                                           284,309                347,854
Income before taxes                                                     97,071                 58,880
Net income                                                              71,677                 52,273

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