Thompson Pipe Group to Acquire Forterra’s U.S.
Concrete and Steel Pressure Pipe Assets
Forterra, Inc. (“Forterra” or the “Company”) (Nasdaq:FRTA), a
leading manufacturer of water infrastructure pipe and products in
the United States and Eastern Canada, today announced it has
entered into a definitive agreement to sell the U.S. concrete and
steel pressure pipe assets of its Water Pipe and Products business
segment to Thompson Pipe Group. The transaction is subject to
customary closing conditions and is expected to close in the third
quarter of 2017.
Under the terms of the agreement, an affiliate of Thompson Pipe
Group will acquire assets related to five Forterra manufacturing
facilities and a fittings facility. Forterra will receive
approximately $23.2 million in cash, exclusive of fees and
expenses, as well as assets relating to a drainage pipe and
products manufacturing facility located in Conroe, Texas, which
primarily serves the Houston market. The Company intends to use the
net proceeds from the transaction to pay down debt. The transaction
is expected to be immediately accretive to the Company’s earnings,
margins and cash flows.
“After a review of strategic alternatives to
enhance shareholder value, we are pleased to reach this agreement
with Thompson Pipe Group,” said Jeff Bradley, CEO of Forterra. “We
believe this transaction, which includes not only the divestiture
of non-core assets, but also the acquisition of a drainage pipe and
products facility in the large Houston market, will enable us to
sharpen our focus on our core business and high-margin growth
opportunities and more efficiently allocate capital to execute our
strategic objectives.”
Key Transaction Rationale
• Expected to be immediately accretive to Forterra’s earnings,
margins and cash flows:
- Eliminates significant working capital requirements associated
with contracts with uncertain delivery schedules; and
- Reduces expected maintenance capital expenditure
requirements.
• Acquisition of Houston-area plant bolsters Forterra’s
strategic position in a large and growing market, and will become
part of Forterra’s Drainage Pipe and Products business segment.
• With the asset sale, Forterra will focus on its core drainage
and ductile iron pipe product lines with favorable end-market
fundamentals:
- The Company’s U.S. concrete and steel pressure pipe assets have
minimal synergies with the remaining core business due to limited
customer overlap, separate manufacturing facilities and a different
manufacturing process.
• Exits a business with unfavorable market dynamics in the
United States:
- Long-term projects subject to customer delays can create
earnings volatility; and
- Narrow market segment with significant competition and limited
near-term catalysts for improvement in demand.
Financial Summary
The following is a summary of certain financial
information for the U.S. Concrete and Steel Pressure Pipe assets to
be sold in the transaction:
• For the year ended December 31, 2016, net sales were $99.7
million, net loss was $1.6 million and Adjusted EBITDA1 was $1.4
million
• For the quarter ended March 31, 2016 as compared to the
quarter ended March 31, 2017, net sales declined from $30.0 million
to $27.7 million, net income of $1.0 million declined to a net loss
of $6.1 million and Adjusted EBITDA1 of $1.9 million declined to a
loss of $5.5 million
About Forterra
Forterra, Inc. (Nasdaq:FRTA) is a leading
manufacturer of water and drainage pipe and products in the U.S.
and Eastern Canada for a variety of water-related infrastructure
applications, including water transmission, distribution, drainage
and stormwater management. Based in Irving, Texas, Forterra’s
product breadth and scale help make it a one-stop shop for
water-related pipe and products, and a preferred supplier to a wide
variety of customers, including contractors, distributors and
municipalities. For more information on Forterra, visit
forterrabp.com.
Cautionary Note Regarding Forward-Looking
Statements
This press release contains forward-looking
statements. Forward-looking statements may be identified by the use
of words such as “anticipate”, “believe”, “expect”, “estimate”,
“plan”, “outlook”, and “project” and other similar expressions that
predict or indicate future events or trends or that are not
statements of historical matters. Forward-looking statements should
not be read as a guarantee of future performance or results, and
will not necessarily be accurate indications of the times at, or
by, which such performance or results will be achieved.
Forward-looking statements are based on historical information
available at the time the statements are made and are based on
management's reasonable belief or expectations with respect to
future events, and are subject to risks and uncertainties, many of
which are beyond the Company's control, that could cause actual
performance or results to differ materially from the belief or
expectations expressed in or suggested by the forward-looking
statements. Forward-looking statements speak only as of the date on
which they are made and the Company undertakes no obligation to
update any forward-looking statement to reflect future events,
developments or otherwise, except as may be required by applicable
law. Investors are referred to the Company's filings with the
Securities and Exchange Commission for additional information
regarding the risks and uncertainties that may cause actual results
to differ materially from those expressed in any forward-looking
statement.
1 Adjusted EBITDA is a non-GAAP measure. See Appendix A for how
we define this measure, a discussion of why we believe it is useful
and reconciliation thereof to the most directly comparable GAAP
financial measure.
Appendix A
Reconciliation of Non-GAAP Measure
(Unaudited)
In addition to results calculated under
generally accepted accounting principles in the United States
("GAAP"), in this press release we also present adjusted EBITDA.
Adjusted EBITDA is a non-GAAP measure and has been presented in
this press release as a supplemental measure of financial
performance that is not required by, or presented in accordance
with GAAP. We calculate adjusted EBITDA as net income (loss) before
interest expense, income tax benefit (expense), depreciation and
amortization and before impairment and restructuring charges,
(gains)/losses on the sale of property, plant and equipment and
certain other income and expenses, such as transaction costs,
carve-out costs related to our separation from HeidelbergCement and
costs associated with disposed sites.
Adjusted EBITDA is presented in this press
release because it is an important metric used by management as one
of the means by which it assesses our financial performance.
Adjusted EBITDA is also frequently used by analysts, investors and
other interested parties to evaluate companies in our industry. We
use adjusted EBITDA as a supplement to GAAP measures of performance
to evaluate the effectiveness of our business strategies, to make
budgeting decisions, to allocate resources and to compare our
performance relative to our peers. Adjusted EBITDA is also an
important measure for assessing our operating results and
evaluating operating performance on a consistent basis, by
excluding the impacts of depreciation, amortization, income tax
expense, interest expense and other items not indicative of ongoing
operating performance. Additionally, this measure, when used in
conjunction with related GAAP financial measures, provides
investors with additional financial analytical framework which
management uses, in addition to historical operating results, as
the basis for financial, operational and planning decisions and
present measurements that third parties have indicated are useful
in assessing the Company and its results of operations.
Adjusted EBITDA has certain limitations.
Adjusted EBITDA should not be considered as an alternative to net
income or as a substitute for any other measure of financial
performance calculated in accordance with GAAP. This measure also
should not be construed as an inference that our future results
will be unaffected by unusual or nonrecurring items for which these
non-GAAP measures make adjustments. Adjusted EBITDA is not intended
to be a liquidity measure because of certain limitations such as:
(i) it does not reflect cash outlays for capital expenditures or
future contractual commitments; (ii) it does not reflect changes
in, or cash requirements for, working capital; (iii) it does not
reflect interest expense, or the cash requirements necessary to
service interest, or principal payments, on indebtedness; (iv) it
does not reflect income tax expense or the tax necessary to pay
income taxes; and (v) although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized will
often have to be replaced in the future, and this non-GAAP measure
does not reflect cash requirements for such replacements.
Other companies, including other companies in
our industry, may not use this measure or may calculate this
measure differently than as presented in this press release,
limiting its usefulness as a comparative measure. In evaluating
adjusted EBITDA, you should be aware that in the future we will
incur expenses that are the same as or similar to some of the
adjustments made in the calculations below and the presentation of
adjusted EBITDA should not be construed to mean that our future
results will be unaffected by such adjustments. Management
compensates for these limitations by using adjusted EBITDA as a
supplemental financial metric and in conjunction with results
prepared in accordance with GAAP.
Forterra’s U.S. Concrete and Steel Pressure
Pipe Assets |
Reconciliation of net income (loss) to
adjusted EBITDA |
|
($ in thousands) |
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Year ended December
31, |
|
|
|
2017 |
|
|
2016 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
unaudited |
|
Net income (loss) |
$ |
(6,071 |
) |
$ |
956 |
|
$ |
(1,594 |
) |
|
Interest expense |
|
6 |
|
|
- |
|
|
931 |
|
|
Depreciation and
amortization |
|
750 |
|
|
985 |
|
|
3,639 |
|
|
Income tax expense |
|
- |
|
|
- |
|
|
1,828 |
|
|
EBITDA |
|
(5,315 |
) |
|
1,941 |
|
|
4,804 |
|
|
(Gain) loss on sale of
property, plant & equipment, net1 |
|
358 |
|
|
- |
|
|
(129 |
) |
|
Non-cash
compensation2 |
|
19 |
|
|
- |
|
|
- |
|
|
Other (gains)
expenses3 |
|
(538 |
) |
|
- |
|
|
(3,263 |
) |
|
Adjusted EBITDA |
$ |
(5,476 |
) |
$ |
1,941 |
|
$ |
1,412 |
|
|
|
|
1
(Gain) loss on sale of property, plant and equipment, primarily
related to the disposition of manufacturing facilities. |
|
2 Non-cash equity
compensation expense. |
|
|
3
Other (gains) losses, such as gain on insurance proceeds related to
the destruction of property. |
|
CONTACT:
Matt Brown
Executive Vice President, Chief Financial Officer
Forterra, Inc.
469.299.9113
IR@forterrabp.com
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