UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[☒] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, ~~2020~~2021

[☐] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________.

Commission File Number: 001-37921

FORTERRA, INC.

(Exact name of registrant as specified in its charter)



Delaware						37-1830464
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

511 East John Carpenter Freeway,, 6th Floor,, Irving,, TX75062

(Address of principal executive offices, including zip code)

(~~469~~) (469) 458-7973

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value per share

FRTA

Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☒☐

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [☐] No [X]

There were ~~65,233,632~~66,920,808 shares of common stock, par value $0.001 per share, of the registrant outstanding as of July ~~24, 2020.~~

26, 2021.

TABLE OF CONTENTS



		Page
~~Part I~~	~~Financial Information~~
Part I	Financial Information
Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Shareholders' Equity	4
	Condensed Consolidated Statements of Cash Flows	65
	Notes to the Unaudited Condensed Consolidated Financial Statements	76
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4042
Item 4.	Controls and Procedures	4143

Part II	Other Information
Item 1.	Legal Proceedings	4345
Item 1A.	Risk Factors	4345
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4645
Item 3.	Defaults Upon Senior Securities	4645
Item 4.	Mine Safety Disclosures	4745
Item 5.	Other Information	4745
Item 6.	Exhibits	4846

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FORTERRA, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)


	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
	(unaudited)				(unaudited)
Net sales	$	492,800	$	426,186	$	860,914	$	757,062
Cost of goods sold	373,228		320,607		659,078		592,741
Gross profit	119,572		105,579		201,836		164,321
Selling, general & administrative expenses	(56,257)		(53,283)		(111,301)		(107,523)
Impairment and exit charges	(65)		(265)		(474)		(1,089)
Other operating income (expense), net	384		(1,001)		12,503		(671)
	(55,938)		(54,549)		(99,272)		(109,283)
Income from operations	63,634		51,030		102,564		55,038

Other income (expense)
Interest expense	(19,074)		(19,702)		(37,420)		(40,447)
Gain on extinguishment of debt	0		116		0		66
Earnings from equity method investee	3,570		3,126		6,161		5,925

Income before income taxes	48,130		34,570		71,305		20,582
Income tax expense	(12,065)		(7,455)		(16,564)		(7,533)






Net income	$	36,065	$	27,115	$	54,741	$	13,049

Earnings per share:
Basic	$	0.54	$	0.42	$	0.82	$	0.20

Diluted	$	0.52	$	0.40	$	0.79	$	0.19
Weighted average common shares outstanding:
Basic	66,687		65,093		66,463		64,948
Diluted	69,511		67,191		69,475		67,458

Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
(unaudited) (unaudited)
Net sales $ 426,186
$ 410,219
$ 757,062
$ 702,077
Cost of goods sold 320,607
324,405
592,741
574,458
Gross profit 105,579
85,814
164,321
127,619
Selling, general & administrative expenses (53,283 ) (58,640 ) (107,523 ) (110,031 )
Impairment and exit charges (265 ) (582 ) (1,089 ) (813 )
Other operating (loss) income, net (1,001 ) (376 ) (671 ) 203
(54,549 ) (59,598 ) (109,283 ) (110,641 )
Income from operations 51,030
26,216
55,038
16,978

Other income (expense)
Interest expense (19,702 ) (25,783 ) (40,447 ) (50,448 )
Gain on extinguishment of debt 116
—
66
—
Earnings from equity method investee 3,126
3,402
5,925
4,969
Income (loss) before income taxes 34,570
3,835
20,582
(28,501 )
Income tax (expense) benefit (7,455 ) (881 ) (7,533 ) 6,416
Net income (loss) $ 27,115
$ 2,954
$ 13,049
$ (22,085 )

Earnings (loss) per share:
Basic $ 0.42
$ 0.05
$ 0.20
$ (0.34 )
Diluted $ 0.40
$ 0.05
$ 0.19
$ (0.34 )
Weighted average common shares outstanding:
Basic 65,093
64,142
64,948
64,073
Diluted 67,191
64,464
67,458
64,073

See accompanying notes to unaudited condensed consolidated financial statements

FORTERRA, INC.

Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~

(in thousands)


	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
	(unaudited)				(unaudited)
Net income	$	36,065	$	27,115	$	54,741	$	13,049


Change in other postretirement benefit plans, net of tax	0		0		0		(681)
Foreign currency translation adjustment	944		2,437		1,603		(3,262)
Comprehensive income	$	37,009	$	29,552	$	56,344	$	9,106

Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
(unaudited) (unaudited)
Net income (loss) $ 27,115
$ 2,954
$ 13,049
$ (22,085 )
Change in other postretirement benefit plans, net of tax —
—
(681 ) 373
Foreign currency translation adjustment 2,437
1,320
(3,262 ) 2,828
Comprehensive income (loss) $ 29,552
$ 4,274
$ 9,106
$ (18,884 )

See accompanying notes to unaudited condensed consolidated financial statements

FORTERRA, INC.

Condensed Consolidated Balance Sheets

(in thousands)


	June 30, 2021		December 31, 2020
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	34,171	$	25,678
Receivables, net	309,055		227,948
Inventories	266,308		222,928
Prepaid expenses	9,937		7,967
Other current assets	3,152		2,022

Total current assets	622,623		486,543
Non-current assets
Property, plant and equipment, net	444,051		451,082
Operating lease right-of-use assets	54,003		54,379
Goodwill	509,528		509,127
Intangible assets, net	84,818		101,409
Investment in equity method investee	49,946		48,285


Other long-term assets	1,844		4,987

Total assets	$	1,766,813	$	1,655,812

LIABILITIES AND EQUITY
Current liabilities
Trade payables	$	174,955	$	134,144
Accrued liabilities	115,647		115,693
Deferred revenue	7,581		8,220
Current portion of long-term debt	12,510		12,510
Current portion of tax receivable agreement	8,333		8,333

Total current liabilities	319,026		278,900
Non-current liabilities
Long-term debt	900,699		887,511


Long-term finance lease liabilities	142,303		142,195
Long-term operating lease liabilities	51,017		50,943
Deferred tax liabilities	10,688		9,671

Other long-term liabilities	31,788		36,918
Long-term tax receivable agreement	55,907		55,907

Total liabilities	1,511,428		1,462,045
Commitments and Contingencies (Note 14)	0		0
Equity
Common stock, $0.001 par value, 190,000 shares authorized; 66,921 and 65,981 shares issued and outstanding	19		19
Additional paid-in-capital	257,853		252,579
Accumulated other comprehensive loss	(5,353)		(6,956)
Retained earnings (deficit)	2,866		(51,875)
Total shareholders' equity	255,385		193,767
Total liabilities and shareholders' equity	$	1,766,813	$	1,655,812

June 30,
2020 December 31,
2019
ASSETS (unaudited)
Current assets
Cash and cash equivalents $ 52,506
$ 34,800
Receivables, net 271,601
205,801
Inventories 238,835
238,483
Prepaid expenses 12,334
11,021
Other current assets 4,794
8,890
Total current assets 580,070
498,995
Non-current assets
Property, plant and equipment, net 446,974
475,575
Operating lease right-of-use assets 57,444
60,253
Goodwill 508,182
508,826
Intangible assets, net 121,978
142,674
Investment in equity method investee 51,459
50,034
Other long-term assets 5,390
3,701
Total assets $ 1,771,497
$ 1,740,058

LIABILITIES AND EQUITY
Current liabilities
Trade payables $ 122,715
$ 102,426
Accrued liabilities 97,434
88,839
Deferred revenue 10,558
9,527
Current portion of long-term debt 12,510
12,510
Current portion of tax receivable agreement 13,145
13,145
Total current liabilities 256,362
226,447
Non-current liabilities
Long-term debt 1,067,682
1,085,793
Long-term finance lease liabilities 138,449
137,365
Long-term operating lease liabilities 52,518
54,411
Deferred tax liabilities 30,745
28,929
Other long-term liabilities 26,105
21,906
Long-term tax receivable agreement 64,240
64,240
Total liabilities 1,636,101
1,619,091
Commitments and Contingencies (Note 14)

Equity
Common stock, $0.001 par value, 190,000 shares authorized; 65,211 and 64,741 shares issued and outstanding 19
19
Additional paid-in-capital 249,695
244,372
Accumulated other comprehensive loss (11,006 ) (7,063 )
Retained deficit (103,312 ) (116,361 )
Total shareholders' equity 135,396
120,967
Total liabilities and shareholders' equity $ 1,771,497
$ 1,740,058

See accompanying notes to unaudited condensed consolidated financial statements

FORTERRA, INC.

Condensed Consolidated Statements of Shareholders' Equity

(in thousands, except share data)

(unaudited)


																	Common Stock
																	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Deficit)		Total Shareholders' Equity

Balance at December 31, 2020																Balance at December 31, 2020	65,980,787	$	19	$	252,579	$	(6,956)	$	(51,875)	$	193,767

Share-based compensation expense																Share-based compensation expense	—	—		2,784		—		—		2,784
Stock-based plan activity																Stock-based plan activity	674,896	—		(856)		—		—		(856)
Comprehensive income:																Comprehensive income:
Net income																Net income	—	—		—		—		18,676		18,676

Foreign currency translation adjustment																Foreign currency translation adjustment	—	—		—		659		—		659
Balance at March 31, 2021																Balance at March 31, 2021	66,655,683	19		254,507		(6,297)		(33,199)		215,030
Share-based compensation expense																Share-based compensation expense	—	—		2,054		—		—		2,054
Stock-based plan activity																Stock-based plan activity	265,125	—		1,292		—		—		1,292
Comprehensive income:																Comprehensive income:
Net income																Net income	—	—		—		—		36,065		36,065

Foreign currency translation adjustment																Foreign currency translation adjustment	—	—		—		944		—		944
Balance at June 30, 2021																Balance at June 30, 2021	66,920,808	$	19	$	257,853	$	(5,353)	$	2,866	$	255,385

	Common Stock
	Shares	Amount		Additional Paid-in-Capital			Accumulated Other Comprehensive Income (Loss)			Retained Deficit			Total Shareholders' Equity

Balance at December 31, 2019	64,740,667	$	19	$	244,372		$	(7,063	)	$	(116,361	)	$	120,967
Share-based compensation expense	—	—		2,864			—			—			2,864
Stock-based plan activity	336,752	—		(194		)	—			—			(194		)
Comprehensive loss:
Net loss	—	—		—			—			(14,066		)	(14,066		)
Change in other postretirement benefit plans, net of tax	—	—		—			(681		)	—			(681		)
Foreign currency translation adjustment	—	—		—			(5,699		)	—			(5,699		)
Balance at March 31, 2020	65,077,419	19		247,042			(13,443		)	(130,427		)	103,191
Share-based compensation expense	—	—		2,607			—			—			2,607
Stock-based plan activity	133,488	—		46			—			—			46
Comprehensive income:
Net income	—	—		—			—			27,115			27,115
Change in other postretirement benefit plans, net of tax	—	—		—			—			—			—
Foreign currency translation adjustment	—	—		—			2,437			—			2,437
Balance at June 30, 2020	65,210,907	$	19	$	249,695		$	(11,006	)	$	(103,312	)	$	135,396


	Common Stock
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings (Deficit)		Total Shareholders' Equity

Balance at December 31, 2019	64,740,667	$	19	$	244,372	$	(7,063)	$	(116,361)	$	120,967

Share-based compensation expense	—	—		2,864		—		—		2,864
Stock-based plan activity	336,752	—		(194)		—		—		(194)
Comprehensive loss:
Net loss	—	—		—		—		(14,066)		(14,066)
Change in other postretirement benefit plans, net of tax	—	—		—		(681)		—		(681)
Foreign currency translation adjustment	—	—		—		(5,699)		—		(5,699)
Balance at March 31, 2020	65,077,419	19		247,042		(13,443)		(130,427)		103,191
Share-based compensation expense	—	—		2,607		—		—		2,607
Stock-based plan activity	133,488	—		46		—		—		46
Comprehensive income:
Net income	—	—		—		—		27,115		27,115

Foreign currency translation adjustment	—	—		—		2,437		—		2,437

Balance at June 30, 2020	65,210,907	$	19	$	249,695	$	(11,006)	$	(103,312)	$	135,396

Common Stock
Shares Amount Additional Paid-in-Capital Accumulated Other Comprehensive Income (Loss) Retained Deficit Total Shareholders' Equity

Balance at December 31, 2018 64,205,604
$ 18
$ 234,931
$ (10,740 ) $ (115,987 ) $ 108,222
Cumulative effect of accounting changes, net of tax —
—
—
—
6,957
6,957
Share-based compensation expense —
—
1,529
—
—
1,529
Stock-based plan activity 57,106
—
(26 ) —
—
(26 )
Comprehensive loss:
Net loss —
—
—
—
(25,039 ) (25,039 )
Change in other postretirement benefit plans, net of tax —
—
—
373
—
373
Foreign currency translation adjustment —
—
—
1,508
—
1,508
Balance at March 31, 2019 64,262,710
18
236,434
(8,859 ) (134,069 ) 93,524
Share-based compensation expense —
—
1,132
—
—
1,132
Stock-based plan activity 35,447
—
(88 ) —
—
(88 )
Comprehensive income:
Net income —
—
—
—
2,954
2,954
Foreign currency translation adjustment —
—
—
1,320
—
1,320
Balance at June 30, 2019 64,298,157
$ 18
$ 237,478
$ (7,539 ) $ (131,115 ) $ 98,842

See accompanying notes to unaudited condensed consolidated financial statements

FORTERRA, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)


								Six months ended
								June 30,
								2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES							CASH FLOWS FROM OPERATING ACTIVITIES	(unaudited)
Net income							Net income	$	54,741	$	13,049
Adjustments to reconcile net income to net cash provided by (used in) operating activities:							Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation & amortization expense							Depreciation & amortization expense	41,015		44,907

(Gain) loss on disposal of property, plant and equipment							(Gain) loss on disposal of property, plant and equipment	(10,905)		1,353
Gain on extinguishment of debt							Gain on extinguishment of debt	0		(66)
Amortization of debt discount and issuance costs							Amortization of debt discount and issuance costs	2,462		3,730
Stock-based compensation expense							Stock-based compensation expense	4,838		5,471
Impairment charges							Impairment charges	382		0
Write-off of debt discount and issuance costs							Write-off of debt discount and issuance costs	0		376
Earnings from equity method investee							Earnings from equity method investee	(6,161)		(5,925)
Distributions from equity method investee							Distributions from equity method investee	4,500		4,500
Unrealized (gain) loss on derivative instruments, net							Unrealized (gain) loss on derivative instruments, net	(204)		921
Unrealized foreign currency (gain) loss, net							Unrealized foreign currency (gain) loss, net	(46)		212
Provision for doubtful accounts							Provision for doubtful accounts	770		80
Deferred taxes							Deferred taxes	1,017		1,816

Other non-cash items							Other non-cash items	1,135		2,088
Change in assets and liabilities:							Change in assets and liabilities:
Receivables, net							Receivables, net	(81,490)		(66,160)
Inventories							Inventories	(43,080)		(945)

Other current assets							Other current assets	(3,063)		2,435
Accounts payable and accrued liabilities							Accounts payable and accrued liabilities	37,615		27,950
Other assets and liabilities							Other assets and liabilities	(5,481)		4,447
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES							NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	(1,955)		40,239

CASH FLOWS FROM INVESTING ACTIVITIES							CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment, and intangible assets							Purchase of property, plant and equipment, and intangible assets	(24,037)		(9,054)

Proceeds from sale of fixed assets							Proceeds from sale of fixed assets	20,371		10,590

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES							NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(3,666)		1,536

CASH FLOWS FROM FINANCING ACTIVITIES							CASH FLOWS FROM FINANCING ACTIVITIES

Payment of debt issuance costs							Payment of debt issuance costs	0		(1,734)

Repayments of term loans							Repayments of term loans	(6,254)		(21,368)

Proceeds from revolver							Proceeds from revolver	40,000		180,000
Repayments of revolver							Repayments of revolver	(20,000)		(180,000)
Proceeds from issuance of common stock							Proceeds from issuance of common stock	3,063		0

Other financing activities							Other financing activities	(3,087)		(454)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES							NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	13,722		(23,556)
Effect of exchange rate changes on cash							Effect of exchange rate changes on cash	392		(513)
Net change in cash and cash equivalents							Net change in cash and cash equivalents	8,493		17,706
Cash and cash equivalents, beginning of period							Cash and cash equivalents, beginning of period	25,678		34,800

Cash and cash equivalents, end of period							Cash and cash equivalents, end of period	$	34,171	$	52,506

SUPPLEMENTAL DISCLOSURES:							SUPPLEMENTAL DISCLOSURES:
Cash interest paid							Cash interest paid	$	33,455	$	33,134
Income taxes paid (refunds received), net							Income taxes paid (refunds received), net	13,278		(241)

	Six months ended
	June 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES	(unaudited)
Net income (loss)	$	13,049		$	(22,085	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation & amortization expense	44,907			48,782
Loss on disposal of property, plant and equipment	1,353			1,033
Gain on extinguishment of debt	(66		)	—
Amortization of debt discount and issuance costs	3,730			4,013
Stock-based compensation expense	5,471			2,661
Write-off of debt discount and issuance costs	376			—
Earnings from equity method investee	(5,925		)	(4,969		)
Distributions from equity method investee	4,500			1,500
Unrealized loss on derivative instruments, net	921			5,024
Unrealized foreign currency loss / (gain), net	212			(93		)
Provision (recoveries) for doubtful accounts	80			(194		)
Deferred taxes	1,816			(9,566		)
Other non-cash items	2,088			919
Change in assets and liabilities:
Receivables, net	(66,160		)	(67,813		)
Inventories	(945		)	(5,734		)
Other current assets	2,435			(641		)
Accounts payable and accrued liabilities	27,950			13,066
Other assets & liabilities	4,447			6,775
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	40,239			(27,322		)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment, and intangible assets	(9,054		)	(34,051		)
Proceeds from sale of fixed assets	10,590			9,509
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	1,536			(24,542		)

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of debt issuance costs	(1,734		)	—
Payments on term loans	(21,368		)	(6,255		)
Proceeds from revolver	180,000			54,000
Payments on revolver	(180,000		)	(15,000		)
Other financing activities	(454		)	(395		)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(23,556		)	32,350
Effect of exchange rate changes on cash	(513		)	512
Net change in cash and cash equivalents	17,706			(19,002		)
Cash and cash equivalents, beginning of period	34,800			35,793
Cash and cash equivalents, end of period	$	52,506		$	16,791

SUPPLEMENTAL DISCLOSURES:
Cash interest paid	$	33,134		$	38,835
Income taxes paid (refunds received), net	(241		)	3,911

See accompanying notes to unaudited condensed consolidated financial statements

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of the business

Forterra, Inc. (“Forterra” or the ‘‘Company’’) is involved in the manufacturing, sale and distribution of building products in the United States (“U.S.”) and Eastern Canada. Forterra’s primary products are concrete drainage pipe, precast concrete structures, and water transmission pipe used in drinking and wastewater systems. These products are used in the infrastructure, residential and non-residential sectors of the construction industry.

2. Summary of significant accounting policies

General

The Company's condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and include the accounts and results of operations of the Company and its consolidated subsidiaries. All intercompany transactions have been eliminated in consolidation.

The condensed consolidated balance sheets and the condensed consolidated statements of operations, comprehensive income, ~~(loss),~~ cash flows and equity for the periods presented herein reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021. Seasonal changes and other conditions can affect the sales volumes of the Company's products. The financial results for any interim period do not necessarily indicate the expected results for the year.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2019~~2020 as provided in Forterra, Inc.'s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 filed with the SEC on February ~~27, 2020~~25, 2021 (the ~~“2019~~“2020 10-K”). The Company has continued to follow the accounting policies set forth in those financial statements, except as supplemented and documented below. Certain prior year numbers were reclassified to conform with current year presentation. Such reclassification had no impact on the previously reported results of operations. See Note 17, Segment reporting, for further detail.

Use of estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the reporting date, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. The more significant estimates made by management relate to fair value estimates for assets and liabilities acquired in business combinations; estimates for accrued liabilities for environmental cleanup, bodily injury and insurance claims; estimates for commitments and contingencies; and estimates for the realizability of deferred tax assets, the tax receivable agreement obligation, inventory reserves, allowance for doubtful accounts and impairment of goodwill and long-lived assets.

Certain accounting matters that generally require consideration of forecasted financial information were assessed in light of the impact from the ~~COVID-19~~coronavirus disease ("COVID-19") pandemic. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts, inventory reserves, goodwill impairment, impairment of property and equipment and valuation allowances for tax assets. While the

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

assessments resulted in no material impacts to the Company’s condensed consolidated financial statements as of and for the ~~three and~~ six months ended June 30, ~~2020,~~2021, the Company believes the full impact of the COVID-19 outbreak remains uncertain

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

and will continue to assess if ongoing developments related to the outbreak may cause future material impacts to its consolidated financial statements.

Concentration of Credit Risk

The Company had an individual customer within its Water Pipe & Products segment that accounted for approximately ~~15%~~20% and ~~14%~~15% of the Company's total net sales for the six months ended June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and receivables at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 representing ~~17%~~20% and ~~13%~~16% of the Company's total receivables, net, respectively.

Credit Losses

Trade accounts receivable. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

The Company's exposure to credit losses may increase if one or more of its customers are adversely affected by changes in laws or other government recommendations or mandates, economic pressures or uncertainty associated with local or global economic recessions, disruption or other impacts associated with the ~~coronavirus disease 2019 ("COVID-19")~~COVID-19 pandemic, or other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables as customers are impacted by the COVID-19 pandemic.

Recent Accounting Guidance Adopted

In ~~June 2016,~~March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-13,~~ ~~Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ The standard replaces the incurred loss impairment methodology under current U.S. GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The Company adopted this ASU on January 1, 2020 using a modified retrospective approach, which did not have a material impact on the Company's condensed consolidated financial statements.

~~In March 2020, the FASB issued ASU~~ 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in the ASU provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. The guidance was effective upon issuance and generally can be applied through December 31, 2022 and has not had any material impact to the Company's condensed consolidated financial statements.

~~Recent Accounting Guidance Not Yet Adopted~~

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ~~For public companies, the amendments in~~The Company adopted this ASU ~~are effective for fiscal years beginning after December 15, 2020~~on January 1, 2021 on a prospective basis, which did not have a material impact on the Company's condensed consolidated financial statements.

3. Mergers and ~~interim periods within those fiscal years. Early adoption is permitted in interim or annual periods~~dispositions

Quikrete Merger Agreement

On February 19, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ~~any adjustments reflected as~~Quikrete Holdings, Inc., a Delaware corporation (“Parent”), and Jordan Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”). Pursuant to the ~~beginning of the annual period that includes that interim period. Additionally, entities that elect early adoption must adopt all the~~

Merger

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent.

~~amendments~~

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each issued and outstanding share of common stock (the “Common Stock”) of the Company (other than (i) any shares held in the ~~same period. Amendments are~~treasury of the Company or owned, directly or indirectly, by Parent, Merger Sub or any wholly-owned subsidiary of the Company immediately prior to ~~be applied prospectively, except for certain amendments~~the Effective Time, (ii) shares that are subject to any vesting restrictions (“Company Restricted Shares”) granted under the Company’s stock incentive plans (the “Company Stock Plans”) and (iii) any shares owned by stockholders who have properly exercised and perfected appraisal rights under Delaware law) will be ~~applied either retrospectively~~automatically canceled and converted into the right to receive $24.00 in cash, without interest (the “Merger Consideration”), subject to deduction for any required withholding tax.

At the Effective Time:


			(1)			each restricted stock unit that is solely subject to time-based vesting requirements granted under the Company Stock Plans that is outstanding immediately prior to the Effective Time shall fully vest and be converted into the right to receive an amount in cash (without interest and subject to applicable tax withholdings) equal to the product of (i) the Merger Consideration multiplied by (ii) the number of shares of Common Stock subject to such vested restricted stock unit;


			(2)			each restricted stock unit that is subject to performance-based vesting requirements granted under the Company Stock Plans that is outstanding immediately prior to the Effective Time shall immediately vest and be converted into the right to receive an amount in cash (without interest and subject to applicable tax withholdings) equal to the product of (i) the Merger Consideration multiplied by (ii) the number of shares subject to such vested restricted stock unit immediately prior to the Effective Time as determined in accordance with the Merger Agreement;



			(3)			each option to purchase shares of Common Stock granted under the Company Stock Plans that is outstanding immediately prior to the Effective Time shall fully vest, to the extent not vested previously, and be converted into the right to receive an amount in cash (without interest and subject to applicable tax withholdings) equal to the product of (i) the remainder, if positive, of (A) the Merger Consideration minus (B) the exercise price per share of Common Stock of such option multiplied by (ii) the number of shares of Common Stock subject to such vested option; and



			(4)			each Company Restricted Share that is outstanding immediately prior to the Effective Time shall immediately vest in full and be converted into the right to receive an amount in cash (without interest and subject to applicable tax withholdings) equal to the Merger Consideration.

Each party’s obligation to consummate the Merger is subject to certain conditions, including, among others: (i) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (ii) the absence of any order issued by any court of competent jurisdiction, other legal restraint or prohibition or any law enacted or deemed applicable by a governmental entity that prohibits or makes illegal the consummation of the Merger; (iii) the passing of twenty (20) days from the date on which the Company mails to the Company’s stockholders the definitive information statement regarding the stockholder approval of the Merger by written consent; (iv) subject to certain qualifications, the accuracy of representations and warranties of the other party set forth in the Merger Agreement; and (v) the performance by the other party in all material respects of its obligations under the Merger Agreement. Parent’s obligation to consummate the Merger is also conditioned on, among other things, the absence of any Material Adverse Effect (as defined in the Merger Agreement).

Entry into the Merger Agreement has been unanimously approved by the board of directors of the Company.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Merger Agreement includes customary representations, warranties and covenants of the Company, Parent and Merger Sub. Among other things, the Company has agreed to use commercially reasonable efforts to conduct its business in the ordinary course of business consistent with ~~a modified retrospective approach through a cumulative effect adjustment recorded~~past practice and use commercially reasonable efforts to ~~retained earnings.~~preserve intact its businesses until the Merger is consummated. The ~~effects of this standard~~Company and Parent have also agreed to use their respective reasonable best efforts to obtain any approvals from governmental authorities for the Merger, including all required antitrust approvals, on the ~~Company's condensed consolidated financial statements are~~terms and subject to the conditions set forth in the Merger Agreement, provided that Parent and its affiliates will not ~~expected~~be required to ~~be material.~~

~~3. Acquisitions~~

~~On March 1, 2019,~~take, or agree to take, certain actions with respect to assets, businesses or product lines of Parent or any of its subsidiaries, or the Company ~~acquired~~or any of its subsidiaries, accounting for more than $80 million of EBITDA (as defined in the Merger Agreement) for the 12 months ended December 31, 2020, measured in accordance with the Merger Agreement.

The Merger Agreement contains certain ~~assets~~provisions giving each of ~~Texas limited liability companies Houston Buckner Precast, LLC, Buckner Precast, LLC, Montgomery 18905 E. Industrial, LLC,~~Parent and ~~1763 Old Denton Road, LLC (altogether "Buckner")~~the Company rights to terminate the Merger Agreement under certain circumstances, including the right for ~~consideration of $11.8 million~~either Parent or the Company to terminate the Merger Agreement if the Merger has not been consummated on or before November 19, 2021, which date will be automatically extended for up to 2 additional 60-day periods in ~~cash, inclusive of a working capital adjustment. The acquired Buckner assets did not meet~~specified circumstances as described in the ~~definition of a business and,~~Merger Agreement (such date, as ~~such, the transaction was accounted for as an asset acquisition~~may be so extended pursuant to the ~~guidance in subsection 805-50 of Accounting Standards Codification ("ASC"~~Merger Agreement, the “Outside Date”) ~~805,~~ ~~Business Combinations.~~ ~~The assets operate as part~~. Upon termination of the ~~Company’s Drainage Pipe~~Merger Agreement under specified circumstances, the Company will be required to pay Parent a termination fee of $50 million. The Merger Agreement further provides that Parent will be required to pay the Company a reverse termination fee of $85 million under certain circumstances if the Merger Agreement is terminated due to the failure of the parties to obtain required approvals under Antitrust Laws (as defined in the Merger Agreement) prior to the Outside Date or as a result of a Restraint (as defined in the Merger Agreement) arising under applicable Antitrust Laws.

If the Merger is consummated, the shares of Common Stock will be delisted from the Nasdaq Stock Market LLC and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Transaction costs

For the three and six months ended June 30, 2021, the Company recognized aggregate transaction costs, including legal, accounting, valuation, and advisory fees, specific to the Merger of $1.9 million and $4.9 million, respectively. These costs are recorded in the condensed consolidated statements of operations within selling, general & ~~Products segment.~~ administrative expenses.

4. Receivables, net

Receivables consist of the following (in thousands):


	June 30,		December 31,
	2021		2020
Trade receivables	$	292,685	$	195,997
Amounts billed but not yet paid under retainage provisions	2,690		4,022
Other receivables	15,418		29,026
Total receivables	310,793		229,045
Less: Allowance for doubtful accounts	(1,738)		(1,097)
Receivables, net	$	309,055	$	227,948

June 30, December 31,
2020 2019
Trade receivables $ 237,250
$ 178,698
Amounts billed but not yet paid under retainage provisions 3,644
3,093
Other receivables 32,500
26,078
Total receivables 273,394
207,869
Less: Allowance for doubtful accounts (1,793 ) (2,068 )
Receivables, net $ 271,601
$ 205,801

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

5. Inventories

Inventories consist of the following (in thousands):


	June 30,		December 31,
	2021		2020
Finished goods	$	170,243	$	145,872
Raw materials	95,293		76,322
Work in process	772		734
Total inventories	$	266,308	$	222,928

June 30, December 31,
2020 2019
Finished goods $ 155,569
$ 161,440
Raw materials 82,696
76,237
Work in process 570
806
Total inventories $ 238,835
$ 238,483

6. Investment in equity method investee

The Company owns 50% of the Common Unit voting shares of Concrete Pipe & Precast LLC ("CP&P") and consequently, has recorded its investment in the Common Unit voting shares in accordance with ASC 323, Investments – Equity Method and Joint Ventures, under the equity method of accounting.

The Company's investment in the joint venture was ~~$51.5~~$49.9 million at June 30, ~~2020,~~2021, which is included within the Drainage Pipe & Products segment. At June 30, ~~2020,~~2021, the difference between the amount at which the Company's investment is carried and the amount of the Company's share of the underlying equity in net assets of

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

CP&P was approximately ~~$13.0~~$12.9 million. The basis difference is primarily attributed to the value of land and equity method goodwill associated with the investment.

The following reflects the Company's distribution and earnings in the equity investment (in thousands):


	Three months ended						Six months ended							Three months ended				Six months ended
	June 30,						June 30,							June 30,				June 30,
	2020			2019			2020			2019				2021		2020		2021		2020
Distribution received from CP&P	$	(2,900	)	$	—		$	(4,500	)	$	(1,500	)	Distribution received from CP&P	$	(3,000)	$	(2,900)	$	(4,500)	$	(4,500)
Share of earnings in CP&P	3,146			3,420			5,961			5,005			Share of earnings in CP&P	3,589		3,146		6,197		5,961
Amortization of excess fair value of investment	(18		)	(18		)	(36		)	(36		)	Amortization of excess fair value of investment	(18)		(18)		(36)		(36)

Selected financial data for CP&P on a 100% basis is as follows (in thousands):


	Three months ended				Six months ended
	June 30,				June 30,
	2021		2020		2021		2020
Net sales	$	46,701	$	40,427	$	83,956	$	79,519
Gross profit	12,130		10,933		21,780		21,470
Income from operations	7,181		6,259		12,154		11,879
Net income	7,117		6,209		12,025		11,767

Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Net sales $ 36,032
$ 37,353
$ 70,790
$ 65,602
Gross profit 10,933
11,721
21,470
19,675
Income from operations 6,259
6,840
11,879
10,020
Net income 6,209
6,776
11,767
9,893

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

7. Property, plant and equipment, net

Property, plant and equipment, net, consist of the following (in thousands):


	June 30,		December 31,
	2021		2020
Machinery and equipment	$	428,145	$	410,436
Land, buildings and improvements	234,476		234,251
Other equipment	13,291		12,633
Construction-in-progress	21,503		26,073
Total property, plant and equipment	697,415		683,393
Less: accumulated depreciation	(253,364)		(232,311)
Property, plant and equipment, net	$	444,051	$	451,082

June 30, December 31,
2020 2019
Machinery and equipment $ 410,007
$ 398,127
Land, buildings and improvements 233,155
240,403
Other equipment 11,781
8,660
Construction-in-progress 12,204
29,157
Total property, plant and equipment 667,147
676,347
Less: accumulated depreciation (220,173 ) (200,772 )
Property, plant and equipment, net $ 446,974
$ 475,575

Depreciation expense totaled $12.2 million and $24.4 million for the three and six months ended June 30, 2021, respectively, and $12.1 million and $24.3 million for the three and six months ended June 30, 2020, ~~respectively, and $12.4 million and $25.2 million for the three and six months ended June 30, 2019,~~ respectively, which is included in cost of goods sold and selling, general and administrative expenses in the condensed consolidated statements of operations.

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

8. Goodwill and other intangible assets, net

The Company has recorded goodwill in connection with its acquisition of businesses. The following table summarizes the changes in goodwill by operating segment for the six months ended June 30, ~~2020~~2021 (in thousands):


	Drainage Pipe & Products		Water Pipe & Products		Total
Balance at December 31, 2020	$	190,767	$	318,360	$	509,127


Foreign currency and other adjustments	401		0		401
Balance at June 30, 2021	$	191,168	$	318,360	$	509,528

Drainage Pipe & Products Water Pipe & Products Total
Balance at December 31, 2019 $ 190,466
$ 318,360
$ 508,826
Foreign currency and other adjustments (644 ) —
(644 )
Balance at June 30, 2020 $ 189,822
$ 318,360
$ 508,182

Intangible assets other than goodwill at June 30, ~~2020~~2021 and December 31, ~~2019~~2020 included the following (in thousands):


	Net carrying value as of June 30, 2021		Net carrying value as of December 31, 2020
Customer relationships	$	58,566	$	70,503
Trade names	12,754		14,935
Patents	4,009		5,029

Non-compete agreements	3,736		4,962
Developed technology	5,420		5,606
Other	333		374
Total intangible assets	$	84,818	$	101,409

Net carrying value as of June 30, 2020 Net carrying value as of December 31, 2019
Customer relationships $ 85,686
$ 100,869
Trade names 17,280
19,626
Patents 6,351
7,673
Non-compete agreements 6,453
8,070
Developed technology 5,793
5,980
Other 415
456
Total intangible assets $ 121,978
$ 142,674

Amortization expense totaled $8.3 million and $16.6 million for the three and six months ended June 30, 2021, respectively, and $10.3 million and $20.6 million for the three and six months ended June 30, 2020, ~~respectively, and $12.0 million and $23.6 million for the three and six months ended June 30, 2019,~~ respectively, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations. All of the Company's intangible assets are amortizable.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The estimated carrying amount and fair value of the Company’s financial instruments measured and recorded at fair value on a recurring basis are as follows for the dates indicated (in thousands):

Fair value measurements at June 30, 2020 using
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total Fair Value June 30, 2020
Liabilities:
Derivative liability $ —
$ 663
$ —
$ 663

Fair value measurements at December 31, 2019 using
Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value December 31, 2019
Assets:
Derivative asset $ —
$ 258
$ —
$ 258


	Fair value measurements at June 30, 2021 using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value June 30, 2021
Liabilities:
Derivative liability	$	0	$	367	$	0	$	367

	Fair value measurements at December 31, 2020 using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value December 31, 2020


Liabilities:
Derivative liability	$	0	$	572	$	0	$	572

Liabilities and assets classified as level 2 which are recorded at fair value are valued using observable market inputs. The fair values of derivative assets and liabilities are determined using quantitative models that utilize multiple market inputs including interest rates and exchange rates to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair values of derivative assets and liabilities include adjustments for market liquidity, counter-party credit quality, and other instrument-specific factors, where appropriate. In addition, the Company incorporates within its fair value measurements a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by ~~counter-parties,~~counterparties, and fair value for net long exposures is adjusted for counter-party credit risk while the fair value for net short exposures is adjusted for the Company’s own credit risk.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The estimated carrying amount and fair value of the Company’s financial instruments and liabilities for which fair value is only disclosed is as follows (in thousands):

Significant Other Observable Inputs

Significant Unobservable Inputs

Fair value measurements at December 31, 2019 using
Carrying Amount December 31, 2019 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value December 31, 2019
Liabilities:
Term Loan $ 1,098,303
$ —
$ 1,102,295
$ —
$ 1,102,295
Tax receivable agreement payable 77,385
—
—
47,625
47,625

Significant Other Observable Inputs

Significant Unobservable Inputs

Significant Other Observable Inputs

Significant Unobservable Inputs

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The fair value of debt is valued using a market approach based on indicative quoted prices for the Company's debt instruments traded in over-the-counter markets and, therefore, is classified as Level 2 within the fair value hierarchy. See Note 11, Debt and deferred financing costs, for a further discussion of Company debt.

The determination of the fair value of the Company's tax receivable agreement payable was ~~determined~~made using a discounted cash flow methodology with level 3 inputs as defined by ASC 820, Fair Value Measurements and Disclosures. The determination of fair value required significant judgment, including estimates of the timing and amounts of various tax attributes. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Actual results could differ from these estimates. See Note 14, Commitments and contingencies, for a further discussion of the Company's tax receivable agreement.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

10. Accrued liabilities

Accrued liabilities consist of the following (in thousands):


	June 30,		December 31,
	2021		2020
Accrued payroll and employee benefits	$	48,882	$	49,434
Short-term finance leases	17,817		17,009
Short-term operating leases	7,885		7,448
Accrued taxes	16,134		13,642
Warranty	3,877		7,069
Accrued rebates	12,810		11,649



Other miscellaneous accrued liabilities	8,242		9,442


Total accrued liabilities	$	115,647	$	115,693

June 30, December 31,
2020 2019
Accrued payroll and employee benefits $ 33,981
$ 32,815
Short-term finance leases 16,545
16,542
Short-term operating leases 8,479
8,784
Accrued taxes 12,009
5,354
Warranty 7,419
5,536
Accrued rebates 8,382
9,895
Short-term derivative liability 331
—
Environmental obligation 83
718
Other miscellaneous accrued liabilities 10,205
9,195
Total accrued liabilities $ 97,434
$ 88,839

11. Debt and deferred financing costs

The Company’s debt consisted of the following (in thousands):


	June 30,		December 31,
	2021		2020
Term Loan, net of debt issuance costs and original issuance discount of $5,630 and $6,889, respectively	$	402,982	$	407,978
Senior Secured Notes, net of debt issuance costs and original issuance discount of $7,088 and $7,957, respectively	492,912		492,043
Revolver, net of debt issuance costs of $2,685	17,315		0
Total debt	$	913,209	$	900,021
Less: current portion debt	(12,510)		(12,510)
Total long-term debt	$	900,699	$	887,511

June 30, December 31,
2020 2019
Term Loan, net of debt issuance costs and original issuance discount of $21,419 and $25,055, respectively $ 1,080,192
$ 1,098,303
Total debt $ 1,080,192
$ 1,098,303
Less: current portion debt (12,510 ) (12,510 )
Total long-term debt $ 1,067,682
$ 1,085,793

As of June 30, ~~2020,~~2021, Forterra had 0$20 million borrowings under its $350 million asset based revolving credit facility under its ABL Credit Agreement dated October 25, 2016 (the “ABL Credit Agreement”) for working capital and general corporate purposes (“Revolver”) ~~and $1.1 billion~~, $408.6 million outstanding under its senior term loan facility (“Term Loan”) and $500 million senior secured notes due 2025 (the “Notes”).

Senior Secured Notes

On July 16, 2020, Forterra Finance, LLC and FRTA Finance Corp., both wholly-owned subsidiaries of the Company, completed the issuance of $500 million aggregate principal amount of senior secured notes due in 2025. The Notes have a fixed annual interest rate of 6.50% which will be paid semi-annually on January 15 and July 15 of each year. The Notes will mature on July 15, 2025. The Company used the net proceeds from the offering to repay $492.5 million of the principal amount of the Term Loan at par, plus accrued interest. The Company incurred debt issuance costs of $8.8 million and will amortize them over the term of the Notes under the effective interest method.

Obligations under the Notes are guaranteed by the Company and the Company’s existing and future subsidiaries (other than the issuing companies) 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,

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

At any time prior to July 15, 2022, the Company may on any one or more occasions redeem all or part of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus a “make whole premium” as of, and accrued and unpaid interest to the date of redemption, subject to the right of holders of Notes on the relevant record date to receive interest due on an interest payment date occurring on or prior to the redemption date. In addition, at any time prior to July 15, 2022, the Company may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Notes (calculated after giving effect to the issuance of any additional notes) issued under the Indenture at a redemption price equal to 106.500% of the principal amount of Notes redeemed, plus accrued and unpaid interest to the date of redemption (subject to the right of holders of Notes on the relevant record date to receive interest due on an interest payment date occurring on or prior to the redemption date), with the net cash proceeds of an equity offering. Furthermore, at any time on or after July 15, 2022, the Company may on any one or more occasions redeem all or part of the Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest on the Notes redeemed, to the applicable date of redemption, if redeemed during the 12-month period beginning on July 15 of the years indicated below, subject to the rights of holders of Notes on a relevant record date to receive interest on an interest payment date occurring on or prior to the redemption date:


	Percentage
2022	103.250	%
2023	101.625	%
2024 and thereafter	100.000	%

The Notes contain customary negative covenants, including, among other things, limitations or prohibitions on restricted payments, incurrence of additional indebtedness, liens, mergers, asset sales and transactions with affiliates. In addition, the Indenture contains customary events of default.

The Term Loan ~~provided~~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 (defined below) of Forterra 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

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

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.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Asset Based Revolving Facility

Subject to the conditions set forth in the ABL 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. The advance rates for accounts receivable and inventory are subject to increase by 2.5% during certain periods. As of June 30, ~~2020~~2021 and

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

December 31, ~~2019,~~2020 the ~~Revolver~~Company had $20.0 million and 0 outstanding ~~borrowings.~~borrowings, respectively, under the Revolver. The weighted average interest rates for the borrowings under the Revolver were ~~1.98%~~2.75%, ~~2.00%~~2.75%, ~~3.75%~~1.98% and ~~3.75%~~2.00% for the three and six months ended June 30, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Term Loan
2020 $ 6,255
2021 12,510
2022 12,510
2023 1,070,336
$ 1,101,611

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents the fair values of derivative assets and liabilities in the condensed consolidated balance sheets (in thousands):


	June 30, 2021
	Derivative Assets				Derivative Liabilities
	Notional Amount		Fair Value		Notional Amount		Fair Value

Interest rate swaps	$	0	$	0	$	400,000	$	367
Total derivatives, gross			0				367
Less: Legally enforceable master netting agreements			0				0
Total derivatives, net			$	0			$	367

June 30, 2020
Derivative Assets Derivative Liabilities
Notional Amount Fair Value Notional Amount Fair Value
Interest rate swaps $ —
$ —
$ 400,000
$ 663
Total derivatives, gross —
663
Less: Legally enforceable master netting agreements —
—
Total derivatives, net

$ —
$ 663

December 31, 2019
Derivative Assets Derivative Liabilities
Notional Amount Fair Value Notional Amount Fair Value
Interest rate swaps $ 525,000
$ 258
$ —
$ —
Total derivatives, gross 258
—
Less: Legally enforceable master netting agreements —
—
Total derivatives, net $ 258
$ —


	December 31, 2020
	Derivative Assets				Derivative Liabilities
	Notional Amount		Fair Value		Notional Amount		Fair Value

Interest rate swaps	$	0	$	0	$	400,000	$	572
Total derivatives, gross			0				572
Less: Legally enforceable master netting agreements			0				0
Total derivatives, net			$	0			$	572

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The following table presents the effect of derivative instruments on the condensed consolidated statements of operations (in thousands):


	Three months ended		Six months ended
	June 30,		June 30,
	2021	2020	2021	2020



Derivatives not designated as hedges


Interest rate swaps
Gain (loss) on derivatives not designated as hedges included in interest expense	61	(174)	204	(921)

Three months ended Six months ended
June 30, June 30,
2020 2019 2020 2019
Derivatives not designated as hedges
Interest rate swaps
Loss on derivatives not designated as hedges included in interest expense (174 ) (2,932 ) (921 ) (5,024 )

The Company leases land and buildings, office spaces, vehicles, machinery and equipment under various lease agreements. A large portion of the Company’s leases were the result of the 2016 sale and leaseback of land and buildings related to certain production facilities. These leases have an initial term of 25 years, followed by 1 optional renewal term of approximately ten years that may be exercised at the Company’s discretion. These leases, with the exception of certain land leases, are classified as finance leases. The Company’s operating leases are mainly comprised of land and buildings, office spaces, vehicles, machinery and equipment leases, and have remaining terms of one to 25 years, some of which include options to extend the leases for up to 10 years.

or less are not recorded on the balance sheet. Operating leases are included in operating lease right-of-use, or ROU,

assets, accrued liabilities, and long-term operating lease liabilities in the condensed consolidated

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

On March 13, 2015, through an indirect wholly owned subsidiary, Lone Star Fund IX (U.S.), L.P. (which is referred to, along with its affiliates and associates, but excluding Forterra and other companies that it owns as a result of its investment activity, as "Lone Star") acquired the building products business of HeidelbergCement AG, ("Heidelberg"), in the United States and Eastern Canada, (the "Acquisition"). The Acquisition purchase agreement included an earnout, which provided for the payment of contingent consideration of up to $100.0 million, if and to the extent the 2015 financial results of the businesses acquired by Lone Star in the Acquisition, including the Company and Heidelberg's former building products business in the United Kingdom, exceeded a specified Adjusted EBITDA target for fiscal year 2015, as calculated pursuant to the terms of the purchase agreement. If such Adjusted EBITDA calculation exceeded the specified target, LSF9 Concrete Holdings Ltd. ("LSF9") and, as a result of the internal reorganization transaction effected prior to the Company's initial public offering ("IPO"), the Company would be required to pay the U.S. affiliate of Heidelberg an amount equal to a multiple of such excess Adjusted EBITDA, with any payment capped at $100.0 million. In April 2016, the Company provided an earnout statement to affiliates of Heidelberg demonstrating that no payment was required. On June 13, 2016, Heidelberg provided notification that it disputed, among other things, the Company’s calculation of Adjusted EBITDA under the purchase agreement and asserting that a payment should be made in the amount of $100.0 million. The Company does not believe Heidelberg’s position has merit and is vigorously opposing Heidelberg's assertions. On October 5, 2016, affiliates of Heidelberg filed a lawsuit in the Delaware Court of Chancery seeking specific performance and claiming access to the Company's books, records, and personnel; seeking a declaratory judgment concerning the scope of the neutral accounting expert’s authority; and in the alternative, claiming a breach of contract and seeking the $100.0 million and other damages (the "Delaware Action"). On December 8, 2017, the court granted the defendants' Motion to Dismiss the First Amended Complaint in the DelawareDerivative Action finding that the earnout dispute should be heard before a neutral accounting arbitrator as set forth in the purchase agreement and that any claims that were required to be brought as indemnification claims under the purchase agreement were time-barred by the contractual limitations period. Following the dismissal of the Delaware Action, the Company and Heidelberg jointly engaged a neutral accounting expert to act as an arbitrator in the dispute as required by the purchase agreement. After briefing certain preliminary matters for the arbitrator and the production of additional documents, the parties began briefing the issues on the merits for the neutral accounting arbitrator, which was completed in April 2020. The hearing on the merits of the dispute was held June 23-25, 2020 and a written decision is expected from the neutral accounting arbitrator in the latter part of August 2020 or thereafter. As of June 30, 2020, 0 liability for this contingency has been accrued as payment of any earnout is not considered probable. However, the outcome of this matter is uncertain, and no assurance can be given to the ultimate outcome of the resulting proceedings. If the Company is unsuccessful in resolving the dispute, it could recognize a material charge to its earnings.

~~Securities Action and Derivative Actions~~

Beginning on August 14, 2017, 4 plaintiffs filed putative class action complaints in the United States District Court for the Eastern District of New York against various defendants. On July 27, 2018, an order was entered consolidating the lawsuits into a single action (the "Securities Action") and transferring the venue of the case from the Eastern District of New York to the Northern District of Texas. Pursuant to an agreed scheduling order, plaintiffs in the Securities Action filed their Consolidated Amended Complaint on November 30, 2018.

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The Securities Action is brought by 2 plaintiffs individually and on behalf of all persons that purchased or otherwise acquired the Company's common stock issued pursuant to and/or traceable to the IPO and is brought against the Company, certain of its current and former officers and directors, Lone Star and certain of its affiliates, and certain banks that acted as underwriters of the IPO (collectively, the “Securities Defendants”). The Securities Action generally alleges that the Company's registration statement on Form S-1 filed in connection with the IPO (the "Registration Statement") contained false or misleading statements and/or omissions of material facts. Specifically, plaintiffs allege the Registration Statement (1) made false and/or misleading statements about the Company's ability to generate organic growth through cross-selling initiatives amongst the Company's various businesses while failing to disclose that the Company had not adequately integrated acquisitions, had not begun rolling out its cross-selling initiative, and that its businesses were submitting competing bids against one another, and (2) made false or misleading statements regarding the existence of certain accounting practices and alleged material weaknesses in the Company's internal controls over financial reporting, including the existence of and accounting for bill and hold transactions, the lack of sufficient accounting personnel, the lack of effective internal controls to ensure costs were properly and accurately accrued, resulting in misstated costs and profits in the Company's 2016 financial statements, and the making of inventory accounting entries without adequate substantiation or documentation. The Securities Action asserts claims under Section 11 and Section 15 of the Securities Act of 1933, as amended, (the "Securities Act") and seeks (1) class certification under the Federal Rules of Civil Procedure, (2) damages suffered by plaintiffs and other class members, (3) prejudgment and post-judgment interest, (4) reasonable counsel fees and expert fees, and other costs and expenses reasonably incurred, and (5) other relief the court deems appropriate.

On February 15, 2019, the Securities Defendants filed a Motion to Dismiss all claims in the case based on plaintiffs' failure to state a claim. Briefing on the motion to dismiss was completed on May 1, 2019, and the court has not yet ruled on the motion. A mediation of the Securities Action occurred in August 2019. On November 4, 2019, the parties to the Securities Action entered into a settlement agreement that is intended to fully and finally resolve all claims in the Securities Action. On January 4, 2020, the court issued an order granting preliminary approval for the settlement and providing for notice. Approval of the settlement in the Securities Action is set for final hearing on July 28, 2020, but approval cannot be guaranteed. The terms of the settlement are expected to be paid by the Company's insurance.

~~On July 31, 2018, a putative shareholder derivative complaint captioned~~ ~~Maloney v. Bradley, et al.,~~ was filed in the United States District Court for the Northern District of Texas, alleging that certain of the Company’s current and former directors and officers had breached their fiduciary duties, committed constructive fraud, wasted corporate assets, and that certain of them had been unjustly enriched (the "Maloney Texas Action"). On July 30, 2019, the court in the Maloney Texas Action granted the defendants' motion to dismiss on the grounds that the case should have been brought in Delaware according to the Company's Amended and Restated Certificate of Incorporation. On September 23, 2019, the same plaintiff filed a putative shareholder derivative complaint captioned ~~Maloney v. Bradley, et al.~~ in the United States District Court for the District of Delaware, naming as defendants certain of the Company’s current and former directors and officers (the "Maloney Delaware Action"). The complaint alleges the defendants violated Sections 14A and 20(A) of the Securities and Exchange Act of 1934, as amended, breached their fiduciary duties, and wasted corporate assets, and also asserts unjust enrichment claims against certain defendants. The complaint seeks, on behalf of the Company, unspecified damages, an order directing the return of certain payments to the defendants and imposing a constructive trust thereon, certain injunctive relief, reasonable costs and attorneys' fees, and punitive damages.

On January 15, 2019, a putative shareholder derivative complaint captioned Lee v. Bradley, et al.,, was filed in the United States District Court for the District of Delaware, naming as defendants certain of the Company’s current and former directors and officers (the "Lee Action"). The complaint alleges the defendants violated Section 14A of the Securities and Exchange Act of 1934, as amended, and related rules by failing to make certain disclosures in the Company's proxy solicitation in advance of the 2017 Annual Meeting of Stockholders, and that defendants breached their fiduciary duties, wasted corporate assets, and committed constructive fraud. The complaint also asserts unjust enrichment claims against certain defendants. The complaint seeks, on behalf of the Company, unspecified damages, an order directing the return of certain payments to the defendants, certain injunctive relief, and reasonable costs and attorneys' fees. ~~On April 18, 2019, the court entered an agreed stipulation~~After initially staying the ~~Lee Action~~case until the court in ~~the Securities Action rules~~a prior, unrelated securities class action suit that has now been settled ruled on the motion to dismiss in that ~~case.~~

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

Oncase, on December 11, 2019, the court in the Lee Action entered a Stipulation and Order consolidating the Lee Action and another derivative action filed in the ~~Maloney Delaware Action~~same court into a single case (the "Consolidated Lee Action"), and providing a schedule for filing of an amended complaint and motions to dismiss, which has been further extended by agreement of the parties. A mediation of the dispute was held on June 12, 2020 but was not successful in resolving the dispute. ~~The~~Plaintiffs filed an amended complaint in August 2020 and Defendants filed a motion to dismiss the complaint in September 2020, which is now fully briefed and before the court. In light of the Company’s entry into the Merger Agreement, the parties ~~have~~ agreed ~~to a schedule for pleadings to~~that the action should be ~~filed in~~stayed pending the ~~event settlement discussions are not successful.~~completion of the Merger, and the Court entered an order on March 19, 2021 staying the Lee Action until after the completion of the Merger.

Merger-Related Litigation

On March 24, 2021, Anand Choudhuri, a purported owner of Forterra common stock brought a lawsuit against the Company and each of the members of its Board of Directors in the U.S. District Court for the Southern District of New York (the "Choudhuri Action"). The plaintiff alleges, among other things, that the directors breached their fiduciary duties by entering into the Merger Agreement through an unfair process and for inadequate compensation, and that the Information Statement filed by the Company to explain the Merger to its stockholders (the "Merger Information Statement") omits material information related to the sales process, the Company’s financial projections, and Citigroup Global Markets Inc.’s (“Citi”) analysis of the proposed transaction reflected in the Merger Agreement, in violation of the federal securities laws and seeks to enjoin the Merger and/or damages in an unspecified amount.

On March 31, 2021, Christopher Jones, a purported owner of Forterra common stock brought a lawsuit against the Company and each of the members of its Board of Directors in the U.S. District Court for the District of Colorado (the "Jones Action"). The plaintiff alleges, among other things, that defendants violated federal

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

On April 1, 2021, Adam Franchi, a purported owner of Forterra common stock brought a lawsuit against Forterra and individual members of the Board of Directors in the U.S. District Court for the District of Delaware (the "Franchi Action") (collectively, the Choudhuri Action, the Jones Action and the Franchi Action are the “Merger-Related Litigation”). The plaintiff in the Franchi Action alleges, among other things, that defendants violated federal securities laws by failing to disclose certain information in the Merger Information Statement, the Company’s financial projections, and Citi's analysis of the proposed transaction reflected in the Merger Agreement and seeks to enjoin the Merger and/or damages in an unspecified amount.

The Company filed supplemental disclosures relating to the Merger Information Statement which further explained the proposed transaction that is contemplated by the Merger Agreement. Following the supplemental disclosure filings, in late April 2021 each of the 3 cases was voluntarily dismissed by the applicable plaintiff, and it is expected that the plaintiffs in these actions may seek compensation for their expenses and attorneys' fees. Given the stage of the proceedings, the Company cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from the Merger-Related Litigation.

In addition, certain stockholders have informed the Company that they will seek to exercise their appraisal rights under Delaware law with respect to their shares. No further action has been taken by these stockholders to date.

Long-term Incentive Plan

Tax receivable agreement

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The timing and amount of future tax benefits associated with the TRA are subject to change, and additional payments may be required which could be materially different from the current accrued liability. The Company anticipates that it will have sufficient taxable income in future periods to realize the full value of the obligation recorded. Future tax receivable agreement payments related to the tax basis of assets at the time of the IPO will be recorded as a reduction to the liability and will be recorded as a financing activity in the consolidated statement of cash flows. During the six months ended June 30, ~~2020,~~2021, the Company made 0 payments ~~were made~~ on the TRA to Lone Star. It is expected that if the 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.

The calculations of the basic and diluted EPS for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 are presented below (in thousands, except per share amounts):

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

As detailed further below, potential dilutive shares of common stock were anti-dilutive as a result of the Company's net loss for the six months ended June 30, 2019. As a result, basic weighted average shares were used in the calculations of basic earnings per share and diluted earnings per share for that period.

The number of stock options and restricted shares that were excluded from the computation of diluted earnings per share because their inclusion would result in an anti-dilutive effect on per share amounts for the three months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 and the six months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 were NaN, 1,031,685, ~~5,437,403,~~154 and 758,409, ~~and 4,557,278,~~ respectively.

~~FORTERRA, INC.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements~~

The income tax expense for the three months ended June 30, ~~2020~~2021 was calculated ~~under~~in accordance with FASB ASC 740 "Income Taxes" principles. The income tax expense for the ~~ASC 740-270 principles.~~three months ended June 30, 2021 differs from the expense computed at the federal statutory rate primarily due to the current period state income tax expense recorded in the period.

The income tax expense for the six months ended June 30, 2021 differs from the expense computed at the federal statutory rate primarily due to the current period state income tax expense on the current earnings, partially offset by the current period benefit related to equity compensation recorded during the period.

The income tax expense for the six months ended June 30, 2020 differs from the expense computed at the federal statutory rate primarily due to the movement of the valuation allowance recorded in the period and state income tax expense.

The income tax expense for the three months ended June 30, 2019 differs from the expense computed at the federal statutory rate primarily due to the unfavorable permanent add-back of the non-deductible one-time executive severance payment, offset by the favorable return-to-provision adjustment recorded in the quarter.

The income tax benefit for the six months ended June 30, 2019 differs from the benefit computed at the federal statutory rate primarily due to the unfavorable permanent add-back of the non-deductible one-time executive severance payment, offset by the favorable return-to-provision adjustment recorded in the six months ended June 30, 2019.

The Company evaluates the recoverability of its deferred tax assets quarterly to determine if valuation allowances are required or should be adjusted. The Company assesses whether valuation allowances should be established against deferred tax assets based on consideration of all available evidence, both positive and negative, using a “more likely than not” criterion. The analysis used in determining the valuation allowance involves considerable judgment and assumptions. The Company's history of pretax losses limits its ability to rely on projections of future pretax income, therefore, realization of deferred tax assets is based primarily on reversal of taxable temporary differences.

After consideration of all evidence, including the analysis of the reversal pattern of the taxable and deductible temporary differences in the future, the Company increased the overall valuation allowance position by $1.0 million for the six months ended June 30, 2020.

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), ~~that, among~~as well as issued other things, increased the net interest expense deduction limit from 30% to 50% of adjusted taxable income for tax years beginning January 1, 2019 and 2020, and changed the depreciable life of the qualified improvement property from 39 years to 15 years, thereby making it eligible for 100% bonus depreciation, which the Company intends to claim.final regulations during 2020. The Company has ~~taken, and will continue to take advantage of deferral~~considered the favorable impact of the ~~employer portion~~released final regulations in the preparation of the ~~social security taxes~~condensed consolidated financial statements. On March 11, 2021, the U.S. government enacted the COVID-19 Stimulus Package called the American Rescue Plan Act of 2021 (“ARPA”). There are no material provisions that ~~would otherwise be due in 2020, but will be delayed with 50% due by December 31, 2021 and~~impacted the ~~remaining 50% by December 31, 2022.~~Company’s condensed consolidated financial statements.

Segment information is presented in accordance with FASB ASC 280, Segment Reporting, which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. Operating segments are defined as components of an enterprise that engage in business activities that earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in order to allocate resources and assess performance. The Company's Chief Executive Officer is its CODM. The Corporate and Other segment includes expenses related to certain executive salaries, interest costs related to the Company's credit agreements, acquisition-related costs, and other corporate costs that are not directly attributable to the Company's operating segments. The Company's segments follow the same accounting policies as the Company. During the year ended December 31, 2020, the Company moved its concrete and steel pressure pipe business from the Water Pipe & Products segment to the Drainage Pipe & Products segment to better align with how the CODM manages the businesses. The prior year period has been updated to conform with the re-segmentation, which resulted in an immaterial impact to the prior periods' segment information.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The following tables set forth the disaggregation of revenue earned from contracts with customers based on the Company's reportable segments as well as other financial information attributable to the Company's reportable segments for the three and six months ended June 30, ~~2020~~2021 and ~~2019~~2020 (in thousands):


	For the three months ended June 30,				For the six months ended June 30,
	2021		2020		2021		2020
Net sales:
Drainage Pipe & Products	$	258,532	$	238,906	$	450,351	$	415,332
Water Pipe & Products	234,268		187,280		410,563		341,730
Corporate and Other	0		0		0		0
Total	$	492,800	$	426,186	$	860,914	$	757,062

Depreciation and amortization:
Drainage Pipe & Products	$	7,748	$	8,456	$	15,262	$	16,902
Water Pipe & Products	12,138		13,337		24,467		27,015
Corporate and Other	667		613		1,286		990
Total	$	20,553	$	22,406	$	41,015	$	44,907

Segment EBITDA and reconciliation to income (loss) before income taxes:
Drainage Pipe & Products	$	58,692	$	54,618	$	110,457	$	81,062
Water Pipe & Products	49,305		42,513		80,394		64,995
Corporate and Other	(20,240)		(20,453)		(41,111)		(40,121)



Less: Interest expense	(19,074)		(19,702)		(37,420)		(40,447)
Depreciation and amortization	(20,553)		(22,406)		(41,015)		(44,907)
Income before income taxes	$	48,130	$	34,570	$	71,305	$	20,582

Capital expenditures:
Drainage Pipe & Products	$	9,495	$	2,366	$	17,805	$	5,396
Water Pipe & Products	3,281		1,942		5,195		3,123
Corporate and Other	756		223		2,922		362
Total	$	13,532	$	4,531	$	25,922	$	8,881

					June 30,		December 31,
					2021		2020
Total assets:
Drainage Pipe & Products					$	886,468	$	819,046
Water Pipe & Products					837,839		795,292
Corporate and Other					42,506		41,474
Total					$	1,766,813	$	1,655,812

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Net sales:
Drainage Pipe & Products $ 235,596
$ 241,680
$ 405,830
$ 405,414
Water Pipe & Products 190,590
168,539
351,232
296,663
Corporate and Other —
—
—
—
Total $ 426,186
$ 410,219
$ 757,062
$ 702,077

Depreciation and amortization:
Drainage Pipe & Products $ 8,300
$ 9,456
$ 16,545
$ 18,658
Water Pipe & Products 13,493
14,595
27,372
29,470
Corporate and Other 613
339
990
654
Total $ 22,406
$ 24,390
$ 44,907
$ 48,782

Segment EBITDA and reconciliation to income (loss) before income taxes:
Drainage Pipe & Products $ 57,414
$ 48,997
$ 83,466
$ 74,063
Water Pipe & Products 39,717
24,973
62,590
33,714
Corporate and Other (20,453 ) (19,962 ) (40,120 ) (37,048 )
Less: Interest expense (19,702 ) (25,783 ) (40,447 ) (50,448 )
Depreciation and amortization (22,406 ) (24,390 ) (44,907 ) (48,782 )
Income (loss) before income taxes $ 34,570
$ 3,835
$ 20,582
$ (28,501 )

Capital expenditures:
Drainage Pipe & Products $ 2,366
$ 7,519
$ 5,396
$ 15,448
Water Pipe & Products 1,942
2,248
3,123
4,525
Corporate and Other 223
695
362
2,463
Total $ 4,531
$ 10,462
$ 8,881
$ 22,436

June 30, December 31,
2020 2019
Total assets:
Drainage Pipe & Products $ 837,390
$ 819,373
Water Pipe & Products 865,237
862,542
Corporate and Other 68,870
58,143
Total

$ 1,771,497
$ 1,740,058

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company has an investment in an equity method investee included in the Drainage Pipe & Products segment for which earnings from equity method investee were $3.6 million, $6.2 million, $3.1 million ~~$5.9 million, $3.4 million~~ and ~~$5.0~~$5.9 million for the three and six months ended June 30, ~~2020~~2021 and June 30, ~~2019,~~2020, respectively, and with the following balances (in thousands):

June 30, December 31,
2020 2019
Investment in equity method investee $ 51,459
$ 50,034


	June 30,		December 31,
	2021		2020
Investment in equity method investee	$	49,946	$	48,285

Disaggregated revenue by geographic location is provided in the tables below. The Company has operations in the United States, Canada and Mexico. The economic characteristics of the Company's customers do not significantly vary across geographic locations or product lines. The Company has both revenues and long-lived assets in each country; and those assets and revenues are recorded within geographic location as follows (in thousands):

Property, plant, and equipment, net: June 30, December 31,
2020 2019
United States $ 408,159
$ 422,486
Canada 29,903
43,754
Mexico 8,912
9,335
$ 446,974
$ 475,575


Property, plant, and equipment, net:	June 30,		December 31,
	2021		2020
United States	$	399,530	$	409,338
Canada	36,441		33,250
Mexico	8,080		8,494
	$	444,051	$	451,082

Net sales: For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
United States $ 407,764
$ 391,721
$ 723,144
$ 668,458
Canada 16,322
16,555
29,808
29,655
Mexico 2,100
1,943
4,110
3,964
$ 426,186
$ 410,219
$ 757,062
$ 702,077

Tax receivable agreement

The Company has a TRA with Lone Star that provides for, among other things, the payment by the Company to Lone Star of 85% of the amount of certain covered tax benefits, which may reduce the actual liability for certain taxes that the Company might otherwise be required to pay. See Note 14, Commitments and contingencies, for additional information on the tax receivable agreement.

FORTERRA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Master Builders Solutions US, LLC

~~On July 16, 2020,~~ For the six months ended June 30, 2021, Forterra ~~Finance,~~purchased goods from Master Builders Solutions US, LLC, ~~and FRTA Finance Corp., both wholly-owned subsidiaries~~an affiliate of the Company, completed the issuance of $500 million senior secured notes due July 16, 2025 (the “Notes”). The Notes have a fixed annual interest rate of 6.50%, which will be paid semi-annually on January 15 and July 15 of each year. Obligations under the Notes are guaranteed by the Company and the Company’s 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 will be 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, the Company used the net proceeds from this offering to repay $492.5 million of the principal~~Lone Star, for an amount of ~~the Term Loan at par, plus accrued interest.~~$0.4 million.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity, capital resources and other financial and operating information. We have used the words “approximately,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements. All of our forward-looking statements, including those related to our pending acquisition by Quikrete Holdings, Inc., or the Merger, are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:

•the impact of the COVID-19 pandemic on the economy, demand for our products and our business, financial condition and results of operations, including the measures taken by governmental authorities in response;

•government funding of infrastructure and related construction activities;

•the level of construction activity, particularly in the residential construction and non-residential construction markets;

•the highly competitive nature of our industry and our ability to effectively compete;

•the availability and price of the raw materials we use in our business;

•our dependence on key customers and the absence of long-term agreements with these customers;

•the level of construction activity in Texas;

•disruption at one or more of our manufacturing facilities or in our supply chain;

•construction project delays and our inventory management;

•the seasonality of our business and its susceptibility to adverse weather;

•our ability to successfully integrate acquisitions;

•compliance with applicable regulations;

•a tightening of mortgage lending or mortgage financing requirements;

•the ability to implement our growth strategy;

~~our current dispute with HeidelbergCement related to the payment of an earnout;~~

•changes in tax laws could adversely affect us;

•compliance with health and safety laws and regulations;

•our dependence on key executives and key management personnel;

•our ability and that of our customers with which we work to retain and attract additional skilled and non-skilled technical or sales personnel;

•credit and non-payment risks of our customers;

•warranty and related claims;

•legal and regulatory claims;

•our contract backlog;

•our ability to maintain sufficient liquidity and ensure adequate financing or guarantees for large projects;

•delays or outages in our information technology systems and computer networks;

•security breaches in our information technology systems and other cybersecurity incidents;

•risks associated with merger transactions generally, such as the inability to obtain, or delays in obtaining, required approvals under applicable anti-trust legislation and other regulatory and third party consents and approvals;

•the failure to consummate or delay in consummating the Merger for other reasons;

•the risk that a condition to closing of the Merger may not be satisfied;

•the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement;

•the outcome of any legal proceedings related to the Merger;

•failure of Quikrete Holdings, Inc. to obtain the financing required to consummate the Merger;

•failure to retain our key management and employees;

•unfavorable reaction to the Merger by customers, competitors, suppliers and employees; and

•additional factors discussed in our filings with the Securities and Exchange Commission, or the SEC.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors, many of which are beyond our control, as well as the other factors described in Item 1A, “Risk Factors” in our ~~2019~~2020 10-K filed with the SEC on February ~~27, 2020, as supplemented in Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q.~~25, 2021. The COVID-19 pandemic may also precipitate or exacerbate these and other unknown risks and uncertainties. Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not

possible for us to predict all of them. Should one or more of these risks or uncertainties materialize or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us speaks only as of the date on which we make it. We undertake no

obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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, ~~2019~~2020 filed with the SEC on February ~~27, 2020,~~25, 2021, or the ~~2019~~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, and concrete pressure pipe.

•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.

COVID-19 Pandemic

~~Beginning in mid-March, local, state, provincial~~During March 2020, a global pandemic was declared by the World Health Organization and ~~federal authorities began issuing stay at home orders in response to~~a National Emergency was declared by the ~~spread~~President of ~~the coronavirus disease 2019, or COVID-19, which has quickly spread throughout~~ the United States ~~and worldwide. These government-instituted restrictions, together with~~related to the ~~economic volatility and uncertainty the~~rapidly growing outbreak of COVID-19. The pandemic has ~~created, have had a significant impact on~~significantly impacted economic conditions in the United States, ~~economy~~as federal, state, and local governments reacted to the public health crisis, creating significant uncertainties in ~~general~~the United States, as well as the global economy. In the interest of public health and ~~certain parts~~safety, U.S. jurisdictions (national, state, and local) where our primary operations and those of many of our ~~end-markets.~~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 ~~have~~ 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 ~~during~~thus far. We did, however, utilize the ~~first~~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, due by December 31, 2021 and the remaining 50% by December 31, 2022.

Although our revenues have increased for the three and six months ended June 30, 2021, as compared to the prior year period, 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 second half of and full 2021 fiscal year. We cannot predict whether, when, or the ~~year. During April~~manner in which the conditions surrounding COVID-19 will change, including the ultimate duration and early May, we experienced temporary delays in certain projects primarily related to governmental stay at home orders in place at that time and the reactions of certain customers to those orders, specifically in our residential end-markets. By the end of May, as most states started gradually resuming their normal economic activities, there was some correction in these trends in the residential housing market.

~~Since the onset~~scope of the ~~COVID-19 pandemic, we have focused on protecting~~pandemic; the ~~health~~severity of the virus, including the emergence and ~~safety~~spread of our team members while maintaining our operations, which have been deemed essential under relevant pandemic-related government regulations, and continuing to meet our customers’ needs. Although we encountered temporary closures of a small number of our manufacturing facilities in the second quarter due to confirmed cases in our workforce or due to government mandate, these temporary closures did not have a significant impact on our operations or our ability to serve our customer needs. Each facility that was temporarily closed has resumed normal operations. In addition, during the second quarter we repaid in full the $180.0 million of first quarter precautionary borrowings under the Revolver and determined that our other precautionary cost-savings and cash conservation measures initiated in response to the pandemic were no longer necessary.

~~There is still considerable uncertainty regarding the extent and duration of~~new variants; the impact of the COVID-19 ~~pandemic,~~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 effectiveness against the ~~pandemic~~disease or new variants; the actions taken by governments to contain the virus or treat its impact; and ~~related~~how quickly and to what extent normal economic ~~impacts may affect~~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 ~~second half of 2020 and into 2021,~~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 significantly increased ~~case numbers~~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 ~~locations where we have large numbers of employees or significant customer concentration. Based on recent trends in our backlogs, along with other factors, we expect our shipment volumes~~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 ~~second half~~Merger Agreement. We incurred transaction costs of approximately $1.9 million and $4.9 million for the three and six months ended June 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 ~~year~~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. Forterra expects to continue operating the business as Barbour Concrete & Barbour Building Systems for the foreseeable future and believes this acquisition will gain it access to ~~be lower than~~new opportunities for growth in the ~~prior year level as they were during the first half.~~

~~Due to the fluidity~~strong and unprecedented and uncertain nature of the pandemic, we cannot predict the full impact of the COVID-19 pandemic on our business or that of our customers and participants in our supply chain, or on economic conditions generally, including the effects onexpanding Kansas City infrastructure and other construction activity. The ultimate scope and extent of the effects of the COVID-19 pandemic is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time, even after the pandemic might end.

~~For additional information on risk factors that could impact our results, please refer to “Risk Factors” in Part II, Item 1A of this Form 10-Q.~~

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, ~~changes~~availability of and significant inflation in the cost of ~~goods sold,~~raw materials and transportation, availability and cost of labor, seasonality and weather conditions. ~~Some~~In addition to the Merger and the items discussed below, some of ~~the~~these other more important factors are discussed in the ~~2019~~2020 10-K, to which there were no material changes during the period covered by this report, with the exception of the impacts of the COVID-19 pandemic, which are discussed above.

During the first half of 2021, prices for certain of our raw material costs, including costs for scrap metal, steel, and cement, 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. 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 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.

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 we entered into with Americast, Inc.~~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) Benefit~~Expense

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

Results of Operations

Three Months Ended June 30, ~~2020~~2021 as Compared to Three Months Ended June 30, ~~2019~~2020

Total Company

The following table summarizes certain financial information relating to our operating results for the three months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 (in thousands).


Statements of Income Data:	Three months ended June 30, 2020			Three months ended June 30, 2019			% Change		Statements of Income Data:	Three months ended June 30, 2021		Three months ended June 30, 2020		% Change

Net sales	$	426,186		$	410,219		3.9	%	Net sales	$	492,800	$	426,186	15.6	%
Cost of goods sold	320,607			324,405			(1.2	)%	Cost of goods sold	373,228		320,607		16.4	%
Gross profit	105,579			85,814			23.0	%	Gross profit	119,572		105,579		13.3	%
Selling, general and administrative expenses	(53,283		)	(58,640		)	(9.1	)%	Selling, general and administrative expenses	(56,257)		(53,283)		5.6	%
Impairment and exit charges	(265		)	(582		)	(54.5	)%	Impairment and exit charges	(65)		(265)		(75.5)	%
Other operating income, net	(1,001		)	(376		)	*		Other operating income, net	384		(1,001)		*
	(54,549		)	(59,598		)	(8.5	)%		(55,938)		(54,549)		2.5	%
Income from operations	51,030			26,216			94.7	%	Income from operations	63,634		51,030		24.7	%
Other income (expenses)									Other income (expenses)
Interest expense	(19,702		)	(25,783		)	(23.6	)%	Interest expense	(19,074)		(19,702)		(3.2)	%
Gain on extinguishment of debt	116			—			*
Loss on extinguishment of debt									Loss on extinguishment of debt	—		116		*
Earnings from equity method investee	3,126			3,402			(8.1	)%	Earnings from equity method investee	3,570		3,126		14.2	%

Income before income taxes	34,570			3,835			*		Income before income taxes	48,130		34,570		39.2	%
Income tax expense	(7,455		)	(881		)	*		Income tax expense	(12,065)		(7,455)		61.8	%

Net income	$	27,115		$	2,954		*		Net income	$	36,065	$	27,115	33.0	%

* Represents positive or negative change in excess of 100%

Net sales for the three months ended June 30, ~~2020~~2021 were ~~$426.2~~$492.8 million, an increase of ~~$16.0~~$66.6 million, or ~~3.9%~~15.6%, from ~~$410.2~~$426.2 million in the three months ended June 30, ~~2019.~~2020. The increase ~~primarily came from~~in sales was the combination of a $47.0 million increase in the Water Pipe & Products segment driven by both higher shipment volumes and higher average selling prices, ~~compared to prior year, partially offset by the decrease~~and a $19.6 million increase in the Drainage Pipe & Products segment ~~driven by lower shipments~~ compared to prior year, ~~in part~~primarily due to ~~delays related to COVID-19.~~higher shipment volumes.

Selling, General and Administrative Expenses

Other Operating Income, Net

Income tax expense in the three months ended June 30, ~~2020~~2021 was ~~$7.5~~$12.1 million, ~~a change~~an increase of ~~$6.6~~$4.6 million from ~~an income tax expense of $0.9~~$7.5 million in the three months ended June 30, ~~2019.~~2020. The change is primarily due to the higher federal and state tax expense based on the greater pretax income during the three months ended June 30, ~~2020, as well as the additional expense related~~2021, releases to the federal and state valuation allowance during the period ended June 30, 2020 that did not reoccur in 2021, partially offset with the ~~same period.~~current period benefits related to equity compensation.

We have taken, and will continue to take advantage of the provision in the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") to defer the employer portion of the social security taxes that would otherwise be due in 2020, but will be delayed with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022, which will allow us to defer up to $12 million of cash payments from 2020 to 2021 and 2022.

For the three months ended June 30,
(in thousands) 2020 2019 % Change
Net sales:
Drainage Pipe & Products $ 235,596
$ 241,680
(2.5 )%
Water Pipe & Products 190,590
168,539
13.1 %
Corporate and Other —
—
*
Total $ 426,186
$ 410,219
3.9 %

Gross profit (loss):
Drainage Pipe & Products 61,393
57,717
6.4 %
Water Pipe & Products 44,185
28,147
57.0 %
Corporate and Other 1
(50 ) *
Total $ 105,579
$ 85,814
23.0 %

Segment EBITDA⁽¹⁾:

Drainage Pipe & Products 57,414
48,997
17.2 %
Water Pipe & Products 39,717
24,973
59.0 %
Corporate and Other (20,453 ) (19,962 ) 2.5 %



~~(1)~~Key Operational Statistics			% Change
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 Drainage Pipe & Products~~Note 17, Segment Reporting, to the condensed consolidated financial statements for segment EBITDA reconciliation to income (loss) before income taxes.~~(3)


* Shipment Volumes			~~Represents positive or negative change in excess of 100%.~~+13%
Average Selling Prices			-2%
Water Pipe & Products(4)
Shipment Volumes			+18%
Average Selling Prices			+7%

(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%.

Drainage Pipe & Products

Net Sales

Net sales in the three months ended June 30, ~~2020~~2021 were ~~$235.6~~$258.5 million, ~~a decrease~~an increase of ~~$6.1~~$19.6 million, or ~~2.5% from $241.7~~8.2%, compared to $238.9 million in the three months ended June 30, ~~2019.~~2020. The ~~slight~~increase was the net effect of a $27.6 million increase due to higher shipment volumes of our pipe and precast products, and a $4.8 million decrease ~~was driven by~~due to lower shipments due primarily to unfavorable weather as compared to 2019, as well as a sales volume decline due primarily to certain temporary delays in projects caused by COVID-19, partially offset by higher average selling ~~prices.~~prices of our pipe and precast products. Pipe and precast products accounted for more than 85% of Drainage Pipe & Products segment net sales.

Gross Profit

Gross profit in the three months ended June 30, ~~2020~~2021 was ~~$61.4~~$66.3 million, an increase of ~~$3.7~~$6.4 million or ~~6.4%~~10.7% from ~~$57.7~~$59.9 million in the three months ended June 30, ~~2019.~~2020. The increase was primarily due to higher ~~average selling prices and manufacturing efficiencies.~~shipment volumes.

Water Pipe & Products

Net Sales

Net sales in the three months ended June 30, ~~2020 were $190.6~~2021 was $234.3 million, an increase of ~~$22.1~~$47.0 million or ~~13.1%~~25.1% from ~~$168.5~~$187.3 million in the three months ended June 30, ~~2019.~~2020. The increase was ~~due~~ primarily the combination of a $27.7 million increase driven by higher shipment volumes of our ductile iron pipe products and a $13.3 million increase related to higher average selling ~~prices.~~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 June 30, ~~2020~~2021 was ~~$44.2~~$53.2 million, an increase of ~~$16.1~~$7.6 million, or ~~57.0%~~16.7% from ~~$28.1~~$45.6 million in the three months ended June 30, ~~2019.~~2020. The increase was primarily due to higher shipment volumes and higher average selling prices, ~~manufacturing efficiencies and lower~~partially offset by higher raw material ~~cost.~~

costs.

Six Months Ended June 30, ~~2020~~2021 as Compared to Six Months Ended June 30, ~~2019~~2020

Total Company

The following table summarizes certain financial information relating to our operating results for the six months ended June 30, ~~2020~~2021 and June 30, ~~2019~~2020 (in thousands).


Statements of Income Data:	Six months ended June 30, 2020			Six months ended June 30, 2019			% Change		Statements of Income Data:	Six months ended June 30, 2021		Six months ended June 30, 2020		% Change

Net sales	$	757,062		$	702,077		7.8	%	Net sales	$	860,914	$	757,062	13.7	%
Cost of goods sold	592,741			574,458			3.2	%	Cost of goods sold	659,078		592,741		11.2	%
Gross profit	164,321			127,619			28.8	%	Gross profit	201,836		164,321		22.8	%
Selling, general and administrative expenses	(107,523		)	(110,031		)	(2.3	)%	Selling, general and administrative expenses	(111,301)		(107,523)		3.5	%
Impairment and exit charges	(1,089		)	(813		)	33.9	%	Impairment and exit charges	(474)		(1,089)		(56.5)	%
Other operating income, net	(671		)	203			*		Other operating income, net	12,503		(671)		*
	(109,283		)	(110,641		)	(1.2	)%		(99,272)		(109,283)		(9.2)	%
Income from operations	55,038			16,978			*		Income from operations	102,564		55,038		86.4	%
Other income (expenses)									Other income (expenses)
Interest expense	(40,447		)	(50,448		)	(19.8	)%	Interest expense	(37,420)		(40,447)		(7.5)	%
Gain on extinguishment of debt	66			—			*
Loss on extinguishment of debt									Loss on extinguishment of debt	—		66		*
Earnings from equity method investee	5,925			4,969			19.2	%	Earnings from equity method investee	6,161		5,925		4.0	%
Income (loss) before income taxes	20,582			(28,501		)	*
Income tax (expense) benefit	(7,533		)	6,416			*
Net income (loss)	$	13,049		$	(22,085	)	*

Income before income taxes									Income before income taxes	71,305		20,582		*
Income tax expense									Income tax expense	(16,564)		(7,533)		*

Net income									Net income	$	54,741	$	13,049	*

* Represents positive or negative change in excess of 100%

Selling, General and Administrative Expenses

Other Operating Income, Net

Other operating income in the six months ended June 30, 2021 was $12.5 million, an increase of $13.2 million, from an other operating loss of $0.7 million in the six months ended June 30, 2020. The increase in 2021 was primarily driven by $10.9 million gains on asset sales as we ~~incurred a one-time charge related to the change~~continue optimizing our asset portfolio and disposing of ~~CEO which drove the higher Selling, general and administrative expenses.~~idle properties.

Income Tax ~~(Expense) Benefit~~Expense

Income tax expense in the six months ended June 30, ~~2020~~2021 was ~~$7.5~~$16.6 million, ~~a change~~an increase of ~~$13.9~~$9.1 million from ~~an income tax benefit of $6.4~~$7.5 million in the six months ended June 30, ~~2019.~~2020. The change is primarily due to the higher federal and state tax expense based on the greater pretax income during the six months ended June 30, 2021, partially offset by the valuation allowance movement in 2020 ~~as well as additional expense~~that did not reoccur in 2021 and the current period benefit related to ~~the federal and state valuation allowance for the same period.~~equity compensation.

For the six months ended June 30,

(in thousands) 2020
2019
% Change
Net sales:

Drainage Pipe & Products $ 405,830

$ 405,414

0.1 %
Water Pipe & Products 351,232

296,663

18.4 %
Corporate and Other —

—

*
Total $ 757,062

$ 702,077

7.8 %

Gross profit (loss):

Drainage Pipe & Products 93,948

89,150

5.4 %
Water Pipe & Products 70,345

38,882

80.9 %
Corporate and Other 28

(413 )
*
Total $ 164,321

$ 127,619

28.8 %

Segment EBITDA⁽¹⁾:

Drainage Pipe & Products 83,466

74,063

12.7 %
Water Pipe & Products 62,590

33,714

85.6 %
Corporate and Other (40,120 )
(37,048 )
8.3 %



~~(1)~~Key Operational Statistics			% Change
For the purposes of evaluating segment performance, the Company’s chief operating decision maker reviews EBITDA as a basis for making the decisions to allocate resources and assess performance. Our discussion below includes the primary drivers of EBITDA. See Drainage Pipe & Products ~~Note 17, Segment Reporting, to the condensed consolidated financial statements for segment EBITDA reconciliation to income (loss) before income taxes.~~(3)


* Shipment Volumes			~~Represents positive or negative change in excess of 100%.~~+11%
Average Selling Prices			-1%
Water Pipe & Products (4)
Shipment Volumes			+12%
Average Selling Prices			+9%

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

Drainage Pipe & Products

Net Sales

Net sales in the six months ended June 30, ~~2020~~2021 were ~~$405.8~~$450.4 million, ~~flat~~an increase of $35.1 million, or 8.4%, compared to ~~$405.4~~$415.3 million in the six months ended June 30, ~~2019. Higher~~2020. The increase was mostly driven by higher shipment volumes while average selling prices were offset by lower shipments due primarily to unfavorable weather in 2020 as compared to 2019, as well as a sales volume decline due primarily to certain temporary delays in projects caused by COVID-19.remained relatively flat.

Gross Profit

Gross profit in the six months ended June 30, ~~2020~~2021 was ~~$93.9~~$113.3 million, an increase of ~~$4.8~~$20.6 million or ~~5.4%~~22.3% from ~~$89.1~~$92.7 million in the six months ended June 30, ~~2019.~~2020. The increase was primarily due to higher ~~average selling prices and manufacturing efficiencies.~~shipment volumes.

Water Pipe & Products

Net Sales

Net sales in the six months ended June 30, ~~2020~~2021 was ~~$351.2~~$410.6 million, an increase of ~~$54.5~~$68.9 million or ~~18.4%~~20.1% from ~~$296.7~~$341.7 million in the six months ended June 30, ~~2019.~~2020. The increase was ~~due~~ primarily the combination of a $34.6 million increase driven by higher shipment volumes of our ductile iron pipe products and a $29.1 million increase related to higher average selling prices ~~as well as higher shipment volume.~~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 six months ended June 30, ~~2020~~2021 was ~~$70.3~~$88.5 million, an increase of ~~$31.5~~$16.9 million, or ~~80.9%~~23.6% from ~~$38.8~~$71.6 million in the six months ended June 30, ~~2019.~~2020. The increase was primarily due to higher shipment volumes and higher average selling prices, ~~manufacturing efficiencies and lower~~partially offset by higher raw material ~~cost as well as higher volumes.~~costs.

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 ~~“Risk Factors” in Part II,~~ Item 1A, ~~of this Form 10-Q.~~

~~We are currently engaged in a dispute with affiliates of HeidelbergCement AG, or Heidelberg, regarding the earnout provision~~Risk Factors, in the purchase agreement entered into in connection with the acquisition of the building products business of Heidelberg in the United States and Eastern Canada by Lone Star Fund IX (U.S.), L.P. in 2015, or the Acquisition. Heidelberg has asserted that an earnout payment should be made in the amount of $100.0 million, and we have taken the position that no payment is due under the purchase agreement. Following a final hearing in June 2020 resolution is expected to be determined by a neutral accounting arbitrator through a written decision in the latter part of August 2020 or thereafter. If it is determined that an earnout payment of significant size is owed and we are required to make such a payment, 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.10-K.

As of June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had approximately ~~$52.5~~$34.2 million and ~~$34.8~~$25.7 million of cash and cash equivalents, respectively, of which ~~$15.8~~$11.5 million and ~~$12.6~~$12.5 million, respectively, were held by foreign subsidiaries. All of the cash and cash equivalents as of June 30, ~~2020~~2021 and December 31, ~~2019~~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 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 ~~2020,~~2021, pertaining to the ~~2019~~2020 tax year, are expected to be in the range ~~of $8~~of $7 million to ~~$10 million.~~$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 six months ended June 30, ~~2020,~~2021, we ~~voluntarily prepaid $15.5~~borrowed $40 million ofunder our ~~senior term loan~~$350 million Revolver to fund seasonal working capital needs, and ~~during the second quarter, we~~ repaid ~~in full the $180.0 million of first quarter precautionary borrowings under the Revolver initially borrowed in response to the pandemic.~~$20 million. As of June 30, ~~2020,~~2021, we had ~~$1.1 billion~~$408.6 million outstanding balance under our senior term loan as amended, or the Term Loan, and no$20 million borrowings outstanding under the Revolver. Availability under the Revolver, based on draws, outstanding letters of credit of ~~$25.9~~$18.8 million, as well as allowable borrowing base as of June 30, ~~2020,~~2021, was ~~$261.9~~$301.4 million.

~~In June 2020, we entered into a First Amendment to our revolving credit agreement. The Amendment, among other things, (i) increased the size of the~~Our $350 million Revolver from $300.0 million to $350.0 million of aggregate commitments, with up to $330.0 million to be made available to the U.S. borrowers and up to $20.0 million to be made available to the Canadian borrowers, (ii) extended the maturity date of the Revolver towill 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, and (iii) modified the interest rates on outstanding~~thereof. Outstanding borrowings under the Revolver ~~to a rate~~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). 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 June 30, ~~2020,~~2021, we were in compliance with all applicable covenants under the Revolver and the Term Loan.

~~On July 16, 2020, two of our subsidiaries, Forterra Finance, LLC and FRTA Finance Corp., completed the issuance of~~Our $500 million senior secured notes issued in July 2020, or the Notes, ~~that are due~~will mature on July ~~16, 2025. The Notes~~15, 2025 and have a fixed annual interest rate of 6.50%~~, which will be paid semi-annually on January 15 and July 15 of each year.~~. Obligations under the Notes ~~will be~~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

	June 30, 2021		December 31, 2020
Current assets	$	570,775	$	443,839
Intercompany payable to non-guarantor subsidiaries	5,627		8,384
Non-current assets	1,087,009		1,115,191
Current liabilities	305,185		267,672
Non-current liabilities	1,184,581		1,176,492


	Parent - Forterra, Inc. and Subsidiary Guarantors

	Six months ended June 30, 2021		Year ended December 31, 2020
Net sales	$	811,921	$	1,514,556
Gross profit	181,048		347,854
Income before taxes	57,718		58,880
Net income	43,881		52,273

Cash Flow Information

The following table sets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the periods presented (in thousands):



	For the six months ended
	June 30, 2021		June 30, 2020
Statement of Cash Flows data:
Net cash provided by (used in) operating activities	$	(1,955)	$	40,239
Net cash provided by (used in) investing activities	(3,666)		1,536
Net cash provided by (used in) financing activities	13,722		(23,556)

For the six months ended
June 30, 2020 June 30, 2019
Statement of Cash Flows data:

Net cash provided by (used in) operating activities $ 40,239
$ (27,322 )
Net cash provided by (used in) investing activities 1,536
(24,542 )
Net cash provided by (used in) financing activities (23,556 ) 32,350

Net Cash Provided by (Used in) Operating Activities

Net cash used in operating activities was $2.0 million in the six months ended June 30, 2021, compared to net cash provided by operating activities ~~was~~of $40.2 million in the six months ended June 30, ~~2020, compared to net cash used in operating activities of $27.3 million in the six months ended June 30, 2019.~~2020. Changes between the periods are primarily due to the ~~change in income from operations, as well as the improvements in~~timing of settlements of our ~~working capital.~~receivables and payables.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities was $3.7 million in the six months ended June 30, 2021, due to $24.0 million of capital expenditures, partially offset by $20.3 million proceeds from sale of fixed assets. Net cash provided by investing activities was $1.5 million in the six months ended June 30, 2020 due to $10.6 million proceeds from sale of fixed assets, partially offset by $9.1 million of capital expenditures. Net cash used in investing activities was $24.5 million in the six months ended June 30, 2019, primarily due to capital expenditures of $23.2 million and the acquisition of Buckner assets of $10.8 million, partially offset by $9.5 million proceeds from sale of fixed assets.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities was $13.7 million in the six months ended June 30, 2021 primarily due to $20.0 million net borrowings under our Revolver, partially offset by $6.3 million repayments of principal on the Term Loan. Net cash used in financing activities was $23.6 million infor the six months ended June 30, 2020 primarily due to $21.3 million repayments of principal on the Term Loan. Net cash provided by financing activities was $32.4 million for the six months ended June 30, 2019 due primarily to $39.0 million net proceeds from the Revolver, partially offset by $6.3 million repayments of principal on the Term Loan.

Capital Expenditures

Under normal circumstances, our annual sustaining capital expenditures would average $45.0 million to $55.0 million. ~~However,~~During the early part of 2020, as a precautionary measure in response to the COVID-19 pandemic and in order to preserve liquidity, we delayed some non-essential capital spending ~~projects during the second quarter. At the end of the second quarter, given the improvements in cash generation and liquidity, we have resumed capital spending~~ projects. ~~Total~~As a result, total capital expenditures for 2020 were ~~$9.1~~$34.0 million. We have since resumed many of these delayed projects and expect that they will get caught up during 2021, resulting in a slightly higher than average capital expenditure spend in the current year. Capital expenditures for the six months ended June 30, 2021 were $24.0 million, ~~and $23.2~~compared to $9.1 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The majority of our planned capital spending now is related to equipment, such as plant and mobile equipment, upgrade and expansion of existing facilities, and environmental and permit compliance projects. 2020.

Off-Balance Sheet Arrangements

In the ordinary course of our business, we are required to provide surety bonds and standby letters of credit to secure performance commitments. As of June 30, ~~2020,~~2021, outstanding stand-by letters of credit amounted to ~~$25.9~~$18.8 million.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The accounting policies that we believe are critical to or require subjective and/or complex judgments that could potentially affect ~~2020~~2021 reported results are discussed in greater detail in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the ~~2019~~2020 10-K. There have been no significant changes to those accounting policies or our assessment of which accounting policies we would consider to be critical accounting policies.

Recent Accounting Guidance Adopted

A summary of recent accounting pronouncements and our assessment of any expected impact of these pronouncements, if known, is included in Note 2 to the audited consolidated financial statements ~~included~~in the ~~2019~~2020 10-K and Note 2, Summary of significant accounting policies, to the condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of business, we are exposed to financial risks such as changes in interest rates, foreign currency exchange rates and commodity price risk associated with our input costs. We utilize derivative instruments to manage selected foreign exchange and interest rate exposures. See Note 12, Derivatives and hedging, to the condensed consolidated financial statements.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our long-term debt. The interest expense associated with our long-term debt will vary with market rates. During March 2020, the Company entered into an interest rate swap transaction with a notional value of $400 million to limit our exposure to interest rate increases related to a portion of our floating rate indebtedness. We agreed to pay a fixed rate of interest of 1.08% and receive floating rate of interest indexed to one-month LIBOR, subject to a minimum of 1.00%, with monthly settlement terms with the swap counterparty. The swap has a 30-month term and expires on September 30, 2022. Previously, we had two interest rate swap transactions with a combined notional value of $525 million, in which we agreed to pay a fixed rate of interest of 1.52% and received floating rate interest indexed to one-month LIBOR with monthly settlement terms with the swap counterparties. The swaps expired on March 31, 2020. At June 30, ~~2020,~~2021, we estimate that a 1% increase in the rates relating to our floating rate debt would increase annual interest requirements by approximately ~~$7.0~~$5.3 million.

Borrowings under our Term Loan and our Revolver may use LIBOR as a benchmark for establishing the applicable interest rate. LIBOR is the subject of recent regulatory guidance and proposals for reform, which are expected to ultimately lead to the discontinuation of LIBOR or to cause LIBOR to become unavailable as a benchmark rate. The consequences of these developments with respect to LIBOR cannot be entirely predicted but could result in a significant increase in the cost of our variable rate indebtedness causing a negative impact on our financial position, liquidity and results of operations. We plan to carefully monitor the situation and may seek to renegotiate the benchmark for establishing the applicable interest rate with our lenders in the future.

Foreign Currency Risk

Approximately ~~4.5%~~5.7% of our net sales for the six months ended June 30, ~~2020,~~2021, were made in countries outside of the U.S. As a result, we are exposed to movements in foreign exchange rates between the U.S. dollar and other currencies. Based upon our net sales for the six months ended June 30, ~~2020,~~2021, we estimate that a 1% change in the exchange rate between the U.S. dollar and foreign currencies would affect net sales by approximately ~~$0.3~~$0.5 million. This may differ from actual results depending on the levels of net sales outside of the U.S.

Commodity Price Risk

We are subject to commodity price risks with respect to price changes mainly in the electricity and natural gas markets and other raw material costs, such as cement, aggregates, steel and ~~clay.~~scrap steel. Price fluctuations on our key inputs have a significant effect on our financial ~~performance.~~performance and have impacted our results because of significant increases to many of those raw materials in the first six months of 2021, which are expected to remain inflated during the second half of fiscal 2021. The markets for most of these commodities are cyclical and are affected by factors such as the global economic conditions, changes in or disruptions to industry production capacity, changes in inventory levels and other factors beyond our control.

Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist principally of accounts receivable. We provide our products to customers based on an evaluation of the financial condition of our customers, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. We monitor the exposure for credit losses and maintain allowances for anticipated losses. Concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion among many different geographies.

At June 30, ~~2020,~~2021, we had an individual customer within our Water Pipe & Products segment that accounted for more than 10% of total net sales for the six months ended June 30, ~~2020.~~2021. The customer represented approximately ~~15%~~20% of our total net sales for the six months ended June 30, ~~2020,~~2021, and amounts receivable from the customer at June 30, ~~2020~~2021 represented approximately ~~17%~~20% of our total receivables, net.

The COVID-19 pandemic may increase our risk of, or exposure to, credit losses. See Note 2, Summary of significant accounting policies, to the condensed consolidated financial statements.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of June 30, ~~2020.~~2021.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, ~~2020.~~2021.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of our control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth in Note 14, Commitments and contingencies, to the condensed consolidated financial statements is incorporated by reference herein.

Item 1A. Risk Factors

Our business faces many risks and uncertainties that we cannot control. The risk factors described in Part I, Item 1A. "Risk Factors" of our 2019 10-K, as supplemented below, should be carefully considered, together withThere have been no material changes during the ~~other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. The potential effects of the COVID-19 pandemic could also impact, or amplify, many of~~quarter ended June 30, 2021 to the risk factors included in our 2019 10-K. However, given the unpredictable and unprecedented nature of the pandemic, the potential impact it could have remains uncertain. Additionally, other risks that we do not presently know about, or that we presently believe are not material, could also adversely affect us.

~~Our business, results of operations, financial condition, cash flows and stock price have been and~~previously disclosed in the ~~future may be adversely affected by the COVID-19 pandemic.~~

2020 10-K.

~~Our operations and business have been adversely affected and could in the future be materially and~~

~~adversely affected, whether directly or indirectly, by the COVID-19 pandemic and the resulting weakening of~~

~~economic conditions in the United States and eastern Canada. Local, state, provincial and federal governmental~~

~~authorities have responded to the pandemic by implementing increasingly stringent measures in geographies~~

~~where we operate to help control the spread of the virus, including restrictions on movement such as quarantines,~~

~~“shelter in place,” “stay at home” orders, and travel restrictions, as well as restricting or prohibiting outright~~

~~some or all forms of commercial and business activity, and other restrictions, including closures of school and~~

~~childcare facilities. Although we have continued to be categorized as “essential” and therefore permitted to~~

~~operate our facilities consistent with applicable local, state, provincial and federal orders, any changes in these~~

~~governmental orders, including extending the duration thereof, or any further, more severe, actions taken by~~

~~governmental authorities or that we may choose to take whether required or not could have a material adverse~~

~~effect on our operations.~~

~~Our customers have been and could continue to be negatively impacted by the COVID-19 pandemic,~~

~~including as a result of project delays and other adverse impacts on demand, which could result in adverse~~

~~impacts on our sales and have a material adverse effect on our business, results of operations and financial~~

~~condition. Similarly, our suppliers and other parts of our supply chain could experience disruptions and other~~

~~adverse impacts as a result of the pandemic that could cause us to be unable to obtain key raw materials and~~

~~supplies on a timely or cost-effective basis, or in some cases, at all, any of which could result in our being unable~~

~~to service our customers’ demands, and adversely affect our business and results of operations.~~

~~The COVID-19 pandemic, including any actions we have taken in response, has disrupted our internal~~

~~operations, including by heightening the risk that a significant portion of our workforce will suffer illness or~~

~~otherwise not be permitted or be unable to work, and required that certain of our employees work remotely,~~

~~which has heightened certain risks, including those related to cybersecurity and internal controls. For example,~~

~~during the second quarter, a small number of employees tested positive for COVID-19, which required us to~~

temporarily close a small number of our manufacturing facilities. Additionally, we cannot predict whether these conditions and concerns will continue or whether we will experience more significant or frequent disruptions in the future, including the complete closure of one or more of our facilities. In addition, in the event demand for our products is significantly reduced as a result of the COVID-19 pandemic and related economic impacts, we may need to assess different corporate actions and cost-cutting measures, including reducing our workforce or closing one or more facilities, and these actions could cause us to incur costs and expose us to other risks and inefficiencies, including whether we would be able to rehire our workforce or recommence operations at a given facility if our business experiences a subsequent recovery.

~~The COVID-19 pandemic has also adversely affected economies worldwide and significantly disrupted~~

~~financial and other capital markets, causing a significant deceleration of economic activity. This slowdown has~~

~~decreased demand for a wide variety of goods and services, diminished trade levels, reduced production and led~~

~~to widespread corporate downsizing, causing a sharp increase in unemployment. The impact of this outbreak on~~

~~the U.S. and world economies is uncertain and, unless until the outbreak is contained, these adverse impacts~~

~~could worsen, impacting all segments of the global economy, and result in a significant recession or worse.~~

~~Although we initially took certain precautionary measures to preserve liquidity, including borrowing under our~~

~~ABL Facility and suspending non-essential capital expenditures, we have since ended these measures and repaid~~

~~the amounts borrowed under the ABL Facility, and a prolonged period of generating lower cash from operations~~

~~or other pressures on our liquidity could adversely affect our financial condition, the achievement of our strategic~~

~~objectives or require us to seek additional capital. Conditions in the financial and capital markets have been~~

~~extremely volatile and may limit or entirely restrict the availability of funding or increase the cost of funding,~~

~~which could adversely affect our business, financial position and results of operations.~~

Considerable uncertainty still surrounds the COVID-19 virus and the pandemic's potential effects, and the extent and effectiveness of responses taken on local, national and global levels. No fully effective vaccines or treatments have been developed and one may not be discovered early enough to protect against a worsening of the pandemic or to prevent COVID-19 from becoming endemic. While we expect the pandemic and related events will continue to have a negative effect on us, the unpredictable and unprecedented nature and fluidity of current

~~circumstances makes it impractical to identify all potential risks or estimate the full extent and scope of the~~

~~impact on our business and industry, as well as national, regional and global markets and economies. However,~~

~~our ability to conduct our business in the manner previously or currently expected could be materially and~~

~~adversely affected, and any of the foregoing risks and uncertainties as well as those that have not yet manifested~~

~~themselves or been identified could have a material adverse impact on our business, financial condition, results~~

~~of operations and cash flows.~~

~~A dispute with Heidelberg exists related to the payment of an earnout in connection with the Acquisition and any payment we are required to make could have a material adverse effect on us.~~

In connection with the earnout provision in the purchase agreement entered into in connection with the Acquisition, Heidelberg has asserted in an arbitration proceeding now pending that a payment should be made in the amount of $100.0 million. A hearing on the merits of the dispute was held June 23-25, 2020 before a neutral arbitrator, and the arbitrator is expected to render a written decision on the matter in the latter part of August 2020 or thereafter. If it is determined that a significant payment to Heidelberg is owed and we are required to make such a payment, we may not have sufficient cash to make such payment and may be required to incur additional indebtedness. We cannot be certain that we will be able to borrow any funds for this purpose under the terms of our existing indebtedness or on other terms acceptable to us, if at all. If incurred, additional indebtedness will subject us to additional interest expense, negatively impact our cash flow, increase the risk of a downgrade in our credit rating and could limit our ability to incur other indebtedness or make further acquisitions. For more information, see Note 14, Commitments and contingencies-Legal matters-Earnout Dispute and Part 1, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” of this Form 10-Q.

~~The terms of our debt could have a material adverse effect on us.~~

We have substantial debt and may incur additional debt. As of June 30, 2020, we had approximately $1,101.6 million of total debt and, following the issuance and sale of our Notes, as of July 16, 2020, we had approximately $1,109.1 million of total debt. Our credit facility and the indenture governing our Senior Notes contain a number of significant restrictions and covenants that generally restrict our business and limit our ability to, among other things:

~~dispose of certain assets;~~

~~incur or guarantee additional indebtedness;~~

~~enter into new lines of business;~~

~~make investments, intercompany loans or certain payments in respect of indebtedness;~~

~~incur or maintain certain liens;~~

~~enter into transactions with affiliates;~~

~~engage in certain sale and leaseback transactions;~~

~~declare or pay dividends and make other restricted payments, including the repurchase or redemption of our stock; and~~

~~engage in mergers, consolidations, liquidations and certain asset sales.~~

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 set forth therein. In addition, our ability to borrow under the Revolver is limited by the amount of the borrowing base applicable to U.S. dollar and Canadian dollar borrowings. Any negative impact on the elements of our borrowing base, such as eligible accounts receivable and inventory, will reduce our borrowing capacity under the Revolver. Moreover, the Revolver provides discretion to the agent bank acting on behalf of the lenders to impose additional requirements on what accounts receivable and inventory may be counted toward the borrowing base availability, and to impose other reserves, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information regarding the terms of our credit facility and the indenture governing our Senior Notes.

We are also party to a U.S. and a Canadian master lease under which we pay an aggregate of $17.8 million and $1.2 million (CAD) per annum, respectively, to lease certain properties through June 30, 2043. Each of these master lease agreements contain certain restrictions and covenants that limit, among other things, our use of and ability to sublease or discontinue use of the leased properties, our ability to consider strategic divestitures of properties that are leased and our ability to consolidate operations as may be appropriate in order to minimize operating costs. See Note 15, Sale-Leaseback transaction in our consolidated financial statements in our 2019 10-K.

These and other similar provisions in these and other documents could have adverse consequences on our business and to our investors because they limit our ability to take these actions even if we believe that it would contribute to our future growth or improve our operating results. For example, these restrictions could limit our flexibility in planning for or reacting to changes in our business and our industry, thereby inhibiting our ability to react to markets, and potentially making us more vulnerable to downturns. These restrictions could also require that, based on our level of indebtedness, a significant portion of our cash flow from operations be used to make interest payments, thereby reducing the cash flow available for working capital, to fund capital expenditures or other corporate purposes and to generally grow our business. Furthermore, these restrictions could prevent us from pursuing a strategic transaction that we believe would benefit our company.

Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these provisions, or any inability to comply with mandated financial ratios, could result in a default, in which case the counterparties may have the right to declare all borrowings or other amounts due thereunder to be immediately due and payable. If we are unable to pay any amounts when due, whether periodic payments, at maturity or if declared due and payable following a default, the counterparties would have the right to proceed against the pledged collateral securing the indebtedness. Therefore, the restrictions under these agreements and any breach of the covenants or failure to otherwise comply with the terms thereof could have a material adverse effect on our business, financial condition and results of operations.

~~Our current indebtedness and any future indebtedness we may incur could have a material adverse effect on us.~~

We expect that we will depend primarily on cash generated by our operations to pay our expenses and any amounts due under our credit facility and any other indebtedness we may incur. However, our business may not generate sufficient cash flows from operations in the future, and any anticipated growth in revenues and cash flows may not be realized, either or both of which could result in us being unable to repay indebtedness or to fund other liquidity or strategic needs. Our ability to make these payments depends on our future performance, which will be

affected by financial, business, economic and other factors, many of which are beyond our control. If we do not have sufficient liquidity, we may be required to refinance all or part of our then existing debt, sell assets or borrow more money.

If we incur additional indebtedness, the risks related to our indebtedness that we currently face could intensify. In addition to the risk of higher interest rates and fees, the non-economic terms of any additional indebtedness may contain covenants and other terms restricting our financial, operating and strategic flexibility to an equal or greater extent as those imposed by our credit facility, the indenture governing the Senior Notes and the master leases. Additional indebtedness may also include cross-default provisions such that, if we breach a restrictive covenant with respect to any of our indebtedness, or an event of default occurs, lenders may be entitled to accelerate all amounts owing under other outstanding indebtedness.

If we are required to refinance our indebtedness or otherwise incur additional indebtedness to fund strategic transactions or otherwise, any additional financing may not be available on terms favorable to us, or at all. If, at such time, market conditions are materially different or our credit profile has deteriorated, the cost of refinancing our debt may be significantly higher than our indebtedness existing at that time, or we may not be able to refinance our debt at all. Any failure to meet any future debt service obligations or any inability to obtain any additional financing on terms acceptable to us or to comply therewith could have a material adverse effect on our business, financial condition and results of operations.

~~The phase-out of LIBOR could increase our interest expense and have a material adverse effect on us.~~

LIBOR is the basic rate of interest used in lending between banks on the London interbank market. Borrowings under the Term Loan and Revolver, which were an aggregate of approximately $1,101.6 million and $609.1 million as of June 30, 2020 and July 16, 2020 following the issuance and sale of our Senior Notes, respectively, use the London Interbank Offering Rate, or LIBOR, as a benchmark for establishing the applicable interest rate. The Financial Conduct Authority of the United Kingdom has announced that it plans to phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate, or SOFR, calculated using short-term repurchase agreements backed by Treasury securities. Whether or not SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement tool remains in question. Although our borrowing arrangements provide for alternative base rates, those alternative base rates historically would often have led to increased interest rates, in some cases significantly higher, than those we paid based on LIBOR, and may similarly be higher in the future. Therefore, if LIBOR ceases to exist, we will likely need to agree upon a replacement index with our lenders, which would require an amendment to our borrowing arrangements, and the interest rate thereunder will likely change.

The consequences of the phase out of LIBOR cannot be entirely predicted at this time. For example, we may not be successful in amending our borrowing arrangements to provide for a replacement rate. Any new or alternative base rate for calculating interest with respect to our outstanding indebtedness may not be as favorable or perform in the same manner as LIBOR and could lead to an increase in our interest expense or could impact our ability to refinance some or all of our existing indebtedness. In addition, the transition process may involve, among other things, increased volatility or illiquidity in financial markets, which could also have an adverse effect on us whether or not any replacement rate applicable to our borrowings is affected. Any such effects of the transition away from LIBOR, as well as other unforeseen impacts, may result in increased interest expense and other expenses, difficulties, complications or delays in connection with future financing efforts, or otherwise have a material adverse impact on our business, financial condition, and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits and Financial Statement Schedules

Exhibit No.

Description of Exhibit

~~Exhibit No.~~

~~Description of Exhibit~~

~~4.1~~2.1

~~Indenture,~~Agreement and Plan of Merger, dated ~~as of July 16, 2020 among Forterra Finance, LLC, FRTA Finance Corp., the guarantors party thereto and Deutsche Bank Trust Company Americas, as trustee.~~

~~(a)~~

~~4.2~~

~~Form of Global Note for 6.50% Senior Secured Notes due 2025 (included as Exhibit A to Exhibit 4.1 hereto).~~

~~(a)~~

~~10.1~~

~~First Amendment, dated as of June 17, 2020 to the ABL Credit Agreement dated as of October 25, 2016~~February 19, 2021, by and among ~~Forterra,~~Quikrete Holdings, Inc., Jordan Merger Sub, Inc. and ~~certain of its subsidiaries, as borrowers, the lenders party thereto and Bank of America, N.A., as agent.~~Forterra, Inc.

*(a)

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Presentation Linkbase Document.

104.1

Cover page interactive data file - The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2020~~2021 is formatted in Inline XBRL (included as Exhibit 101).


*			Filed herewith

*			~~Filed herewith~~
^			Exhibit 32.1 shall not be deemed filed with the SEC, nor shall it be deemed incorporated by reference in any filing with the SEC under the Exchange Act or the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
(a)			Previously filed on ~~July 17, 2020~~February 22, 2021 as an exhibit to the Company's Current Report on Form 8-K and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FORTERRA, INC.

~~FORTERRA, INC.~~(Registrant)

~~(Registrant)~~

/s/ Karl Watson, Jr.

July ~~28, 2020~~29, 2021

By:

Karl Watson, Jr.

Chief Executive Officer

(Principal Executive Officer)

/s/ Charles R. Brown, II

July ~~28, 2020~~29, 2021

By:

Charles R. Brown, II

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)



	June 30, 2020			December 31, 2019
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	52,506		$	34,800
Receivables, net	271,601			205,801
Inventories	238,835			238,483
Prepaid expenses	12,334			11,021
Other current assets	4,794			8,890
Total current assets	580,070			498,995
Non-current assets
Property, plant and equipment, net	446,974			475,575
Operating lease right-of-use assets	57,444			60,253
Goodwill	508,182			508,826
Intangible assets, net	121,978			142,674
Investment in equity method investee	51,459			50,034
Other long-term assets	5,390			3,701
Total assets	$	1,771,497		$	1,740,058

LIABILITIES AND EQUITY
Current liabilities
Trade payables	$	122,715		$	102,426
Accrued liabilities	97,434			88,839
Deferred revenue	10,558			9,527
Current portion of long-term debt	12,510			12,510
Current portion of tax receivable agreement	13,145			13,145
Total current liabilities	256,362			226,447
Non-current liabilities
Long-term debt	1,067,682			1,085,793
Long-term finance lease liabilities	138,449			137,365
Long-term operating lease liabilities	52,518			54,411
Deferred tax liabilities	30,745			28,929
Other long-term liabilities	26,105			21,906
Long-term tax receivable agreement	64,240			64,240
Total liabilities	1,636,101			1,619,091
Commitments and Contingencies (Note 14)
Equity
Common stock, $0.001 par value, 190,000 shares authorized; 65,211 and 64,741 shares issued and outstanding	19			19
Additional paid-in-capital	249,695			244,372
Accumulated other comprehensive loss	(11,006		)	(7,063		)
Retained deficit	(103,312		)	(116,361		)
Total shareholders' equity	135,396			120,967
Total liabilities and shareholders' equity	$	1,771,497		$	1,740,058



	Net carrying value as of June 30, 2020		Net carrying value as of December 31, 2019
Customer relationships	$	85,686	$	100,869
Trade names	17,280		19,626
Patents	6,351		7,673
Non-compete agreements	6,453		8,070
Developed technology	5,793		5,980
Other	415		456
Total intangible assets	$	121,978	$	142,674



			Fair value measurements at June 30, 2020 using
	Carrying Amount June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value June 30, 2020
Liabilities:
Term Loan	$	1,080,192	$	—	$	1,049,284	$	—	$	1,049,284
Tax receivable agreement payable	77,385		—		—		49,419		49,419



			Fair value measurements at December 31, 2019 using
	Carrying Amount December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value December 31, 2019
Liabilities:
Term Loan	$	1,098,303	$	—	$	1,102,295	$	—	$	1,102,295
Tax receivable agreement payable	77,385		—		—		47,625		47,625


			Fair value measurements at June 30, 2021 using
	Carrying Amount June 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value June 30, 2021
Liabilities:
Term Loan	$	402,982	$	0	$	409,123	$	0	$	409,123
Senior Secured Notes	492,912		0		539,680		0		539,680
Tax receivable agreement payable	64,240		0		0		42,237		42,237


			Fair value measurements at December 31, 2020 using
	Carrying Amount December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value December 31, 2020
Liabilities:
Term Loan	$	407,978	$	0	$	415,386	$	0	$	415,386
Senior Secured Notes	492,043		0		539,760		0		539,760
Tax receivable agreement payable	64,240		0		0		40,586		40,586


	Total		Term Loan		Notes		Revolver
2021	$	6,255	$	6,255	$	0	$	0
2022	12,510		12,510		0		0
2023	389,847		389,847		0		0
2024	0		0		0		0
2025	520,000		0		500,000		20,000

	$	928,612	$	408,612	$	500,000	$	20,000



	December 31, 2019
	Derivative Assets				Derivative Liabilities
	Notional Amount		Fair Value		Notional Amount		Fair Value
Interest rate swaps	$	525,000	$	258	$	—	$	—
Total derivatives, gross			258				—
Less: Legally enforceable master netting agreements			—				—
Total derivatives, net			$	258			$	—


	For the three months ended June 31,				For the six months ended June 30,
	2021		2020		2021		2020
Net income	$	36,065	$	27,115	$	54,741	$	13,049
Less: Earnings allocated to unvested restricted stock awards	0		22		0		12
Earnings available to common shareholders	$	36,065	$	27,093	$	54,741	$	13,037

Common stock:
Weighted average basic shares outstanding	66,687		65,093		66,463		64,948
Effect of dilutive securities	2,824		2,098		3,012		2,510
Weighted average diluted shares outstanding	69,511		67,191		69,475		67,458

Basic earnings per share:
Net income	$	0.54	$	0.42	$	0.82	$	0.20
Diluted earnings per share:
Net income	$	0.52	$	0.40	$	0.79	$	0.19




	For the six months ended
	June 30, 2020			June 30, 2019
Statement of Cash Flows data:
Net cash provided by (used in) operating activities	$	40,239		$	(27,322	)
Net cash provided by (used in) investing activities	1,536			(24,542		)
Net cash provided by (used in) financing activities	(23,556		)	32,350