Business combinations

The acquisitions described below have been/are accounted for as a business combinations as defined by ASC 805. The Company allocated the purchase price to the individually identifiable assets acquired and liabilities assumed based on their estimated fair value on the date of acquisition. The excess purchase price over those fair values was recorded as goodwill. The determination of fair values of the acquired assets and assumed liabilities required significant judgment, including estimates impacting the determination of estimated lives of tangible and intangible assets, calculation of the fair value of property, plant and equipment, inventory, and various intangibles. The fair values of assets and liabilities were determined using level 3 inputs as defined by ASC 820.

Transaction Overview – The Acquisition

The Successor’s financial statements reflect the Acquisition of the Predecessor that occurred on March 13, 2015. Certain liabilities of the Predecessor were not assumed by the Successor including, but not limited to pension liabilities, tax and insurance related liabilities and multi-employer pension liabilities.

The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the Acquisition date:



	Fair Value
Net working capital	$	257,368
Property, plant and equipment, net	311,191
Investment in equity method investee	56,400
Customer backlog intangible	4,500
Other assets and other liabilities	(6,495		)
Net identifiable assets acquired	$	622,964
Goodwill	17,464
Consideration transferred, net of cash acquired	$	640,428

The goodwill recognized was attributable primarily to expected operating efficiencies and expansion opportunities in the business acquired.

Financing transactions

Consideration to fund the Acquisition was provided by an equity investment of $167.5 million and proceeds from third-party debt, net of original discount and debt issuance costs, in the amount of $472.9 million. The financing transactions included the 2015 Senior Term Loan in the amount of $254.9 million ($241.7 million, net of $13.2 million of original issue discount and debt issuance costs), the Junior Term Loan in the amount of $260.0 million ($233.8 million, net of $26.2 million of original issue discount and debt issuance costs) and the 2015 Revolver. Funds of $0.6 million were initially drawn from the 2015 Revolver at the closing date of the Acquisition. The Company incurred debt issuance costs related to the 2015 Revolver in the amount of $3.2 million.

Contingent Consideration

As discussed in note 1, the Acquisition included contingent consideration of up-to an additional $100.0 million based on the earnings of LSF9 for fiscal year 2015 as adjusted by the purchase agreement (“Earn-out”). The Earn-out is based on the achievement of an amount in excess of a certain minimum threshold of adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), as defined by the purchase agreement, for the calendar year ended December 31, 2015. The Company determined that achieving the required threshold to trigger a payout to the Seller was not probable and, therefore, the Company did not record a contingent liability related to the Earn-out as of the Acquisition date. Subsequent to year end, the Company concluded the Earn-out was not earned and, accordingly, did not record a liability as of December 31, 2015. See further discussion of the Earn-out contingency in note 15, noting that HC is disputing the Earn-out and if the Company is unsuccessful in resolving the dispute, Forterra could recognize a material charge to its earnings.

Subsequent to the Acquisition, the Company completed the following transactions:

•

Cretex Acquisition - On October 1, 2015, Forterra acquired Cretex Concrete Products, Inc. (“Cretex”) for aggregate consideration of $245.1 million (the "Cretex Acquisition"). Cretex is a manufacturer of concrete pipe, box culverts, concrete precast drainage structures, pre-stressed bridge components and ancillary precast products in the Upper Midwestern United States. The purchase of Cretex was partially funded with proceeds from financing transactions totaling $240.0 million as an add-on to the 2015 Senior Term Loan and cash on hand.

•

Sherman-Dixie Acquisition - On January 29, 2016, Forterra acquired substantially all the assets of Sherman-Dixie Concrete Industries (“Sherman-Dixie”) for aggregate consideration of $66.8 million (the "Sherman-Dixie Acquisition"). Sherman-Dixie is a manufacturer of precast concrete structures operating in Kentucky, Tennessee, Alabama and Indiana. Sherman-Dixie operates as part of the Company’s Drainage Pipe & Products reportable segment. The Sherman Dixie Acquisition was financed with borrowings on the 2015 Revolver.

•

U.S. Pipe Acquisition - On April 15, 2016, Forterra acquired all of the stock of USP Holdings Inc. (“USP”) for aggregate consideration of $778.7 million (the "USP Acquisition"). USP is a manufacturer of water transmission pipe servicing residential, commercial and infrastructure customers. USP operates as part of the Company’s Water Pipe & Products reportable segment. The USP Acquisition was financed with proceeds from a capital contribution, borrowings on the 2015 Revolver and cash on hand.

•

Bio Clean Acquisition - On August 4, 2016, Forterra acquired all of the stock of Bio Clean Environmental Services, Inc. and Modular Wetland Systems, Inc. (together, "Bio Clean") for aggregate consideration of $30.6 million (the "Bio Clean Acquisition"). Bio Clean designs and sells storm water management systems that meet the requirements of local regulatory bodies regulating storm water quality and owns technologies relating to drainage and storm water management. The Bio Clean Acquisition was financed with cash on hand.


•	J&G Acquisition - On October 14, 2016, Forterra acquired J&G Concrete Operations, LLC ("J&G") for aggregate consideration of $32.4 million, subject to customary working capital adjustments (the "J&G Acquisition"). J&G manufactures concrete pipe, box culverts and special fittings in North Texas. The J&G Acquisition was financed with borrowings on the 2015 Revolver.

•

Precast Concepts Acquisition - On October 14, 2016, Forterra acquired the business of Precast Concepts, LLC ("Precast Concepts") for aggregate consideration of $99.6 million, subject to customary working capital adjustments (the "Precast Concepts Acquisition"). Precast Concepts manufactures concrete pipe, box culverts, storm detention systems and other precast concrete and related products in Colorado through its three facilities. The Precast Concepts Acquisition was financed with borrowings on the 2015 Revolver.

The respective fair values of the assets acquired and liabilities assumed at the acquisition date, which are preliminary amounts for purposes of the Bio Clean Acquisition, J&G Acquisition and Precast Concepts Acquisition, are as follows:




	Cretex			Sherman-Dixie			U.S. Pipe			Bio Clean		J&G		Precast Concepts
Net working capital	$	69,745		$	14,279		$	145,650		$	2,546	$	3,051	$	14,918
Property, plant and equipment, net	97,282			29,163			246,241			162		9,346		15,895
Customer relationship intangible	24,700			5,073			179,491			3,470		4,156		15,707
Non-compete agreement intangible	—			2,459			—			105		1,015		2,562
Trade names	600			—			37,388			1,065		—		29
Customer backlog intangible	800			—			—			—		780		2,213
Patents	—			—			13,093			10,464		—		—
In process R&D	—			—			—			6,692		—		—
Other intangibles	—			981			7,659			—		—		—
Other assets and liabilities	(7,582		)	—			(9,803		)	—		—		—
Deferred tax liabilities	—			(11,524		)	(161,445		)	—		—		—
Net identifiable assets acquired	185,545			40,431			458,274			24,504		18,348		51,324
Goodwill	59,555			26,319			320,436			6,105		14,100		48,314
Cash consideration transferred	$	245,100		$	66,750		$	778,710		$	30,609	$	32,448	$	99,638

Preliminary balances may be subject to change upon the Company's final determination of the fair value of acquired assets and liabilities.

Goodwill recognized is attributable primarily to expected operating efficiencies and expansion opportunities in the business acquired. Goodwill is expected to be deductible for tax purposes except goodwill acquired with the USP and Sherman-Dixie acquisitions. The above fair value allocations are considered preliminary for the Bio Clean, J&G, and Precast Concepts acquisitions.

Supplemental pro-forma information (unaudited)

If the Company had acquired USP, Sherman-Dixie, Bio Clean, Precast Concepts and J&G on January 1, 2016, the Company's total net sales and loss from continuing operations before taxes, on a pro-forma basis for the year ended December 31, 2016 would have been approximately $1,596.8 million and a loss from continuing operations $10.2 million, respectively.

Transaction costs

For the year ended December 31, 2016, the period from March 14, 2015 to December 31, 2015, the period from January 1, 2015 to March 13, 2015, and the year ended December 31, 2014 the Company recognized aggregate transaction costs, including legal, accounting, valuation, and advisory fees, specific to the acquisitions identified above of $12.7 million, $13.7 million, $2.1 million, and $17.7 million, respectively. These costs are recorded in the statements of operations within selling, general & administrative expenses.