Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - Forterra, Inc. | frta12312016ex321.htm |
| EX-31.2 - EXHIBIT 31.2 - Forterra, Inc. | frta12312016ex312.htm |
| EX-31.1 - EXHIBIT 31.1 - Forterra, Inc. | frtra12312016ex311.htm |
| EX-23.2 - EXHIBIT 23.2 - Forterra, Inc. | frta20161231ex232.htm |
| EX-23.1 - EXHIBIT 23.1 - Forterra, Inc. | frta20161231ex231.htm |
| EX-10.19 - EXHIBIT 10.19 - Forterra, Inc. | frta20161231ex1019.htm |
| 10-K - FORM 10-K - Forterra, Inc. | a20161231forterra10-kdocum.htm |
EXHIBIT 99.1
CONCRETE PIPE & PRECAST, LLC
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
Independent Auditor’s Report
Board of Managers
Concrete Pipe & Precast, LLC
Report on the Financial Statements
We have audited the accompanying financial statements of Concrete Pipe & Precast, LLC (the “Company”), which comprise the balance sheet as of December 31, 2016, and the related statements of income, changes in members’ equity and cash flows for each of the years ended December 31, 2016 and 2014, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Concrete Pipe & Precast, LLC as of December 31, 2016, and the results of its operations and its cash flows for each of the years ended December 31, 2016 and 2014 in accordance with accounting principles generally accepted in the United States of America.
Other Matter
The accompanying balance sheet of Concrete Pipe & Precast, LLC as of December 31, 2015, and the related statements of income, changes in members’ equity and cash flows for the year then ended were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.
/s/ Hein & Associates LLP
Houston, Texas
March 24, 2017
CONCRETE PIPE & PRECAST, LLC | ||||||||
BALANCE SHEETS | ||||||||
DECEMBER 31, 2016 and 2015 | ||||||||
ASSETS | ||||||||
2016 | 2015 | |||||||
CURRENT ASSETS | (unaudited) | |||||||
Cash | $ | 171,891 | $ | 47,035 | ||||
Trade accounts receivable - net | 17,743,510 | 15,075,621 | ||||||
Inventories | 15,734,121 | 15,347,794 | ||||||
Prepaid insurance and other assets | 1,455,448 | 429,021 | ||||||
Due from affiliates | 1,059 | 1,478 | ||||||
Current portion of non-trade notes receivable | 971,138 | 20,991 | ||||||
Total current assets | 36,077,167 | 30,921,940 | ||||||
PROPERTY, PLANT, AND EQUIPMENT - NET | 67,129,308 | 69,641,313 | ||||||
OTHER ASSETS | ||||||||
Non-trade notes receivable | — | 1,003,644 | ||||||
Property held for sale | 1,523,758 | 1,619,758 | ||||||
Intangible assets - net | 347 | 8,681 | ||||||
Deposits and other assets | 60,142 | 240,016 | ||||||
Total other assets | 1,584,247 | 2,872,099 | ||||||
Total Assets | $ | 104,790,722 | $ | 103,435,352 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Cash overdraft | $ | 2,181,667 | $ | 1,894,721 | ||||
Accounts payable | 9,084,640 | 6,975,163 | ||||||
Current maturities of notes payable | 2,400,000 | 2,400,000 | ||||||
Due to affiliates | 120,108 | 96,753 | ||||||
Other current liabilities | 2,251,132 | 1,930,282 | ||||||
Total current liabilities | 16,037,547 | 13,296,919 | ||||||
LONG-TERM LIABILITIES | ||||||||
Notes payable | 20,736,770 | 20,318,852 | ||||||
Total liabilities | 36,774,317 | 33,615,771 | ||||||
Commitments and contingencies (see note 10) | ||||||||
MEMBERS’ EQUITY | 68,016,405 | 69,819,581 | ||||||
Total Liabilities and Members' Equity | $ | 104,790,722 | $ | 103,435,352 | ||||
CONCRETE PIPE & PRECAST, LLC | ||||||||||||
STATEMENTS OF INCOME | ||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, and 2014 | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(unaudited) | ||||||||||||
Net sales | $ | 153,345,289 | $ | 123,888,361 | $ | 111,753,133 | ||||||
Cost of sales | 111,659,657 | 94,380,393 | 90,003,024 | |||||||||
Gross profit | 41,685,632 | 29,507,968 | 21,750,109 | |||||||||
Selling expenses | 4,298,678 | 4,071,749 | 3,703,397 | |||||||||
General and administrative expense | 12,372,828 | 10,781,952 | 9,952,645 | |||||||||
Other operating income | (315,713 | ) | (394,251 | ) | (362,542 | ) | ||||||
INCOME FROM OPERATIONS | 25,329,839 | 15,048,518 | 8,456,609 | |||||||||
Other income (expense) | ||||||||||||
Interest expense, net | (476,706 | ) | (458,309 | ) | (576,713 | ) | ||||||
Other income | — | 1,499,733 | 866,297 | |||||||||
Net income | $ | 24,853,133 | $ | 16,089,942 | $ | 8,746,193 | ||||||
CONCRETE PIPE & PRECAST, LLC | ||||||||||||
STATEMENTS OF CASH FLOWS | ||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, and 2014 | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | (unaudited) | |||||||||||
Net income | $ | 24,853,133 | $ | 16,089,942 | $ | 8,746,193 | ||||||
Adjustments to reconcile net income to net cash provided by | ||||||||||||
operating activities: | ||||||||||||
Depreciation | 7,104,282 | 7,412,989 | 7,634,819 | |||||||||
Amortization of debt issuance costs | 14,174 | 14,174 | 123,254 | |||||||||
Amortization of intangibles | 8,334 | 8,334 | 7,986 | |||||||||
Bad debt | 121,860 | 75,676 | 144,165 | |||||||||
Net gain on disposal of assets | (3,118 | ) | (39,198 | ) | (917,211 | ) | ||||||
Impairment of assets | — | 171,407 | — | |||||||||
Changes in working capital: | ||||||||||||
Trade accounts receivable, net | (2,789,749 | ) | (3,056,320 | ) | (775,833 | ) | ||||||
Inventories | (386,327 | ) | (1,873,065 | ) | 554,820 | |||||||
Prepaids and other assets | (861,787 | ) | (114,900 | ) | (127,111 | ) | ||||||
Accounts payable and accrued expenses | 2,431,386 | 1,870,549 | 214,583 | |||||||||
Cash overdraft | 286,946 | (37,887 | ) | 1,932,608 | ||||||||
Accrued performance fee | — | — | (3,401,851 | ) | ||||||||
Net cash provided by operating activities | 30,779,134 | 20,521,701 | 14,136,422 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Capital expenditures | (4,811,478 | ) | (4,781,042 | ) | (2,710,151 | ) | ||||||
Acquisition of new plant | — | — | (3,051,638 | ) | ||||||||
Proceeds from disposal of assets (2014 shown net of closing costs of $86,168) | 318,319 | 48,294 | 177,332 | |||||||||
Principal received on notes receivable | 53,497 | 23,602 | 1,763 | |||||||||
Due from affiliates | 23,774 | 12,468 | 121,691 | |||||||||
Net cash used in investing activities | (4,415,888 | ) | (4,696,678 | ) | (5,461,003 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Distributions paid | (26,656,309 | ) | (17,600,000 | ) | (22,225,811 | ) | ||||||
Net proceeds on revolving line of credit | 417,919 | 1,776,152 | 20,942,700 | |||||||||
Principal payments on long-term debt | — | — | (11,963,800 | ) | ||||||||
Loan origination costs | — | — | (70,876 | ) | ||||||||
Net cash used in financing activities | (26,238,390 | ) | (15,823,848 | ) | (13,317,787 | ) | ||||||
NET INCREASE (DECREASE) IN CASH | 124,856 | 1,175 | (4,642,368 | ) | ||||||||
CASH, BEGINNING OF YEAR | 47,035 | 45,860 | 4,688,228 | |||||||||
CASH, END OF YEAR | $ | 171,891 | $ | 47,035 | $ | 45,860 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||
Cash paid for: | ||||||||||||
Interest | $ | 476,706 | $ | 458,309 | $ | 453,459 | ||||||
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||||||
Note receivable received for sale of property, plant, and equipment | $ | — | $ | — | $ | 1,050,000 | ||||||
CONCRETE PIPE & PRECAST, LLC | ||||
STATEMENTS OF CHANGES IN MEMBERS’ EQUITY | ||||
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015, and 2014 | ||||
BALANCE AT DECEMBER 31, 2013 | $ | 84,706,932 | ||
Distributions | (22,123,486 | ) | ||
Net income | 8,746,193 | |||
BALANCE AT DECEMBER 31, 2014 | 71,329,639 | |||
Distributions (unaudited) | (17,600,000 | ) | ||
Net income (unaudited) | 16,089,942 | |||
BALANCE AT DECEMBER 31, 2015 (unaudited) | 69,819,581 | |||
Distributions | (26,656,309 | ) | ||
Net income | 24,853,133 | |||
BALANCE AT DECEMBER 31, 2016 | $ | 68,016,405 | ||
CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
1.NATURE OF BUSINESS
Concrete Pipe & Precast, LLC (“CP&P” or the “Company”) commenced operations on August 3, 2012, through a joint venture formation agreement by and between two well established pipe and precast companies, Americast, Inc., a Virginia corporation (“Americast”), and Hanson Pipe & Precast, LLC, a Delaware limited liability company (“Hanson”) (collectively, the “Members”). The Members formed CP&P, a limited liability company under the laws of the State of Delaware. Both Members made initial contributions of tangible and intangible assets such as human resources, inventory, and property, plant, and equipment at the formation of CP&P. On March 13, 2015, Forterra Pipe and Precast, LLC (“Forterra”) acquired Hanson’s interest in CP&P. As such, Forterra became a member of CP&P.
CP&P is engaged primarily in the manufacture, marketing, sale, and distribution of concrete pipe and precast products. Operations are primarily in Virginia, West Virginia, Maryland, North Carolina, Pennsylvania, South Carolina, and Georgia, with sales to contiguous states.
CP&P’s operating agreement stipulates how capital contributions, distributions, and income or losses of CP&P are to be allocated to each Member, which is not always in accordance with each Member’s respective ownership percentage. Each of the Member’s loss is limited to the amount of capital contributed. CP&P shall continue in existence until dissolved in accordance with the provisions of the agreement.
2.SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more significant estimates made by management relate to inventory reserves, allowance for doubtful accounts and impairment of long-lived assets.
Cash and Cash Equivalents
For purposes of the statement of cash flows, CP&P considers all highly-liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash accounts in excess of federally-insured limits are subject to risk of loss.
Accounts and Notes Receivable
Accounts receivable, net consists of amounts billed to customers less an allowance for doubtful accounts. CP&P accounts for estimated uncollectible amounts by reducing earnings through a valuation allowance. This allowance is based on the judgment of management as to the estimated collectability of the receivables balance at year end and is adjusted as experience, economic conditions, and other factors dictate. CP&P established an allowance for uncollectible accounts receivable of $931,647 and $500,000 (unaudited) as of December 31, 2016 and 2015, respectively, to report receivables at their net realizable value. Bad debt write-offs totaled $121,860 in 2016, $75,676 (unaudited) in 2015, and $144,165 during 2014. Generally, accounts receivable are unsecured and subject to certain credit risks. However, certain accounts receivable are secured through liens or bonding agents.
Accounts receivable are considered delinquent once they are 90 days past due. Finance charges begin to accrue once an account is 30 days past due and continue to accrue regardless of status. Trade receivable balances that remain
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
outstanding after CP&P has used reasonable collection efforts are written off by reducing accounts receivable and the valuation allowance.
Allowances for non-trade note receivable losses are determined primarily on the basis of management’s best estimate of probable losses, including specific allowances for known troubled accounts. Interest income on notes receivable is accrued monthly.
In October of 2014, CP&P obtained a non-trade note receivable related to the sale of property, plant, and equipment. The total principal balance of the note amounted to $1,050,000. The note accrues interest at an annual rate of 5.0% and requires monthly payments of $6,138 beginning on December 1, 2014. All payments of principal and interest are current as of December 31, 2016. Principal and all accrued interest is payable in full on November 1, 2017. The note is secured by the respective property, plant, and equipment. The outstanding balance of the note amounted to $971,138 and $1,024,635 (unaudited) at December 31, 2016 and 2015, respectively. CP&P considers the note receivable plus accrued interest to be fully collectible and, therefore, has determined that an allowance is not necessary.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily receivables. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral other than partial advance payments or deposits from its customers on major projects.
Inventories
Inventories are valued at the lower of cost or market using several cost flow assumptions including FIFO (first-in, first-out method) and average cost.
Property, Plant, and Equipment
All initial capital contributions of property, plant, and equipment by each Member were contributed at that Member’s respective book values. Property, plant, and equipment is recorded at cost and depreciated using the straight-line over the following estimated useful lives:
Estimated Useful | ||||||
Life in Years | ||||||
Buildings and improvements | 15 - 39 | |||||
Machinery and equipment | 5 - 20 | |||||
Vehicles and delivery equipment | 5 - 12 | |||||
Office equipment | 3 - 7 | |||||
Depreciation expense amounted to $7,104,282 in 2016, $7,412,989 (unaudited) in 2015, and $7,634,819 in 2014.
The Company evaluates the recoverability of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant, and Equipment (“ASC 360”). ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. No indication of impairment existed during any of the years presented. Such evaluations for impairment are significantly impacted by estimates of future prices for the Company’s products, capital needs, economic trends in the construction sector and other factors. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the assets exceeds their
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.
Property Held for Sale
Individual long-lived assets to be disposed of by sale are classified as assets held for sale if the following criteria are met:
• | The carrying amount will be recovered principally through a sale transaction rather than through continuing use; |
• | The disposal group is available for immediate sale in its present condition subject only to terms that usual and customary for such sales; and |
•The sale is highly probable.
Assets held for sale are carried at the lower of their carrying amount or fair value less costs to sell and are presented separately on the face of the balance sheet. Assets classified as held for sale are no longer depreciated. As of December 31, 2016, property held for sale was $1,523,758 and was $1,619,758 (unaudited) as of December 31, 2015.
Intangible Assets - net
Intangible assets are amortized on a straight-line basis over the life of the assets.
Shipping and Handling Costs
Shipping and handling costs are included in cost of goods sold on the statements of income. Delivery revenue is included in net sales on the statements of income.
Income Taxes
CP&P is a limited liability company. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its Members. All state income taxes are passed through to the Members also. Therefore, no income tax expense or liability is recorded in the accompanying financial statements.
CP&P has reviewed and evaluated the relevant technical merits of each of its tax positions in accordance with guidance established by the Financial Accounting Standards Board (FASB) and determined that there are no uncertain tax positions that would have a material impact on the financial statements of CP&P. The open tax years related to state tax filings are 2013 – 2016 and will expire in 2017-2020. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in general and administrative expense on the statement of income.
Revenue Recognition
Revenues are recognized by the Company when the risks and rewards associated with the transactions have been transferred to the purchaser, which is demonstrated when all the following conditions are met: evidence of a binding arrangement exists, products have been delivered or services have been rendered, there is no future performance required, fees are fixed or determinable and amounts are collectable under normal payment terms. Sales represent the net amount chargeable in respect of services rendered and goods supplied. Sales are recognized net of any discounts given to the customer and sales or use tax.
The Company recognizes revenue at the time the product is shipped to the customer. In most cases, the final delivery to the customers is within the same day that the shipment is picked up by a third party hauler.
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
Sales Taxes
CP&P collects sales tax from customers and remits the entire amount to the taxing jurisdictions. CP&P’s accounting policy is to exclude the tax collected and remitted to the taxing jurisdictions from revenues and cost of sales.
Fair Value
CP&P follows current accounting standards relating to fair value measurements and disclosures, which define fair value, establish guidelines for measuring fair value, establish a framework for measuring fair value, and expand disclosures regarding fair value measurement. The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, accounts payable, accrued expenses, and debt. The carrying value of the Company’s financial instruments approximates the fair value due to their highly liquid nature, short-term maturity, or competitive rates assigned to these financial instruments.
Members’ Equity
At the formation of CP&P, each member received 500 common voting units. As of December 31, 2016, each Member has 500 common units. Income and losses are allocated to the members based upon their relative share of common units, exception that depreciation, and gains and losses related to property, plant, and equipment as part of the initial contribution to CP&P are allocated back to the Members who originally contributed the assets. Depreciation, gains and losses related to property, plant, and equipment acquired subsequent to the formation of CP&P are allocated based on common units.
CP&P distributes cash to the Members in an amount equal to the estimated tax amount on its taxable income. All additional distributions are divided equally among the Members.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. The FASB subsequently voted to defer the application of the provisions of this standard for public companies until annual reporting periods beginning after December 15, 2017 in ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, including interim periods within that reporting period. The Company anticipate adopting the modified retrospective transition method and do not plan to adopt ASC 606. Based on management’s evaluation to-date, management does not anticipate this standard will have a material impact on our financial statements. The Company continue to evaluate the impacts of ASC 606 will have on our disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted as of the standard’s issuance date. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company believes this ASU will have a material impact on our consolidated financial statements as it will result in most of the Company’s leases and associated assets being presented on the balance sheet.
Subsequent Events
Management has evaluated subsequent events through March 24, 2017, which is the date the financial statements were available to be issued.
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
3. BUSINESS ACQUISITION
On January 15, 2014, CP&P acquired various assets of Advanced Drainage Systems, Inc., a concrete product manufacturing facility located in Greencastle, Pennsylvania. The results of operations have been included in the financial statements since the date of acquisition. As a result of the acquisition, CP&P expects to expand their market geographically and strengthen customer relationships.
The total purchase price of the manufacturing facility amounted to $3,051,638 and was paid to the seller in cash. The following table summarizes the amounts of assets recognized at the acquisition date.
Property, plant, and equipment | $1,775,000 | ||
Inventory | 1,251,638 | ||
Intangible assets | 25,000 | ||
Total assets acquired | $3,051,638 | ||
The acquired non-competition agreement is being amortized over its useful life, which is estimated to be three years.
4.INVENTORIES
Inventories consisted of the following as of December 31:
2016 | 2015 | |||||
(unaudited) | ||||||
Finished goods | $ | 12,542,761 | $ | 12,330,965 | ||
Raw materials | 3,101,678 | 2,889,715 | ||||
Supplies | 89,682 | 127,114 | ||||
Total inventories | $ | 15,734,121 | $ | 15,347,794 | ||
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
5.PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31:
2016 | 2015 | |||||
(unaudited) | ||||||
Land and buildings | $ | 42,905,562 | $ | 42,288,057 | ||
Machinery and equipment | 102,209,256 | 100,286,500 | ||||
Vehicles and delivery equipment | 788,421 | 1,703,637 | ||||
Office equipment | 1,245,071 | 1,350,542 | ||||
Assets under development | 6,174,946 | 3,859,877 | ||||
Total | 153,323,256 | 149,488,613 | ||||
Less: Accumulated depreciation | (86,193,948 | ) | (79,847,300 | ) | ||
Net property, plant, and equipment | $ | 67,129,308 | $ | 69,641,313 | ||
6.INTANGIBLE ASSETS - NET
Intangible assets consist of the following at December 31:
2016 | 2015 | |||||
(unaudited) | ||||||
Non-competition agreement | 25,000 | 25,000 | ||||
Less: Accumulated amortization | (24,653 | ) | (16,319 | ) | ||
Intangible assets - net | $ | 347 | $ | 8,681 | ||
Amortization expense amounted to $8,334 for 2016 and 2015 (unaudited) and $7,986 in 2014.
Estimated amortization expense for each for 2017 is $347.
7.NOTES PAYABLE
On August 3, 2012, CP&P entered into a revolving line of credit with Bank of America (“BoA”) and a $15,000,000 Term Loan. Each instrument accrued interest based on the LIBOR plus an applicable margin. There were no borrowings on the line of credit at any point during 2014. The Term Loan was repayable in monthly principal payments of $178,600 plus interest.
On July 9, 2014, CP&P refinanced its BoA debt through a Wells Fargo Bank revolving line of credit (“WF Revolver”). The monthly payments of accrued interest are based on an interest rate equal to the LIBOR rate plus an applicable margin based on performance. The applicable margin at December 31, 2016 was 1.75%. CP&P is also subject to an unused commitment fee on the WF Revolver as defined in the credit agreement with Wells Fargo. The WF Revolver’s original credit limit of $35,000,000 is reduced by $600,000 every quarter beginning with the quarter ended September 30, 2014. The credit agreement defines current maturities as $2,400,000. The borrowings from the WF Revolver were used to pay off the BoA debt and provide additional liquidity. The available credit limit, restricted by a borrowing base limitation as outlined in the credit agreement at December 31, 2016 is $29,000,000. The WF Revolver becomes due on July 9, 2019.
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
The WF Revolver is secured by certain real property and all machinery and equipment, vehicles and delivery equipment, office equipment, other personal property, accounts receivable, general intangibles, and inventory.
The outstanding balance of the WF Revolver consisted of the following at December 31,
2016 | 2015 | |||||
(unaudited) | ||||||
Current portion | $ 2,400,000 | 2,400,000 | ||||
Long-term portion | 20,736,770 | 20,318,852 | ||||
Notes payable | $23,136,770 | $ | 22,718,852 | |||
Annual maturities of the WF Revolver are $2,400,000 for 2017 and 2018 and $18,336,770 in 2019.
CP&P is subject to two loan covenants: a Funded Debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) Ratio and a Basic Fixed Charge Coverage Ratio. CP&P was in compliance with all loan covenants for as of December 31, 2016.
8.PROFIT SHARING PLANS AND COLLECTIVE BARGAINING AGREEMENT
CP&P has adopted a plan allowing all qualified employees to invest a portion of their current earnings in an employees’ 401(k) retirement fund. CP&P matches a portion of the elective contributions made by the employees based on the terms of the plan. CP&P may also, at its sole discretion, make additional contributions for all eligible employees. Employer contributions to the plan amounted to approximately $835,000 in 2016, $733,000 (unaudited) in 2015 and $354,000 for 2014.
CP&P entered into a collective bargaining agreement on August 28, 2012, with the union workforce at one production facility. The terms of the current agreement are up for renewal on August 27, 2018. Approximately 7% of the total production workforce is covered under this agreement as of December 2016.
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
9.RELATED PARTY TRANSACTIONS
Included in trade accounts receivable, net and accounts payable are amounts due and from both Eagle Corporation and Forterra, which are both Members. Additionally, receivables and payables included in due to and due from affiliates from non-trade transactions with Eagle Corporation are separately presented on the balance sheet. The outstanding balances as of December 31 are:
2016 | 2015 | ||
(unaudited) | |||
Trade accounts receivable, net - Eagle | 430 | 10 | |
Trade accounts receivable, net - Forterra | — | — | |
Accounts Payable - Eagle | 8,884 | 7,084 | |
Accounts Payable - Forterra | 15,025 | 13,112 | |
Due from affiliates | 1,059 | 1,478 | |
Due to affiliates | 120,108 | 96,753 | |
CP&P sold approximately $107,000 in 2016, $127,000 (unaudited) in 2015, and $1,383,000 in 2014 worth of goods and services to affiliated companies. CP&P purchased approximately $489,000 in 2016, $668,000 (unaudited) in 2015, and $3,438,000 in 2014 worth of goods and services from affiliated companies.
On August 3, 2012, CP&P entered into a Management Services Agreement with Eagle Corporation, parent of Americast (“Eagle”). For a monthly fee, Eagle is providing general and administrative services including information technology, payroll processing, 401(k) profit sharing plan management, and insurance coverage allocations. The agreement is subject to a Consumer Price Index (CPI) adjustment beginning in 2015. The Management Fee expense for 2016 was $513,220, $500,000 (unaudited) in 2015, and $500,000 in 2014. The agreement will automatically renew annually until terminated as described in the agreement.
10.COMMITMENTS AND CONTINGENT LIABILITIES
The Company is involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity. The Company has received a claim related to performance under a certain contract. As of December 31, 2016, no settlement has been reached, but the Company has recorded a reserve related to this matter of approximately $350,000. Other than routine litigation incidental to the Company’s business, there are no other material legal proceedings to which the Company is a party or to which any of the Company’s properties are subject.
Self-Insurance
CP&P participates in self-funding programs for workers’ compensation and liability insurance. The plans are administered by insurance companies who determine current funding requirements. CP&P has individual and aggregate stop-loss arrangements with the insurance companies to cover substantial claims. CP&P has approximately $78,000 at December 31, 2016 and $228,000 (unaudited) at December 31, 2015 as an estimated self-insurance liability.
Operating Leases
CP&P is obligated under various non-cancellable operating leases for property, equipment, vehicles, and computers, which have varying terms. Lease expense under these agreements approximated $941,000 in 2016, $872,000 (unaudited) in 2015, $801,000 in 2014.
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CONCRETE PIPE & PRECAST, LLC
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2016 AND 2015 AND FOR THE THREE YEARS ENDED DECEMBER 31, 2016
Approximate minimum future operating lease rental payments required for the five-year period subsequent to December 31, 2016, are as follows:
2017 | $ 630,000 | ||
2018 | 398,000 | ||
2019 | 154,000 | ||
2020 | 62,000 | ||
2021 | 17,000 | ||
Total | $1,261,000 | ||
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