Northwest Pipe(NWPX) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Northwest Pipe Company, including statements of operations, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant business events like the Geneva acquisition, and accounting policies Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income for the three months ended March 31 Condensed Consolidated Statements of Operations (Three Months Ended March 31): | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net sales | $68,923 | $62,643 | | Cost of sales | $59,344 | $56,072 | | Gross profit | $9,579 | $6,571 | | Selling, general, and administrative expense | $7,945 | $4,247 | | Operating income | $1,634 | $2,324 | | Other income (expense) | $(401) | $159 | | Interest income | $22 | $4 | | Interest expense | $(219) | $(131) | | Income before income taxes | $1,036 | $2,356 | | Income tax expense | $472 | $191 | | Net income | $564 | $2,165 | | Net income per share: Basic | $0.06 | $0.22 | | Net income per share: Diluted | $0.06 | $0.22 | | Shares used in per share calculations: Basic | 9,751 | 9,735 | | Shares used in per share calculations: Diluted | 9,829 | 9,735 | Condensed Consolidated Statements of Comprehensive Income This section presents net income and other comprehensive income, including pension adjustments and cash flow hedges Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31): | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net income | $564 | $2,165 | | Other comprehensive income (loss), net of tax: | | | | Pension liability adjustment | $25 | $26 | | Unrealized gain (loss) on cash flow hedges | $79 | $(15) | | Other comprehensive income, net of tax | $104 | $11 | | Comprehensive income | $668 | $2,176 | Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific quarter-end dates Condensed Consolidated Balance Sheets (as of March 31, 2020 and December 31, 2019): | Item | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,656 | $31,014 | | Trade and other receivables | $38,789 | $38,026 | | Contract assets | $79,350 | $91,186 | | Inventories | $39,259 | $30,654 | | Total current assets | $171,429 | $195,039 | | Property and equipment, net | $108,315 | $99,631 | | Operating lease right-of-use assets | $28,678 | $7,683 | | Goodwill | $22,985 | $- | | Intangible assets, net | $11,997 | $1,231 | | Total assets | $349,313 | $310,245 | | Liabilities and Stockholders' Equity | | | | Current portion of long-term debt | $2,911 | $- | | Accounts payable | $17,933 | $15,493 | | Accrued liabilities | $10,670 | $12,150 | | Contract liabilities | $7,882 | $12,281 | | Total current liabilities | $41,846 | $41,566 | | Long-term debt, less current portion | $12,968 | $- | | Operating lease liabilities, less current portion | $25,264 | $6,247 | | Deferred income taxes | $10,293 | $4,265 | | Total liabilities | $100,128 | $62,087 | | Total stockholders' equity | $249,185 | $248,158 | | Total liabilities and stockholders' equity | $349,313 | $310,245 | Condensed Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, covering net income, comprehensive income, and stock compensation Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended March 31, 2020): | Item | Shares | Common Stock Amount | Additional Paid-In-Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balances, December 31, 2019 | 9,746,979 | $97 | $120,544 | $129,331 | $(1,814) | $248,158 | | Net income | - | - | - | $564 | - | $564 | | Other comprehensive income: Pension liability adjustment | - | - | - | - | $25 | $25 | | Other comprehensive income: Unrealized gain on cash flow hedges | - | - | - | - | $79 | $79 | | Issuance of common stock under stock compensation plans | 41,016 | $1 | $(102) | - | - | $(101) | | Share-based compensation expense | - | - | $460 | - | - | $460 | | Balances, March 31, 2020 | 9,787,995 | $98 | $120,902 | $129,895 | $(1,710) | $249,185 | Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended March 31, 2019): | Item | Shares | Common Stock Amount | Additional Paid-In-Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balances, December 31, 2018 | 9,735,055 | $97 | $118,835 | $101,194 | $(1,536) | $218,590 | | Cumulative-effect adjustment for ASU 2018-02 | - | - | - | $235 | $(235) | - | | Net income | - | - | - | $2,165 | - | $2,165 | | Other comprehensive income (loss): Pension liability adjustment | - | - | - | - | $26 | $26 | | Other comprehensive income (loss): Unrealized loss on cash flow hedges | - | - | - | - | $(15) | $(15) | | Share-based compensation expense | - | - | $22 | - | - | $22 | | Balances, March 31, 2019 | 9,735,055 | $97 | $118,857 | $103,594 | $(1,760) | $220,788 | Condensed Consolidated Statements of Cash Flows This section outlines cash flows from operating, investing, and financing activities for the quarter Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31): | Item | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,036 | $10,357 | | Net cash used in investing activities | $(51,664) | $(1,620) | | Net cash provided by (used in) financing activities | $15,270 | $(11,571) | | Change in cash and cash equivalents | $(21,358) | $(2,834) | | Cash and cash equivalents, beginning of period | $31,014 | $6,677 | | Cash and cash equivalents, end of period | $9,656 | $3,843 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements 1. Basis of Presentation The financial statements are unaudited, prepared in accordance with U.S. GAAP, and include the Company and its subsidiaries, operating as one segment (Water Infrastructure). The Company notes that Q1 2020 results are not indicative of the full year due to COVID-19 impacts - The Company operates in one segment, Water Infrastructure, producing high-quality engineered steel water pipe, precast and reinforced concrete products, and related components[22] - Operating results for the three months ended March 31, 2020, are not necessarily indicative of the full fiscal year, particularly in light of the COVID-19 pandemic[24] 2. Business Combination On January 31, 2020, the Company acquired Geneva Pipe Company, Inc. for approximately $49.4 million in cash, expanding its water infrastructure product capabilities with concrete pipe and precast concrete products. The acquisition resulted in $23.0 million in goodwill and contributed $8.0 million in net sales for the period from acquisition to March 31, 2020 - Acquired 100% of Geneva Pipe Company, Inc. on January 31, 2020, for approximately $49.4 million in cash[26] - The acquisition expanded the Company's water infrastructure product capabilities by adding reinforced concrete pipe capacity and a full line of precast concrete products[26] Preliminary Purchase Consideration and Fair Value of Assets Acquired and Liabilities Assumed (January 31, 2020): | Item | Amount (in thousands) | | :--- | :--- | | Total assets acquired | $55,754 | | Total liabilities assumed | $29,320 | | Goodwill | $22,985 | | Total purchase consideration | $49,419 | - Geneva operations contributed $8.0 million in net sales to the Company's continuing operations for the period from January 31, 2020, to March 31, 2020[30] 3. Inventories Total inventories increased to $39.3 million as of March 31, 2020, from $30.7 million at December 31, 2019, primarily driven by an increase in raw materials and finished goods Inventories (in thousands): | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Raw materials | $30,273 | $26,772 | | Work-in-process | $2,261 | $1,579 | | Finished goods | $5,097 | $683 | | Supplies | $1,628 | $1,620 | | Total inventories | $39,259 | $30,654 | 4. Goodwill and Intangible Assets Goodwill increased to $23.0 million as of March 31, 2020, solely due to the Geneva acquisition. Intangible assets, net, also significantly increased to $12.0 million, primarily from customer relationships, trade names, and backlog acquired in the same transaction. The Company determined no goodwill impairment triggering event occurred despite COVID-19 Goodwill (in thousands): | Item | Amount | | :--- | :--- | | Goodwill, December 31, 2019 | $- | | Acquisition of Geneva (Note 2) | $22,985 | | Goodwill, March 31, 2020 | $22,985 | Intangible Assets, Net (in thousands): | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Customer relationships | $8,426 | $551 | | Trade names and trademarks | $2,719 | $680 | | Backlog | $852 | $- | | Total intangible assets, net | $11,997 | $1,231 | - The Company considered current and expected future economic and market conditions surrounding the COVID-19 pandemic but determined that a triggering event for goodwill impairment had not occurred[34] 5. Line of Credit and Long-Term Debt The Company's Amended Credit Agreement provides for a $74 million Revolver Commitment and a new $15.9 million term loan entered into on March 31, 2020. As of March 31, 2020, there were no outstanding revolving loan borrowings, with $60.4 million in additional borrowing capacity, and the Company was in compliance with all financial covenants - The Amended Credit Agreement provides for a term loan, letters of credit, and revolving loans in the aggregate amount of up to $74 million, expiring on October 25, 2024[37] - As of March 31, 2020, the Company had no outstanding revolving loan borrowings and an additional revolving loan borrowing capacity of $60.4 million[40] - On March 31, 2020, the Company entered into a term loan for $15.9 million with Wells Fargo, maturing on October 25, 2024[41] - The Company was in compliance with its financial covenants (Senior Leverage Ratio and Fixed Charge Coverage Ratio) as of March 31, 2020[38] 6. Leases The Company's total right-of-use assets significantly increased to $29.8 million as of March 31, 2020, from $8.9 million at December 31, 2019, primarily due to operating leases. Total lease liabilities also rose to $29.3 million from $9.5 million in the same period Leases Recorded on Condensed Consolidated Balance Sheet (in thousands): | Item | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total right-of-use assets | $29,775 | $8,886 | | Total lease liabilities | $29,252 | $9,530 | Lease Cost (in thousands, Three Months Ended March 31): | Item | 2020 | 2019 | | :--- | :--- | :--- | | Finance lease cost: Amortization of right-of-use assets | $105 | $109 | | Finance lease cost: Interest on lease liabilities | $22 | $15 | | Operating lease cost | $805 | $425 | | Short-term lease cost | $190 | $262 | | Variable lease cost | $42 | $40 | | Total lease cost | $1,164 | $851 | 7. Fair Value Measurements The Company measures certain financial assets and liabilities at fair value on a recurring basis, primarily deferred compensation plan assets and foreign currency forward contracts, using Level 1 and Level 2 inputs. As of March 31, 2020, total financial assets measured at fair value were $4.3 million Financial Assets and Liabilities Measured at Fair Value (in thousands): | Item | March 31, 2020 (Total) | December 31, 2019 (Total) | | :--- | :--- | :--- | | Financial assets: Deferred compensation plan | $4,069 | $5,150 | | Financial assets: Foreign currency forward contracts | $259 | $- | | Financial liabilities: Foreign currency forward contracts | $- | $(138) | | Total financial assets | $4,328 | $5,150 | - Deferred compensation plan assets are valued using Level 1 (quoted market prices) and Level 2 (guaranteed investment contracts) inputs[52] - Foreign currency forward contracts are valued using Level 2 inputs, incorporating observable market parameters like interest rate yield curves and currency rates[53] 8. Derivative Instruments and Hedging Activities The Company uses foreign currency forward contracts as cash flow hedges to manage foreign currency risk, with a total notional amount of $4.6 million as of March 31, 2020. Gains from non-designated hedging instruments were $0.3 million for Q1 2020 - Total notional amount of foreign currency forward contracts designated as cash flow hedges was $4.6 million (CAD$6.5 million) as of March 31, 2020, down from $6.1 million (CAD$7.9 million) as of December 31, 2019[56] - Gains recognized in Net sales from foreign currency forward contracts not designated as hedging instruments were $0.3 million for the three months ended March 31, 2020, compared to approximately $0 in 2019[57] 9. Share-based Compensation Share-based compensation expense increased significantly to $0.5 million for Q1 2020, up from $0.02 million in Q1 2019. The Company's unvested RSUs and PSAs totaled 129,572 as of March 31, 2020, with $4.2 million in unrecognized compensation expense Share-based Compensation Expense (in thousands, Three Months Ended March 31): | Item | 2020 | 2019 | | :--- | :--- | :--- | | Cost of sales | $142 | $6 | | Selling, general, and administrative expense | $318 | $16 | | Total | $460 | $22 | - As of March 31, 2020, unrecognized compensation expense related to the unvested portion of RSUs and PSAs was $4.2 million, expected to be recognized over a weighted-average period of 2.0 years[64] - For PSAs vested on March 31, 2020, the actual number of common shares issued was determined by a payout percentage of 136%, based on achieved performance conditions[63] 10. Commitments and Contingencies The Company is involved in environmental liabilities related to the Portland Harbor Superfund Site, where it is a potentially responsible party, but is currently unable to estimate its financial obligation. It also incurred $0.4 million in incremental production costs in Q1 2020 due to a 2019 fire at its Saginaw facility, with potential future insurance recoveries - The Company is a potentially responsible party for the Portland Harbor Superfund Site cleanup but is unable to estimate its financial obligation due to the large number of parties and variability in remediation alternatives[65] - Incurred $0.4 million in incremental production costs during the three months ended March 31, 2020, resulting from a fire at the Saginaw, Texas facility in April 2019[72] - The Company has insurance coverage for property damage and business interruption, and expects further insurance recoveries for costs associated with the Saginaw fire[72] 11. Revenue Revenue for water infrastructure steel pipe products is recognized over time, while precast concrete products revenue is recognized at a point in time. Net sales for Q1 2020 were $68.9 million, with $60.9 million recognized over time and $8.0 million at a point in time. Backlog as of March 31, 2020, was approximately $170 million - Revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses[75] - Revenue for water infrastructure precast concrete products is recognized at the time control is transferred to customers (point in time)[77] Disaggregation of Revenue (in thousands, Three Months Ended March 31): | Recognition Method | 2020 | 2019 | | :--- | :--- | :--- | | Over time | $60,878 | $62,643 | | Point in time | $8,045 | $- | | Net sales | $68,923 | $62,643 | - Backlog for water infrastructure steel pipe products was approximately $170 million as of March 31, 2020, with 61% expected to be recognized in 2020 and 37% in 2021[82] 12. Income Taxes The effective income tax rate for Q1 2020 was 45.6%, significantly higher than 8.1% in Q1 2019, primarily due to non-deductible acquisition costs related to the Geneva acquisition Income Tax Expense and Effective Rate (Three Months Ended March 31): | Item | 2020 | 2019 | | :--- | :--- | :--- | | Income tax expense (in thousands) | $472 | $191 | | Effective income tax rate | 45.6% | 8.1% | - The estimated effective income tax rate for Q1 2020 was primarily impacted by non-deductible costs associated with the acquisition of Geneva[84] 13. Net Income per Share Basic and diluted net income per share for Q1 2020 was $0.06, a decrease from $0.22 in Q1 2019, reflecting lower net income despite a slight increase in weighted-average common shares outstanding Net Income per Share (in thousands, except per share amounts, Three Months Ended March 31): | Item | 2020 | 2019 | | :--- | :--- | :--- | | Net income | $564 | $2,165 | | Basic weighted-average common shares outstanding | 9,751 | 9,735 | | Diluted weighted-average common shares outstanding | 9,829 | 9,735 | | Net income per common share: Basic | $0.06 | $0.22 | | Net income per common share: Diluted | $0.06 | $0.22 | 14. Recent Accounting and Reporting Developments The Company adopted ASU 2018-13 on January 1, 2020, which modifies fair value measurement disclosure requirements, with no material impact on its financial position, results of operations, or cash flows - The Company adopted ASU 2018-13 on January 1, 2020, which modifies disclosure requirements for fair value measurements[87] - The adoption of ASU 2018-13 had no material impact on the Company's financial position, results of operations, or cash flows[87] 15. Subsequent Event In April 2020, the Company's Mexico manufacturing facility was ordered to close through May 31, 2020, due to COVID-19 mandates, with orders being diverted to U.S. facilities. While Q1 2020 results were not materially affected, the ultimate impact of COVID-19 on future operations, financial position, or cash flows remains uncertain - In early April 2020, the Company's water infrastructure manufacturing facility in San Luis Río Colorado, Mexico, was ordered to close through May 31, 2020, due to COVID-19 mandates[88] - Current orders are being diverted to U.S.-based facilities, and the Company does not believe the impact of moving production is material to its financial results[88] - While COVID-19 did not have a material adverse effect on Q1 2020 results, its ultimate impact on future business, operations, financial position, or cash flows is highly uncertain and cannot be accurately predicted[89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and operational results for the quarter, highlighting the impact of the Geneva acquisition and the ongoing COVID-19 pandemic. It details changes in net sales, gross profit, SG&A, and income taxes, and discusses liquidity and capital resources Forward-Looking Statements This section cautions readers that the report contains forward-looking statements based on current expectations and estimates, which involve risks and uncertainties that could cause actual results to differ materially. It explicitly mentions the impact of COVID-19 and the integration of Geneva as potential factors - The report contains forward-looking statements that are not guarantees of future performance and involve risks and uncertainties, including changes in demand, raw material prices, and the impact of pandemics like COVID-19[90] - The Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this 2020 Q1 Form 10-Q[90] Overview Northwest Pipe Company is North America's largest manufacturer of engineered steel water pipeline systems, serving various water infrastructure markets. The recent acquisition of Geneva Pipe Company, Inc. expanded its product offerings to include concrete pipe and precast concrete products - Northwest Pipe Company is the largest manufacturer of engineered steel water pipeline systems in North America, serving water transmission, wastewater plant piping, stormwater/sewer systems, trenchless technology, and pipeline rehabilitation[91] - The acquisition of Geneva Pipe Company, Inc. expanded the Company's water infrastructure product capabilities by adding reinforced concrete pipe and a full line of precast concrete products[92] Our Current Economic Environment The Company anticipates strong long-term demand for water infrastructure projects in the U.S. but expects near-term challenges from strained governmental budgets, increased competition, and fluctuating steel costs, which significantly impact cost of sales - Long-term demand for water infrastructure projects in the United States appears strong, with a recent trend towards spending on water infrastructure replacement, repair, and upgrade[94] - Near-term challenges include strained governmental and water agency budgets, increased capacity from competition, and fluctuating steel costs, which represent a substantial portion of the cost of sales[94] Impact of COVID-19 on our Business While COVID-19 did not materially affect Q1 2020 results, its ultimate impact on future operations is highly uncertain. The Company's U.S. facilities remain operational as essential businesses, but its Mexico facility was ordered to close through May 31, 2020, incurring an estimated $0.8 million per quarter in maintenance costs - U.S. manufacturing facilities continue to operate as they produce critical water infrastructure products, consistent with national guidelines and state/local orders[96] - The water infrastructure manufacturing facility in San Luis Río Colorado, Mexico, was ordered to close from early April to May 31, 2020, due to COVID-19 mandates[97] - Estimated costs to maintain the SLRC facility in a secure and operational state and compensate furloughed employees are $0.8 million per quarter[97] - The ultimate impact of the COVID-19 pandemic on the Company's business, future results of operations, financial position, or cash flows is highly uncertain and cannot be accurately predicted[98] Results of Operations Net sales increased by 10.0% to $68.9 million in Q1 2020, primarily driven by the Geneva acquisition. Gross profit rose 45.8% to $9.6 million due to improved pricing and the acquisition, despite incremental fire-related costs. SG&A expenses increased 87.1% to $7.9 million, largely due to acquisition-related fees and higher compensation Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019 Net sales increased 10.0% to $68.9 million, with Geneva contributing $8.0 million. Gross profit improved to 13.9% of net sales from 10.5%, driven by better steel pipe pricing and the Geneva acquisition, partially offset by $0.4 million in fire-related production costs. SG&A surged 87.1% to $7.9 million due to $2.5 million in Geneva acquisition costs and $1.3 million in higher compensation. Income tax expense rose to $0.5 million at a 45.6% effective rate, impacted by non-deductible acquisition costs Key Financial Performance (in thousands, except percentages, Three Months Ended March 31): | Metric | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $68,923 | $62,643 | $6,280 | 10.0% | | Gross profit | $9,579 | $6,571 | $3,008 | 45.8% | | Gross profit % of Net Sales | 13.9% | 10.5% | 3.4 pp | - | | Selling, general, and administrative expense | $7,945 | $4,247 | $3,698 | 87.1% | | Operating income | $1,634 | $2,324 | $(690) | (29.7%) | | Income before income taxes | $1,036 | $2,356 | $(1,320) | (56.0%) | | Net income | $564 | $2,165 | $(1,601) | (74.0%) | - Net sales increased 10.0% to $68.9 million, primarily due to $8.0 million in net sales contributed by the acquired Geneva operations[102] - Gross profit increased due to improved product pricing in the steel pressure pipe business and the addition of Geneva operations, partially offset by $0.4 million in incremental production costs from the Saginaw facility fire[103] - Selling, general, and administrative expense increased 87.1%, primarily due to $2.5 million in professional and other fees related to the Geneva acquisition and $1.3 million in higher compensation-related expense[104] - Income tax expense was $0.5 million (45.6% effective rate) in Q1 2020, compared to $0.2 million (8.1% effective rate) in Q1 2019, primarily due to non-deductible costs associated with the Geneva acquisition[105] Liquidity and Capital Resources The Company's liquidity sources include operating cash flows and the Amended Credit Agreement. Working capital decreased to $129.6 million as of March 31, 2020, from $153.5 million at December 31, 2019, mainly due to cash used for the Geneva acquisition. Net cash from operating activities increased to $15.0 million in Q1 2020, while investing activities used $51.7 million, primarily for the Geneva acquisition Sources and Uses of Cash The Company's primary liquidity sources are operating cash flows and the Amended Credit Agreement. Working capital decreased by $23.9 million, and cash and cash equivalents decreased by $21.3 million in Q1 2020, largely due to the Geneva acquisition. Operating cash flow increased to $15.0 million, while investing activities used $51.7 million, mainly for the acquisition - Working capital was $129.6 million as of March 31, 2020, compared to $153.5 million as of December 31, 2019[108] - Cash and cash equivalents decreased from $31.0 million at December 31, 2019, to $9.7 million at March 31, 2020, primarily due to cash used for the Geneva acquisition[108] - Net cash provided by operating activities was $15.0 million in Q1 2020, an increase from $10.4 million in Q1 2019[110] - Net cash used in investing activities was $51.7 million in Q1 2020, including $48.7 million for the acquisition of Geneva[111] - Net cash provided by financing activities was $15.3 million in Q1 2020, including $15.9 million in borrowings on long-term debt[112] Line of Credit and Long-Term Debt As of March 31, 2020, the Company had no revolving loan borrowings, $1.6 million in outstanding letters of credit, and $15.9 million in long-term debt under the Amended Credit Agreement. It maintained $60.4 million in additional revolving loan borrowing capacity and was in compliance with all financial covenants - As of March 31, 2020, the Company had no revolving loan borrowings, $1.6 million of outstanding letters of credit, and $15.9 million of long-term debt under the Amended Credit Agreement[115] - The Company had additional revolving loan borrowing capacity of $60.4 million as of March 31, 2020[116] - The Company was in compliance with all financial covenants (Senior Leverage Ratio and Fixed Charge Coverage Ratio) as of March 31, 2020[120] Off-Balance Sheet Arrangements The Company reports no off-balance sheet arrangements that are reasonably likely to have a material effect on its financial position, results of operations, or cash flows - The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on its financial position, results of operations, or cash flows[122] Recent Accounting Pronouncements For recent accounting pronouncements, the Company refers to Note 14 of the Notes to Condensed Consolidated Financial Statements, which details the adoption of ASU 2018-13 with no material impact - For a description of recent accounting pronouncements, including adoption dates and estimated effects, refer to Note 14 of the Notes to Condensed Consolidated Financial Statements[123] Critical Accounting Policies and Estimates The Company's financial statements rely on estimates and judgments, particularly for revenue recognition, business combinations, goodwill, inventories, and income taxes. There have been no significant changes to these policies in Q1 2020, except for the goodwill policy Goodwill Goodwill is reviewed annually for impairment or when triggering events occur, with the option of a qualitative or quantitative assessment. The Company's reporting unit is equivalent to its operating segment - Goodwill is reviewed for impairment annually at December 31 or whenever events or circumstances indicate it may be impaired[126] - The Company has the option to perform a qualitative assessment to determine if the fair value of a reporting unit is less than its carrying amount[127] - If a qualitative assessment indicates potential impairment or is not performed, a quantitative assessment using a combination of income and market approaches is conducted[128] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the Company's 2019 Form 10-K for a discussion of market risks related to foreign currencies and interest rates - For a discussion of market risk associated with foreign currencies and interest rates, refer to Part II – Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" of the Company's 2019 Form 10-K[129] Item 4. Controls and Procedures Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of March 31, 2020. However, internal controls over financial reporting for the newly acquired Geneva were excluded from this evaluation, as permitted by SEC guidance, representing 23.7% of total assets and 11.7% of total consolidated revenues for Q1 2020 - Management, under the supervision of the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2020[131] - Internal control over financial reporting of the newly acquired Geneva was excluded from the evaluation of disclosure controls and procedures as of March 31, 2020, as permitted by SEC interpretive guidance[132] - Geneva's total assets represented approximately 23.7% of total assets, and its revenues represented approximately 11.7% of total consolidated revenues for the three months ended March 31, 2020[132] - No significant changes in internal control over financial reporting occurred during Q1 2020, except for those related to the integration of Geneva[133] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, exhibits, and signatures, providing additional context Item 1. Legal Proceedings The Company is involved in various legal actions, including those related to the Portland Harbor Superfund Site, but does not believe routine litigation will have a material impact. For detailed information, it refers to Note 10 of the financial statements - The Company is party to a variety of legal actions, including those arising from normal business operations and other kinds of legal actions, some of which assert substantial claims or seek fines[134] - The Company does not believe that such normal and routine litigation will have a material impact on its consolidated financial results[134] - For additional details on commitments and contingencies, refer to Note 10 of the Notes to Condensed Consolidated Financial Statements[134] Item 1A. Risk Factors This section highlights that the COVID-19 pandemic may adversely impact the Company's business, operations, financial position, and cash flows, exacerbating existing risks. The ultimate severity and duration of these impacts remain highly uncertain - The COVID-19 pandemic may have an adverse impact on the Company's business, results of operations, financial position, and cash flows, including disruptions to manufacturing, supply chain, and employee productivity[136][137] - The Company's water infrastructure manufacturing facility in San Luis Río Colorado, Mexico, was ordered to close through May 31, 2020, due to COVID-19 mandates[137] - While COVID-19 did not have a material adverse effect on Q1 2020 results, its ultimate impact on future business, operations, financial position, or cash flows is highly uncertain and cannot be accurately predicted[138] - The impact of COVID-19 may also exacerbate other risks discussed in the 2019 Form 10-K[139] Item 6. Exhibits This section lists all exhibits filed as part of the 2020 Q1 Form 10-Q, including merger agreements, credit agreements, stock incentive plans, and certifications - The exhibits filed include the Agreement and Plan of Merger for Geneva Pipe Company, Inc., Consent and Amendment No. 1 to Credit Agreement, and various stock compensation plan forms and certifications[141] Signatures This section contains the signatures of the Company's authorized officers, including the Director, President, and Chief Executive Officer, and the Senior Vice President, Chief Financial Officer, and Corporate Secretary, certifying the report - The report was signed on May 8, 2020, by Scott Montross (Director, President, and Chief Executive Officer) and Aaron Wilkins (Senior Vice President, Chief Financial Officer, and Corporate Secretary)[145]