Revenue

The Company manufactures water infrastructure steel pipe products, which are generally made to custom specifications for installation contractors serving projects funded by public water agencies. Generally, each of the Company’s contracts with its customers contains a single performance obligation, as the promise to transfer products is

not

separately identifiable from other promises in the contract and, therefore, is

not

distinct.

Materially all revenue is recognized over time as the manufacturing process progresses because the customer typically controls the work in process as evidenced by the Company’s rights to payment for work performed to date plus a reasonable profit for products that have

alternative use to the Company. Revenue is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Contract costs include all material, labor and other direct costs incurred in satisfying the performance obligations. The cost of steel material is recognized as a contract cost when the steel is introduced into the manufacturing process.

The Company does

not

recognize revenue on a contract until the contract has approval and commitment from both parties, the contract rights and payment terms can be identified, the contract has commercial substance and its collectability is probable.

Changes in job performance, job conditions and estimated profitability, including those arising from contract change orders, contract penalty provisions, foreign currency exchange rate movements, changes in raw materials costs and final contract settlements

may

result in revisions to estimates of revenue, costs and income and are recognized in the period in which the revisions are determined. Revisions in contract estimates resulted in an increase (decrease) in revenue of $(

0.2

) million and

$0.5

million for the

three

and

nine

months ended

September

30,

2018,

respectively and

$0.3

million and $(

0.3

) million for the

three

and

nine

months ended

September

30,

2017,

respectively. Provisions for losses on uncompleted contracts are included in Accrued liabilities and are made in the period such losses are known.

Contract Balances

Contract assets primarily represent revenue earned over time but

not

yet billable based on the terms of the contracts and were historically presented as costs and estimated earnings in excess of billings on uncompleted contracts. These amounts will be billed based on the terms of the contracts, which include achievement of milestones, partial shipments or completion of the contracts. Payments terms of amounts billed vary based on the customer, but are typically due within

days of invoicing. Contract liabilities represent amounts billed based on the terms of the contracts in advance of costs incurred and revenue earned. These amounts were historically presented as billings in excess of costs and estimated earnings on uncompleted contracts.

The difference between the opening and closing balances of the Company’s Contract assets and Contract liabilities primarily results from the timing difference between the Company’s performance and billings and an increase due to the acquisition of Ameron of

$11.9

million of Contract assets and

$0.1

million of Contract liabilities. The changes in the Contract assets and Contract liabilities balances during the

three

and

nine

months ended

September

30,

2018

and

2017

were

not

materially affected by any other factors.

Revenue recognized that was included in the Contract liabilities balance at the beginning of each period was

$0.1

million and

$2.2

million during the

three

and

nine

months ended

September

30,

2018,

respectively and

$0.9

million and

$1.7

million during the

three

and

nine

months ended

September

30,

2017,

respectively.

Backlog

Backlog represents the balance of remaining performance obligations under signed contracts. As of

September

30,

2018,

backlog was approximately

$100.2

million. The Company expects to recognize approximately

48%

of the remaining performance obligations in

2018,

41%

2019,

and the balance thereafter.