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Note 2 - Business Combination

9 Months Ended

Sep. 30, 2021

Business Combination Disclosure [Text Block]

2.	Business Combination

On January 31, 2020, the Company completed the acquisition of 100% of Geneva Pipe and Precast Company (“Geneva”) (fka Geneva Pipe Company, Inc.) for a purchase price of $49.4 million in cash. Geneva is a concrete pipe and precast concrete products manufacturer based in Utah. This acquisition expanded the Company’s water infrastructure product capabilities by adding additional reinforced concrete pipe capacity and a full line of precast concrete products including storm drains and manholes, catch basins, vaults, and curb inlets as well as innovative lined products that extend the life of concrete pipe and manholes for sewer applications. Operations have continued with Geneva's previous management and workforce at the three Utah manufacturing facilities located in Salt Lake City, Orem, and St. George. Consistent with prior periods and considering the chief operating decision maker's evaluation of post-acquisition performance is based on total Company results, the Company continues to report as one segment.

The following table summarizes the purchase consideration and fair value of the assets acquired and liabilities assumed as of January 31, 2020 (in thousands):

Assets
Cash and cash equivalents	$	691
Trade and other receivables		7,089
Inventories		5,673
Prepaid expenses and other		356
Property and equipment		9,096
Operating lease right-of-use assets		21,684
Intangible assets		11,165
Total assets acquired		55,754

Liabilities
Accounts payable		1,395
Accrued liabilities		1,189
Operating lease liabilities		20,454
Deferred income taxes		5,343
Other long-term liabilities		939
Total liabilities assumed		29,320

Goodwill		22,985

Total purchase consideration	$	49,419

The purchase consideration for this business combination was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase consideration recorded as goodwill. As a result of additional information obtained during the measurement period about facts and circumstances that existed as of the acquisition date, the Company recorded measurement period adjustments during the three months ended June 30, 2020 which resulted in a $0.1 million balance sheet reclassification between trade and other receivables and inventories.

The following table summarizes the components of the intangible assets acquired and their estimated useful lives:

	Estimated Useful Life		Fair Value
	(In years)		(In thousands)

Customer relationships		11.0	$	8,031
Trade names		10.0		2,093
Backlog		0.9		1,041
Total intangible assets		9.9	$	11,165

Goodwill arose from the acquisition of an assembled workforce, expansion of product offerings, and management’s industry know-how. The goodwill was not deductible for tax purposes.

The Company incurred transaction costs associated with this acquisition of approximately $0 and $2.6 million during the three and nine months ended September 30, 2020, respectively. These transaction costs are included in Selling, general, and administrative expense in the Condensed Consolidated Statements of Operations.

The following unaudited pro forma summary presents the consolidated results of the Company as if the acquisition of Geneva had occurred on January 1 of the year prior to the acquisition (in thousands):

	Three Months Ended		Nine Months Ended
	September 30, 2020		September 30, 2020

Net sales	$	77,632	$	220,115
Net income		7,589		16,344

This unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results would have been if the acquisition had occurred on January 1 of the year prior to the acquisition. Moreover, this information is not indicative of what the Company’s future operating results will be. The information prior to the acquisition is included based on prior accounting records maintained by Geneva. The pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Geneva to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied on January 1 of the year prior to the acquisition. Adjustments also include an increase of interest expense as if the Company’s debt obtained in connection with the acquisition had been outstanding since January 1 of the year prior to the acquisition. The unaudited pro forma financial information includes non-recurring adjustments to remove transaction costs directly attributable to the acquisition. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.