• | explosions, fires, inclement weather, and natural disasters; | |
• | mechanical failure; | |
• | unscheduled downtime; | |
• | labor shortages; | |
• | loss of process control and quality; |
mechanical failure;
unscheduled downtime;
labor difficulties;
loss of process control and quality;
disruptions to supply;
raw materials quality defects;
service provider delays or failures;
transportation delays or failures;
an inability to obtain or maintain required licenses or permits; and
environmental hazards such as chemical spills, discharges or releases of toxic or hazardous substances or gases into the environment or workplace.
• | disruptions to supply; | |
• | raw materials quality defects; | |
• | service provider delays or failures; | |
• | transportation delays or failures; | |
• | an inability to obtain or maintain required licenses or permits; and | |
• | environmental hazards such as chemical spills, discharges, or releases of toxic or hazardous substances or gases into the environment or workplace. |
The occurrence of any of these operating problems at our facilities may have a material adverse effect on the productivity and profitability of a particular manufacturing facility or on our operations as a whole, during and after the period of these operating difficulties. TheseThe operating problems listed above may also cause personal injury and loss of life, severe damage to or destruction of property and equipment, and environmental damage. In addition, individuals could seek damages for alleged personal injury or property damage. Furthermore, we could be subject to present and future claims with respect to workplace injury, exposure to hazardous materials, workers’workers’ compensation, and other matters. Although we maintain property and casualty insurance of the types and in the amounts that we believe are customary for our industries, we cannot assure you that our insurance coverage will be adequate for liability that may be ultimately incurred or that such coverage will continue to be available to us on commercially reasonable terms. Any claims that result in liability exceeding our insurance coverage could have an adverse effect on our business, financial position, results of operations, or cash flows.
We may be unable to develop or successfully market new products or our products might not obtain necessary approvals or achieve market acceptance, which could adversely affect our growth. We will continue to actively seek to develop new products and to expand our existing products into new markets, but we cannot assure you that we will be successful in these efforts. If we are unsuccessful in developing and marketing new products, expanding into new markets, or we do not obtain or maintain requisite approvals for our products, the demand for our products could be adversely affected, which could adversely affect our business, financial position, results of operations, or cash flows.
Our quarterlyrecognition of revenue over time includes estimates. SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses, and is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Estimated total costs of each contract are reviewed on a monthly basis by project management and operations personnel for all active projects. All cost revisions that result in a material change in gross profit are reviewed by senior management personnel.
Significant judgment is required in estimating total costs and measuring the progress of project completion, as well as whether a loss is expected to be incurred on the contract. 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. Due to the variability of events affecting our estimates which have a material impact on our contract accounting, actual results could differ from those estimates, which could adversely affect our financial position, results of operations, or cash flows.
We have a foreign operation which exposes us to the risks of doing business abroad. Our facility in San Luis Río Colorado, Mexico primarily exports products to the United States. We may operate in additional countries in the future. Any material changes in the quotas, regulations, tariffs, or duties on imports imposed by the United States government and our agencies, or on exports imposed by these foreign governments and their agencies could adversely affect our foreign operations.
We also sell some of our products internationally, most often into Canada. Our foreign activities are also subject to significant fluctuation.various other risks of doing business in a foreign country, including:
• | currency fluctuations; | |
• | the imposition of duties, tariffs, and other trade barriers; | |
• | transportation delays and interruptions; | |
• | political, social, and economic instability and disruptions; | |
• | government embargoes or foreign trade restrictions; | |
• | import and export controls; | |
• | labor unrest and current and changing regulatory environments; |
• | limitations on our ability to enforce legal rights and remedies; and | |
• | potentially adverse tax consequences. |
No assurance can be given that our operations may not be adversely affected in the future. Any of these events could have an adverse effect on our operations in the future by reducing the demand for our products and services, decreasing the prices at which we can sell our products, or increasing costs such that there could be an adverse effect on our business, financial position, results of operations, or cash flows. We cannot assure you that we will continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations, or any other laws or regulations to which we may be subject, or that any such regulations or laws will not be modified. Any failure by us to comply with any such applicable regulations or laws, or any changes in any such regulations or laws could have a material adverse effect on our business, financial position, results of operations, or cash flows.
Our Engineered Steel Pressure Pipe backlog is subject to reduction and cancelation. Backlog, which represents the balance of remaining performance obligations under signed contracts for SPP water infrastructure steel pipe products for which revenue is recognized over time, was $273 million as of December 31, 2023. Our net salesbacklog is subject to fluctuations; moreover, cancelations of purchase orders, change orders on contracts, or reductions of product quantities could materially reduce our backlog and, operatingconsequently, future revenues. Our failure to replace canceled or reduced backlog could result in lower revenues, which could adversely affect our business, financial position, results of operations, or cash flows.
Future outbreaks of infectious diseases, including further developments in the COVID‑19 pandemic, may fluctuate significantly from quarterhave an adverse impact on our business. The impacts of the COVID‑19 pandemic, and the resurgence of new COVID‑19 virus variants, on global and domestic economic conditions, including the impacts of labor and raw material shortages, the long-term potential to quarterreduce or delay funding of municipal projects, and the continued disruptions to and volatility in the financial markets remain uncertain. While the COVID‑19 pandemic has caused various direct and indirect financial impacts associated with project bidding, execution, and product deliveries over the past couple of years, we remain unable to predict the ultimate impact that the COVID‑19 pandemic may have on our business, future results of operations, financial position, or cash flows. We continue to monitor the impact of the COVID‑19 pandemic on all aspects of our business. The impacts of the COVID‑19 pandemic may also exacerbate other risks discussed in Part I – Item 1A. “Risk Factors” in this 2023 Form 10‑K, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.
The conflicts in Ukraine and Israel may have an adverse impact on our business. Current conflicts around the world, including those in Ukraine and Israel, and related sanctions could damage or disrupt international commerce and the global economy. We continue to monitor the impacts of the conflicts in Ukraine and Israel on all aspects of our business, including how it will impact our employees, customers, supply chain, and distribution network. Impacts include financial and commodity volatility in raw material and other input costs and availability, as well as volatility in the financial markets. The severity of impacts on the global economy and our business, results of operations, financial position and cash flows remain unknown.
Climate change and related regulatory requirements present an ongoing risk to our business operations. The rise in average global temperatures has resulted in elevated levels of carbon dioxide and other greenhouse gases in the atmosphere, altering long-term weather patterns that lead to an increased frequency and severity of natural disasters. Severe weather conditions could potentially disrupt our manufacturing and construction activities; areas prone to flooding could face delays resulting in lost production and extreme heat could threaten the health and well-being of our employees. Given the changes in weather patterns brought on by climate change, essentially all of our facilities are vulnerable to extreme conditions and natural disasters, increasing the risk of damage to our facilities and products. Those risks could also hinder our supply chain processes and limit our access to raw materials or our ability to fulfill orders for customers. Evolving governmental regulations to combat climate change risks would likely increase our costs for items including energy and transportation, which may prove disproportional to similar increases in costs experienced by competitors. We anticipate heightened regulatory focus in the near future and failure to comply with new environmental regulations and policies could result in reputational damage with our stakeholders, resulting in decreased demand for our products and lower than expected revenue.
Risks Related to Our Supply Chain and Production Process
Our business may be adversely impacted by staffing shortages, other labor matters, and work stoppages. Current nationwide staffing shortages have impacted our ability to attract both skilled and unskilled workers needed for our manufacturing operations, and the inability to fully staff any one of our facilities may impact our ability to work on projects and, as a result, could have a material adverse effect on our business, financial position, results of operations, or cash flows. A work stoppage or other limitation on production could occur at our facilities or our suppliers’ facilities for any number of reasons, including as a result of absenteeism, public health issues, labor issues, including disputes under a collective bargaining agreement or in connection with negotiation of new collective bargaining agreements, or for other reasons.
We believe that our relations with our employees are good, however no assurances can be made that we will not experience conflicts with labor unions, other groups representing employees, or our employees in general. Although none of our employees are currently covered by collective bargaining agreements, our employees may elect to be represented by labor unions in the future, which could increase our labor costs
Additionally, the employees of some of our customers are unionized. Any strikes, other labor matters, or work stoppages experienced by our customers may impact our ability to work on projects and, as a result, have an adverse effect on our business, financial position, results of operations, or cash flows.
Fluctuations in steel prices and availability may affect our future results of operations. Purchased steel represents a substantial portion of SPP cost of sales. The steel industry is highly cyclical in nature, and at times, pricing can be highly volatile due to a number of factors including:beyond our control, including general economic conditions, import duties, other trade restrictions, and currency exchange rates. Over the past three years, steel prices have fluctuated significantly. Our average cost for a ton of steel was approximately $994 per ton in 2023, $1,174 per ton in 2022, and $1,291 per ton in 2021. In 2023, our monthly average steel purchasing costs ranged from a high of approximately $1,394 per ton to a low of approximately $801 per ton. This volatility can significantly affect our gross profit.
the commencement, completion or termination of contracts during any particular quarter;
unplanned down time dueAlthough we seek to project delays or mechanical failure;
underutilized capacity or factory productivity;
recover increases in steel prices through price increases in our products, we have not always been successful. Any increase in steel prices that is not offset by an increase in our prices could have an adverse weather conditions;
fluctuations in the cost of steel and other raw materials; and
competitive pressures.
Resultseffect on our business, financial position, results of operations, in any periodor cash flows. In addition, if we are not indicativeunable to acquire timely steel supplies, we may need to decline project bidding opportunities, which could also have an adverse effect on our business, financial position, results of results for any future period, and comparisons between any two periods may not be meaningful.operations, or cash flows.
We may be subject to claims for damages for defective products, which could adversely affect our business, financial position, results of operations, or cash flows. We warrant our products to be free of certain defects. We have, from time to time, had claims alleging defects in our products. We cannot assure you that we will not experience material product liability losses in the future or that we will not incur significant costs to defend such claims. While we currently have product liability insurance, we cannot assure you that our product liability insurance coverage will be adequate for liabilities that may be incurred in the future or that such coverage will continue to be available to us on commercially reasonable terms. Any claims relating to defective products that result in liabilities exceeding our insurance coverage could have an adverse effect on our business, financial position, results of operations, or cash flows.
We may not be able to recover costs and damages from vendors that supply defective materials. We may receive defective materials from our vendors that are incorporated into our products during the manufacturing process. The cost to repair, remake, or replace defective products could be greater than the amount that can be recovered from the vendor.vendor, in addition to creating inefficiencies in our production scheduling. Such excess costs could have an adverse effect on our business, financial position, results of operations or cash flows.
We have a foreign operation which exposes us to the risks of doing business abroad. Our facility in Monterrey, Mexico primarily exports products to the United States. We may operate in additional countries in the future. Any material changes in the quotas, regulations or duties on imports imposed by the United States government and our agencies or on exports imposed by these foreign governments and their agencies could adversely affect our foreign operations.
We also sell some of our products internationally. Our foreign activities are also subject to various other risks of doing business in a foreign country, including:
currency fluctuations;
transportation delays and interruptions;
political, social and economic instability and disruptions;
government embargoes or foreign trade restrictions;
the imposition of duties, tariffs and other trade barriers;
import and export controls;
labor unrest and current and changing regulatory environments;
limitations on our ability to enforce legal rights and remedies; and
potentially adverse tax consequences.
No assurance can be given that our operations may not be adversely affected in the future. Any of these events could have an adverse effect on our operations in the future by reducing the demand for our products and services, decreasing the prices at which we can sell our products or increasing costs such that there would be an adverse effect on our business, financial position, results of operations or cash flows. We cannot assure you that we will continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations or any other laws or regulations to which we may be subject, or that any such regulations or laws will not be modified. Any failure by us to comply with any such applicable regulations or laws, or any changes in any such regulations or laws could have a material adverse effect on our business, financial position, results of operations or cash flows.
Our use of the percentage-of-completion method of accounting includes estimates. Revenue from construction contracts is recognized on the percentage-of-completion method, measured by the costs incurred to date as a percentage of the estimated total costs of each contract (the cost-to-cost method). Estimated total costs of each contract are reviewed on a monthly basis by project management and operations personnel for all active projects. All cost revisions that result in the gross profit as a percent of sales increasing or decreasing by more than two percent are reviewed by senior management personnel.
The estimated cost to complete each contract is a significant variable in the process of determining income earned and is a significant factor in the accounting for contracts. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known. Due to the variability of events affecting our estimates which have a material impact on our contract accounting, actual results could differ from those estimates, which could adversely affect our financial position, results of operations or cash flows.
See Note 2 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2017 Form 10-K for discussion regarding the expected impact of our adoption of new guidance for revenue recognition effective in the first quarter of 2018.
We are subject to stringent environmental and health and safety laws, which may require us to incur substantial compliance and remediation costs, thereby reducing our profits. We are subject to many federal, state, local and foreign environmental and health and safety laws and regulations, particularly with respect to the use, handling, treatment, storage, discharge and disposal of substances and hazardous wastes used or generated in our manufacturing processes. Compliance with these laws and regulations is a significant factor in our business. We have incurred, and expect to continue to incur, significant expenditures to comply with applicable environmental laws and regulations. Our failure to comply with applicable environmental laws and regulations and permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial actions.
We are currently, and may in the future be, required to incur costs relating to the environmental assessment or environmental remediation of our property, and for addressing environmental conditions, including, but not limited to, the issues associated with our Portland, Oregon facility as discussed in Note 15 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2017 Form 10-K. Some environmental laws and regulations impose liability and responsibility on present and former owners, operators or users of facilities and sites for contamination at such facilities and sites without regard to causation or knowledge of contamination. Consequently, we cannot assure you that existing or future circumstances, the development of new facts or the failure of third parties to address contamination at current or former facilities or properties will not require significant expenditures by us.
We expect to continue to be subject to increasingly stringent environmental and health and safety laws and regulations. It is difficult to predict the future interpretation and development of environmental and health and safety laws and regulations or their impact on our future earnings and operations. We anticipate that compliance will continue to require capital expenditures and operating costs. Any increase in these costs, or unanticipated liabilities arising, for example, out of discovery of previously unknown conditions or more aggressive enforcement actions, could adversely affect our results of operations, and there is no assurance that they will not have a material adverse effect on our business, financial position, results of operations, or cash flows.
Our information technology systems can be negatively affected by cybersecurity threats.Increased global information technology security requirements, vulnerabilities, threats, and a rise in sophisticated and targeted computer crime pose a risk to the security of our systems, networks, and the confidentiality, availability, and integrity of our data. Despite our efforts to protect sensitive information and confidential and personal data, our facilities and systems and those of our third-party service providers may be vulnerable to security breaches. This could lead to disclosure, modification, or destruction of proprietary, employee, and other key information and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.disruptions. To the extent that any disruption or security breach results in a loss or damage to our data, or an inappropriate disclosure of confidential or protected personal information, it could cause significant damage to our reputation, affect our relationships with our customers, suppliers, and employees, lead to claims against us, and ultimately harm our business. Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
Increased levels Any of importsthe foregoing factors could have and could continue to adversely affect pricing and demand for our products. We believe import levels are affected by, among other things, overall worldwide demand, lower cost of production in other countries, the trade practices of foreign governments, government subsidies to foreign producers and governmentally imposed trade restrictions in the United States. Increased imports in the United States and Canada which compete with our products could reduce demand for our products in the future and adversely affectan adverse effect on our business, financial position, results of operations, or cash flows.
Risks Related to Our Financial Condition
Disruptions in the financial markets and a general economic slowdown could cause us to be unable to obtain financing and expose us to risks related to the overall macro-economic environment, which could have a material adverse effect on our business, financial condition, results of operations or cash flows. The United States equity and credit markets have experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many equities to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing, even for companies who are otherwise qualified to obtain financing. These events may make it less likely that we will be able to obtain additional financing and also may make it more difficult or prohibitively costly for us to raise capital through the issuance of debt or equity securities.
We will need to substantially increase working capital if market conditions and customer order levels improve.grow. If market conditions and SPP customer order levels improve,were to dramatically increase, we willwould have to increase our working capital substantially, as it will taketakes several months for new ordersproject production to be translated into cash receipts. In general, revolving loan borrowings and letters of credit under the LoanCredit Agreement dated June 30, 2021 with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and Securitythe lenders from time to time party thereto, including the initial sole lender, Wells Fargo (the “Lenders”), as amended by the Incremental Amendment dated October 22, 2021, the Second Amendment to Credit Agreement (the “Agreement”dated April 29, 2022, and the Third Amendment to Credit Agreement dated June 29, 2023 (together, the “Amended Credit Agreement”) with Bank of America, N.A., are limited to the lesseraggregate amount of $60$125 million or availability under a borrowing base, which is(“Revolver Commitment”), with an option for us to increase that amount by $50 million, subject to various sublimits and borrowing restrictions as determined underprovisions of the Amended Credit Agreement. As of December 31, 2017,2023 under the Amended Credit Agreement, we had $19.1$54.5 million available to borrow under the Agreement.of outstanding revolving loan borrowings, $1.1 million of outstanding letters of credit, and additional borrowing capacity of approximately $69 million. We may not have sufficient availability under the Amended Credit Agreement to borrow the amounts we need, and other opportunities to borrow additional funds or raise capital in the equity markets may be limited or nonexistent. A shortage in the availability of working capital wouldcould have a material adverse effect on our business, financial condition, results of operations, or cash flows.
The restrictions under which we operate as a result of ourOur debt agreementsobligations could have a material adverse effect on our business, financial condition, results of operations, or cash flows. We have financed our operations through cash flows from operations, available borrowings, and other financing arrangements. As of December 31, 2017,2023, we had approximately $1.1$54.5 million of capitaloutstanding revolving loan borrowings, $10.8 million of current debt, $90.2 million of operating lease obligationsliabilities, and no outstanding borrowings on our line$7.5 million of credit. However, wefinance lease liabilities. We could incur additional revolving loan borrowings on our line of creditunder the Amended Credit Agreement in the future to finance increases in working capital, fundshare repurchases, mergers, acquisitions, and capital expenditures, fund negative operating cash flows, or for other corporate purposes. These borrowings could become significant in the future.
Our current and future debt and debt service obligations could:
limit our ability to obtain additional financing for working capital or other purposes in the future;
reduce the amount of funds available to finance our operations, capital expenditures and other activities;
increase our vulnerability to economic downturns, illiquid capital markets and adverse industry conditions;
limit our flexibility in responding to changing business and economic conditions, including increased competition;
place us at a disadvantage when compared to our competitors that have less debt; and
with respect to our borrowings that bear interest at variable rates, cause us to be vulnerable to increases in interest rates.
• | limit our ability to obtain additional financing for working capital or other purposes in the future; | |
• | reduce the amount of funds available to finance our operations, capital expenditures, and other activities; | |
• | increase our vulnerability to economic downturns, illiquid capital markets, and adverse industry conditions; | |
• | limit our flexibility in responding to changing business and economic conditions, including increased competition; | |
• | place us at a disadvantage when compared to our competitors that have less debt; and | |
• | with respect to our borrowings that bear interest at variable rates, cause us to be vulnerable to increases in interest rates. |
Our ability to make scheduled payments on our current and future debt will depend on our future operating performance and cash flows, which are subject to prevailing economic conditions, prevailing interest rate levels, and other financial, competitive, and business factors, many of which are beyond our control. Our inability to make scheduled payments on our debt or any of the foregoing factors wouldcould have a material adverse effect on our business, financial condition, results of operations, or cash flows.
To the extent we have not hedged against rising interest rates, an increase in the applicable benchmark interest rates would increase our cost of servicing our indebtedness and could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
A portion of our indebtedness is subject to interest rate risk, which could cause our debt service obligations to increase significantly. Borrowings under the Amended Credit Agreement and our current debt are, and additional borrowings in the future may be, at variable rates of interest that expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. We have, and may in the future enter into additional, interest rate swaps for a portion of our variable rate debt whereby we exchange floating for fixed rate interest payments in order to reduce exposure to interest rate volatility. However, any interest rate swaps into which we enter may not fully mitigate our interest rate risk and may expose us to higher total debt service cost in a declining rate environment.
Our failure to comply with covenants in our debt agreements agreements could result in our indebtedness being immediately due and payable, which could have a material adverse effect on our business, financial condition, results of operations, or cash flows. The agreements governing our current and future debt include covenants that impose certain requirements with respect to our financial condition and results of operations and general business activities. These covenants place restrictions on, among other things, our ability to incur certain additional debt and to create liens or other encumbrances on assets,assets. In addition, our obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of our and our ability to experience material adverse events.subsidiaries’ assets.
Our ability to comply with the covenants under our debt instruments in the future is uncertain and will be affected by our results of operations and financial condition as well as other events and circumstances beyond our control. If market and other economic conditions do not improve,deteriorate, our ability to comply with these covenants may be impaired. A failure to comply with the requirements of these covenants, if not waived or cured, could permit acceleration of the related debt. If any of our debt is accelerated, we cannot assure you that we would have sufficient assets to repay such debt or that we would be able to refinance such debt on commercially reasonable terms or at all. The acceleration of a significant portion of our current and future debt could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Disruptions in the financial markets, including the banking industry, and a general economic slowdown could cause us to be unable to obtain financing or receive customer payments and expose us to risks related to the overall macro-economic environment, which could have a material adverse effect on our business, financial condition, results of operations, or cash flows. The United States equity and credit markets, as well as certain financial institutions, have experienced significant price volatility, dislocations, and liquidity disruptions, which have caused market prices of many equities to fluctuate substantially, the spreads on prospective debt financings to widen considerably, and disruptions in select banking transactions. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing, even for companies who are otherwise qualified to obtain financing. These events may make it less likely that we will be able to obtain additional financing, may make it more difficult or prohibitively costly for us to raise capital through the issuance of debt or equity securities, which may prove necessary to execute our growth strategies, and may impact our customers and their ability to make payments or obtain credit.
Risks Related to Our Internal Control Over Financial Reporting
We have identified material weaknesses in internal control in prior years. For the year ended December 31, 2022, a material weakness in our internal control over financial reporting related to the implementation of our enterprise resource planning (“ERP”) system for the acquisition of ParkUSA was identified. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. This material weakness was remediated as of December 31, 2023.
No material weaknesses were identified as of December 31, 2017, 2016 or 2015.2023. However, we cannot assure you that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our financial statements. These misstatements could result in a restatement of financial statements, cause us to fail to meet our reporting obligations or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
Risks Related to Our Common Stock
The relatively low trading volume of our common common stock may limit your ability to sell your shares. Although our shares of common stock are listed on the Nasdaq Global Select Market, (“Nasdaq”), we have historically experienced a relatively low trading volume. If we have a low trading volume in the future, holders of our shares may have difficulty selling a large number of shares of our common stock in the manner or at a price that might otherwise be attainable.
The market price of our common common stock could be subject to significant fluctuations. The market price of our common stock has experienced, and may continue to experience, significant volatility. Among the factors that could affect our stock price are:
our operating and financial performance and prospects;
quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income and net sales;
changes in revenue or earnings estimates or publication of research reports by analysts;
loss of any member of our senior management team;
speculation in the press or investment community;
strategic actions by us or our competitors, such as acquisitions or restructuring;
sales of our common stock by shareholders;
relatively low trading volume;
general market conditions and market expectations for our industry and the financial health of our customers; and
• | our operating and financial performance and prospects; | |
• | quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income, and net sales; | |
• | changes in revenue or earnings estimates or publication of research reports by analysts; | |
• | loss of any member of our senior management team; | |
• | speculation in the press or investment community; | |
• | strategic actions by us or our competitors, such as acquisitions or restructuring; | |
• | sales of our common stock by shareholders; | |
• | relatively low trading volume; | |
| • | our repurchase of our common stock pursuant to our share repurchase program; | |
• | general market conditions and market expectations for our industry and the financial health of our customers; and | |
• | domestic and international economic, legal, and regulatory factors unrelated to our performance. |
The stock markets in general have experienced broad fluctuations that have often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
We cannot guarantee that our share repurchase program of our common stock will be fully consummated or that it will enhance long-term stockholder value. Share repurchases could also increase the volatility of the trading price of our common stock and could diminish our cash reserves thereby impacting our ability to execute our growth strategy. On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. During the year ended December 31, 2023, we repurchased approximately 29,000 shares of our common stock and had $29.2 million remaining in share repurchase capacity as of December 31, 2023. The actual timing and amount of repurchases remain subject to a variety of factors, including stock price, trading volume, market conditions and other general business considerations. We cannot guarantee that the program will be fully consummated or that it will enhance long-term stockholder value. The program could affect the trading price of our common stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our common stock.
Certain provisions of our governing documents and Oregon law could discourage potential acquisition proposals. Our articles of incorporation contain provisions that:
classify the board of directors into three classes, each of which serves for a three-year term with one class elected each year;
provide that directors may be removed by shareholders only for cause and only upon the affirmative vote of 75% of the outstanding shares of common stock; and
permit the board of directors to issue preferred stock in one or more series, fix the number of shares constituting any such series and determine the voting powers and all other rights and preferences of any such series, without any further vote or action by our shareholders.
• | classify the board of directors into three classes, each of which serves for a three-year term with one class elected each year; | |
• | provide that directors may be removed by shareholders only for cause and only upon the affirmative vote of 75% of the outstanding shares of common stock; | |
| • | permit the board of directors to issue preferred stock in one or more series, fix the number of shares constituting any such series, and determine the voting powers and all other rights and preferences of any such series, without any further vote or action by our shareholders; and | |
| • | require the approval of holders of not less than 67% of our outstanding shares of common stock for any agreement of merger or consolidation which requires shareholder approval, or for the sale, lease, or exchange of all or substantially all of our property and assets. |
In addition, we are subject to certain provisions of the Oregon Business CombinationCorporation Act which imposes certain restrictions on business combination transactions and may encourage parties interested in acquiring us to negotiate in advance with our board of directors. We also have a shareholder rights plan that acts to discourage any person or group from making a tender offer for, or acquiring, more than 15% of our common stock without the approval of our board of directors. Any of these provisions could discourage potential acquisition proposals, could deter, delay, or prevent a change in control that our shareholders consider favorable, and could depress the market value of our common stock. Additional information regarding the above described provisions of our governing documents and the Oregon Business Corporation Act is set forth in the “Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934” filed as Exhibit 4.2 to our 2019 Form 10‑K, which was filed with the SEC on March 3, 2020.
Unresolved Staff Comments |
None.
Cybersecurity |
We believe that cybersecurity is a critical part of our overall risk management, which is supported by both our management and our Board of Directors. We believe that we face the same external threats common to other participants in the infrastructure sectors, which include ransomware and malware attacks in addition to the risks brought on by the vendor supply chain. Through the leadership of our Vice President of Information Technology, who reports to our Chief Financial Officer, we routinely assess these threats and evaluate our landscape for new vulnerabilities, considering both for their probability of occurrence as well as their perceived potential impact. We supplement our risk assessment processes with robust identification tools which we review routinely through the use of intrusion prevention and detection systems. We supplement our internal procedures with third parties, who routinely assess our network infrastructure for vulnerabilities both internal and external to our firewall. We also conduct periodic training and awareness programs for all of our employees with systems access in order to drive adoption and awareness of their critical roles in cybersecurity processes and controls.
The pace of change in approaches undertaken by cyber criminals requires an approach to security that strives for continuous improvement and constant monitoring of the landscape. While we are working to adopt the cybersecurity framework of the National Institute of Standards and Technology (NIST), we believe continued investment through parties external to our information technology team is the best means for extensively testing both the design and operational effectiveness of our cybersecurity controls, and ensuring their level of priority as compared to our other information technology objectives, namely system continuity and functionality.
Furthermore, through our incident response plan, we believe we have a well-designed plan to manage through any unforeseen breach including the eradication of the infiltrator from our networks. We carry cyber insurance to transfer the residual risk of an incident. We also work with our cyber insurance carrier to regularly refine our response procedures, which include the definition of internal and external communications channels to key stakeholders, as well as the identification of material breaches and the associated incident reporting up to senior management and our Board of Directors.
Our Board of Directors has charged the Audit Committee with the governance and oversight of this risk. Our governance philosophy is to discuss cybersecurity at least quarterly with our Audit Committee, as provided for within that committee’s charter, including regular reporting by our Vice President of Information Technology with respect to key accomplishments, planned activities, and monitoring results. Board experience in risk assessment has been enhanced with certification achievements specific to cybersecurity risk, providing us with the appropriate oversight to this evolving threat.
As of the date of this report, we are not aware of any material breaches to our networks or computer systems that have materially affected or are reasonably likely to materially affect us, including the execution of our business strategy, results of operations, or financial condition. We describe potential risks from cybersecurity threats under the heading “Our information technology systems can be negatively affected by cybersecurity threats,” in Part I — Item 1. “Risk Factors” of this 2023 Form 10‑K, which disclosures are incorporated herein by reference.
Properties |
Our facilities serve regional markets, which vary in the number and sizes of projects year-over-year. Consequently, we have excess manufacturing capacity from time to time at each of our facilities. We believe the quality and productive capacity of our facilities are sufficient to maintain our competitive position for the foreseeable future.
The following tablestables provide certain information about our operating facilities as of December 31, 2017:2023:
Location | Manufacturing Space | Property Size | Number and Type of Mills | |||
Portland, Oregon | 300,000 | 25 | 3 Spiral mills | |||
Adelanto, California | 200,000 | 100 | 3 Spiral mills, 1 Plate roll | |||
Parkersburg, West Virginia | 145,000 | 90 | 2 Spiral mills | |||
Saginaw, Texas (2 facilities) | 170,000 | 50 | 2 Spiral mills | |||
Monterrey, Mexico | 40,000 | 5 | Multiple line fabrication capability | |||
St Louis, Missouri | 100,000 | 20 | 2 Plate rolls | |||
Salt Lake City, Utah | 47,000 | 1 | 2 Plate rolls |
Engineered Steel Pressure Pipe
Manufacturing Space | Property Size | ||||||
Location | (approx. sq. ft.) | (approx. acres) | Ownership | ||||
Portland, Oregon | 300,000 | 25 | Owned | ||||
San Luis Río Colorado, Mexico | 285,000 | 105 | Owned | ||||
Adelanto, California | 200,000 | 100 | Owned | ||||
Parkersburg, West Virginia | 170,000 | 90 | Owned | ||||
Saginaw, Texas (2 facilities) | 170,000 | 50 | 1 Owned, 1 Leased | ||||
Tracy, California | 165,000 | 87 | Owned | ||||
St. Louis, Missouri | 100,000 | 20 | Leased |
As of December 31, 2017, we owned all of our facilities except for one of our Saginaw, Texas facilities, our St. Louis, Missouri facility and our Salt Lake City, Utah facility, which are leased. Additionally, land adjacent to our Portland, Oregon, facilitySaginaw, Texas, and St. Louis, Missouri facilities used for parking andand/or pipe storage is leased.
Precast Infrastructure and Engineered Systems
Manufacturing Space | Property Size | ||||||
Location | (approx. sq. ft.) | (approx. acres) | Ownership | ||||
Houston, Texas | 239,000 | 25 | Leased | ||||
Orem, Utah | 150,000 | 20 | Leased | ||||
Dallas, Texas | 62,000 | 11 | Leased | ||||
Salt Lake City, Utah | 58,000 | 20 | Leased | ||||
San Antonio, Texas | 34,000 | 7 | Leased | ||||
St. George, Utah | 6,000 | 8 | Leased |
Legal Proceedings |
We are party to a variety of legal actions arising out of the normalordinary course of business. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material impact on our consolidated financial results. We are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines, penalties, and other costs in substantial amounts. See Note 15 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 20172023 Form 10-K.10‑K.
Mine Safety Disclosures |
Not applicable.
Market for |
Market Information
Our common stock is quoted on the Nasdaq Global Select Market under the symbol “NWPX.”The price range per share of common stock presented below represents the highest and lowest closing sales prices for our common stock on the Nasdaq during each quarter of the two most recent years.
Low | High | |||||||
2017 | ||||||||
First Quarter | $ | 15.31 | $ | 19.39 | ||||
Second Quarter | 12.67 | 17.03 | ||||||
Third Quarter | 14.57 | 19.17 | ||||||
Fourth Quarter | 16.94 | 21.08 | ||||||
2016 | ||||||||
First Quarter | $ | 7.74 | $ | 11.18 | ||||
Second Quarter | 8.56 | 10.80 | ||||||
Third Quarter | 10.59 | 12.33 | ||||||
Fourth Quarter | 11.94 | 18.77 | ||||||
Holders
There were 2818 shareholders of record as of February 20, 2018.23, 2024. A substantially greater number of holders of our common stock are beneficial holders, whose shares are held of record are held by banks, brokers, and other financial institutions. There were no cash dividends declared or paid in fiscal years 2017 or 2016, and we
Dividends
We do not intend to pay cash dividends in the foreseeable future. We have
Securities Authorized for Issuance under Equity Compensation Plans
The information with respect to equity compensation plans is included under Part III — Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this 2023 Form 10‑K.
Performance Graph
The following graph compares the performance of our common stock to the performance of the Russell 2000 Index and a weighted composite of certain industry-based peer companies (“Peer Group”) selected by us. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity markets. The Peer Group is comprised of Ampco-Pittsburgh Corporation, Badger Meter, Inc., DMC Global Inc., L.B. Foster Company, Insteel Industries, Inc., Lindsay Corporation, Luxfer Holdings, PLC, Mueller Water Products, Inc., NN, Inc., and Orion Group Holdings, Inc. The comparisons in the chart below are provided in response to SEC disclosure requirements and, therefore, are not issued anyintended to forecast or be indicative of future performance of our common stock.
Indexed Return | ||||||||||||
Northwest Pipe Company | Russell 2000 Index | Peer Group | ||||||||||
December 31, 2018 | $ | 100.00 | $ | 100.00 | $ | 100.00 | ||||||
December 31, 2019 | 143.02 | 125.52 | 121.70 | |||||||||
December 31, 2020 | 121.51 | 150.58 | 141.95 | |||||||||
December 31, 2021 | 136.54 | 172.90 | 163.56 | |||||||||
December 31, 2022 | 144.70 | 137.56 | 142.04 | |||||||||
December 31, 2023 | 129.93 | 160.85 | 177.59 | |||||||||
Recent Sales of Unregistered Securities
There were no unregistered sales of our equity securities during the past three years that were not registered under theyear ended December 31, 2023.
Use of Proceeds from Registered Securities Act.
On March 17, 2017, we filed aDecember 4, 2023, our shelf registration statement on Form S-3S‑3 (Registration No. 333-216802) with the SEC333‑275691) covering the potential future sale of up to $120$150 million of our equity and/or debt securities or combinations thereof. The registration statementthereof, was amended on August 18, 2017 and declared effective by the SECSEC. This shelf registration statement, which replaced the registration statement on September 15, 2017. This registration statementForm S‑3 that expired on November 3, 2023, provides another potential source of capital, in addition to other alternatives already in place. We cannot be certain that funding will be available on favorable terms or available at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. As of the date of this 20172023 Form 10-K,10‑K, we have not yet sold any securities under this registration statement, nor do we have an obligation to do so. Please refer to the factors discussed in Part I –— Item 1A. “Risk Factors” of this 20172023 Form 10-K.10‑K.
On September 2, 2022, we entered into an Open Market Sale Agreement (the “At-the-Market Offering”) with Jefferies LLC (“Jefferies”) which provided for the issuance and sale of shares of our common stock, par value $0.01 per share, having aggregate offering sales proceeds of up to $50 million from time to time through Jefferies as our sales agent. On October 30, 2023, we provided written notice terminating the Open Market Sale Agreement in accordance with its terms. No proceeds were raised under the At-the-Market Offering during the years ended December 31, 2023 or 2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our broker, D.A. Davidson Companies. At this time, we have elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and covenant compliance under our Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million for repurchases and provides for daily share repurchases that fluctuate with changes in the trading price of our common stock. We expect to consider share repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date.
The following table provides information relating to our repurchase of common stock during the three months ended December 31, 2023 pursuant to our share repurchase program.
Period | Total Number of Shares Purchased | Average Price Paid Per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||
October 1, 2023 to October 31, 2023 | - | $ | - | - | $ | - | ||||||||||
November 1, 2023 to November 30, 2023 | - | $ | - | - | $ | 30,000,000 | ||||||||||
December 1, 2023 to December 31, 2023 | 28,616 | $ | 29.20 | 28,616 | $ | 29,164,382 | ||||||||||
Total | 28,616 | 28,616 | ||||||||||||||
(1) | Exclusive of commission fees incurred in relation to the repurchase of common stock. |
[Reserved] |
Stock Performance Graph
The following graph compares the performance of our common stock to the performance of the Russell 2000 Index and a weighted composite index of certain peer companies (the “Peer Group”) selected by us. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity markets. The Peer Group is comprised of Mueller Water Products, Inc., Lindsay Corporation and Aegion Corporation.
The comparisons in the chart below are provided in response to SEC disclosure requirements and, therefore, are not intended to forecast or be indicative of future performance of our common stock.
Indexed Return | ||||||||||||
Northwest Pipe Company | Russell 2000 Index | Peer | ||||||||||
December 31, 2012 | 100.00 | 100.00 | 100.00 | |||||||||
December 31, 2013 | 158.26 | 138.82 | 122.87 | |||||||||
December 31, 2014 | 126.24 | 145.62 | 125.69 | |||||||||
December 31, 2015 | 46.90 | 139.19 | 111.77 | |||||||||
December 31, 2016 | 72.17 | 168.85 | 149.55 | |||||||||
December 31, 2017 | 80.22 | 193.58 | 154.24 | |||||||||
Securities Authorized for Issuance under Equity Compensation Plans
The information with respect to equity compensation plans is included under Part III — Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this 2017 Form 10-K.
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The following tables include selected consolidated financial data and should be read in conjunction with Part II — Item 8. “Financial Statements and Supplementary Data,” and Part II — Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this 2017 Form 10-K.
The consolidated financial data as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 are derived from our audited Consolidated Financial Statements included in this 2017 Form 10-K. The consolidated financial data as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2014 and 2013 are derived from audited Consolidated Financial Statements which are not included in this 2017 Form 10-K and are adjusted for discontinued operations.
Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||||||
Consolidated Statement of Operations Data: | ||||||||||||||||||||
Net sales | $ | 132,780 | $ | 149,387 | $ | 173,160 | $ | 238,545 | $ | 226,427 | ||||||||||
Gross profit (loss) | 5,823 | (317 | ) | 606 | 39,601 | 46,953 | ||||||||||||||
Income (loss) from continuing operations | (8,392 | ) | (6,741 | ) | (17,812 | ) | 10,439 | 13,481 | ||||||||||||
Loss on discontinued operations | (1,771 | ) | (2,522 | ) | (11,576 | ) | (28,326 | ) | (14,404 | ) | ||||||||||
Net loss | (10,163 | ) | (9,263 | ) | (29,388 | ) | (17,887 | ) | (923 | ) | ||||||||||
Earnings per Common Share: | ||||||||||||||||||||
Basic - Income (loss) from continuing operations | $ | (0.88 | ) | $ | (0.71 | ) | $ | (1.86 | ) | $ | 1.10 | $ | 1.43 | |||||||
Loss on discontinued operations | (0.18 | ) | (0.26 | ) | (1.21 | ) | (2.98 | ) | (1.53 | ) | ||||||||||
Net loss per share | $ | (1.06 | ) | $ | (0.97 | ) | $ | (3.07 | ) | $ | (1.88 | ) | $ | (0.10 | ) | |||||
Diluted - Income (loss) from continuing operations | $ | (0.88 | ) | $ | (0.71 | ) | $ | (1.86 | ) | $ | 1.09 | $ | 1.41 | |||||||
Loss on discontinued operations | (0.18 | ) | (0.26 | ) | (1.21 | ) | (2.95 | ) | (1.51 | ) | ||||||||||
Net loss per share assuming dilution | $ | (1.06 | ) | $ | (0.97 | ) | $ | (3.07 | ) | $ | (1.86 | ) | $ | (0.10 | ) | |||||
December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Total assets | $ | 230,324 | $ | 241,555 | $ | 259,380 | $ | 351,882 | $ | 433,459 | ||||||||||
Long-term debt and capital lease obligations, less current portion | 737 | 602 | 676 | 45,701 | 93,581 | |||||||||||||||
Stockholders' equity | 200,264 | 209,213 | 217,560 | 245,635 | 261,850 | |||||||||||||||
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The following is management'smanagement’s discussion and analysis of certain significant factors that have affected our consolidated financial condition and results of operations during the periods included herein. This discussion should be read in conjunction with our historical Consolidated Financial Statements and Notes to Consolidated Financial Statements in Part II –— Item 8. “Financial Statements and Supplementary Data” of this 20172023 Form 10-K.10‑K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I –— Item 1A. “Risk Factors” or in other parts of this 20172023 Form 10-K.10‑K. For discussion related to the results of operations and changes in financial condition for the year ended December 31, 2022 compared to the year ended December 31, 2021 refer to Part II — Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Year Ended December 31, 2022 Compared to Year Ended December 31, 2021” and “Liquidity and Capital Resources” in our 2022 Form 10‑K, which was filed with the SEC on March 16, 2023, and which is incorporated herein by reference.
Overview
We areNorthwest Pipe Company is a leading manufacturer of water-related infrastructure products, and operates in two segments, Engineered Steel Pressure Pipe (SPP) and Precast Infrastructure and Engineered Systems (Precast). For detailed descriptions of these segments, see the “Our Segments” discussion in Part I — Item 1. “Business” of this 2023 Form 10‑K.
In addition to being the largest manufacturer of engineered steel pipe water pipeline systems in North America. With our strategically located manufacturing facilities,America, we are well-positionedmanufacture stormwater and wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet North America’s growing needs for water and wastewater infrastructure. We serveinfrastructure needs, we provide solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. Our diverse team is committed to safety, quality, and innovation while demonstrating our solutions-based productscore values of accountability, commitment, and teamwork. We are a good fit for applications including water transmission, plant piping, tunnelsheadquartered in Vancouver, Washington, and river crossings. We have established a prominent position based on a strong and widely-recognized reputation for quality, service and an extensive range of products engineered and manufactured to meet expectations in all categories of performance including highly corrosive environments. These pipeline systems are produced from several13 manufacturing facilities which are located in Portland, Oregon; Adelanto, California; Parkersburg, West Virginia; Saginaw, Texas; Salt Lake City, Utah; St. Louis, Missouri; and Monterrey, Mexico.across North America.
Our water infrastructure products are sold generally to installation contractors, who include our products in their bids to federal, state, and municipal agencies, or privately-owned water companies, or developers for specific projects. We believe our sales are substantially driven by spending on urban growth and new water infrastructure with a recent trend towards spending on water infrastructure replacement, repair, and upgrade. Within the total range of pipe products, our steel pipe best addresses the larger-diameter, higher-pressure pipeline applications, while our precast concrete products tend to fit the larger diameter, higher-pressure applications.mainly serve stormwater and sanitary sewer systems.
Our Current Economic Environment
We operateDemand for our business with Precast products is generally influenced by general economic conditions such as housing starts, population growth, interest rates, and rates of inflation. According to the United States Census Bureau, privately-owned housing starts were at a long-term time horizon. Projectsseasonally adjusted annual rate of 1.5 million in December 2023 and 1.4 million in December 2022, and the population of the United States is expected to increase by approximately 2 million people in 2024. Additionally, it is now believed that recent increases in the federal funds rate by the Federal Reserve will remain elevated for the medium-term which is expected to temper demand for housing. The impacts from the strain on the housing market to this point have been muted by the impacts of recent labor and commodity shortages currently limiting the supply of new homes.
Our SPP projects are often planned for many years in advance, andas we operate that business with a long-term time horizon for which the projects are sometimes part of 50-year build out50 year build-out plans. Long-termEven though we experienced a relatively modest level of project bidding in 2023, our backlog for SPP has remained elevated, and long-term demand for water infrastructure projects in the United States appears strong. However,Additionally, while our SPP business faces possible head winds from recessionary concerns in the near term,broader domestic economy, we expect that strained governmentalcurrently believe it more likely a modest increase in funding will be brought on by the Bipartisan Infrastructure Deal (Infrastructure Investment and water agency budgetsJobs Act) and increased capacity from competition could impact the business. Fluctuating steel costs will also be a factor, as the ability to adjust our selling prices as steel costs fluctuate will depend on market conditions. Inflation Reduction Act.
Purchased steel typically represents a substantial portionapproximately 35% of our cost of sales, and changeshigher steel costs generally result in ourhigher selling prices often correlate directly to changesand revenue; however, volatile fluctuations in steel costs.
Critical Accounting Policies
The discussionmarkets can affect our business. SPP contracts are generally quoted on a fixed-price basis, and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements includedvolatile steel markets can result in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2017 Form 10-K, which have been prepared in accordance with accounting principles generally accepted inselling prices that no longer correlate to the United States of America.
Management Estimates:
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affectcost available at the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, we evaluate all of our estimates, including those related to revenue recognition, inventories, property and equipment, including depreciation and valuation, goodwill, share-based compensation, income taxes, allowance for doubtful accounts and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and related judgments and estimates affect the preparation of our Consolidated Financial Statements.
Revenue Recognition:
Revenue from construction contracts is recognized on the percentage-of-completion method. For a majority of contracts, revenue is measured by the costs incurred to date as a percentage of the estimated total costs of each contract (the cost-to-cost method). Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Selling, general and administrative costs are charged to expense as incurred. The costtime of steel is recognizedpurchase. Even though steel market prices at the end of 2023 were approximately 50% higher than where they began the year, 2023 was tempered compared to the previous two years, and supplier lead times were not as a project cost when thechallenging to manage. Our average price of purchased steel is introduced into the manufacturing process. Estimated total costs of each contract are reviewed on a monthly basis by project managementwas $994 per ton in 2023, compared to $1,174 in 2022 and operations personnel for all active projects. All cost revisions that result$1,291 in the gross profit as a percent of sales increasing or decreasing by more than two percent are reviewed by senior management personnel.2021.
We begin recognizing revenue on a project when persuasive evidence of an arrangement exists, recoverability is reasonably assured and project costs are incurred. Costs may be incurred before we have persuasive evidence of an arrangement. In those cases, if recoverability from that arrangement is probable,Economic uncertainty, including the project costs are deferred and revenue recognition is delayed.
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. Provisions for losses on uncompleted contracts are made in the period such losses become known.
See Note 2 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2017 Form 10-K for discussion regarding the expected impact of our adoption of new guidance for revenue recognition effective in the first quarter of 2018.
Inventories:
Inventories are stated at the lower of cost and net realizable value. Determining net realizable value of inventories involves judgments and assumptions, including projecting selling prices and cost of sales. To estimate net realizable value, we review recent sales and gross profit history, existing customer orders, current contract prices, industry supply and demand, forecasted steel prices, replacement costs, seasonal factors, general economic trends and other information, as applicable. If future market conditions are less favorable than those projected by us, inventory write-downs may be required. The costimpacts of raw material inventoriesshortages, inflationary pressures, potential risks of steel is eithera recession, and disruptions in the financial markets could have an adverse effect on a specific identification basis orour business. The extent of the impact of these broader economic forces on an average cost basis. The cost of all other raw material inventories, as well as work-in-process and supplies isour business will depend on an average cost basis. The cost of finished goods uses the first-in, first-out method of accounting.future developments, which cannot be predicted.
Property and Equipment:
Property and equipment are recorded at cost, and are depreciated using either the units of production method or a straight-line method depending on the classification of the asset. Depreciation expense calculated under the units of production method may be less than, equal to, or greater than depreciation expense calculated under the straight-line method. We evaluate historical and projected units of production at each plant to reassess the units of production expected on an annual basis.
We assess impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the asset group may not be recoverable. The recoverable value of long-lived assets is determined by estimating future undiscounted cash flows using assumptions about our expected future operating performance. Estimates of future cash flows used in the recoverability test incorporate our own assumptions about the use of the asset group and shall consider all available evidence. Our estimates of undiscounted cash flows may differ from actual cash flow due to, among other things, technological changes, economic conditions or changes to our business operations. If we determine the carrying value of the property and equipment will not be recoverable, we calculate and record an impairment loss.
Share-based Compensation:
We recognize the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards. Share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award, and as forfeitures occur, the associated compensation cost recognized to date is reversed.
We estimate the fair value of restricted stock units and performance share awards (“PSAs”) using the value of our stock on the date of grant, with the exception of market-based PSAs, for which a Monte Carlo simulation model is used. The Monte Carlo simulation model calculates many potential outcomes for an award and estimates fair value based on the most likely outcome.
Income Taxes:
We account for income taxes using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various United States federal and state and, to a lesser extent, foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective income tax rate.
We record income tax reserves for federal, state, local and international exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. We assess our income tax positions and record income tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances and information available at the reporting dates. For those income tax positions where it is more-likely-than-not that an income tax benefit will be sustained, we have recorded the largest amount of income tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that an income tax benefit will be sustained, no income tax benefit has been recognized in the Consolidated Financial Statements.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We have estimated our provision for income taxes in accordance with the Act and guidance available as of the date of this filing and as a result have recorded $0.9 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred income tax assets and liabilities, based on the rates at which they are expected to reverse in the future, was $0.6 million. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $0.2 million based on cumulative foreign earnings of $1.1 million.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of United States generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, we have determined that the $0.6 million of the deferred income tax expense recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $0.2 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate as of December 31, 2017. Additional work is necessary for a more detailed analysis of our deferred income tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current income tax expense when the analysis is complete.
Allowance for Doubtful Accounts:
We maintain allowances for estimated losses resulting from the inability of our customers to make required payments based on historical experience and management’s judgment. The extension and revision of credit is determined by obtaining credit rating reports or financial information on the customer. An allowance is recorded based on a variety of factors, including our historical collection experience and our historical product quality claims. At least monthly, we review past due balances to identify the reasons for non-payment. We will write down or write off a receivable account once the account is deemed uncollectible for reasons such as customer quality claims, a contract dispute, deterioration in the customer’s financial position, a bankruptcy filing or other events. We believe the reported allowances as of December 31, 2017 are adequate. If the customer’s financial conditions were to deteriorate resulting in their inability to make payments, additional allowances may need to be recorded which would result in additional expense being recorded for the period in which such determination was made.
Results of Operations
The following table sets forth, for the periods indicated, certain financial information regarding costs and expenses expressed in dollars (in thousands) and as a percentage of total Net sales from continuing operations.net sales.
Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | ||||||||||||||||||||||
$ | % of Net Sales | $ | % of Net Sales | $ | % of Net Sales | |||||||||||||||||||
Net sales | $ | 132,780 | 100.0 | % | $ | 149,387 | 100.0 | % | $ | 173,160 | 100.0 | % | ||||||||||||
Cost of sales | 126,957 | 95.6 | 149,704 | 100.2 | 172,554 | 99.7 | ||||||||||||||||||
Gross profit (loss) | 5,823 | 4.4 | (317 | ) | (0.2 | ) | 606 | 0.3 | ||||||||||||||||
Selling, general and administrative expense | 14,143 | 10.6 | 16,921 | 11.3 | 20,378 | 11.7 | ||||||||||||||||||
Impairment of goodwill | - | 0.0 | - | 0.0 | 5,282 | 3.1 | ||||||||||||||||||
Gain on sale of facility | - | 0.0 | (7,860 | ) | (5.3 | ) | - | 0.0 | ||||||||||||||||
Restructuring expense | 881 | 0.7 | 990 | 0.7 | - | 0.0 | ||||||||||||||||||
Operating loss | (9,201 | ) | (6.9 | ) | (10,368 | ) | (6.9 | ) | (25,054 | ) | (14.5 | ) | ||||||||||||
Other income | 193 | 0.1 | 24 | 0.0 | 58 | 0.0 | ||||||||||||||||||
Interest income | 6 | 0.0 | 14 | 0.0 | 1 | 0.0 | ||||||||||||||||||
Interest expense | (490 | ) | (0.3 | ) | (509 | ) | (0.4 | ) | (1,340 | ) | (0.7 | ) | ||||||||||||
Loss from continuing operations before income taxes | (9,492 | ) | (7.1 | ) | (10,839 | ) | (7.3 | ) | (26,335 | ) | (15.2 | ) | ||||||||||||
Income tax benefit | (1,100 | ) | (0.8 | ) | (4,098 | ) | (2.8 | ) | (8,523 | ) | (4.9 | ) | ||||||||||||
Loss from continuing operations | (8,392 | ) | (6.3 | ) | (6,741 | ) | (4.5 | ) | (17,812 | ) | (10.3 | ) | ||||||||||||
Discontinued operations: | ||||||||||||||||||||||||
Loss from operations of discontinued operations | (1,779 | ) | (1.4 | ) | (3,180 | ) | (2.1 | ) | (15,004 | ) | (8.7 | ) | ||||||||||||
Gain on sale of facility | 6 | 0.0 | - | 0.0 | - | 0.0 | ||||||||||||||||||
Income tax benefit | (2 | ) | 0.0 | (658 | ) | (0.4 | ) | (3,428 | ) | (2.0 | ) | |||||||||||||
Loss on discontinued operations | (1,771 | ) | (1.4 | ) | (2,522 | ) | (1.7 | ) | (11,576 | ) | (6.7 | ) | ||||||||||||
Net loss | $ | (10,163 | ) | (7.7 | )% | $ | (9,263 | ) | (6.2 | )% | $ | (29,388 | ) | (17.0 | )% | |||||||||
Year Ended December 31, 2023 | Year Ended December 31, 2022 | Year Ended December 31, 2021 | ||||||||||||||||||||||
$ | % of Net Sales | $ | % of Net Sales | $ | % of Net Sales | |||||||||||||||||||
Net sales: | ||||||||||||||||||||||||
Engineered Steel Pressure Pipe | $ | 296,381 | 66.7 | % | $ | 307,572 | 67.2 | % | $ | 259,823 | 78.0 | % | ||||||||||||
Precast Infrastructure and Engineered Systems | 147,974 | 33.3 | 150,093 | 32.8 | 73,490 | 22.0 | ||||||||||||||||||
Total net sales | 444,355 | 100.0 | 457,665 | 100.0 | 333,313 | 100.0 | ||||||||||||||||||
Cost of sales: | ||||||||||||||||||||||||
Engineered Steel Pressure Pipe | 253,954 | 57.2 | 263,099 | 57.5 | 228,542 | 68.6 | ||||||||||||||||||
Precast Infrastructure and Engineered Systems | 112,759 | 25.3 | 108,711 | 23.7 | 60,517 | 18.1 | ||||||||||||||||||
Total cost of sales | 366,713 | 82.5 | 371,810 | 81.2 | 289,059 | 86.7 | ||||||||||||||||||
Gross profit: | ||||||||||||||||||||||||
Engineered Steel Pressure Pipe | 42,427 | 9.5 | 44,473 | 9.7 | 31,281 | 9.4 | ||||||||||||||||||
Precast Infrastructure and Engineered Systems | 35,215 | 8.0 | 41,382 | 9.1 | 12,973 | 3.9 | ||||||||||||||||||
Total gross profit | 77,642 | 17.5 | 85,855 | 18.8 | 44,254 | 13.3 | ||||||||||||||||||
Selling, general, and administrative expense | 43,784 | 9.9 | 41,034 | 9.0 | 28,222 | 8.5 | ||||||||||||||||||
Operating income | 33,858 | 7.6 | 44,821 | 9.8 | 16,032 | 4.8 | ||||||||||||||||||
Other income | 276 | 0.1 | 97 | - | 328 | 0.1 | ||||||||||||||||||
Interest expense | (4,855 | ) | (1.1 | ) | (3,568 | ) | (0.8 | ) | (1,202 | ) | (0.4 | ) | ||||||||||||
Income before income taxes | 29,279 | 6.6 | 41,350 | 9.0 | 15,158 | 4.5 | ||||||||||||||||||
Income tax expense | 8,207 | 1.8 | 10,201 | 2.2 | 3,635 | 1.0 | ||||||||||||||||||
Net income | $ | 21,072 | 4.8 | % | $ | 31,149 | 6.8 | % | $ | 11,523 | 3.5 | % | ||||||||||||
We have one operating segment, Water Transmission, which manufactures large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, which are primarily related to drinking water systems. These products are also used for hydroelectric power systems, wastewater systems and other applications. In addition, we make products for industrial plant piping systems and certain structural applications. See Note 3 of the Notes to Consolidated Financial Statements in Part II – Item 8. “Financial Statements and Supplementary Data” of this 2017 Form 10-K for information on discontinued operations, which includes the results of the Atchison facility which were historically reported in the Tubular Products segment.
Year Ended December 31, 20172023 Compared to Year Ended December 31, 20162022
Net sales. Net sales from continuing operations decreased 11.1%2.9% to $132.8$444.4 million in 2017 from $149.42023 compared to $457.7 million in 2016. No customer accounted for 10% or more of total Net sales from continuing operations in 2017. One customer accounted for 28% of total Net sales from continuing operations in 2016; we do not believe the potential loss of this customer would have had an adverse effect on our business due to the nature of the industry and the competition between installation contractors.2022.
The decreaseSPP net sales decreased 3.6% to $296.4 million in sales was due2023 compared to $307.6 million in 2022 driven by a 45%6% decrease in tons produced resulting primarily from changes in project timing, partially offset by a 62%2% increase in selling price per ton. The decrease in tons produced waston primarily due to project timing. The increase in selling prices per ton was due to improved market conditions and a change in product mix, combined with a 42% increase in material costs per ton. Higher material costs generally lead to higher contract values and, therefore, higher net sales as contractors and municipalities are aware of the input costs and market conditions.mix. Bidding activity, backlog, and production levels may vary significantly from period to period affecting sales volumes.
Gross profit (loss). Gross profit increasedPrecast net sales decreased 1.4% to $148.0 million in 2023 compared to $150.1 million in 2022 driven by a $5.8 million gross profit (4.4% of Net sales from continuing operations)3% decrease in 2017 fromselling prices due to decreased demand, partially offset by a $0.3 million gross loss (negative 0.2% of Net sales from continuing operations) in 2016. During 2017, we did not pursue projects that did not meet our gross profit goals, which contributed to the lower volumes noted in Net sales above. The2% increase in gross profit wasvolume shipped primarily due to improved pricing as well this focus on margin over volume.product mix.
Gross profit. Gross profit decreased 9.6% to $77.6 million (17.5% of net sales) in 2023 compared to $85.9 million (18.8% of net sales) in 2022.
SPP gross profit decreased 4.6% to $42.4 million (14.3% of SPP net sales) in 2023 compared to $44.5 million (14.5% of SPP net sales) in 2022 primarily due to changes in production volume.
Precast gross profit decreased 14.9% to $35.2 million (23.8% of Precast net sales) in 2023 compared to $41.4 million (27.6% of Precast net sales) in 2022 primarily due to decreased demand.
Selling, general, and administrative expense. Selling, general, and administrative expense decreased 16.4%increased 6.7% to $14.1$43.8 million (10.6%(9.9% of Net sales from continuing operations)net sales) in 2017 from $16.92023 compared to $41.0 million (11.3%(9.0% of Net sales from continuing operations)net sales) in 2016. The decrease was2022 primarily due primarily to $2.4$1.7 million in lower wages and benefits due to lower headcount and a $0.8 million decrease inhigher professional fees.fees including ERP implementation costs.
Restructuring expense. In response to adverse market conditions, the decision was made in the second quarter of 2016 to close the Denver, Colorado facility, which was subsequently sold in October 2016. In 2017 and 2016, we incurred restructuring expenses of $0.9 million and $1.0 million, respectively, which includes employee severance and termination related restructuring expenses of $0 and $0.5 million, respectively, and expense related to demobilization activities of $0.9 million and $0.5 million, respectively. We completed the demobilization project and vacated the facility in the first quarter of 2017.
Income taxes. The Income tax benefit from continuing operationsexpense was $1.1$8.2 million in 20172023 (an effective income tax benefit rate of 11.6%28.0%) compared to an Income tax benefit from continuing operations of $4.1$10.2 million in 20162022 (an effective income tax benefit rate of 37.8%24.7%). The effective income tax rate for 20172023 was lower than statutory rates primarily because a significant portion of our net operating losses from the period are subject to a valuation allowance. In addition, the estimatedimpacted by non-deductible permanent differences, accrued interest on uncertain income tax positions, and state franchise tax. The effective income tax rate for 20172022 was affectedprimarily impacted by the accounting change discussed in Note 2 of the Notes to Consolidated Financial Statements in Part II – Item 8. “Financial Statements and Supplementary Data” of this 2017 Form 10-K, under which we recognized $0.8 million of excess tax deficiencies from share-based compensation as an income tax expense from continuing operations, as well as the impact of $0.9 million from the Tax Cuts and Jobs Act of 2017 discussed in Note 16 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2017 Form 10-K. These amounts were slightly offset by the favorable impact of a decrease in unrecognized income tax benefits due to a lapse in the statute of limitations.non-deductible permanent differences. The effective income tax rate can change significantly depending on the relationship of permanent income tax deductions and tax credits to estimated pre-tax income or loss and the changes in valuation allowances. Accordingly, the comparison of effective income tax rates between periods is not meaningful in all situations.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net sales. Net sales from continuing operations decreased 13.7% to $149.4 million in 2016 from $173.2 million in 2015. One customer accounted for 28% of total Net sales from continuing operations in 2016 and two customers accounted for 16% and 13% of total Net sales from continuing operations in 2015. We do not believe the potential loss of these customers would have had an adverse effect on our business due to the nature of the industry and the competition between installation contractors.
The decrease in sales was due to a 27% decrease in average selling price per ton offset in part by a 19% increase in tons produced. The decrease in selling prices per ton was due to a 15% decrease in material costs per ton and increased competition, as well as a change in product mix. Bidding activity, backlog and production levels may vary significantly from period to period affecting sales volumes.
Gross profit (loss). Gross profit decreased 152.3% to a $0.3 million gross loss (negative 0.2% of Net sales from continuing operations) in 2016 from a $0.6 million gross profit (0.3% of Net sales from continuing operations) in 2015. The decrease in gross profit was due to the significant competition that we experienced on our project bids, which led to decreased selling prices, combined with the mix of projects produced in 2016.
Selling, general and administrative expense. Selling, general and administrative expense decreased 17.0% to $16.9 million (11.3% of Net sales from continuing operations) in 2016 from $20.4 million (11.7% of Net sales from continuing operations) in 2015. The decrease was due primarily to $1.4 million in lower wages and benefits due to lower headcount and a $1.4 million decrease in professional fees.
Gain on sale of facility. On October 4, 2016, we completed the sale of our Denver, Colorado facility and recorded a gain on the sale of $7.9 million in the fourth quarter of 2016.
Interest expense. Interest expense decreased to $0.5 million in 2016 from $1.3 million in 2015. The decrease was a result of a decrease in borrowings under the line of credit and capital leases in 2016 compared to 2015. Interest expense in 2015 included the write-off of unamortized financing costs totaling $0.4 million associated with the termination of a bank line of credit agreement.
Income taxes. The Income tax benefit from continuing operations was $4.1 million in 2016 (an effective income tax benefit rate of 37.8%) compared to an Income tax benefit from continuing operations of $8.5 million in 2015 (an effective income tax benefit rate of 32.4%). The effective income tax benefit rate from continuing operations for 2015 includes the impact of the recognition of research and development tax credits (which increased the effective income tax benefit rate) as well as non-deductibility of expense related to the impairment of goodwill and the valuation allowance recorded (both of which decreased the effective income tax benefit rate). The effective income tax rate can change significantly depending on the relationship of permanent income tax deductions and tax credits to estimated pre-tax income or loss and the changes in valuation allowances. Accordingly, the comparison of effective income tax rates between periods is not meaningful in all situations.
Liquidity and Capital Resources
Sources and Uses of Cash
Our principal sources of liquidity generally include operating cash flows and the Agreement with Bank of America, N.A.Amended Credit Agreement. From time to time our long-term capital needs may be met through the issuance of long-termadditional debt or additional equity. Our principal uses of liquidity generally include capital expenditures, working capital, organic growth initiatives, acquisitions, share repurchases, and debt service. Information regarding our cash flows for the years ended December 31, 2017, 20162023, 2022, and 20152021 are presented in our Consolidated Statements of Cash Flows contained in Part II — Item 8. “Financial Statements and Supplementary Data” of this 20172023 Form 10-K,10‑K, and are further discussed below.
As of December 31, 2017,2023, our working capital (current assets minus current liabilities) excluding current assets held for sale was $123.8$176.3 million compared to $93.2$187.9 million as of December 31, 2016.2022. Cash and cash equivalents totaled $43.6$4.1 million and $21.8$3.7 million as of December 31, 20172023 and 2016,2022, respectively.This increase is primarily attributable to the cash proceeds received in December 2017 from the sale of substantially all of the assets of the Atchison facility. There were no borrowings under the Agreement as of December 31, 2017 and 2016.
Fluctuations in ourSPP working capital accounts result from timing differences between production, shipment, invoicing, and collection, as well as changes in levels of production and costs of materials. We typically have a relatively large investment in working capital, as we generally pay for materials, labor, and other production costs in the initial stages of a project, while payments from our customers are generally received after finished product is delivered. OurA portion of our revenues are recognized on a percentage-of-completion method;over time as the manufacturing process progresses; therefore, cash receipts typically occur subsequent to when revenue is recognized and the elapsed time between when revenue is recorded and when cash is received can be significant. As such, our payment cycle is a significantly shorter interval than our collection cycle, although the effect of this difference in the cycles may vary by project, and from period to period.
As of December 31, 2023, we had $54.5 million of outstanding revolving loan borrowings, $10.8 million of outstanding current debt, $90.2 million of operating lease liabilities, and $7.5 million of finance lease liabilities. As of December 31, 2022, we had $83.7 million of outstanding revolving loan borrowings, $10.8 million of outstanding current debt, $94.2 million of operating lease liabilities, and $3.0 million of finance lease liabilities. For future maturities of these obligations, see Notes 7, 8, and 9 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2023 Form 10‑K.
Due to the uncertainty with respect to the timing of future cash flows associated with our approximately $4.7 million in unrecognized tax benefits as of December 31, 2023, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. For further information, see Note 17 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2023 Form 10‑K.
Net Cash Provided by (Used in) Operating ActivitiesFrom Continuing Operations
Net cash used in operating activities from continuing operations in 2017 was $5.8 million. This was primarily the result of fluctuations in working capital accounts that included increases in trade and other receivables and decreases in accrued and other liabilities, offset by decreases in inventories and increases in accounts payable.
Net cash used in operating activities from continuing operations in 2016 was $1.8 million. This was primarily the result of our net loss from continuing operations adjusted for noncash charges of $8.8 million for depreciation and capital lease amortization offset by $7.9 million for the gain on sale of facility and the net positive cash flow effect of a decrease in our working capital accounts, other than cash and cash equivalents. The decreases consisted primarily of the reduction in our inventories and income tax refunds received during the year. These were partially offset by a reduction in accrued liabilities stemming from fewer loss margin job reserves than the prior year.
Net cash provided by operating activities from continuing operationswas $53.5 million in 2015 was $20.8 million. This was primarily the result of our net loss from continuing operations2023 compared to $17.5 million in 2022. Net income, adjusted for noncash chargesnon-cash items, provided $41.5 million of $7.3 million for depreciation and capital lease amortization and $5.3 million for impairment of goodwill, and the net positiveoperating cash flow effectin 2023 compared to $52.2 million of a decreaseoperating cash flow in our working capital.2022. The decreasenet change in working capital was primarily driven by decreasesprovided (used) $12.0 million of operating cash flow in accounts receivable2023 compared to ($34.6) million of $15.7 million and inventories of $9.9 million, partially offset by a net decreaseoperating cash flow in accounts payable and accrued liabilities of $4.5 million.2022.
Net Cash Provided by (Used in) Investing Activities From Continuing Operations
Net cash used in investing activities from continuing operations in 2017 was $2.7 million. Capital expenditures of $2.9 million in 2017 were primarily standard capital replacement. Capital expenditures in 2018 are expected to be approximately $8.6 million for standard capital replacement.
Net cash provided by investing activities from continuing operations in 2016 was $11.7 million. This was primarily due to net proceeds of $13.9 million received from the sale of our Denver, Colorado facility on October 4, 2016. Capital expenditures of $2.3 million in 2016 were primarily standard capital replacement.
Net cash provided by investing activities from continuing operations in 2015 was $4.7 million. Capital expenditures of $6.8 million in 2015 were primarily standard capital replacement. Offsetting the cash used for additions to property and equipment was $4.3 million provided by an escrow that was released to us in April 2015 related to the March 2014 disposition of the oil country tubular goods business and $7.2 million collected on a note receivable.
Net Cash Used in Investing ActivitiesFinancing ActivitiesFrom Continuing Operations
Net cash used in financinginvesting activities from continuing operationswas $20.4 million in 2017 was $0.52023 compared to $23.1 million primarily duein 2022. Capital expenditures were $18.3 million in 2023 compared to the capital lease payments totaling $0.3$22.8 million in 2022, which includes $2.8 million in 2023 and $10.1 million in 2022 of investment in our new reinforced concrete pipe mill, and the $0.1remainder primarily for standard capital replacement. We currently expect capital expenditures in 2024 to be approximately $19 million paymentto $22 million, which includes approximately $2 million of contingent considerationinvestment in February 2017our new reinforced concrete pipe mill, and associated ancillary equipment, approximately $5 million for amounts earned on 2016 revenues from Permalok Corporation.the construction of a building at our Salt Lake City, Utah facility for the new mill, and the remainder primarily for standard capital replacement.
Net Cash Provided by (Used in) Financing Activities
Net cash used inprovided by (used in) financing activities from continuing operationswas ($32.7) million in 2016 was $1.52023 compared to $6.2 million primarily fromin 2022. Net repayments on the payment of contingent consideration in January 2016 for amounts earned on 2015 revenues of Permalok Corporation.
Net cash used in financing activities from continuing operations in 2015 was $47.6 million, which resulted primarily from net repayments under our line of credit and capital lease payments totaling $46.9 million.were $29.2 million in 2023 compared to $3.1 million in 2022. Net borrowings on other debt were $0 in 2023 compared to $10.8 million in 2022.
We anticipate that our existing cash and cash equivalents, cash flows expected to be generated by operations, and amounts availableadditional borrowing capacity under the Amended Credit Agreement and other loans will be adequate to fund our working capital, anddebt service, capital expenditure requirements, and share repurchases for at least the next twelve months.foreseeable future. To the extent necessary, we may also satisfy capital requirements through additional bank borrowings, senior notes, term notes, subordinated debt, and capitalfinance and operating leases, if such resources are available on satisfactory terms. We have from time to time evaluated and continue to evaluate opportunities for acquisitions and expansion. Any such transactions, if consummated, may use a portion of our working capital or necessitate additional bank borrowings or other sources of funding.
On March 17, 2017, we filed aDecember 4, 2023, our shelf registration statement on Form S-3S‑3 (Registration No. 333-216802) with the SEC333‑275691) covering the potential future sale of up to $120$150 million of our equity and/or debt securities or combinations thereof. The registration statementthereof, was amended on August 18, 2017 and declared effective by the SECSEC. This shelf registration statement, which replaced the registration statement on September 15, 2017. This registration statementForm S‑3 that expired on November 3, 2023, provides another potential source of capital, in addition to other alternatives already in place. We cannot be certain that funding will be available on favorable terms or available at all. To the extent that we raise additional funds by issuing equity securities, our shareholders may experience significant dilution. As of the date of this 20172023 Form 10-K,10‑K, we have not yet sold any securities under this registration statement, nor do we have an obligation to do so. Please refer to the factors discussed in Part I –— Item 1A. “Risk Factors” of this 20172023 Form 10-K.10‑K.
Borrowings on LineOn September 2, 2022, we entered into the At-the-Market Offering with Jefferies which provided for the issuance and sale of Creditshares of our common stock, par value $0.01 per share, having aggregate offering sales proceeds of up to $50 million from time to time through Jefferies as our sales agent. On October 30, 2023, we provided written notice terminating the Open Market Sale Agreement in accordance with its terms. No proceeds were raised under the At-the-Market Offering during the year ended December 31, 2023.
AsOn November 2, 2023, we announced our authorization of December 31, 2017,a share repurchase program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our broker, D.A. Davidson Companies. At this time, we had no outstandinghave elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and $2.0covenant compliance under our Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million of outstanding letters of credit under the Agreement with Bank of America, N.A. dated October 26, 2015, as amended on October 19, 2016. The Agreement expires on October 25, 2018for repurchases and provides for daily share repurchases that fluctuate with changes in the trading price of our common stock. We expect to consider share repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date. For a summary of shares repurchased during the fourth quarter of 2023, see “Purchases of Equity Securities by the Issuer and Affiliated Purchasers” in Part II — Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this 2023 Form 10‑K. Please refer to the factors discussed in Part I — Item 1A. “Risk Factors” of this 2023 Form 10‑K.
Credit Agreement
The Amended Credit Agreement provides for a revolving loansloan, swingline loan, and letters of credit in the aggregate amount of up to the maximum principal$125 million, with an option for us to increase that amount (the “Revolver Commitment”) of $60by $50 million, subject to a borrowing base. We have the ability to increase the Revolver Commitment to $100 million, subject to the provisions of the Amended Credit Agreement.
The borrowing base is calculated by applying various advance rates to eligible accounts receivable, costsAmended Credit Agreement will expire, and estimated earnings in excess of billings, inventories and fixed assets,all obligations outstanding will mature, on June 29, 2028. We may prepay outstanding amounts at our discretion without penalty at any time, subject to various exclusions, adjustments and sublimits by asset class. Additionally, the Agreement effectively limits availability under the borrowing base during times when our Fixed Charge Coverage Ratio, as defined in the Agreement, is not met for the previous twelve-month period.applicable notice requirements. As of December 31, 2017,2023 under the Fixed Charge Coverage Ratio was not met, and therefore the availability limit applied. Including the effect of this limit,Amended Credit Agreement, we had additional borrowing capacity$54.5 million of $19.1outstanding revolving loan borrowings, $1.1 million net of outstanding letters of credit, under the Agreement asand additional borrowing capacity of December 31, 2017. Based on our business plan and forecasts of operations, we expect to have sufficient credit availability to support our operations for at least the next twelve months.approximately $69 million.
BorrowingsRevolving loans under the Amended Credit Agreement bear interest at rates related to, London Interbank Offeredat our option and subject to the provisions of the Amended Credit Agreement, either: (i) Base Rate (as defined in the Amended Credit Agreement) plus the Applicable Margin; (ii) Adjusted Term Secured Overnight Finance Rate (“SOFR”) (as defined in the Amended Credit Agreement) plus the Applicable Margin; or (iii) Adjusted Daily Simple SOFR (as defined in the Amended Credit Agreement) plus the Applicable Margin. The “Applicable Margin” is 1.75% to 2.35%, depending on our Consolidated Senior Leverage Ratio (as defined in the Amended Credit Agreement) and the interest rate option chosen. Interest on outstanding revolving loans is payable monthly. Swingline loans under the Amended Credit Agreement bear interest at the Base Rate plus 1.75%the Applicable Margin. The Amended Credit Agreement requires the payment of a commitment fee of between 0.30% and 0.40%, based on the amount by which the Revolver Commitment exceeds the average daily balance of outstanding borrowings (as defined in the Amended Credit Agreement). Such fee is payable monthly in arrears. We are also obligated to 2.25%, or at Bankpay additional fees customary for credit facilities of America’s prime rate plus 0.75% to 1.25%. Borrowings under the Agreement are secured by substantially all of our assets.
Contractual Obligations, Commitmentsthis size and Off-Balance Sheet Arrangementstype.
The following table sets forth our scheduled contractual commitments that will affect our future liquidityletters of credit outstanding as of December 31, 2017 (in thousands):
Payments due by period | ||||||||||||||||||||
Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | ||||||||||||||||
Capital leases | $ | 1,055 | $ | 318 | $ | 526 | $ | 211 | $ | - | ||||||||||
Operating leases | 6,272 | 1,698 | 2,350 | 1,179 | 1,045 | |||||||||||||||
Interest payments (1) | 98 | 43 | 45 | 10 | - | |||||||||||||||
Total obligations (2) (3) | $ | 7,425 | $ | 2,059 | $ | 2,921 | $ | 1,400 | $ | 1,045 | ||||||||||
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We also have entered into letters of credit that total approximately $2.0 million as of December 31, 2017. The letters of credit2023 relate to workers’ compensation insurance. Based on the nature of these arrangements and our historical experience, we do not expect to make any material payments under these arrangements.
The Amended Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants, events of default, and indemnification provisions in favor of the Lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, annual capital expenditures, certain investments, acquisitions, and dispositions, and other matters, all subject to certain exceptions. The Amended Credit Agreement requires us to regularly provide financial information to Wells Fargo and to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”) (as defined in the Amended Credit Agreement) of at least $35 million for the four consecutive fiscal quarters most recently ended. Pursuant to the Amended Credit Agreement, we have also agreed that we will not sell, assign, or otherwise dispose or encumber, any of our owned real property. The occurrence of an event of default could result in the acceleration of the obligations under the Amended Credit Agreement. We do not have any offwere in compliance with our financial covenants as of December 31, 2023, and expect to continue to be in compliance in the near term.
Our obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of our and our subsidiaries’ assets.
Current Debt
The Interim Funding Agreement dated August 2, 2022 with Wells Fargo Equipment Finance, Inc. (“WFEF”), as amended January 23, 2023, March 15, 2023, July 21, 2023, and November 2, 2023 (together, the “IFA”), provides for aggregate interim funding advances up to $10.8 million of equipment purchased for a new reinforced concrete pipe mill, to be converted into a term loan upon final delivery and acceptance of the financed equipment. As of December 31, 2023, the outstanding balance sheet arrangements that are reasonably likely to haveof the IFA was $10.8 million, which was classified as a current or future material effectliability since there was not a firm commitment for long-term debt financing. The IFA bore interest at the Term SOFR plus 1.75% as of December 31, 2022. Effective November 2, 2023, the IFA bears interest at the SOFR Average plus 2.00%. As of December 31, 2023 and 2022, the weighted-average interest rate for outstanding borrowings was 7.08% and 5.87%, respectively. The IFA requires monthly payments of accrued interest and grants a security interest in the equipment to WFEF. Effective November 2, 2023, the IFA requires us to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and to maintain a minimum consolidated EBITDA (as defined in the IFA) of at least $35 million for the four consecutive fiscal quarters most recently ended. We were in compliance with our financial covenants as of December 31, 2023, and expect to continue to be in compliance in the near term.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements affecting our company, including the dates of adoption and estimated effects on our financial position, results of operations, orand cash flows.
Adoption of New Accounting Pronouncements
For a discussion of new accounting pronouncements affecting our company,flows, see Note 2 of the Notes to Consolidated Financial Statements in Part II –— Item 8. “Financial Statements and Supplementary Data” of this 20172023 Form 10-K.10‑K.
Critical Accounting Estimates
Management Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, we evaluate all of our estimates including those related to revenue recognition, goodwill, income taxes, and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and related judgments and estimates affect the preparation of our Consolidated Financial Statements.
Revenue Recognition
SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of our right to payment for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to us. 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 performance obligations. The cost of steel material is recognized as a contract cost when the steel is introduced into the manufacturing process. Estimated total costs of each contract require judgment and are reviewed on a monthly basis by project management and operations personnel for all active projects. All cost revisions that result in a material change in gross profit are reviewed by senior management personnel. Significant judgment is required in estimating total costs which primarily include labor costs and productivity, and cost and availability of materials, and which could be influenced by inflationary trends, supplier performance, or asset utilization, amongst other factors. We use certain assumptions and develop estimates based on a number of considerations, including the degree of required product customization, our historical experience, the project plans, and an assessment of the risks and uncertainties inherent in the contract related to implementation delays or performance issues that may or may not be within our control. 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. Provisions for losses on uncompleted contracts are estimated by comparing total estimated contract revenue to the total estimated contract costs and a loss is recognized during the period in which it becomes probable and can be reasonably estimated.
Precast revenue for water infrastructure concrete pipe and precast concrete products is recognized at the time control is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for the products. All variable consideration that may affect the total transaction price, including contractual discounts, returns, and credits, is included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance, and management’s judgment. Our contracts do not contain significant financing.
We generally do 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.
Goodwill
Goodwill is reviewed for impairment annually, or whenever events occur or circumstances change that indicate goodwill may be impaired. Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component). During the fourth quarter of 2022, we changed the date of our annual impairment test of goodwill from December 31 to November 30. The change in the impairment test date lessens resource constraints that exist in connection with our year-end close and financial reporting process and provides for additional time to complete the required impairment testing. This change did not represent a material change to our method of applying an accounting principle, and therefore does not delay, accelerate, or avoid an impairment charge.
In testing goodwill for impairment, we have the option to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. When performing a qualitative assessment, we evaluate factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. In the evaluation, we also look at the long-term prospects for the reporting unit, which requires considerable management judgment.
If the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, or if we choose not to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. The fair value calculation uses a combination of income and market approaches. The income approach is based upon projected future after-tax cash flows discounted to present value using factors that consider the timing and risk associated with the future after-tax cash flows. The market approach is based upon historical and/or forward-looking measures using multiples of revenue or earnings before interest, tax, depreciation, and amortization. We utilize a weighted average of the income and market approaches. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying estimates, assumptions, and market factors, and future changes in any of these could result in different fair value determinations in the future.
Income Taxes
Income taxes are recorded using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been recognized in our Consolidated Financial Statements or income tax returns. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various United States federal, state, local, and to a lesser extent, foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized income tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective income tax rate.
We record income tax reserves for federal, state, local, and international exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. We assess our income tax positions and record income tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those income tax positions where it is more-likely-than-not that an income tax benefit will be sustained, we have recorded the largest amount of income tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that an income tax benefit will be sustained, no income tax benefit has been recognized in the Consolidated Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk |
The primary market risks affecting our business relate to our exposure to commodity risk, interest rate risk, and foreign currency exchange rate risk.
Commodity Risk
Certain materials we use in our business are classified as commodities traded in the worldwide markets, of which the most significant commodity is steel, used in the manufacturing of pipe. We do not hedge our commodity risk and do not enter into any transactions in commodities for trading purposes. The impact of volatility in steel prices varies significantly. This volatility can significantly affect our gross profit. Although we seek to recover increases in steel prices through price increases in our products, we have not always been successful.
Steel comprisestypically makes up approximately 20% to 30%35% of SPP’s project costs. As this raw material represents a substantial portion of our cost of sales, we attempt to minimize our risk exposure to steel price volatility by submitting bids based on general assumptions of the expected price of steel when we will receive a purchase order or contract, which is typically awarded within 30 to 90 days of the bid date, as well as ordering steel as soon as possible after a project is awarded.contracted.
Interest Rate Risk
Our debt bears interest at both fixed and variable rates. As of December 31, 20172023 and 2016,2022, we had no$65.2 million and $94.5 million, respectively, of variable-rate debt outstanding accruingoutstanding. We have managed a portion of our variable-rate debt with interest atrate swap agreements to effectively convert a portion of our variable-rate debt to fixed-rate debt. The principal objective of these contracts is to reduce the variability of the cash flows in interest payments associated with a portion of our variable-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. We have elected to apply the hedge accounting rules in accordance with authoritative guidance for these contracts.
As of December 31, 2023 and 2022, the total notional amount of the interest rate swaps was $19.7 million and $26.7 million, respectively, which will amortize ratably on a monthly basis to zero by the maturity dates. We receive floating interest payments monthly based on variable rate. Our capital leases bearrates and pay fixed rates of interest. to the counterparties.
Assuming average interest rates and borrowings on variable ratevariable-rate debt, over the past two years, a hypothetical 1.0%, or 100 basis points, change in interest rates would not have a material impact on our Interestinterest expense in either year.2023 or 2022.
Foreign Currency Exchange Rate Risk
We conduct business in various foreign countries and, from time to time, settle our transactions in foreign currencies. We have experienced and will continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities denominated in currencies that are not our functional currency. As of December 31, 2023, our foreign currency exposures were between the U.S. Dollar and the Canadian Dollar, Mexican Peso, and European Euro.
We have established a program that utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures, typically arising from sales contracts denominated in Canadian currency.exposures. Foreign currency forward contracts are consistent with our strategy for financial risk management and are not used for trading or for speculative purposes. As of December 31, 2017,2023, the total notional amount of these derivativethe foreign currency forward contracts was $2.3$5.1 million (CAD$2.96.7 million) and $1.2 million (EUR€1.1 million), of which we applied hedge accounting to $2.1included $4.9 million (CAD$2.76.4 million). and $1.2 million (EUR€1.1 million) of foreign currency forward contracts not designated as cash flow hedges. As of December 31, 2017, all of2023, our foreign currency forward contracts had a remaining maturity of less than twelve months except two contracts with a combined notional amount of $2.1 million (CAD$2.7 million) which have remaining maturities of 15 to 17 months.mature at various dates through April 2025. As of December 31, 2016,2022, the total notional amount of these derivativethe foreign currency forward contracts was $4.3$17.1 million (CAD$5.823.2 million) and $1.1 million (EUR€1.1 million), of which we applied hedge accounting to $3.4included $0.3 million (CAD$4.50.4 million). of foreign currency forward contracts not designated as cash flow hedges.
A hypothetical 10% change in the Canadian Dollar, Mexican Peso, or European Euro foreign currency exchange raterates would not have a materialmaterial impact on our reported 2017net income in 2023 or 2016 Net sales from continuing operations.2022.
Financial Statements and Supplementary Data |
The Consolidated Financial Statements required by this item are included on pages F-1 to F-29F-33 at the end of this 20172023 Form 10-K.10‑K. The financial statement schedule required by this item is included on page S-1. The quarterly information required by this item is included in Note 20 of the Notes to Consolidated Financial Statements.S‑1.
Changes in and Disagreements |
None.
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) 13a‑15(e) and 15d-15(e)15d‑15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange(“Exchange Act”)) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”(“SEC”) and that such information is accumulated and communicated to our management, including theour Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.
Our management, with the participation of theour CEO and CFO, evaluated the effectiveness of the Company’sour disclosure controls and procedures as of December 31, 2017.2023. Based on their evaluation, as of December 31, 2017, the Company’s2023, our CEO and CFO have concluded that the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e)13a‑15(e) and 15d-15(e)15d‑15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including theour CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
Management’s’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) 13a‑15(f) and 15d-15(f)15d‑15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted accounting principlesin the United States of America (“U.S. GAAP”). Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an assessment of our internal control over financial reporting as of December 31, 2017.2023. In making this assessment, we used the criteria set forth in “Internal Control-Integrated Framework”Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’sour internal control over financial reporting was effective as of December 31, 2017.2023.
The effectiveness of the Company’sour internal control over financial reporting as of December 31, 20172023 has been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Remediation of Prior Material Weakness
In the quarter ended December 31, 2023, we completed our review of the processes and controls related to the implementation of our enterprise resource planning (“ERP”) system for the acquisition of Park Environmental Equipment, LLC (“ParkUSA”). We hired consultants to assist with an evaluation of the ERP system, process, and workflow design; we educated control owners concerning the principles and requirements of each control, with a focus on those related to sales and cost of sales transactions; and we implemented new monitoring controls including additional analyses to help mitigate the risk that controls do not operate effectively. These changes remediated our previously identified material weakness in implementation of our ERP system for the acquisition of ParkUSA.
Changes in Internal Control over Financial Reporting
ThereExcept for the changes described above to remediate our previously identified material weakness, there were no significant changes in our internal control over financial reporting that occurred during the quarter ended December 31, 20172023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Other Information |
None of our directors or officers adopted, modified, or terminated a Rule 10b5‑1 trading arrangement or a non-Rule 10b5‑1 trading arrangement during the quarter ended December 31,2023, as such terms are defined under Item 408(a) of Regulation S‑K.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
None.
Directors, Executive Officers and Corporate Governance |
Directors, Executive Officers, Promoters and Control Persons
The information required by Paragraph (a) and Paragraphs (c) through (g) of Item 401 of Regulation S-KS‑K (except for information required by Paragraph (e) of that Item to the extent the required information pertains to our executive officers) and Item 405 of Regulation S-KS‑K (to the extent required) is hereby incorporated by reference from our definitive proxy statement for the 20182024 Annual Meeting of Shareholders under the captionscaption ElectionNominees and Continuing Directors.
The following table lists our executive officers and each of Directorstheir ages and Section 16(a) Beneficial Ownership Reporting Compliance.positions as of December 31, 2023.
Name | Age
| Current Position with Northwest Pipe Company | ||
Scott Montross |
| Director, President, and Chief Executive Officer | ||
|
| Senior Vice President, Chief Financial Officer, and Corporate Secretary | ||
| 60 | Executive Vice President | ||
Eric Stokes | 52 |
| ||
|
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| ||
|
| Vice President of |
Scott Montross has served as our Director, President, and CEO since January 1, 2013. Mr. Montross joined the Company in May 2011 and served as our Executive Vice President and Chief Operating Officer. Mr. Montross has served in Senior Vice President level positions since 2003 with commercial, operational, and planning responsibilities and has spent a total of 24 years in the steel industry prior to joining the Company. Mr. Montross previously served as the Executive Vice President of the Flat Products Group for EVRAZ Inc. North America'sAmerica’s Oregon Steel Division from 2010 to 2011, as the Vice President and General Manager of EVRAZ Inc. North America from 2007 to 2010, as the Vice President of Marketing and Sales for Oregon Steel Mills, Inc. from 2003 to 2007, and as the Vice President of Marketing and Sales for National Steel Corporation from 2002 to 2003.
Robin GanttAaron Wilkins has served as our Senior Vice President and CFO since January 2011April 2020 and our Corporate Secretary since June 2015, after joining the Company in July 2010. Ms. GanttSeptember 2019. Mr. Wilkins served as the CFO and Treasurer of EVRAZ Inc. North America from September 2007 through January 2010. From July 2005 through August 2007, Ms. Gantt served as Corporate Controller of Oregon Steel Mills, Inc., which became EVRAZ Inc. North America after its acquisition by Evraz Group S.A. in January 2007. Ms. Gantt joined Oregon Steel Mills, Inc. in 1999, holding several finance and accounting positions of increasing responsibility before being appointed to Controller in 2005.
Martin Dana served as our Executive Vice President, Business Development and Strategy from April 2016 until his resignation in January 2018. Previous positions at the Company held by Mr. Dana include Executive Vice President, Sales and Marketing, Executive Vice President, Tubular Products Group, Vice President of Operations for Tubular Products, Vice President of Sales and Marketing for the Water Transmission Group and other management and Vice President level positions since joining the Company in 1999. Prior to joining the Company, Mr. Dana held positions at Oregon Steel Mills, Inc.
William Smithhas served as our Executive Vice President, Water Transmission since April 2016. Prior to that, Mr. Smith served as our Executive Vice President, Operations and as Vice President of Operations for Water Transmission. Prior to joining the Company in 2010, Mr. Smith spent 14 years with Ameron International Corporation, holding several key positions including President, Water Transmission. A 41-year veteran of the steel pipe business, Mr. Smith has held positions with United Concrete Pipe, Thompson Steel Pipe and LB Foster.
Aaron Wilkins has served as our Corporate Controller since March 2014 and was named Vice President of Finance and Corporate Controller infrom September 2016.2016 to April 2020. Prior to joining the Company, Mr. Wilkins served two years as CFO of Omega Morgan, an industrial moving and transportationservices company. Prior to that, Mr. Wilkins served seven years with Oregon Steel Mills, Inc. and then EVRAZ Inc. North America, holding several finance and accounting positions including Corporate Controller and Assistant Treasurer and Director of Finance of EVRAZ Inc. North America’s Flat Products Group.
Miles Brittain has served as our Executive Vice President since May 2021. Prior to that, Mr. Brittain served as our Vice President of Operations from February 2020 to May 2021, Vice President of Operations for Water Transmission Engineered Systems from September 2018 to February 2020, and our Vice President of Operations, Water Transmission from 2013 to September 2018. Prior to joining the Company, Mr. Brittain served in the steel industry for over 28 years, holding key positions including Vice President and General Manager for EVRAZ North America/Claymont Steel, Director of Operations for EVRAZ North America/Oregon Steel Mills, Inc., and Regional Director of Quality Assurance for National Steel Corporation.
Eric Stokes has served as our Senior Vice President and General Manager of Engineered Steel Pressure Pipe since May 2021. Prior to that, Mr. Stokes served as our Senior Vice President of Sales and Marketing, Water Transmission from February 2020 to May 2021 and Vice President of Sales from April 2012 to February 2020. Prior to joining the Company in 2008, Mr. Stokes spent twelve years with Anderson Construction, holding key positions including Project Superintendent.
Michael Wray has served as Senior Vice President and General Manager of Precast Infrastructure and Engineered Systems since November 2021. Mr. Wray served as Vice President and General Manager of Geneva from February 2020 to October 2021 and as Senior Director of Operations from September 2018 to January 2020. Prior to that, Mr. Wray held a variety of operational positions within the Company. Prior to joining the Company in 2007, Mr. Wray spent two years with Continental Pipe Company and nine years with Smith Megadiamond, a Schlumberger company.
Megan Kendrick has served as our Vice President of Human Resources since January 2017. Prior to that, Ms. Kendrick held a variety of positions within the Company in the accounting and human resource departments. Prior to joining the Company in 2008, Ms. Kendrick worked for the Memphis Grizzlies of the National Basketball Association for seven years.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics for all employees and a Code of Ethics for Senior Financial Officers. Copies can be found on our website at www.nwpipe.comin the Corporate Governance area of the Investor Relations section or by writing to Northwest Pipe Company, attn. Corporate Secretary, 5721 SE Columbia Way, Suite 200, Vancouver, WA 98661.section. None of the material on our website is part of this 20172023 Form 10-K.10‑K. If there is any waiver from any provision of either the Code of Business Conduct and Ethics or the Code of Ethics for Senior Financial Officers, we will disclose the nature of such waiver on our website or in a Current Report on Form 8-K.8‑K.
Corporate Governance
The information required by Items 407(c)(3), (d)(4), and (d)(5) of Regulation S‑K is hereby incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Shareholders under the caption Corporate Governance.
The information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is hereby incorporated by reference from our definitive proxy statement for the 2018 Annual Meeting of Shareholders under the captions Nominating and Governance Committee, Nominations by Shareholders and Audit Committee.
Executive Compensation |
The information required by this Item is hereby incorporated by reference from our definitivedefinitive proxy statement for the 20182024 Annual Meeting of Shareholders under the captions Executive Compensation Discussion and Analysis, Compensation Committee Interlocks and Insider Participation, and Compensation Committee Report.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table provides informationinformation as of December 31, 2017,2023 with respect to the shares of our common stock that may be issued under our existing equity compensation plans.
Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||||||||
Plan Category | (a) (1) | (b) (2) | (c) | ||||||||||||||||||
Equity compensation plans approved by security holders | 193,583 | $24.15 | 589,142 | ||||||||||||||||||
Equity compensation plans not approved by security holders (3) | - | - | - | ||||||||||||||||||
Total | 193,583 | $24.15 | 589,142 | ||||||||||||||||||
Plan Category | (a) (1) | (b) (2) | (c) | ||||||||||||||||||
Equity compensation plans approved by security holders | 226,391 | $ | - | 722,573 | |||||||||||||||||
Equity compensation plans not approved by security holders (3) | - | - | - | ||||||||||||||||||
Total | 226,391 | $ | - | 722,573 | |||||||||||||||||
(1) | Consists of performance share awards and restricted stock unit awards under our 2022 Stock Incentive Plan and our 2007 Stock Incentive Plan. The number of securities disclosed in this table for performance share awards are at the target level of 100%. |
(2) |
|
| We do not have any equity compensation plans or arrangements that have not been approved by shareholders. |
The information required by Item 403 of Regulation S-KS‑K is included in our definitive proxy statement for the 20182024 Annual Meeting of Shareholders under the caption Stock Owned by Management and Principal Shareholders and is incorporated herein by reference.
Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item is hereby incorporated by reference from our definitivedefinitive proxy statement for the 20182024 Annual Meeting of Shareholders under the captions Certain Relationships and Related Transactions and Election ofNominees and Continuing Directors.
Principal |
The information required by this Item is hereby incorporated by reference from our definitivedefinitive proxy statement for the 20182024 Annual Meeting of Shareholders under the caption Disclosure of Fees Paid to Independent Registered Public Accounting Firm.
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(a) (1) Consolidated Financial Statements
The Consolidated Financial Statements, together with the reportsreport thereon of Moss Adams LLP and PricewaterhouseCoopers LLP are included on the pages indicated below.
Page | |
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Consolidated Balance Sheets as of December 31, |
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(a) (2) Financial Statement Schedule
The following schedule is filed herewith:
Page | ||
Schedule II | S-1 |
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is included in the Consolidated Financial Statements or notes thereto.
(a) (3) Exhibits included herein:
Exhibit | Description |
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3.1 | |||
Exhibit Number | Description |
3.2 | ||
3.3 | ||
4.1 |
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10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 |
Exhibit Number | Description |
Exhibit | Description |
32.1 | ||
32.2 | ||
| 97 | Incentive Compensation Recovery Policy | |
99.1 | ||
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
_________________
* | This exhibit constitutes a management contract or compensatory plan or arrangement. |
** | Schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) to Regulation S‑K. The Registrant will furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission request. |
Form |
None.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders of
Northwest Pipe Company
Opinions on the Financial StatementsStatements and Internal Control overover Financial Reporting
We have audited the accompanying consolidated balance sheetssheets of Northwest Pipe Company and subsidiariesSubsidiaries (the “Company”) as of December 31, 20172023 and 2016,2022, the related consolidated statements of operations, comprehensive loss,income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017 and 2016,2023, and the related notes and schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20172023 and 2016,2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 and 2016,2023, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’sCompany’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ManagementManagement’s Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our auditsaudits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also includeincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Estimated Costs to Complete a Contract
As presented in the consolidated statement of operations and described in Notes 2 and 16 to the consolidated financial statements, the Company’s consolidated revenues were $444.4 million for the year ended December 31, 2023. Revenue of $296.4 million was derived from contracts where revenue is recognized over time as work is completed because of the continuous transfer of control to the customer. Under this method, the costs incurred to date as a percentage of total estimated costs at completion are used to calculate revenue. Total estimated costs, and thus contract revenue and margin, are impacted by many factors, which can cause significant changes in estimates during the life cycle of a project.
Based on the high degree of subjectivity involved in the determination of estimated costs to complete a contract, which in turn led to a high degree of auditor effort and subjectivity in performing procedures and evaluating audit evidence, we have identified these estimates as a critical audit matter. Changes in these estimates could have significant impact on both the timing and amount of contract revenue to be recognized.
The primary procedures we performed to address this critical audit matter included:
• | Testing the design and operating effectiveness of internal controls related to the Company’s accumulation of estimated costs to complete a contract. This included testing controls over the Company’s review of monthly changes in estimated costs to complete a contract. | |
• | Testing a selection of contracts based on earned revenue for the year ended December 31, 2023 and assessed the reasonableness of the estimated costs. | |
| • | Testing the reasonableness of management’s cost estimates by performing a lookback analysis comparing margins and estimated costs to complete on contracts in process as of December 31, 2022, that were completed or in process during the year ended December 31, 2023. |
/s/ Moss Adams LLP
Portland, Oregon
March 16, 2018 5, 2024
We have served as the Company’sCompany’s auditor since 2016.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Northwest Pipe Company
In our opinion, the consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the period ended December 31, 2015 present fairly, in all material respects, the results of operations and cash flows of Northwest Pipe Company and its subsidiaries for the year ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2015 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
March 4, 2016, except for the effects of discontinued operations discussed in Note 3 to the consolidated financial statements, as to which the date is March 16, 2018
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net sales | $ | 132,780 | $ | 149,387 | $ | 173,160 | ||||||
Cost of sales | 126,957 | 149,704 | 172,554 | |||||||||
Gross profit (loss) | 5,823 | (317 | ) | 606 | ||||||||
Selling, general and administrative expense | 14,143 | 16,921 | 20,378 | |||||||||
Impairment of goodwill | - | - | 5,282 | |||||||||
Gain on sale of facility | - | (7,860 | ) | - | ||||||||
Restructuring expense | 881 | 990 | - | |||||||||
Operating loss | (9,201 | ) | (10,368 | ) | (25,054 | ) | ||||||
Other income | 193 | 24 | 58 | |||||||||
Interest income | 6 | 14 | 1 | |||||||||
Interest expense | (490 | ) | (509 | ) | (1,340 | ) | ||||||
Loss from continuing operations before income taxes | (9,492 | ) | (10,839 | ) | (26,335 | ) | ||||||
Income tax benefit | (1,100 | ) | (4,098 | ) | (8,523 | ) | ||||||
Loss from continuing operations | (8,392 | ) | (6,741 | ) | (17,812 | ) | ||||||
Discontinued operations: | ||||||||||||
Loss from operations of discontinued operations | (1,779 | ) | (3,180 | ) | (15,004 | ) | ||||||
Gain on sale of facility | 6 | - | - | |||||||||
Income tax benefit | (2 | ) | (658 | ) | (3,428 | ) | ||||||
Loss on discontinued operations | (1,771 | ) | (2,522 | ) | (11,576 | ) | ||||||
Net loss | $ | (10,163 | ) | $ | (9,263 | ) | $ | (29,388 | ) | |||
Basic and diluted loss per share: | ||||||||||||
Continuing operations | $ | (0.88 | ) | $ | (0.71 | ) | $ | (1.86 | ) | |||
Discontinued operations | (0.18 | ) | (0.26 | ) | (1.21 | ) | ||||||
Net loss per share | $ | (1.06 | ) | $ | (0.97 | ) | $ | (3.07 | ) | |||
Shares used in per share calculations: | ||||||||||||
Basic and diluted | 9,613 | 9,588 | 9,560 | |||||||||
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net sales | $ | 444,355 | $ | 457,665 | $ | 333,313 | ||||||
Cost of sales | 366,713 | 371,810 | 289,059 | |||||||||
Gross profit | 77,642 | 85,855 | 44,254 | |||||||||
Selling, general, and administrative expense | 43,784 | 41,034 | 28,222 | |||||||||
Operating income | 33,858 | 44,821 | 16,032 | |||||||||
Other income | 276 | 97 | 328 | |||||||||
Interest expense | (4,855 | ) | (3,568 | ) | (1,202 | ) | ||||||
Income before income taxes | 29,279 | 41,350 | 15,158 | |||||||||
Income tax expense | 8,207 | 10,201 | 3,635 | |||||||||
Net income | $ | 21,072 | $ | 31,149 | $ | 11,523 | ||||||
Net income per share: | ||||||||||||
Basic | $ | 2.11 | $ | 3.14 | $ | 1.17 | ||||||
Diluted | $ | 2.09 | $ | 3.11 | $ | 1.16 | ||||||
Shares used in per share calculations: | ||||||||||||
Basic | 9,991 | 9,914 | 9,854 | |||||||||
Diluted | 10,081 | 10,012 | 9,928 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME
(In thousands)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net loss | $ | (10,163 | ) | $ | (9,263 | ) | $ | (29,388 | ) | |||
Other comprehensive income (loss), net of tax: | ||||||||||||
Pension liability adjustment | 57 | 131 | 238 | |||||||||
Unrealized gain (loss) on cash flow hedges | (19 | ) | (76 | ) | 57 | |||||||
Other comprehensive income, net of tax | 38 | 55 | 295 | |||||||||
Comprehensive loss | $ | (10,125 | ) | $ | (9,208 | ) | $ | (29,093 | ) | |||
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net income | $ | 21,072 | $ | 31,149 | $ | 11,523 | ||||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Pension liability adjustment | 339 | (45 | ) | 308 | ||||||||
Unrealized gain (loss) on foreign currency forward contracts designated as cash flow hedges | (107 | ) | 289 | (124 | ) | |||||||
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges | (403 | ) | 649 | - | ||||||||
Other comprehensive income (loss), net of tax | (171 | ) | 893 | 184 | ||||||||
Comprehensive income | $ | 20,901 | $ | 32,042 | $ | 11,707 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 43,646 | $ | 21,829 | $ | 4,068 | $ | 3,681 | ||||||||
Trade and other receivables, less allowance for doubtful accounts of $477 and $515 | 28,990 | 25,555 | ||||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 44,502 | 43,663 | ||||||||||||||
Trade and other receivables, less allowance for doubtful accounts of $121 and $369 | 47,645 | 71,563 | ||||||||||||||
Contract assets | 120,516 | 121,778 | ||||||||||||||
Inventories | 17,055 | 18,645 | 91,229 | 71,029 | ||||||||||||
Prepaid expenses and other | 6,562 | 2,096 | 9,026 | 10,689 | ||||||||||||
Assets held for sale | - | 36,822 | ||||||||||||||
Total current assets | 140,755 | 148,610 | 272,484 | 278,740 | ||||||||||||
Property and equipment, net | 78,756 | 81,671 | 143,955 | 133,166 | ||||||||||||
Operating lease right-of-use assets | 88,155 | 93,124 | ||||||||||||||
Goodwill | 55,504 | 55,504 | ||||||||||||||
Intangible assets, net | 31,074 | 35,264 | ||||||||||||||
Other assets | 10,813 | 11,274 | 6,709 | 5,542 | ||||||||||||
Total assets | $ | 230,324 | $ | 241,555 | $ | 597,881 | $ | 601,340 | ||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current debt | $ | 10,756 | $ | 10,756 | ||||||||||||
Accounts payable | $ | 7,521 | $ | 5,267 | 31,142 | 26,968 | ||||||||||
Accrued liabilities | 6,563 | 10,925 | 27,913 | 30,957 | ||||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 2,599 | 2,038 | ||||||||||||||
Current portion of capital lease obligations | 318 | 325 | ||||||||||||||
Contract liabilities | 21,450 | 17,456 | ||||||||||||||
Current portion of operating lease liabilities | 4,933 | 4,702 | ||||||||||||||
Total current liabilities | 17,001 | 18,555 | 96,194 | 90,839 | ||||||||||||
Capital lease obligations, less current portion | 737 | 602 | ||||||||||||||
Borrowings on line of credit | 54,485 | 83,696 | ||||||||||||||
Operating lease liabilities | 85,283 | 89,472 | ||||||||||||||
Deferred income taxes | 941 | 1,282 | 10,942 | 11,402 | ||||||||||||
Other long-term liabilities | 11,381 | 11,903 | 10,617 | 7,657 | ||||||||||||
Total liabilities | 30,060 | 32,342 | 257,521 | 283,066 | ||||||||||||
Commitments and contingencies (Note 15) | ||||||||||||||||
Commitments and contingencies (Note 15) | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding | - | - | ||||||||||||||
Common stock, $.01 par value, 15,000,000 shares authorized, 9,619,755 and 9,601,011 shares issued and outstanding | 96 | 96 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding | - | - | ||||||||||||||
Common stock, $.01 par value, 15,000,000 shares authorized, 9,985,580 and 9,927,360 shares issued and outstanding as of December 31, 2023 and 2022, respectively | 100 | 99 | ||||||||||||||
Additional paid-in-capital | 119,856 | 118,680 | 129,095 | 127,911 | ||||||||||||
Retained earnings | 81,757 | 91,920 | 212,125 | 191,053 | ||||||||||||
Accumulated other comprehensive loss | (1,445 | ) | (1,483 | ) | ||||||||||||
Total stockholders’ equity | 200,264 | 209,213 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 230,324 | $ | 241,555 | ||||||||||||
Accumulated other comprehensive loss | (960 | ) | (789 | ) | ||||||||||||
Total stockholders’ equity | 340,360 | 318,274 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 597,881 | $ | 601,340 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid In | Retained | Comprehensive | Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
Balances, December 31, 2014 | 9,520,067 | $ | 95 | $ | 116,802 | $ | 130,571 | $ | (1,833 | ) | $ | 245,635 | ||||||||||||
Net loss | - | - | - | (29,388 | ) | - | (29,388 | ) | ||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||
Unrealized gain on cash flow hedges, net of tax expense of $34 | - | - | - | - | 57 | 57 | ||||||||||||||||||
Pension liability adjustment, net of tax expense of $237 | - | - | - | - | 238 | 238 | ||||||||||||||||||
Issuance of common stock under stock compensation plans | 44,685 | 1 | (424 | ) | - | - | (423 | ) | ||||||||||||||||
Tax benefit from stock compensation plans | - | - | 19 | - | - | 19 | ||||||||||||||||||
Tax deficiency from stock compensation plans | - | - | (352 | ) | - | - | (352 | ) | ||||||||||||||||
Share-based compensation expense | - | - | 1,774 | - | - | 1,774 | ||||||||||||||||||
Balances, December 31, 2015 | 9,564,752 | 96 | 117,819 | 101,183 | (1,538 | ) | 217,560 | |||||||||||||||||
Net loss | - | - | - | (9,263 | ) | - | (9,263 | ) | ||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Unrealized loss on cash flow hedges, net of tax benefit of $43 | - | - | - | - | (76 | ) | (76 | ) | ||||||||||||||||
Pension liability adjustment, net of tax expense of $82 | - | - | - | - | 131 | 131 | ||||||||||||||||||
Issuance of common stock under stock compensation plans | 36,259 | - | (31 | ) | - | - | (31 | ) | ||||||||||||||||
Tax deficiency from stock compensation plans | - | - | (909 | ) | - | - | (909 | ) | ||||||||||||||||
Share-based compensation expense | - | - | 1,801 | - | - | 1,801 | ||||||||||||||||||
Balances, December 31, 2016 | 9,601,011 | 96 | 118,680 | 91,920 | (1,483 | ) | 209,213 | |||||||||||||||||
Net loss | - | - | - | (10,163 | ) | - | (10,163 | ) | ||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Unrealized loss on cash flow hedges, net of tax benefit of $6 | - | - | - | - | (19 | ) | (19 | ) | ||||||||||||||||
Pension liability adjustment, net of tax expense of $21 | - | - | - | - | 57 | 57 | ||||||||||||||||||
Issuance of common stock under stock compensation plans | 18,744 | - | (24 | ) | - | - | (24 | ) | ||||||||||||||||
Share-based compensation expense | - | - | 1,200 | - | - | 1,200 | ||||||||||||||||||
Balances, December 31, 2017 | 9,619,755 | $ | 96 | $ | 119,856 | $ | 81,757 | $ | (1,445 | ) | $ | 200,264 | ||||||||||||
Accumulated | ||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||
Common Stock | Paid-In- | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Earnings | Loss | Equity | |||||||||||||||||||
Balances, December 31, 2020 | 9,805,437 | $ | 98 | $ | 123,013 | $ | 148,381 | $ | (1,866 | ) | $ | 269,626 | ||||||||||||
Net income | - | - | - | 11,523 | - | 11,523 | ||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Pension liability adjustment, net of tax expense of $102 | - | - | - | - | 308 | 308 | ||||||||||||||||||
Unrealized loss on foreign currency forward contracts designated as cash flow hedges, net of tax benefit of $41 | - | - | - | - | (124 | ) | (124 | ) | ||||||||||||||||
Issuance of common stock under stock compensation plans, net of tax withholdings | 65,130 | 1 | (1,167 | ) | - | - | (1,166 | ) | ||||||||||||||||
Share-based compensation expense | - | - | 3,216 | - | - | 3,216 | ||||||||||||||||||
Balances, December 31, 2021 | 9,870,567 | 99 | 125,062 | 159,904 | (1,682 | ) | 283,383 | |||||||||||||||||
Net income | - | - | - | 31,149 | - | 31,149 | ||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Pension liability adjustment, net of tax benefit of $14 | - | - | - | - | (45 | ) | (45 | ) | ||||||||||||||||
Unrealized gain on foreign currency forward contracts designated as cash flow hedges, net of tax expense of $95 | - | - | - | - | 289 | 289 | ||||||||||||||||||
Unrealized gain on interest rate swaps designated as cash flow hedges, net of tax expense of $213 | - | - | - | - | 649 | 649 | ||||||||||||||||||
Issuance of common stock under stock compensation plans, net of tax withholdings | 56,793 | - | (853 | ) | - | - | (853 | ) | ||||||||||||||||
Share-based compensation expense | - | - | 3,702 | - | - | 3,702 | ||||||||||||||||||
Balances, December 31, 2022 | 9,927,360 | 99 | 127,911 | 191,053 | (789 | ) | 318,274 | |||||||||||||||||
Net income | - | - | - | 21,072 | - | 21,072 | ||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||
Pension liability adjustment, net of tax expense of $110 | - | - | - | - | 339 | 339 | ||||||||||||||||||
Unrealized loss on foreign currency forward contracts designated as cash flow hedges, net of tax benefit of $45 | - | - | - | - | (107 | ) | (107 | ) | ||||||||||||||||
Unrealized loss on interest rate swaps designated as cash flow hedges, net of tax benefit of $134 | - | - | - | - | (403 | ) | (403 | ) | ||||||||||||||||
Issuance of common stock under stock compensation plans, net of tax withholdings | 86,836 | 1 | (1,653 | ) | - | - | (1,652 | ) | ||||||||||||||||
Repurchase of common stock | (28,616 | ) | - | (835 | ) | (835 | ) | |||||||||||||||||
Share-based compensation expense | - | - | 3,672 | - | - | 3,672 | ||||||||||||||||||
Balances, December 31, 2023 | 9,985,580 | $ | 100 | $ | 129,095 | $ | 212,125 | $ | (960 | ) | $ | 340,360 | ||||||||||||
TheThe accompanying notes are an integral part of these consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (10,163 | ) | $ | (9,263 | ) | $ | (29,388 | ) | |||
Loss on discontinued operations | (1,771 | ) | (2,522 | ) | (11,576 | ) | ||||||
Loss from continuing operations | (8,392 | ) | (6,741 | ) | (17,812 | ) | ||||||
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and capital lease amortization | 6,060 | 8,768 | 7,332 | |||||||||
Impairment of goodwill | - | - | 5,282 | |||||||||
Gain on sale of facility | - | (7,860 | ) | - | ||||||||
Amortization of intangible assets | 495 | 523 | 523 | |||||||||
Amortization of debt issuance costs | 168 | 166 | 598 | |||||||||
Provision for doubtful accounts | 638 | 289 | (374 | ) | ||||||||
Deferred income taxes | (341 | ) | (4,750 | ) | (3,560 | ) | ||||||
(Gain) loss on disposal of property and equipment | (51 | ) | 19 | 105 | ||||||||
Share-based compensation expense | 1,200 | 1,809 | 1,743 | |||||||||
Excess tax benefit from stock compensation plans | - | - | (19 | ) | ||||||||
Adjustments to contingent consideration | 27 | (1,657 | ) | (211 | ) | |||||||
Unrealized loss on foreign currency forward contracts | 90 | 170 | 295 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade and other receivables | (4,073 | ) | 80 | 15,717 | ||||||||
Insurance settlements | - | - | 2,625 | |||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts, net | (278 | ) | 447 | 940 | ||||||||
Inventories | 1,543 | 5,728 | 9,934 | |||||||||
Refundable income taxes | (77 | ) | 3,254 | 1,285 | ||||||||
Prepaid expenses and other assets | (138 | ) | (630 | ) | 1,196 | |||||||
Accounts payable | 2,128 | 1,048 | (8,199 | ) | ||||||||
Deferred revenue | - | - | (271 | ) | ||||||||
Accrued and other liabilities | (4,792 | ) | (2,456 | ) | 3,694 | |||||||
Net cash provided by (used in) operating activities from continuing operations | (5,793 | ) | (1,793 | ) | 20,823 | |||||||
Net cash provided by (used in) operating activities from discontinued operations | (1,727 | ) | 3,312 | 34,383 | ||||||||
Net cash provided by (used in) operating activities | (7,520 | ) | 1,519 | 55,206 | ||||||||
Cash flows from investing activities: | ||||||||||||
Additions to property and equipment | (2,851 | ) | (2,292 | ) | (6,831 | ) | ||||||
Proceeds from sale of business | - | - | 4,300 | |||||||||
Proceeds from sale of facility | - | 13,914 | - | |||||||||
Proceeds from sale of property and equipment | 146 | 33 | 55 | |||||||||
Collections on notes receivable | - | - | 7,219 | |||||||||
Net cash provided by (used in) investing activities from continuing operations | (2,705 | ) | 11,655 | 4,743 | ||||||||
Net cash provided by (used in) investing activities from discontinued operations | 32,505 | - | (1,684 | ) | ||||||||
Net cash provided by investing activities | 29,800 | 11,655 | 3,059 | |||||||||
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 21,072 | $ | 31,149 | $ | 11,523 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and finance lease amortization | 11,616 | 12,664 | 11,482 | |||||||||
Amortization of intangible assets | 4,190 | 4,439 | 2,142 | |||||||||
Deferred income taxes | (172 | ) | 514 | 180 | ||||||||
Gain on insurance proceeds | (466 | ) | - | - | ||||||||
Share-based compensation expense | 3,672 | 3,702 | 3,216 | |||||||||
Other, net | 1,547 | (286 | ) | 193 | ||||||||
Changes in operating assets and liabilities, net of acquired assets and assumed liabilities: | ||||||||||||
Trade and other receivables | 23,775 | (19,346 | ) | 392 | ||||||||
Contract assets, net | 5,256 | 225 | (33,752 | ) | ||||||||
Inventories | (20,200 | ) | (11,378 | ) | (17,650 | ) | ||||||
Prepaid expenses and other assets | 5,241 | 3,381 | 6,727 | |||||||||
Accounts payable | 4,704 | (5,826 | ) | 16,783 | ||||||||
Accrued and other liabilities | (6,780 | ) | (1,698 | ) | (7,047 | ) | ||||||
Net cash provided by (used in) operating activities | 53,455 | 17,540 | (5,811 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||
Acquisition of business, net of cash acquired | - | - | (87,215 | ) | ||||||||
Payment of working capital adjustment in acquisition of business | (2,731 | ) | - | - | ||||||||
Purchases of property and equipment | (18,291 | ) | (22,829 | ) | (13,262 | ) | ||||||
Purchases of intangible assets | - | (327 | ) | - | ||||||||
Proceeds from insurance | 431 | - | - | |||||||||
Other investing activities | 219 | 106 | 325 | |||||||||
Net cash used in investing activities | (20,372 | ) | (23,050 | ) | (100,152 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Borrowings on line of credit | 155,398 | 177,634 | 122,272 | |||||||||
Repayments on line of credit | (184,609 | ) | (180,699 | ) | (35,511 | ) | ||||||
Borrowings on other debt | - | 10,756 | - | |||||||||
Payments on other debt | - | - | (13,762 | ) | ||||||||
Payments on finance lease liabilities | (826 | ) | (597 | ) | (415 | ) | ||||||
Tax withholdings related to net share settlements of restricted stock and performance share awards | (1,652 | ) | (853 | ) | (1,166 | ) | ||||||
Repurchase of common stock | (707 | ) | - | - | ||||||||
Other financing activities | (300 | ) | (47 | ) | (385 | ) | ||||||
Net cash provided by (used in) financing activities | (32,696 | ) | 6,194 | 71,033 | ||||||||
Change in cash and cash equivalents | 387 | 684 | (34,930 | ) | ||||||||
Cash and cash equivalents, beginning of period | 3,681 | 2,997 | 37,927 | |||||||||
Cash and cash equivalents, end of period | $ | 4,068 | $ | 3,681 | $ | 2,997 | ||||||
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS,, Continued
(In thousands)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of common stock | $ | - | $ | - | $ | 1 | ||||||
Tax withholdings related to net share settlements of restricted stock and performance share awards | (24 | ) | (31 | ) | (424 | ) | ||||||
Excess tax benefit from stock compensation plans | - | - | 19 | |||||||||
Borrowings on line of credit | - | - | 79,250 | |||||||||
Repayments on line of credit | - | - | (124,837 | ) | ||||||||
Payments of debt issuance costs | - | - | (302 | ) | ||||||||
Payments on capital lease obligations | (327 | ) | (279 | ) | (1,270 | ) | ||||||
Payments of contingent consideration | (112 | ) | (1,233 | ) | - | |||||||
Net cash used in financing activities from continuing operations | (463 | ) | (1,543 | ) | (47,563 | ) | ||||||
Net cash used in financing activities from discontinued operations | - | (111 | ) | (920 | ) | |||||||
Net cash used in financing activities | (463 | ) | (1,654 | ) | (48,483 | ) | ||||||
Change in cash and cash equivalents | 21,817 | 11,520 | 9,782 | |||||||||
Cash and cash equivalents, beginning of period | 21,829 | 10,309 | 527 | |||||||||
Cash and cash equivalents, end of period | $ | 43,646 | $ | 21,829 | $ | 10,309 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the period for interest, net of amounts capitalized | $ | 258 | $ | 283 | $ | 846 | ||||||
Cash received during the period for income taxes (net of refunds of $213, $3,427 and $7,949) | $ | (153 | ) | $ | (3,322 | ) | $ | (7,743 | ) | |||
Noncash investing and financing activities: | ||||||||||||
Accrued property and equipment purchases | $ | 184 | $ | 59 | $ | 397 | ||||||
Capital lease additions | $ | 455 | $ | 259 | $ | 854 | ||||||
| Proceeds from sale of facility placed in escrow | $ | 4,465 | $ | - | $ | - | ||||||
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the period for interest, net of amounts capitalized | $ | 4,660 | $ | 3,170 | $ | 339 | ||||||
Cash paid during the period for income taxes, net of refunds of $145, $23, and $79 | 5,911 | 13,774 | 2,481 | |||||||||
Noncash investing and financing activities: | ||||||||||||
Accrued property and equipment purchases | $ | 656 | $ | 1,314 | $ | 788 | ||||||
Accrued payment for repurchase of common stock | 128 | - | - | |||||||||
Accrued consideration in acquisition of business | - | 1,820 | 911 | |||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | 952 | 568 | 16,043 | |||||||||
Right-of-use assets obtained in exchange for finance lease liabilities | 5,270 | 1,466 | 853 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. |
|
Northwest Pipe Company (collectively with its subsidiaries, thethe “Company”) is a leading manufacturer of water-related infrastructure products, and operates in two segments, Engineered Steel Pressure Pipe (“SPP”) and Precast Infrastructure and Engineered Systems (“Precast”). This segment presentation is consistent with how the Company’s chief operating decision maker, its Chief Executive Officer, evaluates performance of the Company and makes decisions regarding the allocation of resources. See Note 19, “Segment Information” for detailed descriptions of these segments.
In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, the Company manufactures stormwater and wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one business segment, Water Transmission, which primarily produces steelof the largest offerings of pipeline systemssystem joints, fittings, and specialized components. Strategically positioned to meet growing water and wastewater infrastructure needs, the Company provides solution-based products for usea wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. The Company is headquartered in drinking water infrastructureVancouver, Washington, and has 13 manufacturing facilities located in Portland, Oregon; Adelanto, California; Parkersburg, West Virginia; Saginaw, Texas; St. Louis, Missouri; Salt Lake City, Utah and Monterrey, Mexico.across North America.
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, the Company evaluates all of its estimates, including those related to allowance for doubtful accounts, inventories, long-lived assets (including depreciation and amortization), revenue recognition, share-based compensation, income taxes and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or conditions.
Basis of Consolidation and Presentation
The Consolidated Financial Statements are expressed in United States Dollars and include the accounts of Northwest Pipethe Company and its subsidiaries over which the Company exercises control as of the financial statement date. Intercompany accounts and transactions have been eliminated.
Lucid Energy Inc.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“Lucid”U.S. GAAP”) isrequires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, the Company evaluates all of its estimates, including those related to business combinations, allowance for doubtful accounts, inventories, property and equipment (including depreciation and valuation), goodwill, intangible assets (including amortization), revenue recognition, share-based compensation, income taxes, and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or conditions.
Business Combinations
Business combinations are accounted for under the cost-methodacquisition method which requires identifiable assets acquired and liabilities assumed in the acquired business be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of accounting. Lucid is a clean energy company based in Portland, Oregon.the acquired business. The carryingamount by which the fair value of this investmentconsideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is $0recorded as goodwill. The amount by which the net fair value of December 31,2017assets acquired and 2016 due toliabilities assumed exceeds the fair value of consideration transferred as the purchase price is recorded as a history of net losses by Lucid.bargain purchase gain. Acquisition-related transaction costs are expensed as incurred.
These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill or bargain purchase gain. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s Consolidated Statements of Operations.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquidshort-term, highly-liquid investments with maturities of three months or less when purchased. At times, the Company will have outstanding checks in excess of related bank balances (a “book(“book overdraft”). If this occurs, the amount of the book overdraft will be reclassified to accounts payable, and changes in the book overdraft will be reflected as a component of operating activities in the Consolidated StatementStatements of Cash Flows. The Company had noa book overdraft of $1.8 million and $0.6 million as of December 31, 20172023 and 2016.2022, respectively.
Receivables and Allowance for Doubtful Accounts
Trade receivables are reported on the Consolidated Balance SheetSheets net of doubtful accounts. The Company maintains allowances for estimated losses resulting from the inability of its customers to make required payments or from contract disputes. The amounts of such allowances are based on Company historyhistorical experience and management’s judgment. At least monthly, the Company reviews past due balances to identify the reasons for non-payment. The Company will write down or write off a receivable account once the account is deemed uncollectible. The Company believes the reported allowances as of December 31,2017 and 2016 are adequate. If the customers’ financial conditions were to deteriorate resulting in their inability to make payments, or if contract disputes were to escalate, additional allowances may need to be recorded which would result in additional expenses being recorded for the period in which such determination was made.
Contract Assets and Contract Liabilities
Contract assets primarily represent revenue earned over time but not yet billable based on the terms of the contracts. These amounts will be billed based on the terms of the contracts, which can include certain milestones, partial shipments, or completion of the contracts. Payment terms of amounts billed vary based on the customer, but are typically due within 30 days of invoicing. Contract liabilities represent advance billings on contracts, typically for steel.
Inventories
As of December31,2016, inventories were stated at the lower of cost or market. Upon adoption of Accounting Standards Update No.2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” on January 1,2017, which did not result in a change in the Company’s inventory values, inventoriesInventories are stated at the lower of cost and net realizable value. The cost of raw material inventories of steel is either on a specific identification basis or on an average cost basis. The cost of substantially all other raw material inventories, as well as work-in-process and supplies, is either on an average cost basis.basis or at standard cost. The cost of finished goods uses the first-in, first-out method of accounting.
Property and Equipment
Property and equipment is statedare recorded at cost. Maintenance and repairs are expensed as incurred, and costs of new equipment and buildings, as well as costs of expansions or refurbishment of existing equipment and buildings, including interest where applicable, are capitalized. Depreciation and amortization are determined by the units of production method for most equipment and by the straight-line method for the remaining assets based on the estimated useful lives of the related assets. Estimated useful lives by major classes of property and equipment are as follows: Land improvements (15(15 – 30 years); Buildings (20(20 – 40 years); Leasehold improvements (5 – 30 years); and Machinery and equipment (3(3 – 30 years). Depreciation expense calculated under the units of production method may be less than, equal to, or greater than depreciation expense calculated under the straight-line method due to variances in production levels. Upon disposal, costs and related accumulated depreciation of the assets are removed from the accounts and resulting gains or losses are reflected in operating expenses. The Company leases certain equipment under long-term capitalfinance leases, which are being amortized on a straight-line basis over the shorter of its useful life or the lease term.
The Company assesses impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the asset or asset group(s) may not be recoverable. The asset group is the lowest level at which identifiable cash flows are largely independent of the cash flows of other groups of assets or liabilities. The recoverable value of a long-lived asset group is determined by estimating future undiscounted cash flows using assumptions about the expected future operating performance of the Company.
Leases
The Company has entered into various equipment and property leases. Certain lease agreements include renewals and/or purchase options set to expire at various dates, and certain lease agreements include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is a lease at inception. Leases with an initial term of twelve months or less are not recorded on the balance sheet; costs for these leases are recognized on a straight-line basis over the lease term. Right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. When the Company’s leases do not provide an implicit rate of return, the Company uses its revolving loan borrowing rate in determining the present value of lease payments. Some of the Company’s lease agreements contain non-lease components, which are accounted for separately.
Goodwill
Goodwill represents the excess of the purchase price over the assigned fair values of the net assets acquired and liabilities assumed in connectionconjunction with an acquisition. Goodwill is reviewed for impairment annually,as of December 31 or whenever events occur or circumstances change that indicate goodwill may be impaired. Goodwill is tested forDuring the fourth quarter of 2022, the Company changed the date of its annual impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component). The Company’s reporting units are equivalent to its operating segments as the individual components meet the criteria for aggregation. Astest of goodwill from December 31 to 2017November 30. and 2016,The change in the impairment test date lessens resource constraints that exist in connection with the Company’s goodwill was fully impaired. Dueyear-end close and financial reporting process and provides for additional time to market conditions incomplete the required impairment testing. This change did 2015,not goodwillrepresent a material change to the Company’s method of $5.3 million was quantitatively evaluated using a weighted average of the incomeapplying an accounting principle, and market approaches. The Company determined that its goodwill was impaired as oftherefore did June 30,not 2015, and it was completely written off in the second quarter of 2015.delay, accelerate, or avoid an impairment charge.
In evaluatingtesting goodwill for impairment, the Company looks athas the long-term prospects foroption to perform a qualitative assessment to determine whether the existence of events or circumstances indicate that it is more-likely-than-not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. When performing a qualitative assessment, the Company evaluates factors such as industry and recognizesmarket conditions, cost factors, overall financial performance, and other relevant entity specific events and changes. If the qualitative assessment indicates that current performance may it is more-likely-than-not bethat the best indicator of future prospects or value, which requires management judgment. The income approach is based upon projected future after-tax cash flows discounted to present value using factors that consider the timing and risk associated with the future after-tax cash flows. The market approach is based upon historical and/or forward-looking measures using multiples of revenue or earnings before interest, taxes, depreciation and amortization. The Company utilizes a weighted average of the income and market approaches, with a heavier weighting on the income approach because of the relatively limited number of comparable entities for which relevant multiples are available. If the carryingfair value of the reporting unit exceedsis less than its calculated enterprise value, thencarrying amount, or if the Company continueschooses not to assessperform the fair value of individual assets and liabilities, other than goodwill. The difference between the reporting unit enterprise value and the fair value of its identifiable net assetsqualitative assessment, then a quantitative assessment is the implied fair value ofperformed to determine the reporting unit’s goodwill. A goodwillfair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recordedrecognized for the difference betweenamount of the impliedexcess of the carrying amount over the reporting unit’s fair value, and its carrying value.not to exceed the total amount of goodwill allocated to the reporting unit.
Intangible Assets
Intangible assets consist primarily of customer relationships, patents and trade names and trademarks, patents, and backlog recorded as the result of acquisition activity. Intangible assets are amortized using the straight-line method over estimated useful lives ranging from 4ten to 1521 years.
See Note7, “Intangible Assets” for further discussion of the Company’s intangible asset balances.
Workers Compensation
The Company is self-insured orand maintains high deductible policies for losses and liabilities associated with workers compensation claims. Losses are accrued based upon the Company’sCompany’s estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions followed in the insurance industry. During the fourth quarter of 2017, as a result of a change in estimate to its workers compensation reserves, the Company recorded a charge of $1.2 million to Cost of sales. During 2016 and 2015, there were no significant changes in estimates recorded to adjust workers compensation reserves. As of December 31, 20172023 and 2016,2022, workers compensation reserves recorded were $3.7$2.2 million and $3.4$1.6 million, respectively, of which $0.4$1.3 million and $0.6$0.5 million, respectively, were included in Accrued liabilities and $3.3$0.9 million and $2.8$1.1 million, respectively, were included in Other long-term liabilities.
Accrued Liabilities
Accrued liabilities consistas of the following (in thousands):December 31,2023 and 2022 includes accrued bonus of $5.2 million and $8.0 million, respectively, and accrued sales tax of $5.3 million and $4.4 million, respectively.
December 31, | ||||||||
2017 | 2016 | |||||||
Accrued liabilities: | ||||||||
Accrued vacation payable | $ | 1,886 | $ | 2,313 | ||||
Reserves for expected losses on uncompleted contracts | 911 | 1,409 | ||||||
Accrued property taxes | 898 | 1,096 | ||||||
Workers compensation reserves | 422 | 569 | ||||||
Litigation accrual | - | 1,750 | ||||||
Other | 2,446 | 3,788 | ||||||
Total accrued liabilities | $ | 6,563 | $ | 10,925 | ||||
Derivative Instruments
TheIn the normal course of business, the Company conducts business in variousis exposed to interest rate and foreign countries and, from time to time, settles transactions in foreign currencies. Thecurrency exchange rate fluctuations. Consistent with the Company’s strategy for financial risk management, the Company has established a program that utilizes foreign currency forward contracts and interest rate swaps to offset the riskrisks associated with the effects of certain foreign currency exposures, typically arising from sales contracts denominated in Canadian currency. Foreign currency forward contracts are consistent with the Company’s strategy for financial risk management.these exposures. The Company utilizes cash flow hedge accounting treatment for qualifying foreign currency forward contracts.contracts and interest rate swaps. Instruments that do not qualify for cash flow hedge accounting treatment are remeasured at fair value on each balance sheet date and resulting gains and losses are recognized in earnings.
Share Repurchases
All shares reacquired in connection with the Company’s share repurchase program are retired and treated as authorized and unissued shares.
Pension Benefits
The Company has two defined benefit pension plans that have been frozen since 2001. The Company funds these plans to cover current plan costs plus amortization of the unfunded plan liabilities. To record these obligations, management uses estimates relating to investment returns, mortality, and discount rates. Management reviews all of these assumptions on an annual basis.
Foreign Currency Transactions
AssetsThe functional currency of the Company, including its Mexican operations, is the United States dollar. Monetary assets and liabilities subjectare remeasured at current exchange rates and non-monetary assets and liabilities are remeasured at historical exchange rates. Revenue and expenses related to foreign currency fluctuationsmonetary assets and liabilities are translated into United States dollarsremeasured at the period-endaverage exchange rate,rates and at historical exchange rates for the revenue and expenses are translated at exchange rates representing an average for the period. Translation adjustmentsrelated to non-monetary assets and liabilities.
Transaction gains (losses) from foreign currency forward contracts designated as cash flow hedges are included in Accumulated other comprehensive loss as a separate component of Stockholders’ equity. Gains or losses on all otherFor the years ended December 31,2023, 2022 and 2021, net foreign currency transactions aretransaction gains (losses) of $0.4 million, $0.5 million, and ($0.5) million, respectively, were recognized in the Consolidated Statement of Operations. The functional currency of the Company’s Mexican operations is the United States dollar.earnings.
Revenue Recognition
RevenueThe Company manufactures water infrastructure steel pipe products, which are generally made to custom specifications for installation contractors serving projects funded by public water agencies, as well as precast and reinforced concrete products. 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 construction contractsother promises in the contract and, therefore, is not distinct. The Company generally 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.
SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of the Company’s right to payment for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to the percentage-of-completion method. For a majority of contracts, revenueCompany. Revenue is measured by the costs incurred to date as a percentage ofrelative to the estimated total direct costs ofto fulfill each contract (cost-to-cost method). For a small number of contracts, revenue is measured using units of delivery as progress is best estimated by the number of units delivered under the contract. Contract costs include all material, labor, and other direct material and labor costs and those indirect costs related to contractincurred in satisfying the performance such as indirect labor, supplies, tools, repairs and depreciation. Selling, general and administrative costs are charged to expense as incurred.obligations. The cost of steel material is recognized as a projectcontract cost when the steel is introduced into the manufacturing process.
The Company begins recognizing revenue on a project when persuasive evidence of an arrangement exists, recoverability is reasonably assured, and project costs are incurred. Costs may be incurred before the Company has persuasive evidence of an arrangement. In those cases, if recoverability from that arrangement is probable, the project costs are deferred and revenue recognition is delayed.
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. Provisions for losses on uncompleted contracts, included in Accrued liabilities, are made inestimated by comparing total estimated contract revenue to the total estimated contract costs and a loss is recognized during the period such losses are known.in which it becomes probable and can be reasonably estimated.
See “Recent AccountingPrecast revenue for water infrastructure concrete pipe and Reporting Developments” belowprecast concrete products is recognized at the time control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for discussion regarding the expected impact ofproducts. All variable consideration that may affect the adoption of new guidancetotal transaction price, including contractual discounts, returns, and credits, is included in net sales. Estimates for revenue recognition effective in thevariable consideration are based on historical experience, anticipated performance, and management’s judgment. The Company’s contracts do firstnot quarter of 2018.contain significant financing.
No customer accounted for 10% or more of total Net sales from continuing operations for the year ended December 31,2017. One customer accounted for 28% of total Net sales from continuing operations for the year ended December 31,2016 and two customers accounted for 16% and 13% of total Net sales from continuing operations for the year ended December 31,2015.
Net sales from continuing operations by geographic region, based on the location of the customer, were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net sales from continuing operations by geographic region: | ||||||||||||
United States | $ | 122,179 | $ | 137,411 | $ | 161,243 | ||||||
Canada | 10,601 | 11,976 | 11,917 | |||||||||
Total | $ | 132,780 | $ | 149,387 | $ | 173,160 | ||||||
Share-based Compensation
The Company recognizes the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards. The Company estimates the fair value of restricted stock units (“RSUs”) and performance share awards (“PSAs”) using the value of the Company’s stock on the date of grant. Share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and, as forfeitures occur, the associated compensation cost recognized to date is reversed.
The For awards with performance-based payout conditions, the Company estimates the fair value of restricted stock units (“RSUs”) and performance share awards (“PSAs”) using the value of the Company’s stock on the date of grant, with the exception of market-based PSAs, for which a Monte Carlo simulation model is used. The Monte Carlo simulation model requires the use of subjective and complex assumptions including the price volatility of the underlying stock. The expected stock price volatility assumption is determined using the historical volatility of the Company’s and a comparator group of companies’ stock over the most recent historical period equivalent to the expected life. The Monte Carlo simulation model calculates many potential outcomes for an award and estimates fair valuerecognizes compensation cost based on the most likely outcome.probability of achieving the performance conditions, with changes in expectations recognized as an adjustment to earnings in the period of change. Any recognized compensation cost is reversed if the conditions are ultimately not met.
See Note
Income Taxes
Income taxes are recorded using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statementsConsolidated Financial Statements or income tax returns. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. The determination of the provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The provision for income taxes primarily reflects a combination of income earned and taxed in the various United States federal, and state, local, and to a lesser extent, foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized income tax benefits or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective income tax rate.
The Company records income tax reserves for federal, state, local, and international exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. The Company assesses income tax positions and records income tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those income tax positions where it is more-likely-than-not that an income tax benefit will be sustained, the Company has recorded the largest amount of income tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information has been recorded.information. For those income tax positions where it is not more-likely-than-not that an income tax benefit will be sustained, no income tax benefit has been recognized in the Consolidated Financial Statements.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes unrealized gains and losses on derivative instruments related to the effective portion of cash flow hedges and changes in the funded status of the defined benefit pension plans, both net of the related income tax effect.For further information, refer to Note 17, “Accumulated Other Comprehensive Loss.”
Net LossIncome per Share
Basic net lossincome per share is computed by dividing the net lossincome by the weighted-average number of shares of common stock outstanding during the period.period. Diluted net lossincome per share is computed by giving effect to all dilutive potential shares of common stock, including RSUs and PSAs, assumed to be outstanding during the period using the treasury stock options, restrictedmethod. Performance-based PSAs are considered dilutive when the related performance conditions have been met assuming the end of the reporting period represents the end of the performance period. In periods with a net loss, all potential shares of common stock units and performance share awards, toare excluded from the extent dilutive. Since the Company was in a loss position for all periods presented, basic andcomputation of diluted net loss per share was the same for each period presented as the inclusion of all potential common shares outstandingimpact would have beenbe antidilutive.
LossNet income per basic and diluted weighted-average common share outstanding was calculated as follows (in thousands, except per share data)amounts):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Loss from continuing operations | $ | (8,392 | ) | $ | (6,741 | ) | $ | (17,812 | ) | |||
Loss on discontinued operations | (1,771 | ) | (2,522 | ) | (11,576 | ) | ||||||
Net loss | $ | (10,163 | ) | $ | (9,263 | ) | $ | (29,388 | ) | |||
Basic weighted-average common shares outstanding | 9,613 | 9,588 | 9,560 | |||||||||
Effect of potentially dilutive common shares(1) | - | - | - | |||||||||
Diluted weighted-average common shares outstanding | 9,613 | 9,588 | 9,560 | |||||||||
Basic and diluted loss per common share: | ||||||||||||
Continuing operations | $ | (0.88 | ) | $ | (0.71 | ) | $ | (1.86 | ) | |||
Discontinued operations | (0.18 | ) | (0.26 | ) | (1.21 | ) | ||||||
Net loss per share | $ | (1.06 | ) | $ | (0.97 | ) | $ | (3.07 | ) | |||
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net income | $ | 21,072 | $ | 31,149 | $ | 11,523 | ||||||
Basic weighted-average common shares outstanding | 9,991 | 9,914 | 9,854 | |||||||||
Effect of potentially dilutive common shares (1) | 90 | 98 | 74 | |||||||||
Diluted weighted-average common shares outstanding | 10,081 | 10,012 | 9,928 | |||||||||
Net income per common share | ||||||||||||
Basic | $ | 2.11 | $ | 3.14 | $ | 1.17 | ||||||
Diluted | $ | 2.09 | $ | 3.11 | $ | 1.16 | ||||||
(1) |
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Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables, derivativeforeign currency forward contracts, interest rate swaps, and deferred compensation plan assets. Trade receivables generally represent a large number of customers, including municipalities, manufacturers, distributors, and contractors, dispersed across a wide geographic base. As of December 31, 20172023 and 2016,2022two customers, one customer had a balance in excess of 10% of total accounts receivable. DerivativeForeign currency forward contracts and interest rate swaps are with a high qualityhigh-quality financial institution. The Company’s deferred compensation plan assets, included in Other assets, are invested in a diversified portfolio of stock and bond mutual funds.
Recent Accounting and Reporting Developments
Accounting Changes
In July 2015,October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11,2021‑08, “Inventory“Business Combinations (Topic 330805): Simplifying the Measurement of Inventory”Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2015-11”2021‑08”). As which requires an entity to recognize and measure contract assets and contract liabilities acquired in a result of ASUbusiness combination in accordance with Accounting Standards Codification Topic 2015-11,606, companies are required to measure inventory at“Revenue from Contracts with Customers,” as if it had originated the lower of cost and net realizable value. This is a change from the prior requirement to value inventory at the lower of cost or market. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory valued using the last-in, first-out or retail inventory method is exempt from ASU 2015-11.contracts. The Company adopted this guidance prospectivelyASU 2021‑08 on January 1, 20172023 and the impact was not material to the Company’s financial position, results of operations, or cash flows.
In March 2016, the FASB issued Accounting Standards Update No.2016-09, “Compensation–Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. As a result of the adoption of this guidance on January 1,2017, on a prospective basis, the Company recognized $0.8 million of excess tax deficiencies from share-based compensation in Income tax benefit from continuing operations for the year ended December 31,2017. Historically, these amounts were recorded as Additional paid-in capital.
Recent Accounting Standards
In May 2014,March 2023, the FASB issued Accounting Standards UpdateASU No. 2014-09,2023‑01 “Revenue from Contracts with Customers“Leases (Topic 606842)”: Common Control Arrangements” (“ASU 2014-09”2023‑01”) which will replace most existing revenue recognition guidance in accordancerequires leasehold improvements associated with United States generally accepted accounting principles (“U.S. GAAP”common control leases be (1). The core principle amortized by the lessee over the useful life of ASU 2014-09 is that an entity should recognize revenue for the transfer of goods or services equalleasehold improvements to the amount that it expects to be entitled to receive for those goods or services. ASU 2014-09 requires additional disclosure aboutcommon control group as long as the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09 is effective forlessee controls the Company beginning January 1,2018. During 2016 and 2017, the FASB issued several ASUs that clarify the implementation guidance for ASU 2014-09 but do not change the core principleuse of the guidance.
The Company has finalized its analysis of the adoption of ASU 2014-09, which is not expected to haveunderlying asset through a material impact on its internal controls over financial reporting or its revenue recognition patternslease and (2) accounted for as compared to revenue recognitiona transfer between entities under the previous revenue guidance. Revenues generated will continue to be recognized over time utilizing costs to measure progress of performance obligations which is consistent with previous practice. The Company will adopt ASU 2014-09 on January 1,2018 using the modified retrospective method and will recognize the cumulative effect of approximately $1 million from initially applying the new revenue standard ascommon control through an adjustment to equity if, and when, the opening balancelessee no longer controls the use of retained earnings. The adjustment to the opening balance of retained earnings is the result of a change in the timing of revenue recognition on certain costs under the new standard, as well as, to a lesser extent, a change in the costs included in the provisions for losses on uncompleted contracts. Previously reported results will not be restated under this transition method. Additionally, upon adoption ofunderlying asset. ASU 2014-09, the Company will expand its financial statement disclosures around the nature and timing of the Company’s performance obligations, deferred revenue contract liabilities, deferred contract cost assets, as well as significant judgments and practical expedients used by the Company in applying the five-step revenue model.
In January 2016, the FASB issued Accounting Standards Update No.2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 makes changes to the accounting for equity investments and financial liabilities accounted for under the fair value option, and changes presentation and disclosure requirements for financial instruments. ASU 2016-2023‑01 is effective for the Company beginning January 1, 2018.2024, Inincluding interim periods in February 2018, the FASB issued Accounting Standards Update No.2018-03,2024, “Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2018-03”). ASU 2018-03 clarifies certain aspects of the guidance issued in ASU 2016-01. ASU 2018-03 is effective for the Company beginning July 1,2018. Earlywith early adoption is permitted once ASU 2016-01 has been adopted. permitted. The Company does not expect a material impact to the Company’sits financial position, results of operations, or cash flows from adoption of this guidance.
In February 2016,October 2023, the FASB issued ASU No.2023‑06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023‑06”) which incorporates certain SEC disclosure requirements into the Accounting Standards Update No.2016-02, “Leases (Topic 842)” (“Codification. The effective date for each amendment in ASU 20162023‑06-02”). ASU 2016-02 makes changes to U.S. GAAP, requiring the recognition of lease assets and lease liabilities by lessees for those leases previously classified as operating leases. For operating leases, the lease asset and lease liability will be initially measured at the present valueeffective date of the lease payments in the balance sheet. The costremoval of the lease is then allocated over the lease term generally on a straight-line basis. All cash payments will be classified within operating activities in the statement of cash flows. For financing leases, the lease asset and lease liability will be initially measured at the present value of the lease payments in the balance sheet. Interest on the lease liability will be recognized separatelydisclosure requirement from amortization of the lease asset in the statement of comprehensive income. In the statement of cash flows, repayments of the principal portion of the lease liability will be classified within financing activities, and payments of interest on the lease liability and variable payments will be classified within operating activities. For leasesRegulation S‑X or Regulation S‑K, with terms of twelve months or less, a lessee is permitted to make an accounting policy election by asset class not to recognize lease assets and lease liabilities. Lease expense for such leases will be generally recognized straight-line basis over the lease term.early adoption prohibited. The accounting applied by a lessor is largely unchanged from previous U.S. GAAP. ASU 2016-02 requires qualitative disclosures along with specific quantitative disclosures and will be effective for the Company beginning January 1,2019, including interim periods in 2019. ASU 2016-02 provides for a transitional adoption, with lessees and lessors required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted, however the Company does not anticipate early adoption. The Company continues to evaluate ASU2016-02, including the review and implementation of the necessary changes to existing processes and systems that will be required to implement this new standard. While the Company expects the adoption of ASU 2016-02 will materially increase its assets and liabilities on the Consolidated Balance Sheet, it currently does not expect ASU 2016-02 will have a material effect on its results of operations or cash flows.
In August 2016, the FASB issued Accounting Standards Update No.2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 clarifies whether eight specifically identified cash flow issues, which previous U.S. GAAP did not address,amendments should be categorized as operating, investing or financing activities in the statement of cash flows. ASU 2016-15 is effective for the Company beginning January 1,2018.applied prospectively. The Company does not expect a material impact to the Company’sits financial position, results of operations, or cash flows from adoption of this guidance.
In March 2017,November 2023, the FASB issued Accounting Standards UpdateASU No. 2017-2023‑07, “Compensation—Retirement Benefits“Segment Reporting (Topic 715280): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”Improvements to Reportable Segment Disclosures” (“ASU 2017-2023‑07”), which requires that the service cost componentdisclosure of net benefit cost be presented in the same income statement line as other employee compensation costs, while the other components of net benefit cost are to be presented outside income from operations.incremental segment information, primarily through enhanced disclosures about significant segment expenses, on an annual and interim basis for all public entities. ASU 2017-07 is effective for the Company on a retrospective basis beginning January 1,2018. The effect of adopting ASU 2017-2023‑07 will be the reclassification of the non-service cost components from Cost of sales to Other expense, resulting in an increase to Gross profitapplied retrospectively, and Operating income. There is no impact to Income before income taxes or Net income, so therefore no impact to Net income per share. Upon adoption, the Company expects a decrease to Cost of sales and an increase to Other expense of approximately $0 and $0.4 million for the years ended December 31,2017 and 2016, respectively.
In August 2017, the FASB issued Accounting Standards Update No.2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”), which better aligns risk management activities and financial reporting for hedging relationships, simplifies hedge accounting requirements, and improves disclosures of hedging arrangements. ASU 2017-12 will be effective for the CompanyCompany’s 2024 annual reporting, and for interim periods beginning in January 1,2025, 2019. Earlywith early adoption is permitted for any interim and annual financial statements that have not yet been issued.permitted. The Company is currently assessing the impact of ASU 2017-12 on its Consolidated Financial Statements.
In February 2018, the FASB issued Accounting Standards Update No.2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018-02”), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 and requires certain disclosures about stranded tax effects. ASU 2018-02 will be effective for the Company beginning January 1,2019. Early adoption is permitted for any interim and annual financial statements that have not yet been issued. The Company is currently assessing the impact of ASU 2018-02, but does not expect a material impact to the Company’sits financial position, results of operations, or cash flows from adoption of this guidance.
In December 2023, the FASB issued ASU No.2023‑09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023‑09”) which improves the transparency, effectiveness, and comparability of income tax disclosures and allows investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operation opportunities affect its income tax rate and prospects for future cash flows. ASU 2023‑09 will be applied prospectively, and will be effective for the Company’s 2025 annual reporting, with early adoption permitted. The Company is currently assessing the impact of ASU 2023‑09 on its disclosures in the notes to the consolidated financial statements.
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Park Environmental Equipment,LLC
On DecemberOctober 26,5, 2017,2021, the Company completed the saleacquisition of substantially100% of Park Environmental Equipment, LLC (“ParkUSA”) for a purchase price of $90.2 million in cash, which is included in the Precast segment for all periods following the acquisition date. ParkUSA is a precast concrete and steel fabrication-based company that develops and manufactures water, wastewater, and environmental solutions. Operations continue with ParkUSA’s previous management and workforce at its three Texas manufacturing facilities located in Houston, Dallas, and San Antonio. This strategic acquisition provides a foothold into the water infrastructure technology market. As the Company employs similar operating capabilities at its existing facilities, it intends to explore strategic opportunities to expand ParkUSA’s value-added products within the organization.
The following table summarizes the purchase consideration and fair value of the assets associated with the Company’s manufacturing facility in Atchison, Kansas (the “Atchison facility”), including allacquired and liabilities assumed as of the real and tangible personal property located at the site of that manufacturing facility. Total consideration of $37.2October 5, million in cash was paid by the buyer, resulting in a nominal gain recognized on the sale. Of the proceeds received, $0.752021 million was placed in escrow until February 2018 and approximately $3.7 million was placed in escrow for twelve months to secure the Company’s indemnification obligations under the agreement.(in thousands):
In accordance with applicable accounting guidance, the related assets of the Company’s Atchison facility are classified as current Assets held for sale in the Consolidated Balance Sheets for periods presented prior to the sale, and the financial results of the Atchison facility are presented as discontinued operations in the Consolidated Statements of Operations for all periods. Cash flows from the Company’s discontinued operations are presented separately in the Consolidated Statements of Cash Flows. As the Atchison facility was the remaining Tubular Products business, the Company now operates in only one business segment, Water Transmission.
Assets | ||||
Cash and cash equivalents | $ | 278 | ||
Trade and other receivables | 11,034 | |||
Inventories | 12,773 | |||
Prepaid expenses and other | 293 | |||
Property and equipment | 8,076 | |||
Operating lease right-of-use assets | 58,301 | |||
Intangible assets | 31,000 | |||
Deferred income taxes | 347 | |||
Total assets acquired | 122,102 | |||
Liabilities | ||||
Accounts payable | 2,029 | |||
Accrued liabilities | 4,067 | |||
Operating lease liabilities | 58,301 | |||
Total liabilities assumed | 64,397 | |||
Goodwill | 32,519 | |||
Total purchase consideration | $ | 90,224 |
The table below presentstangible and intangible assets acquired and liabilities assumed were recognized based on their estimated fair values on the componentsacquisition date, with the excess 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 balance sheet accounts associated with the Atchison facility which were reported as current Assets held for sale on the Consolidated Balance Sheets (in thousands).
| December 31, | ||||||||
2017 | 2016 | |||||||
Assets | ||||||||
Inventories | $ | - | $ | 392 | ||||
Property and equipment, net | - | 36,430 | ||||||
Total assets | $ | - | $ | 36,822 | ||||
The table below presents the operating results for the Company’s discontinued operations (in thousands).
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net sales | $ | 12 | $ | 6,869 | $ | 63,448 | ||||||
Cost of sales | 1,792 | 9,777 | 76,679 | |||||||||
Gross loss | (1,780 | ) | (2,908 | ) | (13,231 | ) | ||||||
Selling, general and administrative expense | (1 | ) | 257 | 1,925 | ||||||||
Gain on sale of facility | (6 | ) | - | - | ||||||||
Operating loss | (1,773 | ) | (3,165 | ) | (15,156 | ) | ||||||
Other income (expense) | - | (1 | ) | 30 | ||||||||
Interest income | - | - | 172 | |||||||||
Interest expense | - | (14 | ) | (50 | ) | |||||||
Loss before income taxes | (1,773 | ) | (3,180 | ) | (15,004 | ) | ||||||
Income tax benefit | (2 | ) | (658 | ) | (3,428 | ) | ||||||
Net loss | $ | (1,771 | ) | $ | (2,522 | ) | $ | (11,576 | ) | |||
In April2015,acquisition date, the Company initiated a production curtailment at the Atchison facility. Severance related restructuring expenses associated with the production curtailmentrecorded measurement period adjustments during the year ended December 31, 20152022 werewhich resulted in a $1.8 million increase in goodwill and purchase consideration related to the settlement of working capital. The measurement period for the ParkUSA acquisition was complete as of $0.6September 30, 2022.
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 | 10.0 | $ | 19,800 | |||||
Trade names and trademarks | 10.0 | 9,600 | ||||||
Patents | 21.0 | 1,300 | ||||||
Backlog | 0.6 | 300 | ||||||
Total intangible assets | 10.4 | $ | 31,000 | |||||
Goodwill arose from the acquisition of an assembled workforce, expansion of product offerings, and management’s industry know-how, and is deductible for tax purposes.
The Company incurred transaction costs associated with this acquisition of $0, $0.1 million, of whichand $3.4 million during the years ended $0.5December 31, million was2023, 2022 and 2021, respectively. These transaction costs are included in cost of sales and $0.1 million was included in selling,Selling, general, and administrative expense in the tableConsolidated Statements of Operations.
Unaudited Pro Forma Disclosures
The following unaudited pro forma summary presents the consolidated results of the Company as if the acquisition of ParkUSA had occurred on January 1,2020 (in thousands):
Year Ended December 31, 2021 | ||||
Net sales | $ | 384,872 | ||
Net income | 15,780 | |||
This unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating results for discontinued operations above.
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Costs and estimated earnings in excesswould have been if the acquisitions of billingsParkUSA had occurred on uncompleted contracts represents revenue earned underJanuary 1 of the percentage-of-completion method butyear prior to the acquisition. Moreover, this information is not yet billableindicative 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 ParkUSA. The pro forma amounts have been calculated after applying the termsCompany’s accounting policies and adjusting the results of ParkUSA 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 contracts. These amounts are billed based onyear prior to the termsacquisition. Adjustments also include an increase of interest expense as if the Company’s debt obtained in connection with the acquisitions of ParkUSA had been outstanding since January 1 of the contracts, whichyear prior to the acquisition. The pro forma results for the year ended December 31,2021 include achievement of milestones, partial shipments or completion ofnonrecurring adjustments to add back the contracts. Billings in excess of costs and estimated earnings on uncompleted contracts represents amounts billed based on the terms of the contracts in advance oftransaction costs incurred and revenue earned.the expense related to the revaluation of inventory acquired in those periods, since those costs are reflected in the preceding year on a pro forma basis. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.
December 31, | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Costs incurred on uncompleted contracts | $ | 227,048 | $ | 238,050 | ||||
Estimated earnings | 9,722 | 7,247 | ||||||
| 236,770 | 245,297 | |||||||
Less billings to date | (194,867 | ) | (203,672 | ) | ||||
| $ | 41,903 | $ | 41,625 | |||||
Amounts are presented in the Consolidated Balance Sheets as follows: | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 44,502 | $ | 43,663 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (2,599 | ) | (2,038 | ) | ||||
| $ | 41,903 | $ | 41,625 | |||||
| INVENTORIES: |
Inventories consist of the following (in thousands):
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2023 | 2022 | |||||||||||||
Short-term inventories: | ||||||||||||||||
Raw materials | $ | 13,700 | $ | 15,411 | ||||||||||||
Work-in-process | 1,268 | 1,235 | ||||||||||||||
Finished goods | 464 | 40 | ||||||||||||||
Supplies | 1,623 | 1,959 | ||||||||||||||
Total short-term inventories | 17,055 | 18,645 | ||||||||||||||
Long-term inventories: | ||||||||||||||||
Finished goods | 820 | 773 | ||||||||||||||
Total inventories | $ | 17,875 | $ | 19,418 | ||||||||||||
Raw materials | $ | 68,110 | $ | 47,978 | ||||||||||||
Work-in-process | 8,912 | 5,114 | ||||||||||||||
Finished goods | 11,911 | 15,773 | ||||||||||||||
Supplies | 2,296 | 2,164 | ||||||||||||||
Total inventories | $ | 91,229 | $ | 71,029 | ||||||||||||
Long-term inventories are recorded in Other assets.
| PROPERTY AND EQUIPMENT: |
Property and equipment,, net consists of the following (in thousands):
December 31, | ||||||||
2017 | 2016 | |||||||
Land and improvements | $ | 20,185 | $ | 19,787 | ||||
Buildings | 30,301 | 30,219 | ||||||
Machinery and equipment | 100,438 | 99,485 | ||||||
Equipment under capital lease | 1,171 | 1,126 | ||||||
Construction in progress | 972 | 531 | ||||||
| 153,067 | 151,148 | |||||||
Less accumulated depreciation and amortization | (74,311 | ) | (69,477 | ) | ||||
Property and equipment, net | $ | 78,756 | $ | 81,671 | ||||
Accumulated amortization associated with equipment under capital lease was $0.5 million and $0.6 million as of December 31,2017 and 2016, respectively.
December 31, | ||||||||
2023 | 2022 | |||||||
Land and improvements | $ | 25,064 | $ | 23,981 | ||||
Buildings | 54,036 | 51,389 | ||||||
Leasehold improvements | 3,182 | 3,182 | ||||||
Machinery and equipment | 155,278 | 149,971 | ||||||
Equipment under finance lease | 8,519 | 3,849 | ||||||
| 246,079 | 232,372 | |||||||
Less accumulated depreciation and amortization | (126,359 | ) | (117,856 | ) | ||||
| 119,720 | 114,516 | |||||||
Construction in progress | 24,235 | 18,650 | ||||||
Property and equipment, net | $ | 143,955 | $ | 133,166 | ||||
All property and equipment is located in the United States, except for $3.8$18.2 million and $4.1$19.0 million of net property and equipment which is located in Mexico as of December 31, 20172023 and 2016,2022, respectively.
6. | GOODWILL AND INTANGIBLE ASSETS: |
Goodwill
OnThe Company has recorded goodwill of $55.5 million as of OctoberDecember 4,31, 2016,2023 and 2022 in connection with its business acquisitions within the Precast segment. The Company soldperformed its Denver, Colorado facility for net proceedsannual goodwill impairment test as of $13.9November 30, million2023, utilizing a qualitative analysis, and recorded a gain on the sale ofdid $7.9not millionidentify any potential impairment. It is possible that future changes in circumstances, judgments, or assumptions, including prolonged economic weakness or unexpected significant declines in Precast operating results or projections, may result in goodwill impairment charges in the fourth quarter of 2016. Under the terms of the sale, the Company leased the property through March 1,2017, in order to conclude production at the facility, complete final shipments and transfer certain equipment assets to other Company facilities.future.
Intangible Assets
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Intangible assets, included in Other assets on the Consolidated Balance Sheets, consist of the following (in thousands):
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Gross Carrying | Accumulated | Intangible | ||||||||||
Amount | Amortization | Assets, Net | ||||||||||
As of December 31, 2023 | ||||||||||||
Customer relationships | $ | 27,831 | $ | (7,315 | ) | $ | 20,516 | |||||
Trade names and trademarks | 12,825 | (3,734 | ) | 9,091 | ||||||||
Patents | 1,627 | (160 | ) | 1,467 | ||||||||
Total | $ | 42,283 | $ | (11,209 | ) | $ | 31,074 | |||||
As of December 31, 2022 | ||||||||||||
Customer relationships | $ | 29,209 | $ | (5,845 | ) | $ | 23,364 | |||||
Trade names and trademarks | 12,825 | (2,490 | ) | 10,335 | ||||||||
Patents | 1,627 | (81 | ) | 1,546 | ||||||||
Other | 329 | (310 | ) | 19 | ||||||||
Total | $ | 43,990 | $ | (8,726 | ) | $ | 35,264 | |||||
The estimated amortization expense for each of the next five years and thereafter is as follows (in thousands): Year ending December 31, 2024 2025 2026 2027 2028 Thereafter Total amortization expense 7. CURRENT DEBT: The Interim Funding Agreement dated August 2,2022 with Wells Fargo Equipment Finance, Inc. (“WFEF”), as amended January 23,2023,March 15,2023,July 21,2023, and November 2,2023 (together, the “IFA”), provides for aggregate interim funding advances up to $10.8 million of equipment purchased for a new reinforced concrete pipe mill, to be converted into a term loan upon final delivery and acceptance of the financed equipment. As of December 31,2023 and 2022, the outstanding balance of the IFA was $10.8 million, which is classified as a current liability since there is not a firm commitment for long-term debt financing. The IFA bore interest at the term Secured Overnight Finance Rate (“SOFR”) plus 1.75% as of December 31,2022. Effective November 2,2023, the IFA bears interest at the SOFR Average plus 2.00%. As of December 31,2023 and 2022, the weighted-average interest rate for outstanding borrowings was 7.08% and 5.87%, respectively. The IFA requires monthly payments of accrued interest and grants a security interest in the equipment to WFEF. Effective November 2,2023, the IFA requires the Company to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”) (as defined in the IFA) of at least $35 million for the four consecutive fiscal quarters most recently ended. The Company was in compliance with its financial covenants as of December 31,2023. Year ending December 31, 2018 2019 2020 2021 2022 Thereafter(117) Other intangibles consist $ 4,033 4,033 4,033 4,033 4,033 10,909 $ 31,074 $ 459 213 213 213 213 592 $ 1,903
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The Company’s LoanThe Credit Agreement dated June 30,2021 with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and Security Agreementthe lenders from time to time party thereto, including the initial sole lender, Wells Fargo (the “Agreement”“Lenders”) with Bank of America, N.A,, as amended expires onby the Incremental Amendment dated October 25,22, 20182021, the Second Amendment to Credit Agreement dated April 29,2022, and the Third Amendment to Credit Agreement dated June 29,2023 (together, the “Amended Credit Agreement”), provides for a revolving loansloan, swingline loan, and letters of credit in the aggregate amount of up to $125 million (“Revolver Commitment”), with an option for the maximum principalCompany to increase that amount (the “Revolver Commitment”) of $60by $50 million, subject to a borrowing base. The borrowing base is calculated by applying various advance rates to eligible accounts receivable, costs and estimated earnings in excess of billings, inventories and fixed assets, subject to various exclusions, adjustments and sublimits by asset class. The Company has the ability to increase the Revolver Commitment to $100 million, subject to the provisions of the Amended Credit Agreement. The Amended Credit Agreement will expire, and all obligations outstanding will mature, on June 29,2028. The Company may prepay outstanding amounts at its discretion without penalty at any time, subject to applicable notice requirements. In conjunction with entering into the Credit Agreement on June 30,2021, the Company terminated the Credit Agreement with Wells Fargo dated October 25,2018, as amended on January 31,2020 by the Consent and Amendment No.1 to Credit Agreement with Wells Fargo (together, the “Former Credit Agreement”), and all outstanding debt under the Former Credit Agreement, including long-term debt, was repaid.
BorrowingsThe Amended Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants, events of default, and indemnification provisions in favor of the Lenders. The negative covenants include restrictions regarding the incurrence of liens and indebtedness, annual capital expenditures, certain investments, acquisitions, and dispositions, and other matters, all subject to certain exceptions. The Amended Credit Agreement requires the Company to regularly provide financial information to Wells Fargo and to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated EBITDA (as defined in the Amended Credit Agreement) of at least $35 million for the four consecutive fiscal quarters most recently ended. Pursuant to the Amended Credit Agreement, the Company has also agreed that it will not sell, assign, or otherwise dispose or encumber, any of its owned real property. The occurrence of an event of default could result in the acceleration of the obligations under the Agreement bear interest at rates related to London Interbank Offered Rate plusAmended Credit Agreement. The Company was in compliance with its financial covenants as of 1.75%December 31, to 2.25%,2023 or at Bank of America’s prime rate plus 0.75% to 1.25%. Borrowings
The Company’s obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of the Company’s and its subsidiaries’ assets. As
Interest expense from revolving loan borrowings, current debt, long-term debt, and 2016, there were no outstanding borrowings. As of December 31,2017, the Company’s borrowing capacity under the Agreementfinance leases was $19.1$4.9 million, net of outstanding lettersamounts capitalized of credit.
The Agreement also contains customary representations, warranties and events of default, which include the occurrence of events or circumstances which have a Material Adverse Effect, as defined$0.5 million in the Agreement. Payment of outstanding advances may 2023be accelerated, at the option of Bank of America, should the Company default in its obligations under the Agreement.
In October 2015, the Company terminated its previous credit agreement and incurred incremental interest expense of $0.4 million related to the write-off of unamortized financing costs associated with the terminated agreement.
Interest expense from continuing operations from line of credit borrowings and capital leases was $0.5, $3.6 million, net of a nominal amount capitalized in 2017,2022$0.5 million in 2016, and $1.3$1.2 million, net of amounts capitalized of $0.1$0.1 million in 2015.2021.
Line of Credit (Revolving and Swingline Loans)
As of December 31, No2023 under the Amended Credit Agreement, the Company had $54.5 million of outstanding revolving loan borrowings, $1.1 million of outstanding letters of credit, and additional borrowing capacity of approximately $69 million. As of December 31,2022 under the Amended Credit Agreement, the Company had $83.7 million of outstanding revolving loan borrowings and $1.1 million of outstanding letters of credit. Revolving loans under the Amended Credit Agreement bear interest at rates related to, at the Company’s option and subject to the provisions of the Amended Credit Agreement, either: (i) Base Rate (as defined in the Amended Credit Agreement) plus the Applicable Margin; (ii) Adjusted Term SOFR (as defined in the Amended Credit Agreement) plus the Applicable Margin; or (iii) Adjusted Daily Simple SOFR (as defined in the Amended Credit Agreement) plus the Applicable Margin. The “Applicable Margin” is 1.75% to 2.35%, depending on the Company’s Consolidated Senior Leverage Ratio (as defined in the Amended Credit Agreement) and the interest rate option chosen. Interest on outstanding revolving loans is payable monthly. Swingline loans under the Amended Credit Agreement bear interest at the Base Rate plus the Applicable Margin. As of December 31,2023 and 2022, the weighted-average interest rate for outstanding borrowings was capitalized7.43% and 6.07%, respectively. The Amended Credit Agreement requires the payment of a commitment fee of between 0.30% and 0.40%, based on the amount by which the Revolver Commitment exceeds the average daily balance of outstanding borrowings (as defined in 2016.the Amended Credit Agreement). Such fee is payable monthly in arrears. The Company is also obligated to pay additional fees customary for credit facilities of this size and type.
9. | LEASES: |
The following table summarizes the Company’s leases recorded on the Consolidated Balance Sheets (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Right-of-use assets: | ||||||||
Finance leases, net, included in Property and equipment (1) | $ | 7,092 | $ | 2,618 | ||||
Operating leases | 88,155 | 93,124 | ||||||
Total right-of-use assets | $ | 95,247 | $ | 95,742 | ||||
Lease liabilities: | ||||||||
Finance leases | $ | 7,481 | $ | 3,037 | ||||
Operating leases | 90,216 | 94,174 | ||||||
Total lease liabilities | $ | 97,697 | $ | 97,211 | ||||
(1) | Finance lease right-of-use assets are presented net of accumulated amortization of $1.4 million and $1.2 million as of December 31,2023 and 2022, respectively. |
Lease cost consists of the following (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Finance lease cost: | ||||||||||||
Amortization of right-of-use assets | $ | 795 | $ | 577 | $ | 413 | ||||||
Interest on lease liabilities | 266 | 148 | 90 | |||||||||
Operating lease cost | 7,765 | 7,770 | 4,627 | |||||||||
Short-term lease cost | 1,402 | 1,000 | 993 | |||||||||
Variable lease cost | 313 | 251 | 158 | |||||||||
Total lease cost | $ | 10,541 | $ | 9,746 | $ | 6,281 | ||||||
|
|
Capital Leases
The Company leases certain equipment used in the manufacturing process. The Company had a totalfuture maturities of $1.1 million in capital lease obligations outstandingliabilities as of December 31, 2017. The weighted-average interest rate on all of the Company’s capital leases was 4.68%. The future minimum payments under the Company’s capital leases as of December 31,20172023 are as follows (in thousands):
Finance Leases | Operating Leases | |||||||
2024 | $ | 2,212 | $ | 6,874 | ||||
2025 | 1,923 | 6,913 | ||||||
2026 | 1,847 | 6,583 | ||||||
2027 | 1,614 | 6,192 | ||||||
2028 | 1,147 | 6,308 | ||||||
Thereafter | - | 76,453 | ||||||
Total lease payments | 8,743 | 109,323 | ||||||
Amount representing interest | (1,262 | ) | (19,107 | ) | ||||
Present value of lease liabilities | 7,481 | 90,216 | ||||||
Current portion of lease liabilities (1) | (1,721 | ) | (4,933 | ) | ||||
Long-term lease liabilities (2) | $ | 5,760 | $ | 85,283 | ||||
2018 | $ | 361 | ||
2019 | 333 | |||
2020 | 238 | |||
2021 | 121 | |||
2022 | 100 | |||
Total minimum lease payments | 1,153 | |||
Amount representing interest | (98 | ) | ||
Present value of minimum lease payments | 1,055 | |||
Current portion of capital lease obligations | 318 | |||
Capital lease obligations, less current portion | $ | 737 |
Operating Leases
The Company has entered into various equipment and property leases with terms of ten years or less. Total rental expense from continuing operations for the years ended December 31,2017,2016 and 2015 was $3.0 million, $3.0 million and $3.1 million, respectively. Certain of the Company’s operating lease agreements include renewals and/or purchase options set to expire at various dates. The future minimum payments for operating leases with initial or remaining terms in excess of one year as of December 31,2017 are as follows (in thousands):
2018 | $ | 1,698 | ||
2019 | 1,242 | |||
2020 | 1,108 | |||
2021 | 798 | |||
2022 | 381 | |||
Thereafter | 1,045 | |||
| $ | 6,272 |
( |
|
(2) | Long-term finance lease liabilities, less current portion are included in Other long-term liabilities. |
The Company records its financial assetsfollowing table summarizes the lease terms and liabilities at fairdiscount rates for the lease liabilities:
December 31, | ||||||||
2023 | 2022 | |||||||
Weighted-average remaining lease term (years) | ||||||||
Finance leases | 3.90 | 3.52 | ||||||
Operating leases | 16.73 | 17.83 | ||||||
Weighted-average discount rate | ||||||||
Finance leases | 6.93 | % | 5.44 | % | ||||
Operating leases | 2.17 | % | 2.19 | % | ||||
The following table presents other information related to the operating and finance leases (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
Operating cash flows from finance leases | $ | (266 | ) | $ | (148 | ) | $ | (90 | ) | |||
Operating cash flows from operating leases | (6,930 | ) | (6,818 | ) | (4,142 | ) | ||||||
Financing cash flows from finance leases | (826 | ) | (597 | ) | (415 | ) | ||||||
Right-of-use assets obtained in exchange for finance lease liabilities | 5,270 | 1,466 | 853 | |||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | 952 | 568 | 16,043 | |||||||||
10. | FAIR VALUE MEASUREMENTS: |
Fair value which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date.
The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. These levels are: Level 1 (inputs are quoted prices in active markets for identical assets or liabilities); Level 2 (inputs are other than quoted prices that are observable, either directly or indirectly through corroboration with observable market data); and Level 3 (inputs are unobservable, with little or no market data that exists, such as internal financial forecasts). The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The following table summarizes information regarding the Company’sCompany’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
As of December 31, 2017 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||
Deferred compensation plan | $ | 6,244 | $ | 5,251 | $ | 993 | $ | - | ||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||
Derivatives | $ | (60 | ) | $ | - | $ | (60 | ) | $ | - | ||||||||||||||||||||||
As of December 31, 2023 | ||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||
Deferred compensation plan | $ | 3,912 | $ | 3,391 | $ | 521 | $ | - | ||||||||||||||||||||||||
Foreign currency forward contracts | 42 | - | 42 | - | ||||||||||||||||||||||||||||
Interest rate swaps | 326 | - | 326 | - | ||||||||||||||||||||||||||||
Total financial assets | $ | 4,280 | $ | 3,391 | $ | 889 | $ | - | ||||||||||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||
Deferred compensation plan | $ | 6,209 | $ | 5,215 | $ | 994 | $ | - | ||||||||||||||||||||||||
Derivatives | 58 | - | 58 | - | ||||||||||||||||||||||||||||
Total assets | $ | 6,267 | $ | 5,215 | $ | 1,052 | $ | - | ||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||
Foreign currency forward contracts | $ | (115 | ) | $ | - | $ | (115 | ) | $ | - | ||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||
Derivatives | $ | (8 | ) | $ | - | $ | (8 | ) | $ | - | ||||||||||||||||||||||
As of December 31, 2022 | ||||||||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||||||
Deferred compensation plan | $ | 3,587 | $ | 3,090 | $ | 497 | $ | - | ||||||||||||||||||||||||
Foreign currency forward contracts | 728 | - | 728 | - | ||||||||||||||||||||||||||||
Interest rate swaps | 862 | - | 862 | - | ||||||||||||||||||||||||||||
Total financial assets | $ | 5,177 | $ | 3,090 | $ | 2,087 | $ | - | ||||||||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||||||||
Foreign currency forward contracts | $ | (80 | ) | $ | - | $ | (80 | ) | $ | - | ||||||||||||||||||||||
The deferred compensation plan assets consist of cash and several publicly traded stock and bond mutual funds, valued using quoted market prices in active markets,, classified as Level 1 within the fair value hierarchy, as well as guaranteed investment contracts, valued at principal plus interest credited at contract rates, classified as Level 2 within the fair value hierarchy. Deferred compensation plan assets are included within Other assets in the Consolidated Balance Sheets.
The Company’s derivatives consist of foreign currency forward contracts whichand interest rate swaps are accounted for as cash flow hedges, and arederivatives valued using various pricing models or discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates, and are classified as Level 2 within the fair value hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company. The foreign currency forward contracts and interest rate swaps are presented at their gross fair values. Foreign currency forward contract and interest rate swap assets are included within Prepaid expenses and other and foreign currency forward contract liabilities are included within Accrued liabilities in the Consolidated Balance Sheets.
The net carrying amounts of cash and cash equivalents, trade and other receivables, accounts payable, and accrued liabilities, and current debt approximate fair value due to the short-term nature of these instruments. The net carrying amount of the borrowings on the line of credit approximates fair value due to its variable interest rate based on market.
Assets Measured and Recorded at Fair Value on a Nonrecurring Basis
The Company measures its financial assets, including non-marketable cost-method investments, at fair value on a nonrecurring basis when they are determined to be other-than-temporarily impaired. The fair value of these assets is determined using Level 3 unobservable inputs due to the absence of observable market inputs, and because the valuations require management judgment. There were no material impairment charges recorded on investments during the years ended December 31,2017,2016 and 2015.
If required as part of its goodwill impairment assessments, the Company calculates the business enterprise value of applicable reporting units. This calculation uses a weighted average of income and market approaches, and is classified as Level 3 within the fair value hierarchy. The income approach is primarily driven by inputs from the Company’s internal financial forecasts. The market approach incorporates inputs from market participant data, as well as inputs derived from Company assumptions.
| DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: |
For each derivative contract entered into in which the Company seeks to obtain cash flow hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instrument’sinstrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific firm commitments or forecasted transactions and designating the derivatives as cash flow hedges. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative contractsderivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of these hedged items is reflected in Unrealized gain (loss) on cash flow hedges on the Consolidated Statements of Comprehensive Loss.Income. If it is determined that a derivative contract is not highly effective, or that it has ceased to be a highly effective hedge, the Company will beis required to discontinue hedge accounting with respect to that derivative contract prospectively.
As of December 31, 20172023 and 2016,, the total notional amount of the derivativeforeign currency forward contracts was $5.1 million (CAD$6.7 million) and $1.2 million (EUR€1.1 million), which included $4.9 million (CAD$6.4 million) and $1.2 million (EUR€1.1 million) of foreign currency forward contracts not designated as cash flow hedgeshedges. As of December 31,2022, the total notional amount of the foreign currency forward contracts was $2.1$17.1 million (CAD$2.7(CAD$23.2 million) and $3.4$1.1 million (CAD$4.5(EUR€1.1 million), respectively. Derivative assets arewhich included within Prepaid expenses and other and derivative liabilities are included within Accrued liabilities in the Consolidated Balance Sheets. All$0.3 million (CAD$0.4 million) of foreign currency forward contracts not designated as cash flow hedges. As of December 31,2023, the Company’s foreign currency forward contracts mature at various dates through April 2025 and are subject to an enforceable master netting arrangement. The Company presents the assets and liabilities associated with its foreign currency forward contracts at their gross fair values in the Consolidated Balance Sheets.
AllThe Company has entered into interest rate swaps which effectively convert a portion of its variable-rate debt to fixed-rate debt, and are designated as cash flow hedges. The Company receives floating interest payments monthly based on SOFR and pays a fixed rate of 1.941% to the Company’s Canadian forward contracts have maturities less than twelve monthscounterparty on the total notional amount of $6.7 million and $26.7 million as of December 31, 2017,2023 exceptand two2022 contracts with, respectively, which amortizes ratably on a combined notional amount of $2.1 million (CAD$2.7 million) which have remaining maturities of 15monthly basis to 17zero months.by the April 2024 maturity date.
AsOn August 9,2022, the Company entered into an interest rate swap transaction which began April 3,2023. The Company receives floating interest payments monthly based on the SOFR Average 30 day and pays a fixed rate of December31,2017 and 2016,2.96% to the counterparty on the total notional amount of the derivative contracts not designated$13.0 million as cash flow hedges was $0.2 million (CAD$0.2 million) and $0.9 million (CAD$1.3 million), respectively. For the years ended of December 31, 2017,2023, which amortizes ratably on a monthly basis to zero by the 2016April 2028 and 2015,maturity date.
The following table summarizes the gains (losses) recognized on derivatives in Net sales from continuing operations from derivative contracts not designated as hedging instruments were approximately $0,$0 and $0.4 million, respectively. the Consolidated Financial Statements (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Foreign currency forward contracts: | ||||||||||||
Net sales | $ | (708 | ) | $ | 660 | $ | 9 | |||||
Property and equipment | (109 | ) | (680 | ) | - | |||||||
Interest rate swaps: | ||||||||||||
Interest expense | 719 | 39 | - | |||||||||
Total | $ | (98 | ) | $ | 19 | $ | 9 | |||||
As of December 31, 2017,2023, unrealized pretax lossesgains (losses) on outstanding derivativescash flow hedges in Accumulated other comprehensive loss was $0.3 million, of which approximately $0. Typically, outstanding derivatives balances in Accumulated other comprehensive loss$0 and $0.3 million are expected to be reclassified to Net sales from continuing operationsand Interest expense, respectively, within the next twelve months as a result of underlying hedged transactions also being recorded in Net sales from continuing operations.these line items. See Note 17,18 “Accumulated Other Comprehensive Loss” for additional quantitative information regarding derivativeforeign currency forward contract and interest rate swap gains and losses.
| STOCKHOLDERS’ EQUITY: |
At-the-Market Offering
On September 2,2022, the Company entered into an Open Market Sale Agreement (the “At-the-Market Offering”) with Jefferies LLC (“Jefferies”) which provided for the issuance and sale of shares of its common stock, par value $0.01 per share, having aggregate offering sales proceeds of up to $50 million from time to time through Jefferies as its sales agent. On October 30,2023, the Company provided written notice terminating the Open Market Sale Agreement in accordance with its terms. No proceeds were raised under the At-the-Market Offering during the years ended December 31,2023 or 2022.
Share Repurchase Program
On November 2,2023, the Company announced its authorization of a share repurchase program of up to $30 million of its outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program, shares may be purchased in open market, including through Rule 10b5‑1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions administered by its broker, D.A. Davidson Companies. At this time, the Company has elected to limit its share repurchase transactions to only those under the Rule 10b5‑1 trading plan it executed in November 2023, which the Company believes considers its liquidity, including availability of borrowings and covenant compliance under the Amended Credit Agreement, and other capital allocation priorities of the business. The Company’s Rule 10b5‑1 trading plan designates up to $10 million for repurchases and provides for daily share repurchases that fluctuate with changes in the trading price of its common stock.
During the year ended December 31,2023, the Company repurchased approximately 29,000 shares of the Company’s common stock for an aggregate amount of $0.8 million. As of December 31,2023, $29.2 million of the share repurchase authorization remained available for repurchases under this program. There were no share repurchases authorized during the years ended December 31,2022 or 2021.
13. | RETIREMENT PLANS: |
Defined Contribution Plan
The Company has a defined contribution retirement plan that covers substantially all of its employees and provides for a Company match of up to 50% of the first 6%8% of employee contributions to the plan, subject to certain limitations. The
ParkUSA had a defined contribution retirement plan offers that covered substantially all of its employees and provided for a match of up to 100% of the 24first investment options.4% of employee contributions to the plan, subject to certain limitations. After the acquisition of ParkUSA on October 5,2021, employees of ParkUSA continued to contribute to this plan until it was merged into the Company’s plan effective December 31,2021.
Defined Benefit Plans
The Company has two noncontributory defined benefit plans. Effective 2001, both plans were frozen and participants were fully vested in their accrued benefits as of the date each plan was frozen. No additional participants can be added to the plans and no additional service can be earned by participants subsequent to the date the plans were frozen. The funding policy for both of these plans is based on current plan costs plus amortization of the unfunded plan liability. All current employees covered by these plans are now covered by the defined contribution retirement plan.
As of December31, 20172023 and 2016,2022, the Company had recorded, in accordance with the actuarial valuations, an accrued pension liabilityasset of $1.7$0.5 million and $1.9$0.1 million, respectively, in Other long-term liabilitiesassets, and an unrecognized actuarial loss, net of tax, of $1.4$1.2 million and $1.5$1.5 million, respectively, in Accumulated other comprehensive loss. Additionally, as of December 31, 20172023 and 2016,2022, the projected and accumulated benefit obligation was $6.6$4.6 million and $6.5$4.8 million, respectively, and the fair value of plan assets was $4.9$5.1 million and $4.6$4.9 million, respectively.
The netnet periodic benefit cost was approximately $0, $0.1 million, and $0.1 million for each of the years ended December 31, 2017,2023, 20162022, and 20152021 was approximately $0,$0.4 million and $0.4 million,, respectively. The weighted-average discount rates used to measure the projected benefit obligation were 3.36%4.69% and 3.74%4.89% as of December 31, 20172023 and 2016,2022, respectively.
The plan assets are invested in pooled separate accounts stated at fair value based on the daily net asset value of the account and are therefore not categorized in the fair value hierarchy. The expected weighted-average long-term rate of return on plan assets was 7.5%7.00% as of December 31, 20172023 and 2016.2022.
Non-qualified Retirement Savings Plan
The Company has a deferred compensation plan that covered officers and selected highly compensated employees until it was frozen in 2016. The deferred compensation plan generally matched up to 50% of the first$10,000 of officer contributions to the plan and the first$5,000 of other selected highly compensated employee contributions, subject to certain limitations. It also provided officers with a Company funded component with a retirement target benefit, until this component of the deferred compensation plan was frozen in 2015. The retirement target benefit amount was an actuarially estimated amount necessary to provide 35% of final base pay after a 35-year career with the Company or 1% of final base pay per year of service. The actual benefit, however, assumed an investment growth at 8% per year. Should the investment growth be greater than 8%, the benefit will be more, but if it is less than 8%, the amount will be less and the Company does not make up any deficiency. As of December 31, 20172023 and 2016,2022$6.2 million for the, deferred compensation plan wasbalances of $3.9 million and $3.6 million, respectively, were recorded in Other assets and Other long-term liabilities.
Total expense for all retirement plans for the years ended December 31, 2017,2023, 20162022, and 20152021 was $0.9$2.5 million, $1.4$2.2 million, and $1.5$1.8 million, respectively. Included in these amounts was $0.1 million reported in Loss from operations of discontinued operations forrespectively, and is primarily related to the year ended December 31,2015.defined contribution plan.
| SHARE-BASED COMPENSATION: |
The Company has one active stock incentive plan for employees and directors, the 20072022 Stock Incentive Plan, which provides for awards of stock options to purchase shares of common stock, stock appreciation rights, restricted and unrestricted shares of common stock, RSUs, and PSAs. In addition, the Company had has one inactive stock optionincentive plan, the 19952007 Stock OptionIncentive Plan, for Nonemployee Directors, under which remaining previously granted options expired unexercised duringawards remain outstanding.
The following table summarizes share-based compensation expense recorded (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Cost of sales | $ | 1,027 | $ | 1,320 | $ | 1,003 | ||||||
Selling, general, and administrative expense | 2,645 | 2,382 | 2,213 | |||||||||
Total | $ | 3,672 | $ | 3,702 | $ | 3,216 | ||||||
There were 722,573 shares of common stock available for future issuance under the year endedCompany’s stock incentive plan as of December 31, 2017.2023, assuming the outstanding PSAs vest at the target level of 100%.
Restricted Stock Units and Performance Share Awards
The plans provide that options become exercisable according to vesting schedules, which range from immediate to ratably over a 60-month period. Options terminate ten years from the date of grant. The plans also provideCompany’s stock incentive plan provides for other equity instruments, such as RSUs and PSAs, which grant the right to receive a specified number of shares over aat specified period of time.times. RSUs are service-based awards and vest according to vesting schedules, which range from immediate to ratably over a three-year period. PSAs are service-based awards that vest according to the terms of the grant and may grant. PSAs have performance- or market-basedperformance-based payout conditions.
The following table summarizes share-based compensation expense recorded (in thousands):the Company’s RSU and PSA activity:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cost of sales | $ | 292 | $ | 422 | $ | 412 | ||||||
Selling, general and administrative expense | 908 | 1,387 | 1,331 | |||||||||
Loss from operations of discontinued operations | - | (8 | ) | 31 | ||||||||
Total | $ | 1,200 | $ | 1,801 | $ | 1,774 | ||||||
As of December31,2017, the remaining nominal amount of unrecognized compensation expense related to the unvested portion of the Company’s RSUs is expected to be recognized over a weighted-average period of one month.
There were no options granted during the years ended December 31,2017,2016 or 2015. There were 589,142 shares of common stock available for future issuance under the Company’s stock compensation plan as of December 31,2017.
Stock Options Awards
A summary of option activity under the Company’s stock option plans is presented below:
Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
(in years) | (in thousands) | |||||||||||||||
Balance, December 31, 2016 | 26,000 | $ | 24.97 | |||||||||||||
Options granted | - | - | ||||||||||||||
Options exercised | - | - | ||||||||||||||
Options canceled | (2,000 | ) | 34.77 | |||||||||||||
Balance, December 31, 2017 | 24,000 | 24.15 | ||||||||||||||
Exercisable, December 31, 2017 | 24,000 | 24.15 | 2.24 | $ | - | |||||||||||
The total intrinsic value, defined as the difference between the current market value and the grant price, of options exercised during the year ended December 31,2015 was approximately $0.No options were exercised in 2017 or 2016.
Restricted Stock Units and Performance Share Awards
The Company estimates the fair value of RSUs and PSAs using the value of the Company’s stock on the date of grant, with the exception of market-based PSAs, for which a Monte Carlo simulation model is used.
A summary of activity under the Company’s RSUs and PSAs is presented below:
Number of RSUs and PSAs (1) | Weighted- Average Grant Date Fair Value | |||||||
Unvested RSUs and PSAs as of December 31, 2016 | 221,791 | $ | 17.36 | |||||
RSUs and PSAs granted | - | - | ||||||
Unvested PSAs canceled | (46,988 | ) | 43.68 | |||||
RSUs vested | (5,220 | ) | 36.00 | |||||
Unvested RSUs as of December 31, 2017 | 169,583 | 9.50 | ||||||
Number of RSUs and PSAs (1) | Weighted- Average Grant Date Fair Value | |||||||
Unvested RSUs and PSAs as of December 31, 2022 | 200,924 | $ | 30.80 | |||||
RSUs and PSAs granted | 134,498 | 28.41 | ||||||
Unvested RSUs and PSAs canceled | (13,589 | ) | 30.82 | |||||
RSUs and PSAs vested (2) | (95,442 | ) | 30.12 | |||||
Unvested RSUs and PSAs as of December 31, 2023 | 226,391 | 29.66 | ||||||
(1) | The number of |
(2) | For the PSAs vested on March 31,2023, the actual number of common shares that were issued was determined by multiplying the PSAs at the target level of 100%, as disclosed in this table, by a payout percentage based on the performance-based conditions achieved. The payout percentage was 159% for the 2020-2022 performance period, 126% for the 2021-2022 performance period, and 132% for the 2022 performance period. |
The unvested balance of RSUs and PSAs as of December 31, 20162023 includedincludes approximately 47,000 market-based170,000 PSAs at athe target level of performance. Vesting100%. The vesting of these PSAs was dependent uponawards is subject to the performanceachievement of the market price of the Company’s stock relative to a peer group of companies. In the year ended December 31,2017, these PSAs were canceled because the market-basedspecified performance-based conditions, were not achieved, and the actual number of common shares that werewill ultimately be issued waswill be determined by multiplying thethis number of PSAs by a payout percentage of ranging from 0% to 200%.
The weighted-averageweighted-average grant date fair value of RSUs granted during the year ended December 31,2016 was $9.50. There were no RSUs granted during the years ended December 31,2017 or 2015andno PSAs granted during the years ended December 31, 2017,2023, 2022, and 2021 2016 or 2015.was $28.41, $30.68, and $33.30, respectively. The total fair value of RSUs and PSAs vested during the years ended December 31, 2017,2023, 20162022, and 20152021 was $0.1$4.4 million, $0.1$2.4 million, and $1.6$3.3 million, respectively.
Based on the estimated level of achievement of the performance targets associated with the PSAs as of December 31,2023, unrecognized compensation expense related to the unvested portion of the Company’s RSUs and PSAs was $3.0 million, which is expected to be recognized over a weighted-average period of 1.5 years.
Stock Awards
For thethe years ended December 31, 2017,2023, 20162022, and 2015,2021, stock awards of 14,94415,904 shares, 27,64011,380 shares, and 10,46412,606 shares, respectively, were granted to non-employee directors, which vested immediately upon issuance. The Company recorded compensation expense based on the weighted-average fair market value per share of the awards on the grant dates of $14.72 in 2017,$9.95 in 2016 and $21.02 in 2015.
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In June 1999, the Board of Directors adopted a Shareholder Rights Plan (the “Plan”) designed to ensure fair and equal treatment for all shareholders in the event of a proposed acquisition of the Company by enhancing the ability of the Board of Directors to negotiate more effectively with a prospective acquirer, and reserved 150,000 shares of Series A Junior Participating Preferred Stock (“Preferred Stock”) for purposes of the Plan. In connection with the adoption of the Plan, the Board of Directors declared a dividend distribution of one non-detachable preferred stock purchase right (a “Right”) per share of common stock, payable to shareholders of record on July 9,1999. Each Right represents the right to purchase one one-hundredth of a share of Preferred Stock at a price of $83.00, subject to adjustment. The Rights will be exercisable only if a person or group acquires, or commences a tender offer to acquire, 15% or more of the Company’s outstanding shares of common stock. Subject to the terms of the Plan and upon the occurrence of certain events, each Right would entitle the holder to purchase common stock of the Company, or of an acquiring company in certain circumstances, having a market value equal to two times the exercise price of the Right. The Company may redeem the Rights at a price of $0.01 per Right under certain circumstances.
On June18,2009, the Company and Computershare (“Rights Agent”) entered into an Amended and Restated Rights Agreement (the “Amended and Restated Rights Agreement”). The Amended and Restated Rights Agreement amended and restated the Rights Agreement dated as of June 28,1999 between the Company and ChaseMellon Shareholder Services, L.L.C. (predecessor to the Rights Agent). The Amended and Restated Rights Agreement extended the final expiration date of the Rights from$29.51 in June 2023, $30.75 in 28,20222009 to June 28,2019. The Amended, and Restated Rights Agreement also reflected certain changes$30.94 in the rights and obligations of the Rights Agent and certain changes in procedural requirements under the Amended and Restated Rights Agreement.2021.
| COMMITMENTS AND CONTINGENCIES: |
Portland Harbor Superfund Site
On December1,In 2000, a section of the lower Willamette River known as the Portland Harbor Superfund Site was included on the National Priorities List at the request of the United States Environmental Protection Agency (the “EPA”(“EPA”). While the Company’s Portland, Oregon manufacturing facility does not border the Willamette River, an outfall from the facility’s stormwater system drains into a neighboring property’s privately owned stormwater system and slip. Since the listing of the site,Also in 2000, the Company was notified by the EPA and the Oregon Department of Environmental Quality (“ODEQ”) of potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). In 2008, the Company was asked to file information disclosure reports with the EPA (CERCLA 104 (e) information request). A remedial investigation and feasibility study of the Portland Harbor Superfund Site was directed by a group of 14 potentially responsible parties known as the Lower Willamette Group under agreement with the EPA. The EPA finalized the remedial investigation report was finalized in February 2016.2016, Theand the feasibility study was finalized in June 2016, by the EPA, andwhich identified multiple remedial alternatives. TheIn 2017, the EPA issued theits Record of Decision in January 2017 selecting the remedy for cleanup at the Portland Harbor Superfund Site, which it believes will cost approximately $1$1 billion at net present value and 13 years to complete. The Record of Decision didEPA has not determineyet determined who is responsible for the costs of cleanup or how the cleanup costs will be allocated among the more than 150 potentially responsible parties.
In 2001, groundwater containing elevated volatile organic compounds was identifiedparties (“PRPs”). Because of the large number of potentially responsible parties and the variability in one localized areathe range of leased property adjacentremediation alternatives, the Company is unable to estimate an amount or an amount within a range of costs for its obligation with respect to the Portland facility furthest fromHarbor Superfund Site matters, and no further adjustment to the river. Assessment work was conducted in 2002Consolidated Financial Statements has been recorded as of the date of this filing.
The ODEQ is separately providing oversight of voluntary investigations and 2003 to further characterize the groundwater. In February 2005,source control activities by the Company enteredinvolving the Company’s site, which are focused on controlling any current “uplands” releases of contaminants into a Voluntary Agreement for Remedial Investigation and Source Control Measures (the “Voluntary Agreement”)the Willamette River. No liabilities have been established in connection with these investigations because the ODEQ, and has performed remedial investigation work required under the Voluntary Agreement. In 2016, the EPAextent of contamination and the ODEQ requested additional groundwater sampling, which was completed inCompany’s responsibility for the contamination have thirdnot quarter of 2017. The results, which were communicated to the ODEQ and the EPA in August 2017, haveyet been generally consistent with previous sampling and modeling work. The Company is currently awaiting a response from the ODEQ, but anticipates it will file a final Remedial Investigation/Source Control Evaluation report with the ODEQ and the EPA in 2018.determined.
Concurrent with the activities of the EPA and the ODEQ, the Portland Harbor Natural Resources Trustee Council (“Trustees”) sent some or all of the same parties, including the Company, a notice of intent to perform a Natural Resource Damage Assessment (“NRDA”) for the Portland Harbor Superfund Site to determine the nature and extent of natural resource damages under CERCLA Section 107. The Trustees for the Portland Harbor Superfund Site consist of representatives from several Northwest Indian Tribes, three federal agencies, and one state agency. The Trustees act independently of the EPA and the ODEQ. The Trustees have encouraged potentially responsible parties to voluntarily participate in the funding of their injury assessments and several of those parties have agreed to do so. In June 2014,the Company agreed to participate in the injury assessment process, which included funding $0.4$0.4 million of the assessment; of this amount, $0.2 million was paid in July 2014 and the remainder was paid in January 2015.assessment. The Company has not assumed any additional payment obligations or liabilities with the participation with the NRDA, nor does the Company expect to incur significant future costs in the resolution of the NRDA.
In January 2017, the Confederated Tribes and Bands of the Yakama Nation, a Trustee until they withdrew from the council in 2009, filed a complaint against the potentially responsible parties including the Company to recover costs related to their own injury assessment and compensation for natural resources damages. The case has been stayed until 2025, and the Company does not have sufficient information at this time to determine the likelihood of a loss in this matter or the amount of damages that could be allocated to the Company.
The Company’s potential liability is a portion of the costs of the remedy for the entire Portland Harbor Superfund Site. The cost of that remedy is expected to be allocated among more than 100 potentially responsible parties. Because of the large number of responsible parties and the variability in the range of remediation alternatives, the Company is unable to estimate an amount or an amount within a range of costs for its obligation with respect to the Portland Harbor Site matters, and no further adjustment to the Consolidated Financial Statements has been recorded as of the date of this filing. The Company has insurance policies for defense costs, as well as indemnification policies it believes will provide reimbursement for any share of the remediation assessed. However, the Company can provide no assurance that those policies will cover all of the costs which the Company may incur.
Houston Environmental Issue
In connection with the Company’s sale of its oil country tubular goods (“OCTG”) business, a Limited Phase II Environmental Site Assessment was conducted at the Houston, Texas plant and completed in March 2014, which revealed the presence of volatile organic compounds in the groundwater and certain metals in the soil. In June 2014, the Company was accepted into the Texas Commission on Environmental Quality (“TCEQ”) Voluntary Cleanup Program (“VCP”) to address these issues and obtain a Certificate of Completion from the TCEQ. The cost of any potential assessment and cleanup will not be covered by insurance. The Company believes these costs are likely to be recovered from the purchaser of the OCTG business upon future sale of the Houston property.
The Company implemented a remediation plan that included a groundwater assessment, which was completed in December 2016, as well as obtaining a municipal setting designation ordinance to prevent consumption of shallow groundwater from beneath the property, thereby eliminating the need for more costly remediation measures. In December 2017, the TCEQ issued the Certificate of Completion.
All Sites
The Company operates its facilities under numerous governmental permits and licenses relating to air emissions, stormwater runoff, and other environmental matters. The Company’sCompany’s operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations there underthereunder which, among other requirements, establish noise and dust standards. The Company believes it is in material compliance with its permits and licenses and these laws and regulations, and the Company does not believe that future compliance with such laws and regulations will have a material adverse effect on its financial position, results of operations, or cash flows.
Other Contingencies and Legal Proceedings
From time to time, the Company is involved in litigation relatingparty to a variety of legal actions, including claims, suits, complaints, and investigations arising out of its operations in the normalordinary course of its business. The Company maintains insurance coverage against potential claims in amounts that are believed to be adequate. To the extent that insurance does not cover legal, defense, and indemnification costs associated with a loss contingency, the Company records accruals when such losses are considered probable and reasonably estimable. The Company believes that it is not presently a party to litigation,legal actions, the outcomeoutcomes of which would have a material adverse effect on its business, financial condition, results of operations, or cash flows.
Commitments
As of December 31,2023, the Company’s commitments include approximately $1.2 million remaining relating to its investment in the primary component of the new reinforced concrete pipe mill for which the Company has not yet received the equipment and approximately $5.2 million remaining relating to the construction of a building for the new mill at the Company’s facility in Salt Lake City, Utah.
Guarantees
The Company has entered into certain letters of credit that total $2.0$1.1 million as of December 31, 2017.2023. The letters of credit relate to workers’ compensation insurance.
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The componentsNet sales by geographic region, based on the location of Income tax benefit from continuing operations arethe customer, were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Current: | ||||||||||||
Federal | $ | (454 | ) | $ | (740 | ) | $ | (5,076 | ) | |||
State | 49 | (102 | ) | 35 | ||||||||
Total current income tax benefit | (405 | ) | (842 | ) | (5,041 | ) | ||||||
Deferred: | ||||||||||||
Federal | (766 | ) | (2,883 | ) | (5,524 | ) | ||||||
State | 71 | (373 | ) | 2,042 | ||||||||
Total deferred income tax benefit | (695 | ) | (3,256 | ) | (3,482 | ) | ||||||
| $ | (1,100 | ) | $ | (4,098 | ) | $ | (8,523 | ) | ||||
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net sales by geographic region: | ||||||||||||
United States | $ | 420,925 | $ | 423,961 | $ | 313,729 | ||||||
Canada | 23,430 | 33,704 | 19,584 | |||||||||
Total | $ | 444,355 | $ | 457,665 | $ | 333,313 | ||||||
On December22,2017,One SPP customer accounted for 10%, 12%, and 12% of total net sales for the Tax Cuts and Jobs Act of 2017 was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate income tax rate decrease from 35% to 21% effective for tax years beginning afterended December 31, 2017,2023, 2022, and 2021, respectively. No Precast customer accounted for more than 10% of total net sales for the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as ofyears ended December 31, 2017.2023, 2022, and 2021.
Net revisions in contract estimates resulted in an increase (decrease) in SPP net sales of ($1.1) million, ($0.6) million, and $2.0 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Disaggregation of Revenue
The following table disaggregates revenue by recognition over time or at a point in time, as the Company has estimatedbelieves it best depicts how the nature, amount, timing, and uncertainty of its provision for income taxes in accordance with the Actrevenue and guidance available as of the date of this filing and as a result has recorded $0.9 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain deferred income tax assets and liabilities, based on the rates at which theycash flows are expected to reverse in the future, was $0.6 million. The provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was $0.2 million based on cumulative foreign earnings of $1.1 million.affected by economic factors (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Over time | $ | 296,381 | $ | 307,572 | $ | 259,823 | ||||||
Point in time | 147,974 | 150,093 | 73,490 | |||||||||
Net sales | $ | 444,355 | $ | 457,665 | $ | 333,313 | ||||||
On December22,2017, Staff Accounting Bulletin No.118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the $0.6 million of the deferred income tax expense recorded in connection with the remeasurement of certain deferred tax assetsContract Assets and liabilities and the $0.2 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate as of December 31,2017. Additional work is necessary for a more detailed analysis of the Company’s deferred income tax assets and liabilities and its historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current income tax expense when the analysis is complete.Contract Liabilities
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.
The following is a summary of the changes in contract assets (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Balance, beginning of year | $ | 121,778 | $ | 107,170 | ||||
Revenue recognized in advance of billings | 291,812 | 306,095 | ||||||
Billings | (293,356 | ) | (294,506 | ) | ||||
Other | 282 | 3,019 | ||||||
Balance, end of year | $ | 120,516 | $ | 121,778 | ||||
The following is a summary of the changes in contract liabilities (in thousands):
December 31, | ||||||||
2023 | 2022 | |||||||
Balance, beginning of year | $ | 17,456 | $ | 2,623 | ||||
Billings | 20,815 | 17,618 | ||||||
Revenue recognized | (16,984 | ) | (2,663 | ) | ||||
Other | 163 | (122 | ) | |||||
Balance, end of year | $ | 21,450 | $ | 17,456 | ||||
Backlog
Backlog represents the balance of remaining performance obligations under signed contracts for SPP water infrastructure steel pipe products for which revenue is recognized over time. As of December 31,2023, backlog was $273 million. The Company’s expects to recognize approximately 76% of the remaining performance obligations in 2024, 23% in 2025, and the balance thereafter.
17. | INCOME TAXES: |
The United States and foreign components of Income before income taxes are as follows (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
United States | $ | 27,814 | $ | 40,271 | $ | 14,000 | ||||||
Foreign | 1,465 | 1,079 | 1,158 | |||||||||
Total | $ | 29,279 | $ | 41,350 | $ | 15,158 | ||||||
The components of Income tax expense are as follows (in thousands):
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Current: | ||||||||||||
Federal | $ | 6,817 | $ | 8,443 | $ | 2,256 | ||||||
State | 1,519 | 1,264 | 1,064 | |||||||||
Foreign | 289 | 198 | 213 | |||||||||
Total current income tax expense | 8,625 | 9,905 | 3,533 | |||||||||
Deferred: | ||||||||||||
Federal | (612 | ) | (22 | ) | 573 | |||||||
State | 195 | 340 | (464 | ) | ||||||||
Foreign | (1 | ) | (22 | ) | (7 | ) | ||||||
Total deferred income tax expense (benefit) | (418 | ) | 296 | 102 | ||||||||
Total income tax expense | $ | 8,207 | $ | 10,201 | $ | 3,635 | ||||||
The difference between the Company’s effective income tax rate and the federal statutory income tax rate of 35%is explained as follows (dollar amounts in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Income tax benefit at federal statutory rate of 35% | $ | (3,322 | ) | $ | (3,755 | ) | $ | (9,133 | ) | |||
State benefit, net of federal income tax effect | (472 | ) | (286 | ) | (440 | ) | ||||||
Federal and state income tax credits | 36 | (154 | ) | (5,060 | ) | |||||||
Disallowed domestic manufacturing deduction | - | - | 630 | |||||||||
Change in valuation allowance | 1,570 | 585 | 2,059 | |||||||||
Excess income tax shortfall on share-based compensation | 765 | - | - | |||||||||
Effect of Tax Cuts and Jobs Act of 2017 | 874 | - | - | |||||||||
Uncertain income tax positions | (562 | ) | (4 | ) | 1,275 | |||||||
Goodwill impairment (nondeductible) | - | - | 1,849 | |||||||||
Nondeductible expenses | 63 | 63 | 91 | |||||||||
Nontaxable adjustment to contingent consideration | - | (580 | ) | 103 | ||||||||
Other | (52 | ) | 33 | 103 | ||||||||
Income tax benefit | $ | (1,100 | ) | $ | (4,098 | ) | $ | (8,523 | ) | |||
Effective income tax rate | (11.6 | )% | (37.8 | )% | (32.4 | )% | ||||||
Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Income tax expense at federal statutory rate | $ | 6,148 | $ | 8,683 | $ | 3,183 | ||||||
State expense, net of federal income tax effect | 942 | 1,463 | 547 | |||||||||
Change in valuation allowance | (30 | ) | (1 | ) | (247 | ) | ||||||
Nondeductible expenses | 257 | (35 | ) | (31 | ) | |||||||
Foreign rate differential | 133 | 97 | 104 | |||||||||
Accrued interest on uncertain income tax positions | 264 | 106 | 16 | |||||||||
State franchise tax | 250 | 110 | 92 | |||||||||
Other | 243 | (222 | ) | (29 | ) | |||||||
Income tax expense | $ | 8,207 | $ | 10,201 | $ | 3,635 | ||||||
Effective income tax rate | 28.0 | % | 24.7 | % | 24.0 | % | ||||||
The income tax effect of temporary differences that give rise to significant portions of deferred income tax assets and liabilities is presented below (in thousands):
December 31, | ||||||||
2017 | 2016 | |||||||
Deferred income tax assets: | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts, net | $ | - | $ | 1,270 | ||||
Accrued employee benefits | 2,806 | 5,025 | ||||||
Inventories | 296 | 563 | ||||||
Trade receivable, net | 105 | 199 | ||||||
Net operating loss carryforwards | 9,850 | 15,637 | ||||||
Tax credit carryforwards | 5,478 | 5,069 | ||||||
Other assets | 1,201 | 1,830 | ||||||
Other | 81 | 1,018 | ||||||
| 19,817 | 30,611 | |||||||
Valuation allowance | (10,413 | ) | (8,217 | ) | ||||
| 9,404 | 22,394 | |||||||
Deferred income tax liabilities: | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts, net | (110 | ) | - | |||||
Property and equipment | (9,524 | ) | (22,380 | ) | ||||
Intangible assets | (433 | ) | (819 | ) | ||||
Prepaid expenses | (278 | ) | (477 | ) | ||||
| (10,345 | ) | (23,676 | ) | |||||
Net deferred income tax liabilities | $ | (941 | ) | $ | (1,282 | ) | ||
December 31, | ||||||||
2023 | 2022 | |||||||
Deferred income tax assets: | ||||||||
Accrued employee benefits | $ | 3,096 | $ | 3,840 | ||||
Inventories | 380 | 350 | ||||||
Trade receivable, net | 532 | 329 | ||||||
Net operating loss carryforwards | 3,429 | 2,944 | ||||||
Tax credit carryforwards | 2,777 | 2,863 | ||||||
Contract assets, net | 934 | 403 | ||||||
Other | 1,952 | 1,074 | ||||||
| 13,100 | 11,803 | |||||||
Valuation allowance | (6,641 | ) | (6,051 | ) | ||||
| 6,459 | 5,752 | |||||||
Deferred income tax liabilities: | ||||||||
Property and equipment | (13,850 | ) | (13,550 | ) | ||||
Intangible assets | (800 | ) | (1,319 | ) | ||||
Goodwill | (1,164 | ) | (606 | ) | ||||
Prepaid expenses | (1,217 | ) | (1,285 | ) | ||||
| (17,031 | ) | (16,760 | ) | |||||
Net deferred income tax liabilities | $ | (10,572 | ) | $ | (11,008 | ) | ||
Amounts are presented in the Consolidated Balance Sheets as follows: | ||||||||
Deferred income tax assets, included in Other assets | $ | 370 | $ | 394 | ||||
Deferred income taxes | (10,942 | ) | (11,402 | ) | ||||
Net deferred income tax liabilities | $ | (10,572 | ) | $ | (11,008 | ) | ||
In assessing the ability to realize deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, taxable income in carryback periods, and tax planning strategies in making this assessment. Because the Company has a recent history of generating cumulative losses, management did not consider projections of future taxable income as persuasive evidence for the recoverability of its deferred income tax assets. The Company believes it is more likely than not it will realize the benefits of its deductible differences as of December 31, 2017,2023, net of any valuation allowance. As of December 31,2023, the Company continues to maintain a valuation allowance on federal tax credits and select state jurisdictions.
As of December31, 2017,2023, the Company had approximately $35.9 million of federal net operating loss carryforwards, which expire on various dates between 2035 and 2036, and $3.0$0.3 million of federal income tax credit carryforwards, which expire on various dates between 20232024 and 2036.2026. As of December 31, 2017,2023, the Company also had approximately $51.5$18.4 million of state net operating loss carryforwards, which expire on various dates between 20192024 and 2036, and state income tax credit carryforwards of $4.2$4.4 million, which beginbegan to expire in 2018.
During the year ended2023. As of December31, 2016,2023, the Company determined that it no longer considers the earningsalso had approximately $8.4 million of its Mexican subsidiary to be indefinitely reinvested outside the United States. This change was made to allow the Company to more efficiently manage its cash balancesforeign net operating loss carryforwards, which expire on various dates between 2024 and working capital. The change did not have a significant effect on the Company’s income taxes.2033.
The Company files income tax returns in the United States Federal jurisdiction, in a limited number of foreign jurisdictions, and in many state jurisdictions. With few exceptions, the Company is no longer subject to United States Federal,, state, or foreign income tax examinations for years before 2013.2019.
A summary of the changes in the unrecognized income tax benefits is presented below (in thousands):
Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2023 | 2022 | 2021 | |||||||||||||||||||
Unrecognized income tax benefits, beginning of year | $ | 4,874 | $ | 4,874 | $ | 2,313 | ||||||||||||||||||
Decreases for lapse in statute of limitations | (520 | ) | - | (1,199 | ) | |||||||||||||||||||
Increases for positions taken in prior years | - | - | 3,716 | |||||||||||||||||||||
| Decreases for positions taken in prior years | (238 | ) | - | - | ||||||||||||||||||||
Increases for positions taken in the current year | - | - | 44 | |||||||||||||||||||||
Unrecognized income tax benefits, end of year | $ | 4,116 | $ | 4,874 | $ | 4,874 | ||||||||||||||||||
Unrecognized income tax benefits, beginning of year | $ | 4,472 | $ | 4,366 | $ | 4,350 | ||||||||||||||||||
Increases for positions taken in prior years | 264 | 106 | 16 | |||||||||||||||||||||
Unrecognized income tax benefits, end of year | $ | 4,736 | $ | 4,472 | $ | 4,366 | ||||||||||||||||||
The Company does not believe it is reasonably possible that the total amounts of unrecognized income tax benefits will change in the following twelve months; however, actual results could differ from those currently expected. Effectively all of the unrecognized income tax benefits would affect the Company’s effective income tax rate if recognized at some point in the future.
The Company recognizes interest and penalties related to uncertain income tax positions in Income tax expense. As of December 31, 20172023 and 2016,2022, the Company had $0$0.4 million and $0.1$0.1 million, respectively, of accrued interest related to uncertain income tax positions. Total interest for uncertain income tax positions did not change materially in 20172023, 2022, or 20162021 and decreased by approximately $0.1 million in 2015..
| ACCUMULATED OTHER COMPREHENSIVE |
Accumulated other comprehensive loss consists of the following (in thousands):
December 31, | ||||||||
2017 | 2016 | |||||||
Pension liability adjustment, net of income tax benefit of $866 and $886 | $ | (1,436 | ) | $ | (1,493 | ) | ||
Unrealized gain (loss) on cash flow hedges, net of income tax expense (benefit) of $(1) and $6 | (9 | ) | 10 | |||||
Total | $ | (1,445 | ) | $ | (1,483 | ) | ||
December 31, | ||||||||
2023 | 2022 | |||||||
Pension liability adjustment, net of income tax benefit of $482 and $592 | $ | (1,193 | ) | $ | (1,532 | ) | ||
Unrealized gain (loss) on foreign currency forward contracts designated as cash flow hedges, net of income tax (expense) benefit of $12 and $(33) | (13 | ) | 94 | |||||
Unrealized gain on interest rate swaps designated as cash flow hedges, net of income tax expense of $79 and $213 | 246 | 649 | ||||||
Total | $ | (960 | ) | $ | (789 | ) | ||
The following table summarizes changes in the components of Accumulated other comprehensive loss (in thousands). All amounts are net of income tax:
Pension Liability Adjustment | Unrealized Gain (Loss) on Cash Flow Hedges | Total | Pension Liability Adjustment | Unrealized Gain (Loss) on Foreign Currency Forward Contracts Designated as Cash Flow Hedges | Unrealized Gain on Interest Rate Swaps Designated as Cash Flow Hedges | Total | ||||||||||||||||||||||
Balance, December 31, 2015 | $ | (1,624 | ) | $ | 86 | $ | (1,538 | ) | ||||||||||||||||||||
Balances, December 31, 2021 | $ | (1,487 | ) | $ | (195 | ) | $ | - | $ | (1,682 | ) | |||||||||||||||||
Other comprehensive loss before reclassifications | (125 | ) | (48 | ) | (173 | ) | ||||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss | 256 | (28 | ) | 228 | ||||||||||||||||||||||||
Net current period adjustments to Other comprehensive income | 131 | (76 | ) | 55 | ||||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | 41 | (100 | ) | 678 | 619 | |||||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss | (86 | ) | 389 | (29 | ) | 274 | ||||||||||||||||||||||
Net current period adjustments to Other comprehensive income | (45 | ) | 289 | 649 | 893 | |||||||||||||||||||||||
Balance, December 31, 2016 | (1,493 | ) | 10 | (1,483 | ) | |||||||||||||||||||||||
Balances, December 31, 2022 | (1,532 | ) | 94 | 649 | (789 | ) | ||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | 54 | (16 | ) | 38 | ||||||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss | 3 | (3 | ) | - | ||||||||||||||||||||||||
Net current period adjustments to Other comprehensive income | 57 | (19 | ) | 38 | ||||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | 338 | (115 | ) | 142 | 365 | |||||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss | 1 | 8 | (545 | ) | (536 | ) | ||||||||||||||||||||||
Net current period adjustments to Other comprehensive loss | 339 | (107 | ) | (403 | ) | (171 | ) | |||||||||||||||||||||
Balance, December 31, 2017 | $ | (1,436 | ) | $ | (9 | ) | $ | (1,445 | ) | |||||||||||||||||||
Balances, December 31, 2023 | $ | (1,193 | ) | $ | (13 | ) | $ | 246 | $ | (960 | ) | |||||||||||||||||
The following table provides additional detail about Accumulated other comprehensive loss components that were reclassified to the Consolidated Statements of Operations (in thousands):
Amount reclassified from Accumulated Other Comprehensive Loss | Affected line item in the Consolidated | |||||||||||||||||||||||||
Details about Accumulated Other | Year Ended December 31, | Statements | ||||||||||||||||||||||||
Comprehensive Loss Components | 2023 | 2022 | 2021 | of Operations | ||||||||||||||||||||||
Pension liability adjustment: | ||||||||||||||||||||||||||
Net periodic pension cost: | ||||||||||||||||||||||||||
Service cost | $ | (13 | ) | $ | (13 | ) | $ | (7 | ) | Cost of sales | ||||||||||||||||
Non-service cost | 11 | 127 | 110 | Other income | ||||||||||||||||||||||
Associated income tax (expense) benefit | 1 | (28 | ) | (25 | ) | Income tax expense | ||||||||||||||||||||
| (1 | ) | 86 | 78 | |||||||||||||||||||||||
Unrealized gain (loss) on foreign currency forward contracts: | ||||||||||||||||||||||||||
Gain (loss) on cash flow hedges | 99 | 163 | (72 | ) | Net sales | |||||||||||||||||||||
Loss on cash flow hedges | (109 | ) | (680 | ) | - | Property and equipment | ||||||||||||||||||||
Associated income tax benefit | 2 | 128 | 18 | Income tax expense | ||||||||||||||||||||||
| (8 | ) | (389 | ) | (54 | ) | |||||||||||||||||||||
Unrealized gain on interest rate swaps: | ||||||||||||||||||||||||||
Gain on cash flow hedges | 719 | 39 | - | Interest expense | ||||||||||||||||||||||
Associated income tax expense | (174 | ) | (10 | ) | - | Income tax expense | ||||||||||||||||||||
Year Ended December 31, | 545 | 29 | - | |||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||
Details about Accumulated Other Comprehensive Loss Components | Amount reclassified from Accumulated Other Comprehensive Loss | Affected line item in the Consolidated Statements of Operations | ||||||||||||||||||||||||
Pension liability adjustment: | ||||||||||||||||||||||||||
Net periodic pension cost | $ | (3 | ) | $ | (392 | ) | $ | (352 | ) | Cost of sales | ||||||||||||||||
Associated income tax benefit | - | 136 | 131 | Income tax benefit | ||||||||||||||||||||||
| (3 | ) | (256 | ) | (221 | ) | Net of tax | ||||||||||||||||||||
Unrealized gain on cash flow hedges: | ||||||||||||||||||||||||||
Gain on cash flow hedges | 5 | 45 | 147 | Net sales | ||||||||||||||||||||||
Hedge ineffectiveness | - | - | 2 | Net sales | ||||||||||||||||||||||
Associated income tax expense | (2 | ) | (17 | ) | (56 | ) | Income tax benefit | |||||||||||||||||||
| 3 | 28 | 93 | Net of tax | |||||||||||||||||||||||
Total reclassifications for the period | $ | - | $ | (228 | ) | $ | (128 | ) | $ | 536 | $ | (274 | ) | $ | 24 | |||||||||||
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In October 2016, The operating segments reported below are based on the nature of the products sold and the manufacturing process used by the Company soldand are the Denver, Colorado facility and leased the property back from the buyer through March 1,2017 in order to conclude production at the facility, complete final shipments and transfer certain equipment assets to other Company facilities. The Company incurred restructuring expenses of $0.9 million and $1.0 million during the years ended December 31,2017 and 2016, respectively, which includes employee severance and termination related restructuring expenses of $0 and $0.5 million, respectively and expense related to demobilization activities of $0.9 million and $0.5 million, respectively. The Company completed the demobilization project and vacated the facility in the first quarter of 2017.
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In the second quarter of2015, the Company engaged Raymond James & Associates, an affiliate of Eagle Asset Management, to provide investment banking services related to a possible disposition of the Company’s Tubular Products business. This contract was terminated in May 2016. Eagle Asset Management was a substantial stockholdersegments of the Company (owning more than ten percent offor which separate financial information is available and for which operating results are regularly evaluated by the Company’s common stock) untilchief operating decision maker, its Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance. Management evaluates segment performance based on gross profit. The Company does September 30,not 2015, when Eagle Asset Management reported that it then owned less than five percent of theallocate selling, general, and administrative expenses, interest, other non-operating income or expense items, or taxes to segments.
The Company’s common stock. A nominal amount of reimbursable expenses were incurred by Raymond James during 2015.Engineered Steel Pressure Pipe (SPP) segment manufactures large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, which are primarily related to drinking water systems. These products are also used for hydroelectric power systems, wastewater systems, seismic resiliency, and other applications. In addition, SPP makes products for industrial plant piping systems and certain structural applications. SPP has manufacturing facilities located in Portland, Oregon; Adelanto and Tracy, California; Parkersburg, West Virginia; Saginaw, Texas; St. Louis, Missouri; and San Luis Río Colorado, Mexico.
The Company’s Precast Infrastructure and Engineered Systems (Precast) segment manufactures stormwater and wastewater technology products, high-quality precast and reinforced concrete products, including reinforced concrete pipe, manholes, box culverts, vaults, and catch basins, pump lift stations, oil water separators, biofiltration units, and other environmental and engineered solutions. Precast has manufacturing facilities located in Dallas, Houston, and San Antonio, Texas; and Orem, Salt Lake City, and St. George, Utah.
The following table disaggregates revenue as well as other financial information based on the Company’s reportable segments (in thousands):
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Year Ended December 31, | ||||||||||||
2023 | 2022 | 2021 | ||||||||||
Net sales: | ||||||||||||
Engineered Steel Pressure Pipe | $ | 296,381 | $ | 307,572 | $ | 259,823 | ||||||
Precast Infrastructure and Engineered Systems | 147,974 | 150,093 | 73,490 | |||||||||
Total | $ | 444,355 | $ | 457,665 | $ | 333,313 | ||||||
Gross profit: | ||||||||||||
Engineered Steel Pressure Pipe | $ | 42,427 | $ | 44,473 | $ | 31,281 | ||||||
Precast Infrastructure and Engineered Systems | 35,215 | 41,382 | 12,973 | |||||||||
Total | $ | 77,642 | $ | 85,855 | $ | 44,254 | ||||||
Depreciation and amortization expense: | ||||||||||||
Engineered Steel Pressure Pipe | $ | 9,000 | $ | 9,789 | $ | 9,524 | ||||||
Precast Infrastructure and Engineered Systems | 6,241 | 6,807 | 3,738 | |||||||||
| 15,241 | 16,596 | 13,262 | ||||||||||
Corporate | 565 | 507 | 362 | |||||||||
Total | $ | 15,806 | $ | 17,103 | $ | 13,624 | ||||||
Capital expenditures: | ||||||||||||
Engineered Steel Pressure Pipe | $ | 11,154 | $ | 8,211 | $ | 7,538 | ||||||
Precast Infrastructure and Engineered Systems | 6,503 | 13,925 | 5,255 | |||||||||
| 17,657 | 22,136 | 12,793 | ||||||||||
Corporate | 634 | 693 | 469 | |||||||||
Total | $ | 18,291 | $ | 22,829 | $ | 13,262 | ||||||
Summarized quarterly financial data, adjusted for discontinued operations, is as followsThe following table disaggregates total assets based on the Company’s reportable segments (in thousands, except per share amounts).thousands):
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | ||||||||||||||||
For the Year Ended December 31, 2017 | ||||||||||||||||||||
Net sales | $ | 29,657 | $ | 28,692 | $ | 38,804 | $ | 35,627 | $ | 132,780 | ||||||||||
Gross profit (1) | 1,165 | 667 | 1,915 | 2,076 | 5,823 | |||||||||||||||
Operating loss | (3,556 | ) | (2,904 | ) | (1,508 | ) | (1,233 | ) | (9,201 | ) | ||||||||||
Net loss | (3,868 | ) | (2,068 | ) | (2,069 | ) | (2,158 | ) | (10,163 | ) | ||||||||||
Basic and diluted loss per share: | ||||||||||||||||||||
Continuing operations | $ | (0.37 | ) | $ | (0.15 | ) | $ | (0.16 | ) | $ | (0.20 | ) | $ | (0.88 | ) | |||||
Discontinued operations | (0.03 | ) | (0.07 | ) | (0.05 | ) | (0.03 | ) | (0.18 | ) | ||||||||||
Net loss per share | $ | (0.40 | ) | $ | (0.22 | ) | $ | (0.21 | ) | $ | (0.23 | ) | $ | (1.06 | ) | |||||
December 31, | ||||||||
2023 | 2022 | |||||||
Total assets: | ||||||||
Engineered Steel Pressure Pipe | $ | 307,856 | $ | 307,924 | ||||
Precast Infrastructure and Engineered Systems | 255,904 | 256,520 | ||||||
| 563,760 | 564,444 | |||||||
Corporate | 34,121 | 36,896 | ||||||
Total | $ | 597,881 | $ | 601,340 | ||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | ||||||||||||||||
For the Year Ended December 31, 2016 | ||||||||||||||||||||
Net sales | $ | 29,358 | $ | 39,775 | $ | 41,075 | $ | 39,179 | $ | 149,387 | ||||||||||
Gross profit (loss) | (5,750 | ) | (1,272 | ) | 2,939 | 3,766 | (317 | ) | ||||||||||||
Operating income (loss) (2) | (10,192 | ) | (5,257 | ) | (1,253 | ) | 6,334 | (10,368 | ) | |||||||||||
Net income (loss) | (9,583 | ) | (6,242 | ) | 727 | 5,834 | (9,263 | ) | ||||||||||||
Basic income (loss) per share: | ||||||||||||||||||||
Continuing operations | $ | (1.01 | ) | $ | (0.55 | ) | $ | 0.15 | $ | 0.71 | $ | (0.71 | ) | |||||||
Discontinued operations | 0.01 | (0.10 | ) | (0.07 | ) | (0.10 | ) | (0.26 | ) | |||||||||||
Net income (loss) per share | $ | (1.00 | ) | $ | (0.65 | ) | $ | 0.08 | $ | 0.61 | $ | (0.97 | ) | |||||||
Diluted income (loss) per share: | ||||||||||||||||||||
Continuing operations | $ | (1.01 | ) | $ | (0.55 | ) | $ | 0.15 | $ | 0.70 | $ | (0.71 | ) | |||||||
Discontinued operations | 0.01 | (0.10 | ) | (0.07 | ) | (0.10 | ) | (0.26 | ) | |||||||||||
Net income (loss) per share assuming dilution | $ | (1.00 | ) | $ | (0.65 | ) | $ | 0.08 | $ | 0.60 | $ | (0.97 | ) | |||||||
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VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at Beginning of Period | Charged to Profit and Loss | Deduction from Reserves | Balance at End of Period | |||||||||||||
Year Ended December 31, 2017: | ||||||||||||||||
Allowance for doubtful accounts | $ | 515 | $ | 637 | $ | (675 | ) | $ | 477 | |||||||
Valuation allowance for deferred tax assets | 8,217 | 2,196 | - | 10,413 | ||||||||||||
Year Ended December 31, 2016: | ||||||||||||||||
Allowance for doubtful accounts | $ | 751 | (1) | $ | 295 | $ | (531 | ) | $ | 515 | ||||||
Valuation allowance for deferred tax assets | 7,057 | 1,160 | - | 8,217 | ||||||||||||
Year Ended December 31, 2015: | ||||||||||||||||
Allowance for doubtful accounts | $ | 755 | (1) | $ | 416 | $ | (420 | ) | $ | 751 | (1) | |||||
Valuation allowance for deferred tax assets | 1,858 | 5,217 | (18 | ) | 7,057 | |||||||||||
(1) Includes amounts that were classified as held for sale.
Balance at Beginning of Period | Charged to Profit and Loss | Deduction from Reserves | Balance at End of Period | |||||||||||||
Year Ended December 31, 2023: | ||||||||||||||||
Allowance for doubtful accounts | $ | 369 | $ | 189 | $ | (437 | ) | $ | 121 | |||||||
Valuation allowance for deferred income tax assets | 6,051 | 696 | (106 | ) | 6,641 | |||||||||||
Year Ended December 31, 2022: | ||||||||||||||||
Allowance for doubtful accounts | $ | 503 | $ | 442 | $ | (576 | ) | $ | 369 | |||||||
Valuation allowance for deferred income tax assets | 5,899 | 254 | (102 | ) | 6,051 | |||||||||||
Year Ended December 31, 2021: | ||||||||||||||||
Allowance for doubtful accounts | $ | 767 | $ | 653 | $ | (917 | ) | $ | 503 | |||||||
Valuation allowance for deferred income tax assets | 6,228 | - | (329 | ) | 5,899 | |||||||||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 16th5th day of March 2018.2024.
NORTHWEST PIPE COMPANY | ||
By | /S/ SCOTT MONTROSS | |
ScottMontross | ||
Director, President, and ChiefExecutiveOfficer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 16th5th day of March 2018.2024.
Signature | Title | |
/S/ RICHARD A. ROMAN | Director and Chairman of the Board | |
RichardA.Roman | ||
/S/ SCOTT MONTROSS | Director, President, and Chief Executive Officer | |
ScottMontross | (principal executive officer) | |
/S/ AARON WILKINS | Senior Vice President, Chief Financial Officer, and Corporate Secretary | |
AaronWilkins | (principal financial and accounting officer) | |
/S/ MICHAEL C. FRANSON | Director | |
MichaelC.Franson | ||
/S/ |
| |
| Director | |
AmandaL.Julian | ||
/S/ | Director | |
KeithR.Larson | ||
/S/ | Director | |
IrmaLockridge | ||
/S/ | Director | |
JohnT.Paschal |