Tubular Products sales increased 13.6% to $102.5 million in 2004 from $90.2 million in 2003. The increase in net sales resulted primarily from our ability to pass on steel price increases to our customers. During 2004, we raised prices on our Tubular Products in order to pass along to our customers the steel surcharges and base price increases our steel vendors had included on steel purchased by us. These price increases were designed to absorb the increase in the cost of steel, our principal raw material.
Fabricated Products sales increased 37.9% to $11.6 million in 2004 from $8.4 million in 2003. The increase in net sales was attributable to increased demand.
Water Transmission gross profit increased 5.3% to $33.9 million (19.0% of segment net sales) in 2004 from $32.2 million (22.0% of segment net sales) in 2003. Our Water Transmission projects are obtained primarily through competitive bidding, which often occurs three to six months in advance of production of the projects. At the time of the bidding, we attempt to accurately estimate the future price of steel that will be purchased for the project and include that in our bid. Our Water Transmission gross margin percentage decreased primarily because we experienced significant increases in the price per ton and the surcharges on steel, which comprises the majority of our cost of goods sold. As this significant component of our cost of sales increases, our gross margin percentage is necessarily driven down, even if all steel cost increases are passed along to our customers. To some extent, our Water Transmission gross profit also decreased because we did not fully anticipate nor include in our project bidding the full amount of the increase in the cost of steel early in 2004.
Gross profit from Tubular Products increased significantly to $15.0 million (14.6% of segment net sales) in 2004 from $1.0 million (1.1% of segment net sales) in 2003. Tubular Products gross profit increased primarily as a result of the elimination of sales of low margin products and the sale of generally lower costing inventory at higher selling prices charged by the Company in response to increasing steel costs.
Fabricated Products gross profit increased to $435,000 (3.7% of segment net sales) in 2004 from $100,000 (1.1% of segment net sales) in 2003. Fabricated Products gross profit increased primarily from improved efficiencies in our production facilities, as a result of the increased volume.
We generally finance our operations through cash flows from operations and available borrowings. At December 31, 2005, we had cash and cash equivalents of $133,000 and available borrowings of $23.6 million.
Net cash provided by operating activities in 2005 was $3.1 million. This was primarily the result of our net income of $13.4 million, non-cash adjustments for depreciation and amortization of $5.6 million, and a decrease in inventories of $9.6 million, offset in part by a decrease in accounts payable of $15.6 million and an increase in trade and other receivables, net of $10.7 million. The decrease in inventories and accounts payable resulted primarily from a decrease in steel shipments from our vendors at the end of 2005 as compared to 2004. The increase in trade and other receivables, net resulted from an increase in our shipments to customers to meet their installation schedules.
Net cash used in investing activities in 2005 was $18.5 million, which primarily related to additions of property and equipment. Capital expenditures are expected to be between $10.0 and $12.0 million in 2006.
Net cash provided by financing activities in 2005 was $15.5 million, which resulted from proceeds received from a sale-leaseback transaction of $9.5 million, and from net borrowings under our credit agreement of $12.9 million, offset in part by net payments of $7.7 million on our long-term debt agreements.
We had the following significant components of debt at December 31, 2005: a $65.0 million credit agreement, under which $41.4 million was outstanding; $12.9 million of Series B Senior Notes; $10.0 million of Senior Notes; $15.0 million of Series A Term Note, $10.5 million of Series B Term Notes, $10.0 million of Series C Term Notes, and $4.5 million of Series D Term Notes.
The credit agreement expires on May 20, 2010. The balance outstanding under the credit agreement bears interest at rates related to LIBOR plus 0.75% to 1.50%, or the lending institution’s prime rate, minus 0.5% to 0.0%. We had $44.0 million outstanding under the line of credit bearing interest at a weighted average rate of 5.98%, partially offset by $2.6 million in cash receipts that had not been applied to the loan balance. At December 31, 2005 we had an additional net borrowing capacity under the line of credit of $23.6 million.
The Series A Term Note in the principal amount of $15.0 million matures on February 25, 2014 and requires annual payments in the amount of $2.1 million that begin February 25, 2008 plus interest of 8.75% paid quarterly on February 25, May 25, August 25 and November 25. The Series B Term Notes in the principal amount of $10.5 million mature on June 21, 2014 and require annual payments in the amount of $1.5 million that begin June 21, 2008 plus interest of 8.47% paid quarterly on March 21, June 21, September 21 and December 21. The Series C Term Notes in the principal amount of $10.0 million mature on October 26, 2014 and require annual payments of $1.4 million that begin October 26, 2008 plus interest of 7.36% paid quarterly on January 26, April 26, July 26 and October 26. The Series D Term Notes in the principal amount of $4.5 million mature on January 24, 2015 and require annual payments in the amount of $643,000 that begin January 24, 2009 plus interest of 7.32% paid quarterly on January 24, April 24, July 24, and October 24. The Series B Senior Notes in the principal amount of $12.9 million mature on April 1, 2008 and require annual payments of $4.3 million that began April 1, 2002 plus interest at 6.91% paid quarterly on January 1, April 1, July 1 and October 1. The Senior Notes in the principal amount of $10.0 million mature on November 15, 2007 and require annual payments in the amount of $5.0 million that began November 15, 2001 plus interest of 6.87% paid quarterly on February 15, May 15, August 15, and November 15. The Senior Notes and Series B Senior Notes (together, the “Notes”) also include supplemental interest from 0.0% to 1.5% (0.75% at December 31, 2005), based on our total minimum net earnings before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense (“EBITDA”) to total debt leverage ratio, which is paid with the required quarterly interest payments. The Notes, the Series A Term Note, the Series B Term Notes, the Series C Term Notes, and the Series D Term Notes (together, the “Term Notes”) and the credit agreement are collateralized by accounts receivable, inventory and certain equipment.
We lease certain equipment used in the manufacturing process. The aggregated interest rate on the capital leases is 6.7%.
We have operating leases with respect to certain manufacturing equipment that require us to pay property taxes, insurance and maintenance. Under the terms of certain operating leases, we sold equipment to an unrelated third party (the “lessor”) who then leased the equipment to us. These leases, along with other debt instruments already in place, and our credit agreement, best met our near term financing and operating capital requirements compared to other available options at the time they were entered into.
Certain of our operating lease agreements include renewals and/or purchase options set to expire at various dates. If we choose to elect the purchase options on leases scheduled to expire during 2006, we will be required to make payments of $14.4 million. In addition, certain of our operating lease agreements, primarily manufacturing equipment leases, with terms of 3 years, contain provisions related to residual value guarantees, which provide that if we do not purchase the leased equipment from the lessor at the end of the lease term, then we are liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value. The maximum potential liability to us under such guarantees is $20.1 million at December 31, 2005 if the proceeds from the sale of terminating equipment leases are zero. Consistent with past experience, management does not expect any payments will be required pursuant to these guarantees, and no amounts have been accrued at December 31, 2005.
17
The following table sets forth our commitments under the terms of our debt obligations and operating leases:
| | | | Total
| | 2006
| | 2007/2008
| | 2009/2010
| | Thereafter
|
|---|
| Credit Agreement | | | | $ | 41,353 | | | $ | — | | | $ | — | | | $ | 41,353 | | | $ | — | |
| The Notes | | | | | 22,857 | | | | 9,286 | | | | 13,571 | | | | — | | | | — | |
| The Term Notes | | | | | 40,000 | | | | — | | | | 5,072 | | | | 11,428 | | | | 23,500 | |
| Capital Leases | | | | | 82 | | | | 75 | | | | 7 | | | | — | | | | — | |
| Operating Leases | | | | | 19,325 | | | | 10,046 | | | | 8,234 | | | | 1,045 | | | | — | |
| Interest Payments (1) | | | | | 20,598 | | | | 4,697 | | | | 7,265 | | | | 4,749 | | | | 3,887 | |
| Total Obligations | | | | $ | 144,215 | | | $ | 24,104 | | | $ | 34,149 | | | $ | 58,575 | | | $ | 27,387 | |
| (1) | | These amounts represent future interest payments related to our debt obligations, excluding the Credit Agreement. |
We also have entered into stand-by letters of credit that total approximately $5.6 million as of December 31, 2005. The stand-by letters of credit relate to workers’ compensation, and general liability insurance. Due to the nature of these arrangements and our historical experience, we do not expect to make any significant payments under these arrangements. Therefore, they have been excluded from our aggregate commitments identified above.
The credit agreement, the Notes, the Term Notes and operating leases all require compliance with the following financial covenants: minimum consolidated tangible net worth, maximum consolidated total debt to consolidated EBITDA ratio, a minimum consolidated fixed charge coverage ratio and a minimum asset coverage ratio. These and other covenants included in our financing agreements impose certain requirements with respect to our financial condition and results of operations, and place restrictions on, among other things, our ability to incur certain additional indebtedness, to create liens or other encumbrances on assets and capital expenditures. A failure by us to comply with the requirements of these covenants, if not waived or cured, could permit acceleration of the related indebtedness and acceleration of indebtedness under other instruments that include cross-acceleration or cross-default provisions. At December 31, 2005, we were not in violation of any of the covenants in our debt agreements.
We expect to continue to rely on cash generated from operations and other sources of available funds to make required principal payments under the Notes during 2006. We anticipate that our existing cash and cash equivalents, cash flows expected to be generated by operations and the sale of our Riverside facility, and amounts available under our credit agreement will be adequate to fund our working capital and capital requirements for at least the next twelve months. To the extent necessary, we may also satisfy capital requirements through additional bank borrowings, senior notes, term notes and capital 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.
Off Balance Sheet Arrangements
Other than non-cancelable operating lease commitments, we do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities.”
Related Party Transactions.
We have ongoing business relationships with certain affiliates of Wells Fargo & Company (“Wells Fargo”). Wells Fargo, together with certain of its affiliates, owns more than ten percent of our outstanding stock. During the year ended December 31, 2005, we made the following payments to affiliates of Wells Fargo: (i) capital and operating lease payments pursuant to which the Company leases certain equipment from such affiliates, (ii) payments of interest and fees pursuant to letters of credit originated by such affiliates, (iii) payments of principal and interest on an industrial development bond, and (iv) payments of principal, interest and related fees in connection with loan agreements between the Company and such affiliates. Payments made by us to Wells Fargo and its affiliates amounted to $3.3 million, $3.5 million and $3.9 million for the years ended December 31, 2005, 2004 and 2003, respectively. Balances due to Wells Fargo and its affiliates were $0 and $30.9 million at December 31, 2005 and 2004, respectively.
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Recent Accounting Pronouncements.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. We are currently evaluating the effect that the adoption of SFAS 151 will have on our results of operations or financial position, but do not expect SFAS 151 to have a material effect.
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (“SFAS 153”). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 2l(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have a material effect on our results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123(R), “Accounting for Stock-Based Compensation” (“SFAS 123(R)”). SFAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro forma disclosures of fair value were required. The provisions of this Statement are effective for the first annual reporting period that begins after June 15, 2005. Accordingly, we will adopt SFAS 123(R) commencing with the quarter ending March 31, 2006. We estimate the impact of adoption of SFAS 123(R) will approximate the impact of the adjustments made to determine pro forma net income and pro forma earnings per share under SFAS 123, as disclosed in Note 1 of the Notes to Consolidated Financial Statements.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS 154 replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. Previously, most voluntary changes in accounting principle were recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 is not expected to have a material effect on our results of operations or financial position.
Item 7A. | | Quantitative and Qualitative Disclosure About Market Risk |
We use derivative financial instruments from time to time to reduce exposure associated with potential foreign currency rate changes occurring between the contract date and when the payments are received. These instruments are not used for trading or for speculative purposes. The Company has entered into Foreign Exchange Agreements (“Agreements”) for $7.8 million. The Agreements guarantee that the exchange rate does not go below the rate used
19
in the contract bid amount and the amount ultimately collected. As of December 31, 2005, $3.5 million was still open and the Agreements were expected to be completed by June, 2006. We believe risk exposure resulting from exchange rate movements to be immaterial.
We are exposed to cash flow and fair value risk due to changes in interest rates with respect to certain portions of our debt. The debt subject to changes in interest rates is our $65.0 million revolving credit line ($41.4 million outstanding as of December 31, 2005). Management believes our current risk exposure to interest rate movements to be immaterial.
Additional information required by this item is set forth in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Item 8. | | Financial Statements and Supplementary Financial Data |
The Consolidated Financial Statements required by this item are included on pages F-1 to F-22. The financial statement schedule required by this item is included on page S-1. The quarterly information required by this item is included under the captionQuarterly Data (unaudited), in Note 17 of the Notes to Consolidated Financial Statements as listed in Item 15 of Part IV of this Report.
Item 9. | | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A. | | Controls and Procedures |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2005, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect those controls, including any corrective actions with regard to significant deficiencies and material weaknesses.
Management’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 Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework inInternal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2005.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
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Item 9B. | | Other Information |
The Compensation Committee of the Board of Directors has approved annual cash bonus awards earned during 2005 and paid during 2006 and annual base salaries for 2006 for the Company’s executive officers as follows:
Name
| | | | Title
| | 2005
Cash Bonus
| | 2006
Base Salary
|
|---|
| Brian W. Dunham | | | | President and Chief Executive Officer | | $ | 300,000 | | | $ | 520,000 | |
| Charles L. Koenig | | | | Senior Vice President, Water Transmission | | | 229,000 | | | | 236,500 | |
| Robert L. Mahoney | | | | Vice President, Corporate Development | | | 100,000 | | | | 205,000 | |
| Terrence R. Mitchell | | | | Senior Vice President, Tubular Products | | | 37,000 | | | | 239,000 | |
| John D. Murakami | | | | Vice President and Chief Financial Officer | | | 100,000 | | | | 205,000 | |
| Gary A. Stokes | | | | Senior Vice President, Sales and Marketing | | | 252,000 | | | | 250,000 | |
PART III
Item 10. | | Directors and Executive Officers of the Registrant |
The information required by this item is included under the captionsElections of Directors, Management andSection 16(a) Beneficial Ownership Reporting Compliance in Northwest Pipe’s Proxy Statement for its 2006 Annual Meeting of Shareholders and is incorporated herein by reference. Management has adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Corporate Controller and Operations Controller. A copy of the Code of Ethics can be found on our website at www.nwpipe.com. None of the material on our website is part of this Form 10-K. If there is any waiver from any provision from the code of ethics for our Executive Officers, we will disclose the nature of such waiver on our website or in a current report on Form 8-K.
Item 11. | | Executive Compensation |
The information required by this item is included under the captionExecutive Compensation andStock Performance Graph in Northwest Pipe’s Proxy Statement for its 2006 Annual Meeting of Shareholders and is incorporated herein by reference.
Item 12. | | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this item is included under the captionStock Owned by Management and Principal Shareholders in Northwest Pipe’s Proxy Statement for its 2006 Annual Meeting of Shareholders and is incorporated herein by reference. Information with respect to equity compensation plans is included under the captionEquity Compensation Plan Information in Northwest Pipe’s Proxy Statement for its 2006 Annual Meeting of Shareholders and is incorporated herein by reference.
Item 13. | | Certain Relationships and Related Transactions |
The information required by this item is included under the captionCertain Relationships and Related Transactions in Northwest Pipe’s Proxy Statement for its 2006 Annual Meeting of Shareholders and is incorporated herein by reference.
Item 14. | | Principal Accountant Fees and Services |
The information required by this item is included under the captionIndependent Registered Public Accounting Firm in Northwest Pipe’s Proxy Statement for its 2006 Annual Meeting of Shareholders and is incorporated herein by reference.
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PART IV
Item 15. | | Exhibits and Financial Statement Schedule |
(a)(1) Financial Statements
The Financial Statements, together with the report thereon of PricewaterhouseCoopers LLP are included on the pages indicated below.
| | | | Page
|
|---|
| Report of Independent Registered Public Accounting Firm | | | | | F-1 | |
| Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003 | | | | | F-3 | |
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2005, 2004 and 2003 | | | | | F-3 | |
| Consolidated Balance Sheets as of December 31, 2005 and 2004 | | | | | F-4 | |
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2005, 2004 and 2003 | | | | | F-5 | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 | | | | | F-6 | |
| Notes to Consolidated Financial Statements | | | | | F-7 | |
(a)(2) Financial Statement Schedule
The following schedule is filed herewith:
| | | |
| | Page
|
|---|
| Schedule II | | | | Valuation and Qualifying Accounts | | | 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.
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(a)(3) Exhibits included herein:
Exhibit
Number
| | | | Description
|
|---|
| 3.1 | | | | Second Restated Articles of Incorporation, incorporated by reference to Exhibits to the Company’s Registration Statement on Form S-1, as amended, effective November 30, 1995, Commission Registration No. 33-97308 (“the S-1”) |
| |
| 3.2 | | | | Second Amended and Restated Bylaws, incorporated by reference to Exhibits to the S-1 |
| |
| 4.1 | | | | Form of Rights Agreement dated as of June 28, 1999 between the Company and ChaseMellon Shareholder Services, L.L.C. as Rights Agent, incorporated by reference to Exhibits 1.1 to the Company’s Registration Statement on Form 8-A as filed with the Securities and Exchange Commission on July 1, 1999 |
| |
| 10.1 | | | | First Amendment to Amended and Restated Credit Agreement dated October 21, 2004 by and between Northwest Pipe Company and Wells Fargo Bank, National Association, incorporated by reference to Exhibits to the Company’s Report on Form 8-K as filed with the Securities and Exchange Commission on October 26, 2004 |
| |
| 10.3 | | | | 1995 Stock Option Plan for Nonemployee Directors, incorporated by reference to Exhibits to the S-1* |
| |
| 10.4 | | | | Loan Agreement dated May 1, 1990 between the Company and California Statewide Communities Development Authority, incorporated by reference to Exhibits to the S-1 |
| |
| 10.5 | | | | Note Purchase Agreement dated November 1, 1997, incorporated by reference to Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997 as filed with the Securities and Exchange Commission on March 27, 1998 |
| |
| 10.6 | | | | Stock Purchase Agreement dated March 6, 1998 by and among Northwest Pipe Company, Southwestern Pipe, Inc., P&H Tube Corporation, Lewis Family Investments Partnership, Ltd., Philip C. Lewis, Hosea E. Henderson, Don S. Brzowski, William H. Cottle, Barry J. Debroeck, Horace M. Jordan and William B. Stuessy (the “Stock Purchase Agreement”), incorporated by reference to Exhibits to the Company’s Report on Form 8-K as filed with the Securities and Exchange Commission on March 20, 1998 |
| |
| 10.7 | | | | Note Purchase Agreement dated April 1, 1998 (certain schedules to the Agreement have been omitted), incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 as filed with the Securities and Exchange Commission on May 15, 1998 |
| |
| 10.9 | | | | Form of Change in Control Agreement, dated July 28, 1999, between Northwest Pipe Company and William R. Tagmyer and Brian W. Dunham, incorporated by reference to Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 as filed with the Securities and Exchange Commission on March 30, 2000* |
| |
| 10.10 | | | | Form of Change in Control Agreement, dated July 28, 1999, between Northwest Pipe Company and Charles L. Koenig, Robert L. Mahoney, Terrence R. Mitchell, John D. Murakami and Gary A. Stokes, incorporated by reference to Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 as filed with the Securities and Exchange Commission on March 30, 2000* |
| |
| 10.11 | | | | Amended 1995 Stock Incentive Plan, incorporated by reference to Exhibit A to the Company’s Proxy Statement for its 2000 Annual meeting of Shareholders, as filed with the Securities and Exchange Commission on March 31, 2000 |
| |
| 10.12 | | | | Office Lease Agreement dated January 7, 2000, between Northwest Pipe Company and 200 Market Associates Limited Partnership, incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 as filed with the Securities and Exchange Commission on May 4, 2000 |
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Exhibit
Number
| | | | Description
|
|---|
| 10.13 | | | | Northwest Pipe NQ Retirement Savings Plan, dated July 1, 1999, incorporated by reference to Exhibits to the Company’s Quarterly Report Form 10-Q for the quarter ended June 30, 2000, as filed with the Securities and Exchange Commission on August 11, 2000 |
| |
| 10.14 | | | | General Electric Capital Corporation Master Lease Agreement, dated September 26, 2000, incorporated by reference to Exhibits to the Company’s Quarterly Report Form 10-Q for the quarter ended September 30, 2000 as filed with the Securities and Exchange Commission on November 13, 2000 |
| |
| 10.15 | | | | Agreement between Northwest Pipe Company and William R. Tagmyer dated November 14, 2000, incorporated by reference to Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission on March 28, 2001* |
| |
| 10.16 | | | | Amendment to change control agreement between Northwest Pipe Company and William R. Tagmyer dated November 14, 2000, incorporated by reference to Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 as filed with the Securities and Exchange Commission on March 28, 2001 |
| |
| 10.18 | | | | General Electric Capital Corporation Master Lease Agreement, dated May 30, 2001, incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 as filed with the Securities and Exchange Commission on August 14, 2001 |
| |
| 10.23 | | | | Note Purchase and Private Shelf Agreement between Northwest Pipe Company and Prudential Investment Management dated February 25, 2004, incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission on April 30, 2004 |
| |
| 10.24 | | | | Amendment dated February 25, 2004 to Note Purchase Agreements dated as of November 15, 1997 and dated as of April 1, 1998 between Northwest Pipe Company and the Purchasers named in the schedules to such Agreements, incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 as filed with the Securities and Exchange Commission on April 30, 2004 |
| |
| 10.26 | | | | Credit Agreement among Northwest Pipe Company and Bank of America, N.A., dated May 20, 2005, incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 as filed with the Securities and Exchange Commission on August 8, 2005 |
| |
| 10.27 | | | | Amended and Restated Intercreditor and Collateral Agency Agreement among Northwest Pipe Company and Prudential Investment Management, Inc. and the Prudential Noteholders, Bank of America, N.A., as the Sole Credit Agreement Lender, The 1997 Noteholders, the 1998 Noteholders and Bank of America, N.A., as Collateral Agent, incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 as filed with the Securities and Exchange Commission on August 8, 2005 |
| |
| 10.28 | | | | First Amendment to Note Purchase and Private Shelf Agreement between Northwest Pipe Company and Prudential Investment Management dated May 20, 2005, incorporated by reference to Exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 as filed with the Securities and Exchange Commission on August 8, 2005 |
| |
| 14.1 | | | | Code of Ethics for Senior Financial Officers, incorporated by reference to Exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on March 12, 2004 |
| |
| 21 | | | | Subsidiaries of the Registrant, filed herewith |
| |
| 23 | | | | Consent of PricewaterhouseCoopers LLP, filed herewith |
| |
| 31.1 | | | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
24
Exhibit
Number
| | | | Description
|
|---|
| 31.2 | | | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
| 32.1 | | | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| |
| 32.2 | | | | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| * | | This exhibit constitutes a management contract or compensatory plan or arrangement. |
25
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Northwest Pipe Company:
We have completed integrated audits of Northwest Pipe Company’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Northwest Pipe Company and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) 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 audits. We conducted our audits of these 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 of financial statements 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 audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’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 (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 (iii) 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.
F-1
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.
PricewaterhouseCoopers LLP
Portland, Oregon
March 10, 2006
F-2
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
| Net sales | | | | $ | 329,006 | | | $ | 291,910 | | | $ | 244,987 | |
| Cost of sales | | | | | 275,216 | | | | 242,614 | | | | 211,759 | |
| Gross profit | | | | | 53,790 | | | | 49,296 | | | | 33,228 | |
| Selling, general and administrative expense | | | | | 26,318 | | | | 23,126 | | | | 22,293 | |
| Operating income | | | | | 27,472 | | | | 26,170 | | | | 10,935 | |
| Interest expense, net | | | | | 7,383 | | | | 6,346 | | | | 5,210 | |
| Income before income taxes | | | | | 20,089 | | | | 19,824 | | | | 5,725 | |
| Provision for income taxes | | | | | 6,703 | | | | 7,447 | | | | 2,194 | |
| Net income | | | | $ | 13,386 | | | $ | 12,377 | | | $ | 3,531 | |
| Basic earnings per share | | | | $ | 1.97 | | | $ | 1.87 | | | $ | 0.54 | |
| Diluted earnings per share | | | | $ | 1.90 | | | $ | 1.83 | | | $ | 0.53 | |
Shares used in per share calculations:
| | | | | | | | | | | | | | |
| Basic | | | | | 6,781 | | | | 6,618 | | | | 6,553 | |
| Diluted | | | | | 7,063 | | | | 6,768 | | | | 6,660 | |
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
| Net income | | | | $ | 13,386 | | | $ | 12,377 | | | $ | 3,531 | |
Other comprehensive income (loss):
| | | | | | | | | | | | | | |
| Minimum pension liability adjustment | | | | | (218 | ) | | | (1,117 | ) | | | 872 | |
| Tax effect | | | | | 78 | | | | 420 | | | | (334 | ) |
| Comprehensive income | | | | $ | 13,246 | | | $ | 11,680 | | | $ | 4,069 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
| | | | December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
Assets
| | | | | | | | | | |
Current assets:
| | | | | | | | | | |
| Cash and cash equivalents | | | | $ | 133 | | | $ | 89 | |
Trade and other receivables, less allowance for doubtful accounts
of $500 and $1,221 | | | | | 64,538 | | | | 53,882 | |
| Costs and estimated earnings in excess of billings on uncompleted contracts | | | | | 73,161 | | | | 71,205 | |
| Inventories | | | | | 51,070 | | | | 60,696 | |
| Refundable income taxes | | | | | 1,518 | | | | — | |
| Deferred income taxes | | | | | 1,543 | | | | 2,619 | |
| Prepaid expenses and other | | | | | 1,474 | | | | 1,499 | |
| Assets held for sale | | | | | 2,900 | | | | — | |
| Total current assets | | | | | 196,337 | | | | 189,990 | |
| Property and equipment, net | | | | | 117,369 | | | | 116,716 | |
| Goodwill, net | | | | | 21,451 | | | | 21,451 | |
| Restricted assets | | | | | — | | | | 2,300 | |
| Other assets | | | | | 3,328 | | | | 4,946 | |
| Total assets | | | | $ | 338,485 | | | $ | 335,403 | |
| |
Liabilities and Stockholders’ Equity
| | | | | | | | | | |
Current liabilities:
| | | | | | | | | | |
| Note payable to financial institution | | | | $ | — | | | $ | 28,412 | |
| Current portion of long-term debt | | | | | 9,286 | | | | 10,964 | |
| Current portion of capital lease obligations | | | | | 75 | | | | 823 | |
| Accounts payable | | | | | 28,914 | | | | 44,535 | |
| Accrued liabilities | | | | | 7,634 | | | | 7,324 | |
| Total current liabilities | | | | | 45,909 | | | | 92,058 | |
| Note payable to financial institution | | | | | 41,353 | | | | — | |
| Long-term debt, less current portion | | | | | 53,571 | | | | 59,607 | |
| Capital lease obligations, less current portion | | | | | 7 | | | | 82 | |
| Deferred income taxes | | | | | 23,786 | | | | 23,052 | |
| Deferred gain on sale of equipment | | | | | 11,849 | | | | 13,152 | |
| Pension and other benefits | | | | | 2,545 | | | | 3,300 | |
| Total liabilities | | | | | 179,020 | | | | 191,251 | |
Commitments and contingencies (Notes 9 and 13)
| | | | | | | | | | |
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, 6,839,962 and 6,686,196 shares issued and outstanding | | | | | 68 | | | | 67 | |
| Additional paid-in-capital | | | | | 42,973 | | | | 40,907 | |
| Retained earnings | | | | | 118,498 | | | | 105,112 | |
Accumulated other comprehensive loss:
| | | | | | | | | | |
| Minimum pension liability | | | | | (2,074 | ) | | | (1,934 | ) |
| Total stockholders’ equity | | | | | 159,465 | | | | 144,152 | |
| Total liabilities and stockholders’ equity | | | | $ | 338,485 | | | $ | 335,403 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands)
| | | | Common Stock
| |
|---|
| | | | Shares
| | Amount
| | Additional
Paid-in
Capital
| | Retained
Earnings
| | Accumulated
Other
Comprehensive
Loss
| | Total
Stockholders’
Equity
|
|---|
| Balances, December 31, 2002 | | | | | 6,548,879 | | | $ | 65 | | | $ | 39,572 | | | $ | 89,204 | | | $ | (1,689 | ) | | $ | 127,152 | |
| Net income | | | | | | | | | | | | | | | | | 3,531 | | | | | | | | 3,531 | |
| Issuance of common stock under stock option plans | | | | | 11,506 | | | | 1 | | | | 36 | | | | | | | | | | | | 37 | |
Minimum pension liability
adjustment | | | | | | | | | | | | | | | | | | | | | 872 | | | | 872 | |
Tax benefit of stock options
exercised | | | | | | | | | | | | | 59 | | | | | | | | | | | | 59 | |
| Balances, December 31, 2003 | | | | | 6,560,385 | | | | 66 | | | | 39,667 | | | | 92,735 | | | | (817 | ) | | | 131,651 | |
| Net income | | | | | | | | | | | | | | | | | 12,377 | | | | | | | | 12,377 | |
Issuance of common stock under
stock option plans | | | | | 125,811 | | | | 1 | | | | 927 | | | | | | | | | | | | 928 | |
Minimum pension liability
adjustment | | | | | | | | | | | | | | | | | | | | | (1,117 | ) | | | (1,117 | ) |
Tax benefit of stock options
exercised | | | | | | | | | | | | | 313 | | | | | | | | | | | | 313 | |
| Balances, December 31, 2004 | | | | | 6,686,196 | | | | 67 | | | | 40,907 | | | | 105,112 | | | | (1,934 | ) | | | 144,152 | |
| Net income | | | | | | | | | | | | | | | | | 13,386 | | | | | | | | 13,386 | |
Issuance of common stock under
stock option plans | | | | | 153,766 | | | | 1 | | | | 1,712 | | | | | | | | | | | | 1,713 | |
| Minimum pension liability adjustment, net of tax benefit of $78 | | | | | | | | | | | | | | | | | | | | | (140 | ) | | | (140 | ) |
Tax benefit of stock options
exercised | | | | | | | | | | | | | 354 | | | | | | | | | | | | 354 | |
| Balances, December 31, 2005 | | | | | 6,839,962 | | | $ | 68 | | | $ | 42,973 | | | $ | 118,498 | | | $ | (2,074 | ) | | $ | 159,465 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
Cash Flows From Operating Activities:
| | | | | | | | | | | | | | |
| Net income | | | | $ | 13,386 | | | $ | 12,377 | | | $ | 3,531 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
| | | | | | | | | | | | | | |
| Depreciation and amortization of property and equipment | | | | | 5,451 | | | | 6,203 | | | | 4,694 | |
| Amortization of debt issuance costs | | | | | 178 | | | | 135 | | | | — | |
| Deferred income taxes | | | | | 1,810 | | | | 1,662 | | | | 3,446 | |
| Deferred gain on sale-leaseback of equipment | | | | | (1,422 | ) | | | (6,351 | ) | | | (6,581 | ) |
| Loss on sale of equipment | | | | | 107 | | | | 28 | | | | 33 | |
| Tax benefit of nonqualified stock options exercised | | | | | 354 | | | | 313 | | | | 59 | |
Changes in current assets and liabilities:
| | | | | | | | | | | | | | |
| Trade and other receivables, net | | | | | (10,656 | ) | | | (5,305 | ) | | | 4,814 | |
| Costs and estimated earnings in excess of billings on uncompleted contracts | | | | | (1,956 | ) | | | (28,431 | ) | | | 6,619 | |
| Inventories | | | | | 9,626 | | | | (17,041 | ) | | | 3,878 | |
| Refundable income taxes | | | | | (1,518 | ) | | | 2,654 | | | | (2,654 | ) |
| Prepaid expenses and other | | | | | 3,896 | | | | 496 | | | | (228 | ) |
| Accounts payable | | | | | (15,621 | ) | | | 20,148 | | | | (6,711 | ) |
| Accrued and other liabilities | | | | | (585 | ) | | | 2,811 | | | | (520 | ) |
| Net cash provided by (used in) operating activities | | | | | 3,050 | | | | (10,301 | ) | | | 10,380 | |
Cash Flows From Investing Activities:
| | | | | | | | | | | | | | |
| Additions to property and equipment | | | | | (18,502 | ) | | | (11,995 | ) | | | (11,115 | ) |
| Proceeds from sale of property and equipment | | | | | 10 | | | | 12 | | | | 26 | |
| Net cash used in investing activities | | | | | (18,492 | ) | | | (11,983 | ) | | | (11,089 | ) |
Cash Flows From Financing Activities:
| | | | | | | | | | | | | | |
| Proceeds from sale of common stock | | | | | 1,713 | | | | 928 | | | | 37 | |
| Borrowings on long-term debt | | | | | 4,500 | | | | 35,500 | | | | — | |
| Payments on long-term debt | | | | | (12,214 | ) | | | (10,965 | ) | | | (10,964 | ) |
Net borrowings (payments) under notes payable to
financial institutions | | | | | 12,941 | | | | (1,029 | ) | | | 12,104 | |
| Payments of debt issuance costs | | | | | (131 | ) | | | (1,180 | ) | | | — | |
| Proceeds of sale-leaseback | | | | | 9,500 | | | | — | | | | — | |
| Borrowings from capital lease obligations | | | | | — | | | | 79 | | | | 387 | |
| Payments on capital lease obligations | | | | | (823 | ) | | | (1,088 | ) | | | (888 | ) |
| Net cash provided by financing activities | | | | | 15,486 | | | | 22,245 | | | | 676 | |
| Net increase (decrease) in cash and cash equivalents | | | | | 44 | | | | (39 | ) | | | (33 | ) |
| Cash and cash equivalents, beginning of period | | | | | 89 | | | | 128 | | | | 161 | |
| Cash and cash equivalents, end of period | | | | $ | 133 | | | $ | 89 | | | $ | 128 | |
| |
Supplemental Disclosure of Cash Flow Information:
| | | | | | | | | | | | | | |
| Cash paid during the period for interest, net of amounts capitalized | | | | $ | 7,147 | | | $ | 6,122 | | | $ | 5,527 | |
| Cash paid during the period for income taxes (net of tax refunds of $526, $4,101, and $2,781) | | | | | 6,146 | | | | 2,772 | | | | 1,062 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share amounts)
1. | | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
The consolidated financial statements include the accounts of Northwest Pipe Company and its wholly owned subsidiaries (the “Company”). All significant inter-company balances have been eliminated. The Company has water transmission manufacturing facilities in Portland, Oregon; Denver, Colorado; Adelanto, California; Parkersburg, West Virginia; and Saginaw, Texas. Tubular products manufacturing facilities are located in Portland, Oregon; Atchison, Kansas; Houston, Texas; and Bossier City, Louisiana. The fabricated products manufacturing facility is located in Monterrey, Mexico.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances at that time. On an on-going basis, the Company evaluates all of its estimates, including those related to revenue recognition, allowance for doubtful accounts, warranties, intangible assets, income taxes, and contingencies and litigation. Actual results could differ from those estimates under different assumptions or conditions.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short term highly liquid investments with remaining maturities of three months or less when purchased.
Allowance for Doubtful Accounts
The Company maintains allowances for estimated losses resulting from the inability of its customers to make required payments and contract disputes. At least monthly, the Company reviews past due balances to identify the reasons for non-payment. If the past due amount results from a specific water transmission project, a specific allowance is recorded to reduce the related receivable to the expected recovery amount given all information presently available. A general allowance is recorded for all other customers based on certain other factors including the length of time the receivables are past due and historical collection experience with individual customers. The Company will write off a receivable account once the account is deemed uncollectible. The Company believes the reported allowances at December 31, 2005 and 2004 are adequate. If the customers’ financial conditions were to deteriorate resulting in their inability to make payments, additional allowances may need to be recorded, which would result in additional expenses being recorded for the period in which such determination was made.
Inventories
Inventories are stated at the lower of cost or market. Finished goods and Tubular Products and Fabricated Products raw material are stated at standard cost, which approximates the first-in, first-out method of accounting. Materials and supplies are stated at standard cost. Water Transmission steel inventory is valued on a specific identification basis and coating and lining materials are stated on a moving average cost basis.
Property and Equipment
Property and equipment, including land, buildings and equipment under capital leases, are stated at cost. Maintenance and repairs are expensed as incurred and costs of improvements and renewals, including interest, are capitalized. Depreciation and amortization are determined by the straight-line method based on the estimated useful lives of the related assets. Upon disposal, costs and related accumulated depreciation of the assets are removed from the accounts and resulting gains or losses are reflected in operations. The Company leases equipment under long-term
F-7
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
capital leases, which are being amortized on a straight-line basis over the shorter of the lease terms or the estimated useful lives of the assets.
Estimated useful lives by major classes of property and equipment are as follows:
| Land improvements | | | | | 20 – 30 | years |
| Buildings | | | | | 20 – 40 | years |
| Equipment | | | | | 5 – 18 | years |
Goodwill
The Company has classified as goodwill the cost in excess of fair value of the net assets of companies acquired in purchase transactions. Net goodwill was $21.5 million at December 31, 2005 and 2004. With the adoption of Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” goodwill is no longer amortized, but is reviewed annually or more frequently if impairment indicators arise, for impairment. Based on its most recent analysis, the Company believes that no impairment of goodwill exists at December 31, 2005.
Product Warranties
The Company’s standard terms and conditions of sale include a warranty for our products to be free of certain defects. The Company records a general reserve for warranty claims based on historical experience. If actual warranty claims differ from the estimates, revisions to the reserve would be necessary.
Self Insurance
The Company is self-insured for health claims for a portion of losses and liabilities associated with workers compensation claims. Losses are accrued based upon the Company’s estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions followed in the insurance industry. The Company has purchased stop-loss coverage in order to limit, to the extent practical, the aggregate exposure to claims. There is no assurance that such coverage will adequately protect the Company against liability from all potential consequences.
Pension Benefits
The Company has two defined benefit pension plans that are frozen. 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 assumed inflation, investment returns, mortality, and discount rates. Management, along with third-party actuaries, reviews all of these assumptions on an ongoing basis.
Revenue Recognition
Revenue from construction contracts in the Company’s water transmission segment is recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs of each contract. Estimated total costs are reviewed monthly and updated by project management and operations personnel for all projects that are fifty percent or more complete, except that major projects, usually over $5.0 million, are reviewed earlier if sufficient production has been completed to provide enough information to revise the original estimated total cost of the project. All cost revisions that result in the gross profit as a percent of sales increasing or decreasing by greater than one percent are reviewed by senior management personnel. 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. Provisions for estimated losses on uncompleted contracts are made in the period such estimated losses are known. Changes in job performance, job conditions and estimated profitability, including those arising
F-8
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Revenue from the Company’s tubular products and fabricated products segments is recognized when all four of the following criteria have been satisfied: persuasive evidence of an arrangement exists; delivery has occurred; the price is fixed or determinable; and collectibility is reasonably assured.
Income Taxes
The Company records deferred income tax assets and liabilities based upon the difference between the financial statement and income tax bases of assets and liabilities using enacted income tax rates. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in net deferred income tax assets and liabilities.
Earnings per Share
Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares outstanding during the period. Incremental shares of 281,719, 150,271 and 107,067 for the years ended December 31, 2005, 2004, 2003, respectively, were used in the calculations of diluted earnings per share. For the year ended December 31, 2005, no options were excluded from the computation of diluted earnings per share because the exercise price of all options was less than the average market price of the underlying common stock during this period and thus no options would be antidilutive. Options to purchase 304,686 shares of common stock at prices of $17.125 to $22.875 per share, and options to purchase 821,698 shares of common stock at prices of $13.563 to $22.875 per share were outstanding during 2004 and 2003, respectively, but were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the underlying common stock.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables. Trade receivables are with a large number of customers, including municipalities, manufacturers, distributors and contractors, dispersed across a wide geographic base. No accounts receivable balance accounted for 10% or more of total accounts receivable at December 31, 2005 and 2004.
Fair Value of Financial Instruments
The fair values of financial instruments are the amounts at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, trade receivables, other current assets and current liabilities approximate fair value because of the short maturity for these instruments. The fair value approximates the carrying value of the Company’s borrowings under its long-term arrangements based upon interest rates available for the same or similar loans.
Long-Lived Assets
Property and equipment are reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Disposal of Long-Lived Assets.” The Company assesses impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the assets may not be recoverable. The recoverable value of long-lived assets is determined by estimating future undiscounted cash flows using assumptions about the expected
F-9
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
future operating performance of the Company. The estimates of undiscounted cash flows may differ from actual cash flow due to, among other things, technological changes, economic conditions, or changes to business operations. If the carrying value of the property and equipment will not be recoverable, an impairment loss is calculated and recorded.
Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and complies with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Under APB No. 25, compensation expense is based on the difference, if any, on the date of grant, between the fair value of the Company’s stock and the exercise price of the option. The Company accounts for stock, stock options and warrants issued to non-employees in accordance with the provisions of Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling, Goods or Services.” Compensation and services expenses are recognized over the vesting period of the options or warrants or the periods the related services are rendered, as appropriate.
At December 31, 2005, the Company has one active stock-based compensation plan, which is described more fully in Note 10. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation.
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
| Net income, as reported | | | | $ | 13,386 | | | $ | 12,377 | | | $ | 3,531 | |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | | | | | 280 | | | | 322 | | | | 459 | |
| Pro forma net income | | | | $ | 13,106 | | | $ | 12,055 | | | $ | 3,072 | |
Earnings per share:
| | | | | | | | | | | | | | |
| Basic—as reported | | | | $ | 1.97 | | | $ | 1.87 | | | $ | 0.54 | |
| Basic—pro forma | | | | $ | 1.93 | | | $ | 1.82 | | | $ | 0.47 | |
| Diluted—as reported | | | | $ | 1.90 | | | $ | 1.83 | | | $ | 0.53 | |
| Diluted—pro forma | | | | $ | 1.86 | | | $ | 1.78 | | | $ | 0.46 | |
Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—An Amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005. The Company is currently evaluating the effect that the adoption of SFAS 151 will have on the results of operations or financial position, but does not expect SFAS 151 to have a material effect.
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (“SFAS 153”). SFAS 153 eliminates the
F-10
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 2l(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have a material effect on the Company’s results of operations or financial position.
In December 2004, the FASB issued SFAS No. 123(R), “Accounting for Stock-Based Compensation” (“SFAS 123(R)”). SFAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro forma disclosures of fair value were required. The provisions of this Statement are effective for the first annual reporting period that begins after June 15, 2005. Accordingly, the Company will adopt SFAS 123(R) commencing with the quarter ending March 31, 2006. The Company estimates the impact of adoption of SFAS 123(R) will approximate the impact of the adjustments made to determine pro forma net income and pro forma earnings per share under SFAS 123.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS 154 replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. Previously, most voluntary changes in accounting principle were recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement also requires that a change in depreciation, amortization, or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS 154 is not expected to have a material effect on the Company’s results of operations or financial position.
2. | | COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED
CONTRACTS: |
| | | | December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
| Costs incurred on uncompleted contracts | | | | $ | 260,752 | | | $ | 177,389 | |
| Estimated earnings | | | | | 73,601 | | | | 50,173 | |
| | | | | | 334,353 | | | | 227,562 | |
| Less billings to date | | | | | (261,192 | ) | | | (156,357 | ) |
| | | | | $ | 73,161 | | | $ | 71,205 | |
Costs and estimated earnings in excess of billings on uncompleted contracts represents revenue earned under the percentage of completion method but not billable based on the terms of the contracts. These amounts are billed based on the terms of the contracts, which include achievement of milestones, partial shipments or completion of the contracts.
F-11
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
| | | | December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
| Finished goods | | | | $ | 24,682 | | | $ | 24,989 | |
| Raw materials | | | | | 24,145 | | | | 33,655 | |
| Materials and supplies | | | | | 2,243 | | | | 2,052 | |
| | | | | $ | 51,070 | | | $ | 60,696 | |
The Company has an agreement to sell its manufacturing facility in Riverside, California and has included the related property, plant and equipment as an asset held for sale in current assets.
5. | | PROPERTY AND EQUIPMENT: |
| | | | December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
| Land and improvements | | | | $ | 15,533 | | | $ | 16,906 | |
| Buildings | | | | | 29,782 | | | | 30,774 | |
| Equipment | | | | | 96,275 | | | | 95,513 | |
| Equipment under capital leases | | | | | 521 | | | | 5,365 | |
| Construction in progress | | | | | 13,170 | | | | 2,571 | |
| | | | | | 155,281 | | | | 151,129 | |
| Less accumulated depreciation and amortization | | | | | (37,912 | ) | | | (34,413 | ) |
| Property and equipment, net | | | | $ | 117,369 | | | $ | 116,716 | |
Depreciation expense was $5,451, $6,203 and $4,694 for the years ended December 31, 2005, 2004 and 2003, respectively. Accumulated amortization associated with property and equipment under capital leases was $170 and $1,580 at December 31, 2005 and 2004, respectively.
| | | | December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
| Goodwill | | | | $ | 23,717 | | | $ | 23,717 | |
| Less accumulated amortization | | | | | (2,266 | ) | | | (2,266 | ) |
| Goodwill, net | | | | $ | 21,451 | | | $ | 21,451 | |
7. | | NOTE PAYABLE TO FINANCIAL INSTITUTION: |
At December 31, 2005, the Company had a $65.0 million line of credit agreement, under which $44.0 million was outstanding, bearing interest at a weighted average rate of 5.98%, and partially offset by $2.6 million of cash receipts that had not been applied to the line of credit. At December 31, 2005, the Company had additional net borrowing capacity under the line of credit of $23.6 million. The line of credit expires on May 20, 2010, and bears interest at rates related to LIBOR plus 0.75% to 1.50%, or the lending institution’s prime rate, minus 0.5% to 0.0%. The line of credit agreement contains the following covenants; minimum consolidated tangible net worth, maximum consolidated total debt to consolidated EBITDA, minimum consolidated fixed charge coverage test and a minimum asset coverage ratio. At December 31, 2005, the Company was in compliance with all covenants specified in the line of credit agreement.
F-12
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
| | | | December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
| Industrial Development Bond, maturing on April 15, 2010, issued in accordance with Internal Revenue Code Section 144(a), variable interest (2.15% at December 31, 2004) payable monthly; annual principal payments of $250, collateralized by property and equipment and guaranteed by an irrevocable letter of credit from a bank; paid in full in May 2005 | | | | $ | — | | | $ | 1,500 | |
| Senior Notes, maturing on November 15, 2007, due in annual payments of $5.0 million that began November 15, 2001, plus interest at 6.87% paid quarterly, on February 15, May 15, August 15 and November 15, collateralized by accounts receivable, inventory and certain equipment | | | | | 10,000 | | | | 15,000 | |
| Series A Senior Notes, maturing on April 1, 2005, due in annual payments of $1.4 million that began April 1, 1999, plus interest at 6.63% paid quarterly, on January 1, April 1, July 1, and October 1, collateralized by accounts receivable, inventory and certain equipment; paid in full in April 2005 | | | | | — | | | | 1,428 | |
| Series B Senior Notes, maturing on April 1, 2008, due in annual payments of $4.3 million that began April 1, 2002, plus interest at 6.91% paid quarterly, on January 1, April 1, July 1, and October 1, collateralized by accounts receivable, inventory and certain equipment | | | | | 12,857 | | | | 17,143 | |
| Series A Term Note, maturing on February 25, 2014, due in annual payments of $2.1 million that begin February 25, 2008, plus interest at 8.75% paid quarterly, on February 25, May 25, August 25, and November 25, collateralized by accounts receivable, inventory and certain equipment | | | | | 15,000 | | | | 15,000 | |
| Series B Term Notes, maturing on June 21, 2014, due in annual payments of $1.5 million that begin June 21, 2008, plus interest at 8.47% paid quarterly, on March 21, June 21, September 21 and December 21, collateralized by accounts receivable, inventory and certain equipment | | | | | 10,500 | | | | 10,500 | |
| Series C Term Notes, maturing on October 26, 2014, due in annual payments of $1.4 million that begin October 26, 2008, plus interest at 7.36% paid quarterly, on January 26, April 26, July 26 and October 26, collateralized by accounts receivable, inventory and certain equipment | | | | | 10,000 | | | | 10,000 | |
| Series D Term Notes, maturing on January 24, 2015, due in annual payments of $643 that begin January 24, 2009, plus interest at 7.32% paid quarterly, on January 24, April 24, July 24 and October 24, collateralized by accounts receivable, inventory and certain equipment | | | | | 4,500 | | | | — | |
| Total long-term debt | | | | $ | 62,857 | | | $ | 70,571 | |
Amounts are displayed on the consolidated balance sheet as follows:
| | | | | | | | | | |
| Current portion of long-term debt | | | | $ | 9,286 | | | $ | 10,964 | |
| Long-term debt, less current portion | | | | | 53,571 | | | | 59,607 | |
| | | | | $ | 62,857 | | | $ | 70,571 | |
The Company is required to maintain certain financial ratios under its long-term debt agreements, including the following covenants; minimum consolidated tangible net worth, maximum consolidated total debt to consolidated EBITDA, minimum consolidated fixed charge coverage test and a minimum asset coverage ratio. At December 31, 2005, the Company was in compliance with all covenants specified in its long-term debt agreements.
F-13
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
8. LONG-TERM DEBT: (Continued)
Future principal payments are as follows:
| 2006 | | | | $ | 9,286 | |
| 2007 | | | | | 9,286 | |
| 2008 | | | | | 9,357 | |
| 2009 | | | | | 5,714 | |
| 2010 | | | | | 5,714 | |
| Thereafter | | | | | 23,500 | |
| | | | | $ | 62,857 | |
Interest expense was $7,383, net of amounts capitalized of $340 in 2005, $6,346 in 2004, and $5,210, net of amounts capitalized of $89 in 2003.
The Company leases certain equipment used in the manufacturing process. The future minimum lease payments under these capital leases and the present value of the minimum lease payments as of December 31, 2005 are as follows:
| 2006 | | | | $ | 78 | |
| 2007 | | | | | 7 | |
| Total minimum lease payments | | | | | 85 | |
| Less—Amount representing interest | | | | | 3 | |
| Present value of minimum lease payments with interest rates of 6.7% | | | | | 82 | |
| Current portion of capital lease | | | | | 75 | |
| Capital lease obligation, less current portion | | | | $ | 7 | |
Operating Leases
The Company has entered into various equipment leases with terms of six years or less. Total rental expense for 2005, 2004 and 2003 was $11,196, $14,478 and $14,145, respectively. Future minimum payments as of December 31, 2005 for operating leases with initial or remaining terms in excess of one year are:
| 2006 | | | | $ | 10,046 | |
| 2007 | | | | | 6,436 | |
| 2008 | | | | | 1,798 | |
| 2009 | | | | | 712 | |
| 2010 | | | | | 333 | |
| | | | | $ | 19,325 | |
Certain of the Company’s operating lease agreements include renewals and/or purchase options set to expire at various dates. In addition, certain manufacturing equipment leases, with terms of 3 years, contain provisions related to residual value guarantees, which provide that if the Company does not purchase the leased equipment from the lessor at the end of the lease term, then the Company is liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed value. The maximum potential liability to the Company under such guarantees is $20.1 million at December 31, 2005 if the proceeds from the sale of terminating equipment leases are zero. Consistent with past experience, management does not expect any payments will be required pursuant to these guarantees, and no amounts have been accrued at December 31, 2005.
F-14
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
9. LEASES: (Continued)
From time to time, the Company has completed sales-leaseback transactions of certain manufacturing equipment. The lengths of the leases are from thirty-six to eighty-four months. As a result of the sale-leasebacks, the Company recognized deferred gains that will be amortized over the basic lease term, limited by the maximum guaranteed residual amount.
The Company has a defined contribution retirement plan that covers substantially all of its employees and provides for Company matches of up to 50% of employee contributions to the plan, subject to certain limitations. The defined contribution retirement plan offers fourteen investment options and does not include provisions to invest in or have the Company match in Company stock.
The Company has a non-qualified retirement savings plan that covers the officers and selected highly compensated employees. The non-qualified plan matches up to 50% of employee contributions to the plan, subject to certain limitations. It also provides a Company funded component for the officers with a retirement target fund. The retirement target fund amount is 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, assumes 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.
The Company also has two noncontributory defined benefit plans, a union and a salaried benefit plan. Both plans are frozen, and participants are 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 date the plans were frozen. Benefits under the union pension plan are based upon a flat benefit formula, while benefits under the salaried benefit plan are based upon a final pay formula. The funding policy for each noncontributory defined benefit plan 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 December 31, 2005 the Company had recorded, in accordance with the actuarial valuation, an accrued pension liability of $773. As of December 31, 2004, the Company had recorded a net accrued pension liability of $730. Additionally, as of December 31, 2005 and 2004, the accumulated benefit obligation was $5,044 and $4,781, respectively, and the fair value of plan assets was $4,271 and $4,052, respectively.
Total expense for all retirement plans in 2005, 2004 and 2003 was $1,105, $951 and $894, respectively.
11. | | STOCK-BASED COMPENSATION PLANS: |
The Company has one active stock option plan, the 1995 Stock Option Plan for Nonemployee Directors, which provides for the grant of nonqualified options at an exercise price which is not less than 100 percent of the fair value on the grant date. The 1995 Stock Option Plan for Nonemployee Directors provides for the grant of nonqualified options at an exercise price which is not less than 100 percent of the fair value on the grant date. In addition, the Company has one expired stock option plan, the Amended 1995 Stock Incentive Plan, under which previously granted options remain outstanding and continue to vest. The plans provide that options become exercisable according to vesting schedules, which range from immediate for nonemployee directors to ratably over a 60-month period for all other options. Options terminate 10 years from the date of grant. Although there were 734,336, 893,576 and 1,019,387 shares of common stock reserved for issuance under the Company’s stock compensation plans at December 31, 2005, 2004 and 2003 respectively, the Company no longer has the ability to grant options to employees going forward, and will be granting a limited number of options to directors each year for services performed.
F-15
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
11. STOCK-BASED COMPENSATION PLANS: (Continued)
A summary of status of the Company’s stock options as of December 31, 2005, 2004 and 2003 and changes during the year ended on those dates is presented below:
| | | | Options
Outstanding
| | Weighted Average
Exercise Price
Per Share
|
|---|
| Balance, December 31, 2002 | | | | | 996,970 | | | $ | 14.13 | |
| Options granted | | | | | 15,000 | | | | 10.31 | |
| Options exercised | | | | | (11,506 | ) | | | 3.04 | |
| Options canceled | | | | | (17,607 | ) | | | 16.33 | |
| Balance, December 31, 2003 | | | | | 982,857 | | | | 14.17 | |
| Options granted | | | | | 8,000 | | | | 14.00 | |
| Options exercised | | | | | (125,811 | ) | | | 7.38 | |
| Options canceled | | | | | (5,581 | ) | | | 16.74 | |
| Balance, December 31, 2004 | | | | | 859,465 | | | | 15.14 | |
| Options granted | | | | | 8,000 | | | | 22.07 | |
| Options exercised | | | | | (153,766 | ) | | | 11.14 | |
| Options canceled | | | | | (2,363 | ) | | | 21.72 | |
| Balance, December 31, 2005 | | | | | 711,336 | | | $ | 16.06 | |
The following table summarizes information about stock options outstanding at December 31, 2005:
Options Outstanding
| | Options Exercisable
| |
|---|
Range of
Exercise Prices
Per Share
| | | | Number of
Options
| | Weighted
Average
Remaining
Contractual
Life (years)
| | Weighted
Average
Exercise
Price
Per Share
| | Number of
Options
| | Weighted
Average
Exercise
Price
Per Share
|
|---|
| $10.31 – $13.56 | | | | | 162,520 | | | | 4.46 | | | | 13.33 | | | | 162,520 | | | | 13.33 | |
| $14.00 – $14.56 | | | | | 140,192 | | | | 5.44 | | | | 14.02 | | | | 127,596 | | | | 14.02 | |
| $14.75 – $17.13 | | | | | 142,538 | | | | 3.03 | | | | 14.85 | | | | 142,538 | | | | 14.85 | |
| $17.90 – $18.75 | | | | | 167,288 | | | | 2.68 | | | | 18.50 | | | | 152,621 | | | | 18.56 | |
| $18.88 – $22.88 | | | | | 98,798 | | | | 2.56 | | | | 21.10 | | | | 98,798 | | | | 21.10 | |
| | | | | | 711,336 | | | | 3.69 | | | $ | 16.06 | | | | 684,073 | | | $ | 16.06 | |
The following are the options exercisable at the corresponding weighted average exercise price at December 31, 2005, 2004 and 2003, respectively: 684,073 at $16.06, 777,638 at $15.14 and 817,446 at $14.04.
In accordance with SFAS 123, “Accounting for Stock Based Compensation”, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS 123 are presented in Note 1. The fair value of options granted in 2005, 2004 and 2003 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
| Risk-free interest rate | | | | | 4.01 | % | | | 4.50 | % | | | 3.06 | % |
| Expected dividend yield | | | | | 0 | % | | | 0 | % | | | 0 | % |
| Expected volatility | | | | | 45.74 | % | | | 45.92 | % | | | 47.52 | % |
| Expected lives (years) | | | | | 6.44 | | | | 7.83 | | | | 6.79 | |
The weighted average grant date fair value of options granted during 2005, 2004 and 2003 was $11.77, $8.98 and $5.35, respectively.
F-16
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
12. | | SHAREHOLDER RIGHTS PLAN: |
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 preferred stock purchase right (a “Right”) per share of common stock, payable to shareholders of record on July 9, 2000. 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.
13. | | COMMITMENTS AND CONTINGENCIES: |
In November 1999, the Oregon Department of Environmental Quality (“ODEQ”) requested performance of a preliminary assessment of the Company’s plant located at 12005 N. Burgard in Portland, Oregon. The purpose of the assessment is to determine whether the plant has contributed to sediment contamination in the Willamette River. The Company entered into a Voluntary Letter Agreement with ODEQ in mid-August 2000, and began working on the assessment. On December 1, 2000, a six mile section of the lower Willamette River known as the Portland Harbor was included on the National Priorities List (“NPL”) at the request of the U.S. Environmental Protection Agency (“EPA”). EPA currently defines the site as the areal extent of contamination, and all suitable areas in proximity to the contamination necessary for the implementation of the response action, at, from and to the Portland Harbor Superfund Site Assessment Area from approximately River Mile (“RM”) 3.5 to RM 9.2, including uplands portions of the Site that contain sources of contamination to the sediments (the “Portland Harbor Site”). The Company’s plant is not located on the Willamette River; it lies in what may be the uplands portion of the Portland Harbor Site. EPA and ODEQ have agreed to share responsibility for investigation and cleanup of the Portland Harbor Site. ODEQ has the lead responsibility for conducting the upland work.
By a general notice letter dated December 8, 2000, EPA notified the Company and 68 other parties of potential liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and the Resource Conservation and Recovery Act (“RCRA”) with respect to the Portland Harbor Site. In its letter, EPA inquired whether parties receiving the letter were interested in volunteering to enter negotiations to perform a remedial investigation and feasibility study (“RI/FS”) at the Portland Harbor Site. No action was required by EPA of recipients of the general notice letter. In late December 2000, the Company responded to EPA’s inquiry stating that the Company was working with ODEQ to determine whether its plant had any impact on Willamette River sediments or was a current source of releases to the Willamette River. Therefore, until its work with ODEQ was completed, it would be premature for the Company to enter into any negotiations with EPA. In 2001, groundwater containing elevated volatile organic compounds (VOCs) was identified in one localized area of the Company’s property furthest from the river. Assessment work in 2002 and 2003 to further characterize the groundwater is consistent with the initial conclusion that a source of the VOCs is located off site. There is no evidence at this time showing a connection between detected VOCs in groundwater and Willamette River sediments. Also, there is no evidence to date that stormwater from the plant has adversely impacted Willamette River sediments. However, ODEQ recommended a remedial investigation and feasibility study for further evaluation of both groundwater and stormwater at the plant. On January 25, 2005, ODEQ and the Company entered into a Voluntary Agreement for Remedial Investigation and Source Control Measures. The Company completed the additional assessment work required by the Agreement and submitted a Remedial Investigation/Source Control Evaluation Report to ODEQ on December 30, 2005. The conclusions of the report indicate that VOCs in groundwater do not present an
F-17
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
13. COMMITMENTS AND CONTINGENCIES: (Continued)
unacceptable risk to human or ecological receptors in the Willamette River, stormwater is appropriately managed under the Company’s NPDES permit and the risk assessment screening results justify a No Further Action determination for the facility. The ODEQ review of this report is ongoing. ODEQ is expected to make its recommendations by mid-2006.
The Company operates under numerous governmental permits and licenses relating to air emissions, stormwater run-off, and other matters. The Company is not aware of any current material violations or citations relating to any of these permits or licenses. It has a policy of reducing consumption of hazardous materials in its operations by substituting non-hazardous materials when possible. The Company’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 thereunder which, among other requirements, establish noise and dust standards. The Company believes that it is in material compliance with these laws and regulations and does not believe that future compliance with such laws and regulations will have a material adverse effect on its results of operations or financial condition.
From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of its business. The Company maintains insurance coverage against potential claims in amounts that it believes to be adequate. Management believes that it is not presently a party to any other litigation, the outcome of which would have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Guarantees
The Company has entered into certain stand-by letters of credit that total $5.6 million. The stand-by letters of credit relate to workers’ compensation and general liability insurance.
The components of the provision for income taxes are as follows:
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
Current:
| | | | | | | | | | | | | | |
| Federal | | | | $ | 3,991 | | | $ | 5,927 | | | $ | (1,121 | ) |
| State | | | | | 825 | | | | (142 | ) | | | (131 | ) |
| |
Deferred:
| | | | | | | | | | | | | | |
| Federal | | | | | 2,195 | | | | 876 | | | | 2,750 | |
| State | | | | | (308 | ) | | | 786 | | | | 696 | |
| | | | | $ | 6,703 | | | $ | 7,447 | | | $ | 2,194 | |
The difference between the effective income tax rate and the statutory U.S. federal income tax rate is explained as follows:
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
| Provision at statutory rate | | | | $ | 7,031 | | | $ | 6,938 | | | $ | 2,004 | |
| State provision, net of federal benefit | | | | | 337 | | | | 846 | | | | 372 | |
| Other | | | | | (665 | ) | | | (337 | ) | | | (182 | ) |
| | | | | $ | 6,703 | | | $ | 7,447 | | | $ | 2,194 | |
F-18
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
14. INCOME TAXES: (Continued)
The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities are presented below:
| | | | December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
Current deferred tax assets:
| | | | | | | | | | |
| Inventories | | | | $ | 998 | | | $ | 1,537 | |
| Accrued employee benefits | | | | | 826 | | | | 1,143 | |
| Trade receivables, net | | | | | 194 | | | | 482 | |
| Net operating loss carryforwards | | | | | 140 | | | | 132 | |
| | | | | | 2,158 | | | | 3,294 | |
Current deferred tax liabilities:
| | | | | | | | | | |
| Prepaid expenses | | | | | (194 | ) | | | (246 | ) |
| Other | | | | | (421 | ) | | | (429 | ) |
| Current deferred tax assets, net | | | | $ | 1,543 | | | $ | 2,619 | |
Noncurrent deferred tax assets:
| | | | | | | | | | |
| Net operating loss carryforwards | | | | $ | 885 | | | $ | 1,006 | |
| Other | | | | | 196 | | | | 128 | |
| | | | | | 1,081 | | | | 1,134 | |
| Valuation allowance | | | | | (520 | ) | | | (478 | ) |
| | | | | | 561 | | | | 656 | |
Noncurrent deferred tax liabilities:
| | | | | | | | | | |
| Property and equipment | | | | | (24,347 | ) | | | (23,708 | ) |
| Noncurrent deferred tax liabilities, net | | | | $ | (23,786 | ) | | $ | (23,052 | ) |
| Net deferred tax liabilities | | | | $ | (22,243 | ) | | $ | (20,433 | ) |
As of December 31, 2005, the Company had approximately $1.7 million of federal net operating loss carryforwards and $6.7 million of state net operating loss carryforwards as a result of the acquisition of Thompson Pipe and Steel, which are limited in their use to approximately $348 per year during the 15 year carryforward period which expires in 2010. During the years ended December 31, 2005 and 2004, the Company recorded valuation allowances of $42 and $478, respectively, related to the state net operating loss carryforwards. As it was considered more likely than not the benefits would not be realized, the valuation allowance was recorded based upon current and anticipated future taxable income, state tax rates, and state apportionment.
On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Act”). The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. In return, the Act also provides for a two-year phase-out of the existing extra-territorial income exclusion (ETI) for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union. The Company expects the net effect of the phase out of the ETI and the phase in of this new deduction to result in a decrease in the effective tax rate, based on current earnings levels.
Under the guidance in FASB Staff Position No. FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” the deduction will be treated as a “special deduction” as described in FASB Statement No. 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on the Company’s tax return.
F-19
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
The Company has adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” which requires disclosure of financial and descriptive information about the Company’s reportable operating segments. The operating segments reported below are based on the nature of the products sold by the Company and are the segments of the Company for which separate financial information is available and for which operating results are regularly evaluated by executive management to make decisions about resources to be allocated to the segment and assess its performance. Management evaluates segment performance based on segment gross profit. There were no material transfers between segments in the periods presented.
The Company’s water transmission segment manufactures and markets large diameter, high-pressure steel pipe used primarily for water transmission. Water Transmission products are custom manufactured in accordance with project specifications and are used primarily for high-pressure water transmission pipelines in the United States, Canada, and Mexico. Water Transmission manufacturing facilities are located in Portland, Oregon; Denver, Colorado; Adelanto, California; Parkersburg, West Virginia and Saginaw, Texas and products are sold primarily to public water agencies either directly or through an installation contractor.
The Company’s tubular products segment manufactures and markets smaller diameter, electric resistance welded steel pipe for use in a wide range of construction, agricultural, energy and industrial applications. Tubular Products manufacturing facilities are located in Portland, Oregon; Atchison, Kansas; Houston, Texas; and Bossier City, Louisiana. Tubular Products are marketed through a network of direct sales force personnel and independent distributors throughout the United States and Canada.
The Company’s fabricated products segment manufactures and markets propane tanks, as well as a wide range of other fabricated metal products. Propane tanks are used for home heating, agricultural and light industrial applications, and other fabricated metal products are produced for use in the automotive, energy and capital equipment industries. The Fabricated Products manufacturing facility is located in Monterrey, Mexico and products are sold through a network of direct sales force personnel and independent agents.
Based on the location of the customer, the Company sold principally all products in the United States, Canada and Mexico. As of December 31, 2005, all material long-lived assets are located in the United States.
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
Net sales:
| | | | | | | | | | | | | | |
| Water transmission | | | | $ | 232,102 | | | $ | 177,765 | | | $ | 146,317 | |
| Tubular products | | | | | 80,664 | | | | 102,535 | | | | 90,249 | |
| Fabricated products | | | | | 16,240 | | | | 11,610 | | | | 8,421 | |
| Total | | | | $ | 329,006 | | | $ | 291,910 | | | $ | 244,987 | |
| |
Gross profit:
| | | | | | | | | | | | | | |
| Water transmission | | | | $ | 46,759 | | | $ | 33,863 | | | $ | 32,173 | |
| Tubular products | | | | | 5,636 | | | | 14,998 | | | | 963 | |
| Fabricated products | | | | | 1,395 | | | | 435 | | | | 92 | |
| Total | | | | $ | 53,790 | | | $ | 49,296 | | | $ | 33,228 | |
| |
Interest expense, net:
| | | | | | | | | | | | | | |
| Water transmission | | | | $ | 3,513 | | | $ | 3,547 | | | $ | 3,447 | |
| Tubular products | | | | | 3,290 | | | | 2,401 | | | | 1,556 | |
| Fabricated products | | | | | 580 | | | | 398 | | | | 207 | |
| Total | | | | $ | 7,383 | | | $ | 6,346 | | | $ | 5,210 | |
F-20
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
15. SEGMENT INFORMATION: (Continued)
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
| | 2003
|
|---|
Depreciation and amortization of property
and equipment:
| | | | | | | | | | | | | | |
| Water transmission | | | | $ | 2,501 | | | $ | 2,380 | | | $ | 2,033 | |
| Tubular products | | | | | 1,598 | | | | 2,588 | | | | 1,537 | |
| Fabricated products | | | | | 268 | | | | 259 | | | | 229 | |
| Total | | | | | 4,367 | | | | 5,227 | | | | 3,799 | |
| Corporate | | | | | 1,084 | | | | 976 | | | | 895 | |
| Total | | | | $ | 5,451 | | | $ | 6,203 | | | $ | 4,694 | |
| |
Capital expenditures:
| | | | | | | | | | | | | | |
| Water transmission | | | | $ | 13,289 | | | $ | 6,977 | | | $ | 2,983 | |
| Tubular products | | | | | 3,758 | | | | 4,733 | | | | 7,811 | |
| Fabricated products | | | | | 221 | | | | 80 | | | | 148 | |
| Total | | | | | 17,268 | | | | 11,790 | | | | 10,942 | |
| Corporate | | | | | 1,234 | | | | 205 | | | | 173 | |
| Total | | | | $ | 18,502 | | | $ | 11,995 | | | $ | 11,115 | |
| |
Net sales by geographic area:
| | | | | | | | | | | | | | |
| United States | | | | $ | 313,765 | | | $ | 275,445 | | | $ | 234,603 | |
| Other | | | | | 15,241 | | | | 16,465 | | | | 10,384 | |
| Total | | | | $ | 329,006 | | | $ | 291,910 | | | $ | 244,987 | |
| | | | Year Ended December 31,
| |
|---|
| | | | 2005
| | 2004
|
|---|
Goodwill:
| | | | | | | | | | |
| Water transmission | | | | $ | — | | | $ | — | |
| Tubular products | | | | | 21,451 | | | | 21,451 | |
| Fabricated products | | | | | — | | | | — | |
| Total | | | | $ | 21,451 | | | $ | 21,451 | |
| |
Total Assets:
| | | | | | | | | | |
| Water transmission | | | | $ | 213,252 | | | $ | 192,222 | |
| Tubular products | | | | | 96,052 | | | | 120,808 | |
| Fabricated products | | | | | 11,924 | | | | 6,790 | |
| Total | | | | | 321,228 | | | | 319,820 | |
| Corporate | | | | | 17,257 | | | | 15,583 | |
| Total | | | | $ | 338,485 | | | $ | 335,403 | |
No one customer represented more than 10% of total sales in 2005, 2004 or 2003.
16. | | RELATED PARTY TRANSACTIONS: |
The Company has ongoing business relationships with certain affiliates of Wells Fargo & Company (“Wells Fargo”). Wells Fargo, together with certain of its affiliates, owns more than ten percent of the Company’s outstanding stock. During the year ended December 31, 2005, the Company has made the following payments to affiliates of
F-21
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands, except share and per share amounts)
16. RELATED PARTY TRANSACTIONS: (Continued)
Wells Fargo: (i) capital and operating lease payments pursuant to which the Company leases certain equipment from such affiliates, (ii) payments of interest and fees pursuant to letters of credit originated by such affiliates, (iii) payments of principal and interest on an industrial development bond, and (iv) payments of principal, interest and related fees in connection with loan agreements between the Company and such affiliates. Payments made by the Company to Wells Fargo and its affiliates amounted to $3.3 million, $3.5 million and $3.9 million for the years ended December 31, 2005, 2004 and 2003, respectively. Balances due to Wells Fargo and its affiliates were $0 and $30.9 million at December 31, 2005 and 2004, respectively.
17. | | QUARTERLY DATA (UNAUDITED): |
Summarized quarterly financial data for 2005 and 2004 is as follows:
| | | | First
Quarter
| | Second
Quarter
| | Third
Quarter
| | Fourth
Quarter
|
|---|
2005
| | | | | | | | | | | | | | | | | | |
Net sales:
| | | | | | | | | | | | | | | | | | |
| Water transmission | | | | $ | 56,033 | | | $ | 59,963 | | | $ | 61,747 | | | $ | 54,359 | |
| Tubular products | | | | | 19,565 | | | | 22,882 | | | | 20,486 | | | | 17,732 | |
| Fabricated products | | | | | 3,160 | | | | 3,581 | | | | 4,521 | | | | 4,977 | |
| Total net sales | | | | $ | 78,758 | | | $ | 86,426 | | | $ | 86,754 | | | $ | 77,068 | |
| |
Gross profit:
| | | | | | | | | | | | | | | | | | |
| Water transmission | | | | $ | 10,327 | | | $ | 12,465 | | | $ | 12,709 | | | $ | 11,258 | |
| Tubular products | | | | | 1,757 | | | | 1,127 | | | | 1,076 | | | | 1,676 | |
| Fabricated products | | | | | 113 | | | | 133 | | | | 454 | | | | 695 | |
| Total gross profit | | | | $ | 12,197 | | | $ | 13,725 | | | $ | 14,239 | | | $ | 13,629 | |
| |
| Net income | | | | $ | 2,591 | | | $ | 3,428 | | | $ | 3,976 | | | $ | 3,391 | |
| |
Earnings per share:
| | | | | | | | | | | | | | | | | | |
| Basic | | | | $ | 0.39 | | | $ | 0.51 | | | $ | 0.58 | | | $ | 0.50 | |
| Diluted | | | | $ | 0.37 | | | $ | 0.49 | | | $ | 0.56 | | | $ | 0.48 | |
| |
2004
| | | | | | | | | | | | | | | | | | |
Net sales:
| | | | | | | | | | | | | | | | | | |
| Water transmission | | | | $ | 36,297 | | | $ | 37,615 | | | $ | 46,242 | | | $ | 57,611 | |
| Tubular products | | | | | 27,965 | | | | 29,194 | | | | 26,073 | | | | 19,303 | |
| Fabricated products | | | | | 2,460 | | | | 2,826 | | | | 2,949 | | | | 3,375 | |
| Total net sales | | | | $ | 66,722 | | | $ | 69,635 | | | $ | 75,264 | | | $ | 80,289 | |
| |
Gross profit:
| | | | | | | | | | | | | | | | | | |
| Water transmission | | | | $ | 6,642 | | | $ | 7,227 | | | $ | 8,920 | | | $ | 11,074 | |
| Tubular products | | | | | 1,703 | | | | 4,477 | | | | 5,027 | | | | 3,791 | |
| Fabricated products | | | | | 83 | | | | 168 | | | | 125 | | | | 59 | |
| Total gross profit | | | | $ | 8,428 | | | $ | 11,872 | | | $ | 14,072 | | | $ | 14,924 | |
| |
| Net income | | | | $ | 1,147 | | | $ | 3,046 | | | $ | 3,938 | | | $ | 4,246 | |
| |
Earnings per share:
| | | | | | | | | | | | | | | | | | |
| Basic | | | | $ | 0.17 | | | $ | 0.46 | | | $ | 0.59 | | | $ | 0.64 | |
| Diluted | | | | $ | 0.17 | | | $ | 0.45 | | | $ | 0.58 | | | $ | 0.62 | |
F-22
Schedule II
NORTHWEST PIPE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
| | | | Balance at
Beginning of
Period
| | Charged to
Profit and
Loss
| | Deduction
from Reserves
| | Balance at
Close of
Period
|
|---|
Year ended December 31, 2005:
| | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | | | $ | 1,221 | | | $ | 599 | | | | ($1,320 | ) | | $ | 500 | |
| Valuation allowance for deferred tax assets | | | | | 478 | | | | 42 | | | | — | | | | 520 | |
Year ended December 31, 2004:
| | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | | | $ | 831 | | | $ | 1,274 | | | | ($884 | ) | | $ | 1,221 | |
| Valuation allowance for deferred tax assets | | | | | — | | | | 478 | | | | — | | | | 478 | |
Year ended December 31, 2003:
| | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | | | $ | 1,100 | | | $ | 1,040 | | | | ($1,309 | ) | | $ | 831 | |
S-1
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 10th day of March 2006.
NORTHWEST PIPE COMPANY
| By | | /s/ BRIAN W. DUNHAM
Brian W. Dunham
Chief Executive Officer |
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 in the capacities indicated, on the 10th day of March 2006.
Signature
| | | | Title
|
|---|
/s/ WILLIAM R. TAGMYER
William R. Tagmyer | | | | Director and Chairman of the Board |
| |
/s/ BRIAN W. DUNHAM
Brian W. Dunham | | | | Director, President and Chief Executive Officer |
| |
/s/ JOHN D. MURAKAMI
John D. Murakami | | | | Vice President and Chief Financial Officer
(Principal Financial Officer) |
| |
/s/ WAYNE B. KINGSLEY
Wayne B. Kingsley | | | | Director |
| |
/s/ NEIL R. THORNTON
Neil R. Thornton | | | | Director |
| |
/s/ RICHARD A. ROMAN
Richard A. Roman | | | | Director |
Officers
Brian W. Dunham
President and
Chief Executive Officer
1990*
Charles L. Koenig
Senior Vice President
Water Transmission
1992*
Terrence R. Mitchell
Senior Vice President
Tubular Products
1985*
Gary A. Stokes
Senior Vice President
Sales and Marketing
1987*
Robert L. Mahoney
Vice President
Corporate Development
1992*
John D. Murakami
Vice President
Chief Financial Officer
1995*
Board of Directors
William R. Tagmyer
Chairman of the Board
Northwest Pipe Company
Portland, Oregon
1986*
Brian W. Dunham
President and Chief Executive Officer
Northwest Pipe Company
Portland, Oregon
1995*
Wayne B. Kingsley
Chairman of the Board
American Waterways, Inc.
Portland, Oregon
1987*
Richard A. Roman
President
Columbia Ventures Corporation
Vancouver, Washington
2003*
Neil R. Thornton
Former President and Chief Executive Officer
American Steel, L.L.C.
Portland, Oregon
1995*
