Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Northwest Pipe Company (the “Company”) acquired Park Environmental Equipment, LLC (“ParkUSA”) on October 5, 2021 for total consideration of approximately $87.5 million, subject to a post-closing adjustment based on changes in net working capital. The Company financed the acquisition primarily by borrowings on the Company’s line of credit.
The accompanying unaudited pro forma combined financial information was prepared in accordance with Article 11 of Regulation S‑X, as amended by the SEC Final Rule Release No. 33‑10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements and ParkUSA’s historical consolidated financial statements as adjusted to give effect to the Company’s acquisition of ParkUSA. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and the year ended December 31, 2020 give effect to the transaction as if it had occurred on January 1, 2020. The unaudited pro forma condensed combined balance sheet as of September 30, 2021 gives effect to the transaction as if it had occurred on September 30, 2021. The pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined financial information.
Release No. 33-10786 (effective January 1, 2021) replaced the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the Transactions (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or reasonably expected to occur (“Management’s Adjustments”). The Company has elected not to present Management’s Adjustments and is only presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities. Therefore, the unaudited pro forma condensed combined financial information should not be considered indicative of actual results that would have been achieved had the acquisition occurred on the dates indicated and does not purport to indicate results of operations for any future period.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10‑K and quarterly report on Form 10‑Q, and ParkUSA’s historical information included herein.
NORTHWEST PIPE COMPANY |
PRO FORMA CONDENSED COMBINED BALANCE SHEET |
(Unaudited) |
September 30, 2021 |
(In thousands) |
Northwest Pipe Company Historical | Park Environmental Equipment, LLC | Reclassification Adjustments (Note 3) | Transaction Accounting Adjustments (Note 4) | Pro Forma Combined | ||||||||||||||||||
| �� | ||||||||||||||||||||||
Assets | ||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||
Cash and cash equivalents | $ | 3,188 | $ | 2,545 | $ | - | $ | (87,493 | ) | (a) | $ | 4,512 | ||||||||||
| 86,272 | (b) | |||||||||||||||||||||
Trade and other receivables, net | 38,885 | 11,552 | - | - | 50,437 | |||||||||||||||||
Contract assets | 111,239 | - | - | - | 111,239 | |||||||||||||||||
Inventories | 43,042 | 7,403 | - | 2,544 | (c) | 52,989 | ||||||||||||||||
Prepaid expenses and other | 1,915 | 265 | - | - | 2,180 | |||||||||||||||||
Total current assets | 198,269 | 21,765 | - | 1,323 | 221,357 | |||||||||||||||||
Property and equipment, net | 111,157 | 5,261 | - | 2,761 | (d) | 119,179 | ||||||||||||||||
Operating lease right-of-use assets | 32,769 | - | - | 58,301 | (e) | 91,070 | ||||||||||||||||
Goodwill | 22,985 | - | - | 28,527 | (f) | 51,512 | ||||||||||||||||
Intangible assets, net | 9,571 | 1,400 | - | 30,100 | (g) | 41,071 | ||||||||||||||||
Other assets | 6,216 | - | - | - | 6,216 | |||||||||||||||||
Total assets | $ | 380,967 | $ | 28,426 | $ | - | $ | 121,012 | $ | 530,405 | ||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||
Accounts payable | $ | 20,148 | $ | 2,318 | $ | - | $ | - | $ | 22,466 | ||||||||||||
Accrued liabilities | 17,406 | 2,547 | - | 2,516 | (h) | 22,469 | ||||||||||||||||
Contract liabilities | 5,388 | - | - | - | 5,388 | |||||||||||||||||
Current portion of operating lease liabilities | 2,401 | - | - | 1,897 | (e) | 4,298 | ||||||||||||||||
Total current liabilities | 45,343 | 4,865 | - | 4,413 | 54,621 | |||||||||||||||||
Borrowings on line of credit | 2,153 | - | - | 86,272 | (b) | 88,425 | ||||||||||||||||
Operating lease liabilities | 30,004 | - | - | 56,404 | (e) | 86,408 | ||||||||||||||||
Deferred income taxes | 12,391 | - | - | - |
| 12,391 | ||||||||||||||||
Other long-term liabilities | 10,767 | - | - | - | 10,767 | |||||||||||||||||
Total liabilities | 100,658 | 4,865 | - | 147,089 | 252,612 | |||||||||||||||||
Total stockholders’ equity | 280,309 | 23,561 | - | (2,516 | ) | (h) | 277,793 | |||||||||||||||
| (23,561 | ) | (i) | ||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 380,967 | $ | 28,426 | $ | - | $ | 121,012 | $ | 530,405 | ||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information.
NORTHWEST PIPE COMPANY |
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS |
(Unaudited) |
For the Nine Months Ended September 30, 2021 |
(In thousands, except per share amounts) |
Northwest Pipe Company Historical | Park Environmental Equipment, LLC | Reclassification Adjustments (Note 3) | Transaction Accounting Adjustments (Note 4) | Pro Forma Combined | ||||||||||||||||||
Net sales | $ | 230,766 | $ | 52,238 | $ | - | $ | - | $ | 283,004 | ||||||||||||
Cost of sales | 200,090 | 27,376 | 13,735 | (1) | 341 | (d) | 241,628 | |||||||||||||||
| - | 86 | (e) | ||||||||||||||||||||
Gross profit | 30,676 | 24,862 | (13,735 | ) | (427 | ) | 41,376 | |||||||||||||||
Selling, general and administrative expense | 17,729 | 21,855 | (13,128 | ) | (1) | 2,251 | (g) | 28,707 | ||||||||||||||
Depreciation and amortization expense | - | 607 | (607 | ) | (1) | - | - | |||||||||||||||
Operating income | 12,947 | 2,400 | - | (2,678 | ) | 12,669 | ||||||||||||||||
Gain on forgiveness of paycheck protection program loan | - | 1,975 | - | - | 1,975 | |||||||||||||||||
Other income, net | 260 | 219 | - | - | 479 | |||||||||||||||||
Interest income | - | 2 | - | - | 2 | |||||||||||||||||
Interest expense | (687 | ) | - | - | (563 | ) | (b) | (1,250 | ) | |||||||||||||
Income before income taxes | 12,520 | 4,596 | - | (3,241 | ) | 13,875 | ||||||||||||||||
Income tax expense | 3,268 | - | 345 | (j) | 3,613 | |||||||||||||||||
Net income | $ | 9,252 | $ | 4,596 | $ | - | $ | (3,586 | ) | $ | 10,262 | |||||||||||
Net income per share: | ||||||||||||||||||||||
Basic | $ | 0.94 | $ | 1.04 | ||||||||||||||||||
Diluted | $ | 0.93 | $ | 1.03 | ||||||||||||||||||
Shares used in per share calculations: | ||||||||||||||||||||||
Basic | 9,849 | 9,849 | ||||||||||||||||||||
Diluted | 9,918 | 9,918 | ||||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information.
NORTHWEST PIPE COMPANY |
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS |
(Unaudited) |
For the Year Ended December 31, 2020 |
(In thousands, except per share amounts) |
Northwest Pipe Company Historical | Park Environmental Equipment, LLC | Reclassification Adjustments (Note 3) | Transaction Accounting Adjustments (Note 4) | Pro Forma Combined | ||||||||||||||||||
Net sales | $ | 285,907 | $ | 66,539 | $ | - | $ | - | $ | 352,446 | ||||||||||||
Cost of sales | 235,388 | 38,525 | 11,846 | (1) | 2,544 | (c) | 289,814 | |||||||||||||||
| - | 747 | (d) | ||||||||||||||||||||
| - | (36 | ) | (e) | |||||||||||||||||||
| - | 800 | (g) | ||||||||||||||||||||
Gross profit | 50,519 | 28,014 | (11,846 | ) | (4,055 | ) | 62,632 | |||||||||||||||
Selling, general and administrative expense | 24,954 | 17,535 | (10,975 | ) | (1) | 3,002 | (g) | 37,032 | ||||||||||||||
| - | 2,516 | (h) | ||||||||||||||||||||
Depreciation and amortization expense | - | 871 | (871 | ) | (1) | - | - | |||||||||||||||
Operating income | 25,565 | 9,608 | - | (9,573 | ) | 25,600 | ||||||||||||||||
Other income | 953 | 34 | - | - | 987 | |||||||||||||||||
Interest income | 49 | 104 | - | - | 153 | |||||||||||||||||
Interest expense | (933 | ) | (29 | ) | - | (1,833 | ) | (b) | (2,795 | ) | ||||||||||||
Income before income taxes | 25,634 | 9,717 | - | (11,406 | ) | 23,945 | ||||||||||||||||
Income tax expense (benefit) | 6,584 | - | - | (422 | ) | (j) | 6,162 | |||||||||||||||
Net income | $ | 19,050 | $ | 9,717 | $ | - | $ | (10,984 | ) | $ | 17,783 | |||||||||||
Net income per share: | ||||||||||||||||||||||
Basic | $ | 1.95 | $ | 1.82 | ||||||||||||||||||
Diluted | $ | 1.93 | $ | 1.80 | ||||||||||||||||||
Shares used in per share calculations: | ||||||||||||||||||||||
Basic | 9,788 | 9,788 | ||||||||||||||||||||
Diluted | 9,873 | 9,873 | ||||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. | Basis of Presentation |
Northwest Pipe Company (the “Company”) acquired Park Environmental Equipment, LLC (“ParkUSA”) on October 5, 2021.
The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are based upon available information and certain assumptions (1) directly attributable to the acquisition, (2) factually supportable and reasonable under the circumstances and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the acquisition. The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed.
The acquisition will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations.” As the acquirer for accounting purposes, the Company has estimated the fair value of ParkUSA’s assets acquired and liabilities assumed and conformed the accounting policies of ParkUSA to its own accounting policies.
The pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
2. | Preliminary Purchase Price Allocation |
The Company has performed a preliminary valuation analysis of the fair value of ParkUSA’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as if the acquisition had closed on September 30, 2021 (in thousands):
Cash and cash equivalents | $ | 2,545 | ||
Trade and other receivables | 11,552 | |||
Inventories | 9,947 | |||
Prepaid expenses and other | 265 | |||
Property and equipment | 8,022 | |||
Operating lease right-of-use assets | 58,301 | |||
Intangible assets | 31,500 | |||
Accounts payable | (2,318 | ) | ||
Accrued liabilities | (2,547 | ) | ||
Operating lease liabilities | (58,301 | ) | ||
Goodwill | 28,527 | |||
Total estimated consideration | $ | 87,493 |
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statement of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property and equipment, (2) changes in allocations to intangible assets, (3) changes in operating lease right-of-use assets and liabilities, (4) changes in income taxes, and (5) other changes to assets and liabilities, including working capital adjustments.
3. | Reclassification Adjustments |
The reclassification adjustments are based on our preliminary estimates and assumptions that are subject to change. The following reclassification adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(1) | The Company recognizes certain expenses in Cost of sales, while ParkUSA recognizes these expenses in Selling, general, and administrative expense and Depreciation and amortization expense. Therefore, this reclassification adjustment conforms the presentation of these expenses to the Company’s presentation. |
4. | Transaction Accounting Adjustments |
The transaction accounting adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(a) | Reflects consideration of $87.5 million of cash paid at closing of acquisition. |
(b) | Reflects the increase in borrowings on line of credit of $86.3 million incurred to fund the acquisition. |
The following table summarizes the change in interest expense resulting from interest on the borrowings on the line of credit and the amortization of related debt issuance costs (in thousands): |
Nine Months Ended September 30, 2021 | Year Ended December 31, 2020 | ||||||||
Estimated interest expense | $ | 1,054 | $ | 2,152 | |||||
Estimated debt issuance costs | 196 |
| 614 | ||||||
| Historical interest expense | (300 | ) | (656 | ) | |||||
| Historical debt issuance costs | (387 | ) | (277 | ) | |||||
Pro forma adjustments to interest expense | $ | 563 | $ | 1,833 | |||||
(c) | Reflects the adjustment of $2.5 million to step up the estimated fair value of the work-in-process and finished goods inventories. The calculation of fair value is preliminary and subject to change. The fair value was determined based on the estimated selling price of the inventories, less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. The pro forma statement of operations for the year ended December 31, 2020 is also adjusted to increase cost of sales by the same amount as the step up in the inventory that is expected to be sold within one year of the acquisition date. |
(d) | Reflects the adjustment of $2.8 million to increase the basis in the acquired property and equipment to the estimated fair value of $8.0 million. The estimated useful lives range from 1 to 20 years. The fair value and useful life calculations are preliminary and subject to change after the Company finalizes its review of the specific types, nature, age, condition, and location of ParkUSA’s property and equipment. | |
| ||
The following table summarizes the change in the estimated depreciation expense (in thousands): |
Nine Months Ended September 30, 2021 | Year Ended December 31, 2020 | ||||||||
Estimated depreciation expense | $ | 948 | $ | 1,618 | |||||
Historical depreciation expense | (607 | ) | (871 | ) | |||||
Pro forma adjustments to depreciation expense | $ | 341 | $ | 747 | |||||
(e) | Reflects the establishment of $58.3 million of operating lease right-of-use assets, $1.9 million of current operating lease liabilities, and $56.4 million of long-term operating lease liabilities for operating leases entered into by the Company at the time of the acquisition. |
The following table summarizes the change in the estimated rent and lease expense (in thousands): |
Nine Months Ended September 30, 2021 | Year Ended December 31, 2020 | ||||||||
Estimated rent and lease expense | $ | 2,714 | $ | 3,553 | |||||
Historical rent and lease expense | (2,628 | ) | (3,589 | ) | |||||
Pro forma adjustments to rent and lease expense | $ | 86 | $ | (36 | ) | ||||
(f) | Reflects the preliminary goodwill of $28.5 million, calculated as if the net assets were acquired on September 30, 2021. The actual goodwill to be recorded in our December 31, 2021 financial statements is expected to be materially different, due to the changes in ParkUSA’s working capital balances between September 30, 2021 and the acquisition date of October 5, 2021, as well as possible changes as the purchase price allocation is completed. See the preliminary purchase price allocation in Note 2. |
(g) | Reflects the adjustment of $30.1 million to increase the historical intangible assets acquired by the Company to their estimated fair values. As part of the preliminary valuation analysis, the Company identified intangible assets for customer relationships, trade names, backlog, and patents. The fair value of identifiable intangible assets is determined primarily using the income approach, which requires a forecast of all of the expected future cash flows. | |
| ||
The following table summarizes the estimated fair values of ParkUSA’s identifiable intangible assets and their estimated useful lives (dollars in thousands): |
Amortization Expense | ||||||||||||||
Estimated Fair Value | Estimated Useful Life (in years) | Nine Months Ended September 30, 2021 | Year Ended December 31, 2020 | |||||||||||
Customer relationships | $ | 19,800 | 10.0 | $ | 1,485 | $ | 1,980 | |||||||
Trade names | 9,600 | 10.0 | 720 | 960 | ||||||||||
| Patents | 1,300 | 21.0 | 46 | 62 | ||||||||||
Backlog | 800 | 0.6 | - | 800 | ||||||||||
| $ | 31,500 | 2,251 | 3,802 | |||||||||||
Historical amortization expense | - | - | ||||||||||||
Pro forma adjustments to amortization expense | $ | 2,251 | $ | 3,802 | ||||||||||
This preliminary estimate of fair value and estimated useful life will likely differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements. |
(h) | Reflects the accrual of $2.5 million of additional non-recurring transaction costs incurred subsequent to September 30, 2021, including advisory, legal, accounting, and other expenses. There were $2.8 million and $0.3 million of transaction costs and $6.0 million and $0 of transaction bonuses included in the historical statements of operations for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively. These transaction costs and transaction bonuses are not expected to affect the results of operations beyond twelve months after the acquisition date. |
(i) | Reflects the elimination of the historical equity of ParkUSA. |
(j) | Reflects the income tax effect of pro forma adjustments based on the estimated blended federal and state statutory income tax rate of 24.7% for the nine months ended September 30, 2021 and the year ended December 31, 2020, adjusted for the impact of combined non-deductible permanent differences. |