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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER: 0-27140
NORTHWEST PIPE COMPANY
(Exact name of registrant as specified in its charter)
OREGON 93-0557988
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12005 N. BURGARD
PORTLAND, OREGON 97203
(Address of principal executive offices and zip code)
503-285-1400
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [ X ] No [ ]
COMMON STOCK, PAR VALUE $.01 PER SHARE 6,403,725
(Class) (Shares outstanding at April 30, 1997)
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NORTHWEST PIPE COMPANY
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
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Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 9
1
NORTHWEST PIPE COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
March 31, December 31,
1997 1996
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 4,199 $ 4,302
Trade receivables, less allowance for doubtful
accounts of $1,733 and $1,680 28,640 23,222
Costs and estimated earnings in excess of billings
on uncompleted contracts 10,165 10,750
Inventories 24,087 20,484
Prepaid expenses and other 1,180 1,289
Deferred income taxes 3,051 3,051
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Total current assets 71,322 63,098
Property and equipment, less accumulated
depreciation of $21,506 and $20,860 36,235 34,594
Property under capital leases, less accumulated
amortization of $593 and $577 2,859 2,875
Other assets, net 877 857
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$ 111,293 $ 101,424
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to financial institution $ 15,585 $ 7,302
Current portion of long-term debt 2,088 2,100
Current portion of capital lease obligations 298 299
Current portion of capital lease obligations due to
related party 128 125
Accounts payable 9,141 9,930
Accrued liabilities 8,073 7,605
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Total current liabilities 35,313 27,361
Long-term debt, less current portion 9,600 10,050
Capital lease obligations, less current portion 1,734 1,760
Capital lease obligations due to related party,
less current portion 2,513 2,546
Deferred income taxes 13 13
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Total liabilities 49,173 41,730
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued or outstanding -- -- --
Common stock, $.01 par value, 15,000,000 shares authorized,
6,403,725 and 6,388,986 shares issued and outstanding 64 64
Additional paid-in-capital 38,464 38,453
Retained earnings 23,592 21,177
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Total stockholders' equity 62,120 59,694
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$ 111,293 $ 101,424
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The accompanying notes are an integral part of these consolidated financial
statements.
2
NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended March 31,
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1997 1996
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Net sales $ 37,757 $ 30,971
Cost of sales 30,247 23,590
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Gross profit 7,510 7,381
Selling, general and administrative expense: 3,140 2,366
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Income from operations 4,370 5,015
Interest expense 289 342
Interest expense to related parties 56 58
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Income before income taxes 4,025 4,615
Provision for income taxes 1,610 1,846
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Net income $ 2,415 $ 2,769
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Earnings per share $ 0.37 $ 0.50
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Weighted average number of shares 6,611 5,527
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The accompanying notes are an integral part of these consolidated financial
statements.
3
NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended March 31,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,415 $ 2,769
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 662 483
Provision for doubtful accounts 53 84
Changes in current assets and liabilities:
Trade receivables (5,471) 1,998
Costs and estimated earnings in excess of billings on
uncompleted contracts 585 (5,022)
Inventories (3,603) 456
Prepaid expenses and other 109 334
Accounts payable (789) (3,267)
Accrued liabilities 468 982
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Net cash used in operating activities (5,571) (1,183)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,287) (731)
Other assets (20) (93)
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Net cash used in investing activities (2,307) (824)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock 11 9
Payments on long-term debt (462) (350)
Proceeds under note payable to financial institution 8,283 4,334
Payments on capital lease obligations (27) (25)
Payments on capital lease obligations to related parties (30) (28)
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Net cash provided by financing activities 7,775 3,940
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Net (decrease) increase in cash and cash equivalents (103) 1,933
Cash and cash equivalents, beginning of period 4,302 857
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Cash and cash equivalents, end of period $ 4,199 $ 2,790
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 249 $ 391
Income taxes -- 800
The accompanying notes are an integral part of these consolidated financial
statements.
4
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements as of and for the three
month periods ended March 31, 1997 and 1996 have been prepared in conformity
with generally accepted accounting principles. The financial information as of
December 31, 1996 is derived from the audited financial statements presented in
the Northwest Pipe Company (the "Company") Annual Report on Form 10-K for the
year ended December 31, 1996. Certain information or footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, the accompanying financial statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. The accompanying financial
statements should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1996, as presented in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
Operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 31, 1997, or any portion thereof.
2. INVENTORIES
Inventories are stated at the lower of cost or market. Finished goods are
stated at standard cost which approximates the first-in, first-out method of
accounting. Inventories of steel coil are stated at cost on a specific
identification basis. Inventories of coating and lining materials, as well as
materials and supplies, are stated on an average cost basis.
March 31, December 31,
1997 1996
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Finished goods $ 6,488 $ 6,564
Raw materials 15,978 12,449
Materials and supplies 1,621 1,471
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$ 24,087 $ 20,484
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5
NORTHWEST PIPE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table compares for the periods indicated, certain financial
information regarding costs and expenses expressed as a percentage of total net
sales and net sales of the Company's segments.
Three months ended
March 31,
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1997 1996
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Net sales
Water transmission 68.2% 67.2%
Tubular products 31.8 32.8
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Total net sales 100.0 100.0
Cost of sales 80.1 76.2
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Gross profit 19.9 23.8
Selling, general and
administrative expenses 8.3 7.6
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Income from operations 11.6 16.2
Interest expense 0.9 1.3
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Income before income taxes 10.7 14.9
Provision for income taxes 4.3 6.0
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Net income 6.4% 8.9%
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Gross profit as a percentage
of segment net sales:
Water transmission 21.1% 25.8%
Tubular products 17.3 19.7
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
SALES. Net sales increased 21.9% to $37.8 million in the first quarter of
1997, from $31.0 million in the first quarter of 1996. Sales increased in both
business segments. Water transmission sales increased 23.7% to $25.8 million in
the first quarter of 1997 from $20.8 million in the first quarter of 1996,
primarily as a result of the additional sales from acquisitions in 1996.
Tubular products sales increased 18.2% to $12.0 million in the first quarter of
1997 from $10.2 million in the first quarter of 1996. The increase was primarily
a result of higher sales in certain product lines. In the first quarter of
1997, sales to two customers represented 10.2% and 10.3% of total net sales. In
the first quarter of 1996, sales to a single customer represented 19.0% of total
net sales.
GROSS PROFIT. Gross profit increased 1.7% to $7.5 million (19.9% of total
net sales) in the first quarter of 1997 from $7.4 million (23.8% of total net
sales) in the first quarter of 1996. Water transmission gross profit was $5.4
million (21.1% of segment net sales) in the first quarter of 1997 and the first
quarter of 1996 (25.8% of segment net sales). The gross margin was impacted by
the competitive pricing in the latter part of 1996. Gross profit from tubular
products increased 3.5% to $2.1 million (17.3% of segment net sales) in the
first quarter of 1997 from $2.0 million (19.7% of segment net sales) in the
first quarter of 1996. The increase in gross profit and the decrease in margin
percentage were both attributable to higher sales volume in lower margin product
lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased 32.7% to $3.1 million (8.3% of total net
sales) in the first quarter of 1997 from $2.4 million (7.6% of total net sales)
in the first quarter of 1996, due primarily to the increased on-going expenses
related to the acquisitions in 1996.
6
INTEREST EXPENSE. Interest expense decreased 13.8% to $345,000 in the first
quarter of 1997 from $400,000 in the first quarter of 1996. This resulted from a
decrease in average borrowings outstanding due to the application of the
proceeds of the Company's public offering in November 1996.
INCOME TAXES. The provision for income taxes decreased to $1.6 million in
the first quarter of 1997 from $1.8 million in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances operations with internally generated funds and
available borrowings. In November 1995, the Company completed an initial public
offering, which resulted in net proceeds to the Company of approximately $14.6
million. In November 1996, the Company completed another public offering, which
resulted in net proceeds to the Company of approximately $15.3 million. At March
31, 1997, the Company had cash and cash equivalents of $4.2 million.
Net cash used by operating activities in the first quarter of 1997 was $5.6
million. This was primarily a net result of $2.4 million of net income, non-
cash adjustments for depreciation and amortization of $662,000, decreases in
costs and estimated earnings in excess of billings on uncompleted contracts of
$586,000 and accrued liabilities of $468,000 and increases in trade receivables,
inventories, and accounts payable, of $5.5 million, $3.6 million, and $790,000,
respectively. These changes were primarily attributable to increases in net
sales and inventories in the first quarter as production at the plants acquired
in 1996 increase to planned operating levels.
Net cash used in investing activities in the first quarter of 1997 was $2.3
million, which primarily resulted from expenditures related to the new Tubular
Products mill being installed in the Portland, Oregon plant. The new mill is
scheduled to be operational late in the third quarter of 1997. The remaining
expenditures were for projects related to existing operations.
Net cash provided by financing activities was $7.8 million in the first
quarter of 1997, which included the net effect of additional borrowings of $8.3
million under a note payable to a financial institution and the repayment of
$462,000 of long-term debt.
The Company has four significant components of debt: a line of credit
bearing interest at prime (8.25% at March 31, 1997), which expires in 2001;
Industrial Development Bonds in the aggregate amount of $4.0 million with
variable interest rates ranging from 3.40% to 3.85% at March 31, 1997; two notes
payable to its Senior Lender in the aggregate amount of $7.7 million, bearing
interest at prime plus 0.25%; and capital leases aggregating $4.7 million
bearing interest at rates ranging from 3.85% to 11.25% at March 31, 1997.
At March 31, 1997 the Company had an aggregate of $22.6 million outstanding
under a $44.0 million line of credit. Advances under the line of credit are
limited to the lesser of $44.0 million or the sum of (i) 85% of eligible
accounts receivable, plus (ii) 60% of eligible inventory, plus (iii) 50% of
eligible costs and estimated earnings in excess of billings on uncompleted
contracts. Advances under the line of credit bear interest at prime. As of
March 31, 1997 the current borrowing base yielded unused capacity of
$11.6 million under the line of credit. Advances under the line of credit are
collateralized by substantially all of the Company's assets. The line of credit
expires on April 30, 2001.
At March 31, 1997 the Company had an aggregate of $7.7 million outstanding
under two notes payable to its Senior Lender, due in aggregate quarterly
principal payments of $450,000, which bear interest at prime plus 0.25%. These
notes mature on September 30, 2001 and are collateralized by the Company's
receivables, inventories, property and equipment.
The Company's working capital requirements have increased due to the
increase in the Company's Water Transmission business which is characterized by
lengthy production periods and extended payment cycles. The Company anticipates
that its existing cash and cash equivalents, cash flows expected to be generated
by
7
operations and amounts available under its line of credit will be adequate to
fund its working capital and capital requirements for at least the next twelve
months.
To the extent necessary, the Company may also satisfy capital requirements
through additional bank borrowings and capital leases if such resources are
available on satisfactory terms. The Company has from time to time evaluated and
continues to evaluate opportunities for acquisitions and expansion and,
consistent with this practice, is currently engaged in discussions with other
parties regarding possible acquisitions. Any such transactions, if consummated,
may use a portion of the Company's working capital or necessitate additional
bank borrowings.
On February 7, 1996, the Company's production at its Oregon facility was
interrupted by a flood resulting in approximately $450,000 in direct costs. The
Company is working with its insurer to recover direct flood costs and the costs
associated with business interruption. The recovery amount is not determinable
at this time, but the Company does not anticipate any further negative impact on
its operations as a result of the flood.
As described in the Company's 1996 Annual Report on Form 10-K for the year
ended December 31, 1996, the Company has been identified as one of four
potentially responsible parties with potential liability for a Superfund site in
Clackamas, Oregon (the "Site"). In October 1995, the Company filed a complaint
seeking a declaratory judgment from the Bankruptcy Court that any claims with
respect to liability for the costs of the Response Activities at the Site were
discharged by the Bankruptcy Court's confirmation of the Company's Plan of
Reorganization (the "Plan"). In September 1996, the Company entered into
mediation with the United States Environmental Protection Agency (the "EPA") and
the Oregon Department of Environmental Quality (the "ODEQ") (collectively, the
"Agencies") in an attempt to resolve the matter without incurring the
substantial additional expense of continuing the litigation. As a result of the
mediation process, the Company and the Agencies entered into an agreement in
principle with respect to a proposed settlement of the litigation (the
"Settlement Agreement").
The Settlement Agreement does not represent a final settlement of the
litigation. A final binding settlement of the litigation will be effected only
through the Bankruptcy Court's entry of a consent decree for the Site. The
Company and the Agencies have prepared a consent decree which embodies the terms
of the Settlement Agreement (the "Consent Decree"). The Consent Decree has not
been approved or entered by the Bankruptcy Court, and is subject to further
review and approval by the parties and certain other conditions which have not
yet been satisfied.
If the Consent Decree is approved and becomes effective, the Company will
pay $1 million plus the interest accrued from April 1, 1997 to the EPA, and
deposit $2.3 million into an escrow account (the "Cash Escrow"), with the
interest income to be distributed to the EPA. The Consent Decree sets forth the
terms and conditions under which the Company could recover the $2.3 million to
be placed in the Cash Escrow after the EPA completes construction of the
remedial action at the Site.
The Company believes that a settlement of the litigation with the Agencies
can be achieved on substantially the terms set forth in the Consent Decree.
However, no assurance can be given that the Company and the Agencies will
actually achieve a settlement or, if a settlement is not achieved, that the
Company will be successful in obtaining a judgment from the Bankruptcy Court
that the confirmation of the Plan discharged its liability to the Agencies for
environmental claims with respect to the Site or that it will not ultimately be
found to have liability with respect to the Site. If the Company is ultimately
found to have liability to the EPA or to the ODEQ with respect to the Site, no
assurance can be given that such liability would not have a material adverse
effect on the Company's business, financial condition and results of operations.
8
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") and Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS 129"), which are effective for the
Company's 1997 fiscal year. The Company's management has studied the
implications of SFAS 128 and SFAS 129, and based on the initial evaluation, does
not expect the adoption to have a material impact on the Company's financial
condition or results of operations.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) During the first quarter of 1997, the Company sold securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act") upon the exercise of certain stock options granted under the
Company's stock option plans. An aggregate of 14,310 shares of Common
Stock were issued at exercise prices ranging from $0.90 to $1.00. These
transactions were effected in reliance upon the exemption from registration
under the Securities Act provided by Rule 701 promulgated by the Securities
and Exchange Commission pursuant to authority granted under Section 3(b) of
the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
Exhibit No.
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11 Statement regarding computation of earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
9
Pursuant to the requirements 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.
Dated: May 7, 1997
NORTHWEST PIPE COMPANY
By: /s/ WILLIAM R. TAGMYER
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William R. Tagmyer
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ BRIAN W. DUNHAM
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Brian W. Dunham
Executive Vice President, Chief Operating
Officer, Treasurer and Secretary
(Principal Financial Officer)
10