<PAGE>
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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: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 5,294,889
(Class) (Shares outstanding at October 31, 1996)
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NORTHWEST PIPE COMPANY
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income - Three Months
and Nine Months Ended September 30, 1996 and 1995. . . . . . 3
Consolidated Statements of Cash Flows - Three
Months and Nine Months Ended September 30,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . 7
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 11
1
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NORTHWEST PIPE COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,308 $ 857
Accounts receivable, less allowance for doubtful
accounts of $920 and $867 36,867 15,984
Costs and estimated earnings in excess of billings
on uncompleted contracts 9,324 9,891
Inventories 15,664 11,409
Prepaid expenses and other 425 835
Deferred income taxes 1,175 694
------------- -------------
Total current assets 67,763 39,670
Property and equipment, net 30,626 21,198
Property under capital leases, less accumulated
amortization of $561 and $513 2,891 2,939
Deferred income taxes 66 --
Other assets, net 982 647
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$ 102,328 $ 64,454
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------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to financial institution $ 24,743 $ 2,191
Current portion of long-term debt 2,590 2,100
Current portion of capital lease obligations 305 106
Current portion of capital lease obligations due to
related party 122 115
Accounts payable 9,136 9,733
Accrued liabilities 8,404 2,987
------------- -------------
Total current liabilities 45,300 17,232
Long-term debt, less current portion 10,173 9,110
Capital lease obligations, less current portion 1,815 259
Capital lease obligations due to related party 2,548 2,671
Other long-term liabilities 680 --
Deferred income taxes -- 1,453
------------- -------------
Total liabilities 60,516 30,725
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued or outstanding
Common stock, $.01 par value, 15,000,000 shares
authorized, 5,294,889 and 5,258,299 shares issued
and outstanding 53 53
Additional paid-in-capital 22,940 22,903
Retained earnings 18,819 10,773
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Total stockholders' equity 41,812 33,729
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$ 102,328 $ 64,454
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</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 38,360 $ 25,402 $ 102,449 $ 71,927
Cost of sales 29,990 21,372 79,214 58,283
--------- --------- --------- ---------
Gross profit 8,370 4,030 23,235 13,644
Selling, general and administrative 3,164 1,418 8,229 5,427
--------- --------- --------- ---------
Income from operations 5,206 2,612 15,006 8,217
Interest expense 688 628 1,424 2,085
Interest expense to related parties 57 212 173 541
--------- --------- --------- ---------
Income before income taxes 4,461 1,772 13,409 5,591
Provision for income taxes 1,784 673 5,363 2,099
--------- --------- --------- ---------
Net income $ 2,677 $ 1,099 $ 8,046 $ 3,492
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share $ 0.48 $ 0.32 $ 1.45 $ 1.03
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in per share calculations 5,539 3,557 5,537 3,551
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 8,046 $ 3,492
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,372 982
Provision for doubtful accounts 53 274
Deferred income tax provision -- 753
Changes in current assets and liabilities:
Accounts receivable (13,902) (4,295)
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,457 (6,019)
Inventories (2,416) 4,019
Prepaid expenses and other 428 296
Accounts payable (3,655) (88)
Accrued liabilities (47) 1,744
---------- ----------
Net cash provided by (used in) operating activities (7,664) 1,158
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,670) (1,591)
Acquisition, net of cash acquired (3,073) --
Other assets (313) (153)
---------- ----------
Net cash used in investing activities (6,056) (1,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in common stock and additional paid in capital 39 --
Payments on long-term debt (1,427) (2,555)
Proceeds under note payable to financial institution 19,286 3,722
Payments on capital lease obligations (642) (63)
Payments on capital lease obligations to related parties (85) (79)
---------- ----------
Net cash provided by financing activities 17,171 1,025
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Net increase in cash and cash equivalents 3,451 439
Cash and cash equivalents, beginning of period 857 395
---------- ----------
Cash and cash equivalents, end of period $ 4,308 $ 834
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,460 $ 2,345
Income taxes 5,771 1,044
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Accrued interest converted to long term debt $ 28
Capital lease obligations incurred 41
Acquisition: Fair value of assets acquired $ 20,886
Fair value of liabilities assumed 17,813
----------
Cash paid, net $ 3,073
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of and for
the three month and nine month periods ended September 30, 1996 and 1995 have
been prepared in conformity with generally accepted accounting principles. The
financial information as of December 31, 1995 is derived from Northwest Pipe
Company's (the "Company") consolidated financial statements included in the
Annual Report to Shareholders which is incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Certain information or footnote disclosures normally included in consolidated
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 consolidated 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 consolidated
financial statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 1995, as incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Operating results for the three month and nine month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 31, 1996, 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 identified cost. Inventories
of coating and lining materials, as well as material and supplies, are stated at
average cost.
September 30, December 31,
1996 1995
-------------- --------------
Finished goods $ 4,595 $ 3,423
Raw materials 10,248 6,665
Materials and supplies 821 1,321
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$ 15,664 $ 11,409
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3. PROPERTY AND EQUIPMENT, NET
September 30, December 31,
1996 1995
-------------- --------------
Land and improvements $ 4,464 $ 2,736
Buildings 11,935 5,915
Equipment 30,500 20,835
Construction in progress 4,504 1,639
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51,403 31,125
Less accumulated
depreciation (20,777) (9,927)
---------- ----------
$ 30,626 $ 21,198
---------- ----------
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5
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NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACQUISITION
On May 31, 1996 the Company acquired Thompson Pipe and Steel Company
("Thompson Pipe and Steel"), a manufacturer of water transmission pipe
headquartered in Denver, Colorado. The acquisition ("the Acquisition") was
accomplished through the Company's purchase of all of the issued and outstanding
capital stock of Thompson Pipe and Steel from Inter-City Products Corporation, a
Canadian corporation based in Toronto, Canada, and its affiliates ("ICP").
The principal assets acquired by the Company in the Acquisition were steel
pipe manufacturing facilities located in Denver, Colorado and Princeton,
Kentucky. The Kentucky manufacturing facility was closed by Thompson Pipe and
Steel in 1995. The Company intends to continue operating the manufacturing
facility in Denver, Colorado, and intends to dispose of the manufacturing
facility located in Princeton, Kentucky.
The purchase price paid by the Company for the capital stock of Thompson
Pipe and Steel was approximately $400. In addition, the Company purchased from
ICP certain indebtedness of Thompson Pipe and Steel to ICP in the amount of
approximately $4.8 million. The purchase price was determined through arms-
length negotiations between the Company and ICP. The funds used to pay the
purchase price were obtained pursuant to the terms of the Company's Line of
Credit.
The accompanying consolidated financial statements include the results of
operations of Thompson Pipe and Steel from the date of acquisition. The
acquisition was accounted for using the purchase method of accounting.
The following unaudited pro forma information represents the results of
operations of the Company as if the acquisition had occurred at the beginning of
each period presented:
(Unaudited)
For the Nine Months Ended
September 30,
---------------------------
1996 1995
------------ -----------
Net revenues $ 113,301 $ 99,641
Net income (loss) 4,092 (125)
Net income (loss) per share 0.74 (0.04)
The unaudited pro forma information does not purport to be indicative of
the results which would actually have been obtained had the acquisition occurred
at the beginning of the periods indicated or which may be obtained in the
future.
6
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ITEM 2. 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 Nine months ended
September 30, September 30,
-------------------------------------
1996 1995 1996 1995
------- ------- ------- --------
Net sales
Water transmission 66.5% 61.8% 65.6% 59.4%
Tubular products 33.5 38.2 34.4 40.6
------- ------- ------- --------
Total net sales 100.0 100.0 100.0 100.0
Cost of sales 78.2 84.1 77.3 81.0
------- ------- ------- --------
Gross profit 21.8 15.9 22.7 19.0
Selling, general and administrative
expenses 8.2 5.6 8.1 7.6
------- ------- ------- --------
Income from operations 13.6 10.3 14.6 11.4
Interest expense 1.9 3.3 1.5 3.6
------- ------- ------- --------
Income before income taxes 11.7 7.0 13.1 7.8
Provision for income taxes 4.7 2.7 5.2 2.9
------- ------- ------- --------
Net income 7.0% 4.3% 7.9% 4.9%
------- ------- ------- --------
------- ------- ------- --------
Gross profit as a percentage
of segment net sales:
Water transmission 25.3% 15.7% 25.6% 19.9%
Tubular products 14.9 16.2 17.2 17.6
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
SALES. Net sales increased 51.0% to $38.4 million in the third quarter of
1996, from $25.4 million in the third quarter of 1995 and increased 42.4% to
$102.4 million in the first nine months of 1996, from $71.9 million in the first
nine months of 1995.
Water transmission sales increased 62.6% to $25.5 million in the third
quarter of 1996 from $15.7 million in the third quarter of 1995 and increased
57.3% to $67.2 million in the first nine months of 1996 from $42.7 million in
the first nine months of 1995. The increases were primarily a result of an
increase in the number of projects bid in the Company's geographical market
areas and the number of successful bids in prior periods which resulted in
increased production.
Tubular products sales increased 32.2% to $12.9 million in the third
quarter of 1996 from $9.7 million in the third quarter of 1995 and increased
20.7% to $35.2 million in the first nine months of 1996 from $29.2 million in
the first nine months of 1995. The increases were primarily the result of
increased sales of well casing products. In the third quarter of 1996, no single
customer accounted for 10% or more of total net sales. In the third quarter of
1995, sales to one Water Transmission customer represented 16% of total net
sales. In the first nine months of 1996, sales to one Water Transmission
customer represented 10.2% of total net sales. In the first nine months of 1995,
sales to another single Water Transmission customer represented 17.3% of total
net sales.
GROSS PROFIT. Gross profit increased 107.7% to $8.4 million (21.8% of
total net sales) in the third quarter of 1996 from $4.0 million (15.9% of total
net sales) in the third quarter of 1995 and increased 70.3% to $23.2
7
<PAGE>
million (22.7% of total net sales) in the first nine months of 1996 from $13.6
million (19.0% of total net sales) in the first nine months of 1995.
Water transmission gross profit increased 162.7% to $6.5 million (25.3% of
segment net sales) in the third quarter of 1996 from $2.4 million (15.7% of
segment net sales) in the third quarter of 1995 and increased 102.2% to $17.2
million (25.6% of segment net sales) in the first nine months of 1996 from $8.5
million (19.9% of segment net sales) in the first nine months of 1995. The
increases were primarily attributable to improved margins resulting from
increased plant utilization.
Gross profit from tubular products increased 21.5% to $1.9 million (14.9%
of segment net sales) in the third quarter of 1996 from $1.6 million (16.2% of
segment net sales) in the third quarter of 1995 and increased 17.7% to $6.0
million (17.2% of segment net sales) in the first nine months of 1996 from $5.1
million (17.6% of segment net sales) in the first nine months of 1995. The
increases were primarily attributable to increased sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 123.1% to $3.2 million (8.2% of total net
sales) in the third quarter of 1996 from $1.4 million (5.6% of total net sales)
in the third quarter of 1995 and increased 51.6% to $8.2 million (8.1% of total
net sales) in the first nine months of 1996 from $5.4 million (7.6% of total net
sales) in the first nine months of 1995. The increase was largely attributable
to the one-time costs associated with the acquisition of Thompson Pipe and Steel
in May 1996 and to its operating costs since that time as well as the costs of
litigating an environmental issue with the U.S. Environmental Protection Agency
(the "EPA"). During the third quarter the parties to this dispute reached an
agreement in principle to settle the litigation. See "Liquidity and Capital
Resources." In connection with this agreement, the Company recorded an expense
of $1.0 million in the third quarter of 1996, which was partially offset by the
resolution of certain other litigation which resulted in a $775,000 gain.
INTEREST EXPENSE. Interest expense decreased 11.3% to $745,000 in the
third quarter of 1996 from $840,000 in the third quarter of 1995 and
decreased 39.2% to $1.6 million in the first nine months of 1996 from $2.6
million in the first nine months of 1995. This resulted from a decrease in
average borrowings outstanding during 1996, as compared to 1995; a direct result
of the application of the proceeds of the Company's initial public offering in
November 1995, partially offset by the additional debt resulting from the
acquisition of Thompson Pipe and Steel in May 1996.
INCOME TAXES. The provision for income taxes increased to $1.8 million in
the third quarter of 1996 from $673,000 in the third quarter of 1995 and
increased to $5.4 million in the first nine months of 1996 from $2.1 in the
first nine months of 1995. The provision for income taxes in 1995 reflected the
use of net operating loss carryforwards and tax credits which reduced the
Company's tax provision. In connection with the acquisition of Thompson Pipe and
Steel, the Company acquired net operating loss carryforwards which, due to an
"ownership change" as defined under section 382 of the Internal Revenue Code of
1986, as amended, are subject to an annual limitation of approximately $340,000
during the 15 year carryforward period.
BACKLOG
The Company's backlog includes confirmed orders in backlog, including the
balance of projects in process. The Company also includes projects for which
the Company has been notified it is the successful bidder even though a binding
agreement has not been executed. Projects for which a binding contract has not
been executed could be canceled. Binding orders received by the Company may also
be subject to cancellation or postponement, however cancellation would generally
obligate the customer to pay the costs incurred by the Company. As of September
30, 1996 and 1995, the Company's backlog of orders was approximately $45.9
million and $44.0 million, respectively. Backlog as of September 30, 1996
includes projects having a value of approximately $2.7 million for which binding
contracts had not yet been executed. Backlog orders as of any particular date
may not be indicative of actual operating results for any fiscal period. There
can be no assurance that any amount of backlog ultimately will be realized.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company finances operations with internally generated funds and
available borrowings under its Line of Credit. The Company's working capital was
$22.5 million at September 30, 1996, compared to $22.4 million at December 31,
1995.
Net cash used in operating activities in the first nine months of 1996 was
$7.7 million. This was primarily a net result of $8.0 million of net income,
increases in accounts receivable and inventories of $13.9 million and $2.4
million respectively, and decreases in accounts payable and costs and estimated
earnings in excess of billings on uncompleted contracts of $3.7 million and
$2.5 million respectively. These changes were primarily attributable to the
42.4% sales increase in the first nine months of 1996.
Net cash used in investing activities in the first nine months of 1996 was
$6.1 million. The primary uses of funds were the acquisition, net of cash
acquired, of Thompson Pipe and Steel for $3.1 million and additions to property
and equipment of $2.7 million. The following amounts, which are included in the
accompanying consolidated statement of cash flows as a net amount of $3.1
million, are the primary effects of the Thompson Pipe and Steel acquisition on
the Company's Consolidated Balance Sheet at the date of acquisition: accounts
receivable increased $7.0 million; property, plant and equipment increased $8.1
million; accounts payable increased $3.1 million; accrued liabilities increased
$5.5 million; long-term debt increased $3.7 million; note payable to a financial
institution increased $3.3 million; and capital lease obligations increased $2.4
million. The principal additions to property and equipment in the first nine
months of 1996 were for a new pipe coating system and a new laser seam tracking
system.
Net cash provided by financing activities was $17.2 million in the first
nine months of 1996. As a result of the foregoing, the Company's net cash
increased $3.5 million to $4.3 million as of September 30, 1996.
At September 30, 1996, the Company had a $44.0 million Line of Credit.
Advances under the Line of Credit are limited to the sum of: (i) 85% of eligible
accounts receivable; (ii) 60% of eligible inventory; and (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 (8.25% at September 30,
1996). As of September 30, 1996 the current borrowing base yielded unused
capacity of $8.4 million under the Line of Credit. Advances under the Line of
Credit are secured by substantially all of the Company's assets. The Line of
Credit expires in April, 2001.
On October 1, 1996 the Company filed a registration statement with the
Securities and Exchange Commission for a public offering of 2.4 million shares
of its common stock which will be sold by the company and certain shareholders
of the company. The company proposes to sell 1.2 million shares and certain
shareholders of the company propose to sell 1.2 million shares. The Company and
one of the selling shareholders have granted the underwriters an option to
purchase 360,000 shares of common stock solely for the purpose of covering over-
allotments, if any. The net proceeds to the Company from this offering are
estimated to be $20.0 million ($23.2 million if the Underwriters' over-allotment
option is exercised in full), based on an assumed public offering price of
$18.00 per share and after deducting the estimated underwriting discount and
estimated offering expenses payable by the Company. The Company intends to use
approximately $10.0 million of the net proceeds to finance the acquisition and
installation of a Tubular Products production line in the Company's Portland,
Oregon facility. The balance of the net proceeds from this offering will be used
(i) to repay outstanding indebtedness under the Company's Line of Credit
incurred to finance the Company's working capital, capital expenditures and
acquisition of Thompson Pipe and Steel and (ii) for general corporate purposes.
The Company expects to complete this public offering by mid-November 1996.
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 by extended payment cycles. The Company,
however, anticipates that its cash flow from operations, the proceeds from the
proposed common stock offering referred to above and amounts available under the
Line of Credit will be adequate to fund its working capital and capital
requirements for the next twelve months. The Company has three significant
components of debt: the Line of Credit bearing interest at prime, which had
unused capacity of $8.4 million at
9
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September 30, 1996 and expires in 2001; Industrial Development Bonds in the
aggregate amount of $4.0 million with variable interest rates of 3.85% and 4.20%
at September 30, 1996; and capital leases aggregating $4.8 million bearing
interest at rates ranging from 4.20% to 11.25% at September 30, 1996.
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 preliminary 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 1995 Annual Report on Form 10-K, the Company
has been identified as one of four Potentially Responsible Parties ("PRP") with
potential liability for a Superfund site in Clackamas, Oregon (the "Site").
PRP's may be ordered to perform response actions with respect to the Site
including, but not limited to, conducting a Remedial Investigation/Feasibility
Study, conducting a Remedial Design/Remedial Action, and other investigation,
planning and remediation activities (collectively, the "Response Activities"),
or to reimburse the government for certain costs associated with Response
Activities it performs.
In October 1995, the Company filed a complaint seeking a declaratory
judgment from the United States Bankruptcy Court ("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. In September 1996, the Company entered into mediation
with the EPA and the Oregon Department of Environmental Quality (the "DEQ") 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 EPA and the DEQ (collectively, the "Agencies") entered into an
agreement in principle with respect to a proposed settlement of the litigation
(the "Settlement Agreement"). Under the terms of the Settlement Agreement, the
Company would pay the Agencies $1.0 million, and deposit an additional $2.3
million in an escrow account or trust (the "Trust"), with the interest income on
the Trust to be distributed to the Agencies. A condition of the Settlement
Agreement is that title to the portion of the Site that is currently vacant (the
"Property") be transferred to the Agencies.
The Settlement Agreement provides that the Agencies would complete
construction of the remedial action at the Property in accordance with their
standards and would have the right to sell the Property at any time during the
clean-up process. If the Property is sold by the Agencies during the clean-up
process, the $2.3 million held in the Trust would be returned to the Company.
Once the Property has been remediated as evidenced by completion of construction
of the remedial action and issuance of Remedial Action Reports or their
equivalents and the Property is usable for a "reasonable commercial or
industrial use", the Agencies would have the option to continue to market the
Property for one year. If the Property is not sold during this period, the
Company could elect to have the Property conveyed to it in exchange for the $2.3
million held in the Trust. If the Company takes ownership of the Property and
sells it within one year thereafter; fifty percent of any net proceeds in excess
of $2.3 million would have to be paid to the Agencies. The Agencies would
provide a "Prospective Purchaser Agreement" which would specify that any
prospective purchaser of the Property would not be liable for any past
environmental contamination or any ongoing remediation resulting from past
operations at the Site. If the Company elects not to take ownership of the
Property, the Agencies would retain the $2.3 million held in the Trust. If the
Agencies are unable to complete construction of the remedial action and clean up
soils so that the Property can be used for a "reasonable commercial or
industrial use" within ten years, they would be required to return the $2.3
million held in the Trust to the Company.
10
<PAGE>
The Company believes that once the Property is available for a "reasonable
commercial or industrial use", it would have a value in excess of $2.3 million.
Consequently, the Company does not believe that the $2.3 million held in the
Trust is "impaired" under generally accepted accounting principles. Accordingly,
the Company has recorded the $1.0 million payment as an expense in the third
quarter of 1996 and will segregate the $2.3 million as a restricted asset on its
balance sheet when the Trust is established.
Although the Settlement Agreement reflects the material terms of the
proposed settlement agreed to by the Company and the Agencies, 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, which must be
prepared and agreed upon, and which is subject to public comment and the
approval of the United States Department of Justice, the EPA, the State of
Oregon and the Company's Board of Directors. No assurance can be given that the
Company and the Agencies will be able to reach agreement on a mutually
acceptable Consent Decree, that the terms of any such Consent Decree will be
substantially the same as those set forth in the Settlement Agreement or that
any such Consent Decree will be approved by all required parties.
In the event that the Company and the Agencies are not able to achieve a
settlement and the bankruptcy defense is unsuccessful, the Company's ultimate
liability will depend on the total costs of the Response Activities, the related
costs and fees of the allocation process, the PRP's relative contribution of
contaminants at the Site and the final allocation of costs to the Company which
may ultimately result in litigation and take several years to determine. Based
upon a preliminary estimate of the types of contaminants found and the number of
years each PRP owned or operated on the Site, the Company believes that, if a
settlement is not achieved and its bankruptcy defense is unsuccessful, its
liability for Response Activities and the costs and fees of the allocation
process would range from $4.0 million to $6.0 million on an undiscounted basis.
This range assumes that the Company will not be held responsible for costs which
are allocable to the other PRPs, however, there is no assurance that the Company
will not ultimately bear liability with respect to such costs. If the Company
is ultimately found to have liability to the Agencies, for a significant portion
of the clean-up costs with respect to the Site, there could be a material
adverse effect on the Company's working capital and liquidity.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
Exhibit No.
-----------
11 Statement Regarding Computation of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K/A, Amendment No. 1 to Report on Form 8-K dated June
14, 1996 (which disclosed the acquisition of Thompson Pipe and Steel), was
filed with the Commission on August 13, 1996. No other reports on Form 8-K
were filed during the quarter ended September 30, 1996.
11
<PAGE>
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: October 29, 1996
NORTHWEST PIPE COMPANY
By: /s/ WILLIAM R. TAGMYER
-----------------------
William R. Tagmyer
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ BRIAN W. DUNHAM
--------------------
Brian W. Dunham
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial Officer)
12
<PAGE>
EXHIBIT 11.0
NORTHWEST PIPE COMPANY
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income as reported $ 2,677 $ 1,099 $ 8,046 $ 3,492
Reduction in interest as a result of conversion
of the Series B and Series C Convertible
Subordinated Debentures, net of tax -- 43 -- 133
-------- -------- -------- --------
Net income $ 2,677 $ 1,142 $ 8,046 $ 3,625
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share $ 0.48 $ 0.32 $ 1.45 $ 1.03
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding:
Common stock 5,294 698 5,281 698
Common stock issuable upon exercise of
stock options 245 230 256 224
Conversion of Series B and Series C
Convertible Subordinated Debentures -- 2,629 -- 2,629
-------- -------- -------- --------
Shares used in per share calculations 5,539 3,557 5,537 3,551
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S REPORT ON FORM 10-Q FOR
THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,308
<SECURITIES> 0
<RECEIVABLES> 37,787
<ALLOWANCES> 920
<INVENTORY> 15,664
<CURRENT-ASSETS> 67,763
<PP&E> 51,403
<DEPRECIATION> 20,777
<TOTAL-ASSETS> 102,328
<CURRENT-LIABILITIES> 45,300
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 41,759
<TOTAL-LIABILITY-AND-EQUITY> 102,328
<SALES> 102,449
<TOTAL-REVENUES> 102,449
<CGS> 79,214
<TOTAL-COSTS> 79,214
<OTHER-EXPENSES> 8,229
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,597
<INCOME-PRETAX> 13,409
<INCOME-TAX> 5,363
<INCOME-CONTINUING> 8,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,046
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.45
</TABLE>
