<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 8-K/A-1
--------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 31, 1996
NORTHWEST PIPE COMPANY
(Exact name of registrant as specified in its charter)
Oregon 0-27140 93-0557988
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
12005 N. Burgard, Portland, Oregon 97203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-285-1400
The index to exhibits appears on page 2 of this document.
- --------------------------------------------------------------------------------
<PAGE>
NORTHWEST PIPE COMPANY
FORM 8-K/A-1
INDEX
Item Description Page
- ---- ----------- ----
Item 2. Acquisition or Disposition of Assets 2
Item 7. Financial Statements and Exhibits 2
Report of Independent Accountants - Thompson Pipe and
Steel Company F-1
Thompson Pipe and Steel Company Consolidated Balance Sheets -
March 31, 1996 (unaudited) and December 31, 1995 and 1994 F-2
Thompson Pipe and Steel Company Consolidated Statements of
Operations - Three Months Ended March 31, 1996 and 1995
(unaudited) and Years Ended December 31, 1995, 1994 and 1993 F-3
Thompson Pipe and Steel Company Consolidated Statements of
Cash Flows - Three Months Ended March 31, 1996 and 1995
(unaudited) and Years Ended December 31, 1995, 1994 and 1993 F-4
Thompson Pipe and Steel Company Notes to Consolidated
Financial Statements F-5
Northwest Pipe Company Pro Forma Consolidated Statements
of Operations - Six Months Ended June 30, 1996 and Year
Ended December 31, 1995 PF-1
Northwest Pipe Company Footnotes to Pro Forma Consolidated
Financial Statements PF-2
Signatures 3
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 31, 1996, Northwest Pipe Company (the "Company") acquired Thompson Pipe
and Steel Company ("Thompson"), 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 from Inter-City Products Corporation, a Canadian
corporation based in Toronto, Canada, and its affiliates ("ICP").
The purchase price paid by the Company for the capital stock of Thompson was
approximately $3.0 million. In addition, the Company purchased from ICP certain
indebtedness of Thompson to ICP in the amount of approximately $4.8 million.
The purchase price was determined through arms-length negotiations between the
Company and ICP. This total purchase price amount is subject to an adjustment
based on a yet to be agreed upon post closing balance sheet. The post closing
adjustment is expected to result in a reduction of the total purchase price
amount. The funds used to pay the purchase price were obtained pursuant to the
terms of the Company's Amended and Restated Financing Agreement with the CIT
Group/Business Credit, Inc. dated May 31, 1996.
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 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.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Company Acquired
See pages F-1 through F-18
(b) Pro Forma Financial Statements
See pages PF-1 through PF-2
(c) Exhibits
Sequential
Exhibit Description Page No.
------- ----------- ----------
2.1 Stock Purchase Agreement dated as of May 8, 1996
among Northwest Pipe Company, Thompson Pipe and
Steel Company, CHL Holdings, Inc. and Inter-City
Products Corporation. Incorporated by reference
to Exhibit 2.1 of the Company's report on Form 8-K
dated May 31, 1996 and as filed with the Securities
and Exchange Commission on June 14, 1996. --
10.1 Amended and Restated Financing Agreement dated as
of May 31, 1996 among The CIT Group/Business Credit,
Inc., Northwest Pipe Company, Thompson Pipe and Steel
Company and Thompson Steel Pipe Company. Incorporated
by reference to Exhibit 10.1 to the Company's report
on Form 8-K dated May 31, 1996 and as filed with the
Securities and Exchange Commission on June 14, 1996. --
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
NORTHWEST PIPE COMPANY
Date: August 13, 1996 By /s/ BRIAN W. DUNHAM
-------------------------------
Brian W. Dunham
Director, Executive Vice President, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Thompson Pipe and Steel Company:
We have audited the accompanying consolidated balance sheets of Thompson Pipe
and Steel Company as of December 31, 1995 and 1994 and the related consolidated
statements of operations and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Thompson Pipe and
Steel Company as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Denver, Colorado
February 25, 1996, except for Notes 7 and 8,
as to which the date is March 14, 1996
F-1
<PAGE>
Thompson Pipe and Steel Company
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31, December 31,
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $310 $68 $903
Accounts receivable, less allowance for doubtful
accounts of $178, $99 and $114 for March 1996,
December 1995 and December 1994, respectively 9,395 10,077 7,724
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,930 4,369 4,582
Inventories 2,445 3,475 5,590
Deferred income taxes -- -- 987
Prepaid expenses and other assets 45 204 320
Net investment in sales-type leases 135 135 114
-------------------------------------------
Total current assets 15,260 18,328 20,220
Net investment in sales-type leases, non-current 172 201 334
Property, plant and equipment, net 5,643 5,346 13,962
Property, plant and equipment, net (held for sale) 5,714 7,260 --
Other assets 368 449 593
-------------------------------------------
Total assets $27,157 $31,584 $35,109
-------------------------------------------
-------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,095 $6,084 $4,198
Taxes payable 38 24 436
Accrued payroll and other accrued liabilities 2,560 3,003 1,201
Due to parent and affiliated liabilities 5,206 3,589 1,668
Current maturities of long-term debt and capital lease
obligations 276 889 768
-------------------------------------------
Total current liabilities 11,175 13,589 8,271
Long-term debt, net of current maturities 13,016 13,920 12,841
Capital lease obligations, net of current maturities 1,800 1,800 2,039
Due to parent -- -- 837
Deferred income taxes -- -- 433
-------------------------------------------
Total liabilities 25,991 29,309 24,421
-------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.029 par value; 37,083 shares
authorized, 34,699 issued and outstanding 1 1 1
Additional paid-in capital 8,000 8,000 8,000
Retained earnings (deficit) (6,742) (5,585) 2,735
Pension additional minimum liability (93) (141) (48)
-------------------------------------------
Total stockholders' equity 1,166 2,275 10,688
-------------------------------------------
Total liabilities and stockholders' equity $27,157 $31,584 $35,109
-------------------------------------------
-------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
F-2
<PAGE>
Thompson Pipe and Steel Company
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
For the three months ended For the year ended
March 31, March 31, December 31, December 31, December 31,
1996 1995 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 7,077 $ 9,043 $37,557 $40,368 $52,309
Cost of sales 6,721 8,516 36,419 36,262 49,586
------------------------------------------------------------------------
Gross profit 356 527 1,138 4,106 2,723
Selling, general and
administrative expenses 952 1,230 4,240 4,558 5,231
Loss on closure of Kentucky
plant -- -- 3,142 -- --
Restructuring costs -- -- -- 223 --
Consulting fees -- -- -- 300 --
------------------------------------------------------------------------
Loss from operations (596) (703) (6,244) (975) (2,508)
Interest expense (452) (516) (2,080) (1,920) (1,371)
Other income (expense) (75) 4 277 151 (43)
------------------------------------------------------------------------
Loss before income tax
(expense) benefit (1,123) (1,215) (8,047) (2,744) (3,922)
Income tax (expense) benefit 14 -- (274) 874 1,300
------------------------------------------------------------------------
Net loss $(1,109) $(1,215) $(8,321) $(1,870) $(2,622)
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
Thompson Pipe and Steel Company
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
For the three months ended For the year ended
March 31, March 31, December 31, December 31, December 31,
1996 1995 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,109) $(1,215) $(8,321) $(1,870) $(2,622)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deferred income taxes -- -- 554 (892) (1,443)
Depreciation and amortization 273 324 1,638 1,497 1,419
Write-down on equipment 103 -- 992 -- --
Write-off of deferred facility charges and
debt costs (209) -- 454 -- --
Write-down of inventory -- -- 242 -- --
Claim settlement -- -- 167 -- --
Other -- -- -- (35) 20
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 682 (277) (2,349) 4,838 (4,146)
(Increase) decrease in inventories 1,030 (243) 1,874 (273) 4,453
Decrease (increase) in investment in sales-
type leases 29 77 113 102 (194)
(Increase) decrease in prepaid expenses and
other assets 240 100 210 (52) 58
Increase (decrease) in accounts payable (2,989) 1,102 1,886 1,162 (4,071)
(Decrease) increase in accrued payroll,
accrued liabilities, and pension (443) 36 1,709 (305) 456
(Decrease) increase in taxes payable 14 -- (412) (75) 134
Changes in advances due to/due from parent and
affiliated companies 1,617 (193) 828 2,121 839
(Increase) decrease in costs in excess of billings 1,439 176 213 (3,993) 1,931
------------------------------------------------------------------------
Net cash provided by operating activities 677 (113) (202) 2,225 (3,166)
Cash flows used in investing activities:
Additions to property, plant and equipment (504) (660) (991) (1,356) (1,165)
Cash flows from financing activities:
Repayments of bank line of credit -- -- -- (4,113) (2,675)
Proceeds from bank line of credit 688 264 8,470 1,700 8,184
Principal payments on long-term debt and
capital lease (545) 10 (7,676) (874) (868)
Proceeds from parent subordinate debt -- -- -- 3,000 --
Financing costs paid (74) (87) (693) -- --
Due to affiliates -- -- 257 -- --
------------------------------------------------------------------------
Net cash (used in) provided by financing activities 69 187 358 (287) 4,641
------------------------------------------------------------------------
Net increase (decrease) in cash 242 (586) (835) 582 310
Cash and cash equivalents, beginning of year 68 903 903 321 11
------------------------------------------------------------------------
Cash and cash equivalents, end of year $310 $317 $68 $903 $321
------------------------------------------------------------------------
------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $257 $259 $1,410 $902 $1,233
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1995, a note payable of $167 was issued as a result of the settlement of a
contract claim.
In 1994, a note receivable of $50 was recorded resulting from settlement of
litigation and an $8,000 subordinate note payable was contributed to the
Company and recorded as additional paid-in capital.
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF THE BUSINESS
Thompson Pipe and Steel Company (the "Company") is wholly owned by CHL
Holdings, Inc. ("CHL"), which is wholly owned by Inter-City Products Corp.
("ICP"), a Canadian Corporation. The Company is a contract manufacturer of
steel pipe for use in major water systems and propane tanks.
The majority of the Company's business is with contractors who perform
services for various municipalities and government agencies, and perform
such services under bonding arrangements with the agencies. At any point
in time, a small number of customers account for a significant portion of
accounts receivable.
BASIS OF PRESENTATION
At and subsequent to December 31, 1995, CHL is having discussions with
several companies regarding the possible sale of all of the Company's
outstanding common stock. The effects of a sale, if in fact a sale is
made, are not known and the accompanying financial statements do not
reflect any potential adjustments which may result therefrom.
CONSOLIDATION
The consolidated financial statements include the accounts of Thompson Pipe
and Steel Company and its wholly owned subsidiary, Thompson Steel Pipe
Company (see Note 2 relative to the closure of Thompson Steel Pipe
Company). Intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes long-term contract revenue on the percentage of
completion method. Contract costs include all direct material and labor
cost and those indirect cost related to contract performance. Under
absorbed overhead is accounted for as a period cost. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Revenue contracts lasting three months or less
and sale of propane tanks are recognized as product is shipped.
INVENTORIES
Inventories are stated at the lower of cost, using the weighted moving
average method, or market.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held for use are recorded at cost. Property,
plant and equipment held for sale is recorded at the lesser of cost or
estimated realizable value. Depreciation is computed using the straight-
line method over the following estimated useful lives:
Land improvements 20 years
Buildings 10-20 years
Machinery, equipment and furniture 5-20 years
Expenditures for maintenance and repairs are charged to expense as
incurred, whereas major improvements are capitalized and depreciated. At
the time of retirement or disposition of depreciable property, the related
cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is included in operations.
OTHER ASSETS
Other assets are recorded at cost and consist of deferred costs related to
the financing and construction of the facilities of Thompson Steel Pipe
Company. Management periodically evaluates the net realizability of the
carrying amount of such deferred costs. Deferred facility costs are
amortized over five years (written off in 1995), and financing costs are
being amortized over the life of the related debt.
WARRANTY PROVISION
The Company provides for future warranty costs based on management's
estimate of the amount necessary to cover all known claims for warranty
coverage plus an amount for future claims which are probable, but as yet
are unreported to the Company. The liability is reduced as actual costs
are incurred.
INCOME TAXES
The Company's operations are included in the consolidated federal income
tax return filed by CHL. Federal income taxes for the Company are provided
on a separate tax return basis and are payable to CHL under a tax sharing
agreement. Investment tax credits, as determined above, are recorded as a
reduction of the provision for income tax in the year in which such credits
are utilized. Deferred income taxes are recognized for the tax
consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Examples of such estimates include, but are
not limited to, the net realizable values of Kentucky related assets (Note
2), deferred tax assets valuation allowance, pension related assumptions,
percentage of completion revenue calculations, contingent environmental
liabilities and restructuring charges. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
The Company maintains substantially all cash and cash equivalents in
Federally insured banks in Denver, Colorado, and Princeton, Kentucky.
RESTRUCTURING
Restructuring charges principally consist of severance expense incurred
during the Company's downsizing in 1994, and again with the closure of the
Kentucky manufacturing facility.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1996 and 1995 are unaudited. However, in the opinion of
management, the interim financial statements include all adjustments,
consisting only of normal recurring adjustments considered necessary for a
fair presentation of the Company's financial position, operating results
and cash flows. Results of the interim periods are not necessarily
indicative of results to be expected for the entire year.
F-7
<PAGE>
2. CLOSURE OF KENTUCKY FACILITY:
Due to recurring losses experienced in Thompson Steel Pipe Company, the
subsidiary's operations were ceased and the manufacturing facility in
Princeton, Kentucky, was closed in August 1995. All contracts in progress
at the time of the closure and certain pipe manufacturing equipment and
inventory were transferred to the Company's Denver facility. Certain
inventory related to the manufacturing of propane tanks was transferred to
an unrelated manufacturer of propane tanks in Mexico (see Note 4 for
additional explanation). Certain other equipment has been sold to third
parties, abandoned or is held in Kentucky for sale.
In connection with the plant closing, the Company recorded the following
significant charges:
Severance and benefits $ 567,154
Cost of moving equipment to Denver/Mexico 168,908
Write-down of plant and related costs 980,904
Write off of deferred facility and debt costs 453,940
Write off of abandoned equipment 362,461
Write-down of inventory 242,110
Other 366,421
-----------
$ 3,141,898
-----------
-----------
At December 31, 1995 property, plant and equipment held for sale including
buildings and equipment under capital lease were comprised of the
following:
Land and building $ 3,210,653
Equipment 6,351,175
-----------
9,561,828
Accumulated depreciation 2,301,753
-----------
$ 7,260,075
-----------
-----------
The land and building are being carried at an appraised value obtained in
1995, less estimated disposition costs of $130,000. The equipment is
carried at cost, which is its expected net realizable value. Additionally,
the Company is holding inventory with a carrying value of $575,451, which
is expected to approximate its net realizable value. Included in accrued
expenses and plant closing costs is $260,000, representing the costs
expected to be incurred to maintain the facility until its ultimate sale
(reduced by expected lease income of $150,000) which is expected to occur
in 1997. The amounts the Company will actually realize on the sale of
these assets could differ significantly from the current carrying values.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS:
Costs and billings on uncompleted contracts as of December 31, 1995 and
1994 are as follows:
1995 1994
---- ----
Costs and estimated earnings on uncompleted
contracts $ 29,604,198 $ 21,539,908
Billings on uncompleted contracts 25,333,670 16,984,870
------------ ------------
$ 4,270,528 $ 4,555,038
------------ ------------
------------ ------------
Included in the accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 4,368,941 $ 4,582,241
Other accrued liabilities (billings in excess
of costs and estimated earnings) 98,413 27,203
------------ ------------
$ 4,270,528 $ 4,555,038
------------ ------------
------------ ------------
4. INVENTORIES:
Major components of inventories as of December 31, 1995 and 1994 are as
follows:
1995 1994
Available for production:
Raw materials $ 2,611,953 $ 4,387,849
Work-in-progress 287,195 920,786
Finished goods - 281,693
------------ ------------
2,899,148 5,590,328
Finished goods - propane tanks held for sale
in Kentucky 48,127 -
Component parts held in Kentucky 21,712 -
In transit to third-party propane tank
manufacturer in Mexico 505,612 -
------------ ------------
$ 3,474,599 $ 5,590,328
------------ ------------
------------ ------------
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. INVENTORIES, CONTINUED:
The inventory in transit to a third-party propane tank manufacturer in
Mexico represents propane tank and related parts inventory (component
parts) transferred from the Kentucky plant after its closing. The Company
intends to enter into a distribution arrangement whereby the Company will
distribute in the United States tanks manufactured by the Mexican
manufacturer. The manufacturer will use the transferred inventory on an as
needed basis. The Company will recover the inventory costs through a
reduced purchase price for tanks that are manufactured with the transferred
inventory.
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment held for use (see Note 2 regarding Property,
Plant and Equipment held for sale) by major classifications as of December
31, 1995 and 1994 are as
follows:
1995 1994
---- ----
Land and land improvements $ 1,321,234 $ 1,709,267
Buildings 3,436,922 6,780,040
Machinery, equipment and furniture 8,844,023 15,163,082
------------ ------------
Total cost 13,602,179 23,652,389
Accumulated depreciation (8,255,819) (9,690,835)
------------ ------------
Net property, plant and equipment $ 5,346,360 $ 13,961,554
------------ ------------
------------ ------------
6. LONG-TERM DEBT:
Long-term debt as of December 31, 1995 and 1994 consists of the following:
1995 1994
---- ----
Revolving line of credit (see Note 7) $ 8,470,404 $ 6,831,000
Caldwell County, Kentucky, Industrial
Revenue Bonds (see Note 8) 3,000,000 3,600,000
Promissory notes, payable in installments
through 1997 100,000 27,869
Subordinated note to affiliate, CHL, payable
at U.S. prime rate plus .5% (prime rate
8.5% December 31, 1995) 3,000,000 3,000,000
------------ ------------
14,570,404 13,458,869
Less current maturities 650,000 617,532
------------ ------------
$ 13,920,404 $ 12,841,337
------------ ------------
------------ ------------
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. LONG-TERM DEBT, CONTINUED:
Annual maturities of long-term debt for the next five years are as follows:
1996 $ 650,000
1997 9,120,404
1998 600,000
1999 600,000
2000 3,600,000
------------
$ 14,570,404
------------
------------
The $3,000,000 loan from CHL is subordinate to all other long-term
obligations of the Company and is payable upon demand after the other debt
is extinguished. Given that the Industrial Revenue Bonds are not expected
to be extinguished until 1997, the CHL debt is classified as long-term.
7. LINE OF CREDIT:
At December 31, 1995, the Company had a $12,700,000 line of credit of which
$8,470,404 was outstanding. Borrowings under the line of credit accrue
interest at the prime rate, plus 2.0% (prime rate of 8.5% at December 31,
1995) and are payable on March 8, 1997.
The line of credit is collateralized by all assets, rights, and interests
of the Company and guaranteed by CHL and ICP. The Company is subject to
various restrictive covenants, including maintenance of certain net worth
and working capital ratios, restrictions on issuance of new debt, and
payment of dividends. At December 31, 1995, the Company was in default of
the working capital and net worth covenants.
On March 14, 1996, the Company obtained an amendment to the line of credit
that modified the working capital and net worth covenants so as to allow
compliance at December 31, 1995. The revised covenants will remain in
place until the earlier of the sale of the Company, at which time the
borrowings are due and payable, or June 1, 1996, at which time both
covenants will revert to minimum amounts which are more stringent than the
March 14, 1996 revised amounts. Based on the Company's current projected
results for 1996, management expects to remain in compliance with the
amended covenants through May 31, 1996. However, in the event the Company
is not sold prior to June 1, 1996, management expects the Company will not
be in compliance with certain of the amended covenants. Therefore, the
lender has required and ICP has represented that it will provide the
funding as required to meet the amended covenants.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INDUSTRIAL REVENUE BONDS:
The Company financed the acquisition of facilities for Thompson Steel Pipe
Company with Industrial Revenue Bonds (the "Bonds") on May 1, 1990. The
Caldwell Bond proceeds and related Caldwell Bond Indenture were then
assigned to Thompson Steel Pipe Company. The Caldwell Bonds bear interest
at a variable rate which is determined by the remarketing agent. At
December 31, 1995, the variable rate was 5.6%. The Bonds are subject to
redemption and repayment, pursuant to the terms of the Caldwell Bond
Indenture, beginning May 1, 1993, and on each such payment date thereafter
until May 1, 2000. Also, the bonds may be subject to early redemption by
the Company pursuant to the bond terms.
The Kentucky Rural Economic Development Authority (the "KREDA") issued
$2,500,000 of Industrial Revenue Bonds (the "KREDA Bonds") on May 1, 1990.
KREDA leased the facilities acquired with the proceeds to Thompson Steel
Pipe Company under the capital lease described in Note 9 (the "KREDA
Lease"). The KREDA Lease includes a variable interest component which is
determined by the remarketing agent. Principal payments of the KREDA Lease
obligation are used to fund the mandatory sinking fund redemption payments
for the KREDA Bonds beginning May 1, 1991, and on each such payment date
thereafter until May 1, 2005.
The Caldwell Bond Indenture and the KREDA Lease require that the trustee
maintain certain trust account for the benefit of Caldwell and KREDA. The
trustee invests any excess funds in certain qualified investments as
defined in the bond indenture. The primary funds are described as follows:
- Bond Principal Fund - The purpose of this fund is to receive required
payments by the Company, and in turn to pay the principal and any premium
on the Bonds when due.
- Bond Interest Fund - The purpose of this fund is to receive required
payments from the Company for the sole purpose of paying interest due on
the Bonds.
- Bond Redemption Fund - The purpose of this fund is to pay the
principal and interest in the event of early redemption of the Bonds with
proceeds received from the Bond Principal and Bond Interest Funds.
The Bonds are collateralized by two letters of credit issued by the
Company's revolving line of credit bank on the Company's behalf, equipment
and machinery of Thompson Steel Pipe Company, and a mortgage on the
Company's real property. The letters of credit expire in April 1997. The
Company is subject to letter of credit and alternate letter of credit
restrictive covenants similar to those described in Note 7.
The March 14, 1996 amendment to the line of credit also allowed for the
continuation of these letters of credit until March 8, 1997.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. LEASE COMMITMENTS:
CAPITAL LEASE
As discussed in Note 8, the Company leases certain assets from the KREDA
which were acquired with the proceeds from issuance of the KREDA Bonds.
Future minimum lease payments and the present value of minimum lease
payments as of December 31, 1995 under the capital lease used to acquire
the Thompson Steel Pipe Company facility and to finance certain computer
equipment are as follows:
1996 $ 320,913
1997 271,628
1998 263,027
1999 254,428
2000 245,867
Thereafter 1,040,256
------------
Total minimum payments 2,396,119
Less amount representing interest 356,904
------------
Present value of net minimum lease payments 2,039,215
Less current portion 239,215
------------
$ 1,800,000
------------
------------
OPERATING LEASES
The Company leases office and transportation equipment under operating
leases expiring at various dates through 2000. Upon expiration, the
Company generally has the option to purchase the property at the then fair
value of the property. Future minimum rental payments as of December 31,
1995, are as follows:
1996 $ 455,000
1997 $ 350,000
1998 $ 207,000
1999 $ 192,000
2000 $ 1,000
Total rent expense for all operating leases amounted to approximately
$543,264, $523,000 and $294,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. INCOME TAXES:
The components of the provision (benefit) for income taxes for the years
ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
----------- --------- ----------
Current $ (280,253) $ 18,000 $ 111,254
Deferred 553,852 (892,313) (1,411,254)
------- -------- ---------
$ 273,599 $ (874,313) $(1,300,000)
---------- --------- ----------
---------- --------- ----------
At December 31, 1995, the Company's deferred tax assets totaled $4,560,111,
deferred tax liabilities totaled $1,414,586, and a deferred tax asset
valuation allowance for $3,145,525 resulting in no net deferred tax assets
or liabilities. These differences principally relate to net operating loss
(NOL) carry forwards, the use of accelerated depreciation for tax return
purposes and the accrual of estimated liabilities for financial statement
purposes.
Taxes currently payable/receivable are included in advances due to/from
parent and affiliated companies.
The difference between the federal statutory rate of 34% and the effective
tax rate is primarily due to recording a valuation account for the tax
assets in excess of deferred tax liabilities. Tax NOL carry forwards
approximating $12,083,000 attributable to the Company are available for
inclusion in the CHL consolidated return, and expire at varying dates
through 2010 if not utilized.
11. CHANGES IN STOCKHOLDER'S EQUITY:
Effective December 31, 1994, the Company's parent, CHL, contributed an $8
million subordinate note to additional paid-in capital.
In connection with the Union Pension Plan, the Company has recognized an
additional pension minimum liability at December 31, 1995, 1994 and 1993 of
$140,878, $47,482 and $52,602, net of $86,000, $28,705 and $31,275 tax,
respectively. This additional minimum liability has been recorded as a
separate component of stockholder's equity.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. PENSION PLANS:
The Company has two noncontributory defined benefit pension plans which
cover substantially all employees. Benefits under the Union Pension Plan
are based upon a flat benefit formula, while benefits under the Company's
Retirement Plan are based upon a final pay formula.
The funding policy for each plan is based on current plan costs plus
amortization of the unfunded plan liability. The following tables set
forth the net periodic pension cost and the funded status of the plans as
of December 31, 1995, 1994 and 1993:
1995
--------------------------
RETIREMENT PENSION
PLAN PLAN
--------------------------
Details of pension cost:
Service cost-benefits earned during the
period $ 45,944 $ 42,239
Interest cost on projected benefit
obligation 168,054 79,599
Return on plan assets (228,927) (121,686)
Net amortization and deferral 105,222 56,542
----------- -----------
Pension cost $ 90,293 $ 56,694
----------- -----------
----------- -----------
Funded status of the plans:
Accumulated benefit obligation, including
vested benefits of $2,004,507 and
$1,016,008, respectively. $ 2,028,180 $ 1,081,371
----------- -----------
----------- -----------
Plan assets at fair value, primarily equity
and fixed income securities $ 1,875,231 $ 901,003
Less projected benefit obligation 2,172,131 1,081,371
----------- -----------
Benefit obligation in excess of plan assets (296,900) (180,368)
Plus unrecognized transition obligation 25,021 4,709
Plus recognition of additional minimum liability (148,074) (107,345)
Less unrecognized net loss 267,004 102,636
----------- -----------
Accrued pension cost $ (152,949) $ (180,368)
----------- -----------
----------- -----------
Actuarial assumptions:
Weighted average discount rate 7.75% 7.75%
Expected long-term rate of return on plan
assets 8.00% 8.00%
Rate of increase in future compensation level 4.50% N/A
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. PENSION PLANS, CONTINUED:
1994
--------------------------
UNION
RETIREMENT PENSION
PLAN PLAN
--------------------------
Details of pension cost:
Service cost-benefits earned during the period $ 51,297 $ 46,784
Interest cost on projected benefit obligation 137,430 68,890
Return on plan assets 53,021 38,397
Net amortization and deferral (198,937) (111,247)
----------- -----------
Pension cost $ 42,811 $ 42,824
----------- -----------
----------- -----------
Funded status of the plans:
Accumulated benefit obligation, including
vested benefits of $1,628,603 and $852,932,
respectively $ 1,694,509 $ 922,470
----------- -----------
----------- -----------
Plan assets at fair value, primarily equity
and fixed income securities $ 1,704,557 $ 824,101
Less projected benefit obligation 1,782,469 922,470
----------- -----------
Plan assets less than projected benefit obligation (77,912) (98,369)
Plus unrecognized transition obligation 29,192 5,493
Plus recognition of additional minimum liability - (82,040)
Less unrecognized net loss 130,412 76,547
----------- -----------
Prepaid (accrued) pension cost $ 81,692 $ (98,369)
----------- -----------
----------- -----------
Actuarial assumptions:
Weighted average discount rate 8.5% 8.5%
Expected long-term rate of return on plan assets 8.0% 8.0%
Rate of increase in future compensation level 4.0% N/A
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. PENSION PLANS, CONTINUED:
1993
--------------------------
UNION
RETIREMENT PENSION
PLAN PLAN
--------------------------
Details of pension cost:
Service cost-benefits earned during the
period $ 46,489 $ 40,249
Interest cost on projected benefit
obligation 153,494 69,674
Return on plan assets (127,179) (47,600)
Net amortization and deferral (18,434) (25,947)
Pension cost $ 54,370 $ 36,376
----------- -----------
----------- -----------
Funded status of the plans:
Accumulated benefit obligation, including
vested benefits of $1,676,711 and $904,422,
respectively $ 1,707,909 $ 984,082
----------- -----------
----------- -----------
Plan assets at fair value, primarily equity
and fixed income securities $ 1,876,083 $ 920,423
Less projected benefit obligation 1,824,238 984,082
----------- -----------
Plan assets in excess of (less than) projected
benefit obligation 51,845 (63,659)
Plus unrecognized transition obligation 33,363 6,277
Plus recognition of additional minimum liability - (90,154)
Less unrecognized net loss 22,372 83,877
----------- -----------
Prepaid (accrued) pension cost $ 107,580 $ (63,659)
----------- -----------
----------- -----------
Actuarial assumptions:
Weighted average discount rate 7.5% 7.5%
Expected long-term rate of return on plan
assets 8.0% 8.0%
Rate of increase in future compensation level 4.0% N/A
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. RELATED PARTY TRANSACTIONS:
The Company is a member of a group of affiliated companies, substantially
all of which are direct or indirect subsidiaries of ICP. The Company is
charged a management fee for certain administrative and operational support
services which amounted to $224,259, $286,966 and $335,456 for the years
ended December 31, 1995, 1994 and 1993, respectively. ICP also provides
risk management services for the Company. These services resulted in
expense of $484,030, $513,000 and $790,000 in 1995, 1994 and 1993,
respectively. In addition, the Company reimburses an affiliate for salary
and other expenses of certain individuals. The amount expensed for such
reimbursement for 1995, 1994 and 1993 was $205,062, $279,911 and $204,000,
respectively.
Interest expense on loans with related parties approximated $279,000,
$793,000 and $568,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Certain members of management are covered under a long-term incentive plan
of ICP. Under the plan, long-term incentive compensation units may be
granted, the value of which shall be determined by reference to the
appreciation in the market value of ICP ordinary shares over stated periods
of time. Based on the discretion of the ICP Board of Directors, the
appreciation in the market value of the ordinary shares will be distributed
to the holder thereof by payment of cash, issuance of ICP ordinary shares
or a combination thereof. Amounts expensed for the plan for 1995, 1994 and
1993 were insignificant.
The Company's common stock has been pledged to guarantee the borrows of CHL
under a line of credit agreement between CHL and a third party.
14. ENVIRONMENTAL LIABILITIES:
The Company has been involved in paying the costs of assessing the extent
of, and remediating, environmental contamination at its Denver and Kentucky
facilities. The estimated costs to remediate after December 31, 1995 is
expected to be less than $100,000. Actual results could differ from those
estimates.
F-18
<PAGE>
Northwest Pipe Company
Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Thompson Northwest
Northwest Pipe and Pipe
Pipe Steel Company
Company Company Adjustments Pro Forma
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $62,387 $12,554 $ -- $74,941
Cost of sales 47,847 14,840 (25) a 62,662
--------------------------------------------------------------
Gross profit 14,540 (2,286) 25 12,279
Selling, general and administrative
expenses 4,797 2,892 -- 7,689
Loss on closure of Kentucky Plant -- 263 -- 263
--------------------------------------------------------------
Operating income (loss) 9,743 (5,441) 25 4,327
Interest expense 683 1,123 105 b 1,911
Interest expense to related parties 116 -- -- 116
--------------------------------------------------------------
Income (loss) before income taxes 8,944 (6,564) (80) 2,300
Provision (benefit from) for income taxes 3,578 15 (2,707) c 886
--------------------------------------------------------------
Net income (loss) $5,366 $(6,579) $2,627 $1,414
--------------------------------------------------------------
--------------------------------------------------------------
Net income per share $0.97 $0.25
------------ ------------
------------ ------------
Shares used in per share calculation 5,545 5,545
------------ ------------
------------ ------------
</TABLE>
Northwest Pipe Company
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per share data) Thompson Northwest
Northwest Pipe and Pipe
Pipe Steel Company
Company Company Adjustments Pro Forma
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $97,715 $37,557 $ -- $135,272
Cost of sales 78,139 36,419 (88) a 114,470
--------------------------------------------------------------
Gross profit 19,576 1,138 88 20,802
Selling, general and administrative
expenses 7,798 3,963 -- 11,761
Loss on closure of Kentucky Plant -- 3,142 -- 3,142
--------------------------------------------------------------
Operating income (loss) 11,778 (5,967) 88 5,899
Interest expense 2,839 2,080 313 b 5,232
Interest expense to related parties 609 -- -- 609
--------------------------------------------------------------
Income (loss) before income taxes 8,330 (8,047) (225) 58
Provision (benefit from) for income taxes 3,223 274 (3,485) c 12
--------------------------------------------------------------
Net income (loss) $5,107 $(8,321) $3,260 $46
--------------------------------------------------------------
--------------------------------------------------------------
Net income per share $1.43 $0.06
------------ ------------
------------ ------------
Shares used in per share calculation 3,695 3,695
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these pro forma
consolidated statements.
PF-1
<PAGE>
Northwest Pipe Company
Footnotes to Pro Forma Consolidated Financial Statements
(Unaudited)
(In thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements have been prepared to
present the effect of the acquisition by the Company of Thompson Pipe and Steel
Company ("Thompson"). The pro forma financial statements have been prepared
based upon the historical financial statements of the Company and Thompson as if
the acquisition had occurred at June 30, 1996 and at the beginning of the
respective periods.
The Pro Forma Consolidated Statements of Operations may not be indicative of the
results of operations that actually would have occurred if the transactions had
been in effect as of the beginning of the respective periods nor do they purport
to indicate the results of future operations of the Company. The pro forma
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1995 Annual Report on Form 10-K and
the audited financial statements and notes thereto for Thompson included
elsewhere in this report on Form 8-K/A-1. Management of the Company believes
that all adjustments necessary to present fairly such pro forma financial
statements have been made based on the terms and structure of the transaction.
2. PRO FORMA ADJUSTMENTS
a. To record the decrease in depreciation expense related to the adjustment of
fixed assets to the lower of cost or market upon the acquisition date.
b. To record interest expense related to the additional debt resulting from
the acquisition of Thompson.
c. Income tax expense (benefit) was adjusted as follows:
Six Months Year Ended
Ended June 30, December 31,
1996 1995
--------------- --------------
To record tax expense related to decreased
depreciation expense $ 10 $ 18
To record tax benefit related to additional
interest expense (40) (66)
To record tax benefit related to Thompson's
net loss (2,677) (3,437)
--------------- --------------
$ (2,707) $ (3,485)
--------------- --------------
--------------- --------------
PF-2
