<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
NORTHWEST PIPE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
OREGON 3317 93-0557988
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
12005 N. BURGARD, PORTLAND, OREGON 97203
(503) 285-1400
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM R. TAGMYER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NORTHWEST PIPE COMPANY
12005 N. BURGARD, PORTLAND, OREGON 97203
(503) 285-1400
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With copies to:
<TABLE>
<S> <C> <C>
GREGORY E. STRUXNESS, ESQ. THOMAS R. DENISON, ESQ.
STEPHEN M. GOING, ESQ. ROBERT J. MOORMAN, ESQ. STEVEN K. TALLEY, ESQ.
ATER WYNNE HEWITT DODSON & STOEL RIVES LLP GIBSON, DUNN & CRUTCHER, LLP
SKERRITT, LLP 900 S.W. 5TH AVENUE 1801 CALIFORNIA STREET, SUITE
222 S.W. COLUMBIA, SUITE 1800 PORTLAND, OREGON 97206 4100
PORTLAND, OREGON 97201 (503)294-9249 DENVER, COLORADO 80202
(503) 226-1191 (303) 298-5700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value............................ 2,760,000 shares $19.56 $53,985,600 $16,360
=======================================================================================================
</TABLE>
(1) Includes 360,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low prices
reported on the Nasdaq National Market on September 27, 1996.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
===============================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED OCTOBER 1, 1996
PROSPECTUS
2,400,000 SHARES
[NORTHWEST PIPE CO. LOGO]
COMMON STOCK
Of the 2,400,000 shares of Common Stock (the "Common Stock") offered
hereby, 1,200,000 shares are being sold by Northwest Pipe Company (the
"Company") and 1,200,000 shares are being sold by certain shareholders of the
Company (the "Selling Shareholders"). See "Principal and Selling Shareholders."
The Company will not receive any part of the proceeds from the sale of shares by
the Selling Shareholders. The Common Stock is traded on the Nasdaq National
Market under the symbol "NWPX." The last reported sale price for the Common
Stock on September 30, 1996 was $19.00 per share.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" AT PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............ $ $ $ $
- -------------------------------------------------------------------------------------------------
Total(3)............. $ $ $ $
=================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $400,000.
(3) The Company and one of the Selling Shareholders have granted to the
Underwriters an option, exercisable within 30 days of the date hereof, to
purchase up to an aggregate of 360,000 additional shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, subject
to receipt and acceptance of such shares by them. The Underwriters reserve the
right to reject any order in whole or in part. It is expected that the shares
will be ready for delivery in New York, New York on or about ,
1996.
HANIFEN, IMHOFF INC.
STEPHENS INC.
JENSEN SECURITIES CO.
, 1996
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, ON THE NASDAQ NATIONAL MARKET MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. Except as otherwise noted herein, all information in this
Prospectus assumes that the Underwriters' over-allotment option is not
exercised. Well-Life and Flame-Out are trademarks of the Company. Unless
otherwise indicated, all references in this Prospectus to the Company are to
Northwest Pipe Company and its subsidiaries, collectively. The principal
executive offices of the Company are located at 12005 N. Burgard, Portland,
Oregon 97283, and the Company's telephone number is (503) 285-1400.
THE COMPANY
Northwest Pipe Company manufactures and markets welded steel pipe in two
business segments. In its water transmission business segment, the Company is a
leading supplier in the United States and Canada of large diameter, high
pressure steel pipe used primarily for water transmission (the "Water
Transmission" business). In its tubular products business segment, the Company
manufactures smaller diameter, electric resistance welded ("ERW") steel pipe for
use in a wide range of construction, agricultural and industrial applications
(the "Tubular Products" business). In 1995, Water Transmission and Tubular
Products revenues represented approximately 63% and 37% of the Company's net
sales, respectively. Headquartered in Portland, Oregon, the Company operates
four manufacturing facilities. Water Transmission products are manufactured in
Portland, Oregon, Denver, Colorado and Adelanto, California (near Los Angeles),
and Tubular Products are manufactured in Portland, Oregon and Atchison, Kansas.
From 1990 through 1995, the Company's annual net sales increased from $34.5
million to $97.7 million, while annual operating income increased from $1.0
million to $11.8 million. In the six months ended June 30, 1996, net sales
increased 37.8% from $46.5 million to $64.1 million for the same period in 1995,
and operating income increased 74.8% from $5.6 million to $9.8 million over the
same period in 1995.
WATER TRANSMISSION
Demand for water transmission products is driven primarily by projected
population growth and movement, establishment of new water sources and
replacement of aging waterworks infrastructure. The construction of new or
expanded water systems is critical to attracting and supporting both population
and economic growth. In addition, many existing water infrastructure systems
must be repaired or replaced to satisfy current and expanding water needs. The
Company believes it is strategically positioned to capitalize on growing water
infrastructure requirements. With facilities located in Portland, Oregon and
Adelanto, California, the Company has historically served the western United
States and southwestern Canada. The recent acquisition of Thompson Pipe and
Steel Company ("Thompson Pipe and Steel"), located in Denver, Colorado, has
expanded the Company's effective market reach throughout the midwest and central
United States. The Company is now a major supplier of large diameter, high
pressure steel pipe in the United States and is actively seeking other
opportunities to expand its presence in both domestic and international water
infrastructure markets.
The Company has identified several factors that contribute to the success
of its Water Transmission business segment:
- Active Markets. Demand for the Company's Water Transmission products
continues to be strong as public agencies within the Company's market
areas address their water transmission requirements. At August 31, 1996,
the Company had identified more than 500 projects within its market areas
scheduled to be bid through 1999. The Company estimates these projects
include water transmission pipe with a value of approximately $2.0
billion. No assurance can be given that these projects will be let for
bid, awarded to the Company or built as scheduled.
- Key Locations and Manufacturing Capabilities. The Company's strategically
located manufacturing facilities enable the Company to address the demand
for steel water transmission pipe in most of the United States and
Canada. The Company's manufacturing capabilities allow it to meet a broad
range
3
<PAGE> 5
of contract specifications including different pipe diameters and
thicknesses, various coating and lining materials, and a variety of
specialty fabrications.
- Substantial Share of Projects Bid. The dollar value of projects awarded
to the Company as a percentage of the value of projects bid by the
Company has increased as illustrated below:
<TABLE>
<CAPTION>
PERIOD PERCENTAGE
---------------------------------------------------------- ----------
<S> <C>
1993...................................................... 27.7%
1994...................................................... 30.3%
1995...................................................... 35.0%
Six Months Ended June 30, 1996............................ 37.9%
</TABLE>
Management believes this increase is the result of the Company's emphasis
on marketing activities, its focus on developing strong relationships
with contractors, public works agencies and engineering firms and its
increased experience in the southern California market. The rate for the
first six months of 1996 is not necessarily indicative of the rate that
will be obtained for the full twelve months of 1996. In general, the
Company does not expect substantial further improvement of its market
share in its historical market areas. However, the Company believes its
recent acquisition of Thompson Pipe and Steel provides opportunities to
increase the Company's penetration of market areas east of the Rocky
Mountains.
TUBULAR PRODUCTS
The Company's Tubular Products range in size from 4" to 16" in diameter and
are marketed through a network of direct sales force personnel and independent
distributors in the United States and Canada. The Company has historically
focused on niche markets that typically generate strong margins due to limited
competition. The tubular products industry, however, serves very large markets
with products that generally have wall thicknesses greater than those that the
Company has traditionally manufactured. The Company is currently expanding its
business into these higher volume segments of the tubular products industry by
building on its key strengths of location, established distribution channels and
manufacturing expertise.
The Company has identified several factors that contribute to the success
of its Tubular Products business segment:
- Well Positioned in Niche Markets. The Company has historically
manufactured and continues to produce pipe products with light wall
thicknesses in relation to diameters. These products are sold in niche
markets with limited competition and typically generate high margins. The
Company believes it is well positioned to maintain its competitive
position.
- Expanding Product Lines. The Company has adopted a strategy of expanding
its product lines to better utilize the available capacity in each of its
facilities. While the Company's new products generally produce lower
margins than the Company's niche products, the increased volume
contributes to the Company's profitability.
- Diversified Demand. The Tubular Products business segment benefits from a
customer base that extends across numerous industries. Demand for the
Company's three primary Tubular Product groups are determined by
different economic factors. The demand for products used in fire
protection sprinkler systems is affected by non-residential construction
activity, the demand for products used in irrigation and other
agricultural applications is related to the farm economy and the demand
for industrial products is determined by the overall economy. This
diversification helps mitigate the Company's exposure to specific
industry or general business cycles.
ACQUISITIONS AND EXPANSION
The Company believes there are opportunities to acquire companies in
similar or related businesses and to expand its product lines. The Company
believes such acquisitions and expansions will enable it to leverage its
manufacturing, marketing and distribution capabilities. The Company's ability to
pursue acquisitions and to expand its product lines will be enhanced by the
reduction in debt and increased debt capacity resulting from this offering.
Consistent with this strategy, the Company recently acquired Thompson Pipe and
Steel and
4
<PAGE> 6
recently acquired and plans to install a new Tubular Products production line in
its Portland, Oregon facility. In addition, the Company has from time to time
evaluated and continues to evaluate other opportunities for acquisition and
expansion and, consistent with this practice, the Company is currently engaged
in preliminary discussions with other parties regarding possible transactions.
Acquisitions. On May 31, 1996, the Company acquired Thompson Pipe and
Steel, a manufacturer of steel water transmission pipe headquartered in Denver,
Colorado for approximately $5.2 million. The Company believes this acquisition
is a strong strategic fit that broadens its current geographic market for Water
Transmission pipe into the midwest and central United States. The acquisition
also provides additional manufacturing capacity that could be applied to
projects in the Company's western markets.
Thompson Pipe and Steel has operated in Denver since 1878. In 1990,
Thompson Pipe and Steel added a manufacturing facility in Princeton, Kentucky.
This facility was unprofitable and was closed in August, 1995. At the time of
the closure of the Kentucky facility, Thompson Pipe and Steel had significant
outstanding customer delivery commitments on projects in process. The completion
of these projects out of its Denver facility caused continued and significant
losses resulting from high manufacturing costs, increased freight expenses, and
back charges related to late delivery and quality issues. As a result, Thompson
Pipe and Steel lost $8.3 million in 1995 and $6.6 million through May 31, 1996.
The Company's management does not believe that the closure of the Kentucky
facility will have any continuing material adverse impact on the Company's
future operations. Since acquiring Thompson Pipe and Steel, the Company has
replaced the senior management team with its own personnel. Additionally, the
Company has already eliminated several salaried positions, effectively reducing
compensation expenses by approximately $1.5 million per year.
Thompson Pipe and Steel had net sales of $37.5 million in 1995,
approximately $25.3 million of which were attributable to the Denver facility.
The Company will continue to operate the Denver plant but intends to sell the
Kentucky facility.
Product Line Expansion. The Company recently acquired and plans to install
a new Tubular Products production line in its Portland, Oregon facility. The
installed cost is expected to be approximately $10.0 million. See "Use of
Proceeds". This new line will enable the Company to compete in new markets by
making smaller diameter and heavier wall products than it has previously
manufactured. These products will be targeted for use in industrial piping, oil
and gas transmission, fire protection systems and other applications. While this
new production line will focus on what are traditionally viewed as "commodity"
products, the Company believes it will have significant competitive advantages
in serving customers in the northwestern United States, including the following:
- Geographic niche. The Company has a competitive advantage in customer
service capability and freight costs because there are no other
manufacturers of these products in the northwestern United States.
- Existing customer base. The Company expects that many of the products it
intends to manufacture will be sold to current customers through existing
distribution channels. Consequently, the Company believes that it can
readily increase sales volume without significantly increasing selling
costs.
- Reduced cost of entry. The Company has acquired existing equipment as the
cornerstone of this new production line. Additionally, installing this
line in its Portland facility enables the Company to take advantage of
its trained work force, manufacturing expertise and support equipment. As
a result, the Company estimates it can be in production in approximately
one-half the time and at less than one-half the cost compared to the time
and cost required to design and construct a new facility.
- New raw material source. The Company currently purchases steel coil from
sources which are a substantial distance from its Portland facility.
Consequently, in bound freight is a significant cost. Oregon Steel Mills
is in the process of adding steel coil manufacturing capabilities to its
facility located approximately one mile from the Company's Portland
facility. If Oregon Steel Mills completes this capital expansion and can
supply the Company with steel coil at a competitive price, the Company
expects a sizeable reduction in its in-bound freight costs. No assurance
can be given that Oregon Steel Mills will complete its expansion or be
able to supply steel coil to the Company.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 1,200,000 shares
Common Stock offered by the Selling Shareholders..... 1,200,000 shares
Common Stock to be outstanding after the offering.... 6,494,889 shares(1)
Use of Proceeds...................................... To finance the acquisition and installation
of a Tubular Products production line in the
Company's Portland, Oregon facility, to
repay certain indebtedness and for general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market System symbol................. NWPX
</TABLE>
- ---------------
(1) Does not include 301,309 shares of Common Stock issuable upon the exercise
of stock options outstanding as of August 31, 1996, of which options to
purchase 196,736 shares were exercisable on that date.
6
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $62,098 $65,967 $54,437 $73,641 $97,715 $46,525 $64,088
Gross profit.................. 7,338 9,936 6,529 11,980 19,576 9,614 14,864
Operating income.............. 3,311 5,141 1,160 6,261 11,778 5,605 9,799
Income (loss) before income
taxes...................... 680 2,716 (907) 3,453 8,330 3,819 8,947
Net income(1)................. 408 1,662 263 2,161 5,107 2,393 5,368
Net income per share.......... $ 1.43 $ 0.71 $ 0.97
Weighted average shares used
in net income per share.... 3,695 3,484 5,527
SUPPLEMENTAL PER SHARE DATA:
Supplemental net income per
share(2)................... $ 1.03 $ 0.51 $ 0.84
Weighted average shares used
in supplemental net income
per share(2)............... 6,689 6,616 6,727
OTHER DATA:
Depreciation and
amortization............... $ 1,663 $ 1,620 $ 1,170 $ 1,302 $ 1,362 $ 654 $ 832
Capital expenditures.......... 2,592 1,196 4,217 1,667 2,556 779 1,398
Backlog(3).................... 30,106 17,266 13,027 45,698 41,689 41,608 59,263
Gross profit percentage....... 11.8% 15.1% 12.0% 16.3% 20.0% 20.7% 23.2%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------
AS
ACTUAL ADJUSTED(4)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................... $22,535 $ 26,289
Total assets....................................................... 98,899 108,899
Short-term debt (including current portion of long-term
obligations).................................................... 25,168 21,414
Long-term obligations, less current portion(5)..................... 14,903 7,568
Stockholders' equity............................................... 39,123 60,212
</TABLE>
- ---------------
(1) Net income for the year ended December 31, 1993 includes a $837,000 benefit
reflecting the cumulative effect of a change in method of accounting for
income taxes. See Note 14 of Notes to the Consolidated Financial Statements
of the Company.
(2) Supplemental net income per share and weighted average shares outstanding
give effect as of the beginning of each period presented to (i) the
Company's initial public offering in November, 1995, and (ii) the sale of
1,200,000 shares of Common Stock offered by the Company hereby and the
application of the net proceeds therefrom at an assumed public offering
price of $19.00 per share.
(3) Figures given are as of the last day of the period indicated. The Company
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.
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.
(4) Adjusted to give effect to the sale of 1,200,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $19.00
per share and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
(5) Includes capital lease obligations, note payable to financial institution
and long-term debt.
7
<PAGE> 9
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. The following are among the factors that prospective investors should
consider carefully in evaluating the Company and its business before purchasing
the shares of Common Stock offered by this Prospectus. This Prospectus contains
certain information and trend statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, which involve risks and uncertainties. Actual results may differ
materially from the results described in the forward looking statements. When
used in this document, the words "anticipate," "believe," "estimate," "expect,"
"intend" and other similar expressions, as they relate to the Company, are
intended to identify forward looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions that include, but are not limited
to, those discussed in the Prospectus Summary, Risk Factors and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
RELIANCE ON PUBLIC WATER TRANSMISSION PROJECTS; NATURE OF DEMAND. A
substantial portion of the Company's Water Transmission revenue is derived from
sales to installation contractors for public water transmission projects. As
such, the Company's sales could be adversely impacted by declines in the number
of projects planned by public water agencies, governmental spending cuts,
general budgetary constraints or the inability of governmental entities to issue
debt. No assurance can be given that the number of public water transmission
projects will not decline. A decline in the number of such projects or in the
funding available for such projects could have a material adverse effect on the
Company's business, financial condition and results of operations.
PROJECT DELAYS. Because projects in the Company's Water Transmission
business are generally announced by the public water agencies constructing such
projects well in advance of the bidding and construction process, it is not
unusual for projects to be delayed or rescheduled. Projects have been
rescheduled in the past for a number of reasons, including changes in public
water agencies' construction priorities, difficulties in complying with
environmental and other governmental regulations, additional time required to
acquire rights-of-way or property rights and failure to obtain adequate public
funding. No assurance can be given that projects on which the Company intends to
bid will not be rescheduled. Substantial delays with respect to major projects
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
SUPERFUND SITE. The United States Environmental Protection Agency (the
"EPA") sent a Special Notice Letter for Remedial Investigation/Feasibility Study
dated June 8, 1995 (the "Special Notice") to the Company notifying the Company
that it, along with three other parties, may be a Potentially Responsible Party
("PRP") with respect to a site in Clackamas, Oregon that was added to the EPA's
National Priorities List ("NPL") on October 14, 1992 (the "Site"). The Company
conducted manufacturing operations on a portion of the Site prior to its Chapter
11 Bankruptcy in 1986. The Company has not owned, leased or operated at the Site
since the confirmation of the Company's Plan of Reorganization (the "Plan") on
December 11, 1986. Under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), PRPs 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.
The Company has advised the EPA of its position that any claims against the
Company with respect to liability for Response Activities at the Site that could
have been brought by the EPA were discharged by the United States Bankruptcy
Court's confirmation of the Plan. The Bankruptcy Court has granted a motion by
the Company seeking to reopen its bankruptcy proceedings. The Company has filed
a complaint seeking a declaratory judgment from the Bankruptcy Court that all
environmental claims related to the Company's operations prior to the completion
of its bankruptcy reorganization were discharged by the Bankruptcy Court's
confirmation of the Plan. On November 13, 1995, both the EPA and the Oregon
Department of Environmen-
8
<PAGE> 10
tal Quality (the "DEQ") filed answers to the Company's motion for declaratory
judgment. Both the EPA and the DEQ asserted defenses against the Company's claim
including assertions that the Company did not provide appropriate notice of its
bankruptcy proceeding, that the bankruptcy proceeding cannot discharge an
injunctive order for ongoing pollution and that the environmental claims are not
dischargeable because they are post-confirmation claims. In addition to asking
the court to allow its environmental claims against the Company, the EPA also
asked for a declaration requiring the Company to amend its schedule of
liabilities pursuant to the bankruptcy or permit the EPA to file a late proof of
claim. The Company, the EPA and the DEQ have substantially completed discovery
in this matter. On August 8, 1996 the court ordered a temporary suspension of
the litigation to provide the parties the opportunity to pursue settlement
options. No assurance can be given that the Company will be successful in
obtaining a judgment from the Bankruptcy Court that confirmation of the Plan
discharged its liability for environmental claims with respect to the Site or
that it will not ultimately be found to have liability with respect to
environmental conditions at the Site.
In August 1995, the Company retained Environmental Strategies Corporation
("ESC"), an environmental consulting and engineering firm, to prepare an
estimate of the cost of Response Activities at the Site. ESC estimated the cost
of future Response Activities at the Site to be between $15.4 million and $20.1
million over a 25-year period, not including costs of Response Activities
already incurred by the EPA. The Company, after consultation with its legal
counsel, does not believe that liability with respect to Response Activities at
the Site is "probable" within the meaning of Statement of Financial Accounting
Standards No. 5. Accordingly, no accrual for such liability has been made in the
Company's financial statements. In the event the bankruptcy defense is
unsuccessful, the ultimate liability will depend on the total costs of the
Response Activities and the related costs and fees of the allocation process,
the PRPs' 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 its bankruptcy defense is unsuccessful, its
liability for the costs of 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 is primarily based on the length of time the
Company operated at the site. This range also assumes that the Company will not
be held responsible for Response Activity 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 disproportionate to the duration of the
Company's operations at the site. If the Company is ultimately found to have
liability to the EPA or the DEQ 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. See
"Business -- Environmental Matters."
FLUCTUATIONS IN QUARTERLY RESULTS; CYCLICALITY. The Company's net sales
and net income may fluctuate significantly from quarter to quarter due to the
size of certain Water Transmission orders, the schedule for deliveries of those
orders and the inventory management policies of certain of the Company's Tubular
Products customers. The Company has experienced such fluctuations in the past
and may experience such fluctuations in the future. Results of operations in any
period should not be considered indicative of the results to be expected for any
future period, and fluctuations in operating results may also result in
fluctuations in the price of the Common Stock. No assurance can be given that
the Company will remain profitable in any future period. The Company's business
is subject to cyclical fluctuations based on general economic conditions and the
economic conditions of the specific industries served. Future economic downturns
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ENVIRONMENTAL AND REGULATORY CONCERNS. The Company is subject to numerous
federal, state and local laws and regulations that govern the discharge and
disposal of wastes, discharges or emissions of certain materials into the
environment, workplace safety, equal employment opportunities and other aspects
of the Company's business. The Company's operations entail the risk of future
noncompliance with environmental and other government regulations. Environmental
and other legislation and regulations have changed rapidly in recent years and
it is likely that the Company will be subject to even more stringent
environmental standards in the future. It is not possible to predict the total
amount of all capital expenditures or the amount
9
<PAGE> 11
of any increases in operating costs or other expenses, that may be incurred by
the Company to comply with the environmental and other requirements applicable
to the Company and its operations, or whether all such cost increases can be
passed on to customers through price increases. Moreover, environmental
legislation has been enacted, and may in the future be enacted, which creates
liability for past actions that were lawful at the time taken. Such legislation
may create public rights of action for environmental conditions and activities.
As in the case with manufacturing companies in general, if damage to persons or
the environment has been caused, or is in the future caused, by the Company's
hazardous materials activities or by hazardous substances now or hereafter
located at the Company's facilities, the Company may be fined and/or held liable
for the cost of remediating such damage. In addition, the Company may be
required to remedy such conditions or change its procedures which may increase
operating costs. See "Business -- Environmental Matters."
INTEGRATION OF THOMPSON PIPE AND STEEL. The Company recently acquired
Thompson Pipe and Steel. In connection with such acquisition, the activities and
employees of Thompson Pipe and Steel must be integrated into the Company's
operations. There can be no assurance that such integration will be smooth or
ultimately successful. In addition, there can be no assurance that such
integration can be accomplished without incurring substantial additional costs
or diverting management's attention and resources. If the integration of
Thompson Pipe and Steel into the Company's operations is unsuccessful, it could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, prior to its acquisition by the Company,
Thompson Pipe and Steel had net losses of $8.3 million and $6.6 million in the
year ended December 31, 1995 and the five months ended May 31, 1996,
respectively. While the Company believes these losses were attributable to the
operations at, and costs associated with the closure of, the Kentucky facility,
no assurance can be given that Thompson Pipe and Steel will not have losses in
future periods or that if such losses occur, they will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Consolidated Financial Statements of Thompson Pipe and Steel
Company" and "Pro Forma Combined Financial Statements."
COMPETITION. Competition in the Company's business segments is
significant. There are many competitors in the Tubular Products business segment
and price is often a prime consideration for purchase of the Company's products.
Orders in the Water Transmission business are competitively bid and price
competition is vigorous. Price competition may reduce the gross margin on sales,
which may adversely affect overall profitability. Many of the Company's
competitors have substantially greater financial, technical and marketing
resources than the Company. No assurance can be given that the Company will be
able to compete successfully against its current competitors or that existing or
new competitors will not expand or establish new facilities within the Company's
market areas. New or expanded facilities of competitors could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Competition."
FLUCTUATIONS IN STEEL PRICES. Purchased steel represents a substantial
portion of the Company's cost of sales. The steel industry is highly cyclical in
nature and steel prices are influenced by numerous factors beyond the control of
the Company, including general economic conditions, import duties, other trade
restrictions and currency exchange rates. Historically, the Company has sought
to recover increases in steel prices through price increases of its products.
There can be no assurance that steel prices will not increase or that the
Company will be successful in implementing related price increases on its
products. Any increase in steel prices which is not offset by increases in the
Company's prices could have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY OF FUTURE ACQUISITIONS. A key element of the Company's
strategy is to evaluate opportunities to acquire businesses or assets in pipe
manufacturing or related industries. The success of this strategy depends not
only upon the Company's ability to identify and acquire businesses on a
cost-effective basis, but also upon its ability to effectively integrate
acquired operations into its organization. Additionally, the Company experiences
competition for acquisitions. There can be no assurance that the Company will be
able to successfully negotiate and consummate such acquisitions or that such
acquisitions, if completed, will be successfully integrated into the Company's
operations.
10
<PAGE> 12
PRODUCTION LINE START-UP. The Company recently acquired and plans to
install a new Tubular Products production line in its Portland, Oregon facility.
The Company intends to use approximately $10 million of the net proceeds of this
offering to finance such acquisition and installation. This new production line
is scheduled to be operational by mid-1997. The Company may experience start-up
difficulties, such as cost overruns, operational difficulties and significant
delays. Any such problems encountered by the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL. The Company is dependent upon the continued
services of its Chief Executive Officer, William R. Tagmyer, its Chief Financial
Officer, Brian W. Dunham, and upon the services of certain other key management
personnel. The Company does not have employment or non-competition agreements
with any of its key employees. The loss of key personnel could have a material
adverse effect on the Company. The Company's success will depend on its ability
to retain key employees and to attract and retain a skilled work force. There
can be no assurance that the Company will be successful in attracting and
retaining the personnel it requires to develop, manufacture and market its
products or expand its operations. The Company carries "key man" life insurance
in the amount of $1 million covering Mr. Tagmyer. See "Management."
DEPENDENCE ON SUPPLIERS. The Company's products require the supply of raw
materials consisting primarily of steel coil, various coating materials and
numerous specialty components. The Company has at least two suppliers for most
of its raw materials. There can be no assurance, however, that the Company will
not experience shortages of raw materials or components essential to its
production processes or be forced to seek alternative sources of supply. Any
shortages of raw materials may result in production delays and costs which could
have a material adverse affect on the Company's business, financial condition
and results of operations. See "Business -- Suppliers."
PRODUCT LIABILITY. The manufacturing and use of steel pipe involves a
variety of risks. Certain losses may result or be alleged to result from defects
in the Company's products, thereby subjecting the Company to claims for damages,
including consequential damages. The Company warrants its products to be free of
certain defects. The Company maintains insurance coverage against potential
product liability claims in the amount of $27 million which it believes to be
adequate. However, there can be no assurance that product liability claims
exceeding the Company's insurance coverage will not be experienced in the future
or that the Company will be able to maintain such insurance with adequate
coverage levels.
COMPETITION FROM IMPORTS. The domestic tubular products market is affected
by the level of imports of tubular products, which has varied significantly over
time. High levels of imports may reduce the volume sold by domestic producers
and depress selling prices of tubular products. The Company believes that import
levels are affected by, among other things, overall worldwide demand for tubular
products, the trade practices of and government subsidies to foreign producers
and the presence and absence of governmentally imposed trade restrictions in the
United States. Increased imports of tubular products in the United States and
Canada could have a material adverse effect on the Company's business, financial
condition and results of operations.
COLLECTIVE BARGAINING AGREEMENTS. All of the Company's 98 hourly employees
at its Denver, Colorado facility are represented by a union under a collective
bargaining agreement which expires January 15, 1998. No assurance can be given
that there will not be strikes or other work stoppages by the Company's union
employees or that labor negotiations that occur in connection with the Company's
current collective bargaining agreement will result in a new agreement
containing terms favorable to the Company. The failure to negotiate a
satisfactory renewal of the current collective bargaining agreement upon the
expiration thereof or the occurrence of a strike or other work stoppage at the
Company's Denver facility could have a material adverse effect on the Company's
business, financial condition and results of operations.
CONCENTRATION OF OWNERSHIP. Upon completion of this offering, the
principal shareholder of the Company, Interven II, L.P., will beneficially own
approximately 13.8% of the outstanding Common Stock. Interven may be able to
significantly influence the direction and policies of the Company, the election
of the Company's Board of Directors and the outcome of any other matters
requiring shareholder approval, including
11
<PAGE> 13
any merger, consolidation, sale of all or substantially all of the assets of the
Company or a change in control of the Company. See "Principal and Selling
Shareholders."
POSSIBLE VOLATILITY OF STOCK PRICE. The Common Stock has experienced price
volatility and such volatility may occur in the future, particularly as a result
of announcements of developments related to the Company's business, general
market conditions, quarterly variations in operating results, changes in
earnings estimates by analysts, general conditions in the economy and other
events or factors. In addition, in recent years the stock market in general, and
the market for shares of small capitalization stocks in particular, have
experienced extreme price fluctuations, which have often been unrelated to the
operating performance of affected companies. Such factors could adversely affect
the market price of the Common Stock. There can be no assurance that the public
offering price will correspond to the price at which the Common Stock will trade
in the public market subsequent to this offering. See "Price Range of Common
Stock" and "Underwriters."
DILUTION. Investors participating in this offering will incur immediate
and substantial dilution in the net tangible book value of their shares of
Common Stock in the amount of $9.73 per share (assuming the shares offered
hereby are sold at a price of $19.00 per share and after deducting the estimated
underwriting discount and estimated offering expenses payable by the Company).
Additional dilution will occur upon the exercise of outstanding stock options.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares
of the Common Stock in the public market following this offering could adversely
affect the market price for the Common Stock. Upon completion of this offering,
the Company will have a total of 6,494,889 shares of Common Stock outstanding.
The Company and its officers and directors and certain stockholders have
executed agreements pursuant to which each has agreed not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, grant of any option to purchase or other sale or
disposition) of shares of Common Stock or any securities convertible into or
exercisable therefor, for a period of 90 days from the date of this Prospectus
without the prior written consent of Hanifen, Imhoff Inc., on behalf of the
Underwriters. Approximately 1,382,815 of the shares outstanding upon completion
of this offering (1,214,107 shares if the over-allotment option is exercised in
full) will be subject to the resale restrictions imposed by these agreements and
thereafter will be eligible for resale pursuant to Rule 144 under the Securities
Act of 1933, as amended (the "Act"). Following completion of this offering,
certain shareholders of the Company will have certain demand and piggyback
registration rights with respect to approximately 1,300,000 shares of the
Company's Common Stock. See "Description of Capital Stock," "Shares Eligible for
Future Sale" and "Underwriting."
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Articles of
Incorporation and Bylaws and the Oregon Business Corporation Act will have the
effect of making it more difficult for a third-party to acquire, or discouraging
a third-party from attempting to acquire, control of the Company through either
a tender offer or a proxy contest for the election of directors. The Company's
Articles of Incorporation and Bylaws contain provisions which (i) classify the
Board of Directors into three classes as nearly equal in number as possible,
each of which, after an interim arrangement, will serve for three years with one
class being elected each year (the "Classified Board Provisions"), (ii) provide
that directors may be removed by stockholders only for cause and only upon the
vote of 75% of the votes then entitled to be cast for the election of directors,
(iii) require the approval of holders of 67% of the outstanding shares of the
Company entitled to vote to effect a merger or consolidation of the Company, the
sale, lease or exchange of all or substantially all of the assets of the Company
or the liquidation or dissolution of the Company and (iv) permit the Board of
Directors to issue Preferred Stock in one or more series and to fix the number
of shares constituting any such series, the voting powers and all other rights
and preferences of any such series, without any further vote or action by the
stockholders of the Company. These provisions may have the effect of lengthening
the time required for a person to acquire control of the Company through a proxy
contest or the election of a majority of the Board of Directors and may deter
any potential unfriendly offers or other efforts to obtain control of the
Company. This could deprive the Company's shareholders of opportunities to
realize a premium for their Common Stock and could make removal of incumbent
directors more difficult. See "Description of Capital Stock" and "Management."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from this offering are estimated to be
$21.1 million ($24.5 million if the Underwriters' over-allotment option is
exercised in full), based on an assumed public offering price of $19.00 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 (the
"Line of Credit") incurred to finance the Company's working capital, capital
expenditures and the acquisition of Thompson Pipe and Steel and (ii) for general
corporate purposes. The Line of Credit currently bears interest at a rate of
8.25% and the amounts currently outstanding under the line of credit are due
September 2001. Pending the application of the net proceeds as described above,
the net proceeds from this offering will be invested in short-term
interest-bearing, investment grade securities. The Company will not receive any
part of the proceeds from the sale of shares by the Selling Shareholders.
The repayment of currently outstanding indebtedness will generate
additional borrowing capacity which may be used by the Company to pursue
strategic acquisitions that complement the Company's current business or to make
additional investments in expanding the Company's product lines. See
"Business -- Strategy." 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.
DIVIDEND POLICY
The Company has not declared or paid dividends since emerging from
bankruptcy in 1986. The terms of the Line of Credit prohibit the payment of
dividends. The Company does not anticipate paying any cash dividends or making
any other distributions on the Common Stock in the foreseeable future. It is
expected that the policy of the Company's Board of Directors will be to reinvest
any earnings to finance the expansion of the Company's business.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"NWPX." The Company completed its initial public offering of Common Stock on
November 30, 1995, at a price of $9.00 per share. The following table sets
forth, for the periods indicated, the high and low bid prices for the Common
Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Year Ended December 31, 1995
Fourth Quarter (from November 30, 1995)................ $10 3/4 $ 9 1/2
Year Ending December 31, 1996
First Quarter.......................................... 13 1/2 9 7/8
Second Quarter......................................... 18 1/8 12 3/4
Third Quarter (through September 30, 1996)............. 20 1/2 15 3/4
</TABLE>
On September 30, 1996, the last reported sale price for the Common Stock
was $19.00 per share. As of August 31, 1996 there were approximately 1,100
beneficial holders of the Common Stock.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth, as of June 30, 1996, (i) the short-term
debt and actual capitalization of the Company, and (ii) the short-term debt and
capitalization of the Company as adjusted to give effect to the sale by the
Company of 1,200,000 shares of Common Stock in this offering at an assumed
public offering price of $19.00 per share and the application of the net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (includes current portion of long-term obligations)...... $25,168 $21,414
======= =======
Long-term obligations (net of current portion)........................... $14,903 $ 7,568
------- -------
Stockholders' equity(1):
Preferred Stock, $.01 par value, 10,000,000 shares authorized, none
issued and outstanding.............................................. -- --
Common Stock, $.01 par value, 15,000,000 authorized, 5,293,624 issued
and outstanding actual; 6,493,624 issued and outstanding as
adjusted............................................................ 53 173
Additional paid-in capital............................................... 22,929 43,898
Retained earnings after December 31, 1986 reorganization................. 16,141 16,141
------- -------
Total stockholders' equity............................................. 39,123 60,212
------- -------
Total capitalization........................................... $54,026 $67,780
======= =======
</TABLE>
- ---------------
(1) Excludes 302,574 shares of Common Stock issuable upon the exercise of stock
options outstanding as of June 30, 1996, of which options to purchase
193,319 shares were exercisable on that date. See Note 11 of Notes to the
Company's Consolidated Financial Statements.
14
<PAGE> 16
SELECTED FINANCIAL DATA
The selected financial data set forth below for the years ended December
31, 1993, 1994 and 1995 and the balance sheet data at December 31, 1994 and 1995
are derived from, and are qualified by reference to, the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
The selected financial data for the years ended December 31, 1991 and 1992 and
the balance sheet data at December 31, 1991, 1992 and 1993 are derived from
audited financial statements not included in this Prospectus. The selected
financial data at June 30, 1995 and 1996 and for the six-month periods ended
June 30, 1995 and 1996 are derived from unaudited interim financial statements
of the Company. In the opinion of management, such financial statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the Company's results of operations for such periods.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996(1)
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Water Transmission............................... $40,992 $44,497 $29,995 $41,105 $61,215 $27,023 $41,683
Tubular Products................................. 21,106 21,470 24,442 32,536 36,500 19,502 22,405
------- ------- ------- ------- ------- ------- -------
Total net sales................................ 62,098 65,967 54,437 73,641 97,715 46,525 64,088
Cost of sales:
Water Transmission............................... 38,338 39,049 29,038 35,612 47,835 20,989 30,970
Tubular Products................................. 16,422 16,982 18,870 26,049 30,304 15,922 18,254
------- ------- ------- ------- ------- ------- -------
Total cost of sales............................ 54,760 56,031 47,908 61,661 78,139 36,911 49,224
Gross profit:
Water Transmission............................... 2,654 5,448 957 5,493 13,380 6,034 10,713
Tubular Products................................. 4,684 4,488 5,572 6,487 6,196 3,580 4,151
------- ------- ------- ------- ------- ------- -------
Total gross profit............................. 7,338 9,936 6,529 11,980 19,576 9,614 14,864
Selling, general and administrative expense:
Water Transmission............................... 1,549 1,799 2,136 2,173 2,386 1,319 1,661
Tubular Products................................. 735 895 1,034 822 1,118 577 488
Corporate........................................ 1,743 2,101 2,199 2,724 4,294 2,113 2,916
------- ------- ------- ------- ------- ------- -------
Total selling, general and administrative
expense...................................... 4,027 4,795 5,369 5,719 7,798 4,009 5,065
Operating income (loss):
Water Transmission............................... 1,105 3,649 (1,179) 3,320 10,994 4,715 9,052
Tubular Products................................. 3,949 3,593 4,538 5,665 5,078 3,003 3,663
Corporate........................................ (1,743) (2,101) (2,199) (2,724) (4,294) (2,113) (2,916 )
------- ------- ------- ------- ------- ------- -------
Total operating income......................... 3,311 5,141 1,160 6,261 11,778 5,605 9,799
Interest expense................................... 2,631 2,425 2,067 2,808 3,448 1,786 852
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.................. 680 2,716 (907) 3,453 8,330 3,819 8,947
Provision (benefit) for income taxes............... 272 1,054 (333) 1,292 3,223 1,426 3,579
------- ------- ------- ------- ------- ------- -------
Income (loss) before cumulative effect of
accounting change................................ 408 1,662 (574) 2,161 5,107 2,393 5,368
Cumulative effect of accounting change(2).......... 837
------- ------- ------- ------- ------- ------- -------
Net income(3)...................................... $ 408 $ 1,662 $ 263 $ 2,161 $ 5,107 $ 2,393 $5,368
======= ======= ======= ======= ======= ======= =======
Net income per share............................... $ 1.43 $ 0.71 $ 0.97
Weighted average shares used in net income per
share............................................ 3,695 3,484 5,527
OTHER DATA:
Depreciation:
Water Transmission............................... $ 1,362 $ 1,320 $ 900 $ 987 $ 1,020 $ 485 $ 578
Tubular Products................................. 231 214 200 238 242 129 210
Corporate........................................ 70 86 70 77 100 40 44
------- ------- ------- ------- ------- ------- -------
Total depreciation............................. 1,663 1,620 1,170 1,302 1,362 654 832
Capital expenditures:
Water Transmission............................... 1,789 466 2,994 1,300 1,194 506 903
Tubular Products................................. 801 682 1,139 267 1,242 210 435
Corporate........................................ 2 48 84 100 120 63 60
------- ------- ------- ------- ------- ------- -------
Total capital expenditures..................... 2,592 1,196 4,217 1,667 2,556 779 1,398
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................... $ 3,388 $13,208 $ 3,234 $ 9,944 $22,438 $10,422 $22,535
Total assets....................................... 46,121 41,752 44,825 56,808 64,454 60,722 98,899
Short-term debt (includes current portion of
long-term obligations)........................... 12,093 1,635 14,254 13,478 4,512 15,160 25,168
Long-term obligations, less current portion........ 16,981 15,422 16,251 20,998 12,040 19,069 14,903
Stockholders' equity............................... 6,320 8,865 9,358 11,519 33,729 13,912 39,123
</TABLE>
- ---------------
(1) The Statement of Operations Data for the six months ended June 30, 1996 and
the Balance Sheet Data as of June 30, 1996 include the accounts of the
Company's wholly-owned subsidiary, Thompson Pipe and Steel from May 31,
1996, the date of the acquisition. See Note 2 of Notes to the Company's
Consolidated Financial Statements.
(2) See Note 14 of Notes to the Company's Consolidated Financial Statements.
(3) Net income for the year ended December 31, 1993 includes a $837,000 benefit
reflecting the cumulative effect of a change in method of accounting for
income taxes. See Note 14 of Notes to the Consolidated Financial Statements
of the Company.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company manufactures Water Transmission products in facilities located
in Portland, Oregon, Denver, Colorado and Adelanto, California. The Adelanto
facility was constructed by the Company in 1990. The Denver, Colorado facility
was obtained through the acquisition of Thompson Pipe and Steel in May, 1996.
Tubular Products are manufactured in the Company's Portland, Oregon and
Atchison, Kansas facilities. The Company believes that the Tubular Products
business, in conjunction with the Water Transmission business, provides a
significant degree of market diversification, because the principal factors
affecting demand for Water Transmission products are different from those
affecting demand for Tubular Products. Demand for Water Transmission products is
generally based on population growth and movement, changing water sources and
replacement of aging infrastructure. Demand can vary dramatically within the
Company's market area since each population center determines its own waterworks
requirements. Demand for Tubular Products is influenced by non-residential
construction, the agricultural economy and general economic conditions.
COMPANY HISTORY
Northwest Pipe Company was formed in 1966. In 1982, the principal owners of
the Company formed a partnership to acquire certain assets of the Company's main
competitor in the Pacific Northwest, which were then leased to the Company.
Continuing this growth strategy, the Company opened manufacturing facilities in
Atchison, Kansas and Fairfield, California in 1984. While the Kansas facility
has now become a major contributor to the Company's operations, slow markets
adversely affected its initial operations. The Fairfield operation proved to be
unsuitably located and problems in bringing the plant into production resulted
in unexpectedly high operating costs. Slow markets, increased overhead and
expansion costs reduced the Company's working capital. By December 1985, the
Company was financially overextended and voluntarily filed for Chapter 11
reorganization. During the Chapter 11 proceedings, William R. Tagmyer joined the
Company as the new Chief Executive Officer. Mr. Tagmyer led the Company through
the Chapter 11 proceedings and the reorganized company emerged from bankruptcy
in December 1986. In early 1987, significant equity investments were made by new
investors, including Interven II, L.P. and Norwest Growth Fund, Inc.
With new management and owners in place, the Company began to refocus its
business operations. The facility in Fairfield, California was closed in 1987,
leaving operations in Portland, Oregon and Atchison, Kansas. In 1990, a new
manufacturing facility was built in Adelanto, California, to serve the market
for water transmission pipe in southern California. The Company was not
profitable in 1990 principally due to start up problems at the California
facility, including manufacturing inefficiencies, equipment limitations and an
inexperienced workforce. In 1990 and 1991, the California facility recorded cost
of sales in excess of net sales in the amounts of $619,000 and $1.2 million,
respectively. By 1992, many of the start-up issues had been resolved and the
California facility recorded a gross profit of $2.3 million, representing a $3.5
million increase over 1991. By 1993, the Company expected the California
facility to be a major contributor to the Company's overall profitability.
However, a significantly reduced number of waterworks projects were put out to
bid in 1993. The reduced public spending and the low level of construction
activity caused margins on remaining projects to decline as the Company and its
competitors bid aggressively on the limited opportunities available. As a
result, the California facility's net sales declined by $10.2 million and gross
profit declined from $2.3 million in 1992 to $145,000 in 1993. By the second
quarter of 1994, Water Transmission construction activity increased and the
California facility's sales volume and profitability both increased
substantially. In 1994, the California facility generated $22.9 million in net
sales and gross profit of $2.9 million.
Since 1993 the Company has taken a number of steps, including management
changes and expanded marketing efforts, to mitigate the impact of future
downturns in its Water Transmission markets. The sales and marketing activities,
which were previously organized independently for each facility, were
consolidated into a single department. The Company also coordinated production
efforts to maximize capacity utilization in each of its facilities. With these
changes, all of the regions served by the Company's Water Transmission
16
<PAGE> 18
business are treated as a single integrated market. In addition, the Company's
current personnel at the California facility are more experienced and have
developed closer relationships with the customer base. As a result, the Company
is better informed with respect to the status of projects coming up for bid. The
Company also has devoted more marketing resources to the Rocky Mountain region,
southwestern Canada, northern California and Las Vegas. Finally, the Company's
recent acquisition of Thompson Pipe and Steel broadens its current geographic
reach for Water Transmission pipe into the midwest and central United States. By
marketing to a larger geographic area and treating all of the regions served as
a single integrated market, the Company believes that it will be less dependent
on the conditions in any one specific region.
The following table sets forth, 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 business segments.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Water Transmission................................... 66.0% 67.5% 55.1% 55.8% 62.6% 58.1% 65.0%
Tubular Products..................................... 34.0 32.5 44.9 44.2 37.4 41.9 35.0
----- ----- ----- ----- ----- ----- -----
Net sales.............................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales.......................................... 88.2 84.9 88.0 83.7 80.0 79.3 76.8
----- ----- ----- ----- ----- ----- -----
Gross profit........................................... 11.8 15.1 12.0 16.3 20.0 20.7 23.2
Selling, general and administrative.................... 6.5 7.3 9.9 7.8 8.0 8.6 7.9
----- ----- ----- ----- ----- ----- -----
Operating income....................................... 5.3 7.8 2.1 8.5 12.0 12.1 15.3
Interest expense....................................... 4.2 3.7 3.8 3.8 3.5 3.8 1.3
----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes...................... 1.1 4.1 (1.7) 4.7 8.5 8.3 14.0
Provision (benefit) for income taxes................... 0.4 1.6 (0.6) 1.8 3.3 3.1 5.6
----- ----- ----- ----- ----- ----- -----
Income (loss) before cumulative effect of accounting
change............................................... 0.7 2.5 (1.1) 2.9 5.2 5.2 8.4
Cumulative effect of accounting change(1).............. 1.5
----- ----- ----- ----- ----- ----- -----
Net income............................................. 0.7% 2.5% 0.4% 2.9% 5.2% 5.2% 8.4%
===== ===== ===== ===== ===== ===== =====
SEGMENT DATA:
Gross profit as a percentage of segment net sales:
Water Transmission................................... 6.5% 12.2% 3.2% 13.4% 21.9% 22.3% 25.7%
Tubular Products..................................... 22.2 20.9 22.8 19.9 17.0 18.4 18.5
Operating income as a percentage of segment net sales:
Water Transmission................................... 2.7% 8.2% (3.9)% 8.1% 18.0% 17.4% 21.7%
Tubular Products..................................... 18.7 16.7 18.6 17.4 13.9 15.4 16.3
</TABLE>
- ---------------
(1) See Note 14 of Notes to Consolidated Financial Statements.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net sales increased 37.8% from $46.5 million in the first six months of
1995 to $64.1 million in the first six months of 1996. Sales increased in both
business segments. Water Transmission net sales increased 54.3% from $27.0
million in the first six months of 1995 to $41.7 million in the first six months
of 1996, primarily as 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 during the six months ended
June 30, 1996. Tubular Products net sales increased 14.9% from $19.5 million in
the first six months of 1995 to $22.4 million in the first six months of 1996.
The increase was primarily the result of increased sales of well casing
products. In the first six months of 1996, sales to one Water Transmission
customer represented 12.7% of total net sales. In the first six months of 1995,
sales to another single Water Transmission customer represented 18.1% of total
net sales.
Gross profit increased 54.6% from $9.6 million (20.7% of total net sales)
in the first six months of 1995 to $14.9 million (23.2% of total net sales) in
the first six months of 1996. Water Transmission gross profit increased 77.5%
from $6.0 million (22.3% of segment net sales) in the first six months of 1995
to $10.7 million
17
<PAGE> 19
(25.7% of segment net sales) in the first six months of 1996. This increase was
primarily attributable to improved margins resulting from increased plant
utilization. Gross profit from Tubular Products increased 15.9% from $3.6
million (18.4% of segment net sales) in the first six months of 1995 to $4.2
million (18.5% of segment net sales) in the first six months of 1996, primarily
the result of increased sales volume.
Selling, general and administrative expenses increased 26.3% from $4.0
million (8.6% of total net sales) in the first six months of 1995 to $5.1
million (7.9% of total net sales) in the first six months of 1996. The increase
is 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.
Interest expense decreased 52.3% from $1.8 million in the first six months
of 1995 to $852,000 in the first six months of 1996. This resulted from a
decrease in average borrowings outstanding due to the application of the
proceeds of the initial public offering in November 1995.
The provision for income taxes increased from $1.4 million in the first six
months of 1995 to $3.6 million in the first six months of 1996 due primarily to
increased pre-tax income. The provision for income taxes in 1995 also 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 $200,000
during the 15 year carryforward period.
As a result of the foregoing factors, net income increased 124.3% from $2.4
million (or 5.2% of net sales) in the first six months of 1995 to $5.4 million
(or 8.4% of net sales) in the first six months of 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales increased 32.7% from $73.6 million in 1994 to $97.7 million in
1995. Net sales from the Water Transmission business increased 48.9% from $41.1
million in 1994 to $61.2 million in 1995. This increase was primarily the result
of improved market conditions in California. Tubular Products net sales
increased by 12.2% from $32.5 million in 1994 to $36.5 million in 1995. Growth
in the Company's Tubular Products net sales was largely due to increased sales
of water well casing products and fire protection sprinkler system products. In
1995, sales of Water Transmission products to a single customer represented
12.0% of net sales.
Gross profit increased 63.4% from $12.0 million (or 16.3% of net sales) in
1994 to $19.6 million (or 20.0% of net sales) in 1995. Gross profit from the
sale of Water Transmission products increased 143.6% from $5.5 million in 1994
to $13.4 million in 1995. This increase was attributable to higher sales,
improved margins as a result of increased capacity utilization and less
price-based competition. Gross profit from the sale of Tubular Products
decreased 4.5% from $6.5 million in 1994 to $6.2 million in 1995.
Selling, general and administrative expenses increased 36.4% from $5.7
million (or 7.8% of net sales) in 1994 to $7.8 million (or 8.0% of net sales) in
1995. Water Transmission selling, general and administrative expenses increased
9.8% from $2.2 million in 1994 to $2.4 million in 1995 due to general increases
in expenses. Tubular Products selling, general and administrative expenses
increased 36.0% from $822,000 in 1994 to $1.1 million in 1995. This increase was
due to increases in salaries, benefits and other expenses and to increases in
trade receivable provision for doubtful accounts. Corporate administrative costs
increased from $2.7 million in 1994 to $4.3 million in 1995. Approximately
$700,000 of this increase related to accruals for the Company's discretionary
incentive compensation plan, which covers all salaried employees. An additional
$500,000 of the increase is related to professional fees and outside consultants
engaged in numerous projects involving environmental, legal and financial
matters. The balance of the increase related to general increases in salaries,
benefits and other operating expenses.
Interest expense increased 22.8% from $2.8 million in 1994 to $3.4 million
in 1995. This increase was due to higher interest rates and increased borrowings
incurred to finance the Company's operations and growth.
The provision for income taxes increased from $1.3 million in 1994 to $3.2
million in 1995 due primarily to increased pre-tax income. The amounts for 1995
and 1994 reflect the use of net operating loss carryforwards
18
<PAGE> 20
and tax credits to reduce the Company's tax provision. The Company had no net
operating loss carryforward remaining at December 31, 1995.
As a result of the foregoing factors, net income increased 136.3% from $2.2
million (or 2.9% of net sales) in 1994 to $5.1 million (or 5.2% of net sales) in
1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales increased 35.3% from $54.4 million in 1993 to $73.6 million in
1994. Water Transmission sales increased $11.1 million, or 37.0%, and Tubular
Products sales increased $8.1 million, or 33.1%. Increases in Water Transmission
sales were largely due to improved market conditions in southern California as
many previously delayed projects got underway. Tubular Products sales increased
due to improved market conditions in the midwest and the western United States.
Gross profit increased 83.5% from $6.5 million (or 12.0% of net sales) in
1993 to $12.0 million (or 16.3% of net sales) in 1994. The gross profit in the
Water Transmission business increased 474.0% from $1.0 million in 1993 to $5.5
million in 1994, due both to greater sales and to operational improvements in
the Company's California facility. Tubular Products gross profit increased 16.4%
from $5.6 million in 1993 to $6.5 million in 1994 due to increased sales.
Selling, general and administrative expenses increased 6.5% from $5.4
million (or 9.9% of net sales) in 1993 to $5.7 million (or 7.8% of net sales) in
1994. Water Transmission selling, general and administrative expenses increased
1.7% from $2.1 million in 1993 to $2.2 million in 1994. Tubular Products
selling, general and administrative expenses decreased 20.5% from $1.0 million
in 1993 to $822,000 in 1994 due to cost control measures and personnel changes
implemented by the Company. Corporate administrative expenses increased 23.9%
from $2.2 million in 1993 to $2.7 million in 1994. Substantially all of this
increase was attributable to payments under the Company's discretionary
incentive compensation plan in recognition of the improvements in the Company's
performance.
Interest expense increased 35.8% from $2.1 million in 1993 to $2.8 million
in 1994. This increase was due to higher interest rates and increased borrowings
incurred to finance the Company's growth in 1994.
There was an income tax benefit of $333,000 in 1993 due to the Company's
loss before taxes. The provision for income taxes increased to $1.3 million in
1994 based on income before taxes of $3.5 million.
The recognition of the cumulative effect of a change in method of
accounting for income taxes on initial adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", as of January 1,
1993, of $837,000 is reflected in the statement of operations for the year ended
December 31, 1993.
As a result of the foregoing factors, net income increased from $263,000 in
1993 to $2.2 million in 1994.
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
increased to $22.5 million at June 30, 1996, from $22.4 million at December 31,
1995.
Net cash used in operating activities in the first six months of 1996 was
$5.0 million. This was primarily a net result of $5.4 million of net income,
increases in accounts receivable and inventories of $7.9 million and $2.6
million, respectively, and a decrease in accounts payable of $2.4 million. These
changes were primarily attributable to the 37.8% sales increase in the first six
months of 1996.
Net cash used in investing activities in the first six months of 1996 was
$4.0 million. The primary uses of funds were the acquisition, net of cash
acquired, of Thompson Pipe and Steel for $2.1 million and additions to property
and equipment of $1.4 million. The following amounts, which are included in the
accompanying consolidated statement of cash flows as a net amount of $2.1
million, are the primary effects of the Thompson Pipe and Steel acquisition on
the Company's June 30, 1996 consolidated balance sheet: accounts receivable
increased $11.4 million; property and equipment increased $6.9 million; accounts
payable increased $3.1 million; accrued liabilities increased $4.5 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
19
<PAGE> 21
additions to property and equipment in the first six months of 1996 were for a
new pipe coating system and a new laser seam tracking system.
Net cash provided by financing activities was $10.8 million in the first
six months of 1996. As a result of the foregoing, the Company's net cash
increased $1.7 million to $2.6 million as of June 30, 1996.
At June 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 June 30, 1996). As of
June 30, 1996 the current borrowing base yielded unused capacity of $7.9 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.
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. However, the Company
anticipates that its cash flow from operations, the proceeds from this offering
and amounts available under the Line of Credit will be adequate to fund its
working capital and capital requirements for at least 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 $7.9 million at June 30, 1996
and expires in 2001; Industrial Development Bonds in the aggregate amount of
$4.0 million with variable interest rates of 3.25% and 3.85% at June 30, 1996;
and capital leases aggregating $4.9 million bearing interest at rates ranging
from 3.25% to 11.25% at June 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.
The Company has been identified as one of four potentially responsible
parties with potential liability for a Superfund site. Although the Company
believes that any claims with respect to liability for the costs of the Response
Activities at the Site were discharged by the United States Bankruptcy Court's
confirmation of the Company's Plan of Reorganization, the ultimate outcome of
this matter cannot currently be determined. The Company, after consultation with
its legal counsel, does not believe that liability with respect to Response
Activities at the Site is "probable" within the meaning of Statement of
Financial Accounting Standards No. 5. Accordingly, no accrual for such liability
has been made in the Company's financial statements. In the event the bankruptcy
defense is unsuccessful, the ultimate liability will depend on the total costs
of the Response Activities, the related costs and fees of the allocation
process, the PRPs' 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 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 EPA or
the DEQ, for a significant portion of the clean-up costs with respect to this
site, there could be a material adverse effect on the Company's working capital
and liquidity. See "Business -- Environmental Matters."
20
<PAGE> 22
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly financial
information for each of the Company's last eight fiscal quarters. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information are set forth herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96
------- -------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Water Transmission........................ $11,782 $15,732 $13,071 $13,952 $15,690 $18,502 $20,806 $20,877
Tubular Products.......................... 8,169 8,158 9,713 9,789 9,712 7,286 10,164 12,241
------ ------- ------- ------ ------ ------- ------- -------
Net sales............................... 19,951 23,890 22,784 23,741 25,402 25,788 30,970 33,118
------ ------- ------- ------ ------ ------- ------- -------
Cost of sales:
Water Transmission........................ 10,004 13,353 10,058 10,931 13,230 13,616 15,432 15,538
Tubular Products.......................... 6,504 6,609 7,921 8,001 8,142 6,240 8,158 10,096
------ ------- ------- ------ ------ ------- ------- -------
Total cost of sales..................... 16,508 19,962 17,979 18,932 21,372 19,856 23,590 25,634
------ ------- ------- ------ ------ ------- ------- -------
Gross profit:
Water Transmission........................ 1,778 2,379 3,013 3,021 2,460 4,886 5,374 5,339
Tubular Products.......................... 1,665 1,549 1,792 1,788 1,570 1,046 2,006 2,145
------ ------- ------- ------ ------ ------- ------- -------
Total gross profit...................... 3,443 3,928 4,805 4,809 4,030 5,932 7,380 7,484
------ ------- ------- ------ ------ ------- ------- -------
Selling, general and administrative:
Water Transmission........................ 577 538 723 596 431 636 758 903
Tubular Products.......................... 243 217 327 250 262 279 252 236
Corporate................................. 633 1,020 1,203 910 725 1,456 1,356 1,560
------ ------- ------- ------ ------ ------- ------- -------
Total selling, general
and administrative........................ 1,453 1,775 2,253 1,756 1,418 2,371 2,366 2,699
------ ------- ------- ------ ------ ------- ------- -------
Operating income (loss):
Water Transmission........................ 1,201 1,841 2,290 2,425 2,029 4,250 4,616 4,436
Tubular Products.......................... 1,422 1,332 1,465 1,538 1,308 767 1,754 1,909
Corporate................................. (633) (1,020) (1,203) (910) (725) (1,456) (1,356) (1,560)
------ ------- ------- ------ ------ ------- ------- -------
Total operating income...................... 1,990 2,153 2,552 3,053 2,612 3,561 5,014 4,785
Interest expense............................ 676 774 916 870 840 822 400 452
------ ------- ------- ------ ------ ------- ------- -------
Income before income taxes.................. 1,314 1,379 1,636 2,183 1,772 2,739 4,614 4,333
Provision for income taxes.................. 491 517 610 816 673 1,124 1,846 1,733
------ ------- ------- ------ ------ ------- ------- -------
Net income.................................. $ 823 $ 862 $ 1,026 $1,367 $1,099 $ 1,615 $ 2,768 $ 2,600
====== ======= ======= ====== ====== ======= ======= =======
</TABLE>
21
<PAGE> 23
BUSINESS
BACKGROUND
The Company manufactures and markets welded steel pipe in two business
segments. In its Water Transmission business segment, the Company is a leading
supplier in the United States and Canada of large diameter, high pressure steel
pipe used primarily for water transmission. In its Tubular Products business
segment, the Company manufactures smaller diameter, ERW steel pipe for use in a
wide range of construction, agricultural and industrial applications. In 1995,
Water Transmission and Tubular Products revenues represented approximately 63%
and 37% of the Company's net sales, respectively. Headquartered in Portland,
Oregon, the Company operates four manufacturing facilities. Water Transmission
products are manufactured in Portland, Oregon, Denver, Colorado and Adelanto,
California, and Tubular Products are manufactured in Portland, Oregon and
Atchison, Kansas.
From 1990 through 1995, the Company's annual net sales increased from $34.5
million to $97.7 million, while annual operating income increased from $1.0
million to $11.8 million. In the six months ended June 30, 1996, net sales
increased 37.8% from $46.5 million to $64.1 million for the same period in 1995,
and operating income increased 74.8% from $5.6 million to $9.8 million over the
same period in 1995.
Water Transmission. Demand for water transmission products is driven
primarily by projected population growth and movement, establishment of new
water sources and replacement of aging waterworks infrastructure. The
construction of new or expanded water systems is critical to attracting and
supporting both population and economic growth. In addition, many existing water
infrastructure systems must be repaired or replaced to satisfy current and
expanding water needs. The Company believes it is strategically positioned to
capitalize on growing water infrastructure requirements. With facilities located
in Portland, Oregon and Adelanto, California, the Company has historically
served the western United States and southwestern Canada. The recent acquisition
of Thompson Pipe and Steel, located in Denver, Colorado, has expanded the
Company's effective market reach throughout the midwest and central United
States. The Company is now a major supplier of large diameter, high pressure
steel pipe in the United States and is actively seeking other opportunities to
expand its presence in both domestic and international water infrastructure
markets.
Water transmission pipe can generally be categorized by end use, size and
material. Water transmission pipe is used for (i) high pressure applications,
typically requiring pipe able to withstand pressures in excess of 150 pounds per
square inch, (ii) low pressure applications such as gravity-flow wastewater and
sewers and (iii) other industrial and structural applications. Water
transmission pipe ranges in size, with pipe greater than 24" in diameter
generally considered "large" diameter. Water transmission pipe is manufactured
from steel, concrete or ductile iron, with each pipe material having advantages
and disadvantages. Since ductile iron is generally limited in diameter due to
its manufacturing process, concrete and steel are more common materials for
larger diameter water transmission pipelines. The public agencies and engineers
who determine the specifications for water transmission projects analyze these
pipe materials for suitability for each project. While individual project
circumstances can dictate the preferred material, in general the Company
believes concerns about the durability of concrete pipelines have led to
increased use of steel pipe.
The Company has identified several factors that contribute to the success
of its Water Transmission business segment:
- Active Markets. Demand for the Company's Water Transmission products
continues to be strong as public agencies within the Company's market
areas address their water transmission requirements. At August 31, 1996,
the Company had identified more than 500 projects within its market areas
scheduled to be bid through 1999. The Company estimates these projects
include water transmission pipe with a value of approximately $2.0
billion. No assurance can be given that these projects will be let for
bid, awarded to the Company or built as scheduled.
- Key Locations and Manufacturing Capabilities. The Company's strategically
located manufacturing facilities enable the Company to address the demand
for steel water transmission pipe in most of the United States and
Canada. The Company's manufacturing capabilities allow it to meet a broad
range
22
<PAGE> 24
of contract specifications including different pipe diameters and
thicknesses, various coating and lining materials, and a variety of
specialty fabrications.
- Substantial Share of Projects Bid. The dollar value of projects awarded
to the Company as a percentage of the value of projects bid by the
Company has increased as illustrated below:
<TABLE>
<CAPTION>
PERIOD PERCENTAGE
--------------------------------------------------------- ----------
<S> <C>
1993..................................................... 27.7%
1994..................................................... 30.3%
1995..................................................... 35.0%
Six Months Ended June 30, 1996........................... 37.9%
</TABLE>
Management believes this increase is the result of the Company's emphasis
on marketing activities, its focus on developing strong relationships
with contractors, public works agencies and engineering firms and its
increased experience in the southern California market. The rate for the
first six months of 1996 is not necessarily indicative of the rate that
will be obtained for the full twelve months of 1996. In general, the
Company does not expect substantial further improvement of its market
share in its historical market areas. However, the Company believes its
recent acquisition of Thompson Pipe and Steel provides opportunities to
increase the Company's penetration of market areas east of the Rocky
Mountains.
Tubular Products. The Company's Tubular Products range in size from 4" to
16" in diameter and are marketed through a network of direct sales force
personnel and independent distributors in the United States and Canada. The
Company has historically focused on niche markets that typically generate strong
margins due to limited competition. The tubular products industry, however,
serves very large markets with products that generally have wall thicknesses
greater than those that the Company has traditionally manufactured. The Company
is currently expanding its business into these higher volume segments of the
tubular products industry by building on its key strengths of location,
established distribution channels and manufacturing expertise.
Generally, there is little product differentiation among tubular product
manufacturers. Manufacturers compete with one another primarily on the basis of
price, established business relationships, customer service and delivery.
However, in a number of sectors within the tubular products industry,
competition may be less vigorous due to the existence of a relatively small
number of companies with the capabilities to manufacture certain products. In
particular, the Company operates in a variety of different markets that require
pipe with lighter wall thicknesses in relation to diameters than many of the
Company's competitors can manufacture.
The Company has identified several factors that contribute to the success
of its Tubular Products business segment:
- Well Positioned in Niche Markets. The Company has historically
manufactured and continues to produce pipe products with light wall
thicknesses in relation to diameters. These products are sold in niche
markets with limited competition and typically generate high margins. The
Company believes it is well positioned to maintain its competitive
position.
- Expanding Product Lines. The Company has adopted a strategy of expanding
its product lines to better utilize the available capacity in each of its
facilities. While the Company's new products generally produce lower
margins than the Company's niche products, the increased volume
contributes to the Company's profitability.
- Diversified Demand. The Tubular Products business segment benefits from
a customer base that extends across numerous industries. Demand for the
Company's three primary Tubular Product groups are determined by
different economic factors. The demand for products used in fire
protection sprinkler systems is affected by non-residential construction
activity. The demand for products used in irrigation and other
agricultural applications is related to the farm economy. The demand for
industrial products is determined by the overall economy. This
diversification helps mitigate the Company's exposure to specific
industry or general business cycles.
23
<PAGE> 25
STRATEGY
The Company has a growth strategy for each of its business segments. The
Company seeks to maintain its current position as a leading supplier of Water
Transmission products in the United States and Canada. Additionally, the Company
believes opportunities exist within the broader water infrastructure market for
both geographic expansion and expansion into related products or services. The
Company expects to use its understanding of this market, customer relationships
and manufacturing expertise to increase its presence in this business. The
Company's Tubular Products strategy is to maintain its strong position in high
margin niche markets. The Company will also continue to seek opportunities to
add individual products or product lines that afford the Company a competitive
advantage, including the ability to use its available manufacturing capacity and
existing distribution channels more effectively.
The key elements of the Company's strategies are:
Expanding the Water Transmission Business. In 1990, the Company opened a
facility in California to address the southern California water transmission
infrastructure market. Since entering the southern California market in 1990,
the Company has generated revenues of $160 million from its southern California
plant and has become a significant supplier of steel Water Transmission pipe
throughout the southwestern United States. In May 1996, the Company acquired a
facility in Denver, Colorado as part of the Thompson Pipe and Steel acquisition.
The Denver facility has operated since 1878 and has been a significant supplier
of steel Water Transmission pipe in the Rocky Mountain region. Over the last
five years, the Denver facility has generated $130 million in revenues primarily
in the Rocky Mountain region and from selected projects in the eastern United
States. The Company expects to continue to benefit from its added manufacturing
capacity and its ability to serve the needs of the water transmission market in
the western United States as well as the ability to enter new markets east of
the Rocky Mountains.
Extending Product Lines in Tubular Products. In addition to adding new
product lines such as fire protection sprinkler system piping and water well
casings, which have both contributed substantially to the Company's growth, the
Company has acquired and plans to install a new Tubular Products production line
in its Portland, Oregon facility at an estimated installed cost of approximately
$10.0 million. The new line will manufacture pipe and tube up to 7" in diameter
for use in industrial piping, oil and gas transmission, fire protection systems
and other applications. The Company believes it will have a competitive
advantage in serving its northwest market area because there are no other
manufacturers of these products in this target market. Currently, these products
are either imported or shipped from domestic mills that are a substantial
distance from the northwest market area.
Pursuing Industry Related Acquisitions. The Company believes that
acquisitions of companies in similar or related businesses could benefit both
its Water Transmission and Tubular Products businesses and that these
acquisitions will enable it to leverage its manufacturing, marketing and
distribution capabilities. The reduction in debt and increased debt capacity
resulting from this offering will enhance the Company's ability to pursue
strategic acquisitions. The Company has from time to time evaluated and
continues to evaluate opportunities for acquisitions and expansion of its
product lines and is currently engaged in preliminary discussions with other
parties regarding possible acquisitions.
PRODUCTS
Water Transmission. All of the Company's Water Transmission products are
made to custom specifications. Most of these products are for fully engineered,
large diameter, high pressure water transmission lines. Other uses include pipe
piling and pipe for hydroelectric projects, waste water transmission and
treatment plant piping. The Company manufactures Water Transmission products in
diameters ranging from 18" to 144" with wall thicknesses of 0.135" to 0.750".
The Company has the capability to coat and line these products with cement
mortar, polyethylene tapes, paints and coal tar according to the customers'
specifications. The Company maintains complete fabrication facilities and
provides installation contractors with custom fabricated sections as well as
straight pipe sections.
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<PAGE> 26
Tubular Products. Tubular Products are manufactured by the ERW process and
range in size from 4" to 16" in diameter with wall thicknesses from 0.075" to
0.250". These products are typically sold to pipe distributors or original
equipment manufacturers and are used for a wide variety of applications. The end
uses for Tubular Products can broadly be grouped into construction, agricultural
and industrial applications. The table below lists various applications for
these products:
<TABLE>
<S> <C> <C>
CONSTRUCTION AGRICULTURE INDUSTRIAL AND OTHER
Fire protection sprinkler Surface and underground Water well casing (non-
pipe irrigation mains agricultural)
Piling/struts Irrigation systems pipe Waste lines
Air lines Grain handling Drainage lines
De-water lines Water well casing Filtration pipe
Penstocks (hydroelectric) (agricultural) Steam exhaust
Sewer outfalls Perforated pipe for well Wood chip lines
Pontoon pipe screens Pneumatic conveying lines
Dredge pipe Coupler fittings Sign posts
Slurry pipe Wind towers/frost control
Process plant piping
Wind towers
Water and waste treatment
</TABLE>
The Company has historically added new product lines in its Tubular
Products business as management identified opportunities for sustainable growth.
In 1989, the Company entered the fire protection sprinkler system market with
its branded product Flame-Out which generated $11.5 million in sales in 1995. In
1993, the Company began marketing Well-Life, a water well casing product. Sales
of this product have totalled more than $5.2 million since the beginning of
1994. These new products represented an expansion of the Company's focus from
the light-wall, large diameter niche markets to include higher volume, more
competitive markets. The Company recently acquired and plans to install a new
Tubular Products production line in its Portland, Oregon facility. This new
production line will give the Company the ability to manufacture products with
smaller diameters and heavier wall thicknesses for uses in industrial piping,
oil and gas transmission, fire protection systems and other applications.
Notwithstanding the lower margins available in these markets, the Company
pursued these opportunities in order to increase the volume in the Tubular
Products business and to increase profitability. The Company intends to continue
to pursue future opportunities to broaden its product lines by adding products
that will take advantage of the Company's available manufacturing capacity,
existing marketing channels and manufacturing expertise.
MARKETING
Water Transmission. The primary customers for Water Transmission products
are installation contractors for projects funded by public water agencies,
including states, municipalities and water districts. Water Transmission
products are manufactured at the Company's Oregon, California and Colorado
facilities and are marketed in the United States and Canada. High freight costs
reduce the Company's competitiveness as the distance from its manufacturing
facility increases.
The Company's Water Transmission marketing strategy emphasizes early
identification of potential water projects, promotion of specifications
consistent with the Company's capabilities and close contact with the project
designers and owners throughout the design phase. The Company's in-house sales
force is composed of sales representatives, engineers and support personnel.
These representatives and engineers work with public water agencies, contractors
and engineering firms, often more than a year in advance of the bidding for a
project, in order to identify and evaluate planned projects.
The Company spends a significant amount of resources accumulating and
updating data on upcoming projects. The Company believes this information is
critical to its planning and operations. As projects within the Company's
markets are identified, they are included in the Company's project tracking
system. This system identifies the key characteristics of each project including
the agency, the size of the pipe, the length of the pipeline, specification
preferences, timing and estimated contract value. This accumulated information
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<PAGE> 27
gives the Company a well-informed outlook on the markets it serves. At August
31, 1996, the Company had identified more than 500 projects within its market
areas scheduled to be bid through 1999. These projects included water
transmission pipe with a value estimated by the Company to be approximately $2.0
billion. No assurance can be given that these projects will be let for bid,
awarded to the Company or be built as scheduled.
As the public water agency continues the process of developing a pipeline
project, the Company's professional engineers provide information to the agency
or its design engineers promoting the advantages of coated and lined steel pipe.
In certain cases, the Company's professional engineers may be successful in
influencing the specifications to favor the Company's products. After the
agencies complete the design, they publicize the upcoming bidding for a water
transmission project. The Company then obtains detailed plans and develops its
estimate for the pipe portion of the project. The Company typically bids to
installation contractors who include the Company's bid in their proposal to the
public water agency. The public water agency generally awards the entire project
to the contractor with the lowest bid.
Tubular Products. The Company's Tubular Products marketing strategy
focuses on customer service and customer relationships. For example, the Company
is willing to sell in small lot sizes and is able to provide mixed truckloads of
finished products to its customers. Approximately 85% of the Company's Tubular
Products sales have been to pipe distributors, and approximately 15% of sales
have been to original equipment manufacturers (primarily irrigation system
manufacturers). The Company's sales effort emphasizes personal contact with
current and potential customers on a regular basis. The Company supplements this
effort with targeted advertising, participation in trade shows and brochures.
The Company's strategic plant locations in Kansas and Oregon allow the Company
to efficiently serve customers throughout the United States and in Canada.
MANUFACTURING
Water Transmission. The Company manufactures Water Transmission products
at its Oregon, California and Colorado facilities. The process begins with the
preparation of engineered drawings of each unique piece of pipe in the project.
These drawings are prepared on the Company's proprietary computer-aided design
system and are used as blueprints for the manufacture of the pipe. After the
drawings are completed and approved, manufacturing begins by feeding steel coil
continuously at a specified angle into a spiral weld mill which cold forms the
band into a tubular configuration with a spiral seam. Automated arc welders,
positioned on both the inside and the outside of the tube, are used to weld the
seam. The welded tube is then cut at the specified length. After completion of
the forming and welding phases, the finished cylinder is tested and inspected in
accordance with project specifications, which may include 100% radiographic
analysis of the weld seam. The cylinders are then coated and lined as specified.
Possible coatings include coal tar enamel, polyethylene tape, paint, epoxies and
cement mortar. Linings may be coal tar, cement mortar or epoxies. Following
coating and lining, certain pieces may require custom fabrications such as the
addition of elbows or manholes. This process is performed in the Company's
fabrication facilities. The pipe is subjected to final inspection and prepared
for shipment. The Company ships its products to project sites by truck and rail.
Tubular Products. Tubular Products are manufactured by the ERW process at
the Company's Oregon and Kansas facilities in diameters ranging from 4" to 16".
This process begins by unrolling and slitting steel coils into narrower bands
sized to the circumference of the finished product. Each band is re-coiled and
fed into the material handling equipment at the front end of the ERW mill and
fed through a series of rolls that cold-form it into a tubular configuration.
The resultant tube is welded by high-frequency electric resistance welders and
cut into the appropriate lengths. After exiting the mill, the products are
straightened, inspected, tested and end-finished, and certain products are
coated with lacquer.
Technology. Advances in technology help the Company produce high quality
products at competitive prices. Recent investments in technological improvements
include a laser seam tracking system, a coil slitter, an ultraviolet pipe
coating system, an in-line ultrasonic testing system and two radiographic
testing systems. To stay abreast of technological developments in the United
States and abroad, the Company participates in trade shows, industry
associations, research projects and vendor trials of new products.
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<PAGE> 28
Quality Assurance. The Company has adopted quality assurance techniques
and policies which govern every aspect of its operations to ensure high quality.
During and after the manufacturing process, the Company performs many tests,
including tensile, impact, hydrostatic, ultrasonic and radiographic tests. The
Quality Assurance department reports directly to the chief executive officer. As
a reflection of its commitment to quality, the Company has been certified for
certain products or operations by Factory Mutual, Underwriters Laboratory, Steel
Plate Fabricators Association, National Sanitary Foundation and the American
Petroleum Institute.
BACKLOG
The Company's backlog includes confirmed orders, including the balance of
projects in process. The backlog 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 June 30,
1996 and 1995, the Company's backlog of orders was approximately $59.3 million
and $41.6 million, respectively. Backlog as of June 30, 1996 includes projects
having a value of approximately $9.9 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.
COMPETITION
Water Transmission. The Company has several competitors in the Water
Transmission segment of its business. High freight costs may limit the ability
of manufacturers located in other market areas to compete with the Company. Most
of the projects in this segment are competitively bid and price competition is
vigorous. Other competitive factors include timely delivery and ability to meet
customized specifications. The Company and Ameron, Inc. are the principal
competitors in the water transmission business in the western United States and
southwestern Canada. Other competitors in this region include California Steel
Pressure Pipe, Inc. and Continental Pipe. East of the Rocky Mountains, the
Company's primary competition includes American Cast Iron Pipe Company, McWane
Cast Iron Company and US Pipe & Foundry Company, all of which manufacture
ductile iron pipe; Price Bros. and Gifford-Hill-American, Inc., which
manufacture concrete cylinder pipe; and L.B. Foster Company, which produces
steel pipe.
The Company is not aware of any competitors that are currently planning to
enter into the water transmission business within the Company's market. The
Company believes that the cost of constructing a facility, the long lead time
before a manufacturing plant could compete effectively, product acceptance and
the high standards for product quality and manufacturing experience required by
project specifications all serve as barriers to entry. However, no assurance can
be given that a new or existing competitor will not establish new facilities or
expand its capacity within the Company's market areas.
Tubular Products. The market for tubular products is highly fragmented and
diversified with over 100 manufacturers in the United States and a number of
foreign-based manufacturers that export such pipe into the United States.
Manufacturers compete with one another primarily on the basis of price,
established business relationships, customer service and delivery. A substantial
portion of the manufacturers focus their production on heavier wall products,
while the Company has focused its production primarily on light wall,
non-standard products, thereby significantly reducing the number of its
competitors. However, the Company is increasingly introducing products into
higher volume markets with more competition than it experiences with its niche
products.
SUPPLIERS
The Company purchases hot rolled steel coil produced by a number of primary
steel producers including Geneva Steel Company, California Steel Industries,
Inc., National Steel Corporation, Tuscaloosa Steel Corporation and LTV Steel
Company. Additionally, Oregon Steel Mills is in the process of adding steel coil
manufacturing capabilities to its facility located approximately one mile from
the Company's Portland manufacturing facility. If Oregon Steel Mills completes
its capital expansion and can supply the Company with steel coil at a
competitive price, the Company expects a sizeable reduction in its in-bound
freight costs.
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<PAGE> 29
The Company orders steel according to its business forecasts for its Tubular
Products business. Steel for the Water Transmission business is normally
purchased only after a project has been awarded to the Company, however, the
steel price is generally negotiated in advance of the bidding process. The
Company also relies on certain suppliers of coating materials, lining materials
and certain custom fabricated items. The Company believes its relationships with
its suppliers are positive and does not believe it is dependent on any one
source for these materials.
PROPERTIES
The Oregon facility consists of 300,000 square feet of covered
manufacturing space, located on approximately 25 acres. The Company operates
five pipe mills at its Oregon facility. The Kansas facility consists of 55,000
square feet of covered manufacturing space located on 40 acres. The California
facility, which was built in 1990, consists of 70,000 square feet of covered
manufacturing space located on 60 acres. The Company has two pipe mills located
at each of the Kansas and California facilities. The principal assets acquired
by the Company in connection with the acquisition of Thompson Pipe and Steel
were a 40 acre steel pipe facility, including approximately 131,200 square feet
of covered manufacturing space, located in Denver, Colorado and a 64 acre
facility, including approximately 336,120 square feet of covered manufacturing
space, located in 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 Company owns
all of its facilities, except for the Oregon and Kentucky facilities, which are
each leased to the Company with an option to purchase.
The Company is seeking additional land in Oregon to be used primarily for
storage and production staging purposes. The Company has available manufacturing
capacity at each of its facilities and believes its facilities are adequate for
its immediate and near-term requirements, and it does not anticipate the need
for significant expansion in the next twelve months.
EMPLOYEES
As of August 31, 1996 the Company had 603 full-time employees.
Approximately 24% were salaried and approximately 76% were employed on an hourly
basis. All of the hourly employees at Thompson Pipe and Steel are represented by
a union.
ENVIRONMENTAL MATTERS
General. The Company operates under numerous governmental permits and
licenses relating to air emissions and water discharges, stormwater run-off,
workplace safety and other matters. The Company is not aware of any current
violations or citations relating to any of these permits or licenses. The
Company has a policy of reducing use and consumption of hazardous materials in
its operations by substituting non-hazardous materials when possible.
The Company has entered into an agreement with the Oregon Department of
Environmental Quality (the "DEQ") with respect to the reporting requirements for
calculating emissions of volatile organic compounds ("VOCs") from pipe coating
and lining operations at the Oregon manufacturing facility. Pursuant to the
agreement, the Company has until July 1, 1997 to find coatings that will allow
it to meet the Reasonably Available Control Technology ("RACT") VOC limits set
out in the Company's air permit or to submit an application for an alternative
VOC air emissions limit. The agreement also requires the Company to submit
reports to the DEQ on January 1, 1996, May 1, 1996, September 1, 1996, January
1, 1997 and May 1, 1997 detailing the progress that has been made toward finding
alternative compliant coatings. In order to comply with the RACT VOC limits, the
Company may have to make changes in its operating procedures or the mix of
coating and lining production. No assurance can be given that such changes, if
required, will not have a material adverse affect on the Company's future
business, financial condition or results of operations.
Superfund Site. The EPA sent a Special Notice Letter for Remedial
Investigation/Feasibility Study dated June 8, 1995 (the "Special Notice") to the
Company notifying the Company of potential liability, as
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<PAGE> 30
defined by Section 107(a) of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA" or "Superfund"), that the
Company may have incurred with respect to a site in Clackamas, Oregon that was
added to the EPA's Superfund National Priorities List ("NPL") on October 14,
1992 (the "Site"). The Company conducted manufacturing operations on a portion
of the Site prior to its Chapter 11 Bankruptcy in 1986. The Company has not
owned, leased or operated at the Site since the confirmation of the Company's
Plan of Reorganization on December 11, 1986 (the "Plan").
The Special Notice states that the EPA believes that the Company may be a
Potentially Responsible Party ("PRP") with respect to the Site. Three other
parties also received Special Notice letters naming them as PRPs with respect to
the Site. Under Sections 106(a) and 107(a) of CERCLA, Section 7003 of the
Resource Conservation and Recovery Act and similar provisions under Oregon laws,
PRPs may be ordered to perform response actions deemed necessary by the EPA to
protect the public health, welfare or the environment. Such actions may include,
but are not limited to, conducting a Remedial Investigation/ Feasibility Study
("RI/FS"), conducting a Remedial Design/Remedial Action, and other
investigation, planning and remediation activities (collectively, "Response
Activities"). The Special Notice triggered a 60-day period during which the
PRPs, including the Company, were invited to participate in formal negotiations
with EPA. The Special Notice also encouraged the PRPs to negotiate a settlement
providing for the conduct by the PRPs of Response Activities at the Site.
By letter dated June 30, 1995, the Company advised the EPA of its position
that any claims by the EPA with respect to liability for Response Activities at
the Site were discharged by the United States Bankruptcy Court's confirmation of
the Plan and that the confirmation of the Plan barred pre-confirmation claims
against the Company. Therefore, the Company declined to participate in
negotiations with the EPA and other PRPs during the 60-day period.
On August 28, 1995, the Company filed a motion with the United States
Bankruptcy Court seeking an order to reopen its bankruptcy proceedings. The
Company's motion was granted August 29, 1995. The Company filed a complaint on
October 4, 1995 seeking a declaratory judgment from the Bankruptcy Court that
all environmental claims by the EPA or the DEQ related to the Company's
operations at the Site prior to the completion of its bankruptcy reorganization
were discharged by the Bankruptcy Court's confirmation of the Company's Plan.
On November 13, 1995, both the EPA and the DEQ filed answers to the
Company's motion for declaratory judgment. Both the EPA and the DEQ asserted
defenses against the Company's claim including an assertion that the Company did
not provide appropriate notice of its bankruptcy proceeding, that the bankruptcy
proceeding cannot discharge an injunctive order for ongoing pollution and that
the environmental claims are not dischargeable because they are
post-confirmation claims. In addition to asking the court to allow its
environmental claims against the Company, the EPA also asked for a declaration
that the Company is required to amend its schedule of liabilities pursuant to
the bankruptcy or permit the EPA to file a late proof of claim. The Company, the
EPA and the DEQ have substantially completed discovery in this matter. On August
8, 1996, the Court ordered a temporary suspension in the litigation to provide
the parties the opportunity to pursue settlement options.
In August 1995, the Company retained Environmental Strategies Corporation
("ESC"), an environmental consulting and engineering firm experienced in
conducting remedial investigations and feasibility studies and designing
remedial activities, to prepare an estimate of the cost of future Response
Activities at the Site. ESC delivered a report (the "ESC Report") that estimates
the cost of the Response Activities at the Site to be between $15.4 million and
$20.1 million over a 25-year period, not including the costs of Response
Activities already incurred by the EPA. The evaluation of the Site upon which
the ESC Report was based involved the review of all information available to the
Company with respect to the environmental condition at the Site, including
studies of the Site previously conducted by the EPA. ESC did not conduct any
physical evaluation or testing of soils or groundwater at the Site. ESC compared
reported levels of contamination at the Site to established clean-up criteria.
ESC then selected the remedial alternatives for soil and ground water
remediation which it believes will satisfy established clean-up criteria through
technology generally approved by the EPA at sites with similar contamination.
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<PAGE> 31
Although the Company believes that the ESC Report provides a reasonable
estimate of the cost of future Response Activities at the Site based on
currently available information, no assurance can be given that a RI/FS would
not reveal additional information as to the nature or level of contaminants at
the Site. Furthermore, no assurance can be given that the EPA will agree with
the remediation alternatives assumed to be acceptable in the ESC Report, or that
the actual cost of the Response Activities at the Site will not materially
exceed ESC's estimates.
Although the Company believes that any claims with respect to liability for
the costs of the Response Activities were discharged by the United States
Bankruptcy Court's confirmation of the Plan, no assurance can be given 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 EPA and the
DEQ for environmental claims with respect to the Site or that it will not
ultimately be found to have liability with respect to the Site. In the event the
bankruptcy defense is unsuccessful, the Company's ultimate liability will depend
on the total costs of the Response Activities and the related costs and fees of
the allocation process, the Company'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 its
bankruptcy defense is unsuccessful, its liability for the costs of 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 is primarily
based on the length of time the Company operated at the Site. The most
contaminated portion of the Site was operated as a coating facility for
approximately 30 years. One of the other PRPs operated at the coating facility
for approximately 23 years, from 1955 to 1978. The Company operated the coating
facility from 1978 to 1985, or approximately 23% of the time the coating
facility was in operation. Accordingly, the Company has estimated its allocable
share to be 20-25%. However, there is no assurance that the Company will not
ultimately bear liability with respect to such costs disproportionate to the
Company's operations at the site. If the Company is ultimately found to have
liability to the EPA or the DEQ 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.
The Company, after consultation with its legal counsel, does not believe
that liability with respect to Response Activities at the site is "probable"
within the meaning of Statement of Financial Accounting Standards No. 5.
Accordingly, no accrual for such liability has been made in the Company's
financial statements.
LITIGATION
In addition to the matters described above, from time to time, the Company
is involved in litigation relating to claims arising out of its operations in
the normal course of its business. The Company maintains insurance coverage
against potential claims in amounts which it believes to be adequate. Management
believes that it is not presently a party to any litigation, the outcome of
which would have a material adverse effect on the Company's business, financial
condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
William R. Tagmyer................. 58 Chairman of the Board, President and Chief
Executive Officer
Brian W. Dunham.................... 38 Director, Executive Vice President and Chief
Financial Officer, Treasurer and Secretary
Gary A. Stokes..................... 44 Vice President -- Sales and Marketing
Charles L. Koenig.................. 54 President, Thompson Pipe and Steel,
Vice President -- California Operations
Terrence R. Mitchell............... 41 Vice President and General
Manager -- Tubular Products Division
Warren K. Kearns................... 67 Director
Wayne B. Kingsley.................. 53 Director
Vern B. Ryles, Jr.................. 58 Director
Neil R. Thornton................... 66 Director
</TABLE>
William R. Tagmyer has been the Chairman of the Board of Directors,
President and Chief Executive Officer since 1986. From 1975 to 1986, he worked
for L. B. Foster Company, another steel pipe manufacturer. Prior to 1975, Mr.
Tagmyer was employed by the U.S. Steel Corporation and FMC Corporation in the
areas of sales, marketing, product management and contract administration.
Brian W. Dunham has been a Director of the Company since August 1995. Mr.
Dunham has served as Vice President and Chief Financial Officer, Treasurer and
Secretary since 1990, and became Executive Vice President in 1995. From 1981 to
1990 he was employed by Coopers & Lybrand, independent accountants.
Gary A. Stokes has been Vice President of Sales and Marketing since 1993.
From 1991 to 1993, Mr. Stokes was General Manager of the Company's Portland
Division. From 1990 to 1991, Mr. Stokes was Vice President, Sales for the
Company's Portland Division. Mr. Stokes was previously employed by L. B. Foster
Company for eleven years. He served as the Regional Manager responsible for L.B.
Foster Company's West Coast sales operations.
Charles L. Koenig has been President, Thompson Pipe and Steel since June,
1996 and Vice President -- California Operations since 1993. From 1992 through
1993, Mr. Koenig served as the Company's Vice President of Manufacturing and is
a registered Professional Engineer. Prior to 1992, he was Operations Manager
with Thompson Pipe and Steel, where he was employed for more than twenty years.
Terrence R. Mitchell was appointed Vice President and General
Manager -- Tubular Products Division in 1996. From 1993 to 1996, Mr. Mitchell
served as Vice President and General Manager -- Kansas Division. From 1985 to
1993, Mr. Mitchell was a Sales Manager for the Company. Prior to joining the
Company, he was employed by Valmont Industries, another pipe manufacturer.
Warren K. Kearns has been a Director of the Company since 1986. Since 1985,
Mr. Kearns has been a Principal in Warren Kearns Associates, providing
consulting services to clients in steel and steel-related industries. Mr. Kearns
also serves as a Director for Erie Forge & Steel Company. Mr. Kearns was
formerly President and Director of L. B. Foster Company.
Wayne B. Kingsley has been a Director of the Company since 1987. Mr.
Kingsley has been a General Partner of the General Partnership of InterVen II,
L.P. since 1985. Mr. Kingsley is Chairman of the Board of
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Directors of American Waterways, Inc. and BIT, Inc. Mr. Kingsley is also a
director of Mobilworks, Inc. and Coleman Natural Products, Inc.
Vern B. Ryles has been a Director of the Company since 1986. Mr. Ryles is
President and Chief Executive Officer of Poppers Supply, a manufacturer of
flavored popcorn snacks and distributor of snack foods and equipment. Mr. Ryles
is also a Director of the National Association of Concessionaires and a Director
of Electro Scientific Industries, a public company.
Neil R. Thornton has been a Director of the Company since 1995. He was
previously a Director of the Company from 1986 to 1993. Mr. Thornton has been
the President and Chief Executive Officer of American Steel, L.L.C., a
distributor of carbon steel products, since 1985.
The Company's directors are divided into three classes and, after a
transitional period, will serve for terms of three years, with one class being
elected by the stockholders each year. The terms of the current directors will
expire as follows: Messrs. Dunham and Kingsley in 1997, Messrs. Kearns and Ryles
in 1998 and Messrs. Tagmyer and Thornton in 1999. The Executive Committee,
comprised of Messrs. Kingsley, Ryles and Tagmyer, exercises the authority of the
Board of Directors between meetings of the Board, subject to certain
limitations. The Audit Committee, comprised of Messrs. Kearns and Thornton,
oversees actions taken by the Company's independent auditors and reviews the
Company's internal audit controls. The Compensation Committee, comprised of
Messrs. Kingsley and Ryles, reviews the compensation levels of the Company's
employees and makes recommendations to the Board regarding changes in
compensation. There are no family relationships between any of the directors or
executive officers of the Company.
Article V of the Company's Restated Articles of Incorporation, provides
that the Company's directors may be removed only for cause, and only at a
meeting called expressly for that purpose by a vote of at least 75% of the votes
then entitled to be cast for the election of directors.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board.
DIRECTOR COMPENSATION
The non-employee members of the Board of Directors are compensated for
their service on the Board. Non-employee members of the Board of Directors
receive a retainer of $2,500 per quarter plus $1,000 for each meeting attended
in person, $500 for each meeting attended by telephone and $500 for each
committee meeting attended either in person or by telephone. All members are
reimbursed for their travel expenses incurred in attending Board meetings. Total
compensation paid to the Board of Directors during the year ended December 31,
1995 was $16,000.
The Company has adopted the 1995 Stock Option Plan for Nonemployee
Directors (the "1995 Nonemployee Director Plan"), which provides that an option
to purchase 5,000 shares of Common Stock is granted to each new nonemployee
director at the time such person is first elected or appointed to the Board of
Directors. In addition, each nonemployee director receives an option to purchase
2,000 shares of Common Stock annually after each annual meeting of shareholders.
The number of options which may be granted under the 1995 Nonemployee Director
Plan in any fiscal year may not exceed 20,000, subject to stock splits and
similar events, and a total of 100,000 shares of Common Stock have been reserved
for issuance upon exercise of stock options granted under the 1995 Nonemployee
Director Plan. On August 8, 1995, options to purchase 5,000 shares of Common
Stock were granted to Neil R. Thornton, under the 1995 Nonemployee Director
Plan. On May 14, 1996, Messrs. Kearns, Kingsley, Ryles and Thornton were each
granted options to purchase 2,000 shares of Common Stock under the Nonemployee
Director Plan.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and each of the four other most highly compensated
32
<PAGE> 34
executive officers of the Company determined as of the end of the last fiscal
year (hereafter referred to as the "named executive officers") for the fiscal
years ended December 31, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) GRANTED(#) COMPENSATION($)
- ----------------------------------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William R. Tagmyer....................... 1995 $216,840 $165,000 25,470 $ 13,206(2)
Chairman of the Board, 1994 195,900 89,671 -- 17,091(2)
President and
Chief Executive Officer
Brian W. Dunham.......................... 1995 138,000 125,000 42,900 4,140(3)
Director, Executive Vice 1994 105,600 77,054 13,886 3,168(3)
President, Chief Financial
Officer, Secretary and
Treasurer
Gary A. Stokes........................... 1995 104,400 83,000 17,160 3,148(3)
Vice President -- 1994 92,400 43,353 6,358 2,656(3)
Sales & Marketing
Charles L. Koenig........................ 1995 106,020 83,000 17,160 3,211(4)
President, Thompson Pipe and Steel, 1994 100,020 38,890 6,556 33,925(4)
Vice President --
California Operations
Terrence R. Mitchell..................... 1995 72,000 39,000 17,160 2,160(5)
Vice President and
General Manager --
Tubular Products Division
</TABLE>
(1) Paid pursuant to the Company's discretionary bonus program, in which all
salaried employees are eligible to participate.
(2) Represents $8,586 and $12,684 of Company-paid life insurance in 1995 and
1994, respectively, and $4,620 and $4,407, of matching amounts contributed
to the Company's 401(k) plan in 1995 and 1994, respectively.
(3) Represents matching amounts contributed to the Company's 401(k) plan in 1995
and 1994.
(4) Represents $31,050 of relocation expenses in 1994 and $3,211 and $2,875 of
matching amounts contributed to the Company's 401(k) plan in 1995 and 1994,
respectively.
(5) Represents matching amounts contributed to the Company's 401(k) plan in
1995. Amounts paid to Mr. Mitchell for salary and bonus did not exceed
$100,000 in 1994.
OPTION GRANTS TABLE
The following table sets forth information concerning options granted to
the named executive officers during the fiscal year ended December 31, 1995
under the Company's stock option plans.
33
<PAGE> 35
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL OPTIONS STOCK
GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES PRICE EXPIRATION FOR OPTION TERM(2)
NAME GRANTED(1) IN 1995 ($/SH) DATE 5% 10%
- ----------------------------------- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William R. Tagmyer................. 25,740 18% $ 4.78 6/20/05 $200,415 $319,127
Brian W. Dunham.................... 42,900 29% 4.78 6/20/05 334,024 531,878
Gary A. Stokes..................... 17,160 12% 4.78 6/20/05 133,610 212,751
Charles L. Koenig.................. 17,160 12% 4.78 6/20/05 133,610 212,751
Terrence R. Mitchell............... 17,160 12% 4.78 6/20/05 133,610 212,751
</TABLE>
(1) All options were granted at a price of $4.78, vest over five years and have
a ten year term.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant (10 years) and is calculated by assuming that the stock
price on the date of grant (determined by the Board of Directors to have
been $4.78 per share) appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised
and sold on the last day of its term for the appreciated price. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions.
FISCAL YEAR END OPTION VALUES
The following table sets forth, for each of the named executive officers,
the number and value of unexercised options as of December 31, 1995:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1995 AT DECEMBER 31, 1995(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William R. Tagmyer............................. 2,574 23,166 $ 15,959 $ 143,629
Brian W. Dunham................................ 41,897 38,610 404,320 239,382
Gary A. Stokes................................. 31,802 15,444 313,232 95,753
Charles L. Koenig.............................. 16,851 15,444 161,652 95,753
Terrence R. Mitchell........................... 6,864 15,444 62,005 95,753
</TABLE>
(1) The value of unexercised in-the-money options is calculated based on the
closing price of the Company's Common Stock on December 31, 1995, $10.98 per
share. Amounts reflected are based on the assumed value minus the exercise
price and do no necessarily indicate that the optionee sold such stock.
STOCK OPTION PLANS
1995 STOCK INCENTIVE PLAN. The Company's 1995 Stock Incentive Plan (the
"1995 Plan"), which was approved by the Board of Directors on June 20, 1995 and
approved by the Company's stockholders on August 8, 1995, provides for grants of
both "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and "non-qualified stock options"
which are not qualified for treatment under Section 422 of the Code, and for
direct stock grants and sales to employees or consultants of the Company. The
purposes of the 1995 Plan are to attract and retain the best available personnel
for positions of substantial responsibility, to provide additional incentives to
the employees and consultants of the Company and to promote the Company's
business. The 1995 Plan is administered by the Compensation Committee of the
Board of Directors.
The term of each option granted under the 1995 Plan will be ten years from
the date of grant, or such shorter period as may be established at the time of
the grant. An option granted under the 1995 Plan may be exercised at such times
and under such conditions as determined by the Compensation Committee. If a
person who has been granted an option ceases to be an employee or consultant of
the Company, such person may
34
<PAGE> 36
exercise that option only during the three month period after the date of
termination, and only to the extent that the option was exercisable on the date
of termination. If a person who has been granted an option ceases to be an
employee or consultant as a result of such person's total and permanent
disability, such person may exercise that option at any time within twelve
months after the date of termination, but only to the extent that the option was
exercisable on the date of termination. No option granted under the 1995 Plan is
transferable other than at death, and each option is exercisable during the life
of the optionee only by the optionee. In the event of the death of a person who
has received an option, the option generally may be exercised by a person who
acquired the option by bequest or inheritance during the twelve month period
after the date of death to the extent that such option was exercisable at the
date of death.
The exercise price of options granted under the 1995 Plan may not be less
than the fair market value of a share of Common Stock on the last market trading
day prior to the date of grant of the option. The consideration to be paid upon
exercise of an option, including the method of payment, will be determined by
the Compensation Committee and may consist entirely of cash, check, shares of
Common Stock or any combination of such methods of payment as permitted by the
Compensation Committee.
Certain options authorized to be granted under the 1995 Plan are intended
to qualify as incentive stock options for federal income tax purposes. Under
federal income tax law currently in effect, the optionee will recognize no
income upon grant or upon a proper exercise of an incentive stock option. If an
employee exercises an incentive stock option and does not dispose of any of the
option shares within two years following the date of grant and within one year
following the date of exercise, then any gain realized upon subsequent
disposition of the shares will be treated as income from the sale or exchange of
a capital asset. If an employee disposes of shares acquired upon exercise of an
incentive stock option before the expiration of either the one-year holding
period or the two-year waiting period, any amount realized will be taxable as
ordinary compensation income in the year of such disqualifying disposition to
the extent that the lesser of the fair market value of the shares on the
exercise date or the fair market value of the shares on the date of disposition
exceeds the exercise price. The Company will not be allowed any deduction for
federal income tax purposes at either the time of the grant or exercise of an
incentive stock option. Upon any disqualifying disposition by an employee, the
Company will be entitled to a deduction to the extent the employee realized
ordinary income, provided the Company properly reports to the taxing authorities
the ordinary income recognized by the optionee.
Certain options authorized to be granted under the 1995 Plan will be
treated as non-qualified stock options for federal income tax purposes. Under
federal income tax law presently in effect, no income is realized by the grantee
of a non-qualified stock option pursuant to the 1995 Plan until the option is
exercised. At the time of exercise of a non-qualified stock option, the optionee
will realize ordinary compensation income, in the amount by which the market
value of the shares subject to the option at the time of exercise exceeds the
exercise price. The Company generally will be entitled to a deduction equal to
the ordinary income recognized by the optionee, provided the Company properly
reports to the taxing authorities the ordinary income recognized by the
optionee. Upon the sale of shares acquired upon exercise of a non-qualified
stock option, the excess of the amount realized from the sale over the market
value of the shares on the date of exercise will be taxable.
The 1995 Plan will continue in effect until May 2005, unless earlier
terminated by the Board of Directors, but such termination will not affect the
terms of any options outstanding at that time. The Board of Directors may amend,
terminate or suspend the 1995 Plan at any time, provided that no amendment
regarding amount, price or timing of the grants may be made more than once every
six months other than to conform with changes in certain Securities Exchange Act
and Internal Revenue Code requirements. Amendments that would materially
increase the number of shares that may be issued, materially modify the
requirements as to eligibility for Plan participation, or materially increase
the benefits to Plan participants must be approved by the Company's
stockholders.
At August 31, 1996 options to purchase 277,340 shares of Common Stock were
available for future grants pursuant to the 1995 Plan. During 1996, no options
have been granted under the 1995 Plan to the named executive officers.
35
<PAGE> 37
1995 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS. Nonemployee members of
the Board of Directors participate in the Company's 1995 Stock Option Plan for
Nonemployee Directors (the "1995 Nonemployee Director Plan"), which was adopted
to promote the interests of the Company and its stockholders by strengthening
the Company's ability to attract and retain experienced and knowledgeable
nonemployee directors and to encourage them to acquire an increased proprietary
interest in the Company. Under the 1995 Nonemployee Director Plan, a 5,000 share
stock option is granted to each new nonemployee director at the time such person
is first elected or appointed to the Board of Directors. In addition, each
nonemployee director receives an option to purchase 2,000 shares of Common Stock
annually after each annual meeting of stockholders. Set forth below is a summary
of the material terms of the 1995 Nonemployee Director Plan.
Each option expires ten years from the date of its grant. Outstanding
options will expire earlier if an optionee terminates service as a director
before the end of the ten year term. If an optionee terminates service as a
director for any reason other than retirement, total disability or death, the
option will automatically expire 90 days after the date of termination. If an
optionee dies or terminates service due to retirement or disability, the options
then outstanding will expire one year after the date of death or termination or
on the stated expiration date, whichever is earlier. Options are not assignable
during the lifetime of the optionee except by a qualified domestic relations
order.
The exercise price of options granted under the 1995 Nonemployee Director
Plan may not be less than the fair market value of a share of Common Stock on
the date of grant of the option. Payment of the option exercise price may be in
cash or, to the extent permitted by the Compensation Committee, by delivery of
previously owned Common Stock having a fair market value equal to the option
exercise or a combination of cash and stock. The Compensation Committee may also
permit "cashless" option exercises by allowing optionees to surrender portions
of their options in payment for the stock to be received.
All options granted under the 1995 Nonemployee Director Plan are
non-qualified -- not intended to qualify under Section 422 of the Code. No gain
will be recognized by the optionee at the time of a grant. Generally, at
exercise, ordinary income will be recognized by the optionee in an amount equal
to the difference between the option exercise price and the fair market value of
the shares on the date of exercise, and the Company will receive a tax deduction
for the same amount. At the time the optionee disposes of the shares, the
appreciation or depreciation of the shares since the option was exercised will
be treated as either a short or long term capital gain or loss, depending on how
long the shares have been held.
The 1995 Nonemployee Director Plan continues in effect until terminated by
the Board of Directors or by stockholders but such termination will not affect
the terms of any options outstanding at that time. The Board of Directors may
amend, terminate or suspend the 1995 Nonemployee Director Plan at any time,
provided that no amendment regarding amount, price or timing of the grants may
be made more than once every six months other than to comport with changes in
certain Securities Exchange Act and Internal Revenue Code requirements.
Amendments that would materially increase the number of shares that may be
issued, materially modify the requirements as to eligibility of 1995 Nonemployee
Director Plan participation, or materially increase the benefits to participants
must be approved by stockholders.
The number of options which may be granted under the 1995 Nonemployee
Director Plan in any fiscal year may not exceed 20,000, subject to stock splits
and similar events. A total of 100,000 shares of Common Stock have been reserved
for issuance upon exercise of stock options granted under the 1995 Nonemployee
Director Plan. Options that are forfeited or terminated will again be available
for grant. On May 14, 1996, options to purchase 8,000 shares of Common Stock
were granted to nonemployee directors. At August 31, 1996, 87,000 shares of
Common Stock were available for future grants pursuant to the 1995 Nonemployee
Director Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is comprised of
Messrs. Kingsley and Ryles. The Compensation Committee is responsible for
establishing the compensation of William R. Tagmyer, the Company's President and
Chief Executive Officer, who also serves on the Board of Directors. Mr. Tagmyer
is
36
<PAGE> 38
responsible for reviewing the compensation levels of the Company's other
executive officers and makes recommendations to the Compensation Committee
regarding changes in compensation.
On February 1, 1982, the Company entered into a Lease Agreement with
Multnomah Land & Equipment Company ("Multnomah Land"), a partnership in which
Vern B. Ryles, Jr., a director of the Company, is a general partner. The Lease
Agreement covers substantially all of the Company's Portland, Oregon facilities.
The term of this Lease Agreement ends December 1, 2008. The amounts paid by the
Company to Multnomah Land under this Lease equalled $357,000, $324,000, $344,000
and $172,000 for the years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1996, respectively. The Company believes that the
terms of its lease with Multnomah Land are no less favorable than could be
obtained from an unaffiliated third party. Additionally, the Company has an
option to acquire the property covered by this Lease, exercisable at any time
prior to the expiration of the Lease. The purchase price payable by the Company
upon exercise of this option would equal the greater of $1,000,000 or the
outstanding balance of the unpaid principal and accrued interest on the loan
secured by such property ($2.8 million at June 30, 1996). The Company and
Multnomah Land are co-makers on a Deed of Trust Note evidencing this loan.
In 1994, the Company exercised its option to purchase equipment for
$600,000 which had been leased from Multnomah Land under an equipment lease. The
Company made payments under this lease to Multnomah Land of $386,000, $373,000
and $197,000 for 1992, 1993 and 1994, respectively.
In addition, Multnomah Land has unconditionally guaranteed all of the
obligations of the Company to The CIT Group under the Financing Agreement dated
August 17, 1994. Multnomah Land's guarantee was required because it is a related
party with ownership rights to the Company's Portland, Oregon facilities.
On April 29, 1994, the Company issued and sold Series C Convertible
Subordinated Debentures having an aggregate principal amount of $712,667 to
InterVen II, L.P. and InterVen Ventures 1987, entities which are controlled by
Wayne B. Kingsley, a director of the Company. The Company also issued and sold
$385,982 in principal amount of such Series C Debentures to Norwest Growth Fund,
Inc., an entity represented by George J. Still, Jr., a former director of the
Company. William Tagmyer, the Company's Chairman, President and Chief Executive
Officer purchased $168,000 in principal amount of Series C Debentures. These
transactions were ratified by a vote of the Company's stockholders on July 7,
1994.
The Company paid Interven II, L.P. interest on Series A Subordinated
Debentures and Series B and Series C Convertible Subordinated Debentures in the
amount of $0, $36,317, $1,070,000 and $0 for the years ended December 31, 1993,
1994, 1995 and for the six months ended June 30, 1996, respectively. The Company
paid Norwest Growth Fund, Inc. interest on such Debentures in the amount of $0,
$19,670, $603,000 and $0 in 1993, 1994 and 1995 and for the six months ended
June 30, 1996, respectively. Interest on Series A Subordinated Debentures and
Series B Convertible Subordinated Debentures has been deferred from time to time
in accordance with the terms of the agreements that allow for deferral based on
the Company's operating cash flows. In December 1995, the Company paid
$1,046,000 and $590,000 in principal payments to InterVen II, L.P. and Norwest
Growth Fund, Inc., respectively, under the Series A Subordinated Debentures to
retire such Debentures. In November 1995, concurrent with the Company's initial
public offering of Common Stock, outstanding Series B and Series C Convertible
Subordinated Debentures were converted into shares of the Common Stock.
CERTAIN TRANSACTIONS
For a description of the transactions and relationships between the Company
and its officers, directors and other affiliates, see
"Management -- Compensation Committee Interlocks and Insider Participation."
37
<PAGE> 39
PRINCIPAL AND SELLING SHAREHOLDERS
The table below sets forth certain information, as of August 31, 1996,
regarding the beneficial ownership of the Common Stock by: (i) each person known
by the Company to be the beneficial owner of 5% or more of its outstanding
Common Stock, (ii) each of the named executive officers, (iii) each of the
Company's directors, (iv) each of the Selling Shareholders and (v) all directors
and executive officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) SHARES TO BE OFFERING(1)(2)
------------------- SOLD IN --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERING NUMBER PERCENT
- ---------------------------------------------- --------- ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
InterVen II, L.P. ............................ 1,571,106 29.6% 677,986 893,120 13.7%
InterVen Ventures 1987
Wayne B. Kingsley(3)
1011 Swarthmore Avenue, Suite 5
Pacific Palisades, CA 90272
Norwest Growth Fund, Inc.(4).................. 618,708 11.7 350,000 268,708 4.1
3000 Sand Hill Road
Menlo Park, CA 94025
Poppers Supply Company........................ 47,014 * 27,518 19,496 *
Vern B. Ryles, Jr.(5)
340 S.E. 7th Avenue
Portland, Oregon 97124
William R. Tagmyer............................ 329,796 6.2 80,000 249,796 3.8
Brian W. Dunham............................... 100,891 1.9 15,000 85,891 1.3
Gary A. Stokes................................ 74,568 1.4 15,000 59,568 *
Charles L. Koenig............................. 65,007 1.2 15,000 50,007 *
Terrence R. Mitchell.......................... 9,724 * 2,000 7,724 *
Warren K. Kearns.............................. 19,496 * 17,496 2,000 *
Neil R. Thornton.............................. 16,377 * -- 16,377 *
All directors and executive officers as a
group (nine persons)........................ 2,233,979 40.9 850,000 1,383,979 20.8
</TABLE>
- ---------------
(*) Represents beneficial ownership of less than one percent of the outstanding
Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the SEC,
and includes voting power and investment power with respect to shares.
Shares issuable upon the exercise of outstanding stock options that are
currently exercisable or become exercisable within 60 days from August 31,
1996 are considered outstanding for the purpose of calculating the
percentage of Common Stock owned by such person but not for the purpose of
calculating the percentage of Common Stock owned by any other person. The
number of stock options that are exercisable within 60 days of August 31,
1996 is as follows: Mr. Kearns -- 19,496; Mr. Kingsley -- 2,000; Mr.
Ryles -- 11,994; Mr. Thornton -- 16,377; Mr. Tagmyer -- 6,864; Mr.
Dunham -- 49,046; Mr. Stokes -- 34,660; Mr. Koenig -- 19,711; Mr.
Mitchell -- 9,724; and all directors and officers as a group -- 169,872.
(2) Assumes no exercise of the Underwriter's over-allotment option, which grants
the Underwriter's the option to purchase 191,292 shares of Common Stock from
the Company and 168,708 shares from Norwest Growth Fund, Inc.
(3) Mr. Kingsley is a director of the Company and a General Partner of the
General Partner of InterVen II, L.P., and Trustee of a General Partner of
Interven Ventures 1987.
(4) All of the capital stock of Norwest Growth Fund, Inc. is beneficially owned
by Norwest Limited, Inc. All of the capital stock of Norwest Limited, Inc.
is beneficially owned by Norwest Corp., 1700 Norwest Center, Sixth and
Marquette, Minneapolis, Minnesota 55479.
(5) Mr. Ryles is President and Chief Executive Officer of Poppers Supply Company
and may be deemed to be the beneficial owner of the 27,518 shares of Common
Stock beneficially owned by Poppers Supply Company.
38
<PAGE> 40
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, par value $.01, and 10,000,000 shares of Preferred Stock, par
value $.01 per share. The following summary description of the Company's capital
stock does not purport to be complete and is qualified in its entirety by the
provisions of the Company's Articles of Incorporation and Bylaws.
COMMON STOCK
After this offering 6,494,889 shares of Common Stock will be outstanding.
Holders of Common Stock are entitled to receive such dividends as may from time
to time be declared by the Board of Directors of the Company out of funds
legally available therefor. Holders of Common Stock are entitled to one vote per
share on all matters on which the holders of Common Stock are entitled to vote
and do not have any cumulative voting rights. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding class or series of Preferred Stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued will be, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject to
any series of Preferred Stock which the Company may issue in the future as
described below.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue Preferred Stock in one
or more series and to fix the number of shares constituting any such series, the
voting powers, designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption, redemption
price or prices, conversion and voting rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
stockholders of the Company. The issuance of Preferred Stock by the Board of
Directors could adversely affect the rights of holders of Common Stock. For
example, issuance of Preferred Stock could result in a series of securities
outstanding that would have preference over the Common Stock with respect to
dividends and in liquidation and that could (upon conversion or otherwise) enjoy
all of the rights appurtenant to the Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy or consent solicitation or
otherwise by making such attempts more difficult to achieve or more costly. The
Board of Directors may issue Preferred Stock without stockholder approval and
with voting rights that could adversely affect the voting power of holders of
Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock, and the Board of Directors has no present intention of issuing
any shares of Preferred Stock.
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES; CERTAIN PROVISIONS OF
RESTATED ARTICLES
The Company is subject to the Oregon Control Share Act (OBCA Sections
60.801-60.816) (the "Control Share Act"). The Control Share Act generally
provides that a person (the "Acquiring Person") who acquires voting stock of an
Oregon corporation in a transaction which results in such Acquiring Person
holding more than 20%, 33 1/3% or 50% of the total voting power of such
corporation (a "Control Share Acquisition") cannot vote the shares it acquires
in the Control Share Acquisition ("control shares") unless voting rights are
accorded to such control shares by the holders of a majority of the outstanding
voting shares, excluding the control shares held by the Acquiring Person and
shares held by the Company's officers and inside directors ("interested
shares"), and by the holders of a majority of the outstanding voting shares,
including interested shares. The foregoing vote would be required at the time an
Acquiring Person's holdings exceed 20% of the total voting power of a company,
and again at the time the Acquiring Person's holdings exceed 33 1/3% and 50%.
The term "Acquiring Person" is broadly defined to include persons acting as a
group. A transaction in which voting power is acquired solely by receipt of an
immediately revocable proxy does not constitute a "Control Share Acquisition."
39
<PAGE> 41
The Acquiring Person may, but is not required to, submit to the Company an
"Acquiring Person Statement" setting forth certain information about the
Acquiring Person and its plans for acquiring the Company's stock. The Acquiring
Person Statement may also request that the Company call a special meeting of
stockholders to determine whether the control shares will be allowed to retain
voting rights. If the Acquiring Person does not request a special meeting of
stockholders, the issue of voting rights of control shares will be considered at
the next annual meeting or special meeting of stockholders that is held more
than 60 days after the date of the Control Share Acquisition. If the Acquiring
Person's control shares are accorded voting rights and represent a majority or
more of all voting power, stockholders who do not vote in favor of the
restoration of such voting rights will have the right to receive the appraised
"fair value" of their shares, which may not be less than the highest price paid
per share by the Acquiring Person for the control shares.
The Company is also subject to the Oregon Business Combination Act (OBCA
Sections 60.825-60.845) (the "Business Combination Act"). The Business
Combination Act generally provides that in the event a person or entity acquires
15% or more of the voting stock of an Oregon corporation (an "Interested
Stockholder"), the corporation and the Interested Stockholder, or any affiliated
entity, may not engage in certain business combination transactions for a period
of three years following the date the person became an Interested Stockholder.
Business combination transactions for this purpose include (a) a merger or plan
of share exchange, (b) any sale, lease, mortgage or other disposition of the
assets of the corporation where the assets have an aggregate market value equal
to 10% or more of the aggregate market value of the corporation's assets or
outstanding capital stock and (c) certain transactions that result in the
issuance of capital stock of the corporation to the Interested Stockholder.
These restrictions do not apply if (i) the Interested Stockholder, as a result
of the transaction in which such person became an Interested Stockholder, owns
at least 85% of the outstanding voting stock of the corporation (disregarding
shares owned by directors who are also officers, and certain employee benefit
plans), (ii) the Board of Directors approves the share acquisition or business
combination before the Interested Stockholder acquired 15% or more of the
corporation's voting stock, or (iii) the Board of Directors and the holders of
at least two-thirds of the outstanding voting stock of the corporation
(disregarding shares owned by the Interested Stockholder) approve the
transaction after the Interested Stockholder acquires 15% or more of the
corporation's voting stock. The Control Share Act and the Business Combination
Act will have the effect of encouraging any potential acquiror to negotiate with
the Company's Board of Directors and will also discourage certain potential
acquirors unwilling to comply with its provisions.
The Company's Articles and Bylaws contain provisions which (i) classify the
Board of Directors into three classes as nearly equal in number as possible,
each of which, after an interim arrangement, will serve for three years with one
class being elected each year (the "Classified Board Provisions"), (ii) provide
that directors may be removed by stockholders only for cause and only upon the
vote of 75% of the votes then entitled to be cast for the election of directors,
(iii) require the approval of holders of 67% of the outstanding shares of the
Company entitled to vote to effect a merger or consolidation of the Company, the
sale, lease or exchange of all or substantially all of the assets of the Company
or the liquidation or dissolution of the Company and (iv) permit the Board of
Directors to issue Preferred Stock in one or more series and to fix the number
of shares constituting any such series, the voting powers and all other rights
and preferences of any such series, without any further vote or action by the
shareholders of the Company. These provisions may have the effect of lengthening
the time required for a person to acquire control of the Company through a proxy
contest or the election of a majority of the Board of Directors and may deter
any potential unfriendly offers or other efforts to obtain control of the
Company. This could deprive the Company's stockholders of opportunities to
realize a premium for their Common Stock and could make removal of incumbent
directors more difficult. At the same time, these provisions may have the effect
of inducing any persons seeking control of the Company to negotiate terms
acceptable to the Board of Directors. In addition, the provisions of the
Articles regarding removal of directors will make the removal of any director
more difficult even if such removal is believed by the stockholders to be in
their best interests. Since these provisions make the removal of directors more
difficult, they increase the likelihood that incumbent directors will retain
their positions and, since the Board has the power to retain and discharge
management, could perpetuate incumbent management.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
40
<PAGE> 42
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Upon completion of this
offering, the Company will have outstanding 6,494,889 shares of Common Stock
(6,686,181 shares if the over-allotment option is exercised in full). The
Company and the officers, directors and certain other stockholders of the
Company have agreed, subject to certain exceptions, not to sell or otherwise
dispose of any Common Stock for a period of 90 days from the date of this
Prospectus without the prior written consent of the Representatives of the
Underwriters. Approximately 1,382,815 of the shares of Common Stock outstanding
upon completion of the Offering (1,214,107 shares if the over-allotment option
is exercised in full) will be subject to the resale restrictions imposed by
these agreements, and thereafter will be eligible for resale pursuant to Rule
144 under the Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years (including any period of ownership of preceding
nonaffiliated holders) would generally be entitled to sell, within any three
month period, a number of shares that does not exceed the greater of (i) 1% of
the then-outstanding shares of Common Stock of the Company, or (ii) the average
weekly trading volume of the then-outstanding shares of Common Stock during the
four calendar weeks preceding each such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company and who has beneficially owned shares for at least three years
(including any period of ownership of preceding nonaffiliated holders) would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.
Holders of approximately 1,300,000 shares of Common Stock are entitled to
certain registration rights. Such rights provide that if the Company proposes to
register any of its securities under the Act, whether for its own account or
otherwise, such holders, or their permitted assigns, are entitled to notice of
the registration and inclusion of such shares therein, subject to certain
limitations. In addition, upon expiration or waiver of the lockup period
described above, such holders may require the Company to file a registration
statement covering such shares, and the Company is obligated to use its best
efforts to effect such registration, subject to certain conditions and
limitations. The Company is obligated to effect only two such demand
registrations, which must be at least six months apart. Further, if the Company
is eligible to register its securities on Form S-3, such holders may require the
Company to file a registration statement on Form S-3 covering such shares, and
the Company is obligated to use its best efforts to effect such registration,
subject to certain conditions and limitations. Registrations on Form S-3 are not
counted for purposes of the two demand registration limitation. All expenses,
other than underwriting discounts and commissions, incurred in connection with a
demand or Form S-3 registration, including all registration, filing,
qualification, printing and accounting fees, and the reasonable fees and
disbursements of counsel for the selling stockholders and counsel for the
Company are required to be paid by the Company. With respect to any registration
effected pursuant to the registration rights of such holders, the Company is
required to indemnify such holders against certain liabilities, including
liabilities under the Act.
The Company has reserved 665,311 shares of Common Stock for issuance
pursuant to the Company's stock option plans. Of this amount, 301,309 shares
were subject to outstanding options at August 31, 1996. See "Management -- Stock
Option Plans." The Company intends to file a registration statement under the
Act to register shares of Common Stock issuable upon exercise of options granted
pursuant to the Company's stock option plans. Such registration statement is
expected to be filed promptly after the date of this Prospectus and will become
effective automatically upon filing. Common Stock issued after the effective
date of such registration statement upon exercise of stock options granted under
the stock option plans will generally be eligible for resale in the open market.
41
<PAGE> 43
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, the underwriters of this offering (the "Underwriters"), for whom
Hanifen, Imhoff Inc., Stephens Inc. and Jensen Securities Co. are acting as
representatives (the "Representatives"), have severally agreed to purchase the
aggregate number of shares of Common Stock set forth opposite their respective
names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Hanifen, Imhoff Inc. ................................................
Stephens Inc. .......................................................
Jensen Securities Co. ...............................................
-----------
Total...................................................... 2,400,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain conditions and that, if any
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all the shares of Common Stock agreed to be purchased by
the Underwriters must be so purchased.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock offered hereby to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
selected dealers (who may include the Underwriters) at such public offering
price less a concession not to exceed $ per share. The Underwriters or
such selected dealers may reallow a commission to certain other dealers not to
exceed $ per share. After the public offering, the public offering
price, the concession to selected dealers and the reallowance of other dealers
may be changed by the Representatives. The Representatives have advised the
Company that they do not expect the Underwriters to make sales to accounts over
which any Underwriter exercises discretionary authority.
The Company and one of the Selling Shareholders have granted to the
Underwriters an option to purchase up to an aggregate of 360,000 additional
shares of Common Stock at the public offering price less the aggregate
underwriting discount, solely to cover over-allotments. The option may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each such Underwriter will be
committed, subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment.
The Company, its directors and executive officers and certain stockholders
of the Company have agreed that they will not offer to sell, sell or otherwise
dispose of any shares of Common Stock not sold in this offering for a period of
90 days from the date of the Prospectus without the prior written consent of
Hanifen, Imhoff Inc., on behalf of the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
In connection with this offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934 during the two
business day period before commencement of offers or sales of Common Stock. The
passive market making transactions must comply with applicable price and volume
limits and be identified as such. In general, a passive market maker may display
its bid at a price not in excess of the highest independent bid for the
security; if all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Net purchases by a passive market maker on each day are generally
limited to a specified percentage of the passive market making average daily
trading volume in the Common Stock during a price period and must be
discontinued when such limit is reached. Passive market making may stabilize the
market
42
<PAGE> 44
price of the Common Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Ater Wynne Hewitt Dodson & Skerritt, LLP, Portland, Oregon.
Certain matters will be passed upon for the Underwriters by Gibson, Dunn &
Crutcher LLP, Denver, Colorado.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995, included
in this Prospectus, and the related financial statement schedule included
elsewhere in the Registration Statement have been included herein in reliance on
the reports, which include an emphasis of matter concerning a claim by the
United States Environmental Protection Agency and an explanatory paragraph
concerning a change in method of accounting for income taxes in 1993, of Coopers
& Lybrand L.L.P., Independent Accountants, given on the authority of that firm
as experts in accounting and auditing.
The financial statements of Thompson Pipe and Steel Company as of December
31, 1995 and 1994 and for each of the three years in the period ended December
31, 1995, included in the Prospectus, have been included herein in reliance on
reports of Coopers & Lybrand L.L.P., Independent Accountants, given on the
authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at certain of its regional offices located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock of the Company is quoted on the Nasdaq National Market. Reports and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc., 1735 K Street, Washington, D.C. The Commission also
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits and schedules for further information with
respect to the Company and the Common Stock offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and in each such instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference. The Registration Statement and
the exhibits and schedules forming a part thereof can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also
be available for inspection and copying at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
43
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NORTHWEST PIPE COMPANY
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995
and for the Six Months Ended June 30, 1995 and 1996 (unaudited)..................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1996
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and for the Six Months Ended June 30, 1995 and 1996 (unaudited)................ F-6
Notes to Consolidated Financial Statements............................................ F-7
THOMPSON PIPE AND STEEL COMPANY
Report of Independent Accountants..................................................... F-20
Consolidated Balance Sheets as of May 31, 1996 (unaudited) and December 31, 1995 and
1994................................................................................ F-21
Consolidated Statements of Operations for the Five Months Ended May 31, 1996 and 1995
(unaudited) and the Years Ended December 31, 1995, 1994 and 1993.................... F-22
Consolidated Statements of Cash Flows for the Five Months Ended May 31, 1996 and 1995
(unaudited) and the Years Ended December 31, 1995, 1994 and 1993.................... F-23
Notes to Consolidated Financial Statements............................................ F-24
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Combined Statements of Operations........................................... F-35
Pro Forma Combined Statement of Operations for the Six Months Ended June 30, 1996..... F-36
Pro Forma Combined Statement of Operations for the Year Ended December 31, 1995....... F-37
Footnotes to Pro Forma Combined Financial Statements.................................. F-38
</TABLE>
F-1
<PAGE> 46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Northwest Pipe Company
We have audited the accompanying balance sheets of Northwest Pipe Company
as of December 31, 1995 and 1994, and the related statements of income, changes
in stockholders' equity 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.
As discussed in Note 12 of Notes to Consolidated Financial Statements, the
Company, along with three other parties, has been named as a potentially
responsible party by the United States Environmental Protection Agency for a
"Superfund" site located in Clackamas, Oregon. The Company is seeking a
declaratory judgment that any such environmental claims were discharged by the
bankruptcy court's confirmation of a Plan of Reorganization in 1986.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northwest Pipe Company as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
As discussed in Note 14 of Notes to Consolidated Financial Statements,
effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
February 13, 1996
F-2
<PAGE> 47
NORTHWEST PIPE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 395 $ 857 $ 2,603
Trade receivables, less allowance for doubtful accounts of $571,
$867 and $1,312 in 1994, 1995 and 1996, respectively.......... 13,651 15,984 34,832
Costs and estimated earnings in excess of billings on uncompleted
contracts..................................................... 2,812 9,891 9,877
Inventories...................................................... 13,745 11,409 15,878
Prepaid expenses and other....................................... 1,115 835 441
Deferred income taxes............................................ 1,414 694 1,694
-------- -------- -------
Total current assets..................................... 33,132 39,670 65,325
Property and equipment............................................. 19,943 21,198 29,139
Property under capital leases, less accumulated amortization of
$452, $513 and $545 in 1994, 1995 and 1996, respectively......... 2,938 2,939 2,906
Other assets....................................................... 795 647 1,529
-------- -------- -------
$ 56,808 $ 64,454 $98,899
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to financial institution............................ $ 10,319 $ 2,191 $22,131
Current portion of long-term debt................................ 2,986 2,100 2,600
Current portion of capital lease obligations..................... 66 106 317
Current portion of capital lease obligations due to related
party......................................................... 107 115 120
Accounts payable................................................. 7,685 9,733 10,373
Accrued liabilities.............................................. 2,025 2,987 7,249
-------- -------- -------
Total current liabilities................................ 23,188 17,232 42,790
Long-term debt, less current portion............................... 12,810 9,110 10,485
Long-term debt due to related parties.............................. 5,078
Capital lease obligations, less current portion.................... 325 259 1,808
Capital lease obligations due to related party..................... 2,785 2,671 2,610
Other long-term liabilities........................................ 630
Deferred income taxes.............................................. 1,103 1,453 1,453
-------- -------- -------
Total liabilities........................................ 45,289 30,725 59,776
-------- -------- -------
Commitments and contingencies (Notes 8 and 12)
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized,
none issued or outstanding....................................
Class A common stock, $.01 par value, 600,000 shares authorized,
448,394 shares issued and outstanding at December 31, 1994.... 5
Class B common stock, $.01 par value, 2,500,000 shares
authorized, 248,609 shares issued and outstanding at December
31, 1994...................................................... 3
Common stock, $.01 par value, 15,000,000 shares authorized,
5,258,299 and 5,293,624 shares issued and outstanding at
December 31, 1995 and June 30, 1996, respectively............. 53 53
Additional paid-in capital....................................... 5,845 22,903 22,929
Retained earnings after December 31, 1986 quasi-reorganization... 5,666 10,773 16,141
-------- -------- -------
Total stockholders' equity............................... 11,519 33,729 39,123
-------- -------- -------
$ 56,808 $ 64,454 $98,899
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE> 48
NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $54,437 $73,641 $97,715 $46,525 $64,088
Cost of sales............................ 47,908 61,661 78,139 36,911 49,224
------- ------- ------- ------- -------
Gross profit........................... 6,529 11,980 19,576 9,614 14,864
Selling, general and administrative
expenses............................... 5,369 5,719 7,798 4,009 5,065
------- ------- ------- ------- -------
Operating income......................... 1,160 6,261 11,778 5,605 9,799
Interest expense......................... 1,660 2,265 2,839 1,457 736
Interest expense to related parties...... 407 543 609 329 116
------- ------- ------- ------- -------
Income (loss) before income taxes........ (907) 3,453 8,330 3,819 8,947
Provision (benefit) for income taxes..... (333) 1,292 3,223 1,426 3,579
------- ------- ------- ------- -------
Income (loss) before cumulative effect of
accounting change...................... (574) 2,161 5,107 2,393 5,368
Cumulative effect of accounting change
(Note 14).............................. 837
------- ------- ------- ------- -------
Net income..................... $ 263 $ 2,161 $ 5,107 $ 2,393 $ 5,368
======= ======= ======= ======= =======
Net income per share..................... $ 0.16 $ 0.65 $ 1.43 $ 0.71 $ 0.97
======= ======= ======= ======= =======
Weighted average number of shares
outstanding............................ 1,951 3,526 3,695 3,484 5,527
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE> 49
NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------------
CLASS A CLASS B ADDITIONAL TOTAL
---------------- ---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS* EQUITY
-------- ------ -------- ------ --------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992....... 448,394 $ 5 248,609 $ 3 $ 5,615 $ 3,242 $ 8,865
Net income....................... 263 263
Tax benefit of net operating loss
carryforwards generated prior
to quasi-reorganization........ 230 230
------- --- -------- --- --------- --- ------- ------- -------
Balance at December 31, 1993....... 448,394 5 248,609 3 5,845 3,505 9,358
Net income....................... 2,161 2,161
------- --- -------- --- --------- --- ------- ------- -------
Balance at December 31, 1994....... 448,394 5 248,609 3 5,845 5,666 11,519
Net income....................... 5,107 5,107
Conversion of Class A to
common stock................... (448,394) (5) 448,394 $ 5
Conversion of Class B to
common stock................... (248,609) (3) 248,609 3
Conversion of Series B and
Series C Subordinated debt
to common stock................ 2,629,296 26 2,464 2,490
Proceeds from sale of
common stock net of
issuance cost of $1,558........ 1,932,000 19 14,594 14,613
------- --- -------- --- --------- --- ------- ------- -------
Balance at December 31, 1995....... 5,258,299 53 22,903 10,773 33,729
Issuance of Common Stock
(unaudited).................... 35,325 26 26
Net income (unaudited)........... 5,368 5,368
------- --- -------- --- --------- --- ------- ------- -------
Balance at June 30, 1996
(unaudited)...................... $ -- $ -- 5,293,624 $ 53 $ 22,929 $ 16,141 $39,123
======= === ======== === ========= === ======= ======= =======
</TABLE>
- ---------------
* After December 31, 1986 quasi-reorganization
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE> 50
NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 263 $ 2,161 $ 5,107 $ 2,393 $ 5,368
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Cumulative effect of change in method of accounting for
income taxes............................................ (837)
Depreciation and amortization............................. 1,170 1,302 1,362 654 832
Provision for (recovery on) doubtful accounts............. (286) 35 296 320 167
Deferred income taxes..................................... (333) 1,089 1,070 443
Changes in assets and liabilities, net of effects from
purchase of Thompson Pipe and Steel:
Trade receivables......................................... 2,297 (5,480) (2,629) (893) (7,862)
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 958 317 (7,079) (5,203) 1,403
Inventories............................................... (1,362) (5,540) 2,336 1,209 (2,629)
Prepaid expenses and other................................ (241) 83 280 256 412
Accounts payable.......................................... (2,380) 4,059 2,048 (49) (2,417)
Accrued liabilities....................................... 255 1,099 962 1,715 (248)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities......................................... (496) (875) 3,753 845 (4,974)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................... (4,217) (1,667) (2,556) (779) (1,398)
Acquisition, net of cash acquired........................... (2,072)
Other assets................................................ (358) 148 27 (574)
------- ------- ------- ------- -------
Net cash used in investing activities................ (4,217) (2,025) (2,408) (752) (4,044)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt................................ 2,884 10,598
Proceeds from long-term debt due to related parties......... 1,402
Proceeds from sale of common stock.......................... 14,613 26
Payments on long-term debt.................................. (1,496) (6,206) (7,174) (1,852) (1,704)
Net proceeds (payments) under note payable to financial
institution............................................... 3,595 (1,671) (8,128) 1,658 12,555
Payments on capital lease obligations....................... (41) (88) (41) (56)
Payments on capital lease obligations to related party...... (344) (807) (106) (53) (57)
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities......................................... 4,639 3,275 (883) (288) 10,764
------- ------- ------- ------- -------
Net increase (decrease) in cash............................... (74) 375 462 (195) 1,746
Cash, beginning of period..................................... 94 20 395 395 857
------- ------- ------- ------- -------
Cash, end of period........................................... $ 20 $ 395 $ 857 $ 200 $ 2,603
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 2,003 $ 2,096 $ 4,009 $ 1,513 $ 789
======= ======= ======= ======= =======
Income taxes.............................................. $ 15 $ 138 $ 1,274 $ 63 $ 3,563
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION:
Accrued interest converted to long-term debt................ $ 414 $ 264 $ 28
Long-term debt converted to common stock.................... $ 2,490
Capital lease obligations incurred.......................... 432 62 41
Acquisition:
Fair value of assets acquired............................. $18,931
Fair value of liabilities assumed......................... 16,859
-------
Cash paid, net....................................... $ 2,072
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE> 51
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
For 1993, the financial statements include the accounts of Northwest Pipe
Company and its wholly-owned subsidiaries (the Company) after elimination of
intercompany balances and transactions. In 1994, the Company merged its two
subsidiaries into Northwest Pipe Company. The Company manufactures steel pipe in
two business segments at plants located in Portland, Oregon; Denver, Colorado;
Adelanto, California; and Atchison, Kansas.
USE OF 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SEGMENTS
Water Transmission products are custom manufactured in accordance with
project specifications. These products are used primarily for high pressure
water transmission pipelines in the United States and Canada. Water Transmission
products are manufactured in Portland, Oregon, Denver, Colorado, and Adelanto,
California and are sold primarily to public water agencies either directly or
through an installation contractor.
Tubular Products are manufactured in the Company's Portland, Oregon and
Atchison, Kansas facilities. Tubular Products are marketed through a network of
direct sales force personnel and independent distributors throughout the United
States and Canada. These products are used for a variety of construction,
agricultural and industrial purposes.
CASH
Cash consists of cash on hand, cash in banks and investments with an
original maturity of less than 90 days.
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 on an identified cost basis.
Inventories of coating and lining materials, as well as materials and supplies,
are stated on an average cost basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
expensed as incurred and costs of improvements and renewals are capitalized.
Depreciation is determined by the straight-line method based on the estimated
useful lives of the related assets. Effective January 1, 1993, the Company
extended the estimated useful lives of certain buildings and equipment to better
reflect the estimated periods when such assets will remain in service. The
effect of this change was to reduce depreciation expense in 1993 by $384. Upon
disposal, costs and related accumulated depreciation of the assets are removed
from the accounts and resulting gains or losses are reflected in operations.
F-7
<PAGE> 52
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Estimated useful lives by major classes of property and equipment are as
follows:
<TABLE>
<S> <C>
Land improvements................................ 20 years
Buildings........................................ 30 years
Equipment........................................ 5-18 years
</TABLE>
PROPERTY UNDER CAPITAL LEASES
The Company leases land, buildings and equipment under long-term capital
leases. Buildings are being amortized over their estimated useful lives of
thirty years and equipment is being amortized on a straight-line basis over
estimated useful lives of ten to eighteen years.
REVENUE RECOGNITION
Revenues from construction contracts in the Company's Water Transmission
business segment are recognized on the percentage-of-completion method, measured
by the percentage of total costs incurred to date to the estimated total costs
of each contract. Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs and depreciation. Selling, general and administrative
costs are charged to expense as incurred. Provisions for losses on uncompleted
contracts are made in the period such losses are estimated. Changes in job
performance, job conditions and estimated profitability, including those arising
from contract penalty provisions, and final contract settlements may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined.
Revenues from the Company's Tubular Products business segment are
recognized when products are shipped.
INCOME TAXES
The Company records deferred income tax liabilities and assets based upon
the difference between the financial statement and income tax bases of assets
and liabilities using enacted income tax rates. Valuation allowances are
established when necessary to reduce deferred income tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in net deferred income tax assets and
liabilities.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. Trade
receivables are with a large number of customers, including municipalities,
manufacturers, distributors and contractors, dispersed across a wide geographic
base.
INTERIM INFORMATION
The consolidated financial statements as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 are unaudited; however, in the opinion of
management, these consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, considered necessary for fair
presentation of the Company's consolidated financial position, operating results
and cash flows. Results of interim periods are not necessarily indicative of
results of the entire year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments", defines the fair value of financial instruments
as the amount at which the instrument could be
F-8
<PAGE> 53
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale. The carrying amounts of financial instruments
including cash, trade receivables, note payable and accounts payable approximate
fair value because of the short maturity for these instruments. The fair value
approximates the carrying value of the Company's borrowings under its long-term
arrangements based upon interest rates available for the same or similar loans.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. ("SFAS") 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ", that
establishes criteria for and requires recognition of impairment losses on long-
lived assets. SFAS 121 also prescribes the accounting for long-lived assets that
are expected to be disposed of in future periods. The Company adopted SFAS 121
in the first quarter of 1996 and, based on estimates as of December 31, 1995,
believes the effect of adoption, if any, will not have a material effect on the
financial statements of the Company.
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock-Based Compensation", which is effective for fiscal years
beginning after December 15, 1995. This Standard encourages employers to adopt a
fair value-based method of accounting to recognize compensation expense for the
employee stock compensation plans. However, it does not require the fair
value-based method to be adopted and provides that employers may continue to
account for those plans using the accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Companies that elect not to adopt
the fair value-based method must disclose pro forma net income and earnings per
share, as if the fair value-based method had been applied. The Company does not
currently intend to adopt the fair value-based method of recognition under SFAS
123 and does not expect that the fair value-based method will have a material
impact on pro forma net income or pro forma earnings per share.
2. ACQUISITION (UNAUDITED):
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 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 Amended and
Restated Financing Agreement with the CIT Group/Business Credit, Inc. dated as
of May 31, 1996.
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.
F-9
<PAGE> 54
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITION (UNAUDITED), CONTINUED:
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:
<TABLE>
<CAPTION>
(UNAUDITED)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------ ----------------
1995 1996
------------ ----------------
<S> <C> <C>
Net sales...................................... $135,272 $ 74,941
Net income..................................... $ 46 $ 1,414
Net income per share........................... $ 0.06 $ 0.25
</TABLE>
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.
3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts............. $ 22,675 $ 45,700 $57,756
Estimated earnings.................................. 5,096 8,382 17,929
-------- -------- -------
27,771 54,082 75,685
Less billings to date............................... (24,959) (44,191) (65,808)
-------- -------- -------
$ 2,812 $ 9,891 $ 9,877
======== ======== =======
</TABLE>
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenue earned under the percentage of completion method but not
billable based on the terms of the contracts. These amounts are billed based on
the terms of the contracts which include achievement of milestones, partial
shipments or completion of the contracts.
4. INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Finished goods........................................ $ 4,155 $ 3,423 $ 4,883
Raw materials......................................... 8,159 6,665 10,174
Materials and supplies................................ 1,431 1,321 821
------- ------- -------
$13,745 $11,409 $ 15,878
======= ======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Land and improvements................................ $ 2,671 $ 2,736 $ 4,449
Buildings............................................ 5,826 5,915 11,823
Equipment............................................ 18,956 20,835 30,079
Construction in progress............................. 1,116 1,639 3,041
------- ------- -------
28,569 31,125 49,392
Less accumulated depreciation........................ (8,626) (9,927) (20,253)
------- ------- -------
$19,943 $21,198 $ 29,139
======= ======= =======
</TABLE>
F-10
<PAGE> 55
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTE PAYABLE TO FINANCIAL INSTITUTION:
Effective May 31, 1996, the Company refinanced a substantial portion of its
term debt, capital leases and its revolving credit facility. The revolving
credit facility was paid in full and was replaced by a new facility from a
financial institution ("Senior Lender") which extends to April 30, 2001. Under
this new agreement, borrowings are limited to the lesser of $44 million or 85%
of eligible trade receivables plus 60% of eligible inventories and 50% of
eligible costs and estimated earnings in excess of billings on uncompleted
contracts. The Company had an available unused line of credit of $14.0 million
and $7.9 million at December 31, 1995 and June 30, 1996, respectively. Amounts
outstanding under this facility bear interest at prime, payable monthly. Prime
interest rate was 8.75% and 8.25% at December 31, 1995 and June 30, 1996,
respectively.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Series A subordinated debentures, interest at 15% payable
quarterly................................................... $ 2,667
Series B convertible subordinated debentures, interest payable
quarterly at 8%. Series B debentures are convertible into
shares of Class B common stock under certain terms at $.87
per share, price subject to adjustment as defined........... 1,302
Series C convertible subordinated debentures, interest at 12%
payable quarterly. Series C debentures are convertible into
Class B common stock under certain terms at $1.00 per
share....................................................... 1,500
Industrial Development Bonds, issued in accordance with
Internal Revenue Code Section 144(a), variable interest
(5.5%, 5.25% and 3.25% at December 31, 1994 and 1995 and
June 30, 1996) payable monthly; annual principal payments of
$250, collateralized by property and equipment and
guaranteed by an irrevocable letter of credit from a bank... 4,000 $ 3,750 $ 3,500
Industrial Development Bonds, issued in accordance with
Internal Revenue Code Section 144(a), variable interest
(3.85% at June 30, 1996) payable monthly; annual principal
payments of $600, collateralized by property and equipment
and guaranteed by an irrevocable letter of credit from a
bank........................................................ 500
Note payable, due in monthly installments of $63, including
variable interest (9.48% at December 31, 1994),
collateralized by equipment................................. 1,595
Note payable to Senior Lender, due in monthly payments of $175
per month plus interest at prime plus 2.00%, collateralized
by receivables, inventories, and property and equipment..... 2,800 450
Note payable to Senior Lender, due in monthly payments of $175
per month plus interest at prime plus 1.75%, collateralized
by receivables, inventories, and property and equipment..... 7,000 7,000
Note payable to Senior Lender, due in quarterly payments of
$300, plus interest at prime plus 0.25% with balance due
September 30, 2001, collateralized by receivables,
inventories, and property and equipment..................... 6,000
Note payable to Senior Lender, due in quarterly payments of
$150, plus interest at prime plus 0.25% with balance due
September 30, 2001, collateralized by receivables,
inventories, and property and equipment..................... 3,000
Other......................................................... 10 10 85
------- ------- --------
Total long-term debt, including amounts due to related parties
in 1994..................................................... 20,874 11,210 13,085
Less current portion.......................................... (2,986) (2,100) (2,600)
------- ------- --------
$17,888 $ 9,110 $ 10,485
======= ======= ========
</TABLE>
F-11
<PAGE> 56
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT, CONTINUED:
Amounts are displayed on the balance sheet as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Current portion of long-term debt........................... $ 2,986 $ 2,100 $ 2,600
Long-term debt, less current portion........................ 12,810 9,110 10,485
Long-term debt, due to related parties...................... 5,078
------- ------- --------
$20,874 $11,210 $ 13,085
======= ======= ========
</TABLE>
The Company is required to maintain certain financial ratios under its loan
agreements. As of June 30, 1996, the most significant of these is maintaining a
defined leverage ratio of less than 2.0 to 1.
Future annual principal payment maturities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
<S> <C> <C>
1996.................................. $ 2,100
1997.................................. 2,350 $ 2,600
1998.................................. 2,350 2,050
1999.................................. 1,400 2,050
2000.................................. 250 2,050
Thereafter............................ 2,760 4,335
-------- --------
$ 11,210 $ 13,085
======== ========
</TABLE>
8. LEASES:
CAPITAL LEASES
The Company leases land, buildings, five pipe mills and additional
equipment under two separate agreements with a related party (see Note 9).
During 1994, the debt underlying the lease for the pipe mills and additional
equipment was paid in full and title was transferred to the Company. During
1989, $3.0 million of debt related to the land and buildings was refinanced with
a lender on a long-term basis; this lease was renegotiated during 1994. The
Company's lease supports the related party's debt and payments on the lease are
equal to the principal and interest payments on the underlying debt, and are
made directly to the lender.
The Company also leases certain assets at its Kentucky facility from the
Kentucky Rural Economic Development Authority. In addition, the Company has
other capital leases for office and manufacturing equipment.
F-12
<PAGE> 57
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASES, CONTINUED:
The future minimum lease payments under these capital leases, and the
present value of the minimum lease payments as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996.................................. $ 487
1997.................................. 466
1998.................................. 462
1999.................................. 391
2000.................................. 344
Thereafter............................ 2,752
--------
Total minimum lease payments.......... 4,902
Less -- Amount representing
interest............................ (1,751)
--------
Present value of minimum lease
payments including current
maturities of $221, with interest
rates ranging from 3.25% to 11.25%,
including amounts to related
party............................... $ 3,151
========
</TABLE>
OPERATING LEASES
The Company has entered into various equipment leases with terms of five
years or less. Total rental expense for the years ended December 31, 1993, 1994
and 1995 was $1,279, $787 and $789, respectively. During the six months ended
June 30, 1995 and 1996, total rental expense amounted to $382 and $491,
respectively. As of December 31, 1995 future minimum payments for operating
leases with initial or remaining terms in excess of one year are:
<TABLE>
<S> <C>
1996........................................................ $ 424
1997........................................................ 231
1998........................................................ 36
1999........................................................ 2
------
$ 693
======
</TABLE>
9. RELATED PARTY TRANSACTIONS:
Multnomah Land & Equipment (Multnomah) is a partnership in which a director
of the Company is a General Partner. As discussed in Note 8, the Company entered
into two separate agreements to lease a pipe manufacturing facility and
equipment from Multnomah in 1982. The amounts paid under these lease agreements
amounted to $730, $521, $344, $172 and $172 for the years ended December 31,
1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996,
respectively. During 1994, the Company exercised its option to purchase
equipment for $600. The Company has the option to acquire the pipe manufacturing
facility, exercisable at any time prior to the expiration of the lease, for the
greater of $1.0 million or the outstanding balance of the unpaid principal and
accrued interest on the loan collateralized by such property ($2.8 million at
December 31, 1995).
10. RETIREMENT PLANS:
The Company has a defined contribution retirement plan covering
substantially all of its employees. Total expense in 1993, 1994 and 1995
amounted to $196, $195 and $230, respectively. During the six months ended June
30, 1995 and 1996, total expense was approximately $112 and $133, respectively.
The Company matches up to 50% of employee contributions to the plan, subject to
certain limitations.
F-13
<PAGE> 58
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RETIREMENT PLANS, CONTINUED:
Thompson Pipe and Steel has two noncontributory defined benefit plans which
cover substantially all employees. Benefits under the union pension plan are
based upon a flat benefit formula, while benefits under the 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.
11. CAPITAL STOCK:
On July 28, 1995, the Board of Directors amended and restated the Company's
Articles of Incorporation subject to approval by the stockholders of the
Company. The Company's stockholders approved the amended and restated Articles
of Incorporation on August 8, 1995. The revised articles, among other things,
redesignated the Class A and Class B common stock of the Company as Common
Stock, authorized a 0.858-for-1 reverse stock split of each outstanding share of
Common Stock, increased the authorized capital stock of the Company to
15,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock,
authorized the Board of Directors to issue blank check Preferred Stock, and
provided for the classification of the Board of Directors into three classes
with staggered terms. The Board of Directors also authorized and approved the
1995 Stock Incentive Plan and the reservation of 500,000 shares of common stock
for issuance thereunder (429,000 after the stock split noted above).
Additionally, the Board authorized and approved, subject to approval by the
stockholders, the 1995 Stock Option Plan for Nonemployee Directors and the
reservation of 100,000 shares of Common Stock (after the stock split) for
issuance thereunder. The Company issued options to purchase 171,328 shares of
common stock (146,999 after the stock split). All share and per share amounts
have been restated to retroactively reflect the aforementioned reverse stock
split.
On August 8, 1995, the Company held a special meeting of stockholders. The
stockholders authorized and approved the Second Restated Articles of
Incorporation, which among other things, established a six-person Board of
Directors in three classes. The stockholders elected directors, approved the
Company's 1995 Stock Incentive Plan and the reservation of 429,000 shares of
Common Stock for issuance thereunder, and approved the Company's 1995 Stock
Option Plan for Nonemployee Directors and the reservation of 100,000 shares of
Common Stock for issuance thereunder.
Options to purchase shares of the Company's Common Stock have been granted
to key employees and directors with exercise prices determined by the Board of
Directors to be the fair value of the stock at the date of grant. These options
become exercisable according to vesting schedules which range from four to five
years and expire ten years after the date of grant.
At December 31, 1995, options to purchase 152,036 shares were vested and
exercisable. Options outstanding and transactions were as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
OPTIONS RANGE
------- ----------------
<S> <C> <C>
Balance, December 31, 1992................................ 138,523 $ 0.87 - $ 3.50
Options surrendered....................................... (10,296) $3.50
-------
Balance, December 31, 1993................................ 128,227 $ 0.87 - $ 3.50
Options granted........................................... 45,187 $1.00
-------
Balance, December 31, 1994................................ 173,414 $ 0.87 - $ 1.00
Options granted........................................... 146,999 $4.78
-------
Balance, December 31, 1995................................ 320,413 $ 0.87 - $ 4.78
Options granted........................................... 18,000 $11.50 - $17.25
Options exercised......................................... (35,499) $ 0.90 - $ 4.78
Options cancelled......................................... (340) $4.78
-------
Balance, June 30, 1996.................................... 302,574 $ 0.87 - $17.25
</TABLE>
F-14
<PAGE> 59
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. CAPITAL STOCK, CONTINUED:
On November 30, 1995, the Company completed an initial public offering
(IPO) of 1,932,000 shares of common stock at an issuance price of $9.00 per
share. In conjunction with the IPO, all of the Company's outstanding Series B
and Series C Convertible Subordinated Debentures were converted into a total of
2,629,296 shares of the Company's Common Stock.
12. COMMITMENTS AND CONTINGENCIES:
The U.S. Environmental Protection Agency ("EPA") sent a Special Notice
Letter for Remedial Investigation/Feasibility Study dated June 8, 1995 (the
"Special Notice") to the Company notifying the Company of potential liability,
as defined by Section 107(a) of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or "Superfund"), that the Company may
have incurred with respect to a site in Clackamas, Oregon that was added to the
Superfund National Priorities List ("NPL") on October 14, 1992 (the "Site"). The
Company conducted manufacturing operations on a portion of the Site prior to its
Chapter 11 Bankruptcy in 1986. The Company has not owned, leased or operated at
the Site since the confirmation of the Company's Plan of Reorganization on
December 11, 1986 ("the Plan").
The Special Notice states that the EPA believes that the Company may be a
Potentially Responsible Party ("PRP") with respect to the Site. Three other
parties also received Special Notice letters naming them as PRPs with respect to
the Site. PRPs may be ordered to perform response actions which may include, but
are not limited to, conducting a Remedial Investigation/Feasibility Study
("RI/FS"), conducting a Remedial Design/Remedial Action ("RD/RA"), and other
investigation, planning and remediation activities (collectively, the "Response
Activities"). The Special Notice triggered a 60-day period during which the
PRPs, including the Company, were invited to participate in formal negotiations
with the EPA. The Special Notice also encouraged the PRPs to negotiate a
settlement providing for the conduct by the PRPs of Response Activities at the
Site.
By letter dated June 30, 1995, the Company advised the EPA of its position
that any claims by the EPA with respect to liability for Response Activities at
the Site were discharged by the United States Bankruptcy Court's confirmation of
the Plan and that the confirmation of the Plan created an injunction against
bringing pre-confirmation claims against the Company.
On August 28, 1995, the Company filed a motion with the United States
Bankruptcy Court seeking an order to reopen its bankruptcy proceedings. The
Company's motion was granted August 29, 1995. The Company filed a complaint on
October 4, 1995 seeking a declaratory judgment from the Bankruptcy Court that
all environmental claims by the EPA or the Oregon Department of Environmental
Quality ("DEQ"), related to the Company's operations prior to the completion of
its bankruptcy reorganization were discharged by the Bankruptcy Court's
confirmation of the Company's Plan.
On November 13, 1995 both the EPA and the DEQ filed answers to the
Company's motion for declaratory judgment. Both the EPA and the DEQ asserted
defenses against the Company's claim including an assertion that the Company did
not provide notice of its bankruptcy proceeding, that the bankruptcy proceeding
cannot discharge an injunctive order for ongoing pollution and that the
environmental claims are not dischargeable because they are post-confirmation
claims. In addition to asking the court to allow its environmental claims
against the Company, the EPA has also asked for a declaration that the Company
is required to amend its schedule of liabilities pursuant to the bankruptcy or
permit the EPA to file a late proof of claim. The Company and the EPA are
currently engaged in the discovery process on this matter.
In 1995, the Company retained Environmental Strategies Corporation ("ESC"),
an environmental consulting and engineering firm experienced in conducting
remedial investigations and feasibility studies and designing remedial
activities to prepare an estimate of the cost of future Response Activities at
the Site. ESC has delivered a report (the "ESC Report") that estimates the cost
of the Response Activities at the Site to be
F-15
<PAGE> 60
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES, CONTINUED:
between $15.4 million and $20.1 million over a 25-year period, not including the
costs of Response Activities already incurred by the EPA. The evaluation of the
Site upon which the ESC Report was based involved the review of all information
available to the Company with respect to the contamination of the Site,
including studies of the Site previously conducted by the EPA. ESC did not
conduct physical evaluation or testing at the Site. ESC compared reported levels
of contamination at the Site to establish clean-up criteria. ESC then selected
the remedial alternatives for soil and ground water remediation which it
believes will satisfy established clean-up criteria through technology generally
approved by the EPA at sites with similar contamination.
Although the Company believes that the ESC Report provides a reasonable
estimate of the cost of future Response Activities at the Site based on
currently available information, no assurance can be given that a RI/FS would
not reveal additional information as to the nature or level of contaminants at
the Site. Furthermore, no assurance can be given that the EPA will agree with
the remediation alternatives assumed to be acceptable in the ESC Report, or that
the actual cost of the Response Activities at the Site will not materially
exceed ESC's estimates.
Although the Company believes that any claims with respect to liability for
the costs of the Response Activities were discharged by the United States
Bankruptcy Court's confirmation of the Plan, no assurance can be given that the
Company will be successful in obtaining a judgment from the Bankruptcy Court
that the confirmation of the Plan discharged its liability for environmental
claims with respect to the Site or that it will not ultimately be found to have
liability with respect to the Site. In the event the bankruptcy defense is
unsuccessful, the ultimate liability will depend on the total costs of the
Response Activities and the related costs and fees of the allocation process,
the Company's relative contribution of contaminants at the Site and the
financial capability of other PRPs to bear their share of the liability. Based
upon a preliminary estimate of the types of contaminants found and the number of
years each PRP operated on the Site, the Company believes that, if 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 is primarily based on the
length of time the Company operated at the Site. The most contaminated portion
of the Site was operated as a coating facility for approximately 30 years.
Another of the PRPs operated at the coating facility for approximately 23 years
from 1955 to 1978. The Company operated the coating facility from 1978 to 1985,
or approximately 23% of the time the coating facility was in operation.
Accordingly, the Company has estimated its allocable share of costs to be
20-25%. However, there is no assurance that the Company will not ultimately bear
liability with respect to those costs disproportionate to the duration of the
Company's operations at the Site. If the Company is ultimately found to have
liability 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.
The Company, after consultation with its legal counsel, does not believe
that liability with respect to Response Activities at the Site is "probable"
within the meaning of Statement of Financial Accounting Standards No. 5.
Accordingly, no accrual for such liability has been made in the Company's
financial statements.
From time to time, the Company is involved in litigation relating to claims
out of its operations in the normal course of its business. The Company
maintains insurance coverage against potential claims in amounts which it
believes to be adequate. Management believes that it is not presently a party to
any litigation, the outcome of which would have a material adverse effect on the
Company's business or operations.
As of December 31, 1995 and June 30, 1996, the Company had outstanding raw
material purchase commitments of approximately $9 million and $13 million,
respectively.
F-16
<PAGE> 61
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUASI-REORGANIZATION:
In conjunction with the Company's emergence on December 18, 1986 from
Chapter 11 reorganization, the Board of Directors approved a
quasi-reorganization of the Company as of December 31, 1986. As a result of the
quasi-reorganization, the Company adjusted the carrying value of assets and
liabilities to fair value, off-setting such adjustments against additional
paid-in capital. The Company's prior accumulated deficit also was off-set
against additional paid-in capital. Accordingly, retained earnings in the
accompanying financial statements reflects the results of operations since
January 1, 1987.
14. INCOME TAXES:
The Company adopted SFAS 109 "Accounting for Income Taxes", on a
prospective basis effective January 1, 1993. The cumulative effect of the change
in accounting method has been recognized in the amount of $837 in the statement
of income for the year ended December 31, 1993. As of December 31, 1994, the
Company had $1.0 million in net operating loss carryforwards for regular federal
income tax purposes and $500 for alternative minimum tax ("AMT") purposes. The
Company also had approximately $332 of investment tax and AMT credit
carryforwards available for federal income tax purposes. During 1995, the
Company utilized all of its remaining tax carryforwards and credits to reduce
taxable income and current income taxes payable.
As of June 30, 1996, the Company had approximately $3.0 million of net
operating loss carryforwards as a result of the acquisition of Thompson Pipe and
Steel Company which are limited in their use to approximately $200 per year
during the 15 year carryforward period.
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ------------------
1993 1994 1995 1995 1996
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Current:
Federal........................... $ 70 $1,728 $ 703 $2,876
State............................. 133 425 280 703
Deferred............................ $(333) 1,089 1,070 443
----- ------ ------ ------ ------
$(333) $1,292 $3,223 $1,426 $3,579
===== ====== ====== ====== ======
</TABLE>
The difference between the effective income tax rate and the statutory U.S.
Federal income tax rate is explained as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
----- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Provision (benefit) at statutory
rate............................ $(308) $ 1,174 $ 2,832 $1,298 $3,131
State provision (benefit), net of
federal benefit................. (46) 180 280 198 477
Other............................. 21 (62) 111 (70) (29)
----- ------- ------- ------ ------
$(333) $ 1,292 $ 3,223 $1,426 $3,579
===== ======= ======= ====== ======
</TABLE>
F-17
<PAGE> 62
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. INCOME TAXES, CONTINUED:
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts............................. $ 224 $ 340 $ 412
Alternative minimum tax credit................... 199
Leased assets.................................... 146 118 107
General business credit.......................... 133
Net operating loss carryforwards................. 332 1,000
Other............................................ 554 449 596
------- ------- -------
Total deferred tax assets..................... 1,588 907 2,115
------- ------- -------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation and
amortization.................................. (1,221) (1,576) (1,791)
Other............................................ (56) (90) (83)
------- ------- -------
Total deferred tax liabilities................ (1,277) (1,666) (1,874)
------- ------- -------
Net deferred tax asset (liability)............ $ 311 $ (759) $ 241
======= ======= =======
Deferred tax assets and liabilities are included in
the accompanying balance sheets as follows:
Deferred tax assets -- current................... $ 1,414 $ 694 $ 1,694
Deferred tax liabilities -- noncurrent........... (1,103) (1,453) (1,453)
------- ------- -------
Net deferred tax assets (liability).............. $ 311 $ (759) $ 241
======= ======= =======
</TABLE>
F-18
<PAGE> 63
NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENT INFORMATION AND MAJOR CUSTOMERS:
Information with respect to the segments of the business is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales
Water Transmission................ $29,995 $41,105 $61,215 $27,023 $41,683
Tubular Products.................. 24,442 32,536 36,500 19,502 22,405
------- ------- ------- ------- -------
$54,437 $73,641 $97,715 $46,525 $64,088
======= ======= ======= ======= =======
Identifiable assets
Water Transmission................ $29,641 $35,882 $46,401 $39,342 $66,526
Tubular Products.................. 12,736 17,462 14,755 18,642 21,693
Corporate......................... 2,448 3,464 3,298 2,738 10,680
------- ------- ------- ------- -------
$44,825 $56,808 $64,454 $60,722 $98,899
------- ------- ------- ------- -------
Operating income (loss)
Water Transmission................ $(1,179) $ 3,320 $10,994 $ 4,715 $ 9,052
Tubular Products.................. 4,538 5,665 5,078 3,003 3,663
Corporate......................... (2,199) (2,724) (4,294) (2,113) (2,916)
------- ------- ------- ------- -------
$ 1,160 $ 6,261 $11,778 $ 5,605 $ 9,799
======= ======= ======= ======= =======
Capital expenditures
Water Transmission................ $ 2,994 $ 1,300 $ 1,194 $ 506 $ 903
Tubular Products.................. 1,139 267 1,242 210 435
Corporate......................... 84 100 120 63 60
------- ------- ------- ------- -------
$ 4,217 $ 1,667 $ 2,556 $ 779 $ 1,398
======= ======= ======= ======= =======
Depreciation and amortization
expense
Water Transmission................ $ 900 $ 987 $ 1,020 $ 485 $ 578
Tubular Products.................. 200 238 242 129 210
Corporate......................... 70 77 100 40 44
------- ------- ------- ------- -------
$ 1,170 $ 1,302 $ 1,362 $ 654 $ 832
======= ======= ======= ======= =======
</TABLE>
During 1995, 1994 and 1993, sales to one customer represented 12%, 11% and
14% of total sales, respectively.
F-19
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Thompson Pipe and Steel Company and subsidiary:
We have audited the accompanying consolidated balance sheets of Thompson
Pipe and Steel Company and subsidiary 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 and subsidiary 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.
/s/ COOPERS & LYBRAND L.L.P.
----------------------------------
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-20
<PAGE> 65
THOMPSON PIPE AND STEEL COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,323 $ 68 $ 903
Accounts receivable, less allowance for doubtful
accounts of $178, $99 and $104 for May 1996,
December 1995 and December 1994, respectively.... 7,134 10,077 7,724
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... 2,967 4,369 4,582
Inventories......................................... 1,940 3,475 5,590
Deferred income taxes............................... 987
Prepaid expenses and other assets................... 18 204 320
Net investment in sales-type leases................. 135 135 114
--------- -------- --------
Total current assets........................ 13,517 18,328 20,220
Net investment in sales-type leases, non-current...... 142 201 334
Property, plant and equipment, net.................... 5,527 5,346 13,962
Property, plant and equipment, net (held for sale).... 4,089 7,260
Other assets.......................................... 30 449 593
--------- -------- --------
Total assets................................ $ 23,305 $ 31,584 $ 35,109
========= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................... $ 3,057 $ 6,084 $ 4,198
Taxes payable....................................... 25 24 436
Accrued payroll and other accrued liabilities....... 4,485 3,003 1,201
Due to parent and affiliated liabilities............ 4,800 3,589 1,668
Current maturities of long-term debt and capital
lease obligations................................ 767 889 768
--------- -------- --------
Total current liabilities................... 13,134 13,589 8,271
Long-term debt, net of current maturities............. 6,110 13,920 12,841
Capital lease obligations, net of current
maturities.......................................... 1,600 1,800 2,039
Due to parent......................................... 837
Deferred income taxes................................. 433
--------- -------- --------
Total liabilities........................... 20,844 29,309 24,421
--------- -------- --------
Commitments and contingencies (Note 9)
Stockholder's equity:
Common stock, $.029 par value; 37,083 shares
authorized, 34,699 issued and outstanding........ 1 1 1
Additional paid-in capital............................ 14,767 8,000 8,000
Retained earnings (deficit)........................... (12,214) (5,585) 2,735
Additional minimum pension liability.................. (93) (141) (48)
-------- -------- --------
Total stockholder's equity.................. 2,461 2,275 10,688
--------- -------- --------
Total liabilities and stockholder's
equity.................................... $ 23,305 $ 31,584 $ 35,109
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 66
THOMPSON PIPE AND STEEL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED FOR THE YEAR ENDED
----------------- ------------------------------------------
MAY 31, MAY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------- ------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ $10,852 $14,805 $ 37,557 $ 40,368 $ 52,309
Cost of sales............................ 13,463 14,175 36,419 36,262 49,586
------- ------- -------- -------- --------
Gross profit........................ (2,611) 630 1,138 4,106 2,723
Selling, general and administrative
expenses............................... 2,640 1,921 4,240 4,558 5,231
Loss on closure of Kentucky plant........ 263 3,142
Restructuring costs...................... 223
Consulting fees.......................... 300
------- ------- -------- -------- --------
Loss from operations..................... (5,514) (1,291) (6,244) (975) (2,508)
Interest expense......................... (1,070) (839) (2,080) (1,920) (1,371)
Other income (expense)................... (17) 4 277 151 (43)
------- ------- -------- -------- --------
Loss before income tax (expense)
benefit................................ (6,567) (2,126) (8,047) (2,744) (3,922)
Income tax (expense) benefit............. 14 732 (274) 874 1,300
------- ------- -------- -------- --------
Net loss................................. $(6,581) $(1,394) $ (8,321) $ (1,870) $ (2,622)
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 67
THOMPSON PIPE AND STEEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED FOR THE YEAR ENDED
----------------- ------------------------------------------
MAY 31, MAY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
------- ------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(6,581) $(1,394) $ (8,321) $ (1,870) $ (2,622)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Deferred income taxes.............................. (732) 554 (892) (1,443)
Depreciation and amortization...................... 740 685 1,638 1,497 1,419
Gain on sale of property, plant and equipment...... (714)
Write-down on equipment............................ 1,034 992
Write-off of deferred facility charges and debt
costs............................................ (123) 454
Write-down of inventory............................ 38 242
Claim settlement................................... 616 167
Other.............................................. (35) 20
Changes in assets and liabilities:
Decrease (increase) in accounts receivable........... 2,943 (632) (2,349) 4,838 (4,146)
Decrease (increase) in costs and estimated earnings
in excess of billings on uncompleted contracts..... 1,402 113 213 (3,993) 1,931
Decrease (increase) in inventories................... 1,497 (455) 1,874 (273) 4,453
Decrease (increase) in investment in sales-type
leases............................................. 59 (89) 113 102 (194)
Decrease (increase) in prepaid expenses and other
assets............................................. 443 (314) 210 (52) 58
Increase (decrease) in accounts payable.............. (3,027) 2,243 1,886 1,162 (4,071)
Increase (decrease) in accrued payroll, accrued
liabilities, and pension........................... 866 (500) 1,709 (305) 456
Increase (decrease) in taxes payable................. 1 (18) (412) (75) 134
Changes in advances due to/due from parent and
affiliated companies............................... 4,978 300 828 2,121 839
------ ------ ------- -------- -------
Net cash provided by (used in) operating
activities......................................... 4,172 (793) (202) 2,225 (3,166)
------ ------ ------- -------- -------
Cash flows from investing activities:
Additions to property, plant and equipment........... (291) (768) (991) (1,356) (1,165)
Proceeds from sale of equipment...................... 2,628
------ ------ ------- -------- -------
Net cash provided by (used in) investing
activities......................................... 2,337 (768) (991) (1,356) (1,165)
Cash flows from financing activities:
Repayments of bank line of credit.................... (2,389) (4,113) (2,675)
Proceeds from bank line of credit.................... 974 8,470 1,700 8,184
Principal payments on long-term debt and capital
lease.............................................. (2,743) (148) (7,676) (874) (868)
Proceeds from parent subordinate debt................ 3,000
Financing costs paid................................. (122) (144) (693)
Due to affiliates.................................... 117 257
------- ------ -------- -------- -------
Net cash provided by (used in) financing
activities......................................... (5,254) 799 358 (287) 4,641
------ ------ -------- -------- -------
Net increase (decrease) in cash........................ 1,255 (762) (835) 582 310
Cash and cash equivalents, beginning of year........... 68 903 903 321 11
------ ------ -------- -------- -------
Cash and cash equivalents, end of year................. $1,323 $ 141 $ 68 $ 903 $ 321
====== ====== ======== ======== =======
Supplemental disclosure of cash flow information
Interest paid........................................ $ 429 $ 431 $ 1,410 $ 902 $ 1,233
====== ====== ======== ======== =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1996, a $3.0 million subordinated note payable to an affiliate and $3.8
million due to parent were contributed to capital. 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 financial
statements.
F-23
<PAGE> 68
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MAY 31, 1996 AND FOR THE FIVE MONTHS
ENDED MAY 31, 1996 AND 1995 IS UNAUDITED)
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.
On May 31, 1996, all of the issued and outstanding capital stock of the
Company was acquired by Northwest Pipe Company, a manufacturer of steel pipe
based in Portland, Oregon.
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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment held for use are stated at cost. Property,
plant and equipment held for sale is stated at the lesser of cost or estimated
realizable value. Depreciation is computed using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Land improvements...................................................... 20 years
Buildings.............................................................. 10-20 years
Machinery, equipment and furniture..................................... 5-20 years
</TABLE>
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 stated 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
F-24
<PAGE> 69
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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.
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 COSTS
Restructuring costs principally consist of severance expenses incurred
during the Company's downsizing in 1994 and the closure of the Kentucky
manufacturing facility in 1995.
INTERIM FINANCIAL STATEMENTS
The financial statements as of May 31, 1996 and for the five months ended
May 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-25
<PAGE> 70
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<S> <C>
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
==========
</TABLE>
Property, plant and equipment held for sale including buildings and
equipment under capital lease were comprised of the following:
<TABLE>
<CAPTION>
MAY 31, 1996 DECEMBER 31, 1995
------------ -----------------
<S> <C> <C>
Land and building...................................... $3,210,653 $ 3,210,653
Equipment.............................................. 2,229,070 6,351,175
---------- ----------
5,439,723 9,561,828
Accumulated depreciation............................... 1,351,217 2,301,753
---------- ----------
$4,088,506 $ 7,260,075
========== ==========
</TABLE>
3. COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS:
Costs and billings on uncompleted contracts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, ---------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Costs and estimated earnings on uncompleted
contracts................................. $14,650,842 $29,604,198 $21,539,908
Billings on uncompleted contracts........... 11,683,414 25,333,670 16,984,870
----------- ----------- -----------
$ 2,967,428 $ 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...... $ 2,967,428 $ 4,368,941 $ 4,582,241
Other accrued liabilities (billings in
excess of costs and estimated
earnings).............................. 98,413 27,203
----------- ----------- -----------
$ 2,967,428 $ 4,270,528 $ 4,555,038
=========== =========== ===========
</TABLE>
F-26
<PAGE> 71
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVENTORIES:
Major components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, -------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Available for production:......................
Raw materials................................ $1,630,394 $2,611,953 $4,387,849
Work-in-progress............................. 149,409 287,195 920,786
Finished goods............................... 281,693
---------- ---------- ----------
1,799,803 2,899,148 5,590,328
Finished goods -- propane tanks held for sale
in Kentucky.................................. 149,978 48,127
Component parts held in Kentucky............... 10,400 21,712
In transit to third-party propane tank
manufacturer in Mexico....................... 505,612
---------- ---------- ----------
$1,940,181 $3,474,599 $5,590,328
========== ========== ==========
</TABLE>
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 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, ---------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Land and land improvements.................. $ 1,321,234 $ 1,321,234 $ 1,709,267
Buildings................................... 3,436,922 3,436,922 6,780,040
Machinery, equipment and furniture.......... 8,943,925 8,844,023 15,163,082
----------- ----------- -----------
Total cost........................ 13,702,081 13,602,179 23,652,389
Accumulated depreciation.................... (8,174,986) (8,255,819) (9,690,835)
----------- ----------- -----------
Property, plant and equipment, net.......... $ 5,527,095 $ 5,346,360 $13,961,554
=========== =========== ===========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, ---------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revolving line of credit (see Note 7)....... $ 6,080,912 $ 8,470,404 $ 6,831,000
Caldwell County, Kentucky, Industrial
Revenue Bonds (see Note 8)................ 500,000 3,000,000 3,600,000
Promissory notes, payable in installments
through 1997.............................. 79,167 100,000 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
----------- ----------- -----------
6,660,079 14,570,404 13,458,869
Less current maturities..................... 550,000 650,000 617,532
----------- ----------- -----------
$ 6,110,079 $13,920,404 $12,841,337
=========== =========== ===========
</TABLE>
F-27
<PAGE> 72
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT, CONTINUED:
Annual maturities of long-term debt for the five years ending December 31,
are as follows:
<TABLE>
<S> <C>
1996.................................................................... $ 650,000
1997.................................................................... 9,120,404
1998.................................................................... 600,000
1999.................................................................... 600,000
2000.................................................................... 3,600,000
-----------
$14,570,404
===========
</TABLE>
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:
The Company had a $12,700,000 line of credit of which $8,470,404 and
$6,080,912 were outstanding at December 31, 1995 and May 31, 1996, respectively.
Borrowings under the line of credit accrue interest at the prime rate, plus 2.0%
(prime rate was 8.5% and 8.25% at December 31, 1995 and May 31, 1996,
respectively) 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.
8. INDUSTRIAL REVENUE BONDS:
The Company financed the acquisition of facilities for Thompson Steel Pipe
Company with Industrial Revenue Bonds (the "Caldwell 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
F-28
<PAGE> 73
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INDUSTRIAL REVENUE BONDS, CONTINUED:
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 accounts 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.
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 for years ending December 31, under the capital lease used to acquire
the Thompson Steel Pipe Company facility and to finance certain computer
equipment are as follows:
<TABLE>
<S> <C>
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
==========
</TABLE>
F-29
<PAGE> 74
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASE COMMITMENTS, CONTINUED:
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 for the years ending December 31, are
as follows:
<TABLE>
<S> <C>
1996...................................................................... $455,000
1997...................................................................... 350,000
1998...................................................................... 207,000
1999...................................................................... 192,000
2000...................................................................... 1,000
</TABLE>
Total rent expense for all operating leases amounted to approximately
$543,000, $523,000 and $294,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
10. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 31, ---------------------------------------
1996 1995 1994 1993
------- --------- --------- -----------
<S> <C> <C> <C> <C>
Current............................... $14,000 $(280,253) $ 18,000 $ 111,254
Deferred.............................. 553,852 (892,313) (1,411,254)
------- --------- --------- -----------
$14,000 $ 273,599 $(874,313) $(1,300,000)
======= ========= ========= ===========
</TABLE>
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) carryforwards,
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 carryforwards 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 minimum pension liability at December 31, 1995 and 1994 of $140,878
and $47,482, net of income tax of $86,000 and $28,705, respectively. This
additional minimum liability has been recorded as a separate component of
stockholder's equity.
F-30
<PAGE> 75
THOMPSON PIPE AND STEEL COMPANY
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:
<TABLE>
<CAPTION>
1995
-------------------------
UNION
RETIREMENT PENSION
PLAN PLAN
---------- ----------
<S> <C> <C>
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
</TABLE>
F-31
<PAGE> 76
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSION PLANS, CONTINUED:
<TABLE>
<CAPTION>
1994
------------------------
UNION
RETIREMENT PENSION
PLAN PLAN
---------- ---------
<S> <C> <C>
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
</TABLE>
F-32
<PAGE> 77
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSION PLANS, CONTINUED:
<TABLE>
<CAPTION>
1993
-----------------------
UNION
RETIREMENT PENSION
PLAN PLAN
---------- --------
<S> <C> <C>
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
</TABLE>
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.
F-33
<PAGE> 78
THOMPSON PIPE AND STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS, CONTINUED:
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 borrowings 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-34
<PAGE> 79
NORTHWEST PIPE COMPANY
THOMPSON PIPE AND STEEL COMPANY
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
Northwest Pipe Company acquired all of the issued and outstanding capital
stock of Thompson Pipe and Steel Company headquartered in Denver, Colorado on
May 31, 1996. The acquisition was financed by bank borrowings and cash on hand.
The acquisition was accounted for using the purchase method of accounting. The
unaudited pro forma combined statements of operations for the year ended
December 31, 1995 and the six months ended June 30, 1996 were prepared as if the
acquisition had occurred at the beginning of the respective periods.
In the opinion of management of Northwest Pipe Company, all adjustments
necessary to present fairly such pro forma combined statements of operations
have been made based on the terms and structure of the transaction. These
unaudited combined statements of operations are not necessarily indicative of
what actual
results would have been had the transactions occurred at the beginning of the
respective periods nor do they purport to indicate the results of future
operations of the Company.
These unaudited pro forma combined statements of operations should be read
in conjunction with the accompanying notes and the historical financial
statements and notes thereto of Northwest Pipe Company and Thompson Pipe and
Steel Company, included elsewhere in this Prospectus.
F-35
<PAGE> 80
NORTHWEST PIPE COMPANY
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
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)(2a) 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............................. 9,743 (5,441) 25 4,327
Interest expense............................. 683 1,123 105(2b) 1,911
Interest expense to related parties.......... 116 116
-------- ------- ------ --------
Income (loss) before income taxes............ 8,944 (6,564) (80) 2,300
Provision for (benefit from) income taxes.... 3,578 15 (2,707)(2c) 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......... 5,527 5,527
======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
statement.
F-36
<PAGE> 81
NORTHWEST PIPE COMPANY
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THOMPSON NORTHWEST
NORTHWEST PIPE AND PIPE
PIPE STEEL COMPANY
COMPANY COMPANY ADJUSTMENTS PRO FORMA
---------- --------- ------------ ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................................... $ 97,715 $37,557 $135,272
Cost of Sales................................ 78,139 36,419 $ (88)(2a) 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(2b) 5,232
Interest expense to related parties.......... 609 609
-------- ------- ------ --------
Income (loss) before income taxes............ 8,330 (8,047) (225) 58
Provision for (benefit from) income taxes.... 3,223 274 (3,485)(2c) 12
-------- ------- ------ --------
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.
F-37
<PAGE> 82
NORTHWEST PIPE COMPANY
FOOTNOTES TO PRO FORMA COMBINED 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 the beginning of each of the
respective reporting periods.
2. PRO FORMA ADJUSTMENTS
(a) To record the decrease in depreciation expense related to the
adjustment of fixed assets to the estimated fair value at 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:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1996 1995
-------------- ------------
<S> <C> <C>
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)
======== ========
</TABLE>
F-38
<PAGE> 83
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OR ANY OFFER TO BUY, COMMON
STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Dividend Policy....................... 13
Price Range of Common Stock........... 13
Capitalization........................ 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 22
Management............................ 31
Certain Transactions.................. 37
Principal and Selling Shareholders.... 38
Description of Capital Stock.......... 39
Shares Eligible for Future Sale....... 41
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,400,000 SHARES
(NORTHWEST PIPE LOGO)
COMMON STOCK
------------------------
PROSPECTUS
, 1996
------------------------
HANIFEN, IMHOFF INC.
STEPHENS INC.
JENSEN SECURITIES CO.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, expected to be incurred by the
Registrant in connection with the offering described in this Registration
Statement. All amounts, except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee are estimates.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 16,360
NASD Filing Fee................................................... 5,899
NASDAQ Listing Fee................................................ 17,500
Printing and Engraving Expenses................................... 75,000
Accounting Fees and Expenses...................................... 50,000
Directors and Officers Insurance.................................. 60,000
Legal Fees and Expenses........................................... 75,000
Blue Sky Fees and Expenses (including fees of Counsel)............ 10,000
Transfer Agent and Registrar Fees................................. 10,000
Miscellaneous Expenses............................................ 80,141
------
Total................................................... $400,000
======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As an Oregon corporation the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to Section 60.047(2)(d) of the OBCA,
Article IV of the Company's Restated Articles of Incorporation (the "Articles")
eliminates the liability of the Company's directors to the Company or its
stockholders, except for any liability related to breach of the duty of loyalty,
actions not in good faith and certain other liabilities.
Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims. Corporations may not indemnify against
breaches of the duty of loyalty. The OBCA provides for mandatory indemnification
of directors against all reasonable expenses incurred in the successful defense
of any claim made or threatened whether or not such claim was by or in the right
of the corporation. Finally, a court may order indemnification if it determines
that the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances whether or not the
director or officer met the good faith and reasonable belief standards of
conduct set out in the statute.
The OBCA also provides that the statutory indemnification provisions are
not deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
stockholders or otherwise.
The Articles require the Company to indemnify its directors and officers to
the fullest extent not prohibited by law. The First Restated Bylaws of the
Company (the "Bylaws") also require the Company to indemnify its directors and
officers to the fullest extent permitted by the OBCA. In addition, the Bylaws
deem that all rights to indemnification under the Bylaws are deemed to be
contractual rights and are to be effective to the same extent as if provided for
in a contract between the Company and the director or officer who serves in such
capacity.
II-1
<PAGE> 85
Effective as of August 8, 1995, the Company entered into indemnity
agreements with each executive officer of the Company and each member of the
Company's Board of Directors. These indemnity agreements provide for
indemnification of the indemnitee to the fullest extent allowed by law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the last three years, the Company has sold securities without
registration under the Securities Act of 1933, as amended (the "Act") in the
transactions described below.
On April 29, 1994, the company issued and sold $1,500,000 in aggregate
principal amount of Series C Convertible Subordinated Debentures to Interven II,
L.P., Interven Ventures 1987, Norwest Growth Fund, Inc., Poppers Supply Company,
James R. Moore, George R. Francis, Arthur D. Johnson, Trustee, W.H. Kilkenny
Company, William H. Kinsey, Virgil C. Vandenburg, William R. Tagmyer, Brian W.
Dunham, Gary A. Stokes and Charles L. Koenig. The Company believes that each of
the purchasers was an "accredited investor" within the meaning of Rule 501 under
Regulation D of the Act and that the offer and sale of the securities was exempt
from registration under Regulation D and Section 4(2) of the Act.
In December 1995, upon the consummation of the Company's initial public
offering, the Company's then outstanding Series B and Series C Convertible
Subordinated Debentures were automatically converted into 2,629,296 shares of
Common Stock. The Company believes that each of the holders of the Series B and
Series C Convertible Subordinated Debentures was an "accredited investor" within
the meaning of Rule 501 under Regulation D of the Act and that the issuance of
Common Stock upon conversion of such Debentures was exempt from registration
under Regulation O and Section 4(2) of the Act.
Within the last three years, the Company has issued options to purchase an
aggregate of 210,184 shares of Common Stock and has sold an aggregate of 36,764
shares of Common Stock for an aggregate purchase price of $40,881, in each case
pursuant to the Company's stock option plans and in reliance on Rule 701
promulgated under the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
1.0 Form of Underwriting Agreement++
3.1 Second Restated Articles of Incorporation Northwest Pipe Company*
3.2 Second Amended and Restated Bylaws of Northwest Pipe Company*
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt as to the legality of the securities
being registered
10.1 Form of Indemnity Agreement between Northwest Pipe Company and each of its executive
officers and directors*
10.2 1986 Incentive Stock Option Plan*
10.3 1995 Stock Incentive Plan*
10.4 1995 Stock Option Plan for Nonemployee Directors*
10.5 Lease Agreement between Northwest Pipe & Casing Company and Multnomah Land &
Equipment Company, as amended*
10.6 Registration Rights Agreement*
10.7 Loan Agreement dated May 1, 1990 between the Company and California Statewide
Communities Development Authority*
10.8 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.+
10.9 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.+
</TABLE>
II-2
<PAGE> 86
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
11.0 Computation of Net Income Per Share
24.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal opinion filed
as Exhibit 5.0)
24.2 Consent of Coopers & Lybrand L.L.P.
24.3 Consent of Environmental Strategies Corporation
24.4 Consent of Coopers & Lybrand L.L.P.
25.0 Powers of Attorney (included on page II-4)
</TABLE>
(b) Financial Statement Schedules
Schedule VIII -- Valuation and Qualifying Accounts
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 33-97308).
+ Incorporated by reference to the Company's Report on Form 8-K as filed with
the Commission on June 14, 1996.
++ To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on the 30th day of September, 1996.
NORTHWEST PIPE COMPANY
By: /s/ WILLIAM R. TAGMYER
------------------------------
William R. Tagmyer
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William R. Tagmyer and Brian W. Dunham and each
of them singly, as true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all amendments to said Registration Statement (including post-effective
amendments and new registration statements pursuant to Rule 462 or otherwise),
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents and full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
foregoing, as full to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his substitute, may lawfully do or cause to be done by
virtue hereof.
Witness our hands on the date set forth below.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been duly signed by the following persons in
the capacities indicated on September 30, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ------------------------------
<S> <C>
/s/ WILLIAM R. TAGMYER Chairman of the Board,
- ------------------------------------------ President and Chief Executive
William R. Tagmyer Officer (Principal Executive
Officer)
/s/ BRIAN W. DUNHAM Director, Executive Vice
- ------------------------------------------ President and Chief Financial
Brian W. Dunham Officer (Principal Financial
Officer)
/s/ WAYNE B. KINGSLEY Director
- ------------------------------------------
Wayne B. Kingsley
/s/ VERN B. RYLES, JR. Director
- ------------------------------------------
Vern B. Ryles, Jr.
/s/ WARREN K. KEARNS Director
- ------------------------------------------
Warren K. Kearns
/s/ NEIL R. THORNTON Director
- ------------------------------------------
Neil R. Thornton
</TABLE>
II-4
<PAGE> 88
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the financial statements of Northwest Pipe
Company as of December 31, 1995 and 1994 and for each of the three years in the
period ended December 31, 1995, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule included on
page S-2 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
February 13, 1996
Portland, Oregon
S-1
<PAGE> 89
SCHEDULE II
NORTHWEST PIPE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
TO
BALANCE AT PROFIT DEDUCTIONS BALANCE AT
BEGINNING AND FROM CLOSE
OF PERIOD LOSS RESERVES OF PERIOD
---------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Reserve deducted in balance sheet from the asset
to which it applies --
Allowance for doubtful trade receivables........ $571 $ 427 $131 $867
==== ===== ==== ====
Year ended December 31, 1994:
Reserve deducted in balance sheet from the asset
to which it applies --
Allowance for doubtful receivables.............. $536 $ 35 $ -- $571
==== ===== ==== ====
Year ended December 31, 1993:
Reserve deducted in balance sheet from the asset
to which it applies --
Allowance for doubtful receivables.............. $887 $(286) $ 65 $536
==== ===== ==== ====
</TABLE>
S-2
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- ------------------------------------------------------------------- ------------
<C> <S> <C>
1.0 Form of Underwriting Agreement++
3.1 Second Restated Articles of Incorporation Northwest Pipe Company*
3.2 Second Amended and Restated Bylaws of Northwest Pipe Company*
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt as to the legality
of the securities being registered
10.1 Form of Indemnity Agreement between Northwest Pipe Company and each
of its executive officers and directors*
10.2 1986 Incentive Stock Option Plan*
10.3 1995 Stock Incentive Plan*
10.4 1995 Stock Option Plan for Nonemployee Directors*
10.5 Lease Agreement between Northwest Pipe & Casing Company and
Multnomah Land & Equipment Company, as amended*
10.6 Registration Rights Agreement*
10.7 Loan Agreement dated May 1, 1990 between the Company and California
Statewide Communities Development Authority*
10.8 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.+
10.9 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.+
11.0 Computation of Net Income Per Share
24.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in
legal opinion filed as Exhibit 5.0)
24.2 Consent of Coopers & Lybrand L.L.P.
24.3 Consent of Environmental Strategies Corporation
24.4 Consent of Coopers & Lybrand L.L.P.
25.0 Powers of Attorney (included on page II-4)
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement on Form S-1
(Registration No. 33-97308).
+ Incorporated by reference to the Company's Report on Form 8-K (as filed with
the Commission on June 14, 1996).
++ To be filed by Amendment.
<PAGE> 1
EXHIBIT 5.0
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
222 S.W. Columbia, Suite 1800
Portland, Oregon 97201
(503) 226-1191 (Phone)
(503) 226-0079 (Fax)
September 30, 1996
Board of Directors
Northwest Pipe Company
12005 N. Burgard
Portland, OR 97203
In connection with the public offering of up to 2,760,000 shares of
common stock, par value $0.01 per share (the "Common Stock"), of Northwest Pipe
Company, an Oregon corporation (the "Company"), under the Registration
Statement on Form S-1 (the "Registration Statement") and the proposed sale of
the Common Stock pursuant to the terms of an underwriting agreement (the
"Underwriting Agreement") to be entered into by and among the Company, the
Selling Shareholders, and Hanifen, Imhoff Inc., Stephens Inc. and Jensen
Securities Co. as representatives of the several underwriters, we have examined
such corporate records, certificates of public officials and officers of the
Company and other documents as we have considered necessary or proper for the
purpose of this opinion.
Based on the foregoing and having regard to legal issues which we deem
relevant, it is our opinion that the shares of Common Stock to be sold
pursuant to the Underwriting Agreement, when such shares have been delivered
against payment therefor as contemplated by the Underwriting Agreement, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-mentioned Registration Statement and to the reference to this firm under
the caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required to be filed pursuant to
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations thereunder.
Very truly yours,
/s/ ATER WYNNE HEWITT DODSON & SKERRITT, LLP
--------------------------------------------
ATER WYNNE HEWITT DODSON & SKERRITT, LLP
<PAGE> 1
EXHIBIT 11.0
NORTHWEST PIPE COMPANY
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net income as reported........................ $ 263 $2,161 $5,107 $2,393 $5,368
Reduction in interest as a result of
conversion of the Series B and Series C
Convertible Subordinated Debentures, net of
tax......................................... 58 136 178 90
------ ------ ------ ------ ------
Net income.................................... $ 321 $2,297 $5,285 $2,483 $5,368
====== ====== ====== ====== ======
Earnings per share
Income (loss) before cumulative effect of
accounting change........................ $(0.27) $ 0.65 $ 1.43 $ 0.71 $ 0.97
Cumulative effect of accounting change........ 0.43
------ ------ ------ ------ ------
Earnings per share............................ $ 0.16 $ 0.65 $ 1.43 $ 0.71 $ 0.97
====== ====== ====== ====== ======
Weighted average shares outstanding:
Common stock................................ 698 698 836 698 5,263
Common stock issuable upon exercise of stock
options.................................. 120 199 230 157 264
Conversion of Series B and Series C
Convertible Subordinated Debentures...... 1,133 2,629 2,269 2,629
------ ------ ------ ------ ------
Shares used in per share calculations......... 1,951 3,526 3,695 3,484 5,527
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 24.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our reports, dated February 13, 1996, on our audits of the financial statements
and financial statement schedule of Northwest Pipe Company. Such report on the
financial statements includes an emphasis of matter concerning a claim by the
United States Environmental Protection Agency and an explanatory paragraph with
respect to a change in method of accounting for income taxes in 1993. We also
consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
September 30, 1996
<PAGE> 1
EXHIBIT 24.3
[ESC LOGO]
ENVIRONMENTAL STRATEGIES CORPORATION
11911 Freedom Drive Reston, Virginia 20190 (703) 709-6500 Fax (703) 709-9505
September 27, 1996
Board of Directors
Northwest Pipe Company
12005 N. Burgard
Portland, OR 92203
Gentlemen:
We hereby consent to the filing of this consent as an exhibit to the
Registration Statement on Form S-1 (the "Registration Statement") of Northwest
Pipe Company (the "Company") in connection with the proposed public offering of
2,400,000 shares of the Company's Common Stock. We also hereby consent to the
reference to this firm under the captions "Risk Factors -- Superfund Site" and
"Business -- Environmental Matters" and the inclusion of the information
therein indicated as having been provided by this firm.
Sincerely yours,
/s/ JOHN A. SIMON
- -----------------------
John A. Simon
Vice President
<PAGE> 1
EXHIBIT 24.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report, dated February 25, 1996, except for Notes 7 and 8, as to which the
date is March 14, 1996, on our audits of the consolidated financial statements
of Thompson Pipe and Steel Company and subsidiary. We also consent to the
reference to our firm under the captions "Selected Financial Data" and
"Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
September 30, 1996
