<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
MARCH 6, 1998
Date of Report (Date of earliest event reported)
NORTHWEST PIPE COMPANY
(Exact name of registrant as specified in its charter)
OREGON 0-27140 93-0557988
(State or other (Commission File (IRS Employer
jurisdiction Number) Identification No.)
of incorporation)
12005 N. BURGARD (503)285-1400
PORTLAND, OREGON 97203
(Address of principal executive offices) (Registrant's telephone number,
including area code)
<PAGE>
NORTHWEST PIPE COMPANY
FORM 8-K/A
INDEX
<TABLE>
<CAPTION>
Item Description Page
---- ----------- ----
<S> <C> <C>
2 Acquisition or Disposition of 3
Assets
7 Financial Statements and 3
Exhibits
</TABLE>
2
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 6, 1998, Northwest Pipe Company (the "Company") purchased all of
the outstanding capital stock of Southwestern Pipe, Inc., a Texas corporation
("Southwestern") and P&H Tube Corporation, a Texas corporation ("P&H Tube")
(Southwestern and P&H Tube are referred to herein together as the "SP
Companies"), from Lewis Family Investments Partnership, Ltd., Philip C.
Lewis, Hosea E. Henderson, Don S. Brzowski, William H. Cottle, Barry J.
Debroeck, Horace M. Jordan and William B. Stuessy. The Company paid a
purchase price of $40,148,220 in cash, which is subject to a post-closing
adjustment based upon changes in the SP Companies' working capital from
February 28, 1998 to the closing date and the amount of indebtedness of the
SP Companies at the closing date. The purchase price was determined through
arms length negotiations. The Company funded the purchase price through
borrowings under its line of credit agreement with Bank of America National
Trust and Savings Association.
The principal business of the SP Companies is the manufacture and sale of
structural and mechanical tubing products. Southwestern owns and operates a
manufacturing facility in Houston, Texas. P&H Tube owns and operates a
manufacturing facility in Bossier City, Louisiana. The Company will continue
to use the plant, equipment and other property acquired for the same purpose,
and will operate each of the SP Companies as a separate wholly-owned
subsidiary of the Company. The Company retained all employees of each of the
SP Companies.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Companies Acquired -- See pages F-1 through F-24
(b) Pro Forma Financial Statements -- See pages PF-1 through PF-5
(c) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
2.1 Stock Purchase Agreement dated March 6, 1998, by and among Northwest
Pipe Company, Southwestern Pipe, Inc., P&H Tube Corporation, Lewis
Family Investments Partnership, Ltd., Philip C. Lewis, Hosea E.
Hederson, Don S. Brzowski, William H. Cottle, Barry J. Debroeck,
Horace M. Jordan and William B. Stuessy (the "Stock Purchase
Agreement") (certain schedules to the Agreement and its exhibits are
omitted). Incorporated by reference to Exhibit 2.1 to the Company's
Report on Form 8-K filed with the Securities and Exchange Commission
on March 20, 1998.
</TABLE>
3
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 1998
NORTHWEST PIPE COMPANY
By: /s/ BRIAN W. DUNHAM
------------------------
Brian W. Dunham, President
4
<PAGE>
SOUTHWESTERN PIPE, INC. AND
P&H TUBE CORPORATION
REPORT ON AUDIT OF COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Southwestern Pipe, Inc. and P&H Tube Corporation
We have audited the combined balance sheet of Southwestern Pipe, Inc. and P&H
Tube Corporation (the Company) as of February 28, 1998 and the related
combined statements of income, changes in stockholders' equity and cash flows
for the period from September 30, 1997 to February 28, 1998. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Southwestern Pipe,
Inc. and P&H Tube Corporation as of February 28, 1998, and the results of
their combined operations and their cash flows for the period from September
30, 1997 to February 28, 1998 in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Portland, Oregon
April 10, 1998
F-2
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
COMBINED BALANCE SHEET
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 634,617
Accounts receivable, less allowance for doubtful accounts
of $80,000 4,354,513
Inventories 6,371,565
Prepaid expenses and other current assets 37,001
Deferred income taxes 138,600
----------
Total current assets 11,536,296
Property, plant and equipment, net 5,170,053
----------
Total $16,706,349
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,354,929
Accrued liabilities 849,605
Revolving line of credit 1,229,778
Revolving term loan 2,799,600
----------
Total current liabilities 7,233,912
Deferred income taxes 52,600
----------
Total liabilities 7,286,512
----------
Commitments (Note 8)
Stockholders' equity:
Common stock 3,745
Additional paid-in capital 7,619,786
Retained earnings 1,796,306
----------
----------
Total stockholders' equity 9,419,837
----------
$ 16,706,349
----------
----------
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
COMBINED STATEMENT OF INCOME
FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998
<TABLE>
<S> <C>
Revenue $13,169,440
Cost of sales 11,088,480
----------
Gross profit 2,080,960
Selling, general and administrative expenses 1,185,831
Interest expense 99,299
----------
Income from operations before income taxes 795,830
Provision for income taxes 291,000
----------
Net income $ 504,830
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.
F-4
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------- --------- --------- ----------
<S> <C> <C> <C> <C>
Balance, September 30, 1997 $3,745 $7,619,786 $1,291,476 $8,915,007
Net income 504,830 504,830
------- --------- --------- ----------
Balance, February 28, 1998 $3,745 $7,619,786 $1,796,306 $9,419,837
------- --------- --------- ----------
Common stock is comprised of:
Southwestern Pipe, Inc., $.01 par value,
1,000,000 shares authorized, 149,800
shares issued and outstanding
P&H Tube Corporation, $.01 par value,
1,000,000 shares authorized, 224,700
shares issued and outstanding
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.
F-5
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 504,830
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 516,247
Deferred income taxes (74,026)
Provision for doubtful accounts 80,000
Changes in operating assets and liabilities:
Accounts receivable 235,883
Inventories 264,855
Prepaid expenses and other current assets (19,090)
Accounts payable and accrued liabilities (860,486)
-----------
Net cash provided by operating activities 648,213
-----------
Cash flows from investing activities:
Additions to property and equipment (30,145)
-----------
Cash flows from financing activities:
Net principal proceeds, revolving line of credit 169,424
Principal repayments, long-term debt (182,400)
-----------
Net cash used in financing activities (12,976)
-----------
Net increase in cash 605,092
Cash, beginning of period 29,525
-----------
Cash, end of period $ 634,617
-----------
-----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 95,935
-----------
Income taxes $ 589,532
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL
STATEMENTS.
F-6
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. THE ENTITIES:
The combined financial statements include the accounts and operations of
Southwestern Pipe, Inc. and P&H Tube Corporation which are under common
control and ownership (collectively referred to as the Entities). All
material intercompany transactions and balances have been eliminated in
combination.
Southwestern Pipe, Inc. (SPI), formerly a division of SPAX Incorporated
(SPAX), is involved in the manufacturing, fabricating, and finishing of
high quality tubular products through its plant in Houston, Texas.
P&H Tube Corporation (P&H), also formerly a division of SPAX, is involved
in the manufacturing, fabricating, and finishing of high quality tubular
products through its plant in Bossier City, Louisiana.
Effective May 1, 1997, SPAX completed a tax-free reorganization of its
divisions into three separate corporate entities, SPI, P&H and SeaCAT
Corporation (SeaCAT), which is a wholly-owned subsidiary of SPAX. The
tax-free reorganization and incorporation of the divisions of SPAX at
May 1, 1997 resulted in the allocation of assets and liabilities from
SPAX to SPI, P&H and SeaCAT. The method of allocation was primarily
based upon specific identification; however, the allocation of the current
and long-term portions of the revolving line of credit was determined in
a manner consistent with the equity ratios of the new entities.
On March 6, 1998, SPI and P&H entered into a Stock Purchase Agreement with
Northwest Pipe Company, a publicly-held company headquartered in Portland,
Oregon, under which Northwest Pipe Company agreed to acquire 100% of the
outstanding stock of the Entities for a purchase price of approximately $40
million, subject to adjustment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. The excess amount of current cost over the stated LIFO value was
$486,434 at February 28, 1998. Cost of sales for the period from September
30, 1997 to February 28, 1998 would have increased by $401,132 if the
first-in, first-out (FIFO) cost method had been used.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives
of the related assets. Maintenance, repairs and minor renewals are
expensed as incurred. Gains or losses resulting from the sale or
retirement of assets are included in income.
F-7
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INCOME TAXES
The Entities record deferred income tax assets and liabilities 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.
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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Entities 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.
During the period from September 30, 1997 to February 28, 1998, sales to
two customers represented 36% of total P&H sales and sales to one customer
represented 11% of total SPI sales.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments are the amounts at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The carrying amounts
reflected in the combined balance sheets for cash and cash equivalents,
trade receivables, other current assets and current liabilities approximate
fair value because of the short maturity for these instruments. The
carrying value approximates the fair value of the Entities' borrowings
under its long-term arrangements based upon interest rates available for
the same or similar loans.
F-8
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME, which establishes requirements for
disclosure of comprehensive income. The objective of SFAS 130 is to report
a measure of all changes in equity that result from transactions and
economic events other than transactions with owners. Comprehensive income
is the total of net income and all other non-owner changes in equity. SFAS
130 is effective for fiscal years beginning after December 15, 1997.
Also in June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION. This Statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected
segment information in their quarterly reports issued to shareholders. It
also requires entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and earns
revenues and its major customers. This Statement is effective for fiscal
years beginning after December 15, 1997.
In February of 1998, the FASB issued SFAS No. 132, EMPLOYERS' DISCLOSURE
ABOUT PENSION AND OTHER POSTRETIREMENT BENEFITS. This statement revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
The statement suggests combined formats for presentation of pension and
other postretirement benefit disclosures. The statement also permits
reduced disclosures for nonpublic entities. This statement is effective
for fiscal years beginning after December 15, 1997.
The Entities' management has studied the implications of SFAS 130, SFAS 131
and SFAS 132 and based on the initial evaluation, expects the adoption to
have no impact on the Entities' financial condition or results of
operations, but will require revised disclosures when the respective
statements become effective.
3. INVENTORY:
<TABLE>
<S> <C>
Raw materials $2,914,041
Slit coil and finished goods 3,943,958
------------
6,857,999
LIFO reserve 486,434
------------
$6,371,565
------------
</TABLE>
F-9
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
4. Property, Plant and Equipment:
<TABLE>
<S> <C>
Buildings and facilities $ 3,758,756
Machinery and equipment 11,996,815
Furniture and fixtures 379,400
Land 594,122
-----------
16,729,093
Less accumulated depreciation 11,559,040
-----------
Property, plant and equipment, net $ 5,170,053
-----------
</TABLE>
5. DEBT:
SPAX has a revolving line of credit and revolving term loan agreement with
Fleet Capital Corporation (Fleet Capital), collateralized by accounts
receivable, inventories and equipment. Upon the reorganization described
in Note 1, the agreement with Fleet Capital was amended to include SPI and
P&H, in addition to SPAX. All three companies are jointly and severally
liable to Fleet Capital for the amounts outstanding under the line of
credit. Subject to the consummation of the Stock Purchase Agreement
discussed in Note 1, the agreement with Fleet Capital was amended to
release the Entities from any further obligation under the agreement.
The total amount due to Fleet Capital by all entities was $9,909,319 at
February 28, 1998. The interest rate defined by the agreement is a choice
of either the London Interbank Offered Rate (5.6% at February 28, 1998)
plus 2% or the lending institution's prime rate (8.5% at February 28, 1998)
plus 0.5%. Interest expense is allocated based upon the outstanding
average debt balance of the respective entity.
On March 9, 1998, the portions of the revolving line of credit and the
revolving term loan which relate to the Entities were paid in full as part
of the agreement entered into with Northwest Pipe Company, as discussed in
Note 1.
The agreement contains restrictive covenants prohibiting or limiting
certain actions of SPAX, SPI and P&H, including payment of cash dividends,
capital expenditures, investments and incurrences of debt, and requires
certain actions of the entities, including the maintenance of specified
levels of profitability and tangible net worth, as defined. At February
28, 1998, the entities were not in compliance with the restrictive covenant
related to capital expenditures. The lender has waived compliance with
this covenant.
F-10
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<S> <C>
Current:
Federal $326,299
State 38,727
---------
365,026
Deferred (74,026)
---------
$291,000
---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable $ 27,200
Inventories 28,500
Accrued employee benefits 82,900
---------
Total deferred tax assets 138,600
Deferred tax liabilities:
Property, plant and equipment (52,600)
---------
Net deferred tax assets $ 86,000
---------
</TABLE>
No valuation allowance has been established for deferred tax assets as
management believes it is more likely than not that the deferred tax assets
will be realized.
7. RELATED-PARTY TRANSACTIONS:
SeaCAT provides various general and administrative services to SPI and P&H.
For the period from September 30, 1997 to February 28, 1998, SPI and P&H
were billed $84,000 by SeaCAT for general and administrative services.
Such amounts are settled through the current portion of the revolving line
of credit and are included in net selling, general and administrative
expenses.
F-11
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
8. COMMITMENTS:
SPI leases certain office equipment under the terms of a noncancelable
agreement which expires in 1999. Minimum future lease payments under this
operating lease as of February 28, 1998 are as follows:
<TABLE>
<S> <C>
1998 $ 8,947
1999 8,052
-------
$16,999
-------
-------
</TABLE>
Rent expense for all leases with terms exceeding one year was $10,736 for
the period from September 30, 1997 to February 28, 1998.
F-12
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
COMBINED FINANCIAL STATEMENTS FOR THE PERIOD
FROM MAY 1, 1997 (DATE OF INCEPTION) TO
SEPTEMBER 30, 1997 AND INDEPENDENT AUDITORS'
REPORT
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Southwestern Pipe, Inc. and P&H Tube Corporation:
We have audited the accompanying combined balance sheet of Southwestern
Pipe, Inc. ("SPI") and P&H Tube Corporation ("P&H"), collectively referred
to as the "Companies," both of which were under common ownership and common
management, as of September 30, 1997, and the related combined statements of
income, changes in stockholders' equity and cash flows for the period from
May 1, 1997 (date of inception) to September 30, 1997. These
financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in
all material respects, the combined financial position of the
Companies at September 30, 1997, and the combined results of their
operations and their combined cash flows for the period from May 1, 1997
(date of inception) to September 30, 1997 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Houston, Texas
November 7, 1997
F-14
<PAGE>
SOUTHWESTERN PIPE, INC. AND
P&H TUBE CORPORATION
<TABLE>
<CAPTION>
COMBINED BALANCE SHEET,
SEPTEMBER 30, 1997
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 29,525
Accounts receivable 4,670,396
Inventories 6,636,420
Prepaid expenses and other current assets 89,489
-------------
Total current assets 11,425,830
PROPERTY, PLANT AND EQUIPMENT, Net 5,656,155
-------------
TOTAL $ 17,081,985
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,514,319
Income taxes payable 550,701
Revolving line of credit 1,060,354
Current maturities of long-term debt 439,200
-------------
Total current liabilities 5,564,574
-------------
LONG-TERM DEBT 2,542,800
-------------
DEFERRED INCOME TAXES 59,604
-------------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY:
Common stock: 3,745
SPI - $.01 par value; 1,000,000 shares
authorized; 149,800 shares issued and
outstanding P&H - $.01 par value;
1,000,000 shares authorized;
224,700 shares issued and
outstanding
Additional paid-in capital 7,619,786
Retained earnings 1,291,476
-------------
Total stockholders' equity 8,915,007
-------------
TOTAL $ 17,081,985
-------------
-------------
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
SOUTHWESTERN PIPE, INC. AND
P&H TUBE CORPORATION
<TABLE>
<CAPTION>
COMBINED STATEMENT OF INCOME
FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<S> <C>
REVENUES $ 18,770,942
COST OF SALES 15,022,843
-------------
GROSS PROFIT 3,748,099
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,419,936
INTEREST EXPENSE 174,406
-------------
INCOME FROM OPERATIONS BEFORE INCOME TAXES 2,153,757
PROVISION FOR INCOME TAXES 862,281
-------------
NET INCOME $ 1,291,476
-------------
-------------
</TABLE>
See notes to combined financial statements.
F-16
<PAGE>
SOUTHWESTERN PIPE, INC. AND
P&H TUBE CORPORATION
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------- --------- --------- ----------
<S> <C> <C> <C> <C>
BALANCE, MAY 1, 1997 $3,745 $7,619,786 $7,623,531
Net income $1,291,476 1,291,476
------- --------- --------- ----------
BALANCE, SEPTEMBER 30, 1997 $3,745 $7,619,786 $1,291,476 $8,915,007
------- --------- --------- ----------
------- --------- --------- ----------
</TABLE>
See notes to combined financial statements.
F-17
<PAGE>
SOUTHWESTERN PIPE, INC. AND
P&H TUBE CORPORATION
<TABLE>
<CAPTION>
COMBINED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,291,476
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 510,026
Gain on sale of equipment (1,000)
Deferred income taxes 61,189
Changes in assets and liabilities:
Accounts receivable 401,067
Inventories (732,549)
Prepaid expenses and other current assets (28,764)
Accounts payable and accrued liabilities 456,540
Income taxes payable 550,701
----------
Net cash provided by operating
activities 2,508,686
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 1,000
Capital expenditures (41,154)
Cash received in reorganization 15,025
----------
Net cash used in investing
activities (25,129)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net principal repayments - revolving line of
credit (2,741,532)
Principal repayments - revolving term loan (212,500)
Proceeds received - revolving term loan 500,000
----------
Net cash used in financing
activities (2,454,032)
----------
NET INCREASE IN CASH 29,525
CASH, BEGINNING OF PERIOD
----------
CASH, END OF PERIOD $ 29,525
----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
Cash paid during the period for:
Interest $ 174,406
----------
Income taxes $ 250,391
----------
----------
</TABLE>
See notes to combined financial statements.
F-18
<PAGE>
SOUTHWESTERN PIPE, INC. AND
P&H TUBE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION)
TO SEPTEMBER 30, 1997
1. BACKGROUND
BUSINESS - Southwestern Pipe, Inc. ("SPI") and P&H Tube Corporation ("P&H"),
collectively referred to as the "Companies", were formerly divisions of SPAX
Incorporated ("SPAX"), and are involved in the manufacturing, fabricating
and finishing of high quality tubular products through their plants, which
are located at their corporate headquarters in Houston, Texas (SPI) and in
Bossier City, Louisiana (P&H). Effective May 1, 1997, SPAX completed a tax-
free reorganization of its divisions into three separate corporate entities,
SPI, P&H and SeaCAT Corporation ("SeaCAT"), which is a wholly owned
subsidiary of SPAX.
The tax free reorganization and incorporation of the divisions of SPAX at
May 1, 1997 resulted in the allocation of assets and liabilities from SPAX
to its wholly owned subsidiary, SeaCAT, and to SPI and P&H. The method of
allocation was primarily based upon specific identification; however, the
allocation of the current and long-term portions of the revolving line of
credit was determined in a manner consistent with the equity ratios of the
new entities.
The table on the following page presents the assets, liabilities and
stockholders' equity allocated to SPI and P&H from SPAX at May 1, 1997.
F-19
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION ALLOCATION
TO SPI AT TO P&H AT
DESCRIPTION MAY 1, 1997 MAY 1, 1997 COMBINED
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 6,875 $ 8,150 $ 15,025
Accounts receivable 1,766,721 3,304,742 5,071,463
Inventories 2,060,929 3,842,942 5,903,871
Prepaid expenses and other current assets 34,210 28,100 62,310
------------ ----------- ----------
Total current assets 3,868,735 7,183,934 11,052,669
------------ ----------- ----------
Property, plant and equipment, net 2,669,422 3,455,605 6,125,027
------------ ----------- ----------
Total $6,538,157 $10,639,539 $17,177,696
------------ ----------- ----------
------------ ----------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $1,539,776 $ 1,518,003 $ 3,057,779
Revolving line of credit 1,565,482 2,236,404 3,801,886
Current maturities of long-term debt 210,000 300,000 510,000
------------ ----------- ----------
Total current liabilities 3,315,258 4,054,407 7,369,665
------------ ----------- ----------
Long-term debt 899,500 1,285,000 2,184,500
Stockholders' equity 2,323,399 5,300,132 7,623,531
------------ ----------- ----------
Total $6,538,157 $10,639,539 $17,177,696
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION - The combined financial statements of the
Companies include the accounts of SPI and P&H, both of which were under
common ownership and management at September 30, 1997. All material
intercompany transactions and balances have been eliminated in combination.
INVENTORIES - Inventories are stated at the lower of last-in, first-out
("LIFO") cost or market. The excess amount of current cost over the stated
LIFO value was $887,566 at September 30, 1997. Cost of sales for the period
from May 1, 1997 (date of inception) to September 30, 1997 would have
increased by $773,478 if the first-in, first-out (FIFO) cost method had been
used.
PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION - Property, plant and
equipment is stated at cost. Depreciation is computed principally using the
straight-line method over the estimated useful lives of the related assets.
Maintenance, repairs and minor renewals are expensed as incurred. Gains or
losses resulting from the sale or retirement of assets are included in
income.
INCOME TAXES - The Companies determine income tax expense in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." Deferred income taxes are provided for all significant
differences between the tax basis of an asset or liability and its reported
amount in the financial statements.
F-20
<PAGE>
COMBINED STATEMENT OF CASH FLOWS - The combined statement of cash flows is
prepared using the indirect method. The Companies consider all highly
liquid investments with a maturity of three months or less when purchased to
be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values reflected in the
combined balance sheet of the Companies for cash, accounts receivable and
accounts payable approximated their fair value due to the short-term nature
of such financial instruments. The carrying amount of the Companies' long-
term debt was estimated to approximate its fair value at December 31, 1997
based upon interest rates available for similar issues.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - The Companies' trade
accounts receivable potentially subject them to concentrations of credit
risk. Sales are primarily made across a wide geographic base with a large
number of customers. For the period from May 1, 1997 (date of inception) to
September 30, 1997, sales to one customer represented 11% of total SPI sales
and sales to two customers represented 37% of total P&H sales.
NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 130, "Reporting Comprehensive
Income," was issued in June 1997 and requires disclosure of all non-
stockholder changes in equity during a period.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," was also issued in June 1997 and establishes standards
regarding the manner in which public business enterprises report information
about operating segments in interim and annual financial statements.
Both statements are effective for fiscal years beginning after December 15,
1997. The Companies' management expects that adoption of these statements
will not have an effect on the Companies' combined financial position or
results of operations but will impact future financial statement disclosure.
USE OF ESTIMATES - The preparation of financial statements requires
management to make use of estimates and assumptions that affect amounts
reported in the combined financial statements as well as certain
disclosures. Actual results could differ from these estimates.
3. DEBT
SPAX has a revolving line of credit with Fleet Capital Corporation ("Fleet
Capital"), secured by accounts receivable, inventories and equipment. Upon
the reorganization described in Note 1, the agreement with Fleet Capital for
$15 million, expiring December 31, 2000, was amended to include SPI and P&H
in addition to SPAX. All three companies are jointly and severally liable
to Fleet Capital for the amounts outstanding under the line of credit.
The outstanding debt at May 1, 1997 was assigned to each Company as
discussed in Note 1. Subsequent to the reorganization, changes in debt have
been allocated based upon cash flow needs and equipment purchases of the
individual companies. The total amount due Fleet Capital by all companies
is $7,768,301 at September 30, 1997. The interest rate defined by the
agreement is a choice of either the London Interbank Offered Rate (6% at
September 30, 1997) plus 2% or the lending institution's prime rate (8.5% at
September 30, 1997) plus 0.5%. Interest expense is allocated among SPAX,
SPI, and P&H based upon the average outstanding debt balance of the
respective company on a monthly basis. The unused revolving line of credit
available for all three companies, subject to the terms of the agreement,
totaled $7,231,699 at September 30, 1997.
F-21
<PAGE>
Debt for SPI and P&H at September 30, 1997 consisted of the following:
<TABLE>
<S> <C>
Revolving line of credit, due on demand or at December 31, 2000 $1,060,354
----------
----------
Revolving term loan agreement, due in monthly installments of $36,600 $2,982,000
Less current maturities 439,200
----------
Long-term debt $2,542,800
----------
</TABLE>
Scheduled maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending September 30,
<S> <C>
1998 $ 439,200
1999 439,200
2000 439,200
2001 439,200
2002 439,200
Thereafter 786,000
----------
Total $2,982,000
----------
----------
</TABLE>
The credit agreement contains restrictive covenants prohibiting or limiting
certain actions of SPAX, SPI and P&H, including payment of cash dividends,
capital expenditures, investments and incurrences of debt, and requires
certain actions of SPAX, SPI and P&H, including the maintenance of specified
levels of profitability and tangible net worth, as defined. At
September 30, 1997, SPAX, SPI and P&H were not in compliance with the
restrictive covenant related to capital expenditures; however, SPAX, SPI and
P&H have received a waiver of such noncompliance.
4. INVENTORIES
At September 30, 1997, inventories consisted of the following:
<TABLE>
<S> <C>
Raw materials $ 3,933,541
Slit coil and finished goods 3,590,445
-------------
Total 7,523,986
Less reserve to reduce inventories to LIFO cost (887,566)
-------------
Inventories at lower of LIFO cost or market $ 6,636,420
-------------
</TABLE>
F-22
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1997, property, plant and equipment consisted of the
following:
<TABLE>
<CAPTION>
Estimated
Useful Life
(Years)
<S> <C> <C>
Buildings and facilities $ 3,758,756 18
Machinery and equipment 11,996,816 5
Furniture and fixtures 270,559 5
Land 594,122
Fixed assets in process 78,695
-------------
Total 16,698,948
Less accumulated depreciation 11,042,793
-------------
Property, plant and equipment, net $ 5,656,155
-------------
</TABLE>
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At September 30, 1997, accounts payable and accrued liabilities consisted of
the following:
<TABLE>
<S> <C>
Trade payables $ 2,851,773
Compensation and related payables 475,981
Ad valorem taxes and other payables 186,565
-------------
Total $ 3,514,319
-------------
-------------
</TABLE>
7. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<S> <C>
Current:
Federal $ 701,685
State 99,407
Deferred - Federal 61,189
-------------
Provision for income taxes $ 862,281
-------------
-------------
</TABLE>
The provision for income taxes differs from that determined simply by
applying the federal income tax rate (statutory rate) to income before
taxes, as follows:
<TABLE>
<S> <C>
Statutory rate 34.0 %
Tax at statutory rate $ 732,277
Increase (decrease) in taxes resulting from:
State income taxes 65,609
Entertainment and other 64,395
-------------
Total federal income tax provision $ 862,281
-------------
-------------
</TABLE>
F-23
<PAGE>
Temporary differences which give rise to deferred tax assets and liabilities
at September 30, 1997 were as follows:
<TABLE>
Deferred Tax
Asset (Liability)
<S> <C>
Current asset - vacation accrual $ 71,577
----------
Non-current liability - property, plant and equipment $(59,604)
----------
</TABLE>
No valuation allowance has been established for the deferred tax asset as
management believes that it is more likely than not that the asset will be
realized.
8. RELATED-PARTY TRANSACTIONS
Sales by SPI to SeaCat for the period from May 1, 1997 (date of inception)
to September 30, 1997 were $541,959. All transactions between SPI and
SeaCat are stated at negotiated prices.
SPAX provides various general and administrative services to the Companies.
For the period from May 1, 1997 to September 30, 1997, SPAX billed SPI and
P&H $351,776 and $162,870, respectively, for general and administrative
services. Such amounts are settled through the current portion of the
revolving line of credit.
9. COMMITMENTS AND CONTINGENCIES
SPI leases certain office equipment under the terms of a noncancelable
agreement that is accounted for as an operating lease. This lease expires
in 1999. Minimum future lease payments under this operating lease as of
September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998 $10,736
1999 10,736
</TABLE>
Rent expense for all leases with terms exceeding one year was $5,368 for the
period from May 1, 1997 to September 30, 1997.
******
F-24
<PAGE>
NORTHWEST PIPE COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
Dec. 31,
1997
--------- Northwest
Northwest Feb. 28, 1998 Pipe
Pipe ------------- Company
Company Southwestern and
and and Pro Forma Subsidiaries
Subsidiaries P&H Tube Adjustments Pro Forma
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 904 $ 635 - $ 1,539
Trade receivables, net 25,162 4,354 $ 600 a 30,116
Cost and estimated earnings in excess
of billings on uncompleted contracts 19,914 - 19,914
Inventories 20,530 6,371 190 b 27,091
Refundable income taxes 3,307 - - 3,307
Deferred income taxes 447 139 - 586
Prepaid expenses and other 1,402 37 - 1,439
---------------------------------------------------------------
Total current assets 71,666 11,536 790 83,992
Property and equipment, net 57,447 5,170 7,454 c 70,071
Restricted assets 2,300 - 2,300
Goodwill - - 19,297 d 19,297
Other assets, net 638 - - 638
---------------------------------------------------------------
$ 132,051 $ 16,706 $ 27,541 $ 176,298
---------------------------------------------------------------
---------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to financial institution $ 7,000 $ 1,230 $ (241) e $ 7,989
Current portion of long-term debt 250 2,799 (2,799) e 250
Current portion of capital lease obligations 2,175 2,175
Accounts payable 8,116 2,355 - 10,471
Accrued liabilities 3,074 850 - 3,924
---------------------------------------------------------------
Total current liabilities 20,615 7,234 (3,040) 24,809
Long-term debt, less current portion 38,490 - 40,000 f 78,490
Capital lease obligations, less current portion 1,454 - - 1,454
Minimum pension liability 294 - - 294
Deferred income taxes 419 53 - 472
---------------------------------------------------------------
Total liabilities 61,272 7,287 36,960 105,519
---------------------------------------------------------------
---------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000
shares authorized, none issued or outstanding
Common stock, $.01 par value, 15,000,000
shares authorized, 6,432,035 issued and
outstanding 64 3 (3) g 64
Additional paid-in capital 38,725 7,620 (7,620) g 38,725
Retained earnings 32,277 1,796 (1,796) g 32,277
Minimum pension liability (287) - - (287)
---------------------------------------------------------------
Total stockholders' equity 70,779 9,419 (9,419) 70,779
---------------------------------------------------------------
$ 132,051 $16,706 $ 27,541 $ 176,298
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-1
<PAGE>
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Year ended
Dec. 31, Ten months
1997 ended
------------- Feb. 28, 1998 Northwest Pipe
Northwest Pipe ------------- Company
Company Southwestern and
and and Pro Forma Subsidiaries
Subsidiaries P&H Tube Adjustments Pro Forma
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 150,833 $ 31,940 $ 182,773
Cost of sales 119,716 26,111 $ (462) h 145,749
384 i
---------------------------------------------------------------------
Gross profit 31,117 5,829 78 37,024
Selling, general and administrative
expenses 11,382 2,606 - 13,988
---------------------------------------------------------------------
Operating income 19,735 3,223 78 23,036
Interest expense 1,616 274 2,300 j 4,190
Interest expense to related parties 201 - 201
---------------------------------------------------------------------
Income before income taxes 17,918 2,949 (2,222) 18,645
Provision for income taxes 6,818 1,153 (867) k 7,104
---------------------------------------------------------------------
Net income $ 11,100 $ 1,796 $ (1,355) $ 11,541
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic earnings per share $ 1.73 $ 1.80
------------ -----------
------------ -----------
Diluted earnings per share $ 1.68 $ 1.74
------------ -----------
------------ -----------
Shares used in per share calculations:
Basic 6,405 6,405
------------ -----------
------------ -----------
Diluted 6,622 6,622
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
statements.
PF-2
<PAGE>
SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Southwestern and P&H Tube Combined
---------------------------------------------
Five Months Five Months Ten Months
Ended Ended Ended
Sep. 30, 1997 Feb. 28, 1998 Feb. 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 18,771 $ 13,169 $ 31,940
Cost of sales 15,023 11,088 26,111
--------- --------- ----------
Gross profit 3,748 2,081 5,829
Selling,
expenses 1,420 1,186 2,606
--------- --------- ----------
Operating 2,328 895 3,223
Interest 175 99 274
--------- --------- ----------
Income 2,153 796 2,949
Provision for 862 291 1,153
--------- --------- ----------
Net income $ 1,291 $ 505 $ 1,796
--------- --------- ----------
--------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-3
<PAGE>
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated financial statements have
been prepared to present the effect of the acquisition by Northwest Pipe
Company ("the Company") of Southwestern Pipe, Inc. ("Southwestern") and P&H
Tube Corporation ("P&H Tube"). The pro forma consolidated balance sheet has
been prepared based upon the historical financial statements of the Company,
Southwestern and P&H Tube as if the acquisitions had occurred at February 28,
1998. The pro forma consolidated statement of operations for the year ended
December 31, 1997 has been prepared as if the acquisition occurred at the
beginning of the period.
The pro forma consolidated financial statements may not be indicative of the
results of operations that actually would have occurred if the transactions
had been in effect as of the beginning of the period nor do they purport to
indicate the results of future operations of the Company. The pro forma
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1997 Annual
Report on Form 10-K and the combined audited financial statements and notes
thereto for Southwestern and P&H included elsewhere in this report on Form
8-K/A. Management of the Company believes that all adjustments necessary to
present fairly such pro forma consolidated financial statements have been
made based on the terms and structure of the acquisition transactions.
2. PRO FORMA ADJUSTMENTS
a. To reflect the estimated receivable from the former shareholders of
Southwestern and P&H Tube, resulting from the estimated purchase price
adjustment.
b. Inventories were adjusted as follows:
<TABLE>
<S> <C>
To record the effect of a change from LIFO to FIFO
inventory valuation method for Southwestern
and P&H Tube $ 486
To adjust inventories to the lower of cost or market on
the date of acquisitions (296)
---------
$ 190
---------
---------
</TABLE>
c. To adjust property to the approximate fair value on the date of
acquisitions.
d. To reflect goodwill related to the acquisitions.
e. To record repayment of note payable to financial institution and repayment
of long-term debt of Southwestern and P&H Tube, net of amounts incurred
related to the acquisitions.
f. To record the issuance of $40.0 million of senior notes which were issued
in April 1998. Proceeds received under the senior notes were used to reduce
amounts outstanding under the Company's note payable to financial
institution, and accordingly, in the accompanying pro forma consolidated
balance sheet, the $40.0 million is classified as long-term debt.
PF-4
<PAGE>
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS)
(UNAUDITED)
2. PRO FORMA ADJUSTMENTS, CONTINUED
g. To reflect the elimination of common stock, additional paid-in capital and
retained earnings of Southwestern and P&H Tube.
h. To reflect the decrease in depreciation and amortization expense related to
the adjustment of assets to the estimated fair value at the acquisition
date. Depreciation is computed for a ten month period, consistent with the
period presented for Southwestern and P&H Tube.
i. To reflect amortization of goodwill from the acquisitions, over a period of
40 years. Goodwill amortization is computed for a ten month period,
consistent with the period presented for Southwestern and P&H Tube.
j. To reflect interest expense related to the additional debt resulting from
the acquisition of Southwestern and P&H Tube. Interest expense is computed
using the rates of interest on the $40.0 million of senior notes issued in
April 1998, the proceeds of which were effectively used to pay for the
acquisitions of Southwestern and P&H Tube. Of the total $40.0 million,
$10.0 million bears interest at 6.63% and $30.0 million bears interest at
6.91%. Interest is computed for a ten month period, consistent with the
period presented for Southwestern and P&H Tube.
k. To adjust income taxes to reflect the effect of the acquisitions at the
effective tax rate of the Company for 1997.
PF-5
