<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
--------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
COMMISSION FILE NUMBER: 0-27140
NORTHWEST PIPE COMPANY
(Exact name of registrant as specified in its charter)
OREGON 93-0557988
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12005 N. BURGARD
PORTLAND, OREGON 97203
(Address of principal executive offices and zip code)
503-285-1400
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes [ X ] No [ ]
COMMON STOCK, PAR VALUE $.01 PER SHARE 6,449,232
(Class) (Shares outstanding at April 30, 1999)
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NORTHWEST PIPE COMPANY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998............................................2
Consolidated Statements of Income - Three Months Ended
March 31, 1999 and 1998..........................................3
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1999 and 1998..........................................4
Notes to Consolidated Financial Statements.......................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................7
Item 3. Quantitative and Qualitative Disclosure About Market Risk............12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................12
</TABLE>
1
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NORTHWEST PIPE COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,827 $ 524
Trade receivables, less allowance for doubtful
accounts of $1,094 and $1,046 48,576 41,719
Costs and estimated earnings in excess of billings
on uncompleted contracts 20,648 23,270
Inventories 47,207 49,269
Refundable income taxes 2,800 2,800
Deferred income taxes 1,794 1,794
Prepaid expenses and other 1,450 1,733
-------------- -------------
Total current assets 124,302 121,109
Property and equipment, less accumulated
depreciation of $26,504 and $25,493 88,458 87,139
Goodwill, net 23,082 23,223
Restricted assets 2,300 2,300
Other assets, net 311 380
-------------- -------------
$ 238,453 $ 234,151
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to financial institution $ 39,300 $ 34,200
Current portion of long-term debt 1,679 1,679
Current portion of capital lease obligations - 2,000
Accounts payable 18,482 23,524
Accrued liabilities 9,062 5,469
-------------- -------------
Total current liabilities 68,523 66,872
Long-term debt, less current portion 76,321 76,321
Minimum pension liability 58 58
Deferred income taxes 7,185 7,185
-------------- -------------
Total liabilities 152,087 150,436
-------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.01 par value, 15,000,000 shares authorized,
6,449,232 and 6,447,516 shares issued and outstanding 64 64
Additional paid-in-capital 38,857 38,849
Retained earnings 47,501 44,858
Accumulated other comprehensive loss -
minimum pension liability (56) (56)
-------------- -------------
Total stockholders' equity 86,366 83,715
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$ 238,453 $ 234,151
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
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NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net sales $ 57,531 $ 38,240
Cost of sales 46,517 31,739
---------- ----------
Gross profit 11,014 6,501
Selling, general and administrative expense 4,542 3,052
---------- ----------
Income from operations 6,472 3,449
Interest expense, net 2,030 625
---------- ----------
Income before income taxes 4,442 2,824
Provision for income taxes 1,799 1,101
---------- ----------
Net income $ 2,643 $ 1,723
---------- ----------
---------- ----------
Basic earnings per share $ 0.41 $ 0.27
---------- ----------
---------- ----------
Diluted earnings per share $ 0.40 $ 0.26
---------- ----------
---------- ----------
Shares used in per share calculations:
Basic 6,443 6,416
---------- ----------
---------- ----------
Diluted 6,602 6,631
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
NORTHWEST PIPE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,643 $ 1,723
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,152 849
Provision for doubtful accounts 48 215
Changes in current assets and liabilities, net of acquisitions:
Trade receivables (6,905) (5,874)
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,622 2,012
Inventories 2,062 (5,672)
Prepaid expenses and other 283 462
Accounts payable (5,042) 10,336
Accrued and other liabilities 3,593 1,844
---------- ----------
Net cash provided by operating activities 456 5,895
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,330) (4,311)
Acquisitions, net of cash acquired - (39,754)
Other assets 69 67
---------- ----------
Net cash used in investing activities (2,261) (43,998)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of common stock, net 8 -
Net proceeds (payments) under notes payable 5,100 39,200
Payments on capital lease obligations (2,000) -
---------- ----------
Net cash provided by financing activities 3,108 39,200
---------- ----------
Net increase in cash and cash equivalents 1,303 1,097
Cash and cash equivalents, beginning of period 524 904
---------- ----------
Cash and cash equivalents, end of period $ 1,827 $ 2,001
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest, net of amounts $ 685 $ 204
capitalized
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
Cost in excess of fair value of assets acquired $ - $ 23,717
Fair value of assets acquired - 32,941
Fair value of liabilities assumed - 8,802
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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NORTHWEST PIPE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements as of and for the three month
periods ended March 31, 1999 and 1998 have been prepared in conformity with
generally accepted accounting principles. The financial information as of
December 31, 1998 is derived from the audited financial statements presented
in the Northwest Pipe Company (the "Company") Annual Report on Form 10-K for
the year ended December 31, 1998. Certain information or footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying financial
statements include all adjustments necessary (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. The accompanying financial statements should be read in
conjunction with the Company's audited financial statements for the year
ended December 31, 1998, as presented in the Company's Annual Report on Form
10-K for the year then ended.
Operating results for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending December 31, 1999, or any portion thereof.
On January 1, 1998, the Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" which establishes requirements for disclosure of
comprehensive income. Comprehensive income is the total of net income and all
other non-owner changes in equity. Comprehensive income did not differ from
reported net income in the periods presented.
2. EARNINGS PER SHARE
The Company has adopted FASB Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), which supersedes APB Opinion No. 15
and specifies the computation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock.
Under SFAS 128, basic earnings per share is computed using the weighted
average number of shares of common stock outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares outstanding
during the period. Incremental shares of 158,868 and 214,968 for the three
months ended March 31, 1999 and 1998, respectively, were used in the
calculations of diluted earnings per share. Options to purchase 270,016
shares of common stock at prices of $15.75 to $22.88 per share were
outstanding at March 31, 1999, but were not included in the computation of
diluted earnings per share because the exercise price of the options was
greater than the average market price of the underlying common stock.
5
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3. INVENTORIES
Inventories are stated at the lower of cost or market. Finished goods are
stated at standard cost which approximates the first-in, first-out method of
accounting. Inventories of steel coil are stated at cost on a specific
identification basis. Inventories of coating and lining materials, as well as
materials and supplies, are stated on an average cost basis.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Finished goods $ 18,485 $ 12,404
Raw materials 26,626 34,769
Materials and supplies 2,096 2,096
------------ -------------
$ 47,207 $ 49,269
------------ -------------
------------ -------------
</TABLE>
4. SEGMENT INFORMATION
The Company has adopted FASB Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
which requires disclosure of financial and descriptive information about the
Company's reportable operating segments. The operating segments reported
below are based on the nature of the products sold by the Company and are the
segments of the Company for which separate financial information is available
and for which operating results are regularly evaluated by executive
management to make decisions about resources to be allocated to the segment
and assess its performance. Management evaluates segment performance based on
segment gross profit. There were no material transfers between segments in
the periods presented.
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 1998
------------- -----------
<S> <C> <C>
Net Sales:
Water Transmission $ 35,706 $ 21,904
Tubular Products 21,825 16,336
------------- -----------
Total $ 57,531 $ 38,240
------------- -----------
------------- -----------
Gross Profit:
Water Transmission $ 8,149 $ 3,997
Tubular Products 2,865 2,504
------------- -----------
Total $ 11,014 $ 6,501
------------- -----------
------------- -----------
</TABLE>
5. ACQUISITIONS
On March 31, 1999, the Company announced that it had signed a letter of
intent to acquire North American Pipe, Inc. ("North American") of Saginaw,
Texas. North American operates two facilities which produce custom fabricated
piping assemblies and had sales of approximately $18 million for the twelve
months ended December 31, 1998. The Company expects to complete the
acquisition in May 1999.
On June 9, 1998, the Company acquired from L.B. Foster Company the plant,
equipment, leasehold and contract rights and miscellaneous assets of its
Fosterweld Division manufacturing facility (the "Parkersburg Facility") for
$5.3 million, and acquired the Parkersburg Facility's inventory net of
assumed accounts payable. The Parkersburg Facility is employed in the
manufacture of large diameter, high pressure steel pipe products.
On March 6, 1998, the Company acquired all of the outstanding capital stock
of Southwestern Pipe, Inc. ("Southwestern") and P&H Tube Corporation ("P&H")
for $40.1 million. The excess of the acquisition cost
6
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over the fair value of the net assets acquired of approximately $23.7
million, is being amortized over 40 years using the straight-line method. The
principal business of both Southwestern and P&H is the manufacture and sale
of structural and mechanical tubing products.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Report contain forward-looking
statements within the meaning of the Securities Litigation Reform Act of 1995
that are based on current expectations, estimates and projections about the
Company's business and management's beliefs and assumptions. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and variations of such words and similar expressions are intended
to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements due to numerous factors, including, but not
limited to those discussed in this discussion and analysis of financial
condition and results of operations, as well as those discussed elsewhere in
this Report and from time to time in the Company's other Securities and
Exchange Commission filings and reports. In addition, such statements could
be affected by general industry and market conditions and growth rates, and
general domestic and international economic conditions. Such forward-looking
statements speak only as of the date on which they are made and the Company
does not undertake any obligation to update any forward-looking statement to
reflect events or circumstances after the date of this Report. If the Company
does update or correct one or more forward-looking statements, investors and
others should not conclude that the Company will make additional updates or
corrections with respect thereto or with respect to other forward-looking
statements.
The Company's net sales and net income may fluctuate significantly from
quarter to quarter due to the size and schedule for deliveries of certain
Water Transmission orders and due to the seasonality of the Company's Tubular
Products business. 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 Company's common stock. 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.
OVERVIEW
The Company manufactures and markets welded steel pipe in two business
segments. Its Water Transmission segment is a leading supplier of large
diameter, high pressure steel pipe products that are used primarily for water
transmission in the United States and Canada. Its Tubular Products Group
manufactures smaller diameter steel pipe for a wide range of construction,
agricultural, energy, industrial and mechanical applications. The Company is
headquartered in Portland, Oregon. Water Transmission products are
manufactured in the Company's Portland, Oregon; Denver, Colorado; Adelanto
and Riverside, California; and Parkersburg, West Virginia facilities. Tubular
Products are manufactured in the Company's Portland, Oregon; Atchison,
Kansas; Houston, Texas; and Bossier City, Louisiana 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 construction, the
energy market, the agricultural economy and general economic conditions.
7
<PAGE>
RESULTS OF OPERATIONS
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>
Three months ended March 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net sales
Water Transmission 62.1% 57.3%
Tubular Products 37.9 42.7
---------- ----------
Total net sales 100.0 100.0
Cost of sales 80.9 83.0
---------- ----------
Gross profit 19.1 17.0
Selling, general and administrative expense 7.9 8.0
---------- ----------
Income from operations 11.2 9.0
Interest expense, net 3.5 1.6
---------- ----------
Income before income taxes 7.7 7.4
Provision for income taxes 3.1 2.9
---------- ----------
Net income 4.6% 4.5%
---------- ----------
---------- ----------
Gross profit as a percentage of segment net sales:
Water Transmission 22.8% 18.2%
Tubular Products 13.1 15.3
</TABLE>
FIRST QUARTER 1999 COMPARED TO FIRST QUARTER 1998
SALES. Net sales increased 50.4% to $57.5 million in the first quarter of
1999, from $38.2 million in the first quarter of 1998.
Water Transmission sales increased 63.0% to $35.7 million in the first
quarter of 1999 from $21.9 million in the first quarter of 1998, primarily as
a result of higher production resulting from improved market conditions in
the first quarter of 1999 and increased sales attributable to the Parkersburg
Facility, which was acquired in June 1998. Late in the first quarter of 1999,
several Water Transmission projects expected to be produced during the second
quarter of 1999 were postponed, which is expected to negatively impact sales
in that quarter.
Tubular Products sales increased 33.6% to $21.8 million in the first quarter
of 1999 from $16.3 million in the first quarter of 1998. The increase was
primarily the result of sales attributable to P&H Tube Corporation ("P&H")
and Southwestern Pipe, Inc. ("Southwestern"), which were acquired in March
1998, and increased production related to the new Tubular Products mill in
the Company's Portland, Oregon facility, which was operational in late 1998.
In the first quarter of 1999 and 1998, no single customer accounted for 10%
or more of total net sales.
GROSS PROFIT. Gross profit increased 69.4% to $11.0 million (19.1% of total
net sales) in the first quarter of 1999 from $6.5 million (17.0% of total net
sales) in the first quarter of 1998.
Water Transmission gross profit increased 103.9% to $8.1 million (22.8% of
segment net sales) in the first quarter of 1999 from $4.0 million (18.2% of
segment net sales) in the first quarter of 1998. During the first quarter of
1998, the Company experienced lower bidding activity, unfavorable pricing
pressures and shipping delays. In the first quarter of 1999, demand and
production increased due to improvements in general market conditions and
bidding activity and the acquisition of the Parkersburg Facility in June 1998.
8
<PAGE>
Tubular Products gross profit increased 14.4% to $2.9 million (13.1% of
segment net sales) in the first quarter of 1999 from $2.5 million (15.3% of
segment net sales) in the first quarter of 1998, primarily due to the
acquisition of P&H and Southwestern in March 1998. Tubular Products gross
profit as a percent of segment net sales decreased due to continued pricing
pressure from imported products, which the Company expects will continue
through at least the first six months of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased 48.8% to $4.5 million (7.9% of total net
sales) in the first quarter of 1999 compared to $3.1 million (8.0% of total
net sales) in the first quarter of 1998. The increase was primarily the
result of additional operating costs related to acquisitions completed in
March and June 1998.
INTEREST EXPENSE. Interest expense increased to $2.0 million in the first
quarter of 1999 from $625,000 in the first quarter of 1998 due to increased
borrowings used to finance the acquisitions made in March and June 1998, and
to support higher production and sales levels.
INCOME TAXES. The provision for income taxes increased to $1.8 million in the
first quarter of 1999 from $1.1 million in the first quarter of 1998, based
upon an expected tax rate of approximately 40% for 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances operations with internally generated funds and available
borrowings. At March 31, 1999, the Company had cash and cash equivalents of
$1.8 million.
Net cash provided by operating activities in the first quarter of 1999 was
$456,000. This was primarily a net result of $2.6 million of net income,
non-cash adjustments for depreciation and amortization of $1.2 million,
decreases in costs and estimated earnings in excess of billings on
uncompleted contracts and inventories of $2.6 and $2.1 million, respectively,
and an increase in accrued liabilities of $3.6 million; offset by an increase
in net trade receivables of $6.9 million and a decrease in accounts payable
of $5.0 million. The decreases in accounts payable and inventories were
primarily attributable to the timing and amount of purchases, payments and
utilization of steel. The increase in trade receivables and decrease in costs
and estimated earnings in excess of billings on uncompleted contracts
primarily resulted from increased product shipments in the first quarter of
1999.
Net cash used in investing activities in the first quarter of 1999 was $2.3
million, which primarily resulted from expenditures related to additions of
property and equipment and the completion of construction of the Company's
propane tank manufacturing facility in Monterrey, Mexico. Capital
expenditures are expected to approximate $10 million in 1999.
Net cash provided by financing activities was $3.1 million in the first
quarter of 1999, which resulted from $5.1 million in borrowings under the
Company's line of credit agreement offset by a $2.0 million payment of
capital lease obligations.
The Company had the following significant components of debt at March 31,
1999: a $45 million credit agreement under which $39.3 million was
outstanding; $10.0 million of Series A Senior Notes, without collateral,
which bear interest at 6.63%; $30.0 million of Series B Senior Notes, without
collateral, which bear interest at 6.91%; $35.0 million of Senior Notes,
without collateral, which bear interest at 6.87%; and an Industrial
Development Bond of $3.0 million with variable interest rate of 2.8%.
The credit agreement expires on September 30, 2001 and is without collateral.
It bears interest at rates related to IBOR or LIBOR plus 0.65% to 1.75% (6.5%
at March 31, 1999), or at prime less 0.5% (7.25% at March 31, 1999). At March
31, 1999, the Company had $39.3 million outstanding under the line of credit
with $37.0 million bearing interest at a weighted average IBOR interest rate
of 6.50%, $2.3 million bearing interest at 7.25% and additional borrowing
capacity under the line of credit of $5.7 million. The line of credit
agreement contains the following covenants; minimum debt service ratio,
maximum funded debt to earnings before
9
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interest, taxes, depreciation and amortization ("EBITDA"), and minimum
tangible net worth. In December 1998, the Company amended its line of credit
agreement which, among other changes, adjusted the restriction associated
with the ratio of maximum funded debt to EBITDA from 3.75:1.0 to 4.00:1.0
until March 31, 1999. The restriction associated with this ratio will be
further reduced to 3.75:1.0 on June 30, 1999, to 3.50:1.0 on September 30,
1999, 3.25:1.0 on December 31, 1999, and 3.00:1.0 until September 30, 2001.
At March 31, 1999, the Company was in compliance with all covenants specified
in the line of credit agreement.
The Company's working capital requirements have increased due to an increase
in the Company's Water Transmission business, which is characterized by
lengthy production periods and extended payment cycles, an increase in
Tubular Products sales, and an increase in the purchase of imported steel,
which has a longer lead time between the order date and anticipated date of
usage. The Company anticipates that its existing cash and cash equivalents,
cash flows expected to be generated by operations and amounts available under
its line of credit will be adequate to fund its working capital and capital
requirements for at least the next twelve months.
To the extent necessary, the Company may also satisfy capital requirements
through additional bank borrowings, senior notes 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. SEE NOTE 5 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Any such
transactions, if consummated, may use a portion of the Company's working
capital or necessitate additional bank borrowings.
YEAR 2000 ISSUE. Like most other companies, the Year 2000 computer issue
creates risks for the Company. The Year 2000 issue exists because many
computer programs use two digit rather than four digit date fields to define
the applicable year. As a result, computer equipment and software and devices
with imbedded technology that are time-sensitive may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, production delays, a temporary inability to
process transactions, send invoices, or engage in similar normal business
activities. Incomplete or untimely resolution of the Year 2000 issue by the
Company or critically important suppliers or customers of the Company could
have a materially adverse effect on the Company's business, financial
condition or results of operations.
The Company has undertaken various initiatives intended to ensure that its
computer systems and software will function properly with respect to dates in
the Year 2000 and thereafter. For this purpose, the term "computer systems
and software" includes systems that are commonly thought of as information
technology ("IT") systems, including enterprise software, operating systems,
networking components, application and data servers, PC hardware, accounting,
data processing and other information systems, as well as systems that are
not commonly thought of as IT systems, such as telephone systems, fax
machines, manufacturing equipment and other miscellaneous systems and
equipment. Both IT and non-IT systems may contain imbedded technology, which
complicates the Company's Year 2000 assessment, remediation and testing
efforts.
Based upon its assessment efforts to date, the Company believes that certain
of the computer systems and software it currently uses will require
replacement or modification. Specifically, the Company has determined that
certain components of its telephone systems will require replacement. The
Company currently anticipates that its internal Year 2000 assessment
initiatives will be completed by the end of the second quarter of 1999. The
Company estimates that as of April 30, 1999, it had completed approximately
90% of the assessment, remediation and testing initiatives that it believes
will be necessary to fully address potential Year 2000 issues relating to its
computer systems and software. The projects comprising the remaining 10% of
the initiatives are expected to be completed by the end of the second quarter
of 1999.
The Company is working with critical suppliers of products and services to
determine that the suppliers' operations and the products and services they
provide are Year 2000 compliant or to monitor their progress toward Year 2000
compliance. The Company will request written certification of Year 2000
compliance from all critical suppliers and customers by the end of the second
quarter of 1999. In the event that suppliers
10
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are not Year 2000 compliant, the Company may seek alternative sources of
supply. It is expected that the Company's assessment of critical suppliers'
Year 2000 compliance will be completed by the end of the second quarter of
1999.
The Company currently estimates that the cost of its Year 2000 assessment,
remediation and testing efforts, as well as current anticipated costs to be
incurred by the Company with respect to Year 2000 issues of third parties, is
not expected to exceed $200,000, which expenditures will be funded from
operating cash flows. This estimate is subject to change as additional
information is obtained in connection with the Company's assessment of the
Year 2000 issue. As of March 31, 1999, the Company had incurred costs of
approximately $35,000 related to its Year 2000 assessment, remediation and
testing efforts. In addition, the Company has determined that it must replace
approximately $150,000 of certain telephone system components as a result of
the Year 2000 issue, which are expected to be replaced by the end of the
second quarter of 1999. No other material capital equipment replacements
related to the Year 2000 issue have been identified to date.
The Company presently believes that Year 2000 issues will not pose
significant problems for the Company. However, if all Year 2000 issues are
not properly identified, or assessment, remediation and testing are not
effected timely with respect to Year 2000 problems that are identified, there
can be no assurance that the Year 2000 issue will not have a material adverse
impact on the Company's business, financial condition or results of
operations, or adversely affect the Company's relationships with customers,
vendors or others. Additionally, there can be no assurance that the Year 2000
issues of other entities, such as one or more of the Company's critical
customers or suppliers, will not have a material adverse impact on the
Company's systems or its business, financial condition or results of
operations. Finally, if there are infrastructure failures, such as
disruptions in the supply of electricity, water or communications services,
or major institutions, such as the government, foreign or domestic banking
systems are unable to continue to provide their services or support resulting
in a disruption in services or support to the Company, the Company may be
unable to operate for the duration of the disruption.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet
been clearly identified. The Company currently plans to complete such
analysis and contingency planning by June 30, 1999.
The costs of the Company's Year 2000 assessment, remediation and testing
efforts and the dates on which the Company believes it will complete such
efforts are forward-looking statements that are based upon management's best
estimates, which were derived using numerous assumptions regarding future
events, including the continued availability of certain resources, third
party remediation plans and certifications, and other factors. There can be
no assurance that these estimates will prove to be accurate, and actual
results could differ materially from those currently anticipated. Specific
factors that could cause such material differences include, but are not
limited to, the availability and cost of personnel trained in Year 2000
issues, the ability to identify, assess, remediate and test all relevant
computer codes and embedded technology, the reliability of third party
assessments and certifications, and similar uncertainties.
11
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not currently use derivative financial instruments for
speculative purposes which expose the Company to market risk. The Company is
exposed to cash flow and fair value risk due to changes in interest rates
with respect to its long-term debt. Information required by this item is set
forth in "Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1999.
12
<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 6, 1999
NORTHWEST PIPE COMPANY
By: /s/ WILLIAM R. TAGMYER
------------------------------------
William R. Tagmyer
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ JOHN D. MURAKAMI
------------------------------------
John D. Murakami
Vice President, Chief Financial Officer
(Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S REPORT ON FORM 10-Q FOR
THE QUARTER ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,827
<SECURITIES> 0
<RECEIVABLES> 49,670
<ALLOWANCES> 1,094
<INVENTORY> 47,207
<CURRENT-ASSETS> 124,302
<PP&E> 114,962
<DEPRECIATION> 26,504
<TOTAL-ASSETS> 238,453
<CURRENT-LIABILITIES> 68,523
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 86,302
<TOTAL-LIABILITY-AND-EQUITY> 238,453
<SALES> 57,531
<TOTAL-REVENUES> 57,531
<CGS> 46,517
<TOTAL-COSTS> 46,517
<OTHER-EXPENSES> 4,542
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,030
<INCOME-PRETAX> 4,442
<INCOME-TAX> 1,799
<INCOME-CONTINUING> 2,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,643
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
</TABLE>
