Northwest Pipe Company (NASDAQ:NWPX) Q2 2020 Earnings Conference Call August 5, 2020 10:00 AM ET Company Participants Aaron Wilkins - SVP, CFO and Corporate Secretary Scott J. Montross - President and CEO Conference Call Participants Brent Thielman - D.A. Davidson & Co. Auguste Richard - Northland Capital Markets David Wright - Henry Investment Trust Thomas Spiro - Spiro Capital Management Operator Good morning and welcome to the Northwest Pipe Company's Second Quarter 2020 Earnings Conference Call. All par ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 NORTHWEST PIPE COMPANY (Exact name of registrant as specified in its charter) Oregon 93-0557988 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identi ...

Northwest Pipe Company (NASDAQ:NWPX) Q1 2020 Earnings Conference Call May 8, 2020 10:00 AM ET Company Participants Scott Montross - President and Chief Executive Officer Aaron Wilkins - Chief Financial Officer Conference Call Participants Zane Karimi - D.A. Davidson & Co. Gus Richard - Northland Capital Markets David Wright - Henry Investment Trust, L.P. Operator Good morning and welcome to Northwest Pipe Company’s First Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements for Northwest Pipe Company, including statements of operations, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant business events like the Geneva acquisition, and accounting policies [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income for the three months ended March 31 **Condensed Consolidated Statements of Operations (Three Months Ended March 31):** | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net sales | $68,923 | $62,643 | | Cost of sales | $59,344 | $56,072 | | Gross profit | $9,579 | $6,571 | | Selling, general, and administrative expense | $7,945 | $4,247 | | Operating income | $1,634 | $2,324 | | Other income (expense) | $(401) | $159 | | Interest income | $22 | $4 | | Interest expense | $(219) | $(131) | | Income before income taxes | $1,036 | $2,356 | | Income tax expense | $472 | $191 | | Net income | $564 | $2,165 | | Net income per share: Basic | $0.06 | $0.22 | | Net income per share: Diluted | $0.06 | $0.22 | | Shares used in per share calculations: Basic | 9,751 | 9,735 | | Shares used in per share calculations: Diluted | 9,829 | 9,735 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents net income and other comprehensive income, including pension adjustments and cash flow hedges **Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31):** | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net income | $564 | $2,165 | | Other comprehensive income (loss), net of tax: | | | | Pension liability adjustment | $25 | $26 | | Unrealized gain (loss) on cash flow hedges | $79 | $(15) | | Other comprehensive income, net of tax | $104 | $11 | | Comprehensive income | $668 | $2,176 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity at specific quarter-end dates **Condensed Consolidated Balance Sheets (as of March 31, 2020 and December 31, 2019):** | Item | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $9,656 | $31,014 | | Trade and other receivables | $38,789 | $38,026 | | Contract assets | $79,350 | $91,186 | | Inventories | $39,259 | $30,654 | | Total current assets | $171,429 | $195,039 | | Property and equipment, net | $108,315 | $99,631 | | Operating lease right-of-use assets | $28,678 | $7,683 | | Goodwill | $22,985 | $- | | Intangible assets, net | $11,997 | $1,231 | | Total assets | $349,313 | $310,245 | | **Liabilities and Stockholders' Equity** | | | | Current portion of long-term debt | $2,911 | $- | | Accounts payable | $17,933 | $15,493 | | Accrued liabilities | $10,670 | $12,150 | | Contract liabilities | $7,882 | $12,281 | | Total current liabilities | $41,846 | $41,566 | | Long-term debt, less current portion | $12,968 | $- | | Operating lease liabilities, less current portion | $25,264 | $6,247 | | Deferred income taxes | $10,293 | $4,265 | | Total liabilities | $100,128 | $62,087 | | Total stockholders' equity | $249,185 | $248,158 | | Total liabilities and stockholders' equity | $349,313 | $310,245 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This section details changes in stockholders' equity, covering net income, comprehensive income, and stock compensation **Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended March 31, 2020):** | Item | Shares | Common Stock Amount | Additional Paid-In-Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balances, December 31, 2019 | 9,746,979 | $97 | $120,544 | $129,331 | $(1,814) | $248,158 | | Net income | - | - | - | $564 | - | $564 | | Other comprehensive income: Pension liability adjustment | - | - | - | - | $25 | $25 | | Other comprehensive income: Unrealized gain on cash flow hedges | - | - | - | - | $79 | $79 | | Issuance of common stock under stock compensation plans | 41,016 | $1 | $(102) | - | - | $(101) | | Share-based compensation expense | - | - | $460 | - | - | $460 | | **Balances, March 31, 2020** | **9,787,995** | **$98** | **$120,902** | **$129,895** | **$(1,710)** | **$249,185** | **Condensed Consolidated Statements of Stockholders' Equity (Three Months Ended March 31, 2019):** | Item | Shares | Common Stock Amount | Additional Paid-In-Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Balances, December 31, 2018 | 9,735,055 | $97 | $118,835 | $101,194 | $(1,536) | $218,590 | | Cumulative-effect adjustment for ASU 2018-02 | - | - | - | $235 | $(235) | - | | Net income | - | - | - | $2,165 | - | $2,165 | | Other comprehensive income (loss): Pension liability adjustment | - | - | - | - | $26 | $26 | | Other comprehensive income (loss): Unrealized loss on cash flow hedges | - | - | - | - | $(15) | $(15) | | Share-based compensation expense | - | - | $22 | - | - | $22 | | **Balances, March 31, 2019** | **9,735,055** | **$97** | **$118,857** | **$103,594** | **$(1,760)** | **$220,788** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines cash flows from operating, investing, and financing activities for the quarter **Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31):** | Item | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,036 | $10,357 | | Net cash used in investing activities | $(51,664) | $(1,620) | | Net cash provided by (used in) financing activities | $15,270 | $(11,571) | | Change in cash and cash equivalents | $(21,358) | $(2,834) | | Cash and cash equivalents, beginning of period | $31,014 | $6,677 | | Cash and cash equivalents, end of period | $9,656 | $3,843 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the condensed consolidated financial statements [1. Basis of Presentation](index=9&type=section&id=1.%20Basis%20of%20Presentation) The financial statements are unaudited, prepared in accordance with U.S. GAAP, and include the Company and its subsidiaries, operating as one segment (Water Infrastructure). The Company notes that Q1 2020 results are not indicative of the full year due to COVID-19 impacts - The Company operates in one segment, Water Infrastructure, producing high-quality engineered steel water pipe, precast and reinforced concrete products, and related components[22](index=22&type=chunk) - Operating results for the three months ended March 31, 2020, are not necessarily indicative of the full fiscal year, particularly in light of the COVID-19 pandemic[24](index=24&type=chunk) [2. Business Combination](index=9&type=section&id=2.%20Business%20Combination) On January 31, 2020, the Company acquired Geneva Pipe Company, Inc. for approximately $49.4 million in cash, expanding its water infrastructure product capabilities with concrete pipe and precast concrete products. The acquisition resulted in $23.0 million in goodwill and contributed $8.0 million in net sales for the period from acquisition to March 31, 2020 - Acquired 100% of Geneva Pipe Company, Inc. on January 31, 2020, for approximately **$49.4 million in cash**[26](index=26&type=chunk) - The acquisition expanded the Company's water infrastructure product capabilities by adding reinforced concrete pipe capacity and a full line of precast concrete products[26](index=26&type=chunk) **Preliminary Purchase Consideration and Fair Value of Assets Acquired and Liabilities Assumed (January 31, 2020):** | Item | Amount (in thousands) | | :--- | :--- | | Total assets acquired | $55,754 | | Total liabilities assumed | $29,320 | | Goodwill | $22,985 | | Total purchase consideration | $49,419 | - Geneva operations contributed **$8.0 million in net sales** to the Company's continuing operations for the period from January 31, 2020, to March 31, 2020[30](index=30&type=chunk) [3. Inventories](index=11&type=section&id=3.%20Inventories) Total inventories increased to $39.3 million as of March 31, 2020, from $30.7 million at December 31, 2019, primarily driven by an increase in raw materials and finished goods **Inventories (in thousands):** | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Raw materials | $30,273 | $26,772 | | Work-in-process | $2,261 | $1,579 | | Finished goods | $5,097 | $683 | | Supplies | $1,628 | $1,620 | | **Total inventories** | **$39,259** | **$30,654** | [4. Goodwill and Intangible Assets](index=11&type=section&id=4.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to $23.0 million as of March 31, 2020, solely due to the Geneva acquisition. Intangible assets, net, also significantly increased to $12.0 million, primarily from customer relationships, trade names, and backlog acquired in the same transaction. The Company determined no goodwill impairment triggering event occurred despite COVID-19 **Goodwill (in thousands):** | Item | Amount | | :--- | :--- | | Goodwill, December 31, 2019 | $- | | Acquisition of Geneva (Note 2) | $22,985 | | **Goodwill, March 31, 2020** | **$22,985** | **Intangible Assets, Net (in thousands):** | Category | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Customer relationships | $8,426 | $551 | | Trade names and trademarks | $2,719 | $680 | | Backlog | $852 | $- | | **Total intangible assets, net** | **$11,997** | **$1,231** | - The Company considered current and expected future economic and market conditions surrounding the COVID-19 pandemic but determined that a triggering event for goodwill impairment had not occurred[34](index=34&type=chunk) [5. Line of Credit and Long-Term Debt](index=12&type=section&id=5.%20Line%20of%20Credit%20and%20Long-Term%20Debt) The Company's Amended Credit Agreement provides for a $74 million Revolver Commitment and a new $15.9 million term loan entered into on March 31, 2020. As of March 31, 2020, there were no outstanding revolving loan borrowings, with $60.4 million in additional borrowing capacity, and the Company was in compliance with all financial covenants - The Amended Credit Agreement provides for a term loan, letters of credit, and revolving loans in the aggregate amount of up to **$74 million**, expiring on October 25, 2024[37](index=37&type=chunk) - As of March 31, 2020, the Company had **no outstanding revolving loan borrowings** and an additional revolving loan borrowing capacity of **$60.4 million**[40](index=40&type=chunk) - On March 31, 2020, the Company entered into a term loan for **$15.9 million** with Wells Fargo, maturing on October 25, 2024[41](index=41&type=chunk) - The Company was in compliance with its financial covenants (Senior Leverage Ratio and Fixed Charge Coverage Ratio) as of March 31, 2020[38](index=38&type=chunk) [6. Leases](index=13&type=section&id=6.%20Leases) The Company's total right-of-use assets significantly increased to $29.8 million as of March 31, 2020, from $8.9 million at December 31, 2019, primarily due to operating leases. Total lease liabilities also rose to $29.3 million from $9.5 million in the same period **Leases Recorded on Condensed Consolidated Balance Sheet (in thousands):** | Item | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total right-of-use assets | $29,775 | $8,886 | | Total lease liabilities | $29,252 | $9,530 | **Lease Cost (in thousands, Three Months Ended March 31):** | Item | 2020 | 2019 | | :--- | :--- | :--- | | Finance lease cost: Amortization of right-of-use assets | $105 | $109 | | Finance lease cost: Interest on lease liabilities | $22 | $15 | | Operating lease cost | $805 | $425 | | Short-term lease cost | $190 | $262 | | Variable lease cost | $42 | $40 | | **Total lease cost** | **$1,164** | **$851** | [7. Fair Value Measurements](index=15&type=section&id=7.%20Fair%20Value%20Measurements) The Company measures certain financial assets and liabilities at fair value on a recurring basis, primarily deferred compensation plan assets and foreign currency forward contracts, using Level 1 and Level 2 inputs. As of March 31, 2020, total financial assets measured at fair value were $4.3 million **Financial Assets and Liabilities Measured at Fair Value (in thousands):** | Item | March 31, 2020 (Total) | December 31, 2019 (Total) | | :--- | :--- | :--- | | Financial assets: Deferred compensation plan | $4,069 | $5,150 | | Financial assets: Foreign currency forward contracts | $259 | $- | | Financial liabilities: Foreign currency forward contracts | $- | $(138) | | **Total financial assets** | **$4,328** | **$5,150** | - Deferred compensation plan assets are valued using **Level 1** (quoted market prices) and **Level 2** (guaranteed investment contracts) inputs[52](index=52&type=chunk) - Foreign currency forward contracts are valued using **Level 2** inputs, incorporating observable market parameters like interest rate yield curves and currency rates[53](index=53&type=chunk) [8. Derivative Instruments and Hedging Activities](index=16&type=section&id=8.%20Derivative%20Instruments%20and%20Hedging%20Activities) The Company uses foreign currency forward contracts as cash flow hedges to manage foreign currency risk, with a total notional amount of $4.6 million as of March 31, 2020. Gains from non-designated hedging instruments were $0.3 million for Q1 2020 - Total notional amount of foreign currency forward contracts designated as cash flow hedges was **$4.6 million (CAD$6.5 million)** as of March 31, 2020, down from $6.1 million (CAD$7.9 million) as of December 31, 2019[56](index=56&type=chunk) - Gains recognized in Net sales from foreign currency forward contracts not designated as hedging instruments were **$0.3 million** for the three months ended March 31, 2020, compared to approximately $0 in 2019[57](index=57&type=chunk) [9. Share-based Compensation](index=16&type=section&id=9.%20Share-based%20Compensation) Share-based compensation expense increased significantly to $0.5 million for Q1 2020, up from $0.02 million in Q1 2019. The Company's unvested RSUs and PSAs totaled 129,572 as of March 31, 2020, with $4.2 million in unrecognized compensation expense **Share-based Compensation Expense (in thousands, Three Months Ended March 31):** | Item | 2020 | 2019 | | :--- | :--- | :--- | | Cost of sales | $142 | $6 | | Selling, general, and administrative expense | $318 | $16 | | **Total** | **$460** | **$22** | - As of March 31, 2020, unrecognized compensation expense related to the unvested portion of RSUs and PSAs was **$4.2 million**, expected to be recognized over a weighted-average period of **2.0 years**[64](index=64&type=chunk) - For PSAs vested on March 31, 2020, the actual number of common shares issued was determined by a payout percentage of **136%**, based on achieved performance conditions[63](index=63&type=chunk) [10. Commitments and Contingencies](index=18&type=section&id=10.%20Commitments%20and%20Contingencies) The Company is involved in environmental liabilities related to the Portland Harbor Superfund Site, where it is a potentially responsible party, but is currently unable to estimate its financial obligation. It also incurred $0.4 million in incremental production costs in Q1 2020 due to a 2019 fire at its Saginaw facility, with potential future insurance recoveries - The Company is a potentially responsible party for the Portland Harbor Superfund Site cleanup but is unable to estimate its financial obligation due to the large number of parties and variability in remediation alternatives[65](index=65&type=chunk) - Incurred **$0.4 million** in incremental production costs during the three months ended March 31, 2020, resulting from a fire at the Saginaw, Texas facility in April 2019[72](index=72&type=chunk) - The Company has insurance coverage for property damage and business interruption, and expects further insurance recoveries for costs associated with the Saginaw fire[72](index=72&type=chunk) [11. Revenue](index=19&type=section&id=11.%20Revenue) Revenue for water infrastructure steel pipe products is recognized over time, while precast concrete products revenue is recognized at a point in time. Net sales for Q1 2020 were $68.9 million, with $60.9 million recognized over time and $8.0 million at a point in time. Backlog as of March 31, 2020, was approximately $170 million - Revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses[75](index=75&type=chunk) - Revenue for water infrastructure precast concrete products is recognized at the time control is transferred to customers (point in time)[77](index=77&type=chunk) **Disaggregation of Revenue (in thousands, Three Months Ended March 31):** | Recognition Method | 2020 | 2019 | | :--- | :--- | :--- | | Over time | $60,878 | $62,643 | | Point in time | $8,045 | $- | | **Net sales** | **$68,923** | **$62,643** | - Backlog for water infrastructure steel pipe products was approximately **$170 million** as of March 31, 2020, with **61%** expected to be recognized in 2020 and **37%** in 2021[82](index=82&type=chunk) [12. Income Taxes](index=20&type=section&id=12.%20Income%20Taxes) The effective income tax rate for Q1 2020 was 45.6%, significantly higher than 8.1% in Q1 2019, primarily due to non-deductible acquisition costs related to the Geneva acquisition **Income Tax Expense and Effective Rate (Three Months Ended March 31):** | Item | 2020 | 2019 | | :--- | :--- | :--- | | Income tax expense (in thousands) | $472 | $191 | | Effective income tax rate | 45.6% | 8.1% | - The estimated effective income tax rate for Q1 2020 was primarily impacted by non-deductible costs associated with the acquisition of Geneva[84](index=84&type=chunk) [13. Net Income per Share](index=20&type=section&id=13.%20Net%20Income%20per%20Share) Basic and diluted net income per share for Q1 2020 was $0.06, a decrease from $0.22 in Q1 2019, reflecting lower net income despite a slight increase in weighted-average common shares outstanding **Net Income per Share (in thousands, except per share amounts, Three Months Ended March 31):** | Item | 2020 | 2019 | | :--- | :--- | :--- | | Net income | $564 | $2,165 | | Basic weighted-average common shares outstanding | 9,751 | 9,735 | | Diluted weighted-average common shares outstanding | 9,829 | 9,735 | | **Net income per common share: Basic** | **$0.06** | **$0.22** | | **Net income per common share: Diluted** | **$0.06** | **$0.22** | [14. Recent Accounting and Reporting Developments](index=21&type=section&id=14.%20Recent%20Accounting%20and%20Reporting%20Developments) The Company adopted ASU 2018-13 on January 1, 2020, which modifies fair value measurement disclosure requirements, with no material impact on its financial position, results of operations, or cash flows - The Company adopted ASU 2018-13 on January 1, 2020, which modifies disclosure requirements for fair value measurements[87](index=87&type=chunk) - The adoption of ASU 2018-13 had no material impact on the Company's financial position, results of operations, or cash flows[87](index=87&type=chunk) [15. Subsequent Event](index=21&type=section&id=15.%20Subsequent%20Event) In April 2020, the Company's Mexico manufacturing facility was ordered to close through May 31, 2020, due to COVID-19 mandates, with orders being diverted to U.S. facilities. While Q1 2020 results were not materially affected, the ultimate impact of COVID-19 on future operations, financial position, or cash flows remains uncertain - In early April 2020, the Company's water infrastructure manufacturing facility in San Luis Río Colorado, Mexico, was ordered to close through May 31, 2020, due to COVID-19 mandates[88](index=88&type=chunk) - Current orders are being diverted to U.S.-based facilities, and the Company does not believe the impact of moving production is material to its financial results[88](index=88&type=chunk) - While COVID-19 did not have a material adverse effect on Q1 2020 results, its ultimate impact on future business, operations, financial position, or cash flows is highly uncertain and cannot be accurately predicted[89](index=89&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, condition, and operational results for the quarter, highlighting the impact of the Geneva acquisition and the ongoing COVID-19 pandemic. It details changes in net sales, gross profit, SG&A, and income taxes, and discusses liquidity and capital resources [Forward-Looking Statements](index=22&type=section&id=Forward-Looking%20Statements) This section cautions readers that the report contains forward-looking statements based on current expectations and estimates, which involve risks and uncertainties that could cause actual results to differ materially. It explicitly mentions the impact of COVID-19 and the integration of Geneva as potential factors - The report contains forward-looking statements that are not guarantees of future performance and involve risks and uncertainties, including changes in demand, raw material prices, and the impact of pandemics like COVID-19[90](index=90&type=chunk) - The Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this 2020 Q1 Form 10-Q[90](index=90&type=chunk) [Overview](index=22&type=section&id=Overview) Northwest Pipe Company is North America's largest manufacturer of engineered steel water pipeline systems, serving various water infrastructure markets. The recent acquisition of Geneva Pipe Company, Inc. expanded its product offerings to include concrete pipe and precast concrete products - Northwest Pipe Company is the largest manufacturer of engineered steel water pipeline systems in North America, serving water transmission, wastewater plant piping, stormwater/sewer systems, trenchless technology, and pipeline rehabilitation[91](index=91&type=chunk) - The acquisition of Geneva Pipe Company, Inc. expanded the Company's water infrastructure product capabilities by adding reinforced concrete pipe and a full line of precast concrete products[92](index=92&type=chunk) [Our Current Economic Environment](index=23&type=section&id=Our%20Current%20Economic%20Environment) The Company anticipates strong long-term demand for water infrastructure projects in the U.S. but expects near-term challenges from strained governmental budgets, increased competition, and fluctuating steel costs, which significantly impact cost of sales - Long-term demand for water infrastructure projects in the United States appears strong, with a recent trend towards spending on water infrastructure replacement, repair, and upgrade[94](index=94&type=chunk) - Near-term challenges include strained governmental and water agency budgets, increased capacity from competition, and fluctuating steel costs, which represent a substantial portion of the cost of sales[94](index=94&type=chunk) [Impact of COVID-19 on our Business](index=23&type=section&id=Impact%20of%20COVID-19%20on%20our%20Business) While COVID-19 did not materially affect Q1 2020 results, its ultimate impact on future operations is highly uncertain. The Company's U.S. facilities remain operational as essential businesses, but its Mexico facility was ordered to close through May 31, 2020, incurring an estimated $0.8 million per quarter in maintenance costs - U.S. manufacturing facilities continue to operate as they produce critical water infrastructure products, consistent with national guidelines and state/local orders[96](index=96&type=chunk) - The water infrastructure manufacturing facility in San Luis Río Colorado, Mexico, was ordered to close from early April to May 31, 2020, due to COVID-19 mandates[97](index=97&type=chunk) - Estimated costs to maintain the SLRC facility in a secure and operational state and compensate furloughed employees are **$0.8 million per quarter**[97](index=97&type=chunk) - The ultimate impact of the COVID-19 pandemic on the Company's business, future results of operations, financial position, or cash flows is highly uncertain and cannot be accurately predicted[98](index=98&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Net sales increased by 10.0% to $68.9 million in Q1 2020, primarily driven by the Geneva acquisition. Gross profit rose 45.8% to $9.6 million due to improved pricing and the acquisition, despite incremental fire-related costs. SG&A expenses increased 87.1% to $7.9 million, largely due to acquisition-related fees and higher compensation [Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019](index=24&type=section&id=Three%20Months%20Ended%20March%2031%2C%202020%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202019) Net sales increased 10.0% to $68.9 million, with Geneva contributing $8.0 million. Gross profit improved to 13.9% of net sales from 10.5%, driven by better steel pipe pricing and the Geneva acquisition, partially offset by $0.4 million in fire-related production costs. SG&A surged 87.1% to $7.9 million due to $2.5 million in Geneva acquisition costs and $1.3 million in higher compensation. Income tax expense rose to $0.5 million at a 45.6% effective rate, impacted by non-deductible acquisition costs **Key Financial Performance (in thousands, except percentages, Three Months Ended March 31):** | Metric | 2020 | 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $68,923 | $62,643 | $6,280 | 10.0% | | Gross profit | $9,579 | $6,571 | $3,008 | 45.8% | | Gross profit % of Net Sales | 13.9% | 10.5% | 3.4 pp | - | | Selling, general, and administrative expense | $7,945 | $4,247 | $3,698 | 87.1% | | Operating income | $1,634 | $2,324 | $(690) | (29.7%) | | Income before income taxes | $1,036 | $2,356 | $(1,320) | (56.0%) | | Net income | $564 | $2,165 | $(1,601) | (74.0%) | - Net sales increased **10.0% to $68.9 million**, primarily due to **$8.0 million** in net sales contributed by the acquired Geneva operations[102](index=102&type=chunk) - Gross profit increased due to improved product pricing in the steel pressure pipe business and the addition of Geneva operations, partially offset by **$0.4 million** in incremental production costs from the Saginaw facility fire[103](index=103&type=chunk) - Selling, general, and administrative expense increased **87.1%**, primarily due to **$2.5 million** in professional and other fees related to the Geneva acquisition and **$1.3 million** in higher compensation-related expense[104](index=104&type=chunk) - Income tax expense was **$0.5 million (45.6% effective rate)** in Q1 2020, compared to $0.2 million (8.1% effective rate) in Q1 2019, primarily due to non-deductible costs associated with the Geneva acquisition[105](index=105&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's liquidity sources include operating cash flows and the Amended Credit Agreement. Working capital decreased to $129.6 million as of March 31, 2020, from $153.5 million at December 31, 2019, mainly due to cash used for the Geneva acquisition. Net cash from operating activities increased to $15.0 million in Q1 2020, while investing activities used $51.7 million, primarily for the Geneva acquisition [Sources and Uses of Cash](index=24&type=section&id=Sources%20and%20Uses%20of%20Cash) The Company's primary liquidity sources are operating cash flows and the Amended Credit Agreement. Working capital decreased by $23.9 million, and cash and cash equivalents decreased by $21.3 million in Q1 2020, largely due to the Geneva acquisition. Operating cash flow increased to $15.0 million, while investing activities used $51.7 million, mainly for the acquisition - Working capital was **$129.6 million** as of March 31, 2020, compared to $153.5 million as of December 31, 2019[108](index=108&type=chunk) - Cash and cash equivalents decreased from $31.0 million at December 31, 2019, to **$9.7 million** at March 31, 2020, primarily due to cash used for the Geneva acquisition[108](index=108&type=chunk) - Net cash provided by operating activities was **$15.0 million** in Q1 2020, an increase from $10.4 million in Q1 2019[110](index=110&type=chunk) - Net cash used in investing activities was **$51.7 million** in Q1 2020, including **$48.7 million** for the acquisition of Geneva[111](index=111&type=chunk) - Net cash provided by financing activities was **$15.3 million** in Q1 2020, including **$15.9 million** in borrowings on long-term debt[112](index=112&type=chunk) [Line of Credit and Long-Term Debt](index=25&type=section&id=Line%20of%20Credit%20and%20Long-Term%20Debt) As of March 31, 2020, the Company had no revolving loan borrowings, $1.6 million in outstanding letters of credit, and $15.9 million in long-term debt under the Amended Credit Agreement. It maintained $60.4 million in additional revolving loan borrowing capacity and was in compliance with all financial covenants - As of March 31, 2020, the Company had **no revolving loan borrowings**, **$1.6 million** of outstanding letters of credit, and **$15.9 million** of long-term debt under the Amended Credit Agreement[115](index=115&type=chunk) - The Company had additional revolving loan borrowing capacity of **$60.4 million** as of March 31, 2020[116](index=116&type=chunk) - The Company was in compliance with all financial covenants (Senior Leverage Ratio and Fixed Charge Coverage Ratio) as of March 31, 2020[120](index=120&type=chunk) [Off-Balance Sheet Arrangements](index=26&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company reports no off-balance sheet arrangements that are reasonably likely to have a material effect on its financial position, results of operations, or cash flows - The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on its financial position, results of operations, or cash flows[122](index=122&type=chunk) [Recent Accounting Pronouncements](index=26&type=section&id=Recent%20Accounting%20Pronouncements) For recent accounting pronouncements, the Company refers to Note 14 of the Notes to Condensed Consolidated Financial Statements, which details the adoption of ASU 2018-13 with no material impact - For a description of recent accounting pronouncements, including adoption dates and estimated effects, refer to Note 14 of the Notes to Condensed Consolidated Financial Statements[123](index=123&type=chunk) [Critical Accounting Policies and Estimates](index=26&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The Company's financial statements rely on estimates and judgments, particularly for revenue recognition, business combinations, goodwill, inventories, and income taxes. There have been no significant changes to these policies in Q1 2020, except for the goodwill policy [Goodwill](index=26&type=section&id=Goodwill) Goodwill is reviewed annually for impairment or when triggering events occur, with the option of a qualitative or quantitative assessment. The Company's reporting unit is equivalent to its operating segment - Goodwill is reviewed for impairment annually at December 31 or whenever events or circumstances indicate it may be impaired[126](index=126&type=chunk) - The Company has the option to perform a qualitative assessment to determine if the fair value of a reporting unit is less than its carrying amount[127](index=127&type=chunk) - If a qualitative assessment indicates potential impairment or is not performed, a quantitative assessment using a combination of income and market approaches is conducted[128](index=128&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the Company's 2019 Form 10-K for a discussion of market risks related to foreign currencies and interest rates - For a discussion of market risk associated with foreign currencies and interest rates, refer to Part II – Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" of the Company's 2019 Form 10-K[129](index=129&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of March 31, 2020. However, internal controls over financial reporting for the newly acquired Geneva were excluded from this evaluation, as permitted by SEC guidance, representing 23.7% of total assets and 11.7% of total consolidated revenues for Q1 2020 - Management, under the supervision of the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2020[131](index=131&type=chunk) - Internal control over financial reporting of the newly acquired Geneva was excluded from the evaluation of disclosure controls and procedures as of March 31, 2020, as permitted by SEC interpretive guidance[132](index=132&type=chunk) - Geneva's total assets represented approximately **23.7% of total assets**, and its revenues represented approximately **11.7% of total consolidated revenues** for the three months ended March 31, 2020[132](index=132&type=chunk) - No significant changes in internal control over financial reporting occurred during Q1 2020, except for those related to the integration of Geneva[133](index=133&type=chunk) [PART II - OTHER INFORMATION](index=28&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, exhibits, and signatures, providing additional context [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal actions, including those related to the Portland Harbor Superfund Site, but does not believe routine litigation will have a material impact. For detailed information, it refers to Note 10 of the financial statements - The Company is party to a variety of legal actions, including those arising from normal business operations and other kinds of legal actions, some of which assert substantial claims or seek fines[134](index=134&type=chunk) - The Company does not believe that such normal and routine litigation will have a material impact on its consolidated financial results[134](index=134&type=chunk) - For additional details on commitments and contingencies, refer to Note 10 of the Notes to Condensed Consolidated Financial Statements[134](index=134&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) This section highlights that the COVID-19 pandemic may adversely impact the Company's business, operations, financial position, and cash flows, exacerbating existing risks. The ultimate severity and duration of these impacts remain highly uncertain - The COVID-19 pandemic may have an adverse impact on the Company's business, results of operations, financial position, and cash flows, including disruptions to manufacturing, supply chain, and employee productivity[136](index=136&type=chunk)[137](index=137&type=chunk) - The Company's water infrastructure manufacturing facility in San Luis Río Colorado, Mexico, was ordered to close through May 31, 2020, due to COVID-19 mandates[137](index=137&type=chunk) - While COVID-19 did not have a material adverse effect on Q1 2020 results, its ultimate impact on future business, operations, financial position, or cash flows is highly uncertain and cannot be accurately predicted[138](index=138&type=chunk) - The impact of COVID-19 may also exacerbate other risks discussed in the 2019 Form 10-K[139](index=139&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the 2020 Q1 Form 10-Q, including merger agreements, credit agreements, stock incentive plans, and certifications - The exhibits filed include the Agreement and Plan of Merger for Geneva Pipe Company, Inc., Consent and Amendment No. 1 to Credit Agreement, and various stock compensation plan forms and certifications[141](index=141&type=chunk) [Signatures](index=31&type=section&id=Signatures) This section contains the signatures of the Company's authorized officers, including the Director, President, and Chief Executive Officer, and the Senior Vice President, Chief Financial Officer, and Corporate Secretary, certifying the report - The report was signed on May 8, 2020, by Scott Montross (Director, President, and Chief Executive Officer) and Aaron Wilkins (Senior Vice President, Chief Financial Officer, and Corporate Secretary)[145](index=145&type=chunk)

[Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section advises that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially, and these statements are **not guarantees of future performance**[16](index=16&type=chunk) - Key factors that could cause actual results to differ include changes in demand and market prices, product mix, bidding activity, timing of orders, raw material prices, production capacity, international trade policy, acquisition integration, tax reform impacts, insurance coverage, and operational problems[16](index=16&type=chunk) [Part I](index=5&type=section&id=Part%20I) [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Northwest Pipe Company is North America's largest steel water pipeline manufacturer, expanding into concrete products through acquisition, addressing significant infrastructure demand - Northwest Pipe Company is the **largest manufacturer of engineered steel water pipeline systems** in North America[20](index=20&type=chunk) - On January 31, 2020, the company acquired Geneva Pipe Company, Inc. for approximately **$49.4 million**, expanding its product capabilities to include reinforced concrete pipe and precast concrete products[23](index=23&type=chunk)[115](index=115&type=chunk) - The U.S. water infrastructure requires critical updates, with estimated investment needs of **$473 billion by 2034** for drinking water and **$150 billion by 2025** for water and wastewater infrastructure[24](index=24&type=chunk) - The core market for large-diameter, high-pressure water transmission pipelines has an estimated total addressable market of approximately **$1.3 billion** over the next three years[25](index=25&type=chunk) - Backlog as of December 31, 2019, was approximately **$199 million**, a significant increase from **$81 million** in 2018; including confirmed orders, backlog was **$258 million** in 2019[40](index=40&type=chunk) - One customer accounted for **23% of total Net sales** from continuing operations for the year ended December 31, 2019[34](index=34&type=chunk) [Item 1A. Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from project delays, acquisition integration, intense competition, steel price volatility, and operational issues - Project delays in public water transmission projects, due to changes in priorities, regulatory difficulties, funding issues, or property rights acquisition, can **adversely affect manufacturing schedules and financial results**[55](index=55&type=chunk) - Successful integration of Geneva Pipe Company, Inc. and future acquisitions is critical, with risks including longer integration times, failure to realize anticipated synergies, and operational combination challenges[56](index=56&type=chunk)[57](index=57&type=chunk) - The business faces **overcapacity** and competition from substitute products, leading to **vigorous price competition** and potential negative impacts on sales, gross margins, and profitability[58](index=58&type=chunk)[59](index=59&type=chunk) - Dependence on government spending for public water transmission projects makes the business **vulnerable to funding downturns** and changes in project priorities[60](index=60&type=chunk) - Fluctuations in steel prices, comprising **30% to 35% of project costs**, can significantly affect gross profit; average steel costs were **$803/ton in 2019** and **$818/ton in 2018**[63](index=63&type=chunk)[65](index=65&type=chunk) - Operating problems like fires (e.g., Saginaw, Texas facility fire in April 2019), mechanical failures, and labor difficulties can **materially affect productivity and profitability**[68](index=68&type=chunk)[69](index=69&type=chunk) - The company's debt obligations could limit future financing, reduce operational funds, increase vulnerability to economic downturns, and expose it to interest rate increases, including LIBOR transition risk[86](index=86&type=chunk)[87](index=87&type=chunk) [Item 1B. Unresolved Staff Comments](index=17&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC [Item 2. Properties](index=17&type=section&id=Item%202.%20Properties) The company operates strategically located manufacturing facilities across North America, including owned and leased properties, with sufficient capacity - The company's manufacturing facilities are strategically located in Oregon, California, Texas, West Virginia, Missouri, and Mexico, serving regional markets across North America[96](index=96&type=chunk) Operating Facilities as of December 31, 2019 | Location | Manufacturing Space (approx. sq. ft.) | Property Size (approx. acres) | Number and Type of Mills | | :--- | :--- | :--- | :--- | | Portland, Oregon | 300,000 | 25 | 2 Spiral mills | | San Luis Río Colorado, Mexico | 273,000 | 105 | 2 Spiral mills, 1 Plate roll | | Adelanto, California | 200,000 | 100 | 3 Spiral mills, 1 Plate roll | | Saginaw, Texas (2 facilities) | 170,000 | 50 | 2 Spiral mills | | Tracy, California | 165,000 | 87 | 2 Spiral mills | | Parkersburg, West Virginia | 145,000 | 90 | 2 Spiral mills | | St. Louis, Missouri | 100,000 | 20 | 2 Plate rolls | - Most facilities are owned, with some leased properties in Saginaw, Texas, St. Louis, Missouri, and adjacent to Portland, Oregon, and Saginaw, Texas facilities[96](index=96&type=chunk) [Item 3. Legal Proceedings](index=17&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal actions, but management does not anticipate a material impact on financial results - The company is party to various legal actions in the normal course of business, with some seeking **substantial fines or damages**[97](index=97&type=chunk) - Management does not believe that normal and routine litigation will have a **material impact on consolidated financial results**[97](index=97&type=chunk) [Item 4. Mine Safety Disclosures](index=18&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations [Part II](index=18&type=section&id=Part%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=18&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock is listed on Nasdaq, with no cash dividends planned, and a Form S-3 registration statement provides potential capital - Common stock is quoted on Nasdaq under the symbol **'NWPX'**[100](index=100&type=chunk) - As of February 24, 2020, there were **23 shareholders of record** and **9,750,851 shares outstanding**[6](index=6&type=chunk)[100](index=100&type=chunk) - The company does not intend to pay **cash dividends** in the foreseeable future[100](index=100&type=chunk) - A Form S-3 registration statement for up to **$120 million** of equity and/or debt securities was declared effective in 2017, but no securities have been sold under it as of the 2019 Form 10-K filing date[101](index=101&type=chunk)[137](index=137&type=chunk) Indexed Return (December 31, 2014 = 100.00) | Year | Northwest Pipe Company | Russell 2000 Index | Peer Group | | :--- | :--- | :--- | :--- | | December 31, 2014 | 100.00 | 100.00 | 100.00 | | December 31, 2015 | 37.15 | 95.59 | 88.92 | | December 31, 2016 | 57.17 | 115.95 | 118.98 | | December 31, 2017 | 63.55 | 132.94 | 122.71 | | December 31, 2018 | 77.32 | 118.30 | 99.37 | | December 31, 2019 | 110.59 | 148.49 | 122.59 | [Item 6. Selected Financial Data](index=20&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected financial data shows significant growth in net sales and gross profit in 2019, reversing prior years' losses Consolidated Statement of Operations Data (in thousands, except per share amounts) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $279,317 | $172,149 | $132,780 | $149,387 | $173,160 | | Gross profit | $47,184 | $12,096 | $5,815 | $64 | $945 | | Income (loss) from continuing operations | $27,902 | $20,312 | $(8,392) | $(6,741) | $(17,812) | | Net income (loss) | $27,902 | $20,312 | $(10,163) | $(9,263) | $(29,388) | | Basic - Income (loss) from continuing operations | $2.86 | $2.09 | $(0.88) | $(0.71) | $(1.86) | | Diluted - Income (loss) from continuing operations | $2.85 | $2.09 | $(0.88) | $(0.71) | $(1.86) | Consolidated Balance Sheet Data (in thousands) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total assets | $310,245 | $271,350 | $230,324 | $241,555 | $259,380 | | Long-term debt and finance lease liabilities, less current portion | $1,221 | $12,303 | $737 | $602 | $676 | | Operating lease liabilities, less current portion | $6,247 | $- | $- | $- | $- | | Stockholders' equity | $248,158 | $218,590 | $200,264 | $209,213 | $217,560 | - The company adopted ASC Topic 842, 'Leases,' on January 1, 2019, using the modified retrospective transition method, impacting balance sheet presentation for operating lease liabilities[109](index=109&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details 2019 financial performance, including sales growth, acquisition impacts, liquidity, and critical accounting policies - Northwest Pipe Company is the **largest manufacturer of engineered steel water pipeline systems** in North America, primarily for water infrastructure[112](index=112&type=chunk) - The acquisition of Ameron Water Transmission Group, LLC in July 2018 for **$38.1 million** strengthened the company's position and expanded its product portfolio[113](index=113&type=chunk) - A fire at the Saginaw, Texas facility in April 2019 caused production impairment, with **$6.6 million in incremental production costs** partially offset by **$5.0 million in business interruption insurance proceeds**[114](index=114&type=chunk)[331](index=331&type=chunk) - The acquisition of Geneva Pipe Company, Inc. in January 2020 for approximately **$49.4 million** further expanded water infrastructure product capabilities, adding concrete pipe and precast concrete products[115](index=115&type=chunk)[352](index=352&type=chunk) - Long-term demand for U.S. water infrastructure projects appears strong, but near-term challenges include strained governmental budgets, increased competition, and **fluctuating steel costs**[117](index=117&type=chunk) Key Financial Information (in thousands, except percentages) | Metric | 2019 | % of Net Sales (2019) | 2018 | % of Net Sales (2018) | 2017 | % of Net Sales (2017) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $279,317 | 100.0% | $172,149 | 100.0% | $132,780 | 100.0% | | Cost of sales | $232,133 | 83.1% | $160,053 | 93.0% | $126,965 | 95.6% | | Gross profit | $47,184 | 16.9% | $12,096 | 7.0% | $5,815 | 4.4% | | Selling, general, and administrative expense | $18,495 | 6.6% | $16,663 | 9.6% | $14,143 | 10.6% | | Operating income (loss) | $28,689 | 10.3% | $(2,971) | (1.7)% | $(9,209) | (6.9)% | | Bargain purchase gain | $- | 0.0% | $20,080 | 11.6% | $- | 0.0% | | Net income (loss) | $27,902 | 10.0% | $20,312 | 11.8% | $(10,163) | (7.7)% | - Net sales from continuing operations increased **62.3% to $279.3 million** in 2019 (from **$172.1 million** in 2018), driven by an **81% increase in tons produced**[120](index=120&type=chunk) - Gross profit increased **290.1% to $47.2 million** (**16.9% of Net sales**) in 2019 (from **$12.1 million** or **7.0% of Net sales** in 2018), driven by increased production volume and Ameron operations[121](index=121&type=chunk) - Net cash provided by operating activities from continuing operations was **$42.9 million** in 2019, a significant improvement from **$(18.4) million used in 2018**[132](index=132&type=chunk) - Working capital increased to **$153.5 million** as of December 31, 2019, from **$128.0 million** in 2018, and cash and cash equivalents rose to **$31.0 million** from **$6.7 million**[129](index=129&type=chunk) - Capital expenditures are projected to be approximately **$14 million to $15 million** in 2020 for standard capital replacement[134](index=134&type=chunk) Contractual Obligations and Commitments (in thousands) as of December 31, 2019 | Obligation Type | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Finance leases | $1,641 | $420 | $641 | $580 | $- | | Operating leases | $7,889 | $1,642 | $1,795 | $1,266 | $3,186 | | Interest payments | $1,857 | $400 | $581 | $398 | $478 | | **Total obligations** | **$11,387** | **$2,462** | **$3,017** | **$2,244** | **$3,664** | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risks include steel price volatility, minimal interest rate risk, and managed foreign currency exchange rate risk - The most significant commodity risk is steel, comprising approximately **30% to 35% of project costs**, with prices being highly cyclical and volatile[162](index=162&type=chunk)[163](index=163&type=chunk) - As of December 31, 2019, the company had **no outstanding variable rate debt**, minimizing interest rate risk, and a hypothetical **1.0% change in interest rates** would not materially impact interest expense[164](index=164&type=chunk) - Foreign currency exchange rate risk primarily involves the U.S. Dollar against the Canadian Dollar and Mexican Peso, managed using foreign currency forward contracts designated as cash flow hedges[165](index=165&type=chunk)[166](index=166&type=chunk) - As of December 31, 2019, the total notional amount of foreign currency forward contracts designated as cash flow hedges was **$6.1 million (CAD$7.9 million)**, and a hypothetical **10% change** in exchange rates would not materially impact net income[166](index=166&type=chunk)[167](index=167&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=30&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item incorporates consolidated financial statements, including the auditor's report, balance sheets, and cash flow statements - The Consolidated Financial Statements, including the Report of Independent Registered Public Accounting Firm, are included on pages **F-1 to F-34**[168](index=168&type=chunk) - Quarterly financial information is provided in **Note 21** of the Notes to Consolidated Financial Statements[168](index=168&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=30&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure matters [Item 9A. Controls and Procedures](index=30&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - As of December 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were **effective**[171](index=171&type=chunk) - Management assessed the internal control over financial reporting as **effective** as of December 31, 2019, based on the COSO framework[174](index=174&type=chunk) - The effectiveness of internal control over financial reporting was audited by **Moss Adams LLP**[175](index=175&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter ended December 31, 2019[176](index=176&type=chunk) [Item 9B. Other Information](index=31&type=section&id=Item%209B.%20Other%20Information) There is no other information required to be disclosed under this item [Part III](index=31&type=section&id=Part%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=31&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section provides information on the company's directors and executive officers, along with corporate governance practices and ethics codes Executive Officers of the Registrant (as of December 31, 2019) | Name | Age | Current Position | | :--- | :--- | :--- | | Scott Montross | 55 | Director, President, and Chief Executive Officer | | Robin Gantt | 48 | Senior Vice President and Chief Financial Officer (retiring April 1, 2020) | | William Smith | 64 | Executive Vice President of Water Transmission Engineered Systems | | Aaron Wilkins | 45 | Vice President of Finance, Corporate Controller, and Corporate Secretary (succeeding as CFO April 1, 2020) | | Miles Brittain | 56 | Vice President of Operations for Water Transmission Engineered Systems | - The company has a Code of Business Conduct and Ethics for all employees and a Code of Ethics for Senior Financial Officers, accessible on its website[185](index=185&type=chunk) [Item 11. Executive Compensation](index=32&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Shareholders [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=32&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details shares authorized for equity compensation plans, including outstanding options and shares available for future issuance Securities Authorized for Issuance Under Equity Compensation Plans (as of December 31, 2019) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 109,170 | $24.15 | 480,876 | | Equity compensation plans not approved by security holders | - | - | - | | **Total** | **109,170** | **$24.15** | **480,876** | - The weighted-average exercise price excludes performance share awards, as recipients are not required to pay an exercise price[190](index=190&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=33&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the definitive proxy statement [Item 14. Principal Accounting Fees and Services](index=33&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the definitive proxy statement [Part IV](index=33&type=section&id=Part%20IV) [Item 15. Exhibits, Financial Statement Schedules](index=33&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists consolidated financial statements, the auditor's report, and various exhibits filed with the 10-K report - Consolidated Financial Statements and the report of **Moss Adams LLP** are included on pages **F-1 to F-34**[195](index=195&type=chunk) - Schedule II, 'Valuation and Qualifying Accounts,' is filed with the report[196](index=196&type=chunk) - Exhibits include various agreements such as the Membership Interest Purchase Agreement for Ameron (2.3), Agreement and Plan of Merger for Geneva Pipe Company (2.4), and the Credit Agreement with Wells Fargo Bank (10.11)[199](index=199&type=chunk) [Item 16. Form 10-K Summary](index=35&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided [Report of Independent Registered Public Accounting Firm](index=36&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Moss Adams LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting - **Moss Adams LLP** issued an **unqualified opinion** on the consolidated financial statements for 2019 and 2018, and on the effectiveness of internal control over financial reporting as of December 31, 2019[204](index=204&type=chunk)[205](index=205&type=chunk) - The audit was conducted in accordance with **PCAOB standards**, assessing risks of material misstatement and evaluating accounting principles and estimates[208](index=208&type=chunk)[209](index=209&type=chunk) - The company changed its accounting method for leases in 2019 (**ASC Topic No. 842**) and for revenue recognition in 2018 (**ASC Topic No. 606**), as discussed in Note 2 and Note 16[206](index=206&type=chunk) [Consolidated Statements of Operations](index=38&type=section&id=Consolidated%20Statements%20of%20Operations) The statements show significant increases in net sales and gross profit in 2019, leading to a turnaround in net income Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | :--- | | Net sales | $279,317 | $172,149 | $132,780 | | Cost of sales | 232,133 | 160,053 | 126,965 | | Gross profit | 47,184 | 12,096 | 5,815 | | Selling, general, and administrative expense | 18,495 | 16,663 | 14,143 | | Operating income (loss) | 28,689 | (2,971) | (9,209) | | Bargain purchase gain | - | 20,080 | - | | Income (loss) from continuing operations before income taxes | 32,640 | 17,060 | (9,492) | | Income tax expense (benefit) | 4,738 | (3,252) | (1,100) | | Income (loss) from continuing operations | 27,902 | 20,312 | (8,392) | | Net income (loss) | $27,902 | $20,312 | $(10,163) | | Basic net income (loss) per share | $2.86 | $2.09 | $(1.06) | | Diluted net income (loss) per share | $2.85 | $2.09 | $(1.06) | - Net sales increased significantly by **62.3% from $172.1 million in 2018 to $279.3 million in 2019**[216](index=216&type=chunk) - Gross profit saw a substantial increase of **290.1% from $12.1 million in 2018 to $47.2 million in 2019**[216](index=216&type=chunk) - The company reported a net income of **$27.9 million in 2019**, up from **$20.3 million in 2018**, and a significant turnaround from a net loss of **$(10.2) million in 2017**[216](index=216&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=39&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive income for 2019 was $27.9 million, slightly impacted by other comprehensive losses from cash flow hedges Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | :--- | | Net income (loss) | $27,902 | $20,312 | $(10,163) | | Other comprehensive income (loss), net of tax: | | | | | Pension liability adjustment | 16 | (115) | 57 | | Unrealized gain (loss) on cash flow hedges | (59) | 24 | (19) | | Total other comprehensive income (loss), net of tax | (43) | (91) | 38 | | Comprehensive income (loss) | $27,859 | $20,221 | $(10,125) | - Comprehensive income for 2019 was **$27.9 million**, slightly lower than net income due to a net other comprehensive loss of **$(43) thousand**, primarily from unrealized losses on cash flow hedges[218](index=218&type=chunk) [Consolidated Balance Sheets](index=40&type=section&id=Consolidated%20Balance%20Sheets) The balance sheets show increased total assets, cash, and stockholders' equity in 2019, with reduced line of credit borrowings Consolidated Balance Sheets (in thousands) | Asset/Liability | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets:** | | | | Cash and cash equivalents | $31,014 | $6,677 | | Trade and other receivables, net | 38,026 | 34,394 | | Contract assets | 91,186 | 74,271 | | Inventories | 30,654 | 39,376 | | Total current assets | 195,039 | 159,513 | | Property and equipment, net | 99,631 | 103,447 | | Other assets | 15,575 | 8,390 | | **Total assets** | **$310,245** | **$271,350** | | **Liabilities:** | | | | Accounts payable | $15,493 | $19,784 | | Accrued liabilities | 13,792 | 7,963 | | Contract liabilities | 12,281 | 3,745 | | Total current liabilities | 41,566 | 31,492 | | Borrowings on line of credit | - | 11,464 | | Deferred income taxes | 4,265 | 68 | | Other long-term liabilities | 16,256 | 9,736 | | **Total liabilities** | **$62,087** | **$52,760** | | **Stockholders' Equity:** | | | | Total stockholders' equity | $248,158 | $218,590 | | **Total liabilities and stockholders' equity** | **$310,245** | **$271,350** | - Total assets increased by **$38.9 million (14.3%)** from **$271.4 million in 2018 to $310.2 million in 2019**[221](index=221&type=chunk) - Cash and cash equivalents significantly increased by **$24.3 million (364.4%)** from **$6.7 million in 2018 to $31.0 million in 2019**[221](index=221&type=chunk) - Borrowings on the line of credit decreased from **$11.5 million in 2018 to zero in 2019**[221](index=221&type=chunk) - Stockholders' equity increased by **$29.6 million (13.5%)** from **$218.6 million in 2018 to $248.2 million in 2019**[221](index=221&type=chunk) [Consolidated Statements of Stockholders' Equity](index=41&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to $248.2 million in 2019, primarily driven by net income and share-based compensation Consolidated Statements of Stockholders' Equity (in thousands) | Metric | December 31, 2016 | December 31, 2017 | December 31, 2018 | December 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $209,213 | $200,264 | $218,590 | $248,158 | | Net income (loss) | - | $(10,163) | $20,312 | $27,902 | | Share-based compensation expense | - | $1,200 | $281 | $1,709 | | Cumulative-effect adjustment for ASC Topic 606 | - | - | $(875) | - | | Cumulative-effect adjustment for ASU 2018-02 | - | - | - | $- | | Pension liability adjustment, net of tax | $57 | $(115) | $16 | | Unrealized gain (loss) on cash flow hedges, net of tax | $(19) | $24 | $(59) | | Issuance of common stock under stock compensation plans | $(24) | $(1,301) | $- | - Stockholders' equity increased from **$218.6 million** at December 31, 2018, to **$248.2 million** at December 31, 2019, primarily driven by net income of **$27.9 million** and share-based compensation expense of **$1.7 million**[223](index=223&type=chunk) - The company recorded a cumulative-effect adjustment for **ASC Topic 606 of $(0.9) million** in 2018 and for **ASU 2018-02 of $0.2 million** (reclassification) in 2019[223](index=223&type=chunk) [Consolidated Statements of Cash Flows](index=42&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly improved to $42.9 million in 2019, contributing to a substantial increase in cash and cash equivalents Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $42,886 | $(18,400) | $(7,520) | | Net cash provided by (used in) investing activities | $(6,423) | $(27,899) | $29,800 | | Net cash provided by (used in) financing activities | $(12,126) | $9,330 | $(463) | | Change in cash and cash equivalents | $24,337 | $(36,969) | $21,817 | | Cash and cash equivalents, end of period | $31,014 | $6,677 | $43,646 | - Net cash provided by operating activities from continuing operations significantly improved to **$42.9 million in 2019**, compared to **$(18.4) million used in 2018**[132](index=132&type=chunk)[226](index=226&type=chunk) - Net cash used in investing activities from continuing operations decreased to **$6.4 million in 2019** from **$32.4 million in 2018**, primarily due to lower acquisition spending and insurance proceeds offsetting capital expenditures[133](index=133&type=chunk)[226](index=226&type=chunk) - Net cash used in financing activities was **$(12.1) million in 2019**, a shift from **$9.3 million provided in 2018**, mainly due to net repayments on the line of credit[135](index=135&type=chunk)[228](index=228&type=chunk) - Cash and cash equivalents increased by **$24.3 million in 2019**, ending the year at **$31.0 million**[228](index=228&type=chunk) [Notes to Consolidated Financial Statements](index=44&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. ORGANIZATION](index=44&type=section&id=1.%20ORGANIZATION) Northwest Pipe Company operates as a single Water Infrastructure segment, producing engineered pipeline systems across North America - The company operates in one segment, **Water Infrastructure**, producing engineered pipeline systems for various water-related applications[231](index=231&type=chunk) - Manufacturing facilities are located in Portland, Oregon; Adelanto, California; Saginaw, Texas; Tracy, California; Parkersburg, West Virginia; St. Louis, Missouri; and San Luis Río Colorado, Mexico[231](index=231&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=44&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the company's accounting policies, including business combinations, revenue recognition, leases, and recent accounting changes - The company accounts for business combinations using the **acquisition method**, recognizing identifiable assets and liabilities at fair value on the acquisition date[235](index=235&type=chunk) - Revenue for most contracts is recognized **over time** using the **cost-to-cost method**, as products are custom-specified and have no alternative use[251](index=251&type=chunk) - The company adopted **ASC Topic 842, 'Leases,'** on January 1, 2019, recognizing right-of-use assets and lease liabilities of approximately **$8.0 million** for operating leases[261](index=261&type=chunk) - **ASU 2018-02** was adopted on January 1, 2019, resulting in a **$0.2 million reclassification** between Accumulated other comprehensive loss and Retained earnings[263](index=263&type=chunk) - The company uses foreign currency forward contracts as **cash flow hedges** for Canadian currency exposures, with gains/losses recognized in Accumulated other comprehensive loss[246](index=246&type=chunk)[249](index=249&type=chunk) - Inventories are stated at the **lower of cost and net realizable value**, with steel raw materials on a specific identification or average cost basis[240](index=240&type=chunk) [3. BUSINESS COMBINATION](index=50&type=section&id=3.%20BUSINESS%20COMBINATION) The 2018 acquisition of Ameron Water Transmission Group for $38.1 million resulted in a $20.1 million bargain purchase gain - The company acquired **100% of Ameron Water Transmission Group, LLC** on July 27, 2018, for **$38.1 million in cash**[269](index=269&type=chunk) - The acquisition resulted in a **bargain purchase gain of $20.1 million**, recorded because the net fair value of acquired assets and assumed liabilities exceeded the consideration transferred[270](index=270&type=chunk)[271](index=271&type=chunk) - Ameron contributed **$55.4 million** and **$30.2 million** in net sales in 2019 and 2018, respectively[120](index=120&type=chunk) Unaudited Pro Forma Consolidated Financial Data (in thousands) | Metric | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | | Net sales | $200,513 | $186,377 | | Net loss from continuing operations | $(15,102) | $(10,611) | [4. DISCONTINUED OPERATIONS](index=51&type=section&id=4.%20DISCONTINUED%20OPERATIONS) The Atchison, Kansas facility was sold in 2017 for $37.2 million, with its financial results reported as discontinued operations - The Atchison, Kansas manufacturing facility was sold on December 26, 2017, for **$37.2 million in cash**[273](index=273&type=chunk) - Operating results for discontinued operations in 2017 included net sales of **$12 thousand** and a net loss of **$(1.8) million**[275](index=275&type=chunk) [5. INVENTORIES](index=52&type=section&id=5.%20INVENTORIES) Total inventories decreased by $8.7 million to $30.7 million in 2019, primarily due to a reduction in raw materials Inventories (in thousands) | Category | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Raw materials | $26,772 | $34,426 | | Work-in-process | 1,579 | 2,368 | | Finished goods | 683 | 1,075 | | Supplies | 1,620 | 1,507 | | **Total inventories** | **$30,654** | **$39,376** | - Total inventories decreased by **$8.7 million (22.1%)** from **$39.4 million in 2018 to $30.7 million in 2019**[276](index=276&type=chunk) [6. PROPERTY AND EQUIPMENT](index=52&type=section&id=6.%20PROPERTY%20AND%20EQUIPMENT) Net property and equipment decreased slightly to $99.6 million in 2019, with sales of facilities in Mexico and Texas in 2018 Property and Equipment, Net (in thousands) | Category | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Land and improvements | $22,480 | $22,940 | | Buildings | 44,251 | 40,477 | | Machinery and equipment | 115,237 | 112,884 | | Equipment under finance lease | 2,081 | 1,683 | | Less accumulated depreciation and amortization | (86,244) | (76,861) | | Construction in progress | 1,826 | 2,324 | | **Property and equipment, net** | **$99,631** | **$103,447** | - Net property and equipment decreased by **$3.8 million (3.7%)** from **$103.4 million in 2018 to $99.6 million in 2019**[277](index=277&type=chunk) - Approximately **$19.8 million** of net property and equipment was located in Mexico as of December 31, 2019[278](index=278&type=chunk) - In 2018, the company sold its Monterrey, Mexico facility for **$2.7 million** (gain of **$0.2 million**) and property in Houston, Texas for **$5.8 million** (gain of **$2.8 million**)[278](index=278&type=chunk) [7. INTANGIBLE ASSETS](index=53&type=section&id=7.%20INTANGIBLE%20ASSETS) Intangible assets, mainly customer relationships and trade names, decreased to $1.2 million net in 2019 due to amortization Intangible Assets, Net (in thousands) | Category | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Customer relationships | $551 | $689 | | Trade names and trademarks | $680 | $755 | | Backlog | $- | $109 | | **Total Intangible Assets, Net** | **$1,231** | **$1,553** | - Intangible assets decreased by **$0.3 million (20.7%)** from **$1.6 million in 2018 to $1.2 million in 2019**[280](index=280&type=chunk) - Estimated amortization expense for 2020 is **$213 thousand**[280](index=280&type=chunk) [8. LINE OF CREDIT](index=53&type=section&id=8.%20LINE%20OF%20CREDIT) The Credit Agreement with Wells Fargo Bank was amended in 2020, increasing capacity to $74 million with no outstanding borrowings in 2019 - As of December 31, 2019, there were **no outstanding borrowings** under the Credit Agreement, compared to **$11.5 million in 2018**[282](index=282&type=chunk) - The Credit Agreement was amended on January 31, 2020, increasing the revolving loan and letter of credit capacity to **$74 million** and extending the maturity to **October 25, 2024**[353](index=353&type=chunk) - As of January 31, 2020, outstanding borrowings were approximately **$19 million**, with an additional borrowing capacity of approximately **$39 million**[353](index=353&type=chunk) - Borrowings bear interest at rates related to daily three-month LIBOR plus **1.5% to 2.0%**, with a weighted-average interest rate of **3.43% in 2019** and **4.56% in 2018**[282](index=282&type=chunk) - The Amended Credit Agreement includes financial covenants requiring a Senior Leverage Ratio not greater than **3.00** and a Fixed Charge Coverage Ratio of at least **1.10 to 1.00**[356](index=356&type=chunk) [9. LEASES](index=54&type=section&id=9.%20LEASES) Following ASC Topic 842 adoption, the company recognized $9.8 million in right-of-use assets and $9.5 million in lease liabilities Leases Recorded on Consolidated Balance Sheet (in thousands) as of December 31, 2019 | Category | Amount | | :--- | :--- | | Right-of-use assets: | | | Finance leases | $2,081 | | Operating leases | $7,683 | | **Total right-of-use assets** | **$9,764** | | Lease liabilities: | | | Finance leases | $1,641 | | Operating leases | $7,889 | | **Total lease liabilities** | **$9,530** | Lease Cost (in thousands) for Year Ended December 31, 2019 | Category | Amount | | :--- | :--- | | Finance lease cost | $492 | | Operating lease cost | $1,934 | | Short-term lease cost | $1,442 | | Variable lease cost | $141 | | **Total lease cost** | **$4,009** | Future Maturities of Lease Liabilities (in thousands) as of December 31, 2019 | Year | Finance Leases | Operating Leases | | :--- | :--- | :--- | | 2020 | $499 | $1,963 | | 2021 | $382 | $1,290 | | 2022 | $361 | $984 | | 2023 | $157 | $802 | | 2024 | $471 | $814 | | Thereafter | $- | $3,664 | | **Total lease payments** | **$1,870** | **$9,517** | - Weighted-average remaining lease term for finance leases is **3.79 years** and for operating leases is **8.31 years**, with weighted-average discount rates of **5.40%** for finance leases and **4.50%** for operating leases[293](index=293&type=chunk) [10. FAIR VALUE MEASUREMENTS](index=56&type=section&id=10.%20FAIR%20VALUE%20MEASUREMENTS) The company measures financial assets and liabilities at fair value, including deferred compensation plan assets and foreign currency forward contracts Financial Assets and Liabilities Measured at Fair Value (in thousands) as of December 31, 2019 | Category | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Financial assets: | | | | | | Deferred compensation plan | $5,150 | $4,268 | $882 | $- | | Financial liabilities: | | | | | | Foreign currency forward contracts | $(138) | $- | $(138) | $- | - Deferred compensation plan assets include publicly traded stock and bond mutual funds (**Level 1**) and guaranteed investment contracts (**Level 2**)[296](index=296&type=chunk) - Foreign currency forward contracts are derivatives valued using observable market parameters and classified as **Level 2**[297](index=297&type=chunk) [11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES](index=57&type=section&id=11.%20DERIVATIVE%20INSTRUMENTS%20AND%20HEDGING%20ACTIVITIES) Foreign currency forward contracts are used as cash flow hedges for Canadian currency exposures, with a notional amount of $6.1 million in 2019 - The company uses foreign currency forward contracts to offset risks from foreign currency exposures, typically Canadian currency sales contracts, and applies **cash flow hedge accounting**[300](index=300&type=chunk) - As of December 31, 2019, the total notional amount of foreign currency forward contracts designated as cash flow hedges was **$6.1 million (CAD$7.9 million)**, up from **$1.7 million (CAD$2.3 million)** in 2018[301](index=301&type=chunk) - Most Canadian forward contracts had maturities less than **twelve months** as of December 31, 2019, except one for **$3.6 million (CAD$4.8 million)** with a **15-month maturity**[302](index=302&type=chunk) [12. RETIREMENT PLANS](index=57&type=section&id=12.%20RETIREMENT%20PLANS) The company maintains defined contribution and frozen defined benefit plans, with an accrued pension liability of $1.7 million in 2019 - The company has a defined contribution retirement plan with a company match and two noncontributory defined benefit plans that have been **frozen since 2001**[304](index=304&type=chunk)[305](index=305&type=chunk) - As of December 31, 2019, the accrued pension liability was **$1.7 million**, and an unrecognized actuarial loss, net of tax, was **$1.8 million**[306](index=306&type=chunk) - The projected benefit obligation was **$6.4 million** and plan assets were **$4.8 million** as of December 31, 2019[306](index=306&type=chunk) - A non-qualified deferred compensation plan, frozen in 2016, had balances of **$5.2 million** in 2019[309](index=309&type=chunk) - Total expense for all retirement plans was **$1.2 million in 2019**, up from **$0.9 million in 2018 and 2017**[310](index=310&type=chunk) [13. SHARE-BASED COMPENSATION](index=58&type=section&id=13.%20SHARE-BASED%20COMPENSATION) Share-based compensation expense was $1.7 million in 2019, with 480,876 shares available for future issuance under the incentive plan - Share-based compensation expense was **$1.7 million in 2019**, compared to **$0.3 million in 2018** and **$1.2 million in 2017**[312](index=312&type=chunk) - As of December 31, 2019, **480,876 shares** of common stock were available for future issuance under the 2007 Stock Incentive Plan[312](index=312&type=chunk) - Outstanding stock options totaled **24,000 shares** with a weighted-average exercise price of **$24.15** as of December 31, 2019[314](index=314&type=chunk) - Unvested RSUs and PSAs totaled **85,170 shares** as of December 31, 2019, including approximately **64,000 performance-based PSAs** at target level[316](index=316&type=chunk) - Unrecognized compensation expense related to unvested RSUs and PSAs was **$1.1 million** as of December 31, 2019, expected to be recognized over a weighted-average period of **1.2 years**[318](index=318&type=chunk) [14. SHAREHOLDER RIGHTS PLAN](index=60&type=section&id=14.%20SHAREHOLDER%20RIGHTS%20PLAN) The company's Shareholder Rights Plan, adopted in 1999, expired on June 28, 2019, and is no longer in effect - The Shareholder Rights Plan, which provided for preferred stock purchase rights, **expired on June 28, 2019**, and is no longer in force[320](index=320&type=chunk)[322](index=322&type=chunk) [15. COMMITMENTS AND CONTINGENCIES](index=61&type=section&id=15.%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces environmental liabilities, including the Portland Harbor Superfund Site, and incurred costs from a 2019 facility fire - The company is a potentially responsible party at the Portland Harbor Superfund Site but is **unable to estimate its financial obligation** due to numerous parties and uncertainties in cleanup costs and allocation[324](index=324&type=chunk) - Ongoing groundwater sampling at a leased property adjacent to the Portland facility is consistent with previous findings, and the company anticipates **Monitored Natural Attenuation** as the selected remedy[325](index=325&type=chunk) - The company agreed to fund **$0.4 million** for the Natural Resource Damage Assessment (NRDA) process but has not assumed additional payment obligations[326](index=326&type=chunk) - A fire at the Saginaw, Texas facility in April 2019 resulted in **$0.9 million in property and equipment write-offs** and **$0.1 million in inventory write-offs**, offset by **$2.6 million in insurance proceeds** (a **$1.6 million gain**)[331](index=331&type=chunk) - Incremental production costs of **$6.6 million** from the Saginaw fire were partially offset by **$5.0 million in business interruption insurance proceeds** in 2019[331](index=331&type=chunk) - The company has **$1.6 million** in letters of credit related to workers' compensation insurance[332](index=332&type=chunk) [16. REVENUE](index=62&type=section&id=16.%20REVENUE) Net sales from continuing operations significantly increased in 2019, with one customer accounting for 23% of total net sales - The adoption of **ASC Topic 606** on January 1, 2018, resulted in a **$0.9 million decrease to Retained earnings**[333](index=333&type=chunk) Net Sales from Continuing Operations by Geographic Region (in thousands) | Region | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | :--- | | United States | $252,797 | $161,415 | $122,179 | | Canada | $26,520 | $10,734 | $10,601 | | **Total** | **$279,317** | **$172,149** | **$132,780** | - One customer accounted for **23% of total Net sales** from continuing operations in 2019[334](index=334&type=chunk) - Backlog as of December 31, 2019, was approximately **$199 million**, with **74% expected in 2020** and **25% in 2021**[338](index=338&type=chunk) [17. INCOME TAXES](index=63&type=section&id=17.%20INCOME%20TAXES) Income tax expense was $4.7 million in 2019, with an effective tax rate of 14.5%, influenced by valuation allowances and prior bargain purchase gain Income (Loss) from Continuing Operations Before Income Taxes by Geography (in thousands) | Region | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | :--- | | United States | $32,244 | $16,207 | $(9,634) | | Foreign | $396 | $853 | $142 | | **Total** | **$32,640** | **$17,060** | **$(9,492)** | Income Tax Expense (Benefit) from Continuing Operations (in thousands) | Category | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | :--- | | Current | $597 | $377 | $(405) | | Deferred | $4,141 | $(3,629) | $(695) | | **Total Income Tax Expense (Benefit)** | **$4,738** | **$(3,252)** | **$(1,100)** | - The effective income tax rate was **14.5% in 2019**, compared to **(19.1)% in 2018** and **(11.6)% in 2017**, with the 2018 rate significantly impacted by a non-taxable **$20.1 million bargain purchase gain**[127](index=127&type=chunk)[341](index=341&type=chunk) - As of December 31, 2019, the company had **$13.2 million in federal net operating loss carryforwards**, **$2.9 million in federal income tax credit carryforwards**, and **$32.1 million in state net operating loss carryforwards**[343](index=343&type=chunk) - Unrecognized income tax benefits totaled **$4.4 million** as of December 31, 2019, with no material changes expected in the next twelve months[346](index=346&type=chunk) [18. ACCUMULATED OTHER COMPREHENSIVE LOSS](index=66&type=section&id=18.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Accumulated other comprehensive loss totaled $(1.8) million in 2019, primarily due to pension liability adjustments and cash flow hedges Accumulated Other Comprehensive Loss (in thousands) | Component | December 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Pension liability adjustment, net of income tax | $(1,770) | $(1,551) | | Unrealized gain (loss) on cash flow hedges, net of income tax | $(44) | $15 | | **Total** | **$(1,814)** | **$(1,536)** | - The total accumulated other comprehensive loss increased by **$278 thousand** from **$(1.5) million in 2018 to $(1.8) million in 2019**[348](index=348&type=chunk) - Current period adjustments to other comprehensive income (loss) in 2019 included a **$16 thousand gain** from pension liability adjustment and a **$(59) thousand loss** from unrealized cash flow hedges[348](index=348&type=chunk) [19. RESTRUCTURING](index=67&type=section&id=19.%20RESTRUCTURING) The company incurred $1.4 million in restructuring expenses in 2018 for facility closures, following $0.9 million in 2017 - In 2018, the company incurred **$1.4 million in restructuring expenses**, including **$0.6 million for employee severance** and **$0.8 million for demobilization activities**, related to closing facilities in Salt Lake City, Utah, and Monterrey, Mexico[350](index=350&type=chunk) - In 2017, restructuring expenses of **$0.9 million** were incurred for demobilization activities related to the Denver, Colorado facility[351](index=351&type=chunk) [20. SUBSEQUENT EVENTS](index=67&type=section&id=20.%20SUBSEQUENT%20EVENTS) In January 2020, the company acquired Geneva Pipe Company for $49.4 million and amended its Credit Agreement, increasing loan capacity - On January 31, 2020, the company acquired **100% of Geneva Pipe Company, Inc.** for approximately **$49.4 million**, expanding its concrete pipe and precast concrete product offerings[352](index=352&type=chunk) - The Credit Agreement was amended on January 31, 2020, increasing the revolving loan and letter of credit capacity to **$74 million** and extending the maturity date to **October 25, 2024**[353](index=353&type=chunk) - The amendment provides the right to request a Delayed Draw Term Loan of up to approximately **$16 million** prior to March 30, 2020[354](index=354&type=chunk) - New financial covenants include maintaining a Senior Leverage Ratio not greater than **3.00** and a Fixed Charge Coverage Ratio of at least **1.10 to 1.00**[356](index=356&type=chunk) [21. QUARTERLY DATA (UNAUDITED)](index=69&type=section&id=21.%20QUARTERLY%20DATA%20(UNAUDITED)) Unaudited quarterly data for 2019 and 2018 shows trends in sales, profit, and income, highlighting impacts of the Saginaw fire and Ameron acquisition Summarized Quarterly Financial Data (in thousands, except per share amounts) for Year Ended December 31, 2019 | Metric | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $62,643 | $69,203 | $75,226 | $72,245 | $279,317 | | Gross profit | $6,571 | $8,218 | $15,475 | $16,920 | $47,184 | | Operating income | $2,324 | $3,513 | $10,575 | $12,277 | $28,689 | | Net income | $2,165 | $2,974 | $10,747 | $12,016 | $27,902 | | Basic income per share | $0.22 | $0.31 | $1.10 | $1.23 | $2.86 | | Diluted income per share | $0.22 | $0.31 | $1.10 | $1.22 | $2.85 | Summarized Quarterly Financial Data (in thousands, except per share amounts) for Year Ended December 31, 2018 | Metric | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $33,365 | $28,785 | $52,455 | $57,544 | $172,149 | | Gross profit (loss) | $1,348 | $(1,238) | $5,203 | $6,783 | $12,096 | | Operating income (loss) | $(2,342) | $(5,827) | $2,497 | $2,701 | $(2,971) | | Net income (loss) | $(1,951) | $(5,686) | $27,801 | $148 | $20,312 | | Basic income (loss) per share | $(0.20) | $(0.59) | $2.86 | $0.02 | $2.09 | | Diluted income (loss) per share | $(0.20) | $(0.59) | $2.86 | $0.02 | $2.09 | - Gross profit in 2019 included incremental production costs from the Saginaw fire (**$3.2 million Q2, $0.7 million Q3, $2.7 million Q4**), partially offset by business interruption insurance proceeds (**$1.0 million Q3, $4.0 million Q4**)[359](index=359&type=chunk) - Net income for Q3 2018 included a preliminary bargain purchase gain of **$21.9 million**, which was adjusted by **$1.8 million** in Q4 2018[362](index=362&type=chunk) [Schedule II. Valuation and Qualifying Accounts](index=70&type=section&id=Schedule%20II.%20Valuation%20and%20Qualifying%20Accounts) This schedule details changes in the allowance for doubtful accounts and the valuation allowance for deferred income tax assets Valuation and Qualifying Accounts (in thousands) | Account | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts: | | | | | Balance at Beginning of Period | $660 | $477 | $515 | | Charged to Profit and Loss | $312 | $449 | $637 | | Deduction from Reserves | $(171) | $(266) | $(675) | | Balance at End of Period | $801 | $660 | $477 | | Valuation allowance for deferred income tax assets: | | | | | Balance at Beginning of Period | $9,433 | $10,413 | $8,217 | | Charged to Profit and Loss | $345 | $1,785 | $2,196 | | Deduction from Reserves | $(3,652) | $(2,765) | $- | | Balance at End of Period | $6,126 | $9,433 | $10,413 | - Allowance for doubtful accounts increased to **$801 thousand in 2019** from **$660 thousand in 2018**[365](index=365&type=chunk) - Valuation allowance for deferred income tax assets decreased to **$6.1 million in 2019** from **$9.4 million in 2018**[365](index=365&type=chunk) [SIGNATURES](index=71&type=section&id=SIGNATURES) The report was signed on March 3, 2020, by the Director, President, Chief Executive Officer, and Chief Financial Officer - The report was signed on **March 3, 2020**, by **Scott Montross** (Director, President, and Chief Executive Officer) and **Robin Gantt** (Senior Vice President and Chief Financial Officer), along with other directors[367](index=367&type=chunk)[368](index=368&type=chunk)

Financial Data and Key Metrics Changes - Adjusted net income for Q4 2019 was $12.1 million or $1.23 per diluted share, compared to $2.6 million or $0.27 per diluted share in Q4 2018 [6] - Sales increased to $72.2 million in Q4 2019 from $57.5 million in Q4 2018 [6] - Gross profit as a percentage of sales improved to 23.4% in Q4 2019 from 11.8% in Q4 2018 [7] - Full year net income was $27.9 million or $2.85 per diluted share in 2019, up from $20.3 million or $2.09 per diluted share in 2018 [11] - Adjusted net income for 2019 was $26.7 million or $2.73 per diluted share, compared to an adjusted net loss of $1.7 million or $0.18 per diluted share in 2018 [12] - Sales for 2019 increased to $279.3 million from $172.1 million in 2018 [12] Business Line Data and Key Metrics Changes - The Ameron acquisition contributed approximately $55 million in sales [13] - Selling, general and administrative costs rose to $4.6 million in Q4 2019 from $4.1 million in Q4 2018, primarily due to increased incentive compensation expenses [10] - Full year selling, general and administrative costs increased to $18.5 million in 2019 from $16.7 million in 2018 [14] Market Data and Key Metrics Changes - The backlog for the Northwest Pipe legacy business was a record $258 million at year-end 2019, compared to $252 million at the end of Q4 2018 [21] - The company holds approximately 50% of the steel pressure pipe market, which is valued between $450 million to $600 million [19] Company Strategy and Development Direction - The company aims to maximize its core steel pressure pipe water transmission business while pursuing growth opportunities in adjacent water segments [18] - The acquisition of Geneva Pipe and Precast is expected to diversify product offerings and create growth opportunities [20] - The company plans to focus on integrating Geneva Pipe and Precast, improving performance by prioritizing margin over volume, and driving cost reductions [34] Management's Comments on Operating Environment and Future Outlook - Management noted that the first quarter typically experiences weather-related delays, but expects revenues to be similar to Q1 2019 with improved gross margins [23] - The competitive landscape remains stable, with expectations for continued strength in backlog and positive business conditions through 2020 [33] - Management expressed confidence in the integration of Geneva Pipe and Precast and the growth opportunities it presents [62] Other Important Information - The company received $1.3 million in insurance proceeds related to a fire at the Saginaw facility, which positively impacted gross profit [8] - Capital expenditures for 2020 are projected to be between $14 million to $15 million, primarily for ongoing maintenance [16] Q&A Session Summary Question: Comments on year-end results and margins - Management attributed strong margins in Q4 to improved bidding conditions and cost reductions achieved through lean manufacturing [39][40] Question: Pricing environment and new projects - Management indicated that the current pricing environment remains stable, with expectations for margins to improve in the second quarter [41][42] Question: Expectations for Geneva acquisition and seasonality - Management expects Geneva to contribute several million in revenue, with growth projected at around 4% year-over-year [49][53] Question: Capital allocation post-acquisition - Management discussed ongoing capital allocation processes and plans for innovative product development at Geneva [57]

Northwest Pipe Company (NASDAQ:NWPX) Q3 2019 Earnings Conference Call October 31, 2019 10:00 AM ET Company Participants Scott Montross - Chief Executive Officer Robin Gantt - Chief Financial Officer Conference Call Participants Brent Thielman - D.A. Davidson David Wright - Henry Investment Mike Morales - Walthausen & Company Operator Welcome and thank you for standing by. [Operator Instructions] Now I will turn the meeting over to Scott Montross, CEO of Northwest Pipe. You may begin. Scott Montross Thank yo ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2019 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 ...

Northwest Pipe Company (NASDAQ:NWPX) Q2 2019 Earnings Conference Call August 6, 2019 10:00 AM ET Call Participants Scott Montross - President and Chief Executive Officer Robin Gantt - Chief Financial Officer Conference Call Participants Zane Karimi - D.A. Davidson Mike Morales - Walthausen Operator Welcome and thank you for standing by. At this time all participants are in a listen-only mode until the question-and-answer session of today's conference. [Operator instructions] This call is being recorded, if ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the company's financial statements, management's analysis, market risk disclosures, and controls and procedures [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for Q2 and H1 2019 show significant growth, a return to profitability, and improved cash flow, driven by the Ameron acquisition [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales more than doubled in Q2 and H1 2019, leading to a significant return to net income from prior-year losses Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | YoY Change | H1 2019 | H1 2018 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $69,203 | $28,785 | +140.4% | $131,846 | $62,150 | +112.1% | | **Gross profit (loss)** | $8,218 | $(1,238) | N/A | $14,789 | $110 | +13344.5% | | **Operating income (loss)** | $3,513 | $(5,827) | N/A | $5,837 | $(8,169) | N/A | | **Net income (loss)** | $2,974 | $(5,686) | N/A | $5,139 | $(7,637) | N/A | | **Diluted EPS** | $0.31 | $(0.59) | N/A | $0.53 | $(0.79) | N/A | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet strengthened by June 30, 2019, with increased assets and equity, and the line of credit fully repaid Balance Sheet Summary (in thousands) | Account | June 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | $161,805 | $159,513 | | **Total assets** | $279,052 | $271,350 | | **Total current liabilities** | $37,405 | $31,492 | | **Borrowings on line of credit** | $0 | $11,464 | | **Total liabilities** | $54,610 | $52,760 | | **Total stockholders' equity** | $224,442 | $218,590 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly improved to **$17.3 million** in H1 2019, enabling line of credit repayment and cash increase Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $17,299 | $623 | | **Net cash used in investing activities** | $(2,243) | $(888) | | **Net cash used in financing activities** | $(11,679) | $(1,494) | | **Change in cash and cash equivalents** | $3,377 | $(1,759) | | **Cash and cash equivalents, end of period** | $10,054 | $41,887 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the Ameron acquisition, ASC 842 adoption, Saginaw fire impact, and a **$180.2 million** backlog of performance obligations - The company operates in a single business segment, Water Transmission, producing steel pipeline systems and related products for water infrastructure[22](index=22&type=chunk) - On July 27, 2018, the company acquired Ameron Water Transmission Group for **$38.1 million** in cash, expanding its product portfolio to include reinforced concrete pipe and T-Lock lining[26](index=26&type=chunk) - An accidental fire occurred at the Saginaw, Texas facility on April 21, 2019, impairing coating ability. As of June 30, 2019, the company wrote off **$1.0 million** in assets, offset by **$0.9 million** in insurance proceeds and receivables. An additional **$3.2 million** in production costs were incurred due to the fire[61](index=61&type=chunk)[94](index=94&type=chunk) - As of June 30, 2019, the company's backlog of remaining performance obligations was approximately **$180.2 million**, with **58%** expected to be recognized as revenue in 2019[70](index=70&type=chunk) - The company adopted the new lease accounting standard ASC Topic 842 on January 1, 2019, recognizing right-of-use assets and lease liabilities of approximately **$8.0 million**[77](index=77&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses significant revenue and profit growth driven by the Ameron acquisition and production volume, alongside strong liquidity and capital expenditure plans [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q2 2019 net sales surged **140.4%** due to Ameron acquisition and higher production, improving gross profit despite fire-related costs - Q2 2019 net sales increased **140.4%** to **$69.2 million**, driven by a **186%** increase in tons produced from higher demand and the acquired Ameron operations[93](index=93&type=chunk) - The acquired Ameron operations contributed **$13.8 million** in net sales for Q2 2019 and **$25.6 million** for the first six months of 2019[93](index=93&type=chunk) - Gross profit for Q2 2019 was negatively impacted by **$3.2 million** in higher production costs resulting from the fire at the Saginaw facility[94](index=94&type=chunk) - SG&A expenses increased **23.6%** in Q2 2019 primarily due to **$1.3 million** in higher wages and incentive compensation-related expenses[95](index=95&type=chunk) [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) Strong liquidity is maintained with **$17.3 million** operating cash flow, no credit line borrowings, and **$49.4 million** available capacity - As of June 30, 2019, the company had no outstanding borrowings on its line of credit, down from **$11.5 million** at the end of 2018[101](index=101&type=chunk) - Net cash provided by operating activities was **$17.3 million** for the first six months of 2019, a significant increase from the prior year[102](index=102&type=chunk) - Total capital expenditures for 2019 are expected to be **$12.1 million**, for standard replacement and repairs at the Saginaw facility[103](index=103&type=chunk) - The company has an available borrowing capacity of **$49.4 million** under its credit agreement as of June 30, 2019[108](index=108&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company refers to its Annual Report on Form 10-K for a discussion of market risks associated with foreign currencies and interest rates - For discussion of market risk, the company refers to Part II – Item 7A of its 2018 Form 10-K[113](index=113&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective as of June 30, 2019, excluding the recently acquired Ameron's controls, which are being integrated - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[115](index=115&type=chunk) - Management excluded the internal control over financial reporting of the newly acquired Ameron from its evaluation, as permitted by SEC guidance. Ameron represented **16.4%** of total assets as of June 30, 2019[116](index=116&type=chunk) [PART II - OTHER INFORMATION](index=26&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) Routine legal actions are not expected to be material; significant matters are detailed in Note 9 of the financial statements - The company states that routine litigation is not expected to have a material impact on its financial results. For more significant legal actions, it refers to Note 9 of the Notes to Condensed Consolidated Financial Statements[118](index=118&type=chunk) [Item 1A. Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed, referring readers to the 2018 Form 10-K - The company refers to Part I – Item 1A. "Risk Factors" in its 2018 Form 10-K for a discussion of factors that could materially affect its business[119](index=119&type=chunk) [Item 6. Exhibits](index=26&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Lists the exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data files[120](index=120&type=chunk)