PART I - FINANCIAL INFORMATION This section details the company's unaudited financial performance, management's operational analysis, market risk, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, showing a significant turnaround from a net loss to net income Condensed Consolidated Statements of Operations This statement details the company's revenues, costs, and net income for the period, showing a significant profit turnaround Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net sales | $62,643 | $33,365 | 87.8% | | Cost of sales | $56,072 | $32,017 | 75.1% | | Gross profit | $6,571 | $1,348 | 387.5% | | Operating income (loss) | $2,324 | $(2,342) | N/A | | Net income (loss) | $2,165 | $(1,951) | N/A | | Basic EPS | $0.22 | $(0.20) | N/A | | Diluted EPS | $0.22 | $(0.20) | N/A | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents the net income or loss and other comprehensive income components, leading to total comprehensive income Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $2,165 | $(1,951) | | Other comprehensive income, net of tax | $11 | $49 | | Comprehensive income (loss) | $2,176 | $(1,902) | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | March 31, 2019 | December 31, 2018 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $3,843 | $6,677 | $(2,834) | | Trade and other receivables | $27,791 | $34,394 | $(6,603) | | Contract assets | $70,267 | $74,271 | $(4,004) | | Inventories | $41,116 | $39,376 | $1,740 | | Total current assets | $147,522 | $159,513 | $(11,991) | | Total assets | $266,525 | $271,350 | $(4,825) | | Total current liabilities | $28,970 | $31,492 | $(2,522) | | Borrowings on line of credit | $- | $11,464 | $(11,464) | | Total liabilities | $45,737 | $52,760 | $(7,023) | | Total stockholders' equity | $220,788 | $218,590 | $2,198 | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in the company's equity components, including retained earnings and accumulated other comprehensive loss Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Equity Component (in thousands) | Balance, Dec 31, 2018 | Cumulative-effect adjustment for ASU 2018-02 | Net income | Other comprehensive income (loss) | Share-based compensation expense | Balance, Mar 31, 2019 | | :------------------------------ | :-------------------- | :------------------------------------------- | :--------- | :-------------------------------- | :------------------------------- | :-------------------- | | Common Stock Amount | $97 | $- | $- | $- | $- | $97 | | Additional Paid In Capital | $118,835 | $- | $- | $- | $22 | $118,857 | | Retained Earnings | $101,194 | $235 | $2,165 | $- | $- | $103,594 | | Accumulated Other Comprehensive Loss | $(1,536) | $(235) | $- | $11 | $- | $(1,760) | | Total Stockholders' Equity | $218,590 | $- | $2,165 | $11 | $22 | $220,788 | Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $10,357 | $(2,266) | | Net cash provided by (used in) investing activities | $(1,620) | $6 | | Net cash used in financing activities | $(11,571) | $(1,395) | | Change in cash and cash equivalents | $(2,834) | $(3,655) | | Cash and cash equivalents, end of period | $3,843 | $39,991 | Notes to Condensed Consolidated Financial Statements These notes provide essential additional information and explanations for the financial statements 1. Basis of Presentation This note describes the company's business segment and the basis for preparing the financial statements - The Company operates in a single business segment, Water Transmission, focusing on steel pipeline systems, reinforced concrete pipe, and protective linings for drinking water infrastructure, hydroelectric power, wastewater, and industrial applications20 - An immaterial out-of-period adjustment of $1.2 million in revenue, originally recorded in FY2018, should have been recognized in Q1 2019 due to an error in cost measurement at a recently acquired Ameron facility23 2. Business Combination This note details the acquisition of Ameron Water Transmission Group, LLC and its financial impact - On July 27, 2018, the Company acquired 100% of Ameron Water Transmission Group, LLC for $38.1 million in cash, expanding its product portfolio to include bar-wrapped concrete cylinder pipe, reinforced concrete pipe, and T-Lock PVC lining24 - The acquisition resulted in a bargain purchase gain of $20.08 million, recorded due to the seller's motivation to complete the transaction as part of a business repositioning2526 Pro Forma Metric (in thousands) | Pro Forma Metric (in thousands) | Three Months Ended March 31, 2018 | | :------------------------------ | :-------------------------------- | | Net sales | $43,567 | | Net loss | $(22,614) | 3. Discontinued Operations This note outlines the sale of the Atchison, Kansas manufacturing facility - On December 26, 2017, the Company completed the sale of substantially all assets of its Atchison, Kansas manufacturing facility for $37.2 million in cash, recognizing a nominal gain30 4. Inventories This note provides a breakdown of the company's inventory components Inventory Type (in thousands) | Inventory Type (in thousands) | March 31, 2019 | December 31, 2018 | | :---------------------------- | :------------- | :---------------- | | Raw materials | $37,381 | $34,426 | | Work-in-process | $1,409 | $2,368 | | Finished goods | $824 | $1,075 | | Supplies | $1,502 | $1,507 | | Total current inventories | $41,116 | $39,376 | 5. Leases This note explains the adoption of new lease accounting standards and related financial impacts - The Company adopted ASC Topic 842, 'Leases,' on January 1, 2019, using the modified retrospective transition method, recognizing approximately $8.0 million in right-of-use assets and lease liabilities for operating leases70 Lease Cost (in thousands) | Lease Cost (in thousands) | Three Months Ended March 31, 2019 | | :------------------------ | :-------------------------------- | | Finance lease cost | $124 | | Operating lease cost | $425 | | Short-term lease cost | $262 | | Variable lease cost | $40 | | Total lease cost | $851 | Future Lease Maturities (in thousands) | Future Lease Maturities (in thousands) | Finance Leases | Operating Leases | | :------------------------------------- | :------------- | :--------------- | | 2019 | $348 | $1,334 | | 2020 | $375 | $1,664 | | 2021 | $258 | $1,134 | | 2022 | $237 | $903 | | 2023 | $34 | $752 | | Thereafter | $- | $4,338 | | Present value of lease liabilities | $1,149 | $8,286 | 6. Fair Value Measurements This note describes the valuation methods and categories for financial assets Financial Assets (in thousands) | Financial Assets (in thousands) | March 31, 2019 (Total) | December 31, 2018 (Total) | | :------------------------------ | :--------------------- | :------------------------ | | Deferred compensation plan | $5,125 | $4,719 | | Foreign currency forward contracts | $- | $101 | - Deferred compensation plan assets include publicly traded stock and bond mutual funds (Level 1) and guaranteed investment contracts (Level 2)38 - Foreign currency forward contracts are valued using observable market parameters (Level 2)3839 7. Share-based Compensation This note details the expenses and unrecognized compensation related to share-based awards Share-based Compensation Expense (in thousands) | Share-based Compensation Expense (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of sales | $6 | $17 | | Selling, general, and administrative expense | $16 | $64 | | Total | $22 | $81 | - As of March 31, 2019, unrecognized compensation expense for RSUs and PSAs was $2.2 million, expected to be recognized over a weighted-average period of 2.2 years47 - Performance Share Awards (PSAs) vested on March 29, 2019, with a 0% payout percentage as performance-based conditions were not achieved47 8. Commitments and Contingencies This note discusses potential liabilities from legal proceedings and other commitments - The Company is a potentially responsible party for the Portland Harbor Superfund Site cleanup, estimated at $1 billion over 13 years, but is currently unable to estimate its specific obligation due to the large number of parties and variable remediation alternatives48 - The Company participates in the Natural Resource Damage Assessment (NRDA) for the Portland Harbor Superfund Site, contributing $0.4 million for assessment, but has not assumed additional payment obligations50 - As of March 31, 2019, the Company has $1.6 million in letters of credit related to workers' compensation insurance55 9. Revenue This note explains the company's revenue recognition policies and backlog information - Revenue for most contracts is recognized over time using the cost-to-cost method, as products are custom-specified and have no alternative use57 - Revisions in contract estimates resulted in a decrease in revenue of $(1.5) million for Q1 2019, compared to an increase of $0.8 million for Q1 201859 - Backlog as of March 31, 2019, was approximately $167.3 million, with 71% expected to be recognized in 2019 and 25% in 202062 10. Income Taxes This note provides details on income tax expense, effective rates, and unrecognized tax benefits Income Tax Metrics | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :----- | :-------------------------------- | :-------------------------------- | | Income tax expense (benefit) | $191 (expense) | $(272) (benefit) | | Estimated effective income tax rate | 8.1% | 12.2% | - The effective income tax rates for both periods were impacted by estimated changes in the Company's valuation allowance64 - The Company had $4.4 million of unrecognized income tax benefits as of March 31, 2019, and December 31, 2018, with no expected material change in the next twelve months65 11. Accumulated Other Comprehensive Loss This note details changes in components of accumulated other comprehensive loss Accumulated Other Comprehensive Loss Components (in thousands) | Component (in thousands) | Balance, Dec 31, 2018 | Cumulative-effect adjustment for ASU 2018-02 | Net current period adjustments | Balance, Mar 31, 2019 | | :----------------------- | :-------------------- | :------------------------------------------- | :----------------------------- | :-------------------- | | Pension Liability Adjustment | $(1,551) | $(235) | $26 | $(1,760) | | Unrealized Gain (Loss) on Cash Flow Hedges | $15 | $- | $(15) | $- | | Total | $(1,536) | $(235) | $11 | $(1,760) | Reclassified to Statements of Operations (in thousands) | Reclassified to Statements of Operations (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :------------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Pension liability adjustment (net periodic pension cost) | $(3) | $- | | Unrealized gain (loss) on cash flow hedges (net sales) | $5 | $(2) | 12. Net Income (Loss) per Share This note presents the calculation of basic and diluted earnings per share Net Income (Loss) per Share (in thousands, except per share) | Metric (in thousands, except per share) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $2,165 | $(1,951) | | Basic weighted-average common shares outstanding | 9,735 | 9,707 | | Diluted weighted-average common shares outstanding | 9,735 | 9,707 | | Net income (loss) per common share: Basic | $0.22 | $(0.20) | | Net income (loss) per common share: Diluted | $0.22 | $(0.20) | - In Q1 2019, 24,000 antidilutive shares were excluded from diluted EPS calculation69 - In Q1 2018, approximately 87,000 antidilutive shares, including 34,000 performance-based share awards, were excluded due to net loss or unfulfilled performance conditions69 13. Recent Accounting and Reporting Developments This note outlines the adoption of new accounting standards and their financial impact - The Company adopted ASU No. 2016-02, 'Leases,' on January 1, 2019, recognizing approximately $8.0 million in right-of-use assets and lease liabilities for operating leases70 - ASU No. 2017-12, 'Derivatives and Hedging,' was adopted on January 1, 2019, with no material impact on financial position, results of operations, or cash flows71 - ASU No. 2018-02, 'Income Statement—Reporting Comprehensive Income,' adopted on January 1, 2019, resulted in a $0.2 million reclassification between Accumulated other comprehensive loss and Retained earnings, with no impact on results of operations or cash flows72 14. Restructuring This note describes the expenses incurred due to facility closures - In March 2018, the Company announced plans to close its Permalok manufacturing facility in Salt Lake City, Utah, and its Monterrey, Mexico facility, incurring $0.3 million in restructuring expense in Q1 201874 15. Subsequent Event This note reports on a significant event that occurred after the reporting period - On April 21, 2019, an accidental fire occurred at the Saginaw, Texas facility, damaging the coatings building76 - The Company has insurance coverage for property damage and business interruption and can deploy other production locations to absorb lost production76 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, operational highlights, and future outlook Forward-Looking Statements This section cautions readers about inherent risks and uncertainties in forward-looking statements - The report contains forward-looking statements based on current expectations, estimates, and projections, which involve risks and uncertainties that could cause actual results to differ materially77 - Key factors influencing actual results include changes in demand, market prices, product mix, bidding activity, raw material prices, international trade policy, tariffs, and the ability to integrate acquisitions77 Overview This section provides a general description of the company's business and recent strategic developments - Northwest Pipe Company is North America's largest manufacturer of engineered welded steel pipe water systems, serving water transmission, plant piping, tunnels, and river crossings78 - The July 2018 acquisition of Ameron Water Transmission Group, LLC for $38.1 million strengthened the Company's market position and expanded its product portfolio79 - An accidental fire at the Saginaw, Texas facility on April 21, 2019, damaged the coatings building, but other production locations can absorb lost production, and insurance coverage is in place80 Our Current Economic Environment This section discusses market conditions, demand drivers, and the impact of tariffs on the company's operations - Long-term demand for water infrastructure projects in the U.S. is strong, but near-term challenges include strained governmental budgets, increased competition, and fluctuating steel costs82 - Tariffs imposed by the U.S. (25% on imported steel), Mexico (25% on U.S. steel), and Canada (25% surtax on U.S. steel) impact raw material costs and finished steel pipe products, potentially leading to project delays or cancellations83 Critical Accounting Policies and Estimates This section highlights key accounting policies requiring significant management judgment - The Company's financial statements rely on estimates and judgments for revenue recognition, business combinations, inventories, property and equipment, share-based compensation, income taxes, and contingencies84 - There have been no significant changes in critical accounting policies and estimates during Q1 2019 compared to the 2018 Form 10-K85 Recent Accounting Pronouncements This section refers to detailed disclosures on newly adopted accounting standards - For details on recent accounting pronouncements and their impact, refer to Note 13 of the Notes to Condensed Consolidated Financial Statements86 Results of Operations This section analyzes the company's financial performance, including sales, costs, and profitability Results of Operations (in thousands) | Metric (in thousands) | Three Months Ended March 31, 2019 | % of Net Sales (2019) | Three Months Ended March 31, 2018 | % of Net Sales (2018) | | :-------------------- | :-------------------------------- | :-------------------- | :-------------------------------- | :-------------------- | | Net sales | $62,643 | 100.0% | $33,365 | 100.0% | | Cost of sales | $56,072 | 89.5% | $32,017 | 96.0% | | Gross profit | $6,571 | 10.5% | $1,348 | 4.0% | | Selling, general, and administrative expense | $4,247 | 6.8% | $3,385 | 10.1% | | Restructuring expense | $- | - | $305 | 0.9% | | Operating income (loss) | $2,324 | 3.7% | $(2,342) | (7.0)% | | Net income (loss) | $2,165 | 3.5% | $(1,951) | (5.8)% | - Net sales increased 87.8% to $62.6 million in Q1 2019, with Ameron operations contributing $11.8 million90 - The increase was driven by a 68% rise in tons produced and a 12% increase in selling price per ton90 - Gross profit surged by 387.5% to $6.6 million (10.5% of net sales) in Q1 2019, primarily due to increased production volume91 - Selling, general, and administrative expense increased 25.5% to $4.2 million in Q1 2019, mainly due to $0.8 million in higher wages and incentive compensation92 - Restructuring expense was $0.3 million in Q1 2018, related to facility closures in Salt Lake City, Utah, and Monterrey, Mexico, with no such expense in Q1 201993 - Income tax expense was $0.2 million (8.1% effective rate) in Q1 2019, a shift from a $0.3 million benefit (12.2% effective rate) in Q1 2018, primarily influenced by changes in the valuation allowance94 Liquidity and Capital Resources This section discusses the company's cash flows, working capital, and available financing - Working capital decreased to $118.6 million as of March 31, 2019, from $128.0 million at December 31, 201896 - Net cash provided by operating activities was $10.4 million in Q1 2019, a significant improvement from net cash used of $(2.3) million in Q1 201899 - Net cash used in investing activities was $1.6 million in Q1 2019, primarily for capital expenditures100 - Expected total capital expenditures for 2019 are $9.0 million to $12.5 million, excluding fire damage replacement100 - Net cash used in financing activities was $11.6 million in Q1 2019, mainly due to $11.5 million in net repayments on the line of credit101 - As of March 31, 2019, the Company had no outstanding borrowings and $49.5 million in additional borrowing capacity under its $60 million Credit Agreement, which expires in October 2023104105 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to comprehensive disclosures on market risks, particularly foreign currency and interest rate exposures - For detailed disclosures on market risk related to foreign currencies and interest rates, refer to Part II – Item 7A. 'Quantitative and Qualitative Disclosures About Market Risk' in the Company's 2018 Form 10-K110 Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2019 - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2019112 - Internal control over financial reporting for Ameron Water Transmission Group, LLC was excluded from the evaluation due to its recent acquisition (July 2018) and ongoing integration, representing 17.7% of total assets and 18.8% of consolidated revenues for Q1 2019113 - No significant changes in internal control over financial reporting occurred during Q1 2019, except for those related to the integration of Ameron114 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, exhibits, and official signatures Item 1. Legal Proceedings This section discusses the company's involvement in legal actions and their potential financial impact - The Company is party to various legal actions in the normal course of business, but does not believe such litigation will have a material impact on its consolidated financial results115 - For additional details on commitments and contingencies, refer to Note 8 of the Notes to Condensed Consolidated Financial Statements115 Item 1A. Risk Factors This section directs readers to a comprehensive discussion of potential risks affecting the business - Readers should refer to Part I – Item 1A. 'Risk Factors' in the Company's 2018 Form 10-K for a comprehensive discussion of factors that could materially affect the business, financial condition, or operating results116 - The Company acknowledges that there may be additional unknown or currently immaterial risks that could adversely affect its business116 Item 6. Exhibits This section lists all supplementary documents filed with the report - Exhibits include Form of Performance Share Unit Agreement, Form of Restricted Stock Unit Agreement, Certifications pursuant to Sarbanes-Oxley Act (Sections 302 and 906), and XBRL Instance and Taxonomy Documents118 Signatures This section contains the official certifications by the company's authorized officers - The report is duly signed by Scott Montross, Director, President, and Chief Executive Officer, and Robin Gantt, Senior Vice President, Chief Financial Officer, and Corporate Secretary, on May 9, 2019121
Northwest Pipe(NWPX) - 2019 Q1 - Quarterly Report