Cautionary Statement Regarding Forward-Looking Statements 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 performance16 - 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 problems16 Part I Item 1. Business 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 America20 - 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 products23115 - 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 infrastructure24 - 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 years25 - 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 201940 - One customer accounted for 23% of total Net sales from continuing operations for the year ended December 31, 201934 Item 1A. Risk Factors 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 results55 - 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 challenges5657 - The business faces overcapacity and competition from substitute products, leading to vigorous price competition and potential negative impacts on sales, gross margins, and profitability5859 - Dependence on government spending for public water transmission projects makes the business vulnerable to funding downturns and changes in project priorities60 - 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 20186365 - Operating problems like fires (e.g., Saginaw, Texas facility fire in April 2019), mechanical failures, and labor difficulties can materially affect productivity and profitability6869 - 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 risk8687 Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC Item 2. Properties 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 America96 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 facilities96 Item 3. Legal Proceedings 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 damages97 - Management does not believe that normal and routine litigation will have a material impact on consolidated financial results97 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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 - As of February 24, 2020, there were 23 shareholders of record and 9,750,851 shares outstanding6100 - The company does not intend to pay cash dividends in the foreseeable future100 - 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 date101137 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 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 liabilities109 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 infrastructure112 - The acquisition of Ameron Water Transmission Group, LLC in July 2018 for $38.1 million strengthened the company's position and expanded its product portfolio113 - 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 proceeds114331 - 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 products115352 - Long-term demand for U.S. water infrastructure projects appears strong, but near-term challenges include strained governmental budgets, increased competition, and fluctuating steel costs117 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 produced120 - 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 operations121 - Net cash provided by operating activities from continuing operations was $42.9 million in 2019, a significant improvement from $(18.4) million used in 2018132 - 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 million129 - Capital expenditures are projected to be approximately $14 million to $15 million in 2020 for standard capital replacement134 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 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 volatile162163 - 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 expense164 - 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 hedges165166 - 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 income166167 Item 8. Financial Statements and Supplementary Data 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-34168 - Quarterly financial information is provided in Note 21 of the Notes to Consolidated Financial Statements168 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters Item 9A. Controls and Procedures 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 effective171 - Management assessed the internal control over financial reporting as effective as of December 31, 2019, based on the COSO framework174 - The effectiveness of internal control over financial reporting was audited by Moss Adams LLP175 - There were no material changes in internal control over financial reporting during the quarter ended December 31, 2019176 Item 9B. Other Information There is no other information required to be disclosed under this item Part III Item 10. Directors, Executive Officers and Corporate Governance 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 website185 Item 11. Executive Compensation 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 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 price190 Item 13. Certain Relationships and Related Transactions, and Director Independence 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 Information regarding principal accounting fees and services is incorporated by reference from the definitive proxy statement Part IV Item 15. Exhibits, Financial Statement Schedules 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-34195 - Schedule II, 'Valuation and Qualifying Accounts,' is filed with the report196 - 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 Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided Report of Independent Registered Public Accounting Firm 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, 2019204205 - The audit was conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and estimates208209 - 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 16206 Consolidated Statements of Operations 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 2019216 - Gross profit saw a substantial increase of 290.1% from $12.1 million in 2018 to $47.2 million in 2019216 - 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 2017216 Consolidated Statements of Comprehensive Income (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 hedges218 Consolidated Balance Sheets 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 2019221 - Cash and cash equivalents significantly increased by $24.3 million (364.4%) from $6.7 million in 2018 to $31.0 million in 2019221 - Borrowings on the line of credit decreased from $11.5 million in 2018 to zero in 2019221 - Stockholders' equity increased by $29.6 million (13.5%) from $218.6 million in 2018 to $248.2 million in 2019221 Consolidated Statements of Stockholders' Equity 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 million223 - 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 2019223 Consolidated Statements of Cash Flows 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 2018132226 - 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 expenditures133226 - 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 credit135228 - Cash and cash equivalents increased by $24.3 million in 2019, ending the year at $31.0 million228 Notes to Consolidated Financial Statements 1. ORGANIZATION 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 applications231 - Manufacturing facilities are located in Portland, Oregon; Adelanto, California; Saginaw, Texas; Tracy, California; Parkersburg, West Virginia; St. Louis, Missouri; and San Luis Río Colorado, Mexico231 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 date235 - Revenue for most contracts is recognized over time using the cost-to-cost method, as products are custom-specified and have no alternative use251 - 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 leases261 - ASU 2018-02 was adopted on January 1, 2019, resulting in a $0.2 million reclassification between Accumulated other comprehensive loss and Retained earnings263 - The company uses foreign currency forward contracts as cash flow hedges for Canadian currency exposures, with gains/losses recognized in Accumulated other comprehensive loss246249 - Inventories are stated at the lower of cost and net realizable value, with steel raw materials on a specific identification or average cost basis240 3. BUSINESS COMBINATION 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 cash269 - 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 transferred270271 - Ameron contributed $55.4 million and $30.2 million in net sales in 2019 and 2018, respectively120 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 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 cash273 - Operating results for discontinued operations in 2017 included net sales of $12 thousand and a net loss of $(1.8) million275 5. INVENTORIES 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 2019276 6. PROPERTY AND EQUIPMENT 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 2019277 - Approximately $19.8 million of net property and equipment was located in Mexico as of December 31, 2019278 - 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 7. INTANGIBLE ASSETS 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 2019280 - Estimated amortization expense for 2020 is $213 thousand280 8. LINE OF CREDIT 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 2018282 - 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, 2024353 - As of January 31, 2020, outstanding borrowings were approximately $19 million, with an additional borrowing capacity of approximately $39 million353 - 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 2018282 - 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 1.00356 9. LEASES 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 leases293 10. FAIR VALUE MEASUREMENTS 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 - Foreign currency forward contracts are derivatives valued using observable market parameters and classified as Level 2297 11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES 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 accounting300 - 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 2018301 - 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 maturity302 12. RETIREMENT PLANS 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 2001304305 - As of December 31, 2019, the accrued pension liability was $1.7 million, and an unrecognized actuarial loss, net of tax, was $1.8 million306 - The projected benefit obligation was $6.4 million and plan assets were $4.8 million as of December 31, 2019306 - A non-qualified deferred compensation plan, frozen in 2016, had balances of $5.2 million in 2019309 - Total expense for all retirement plans was $1.2 million in 2019, up from $0.9 million in 2018 and 2017310 13. SHARE-BASED COMPENSATION 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 2017312 - As of December 31, 2019, 480,876 shares of common stock were available for future issuance under the 2007 Stock Incentive Plan312 - Outstanding stock options totaled 24,000 shares with a weighted-average exercise price of $24.15 as of December 31, 2019314 - Unvested RSUs and PSAs totaled 85,170 shares as of December 31, 2019, including approximately 64,000 performance-based PSAs at target level316 - 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 years318 14. SHAREHOLDER RIGHTS PLAN 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 force320322 15. COMMITMENTS AND CONTINGENCIES 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 allocation324 - 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 remedy325 - The company agreed to fund $0.4 million for the Natural Resource Damage Assessment (NRDA) process but has not assumed additional payment obligations326 - 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 - Incremental production costs of $6.6 million from the Saginaw fire were partially offset by $5.0 million in business interruption insurance proceeds in 2019331 - The company has $1.6 million in letters of credit related to workers' compensation insurance332 16. REVENUE 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 earnings333 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 2019334 - Backlog as of December 31, 2019, was approximately $199 million, with 74% expected in 2020 and 25% in 2021338 17. INCOME TAXES 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 gain127341 - 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 carryforwards343 - Unrecognized income tax benefits totaled $4.4 million as of December 31, 2019, with no material changes expected in the next twelve months346 18. ACCUMULATED OTHER COMPREHENSIVE LOSS 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 2019348 - 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 hedges348 19. RESTRUCTURING 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, Mexico350 - In 2017, restructuring expenses of $0.9 million were incurred for demobilization activities related to the Denver, Colorado facility351 20. SUBSEQUENT EVENTS 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 offerings352 - 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, 2024353 - The amendment provides the right to request a Delayed Draw Term Loan of up to approximately $16 million prior to March 30, 2020354 - 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 1.00356 21. QUARTERLY DATA (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 - Net income for Q3 2018 included a preliminary bargain purchase gain of $21.9 million, which was adjusted by $1.8 million in Q4 2018362 Schedule II. Valuation and Qualifying Accounts 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 2018365 - Valuation allowance for deferred income tax assets decreased to $6.1 million in 2019 from $9.4 million in 2018365 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 directors367368
Northwest Pipe(NWPX) - 2019 Q4 - Annual Report