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(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2023
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
State or other jurisdiction of incorporation or organization
93-0557988
(I.R.S. Employer Identification No.)
201 NE Park Plaza Drive, Suite 100
Vancouver, Washington 98684
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code: 360‑397‑6250
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
NWPX
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D‑1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒
The aggregate market value of the common equity that was held by non-affiliates of the registrant was $262,653,481 as of June 30, 2023 based upon the
last sales price as reported by the Nasdaq Global Select Market.
The number of shares outstanding of the registrant’s common stock as of February 23, 2024 was 9,892,244 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated into Parts II and III of Form 10‑K by reference certain portions of its 2022 Form 10‑K, which was filed with the Securities
and Exchange Commission (“SEC”) on March 16, 2023, and its Proxy Statement for its 2024 Annual Meeting of Shareholders.
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NORTHWEST PIPE COMPANY
2023 ANNUAL REPORT ON FORM 10‑K
TABLE OF CONTENTS
Cautionary Statement Regarding Forward-Looking Statements
Item 1
Item 1A
Item 1B
Item 1C
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 9C
Item 10
Item 11
Item 12
Item 13
Item 14
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Part I
Part II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15
Item 16
Exhibit and Financial Statement Schedules
Form 10‑K Summary
Part IV
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10‑K for the year ended December 31, 2023 (“2023 Form 10‑K”), other than purely historical
information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the
Securities Exchange Act of 1934, as amended (“Exchange Act”), that are based on current expectations, estimates, and projections about our business,
management’s beliefs, and assumptions made by management. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,”
“forecasts,” “should,” “could,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecasted in such forward-looking statements as a result of a variety of important factors. While it is
impossible to identify all such factors, those that could cause actual results to differ materially from those estimated by us include:
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changes in demand and market prices for our products;
product mix;
bidding activity and order modifications or cancelations;
timing of customer orders and deliveries;
production schedules;
price and availability of raw materials;
excess or shortage of production capacity;
international trade policy and regulations;
changes in tariffs and duties imposed on imports and exports and related impacts on us;
economic uncertainty and associated trends in macroeconomic conditions, including potential recession, inflation, and the state of the housing
market;
interest rate risk and changes in market interest rates, including the impact on our customers and related demand for our products;
our ability to identify and complete internal initiatives and/or acquisitions in order to grow our business;
our ability to effectively integrate Park Environmental Equipment, LLC (“ParkUSA”) and other acquisitions into our business and operations and
achieve significant administrative and operational cost synergies and accretion to financial results;
effects of security breaches, computer viruses, and cybersecurity incidents;
timing and amount of share repurchases;
impacts of U.S. tax reform legislation on our results of operations;
adequacy of our insurance coverage;
supply chain challenges;
labor shortages;
ongoing military conflicts in areas such as Ukraine and Israel, and related consequences;
operating problems at our manufacturing operations including fires, explosions, inclement weather, and floods and other natural disasters;
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• material weaknesses in our internal control over financial reporting and our ability to remediate such weaknesses;
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impacts of pandemics, epidemics, or other public health emergencies; and
other risks discussed in Part I — Item 1A. “Risk Factors” of this 2023 Form 10‑K and from time to time in our other SEC filings and reports.
Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking
statement to reflect events or circumstances after the date of this 2023 Form 10‑K. If we do update or correct one or more forward-looking statements,
investors and others should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking
statements.
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Item 1.
Business
PART I
Unless otherwise indicated, the terms “the Company,” “we,” “our,” and “us” are used in this 2023 Form 10‑K to refer to Northwest Pipe Company or one
of our consolidated subsidiaries or to all of them taken as a whole. We were incorporated in the State of Oregon in 1966.
Overview
Northwest Pipe Company is a leading manufacturer of water-related infrastructure products. In addition to being the largest manufacturer of engineered
steel water pipeline systems in North America, we manufacture stormwater and wastewater technology products; high-quality precast and reinforced
concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one of the largest offerings of pipeline system joints,
fittings, and specialized components. Strategically positioned to meet growing water and wastewater infrastructure needs, we provide solution-based
products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. Our diverse team is
committed to safety, quality, and innovation while demonstrating our core values of accountability, commitment, and teamwork. We are headquartered in
Vancouver, Washington, and have 13 manufacturing facilities across North America.
Our water infrastructure products are sold generally to installation contractors, who include our products in their bids to federal, state, and municipal
agencies, privately-owned water companies, or developers for specific projects. We believe our sales are substantially driven by spending on urban growth
and new water infrastructure with a recent trend towards spending on water infrastructure replacement, repair, and upgrade. Within the total range of
products, our steel pipe best addresses the larger-diameter, higher-pressure pipeline applications, while our precast concrete products mainly serve
stormwater and sanitary sewer systems.
With steady population growth and regional community expansion, as well as continued drought conditions, existing water sources have become stressed,
and we see continued opportunities for growth in North American infrastructure.
Strategic Actions in the Precast and Reinforced Concrete Products Market
On October 5, 2021, we completed the acquisition of 100% of Park Environmental Equipment, LLC (ParkUSA) for a purchase price of $90.2 million in
cash, which is included in the Precast Infrastructure and Engineered Systems (“Precast”) segment for all periods following the acquisition date. ParkUSA is
a precast concrete and steel fabrication-based company that develops and manufactures water, wastewater, and environmental solutions. Operations
continue with ParkUSA’s previous management and workforce at its three Texas manufacturing facilities located in Houston, Dallas, and San Antonio. This
strategic acquisition provides a foothold into the water infrastructure technology market. As we employ similar operating capabilities at our existing
facilities, we intend to explore strategic opportunities to expand ParkUSA’s value-added products within the organization.
On January 31, 2020, we completed the acquisition of 100% of Geneva Pipe and Precast Company (“Geneva”) (fka Geneva Pipe Company, Inc.) for a
purchase price of $49.4 million in cash, which is included in the Precast segment for all periods following the acquisition date. Geneva is a concrete pipe
and precast concrete products manufacturer based in Utah. This acquisition expanded our water infrastructure product capabilities by adding additional
reinforced concrete pipe capacity and a full line of precast concrete products including storm drains and manholes, catch basins, vaults, and curb inlets as
well as innovative lined products that extend the life of concrete pipe and manholes for sewer applications. Operations continue with Geneva’s previous
management and workforce at its three Utah manufacturing facilities.
Our Segments
Engineered Steel Pressure Pipe (“SPP”). SPP manufactures large-diameter, high-pressure steel pipeline systems for use in water infrastructure
applications, which are primarily related to drinking water systems. These products are also used for hydroelectric power systems, wastewater systems,
seismic resiliency, and other applications. In addition, SPP makes products for industrial plant piping systems and certain structural applications. SPP has
manufacturing facilities located in Portland, Oregon; Adelanto and Tracy, California; Parkersburg, West Virginia; Saginaw, Texas; St. Louis, Missouri; and
San Luis Río Colorado, Mexico.
Precast Infrastructure and Engineered Systems (Precast). Precast manufactures stormwater and wastewater technology products, high-quality precast and
reinforced concrete products, including reinforced concrete pipe (“RCP”), manholes, box culverts, vaults, and catch basins, pump lift stations, oil water
separators, biofiltration units, and other environmental and engineered solutions. Precast has manufacturing facilities located in Dallas, Houston, and San
Antonio, Texas; and Orem, Salt Lake City, and St. George, Utah.
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Our Industries
Much of the United States water infrastructure is antiquated and many authorities, including the United States Environmental Protection Agency (“EPA”),
believe the United States water infrastructure is in critical need of update, repair, or replacement. A combination of new population centers, rising demand
on developed water sources, substantial underinvestment in water infrastructure over the past several decades, drought conditions, climate change, and
increasingly stringent regulatory policies are driving demand for water infrastructure projects in the United States. These trends are intensifying the need
for new water infrastructure as well as the need to upgrade, repair, and replace existing water infrastructure. While we believe this offers the potential for
increased demand for our water infrastructure products and other products related to water transmission, budgetary pressures could impact governmental
and public water agency projects in the near-term.
Federal initiatives to improve the conditions of the aging water infrastructure include the Water Infrastructure and Resiliency Finance Center at the EPA
and the Water and Environmental Programs at the U.S. Department of Agriculture. The Bipartisan Infrastructure Deal (Infrastructure Investment and Jobs
Act), signed into law in November 2021, will invest $55 billion to expand access to clean drinking water for households, businesses, schools, and child care
centers all across the country. According to its latest report, the 2022 Annual Report, the EPA’s Water Infrastructure Finance and Innovation Act program, a
federal credit program for eligible water and wastewater infrastructure projects, closed 24 loans totaling $4 billion in 2022, and 96 loans totaling over
$17 billion over the life of the program, as of December 31, 2022.
In addition to the Federal initiatives, individual states are also taking action. In November 2013, the State of Texas earmarked $27 billion of future bond
funding for state water projects over the next 50 years through their State Water Implementation Fund for Texas (SWIFT). This program provides low-
interest and deferred loans to state agencies making approved investments in water infrastructure projects. In November 2014, the State of California
approved the Water Quality, Supply and Infrastructure Improvement Act which authorizes $7.5 billion in general obligation bonds to fund state water
supply infrastructure projects, such as public water system improvements, surface and groundwater storage, drinking water protection, water recycling and
advanced water treatment technology, water supply management and conveyance, wastewater treatment, drought relief, emergency water supplies, and
ecosystem and watershed protection and restoration. Our strategically located manufacturing facilities are well-positioned to take advantage of the
anticipated growth in demand.
Engineered Steel Pressure Pipe. In its Seventh Drinking Water Infrastructure Needs Survey and Assessment released in September 2023, the EPA
estimated the nation will need to spend $625 billion on public water system infrastructure capital improvements from 2021 to 2040 to continue to provide
safe drinking water to the public. The American Society of Civil Engineers (“ASCE”) has given poor ratings to many aspects of the United States water
infrastructure in their latest report, the 2021 Infrastructure Report Card for Drinking Water. The Failure to Act: Economic Impacts of Status Quo
Investment Across Infrastructure Systems report published by ASCE and EBP in 2021, estimates there will be $2.6 trillion in cumulative infrastructure
needs for water and wastewater infrastructure by 2029, and $5.8 trillion in cumulative infrastructure needs by 2039.
According to the United States Census Bureau, the population of the United States will increase by approximately 49 million people between 2024 and
2050. The resulting increase in demand will require substantial new infrastructure, as the existing United States water infrastructure is not equipped to
provide water to millions of new residents. The development of new sources of water at greater distances from population centers will drive the demand for
new water transmission lines. Climate change may be a cause for the drought conditions in some regions of the country and are increasing the demand for
new infrastructure. The Construction Outlook 2024 from Dodge Construction Network forecasts public works construction, which continues to benefit
from several federal legislative initiatives passed to help improve the nation’s aging infrastructure, will grow 17% in 2024.
As water systems degrade over time and cause failures, many current water supply sources are in danger of being exhausted. Much of the drinking water
infrastructure in major cities was built in the mid-20th century with a lifespan of 75 to 100 years. In its 2021 Infrastructure Report Card for Drinking
Water, the ASCE estimates there are 250,000 to 300,000 water main breaks per year in the United States, wasting over 2.1 trillion gallons of treated
drinking water. The ASCE also reports that with utilities averaging a pipe replacement rate of 1.0% to 4.8% per year, the replacement rate now matches the
lifecycle of the pipes. These aging water and wastewater systems will drive demand for future investment.
The Drinking Water State Revolving Loan Fund (“DWSRF”), a federal-state partnership and financial assistance program to help water systems and states
achieve the health protection objectives of the Safe Drinking Water Act, provided $4.4 billion in assistance in fiscal 2022 and $53.0 billion in assistance
since 1997, according to the 2022 DWSRF Annual Report.
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Finally, the increased public awareness of problems with the quality of drinking water and efficient water usage has resulted in more stringent application
of federal and state environmental regulations. The need to comply with these regulations in an environment of heightened public awareness is expected to
contribute to demand in the water infrastructure industry.
Our large-diameter, engineered welded steel pipeline systems are utilized in water, energy, structural, and plant piping applications. Our core market is the
large-diameter, high-pressure portion of a water transmission pipeline that is typically at the “upper end” of a pipeline system. This is the portion of the
overall water pipeline that generally transports water from the source to a treatment plant or from a treatment plant into the distribution system, rather than
the small lines that deliver water directly into households. We believe the total addressable market for the engineered welded steel pipeline system products
sold will be approximately $1.8 billion over the next three years.
Precast Infrastructure and Engineered Systems. In its 2021 Infrastructure Report Card for Wastewater, the ASCE estimates the drinking water and
wastewater pipes in the ground, with a typical lifespan expected of 50 to 100 years, are on average 45 years old. In 2020, Bluefield Research estimated that
utilities throughout the country will spend more than $3 billion on wastewater pipe repairs and replacements, addressing 4,692 miles of wastewater
pipeline, and this cost is projected to grow by an average of 5% annually.
In its 2021 Infrastructure Report Card for Stormwater, the ASCE states that given the recent increase in rainfall trends and urbanization in certain
geographic regions, the actual capacity of a stormwater system is often less than the design standard. In addition, from 2010 to 2018 the length of impaired
rivers and streams increased 39%, a key indicator of declining stormwater infrastructure condition.
Our high-quality precast and reinforced concrete products and bar-wrapped concrete cylinder pipe are typically used in non-pressure, gravity fed sewer and
stormwater applications. Demand for these products is generally influenced by general economic conditions such as housing starts, population growth, and
interest rates. New residential and commercial construction and state Department of Transportation funding impact our market. The November 2022
Bluefield Research Insight Report – U.S. & Canada Municipal Water Outlook: Utility CAPEX & OPEX Forecasts, 2022-2030 (“Bluefield Report”) states
that since the peak of new U.S. home construction in March 2022, interest rate hikes have dissuaded potential new homebuyers from entering the market.
According to the United States Census Bureau, the privately-owned housing starts were at a seasonally adjusted annual rate of 1.5 million in December
2023 compared to 1.4 million in December 2022. However, our Precast manufacturing facilities are located in Texas, one of three states with the largest
infrastructure asset base, and Utah; both of these states are in the top five of the fastest growing markets (based on compound annual growth rate forecasted
through 2030), according to the Bluefield Report.
Backlog
Engineered Steel Pressure Pipe. We measure backlog as a key metric to evaluate the commercial health of our water infrastructure steel pipe business.
Backlog represents the balance of remaining performance obligations under signed contracts for SPP products for which revenue is recognized over time.
Binding agreements received by us may be subject to cancelation or postponement; however, cancelation would obligate the customer to pay the contract
consideration proportional to the costs we have incurred through the cancelation date. As of December 31, 2023 and 2022, backlog was $273 million and
$274 million, respectively. Backlog as of any particular date may not be indicative of actual operating results for any fiscal period. There can be no
assurance that any amount of backlog ultimately will be realized. Separate from our backlog, we have been notified that we are the successful bidder on
additional projects, but binding agreements have not been executed (“confirmed orders”). As of December 31, 2023 and 2022, backlog including confirmed
orders was $319 million and $372 million, respectively. Projects for which a binding agreement has not been executed could be canceled.
Products
Engineered Steel Pressure Pipe. Water infrastructure steel pipe is used for high-pressure applications, typically requiring pipe to withstand pressures in
excess of 150 pounds per square inch. Most of our water transmission products, mainly welded steel pipe and bar-wrapped cylinder pipe, are made to
project specifications for fully engineered, large-diameter, high-pressure water infrastructure systems. Other uses include power generation circulating
water systems, penstocks, pipe piling, and water and wastewater treatment plants. Spiral welded pipe is manufactured in diameters ranging from 24 inches
to 156 inches with wall thickness of 0.135 inches to 1.00 inch. Our rolled and welded capabilities allow for manufacturing diameters greater than 156
inches and wall thicknesses exceeding 1.00 inch. Lining and coating capabilities include cement mortar, polyurethane, epoxy, and polyethylene tape
according to our customers’ project specifications. Fabrication of fittings are performed at our own facilities providing installation contractors and project
owners with a complete engineered system. Product is delivered to the jobsite using commercial trucks or marine transport as needed.
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We manufacture Permalok® steel casing pipe, which is a proprietary pipe joining system that employs a press-fit interlocking connection system. The
Permalok® product is generally installed in trenchless construction projects.
Precast Infrastructure and Engineered Systems. We manufacture a variety of high-quality precast concrete products for water, wastewater, and adjacent
infrastructure applications. Our precast products include RCP, manholes, box culverts, vaults, catch basins, oil water separators, pump lift stations, lined
RCP and manholes, and other precast infrastructure products.
Under the Geneva Pipe and Precast product line, we manufacture RCP in sizes ranging from twelve inches to 96 inches in diameter and in a variety of
strength classes to ASTM International and American Association of State Highway and Transportation Officials (“AASHTO”) specifications which are
primarily used for water transmission, sanitary sewer systems, storm drainage, and utilities fabrication. Our manholes, box culverts, vaults, and other
structural products come in a variety of dimensions. Our lined products include high-density polyethylene (“HDPE”), polypropylene, or fiber reinforced
plastic internal liners within manholes and RCP, providing additional corrosion protection in sanitary sewer and wastewater environments.
Under the ParkUSA product line, we manufacture pre-assembled stormwater, wastewater, and water management systems housed predominantly in precast
concrete or steel housings, including water meter assemblies, break tank systems, pump lift stations, and backflow prevention systems. We also
manufacture a variety of stormwater products including catch basins, canal valves, and interceptors capable of removing sediments, trash, and oil from
stormwater runoff. Our wastewater products protect the environment and limit pollutants from entering sewer systems including interceptors designed to
neutralize and macerate foreign materials such as fats, oils, and greases in wastewater for hospitals, service stations, restaurants, and other commercial
applications. Our units are pre-assembled in a quality-controlled environment and are delivered ready to install to the job site, providing significant savings
from onsite assembly.
Manufacturing and Product Development
Engineered Steel Pressure Pipe. Water infrastructure steel pipe manufacturing begins with the preparation of engineered drawings of each unique piece of
pipe in a project. These drawings are prepared on our proprietary computer-aided design system and are used as blueprints to manufacture pipe. After the
drawings are completed and approved, the manufacturing of engineered steel water pipe begins by feeding a steel coil continuously at a specified angle into
a spiral weld mill which cold-forms the band into a tubular configuration with a spiral seam. Automated arc welders, positioned on both the inside and the
outside of the tube, are used to weld the seam. The welded pipe is then cut at the specified length. After completion of the forming and welding phases, the
finished cylinder is tested and inspected in accordance with project specifications, which may include 100% radiographic analysis of the weld seam. The
cylinders are then coated and lined as specified. Possible coatings include polyurethane paint, polyethylene tape, epoxy, and cement mortar. The inside of
the pipe cylinders can be lined with cement mortar, polyurethane, or epoxy. Following coating and lining, certain pieces may be custom fabricated as
required for the project. This process is performed at our on-site fabrication facilities.
Precast Infrastructure and Engineered Systems. Precast concrete products are manufactured using either a dry cast or wet cast concrete mix, depending
on the size of the piece and the number of identical pieces to be manufactured. In the dry cast method, a concrete mix with low water content, known as
zero-slump concrete, is poured into a mold and then densely compacted around the steel reinforcement using a variety of manufacturing methods. The
concrete structure is immediately removed from the mold and allowed to cure in a high humidity environment to ensure proper hydration of the concrete.
This method allows multiple pieces to be produced from the same mold each day and is most suitable for high volume, repetitive manufacturing. We also
manufacture reinforced concrete pipe by producing a steel mesh cage, enclosing it in a form or mold, and then pouring concrete around it to produce the
pipe. In the wet cast method, a concrete mix with relatively high water content is poured into a mold and allowed to cure in the mold, which can take from
four to 16 hours.
In our Salt Lake City facility, we are in the process of building a fully automated production system for concrete pipe and manhole components that will
replace the facility’s existing Transmatic pipe machine. This new technology will offer greater efficiency and safety and is set to increase RCP production
capacity and manholes up to 60-inches in diameter. The Exact 2500 system is expected to be operational in 2024 and includes a new reinforced cage
welding machine. To increase efficiencies across all of our precast facilities, we are upgrading our manufacturing process of vaults through the investment
in monolithic precast forms systems.
We work hand-in-hand with our customers to develop custom water infrastructure products that help protect the environment. Many of our precast
wastewater, stormwater, water management, and process systems include integrated Original Equipment Manufacturer components that we build out at our
facilities into the finished solution. We build and test each unit to industry standards in our quality-controlled certified facilities. The units arrive at the
jobsite ready to install, which reduces jobsite construction time and the need for specialized trades on site.
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In April 2023, in line with our commitment to provide sustainable water management solutions, ParkUSA became a distributor of a stormwater diversion
system used in wash pads and outdoor pavement areas. The Fox Environmental Diversion Systems automatically divert the ‘first flush’ of rain or wash
water from a wash bay or pad for treatment before it enters a storm drain network. We offer two diversion systems. The Demand Driven Diversion System
is triggered with a hose and wash wand, while the First Flush Diversion System is best used in larger spaces and automatically activates with rainfall.
Technology. Advances in technology help us produce high-quality products at competitive prices. We have invested in modern welding and inspection
equipment to improve both productivity and product quality. We own interlocking pipe joining system technologies (Permalok®) that provide an alternate
joint solution used for connecting steel pipes. One of our team’s latest achievements is the development of the Permalok® Radial Bending Joint, which
enables steel pipe to be installed along a curved radius in microtunneling applications. This patent-pending technology is a groundbreaking advancement in
trenchless construction and allows the pipe path to bend in any direction around existing utility lines, monuments, and building foundations. Benefits to the
contractor include a smaller jobsite footprint, fewer shafts, and more precise execution of tunneling over longer distances.
In addition, we are licensed to manufacture a conventional RCP with a HDPE liner to protect concrete pipe from corrosion, and a lined manhole system,
which integrates a monolithic precast concrete base with a plastic liner that is chemically resistant to raw sewage gases. Newly added to our corrosion-
resistant lined products is the fiber reinforced polymer (“FRP”) panel for rehabilitating large wastewater structures. The half-inch thick panel consists of
seven layers including a high-strength honeycomb and a FRP gel coat. The panels are mechanically anchored to the inside of a structure and sealed to form
a gas and water-tight lining. The FRP panel system is ideal for rehabilitating existing large concrete wastewater structures and extending the structure
service life by decades. Both Geneva and ParkUSA also hold several patents for commercially viable products.
To stay current with technological developments in the United States and abroad, we participate in trade shows, industry associations, research projects,
and vendor trials of new products. Our staff includes some of the most tenured and experienced pipe manufacturing professionals in the nation.
Intellectual Property. We own various patents, registered trademarks and trade names and applications for, or licenses in respect of the same, that relate to
our various products, including a number of innovative technologies relating to water infrastructure as well as precast infrastructure and engineered systems
produced by ParkUSA. We also license intellectual property for use in certain of our products from unaffiliated third parties. We believe that our patents,
trademarks, and trade names are adequately protected and that any expiration or other loss of one or more of our patents or other intellectual property rights
would not have a material adverse effect upon our business, financial condition, or results of operations.
Quality Assurance. We have quality management systems in place that assure we are consistently providing products that meet or exceed customer and
applicable regulatory requirements. All of our steel pipe manufacturing facilities’ quality management systems in the United States and Mexico are
registered under a multi-site registration by the International Organization for Standardization (“ISO”). In addition to the ISO qualification, we are certified
for specific steel pipe products or operations by the American Petroleum Institute. All of our steel pipe water transmission manufacturing facilities are
certified by NSF for cement lining. We are certified for specific precast and reinforced concrete products or operations by the National Precast Concrete
Association and the National Ready Mixed Concrete Association. We also follow and make products to the following standards and specifications:
American Institute of Steel Construction, American Society of Mechanical Engineers, American Welding Society, Caltrans, American Water Works
Association, ASTM International, AASHTO, and the ASCE. All of our steel pipe nondestructive evaluation technicians are qualified and certified to the
guidelines of the American Society for Nondestructive Testing, Inc.
Our quality assurance/quality control department is responsible for monitoring and measuring the characteristics of our products. Inspection capabilities
include, but are not limited to, visual, dimensional, liquid penetrant, magnetic particle, hydrostatic, ultrasonic, conventional, computed and real-time x-
ray/radioscopic, base material tensile, yield and elongation, sand sieve analysis, concrete compression, lining and coating dry film thickness, adhesion,
concrete absorption, guided bend, charpy impact, hardness, metallurgical examinations, chemical analysis, spectrographic analysis, and finished product
final inspection. Our products are not released for customer shipment until there is verification that all requirements have been met.
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Marketing
Engineered Steel Pressure Pipe. Our seven steel pipe manufacturing facilities in Oregon, California, West Virginia, Texas, Missouri, and Mexico allow us
to efficiently serve customers throughout North America. The primary customers for our water infrastructure steel pipe products are installation contractors
for projects funded by public water agencies. Our marketing strategy emphasizes early identification of potential water projects, promotion of
specifications consistent with our capabilities and products, and close contact with the project designers and owners throughout the design phase. Our in-
house sales force is comprised of sales representatives, engineers, and support personnel who work closely with public water agencies, contractors, and
engineering firms, often years in advance of a project bid date. These relationships allow us to identify and evaluate planned projects at early stages, and
pursue these projects by offering technical support and resources. After an agency completes a design, they publicize the upcoming bid for a water
transmission project. We then obtain detailed plans and develop our estimate for the pipe portion of the project. We typically bid to installation contractors
who include our bid in their proposals to public water agencies. A public water agency generally awards the entire project to the contractor with the lowest
responsive bid.
Precast Infrastructure and Engineered Systems. Our six precast and water systems manufacturing facilities in Texas and Utah allow us to efficiently serve
customers throughout Texas, the Intermountain West region, and surrounding states. The primary customers for our precast infrastructure and reinforced
concrete products are installation contractors for various commercial, government, residential, and industrial projects. Our marketing strategy emphasizes
our product quality and variety of offerings, competitive pricing, customer service, delivery, and technical expertise. We market many of our engineered
systems with preinstalled components as having the advantage of reduced field install time, the elimination of multiple vendors, and higher quality control.
Our sales force is comprised of in-house and third-party sales representatives, engineers, and support personnel who work closely with the customers to
find the right product or solution for their specific need.
In November 2023, we launched an upgraded website to promote ParkUSA products at www.parkusa.com. The site organizes products by user categories,
features product video and graphics, and promotes interaction with the sales team. Increased efficiencies include integrating requests for quotes, technical
information, and catalogs directly with Salesforce, the customer relationship management system used by ParkUSA. The site will also capture user
information to increase social marketing and have improved search engine optimization capabilities.
Competition
Engineered Steel Pressure Pipe. Most water infrastructure steel pipe projects are competitively bid and price competition is vigorous. Price competition
may reduce the gross margin on sales, which may adversely affect overall profitability. Other competitive factors include timely delivery, customized
specifications, and high freight costs which may limit the ability of manufacturers located in other market areas to compete with us. With water
infrastructure steel pipe manufacturing facilities in Oregon, California, West Virginia, Texas, Missouri, and Mexico, we believe we can more effectively
compete throughout North America. Our primary competitor in the western United States and southwestern Canada is West Coast Pipe. East of the Rocky
Mountains, our primary competitors are Thompson Pipe Group, American SpiralWeld Pipe, and Mid America Pipe Fabricating & Supply, LLC. Our
competitors could build new facilities or expand capacity within our market areas. New or expanded facilities or new competitors could have a material
adverse effect on our market share, product pricing, sales, gross margins, and overall profitability in our business.
Precast Infrastructure and Engineered Systems. Our six precast and reinforced concrete product manufacturing facilities in Texas and Utah have several
local competitors which are primarily other precast concrete manufacturers in the respective states where we operate. Our primary competitors are
Oldcastle Infrastructure in Texas and Utah and AmeriTex Pipe & Products LLC in Texas.
Raw Materials and Supplies
We have at least two suppliers for most of our raw materials. We believe our relationships with our suppliers are positive and do not expect that we will
experience shortages of raw materials or components essential to our production processes or that we will be forced to seek alternative sources of supply.
Any shortages of raw materials may result in production delays and costs, which could have a material adverse effect on our financial position, results of
operations, or cash flows.
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Engineered Steel Pressure Pipe. The main raw component in our steel pipe manufacturing process is steel. We have historically purchased hot rolled steel
coil and steel plate from both domestic and foreign steel mills. Our suppliers include Steel Dynamics, Inc., Nucor Corporation, United States Steel
Corporation, SSAB, EVRAZ North America, ArcelorMittal, California Steel Industries, Inc., POSCO INTERNATIONAL, and Cleveland-Cliffs Inc. Steel
is normally purchased after the steel pressure pipe orders are confirmed with an executed contract. Purchased steel represents a substantial portion of our
cost of sales. The steel industry is highly cyclical in nature and steel prices fluctuate significantly, influenced by numerous factors beyond our control,
including general economic conditions, availability of raw materials, energy costs, import duties, other trade restrictions, and currency exchange rates.
Precast Infrastructure and Engineered Systems. The main raw components in our precast and reinforced concrete products are cement, steel, and
aggregate, which are widely available commodities. When possible, we source these raw materials from suppliers near our facilities. During 2022, we
experienced supply chain challenges for cement resulting from historically high demand as well as equipment outages, which led to suppliers allocating
cement to customers in both Texas and Utah. We also rely on certain suppliers of valves, pumps, piping, and certain custom fabricated items, and
experienced supply chain challenges for some of these materials during periods of 2022.
Seasonality
Our operations can be affected by seasonal variations and our results tend to be stronger in the second and third quarters of each year due to typically
milder weather in the regions in which we operate. We are more likely to be impacted by severe weather events, such as hurricanes and excessive flash
flooding, snow, ice, or frigid temperatures, which may cause temporary, short-term anomalies in our operational performance in certain localized
geographic regions. However, these impacts usually have not been material to our operations as a whole. See Part I — Item 1A. “Risk Factors” of this 2023
Form 10‑K for further discussion.
Government Regulations
We are subject to various environmental, health, and employee safety laws and regulations. We believe we are in material compliance with these laws and
regulations and do not currently believe that future compliance with such laws and regulations will have a material adverse effect on our capital
expenditures, earnings, or competitive position. Nevertheless, we cannot guarantee that, in the future, we will not incur additional costs for compliance or
that such costs will not be material.
In particular, we are subject to federal, state, local, and foreign environmental regulations, violations of which could lead to fines, penalties, other civil
sanctions, or criminal sanctions. These environmental laws and regulations govern emissions to air; discharges to water; and the generation, handling,
storage, transportation, treatment, and disposal of waste materials. We operate under numerous governmental permits and licenses relating to air emissions,
stormwater runoff, and other environmental matters. We are subject to environmental laws requiring the investigation and cleanup of environmental
contamination at properties we presently own or operate and at third-party disposal or treatment facilities to which these sites send or arrange to send
hazardous waste. For example, we have been identified as a potentially responsible party at the Portland Harbor Superfund Site discussed in Note 15 of the
Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2023 Form 10‑K. Estimating
liabilities for environmental investigations and cleanup is complex and dependent upon a number of factors beyond our control which may change
dramatically. We have no reserves for environmental investigation or cleanup, and we believe this is appropriate based on current information; however, we
cannot provide assurance that our future environmental investigation and cleanup costs and liabilities will not result in a material expense.
Human Capital Resources
At Northwest Pipe Company, we believe that a commitment to developing our human capital resources is necessary to maintain our position as a leader in
our marketplace. Key issues of culture, health and safety, and diversity and inclusion are key priorities in our discussions of our environmental, social, and
governance (ESG) impact.
Employees. As of December 31, 2023, we had 1,325 employees, the overwhelming majority of which were full-time. Approximately 65% of our workforce
is employed on an hourly basis, while 35% is salaried. As of December 31, 2023, none of our employees were subject to a collective bargaining agreement
with a labor union; our employees who were previously members of a union elected to de-certify from union representation in November 2023. We
consider our relations with our employees to be good. The average tenure of our employees is approximately 8 years of service. We believe the risk of
employee or union led disruption to production is remote.
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Maintaining a sufficient number of skilled employees in order to support the operations at our corporate office and various manufacturing sites continues to
be a key focus at Northwest Pipe Company. To that end, we offer a wide array of company-paid benefits to our employees both in the United States and
Mexico. Benefits may vary between countries due to customary local practices and statutory requirements, or due to an employee’s full or part time status,
work location, position, or tenure; however, we believe that as a whole our compensation packages are competitive relative to others in our industry. We are
committed to ensuring equal pay for equal work regardless of an employee’s age, gender identity, race, ethnicity, sexual orientation, or physical or mental
ability.
Culture. Our key values are captured in the acronym ACT, which stands for Accountability, Commitment, and Teamwork, which we seek to demonstrate in
our daily actions. Our executive leadership team guides our strategic direction to provide innovative water, environmental, and other infrastructure
solutions for a wide range of commercial, residential, and municipal applications which are manufactured safely (see Health and Safety below) and
efficiently. As a trusted partner to engineering firms, contractors, and water municipalities, we strive for operational, manufacturing, and client service
excellence. Our success stems from our employees delivering product to our customers that consistently meets or exceeds their expectations.
We believe that our employees are our best resources. In order to recognize and reward the continued commitment and teamwork of our employees, when
positions that may offer opportunities for advancement become open at Northwest Pipe Company, we first try to fill those positions from within. In 2023,
we launched a leadership training and development program that seeks to enhance the existing skills of some of our longer tenured leaders while providing
the opportunity for newer leaders in our organization to develop new skills as they advance in their careers.
We are committed to promoting and supporting fundamental human rights at our facilities, and have adopted a Human Rights Policy. In that policy, we
affirm the rights and freedoms of women and indigenous people, and prohibit the use of child labor and all forms of forced labor, including prison labor,
indentured labor, bonded labor, military labor, modern forms of slavery, and any form of human trafficking.
Health and Safety. Our goal is to send each employee home safe at the end of the day. As such, safety is at the central core of our culture, and is infused at
every level of our organization. More than just policy and procedure, our safety program gives equal focus to the human side of safety, integrating coaching
and mentoring efforts with compliance-driven approaches. By instilling a deep commitment to safety that reaches from our Chief Executive Officer to our
general laborers, we have achieved industry-leading safety performance. Over the last four years, our average total recordable incident rate was 2.17 and
our average days away rate was 0.39, calculated in accordance with the Occupational Safety and Health Administration’s record keeping requirements.
Each of our facilities utilize various interactions to achieve this performance, from a toolbox meeting to cover the day’s work and any particular safety
concern, to monthly Safety Plan Meetings, ‘No Days Away’ Safety Awards, and our employee-favorite, Safety Day. Each year, a facility may close for one
full day, or “Safety Day,” to cover safety training and updates. Outside vendors demonstrate the latest safety procedures and equipment in a hands-on, fun
atmosphere.
As a manufacturer, we work hard to eliminate hazards associated with high-risk work and have measures in place that include programs for fall protection,
heavy equipment operation, and lockout/tagout. We also focus on personal safety issues, such as complacency and fatigue. We offer our employees
medical, dental, and vision insurance coverage to support their physical and mental well-being.
Diversity and Inclusion. We welcome and embrace differences in age, gender identity, race, sexual orientation, physical or mental ability, ethnicity, socio-
economic status, veteran status, or any other characteristics that make our employees unique. We value these differences as strengths and believe our
resilience and achievements as a company culminate from each individual’s background, perspective, and skillset. As of December 31, 2023, 51% of our
employees in the United States self-identified as belonging to one or more of the following racial/ethnic groups: American Indian or Alaskan Native,
African American/Black, Asian, Hispanic or Latino, and Native Hawaiian or other Pacific Islander. As of December 31, 2023, 13% of our employees self-
identified as female.
Our goal is to build a skilled and strong workforce that is not only diverse in race and ethnicity, but also diverse in age, gender identity, sexual orientation,
physical or mental ability, and perspective. Our Affirmative Action Program (“AAP”) strives to hire, recruit, train, and promote employees without regard
to race, age, religion, color, sex, national origin, physical or mental disability, marital or veteran status, sexual orientation, gender identity, or any other
classification protected by law. To support these efforts, the AAP for our facilities in the United States is reviewed annually by a third-party consultant,
establishing annual hiring goals for women, minorities, veterans, and individuals with disabilities.
Ethics and Compliance. We take pride in the high standards of conduct that identifies us as a company. We have controls in place relating to compliance
with our Code of Business Conduct and Ethics (“Code”), including a requirement for employees to review and understand the requirements of our Code, as
well as an established whistleblower hotline and related procedures. Our Code, along with other key governance policies, is published on our website.
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We conduct training on our Code in regular intervals during the employee’s life cycle with us. The most recent ethics training for all salaried employees
was conducted in the fourth quarter of 2022. We also conduct anti-trust training annually. The most recent anti-trust training for certain senior management
and sales employees was conducted in the first quarter of 2023. In addition, we conduct Respect in the Workplace training which focuses on inclusion,
communication, and attentiveness to workplace behaviors and their impact on others. The most recent Respect in the Workplace training at all of our
facilities was conducted in 2022.
Information About Our Executive Officers
Information about our executive officers is set forth under the caption “Directors, Executive Officers, Promoters and Control Persons” in Part III —
Item 10. “Directors, Executive Officers and Corporate Governance” of this 2023 Form 10‑K and is incorporated herein by reference.
Available Information
Our internet address is www.nwpipe.com. Our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. All statements made in any of our securities filings,
including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume
or undertake any obligation to update any of those statements or documents unless we are required to do so by law. Our website and the information
contained therein or connected thereto are not incorporated into this 2023 Form 10‑K.
Additionally, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC at www.sec.gov.
Item 1A.
Risk Factors
You should carefully consider the following factors, together with all the other information included in this 2023 Form 10‑K, in evaluating our company
and our business. If any of the following risks actually occur, our business, financial condition, results of operations, or cash flows could be materially and
adversely affected, and the value of our stock could decline. The risks and uncertainties described below are those that we currently believe may materially
affect our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business
operations. As such, you should not consider this list to be a complete statement of all potential risks or uncertainties.
Risk Factor Summary
This risk factor summary contains a high-level overview of certain of the principal factors and uncertainties that make an investment in our securities risky,
including risks related to our industry and end markets, our business, our supply chain and production process, our financial condition, our internal control
over financial reporting, and our common stock. The following summary is not complete and should be read together with the more detailed discussion of
these and the other factors and uncertainties that follow before making an investment decision regarding our securities. The principal factors and
uncertainties that make an investment in our securities risky include the following.
Risks Related to Our Industry and End Markets
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Project delays in public water transmission projects could adversely affect our business;
A downturn in government spending related to public water transmission projects could adversely affect our business;
Our Engineered Steel Pressure Pipe segment faces an overcapacity situation due to recent capacity expansions as well as the potential for
increased competition from substitute products from manufacturers of concrete pressure pipe, ductile iron, polyvinyl chloride (“PVC”), and high-
density polyethylene pipe;
The success of our business is affected by general and local economic conditions, and our business may be adversely affected by an economic
slowdown or recession, or an inability of our pricing to keep pace with inflation of input costs; and
• We are subject to stringent environmental, health, and safety laws, which may require us to incur substantial compliance and remediation costs,
thereby reducing our profits.
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Risks Related to Our Business
• We face risks in connection with the integration of recent or future potential acquisitions and the implementation of future potential divestitures;
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Recent or future potential acquisitions could adversely affect operating results, dilute shareholders’ equity, or cause us to incur additional debt or
assume contingent liabilities;
Our quarterly results of operations are subject to significant fluctuation;
Operating problems in our business could adversely affect our business, financial position, results of operations, or cash flows;
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• We may be unable to develop or successfully market new products or our products might not obtain necessary approvals or achieve market
acceptance, which could adversely affect our growth;
Our recognition of revenue over time includes estimates;
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• We have a foreign operation which exposes us to the risks of doing business abroad;
Our Engineered Steel Pressure Pipe backlog is subject to reduction and cancelation;
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Future outbreaks of infectious diseases, including further developments in the coronavirus disease 2019 (“COVID‑19”) pandemic, may have an
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adverse impact on our business;
The conflicts in Ukraine and Israel may have an adverse impact on our business; and
Climate change and related regulatory requirements present an ongoing risk to our business operations.
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Risks Related to Our Supply Chain and Production Process
Our business may be adversely impacted by staffing shortages, other labor matters, and work stoppages;
Fluctuations in steel prices and availability may affect our future results of operations;
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• We may be subject to claims for damages for defective products, which could adversely affect our business, financial position, results of
operations, or cash flows;
• We may not be able to recover costs and damages from vendors that supply defective materials; and
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Our information technology systems can be negatively affected by cybersecurity threats.
Risks Related to Our Financial Condition
• We will need to substantially increase working capital if market conditions and customer order levels grow;
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Our debt obligations could have a material adverse effect on our business, financial condition, results of operations, or cash flows;
A portion of our indebtedness is subject to interest rate risk, which could cause our debt service obligations to increase significantly;
Our failure to comply with covenants in our debt agreements could result in our indebtedness being immediately due and payable, which could
have a material adverse effect on our business, financial condition, results of operations, or cash flows; and
Disruptions in the financial markets, including in the banking industry, and a general economic slowdown could cause us to be unable to obtain
financing or receive customer payments and expose us to risks related to the overall macro-economic environment, which could have a material
adverse effect on our business, financial condition, results of operations, or cash flows.
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Risks Related to Our Internal Control Over Financial Reporting
• We have identified material weaknesses in internal controls in prior years.
Risks Related to Our Common Stock
The relatively low trading volume of our common stock may limit your ability to sell your shares;
The market price of our common stock could be subject to significant fluctuations;
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• We cannot guarantee that our share repurchase program of our common stock will be fully consummated or that it will enhance long-term
stockholder value. Share repurchases could also increase the volatility of the trading price of our common stock and could diminish our cash
reserves thereby impacting our ability to execute our growth strategy; and
Certain provisions of our governing documents and Oregon law could discourage potential acquisition proposals.
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Risks Related to Our Industry and End Markets
Project delays in public water transmission projects could adversely affect our business. The public water agencies constructing water transmission
projects generally announce the projects well in advance of the bidding and construction process. It is not unusual for SPP projects to be delayed and
rescheduled. Projects are delayed and rescheduled for a number of reasons, including changes in project priorities, difficulties in complying with
environmental and other government regulations, changes in ability to obtain adequate project funding, and additional time required to acquire rights-of-
way or property rights. Delays in public water transmission projects may occur with insufficient notice to allow us to replace those projects in our
manufacturing schedules. As a result, our business, financial position, results of operations, or cash flows may be adversely affected by unplanned
downtime or reductions to facility utilization levels.
A downturn in government spending related to public water transmission projects could adversely affect our business. Our business is primarily
dependent upon spending on public water transmission projects, including water infrastructure upgrades, repairs, and replacement and new water
infrastructure spending, which in turn depends on, among other things:
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the need for new or replacement infrastructure;
the priorities placed on various projects by governmental entities;
federal, state, and local government spending levels, including budgetary constraints related to capital projects and the ability to obtain financing;
and
the ability of governmental entities to obtain environmental approvals, right-of-way permits, and other required approvals and permits.
Decreases in the number of, or government funding of, public water transmission projects could adversely affect our business, financial position, results of
operations, or cash flows.
Our Engineered Steel Pressure Pipe segment faces an overcapacity situation due to recent capacity expansions as well as the potential for
increased competition from substitute products from manufacturers of concrete pressure pipe, ductile iron, polyvinyl chloride, and high-density
polyethylene pipe. Most SPP projects are competitively bid and price competition can be vigorous. In a market that already has overcapacity issues, recent
increases in capacity have negatively affected our sales, gross margins, and overall profitability. Other competitive factors include timely delivery, ability to
meet customized specifications, and high freight costs. Although our SPP manufacturing facilities in Oregon, California, West Virginia, Texas, Missouri,
and Mexico allow us to compete throughout North America, our competitors could build new facilities or expand capacity within our market areas. New or
expanded facilities or new competitors could have a material adverse effect on our market share, product pricing, sales, gross margins, and overall
profitability in our business.
Water transmission pipe is manufactured generally from steel, concrete, ductile iron, PVC, or HDPE. Each pipe material has advantages and disadvantages.
Steel and concrete are more common materials for larger-diameter water transmission pipelines because ductile iron pipe generally is limited in diameter
due to the manufacturing process. The public agencies and engineers who determine the specifications for water transmission projects analyze these pipe
materials for suitability for each project. Individual project circumstances normally dictate the preferred material. If we experience cost increases in raw
materials, labor, and overhead specific to our industry or the location of our facilities, while competing products or companies do not experience similar
changes, we could experience an adverse change in the demand, price, and profitability of our products, which could have a material adverse effect on our
business, financial position, results of operations, or cash flows.
The success of our business is affected by general and local economic conditions, and our business may be adversely affected by an economic
slowdown or recession, or an inability of our pricing to keep pace with inflation of input costs. We are subject to national and regional economic
conditions. These conditions include, but are not limited to, recession, inflation, interest rates, unemployment levels, the state of the housing market, and
gasoline prices. These conditions and the economy in general could be affected by significant national or international events such as a global health crisis,
acts of terrorism, or acts of war (including the Russian invasion of Ukraine and the current escalating Israel-Palestine conflict).
Periods of economic slowdown or recession in the United States, or the public perception that one may occur, have and could further decrease the demand
for our products, affect the price of our products, and adversely impact our business. We have been impacted in the past by the general slowing of the
economy, and the economic slowdown has had an adverse impact on our business, financial position, results of operations, or cash flows. Alternatively, our
business may be adversely impacted by high inflation of input costs.
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We currently conduct a significant portion of our precast and reinforced concrete products business in Texas and Utah, which we estimate represented
approximately 51% and 41%, respectively, of Precast net sales for the year ended December 31, 2023. Local economic conditions depend on a variety of
factors, including national economic conditions, local and state budgets, infrastructure spending, and the impact of federal cutbacks. Any decrease in
construction activity in Texas or Utah could have a material adverse effect on our business, financial condition, and results of operations.
We are subject to stringent environmental, health, and safety laws, which may require us to incur substantial compliance and remediation costs,
thereby reducing our profits. We are subject to many federal, state, local, and foreign environmental, health, and safety laws and regulations, particularly
with respect to the use, handling, treatment, storage, discharge, and disposal of substances and hazardous wastes used or generated in our manufacturing
processes. Compliance with these laws and regulations is a significant factor in our business. We have incurred, and expect to continue to incur, significant
expenditures to comply with applicable environmental laws and regulations. Our failure to comply with applicable environmental laws and regulations and
permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing
operations or requiring corrective measures, installation of pollution control equipment, or remedial actions.
We are currently, and may in the future be, required to incur costs relating to the environmental assessment or environmental remediation of our property,
and for addressing environmental conditions, including, but not limited to, the issues associated with our Portland, Oregon facility as discussed in Note 15
of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2023 Form 10‑K. Some
environmental laws and regulations impose liability and responsibility on present and former owners, operators, or users of facilities and sites for
contamination at such facilities and sites without regard to causation or knowledge of contamination. Consequently, we cannot assure you that existing or
future circumstances, the development of new facts, or the failure of third parties to address contamination at current or former facilities or properties will
not require significant expenditures by us.
We expect to continue to be subject to increasingly stringent environmental, health, and safety laws and regulations. It is difficult to predict the future
interpretation and development of environmental, health, and safety laws and regulations or their impact on our future earnings and operations. We
anticipate that compliance with these laws and regulations will continue to require capital expenditures and operating costs. Any increase in these costs, or
unanticipated liabilities arising, for example, out of discovery of previously unknown conditions or more aggressive enforcement actions, could adversely
affect our results of operations, and there is no assurance that they will not have a material adverse effect on our business, financial position, results of
operations, or cash flows.
Risks Related to Our Business
We face risks in connection with the integration of recent or future potential acquisitions and the implementation of future potential divestitures.
Acquiring businesses that expand and/or complement our operations has been an important element of our business strategy, and we continue to evaluate
potential acquisitions that may expand and/or complement our business. We may not be able to successfully identify attractive acquisition candidates or
negotiate favorable terms in the future. Furthermore, our ability to effectively integrate any future acquisitions will depend on, among other things, the
adequacy of our implementation plans, the ability of our management to oversee and operate effectively the combined operations, and our ability to achieve
desired operational efficiencies. We may face challenges in integrating cultures, information systems, and business processes and policies in a seamless
manner that minimizes any adverse impact on customers, suppliers, employees, and other parties. Acquired businesses may have liabilities, adverse
operating issues, or other matters of concern arise following the acquisition that we fail to discover through due diligence prior to the acquisition. Further,
our acquisition targets may not have as robust internal controls over financial reporting as would be expected of a public company, and therefore could lead
to potential internal control deficiencies or material weaknesses. Acquisitions may also result in the recording of goodwill and other intangible assets that
are subject to potential impairment in the future that could harm our financial results. We may also consider other alternatives in order to strategically
position our business and continue to compete in our markets, which may include joint ventures and/or divestitures. Our failure to successfully integrate the
operations of any businesses that we may acquire in the future or our inability to attract a business partner in which to enter into a joint venture or a buyer
willing to purchase our assets may adversely affect our business, financial position, results of operations, or cash flows.
We acquired ParkUSA on October 5, 2021. The success of this acquisition depends, in part, on our ability to successfully integrate this business with our
current operations and to realize the anticipated benefits, including synergies, from the acquisition. There are a number of challenges and risks involved in
our ability to successfully integrate ParkUSA with our current business and to realize the anticipated benefits of this acquisition, including all of the risks
identified in the previous paragraph. Any of these factors could have a material adverse effect on our business, financial condition, results of operations, or
cash flows.
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Recent or future potential acquisitions could adversely affect operating results, dilute shareholders’ equity, or cause us to incur additional debt or
assume contingent liabilities. To increase business, broaden the diversification of our products, or for other business or strategic reasons, we may acquire
other companies in the future. For example, in October 2021 we acquired ParkUSA. The acquisition of ParkUSA and any other acquisitions that we may
enter into from time to time, involve a number of risks that could harm our business and result in ParkUSA and/or any other acquired business not
performing as expected, including:
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problems integrating the acquired operations, personnel, technologies, or products with the existing business and products;
failure to achieve cost savings or other financial or operating objectives with respect to an acquisition;
possible adverse short-term effects on cash flows or operating results, and the use of cash and other resources for the acquisition that might affect
liquidity, and that could have been used for other purposes;
diversion of management’s time and attention from our existing business to the acquired business;
potential failure to retain key technical, management, sales, and other personnel of the acquired business;
difficulties in retaining relationships with suppliers and customers of the acquired business, particularly where such customers or suppliers
compete with us;
difficulties in the integration of financial reporting systems, which could cause a delay in the issuance of, or impact the reliability of the
consolidated financial statements;
failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), including a delay in or failure to successfully
integrate these businesses into our internal control over financial reporting, such as the material weaknesses in our internal control over financial
reporting as of December 31, 2022 identified in connection with the design and implementation of the ERP system implemented on August 1,
2022 at ParkUSA, and since remediated, as described in Part II — Item 9A, “Controls and Procedures” of this 2023 Form 10‑K;
insufficient experience with technologies and markets in which the acquired business is involved, which may be necessary to successfully operate
and integrate the business;
subsequent impairment of goodwill and acquired long-lived assets, including intangible assets;
failure to achieve the expected return on investment for capital deployed to the organic growth strategies associated with prior acquisitions; and
assumption of liabilities including, but not limited to, lawsuits, environmental liabilities, regulatory liabilities, tax examinations, and warranty
issues.
We may enter into acquisitions that are dilutive to earnings per share or that adversely impact margins as a whole. In addition, acquisitions could require
investment of significant financial resources and require us to obtain additional equity financing, which may dilute shareholders’ equity, or require us to
incur indebtedness.
Our quarterly results of operations are subject to significant fluctuation. Our net sales and operating results may fluctuate significantly from quarter to
quarter due to a number of factors, including:
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the commencement, completion, or termination of contracts during any particular quarter;
unplanned down time due to project delays or mechanical failure;
underutilized capacity or facility productivity;
adverse weather conditions;
fluctuations in the cost of raw materials;
disruptions in our supply chain; and
competitive pressures.
Results of operations in any period are not indicative of results for any future period, and comparisons between any two periods may not be meaningful.
Operating problems in our business could adversely affect our business, financial position, results of operations, or cash flows. Our manufacturing
operations are subject to typical hazards and risks relating to the manufacture of similar products such as:
explosions, fires, inclement weather, and natural disasters;
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• mechanical failure;
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•
unscheduled downtime;
labor shortages;
loss of process control and quality;
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•
•
•
•
•
•
disruptions to supply;
raw materials quality defects;
service provider delays or failures;
transportation delays or failures;
an inability to obtain or maintain required licenses or permits; and
environmental hazards such as chemical spills, discharges, or releases of toxic or hazardous substances or gases into the environment or
workplace.
The occurrence of any of these operating problems at our facilities may have a material adverse effect on the productivity and profitability of a particular
manufacturing facility or on our operations as a whole, during and after the period of these operating difficulties. The operating problems listed above may
also cause personal injury and loss of life, severe damage to or destruction of property and equipment, and environmental damage. In addition, individuals
could seek damages for alleged personal injury or property damage. Furthermore, we could be subject to present and future claims with respect to
workplace injury, exposure to hazardous materials, workers’ compensation, and other matters. Although we maintain property and casualty insurance of the
types and in the amounts that we believe are customary for our industries, we cannot assure you that our insurance coverage will be adequate for liability
that may be ultimately incurred or that such coverage will continue to be available to us on commercially reasonable terms. Any claims that result in
liability exceeding our insurance coverage could have an adverse effect on our business, financial position, results of operations, or cash flows.
We may be unable to develop or successfully market new products or our products might not obtain necessary approvals or achieve market
acceptance, which could adversely affect our growth. We will continue to actively seek to develop new products and to expand our existing products
into new markets, but we cannot assure you that we will be successful in these efforts. If we are unsuccessful in developing and marketing new products,
expanding into new markets, or we do not obtain or maintain requisite approvals for our products, the demand for our products could be adversely affected,
which could adversely affect our business, financial position, results of operations, or cash flows.
Our recognition of revenue over time includes estimates. SPP revenue for water infrastructure steel pipe products is recognized over time as the
manufacturing process progresses, and is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-
cost method). Estimated total costs of each contract are reviewed on a monthly basis by project management and operations personnel for all active
projects. All cost revisions that result in a material change in gross profit are reviewed by senior management personnel.
Significant judgment is required in estimating total costs and measuring the progress of project completion, as well as whether a loss is expected to be
incurred on the contract. Changes in job performance, job conditions, and estimated profitability, including those arising from contract change orders,
contract penalty provisions, foreign currency exchange rate movements, changes in raw materials costs, and final contract settlements may result in
revisions to estimates of revenue, costs, and income, and are recognized in the period in which the revisions are determined. Due to the variability of events
affecting our estimates which have a material impact on our contract accounting, actual results could differ from those estimates, which could adversely
affect our financial position, results of operations, or cash flows.
We have a foreign operation which exposes us to the risks of doing business abroad. Our facility in San Luis Río Colorado, Mexico primarily exports
products to the United States. We may operate in additional countries in the future. Any material changes in the quotas, regulations, tariffs, or duties on
imports imposed by the United States government and our agencies, or on exports imposed by these foreign governments and their agencies could
adversely affect our foreign operations.
We also sell some of our products internationally, most often into Canada. Our foreign activities are also subject to various other risks of doing business in
a foreign country, including:
•
•
•
•
•
•
•
currency fluctuations;
the imposition of duties, tariffs, and other trade barriers;
transportation delays and interruptions;
political, social, and economic instability and disruptions;
government embargoes or foreign trade restrictions;
import and export controls;
labor unrest and current and changing regulatory environments;
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•
•
limitations on our ability to enforce legal rights and remedies; and
potentially adverse tax consequences.
No assurance can be given that our operations may not be adversely affected in the future. Any of these events could have an adverse effect on our
operations in the future by reducing the demand for our products and services, decreasing the prices at which we can sell our products, or increasing costs
such that there could be an adverse effect on our business, financial position, results of operations, or cash flows. We cannot assure you that we will
continue to operate in compliance with applicable customs, currency exchange control regulations, transfer pricing regulations, or any other laws or
regulations to which we may be subject, or that any such regulations or laws will not be modified. Any failure by us to comply with any such applicable
regulations or laws, or any changes in any such regulations or laws could have a material adverse effect on our business, financial position, results of
operations, or cash flows.
Our Engineered Steel Pressure Pipe backlog is subject to reduction and cancelation. Backlog, which represents the balance of remaining performance
obligations under signed contracts for SPP water infrastructure steel pipe products for which revenue is recognized over time, was $273 million as of
December 31, 2023. Our backlog is subject to fluctuations; moreover, cancelations of purchase orders, change orders on contracts, or reductions of product
quantities could materially reduce our backlog and, consequently, future revenues. Our failure to replace canceled or reduced backlog could result in lower
revenues, which could adversely affect our business, financial position, results of operations, or cash flows.
Future outbreaks of infectious diseases, including further developments in the COVID‑19 pandemic, may have an adverse impact on our business.
The impacts of the COVID‑19 pandemic, and the resurgence of new COVID‑19 virus variants, on global and domestic economic conditions, including the
impacts of labor and raw material shortages, the long-term potential to reduce or delay funding of municipal projects, and the continued disruptions to and
volatility in the financial markets remain uncertain. While the COVID‑19 pandemic has caused various direct and indirect financial impacts associated with
project bidding, execution, and product deliveries over the past couple of years, we remain unable to predict the ultimate impact that the COVID‑19
pandemic may have on our business, future results of operations, financial position, or cash flows. We continue to monitor the impact of the COVID‑19
pandemic on all aspects of our business. The impacts of the COVID‑19 pandemic may also exacerbate other risks discussed in Part I – Item 1A. “Risk
Factors” in this 2023 Form 10‑K, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that
we are not aware of currently.
The conflicts in Ukraine and Israel may have an adverse impact on our business. Current conflicts around the world, including those in Ukraine and
Israel, and related sanctions could damage or disrupt international commerce and the global economy. We continue to monitor the impacts of the conflicts
in Ukraine and Israel on all aspects of our business, including how it will impact our employees, customers, supply chain, and distribution network.
Impacts include financial and commodity volatility in raw material and other input costs and availability, as well as volatility in the financial markets. The
severity of impacts on the global economy and our business, results of operations, financial position and cash flows remain unknown.
Climate change and related regulatory requirements present an ongoing risk to our business operations. The rise in average global temperatures has
resulted in elevated levels of carbon dioxide and other greenhouse gases in the atmosphere, altering long-term weather patterns that lead to an increased
frequency and severity of natural disasters. Severe weather conditions could potentially disrupt our manufacturing and construction activities; areas prone
to flooding could face delays resulting in lost production and extreme heat could threaten the health and well-being of our employees. Given the changes in
weather patterns brought on by climate change, essentially all of our facilities are vulnerable to extreme conditions and natural disasters, increasing the risk
of damage to our facilities and products. Those risks could also hinder our supply chain processes and limit our access to raw materials or our ability to
fulfill orders for customers. Evolving governmental regulations to combat climate change risks would likely increase our costs for items including energy
and transportation, which may prove disproportional to similar increases in costs experienced by competitors. We anticipate heightened regulatory focus in
the near future and failure to comply with new environmental regulations and policies could result in reputational damage with our stakeholders, resulting
in decreased demand for our products and lower than expected revenue.
Risks Related to Our Supply Chain and Production Process
Our business may be adversely impacted by staffing shortages, other labor matters, and work stoppages. Current nationwide staffing shortages have
impacted our ability to attract both skilled and unskilled workers needed for our manufacturing operations, and the inability to fully staff any one of our
facilities may impact our ability to work on projects and, as a result, could have a material adverse effect on our business, financial position, results of
operations, or cash flows. A work stoppage or other limitation on production could occur at our facilities or our suppliers’ facilities for any number of
reasons, including as a result of absenteeism, public health issues, labor issues, including disputes under a collective bargaining agreement or in connection
with negotiation of new collective bargaining agreements, or for other reasons.
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We believe that our relations with our employees are good, however no assurances can be made that we will not experience conflicts with labor unions,
other groups representing employees, or our employees in general. Although none of our employees are currently covered by collective bargaining
agreements, our employees may elect to be represented by labor unions in the future, which could increase our labor costs
Additionally, the employees of some of our customers are unionized. Any strikes, other labor matters, or work stoppages experienced by our customers
may impact our ability to work on projects and, as a result, have an adverse effect on our business, financial position, results of operations, or cash flows.
Fluctuations in steel prices and availability may affect our future results of operations. Purchased steel represents a substantial portion of SPP cost of
sales. The steel industry is highly cyclical in nature, and at times, pricing can be highly volatile due to a number of factors beyond our control, including
general economic conditions, import duties, other trade restrictions, and currency exchange rates. Over the past three years, steel prices have fluctuated
significantly. Our average cost for a ton of steel was approximately $994 per ton in 2023, $1,174 per ton in 2022, and $1,291 per ton in 2021. In 2023, our
monthly average steel purchasing costs ranged from a high of approximately $1,394 per ton to a low of approximately $801 per ton. This volatility can
significantly affect our gross profit.
Although we seek to recover increases in steel prices through price increases in our products, we have not always been successful. Any increase in steel
prices that is not offset by an increase in our prices could have an adverse effect on our business, financial position, results of operations, or cash flows. In
addition, if we are unable to acquire timely steel supplies, we may need to decline project bidding opportunities, which could also have an adverse effect on
our business, financial position, results of operations, or cash flows.
We may be subject to claims for damages for defective products, which could adversely affect our business, financial position, results of
operations, or cash flows. We warrant our products to be free of certain defects. We have, from time to time, had claims alleging defects in our products.
We cannot assure you that we will not experience material product liability losses in the future or that we will not incur significant costs to defend such
claims. While we currently have product liability insurance, we cannot assure you that our product liability insurance coverage will be adequate for
liabilities that may be incurred in the future or that such coverage will continue to be available to us on commercially reasonable terms. Any claims relating
to defective products that result in liabilities exceeding our insurance coverage could have an adverse effect on our business, financial position, results of
operations, or cash flows.
We may not be able to recover costs and damages from vendors that supply defective materials. We may receive defective materials from our vendors
that are incorporated into our products during the manufacturing process. The cost to repair, remake, or replace defective products could be greater than the
amount that can be recovered from the vendor, in addition to creating inefficiencies in our production scheduling. Such excess costs could have an adverse
effect on our business, financial position, results of operations, or cash flows.
Our information technology systems can be negatively affected by cybersecurity threats. Increased global information technology security
requirements, vulnerabilities, threats, and a rise in sophisticated and targeted computer crime pose a risk to the security of our systems, networks, and the
confidentiality, availability, and integrity of our data. Despite our efforts to protect sensitive information and confidential and personal data, our facilities
and systems and those of our third-party service providers may be vulnerable to security breaches. This could lead to disclosure, modification, or
destruction of proprietary, employee, and other key information and operational disruptions. To the extent that any disruption or security breach results in a
loss or damage to our data, or an inappropriate disclosure of confidential or protected personal information, it could cause significant damage to our
reputation, affect our relationships with our customers, suppliers, and employees, lead to claims against us, and ultimately harm our business. Additionally,
we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. Any of the foregoing
factors could have an adverse effect on our business, financial position, results of operations, or cash flows.
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Risks Related to Our Financial Condition
We will need to substantially increase working capital if market conditions and customer order levels grow. If market conditions and SPP customer
order levels were to dramatically increase, we would have to increase our working capital substantially, as it takes several months for project production to
be translated into cash receipts. In general, revolving loan borrowings and letters of credit under the Credit Agreement dated June 30, 2021 with Wells
Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the lenders from time to time party thereto, including the initial sole lender,
Wells Fargo (the “Lenders”), as amended by the Incremental Amendment dated October 22, 2021, the Second Amendment to Credit Agreement dated
April 29, 2022, and the Third Amendment to Credit Agreement dated June 29, 2023 (together, the “Amended Credit Agreement”), are limited to the
aggregate amount of $125 million (“Revolver Commitment”), with an option for us to increase that amount by $50 million, subject to provisions of the
Amended Credit Agreement. As of December 31, 2023 under the Amended Credit Agreement, we had $54.5 million of outstanding revolving loan
borrowings, $1.1 million of outstanding letters of credit, and additional borrowing capacity of approximately $69 million. We may not have sufficient
availability under the Amended Credit Agreement to borrow the amounts we need, and other opportunities to borrow additional funds or raise capital in the
equity markets may be limited or nonexistent. A shortage in the availability of working capital could have a material adverse effect on our business,
financial condition, results of operations, or cash flows.
Our debt obligations could have a material adverse effect on our business, financial condition, results of operations, or cash flows. We have
financed our operations through cash flows from operations, available borrowings, and other financing arrangements. As of December 31, 2023, we had
$54.5 million of outstanding revolving loan borrowings, $10.8 million of current debt, $90.2 million of operating lease liabilities, and $7.5 million of
finance lease liabilities. We could incur additional revolving loan borrowings under the Amended Credit Agreement in the future to finance increases in
working capital, share repurchases, mergers, acquisitions, and capital expenditures, fund negative operating cash flows, or for other corporate purposes.
These borrowings could become significant in the future.
Our current and future debt and debt service obligations could:
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•
•
•
limit our ability to obtain additional financing for working capital or other purposes in the future;
reduce the amount of funds available to finance our operations, capital expenditures, and other activities;
increase our vulnerability to economic downturns, illiquid capital markets, and adverse industry conditions;
limit our flexibility in responding to changing business and economic conditions, including increased competition;
place us at a disadvantage when compared to our competitors that have less debt; and
with respect to our borrowings that bear interest at variable rates, cause us to be vulnerable to increases in interest rates.
Our ability to make scheduled payments on our current and future debt will depend on our future operating performance and cash flows, which are subject
to prevailing economic conditions, prevailing interest rate levels, and other financial, competitive, and business factors, many of which are beyond our
control. Our inability to make scheduled payments on our debt or any of the foregoing factors could have a material adverse effect on our business,
financial condition, results of operations, or cash flows.
To the extent we have not hedged against rising interest rates, an increase in the applicable benchmark interest rates would increase our cost of servicing
our indebtedness and could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
A portion of our indebtedness is subject to interest rate risk, which could cause our debt service obligations to increase significantly. Borrowings
under the Amended Credit Agreement and our current debt are, and additional borrowings in the future may be, at variable rates of interest that expose us
to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed
will remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. We have,
and may in the future enter into additional, interest rate swaps for a portion of our variable rate debt whereby we exchange floating for fixed rate interest
payments in order to reduce exposure to interest rate volatility. However, any interest rate swaps into which we enter may not fully mitigate our interest rate
risk and may expose us to higher total debt service cost in a declining rate environment.
Our failure to comply with covenants in our debt agreements could result in our indebtedness being immediately due and payable, which could
have a material adverse effect on our business, financial condition, results of operations, or cash flows. The agreements governing our debt include
covenants that impose certain requirements with respect to our financial condition and results of operations and general business activities. These covenants
place restrictions on, among other things, our ability to incur certain additional debt and to create liens or other encumbrances on assets. In addition, our
obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of our and our subsidiaries’ assets.
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Our ability to comply with the covenants under our debt instruments in the future is uncertain and will be affected by our results of operations and financial
condition as well as other events and circumstances beyond our control. If market and other economic conditions deteriorate, our ability to comply with
these covenants may be impaired. A failure to comply with the requirements of these covenants, if not waived or cured, could permit acceleration of the
related debt. If any of our debt is accelerated, we cannot assure you that we would have sufficient assets to repay such debt or that we would be able to
refinance such debt on commercially reasonable terms or at all. The acceleration of a significant portion of our current and future debt could have a
material adverse effect on our business, financial condition, results of operations, or cash flows.
Disruptions in the financial markets, including the banking industry, and a general economic slowdown could cause us to be unable to obtain
financing or receive customer payments and expose us to risks related to the overall macro-economic environment, which could have a material
adverse effect on our business, financial condition, results of operations, or cash flows. The United States equity and credit markets, as well as certain
financial institutions, have experienced significant price volatility, dislocations, and liquidity disruptions, which have caused market prices of many equities
to fluctuate substantially, the spreads on prospective debt financings to widen considerably, and disruptions in select banking transactions. These
circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have
resulted in the unavailability of financing, even for companies who are otherwise qualified to obtain financing. These events may make it less likely that we
will be able to obtain additional financing, may make it more difficult or prohibitively costly for us to raise capital through the issuance of debt or equity
securities, which may prove necessary to execute our growth strategies, and may impact our customers and their ability to make payments or obtain credit.
Risks Related to Our Internal Control Over Financial Reporting
We have identified material weaknesses in internal control in prior years. For the year ended December 31, 2022, a material weakness in our internal
control over financial reporting related to the implementation of our enterprise resource planning (“ERP”) system for the acquisition of ParkUSA was
identified. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected. This
material weakness was remediated as of December 31, 2023.
No material weaknesses were identified as of December 31, 2023. However, we cannot assure you that additional material weaknesses in our internal
control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any
difficulties we encounter in their implementation, could result in additional material weaknesses, or could result in material misstatements in our financial
statements. These misstatements could result in a restatement of financial statements, cause us to fail to meet our reporting obligations or cause investors to
lose confidence in our reported financial information, leading to a decline in our stock price.
Risks Related to Our Common Stock
The relatively low trading volume of our common stock may limit your ability to sell your shares. Although our shares of common stock are listed on
the Nasdaq Global Select Market, we have historically experienced a relatively low trading volume. If we have a low trading volume in the future, holders
of our shares may have difficulty selling a large number of shares of our common stock in the manner or at a price that might otherwise be attainable.
The market price of our common stock could be subject to significant fluctuations. The market price of our common stock has experienced, and may
continue to experience, significant volatility. Among the factors that could affect our stock price are:
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•
our operating and financial performance and prospects;
quarterly variations in the rate of growth of our financial indicators, such as earnings per share, net income, and net sales;
changes in revenue or earnings estimates or publication of research reports by analysts;
loss of any member of our senior management team;
speculation in the press or investment community;
strategic actions by us or our competitors, such as acquisitions or restructuring;
sales of our common stock by shareholders;
relatively low trading volume;
our repurchase of our common stock pursuant to our share repurchase program;
general market conditions and market expectations for our industry and the financial health of our customers; and
domestic and international economic, legal, and regulatory factors unrelated to our performance.
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The stock markets in general have experienced broad fluctuations that have often been unrelated to the operating performance of particular companies.
These broad market fluctuations may adversely affect the trading price of our common stock.
We cannot guarantee that our share repurchase program of our common stock will be fully consummated or that it will enhance long-term
stockholder value. Share repurchases could also increase the volatility of the trading price of our common stock and could diminish our cash
reserves thereby impacting our ability to execute our growth strategy. On November 2, 2023, we announced our authorization of a share repurchase
program of up to $30 million of our outstanding common stock. The program does not commit to any particular timing or quantity of purchases, and the
program may be suspended or discontinued at any time. During the year ended December 31, 2023, we repurchased approximately 29,000 shares of our
common stock and had $29.2 million remaining in share repurchase capacity as of December 31, 2023. The actual timing and amount of repurchases
remain subject to a variety of factors, including stock price, trading volume, market conditions and other general business considerations. We cannot
guarantee that the program will be fully consummated or that it will enhance long-term stockholder value. The program could affect the trading price of our
common stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our common
stock.
Certain provisions of our governing documents and Oregon law could discourage potential acquisition proposals. Our articles of incorporation
contain provisions that:
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classify the board of directors into three classes, each of which serves for a three-year term with one class elected each year;
provide that directors may be removed by shareholders only for cause and only upon the affirmative vote of 75% of the outstanding shares of
common stock;
permit the board of directors to issue preferred stock in one or more series, fix the number of shares constituting any such series, and determine the
voting powers and all other rights and preferences of any such series, without any further vote or action by our shareholders; and
require the approval of holders of not less than 67% of our outstanding shares of common stock for any agreement of merger or consolidation
which requires shareholder approval, or for the sale, lease, or exchange of all or substantially all of our property and assets.
In addition, we are subject to certain provisions of the Oregon Business Corporation Act that could discourage potential acquisition proposals, could deter,
delay, or prevent a change in control that our shareholders consider favorable, and could depress the market value of our common stock. Additional
information regarding the above described provisions of our governing documents and the Oregon Business Corporation Act is set forth in the “Description
of Securities Registered Under Section 12 of the Securities Exchange Act of 1934” filed as Exhibit 4.2 to our 2019 Form 10‑K, which was filed with the
SEC on March 3, 2020.
Item 1B.
Unresolved Staff Comments
None.
Item 1C.
Cybersecurity
We believe that cybersecurity is a critical part of our overall risk management, which is supported by both our management and our Board of Directors. We
believe that we face the same external threats common to other participants in the infrastructure sectors, which include ransomware and malware attacks in
addition to the risks brought on by the vendor supply chain. Through the leadership of our Vice President of Information Technology, who reports to our
Chief Financial Officer, we routinely assess these threats and evaluate our landscape for new vulnerabilities, considering both for their probability of
occurrence as well as their perceived potential impact. We supplement our risk assessment processes with robust identification tools which we review
routinely through the use of intrusion prevention and detection systems. We supplement our internal procedures with third parties, who routinely assess our
network infrastructure for vulnerabilities both internal and external to our firewall. We also conduct periodic training and awareness programs for all of our
employees with systems access in order to drive adoption and awareness of their critical roles in cybersecurity processes and controls.
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The pace of change in approaches undertaken by cyber criminals requires an approach to security that strives for continuous improvement and constant
monitoring of the landscape. While we are working to adopt the cybersecurity framework of the National Institute of Standards and Technology (NIST), we
believe continued investment through parties external to our information technology team is the best means for extensively testing both the design and
operational effectiveness of our cybersecurity controls, and ensuring their level of priority as compared to our other information technology objectives,
namely system continuity and functionality.
Furthermore, through our incident response plan, we believe we have a well-designed plan to manage through any unforeseen breach including the
eradication of the infiltrator from our networks. We carry cyber insurance to transfer the residual risk of an incident. We also work with our cyber insurance
carrier to regularly refine our response procedures, which include the definition of internal and external communications channels to key stakeholders, as
well as the identification of material breaches and the associated incident reporting up to senior management and our Board of Directors.
Our Board of Directors has charged the Audit Committee with the governance and oversight of this risk. Our governance philosophy is to discuss
cybersecurity at least quarterly with our Audit Committee, as provided for within that committee’s charter, including regular reporting by our Vice
President of Information Technology with respect to key accomplishments, planned activities, and monitoring results. Board experience in risk assessment
has been enhanced with certification achievements specific to cybersecurity risk, providing us with the appropriate oversight to this evolving threat.
As of the date of this report, we are not aware of any material breaches to our networks or computer systems that have materially affected or are reasonably
likely to materially affect us, including the execution of our business strategy, results of operations, or financial condition. We describe potential risks from
cybersecurity threats under the heading “Our information technology systems can be negatively affected by cybersecurity threats,” in Part I — Item 1.
“Risk Factors” of this 2023 Form 10‑K, which disclosures are incorporated herein by reference.
Item 2.
Properties
Our facilities serve regional markets, which vary in the number and sizes of projects year-over-year. Consequently, we have excess manufacturing capacity
from time to time at each of our facilities. We believe the quality and productive capacity of our facilities are sufficient to maintain our competitive position
for the foreseeable future.
The following tables provide certain information about our operating facilities as of December 31, 2023:
Engineered Steel Pressure Pipe
Location
Portland, Oregon
San Luis Río Colorado, Mexico
Adelanto, California
Parkersburg, West Virginia
Saginaw, Texas (2 facilities)
Tracy, California
St. Louis, Missouri
Manufacturing
Space
(approx. sq. ft.)
300,000
285,000
200,000
170,000
170,000
165,000
100,000
Property Size
(approx. acres)
25
105
100
90
50
87
20
Ownership
Owned
Owned
Owned
Owned
1 Owned, 1 Leased
Owned
Leased
Additionally, land adjacent to our Portland, Oregon, Saginaw, Texas, and St. Louis, Missouri facilities used for parking and/or pipe storage is leased.
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Precast Infrastructure and Engineered Systems
Location
Houston, Texas
Orem, Utah
Dallas, Texas
Salt Lake City, Utah
San Antonio, Texas
St. George, Utah
Item 3.
Legal Proceedings
Manufacturing
Space
(approx. sq. ft.)
239,000
150,000
62,000
58,000
34,000
6,000
Property Size
(approx. acres)
25
20
11
20
7
8
Ownership
Leased
Leased
Leased
Leased
Leased
Leased
We are party to a variety of legal actions arising out of the ordinary course of business. Plaintiffs occasionally seek punitive or exemplary damages. We do
not believe that such normal and routine litigation will have a material impact on our consolidated financial results. We are also involved in other kinds of
legal actions, some of which assert or may assert claims or seek to impose fines, penalties, and other costs in substantial amounts. See Note 15 of the Notes
to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2023 Form 10‑K.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Market Information
Our common stock is quoted on the Nasdaq Global Select Market under the symbol “NWPX.”
Holders
There were 18 shareholders of record as of February 23, 2024. A substantially greater number of holders of our common stock are beneficial holders,
whose shares are held of record by banks, brokers, and other financial institutions.
Dividends
We do not intend to pay cash dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
The information with respect to equity compensation plans is included under Part III — Item 12. “Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters” of this 2023 Form 10‑K.
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Performance Graph
The following graph compares the performance of our common stock to the performance of the Russell 2000 Index and a weighted composite of certain
industry-based peer companies (“Peer Group”) selected by us. The Russell 2000 Index measures the performance of the small-cap segment of the U.S.
equity markets. The Peer Group is comprised of Ampco-Pittsburgh Corporation, Badger Meter, Inc., DMC Global Inc., L.B. Foster Company, Insteel
Industries, Inc., Lindsay Corporation, Luxfer Holdings, PLC, Mueller Water Products, Inc., NN, Inc., and Orion Group Holdings, Inc. The comparisons in
the chart below are provided in response to SEC disclosure requirements and, therefore, are not intended to forecast or be indicative of future performance
of our common stock.
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
December 31, 2023
Indexed Return
Northwest Pipe
Company
Russell 2000 Index
Peer Group
$
100.00 $
143.02
121.51
136.54
144.70
129.93
100.00 $
125.52
150.58
172.90
137.56
160.85
100.00
121.70
141.95
163.56
142.04
177.59
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Recent Sales of Unregistered Securities
There were no unregistered sales of our equity securities during the year ended December 31, 2023.
Use of Proceeds from Registered Securities
On December 4, 2023, our shelf registration statement on Form S‑3 (Registration No. 333‑275691) covering the potential future sale of up to $150 million
of our equity and/or debt securities or combinations thereof, was declared effective by the SEC. This shelf registration statement, which replaced the
registration statement on Form S‑3 that expired on November 3, 2023, provides another potential source of capital, in addition to other alternatives already
in place. We cannot be certain that funding will be available on favorable terms or available at all. To the extent that we raise additional funds by issuing
equity securities, our shareholders may experience significant dilution. As of the date of this 2023 Form 10‑K, we have not yet sold any securities under
this registration statement, nor do we have an obligation to do so. Please refer to the factors discussed in Part I — Item 1A. “Risk Factors” of this 2023
Form 10‑K.
On September 2, 2022, we entered into an Open Market Sale Agreement (the “At-the-Market Offering”) with Jefferies LLC (“Jefferies”) which provided
for the issuance and sale of shares of our common stock, par value $0.01 per share, having aggregate offering sales proceeds of up to $50 million from time
to time through Jefferies as our sales agent. On October 30, 2023, we provided written notice terminating the Open Market Sale Agreement in accordance
with its terms. No proceeds were raised under the At-the-Market Offering during the years ended December 31, 2023 or 2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program
does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program,
shares may be purchased in open market, including through Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our
broker, D.A. Davidson Companies. At this time, we have elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan
we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and covenant compliance under our
Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million for
repurchases and provides for daily share repurchases that fluctuate with changes in the trading price of our common stock. We expect to consider share
repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date.
The following table provides information relating to our repurchase of common stock during the three months ended December 31, 2023 pursuant to our
share repurchase program.
Period
October 1, 2023 to October 31, 2023
November 1, 2023 to November 30, 2023
December 1, 2023 to December 31, 2023
Total
Total Number of
Shares Purchased
Average Price Paid
Per Share (1)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
- $
- $
28,616 $
28,616
-
-
29.20
- $
- $
28,616 $
28,616
-
30,000,000
29,164,382
(1) Exclusive of commission fees incurred in relation to the repurchase of common stock.
Item 6.
[Reserved]
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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of certain significant factors that have affected our consolidated financial condition and results of
operations during the periods included herein. This discussion should be read in conjunction with our historical Consolidated Financial Statements and
Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this 2023 Form 10‑K. This discussion
contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of various factors, including those set forth under Part I — Item 1A. “Risk Factors” or in
other parts of this 2023 Form 10‑K. For discussion related to the results of operations and changes in financial condition for the year ended December 31,
2022 compared to the year ended December 31, 2021 refer to Part II — Item 7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Year Ended December 31, 2022 Compared to Year Ended December 31, 2021” and “Liquidity and Capital Resources” in our 2022
Form 10‑K, which was filed with the SEC on March 16, 2023, and which is incorporated herein by reference.
Overview
Northwest Pipe Company is a leading manufacturer of water-related infrastructure products, and operates in two segments, Engineered Steel Pressure Pipe
(SPP) and Precast Infrastructure and Engineered Systems (Precast). For detailed descriptions of these segments, see the “Our Segments” discussion in
Part I — Item 1. “Business” of this 2023 Form 10‑K.
In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, we manufacture stormwater and wastewater
technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and
one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet growing water and wastewater
infrastructure needs, we provide solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and
Northwest Pipe Company lines. Our diverse team is committed to safety, quality, and innovation while demonstrating our core values of accountability,
commitment, and teamwork. We are headquartered in Vancouver, Washington, and have 13 manufacturing facilities across North America.
Our water infrastructure products are sold generally to installation contractors, who include our products in their bids to federal, state, and municipal
agencies, privately-owned water companies, or developers for specific projects. We believe our sales are substantially driven by spending on urban growth
and new water infrastructure with a recent trend towards spending on water infrastructure replacement, repair, and upgrade. Within the total range of
products, our steel pipe best addresses the larger-diameter, higher-pressure pipeline applications, while our precast concrete products mainly serve
stormwater and sanitary sewer systems.
Our Current Economic Environment
Demand for our Precast products is generally influenced by general economic conditions such as housing starts, population growth, interest rates, and rates
of inflation. According to the United States Census Bureau, privately-owned housing starts were at a seasonally adjusted annual rate of 1.5 million in
December 2023 and 1.4 million in December 2022, and the population of the United States is expected to increase by approximately 2 million people in
2024. Additionally, it is now believed that recent increases in the federal funds rate by the Federal Reserve will remain elevated for the medium-term which
is expected to temper demand for housing. The impacts from the strain on the housing market to this point have been muted by the impacts of recent labor
and commodity shortages currently limiting the supply of new homes.
Our SPP projects are often planned for many years in advance, as we operate that business with a long-term time horizon for which the projects are
sometimes part of 50 year build-out plans. Even though we experienced a relatively modest level of project bidding in 2023, our backlog for SPP has
remained elevated, and long-term demand for water infrastructure projects in the United States appears strong. Additionally, while our SPP business faces
possible head winds from recessionary concerns in the broader domestic economy, we currently believe it more likely a modest increase in funding will be
brought on by the Bipartisan Infrastructure Deal (Infrastructure Investment and Jobs Act) and the Inflation Reduction Act.
Purchased steel typically represents approximately 35% of cost of sales, and higher steel costs generally result in higher selling prices and revenue;
however, volatile fluctuations in steel markets can affect our business. SPP contracts are generally quoted on a fixed-price basis, and volatile steel markets
can result in selling prices that no longer correlate to the cost available at the time of steel purchase. Even though steel market prices at the end of 2023
were approximately 50% higher than where they began the year, 2023 was tempered compared to the previous two years, and supplier lead times were not
as challenging to manage. Our average price of purchased steel was $994 per ton in 2023, compared to $1,174 in 2022 and $1,291 in 2021.
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Economic uncertainty, including the impacts of raw material shortages, inflationary pressures, potential risks of a recession, and disruptions in the financial
markets could have an adverse effect on our business. The extent of the impact of these broader economic forces on our business will depend on future
developments, which cannot be predicted.
Results of Operations
The following table sets forth, for the periods indicated, certain financial information regarding costs and expenses expressed in dollars (in thousands) and
as a percentage of total net sales.
Net sales:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered
Systems
Total net sales
Cost of sales:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered
Systems
Total cost of sales
Gross profit:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered
Systems
Total gross profit
Selling, general, and administrative
expense
Operating income
Other income
Interest expense
Income before income taxes
Income tax expense
Net income
$
Year Ended December 31, 2023
Year Ended December 31, 2022
Year Ended December 31, 2021
$
% of Net
Sales
$
% of Net
Sales
$
% of Net
Sales
$
296,381
66.7% $
307,572
67.2% $
259,823
78.0%
147,974
444,355
253,954
112,759
366,713
42,427
35,215
77,642
43,784
33,858
276
(4,855)
29,279
8,207
21,072
33.3
100.0
57.2
25.3
82.5
9.5
8.0
17.5
9.9
7.6
0.1
(1.1)
6.6
1.8
4.8% $
150,093
457,665
263,099
108,711
371,810
44,473
41,382
85,855
41,034
44,821
97
(3,568)
41,350
10,201
31,149
32.8
100.0
57.5
23.7
81.2
9.7
9.1
18.8
9.0
9.8
-
(0.8)
9.0
2.2
6.8% $
73,490
333,313
228,542
60,517
289,059
31,281
12,973
44,254
28,222
16,032
328
(1,202)
15,158
3,635
11,523
22.0
100.0
68.6
18.1
86.7
9.4
3.9
13.3
8.5
4.8
0.1
(0.4)
4.5
1.0
3.5%
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Net sales. Net sales decreased 2.9% to $444.4 million in 2023 compared to $457.7 million in 2022.
SPP net sales decreased 3.6% to $296.4 million in 2023 compared to $307.6 million in 2022 driven by a 6% decrease in tons produced resulting primarily
from changes in project timing, partially offset by a 2% increase in selling price per ton primarily due to product mix. Bidding activity, backlog, and
production levels may vary significantly from period to period affecting sales volumes.
Precast net sales decreased 1.4% to $148.0 million in 2023 compared to $150.1 million in 2022 driven by a 3% decrease in selling prices due to decreased
demand, partially offset by a 2% increase in volume shipped primarily due to product mix.
Gross profit. Gross profit decreased 9.6% to $77.6 million (17.5% of net sales) in 2023 compared to $85.9 million (18.8% of net sales) in 2022.
SPP gross profit decreased 4.6% to $42.4 million (14.3% of SPP net sales) in 2023 compared to $44.5 million (14.5% of SPP net sales) in 2022 primarily
due to changes in production volume.
Precast gross profit decreased 14.9% to $35.2 million (23.8% of Precast net sales) in 2023 compared to $41.4 million (27.6% of Precast net sales) in 2022
primarily due to decreased demand.
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Selling, general, and administrative expense. Selling, general, and administrative expense increased 6.7% to $43.8 million (9.9% of net sales) in 2023
compared to $41.0 million (9.0% of net sales) in 2022 primarily due to $1.7 million in higher professional fees including ERP implementation costs.
Income taxes. Income tax expense was $8.2 million in 2023 (an effective income tax rate of 28.0%) compared to $10.2 million in 2022 (an effective
income tax rate of 24.7%). The effective income tax rate for 2023 was primarily impacted by non-deductible permanent differences, accrued interest on
uncertain income tax positions, and state franchise tax. The effective income tax rate for 2022 was primarily impacted by non-deductible permanent
differences. The effective income tax rate can change significantly depending on the relationship of permanent income tax deductions and tax credits to
estimated pre-tax income or loss and the changes in valuation allowances. Accordingly, the comparison of effective income tax rates between periods is not
meaningful in all situations.
Liquidity and Capital Resources
Sources and Uses of Cash
Our principal sources of liquidity generally include operating cash flows and the Amended Credit Agreement. From time to time our long-term capital
needs may be met through the issuance of additional debt or equity. Our principal uses of liquidity generally include capital expenditures, working capital,
organic growth initiatives, acquisitions, share repurchases, and debt service. Information regarding our cash flows for the years ended December 31, 2023,
2022, and 2021 are presented in our Consolidated Statements of Cash Flows contained in Part II — Item 8. “Financial Statements and Supplementary
Data” of this 2023 Form 10‑K, and are further discussed below.
As of December 31, 2023, our working capital (current assets minus current liabilities) was $176.3 million compared to $187.9 million as of December 31,
2022. Cash and cash equivalents totaled $4.1 million and $3.7 million as of December 31, 2023 and 2022, respectively.
Fluctuations in SPP working capital accounts result from timing differences between production, shipment, invoicing, and collection, as well as changes in
levels of production and costs of materials. We typically have a relatively large investment in working capital, as we generally pay for materials, labor, and
other production costs in the initial stages of a project, while payments from our customers are generally received after finished product is delivered. A
portion of our revenues are recognized over time as the manufacturing process progresses; therefore, cash receipts typically occur subsequent to when
revenue is recognized and the elapsed time between when revenue is recorded and when cash is received can be significant. As such, our payment cycle is a
significantly shorter interval than our collection cycle, although the effect of this difference in the cycles may vary by project, and from period to period.
As of December 31, 2023, we had $54.5 million of outstanding revolving loan borrowings, $10.8 million of outstanding current debt, $90.2 million of
operating lease liabilities, and $7.5 million of finance lease liabilities. As of December 31, 2022, we had $83.7 million of outstanding revolving loan
borrowings, $10.8 million of outstanding current debt, $94.2 million of operating lease liabilities, and $3.0 million of finance lease liabilities. For future
maturities of these obligations, see Notes 7, 8, and 9 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and
Supplementary Data” of this 2023 Form 10‑K.
Due to the uncertainty with respect to the timing of future cash flows associated with our approximately $4.7 million in unrecognized tax benefits as of
December 31, 2023, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authorities. For further
information, see Note 17 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and Supplementary Data” of this
2023 Form 10‑K.
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $53.5 million in 2023 compared to $17.5 million in 2022. Net income, adjusted for non-cash items, provided
$41.5 million of operating cash flow in 2023 compared to $52.2 million of operating cash flow in 2022. The net change in working capital provided (used)
$12.0 million of operating cash flow in 2023 compared to ($34.6) million of operating cash flow in 2022.
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Net Cash Used in Investing Activities
Net cash used in investing activities was $20.4 million in 2023 compared to $23.1 million in 2022. Capital expenditures were $18.3 million in 2023
compared to $22.8 million in 2022, which includes $2.8 million in 2023 and $10.1 million in 2022 of investment in our new reinforced concrete pipe mill,
and the remainder primarily for standard capital replacement. We currently expect capital expenditures in 2024 to be approximately $19 million to
$22 million, which includes approximately $2 million of investment in our new reinforced concrete pipe mill, and associated ancillary equipment,
approximately $5 million for the construction of a building at our Salt Lake City, Utah facility for the new mill, and the remainder primarily for standard
capital replacement.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by (used in) financing activities was ($32.7) million in 2023 compared to $6.2 million in 2022. Net repayments on the line of credit were
$29.2 million in 2023 compared to $3.1 million in 2022. Net borrowings on other debt were $0 in 2023 compared to $10.8 million in 2022.
We anticipate that our existing cash and cash equivalents, cash flows expected to be generated by operations, and additional borrowing capacity under the
Amended Credit Agreement and other loans will be adequate to fund our working capital, debt service, capital expenditure requirements, and share
repurchases for the foreseeable future. To the extent necessary, we may also satisfy capital requirements through additional bank borrowings, senior notes,
term notes, subordinated debt, and finance and operating leases, if such resources are available on satisfactory terms. We have from time to time evaluated
and continue to evaluate opportunities for acquisitions and expansion. Any such transactions, if consummated, may necessitate additional bank borrowings
or other sources of funding.
On December 4, 2023, our shelf registration statement on Form S‑3 (Registration No. 333‑275691) covering the potential future sale of up to $150 million
of our equity and/or debt securities or combinations thereof, was declared effective by the SEC. This shelf registration statement, which replaced the
registration statement on Form S‑3 that expired on November 3, 2023, provides another potential source of capital, in addition to other alternatives already
in place. We cannot be certain that funding will be available on favorable terms or available at all. To the extent that we raise additional funds by issuing
equity securities, our shareholders may experience significant dilution. As of the date of this 2023 Form 10‑K, we have not yet sold any securities under
this registration statement, nor do we have an obligation to do so. Please refer to the factors discussed in Part I — Item 1A. “Risk Factors” of this 2023
Form 10‑K.
On September 2, 2022, we entered into the At-the-Market Offering with Jefferies which provided for the issuance and sale of shares of our common stock,
par value $0.01 per share, having aggregate offering sales proceeds of up to $50 million from time to time through Jefferies as our sales agent. On
October 30, 2023, we provided written notice terminating the Open Market Sale Agreement in accordance with its terms. No proceeds were raised under
the At-the-Market Offering during the year ended December 31, 2023.
On November 2, 2023, we announced our authorization of a share repurchase program of up to $30 million of our outstanding common stock. The program
does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the program,
shares may be purchased in open market, including through Rule 10b5‑1 of the Exchange Act, or in privately negotiated transactions administered by our
broker, D.A. Davidson Companies. At this time, we have elected to limit our share repurchase transactions to only those under the Rule 10b5‑1 trading plan
we executed in November 2023, which we believe considers our liquidity, including availability of borrowings and covenant compliance under our
Amended Credit Agreement, and other capital allocation priorities of the business. Our Rule 10b5‑1 trading plan designates up to $10 million for
repurchases and provides for daily share repurchases that fluctuate with changes in the trading price of our common stock. We expect to consider share
repurchase strategies beyond the current Rule 10b5‑1 trading plan at a future date. For a summary of shares repurchased during the fourth quarter of 2023,
see “Purchases of Equity Securities by the Issuer and Affiliated Purchasers” in Part II — Item 5. “Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities” of this 2023 Form 10‑K. Please refer to the factors discussed in Part I — Item 1A. “Risk
Factors” of this 2023 Form 10‑K.
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Credit Agreement
The Amended Credit Agreement provides for a revolving loan, swingline loan, and letters of credit in the aggregate amount of up to $125 million, with an
option for us to increase that amount by $50 million, subject to provisions of the Amended Credit Agreement. The Amended Credit Agreement will expire,
and all obligations outstanding will mature, on June 29, 2028. We may prepay outstanding amounts at our discretion without penalty at any time, subject to
applicable notice requirements. As of December 31, 2023 under the Amended Credit Agreement, we had $54.5 million of outstanding revolving loan
borrowings, $1.1 million of outstanding letters of credit, and additional borrowing capacity of approximately $69 million.
Revolving loans under the Amended Credit Agreement bear interest at rates related to, at our option and subject to the provisions of the Amended Credit
Agreement, either: (i) Base Rate (as defined in the Amended Credit Agreement) plus the Applicable Margin; (ii) Adjusted Term Secured Overnight Finance
Rate (“SOFR”) (as defined in the Amended Credit Agreement) plus the Applicable Margin; or (iii) Adjusted Daily Simple SOFR (as defined in the
Amended Credit Agreement) plus the Applicable Margin. The “Applicable Margin” is 1.75% to 2.35%, depending on our Consolidated Senior Leverage
Ratio (as defined in the Amended Credit Agreement) and the interest rate option chosen. Interest on outstanding revolving loans is payable monthly.
Swingline loans under the Amended Credit Agreement bear interest at the Base Rate plus the Applicable Margin. The Amended Credit Agreement requires
the payment of a commitment fee of between 0.30% and 0.40%, based on the amount by which the Revolver Commitment exceeds the average daily
balance of outstanding borrowings (as defined in the Amended Credit Agreement). Such fee is payable monthly in arrears. We are also obligated to pay
additional fees customary for credit facilities of this size and type.
The letters of credit outstanding as of December 31, 2023 relate to workers’ compensation insurance. Based on the nature of these arrangements and our
historical experience, we do not expect to make any material payments under these arrangements.
The Amended Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants, events of
default, and indemnification provisions in favor of the Lenders. The negative covenants include restrictions regarding the incurrence of liens and
indebtedness, annual capital expenditures, certain investments, acquisitions, and dispositions, and other matters, all subject to certain exceptions. The
Amended Credit Agreement requires us to regularly provide financial information to Wells Fargo and to maintain a consolidated senior leverage ratio no
greater than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated earnings before interest, taxes, depreciation, and amortization
(“EBITDA”) (as defined in the Amended Credit Agreement) of at least $35 million for the four consecutive fiscal quarters most recently ended. Pursuant to
the Amended Credit Agreement, we have also agreed that we will not sell, assign, or otherwise dispose or encumber, any of our owned real property. The
occurrence of an event of default could result in the acceleration of the obligations under the Amended Credit Agreement. We were in compliance with our
financial covenants as of December 31, 2023, and expect to continue to be in compliance in the near term.
Our obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of our and our subsidiaries’ assets.
Current Debt
The Interim Funding Agreement dated August 2, 2022 with Wells Fargo Equipment Finance, Inc. (“WFEF”), as amended January 23, 2023, March 15,
2023, July 21, 2023, and November 2, 2023 (together, the “IFA”), provides for aggregate interim funding advances up to $10.8 million of equipment
purchased for a new reinforced concrete pipe mill, to be converted into a term loan upon final delivery and acceptance of the financed equipment. As of
December 31, 2023, the outstanding balance of the IFA was $10.8 million, which was classified as a current liability since there was not a firm
commitment for long-term debt financing. The IFA bore interest at the Term SOFR plus 1.75% as of December 31, 2022. Effective November 2, 2023, the
IFA bears interest at the SOFR Average plus 2.00%. As of December 31, 2023 and 2022, the weighted-average interest rate for outstanding borrowings was
7.08% and 5.87%, respectively. The IFA requires monthly payments of accrued interest and grants a security interest in the equipment to WFEF. Effective
November 2, 2023, the IFA requires us to maintain a consolidated senior leverage ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and to
maintain a minimum consolidated EBITDA (as defined in the IFA) of at least $35 million for the four consecutive fiscal quarters most recently ended. We
were in compliance with our financial covenants as of December 31, 2023, and expect to continue to be in compliance in the near term.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements affecting our company, including the dates of adoption and estimated effects on financial position,
results of operations, and cash flows, see Note 2 of the Notes to Consolidated Financial Statements in Part II — Item 8. “Financial Statements and
Supplementary Data” of this 2023 Form 10‑K.
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Critical Accounting Estimates
Management Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances. On an ongoing basis, we evaluate all of our estimates including those related to revenue
recognition, goodwill, income taxes, and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or
conditions. We believe the following critical accounting policies and related judgments and estimates affect the preparation of our Consolidated Financial
Statements.
Revenue Recognition
SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of our right to payment
for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to us. Revenue is measured by the
costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Contract costs include all material, labor, and
other direct costs incurred in satisfying performance obligations. The cost of steel material is recognized as a contract cost when the steel is introduced into
the manufacturing process. Estimated total costs of each contract require judgment and are reviewed on a monthly basis by project management and
operations personnel for all active projects. All cost revisions that result in a material change in gross profit are reviewed by senior management personnel.
Significant judgment is required in estimating total costs which primarily include labor costs and productivity, and cost and availability of materials, and
which could be influenced by inflationary trends, supplier performance, or asset utilization, amongst other factors. We use certain assumptions and develop
estimates based on a number of considerations, including the degree of required product customization, our historical experience, the project plans, and an
assessment of the risks and uncertainties inherent in the contract related to implementation delays or performance issues that may or may not be within our
control. Changes in job performance, job conditions, and estimated profitability, including those arising from contract change orders, contract penalty
provisions, foreign currency exchange rate movements, changes in raw materials costs, and final contract settlements may result in revisions to estimates of
revenue, costs, and income, and are recognized in the period in which the revisions are determined. Provisions for losses on uncompleted contracts are
estimated by comparing total estimated contract revenue to the total estimated contract costs and a loss is recognized during the period in which it becomes
probable and can be reasonably estimated.
Precast revenue for water infrastructure concrete pipe and precast concrete products is recognized at the time control is transferred to customers, in an
amount that reflects the consideration we expect to be entitled to in exchange for the products. All variable consideration that may affect the total
transaction price, including contractual discounts, returns, and credits, is included in net sales. Estimates for variable consideration are based on historical
experience, anticipated performance, and management’s judgment. Our contracts do not contain significant financing.
We generally do not recognize revenue on a contract until the contract has approval and commitment from both parties, the contract rights and payment
terms can be identified, the contract has commercial substance, and its collectability is probable.
Goodwill
Goodwill is reviewed for impairment annually, or whenever events occur or circumstances change that indicate goodwill may be impaired. Goodwill is
tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a
component). During the fourth quarter of 2022, we changed the date of our annual impairment test of goodwill from December 31 to November 30. The
change in the impairment test date lessens resource constraints that exist in connection with our year-end close and financial reporting process and provides
for additional time to complete the required impairment testing. This change did not represent a material change to our method of applying an accounting
principle, and therefore does not delay, accelerate, or avoid an impairment charge.
In testing goodwill for impairment, we have the option to perform a qualitative assessment to determine whether the existence of events or circumstances
indicate that it is more-likely-than-not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. When performing a
qualitative assessment, we evaluate factors such as industry and market conditions, cost factors, overall financial performance, and other relevant entity
specific events and changes. In the evaluation, we also look at the long-term prospects for the reporting unit, which requires considerable management
judgment.
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If the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, or if we choose
not to perform the qualitative assessment, then a quantitative assessment is performed to determine the reporting unit’s fair value. The fair value calculation
uses a combination of income and market approaches. The income approach is based upon projected future after-tax cash flows discounted to present value
using factors that consider the timing and risk associated with the future after-tax cash flows. The market approach is based upon historical and/or forward-
looking measures using multiples of revenue or earnings before interest, tax, depreciation, and amortization. We utilize a weighted average of the income
and market approaches. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of
the carrying amount over the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. Fair value determinations
require considerable judgment and are sensitive to changes in underlying estimates, assumptions, and market factors, and future changes in any of these
could result in different fair value determinations in the future.
Income Taxes
Income taxes are recorded using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected
future tax consequences of events that have been recognized in our Consolidated Financial Statements or income tax returns. Valuation allowances are
established when necessary to reduce deferred income tax assets to the amount expected to be realized. The determination of our provision for income taxes
requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Our provision for income taxes primarily
reflects a combination of income earned and taxed in the various United States federal, state, local, and to a lesser extent, foreign jurisdictions.
Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for
unrecognized income tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall
effective income tax rate.
We record income tax reserves for federal, state, local, and international exposures relating to periods subject to audit. The development of reserves for
these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. We assess our income tax positions and
record income tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available
at the reporting dates. For those income tax positions where it is more-likely-than-not that an income tax benefit will be sustained, we have recorded the
largest amount of income tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all
relevant information. For those income tax positions where it is not more-likely-than-not that an income tax benefit will be sustained, no income tax benefit
has been recognized in the Consolidated Financial Statements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The primary market risks affecting our business relate to our exposure to commodity risk, interest rate risk, and foreign currency exchange rate risk.
Commodity Risk
Certain materials we use in our business are classified as commodities traded in the worldwide markets, of which the most significant commodity is steel,
used in the manufacturing of pipe. We do not hedge our commodity risk and do not enter into any transactions in commodities for trading purposes. The
impact of volatility in steel prices varies significantly. This volatility can significantly affect our gross profit. Although we seek to recover increases in steel
prices through price increases in our products, we have not always been successful.
Steel typically makes up approximately 35% of SPP’s project costs. As this raw material represents a substantial portion of our cost of sales, we attempt to
minimize our risk exposure to steel price volatility by submitting bids based on general assumptions of the expected price of steel when we will receive a
purchase order or contract, which is typically awarded within 30 to 90 days of the bid date, as well as ordering steel as soon as possible after a project is
contracted.
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Interest Rate Risk
Our debt bears interest at both fixed and variable rates. As of December 31, 2023 and 2022, we had $65.2 million and $94.5 million, respectively, of
variable-rate debt outstanding. We have managed a portion of our variable-rate debt with interest rate swap agreements to effectively convert a portion of
our variable-rate debt to fixed-rate debt. The principal objective of these contracts is to reduce the variability of the cash flows in interest payments
associated with a portion of our variable-rate debt, thus reducing the impact of interest rate changes on future interest payment cash flows. We have elected
to apply the hedge accounting rules in accordance with authoritative guidance for these contracts.
As of December 31, 2023 and 2022, the total notional amount of the interest rate swaps was $19.7 million and $26.7 million, respectively, which will
amortize ratably on a monthly basis to zero by the maturity dates. We receive floating interest payments monthly based on variable rates and pay fixed rates
to the counterparties.
Assuming average interest rates and borrowings on variable-rate debt, a hypothetical 1.0%, or 100 basis points, change in interest rates would not have a
material impact on our interest expense in 2023 or 2022.
Foreign Currency Exchange Rate Risk
We conduct business in various foreign countries and, from time to time, settle our transactions in foreign currencies. We have experienced and will
continue to experience fluctuations in our net income as a result of gains (losses) on the settlement and the remeasurement of monetary assets and liabilities
denominated in currencies that are not our functional currency. As of December 31, 2023, our foreign currency exposures were between the U.S. Dollar and
the Canadian Dollar, Mexican Peso, and European Euro.
We have established a program that utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency
exposures. Foreign currency forward contracts are consistent with our strategy for financial risk management and are not used for trading or for speculative
purposes. As of December 31, 2023, the total notional amount of the foreign currency forward contracts was $5.1 million (CAD$6.7 million) and
$1.2 million (EUR€1.1 million), which included $4.9 million (CAD$6.4 million) and $1.2 million (EUR€1.1 million) of foreign currency forward contracts
not designated as cash flow hedges. As of December 31, 2023, our foreign currency forward contracts mature at various dates through April 2025. As of
December 31, 2022, the total notional amount of the foreign currency forward contracts was $17.1 million (CAD$23.2 million) and $1.1 million
(EUR€1.1 million), which included $0.3 million (CAD$0.4 million) of foreign currency forward contracts not designated as cash flow hedges.
A hypothetical 10% change in the Canadian Dollar, Mexican Peso, or European Euro foreign currency exchange rates would not have a material impact on
our reported net income in 2023 or 2022.
Item 8.
Financial Statements and Supplementary Data
The Consolidated Financial Statements required by this item are included on pages F-1 to F-33 at the end of this 2023 Form 10‑K. The financial statement
schedule required by this item is included on page S‑1.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (“Exchange
Act”)) are designed to provide reasonable assurance that information required to be disclosed in reports we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission
(“SEC”) and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.
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Table of Contents
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of December 31,
2023. Based on their evaluation, as of December 31, 2023, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in
Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) were effective to provide reasonable assurance that information required to be disclosed in reports
we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the
SEC and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely
decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). Internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide
reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that
our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an assessment of our internal control over
financial reporting as of December 31, 2023. In making this assessment, we used the criteria set forth in “Internal Control-Integrated Framework (2013)”
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our
internal control over financial reporting was effective as of December 31, 2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Moss Adams LLP, an independent registered
public accounting firm, as stated in their report which appears herein.
Remediation of Prior Material Weakness
In the quarter ended December 31, 2023, we completed our review of the processes and controls related to the implementation of our enterprise resource
planning (“ERP”) system for the acquisition of Park Environmental Equipment, LLC (“ParkUSA”). We hired consultants to assist with an evaluation of the
ERP system, process, and workflow design; we educated control owners concerning the principles and requirements of each control, with a focus on those
related to sales and cost of sales transactions; and we implemented new monitoring controls including additional analyses to help mitigate the risk that
controls do not operate effectively. These changes remediated our previously identified material weakness in implementation of our ERP system for the
acquisition of ParkUSA.
Changes in Internal Control over Financial Reporting
Except for the changes described above to remediate our previously identified material weakness, there were no significant changes in our internal control
over financial reporting that occurred during the quarter ended December 31, 2023 that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 9B.
Other Information
None of our directors or officers adopted, modified, or terminated a Rule 10b5‑1 trading arrangement or a non-Rule 10b5‑1 trading arrangement during the
quarter ended December 31, 2023, as such terms are defined under Item 408(a) of Regulation S‑K.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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Item 10.
Directors, Executive Officers and Corporate Governance
Directors, Executive Officers, Promoters and Control Persons
PART III
The information required by Paragraph (a) and Paragraphs (c) through (g) of Item 401 of Regulation S‑K (except for information required by Paragraph (e)
of that Item to the extent the required information pertains to our executive officers) and Item 405 of Regulation S‑K (to the extent required) is hereby
incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Shareholders under the caption Nominees and Continuing
Directors.
The following table lists our executive officers and each of their ages and positions as of December 31, 2023.
Name
Scott Montross
Aaron Wilkins
Miles Brittain
Eric Stokes
Michael Wray
Megan Kendrick
Age
58
49
60
52
50
47
Current Position with Northwest Pipe Company
Director, President, and Chief Executive Officer
Senior Vice President, Chief Financial Officer, and Corporate Secretary
Executive Vice President
Senior Vice President and General Manager of Engineered Steel Pressure Pipe
Senior Vice President and General Manager of Precast Infrastructure and Engineered Systems
Vice President of Human Resources
Scott Montross has served as our Director, President, and CEO since January 1, 2013. Mr. Montross joined the Company in May 2011 and served as our
Executive Vice President and Chief Operating Officer. Mr. Montross has served in Senior Vice President level positions since 2003 with commercial,
operational, and planning responsibilities and has spent a total of 24 years in the steel industry prior to joining the Company. Mr. Montross previously
served as the Executive Vice President of the Flat Products Group for EVRAZ North America’s Oregon Steel Division from 2010 to 2011, as the Vice
President and General Manager of EVRAZ North America from 2007 to 2010, as the Vice President of Marketing and Sales for Oregon Steel Mills, Inc.
from 2003 to 2007, and as the Vice President of Marketing and Sales for National Steel Corporation from 2002 to 2003.
Aaron Wilkins has served as our Senior Vice President and CFO since April 2020 and our Corporate Secretary since September 2019. Mr. Wilkins served as
our Vice President of Finance and Corporate Controller from September 2016 to April 2020. Prior to joining the Company, Mr. Wilkins served two years as
CFO of Omega Morgan, an industrial services company. Prior to that, Mr. Wilkins served seven years with Oregon Steel Mills, Inc. and then EVRAZ North
America, holding several finance and accounting positions including Corporate Controller and Assistant Treasurer and Director of Finance of EVRAZ
North America’s Flat Products Group.
Miles Brittain has served as our Executive Vice President since May 2021. Prior to that, Mr. Brittain served as our Vice President of Operations from
February 2020 to May 2021, Vice President of Operations for Water Transmission Engineered Systems from September 2018 to February 2020, and our
Vice President of Operations, Water Transmission from 2013 to September 2018. Prior to joining the Company, Mr. Brittain served in the steel industry for
over 28 years, holding key positions including Vice President and General Manager for EVRAZ North America/Claymont Steel, Director of Operations for
EVRAZ North America/Oregon Steel Mills, Inc., and Regional Director of Quality Assurance for National Steel Corporation.
Eric Stokes has served as our Senior Vice President and General Manager of Engineered Steel Pressure Pipe since May 2021. Prior to that, Mr. Stokes
served as our Senior Vice President of Sales and Marketing, Water Transmission from February 2020 to May 2021 and Vice President of Sales from April
2012 to February 2020. Prior to joining the Company in 2008, Mr. Stokes spent twelve years with Anderson Construction, holding key positions including
Project Superintendent.
Michael Wray has served as Senior Vice President and General Manager of Precast Infrastructure and Engineered Systems since November 2021. Mr. Wray
served as Vice President and General Manager of Geneva from February 2020 to October 2021 and as Senior Director of Operations from September 2018
to January 2020. Prior to that, Mr. Wray held a variety of operational positions within the Company. Prior to joining the Company in 2007, Mr. Wray spent
two years with Continental Pipe Company and nine years with Smith Megadiamond, a Schlumberger company.
Megan Kendrick has served as our Vice President of Human Resources since January 2017. Prior to that, Ms. Kendrick held a variety of positions within
the Company in the accounting and human resource departments. Prior to joining the Company in 2008, Ms. Kendrick worked for the Memphis Grizzlies
of the National Basketball Association for seven years.
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Table of Contents
Code of Ethics
We have a Code of Business Conduct and Ethics for all employees and a Code of Ethics for Senior Financial Officers. Copies can be found on our website
in the Corporate Governance area of the Investor Relations section. None of the material on our website is part of this 2023 Form 10‑K. If there is any
waiver from any provision of either the Code of Business Conduct and Ethics or the Code of Ethics for Senior Financial Officers, we will disclose the
nature of such waiver on our website or in a Current Report on Form 8‑K.
Corporate Governance
The information required by Items 407(c)(3), (d)(4), and (d)(5) of Regulation S‑K is hereby incorporated by reference from our definitive proxy statement
for the 2024 Annual Meeting of Shareholders under the caption Corporate Governance.
Item 11.
Executive Compensation
The information required by this Item is hereby incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of
Shareholders under the captions Executive Compensation Discussion and Analysis, Compensation Committee Interlocks and Insider Participation, and
Compensation Committee Report.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information as of December 31, 2023 with respect to the shares of our common stock that may be issued under our existing
equity compensation plans.
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a) (1)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b) (2)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
(c)
226,391 $
-
226,391 $
-
-
-
722,573
-
722,573
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders (3)
Total
(1)
(2)
Consists of performance share awards and restricted stock unit awards under our 2022 Stock Incentive Plan and our 2007 Stock Incentive Plan. The
number of securities disclosed in this table for performance share awards are at the target level of 100%.
Reflects the exercise price per share of common stock purchasable upon the exercise of stock options only. As of December 31, 2023, no stock
options were outstanding.
(3) We do not have any equity compensation plans or arrangements that have not been approved by shareholders.
The information required by Item 403 of Regulation S‑K is included in our definitive proxy statement for the 2024 Annual Meeting of Shareholders under
the caption Stock Owned by Management and Principal Shareholders and is incorporated herein by reference.
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Table of Contents
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is hereby incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of
Shareholders under the captions Certain Relationships and Related Transactions and Nominees and Continuing Directors.
Item 14.
Principal Accountant Fees and Services
The information required by this Item is hereby incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of
Shareholders under the caption Disclosure of Fees Paid to Independent Registered Public Accounting Firm.
PART IV
Item 15.
Exhibit and Financial Statement Schedules
(a) (1) Consolidated Financial Statements
The Consolidated Financial Statements, together with the report thereon of Moss Adams LLP are included on the pages indicated below.
Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Portland, Oregon, PCAOB ID No. 659)
Consolidated Statements of Operations for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedule
The following schedule is filed herewith:
Schedule II
Valuation and Qualifying Accounts
Page
F-1
F-3
F-4
F-5
F-6
F-7
F-9
Page
S-1
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is included in the Consolidated
Financial Statements or notes thereto.
(a) (3) Exhibits included herein:
Exhibit
Number
Description
2.1
3.1
Membership Interest Purchase Agreement dated as of October 5, 2021 by and among Northwest Pipe Company, EBSR, LLC, the equity
holders of EBSR, LLC, and Park Environmental Equipment, LLC, incorporated by reference to the Company’s Current Report on
Form 8‑K, as filed with the Securities and Exchange Commission on October 6, 2021**
Second Restated Articles of Incorporation, incorporated by reference to the Company’s Form 10‑K for the year ended December 31, 2021,
as filed with the Securities and Exchange Commission on March 16, 2022
36
Table of Contents
Exhibit
Number
Description
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
First Amendment to Second Restated Articles of Incorporation, incorporated by reference to Exhibits to the Company’s Registration
Statement on Form S‑3, as amended, as filed with the Securities and Exchange Commission on October 20, 2006, Commission
Registration No. 333‑137923
Amended and Restated Bylaws, incorporated by reference to the Company’s Current Report on Form 8‑K as filed with the Securities and
Exchange Commission on December 19, 2023
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, incorporated by reference to the
Company’s Form 10‑K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 3, 2020
Northwest Pipe NQ Retirement Savings Plan, dated July 1, 1999, incorporated by reference to Exhibits to the Company’s Quarterly
Report Form 10‑Q for the quarter ended June 30, 2000, as filed with the Securities and Exchange Commission on August 11, 2000*
Northwest Pipe Company 2007 Stock Incentive Plan, incorporated by reference to Appendix A to the Company’s Definitive Proxy
Statement dated April 20, 2007, as filed with the Securities and Exchange Commission on April 26, 2007*
Amendment to the Northwest Pipe Company 2007 Stock Incentive Plan dated April 12, 2013, incorporated by reference to Appendix A to
the Company’s Definitive Proxy Statement, as filed with the Securities and Exchange Commission on April 17, 2013*
Amended and Restated Change in Control Agreement between Scott Montross and Northwest Pipe Company dated August 1, 2016,
incorporated by reference to the Company’s Form 10‑Q for the quarter ended June 30, 2016, as filed with the Securities and Exchange
Commission on August 3, 2016*
Form of Performance Share Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on April 1, 2020*
Form of Restricted Stock Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on April 1, 2020*
Change in Control Agreement dated April 1, 2020 between Northwest Pipe Company and Aaron Wilkins, incorporated by reference to the
Company’s Current Report on Form 8‑K, as filed with the Securities and Exchange Commission on April 3, 2020*
Form of Performance Share Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on March 19, 2021*
Form of Restricted Stock Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on March 19, 2021*
10.10
Change in Control Agreement dated June 10, 2021 between Northwest Pipe Company and Miles Brittain, incorporated by reference to the
Company’s Current Report on Form 8‑K/A, as filed with the Securities and Exchange Commission on June 11, 2021*
10.11
Credit Agreement dated June 30, 2021 by and among Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, Northwest
Pipe Company, NWPC, LLC, and Geneva Pipe and Precast Company, incorporated by reference to the Company’s Current Report on
Form 8‑K, as filed with the Securities and Exchange Commission on July 7, 2021
37
Table of Contents
Exhibit
Number
10.12
10.13
Description
Guaranty and Security Agreement dated June 30, 2021 among Northwest Pipe Company, NWPC, LLC, Geneva Pipe and Precast
Company, Permalok Corporation, Thompson Tank Holdings, Inc., WTG Holding U.S., Inc., Bolenco Corporation, and Wells Fargo Bank,
National Association, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the Securities and Exchange
Commission on July 7, 2021
Incremental Amendment dated October 22, 2021 by and among Northwest Pipe Company, NWPC, LLC, Geneva Pipe and Precast
Company, Park Environmental Equipment, LLC, certain other subsidiaries of Northwest Pipe Company, and Wells Fargo Bank, National
Association, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the Securities and Exchange
Commission on October 28, 2021
10.14
Northwest Pipe Company 2022 Stock Incentive Plan, incorporated by reference to Appendix A to the Company’s Definitive Proxy
Statement on Schedule 14A, as filed with the Securities and Exchange Commission on April 28, 2022 *
10.15
Second Amendment to Credit Agreement dated April 29, 2022 by and among Northwest Pipe Company, NWPC, LLC, Geneva Pipe and
Precast Company, Park Environmental Equipment, LLC, certain other subsidiaries of Northwest Pipe Company, and Wells Fargo Bank,
National Association, incorporated by reference to the Company’s Form 10‑Q for the quarter ended March 31, 2022, as filed with the
Securities and Exchange Commission on May 6, 2022
10.16
Form of Performance Share Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on June 23, 2022 *
10.17
Form of Restricted Stock Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on June 23, 2022 *
10.18
Form of Indemnification Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K as filed with the Securities
and Exchange Commission on December 12, 2022
10.19
Form of Performance Share Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on April 13, 2023 *
10.20
Form of Restricted Stock Unit Agreement, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the
Securities and Exchange Commission on April 13, 2023 *
10.21
21.1
23.1
31.1
31.2
Third Amendment to Credit Agreement dated as of June 29, 2023, by and among Northwest Pipe Company, NWPC, LLC, Geneva Pipe
and Precast Company, Park Environmental Equipment, LLC, certain other subsidiaries of Northwest Pipe Company, and Wells Fargo
Bank National Association, incorporated by reference to the Company’s Current Report on Form 8‑K, as filed with the Securities and
Exchange Commission on July 3, 2023 **
Subsidiaries of the Registrant, filed herewith
Consent of Moss Adams LLP, filed herewith
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
38
Table of Contents
Exhibit
Number
Description
32.1
32.2
97
99.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith
Incentive Compensation Recovery Policy
Interim Funding Agreement dated August 2, 2022 by and between Wells Fargo Equipment Finance, Inc. and Geneva Pipe and Precast
Company, incorporated by reference to the Company’s Form 10‑Q for the quarter ended September 30, 2022, as filed with the Securities
and Exchange Commission on November 9, 2022
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
*
**
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
This exhibit constitutes a management contract or compensatory plan or arrangement.
Schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) to Regulation S‑K. The Registrant will furnish
supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission request.
Item 16.
Form 10‑K Summary
None.
39
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Northwest Pipe Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Northwest Pipe Company and Subsidiaries (the “Company”) as of December 31, 2023
and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2023, and the related notes and schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated
financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal
Control - Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and
an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
F-1
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Estimated Costs to Complete a Contract
As presented in the consolidated statement of operations and described in Notes 2 and 16 to the consolidated financial statements, the Company’s
consolidated revenues were $444.4 million for the year ended December 31, 2023. Revenue of $296.4 million was derived from contracts where revenue is
recognized over time as work is completed because of the continuous transfer of control to the customer. Under this method, the costs incurred to date as a
percentage of total estimated costs at completion are used to calculate revenue. Total estimated costs, and thus contract revenue and margin, are impacted
by many factors, which can cause significant changes in estimates during the life cycle of a project.
Based on the high degree of subjectivity involved in the determination of estimated costs to complete a contract, which in turn led to a high degree of
auditor effort and subjectivity in performing procedures and evaluating audit evidence, we have identified these estimates as a critical audit matter. Changes
in these estimates could have significant impact on both the timing and amount of contract revenue to be recognized.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design and operating effectiveness of internal controls related to the Company’s accumulation of estimated costs to complete a
contract. This included testing controls over the Company’s review of monthly changes in estimated costs to complete a contract.
Testing a selection of contracts based on earned revenue for the year ended December 31, 2023 and assessed the reasonableness of the estimated
costs.
Testing the reasonableness of management’s cost estimates by performing a lookback analysis comparing margins and estimated costs to complete
on contracts in process as of December 31, 2022, that were completed or in process during the year ended December 31, 2023.
/s/ Moss Adams LLP
Portland, Oregon
March 5, 2024
We have served as the Company’s auditor since 2016.
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NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expense
Operating income
Other income
Interest expense
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Shares used in per share calculations:
Basic
Diluted
$
$
$
$
2023
Year Ended December 31,
2022
2021
444,355 $
366,713
77,642
43,784
33,858
276
(4,855)
29,279
8,207
21,072 $
2.11 $
2.09 $
457,665 $
371,810
85,855
41,034
44,821
97
(3,568)
41,350
10,201
31,149 $
3.14 $
3.11 $
9,991
10,081
9,914
10,012
333,313
289,059
44,254
28,222
16,032
328
(1,202)
15,158
3,635
11,523
1.17
1.16
9,854
9,928
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
2023
Year Ended December 31,
2022
2021
Net income
$
21,072 $
31,149 $
11,523
Other comprehensive income (loss), net of tax:
Pension liability adjustment
Unrealized gain (loss) on foreign currency forward contracts designated as
cash flow hedges
Unrealized gain (loss) on interest rate swaps designated as cash flow hedges
Other comprehensive income (loss), net of tax
339
(107)
(403)
(171)
(45)
289
649
893
308
(124)
-
184
Comprehensive income
$
20,901 $
32,042 $
11,707
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
Assets
Current assets:
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
December 31,
2023
2022
Cash and cash equivalents
Trade and other receivables, less allowance for doubtful accounts of $121 and $369
Contract assets
Inventories
Prepaid expenses and other
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current debt
Accounts payable
Accrued liabilities
Contract liabilities
Current portion of operating lease liabilities
Total current liabilities
Borrowings on line of credit
Operating lease liabilities
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding
Common stock, $.01 par value, 15,000,000 shares authorized, 9,985,580 and 9,927,360 shares issued
and outstanding as of December 31, 2023 and 2022, respectively
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
4,068 $
47,645
120,516
91,229
9,026
272,484
143,955
88,155
55,504
31,074
6,709
597,881 $
10,756 $
31,142
27,913
21,450
4,933
96,194
54,485
85,283
10,942
10,617
257,521
-
100
129,095
212,125
(960)
340,360
597,881 $
3,681
71,563
121,778
71,029
10,689
278,740
133,166
93,124
55,504
35,264
5,542
601,340
10,756
26,968
30,957
17,456
4,702
90,839
83,696
89,472
11,402
7,657
283,066
-
99
127,911
191,053
(789)
318,274
601,340
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands)
Balances, December 31, 2020
Net income
Other comprehensive income (loss):
Pension liability adjustment, net of tax
expense of $102
Unrealized loss on foreign currency forward
contracts designated as cash flow hedges,
net of tax benefit of $41
Issuance of common stock under stock
compensation plans, net of tax withholdings
Share-based compensation expense
Balances, December 31, 2021
Net income
Other comprehensive income (loss):
Pension liability adjustment, net of tax benefit
of $14
Unrealized gain on foreign currency forward
contracts designated as cash flow hedges,
net of tax expense of $95
Unrealized gain on interest rate swaps
designated as cash flow hedges, net of tax
expense of $213
Issuance of common stock under stock
compensation plans, net of tax withholdings
Share-based compensation expense
Balances, December 31, 2022
Net income
Other comprehensive income (loss):
Pension liability adjustment, net of tax
expense of $110
Unrealized loss on foreign currency forward
contracts designated as cash flow hedges,
net of tax benefit of $45
Unrealized loss on interest rate swaps
designated as cash flow hedges, net of tax
benefit of $134
Issuance of common stock under stock
compensation plans, net of tax withholdings
Repurchase of common stock
Share-based compensation expense
Balances, December 31, 2023
Common Stock
Amount
Shares
9,805,437 $
-
Additional
Paid-In-
Capital
Accumulated
Other
Retained Comprehensive Stockholders’
Loss
Earnings
Equity
Total
98 $
-
123,013 $
-
148,381 $
11,523
(1,866) $
-
269,626
11,523
-
-
65,130
-
9,870,567
-
-
-
-
56,793
-
9,927,360
-
-
-
-
-
-
1
-
99
-
-
-
-
-
-
99
-
-
-
-
-
-
-
308
308
-
(124)
(124)
(1,167)
3,216
125,062
-
-
-
159,904
31,149
-
-
(1,682)
-
(1,166)
3,216
283,383
31,149
-
-
-
-
-
-
(853)
3,702
127,911
-
-
-
191,053
21,072
(45)
(45)
289
289
649
649
-
-
(789)
-
(853)
3,702
318,274
21,072
-
-
-
-
339
339
-
(107)
(107)
-
-
-
212,125 $
(403)
(403)
-
-
(960) $
(1,652)
(835)
3,672
340,360
86,836
(28,616)
-
9,985,580 $
1
-
-
100 $
(1,653)
(835)
3,672
129,095 $
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2023
Year Ended December 31,
2022
2021
$
21,072 $
31,149 $
11,523
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and finance lease amortization
Amortization of intangible assets
Deferred income taxes
Gain on insurance proceeds
Share-based compensation expense
Other, net
Changes in operating assets and liabilities, net of acquired assets and assumed
liabilities:
Trade and other receivables
Contract assets, net
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued and other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Acquisition of business, net of cash acquired
Payment of working capital adjustment in acquisition of business
Purchases of property and equipment
Purchases of intangible assets
Proceeds from insurance
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Borrowings on line of credit
Repayments on line of credit
Borrowings on other debt
Payments on other debt
Payments on finance lease liabilities
Tax withholdings related to net share settlements of restricted stock and
performance share awards
Repurchase of common stock
Other financing activities
Net cash provided by (used in) financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
F-7
11,616
4,190
(172)
(466)
3,672
1,547
23,775
5,256
(20,200)
5,241
4,704
(6,780)
53,455
-
(2,731)
(18,291)
-
431
219
(20,372)
155,398
(184,609)
-
-
(826)
(1,652)
(707)
(300)
(32,696)
387
3,681
4,068 $
12,664
4,439
514
-
3,702
(286)
(19,346)
225
(11,378)
3,381
(5,826)
(1,698)
17,540
-
-
(22,829)
(327)
-
106
(23,050)
177,634
(180,699)
10,756
-
(597)
(853)
-
(47)
6,194
684
2,997
3,681 $
11,482
2,142
180
-
3,216
193
392
(33,752)
(17,650)
6,727
16,783
(7,047)
(5,811)
(87,215)
-
(13,262)
-
-
325
(100,152)
122,272
(35,511)
-
(13,762)
(415)
(1,166)
-
(385)
71,033
(34,930)
37,927
2,997
Table of Contents
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(In thousands)
2023
Year Ended December 31,
2022
2021
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of amounts capitalized
$
Cash paid during the period for income taxes, net of refunds of $145, $23, and $79
Noncash investing and financing activities:
Accrued property and equipment purchases
Accrued payment for repurchase of common stock
Accrued consideration in acquisition of business
Right-of-use assets obtained in exchange for operating lease liabilities
Right-of-use assets obtained in exchange for finance lease liabilities
$
4,660 $
5,911
656 $
128
-
952
5,270
3,170 $
13,774
1,314 $
-
1,820
568
1,466
339
2,481
788
-
911
16,043
853
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
1.
ORGANIZATION:
NORTHWEST PIPE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Northwest Pipe Company (collectively with its subsidiaries, the “Company”) is a leading manufacturer of water-related infrastructure products, and
operates in two segments, Engineered Steel Pressure Pipe (“SPP”) and Precast Infrastructure and Engineered Systems (“Precast”). This segment
presentation is consistent with how the Company’s chief operating decision maker, its Chief Executive Officer, evaluates performance of the Company and
makes decisions regarding the allocation of resources. See Note 19, “Segment Information” for detailed descriptions of these segments.
In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, the Company manufactures stormwater and
wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder
pipe, and one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet growing water and
wastewater infrastructure needs, the Company provides solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast,
Permalok®, and Northwest Pipe Company lines. The Company is headquartered in Vancouver, Washington, and has 13 manufacturing facilities across
North America.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation and Presentation
The Consolidated Financial Statements are expressed in United States Dollars and include the accounts of the Company and its subsidiaries over which the
Company exercises control as of the financial statement date. Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On
an ongoing basis, the Company evaluates all of its estimates, including those related to business combinations, allowance for doubtful accounts,
inventories, property and equipment (including depreciation and valuation), goodwill, intangible assets (including amortization), revenue recognition,
share-based compensation, income taxes, and litigation and other contingencies. Actual results may differ from these estimates under different assumptions
or conditions.
Business Combinations
Business combinations are accounted for under the acquisition method which requires identifiable assets acquired and liabilities assumed in the acquired
business be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The
amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is
recorded as goodwill. The amount by which the net fair value of assets acquired and liabilities assumed exceeds the fair value of consideration transferred
as the purchase price is recorded as a bargain purchase gain. Acquisition-related transaction costs are expensed as incurred.
These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy
or validity of such estimates. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record
adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill or bargain purchase gain. Upon the conclusion of the
measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to the Company’s Consolidated Statements of Operations.
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Table of Contents
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly-liquid investments with maturities of three months or less when purchased. At times, the
Company will have outstanding checks in excess of related bank balances (“book overdraft”). If this occurs, the amount of the book overdraft will be
reclassified to accounts payable, and changes in the book overdraft will be reflected as a component of operating activities in the Consolidated Statements
of Cash Flows. The Company had a book overdraft of $1.8 million and $0.6 million as of December 31, 2023 and 2022, respectively.
Receivables and Allowance for Doubtful Accounts
Trade receivables are reported on the Consolidated Balance Sheets net of doubtful accounts. The Company maintains allowances for estimated losses
resulting from the inability of its customers to make required payments or from contract disputes. The amounts of such allowances are based on historical
experience and management’s judgment. The Company will write down or write off a receivable account once the account is deemed uncollectible. If the
customers’ financial conditions were to deteriorate resulting in their inability to make payments, or if contract disputes were to escalate, additional
allowances may need to be recorded which would result in additional expenses being recorded for the period in which such determination was made.
Contract Assets and Contract Liabilities
Contract assets primarily represent revenue earned over time but not yet billable based on the terms of the contracts. These amounts will be billed based on
the terms of the contracts, which can include certain milestones, partial shipments, or completion of the contracts. Payment terms of amounts billed vary
based on the customer, but are typically due within 30 days of invoicing. Contract liabilities represent advance billings on contracts, typically for steel.
Inventories
Inventories are stated at the lower of cost and net realizable value. The cost of raw material inventories of steel is either on a specific identification basis or
on an average cost basis. The cost of substantially all other raw material inventories, as well as work-in-process and supplies, is either on an average cost
basis or at standard cost. The cost of finished goods uses the first-in, first-out method of accounting.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs are expensed as incurred, and costs of new equipment and buildings, as well as costs
of expansions or refurbishment of existing equipment and buildings, including interest where applicable, are capitalized. Depreciation and amortization are
determined by the units of production method for most equipment and by the straight-line method for the remaining assets based on the estimated useful
lives of the related assets. Estimated useful lives by major classes of property and equipment are as follows: Land improvements (15 – 30 years); Buildings
(20 – 40 years); Leasehold improvements (5 – 30 years); and Machinery and equipment (3 – 30 years). Depreciation expense calculated under the units of
production method may be less than, equal to, or greater than depreciation expense calculated under the straight-line method due to variances in production
levels. Upon disposal, costs and related accumulated depreciation of the assets are removed from the accounts and resulting gains or losses are reflected in
operating expenses. The Company leases certain equipment under long-term finance leases, which are being amortized on a straight-line basis over the
shorter of its useful life or the lease term.
The Company assesses impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the asset or asset
group(s) may not be recoverable. The asset group is the lowest level at which identifiable cash flows are largely independent of the cash flows of other
groups of assets or liabilities. The recoverable value of a long-lived asset group is determined by estimating future undiscounted cash flows using
assumptions about the expected future operating performance of the Company.
Leases
The Company has entered into various equipment and property leases. Certain lease agreements include renewals and/or purchase options set to expire at
various dates, and certain lease agreements include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any
material residual value guarantees or material restrictive covenants.
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Table of Contents
The Company determines if an arrangement is a lease at inception. Leases with an initial term of twelve months or less are not recorded on the balance
sheet; costs for these leases are recognized on a straight-line basis over the lease term. Right-of-use assets and lease liabilities are recognized based on the
present value of lease payments over the lease term at commencement date. When the Company’s leases do not provide an implicit rate of return, the
Company uses its revolving loan borrowing rate in determining the present value of lease payments. Some of the Company’s lease agreements contain non-
lease components, which are accounted for separately.
Goodwill
Goodwill represents the excess of the purchase price over the fair values of the assets acquired and liabilities assumed in conjunction with an acquisition.
Goodwill is reviewed for impairment annually, or whenever events occur or circumstances change that indicate goodwill may be impaired. During the
fourth quarter of 2022, the Company changed the date of its annual impairment test of goodwill from December 31 to November 30. The change in the
impairment test date lessens resource constraints that exist in connection with the Company’s year-end close and financial reporting process and provides
for additional time to complete the required impairment testing. This change did not represent a material change to the Company’s method of applying an
accounting principle, and therefore did not delay, accelerate, or avoid an impairment charge.
In testing goodwill for impairment, the Company has the option to perform a qualitative assessment to determine whether the existence of events or
circumstances indicate that it is more-likely-than-not (more than 50%) that the fair value of a reporting unit is less than its carrying amount. When
performing a qualitative assessment, the Company evaluates factors such as industry and market conditions, cost factors, overall financial performance, and
other relevant entity specific events and changes. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting
unit is less than its carrying amount, or if the Company chooses not to perform the qualitative assessment, then a quantitative assessment is performed to
determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount
of the excess of the carrying amount over the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
Intangible Assets
Intangible assets consist primarily of customer relationships, trade names and trademarks, patents, and backlog recorded as the result of acquisition activity.
Intangible assets are amortized using the straight-line method over estimated useful lives ranging from ten to 21 years.
Workers Compensation
The Company is self-insured and maintains high deductible policies for losses and liabilities associated with workers compensation claims. Losses are
accrued based upon the Company’s estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions
followed in the insurance industry. As of December 31, 2023 and 2022, workers compensation reserves recorded were $2.2 million and $1.6 million,
respectively, of which $1.3 million and $0.5 million, respectively, were included in Accrued liabilities and $0.9 million and $1.1 million, respectively, were
included in Other long-term liabilities.
Accrued Liabilities
Accrued liabilities as of December 31, 2023 and 2022 includes accrued bonus of $5.2 million and $8.0 million, respectively, and accrued sales tax of
$5.3 million and $4.4 million, respectively.
Derivative Instruments
In the normal course of business, the Company is exposed to interest rate and foreign currency exchange rate fluctuations. Consistent with the Company’s
strategy for financial risk management, the Company has established a program that utilizes foreign currency forward contracts and interest rate swaps to
offset the risks associated with the effects of these exposures. The Company utilizes cash flow hedge accounting treatment for qualifying foreign currency
forward contracts and interest rate swaps. Instruments that do not qualify for cash flow hedge accounting treatment are remeasured at fair value on each
balance sheet date and resulting gains and losses are recognized in earnings.
Share Repurchases
All shares reacquired in connection with the Company’s share repurchase program are retired and treated as authorized and unissued shares.
F- 11
Table of Contents
Pension Benefits
The Company has two defined benefit pension plans that have been frozen since 2001. The Company funds these plans to cover current plan costs plus
amortization of the unfunded plan liabilities. To record these obligations, management uses estimates relating to investment returns, mortality, and discount
rates.
Foreign Currency Transactions
The functional currency of the Company, including its Mexican operations, is the United States dollar. Monetary assets and liabilities are remeasured at
current exchange rates and non-monetary assets and liabilities are remeasured at historical exchange rates. Revenue and expenses related to monetary assets
and liabilities are remeasured at average exchange rates and at historical exchange rates for the revenue and expenses related to non-monetary assets and
liabilities.
Transaction gains (losses) from foreign currency forward contracts designated as cash flow hedges are included in Accumulated other comprehensive loss
as a separate component of Stockholders’ equity. For the years ended December 31, 2023, 2022 and 2021, net foreign currency transaction gains (losses) of
$0.4 million, $0.5 million, and ($0.5) million, respectively, were recognized in earnings.
Revenue Recognition
The Company manufactures water infrastructure steel pipe products, which are generally made to custom specifications for installation contractors serving
projects funded by public water agencies, as well as precast and reinforced concrete products. Generally, each of the Company’s contracts with its
customers contains a single performance obligation, as the promise to transfer products is not separately identifiable from other promises in the contract
and, therefore, is not distinct. The Company generally does not recognize revenue on a contract until the contract has approval and commitment from both
parties, the contract rights and payment terms can be identified, the contract has commercial substance, and its collectability is probable.
SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of the Company’s right to
payment for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to the Company. Revenue is
measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Contract costs include all
material, labor, and other direct costs incurred in satisfying the performance obligations. The cost of steel material is recognized as a contract cost when the
steel is introduced into the manufacturing process. Changes in job performance, job conditions, and estimated profitability, including those arising from
contract change orders, contract penalty provisions, foreign currency exchange rate movements, changes in raw materials costs, and final contract
settlements may result in revisions to estimates of revenue, costs, and income, and are recognized in the period in which the revisions are determined.
Provisions for losses on uncompleted contracts, included in Accrued liabilities, are estimated by comparing total estimated contract revenue to the total
estimated contract costs and a loss is recognized during the period in which it becomes probable and can be reasonably estimated.
Precast revenue for water infrastructure concrete pipe and precast concrete products is recognized at the time control is transferred to customers, in an
amount that reflects the consideration the Company expects to be entitled to in exchange for the products. All variable consideration that may affect the
total transaction price, including contractual discounts, returns, and credits, is included in net sales. Estimates for variable consideration are based on
historical experience, anticipated performance, and management’s judgment. The Company’s contracts do not contain significant financing.
Share-based Compensation
The Company recognizes the compensation cost of employee and director services received in exchange for awards of equity instruments based on the
grant date estimated fair value of the awards. The Company estimates the fair value of restricted stock units (“RSUs”) and performance share awards
(“PSAs”) using the value of the Company’s stock on the date of grant. Share-based compensation cost is recognized over the period during which the
employee or director is required to provide service in exchange for the award and, as forfeitures occur, the associated compensation cost recognized to date
is reversed. For awards with performance-based payout conditions, the Company recognizes compensation cost based on the probability of achieving the
performance conditions, with changes in expectations recognized as an adjustment to earnings in the period of change. Any recognized compensation cost
is reversed if the conditions are ultimately not met.
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Table of Contents
Income Taxes
Income taxes are recorded using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected
future income tax consequences of events that have been recognized in the Consolidated Financial Statements or income tax returns. Valuation allowances
are established when necessary to reduce deferred income tax assets to the amount expected to be realized. The determination of the provision for income
taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The provision for income taxes
primarily reflects a combination of income earned and taxed in the various United States federal, state, local, and to a lesser extent, foreign jurisdictions.
Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for
unrecognized income tax benefits or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall
effective income tax rate.
The Company records income tax reserves for federal, state, local, and international exposures relating to periods subject to audit. The development of
reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. The Company assesses
income tax positions and records income tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances,
and information available at the reporting dates. For those income tax positions where it is more-likely-than-not that an income tax benefit will be
sustained, the Company has recorded the largest amount of income tax benefit with a greater than 50% likelihood of being realized upon settlement with a
tax authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that an income tax
benefit will be sustained, no income tax benefit has been recognized in the Consolidated Financial Statements.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss includes unrealized gains and losses on derivative instruments related to the effective portion of cash flow hedges
and changes in the funded status of the defined benefit pension plans, both net of the related income tax effect.
Net Income per Share
Basic net income per share is computed by dividing the net income by the weighted-average number of shares of common stock outstanding during the
period. Diluted net income per share is computed by giving effect to all dilutive potential shares of common stock, including RSUs and PSAs, assumed to
be outstanding during the period using the treasury stock method. Performance-based PSAs are considered dilutive when the related performance
conditions have been met assuming the end of the reporting period represents the end of the performance period. In periods with a net loss, all potential
shares of common stock are excluded from the computation of diluted net loss per share as the impact would be antidilutive.
Net income per basic and diluted weighted-average common share outstanding was calculated as follows (in thousands, except per share amounts):
2023
Year Ended December 31,
2022
2021
Net income
$
21,072 $
31,149 $
Basic weighted-average common shares outstanding
Effect of potentially dilutive common shares (1)
Diluted weighted-average common shares outstanding
Net income per common share
Basic
Diluted
9,991
90
10,081
2.11 $
2.09 $
9,914
98
10,012
3.14 $
3.11 $
$
$
11,523
9,854
74
9,928
1.17
1.16
(1) There were no antidilutive shares for the years ended December 31, 2023, 2022, or 2021.
F- 13
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Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables, foreign currency
forward contracts, interest rate swaps, and deferred compensation plan assets. Trade receivables generally represent a large number of customers, including
municipalities, manufacturers, distributors, and contractors, dispersed across a wide geographic base. As of December 31, 2023 and 2022, one customer
had a balance in excess of 10% of total accounts receivable. Foreign currency forward contracts and interest rate swaps are with a high-quality financial
institution. The Company’s deferred compensation plan assets, included in Other assets, are invested in a diversified portfolio of stock and bond mutual
funds.
Recent Accounting and Reporting Developments
Accounting Changes
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021‑08, “Business
Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021‑08”) which requires an
entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards
Codification Topic 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. The Company adopted ASU 2021‑08 on January 1,
2023 and the impact was not material to the Company’s financial position, results of operations, or cash flows.
Recent Accounting Standards
In March 2023, the FASB issued ASU No. 2023‑01 “Leases (Topic 842): Common Control Arrangements” (“ASU 2023‑01”) which requires leasehold
improvements associated with common control leases be (1) amortized by the lessee over the useful life of the leasehold improvements to the common
control group as long as the lessee controls the use of the underlying asset through a lease and (2) accounted for as a transfer between entities under
common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. ASU 2023‑01 is effective for
the Company beginning January 1, 2024, including interim periods in 2024, with early adoption permitted. The Company does not expect a material impact
to its financial position, results of operations, or cash flows from adoption of this guidance.
In October 2023, the FASB issued ASU No. 2023‑06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update
and Simplification Initiative” (“ASU 2023‑06”) which incorporates certain SEC disclosure requirements into the Accounting Standards Codification. The
effective date for each amendment in ASU 2023‑06 will be the effective date of the removal of the disclosure requirement from Regulation S‑X or
Regulation S‑K, with early adoption prohibited. The amendments should be applied prospectively. The Company does not expect a material impact to its
financial position, results of operations, or cash flows from adoption of this guidance.
In November 2023, the FASB issued ASU No. 2023‑07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”
(“ASU 2023‑07”) which requires disclosure of incremental segment information, primarily through enhanced disclosures about significant segment
expenses, on an annual and interim basis for all public entities. ASU 2023‑07 will be applied retrospectively, and will be effective for the Company’s 2024
annual reporting, and for interim periods beginning in 2025, with early adoption permitted. The Company does not expect a material impact to its financial
position, results of operations, or cash flows from adoption of this guidance.
In December 2023, the FASB issued ASU No. 2023‑09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023‑09”) which
improves the transparency, effectiveness, and comparability of income tax disclosures and allows investors to better assess, in their capital allocation
decisions, how an entity’s worldwide operations and related tax risks and tax planning and operation opportunities affect its income tax rate and prospects
for future cash flows. ASU 2023‑09 will be applied prospectively, and will be effective for the Company’s 2025 annual reporting, with early adoption
permitted. The Company is currently assessing the impact of ASU 2023‑09 on its disclosures in the notes to the consolidated financial statements.
F- 14
Table of Contents
3.
BUSINESS COMBINATIONS:
Park Environmental Equipment, LLC
On October 5, 2021, the Company completed the acquisition of 100% of Park Environmental Equipment, LLC (“ParkUSA”) for a purchase price of
$90.2 million in cash, which is included in the Precast segment for all periods following the acquisition date. ParkUSA is a precast concrete and steel
fabrication-based company that develops and manufactures water, wastewater, and environmental solutions. Operations continue with ParkUSA’s previous
management and workforce at its three Texas manufacturing facilities located in Houston, Dallas, and San Antonio. This strategic acquisition provides a
foothold into the water infrastructure technology market. As the Company employs similar operating capabilities at its existing facilities, it intends to
explore strategic opportunities to expand ParkUSA’s value-added products within the organization.
The following table summarizes the purchase consideration and fair value of the assets acquired and liabilities assumed as of October 5, 2021 (in
thousands):
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Prepaid expenses and other
Property and equipment
Operating lease right-of-use assets
Intangible assets
Deferred income taxes
Total assets acquired
Liabilities
Accounts payable
Accrued liabilities
Operating lease liabilities
Total liabilities assumed
Goodwill
Total purchase consideration
$
$
278
11,034
12,773
293
8,076
58,301
31,000
347
122,102
2,029
4,067
58,301
64,397
32,519
90,224
The tangible and intangible assets acquired and liabilities assumed were recognized based on their estimated fair values on the acquisition date, with the
excess purchase consideration recorded as goodwill. As a result of additional information obtained during the measurement period about facts and
circumstances that existed as of the acquisition date, the Company recorded measurement period adjustments during the year ended December 31, 2022
which resulted in a $1.8 million increase in goodwill and purchase consideration related to the settlement of working capital. The measurement period for
the ParkUSA acquisition was complete as of September 30, 2022.
The following table summarizes the components of the intangible assets acquired and their estimated useful lives:
Customer relationships
Trade names and trademarks
Patents
Backlog
Total intangible assets
Estimated Useful
Life
(In years)
10.0
10.0
21.0
0.6
10.4
$
$
Fair Value
(In thousands)
19,800
9,600
1,300
300
31,000
Goodwill arose from the acquisition of an assembled workforce, expansion of product offerings, and management’s industry know-how, and is deductible
for tax purposes.
F- 15
Table of Contents
The Company incurred transaction costs associated with this acquisition of $0, $0.1 million, and $3.4 million during the years ended December 31, 2023,
2022 and 2021, respectively. These transaction costs are included in Selling, general, and administrative expense in the Consolidated Statements of
Operations.
Unaudited Pro Forma Disclosures
The following unaudited pro forma summary presents the consolidated results of the Company as if the acquisition of ParkUSA had occurred on January 1,
2020 (in thousands):
Net sales
Net income
Year Ended
December 31, 2021
$
384,872
15,780
This unaudited pro forma consolidated financial data is included only for the purpose of illustration and does not necessarily indicate what the operating
results would have been if the acquisitions of ParkUSA had occurred on January 1 of the year prior to the acquisition. Moreover, this information is not
indicative of what the Company’s future operating results will be. The information prior to the acquisition is included based on prior accounting records
maintained by ParkUSA. The pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of
ParkUSA to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and
equipment and intangible assets had been applied on January 1 of the year prior to the acquisition. Adjustments also include an increase of interest expense
as if the Company’s debt obtained in connection with the acquisitions of ParkUSA had been outstanding since January 1 of the year prior to the acquisition.
The pro forma results for the year ended December 31, 2021 include nonrecurring adjustments to add back the transaction costs incurred and the expense
related to the revaluation of inventory acquired in those periods, since those costs are reflected in the preceding year on a pro forma basis. The provision for
income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.
4.
INVENTORIES:
Inventories consist of the following (in thousands):
Raw materials
Work-in-process
Finished goods
Supplies
Total inventories
December 31,
2023
2022
$
$
68,110 $
8,912
11,911
2,296
91,229 $
47,978
5,114
15,773
2,164
71,029
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5.
PROPERTY AND EQUIPMENT:
Property and equipment, net consists of the following (in thousands):
Land and improvements
Buildings
Leasehold improvements
Machinery and equipment
Equipment under finance lease
Less accumulated depreciation and amortization
Construction in progress
Property and equipment, net
December 31,
2023
2022
$
$
25,064 $
54,036
3,182
155,278
8,519
246,079
(126,359)
119,720
24,235
143,955 $
23,981
51,389
3,182
149,971
3,849
232,372
(117,856)
114,516
18,650
133,166
All property and equipment is located in the United States, except for $18.2 million and $19.0 million of net property and equipment which is located in
Mexico as of December 31, 2023 and 2022, respectively.
6.
GOODWILL AND INTANGIBLE ASSETS:
Goodwill
The Company has recorded goodwill of $55.5 million as of December 31, 2023 and 2022 in connection with its business acquisitions within the Precast
segment. The Company performed its annual goodwill impairment test as of November 30, 2023, utilizing a qualitative analysis, and did not identify any
potential impairment. It is possible that future changes in circumstances, judgments, or assumptions, including prolonged economic weakness or
unexpected significant declines in Precast operating results or projections, may result in goodwill impairment charges in the future.
Intangible Assets
Intangible assets consist of the following (in thousands):
As of December 31, 2023
Customer relationships
Trade names and trademarks
Patents
Total
As of December 31, 2022
Customer relationships
Trade names and trademarks
Patents
Other
Total
Gross Carrying
Amount
Accumulated
Amortization
Intangible
Assets, Net
$
$
$
$
F- 17
27,831 $
12,825
1,627
42,283 $
29,209 $
12,825
1,627
329
43,990 $
(7,315) $
(3,734)
(160)
(11,209) $
(5,845) $
(2,490)
(81)
(310)
(8,726) $
20,516
9,091
1,467
31,074
23,364
10,335
1,546
19
35,264
Table of Contents
The estimated amortization expense for each of the next five years and thereafter is as follows (in thousands):
Year ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total amortization expense
7.
CURRENT DEBT:
$
$
4,033
4,033
4,033
4,033
4,033
10,909
31,074
The Interim Funding Agreement dated August 2, 2022 with Wells Fargo Equipment Finance, Inc. (“WFEF”), as amended January 23, 2023, March 15,
2023, July 21, 2023, and November 2, 2023 (together, the “IFA”), provides for aggregate interim funding advances up to $10.8 million of equipment
purchased for a new reinforced concrete pipe mill, to be converted into a term loan upon final delivery and acceptance of the financed equipment. As of
December 31, 2023 and 2022, the outstanding balance of the IFA was $10.8 million, which is classified as a current liability since there is not a firm
commitment for long-term debt financing. The IFA bore interest at the term Secured Overnight Finance Rate (“SOFR”) plus 1.75% as of December 31,
2022. Effective November 2, 2023, the IFA bears interest at the SOFR Average plus 2.00%. As of December 31, 2023 and 2022, the weighted-average
interest rate for outstanding borrowings was 7.08% and 5.87%, respectively. The IFA requires monthly payments of accrued interest and grants a security
interest in the equipment to WFEF. Effective November 2, 2023, the IFA requires the Company to maintain a consolidated senior leverage ratio no greater
than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated earnings before interest, taxes, depreciation, and amortization (“EBITDA”)
(as defined in the IFA) of at least $35 million for the four consecutive fiscal quarters most recently ended. The Company was in compliance with its
financial covenants as of December 31, 2023.
8.
CREDIT AGREEMENT:
The Credit Agreement dated June 30, 2021 with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the lenders from
time to time party thereto, including the initial sole lender, Wells Fargo (the “Lenders”), as amended by the Incremental Amendment dated October 22,
2021, the Second Amendment to Credit Agreement dated April 29, 2022, and the Third Amendment to Credit Agreement dated June 29, 2023 (together,
the “Amended Credit Agreement”), provides for a revolving loan, swingline loan, and letters of credit in the aggregate amount of up to $125 million
(“Revolver Commitment”), with an option for the Company to increase that amount by $50 million, subject to provisions of the Amended Credit
Agreement. The Amended Credit Agreement will expire, and all obligations outstanding will mature, on June 29, 2028. The Company may prepay
outstanding amounts at its discretion without penalty at any time, subject to applicable notice requirements. In conjunction with entering into the Credit
Agreement on June 30, 2021, the Company terminated the Credit Agreement with Wells Fargo dated October 25, 2018, as amended on January 31, 2020 by
the Consent and Amendment No. 1 to Credit Agreement with Wells Fargo (together, the “Former Credit Agreement”), and all outstanding debt under the
Former Credit Agreement, including long-term debt, was repaid.
The Amended Credit Agreement contains customary representations and warranties, as well as customary affirmative and negative covenants, events of
default, and indemnification provisions in favor of the Lenders. The negative covenants include restrictions regarding the incurrence of liens and
indebtedness, annual capital expenditures, certain investments, acquisitions, and dispositions, and other matters, all subject to certain exceptions. The
Amended Credit Agreement requires the Company to regularly provide financial information to Wells Fargo and to maintain a consolidated senior leverage
ratio no greater than 3.00 to 1.00 (subject to certain exceptions) and a minimum consolidated EBITDA (as defined in the Amended Credit Agreement) of at
least $35 million for the four consecutive fiscal quarters most recently ended. Pursuant to the Amended Credit Agreement, the Company has also agreed
that it will not sell, assign, or otherwise dispose or encumber, any of its owned real property. The occurrence of an event of default could result in the
acceleration of the obligations under the Amended Credit Agreement. The Company was in compliance with its financial covenants as of December 31,
2023.
The Company’s obligations under the Amended Credit Agreement are secured by a senior security interest in substantially all of the Company’s and its
subsidiaries’ assets.
F- 18
Table of Contents
Interest expense from revolving loan borrowings, current debt, long-term debt, and finance leases was $4.9 million, net of amounts capitalized of
$0.5 million in 2023, $3.6 million, net of a nominal amount capitalized in 2022, and $1.2 million, net of amounts capitalized of $0.1 million in 2021.
Line of Credit (Revolving and Swingline Loans)
As of December 31, 2023 under the Amended Credit Agreement, the Company had $54.5 million of outstanding revolving loan borrowings, $1.1 million of
outstanding letters of credit, and additional borrowing capacity of approximately $69 million. As of December 31, 2022 under the Amended Credit
Agreement, the Company had $83.7 million of outstanding revolving loan borrowings and $1.1 million of outstanding letters of credit. Revolving loans
under the Amended Credit Agreement bear interest at rates related to, at the Company’s option and subject to the provisions of the Amended Credit
Agreement, either: (i) Base Rate (as defined in the Amended Credit Agreement) plus the Applicable Margin; (ii) Adjusted Term SOFR (as defined in the
Amended Credit Agreement) plus the Applicable Margin; or (iii) Adjusted Daily Simple SOFR (as defined in the Amended Credit Agreement) plus the
Applicable Margin. The “Applicable Margin” is 1.75% to 2.35%, depending on the Company’s Consolidated Senior Leverage Ratio (as defined in the
Amended Credit Agreement) and the interest rate option chosen. Interest on outstanding revolving loans is payable monthly. Swingline loans under the
Amended Credit Agreement bear interest at the Base Rate plus the Applicable Margin. As of December 31, 2023 and 2022, the weighted-average interest
rate for outstanding borrowings was 7.43% and 6.07%, respectively. The Amended Credit Agreement requires the payment of a commitment fee of
between 0.30% and 0.40%, based on the amount by which the Revolver Commitment exceeds the average daily balance of outstanding borrowings (as
defined in the Amended Credit Agreement). Such fee is payable monthly in arrears. The Company is also obligated to pay additional fees customary for
credit facilities of this size and type.
9.
LEASES:
The following table summarizes the Company’s leases recorded on the Consolidated Balance Sheets (in thousands):
Right-of-use assets:
Finance leases, net, included in Property and equipment (1)
Operating leases
Total right-of-use assets
Lease liabilities:
Finance leases
Operating leases
Total lease liabilities
December 31,
2023
2022
$
$
$
$
7,092 $
88,155
95,247 $
7,481 $
90,216
97,697 $
2,618
93,124
95,742
3,037
94,174
97,211
(1) Finance lease right-of-use assets are presented net of accumulated amortization of $1.4 million and $1.2 million as of December 31, 2023 and
2022, respectively.
Lease cost consists of the following (in thousands):
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
2023
Year Ended December 31,
2022
2021
795 $
266
7,765
1,402
313
10,541 $
577 $
148
7,770
1,000
251
9,746 $
413
90
4,627
993
158
6,281
$
$
F- 19
Table of Contents
The future maturities of lease liabilities as of December 31, 2023 are as follows (in thousands):
Finance Leases
Operating Leases
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Amount representing interest
Present value of lease liabilities
Current portion of lease liabilities (1)
Long-term lease liabilities (2)
$
$
2,212 $
1,923
1,847
1,614
1,147
-
8,743
(1,262)
7,481
(1,721)
5,760 $
(1) Current portion of finance lease liabilities are included in Accrued liabilities.
(2) Long-term finance lease liabilities, less current portion are included in Other long-term liabilities.
The following table summarizes the lease terms and discount rates for the lease liabilities:
Weighted-average remaining lease term (years)
Finance leases
Operating leases
Weighted-average discount rate
Finance leases
Operating leases
December 31,
2023
2022
3.90
16.73
6.93%
2.17%
The following table presents other information related to the operating and finance leases (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for finance lease liabilities
Right-of-use assets obtained in exchange for operating lease liabilities
$
(266) $
(6,930)
(826)
5,270
952
(148) $
(6,818)
(597)
1,466
568
2023
Year Ended December 31,
2022
2021
6,874
6,913
6,583
6,192
6,308
76,453
109,323
(19,107)
90,216
(4,933)
85,283
3.52
17.83
5.44%
2.19%
(90)
(4,142)
(415)
853
16,043
10.
FAIR VALUE MEASUREMENTS:
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the
asset or liability, in an orderly transaction between market participants at the measurement date.
The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels. These levels are: Level 1 (inputs are quoted prices in active markets for identical assets or liabilities); Level 2 (inputs are other than quoted prices
that are observable, either directly or indirectly through corroboration with observable market data); and Level 3 (inputs are unobservable, with little or no
market data that exists, such as internal financial forecasts). The Company is required to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.
F- 20
Table of Contents
The following table summarizes information regarding the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in
thousands):
Total
Level 1
Level 2
Level 3
As of December 31, 2023
Financial assets:
Deferred compensation plan
Foreign currency forward contracts
Interest rate swaps
Total financial assets
Financial liabilities:
Foreign currency forward contracts
As of December 31, 2022
Financial assets:
Deferred compensation plan
Foreign currency forward contracts
Interest rate swaps
Total financial assets
Financial liabilities:
Foreign currency forward contracts
$
$
$
$
$
$
3,912 $
42
326
4,280 $
3,391 $
-
-
3,391 $
521 $
42
326
889 $
(115) $
- $
(115) $
3,587 $
728
862
5,177 $
3,090 $
-
-
3,090 $
497 $
728
862
2,087 $
(80) $
- $
(80) $
-
-
-
-
-
-
-
-
-
-
The deferred compensation plan assets consist of cash and several publicly traded stock and bond mutual funds, valued using quoted market prices in active
markets, classified as Level 1 within the fair value hierarchy, as well as guaranteed investment contracts, valued at principal plus interest credited at
contract rates, classified as Level 2 within the fair value hierarchy. Deferred compensation plan assets are included within Other assets in the Consolidated
Balance Sheets.
The foreign currency forward contracts and interest rate swaps are derivatives valued using various pricing models or discounted cash flow analyses that
incorporate observable market parameters, such as interest rate yield curves and currency rates, and are classified as Level 2 within the fair value hierarchy.
Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company. The
foreign currency forward contracts and interest rate swaps are presented at their gross fair values. Foreign currency forward contract and interest rate swap
assets are included within Prepaid expenses and other and foreign currency forward contract liabilities are included within Accrued liabilities in the
Consolidated Balance Sheets.
The net carrying amounts of cash and cash equivalents, trade and other receivables, accounts payable, accrued liabilities, and current debt approximate fair
value due to the short-term nature of these instruments. The net carrying amount of the borrowings on the line of credit approximates fair value due to its
variable interest rate based on market.
11.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
For each derivative entered into in which the Company seeks to obtain cash flow hedge accounting treatment, the Company formally documents all
relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction,
the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and
retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific firm commitments or
forecasted transactions and designating the derivatives as cash flow hedges. The Company also formally assesses, both at the hedge’s inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The
effective portion of these hedged items is reflected in Unrealized gain (loss) on cash flow hedges on the Consolidated Statements of Comprehensive
Income. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company is required to
discontinue hedge accounting with respect to that derivative prospectively.
F- 21
Table of Contents
As of December 31, 2023, the total notional amount of the foreign currency forward contracts was $5.1 million (CAD$6.7 million) and $1.2 million
(EUR€1.1 million), which included $4.9 million (CAD$6.4 million) and $1.2 million (EUR€1.1 million) of foreign currency forward contracts not
designated as cash flow hedges. As of December 31, 2022, the total notional amount of the foreign currency forward contracts was $17.1 million
(CAD$23.2 million) and $1.1 million (EUR€1.1 million), which included $0.3 million (CAD$0.4 million) of foreign currency forward contracts not
designated as cash flow hedges. As of December 31, 2023, the Company’s foreign currency forward contracts mature at various dates through April 2025
and are subject to an enforceable master netting arrangement.
The Company has entered into interest rate swaps which effectively convert a portion of its variable-rate debt to fixed-rate debt, and are designated as cash
flow hedges. The Company receives floating interest payments monthly based on SOFR and pays a fixed rate of 1.941% to the counterparty on the total
notional amount of $6.7 million and $26.7 million as of December 31, 2023 and 2022, respectively, which amortizes ratably on a monthly basis to zero by
the April 2024 maturity date.
On August 9, 2022, the Company entered into an interest rate swap transaction which began April 3, 2023. The Company receives floating interest
payments monthly based on the SOFR Average 30 day and pays a fixed rate of 2.96% to the counterparty on the total notional amount of $13.0 million as
of December 31, 2023, which amortizes ratably on a monthly basis to zero by the April 2028 maturity date.
The following table summarizes the gains (losses) recognized on derivatives in the Consolidated Financial Statements (in thousands):
Foreign currency forward contracts:
Net sales
Property and equipment
Interest rate swaps:
Interest expense
Total
2023
Year Ended December 31,
2022
2021
$
$
(708) $
(109)
719
(98) $
660 $
(680)
39
19 $
9
-
-
9
As of December 31, 2023, unrealized pretax gains (losses) on outstanding cash flow hedges in Accumulated other comprehensive loss was $0.3 million, of
which approximately $0 and $0.3 million are expected to be reclassified to Net sales and Interest expense, respectively, within the next twelve months as a
result of underlying hedged transactions also being recorded in these line items. See Note 18 “Accumulated Other Comprehensive Loss” for additional
quantitative information regarding foreign currency forward contract and interest rate swap gains and losses.
12.
STOCKHOLDERS’ EQUITY:
At-the-Market Offering
On September 2, 2022, the Company entered into an Open Market Sale Agreement (the “At-the-Market Offering”) with Jefferies LLC (“Jefferies”) which
provided for the issuance and sale of shares of its common stock, par value $0.01 per share, having aggregate offering sales proceeds of up to $50 million
from time to time through Jefferies as its sales agent. On October 30, 2023, the Company provided written notice terminating the Open Market Sale
Agreement in accordance with its terms. No proceeds were raised under the At-the-Market Offering during the years ended December 31, 2023 or 2022.
Share Repurchase Program
On November 2, 2023, the Company announced its authorization of a share repurchase program of up to $30 million of its outstanding common stock. The
program does not commit to any particular timing or quantity of purchases, and the program may be suspended or discontinued at any time. Under the
program, shares may be purchased in open market, including through Rule 10b5‑1 of the Securities Exchange Act of 1934, as amended, or in privately
negotiated transactions administered by its broker, D.A. Davidson Companies. At this time, the Company has elected to limit its share repurchase
transactions to only those under the Rule 10b5‑1 trading plan it executed in November 2023, which the Company believes considers its liquidity, including
availability of borrowings and covenant compliance under the Amended Credit Agreement, and other capital allocation priorities of the business. The
Company’s Rule 10b5‑1 trading plan designates up to $10 million for repurchases and provides for daily share repurchases that fluctuate with changes in
the trading price of its common stock.
F- 22
Table of Contents
During the year ended December 31, 2023, the Company repurchased approximately 29,000 shares of the Company’s common stock for an aggregate
amount of $0.8 million. As of December 31, 2023, $29.2 million of the share repurchase authorization remained available for repurchases under this
program. There were no share repurchases authorized during the years ended December 31, 2022 or 2021.
13.
RETIREMENT PLANS:
Defined Contribution Plan
The Company has a defined contribution retirement plan that covers substantially all of its employees and provides for a Company match of up to 50% of
the first 8% of employee contributions to the plan, subject to certain limitations.
ParkUSA had a defined contribution retirement plan that covered substantially all of its employees and provided for a match of up to 100% of the first 4%
of employee contributions to the plan, subject to certain limitations. After the acquisition of ParkUSA on October 5, 2021, employees of ParkUSA
continued to contribute to this plan until it was merged into the Company’s plan effective December 31, 2021.
Defined Benefit Plans
The Company has two noncontributory defined benefit plans. Effective 2001, both plans were frozen and participants were fully vested in their accrued
benefits as of the date each plan was frozen. No additional participants can be added to the plans and no additional service can be earned by participants
subsequent to the date the plans were frozen. The funding policy for both of these plans is based on current plan costs plus amortization of the unfunded
plan liability.
As of December 31, 2023 and 2022, the Company had recorded, in accordance with the actuarial valuations, an accrued pension asset of $0.5 million and
$0.1 million, respectively, in Other long-term assets, and an unrecognized actuarial loss, net of tax, of $1.2 million and $1.5 million, respectively, in
Accumulated other comprehensive loss. Additionally, as of December 31, 2023 and 2022, the projected and accumulated benefit obligation was
$4.6 million and $4.8 million, respectively, and the fair value of plan assets was $5.1 million and $4.9 million, respectively.
The net periodic benefit cost was approximately $0, $0.1 million, and $0.1 million for each of the years ended December 31, 2023, 2022, and 2021,
respectively. The weighted-average discount rates used to measure the projected benefit obligation were 4.69% and 4.89% as of December 31, 2023 and
2022, respectively.
The plan assets are invested in pooled separate accounts stated at fair value based on the daily net asset value of the account and are therefore not
categorized in the fair value hierarchy. The expected weighted-average long-term rate of return on plan assets was 7.00% as of December 31, 2023 and
2022.
Non-qualified Retirement Savings Plan
The Company has a deferred compensation plan that covered officers and selected highly compensated employees until it was frozen in 2016. As of
December 31, 2023 and 2022, deferred compensation plan balances of $3.9 million and $3.6 million, respectively, were recorded in Other assets and Other
long-term liabilities.
Total expense for all retirement plans for the years ended December 31, 2023, 2022, and 2021 was $2.5 million, $2.2 million, and $1.8 million,
respectively, and is primarily related to the defined contribution plan.
14.
SHARE-BASED COMPENSATION:
The Company has one active stock incentive plan for employees and directors, the 2022 Stock Incentive Plan, which provides for awards of stock options
to purchase shares of common stock, stock appreciation rights, restricted and unrestricted shares of common stock, RSUs, and PSAs. In addition, the
Company has one inactive stock incentive plan, the 2007 Stock Incentive Plan, under which previously granted awards remain outstanding.
F- 23
Table of Contents
The following table summarizes share-based compensation expense recorded (in thousands):
2023
Year Ended December 31,
2022
2021
Cost of sales
Selling, general, and administrative expense
Total
$
$
1,027 $
2,645
3,672 $
1,320 $
2,382
3,702 $
1,003
2,213
3,216
There were 722,573 shares of common stock available for future issuance under the Company’s stock incentive plan as of December 31, 2023, assuming
the outstanding PSAs vest at the target level of 100%.
Restricted Stock Units and Performance Share Awards
The Company’s stock incentive plan provides for equity instruments, such as RSUs and PSAs, which grant the right to receive a specified number of shares
at specified times. RSUs and PSAs are service-based awards that vest according to the terms of the grant. PSAs have performance-based payout conditions.
The following table summarizes the Company’s RSU and PSA activity:
Unvested RSUs and PSAs as of December 31, 2022
RSUs and PSAs granted
Unvested RSUs and PSAs canceled
RSUs and PSAs vested (2)
Unvested RSUs and PSAs as of December 31, 2023
(1) The number of PSAs disclosed in this table are at the target level of 100%.
Number of RSUs
and PSAs (1)
Weighted- Average
Grant Date Fair
Value
200,924 $
134,498
(13,589)
(95,442)
226,391
30.80
28.41
30.82
30.12
29.66
(2) For the PSAs vested on March 31, 2023, the actual number of common shares that were issued was determined by multiplying the PSAs at the
target level of 100%, as disclosed in this table, by a payout percentage based on the performance-based conditions achieved. The payout
percentage was 159% for the 2020-2022 performance period, 126% for the 2021-2022 performance period, and 132% for the 2022 performance
period.
The unvested balance of RSUs and PSAs as of December 31, 2023 includes approximately 170,000 PSAs at the target level of 100%. The vesting of these
awards is subject to the achievement of specified performance-based conditions, and the actual number of common shares that will ultimately be issued
will be determined by multiplying this number of PSAs by a payout percentage ranging from 0% to 200%.
The weighted-average grant date fair value of RSUs and PSAs granted during the years ended December 31, 2023, 2022, and 2021 was $28.41, $30.68, and
$33.30, respectively. The total fair value of RSUs and PSAs vested during the years ended December 31, 2023, 2022, and 2021 was $4.4 million,
$2.4 million, and $3.3 million, respectively.
Based on the estimated level of achievement of the performance targets associated with the PSAs as of December 31, 2023, unrecognized compensation
expense related to the unvested portion of the Company’s RSUs and PSAs was $3.0 million, which is expected to be recognized over a weighted-average
period of 1.5 years.
Stock Awards
For the years ended December 31, 2023, 2022, and 2021, stock awards of 15,904 shares, 11,380 shares, and 12,606 shares, respectively, were granted to
non-employee directors, which vested immediately upon issuance. The Company recorded compensation expense based on the weighted-average fair
market value per share of the awards on the grant date of $29.51 in 2023, $30.75 in 2022, and $30.94 in 2021.
F- 24
Table of Contents
15.
COMMITMENTS AND CONTINGENCIES:
Portland Harbor Superfund Site
In 2000, a section of the lower Willamette River known as the Portland Harbor Superfund Site was included on the National Priorities List at the request of
the United States Environmental Protection Agency (“EPA”). While the Company’s Portland, Oregon manufacturing facility does not border the
Willamette River, an outfall from the facility’s stormwater system drains into a neighboring property’s privately owned stormwater system and slip. Also in
2000, the Company was notified by the EPA and the Oregon Department of Environmental Quality (“ODEQ”) of potential liability under the
Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). A remedial investigation and feasibility study of the Portland
Harbor Superfund Site was directed by a group of 14 potentially responsible parties known as the Lower Willamette Group under agreement with the EPA.
The EPA finalized the remedial investigation report in 2016, and the feasibility study in 2016, which identified multiple remedial alternatives. In 2017, the
EPA issued its Record of Decision selecting the remedy for cleanup at the Portland Harbor Superfund Site, which it believes will cost approximately
$1 billion at net present value and 13 years to complete. The EPA has not yet determined who is responsible for the costs of cleanup or how the cleanup
costs will be allocated among the more than 150 potentially responsible parties (“PRPs”). Because of the large number of potentially responsible parties
and the variability in the range of remediation alternatives, the Company is unable to estimate an amount or an amount within a range of costs for its
obligation with respect to the Portland Harbor Superfund Site matters, and no further adjustment to the Consolidated Financial Statements has been
recorded as of the date of this filing.
The ODEQ is separately providing oversight of voluntary investigations and source control activities by the Company involving the Company’s site, which
are focused on controlling any current “uplands” releases of contaminants into the Willamette River. No liabilities have been established in connection with
these investigations because the extent of contamination and the Company’s responsibility for the contamination have not yet been determined.
Concurrent with the activities of the EPA and the ODEQ, the Portland Harbor Natural Resources Trustee Council (“Trustees”) sent some or all of the same
parties, including the Company, a notice of intent to perform a Natural Resource Damage Assessment (“NRDA”) for the Portland Harbor Superfund Site to
determine the nature and extent of natural resource damages under CERCLA Section 107. The Trustees for the Portland Harbor Superfund Site consist of
representatives from several Northwest Indian Tribes, three federal agencies, and one state agency. The Trustees act independently of the EPA and the
ODEQ. The Trustees have encouraged potentially responsible parties to voluntarily participate in the funding of their injury assessments and several of
those parties have agreed to do so. In 2014, the Company agreed to participate in the injury assessment process, which included funding $0.4 million of the
assessment. The Company has not assumed any additional payment obligations or liabilities with the participation with the NRDA, nor does the Company
expect to incur significant future costs in the resolution of the NRDA.
In 2017, the Confederated Tribes and Bands of the Yakama Nation, a Trustee until they withdrew from the council in 2009, filed a complaint against the
potentially responsible parties including the Company to recover costs related to their own injury assessment and compensation for natural resources
damages. The case has been stayed until 2025, and the Company does not have sufficient information at this time to determine the likelihood of a loss in
this matter or the amount of damages that could be allocated to the Company.
The Company has insurance policies for defense costs, as well as indemnification policies it believes will provide reimbursement for the remediation
assessed. However, the Company can provide no assurance that those policies will cover all of the costs which the Company may incur.
All Sites
The Company operates its facilities under numerous governmental permits and licenses relating to air emissions, stormwater runoff, and other
environmental matters. The Company’s operations are also governed by many other laws and regulations, including those relating to workplace safety and
worker health, principally the Occupational Safety and Health Act and regulations thereunder which, among other requirements, establish noise and dust
standards. The Company believes it is in material compliance with its permits and licenses and these laws and regulations, and the Company does not
believe that future compliance with such laws and regulations will have a material adverse effect on its financial position, results of operations, or cash
flows.
F- 25
Table of Contents
Other Contingencies and Legal Proceedings
From time to time, the Company is party to a variety of legal actions, including claims, suits, complaints, and investigations arising out of the ordinary
course of its business. The Company maintains insurance coverage against potential claims in amounts that are believed to be adequate. To the extent that
insurance does not cover legal, defense, and indemnification costs associated with a loss contingency, the Company records accruals when such losses are
considered probable and reasonably estimable. The Company believes that it is not presently a party to legal actions, the outcomes of which would have a
material adverse effect on its business, financial condition, results of operations, or cash flows.
Commitments
As of December 31, 2023, the Company’s commitments include approximately $1.2 million remaining relating to its investment in the primary component
of the new reinforced concrete pipe mill for which the Company has not yet received the equipment and approximately $5.2 million remaining relating to
the construction of a building for the new mill at the Company’s facility in Salt Lake City, Utah.
Guarantees
The Company has entered into certain letters of credit that total $1.1 million as of December 31, 2023. The letters of credit relate to workers’ compensation
insurance.
16.
REVENUE:
Net sales by geographic region, based on the location of the customer, were as follows (in thousands):
Net sales by geographic region:
United States
Canada
Total
2023
Year Ended December 31,
2022
2021
$
$
420,925 $
23,430
444,355 $
423,961 $
33,704
457,665 $
313,729
19,584
333,313
One SPP customer accounted for 10%, 12%, and 12% of total net sales for the years ended December 31, 2023, 2022, and 2021, respectively. No Precast
customer accounted for more than 10% of total net sales for the years ended December 31, 2023, 2022, and 2021.
Net revisions in contract estimates resulted in an increase (decrease) in SPP net sales of ($1.1) million, ($0.6) million, and $2.0 million for the years ended
December 31, 2023, 2022, and 2021, respectively.
Disaggregation of Revenue
The following table disaggregates revenue by recognition over time or at a point in time, as the Company believes it best depicts how the nature, amount,
timing, and uncertainty of its revenue and cash flows are affected by economic factors (in thousands):
Over time
Point in time
Net sales
2023
Year Ended December 31,
2022
2021
296,381 $
147,974
444,355 $
307,572 $
150,093
457,665 $
259,823
73,490
333,313
$
$
F- 26
Table of Contents
Contract Assets and Contract Liabilities
The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing
difference between the Company’s performance and billings.
The following is a summary of the changes in contract assets (in thousands):
Balance, beginning of year
Revenue recognized in advance of billings
Billings
Other
Balance, end of year
The following is a summary of the changes in contract liabilities (in thousands):
Balance, beginning of year
Billings
Revenue recognized
Other
Balance, end of year
Backlog
December 31,
2023
2022
121,778 $
291,812
(293,356)
282
120,516 $
107,170
306,095
(294,506)
3,019
121,778
December 31,
2023
2022
17,456 $
20,815
(16,984)
163
21,450 $
2,623
17,618
(2,663)
(122)
17,456
$
$
$
$
Backlog represents the balance of remaining performance obligations under signed contracts for SPP water infrastructure steel pipe products for which
revenue is recognized over time. As of December 31, 2023, backlog was $273 million. The Company expects to recognize approximately 76% of the
remaining performance obligations in 2024, 23% in 2025, and the balance thereafter.
17.
INCOME TAXES:
The United States and foreign components of Income before income taxes are as follows (in thousands):
United States
Foreign
Total
2023
Year Ended December 31,
2022
2021
27,814 $
1,465
29,279 $
40,271 $
1,079
41,350 $
14,000
1,158
15,158
$
$
F- 27
Table of Contents
The components of Income tax expense are as follows (in thousands):
Current:
Federal
State
Foreign
Total current income tax expense
Deferred:
Federal
State
Foreign
Total deferred income tax expense (benefit)
Total income tax expense
2023
Year Ended December 31,
2022
2021
$
$
6,817 $
1,519
289
8,625
(612)
195
(1)
(418)
8,207 $
8,443 $
1,264
198
9,905
(22)
340
(22)
296
10,201 $
2,256
1,064
213
3,533
573
(464)
(7)
102
3,635
The difference between the Company’s effective income tax rate and the federal statutory income tax rate is explained as follows (dollar amounts in
thousands):
Income tax expense at federal statutory rate
State expense, net of federal income tax effect
Change in valuation allowance
Nondeductible expenses
Foreign rate differential
Accrued interest on uncertain income tax positions
State franchise tax
Other
Income tax expense
Effective income tax rate
2023
Year Ended December 31,
2022
2021
$
6,148
942
(30)
257
133
264
250
243
8,207
$
28.0%
$
8,683
1,463
(1)
(35)
97
106
110
(222)
$
24.7%
10,201
3,183
547
(247)
(31)
104
16
92
(29)
3,635
24.0%
$
$
F- 28
Table of Contents
The income tax effect of temporary differences that give rise to significant portions of deferred income tax assets and liabilities is presented below (in
thousands):
Deferred income tax assets:
Accrued employee benefits
Inventories
Trade receivable, net
Net operating loss carryforwards
Tax credit carryforwards
Contract assets, net
Other
Valuation allowance
Deferred income tax liabilities:
Property and equipment
Intangible assets
Goodwill
Prepaid expenses
Net deferred income tax liabilities
Amounts are presented in the Consolidated Balance Sheets as follows:
Deferred income tax assets, included in Other assets
Deferred income taxes
Net deferred income tax liabilities
December 31,
2023
2022
3,096 $
380
532
3,429
2,777
934
1,952
13,100
(6,641)
6,459
(13,850)
(800)
(1,164)
(1,217)
(17,031)
(10,572) $
370 $
(10,942)
(10,572) $
3,840
350
329
2,944
2,863
403
1,074
11,803
(6,051)
5,752
(13,550)
(1,319)
(606)
(1,285)
(16,760)
(11,008)
394
(11,402)
(11,008)
$
$
$
$
In assessing the ability to realize deferred income tax assets, management considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax
liabilities, projected future taxable income, taxable income in carryback periods, and tax planning strategies in making this assessment. The Company
believes it is more likely than not it will realize the benefits of its deductible differences as of December 31, 2023, net of any valuation allowance. As of
December 31, 2023, the Company continues to maintain a valuation allowance on federal tax credits and select state jurisdictions.
As of December 31, 2023, the Company had approximately $0.3 million of federal income tax credit carryforwards, which expire on various dates between
2024 and 2026. As of December 31, 2023, the Company also had approximately $18.4 million of state net operating loss carryforwards, which expire on
various dates between 2024 and 2036, and state income tax credit carryforwards of $4.4 million, which began to expire in 2023. As of December 31, 2023,
the Company also had approximately $8.4 million of foreign net operating loss carryforwards, which expire on various dates between 2024 and 2033.
The Company files income tax returns in the United States Federal jurisdiction, in a limited number of foreign jurisdictions, and in many state jurisdictions.
With few exceptions, the Company is no longer subject to United States Federal, state, or foreign income tax examinations for years before 2019.
F- 29
Table of Contents
A summary of the changes in the unrecognized income tax benefits is presented below (in thousands):
2023
Year Ended December 31,
2022
2021
Unrecognized income tax benefits, beginning of year
Increases for positions taken in prior years
Unrecognized income tax benefits, end of year
$
$
4,472 $
264
4,736 $
4,366 $
106
4,472 $
4,350
16
4,366
The Company does not believe it is reasonably possible that the total amounts of unrecognized income tax benefits will change in the following twelve
months; however, actual results could differ from those currently expected. Effectively all of the unrecognized income tax benefits would affect the
Company’s effective income tax rate if recognized at some point in the future.
The Company recognizes interest and penalties related to uncertain income tax positions in Income tax expense. As of December 31, 2023 and 2022, the
Company had $0.4 million and $0.1 million, respectively, of accrued interest related to uncertain income tax positions. Total interest for uncertain income
tax positions did not change materially in 2023, 2022, or 2021.
18.
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Accumulated other comprehensive loss consists of the following (in thousands):
Pension liability adjustment, net of income tax benefit of $482 and $592
Unrealized gain (loss) on foreign currency forward contracts designated as cash flow hedges, net of
income tax (expense) benefit of $12 and $(33)
Unrealized gain on interest rate swaps designated as cash flow hedges, net of income tax expense of $79
and $213
Total
F- 30
December 31,
2023
2022
$
(1,193) $
(1,532)
(13)
246
(960) $
94
649
(789)
$
Table of Contents
The following table summarizes changes in the components of Accumulated other comprehensive loss (in thousands). All amounts are net of income tax:
Unrealized Gain
(Loss) on Foreign
Currency Forward
Contracts
Designated as Cash
Flow Hedges
Unrealized Gain on
Interest Rate Swaps
Designated as Cash
Flow Hedges
Total
Pension Liability
Adjustment
Balances, December 31, 2021
$
(1,487) $
(195) $
- $
(1,682)
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from Accumulated other
comprehensive loss
Net current period adjustments to Other
comprehensive income
Balances, December 31, 2022
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from Accumulated other
comprehensive loss
Net current period adjustments to Other
comprehensive loss
41
(86)
(45)
(1,532)
338
1
339
(100)
389
289
94
(115)
8
(107)
678
(29)
649
649
142
(545)
(403)
Balances, December 31, 2023
$
(1,193) $
(13) $
246 $
F- 31
619
274
893
(789)
365
(536)
(171)
(960)
Table of Contents
The following table provides additional detail about Accumulated other comprehensive loss components that were reclassified to the Consolidated
Statements of Operations (in thousands):
Details about Accumulated Other
Comprehensive Loss Components
Amount reclassified from Accumulated Other Comprehensive Loss
Year Ended December 31,
2022
2023
2021
Affected line item in the
Consolidated
Statements
of Operations
Pension liability adjustment:
Net periodic pension cost:
Service cost
Non-service cost
Associated income tax (expense) benefit
$
Unrealized gain (loss) on foreign currency forward
contracts:
Gain (loss) on cash flow hedges
Loss on cash flow hedges
Associated income tax benefit
Unrealized gain on interest rate swaps:
Gain on cash flow hedges
Associated income tax expense
(13) $
11
1
(1)
99
(109)
2
(8)
719
(174)
545
(13) $
127
(28)
86
163
(680)
128
(389)
39
(10)
29
(7) Cost of sales
110 Other income
(25) Income tax expense
78
(72) Net sales
- Property and equipment
18 Income tax expense
(54)
- Interest expense
- Income tax expense
-
Total reclassifications for the period
$
536 $
(274) $
24
19.
SEGMENT INFORMATION:
The operating segments reported below are based on the nature of the products sold and the manufacturing process used by the Company and are the
segments of the Company for which separate financial information is available and for which operating results are regularly evaluated by the Company’s
chief operating decision maker, its Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance.
Management evaluates segment performance based on gross profit. The Company does not allocate selling, general, and administrative expenses, interest,
other non-operating income or expense items, or taxes to segments.
The Company’s Engineered Steel Pressure Pipe (SPP) segment manufactures large-diameter, high-pressure steel pipeline systems for use in water
infrastructure applications, which are primarily related to drinking water systems. These products are also used for hydroelectric power systems,
wastewater systems, seismic resiliency, and other applications. In addition, SPP makes products for industrial plant piping systems and certain structural
applications. SPP has manufacturing facilities located in Portland, Oregon; Adelanto and Tracy, California; Parkersburg, West Virginia; Saginaw, Texas;
St. Louis, Missouri; and San Luis Río Colorado, Mexico.
The Company’s Precast Infrastructure and Engineered Systems (Precast) segment manufactures stormwater and wastewater technology products, high-
quality precast and reinforced concrete products, including reinforced concrete pipe, manholes, box culverts, vaults, and catch basins, pump lift stations, oil
water separators, biofiltration units, and other environmental and engineered solutions. Precast has manufacturing facilities located in Dallas, Houston, and
San Antonio, Texas; and Orem, Salt Lake City, and St. George, Utah.
F- 32
Table of Contents
The following table disaggregates revenue as well as other financial information based on the Company’s reportable segments (in thousands):
Net sales:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered Systems
Total
Gross profit:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered Systems
Total
Depreciation and amortization expense:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered Systems
Corporate
Total
Capital expenditures:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered Systems
Corporate
Total
2023
Year Ended December 31,
2022
2021
296,381 $
147,974
444,355 $
307,572 $
150,093
457,665 $
259,823
73,490
333,313
42,427 $
35,215
77,642 $
9,000 $
6,241
15,241
565
15,806 $
11,154 $
6,503
17,657
634
18,291 $
44,473 $
41,382
85,855 $
9,789 $
6,807
16,596
507
17,103 $
8,211 $
13,925
22,136
693
22,829 $
31,281
12,973
44,254
9,524
3,738
13,262
362
13,624
7,538
5,255
12,793
469
13,262
$
$
$
$
$
$
$
$
The following table disaggregates total assets based on the Company’s reportable segments (in thousands):
Total assets:
Engineered Steel Pressure Pipe
Precast Infrastructure and Engineered Systems
Corporate
Total
F-33
December 31,
2023
2022
$
$
307,856 $
255,904
563,760
34,121
597,881 $
307,924
256,520
564,444
36,896
601,340
Table of Contents
NORTHWEST PIPE COMPANY
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Balance at
Beginning of Period
Charged to Profit
and Loss
Deduction from
Reserves
Balance at End of
Period
Schedule II
Year Ended December 31, 2023:
Allowance for doubtful accounts
Valuation allowance for deferred income tax assets
Year Ended December 31, 2022:
Allowance for doubtful accounts
Valuation allowance for deferred income tax assets
Year Ended December 31, 2021:
Allowance for doubtful accounts
Valuation allowance for deferred income tax assets
$
$
$
369 $
6,051
503 $
5,899
767 $
6,228
S- 1
189 $
696
442 $
254
653 $
-
(437) $
(106)
(576) $
(102)
(917) $
(329)
121
6,641
369
6,051
503
5,899
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 5th day of March 2024.
NORTHWEST PIPE COMPANY
By
/S/ SCOTT MONTROSS
Scott Montross
Director, President, and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 5th day of March 2024.
Signature
Title
/S/ RICHARD A. ROMAN
Richard A. Roman
/S/ SCOTT MONTROSS
Scott Montross
/S/ AARON WILKINS
Aaron Wilkins
/S/ MICHAEL C. FRANSON
Michael C. Franson
/S/ AMANDA L. JULIAN
Amanda L. Julian
/S/ KEITH R. LARSON
Keith R. Larson
/S/ IRMA LOCKRIDGE
Irma Lockridge
/S/ JOHN T. PASCHAL
John T. Paschal
Director and Chairman of the Board
Director, President, and Chief Executive Officer
(principal executive officer)
Senior Vice President, Chief Financial Officer, and Corporate Secretary
(principal financial and accounting officer)
Director
Director
Director
Director
Director
EXHIBIT 21.1
NORTHWEST PIPE COMPANY
SUBSIDIARIES OF THE REGISTRANT
As of December 31, 2023
Permalok Corporation, Missouri
Thompson Tank Holdings, Inc., Oregon
NWPC, LLC, Delaware
WTG Holding U.S., Inc., California
Bolenco Corporation, California
NWPC de SLRC, S de RL de CV, Mexico
NWPC de Mexico, S de RL de CV, Mexico
Rio Co., S de RL de CV, Mexico
Corporacion Californiana de Tuberias APS, S de RL de CV, Mexico
Geneva Pipe and Precast Company, Utah
Park Environmental Equipment, LLC, Texas
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements on Form S‑3 (No. 333‑275691) and Form S‑8 (No. 333‑190854,
No. 333‑152573 and No. 333‑265658) of Northwest Pipe Company and Subsidiaries (the “Company”), of our report dated March 5, 2024, relating to the
consolidated financial statements and schedule of the Company and the effectiveness of internal control over financial reporting of the Company appearing
in this Annual Report on Form 10‑K of the Company for the year ended December 31, 2023.
/s/ Moss Adams LLP
Portland, Oregon
March 5, 2024
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott Montross, certify that:
1.
I have reviewed this Annual Report on Form 10‑K of Northwest Pipe Company;
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 5, 2024
By:
/s/ SCOTT MONTROSS
Scott Montross
Director, President, and Chief Executive Officer
(principal executive officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Aaron Wilkins, certify that:
1.
I have reviewed this Annual Report on Form 10‑K of Northwest Pipe Company;
EXHIBIT 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
function):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 5, 2024
By:
/s/ AARON WILKINS
Aaron Wilkins
Senior Vice President, Chief Financial Officer, and
Corporate Secretary
(principal financial officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Northwest Pipe Company (“Company”) on Form 10‑K for the period ended December 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (“Report”), I, Scott Montross, Director, President, and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
EXHIBIT 32.1
/s/ SCOTT MONTROSS
Scott Montross
Director, President, and Chief Executive Officer
March 5, 2024
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Northwest Pipe Company (“Company”) on Form 10‑K for the period ended December 31, 2023 as filed with the
Securities and Exchange Commission on the date hereof (“Report”), I, Aaron Wilkins, Senior Vice President, Chief Financial Officer, and Corporate
Secretary of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
EXHIBIT 32.2
/s/ AARON WILKINS
Aaron Wilkins
Senior Vice President, Chief Financial Officer, and Corporate Secretary
March 5, 2024
POLICY RELATING TO RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
EXHIBIT 97
Incentive Compensation Recovery Policy
Adopted September 14, 2023
Introduction
The Board of Directors (“Board”) of Northwest Pipe Company (“Company”) has determined that it is in the best interests of the Company and its
shareholders to maintain and promote a culture emphasizing integrity and accountability by, among other things, reinforcing the pay-for-performance
compensation philosophy applicable to the officers and employees of the Company. The Board has therefore adopted the accompanying policy (“Policy”)
to permit the Company to recoup certain executive compensation in the event of an accounting restatement that results from material noncompliance with
financial reporting requirements under the Securities Exchange Act of 1934 (“Exchange Act”) and other federal securities laws. This Policy is intended to
comply with the requirements of Exchange Act Section 10D and Rule 10D‑1 thereunder, and with Nasdaq Rule 5608 adopted in conformity therewith.
Administration
This Policy shall be administered by the Board unless delegated to its Compensation Committee (“Administrator”). Any determinations made by the
Administrator shall be final and binding on all affected individuals.
Executive Officers
This Policy applies to the Company’s current and former Executive Officers. For purposes of this Policy, an “Executive Officer” includes the Company’s
Chief Executive Officer, president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any
vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who
performs a policy-making function, or any other person who performs similar policy-making functions for the Company or its subsidiaries. The
interpretation of whether an individual is or was serving as an Executive Officer shall be made in a manner consistent with Nasdaq Rule 5608(d) and
Exchange Act Rule 16a‑1(f).
Recoupment; Accounting Restatement
In the event the Company is required to restate its financial statements due to the Company’s material noncompliance with any financial reporting
requirement under the securities laws (an “Accounting Restatement”), the Administrator will reasonably promptly require reimbursement or forfeiture of
any excess Incentive Compensation received by any Executive Officer during the three completed fiscal years immediately preceding the date on which the
Company is required to prepare an Accounting Restatement, provided that such reimbursement obligation or forfeiture event shall only arise with respect to
an Executive Officer after such person became an Executive Officer and so long as such person served as an Executive Officer at any time during the three
year recovery period. For purposes of this Policy, an Accounting Restatement shall include any required accounting restatement to correct an error in
previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the
error were corrected in the current period or left uncorrected in the current period. For purposes of determining the relevant recovery period, the date that a
Company is required to restate its financial statements is the date the Company’s Board, a committee of the Board, or the officer or officers of the Company
authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare an
Accounting Restatement. The recovery of erroneously awarded compensation is required on a “no fault” basis, without regard to whether any misconduct
occurred or an executive officer’s responsibility for the erroneous financial statements. Any amount to be recovered will be calculated without regard to
any taxes previously paid. The Administrator’s determination whether an event of material noncompliance has occurred shall be based upon the facts and
circumstances and upon then-existing judicial and administrative interpretations.
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Incentive Compensation
For purposes of this Policy, Incentive Compensation means any compensation that is granted, earned, or vested based wholly or in part on the attainment of
a financial reporting measure. For such purposes, a “financial reporting measure” means any measure that is determined and presented in accordance with
the accounting principles used in an issuer’s financial statements, and any measure that is derived wholly or in part from such measures, as well as an
issuer’s stock price and total shareholder return. Without limiting the generality of the foregoing, Incentive Compensation includes:
•
•
•
•
•
•
•
Annual bonuses and other short- and long-term cash incentives.
Stock options.
Stock appreciation rights.
Restricted stock.
Restricted stock units.
Performance shares.
Performance units.
Financial reporting measures include any measure that is determined and presented in accordance with the accounting principles used in preparing the
Company’s financial statements, any measure that is derived wholly or in part from such measures, stock price and/or total shareholder return.
Equity awards that vest exclusively upon completion of a specified employment period, without any performance condition, and bonus awards that are
discretionary or based on subjective goals or goals unrelated to financial reporting measures, do not constitute Incentive Compensation.
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the amount of Incentive Compensation received that exceeds the amount of Incentive Compensation that otherwise
would have been received had it been determined based on the restated amounts, as determined by the Administrator in its sole discretion. Incentive
Compensation is deemed to have been received in the fiscal period during which the financial reporting measure specified in the relevant compensatory
award is attained, even if the grant or payment of the Incentive Compensation occurs after the end of that period.
If the Administrator cannot determine the amount of excess Incentive Compensation received by the Executive Officer directly from the information in the
accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement, and such
determination shall be conclusive and binding.
Method of Recoupment; Limitations on Enforcement
The Administrator will determine, in its sole discretion, the methods for recouping Incentive Compensation hereunder which may include any one or more
of the following methods, without limitation and in such combinations as the Administrator deems appropriate:
•
•
•
•
•
Requiring reimbursement of cash Incentive Compensation previously paid.
Seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards.
Offsetting the recouped amount from any compensation otherwise owed to the Executive Officer.
Cancelling or rescinding some or all outstanding vested or unvested equity awards.
Any other remedial and recovery action permitted by law, as determined by the Administrator.
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Notwithstanding the foregoing, the Administrator may determine not to require recoupment of compensation when any of the following circumstances
exist:
•
•
•
The direct expense to be paid to a third party to assist in enforcing this Policy would exceed the amount to be recovered.
Recovery would violate any federal or state law that was in effect on the date this Policy was adopted, or that would otherwise subject the
Company to material risk of a violation of law as stated in a written opinion of counsel to the Company.
Recovery would cause a broad-based retirement plan to fail to meet the tax-qualification requirements of 26 U.S.C. 401(a)(13) or
26 U.S.C. 411(a) and regulations thereunder.
The Administrator may apply these provisions differently to each applicable Executive Officer in its discretion. Before concluding that pursuit is
impracticable, the Company must first make reasonable attempts to recover the Incentive Compensation and must provide documentation to Nasdaq
describing such attempts.
No Indemnification
The Company shall not indemnify any Executive Officers against the loss of any incorrectly awarded Incentive Compensation or against any action or
proceeding resulting in a dispute with respect thereto.
Interpretation
The Administrator is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the
administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Exchange Act Section 10D
and Rule 10D‑1, Nasdaq Rule 5608, and any other applicable law or regulation governing the forfeiture, disgorgement, or recoupment of executive
compensation. To the extent that any provision of this Policy is found to be unenforceable or invalid under any applicable law, such provision shall be
applied to the maximum extent permitted and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to
conform to applicable law. The invalidity or unenforceability of any provision of this Policy shall not affect the validity or enforceability of any other
provision of this Policy.
Effective Date; Applicability
This Policy shall be effective as of December 1, 2023 (the “Effective Date”) and shall apply to Incentive Compensation that is received by Executive
Officers on or after October 2, 2023.
Periodic Review; Amendment; Termination
The Administrator may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect modifications in or
amendments to any Nasdaq listing requirement or any regulation adopted by the Securities and Exchange Commission. The Administrator may terminate
this Policy at any time; provided, however, that this Policy will not be terminated under circumstances that would cause the Company to fail to comply with
applicable laws, regulations, or Nasdaq listing requirements.
Other Recoupment Rights
Without by implication limited the foregoing, following a restatement of the Company’s financial statements, the Company also shall be entitled to recover
any compensation received by the Chief Executive Officer and Chief Financial Officer that is required to be recovered by Section 304 of the Sarbanes-
Oxley Act of 2002. The Administrator may require that any employment agreement, equity award agreement, or similar agreement entered into on or after
the Effective Date shall, as a condition to the grant of any benefit thereunder, require an Executive Officer to agree to abide by the terms of this Policy and
to cooperate in the recoupment of any Incentive Compensation to be recovered hereunder. Any right of recoupment under this Policy is in addition to, and
not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any
employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.
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Adjustments to Unvested Incentive-Based Compensation
If the Administrator, in its sole discretion, determines that the performance metrics of outstanding but unvested Incentive Compensation were established
using financial reporting measures that were impacted by an Accounting Restatement, the Administrator, in its sole discretion, may adjust such Financial
Reporting Measures or modify such Incentive Compensation, in such manner as the Administrator deems appropriate in its sole discretion.
Successors
This Policy shall be binding and enforceable against all Executive Officers and their beneficiaries, heirs, executors, administrators, or other legal
representatives.
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