Northwest Pipe Company (NWPX) — 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011, including fourth-quarter results. Filed April 27, 2012. The filing is for Northwest Pipe Company, the registrant named in the filing. Prior-year 2010 and 2009 financial statements were restated.
Business context and financial performance
The company manufactures large-diameter steel pipe for water infrastructure and smaller-diameter welded steel pipe, including products for energy markets. In 2011, Water Transmission generated 53% of sales and Tubular Products 47%.
| Metric | FY 2011 | FY 2010, restated |
|---|---|---|
| Net sales | $511.7 million | $386.8 million |
| Gross profit / margin | $59.1 million / 11.6% | $29.7 million / 7.7% |
| Operating income | $32.8 million | $0.6 million |
| Net income (loss) | $12.7 million | $(5.4) million |
| Diluted EPS | $1.35 | $(0.59) |
| Cash from operating activities | $12.3 million | $(21.3) million |
Sales rose 32.3% year over year. Water Transmission sales increased 22.9% to $271.9 million; Tubular Products sales increased 44.9% to $239.8 million, reflecting higher energy-pipe volumes and prices. Gross margin improved in both segments, supported by higher production, improved contract mix and greater energy-pipe contribution.
Fourth-quarter results and material changes
Fourth-quarter 2011 sales were $117.1 million, compared with $97.5 million in fourth-quarter 2010. Gross profit was $11.2 million versus $6.1 million; operating income was $4.2 million versus an operating loss of $0.9 million. Net income was $1.5 million, or $0.15 diluted EPS, compared with a net loss of $2.7 million, or $0.29 loss per diluted share.
- Backlog was approximately $175 million at year-end, down from $258 million a year earlier; Water Transmission represented 79% of the 2011 backlog.
- The company sold its Houston traffic-systems product line in June 2011 for $13.7 million, recording a $2.9 million gain. It also recorded a $4.1 million allowance on notes receivable.
- Cash and cash equivalents were only $0.2 million at year-end. Working capital was $170.6 million, versus $152.8 million in 2010.
Debt, liquidity and cash flow
Year-end debt and capital-lease obligations totaled approximately $95.5 million. This included $62.0 million drawn on the revolving credit facility, $17.8 million of term notes and $15.7 million of capital leases. Net cash used in financing activities was $13.1 million; investing activities provided $0.9 million, including proceeds from the product-line sale, partly offset by $16.3 million of capital expenditures.
The company reported that it was not in compliance with financial covenants at December 31, 2011 and obtained lender, debt-holder and lessor waivers. The credit agreement was amended in March 2012, extending maturity to April 30, 2013 and setting lender commitments at $115 million; further waivers and covenant changes followed. Management expected existing liquidity, operating cash flow and available credit to fund needs for at least 12 months, while warning that working-capital needs would rise as orders improved.
Outlook, risks and unusual items
- Management cited energy-market activity as a growth opportunity, but noted energy markets’ volatility, exposure to oil and gas prices, imports, competition and reliance on third-party OCTG finishing processors.
- Near-term Water Transmission demand may be constrained by government and water-agency budgets and project delays. Steel-price volatility can pressure margins in both segments.
- Planned 2012 capital spending was approximately $30–$35 million, including expansions at Saginaw, Bossier City and Atchison. The Pleasant Grove, Utah facility was scheduled to close in the first half of 2012.
- The filing restated 2010 and 2009 results for errors involving depreciation estimates, asset disposals, lease classification and other accounting matters. Restated net losses were $5.4 million for 2010 and $11.1 million for 2009.
- Management and the auditor identified material weaknesses in financial controls, including controls over percentage-of-completion revenue inputs, inventory, property and equipment, and complex transactions. Disclosure controls were deemed ineffective; remediation was underway.
- An SEC investigation and shareholder class-action and derivative litigation remained unresolved; outcomes and potential costs could not be estimated, and no related charges were accrued. Portland Harbor environmental exposure was also uncertain; the company spent $0.9 million on remediation in 2011 and expected another $1.4 million in 2012, with no additional reserve recorded.
- No cash dividends were paid in 2011 or 2010, and the company did not intend to pay dividends in the foreseeable future.
Important facts for investors to verify
- Whether control weaknesses have been remediated and whether future filings require further corrections or restatements.
- Current borrowing availability, covenant compliance, waiver conditions and the impact of the amended $115 million credit commitment.
- Conversion and quality of the $175 million backlog into revenue and cash, including any cancellations or delays.
- Execution and returns on planned capital projects, and the effects of capacity additions and the Utah facility closure.
- Developments in the SEC investigation, shareholder litigation and Portland Harbor environmental assessment, including any resulting cash obligations.