Northwest Pipe Company (NWPX) — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are with Q1 2013. The company completed the sale of substantially all OCTG business assets on March 30, 2014 and presents that business as discontinued operations.
Financial performance
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Continuing-operations net sales | $82.6 million | $107.3 million |
| Gross profit / margin | $4.3 million / 5.2% | $22.9 million / 21.4% |
| Operating income (loss) | $(1.1) million | $16.9 million |
| Continuing-operations net income (loss) | $(1.2) million | $11.0 million |
| Discontinued-operations net loss | $(8.7) million | $(1.5) million |
| Total net income (loss) | $(9.9) million | $9.5 million |
| Basic and diluted EPS | $(1.04) | $1.01 basic; $1.00 diluted |
| Operating cash flow | $40.1 million | $3.8 million |
| Capital expenditures | $5.0 million | $9.8 million |
- Continuing-operations sales fell 23.0%; cost of sales was 94.8% of sales, versus 78.6% a year earlier.
- Water Transmission sales were $43.0 million, down 45.3%; segment gross margin fell to 3.9% from 25.3%. Tubular Products sales rose 38.0% to $39.6 million, while its gross margin declined to 6.7% from 10.6%.
- Q1 cash from operations included $13.9 million from discontinued operations and substantial working-capital movements. Investing cash flow was $26.7 million, including $31.6 million of net sale proceeds; financing cash flow was a $67.3 million outflow, primarily debt repayments.
- Cash was $49,000 at March 31, 2014. Working capital was $126.7 million, down from $195.4 million at year-end 2013, principally reflecting the OCTG disposal.
Balance sheet, debt, and liquidity
- Total assets were $362.6 million and stockholders’ equity was $251.1 million at March 31, 2014.
- Debt included $25.2 million outstanding under the $165.0 million credit agreement, $3.6 million of term notes, and $2.3 million of capital lease obligations. The credit facility had $75.9 million available, net of letters of credit; its weighted-average rate was 2.32%.
- The company reported compliance with financial covenants: leverage ratio 1.01:1.0 versus a 3.5:1.0 maximum; tangible net worth $225.9 million versus a $210.3 million minimum; and fixed-charge coverage 1.31:1.0 versus a 1.25:1.0 minimum.
- Management expected cash, operating cash flows, and available credit to cover working-capital and capital needs for the foreseeable future, and believed it would remain covenant-compliant over the following 12 months.
Material changes, outlook, and risks
- On March 30, the company sold the OCTG business for stated consideration of $42.7 million and recorded a $12.1 million loss, including a $4.4 million goodwill write-down. Net proceeds at closing were $31.6 million after escrow, lease repayment, and transaction costs. A working-capital purchase-price adjustment was expected by June 30, 2014.
- Water Transmission results weakened amid a 53% decline in tons produced, following low bidding activity in summer 2013 and the completion of major projects. Higher material costs, project mix, and $1.5 million of Permalok-related inventory purchase adjustments and intangible amortization also weighed on gross profit. Management noted that strained municipal budgets could continue to affect this business.
- Tubular Products benefited from Double H Pipeline shipments and sold 39,000 tons versus 27,600 a year earlier. Pricing pressure from imported pipe and planned Atchison mill downtime constrained margins.
- Management estimated 2014 capital expenditures of approximately $14 million to $20 million. No specific revenue or earnings guidance was provided; results may vary with bids, orders, deliveries, production, steel costs, and demand.
- Environmental matters include Portland Harbor potential liability for which the company could not estimate its share of cleanup costs and recorded no additional reserve; it anticipated less than $0.1 million of further Portland source-control work in 2014. A Houston site assessment found groundwater VOCs and soil metals; the company applied to a Texas voluntary cleanup program, but potential costs were not estimated or accrued. Reimbursement could depend on the purchaser exercising a property purchase option.
- Other items to monitor include $4.5 million of Permalok contingent consideration based on internal revenue forecasts, customer concentration (two Tubular Products customers represented 13.1% and 11.4% of continuing sales), and the $3.1 million of standby letters of credit.
Investor verification points
- Confirm the final OCTG sale working-capital adjustment, escrow release, and any remaining sale-related costs.
- Track Water Transmission bidding, backlog, production volume, project mix, and recovery in segment margins.
- Assess whether Tubular Products’ project-driven volume and pricing can sustain profitability after mill downtime and imported-pipe competition.
- Reconcile operating cash generation with working-capital changes and verify liquidity, debt repayments, and covenant headroom against subsequent filings.
- Monitor environmental investigations, potential cleanup exposure and insurance or purchaser reimbursement, as well as Permalok contingent-consideration estimates.