Northwest Pipe Company (NWPX) — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The filing is by Northwest Pipe Company, a welded steel pipe manufacturer. The OCTG business sold in March 2014 is presented as discontinued operations; year-over-year comparisons of continuing operations exclude it.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Net sales | $84.9 million | $82.6 million |
| Gross profit / margin | $3.9 million / 4.6% | $4.3 million / 5.2% |
| Operating loss | $3.1 million | $1.1 million |
| Loss from continuing operations | $2.1 million; $0.22 per share | $1.2 million; $0.13 per share |
| Net loss | $2.1 million | $12.1 million |
| Cash provided by operating activities | $24.6 million | $40.1 million |
Q1 2014 net loss included $10.9 million of discontinued-operation losses, including the OCTG sale loss. The 2014 cash-flow comparison includes discontinued operations. Q1 2015 operating cash flow primarily reflected collections of receivables, lower inventory, and an insurance settlement, partly offset by increased contract costs in excess of billings.
At March 31, cash was $0.1 million, working capital was $141.4 million, and total assets were $320.8 million. Borrowings under the credit line were $24.8 million, down from $45.6 million at year-end 2014; capital lease obligations totaled $2.1 million. The $165 million credit facility had $80.5 million available while meeting covenants. The company reported compliance with all financial covenants. Q1 capital expenditures were $3.7 million.
Material changes and operating drivers
- Water Transmission sales increased 30.8% to $56.2 million; segment gross profit rose to $7.5 million from $1.7 million. Higher production on two large Texas projects drove volume, while lower selling prices reflected product mix and competitive bidding.
- Tubular Products sales fell 27.8% to $28.6 million as tons sold declined 27%, amid weaker line-pipe demand associated with the crude-oil market downturn. The segment recorded a $3.6 million gross loss versus $2.6 million gross profit a year earlier, including a $2.8 million lower-of-cost-or-market inventory adjustment.
- SG&A increased to $7.0 million from $5.4 million, primarily due to higher professional fees, a $0.4 million Houston environmental reserve, and increased stock-based compensation.
Outlook, risks, contingencies, and unusual items
- The company gave no specific revenue or earnings forecast. It expected existing cash, operating cash flows, and available credit to fund foreseeable working-capital and capital needs. Planned 2015 capital expenditures were approximately $12–$13 million.
- In April 2015, the company curtailed production at its Atchison, Kansas facility in response to weak tubular markets. Management anticipated resuming normal operations in the second half of 2015, subject to market conditions. Approximately $0.5 million of severance costs was expected to be recorded in Q2.
- In April 2015, $4.3 million held in escrow from the 2014 OCTG sale was released to the company.
- For Houston environmental cleanup, the company estimated future costs of $0.3–$2.5 million and accrued $0.4 million. Portland Harbor remediation exposure could not be reasonably estimated; no additional accrual was recorded. The company disclosed ongoing regulatory review and uncertainty over cleanup allocation and insurance coverage.
- Disclosure controls were deemed ineffective due to an unresolved material weakness in controls over goodwill impairment assessments. Management said remediation was in progress and expected the weakness could remain until at least December 31, 2015; management nevertheless concluded the financial statements were fairly stated in all material respects.
- Key business risks cited include demand and pricing, bidding and project timing, product mix, steel prices and availability, production capacity, and international trade. Management noted strained municipal budgets and highly competitive water-project bids.
Important facts for investors to verify
- Whether Tubular Products demand and margins stabilize, and whether the Atchison facility resumes normal operations as anticipated.
- Whether Water Transmission project volume and margins can be sustained despite competitive pricing and project timing variability.
- Execution of the goodwill-impairment control remediation plan and any related impairment indicators or adjustments.
- Developments in Houston cleanup estimates and Portland Harbor liability, allocation, and insurance coverage.
- Working-capital and operating cash-flow trends, credit-facility availability, and covenant compliance.