-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ELfUNGrGS5fNxiCDacsZrr4HF/nxVgjbrcFsBhyjA67sz1wEUxRR6xi5IIfFHy5U jsEqiTEdF6zD522NMWKRVg== 0000912057-00-012865.txt : 20000323 0000912057-00-012865.hdr.sgml : 20000323 ACCESSION NUMBER: 0000912057-00-012865 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHWEST PIPE CO CENTRAL INDEX KEY: 0001001385 STANDARD INDUSTRIAL CLASSIFICATION: STEEL PIPE & TUBES [3317] IRS NUMBER: 930557988 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-27140 FILM NUMBER: 575480 BUSINESS ADDRESS: STREET 1: 12005 N BURGARD STREET 2: P O BOX 83149 CITY: PORTLAND STATE: OR ZIP: 97203 BUSINESS PHONE: 5032851400 MAIL ADDRESS: STREET 1: 12005 N BURGARD STREET 2: P O BOX 83149 CITY: PORTLAND STATE: OR ZIP: 97203 10-K405 1 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 1999 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 93-0557988 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12005 N. BURGARD PORTLAND, OREGON 97203 (Address of principal executive offices and zip code) 503-285-1400 (Registrant's telephone number including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE PREFERRED STOCK PURCHASE RIGHTS (Title of Class) 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 [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [X] The aggregate market value of the common equity held by non-affiliates of the Registrant was $49,913,656 as of March 6, 2000 based upon the last sales price as reported by Nasdaq. The number of shares outstanding of the Registrant's Common Stock as of March 6, 2000 was 6,459,930 shares. -------------------- DOCUMENTS INCORPORATED BY REFERENCE The Registrant has incorporated into Part III of Form 10-K by reference portions of its Proxy Statement for its Annual Meeting of Shareholders to be held on May 2, 2000. NORTHWEST PIPE COMPANY 1999 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PART I PAGE ---- Item 1 - Business 1 Item 2 - Properties 5 Item 3 - Legal Proceedings 6 Item 4 - Submission of Matters to a Vote of Security Holders 6 PART II Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters 7 Item 6 - Selected Financial Data 7 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 7A - Quantitative and Qualitative Disclosures About Market Risk 13 Item 8 - Financial Statements and Supplementary Data 13 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 13 PART III Item 10 - Directors and Executive Officers of the Registrant 13 Item 11 - Executive Compensation 13 Item 12 - Security Ownership of Certain Beneficial Owners and Management 13 Item 13 - Certain Relationships and Related Transactions 13 PART IV Item 14 - Exhibits, Financial Statement Schedule and Reports on Form 8-K 14
PART I ITEM 1. BUSINESS GENERAL Northwest Pipe Company (the "Company") manufactures welded steel pipe in two groups. In its Water Transmission business (the "Water Transmission" business), the Company is a leading supplier in the United States and Canada of large diameter, high-pressure steel pipe used primarily for water transmission. In its Tubular Products business (the "Tubular Products" business), the Company manufactures smaller diameter, electric resistance welded ("ERW") steel pipe for use in a wide range of construction, agricultural, energy and industrial applications. In addition, the Company produces propane tanks from its manufacturing facility in Monterrey, Mexico. In 1999, Water Transmission and Tubular Products revenues represented approximately 57% and 43% of the Company's net sales, respectively. The Company is headquartered in Portland, Oregon. Water Transmission products are manufactured in the Company's Portland, Oregon; Denver, Colorado; Adelanto and Riverside, California; Parkersburg, West Virginia; and Saginaw, Texas facilities. Tubular Products are manufactured in the Company's Portland, Oregon; Atchison, Kansas; Houston, Texas; Bossier City, Louisiana; and Monterrey, Mexico facilities. In June 1999, the Company acquired all of the outstanding common stock of North American Pipe, Inc. ("North American") of Saginaw, Texas. North American operates two facilities which produce custom fabricated piping assemblies. The Company continues to operate the acquired facilities for the same purpose. In June 1998, the Company acquired from L.B. Foster Company, the plant, equipment, leasehold and contract rights and miscellaneous assets of its Fosterweld Division manufacturing facility located in Parkersburg, West Virginia (the "Parkersburg Facility"). The Company also acquired the Parkersburg Facility's inventory net of assumed accounts payable. The Parkersburg Facility was used in the manufacture of large diameter, high pressure steel pipe products. The Company continues to operate the Parkersburg Facility for the same purpose. In March 1998, the Company acquired all of the outstanding capital stock of Southwestern Pipe, Inc. ("Southwestern") and P&H Tube Corporation ("P&H"), both Texas corporations. The principal business of both Southwestern and P&H was the manufacture and sale of structural and mechanical tubing products. Southwestern owned and operated a manufacturing facility in Houston, Texas. P&H owned and operated a manufacturing facility in Bossier City, Louisiana. The Company continues to operate the acquired plants, equipment and other property for the same purpose. PRODUCTS WATER TRANSMISSION PRODUCTS. Water transmission pipe is used for (i) high-pressure applications, typically requiring pipe able to withstand pressures in excess of 150 pounds per square inch, and (ii) other industrial and structural applications. Most of the Company's Water Transmission products are made to custom specifications. Most of these products are for fully engineered, large diameter, high-pressure water transmission lines. Other uses include pipe for piling and hydroelectric projects, wastewater transmission and treatment plant piping. The Company has the capability to manufacture water transmission pipe in diameters ranging from 4.5" to 156" with wall thicknesses of 0.135" to 3.00". The Company has the capability to coat and line these products with cement mortar, polyethylene tapes, paints, epoxies and coal tar enamel according to the customers' specifications. The Company maintains fabrication facilities that provide installation contractors with custom fabricated sections as well as straight pipe sections. TUBULAR PRODUCTS. The Company's Tubular Products range in size from 0.50" to 16" in diameter with wall thicknesses from 0.035" to 0.315", square tubing from 0.75" to 3", and rectangular tubing from 0.50" x 1" to 3" x 4". These products are typically sold to distributors or original equipment manufacturers and are used for a wide variety of applications. 1 In 1998, the Company installed a tubular products mill in its Portland, Oregon facility. This mill gives the Company the ability to manufacture products with smaller diameters and heavier wall thicknesses for uses in industrial piping, oil and gas transmission, fire protection systems and other applications. The Company intends to continue to pursue future opportunities to broaden its product lines by adding products that will take advantage of the Company's available manufacturing capacity, existing marketing channels and manufacturing expertise. MARKETING WATER TRANSMISSION. The primary customers for Water Transmission products are installation contractors for projects funded by public water agencies, including states, municipalities and water districts. The Company's plant locations in Oregon, Colorado, California, West Virginia and Texas allow it to efficiently serve customers throughout the United States, Canada and Mexico. The Company's Water Transmission marketing strategy emphasizes early identification of potential water projects, promotion of specifications consistent with the Company's capabilities and close contact with the project designers and owners throughout the design phase. The Company's in-house sales force is composed of sales representatives, engineers and support personnel who work with public water agencies, contractors and engineering firms, often more than a year in advance of the project being bid, in order to identify and evaluate planned projects. As a public water agency develops a pipeline project, the Company's professional engineers provide information to the agency or its design engineers promoting the advantages of coated and lined steel pipe. After an agency completes a design, they publicize the upcoming bidding for a water transmission project. The Company then obtains detailed plans and develops its estimate for the pipe portion of the project. The Company typically bids to installation contractors who include the Company's bid in their proposal to the public water agency. A public water agency generally awards the entire project to the contractor with the lowest responsible bid. Because a substantial portion of the Company's Water Transmission revenue is derived from sales related to public water transmission projects, the Company's sales could be adversely impacted by a change in the number of projects planned by public water agencies or by delays in their obtaining of environmental approvals and right-of-way permits. Additionally adjustments in governmental spending, general budgetary constraints or the inability of governmental entities to issue debt could adversely affect the Company's Water Transmission sales. TUBULAR PRODUCTS. The Company's Tubular Products are marketed through a network of direct sales force personnel and independent distributors in the United States and Canada. The Company's Tubular Products are produced in its plants in Oregon, Kansas, Texas, Louisiana, and Mexico. The Company's marketing strategy focuses on customer service and customer relationships. For example, the Company is willing to sell in small lot sizes and is able to provide mixed truckloads of finished products to its customers. In 1999, approximately 75% of the Company's Tubular Products sales were to distributors, and approximately 25% were to original equipment manufacturers. The Company's sales effort emphasizes regular personal contact with current and potential customers. The Company supplements this effort with targeted advertising, participation in trade shows and brochures. MANUFACTURING WATER TRANSMISSION. Water Transmission manufacturing begins with the preparation of engineered drawings of each unique piece of pipe in a project. These drawings are prepared on the Company's proprietary computer-aided design system and are used as blueprints for the manufacture of the pipe. After the drawings are completed and approved, manufacturing begins by feeding 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 tube 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 coal tar enamel, 2 polyethylene tape, paint, epoxies and cement mortar. Linings may be coal tar enamel, cement mortar, polyurethane, or epoxies. Following coating and lining, certain pieces may be custom fabricated as required for the project. This process is performed in the Company's fabrication facilities. The pipe is final inspected and prepared for shipment. The Company ships its products to project sites principally by truck and rail. TUBULAR PRODUCTS. Tubular products are manufactured by the ERW process in diameters ranging from 0.50" to 16". This process begins by unrolling and slitting steel coils into narrower bands sized to the circumference of the finished product. Each band is re-coiled and fed into the material handling equipment at the front end of the ERW mill and fed through a series of rolls that cold-form it into a tubular configuration. The resultant tube is welded by high-frequency electric resistance welders and cut into the appropriate lengths. After exiting the mill, the products are straightened, inspected, tested and end-finished. Certain products are coated. TECHNOLOGY. Advances in technology help the Company produce high quality products at competitive prices. Recent investments in technological improvements include in-house impact testing capabilities with state of the art metallurgical optics and electromagnetic imaging testing. To stay abreast of technological developments in the United States and abroad, the Company participates in trade shows, industry associations, research projects and vendor trials of new products. QUALITY ASSURANCE. The Company has implemented quality assurance policies and procedures, which govern every aspect of its operations to ensure specification compliance. Prior to, during and after the manufacturing process, the Company performs many tests, including tensile, impact, hydrostatic, ultrasonic and radiographic tests. The Quality Assurance department reports directly to the chief executive officer. As a reflection of its commitment to quality, the Company has been certified for specific products or operations by Factory Mutual, Underwriters Laboratory, Steel Plate Fabricators Association, American Society for Mechanical Engineers, National Sanitary Foundation and American Petroleum Institute. The Company's Oregon facility is ISO 9002 certified and the Company is in the process of registering all of its facilities to meet the requirements of the ISO 9002 standard. PRODUCT LIABILITY. The manufacturing and use of steel pipe involves a variety of risks. Certain losses may result or be alleged to result from defects in the Company's products, thereby subjecting the Company to claims for damages, including consequential damages. The Company warrants its products to be free of certain defects. The Company maintains insurance coverage against potential product liability claims in the amount of $52 million, which it believes to be adequate. However, there can be no assurance that product liability claims exceeding the Company's insurance coverage will not be experienced in the future or that the Company will be able to maintain such insurance with adequate coverage. BACKLOG The Company's backlog includes confirmed orders, including the balance of projects in process, and projects for which the Company has been notified it is the successful bidder even though a binding agreement has not been executed. Projects for which a binding contract has not been executed could be canceled. Binding orders received by the Company may also be subject to cancellation or postponement, however, cancellation would generally obligate the customer to pay the costs incurred by the Company. As of December 31, 1999 and 1998, the Company's backlog of orders was approximately $93.0 million and $82.0 million, respectively. Backlog as of December 31, 1999 includes projects having a value of approximately $10.5 million for which binding contracts had not yet been executed. 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. 3 COMPETITION WATER TRANSMISSION. The Company has several competitors in the Water Transmission business. Most Water Transmission 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, ability to meet customized specifications and high freight costs which may limit the ability of manufacturers located in other market areas to compete with the Company. With Water Transmission manufacturing facilities in Oregon, Colorado, California, West Virginia and Texas, the Company believes it can more effectively compete throughout the U.S. and Canada. The Company's primary competitors in the water transmission business in the western United States and southwestern Canada are Ameron International, Inc. and Continental Pipe. East of the Rocky Mountains, the Company's primary competition includes American Cast Iron Pipe Company, McWane Cast Iron Pipe Company and US Pipe & Foundry Company, all of which manufacture ductile iron pipe; Price Bros. and Hanson Concrete Products, Inc., which manufacture concrete cylinder pipe. In July 1999, American Cast Iron Pipe Company (ACIPCO) announced the formation of a new subsidiary, American SpiralWeld Pipe Company (ASWP), and began construction of a new facility in Columbia, South Carolina in August 1999. ASWP plans to manufacture spiral welded steel pipe in diameters up to 12 feet for the water, wastewater, hydro, and industrial markets. The plant is expected to be operational in the latter half of 2000. The Company expects that ASWP will compete with it primarily in the Southeast region of the U.S. No assurance can be given that other new or existing competitors will not establish new facilities or expand capacity within the Company's market areas. New or expanded facilities or new competitors could have a material adverse effect on the Company's ability to capture market share and maintain product pricing. TUBULAR PRODUCTS. The market for tubular products is highly fragmented and diversified with over 100 manufacturers in the United States and a number of foreign-based manufacturers that export such pipe into the United States. During the first half of 1999, the Company experienced pricing pressures primarily in its West Coast Tubular Products market, which it believes was the result of increased foreign price competition. SEE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Manufacturers compete with one another primarily on the basis of price, established business relationships, customer service and delivery. In a number of sectors within the tubular products industry, competition may be less vigorous due to the existence of a relatively small number of companies with the capabilities to manufacture certain products. In particular, the Company operates in a variety of different markets that require pipe with lighter wall thicknesses in relation to diameters than many of the Company's competitors can manufacture. However, the Company is increasingly introducing products into higher volume markets with more competition than it experiences with its niche products. RAW MATERIALS AND SUPPLIES The Company purchases hot rolled steel coil from a number of primary domestic and import steel producers including National Steel Corporation, California Steel Industries, Inc., Tuscaloosa Steel Corporation, Geneva Steel Company and Nucor Corporation. The Company orders steel according to its business forecasts for its Tubular Products business. Steel for the Water Transmission business is normally purchased only after a project has been awarded to the Company, however, the steel price is generally negotiated in advance of the bidding process. From time to time, the Company may purchase additional steel when it is available at favorable prices. Purchased steel represents a substantial portion of the Company's cost of sales. The steel industry is highly cyclical in nature and steel prices are influenced by numerous factors beyond the control of the Company, including general economic conditions, import duties, other trade restrictions and currency exchange rates. Steel prices are increasing and the Company has recently raised prices in some product lines to recover the steel price increases. There can be no assurance that the Company will be successful in implementing further price increases on its products to offset additional steel price increases, if any. 4 The Company also relies on certain suppliers of coating materials, lining materials and certain custom fabricated items. The Company has at least two suppliers for most of its raw materials. The Company believes its relationships with its suppliers are positive and has no indication that it will experience shortages of raw materials or components essential to its production processes or that it 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 the Company's business, financial condition and results of operations. EMPLOYEES As of December 31, 1999, the Company had 1,249 full-time employees. Approximately 24% were salaried and approximately 76% were employed on an hourly basis. Unions represent all of the hourly employees at the Company's Denver, Colorado and Monterrey, Mexico facilities. The Company considers its relations with its employees to be good. ITEM 2. PROPERTIES PORTLAND, OREGON The Portland, Oregon facility consists of 300,000 square feet of covered manufacturing space located on approximately 25 acres. The Company operates six pipe mills at its Portland, Oregon facility. ATCHISON, KANSAS The Atchison, Kansas facility consists of 60,000 square feet of covered manufacturing space located on 40 acres. The Company operates two pipe mills at its Atchison, Kansas facility. ADELANTO AND RIVERSIDE, CALIFORNIA The Adelanto, California facility consists of 85,000 square feet of covered manufacturing space located on 70 acres. The Company operates two pipe mills at its Adelanto, California facility. The Riverside, California facility consists of 65 acres with approximately 46,100 square feet of covered manufacturing space, and the Company operates two spiral mills and one ERW mill at this facility. DENVER, COLORADO The Denver, Colorado facility consists of approximately 157,000 square feet of covered manufacturing space located on approximately 40 acres, and the Company operates two pipe mills from this facility. BOSSIER CITY, LOUISIANA The Bossier City facility has two pipe mills with approximately 111,000 square feet of covered manufacturing space, located on 24 acres. HOUSTON, TEXAS The Houston, Texas facility has three mills with approximately 185,000 square feet of covered manufacturing space, located on 15 acres. PARKERSBURG, WEST VIRGINIA The Parkersburg, West Virginia facility has two mills, with approximately 110,000 square feet of covered manufacturing space, located on 92 acres. SAGINAW, TEXAS The Saginaw, Texas facility has two mills, with approximately 170,000 square feet of covered manufacturing space, located on 26 acres at two facilities. MONTERREY, MEXICO The Monterrey, Mexico facility consists of approximately 25,000 square feet of covered manufacturing space located on approximately five acres, and the Company produces propane tanks from this facility. As of December 31, 1999, the Company owned all of its facilities, except for Saginaw, Texas facilities, which are under long-term leases through 2008. The Company currently has available manufacturing capacity at each of its facilities. To take advantage of market opportunities, the Company has identified capital projects that will allow it to expand its manufacturing facilities to meet the expected growth opportunities. SEE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 5 ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of its business. The Company maintains insurance coverage against potential claims in amounts that it believes to be adequate. Management believes that it is not presently a party to any litigation, the outcome of which would have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the quarter ended December 31, 1999. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on the Nasdaq National Market System under the symbol "NWPX." The high and low sales prices as reported on the Nasdaq National Market System for each quarter in the years ended December 31, 1998 and 1999 were as follows.
LOW HIGH 1998 First Quarter $17 3/4 $24 1/2 Second Quarter 20 3/8 24 1/8 Third Quarter 16 23 3/4 Fourth Quarter 14 7/8 18 1/2 1999 First Quarter $ 12 3/4 $17 1/2 Second Quarter 13 1/2 18 3/8 Third Quarter 15 1/8 18 1/2 Fourth Quarter 11 1/8 15 1/4
There were 79 shareholders of record and approximately 2,300 beneficial shareholders at March 6, 2000. There were no cash dividends declared or paid in fiscal years 1998 or 1999. The Company does not anticipate paying cash dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ----- CONSOLIDATED STATEMENT OF INCOME DATA: In thousands, except per share amounts Net sales $ 240,307 $ 209,516 $ 150,833 $ 135,182 $ 97,715 Gross profit 48,904 41,664 31,117 30,942 19,576 Net income 13,285 12,581 11,100 10,404 5,107 Basic earnings per share 2.06 1.96 1.73 1.92 6.11 Diluted earnings per share 2.01 1.90 1.68 1.85 1.44 CONSOLIDATED BALANCE SHEET DATA: Working capital $ 56,478 $ 54,237 $ 51,051 $ 35,737 $ 22,438 Total assets 248,271 234,151 132,051 101,424 64,454 Long-term debt, less current portion 76,984 76,321 39,944 14,356 12,040 Stockholders' equity 97,169 83,715 70,779 59,694 33,729
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Report contain forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about the Company's business and management's beliefs and assumptions. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" 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 certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to those discussed in this discussion and analysis of financial condition and results of operations, as well as those discussed elsewhere in this Report and from time to time in the Company's other Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. Such forward-looking statements speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report. If the Company does update or correct one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. The Company's net sales and net income may fluctuate significantly from quarter to quarter due to the size of certain Water Transmission orders, the schedule for deliveries of those orders, the delays in Water Transmission projects the Company has been awarded or postponements in bidding activity and awarding of new Water Transmission projects and the inventory management policies of certain of the Company's Tubular Products customers. The Company has experienced such fluctuations in the past and may experience such fluctuations in the future. Results of operations in any period should not be considered indicative of the results to be expected for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company's common stock. The Company's business is subject to cyclical fluctuations based on general economic conditions and the economic conditions of the specific industries served. Future economic downturns could have a material adverse effect on the Company's business, financial condition and results of operations. OVERVIEW The Company's Water Transmission products are manufactured in its Portland, Oregon; Denver, Colorado; Adelanto and Riverside, California; Parkersburg, West Virginia; and Saginaw, Texas facilities. Tubular Products are manufactured in the Company's Portland, Oregon; Atchison, Kansas; Houston, Texas; Bossier City, Louisiana; and Monterrey, Mexico facilities. The Company believes that the Tubular Products business, in conjunction with the Water Transmission business, provides a significant degree of market diversification, because the principal factors affecting demand for Water Transmission products are different from those affecting demand for tubular products. Demand for Water Transmission products is generally based on population growth and movement, changing water sources and replacement of aging infrastructure. Demand can vary dramatically within the Company's market area since each population center determines its own waterworks requirements. Demand for tubular products is influenced by construction, the energy market, the agricultural economy and general economic conditions. 8 The following table sets forth, for the periods indicated, certain financial information regarding costs and expenses expressed as a percentage of total net sales and net sales of the Company's business segments.
YEAR ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 ---------- --------- --------- Net sales: Water transmission 57.2 % 59.5 % 65.8 % Tubular products 42.8 40.5 34.2 ---------- --------- --------- Total net sales 100.0 100.0 100.0 Cost of sales 79.7 80.1 79.4 ---------- --------- --------- Gross profit 20.3 19.9 20.6 Selling, general and administrative expenses 7.8 7.6 7.5 ---------- --------- --------- Operating income 12.5 12.3 13.1 Interest expense, net 3.3 2.3 1.2 ---------- --------- --------- Income before income taxes 9.2 10.0 11.9 Provision for income taxes 3.7 4.0 4.5 ========== ========= ========= Net income 5.5 % 6.0 % 7.4 % ========== ========= ========= Gross profit as a percentage of segment net sales: Water transmission 23.5 % 23.0 % 22.9 % Tubular products 16.1 15.3 16.3
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 NET SALES. Net sales increased 14.7% to $240.3 million in 1999 from $209.5 million in 1998. No single customer accounted for 10% or more of total net sales in 1999 or 1998. Water Transmission sales increased 10.3% to $137.4 million in 1999 from $124.6 million in 1998. The increase was primarily a result of sales attributable to the Parkersburg facility, which was acquired in June 1998 and North American, which was acquired in June 1999. Water Transmission sales in the second half of 1999 were negatively impacted by delays in projects the Company had already been awarded, and postponements in bidding activity and awarding of new projects. The Company expects that these delays and postponements will continue to negatively affect Water Transmission sales in the first quarter of 2000. Tubular Products sales increased 21.2% to $102.9 million in 1999 from $84.9 million in 1998. The increases were primarily the result of increased sales in certain product lines and a lessening in pricing pressures from imported products in the second half of 1999. The Company also raised prices in certain product lines beginning in the fourth quarter of 1999 to offset increases in the price of steel purchased by the Company. GROSS PROFIT. Gross profit increased 17.4% to $48.9 million (20.3% of total net sales) in 1999 from $41.7 million (19.9% of total net sales) in 1998. Water Transmission gross profit increased 12.6% to $32.3 million (23.5% of segment net sales) in 1999 from $28.7 million (23.0% of segment net sales) in 1998. Water Transmission gross profit increased as a result of improved market conditions and stronger bidding activity in the first half of 1999, and the acquisition of the Parkersburg facility in June 1998 and North American in June 1999. Water Transmission gross profit in the second half of 1999 was negatively impacted by lower production volume, which resulted from delays in projects the Company had already been awarded, and postponements in bidding activity and awarding of 9 new projects. The Company expects that these delays and postponements will continue to negatively affect Water Transmission gross profit in the first quarter of 2000. Gross profit from Tubular Products increased 27.9% to $16.6 million (16.1% of segment net sales) in 1999 from $12.9 million (15.3% of segment net sales) in 1998. Tubular Products gross profit increased in 1999 as a result of a lessening in pricing pressure from imported products in certain product lines, a favorable product mix and generally improved market conditions in the second half of 1999. The Company also raised prices in certain product lines beginning in the fourth quarter of 1999 to offset increases in the price of steel purchased by the Company. There can be no assurance that the Company will be successful in implementing further price increases on its products to offset additional steel price increases, if any. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 18.5% to $18.8 million (7.8% of total net sales) in 1999 from $15.9 million (7.6% of total net sales) in 1998. The increase was primarily the result of increased operating expenses related to the acquisitions completed in March and June 1998 and June 1999 and the general growth of the Company's business. INTEREST EXPENSE. Interest expense increased to $8.1 million in 1999 from $4.8 million in 1998. The increase in interest expense resulted from increased borrowings used to finance acquisitions and capital expenditures and to support higher production and sales levels. INCOME TAXES. The Company's effective tax rate was approximately 39.8% in 1999, compared to approximately 40% in 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 NET SALES. Net sales increased 38.9% to $209.5 million in 1998 from $150.8 million in 1997. No single customer accounted for 10% or more of total net sales in 1998 or 1997. Water Transmission sales increased 25.5% to $124.6 million in 1998 from $99.3 million in 1997. The increase resulted primarily from higher production brought about by improved market conditions in 1998 and increased sales attributable to the Parkersburg Facility, which was acquired in June 1998. Tubular Products sales increased 64.8% to $84.9 million in 1998 from $51.5 million in 1997. The increase was primarily the result of sales attributable to P&H Tube Corporation ("P&H") and Southwestern Pipe, Inc. ("Southwestern"), which were acquired in March 1998, and increased demand in certain product lines. GROSS PROFIT. Gross profit increased 33.9% to $41.7 million (19.9% of total net sales) in 1998 from $31.1 million (20.6% of total net sales) in 1997. Water Transmission gross profit increased 26.3% to $28.7 million (23.0% of segment net sales) in 1998 from $22.7 million (22.9% of segment net sales) in 1997. Water Transmission gross profit as a percentage of segment net sales increased slightly in 1998 compared to 1997. In the first six months of 1998, the Company experienced lower bidding activity, unfavorable pricing pressures and shipping delays. In the latter half of 1998, demand and production increased as market conditions and bidding activity improved. Gross profit from Tubular Products increased 54.4% to $12.9 million (15.3% of segment net sales) in 1998 from $8.4 million (16.3% of segment net sales) in 1997. During 1998, the Company experienced pricing pressures in its Tubular Products markets, which it believes was the result of increased foreign price competition. This increased foreign price competition and to a lesser degree, an unfavorable product mix, partially offset by a decrease in raw material prices in the fourth quarter of 1998, resulted in a decrease in Tubular Products gross profit as a percentage of net sales in 1998. 10 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 39.3% to $15.9 million (7.6% of total net sales) in 1998 from $11.4 million (7.5% of total net sales) in 1997. The increase was primarily the result of additional operating costs related to the acquisitions completed in March and June 1998. INTEREST EXPENSE. Interest expense increased to $4.8 million in 1998 from $1.8 million in 1997. The increase in interest expense resulted from increased borrowings used to finance the acquisitions made in March and June 1998, and to support higher production and sales levels. INCOME TAXES. The Company's effective tax rate was approximately 40% in 1998, compared to approximately 38.1% in 1997. The increase in the effective tax rate was due primarily to acquisitions which resulted in non-deductible goodwill. LIQUIDITY AND CAPITAL RESOURCES The Company finances operations with internally generated funds and available borrowings. At December 31, 1999, the Company had cash and cash equivalents of $969,000. Net cash provided by operating activities in 1999 was $15.2 million. This was primarily the result of $13.3 million of net income, non-cash adjustments for depreciation and amortization of $5.1 million, decreases in inventories and accounts payable of $6.2, and $6.9 million, respectively; offset by an increase in net trade receivables of $3.8 million. The decrease in accounts payable was primarily attributable to the timing and amount of purchases and utilization of steel. The increase in trade receivables and decrease in inventories primarily resulted from increased product shipments in 1999. Net cash used in investing activities in 1999 was $17.9 million, which primarily resulted from additions of property and equipment, including a new company-wide enterprise resource planning computer software system, and the completion of construction of the Company's LPG tank manufacturing facility in Monterrey, Mexico, and the acquisition of North American. Capital expenditures are expected to approximate $9.0 million in 2000. Net cash provided by financing activities in 1999 was $3.1 million, which primarily resulted from $3.6 million in net borrowings under the Company's line of credit agreement, offset by payments of long-term debt. Additionally, capital lease obligations of $2.4 million related to the new company-wide enterprise resource planning computer software system were incurred in 1999. The Company had the following significant components of debt at December 31, 1999: a $55 million credit agreement under which $40.0 million was outstanding; $8.6 million of Series A Senior Notes, without collateral, which bear interest at 6.63%; $30.0 million of Series B Senior Notes, without collateral, which bear interest at 6.91%; $35.0 million of Senior Notes, without collateral, which bear interest at 6.87%; an Industrial Development Bond of $2.8 million with variable interest rate of 4.19%; and a capital lease obligation of $2.4 million which bears interest at 7.9%. The credit agreement expires on September 30, 2002 and is without collateral. It bears interest at rates related to IBOR or LIBOR plus 0.65% to 2.25% (7.4% at December 31, 1999), or at prime less 0.5% (8.0% at December 31, 1999). At December 31, 1999, the Company had $33.0 million outstanding under the line of credit bearing interest at a weighted average IBOR interest rate of 7.55%, $7.0 million bearing interest at 8.0% and additional borrowing capacity under the line of credit of $15.0 million. The line of credit agreement contains the following covenants: minimum debt service ratio, maximum funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), and minimum tangible net worth. In June 1999, the Company amended its line of credit agreement to include a $10.0 million bridge loan commitment which expired on December 31, 1999. Amounts outstanding under the bridge loan commitment were transferred to the Company's line of credit which was increased to $55.0 million on December 30, 1999. Additionally on 11 December 30, 1999, the maturity date of the agreement was extended to September 30, 2002 and the ratio of maximum funded debt to EBITDA was adjusted to 3.75:1.0 until March 31, 2000, 3.50:1.0 until September 30, 2000 and 3.25:1.0 until December 31, 2000. At December 31, 1999, the Company was in compliance with all covenants specified in its debt agreements. The Company's working capital requirements have increased due to an increase in the Company's Water Transmission business, which is characterized by lengthy production periods and extended payment cycles, and an increase in Tubular Products sales. The Company anticipates that its existing cash and cash equivalents, cash flows expected to be generated by operations and amounts available under its line of credit will be adequate to fund its working capital and capital requirements for at least the next twelve months. To the extent necessary, the Company may also satisfy capital requirements through additional bank borrowings, senior notes and capital leases if such resources are available on satisfactory terms. The Company has from time to time evaluated and continues to evaluate opportunities for acquisitions and expansion. Any such transactions, if consummated, may use a portion of the Company's working capital or necessitate additional bank borrowings. ACQUISITIONS. On June 18, 1999, the Company acquired all of the outstanding common stock of North American Pipe, Inc. ("North American") of Saginaw, Texas. North American operates two facilities which produce custom fabricated piping assemblies. The purchase price of $4.5 million has been allocated to the underlying assets and liabilities, including certain debt, of North American. In June 1998, the Company acquired from L.B. Foster Company the plant, equipment, leasehold and contract rights and miscellaneous assets of its Fosterweld Division manufacturing facility (the "Parkersburg Facility") for $5.3 million, and acquired the Parkersburg Facility's inventory net of assumed accounts payable. The Parkersburg Facility is employed in the manufacture of large diameter, high pressure steel pipe products. In March 1998, the Company acquired all of the outstanding capital stock of Southwestern Pipe, Inc. ("Southwestern") and P&H Tube Corporation ("P&H") for $40.1 million. The excess of the acquisition cost over the fair value of the net assets acquired of $23.7 million is being amortized over 40 years using the straight-line method. The principal business of both Southwestern and P&H is the manufacture and sale of structural and mechanical tubing products. YEAR 2000 ISSUE. The Company incurred costs of approximately $160,000 related to its Year 2000 assessment, remediation and testing efforts, including, the replacement of approximately $100,000 of certain telephone system components as a result of the Year 2000 issue. The Company did not experience any significant disruption of operations or services as a result of Year 2000 issues. RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative instrument's fair value be recognized currently in results of operations unless specific hedge accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. The Company's management has studied the implications of SFAS 133 and based on the initial evaluation, expects the adoption to have no impact on the Company's financial condition or results of operations. 12 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company does not currently use derivative financial instruments for speculative purposes which expose the Company to market risks. The Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its long-term debt. Information required by this item is set forth in Notes 1, 6, 7 and 8 of the Notes to Consolidated Financial Statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA The information required by this item is included under the caption QUARTERLY DATA, in Note 15 of Notes to Consolidated Financial Statements as listed in Item 14 of Part IV of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included under the captions INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE in the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included under the caption EXECUTIVE COMPENSATION in the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included under the caption STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS in the Company's Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS No disclosures required. 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) (1) FINANCIAL STATEMENTS The Financial Statements, together with the report thereon of PricewaterhouseCoopers LLP are included on the pages indicated below.
PAGE ----- Report of Independent Accountants F-1 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 F-2 Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 F-5 Notes to Consolidated Financial Statements F-6
(a) (2) FINANCIAL STATEMENT SCHEDULE The following schedule and report of independent public accountants are filed herewith:
PAGE ---- Schedule II Valuation and Qualifying Accounts S-1 Report of Independent Accountants on Financial Statement Schedule S-2
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. 14 (a) (3) EXHIBITS INCLUDED HEREIN: EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Second Restated Articles of Incorporation, incorporated by reference to Exhibits to the Company's Registration Statement on Form S-1, as amended, effective November 30, 1995, Commission Registration No. 33-97308 ("the S-1") 3.2 Second Amended and Restated Bylaws, incorporated by reference to Exhibits to the S-1 4.1 Form of Rights Agreement dated as of June 28, 1999 between the Company and ChaseMellon Shareholder Services, L.L.C. as Rights Agent, incorporated by reference to Exhibits 1.1 to the Company's Registration Statement on Form 8-A as filed with the Securities and Exchange Commission on July 1, 1999 10.2 1986 Incentive Stock Option Plan, incorporated by reference to Exhibits to the S-1* 10.3 1995 Stock Option Plan for Nonemployee Directors, incorporated by reference to Exhibits to the S-1* 10.4 Registration Rights Agreement, incorporated by reference to Exhibits to the S-1* 10.5 Loan Agreement dated May 1, 1990 between the Company and California Statewide Communities Development Authority, incorporated by reference to Exhibits to the S-1 10.6 Stock Purchase Agreement dated as of May 8, 1996 among Northwest Pipe Company, Thompson Pipe and Steel Company, CHL Holdings, Inc. and Inter-City Products Corporation Incorporated by reference to Exhibits to the Company's Report on Form 8-K as filed with the Securities and Exchange Commission on June 14, 1996 10.7 Amended 1995 Stock Incentive Plan, incorporated by reference to Exhibits to the Company's Proxy Statement for the 1997 Annual Meeting of Shareholders * 10.8 Note Purchase Agreement dated November 1, 1997, incorporated by reference to Exhibits to the Company's Report on Form 8-K as filed with the Securities and Exchange Commission on March 20, 1998 10.9 Stock Purchase Agreement dated March 6, 1998 by and among Northwest Pipe Company, Southwestern Pipe, Inc., P&H Tube Corporation, Lewis Family Investments Partnership, Ltd., Philip C. Lewis, Hosea E. Henderson, Don S. Brzowski, William H. Cottle, Barry J. Debroeck, Horace M. Jordan and William B. Stuessy (the "Stock Purchase Agreement"), incorporated by reference to Exhibits to the Company's Report on Form 8-K as filed with the Securities and Exchange Commission on March 20, 1998 10.10 Note Purchase Agreement dated April 1, 1998 (certain schedules to the Agreement have been omitted), incorporated by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 as filed with the Securities and Exchange Commission on May 15, 1998 10.11 Amended and Restated Loan Agreement with Bank of America National Trust and Savings Association and US National Bank Association, dated June 30, 1998, incorporated by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 as filed with the Securities and Exchange Commission on August 14, 1998 15 EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.12 First Amendment to Amended and Restated Loan Agreement, dated December 23, 1998, incorporated by reference to Exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 as filed with the Securities and Exchange Commission on March 30, 1999 10.13 Second Amendment to Amended and Restated Loan Agreement, dated June 16, 1999, incorporated by reference to Exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 as filed with the Securities and Exchange Commission on August 2, 1999 10.14 Third Amendment to Amended and Restated Loan Agreement, dated November 30, 1999, filed herewith 10.15 Fourth Amendment to Amended and Restated Loan Agreement, dated December 30, 1999, filed herewith 10.16 1999 Employee Stock Purchase Plan, incorporated by reference to Exhibit A to the Company's Proxy Statement for its 1999 Annual Meeting of Shareholders as filed with the Securities and Exchange Commission on April 9, 1999 * 10.17 Form of Change in Control Agreement, dated July 28, 1999, between Northwest Pipe Company and William R. Tagmyer and Brian W. Dunham, filed herewith * 10.18 Form of Change in Control Agreement, dated July 28, 1999, between Northwest Pipe Company and Charles L. Koenig, Robert L. Mahoney, Terrence R. Mitchell, John D. Murakami and Gary A. Stokes, filed herewith * 21 Subsidiaries of the Registrant, filed herewith 23 Consent of PricewaterhouseCoopers LLP, filed herewith 27 Financial Data Schedule, filed herewith *This exhibit constitutes a management contract or compensatory plan or arrangement. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1999. 16 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 16th day of March 2000. NORTHWEST PIPE COMPANY By /s/ WILLIAM R. TAGMYER ---------------------------- William R. Tagmyer Chairman of the Board 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 in the capacities indicated, on the 16th day of March 2000. SIGNATURE TITLE /s/ WILLIAM R. TAGMYER Chairman of the Board - ---------------------------- and Chief Executive Officer William R. Tagmyer (Principal Executive Officer) /s/ BRIAN W. DUNHAM Director, President and Chief Operating Officer - ---------------------------- Brian W. Dunham /s/ JOHN D. MURAKAMI Vice President, Chief Financial Officer - ---------------------------- (Principal Financial Officer) John D. Murakami /s/ WAYNE B. KINGSLEY Director - ---------------------------- Wayne B. Kingsley /s/ NEIL R. THORNTON Director - ---------------------------- Neil R. Thornton /s/ VERN B. RYLES, JR. Director - ---------------------------- Vern B. Ryles, Jr. /s/ WARREN K KEARNS Director - ---------------------------- Warren K. Kearns 17 SCHEDULE II NORTHWEST PIPE COMPANY VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
BALANCE AT CHARGED TO DEDUCTION BALANCE AT BEGINNING OF PROFIT AND FROM CLOSE OF PERIOD LOSS RESERVES PERIOD ------------ ---------- ---------- ---------- Year ended December 31, 1999: Allowance for doubtful trade receivables $1,046 $1,654 $804 $1,896 Year ended December 31, 1998: Allowance for doubtful trade receivables $1,825 $416 $1,195 $1,046 Year ended December 31, 1997: Allowance for doubtful trade receivables $1,680 $266 $121 $1,825
S-1 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Northwest Pipe Company Our audits of the consolidated financial statements referred to in our report dated February 21, 2000 appearing on page F-1 of this Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Portland, Oregon February 21, 2000 S-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Northwest Pipe Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in stockholders' equity and cash flows present fairly, in all material respects, the financial position of Northwest Pipe Company and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Portland, Oregon February 21, 2000 F-1 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31, -------------------------------------------------- 1999 1998 1997 -------------- ------------- -------------- Net sales $ 240,307 $ 209,516 $ 150,833 Cost of sales 191,403 167,852 119,716 ---------- ---------- ----------- Gross profit 48,904 41,664 31,117 Selling, general and administrative expense 18,790 15,859 11,382 ---------- ---------- ----------- Operating income 30,114 25,805 19,735 Interest expense, net 8,065 4,835 1,616 Interest expense to related parties -- -- 201 ---------- ---------- ----------- Income before income taxes 22,049 20,970 17,918 Provision for income taxes 8,764 8,389 6,818 ---------- ---------- ----------- Net income $ 13,285 $ 12,581 $ 11,100 ========== ========== =========== Basic earnings per share $ 2.06 $ 1.96 $ 1.73 ========== ========== =========== Diluted earnings per share $ 2.01 $ 1.90 $ 1.68 ========== ========== =========== Shares used in per share calculations: Basic 6,452 6,435 6,405 ========== ========== =========== Diluted 6,611 6,628 6,622 ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-2 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLAR AMOUNTS IN THOUSANDS)
December 31, -------------------------------------- 1999 1998 ----------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 969 $ 524 Trade receivables, less allowance for doubtful accounts of $1,896 and $1,046 47,934 41,719 Costs and estimated earnings in excess of billings on uncompleted contracts 22,389 23,270 Inventories 44,362 49,269 Refundable income taxes 2,244 2,800 Deferred income taxes 1,502 1,794 Prepaid expenses and other 2,222 1,733 ------------- ------------ Total current assets 121,622 121,109 Property and equipment, net 101,240 87,139 Goodwill, net 22,637 23,223 Restricted assets 2,300 2,300 Other assets 472 380 ============= ============ $ 248,271 $ 234,151 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable to financial institution $ 40,000 $ 34,200 Current portion of long-term debt 2,124 1,679 Current portion of capital lease obligations 484 2,000 Accounts payable 17,558 23,524 Accrued liabilities 4,978 5,469 ------------- ------------ Total current liabilities 65,144 66,872 Long-term debt, less current portion 75,088 76,321 Capital lease obligations, less current portion 1,896 -- Minimum pension liability -- 58 Deferred income taxes 8,974 7,185 ------------- ------------ Total liabilities 151,102 150,436 Commitments and contingencies (Note 12) 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, 6,459,930 and 6,447,516 shares issued and outstanding 64 64 Additional paid-in-capital 38,962 38,849 Retained earnings 58,143 44,858 Accumulated other comprehensive loss: Minimum pension liability -- (56) ------------- ------------ Total stockholders' equity 97,169 83,715 ============= ============ $ 248,271 $ 234,151 ============= ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLAR AMOUNTS IN THOUSANDS)
Accumulated Common Stock Additional Other Total --------------------------- Paid-in Retained Comprehensive Stockholders' Shares Amount Capital Earnings Income (Loss) Equity --------------- ----------- --------------- ------------- --------------- ---------------- Balances, December 31, 1996 6,388,986 $ 64 $ 38,546 $ 21,177 $ (93) $ 59,694 Net income 11,100 11,100 Issuance of common stock under stock option plans 22,416 49 49 Minimum pension liability adjustment (194) (194) Tax benefit of stock options exercised 130 130 ------------ -------- ------------ ----------- ---------- -------------- Balances, December 31, 1997 6,411,402 64 38,725 32,277 (287) 70,779 Net income 12,581 12,581 Issuance of common stock under stock option plans 36,334 45 45 Repurchase of common stock (220) (4) (4) Minimum pension liability adjustment 231 231 Tax benefit of stock options exercised 83 83 ------------ -------- ------------ ----------- ---------- -------------- Balances, December 31, 1998 6,447,516 64 38,849 44,858 (56) 83,715 Net income 13,285 13,285 Issuance of common stock under stock option plans 4,219 14 14 Issuance of common stock under employee stock purchase plan 8,195 94 94 Minimum pension liability adjustment 56 56 Tax benefit of stock options exercised 5 5 ------------ -------- ----------- ----------- ---------- -------------- Balances, December 31, 1999 6,459,930 $ 64 $ 38,962 $ 58,143 $ -- $ 97,169 ============ ======== =========== =========== ========== ==============
The accompanying notes are an integral part of these consolidated financial statements. F-4 NORTHWEST PIPE COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31, ---------------------------------------------- 1999 1998 1997 -------------- --------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,285 $ 12,581 $ 11,100 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,090 3,685 2,242 Deferred income taxes 1,228 2,199 3,010 Gain on sale of property and equipment (632) (342) -- Changes in current assets and liabilities: Trade receivables, net (3,776) (12,302) (1,940) Costs and estimated earnings in excess of billings on uncompleted contracts 882 (3,357) (9,164) Inventories 6,192 (18,182) (46) Refundable income taxes 849 507 (3,307) Prepaid expenses and other (449) (222) (113) Accounts payable (6,865) 10,978 (1,814) Accrued and other liabilities (604) 1,315 (4,301) ----------- ------------ ----------- Net cash provided by (used in) operating activities 15,200 (3,140) (4,333) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (14,153) (16,185) (20,351) Proceeds from sale of property and equipment 687 1,670 -- Acquisitions, net of cash acquired (4,413) (47,856) -- Other assets (15) 259 (2,081) ----------- ------------ ----------- Net cash used in investing activities (17,894) (62,112) (22,432) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock, net 113 41 49 Proceeds from long-term debt -- 40,000 35,000 Payments on long-term debt (788) (740) (8,410) Net proceeds (payments) under notes payable 3,591 27,200 (302) Net proceeds (payments) on capital lease obligations 223 (1,629) (299) Payments on capital lease obligations to related party -- -- (2,671) ----------- ------------ ----------- Net cash provided by financing activities 3,139 64,872 23,367 ----------- ------------ ----------- Net increase (decrease) in cash and cash equivalents 445 (380) (3,398) Cash and cash equivalents, beginning of period 524 904 4,302 ----------- ------------ ----------- Cash and cash equivalents, end of period $ 969 $ 524 $ 904 =========== ============ =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest, net of amounts capitalized $ 6,968 $ 3,836 $ 1,450 Cash paid during the period for income taxes 7,164 5,836 6,741 SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION: Tax benefit of nonqualified stock options exercised $ 5 $ 83 $ 130 Capital lease obligations incurred -- -- 1,869 Acquisitions: Cost in excess of fair value of assets acquired $ - $ 23,717 $ -- Fair value of assets acquired 8,692 32,941 -- Fair value of liabilities assumed 4,279 8,802 --
The accompanying notes are an integral part of these consolidated financial statements. F-5 NORTHWEST PIPE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements include the accounts of Northwest Pipe Company and its wholly owned subsidiaries (the "Company"). All significant intercompany balances have been eliminated. The Company manufactures Water Transmission products in its Portland, Oregon; Denver, Colorado; Adelanto and Riverside, California; Parkersburg, West Virginia; and Saginaw, Texas facilities. Tubular Products are manufactured in the Company's Portland, Oregon; Atchison, Kansas; Houston, Texas; Bossier City, Louisiana; and Monterrey, Mexico facilities. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and short term highly liquid investments with remaining maturities of three months or less when purchased. INVENTORIES Inventories are stated at the lower of cost or market. Finished goods are stated at standard cost which approximates the first-in, first-out method of accounting. Raw material inventories of steel coil are stated at cost on a specific identification basis. Raw material inventories of coating and lining materials, as well as materials and supplies, are stated on an average cost basis. PROPERTY AND EQUIPMENT Property and equipment, including land, buildings and equipment under capital leases, are stated at cost. Maintenance and repairs are expensed as incurred and costs of improvements and renewals, including interest, are capitalized. Depreciation and amortization are determined by the straight-line method based on the estimated useful lives of the related assets, except for the depreciation of the Tubular Products mill in Portland, Oregon, which is determined by the units of production method. Upon disposal, costs and related accumulated depreciation of the assets are removed from the accounts and resulting gains or losses are reflected in operations. The Company leases land, buildings and equipment under long-term capital leases, which are being amortized on a straight-line basis over estimated useful lives. Estimated useful lives by major classes of property and equipment are as follows: Land and improvements 20 years Buildings 30 years Equipment 5-18 years
GOODWILL The Company has classified as goodwill the cost in excess of fair value of the net assets of companies acquired in purchase transactions. Net goodwill was $22.6 million and $23.2 million, at December 31, 1999 and 1998, respectively. Goodwill is amortized on the straight-line method over 40 years. Amortization charged to operations was $586 and $494 for 1999 and 1998, respectively. At each balance sheet date, the Company evaluates the realizability of goodwill based on expectations of non-discounted cash flows and operating income for each subsidiary having a material goodwill balance. Based on its most recent analysis, the Company believes that no material impairment of goodwill exists at December 31, 1999. F-6 REVENUE RECOGNITION Revenue from construction contracts in the Company's Water Transmission segment is recognized on the percentage-of-completion method, measured by the percentage of total costs incurred to date to the estimated total costs of each contract. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Selling, general and administrative costs are charged to expense as incurred. Provisions for losses on uncompleted contracts are made in the period such losses are known. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Revenue from the Company's Tubular Products segment is recognized when all four of the following criteria have been satisfied: persuasive evidence of an arrangement exists; delivery has occurred; the price is fixed or determinable; and collectibility is reasonably assured. INCOME TAXES The Company records deferred income tax assets and liabilities based upon the difference between the financial statement and income tax bases of assets and liabilities using enacted income tax rates. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in net deferred income tax assets and liabilities. EARNINGS PER SHARE Basic earnings per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of shares of common stock and dilutive common equivalent shares outstanding during the period. Incremental shares of 159,288, 192,590 and 216,989 for the years ended December 31, 1999, 1998, 1997, respectively, were used in the calculations of diluted earnings per share. Options to purchase 269,395 shares of common stock at prices of $15.75 to $22.875 per share were outstanding during 1999, but were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the underlying common stock. The options were outstanding at December 31, 1999. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of trade receivables. Trade receivables are with a large number of customers, including municipalities, manufacturers, distributors and contractors, dispersed across a wide geographic base. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments are the amounts at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents, trade receivables, other current assets and current liabilities approximate fair value because of the short maturity for these instruments. The fair value approximates the carrying value of the Company's borrowings under its long-term arrangements based upon interest rates available for the same or similar loans. F-7 IMPAIRMENT OF LONG-LIVED ASSETS The Company's long-lived assets are reviewed for impairment when circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the asset, a loss is recognized. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. COMPREHENSIVE INCOME On January 1, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which establishes requirements for disclosure of comprehensive income. Comprehensive income is the total of net income and all other non-owner changes in equity.
Year Ended December 31, ---------------------------------------------------- 1999 1998 1997 ----------- ------------ ------------ Net income $ 13,285 $ 12,581 $ 11,100 Minimum pension liability adjustment 56 231 (194) =========== =========== ============ Comprehensive income $ 13,341 $ 12,812 $ 10,906 =========== =========== ============
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative instrument's fair value be recognized currently in results of operations unless specific hedge accounting criteria are met. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. The Company's management has studied the implications of SFAS 133 and based on the initial evaluation, expects the adoption to have no impact on the Company's financial condition or results of operations. 2. ACQUISITIONS: In June 1999, the Company acquired all of the outstanding common stock of North American Pipe, Inc. ("North American") of Saginaw, Texas. North American operates two facilities which produce custom fabricated piping assemblies. The purchase price of $4.5 million has been allocated to the underlying assets and liabilities, including certain debt, of North American. In June 1998, the Company acquired from L.B. Foster Company the plant, equipment, leasehold and contract rights and miscellaneous assets of its Fosterweld Division manufacturing facility (the "Parkersburg Facility") for $5.3 million, and acquired the Parkersburg Facility's inventory net of assumed accounts payable. The Parkersburg Facility is employed in the manufacture of large diameter, high pressure steel pipe products. F-8 In March 1998, the Company acquired all of the outstanding capital stock of Southwestern Pipe, Inc. ("Southwestern") and P&H Tube Corporation ("P&H") for $40.1 million. The excess of the acquisition cost over the fair value of the net assets acquired of $23.7 million is being amortized over 40 years using the straight-line method. The principal business of both Southwestern and P&H is the manufacture and sale of structural and mechanical tubing products. All of the above acquisitions were accounted for using the purchase method of accounting, which requires that the purchase price be allocated to the net assets acquired based upon the relative fair value of assets acquired. The accompanying consolidated financial statements include the results of operations from the dates of acquisition. 3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS:
December 31, ----------------------------- 1999 1998 ----------- ---------- Costs incurred on uncompleted contracts $ 79,361 $ 69,214 Estimated earnings 30,561 22,264 ----------- ---------- 109,922 91,478 Less billings to date (87,533) (68,208) =========== ========== $ 22,389 $ 23,270 =========== ==========
Costs and estimated earnings in excess of billings on uncompleted contracts represents revenue earned under the percentage of completion method but not billable based on the terms of the contracts. These amounts are billed based on the terms of the contracts which include achievement of milestones, partial shipments or completion of the contracts. 4. INVENTORIES:
December 31, ------------------------------ 1999 1998 --------- ---------- Finished goods $ 18,107 $ 12,404 Raw materials 24,156 34,769 Materials and supplies 2,099 2,096 ========= ========== $ 44,362 $ 49,269 ========= ==========
5. PROPERTY AND EQUIPMENT:
December 31, ------------------------------ 1999 1998 ---------- ----------- Land and improvements $ 13,550 $ 10,387 Buildings 23,912 19,655 Equipment 86,964 71,893 Property and equipment under capital leases 2,413 2,733 Construction in progress 4,790 7,964 ---------- ----------- 131,629 112,632 Less accumulated depreciation and amortization (30,389) (25,493) ========== =========== $ 101,240 $ 87,139 ========== ===========
Accumulated amortization associated with property and equipment under capital leases was $129 at December 31, 1999 and 1998. F-9 6. NOTE PAYABLE TO FINANCIAL INSTITUTION: At December 31, 1999, the Company had a $55.0 million line of credit agreement, under which $40.0 million was outstanding, with $33.0 million bearing interest at a weighted average IBOR interest rate of 7.55%, $7.0 million bearing interest at 8.0% and additional borrowing capacity under the line of credit of $15.0 million. The credit agreement expires on September 30, 2002 and is without collateral. It bears interest at rates related to IBOR or LIBOR plus 0.65% to 2.25% (7.4% at December 31, 1999), or at prime less 0.5% (8.0% at December 31, 1999). The line of credit agreement contains the following covenants; minimum debt service ratio, maximum funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA"), and minimum tangible net worth. In June 1999, the Company amended its line of credit agreement to include a $10.0 million bridge loan commitment, which expired on December 31, 1999. Amounts outstanding under the bridge loan commitment were transferred to the Company's line of credit, which was increased to $55.0 million on December 30, 1999. Additionally on December 30, 1999, the maturity date of the agreement was extended to September 30, 2002 and the ratio of maximum funded debt to EBITDA was adjusted to 3.75:1.0 until March 31, 2000, 3.50:1.0 until September 30, 2000 and 3.25:1.0 until December 31, 2000. At December 31, 1999, the Company was in compliance with all covenants specified in the line of credit agreement, as amended. 7. LONG-TERM DEBT:
December 31, ------------------------------ 1999 1998 ----------- ------------ Industrial Development Bond, issued in accordance with Internal Revenue Code Section 144(a), variable interest (4.19% at December 31, 1999 and 3.27% at December 31, 1998) payable monthly; annual principal payments of $250, collateralized by property and equipment and guaranteed by an irrevocable letter of credit from a bank $ 2,750 $ 3,000 Senior Notes, due in annual payments of $5.0 million beginning November 15, 2001, plus interest at 6.87% paid semi-annually, on May 15 and November 15, without collateral 35,000 35,000 Series A Senior Notes, due in annual payments of $1.4 million beginning April 1, 1999, plus interest at 6.63% paid semi-annually, on April 1 and October 1, without collateral 8,571 10,000 Series B Senior Notes, due in annual payments of $4.3 million beginning April 1, 2002, plus interest at 6.91% paid semi-annually, on April 1 and October 1, without collateral 30,000 30,000 Other 891 -- ----------- ------------ Total long-term debt $ 77,212 $ 78,000 =========== ============ Amounts are displayed on the consolidated balance sheet as follows: Current portion of long-term debt $ 2,124 $ 1,679 Long-term debt, less current portion 75,088 76,321 ----------- ------------ $ 77,212 $ 78,000 =========== ============
F-10 The Company is required to maintain certain financial ratios under its long-term debt agreements. As of December 31, 1999, the most restrictive of these was a requirement to maintain consolidated indebtedness at or below 58% of consolidated total capitalization. At December 31, 1999, the Company was in compliance with all financial ratios specified in its long-term debt agreements. Future principal payments are as follows: 2000 $ 2,124 2001 7,124 2002 10,964 2003 10,964 2004 10,964 Thereafter 35,072 --------- $ 77,212 =========
Interest expense was $8,065, net of amounts capitalized of $163 in 1999. Interest expense was $4,835, net of amounts capitalized of $1,554, in 1998. Interest expense was $1,817, net of amounts capitalized of $707, in 1997. 8. LEASES: CAPITAL LEASES The Company leases certain hardware and software related to a new company-wide enterprise resource planning system and other equipment. The future minimum lease payments under these capital leases and the present value of the minimum lease payments as of December 31, 1999 are as follows: 2000 $ 648 2001 605 2002 583 2003 583 2004 437 --------- Total minimum lease payments 2,856 Less - Amount representing interest 476 --------- Present value of minimum lease payments with interest rates of 7.9% - 10.75% $ 2,380 =========
OPERATING LEASES The Company has entered into various equipment leases with terms of eight years or less. Total rental expense for 1999, 1998, and 1997 was $868, $967, and $1,323, respectively. Future minimum payments for operating leases with initial or remaining terms in excess of one year are: 2000 $ 441 2001 400 2002 318 2003 198 2004 182 Thereafter 618 --------- $ 2,157 =========
9. RETIREMENT PLANS: The Company has a defined contribution retirement plan that covers substantially all of its employees and provides for Company matches of up to 50% of employee contributions to the plan, subject to certain limitations. The F-11 Company also has two noncontributory defined benefit plans, which cover substantially all employees at its Denver, Colorado facility. Benefits under the union pension plan are based upon a flat benefit formula, while benefits under the salaried benefit plan are based upon a final pay formula. The funding policy for each noncontributory defined benefit plan is based on current plan costs plus amortization of the unfunded plan liability. Total expense for all retirement plans was in 1999, 1998, and 1997 was $513, $533, and $412, respectively. 10. STOCK-BASED COMPENSATION PLANS: EMPLOYEE STOCK PURCHASE PLAN The Company has an Employee Stock Purchase Plan (the "ESPP"), which allows employees of the Company to purchase shares of the Company's common stock through accumulated payroll deductions. Participating employees may elect to contribute up to 10% of their eligible compensation, subject to certain limitations, during each pay period to the ESPP. The ESPP provides for two semi-annual offering periods beginning May 1 and November 1 of each year. Participant funds are accumulated during the offering period and used to automatically purchase shares of the Company's common stock at 85% of the lower of the fair market value of such stock at the beginning of the offering period or the fair market value at the purchase date. The Company has made 300,000 shares of common stock available for sale under the ESPP and had issued 8,195 shares as of December 31, 1999. STOCK OPTION PLANS The Company has two stock option plans for employees and directors. The Amended 1995 Stock Incentive Plan provides for the grant of incentive options at an exercise price which is 100 percent of the fair value of the Company's stock on the date of grant. The 1995 Stock Option Plan for Nonemployee Directors provides for the grant of nonqualified options at an exercise price which is not less than 100 percent of the fair value on the grant date. The plans provide that options become exercisable according to vesting schedules which range from immediate for nonemployee directors to ratably over a 60 month period for all other options. Options terminate 10 years from the date of grant. There were 780,375, 784,594, and 820,928 shares of common stock reserved for issuance under the Company's stock compensation plans at December 31, 1999, 1998 and 1997, respectively. F-12 A summary of status of the Company's stock options as of December 31, 1999, 1998 and 1997 and changes during the year ended on those dates is presented below:
Exercise Price ---------------------------------- Weighted Options Average Outstanding Exercise Price -------------- ---------------- Balance, December 31, 1996 280,810 $3.85 Options granted 155,500 18.60 Options exercised (22,416) 2.20 Options canceled -- -- ------------ --------------- Balance, December 31, 1997 413,894 9.48 Options granted 109,613 21.15 Options exercised (36,334) 1.25 Options canceled (3,039) 20.00 ------------ --------------- Balance, December 31, 1998 484,134 12.67 Options granted 176,573 14.74 Options exercised (4,219) 3.24 Options canceled (5,697) 16.02 ------------ --------------- Balance, December 31, 1999 650,791 $ 13.27 ============ ===============
The following table summarizes information about stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable - --------------------------------------------------------------------- --------------------------------- Weighted Weighted Weighted Average Average Average Range of Remaining Exercise Exercise Exercise Prices Number of Contractual Price Number of Price Per Share Options Life (Years) Per Share Options Per Share --------------- --------- ------------ --------- --------- ---------- $0.87 - $1.00 67,219 2.75 $ 0.96 67,219 $ 0.96 $4.78 130,622 5.47 4.78 118,524 4.78 $11.50 - $14.75 183,951 8.97 14.58 44,465 14.21 $15.75 - $18.75 158,000 7.10 18.52 96,463 18.37 $18.88 - $22.88 110,999 8.11 21.06 46,588 21.21 ----------- ------------ 650,791 373,259 =========== ============
The following are the options exercisable at the corresponding weighted average exercise price at December 31, 1999, 1998 and 1997, respectively: 373,259 at $10.78, 266,206 at $9.05, and 221,899 at $5.55. F-13 SFAS 123, "Accounting for Stock-Based Compensation" was issued by the FASB in 1995 and, if fully adopted, changes the methods for the recognition of cost related to stock compensation plans. Adoption of the accounting requirements of SFAS 123 is optional. As a result, the Company continues to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock compensation plans. However, in accordance with SFAS 123, pro forma disclosures as if the Company adopted the cost recognition requirements under SFAS 123 are presented below. The fair value of options granted in 1999, 1998 and 1997 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Year Ended December 31, ------------------------------------------------------------ 1999 1998 1997 ---------------- ---------------- ----------------- Risk-free interest rate 4.91% - 5.44% 5.55% - 5.64% 6.12% -6.61% Expected dividend yield 0% 0% 0% Expected volatility 30.73% 29.31% 24.70% Expected lives five years five years five years
The weighted average grant date fair value of options granted during 1999, 1998 and 1997 was $5.67, $7.69, and $6.17, respectively. The weighted average purchase price and weighted average fair value of shares issued under the ESPP in 1999 were $11.48 and $13.00, respectively. Had the Company used the fair value methodology for determining compensation expense, the Company's net income and earnings per share would approximate the pro forma amounts below (in thousands except per share data):
Year Ended December 31, -------------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Net income - as reported $ 13,285 $ 12,581 $ 11,100 Net income - pro forma 12,887 12,244 10,507 Diluted earnings per share - as reported 2.01 1.90 1.68 Diluted earnings per share - pro forma 1.95 1.85 1.59
11. SHAREHOLDER RIGHTS PLAN: In June 1999, the Board of Directors adopted a Shareholder Rights Plan (the "Plan") designed to ensure fair and equal treatment for all shareholders in the event of a proposed acquisition of the Company by enhancing the ability of the Board of Directors to negotiate more effectively with a prospective acquiror, and reserved 150,000 shares of Series A Junior Participating Preferred Stock ("Preferred Stock") for purposes of the Plan. In connection with the adoption of the Plan, the Board of Directors declared a dividend distribution of one preferred stock purchase right (a "Right") per share of common stock, payable to shareholders of record on July 9, 1999. Each right represents the right to purchase one one-hundredth of a share of Preferred Stock at a price of $83.00, subject to adjustment. The Rights will be exercisable only if a person or group acquires, or commences a tender offer to acquire, 15% or more of the Company's outstanding shares of common stock. Subject to the terms of the Plan and upon the occurrence of certain events, each Right would entitle the holder to purchase common stock of the Company, or of an acquiring company in certain circumstances, having a market value equal to two times the exercise price of the Right. The Company may redeem the Rights at a price of $0.01 per Right under certain circumstances. F-14 12. COMMITMENTS AND CONTINGENCIES: LITIGATION From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company maintains insurance coverage against potential claims in amounts which it believes to be adequate. Management believes that it is not presently a party to any litigation, the outcome of which would have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. COMMITMENTS As of December 31, 1999, the Company had outstanding raw material purchase commitments of approximately $10.8 million. 13. INCOME TAXES: The components of the provision for income taxes are as follows:
Year Ended December 31, -------------------------------------------------- 1999 1998 1997 ----------- ---------- ----------- Current: Federal $ 6,845 $ 5,076 $ 3,189 State 1,092 1,114 619 Deferred: Federal 742 1,972 2,624 State 85 227 386 ----------- ---------- ----------- $ 8,764 $ 8,389 $ 6,818 =========== ========== ===========
The difference between the effective income tax rate and the statutory U.S. Federal income tax rate is explained as follows:
Year Ended December 31, -------------------------------------------------- 1999 1998 1997 ----------- ---------- ----------- Provision at statutory rate $ 7,717 $ 7,340 $ 6,092 State provision, net of federal benefit 766 951 896 Other 281 98 (170) =========== ========== =========== $ 8,764 $ 8,389 $ 6,818 =========== ========== ===========
F-15 The tax effect of temporary differences that give rise to significant portions of deferred tax assets and liabilities are presented below:
December 31, ---------------------------- 1999 1998 ---------- ---------- Deferred tax assets: Trade receivables, net $ 29 $ -- Property and equipment -- 69 Accrued employee benefits 611 632 Inventories 460 378 Net operating loss carryforwards 1,493 1,980 Other -- 65 ---------- ---------- Total deferred tax assets $ 2,593 $ 3,124 ---------- ---------- Deferred tax liabilities: Trade receivables, net $ -- $ (895) Property and equipment (10,065) (7,620) ---------- ---------- Total deferred tax liabilities (10,065) (8,515) ---------- ---------- Net deferred tax liabilities $ (7,472) $ (5,391) ========== ========== Deferred tax assets and liabilities are included in the consolidated balance sheets as follows: Deferred tax assets - current $ 1,502 $ 1,794 Deferred tax liabilities - noncurrent (8,974) (7,185) ---------- ----------- Net deferred tax liabilities $ (7,472) $ (5,391) ========== ==========
As of December 31, 1999, the Company had approximately $3.8 million of net operating loss carryforwards as a result of the acquisition of Thompson Pipe and Steel which are limited in their use to approximately $348 per year during the 15 year carryforward period which expires in 2011. 14. SEGMENT INFORMATION: The Company has adopted SFAS No. 131, "Disclosures about Segments of and Enterprise and Related Information" which requires disclosure of financial and descriptive information about the Company's reportable operating segments. The operating segments reported below are based on the nature of the products sold 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 executive management to make decisions about resources to be allocated to the segment and assess its performance. Management evaluates segment performance based on segment gross profit. There were no material transfers between segments in the periods presented. The Company's Water Transmission segment manufactures and markets large diameter, high pressure steel pipe used primarily for water transmission. Water Transmission products are custom manufactured in accordance with project specifications and are used primarily for high pressure water transmission pipelines in the United States and Canada. Water Transmission products are manufactured in Portland, Oregon; Denver, Colorado; Adelanto and Riverside, California; Parkersburg, West Virginia and Saginaw, Texas facilities and are sold primarily to public water agencies either directly or through an installation contractor. F-16 The Company's Tubular Products segment manufactures and markets smaller diameter, electric resistance welded steel pipe for use in a wide range of construction, agricultural and industrial applications. Tubular Products are manufactured in the Company's Portland, Oregon; Atchison, Kansas; Houston, Texas; Bossier City, Louisiana; and Monterrey, Mexico facilities. Tubular Products are marketed through a network of direct sales force personnel and independent distributors throughout the United States and Canada. Based on the location of the customer, the Company sold products only in the United States and Canada. As of December 31, 1999, all material long-lived assets are located in the United States.
Year Ended December 31, --------------------------------------------------- 1999 1998 1997 ------------- --------------- -------------- Net sales: Water transmission $ 137,418 $ 124,612 $ 99,317 Tubular products 102,889 84,904 51,516 ---------- ----------- ----------- Total $ 240,307 $ 209,516 $ 150,833 ========== =========== =========== Gross profit: Water transmission $ 32,348 $ 28,718 $ 22,733 Tubular products 16,556 12,946 8,384 ---------- ----------- ----------- Total $ 48,904 $ 41,664 $ 31,117 ========== =========== =========== Interest expense, net: Water transmission $ 3,056 $ 2,220 $ 1,681 Tubular products 5,009 2,615 136 ---------- ----------- ----------- Total $ 8,065 $ 4,835 $ 1,817 ========== =========== =========== Depreciation and amortization of Property and Equipment: Water transmission $ 2,587 $ 1,916 $ 1,781 Tubular products 1,750 1,150 387 ---------- ----------- ----------- Total 4,337 3,066 2,168 Corporate 167 125 74 ---------- ----------- ----------- Total $ 4,504 $ 3,191 $ 2,242 ========== =========== =========== Amortization of intangible assets: Water transmission $ - $ - $ - Tubular products 586 494 - ---------- ----------- ----------- Total $ 586 $ 494 $ - ========== =========== =========== Capital expenditures: Water transmission $ 5,673 $ 7,302 $ 8,235 Tubular products 2,948 8,656 12,898 ---------- ----------- ----------- Total 8,621 15,958 21,133 Corporate 5,532 227 1,087 ---------- ----------- ----------- Total $ 14,153 $ 16,185 $ 22,220 ========== =========== =========== Net sales by geographic area: United States $ 232,663 $ 204,904 $ 144,399 Canada 7,644 4,612 6,434 ---------- ----------- ----------- Total $ 240,307 $ 209,516 $ 150,833 ========== =========== ===========
F-17
Year Ended December 31, -------------------------------- 1999 1998 -------------- -------------- Total assets: Water transmission $ 116,022 $ 117,128 Tubular products 119,529 108,853 ---------- ----------- Total 235,551 225,981 Corporate 12,720 8,170 ---------- ----------- Total $ 248,271 $ 234,151 ========== ===========
No one customer represented more than 10% of total sales in 1999, 1998 or 1997. 15. QUARTERLY DATA (UNAUDITED): Summarized quarterly financial data for 1999 and 1998 is as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter ---------- ---------- --------- ---------- 1999: Net sales: Water transmission $ 35,706 $ 33,014 $ 36,086 $ 32,612 Tubular products 21,825 27,997 27,236 25,831 ---------- ---------- --------- ---------- Total net sales $ 57,531 $ 61,011 $ 63,322 $ 58,443 Gross profit: Water transmission $ 8,149 $ 7,384 $ 7,980 $ 8,835 Tubular products 2,865 4,414 5,294 3,983 ---------- ---------- --------- ---------- Total gross profit $ 11,014 $ 11,798 $ 13,274 $ 12,818 Net income $ 2,643 $ 3,095 $ 3,864 $ 3,683 Earnings per share: Basic $ 0.41 $ 0.48 $ 0.60 $ 0.57 Diluted $ 0.40 $ 0.47 $ 0.58 $ 0.56 1998: Net sales: Water transmission $ 21,904 $ 27,866 $ 36,214 $ 38,628 Tubular products 16,336 26,144 23,054 19,370 ---------- ---------- --------- ---------- Total net sales $ 38,240 $ 54,010 $ 59,268 $ 57,998 Gross profit: Water transmission $ 3,997 $ 6,151 $ 9,383 $ 9,187 Tubular products 2,504 4,850 2,814 2,778 ---------- ---------- --------- ---------- Total gross profit $ 6,501 $ 11,001 $ 12,197 $ 11,965 Net income $ 1,723 $ 3,241 $ 4,226 $ 3,391 Earnings per share: Basic $ 0.27 $ 0.50 $ 0.66 $ 0.53 Diluted $ 0.26 $ 0.49 $ 0.64 $ 0.51
F-18 EX-10.14 2 EXHIBIT 10.14 EXHIBIT 10.14 THIRD AMENDMENT TO LOAN AGREEMENT This amendment to Loan Agreement ("Amendment") is made as of November 30, 1999 by and among the following parties: Bank of America, N.A., formerly known as Bank of America National Trust and Savings Association ("Bank of America" and a "Lender") U.S. Bank National Association ("U.S. Bank" and a "Lender") Bank of America, N.A., formerly known as Bank of America National Trust and Savings Association, in its capacity as Agent ("Agent") Each of the several financial institutions which subsequently becomes party to the Loan Agreement pursuant to Section 11.7 (each individually a "Lender") Northwest Pipe Company, an Oregon corporation ("Borrower") R E C I T A L S A. The Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Loan Agreement dated as of June 30, 1998, as amended as of December 23, 1998 and as of June 16, 1999 and as the same may be further amended, modified or extended from time to time (the "Loan Agreement") and the related Loan Documents described therein. B. The parties desire to amend the Loan Agreement as set forth below: NOW, THEREFORE, the parties agree as follows: A G R E E M E N T DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have the meaning given in the Loan Agreement. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is amended by revising the definition of "Bridge Loan Commitment" as follows: "`BRIDGE LOAN COMMITMENT' shall mean $10,000,000 until December 31, 1999, after which there shall be no Bridge Loan Commitment." AMENDMENT TO SECTION 10.5 "MANNER OF BORROWING BRIDGE LOANS." Section 10.5 is amended by changing the Notice(s) of Borrowing date from no later than November 15, 1999 to no later than December 15, 1999. AMENDMENT TO SECTION 10.6 "REPAYMENT OF PRINCIPAL." Section 10.6 is amended by changing the expiration date of the Bridge Loans from December 1, 1999 to December 31, 1999. MISCELLANEOUS. ENTIRE AGREEMENT. This Amendment comprises the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, representations or commitments. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Amendment. GOVERNING LAW. This Amendment and the other agreements provided for herein and the rights and obligations of the parties hereto and thereto shall be construed and interpreted in accordance with the laws of the State of Oregon. CERTAIN AGREEMENTS NOT ENFORCEABLE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. EXECUTED AND DELIVERED by the duly authorized officers of the parties as of the date first above written. BORROWER: NORTHWEST PIPE COMPANY By: /s/ JOHN D. MURAKAMI Its: VICE PRESIDENT, CHIEF FINANCIAL OFFICER Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 LENDER: BANK OF AMERICA, N.A. By: /s/ ED KLUSS Its: VICE PRESIDENT Address: Commercial Banking 121 S.W. Morrison Street, Suite 1700 Portland, OR 97204 Fax No. (503) 275-1391 Attn: Larry C. Ellis U.S. BANK NATIONAL ASSOCIATION By: /s/ GREG SALIBA Its: ASSISTANT VICE PRESIDENT Address: Oregon Corporate Banking, T-4 111 S.W. Fifth Avenue, Suite 400 Portland, OR 97208 Fax No. (503) 275-7290 Attn: Rick S. Williams AGENT: BANK OF AMERICA, N.A. By: /s/ DORA A. BROWN Its: VICE PRESIDENT Address: Agency Services 701 Fifth Avenue, Floor 16 Seattle, WA 98104 Fax No. (206) 358-0971 Attn: Dora A. Brown EX-10.15 3 EXHIBIT 10.15 EXHIBIT 10.15 FOURTH AMENDMENT TO LOAN AGREEMENT This amendment to Loan Agreement ("Amendment") is made as of December 30, 1999 by and among the following parties: Bank of America, N.A., formerly known as Bank of America National Trust and Savings Association ("Bank of America" and a "Lender") U.S. Bank National Association ("U.S. Bank" and a "Lender") Bank of America, N.A., formerly known as Bank of America National Trust and Savings Association, in its capacity as Agent ("Agent") Each of the several financial institutions which subsequently becomes party to the Loan Agreement pursuant to Section 11.7 (each individually a "Lender") Northwest Pipe Company, an Oregon corporation ("Borrower") R E C I T A L S A. The Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Loan Agreement dated as of June 30, 1998, as amended as of December 23, 1998, June 16, 1999 and November 30, 1999, and as the same may be further amended, modified or extended from time to time (the "Loan Agreement") and the related Loan Documents described therein. B. The parties desire to amend the Loan Agreement as set forth below: NOW, THEREFORE, the parties agree as follows: A G R E E M E N T 1. DEFINITIONS. Capitalized terms used herein and not otherwise defined shall have the meaning given in the Loan Agreement. 2. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is amended by revising the following definitions: (A) "APPLICABLE MARGIN" means, with respect to Offshore Related Rate Loans, a margin determined as set forth below depending on the ratio of Funded Debt to EBITDA. Adjustments, with respect to borrowings or selections of Applicable Interest Rates, will be effective the first day of the month after Agent has received financial information needed to determine the relevant ratio with respect to future selections or borrowings. However, if such information is not given to Agent within the time required by Section 5.9, Agent may, at its option, adjust the Applicable Margin for Offshore Related Rate upwards, if applicable, as of the first day of the month following the date by which such information should have been received. The Applicable Margin which will be in effect from January 1, 2000 until adjusted as provided herein will be 1.750%.
RATIO AT END OF PRIOR APPLICABLE MARGIN FOR FISCAL QUARTER OFFSHORE RELATED RATE LOANS - ------------------------------------------ ------------------------------------------------------ Less than 2.26:1 0.650% Equal to or greater than 2.26:1 0.750% Up to and including 3.00:1 Greater than 3.00:1 1.000% Up to and including 3.25:1 Greater than 3.25:1 1.750% Up to and including 3.50:1 Greater than 3.51 2.250%
For purposes of calculating this ratio, the EBITDA for the prior fiscal year for the "Acquisitions," as defined in SECTION 6.6 shall be included in the calculation. The Acquisitions' EBITDA shall be incorporated on a decreasing pro-rata basis, with 100% of the Acquisitions' EBITDA included in the calculation for the first calendar quarter-end following closing of the Acquisitions, 75% included in the second quarter-end, 50% included in the third quarter-end, and 25% included in the fourth quarter-end. Beginning with the fifth quarter following the closing of the Acquisitions, the EBITDA for the Acquisitions' prior fiscal year shall no longer be incorporated in this calculation. (B) "REVOLVING LOAN MATURITY DATE" means September 30, 2002. Agent and Lenders will consider a one year extension to the Revolving Loan Maturity Date on each anniversary of this Agreement. However, any extension will require the consent of Agent and all Lenders in their sole discretion." (C) "TOTAL COMMITMENT" means $55,000,000.00. (D) "UNUSED COMMITMENT FEE RATE" means an annual rate determined as set forth below depending upon the ratio of Funded Debt to EBITDA. The adjustment will be effective the first day of the month after Agent has received information needed to determine the relevant ratio. However, if such information is not given to Agent within the time required by SECTION 5.9, Agent may, at its option, adjust the Annual Unused Commitment Fee Rate upwards, if applicable, as of the first day of the month following the date by which such information should have been received. The Unused Commitment Fee Rate which will be in effect from January 1, 2000 until adjusted as provided herein will be 0.250%.
RATIO AT END OF PRIOR ANNUAL UNUSED FISCAL QUARTER COMMITMENT FEE - ------------------------------------------ ------------------------------------------------------ Less than 2.26:1 0.200% Equal to or greater than 2.26:1 0.225% Up to and including 3.00:1 Greater than 3.00:1 0.250% Up to and including 3.25:1 Greater than 3.25:1 0.250% Up to and including 3.50:1 Greater than 3.51 0.275%
For purposes of calculating this ratio, the EBITDA for the prior fiscal year for the "Acquisitions," as defined in SECTION 6.6, shall be included in the calculation. The Acquisitions' EBITDA shall be incorporated on a decreasing pro-rata basis, with 100% of the Acquisitions' EBITDA included in the calculation for the first calendar quarter-end following closing of the Acquisitions, 75% included in the second quarter-end, 50% included in the third quarter-end, and 25% included in the fourth quarter-end. Beginning with the fifth quarter following the closing of the Acquisitions, the EBITDA for the Acquisitions' prior fiscal year shall no longer be incorporated in this calculation. 3. AMENDMENT TO SECTION 2.5 "OPTIONAL CONVERSION OF UP TO $10,000,000 OF REVOLVING LOANS." Section 2.5 is amended to read as follows: "OPTIONAL CONVERSION OF UP TO $10,000,000 OF REVOLVING LOANS. On the first day of any month, up to and including October 1, 2001, if at that time, the conditions set forth in Section 3.1 are satisfied, Borrowers may convert a portion of not less than $500,000 of the Revolving Loans in increments of $100,000 to a Term Loan, but Borrowers shall not convert more than a total of $10,000,000 of Revolving Loans to Term Loans. Each such conversion will be accomplished by Borrowers giving written notice to Agent at least 5 business days prior to the date selected by Borrowers for conversion. Such notice will specify what portions of the Term Loan will bear interest at the available alternative rates described in Section 2.6(b). Principal payments on each Term Loan will be paid in 16 equal consecutive quarterly installments with the first principal payment being due at the end of the calendar quarter following conversion. Interest on each Term Loan will be payable monthly in arrears on the last day of the month. All then unpaid principal and interest on each Term Loan will be due and payable no later than 48 months following such conversion." 4. AMENDMENT TO SECTION 5.13 "MAXIMUM FUNDED DEBT TO EBITDA." Section 5.13 is amended to read as follows: Borrowers and their Subsidiaries, on a consolidated basis, shall maintain for each period of four consecutive fiscal quarters a ratio of Funded Debt to EBITDA of no greater than:
PERIOD RATIO - ------------------------------------------------------------------------------- ------------ For the four consecutive fiscal quarters ending December 31, 1999 3.75:1 For the four consecutive fiscal quarters ending March 31, 2000 3.75:1 For the four consecutive fiscal quarters ending June 30, 2000 3.50:1 For the four consecutive fiscal quarters ending September 30, 2000 3.50:1 For any four consecutive fiscal quarters ending on or after December 31, 2000 3.25:1
For purposes of calculating this covenant, the EBITDA for the prior fiscal year for the "Acquisitions," as defined in Section 6.6, shall be included in the calculation. The Acquisitions' EBITDA shall be incorporated on a decreasing pro-rata basis, with 100% of the Acquisitions' EBITDA included in the calculation for the first calendar quarter-end following closing of the Acquisitions, 75% included in the second quarter-end, 50% included in the third quarter-end, and 25% included in the fourth quarter-end. Beginning with the fifth quarter following the closing of the Acquisitions, the EBITDA for the Acquisitions' prior fiscal year shall no longer be incorporated in this calculation. 5. NO FURTHER AMENDMENT, FEES. Except as expressly modified by this Amendment, the Loan Agreement and the other Loan Documents shall remain unmodified and in full force and effect and the parties hereby ratify their respective obligations thereunder. Without limiting the foregoing, the Borrower expressly reaffirms and ratifies its obligation to pay or reimburse the Agent and the Lender on request for all reasonable expenses, including legal fees, actually incurred by the Agent or such Lender in connection with the preparation of this Amendment, the other Amendment Documents, and the closing of the transactions contemplated hereby and thereby. Borrowers shall pay Agent for the pro rata benefit of Lenders a fee of $10,000 for the increase in the Total Commitment provided herein. Such $10,000 fee shall be paid on execution of this Amendment. 6. MISCELLANEOUS. C. ENTIRE AGREEMENT. This Amendment comprises the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, representations or commitments. D. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same Amendment. E. GOVERNING LAW. This Amendment and the other agreements provided for herein and the rights and obligations of the parties hereto and thereto shall be construed and interpreted in accordance with the laws of the State of Oregon. F. CERTAIN AGREEMENTS NOT ENFORCEABLE. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDERS AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY THE LENDERS TO BE ENFORCEABLE. EXECUTED AND DELIVERED by the duly authorized officers of the parties as of the date first above written. BORROWER: NORTHWEST PIPE COMPANY By: /s/ JOHN D. MURAKAMI Its: VICE PRESIDENT, CHIEF FINANCIAL OFFICER Address: 12005 N. Burgard Portland, OR 97203 Fax No. (503) 240-6615 LENDER: BANK OF AMERICA, N.A. By: /s/ ED KLUSS Its: VICE PRESIDENT Address: Commercial Banking 121 S.W. Morrison Street, Suite 1700 Portland, OR 97204 Fax No. (503) 275-1391 Attn: Larry C. Ellis U.S. BANK NATIONAL ASSOCIATION By: /s/ GREG SALIBA Its: VICE PRESIDENT Address: Oregon Corporate Banking, T-4 111 S.W. Fifth Avenue, Suite 400 Portland, OR 97208 Fax No. (503) 275-7290 Attn: Rick S. Williams AGENT: BANK OF AMERICA, N.A. By: /s/ KEN PURO Its: VICE PRESIDENT Address: Agency Services 701 Fifth Avenue, Floor 16 Seattle, WA 98104 Fax No. (206) 358-0971 Attn: Dora A. Brown EX-10.17 4 EXHIBIT 10.17 EXHIBIT 10.17 July 28, 1999 TO THE CEO OR PRESIDENT: Northwest Pipe Company, an Oregon corporation (the "Company"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interest of the Company and its shareholders. In this connection, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. Accordingly, the Board of Directors of the Company (the "'Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in circumstances arising from the possibility of a Change in Control of the Company. In order to induce you to remain in the employ of the Company, this letter agreement, which has been approved by the Board, sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the Company is terminated subsequent to a ?Change in Control? of the Company under the circumstances described below. 1. RIGHT TO TERMINATE. The Company or you may terminate your employment at any time, subject to the Company's obligations to provide the benefits hereinafter specified in accordance with the terms hereof. 2. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect until July 19, 2001; provided, however, that commencing on July 19, 2001 and each July 19 thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to such July 19 date, the Company or you shall have given notice that this Agreement shall not be extended; provided, however, that this Agreement shall continue in effect for a period of twenty-four (24) months beyond the term provided herein if a Change in Control, as defined in Section 3 hereto shall have occurred during such term. Notwithstanding anything in this Section 2 to the contrary, this Agreement shall terminate if you or the Company terminate your employment prior to a Change in Control as defined in Section 3 hereof. 3. CHANGE IN CONTROL; PERSON. 3.1 For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events: 3.1.1 The approval by the shareholders of the Company of: (a) any consolidation, merger or plan of share exchange involving the Company (a "Merger") in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company ("Company Shares") would be converted into cash, securities or other property, other than a Merger involving Company Shares in which the holders of Company Shares immediately prior to the Merger have the same proportionate ownership of common stock of the surviving corporation immediately after the Merger, (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company; or (c) the adoption of any plan or proposal for the liquidation or dissolution of the Company. 3.1.2 At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board ("Incumbent Directors") shall cease for any reason to constitute at least a majority thereof unless each new director elected during such two-year period was nominated or elected by two-thirds of the Incumbent Directors then in office and voting (with new directors nominated or elected by two-thirds of the Incumbent Directors also being deemed to be Incumbent Directors); or 3.1.3 Any Person (as hereinafter defined) shall, as a result of a tender or exchange offer, open market purchases, or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company ordinarily having the right to vote for the election of directors ("'Voting Securities") representing thirty percent (30%) or more of the combined voting power of the then outstanding Voting Securities. Notwithstanding anything in the foregoing to the contrary, unless otherwise determined by the Board, no Change in Control shall be deemed to have occurred for purposes of this Agreement if (1) you acquire (other than on the same basis as all other holders of the Company Shares) an equity interest in an entity that acquires the Company in a Change in Control otherwise described under subparagraph 3.1.1 above, or (2) you are part of a group that constitutes a Person which becomes a beneficial owner of Voting Securities in a transaction that otherwise would have resulted in a Change in Control under subparagraph 3.1.3 above. 3.2 For purposes of this Agreement, the term "'Person" shall mean and include any individual, corporation, partnership, group, association or other "person," as such term is used in Section 13(d)(3) or Section 14 (d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit plan(s) sponsored by the Company. 4. TERMINATION FOLLOWING CHANGE IN CONTROL. If a Change in Control shall have occurred, you shall be entitled to the benefits provided in Section 5.3 hereof upon the termination of your employment within twenty-four (24) months after such Change in Control unless such termination is (a) because of your death, (b) by the Company for Cause or Disability or (c) by you other than for Good Reason (as all such capitalized terms are hereinafter defined). 4.1 DISABILITY. Termination by the Company of your employment based on "Disability" shall mean termination because of your absence from your duties with the Company on a full-time basis for one hundred eighty (180) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination (as hereinafter defined) is given to you following such absence you shall have returned to the full-time performance of your duties. 4.2 CAUSE. Termination by the Company of your employment for "Cause" shall mean termination upon (a) the willful and continued failure by you to substantially perform your reasonably assigned duties with the Company consistent with those duties assigned to you prior to the Change in Control (other than any such failure resulting from your incapacity due to physical or mental illness) which failure shall not have been corrected within thirty (30) days after a demand for substantial performance is delivered to you by the Chairman of the Board or President of the Company which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (b) the willful engaging by you in illegal conduct which is materially and demonstrably injurious to the Company. For purposes of this paragraph 4.2, no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you in knowing bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in (a) or (b) of this paragraph 4.2 and specifying the particulars thereof in detail. 4.3 GOOD REASON. Termination by you of your employment for "Good Reason" shall mean termination based on: 4.3.1 a change in your status, title, position(s) or responsibilities as an officer of the Company which, in your judgment (which shall be exercised in good faith), constitutes an adverse change from your status, title, position(s) and responsibilities as in effect immediately prior to the Change in Control, or the assignment to you of any duties or responsibilities which, in your judgment (which shall be exercised in good faith), are inconsistent with such status, title or position(s), or any removal of you from or any failure to reappoint or reelect you to such position(s), except in connection with the termination of your employment for Cause, Disability or as a result of your death or by you other than for Good Reason; 4.3.2 a reduction by the Company in your base salary as in effect immediately prior to the Change in Control; 4.3.3 the failure by the Company to continue in effect any Plan (as hereinafter defined) in which you are participating at the time of the Change in Control (or Plans providing you with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by the Company which would adversely affect your continued participation in any of such Plans on at least as favorable a basis to you as is the case on the date of the Change in Control or which would materially reduce your benefits in the future under any of such Plans or deprive you of any material benefit enjoyed by you at the time of the Change in Control; 4.3.4 the failure by the Company to provide and credit you with the number of paid vacation days to which you are then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the Change in Control; 4.3.5 the Company's requiring you to be based anywhere other than within ten (10) miles of where your office is located immediately prior to the Change in Control except for required travel on the Company's business to an extent substantially consistent with the business travel obligations which you undertook on behalf of the Company prior to the Change in Control; 4.3.6 the failure by the Company to obtain from any Successor (as hereinafter defined) the assumption or assent to this Agreement contemplated by Section 6 hereof within thirty (30) days after a Change in Control; or 4.3.7 any purported termination by the Company of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph 4.4 below (and, if applicable, paragraph 4.2 above); and for purposes of this Agreement no such purported termination shall be effective. For purpose of this Agreement, "Plan" shall mean any compensation plan such as an incentive, stock option or restricted stock plan or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, accident, life insurance, or relocation plan or policy or any other plan, program or policy of the Company intended to benefit employees. 4.4 NOTICE OF TERMINATION. Any purported termination by the Company or by you following a Change in Control shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "'Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. 4.5 DATE OF TERMINATION. "Date of Termination" shall mean (a) if your employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) day period), (b) if your employment is to be terminated by the Company for Cause, the date on which a Notice of Termination is given, and (c) if your employment is to be terminated by you or by the Company for any other reason, the date specified in the Notice of Termination, which shall be a date no earlier than ninety (90) days after the date on which a Notice of Termination is given, unless an earlier date has been agreed to by the party receiving the Notice of Termination either in advance of, or after, receiving such Notice of Termination. Notwithstanding anything in the foregoing to the contrary, if the party receiving the Notice of Termination has not previously agreed to the termination, then within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination may notify the other party that a dispute exists concerning the termination, in which event the Date of Termination shall be the date set either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 12 hereof. 5. COMPENSATION UPON TERMINATION OR DURING DISABILITY. 5.1 During any period following a Change in Control that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your full base salary at the rate then in effect and any benefits or awards under any Plans shall continue to accrue during such period, to the extent not inconsistent with such Plans, until your employment is terminated pursuant to and in accordance with paragraphs 4.1, 4.4 and 4.5 hereof. Thereafter, your benefits shall be determined in accordance with the Plans then in effect. 5.2 If your employment shall be terminated for Cause or as a result of your death following a Change in Control of the Company, the Company shall pay you your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both the cash and stock components) which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you. Thereupon the Company shall have no further obligations to you under this Agreement. 5.3 If within twenty-four (24) months after a Change in Control shall have occurred, as defined in Section 3 above, your employment by the Company shall be terminated (a) by the Company other than for Cause or Disability or (b) by you for Good Reason, then, by no later than the fifth day following the Date of Termination (except as otherwise provided), you shall be entitled, without regard to any contrary provisions of any Plan, to a severance benefit (the "Severance Benefit") equal to either (x) the Specified Benefits (as defined in subsection 5.3.1 below), or (y) the Capped Benefit (as defined in subsection 5.3.2 below). You shall be entitled, in your sole discretion, to elect to receive either the Specified Benefits or the Capped Benefit. 5.3.1 The "Specified Benefits" are as follows: (a) the Company shall pay your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both cash and stock components) which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you (including amounts which previously had been deferred at your request); (b) as severance pay and in lieu of any further salary for periods subsequent to the Date of Termination, the Company shall pay to you in a single payment an amount in cash equal to (i) an amount equal to three (3) times the higher of (A) your annual base salary at the rate in effect just prior to the time a Notice of Termination is given, or (B) your annual base salary in effect immediately prior to the Change in Control of the Company, plus (ii) an amount equal to three (3) times the average of the cash bonuses paid to you during the previous three years; (c) for a thirty-six (36) month period after the Date of Termination, the Company shall arrange to provide you and your dependents with life, accident, medical and dental insurance benefits substantially similar to those which you were receiving immediately prior to the Change in Control of the Company. Notwithstanding the foregoing, the Company shall not provide any benefit otherwise receivable by you pursuant to this paragraph 5.3.1(c) to the extent that a similar benefit is actually received by you from a subsequent employer during such thirty-six (36) month period, and any such benefit actually received by you shall be reported to the Company; (d) any and all outstanding options to purchase stock of the Company (or any Successor) held by you shall immediately vest and become exercisable in full; and (e) the Company shall pay you for any vacation time earned but not taken at the Date of Termination, at an hourly rate equal to your annual base salary as in effect immediately prior to the time a Notice of Termination is given divided by 2080. 5.3.2 The "Capped Benefit" equals the Specified Benefits, reduced by the minimum amount necessary to prevent any portion of the Specified Benefits from being a "parachute payment" as defined in Section 280G (b) (2) of the Internal Revenue Code of 1986, as amended ("IRC"), or any successor provision. The amount of the Capped Benefit shall therefore equal (1) three times the "base amount" as defined in IRC, Section 280G (b) (3) (A) reduced by $1 (One Dollar), and further reduced by (2) the present value of all other payments and benefits you are entitled to receive from the Company that are contingent upon a Change in Control of the Company within the meaning of IRC Section 280G (b) (2) (A) (i), including accelerated vesting of options and other awards under the Company's stock option plans, and increased by (3) all Specified Benefits that are not contingent upon a Change in Control within the meaning of IRC Section 280G (b) (2) (A) (i). If you receive the Capped Benefit, you may determine the extent to which each of the Specified Benefits shall be reduced. The parties recognize that there is some uncertainty regarding the computations under IRC Section280G which must be applied to determine the Capped Benefit. Accordingly, the parties agree that, after the Severance Benefit is paid, the amount of the Capped Benefit may be retroactively adjusted to the extent any subsequent Internal Revenue Service regulations, rulings, audits or other pronouncements establish that the original calculation of the Capped Benefit was incorrect. In that case, amounts shall be paid or reimbursed between the parties so that you will have received the Severance Benefit you would have received if the Capped Benefit had originally been calculated correctly. 5.4 Except as specifically provided above, the amount of any payment provided for in this Section 5 shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise. Your entitlements under Section 5.3 are in addition to, and not in lieu of any rights, benefits or entitlements you may have under the terms or provisions of any Plan. 6. SUCCESSORS; BINDING AGREEMENT. 6.1 The Company will seek to have any Successor (as hereinafter defined), by agreement in form and substance satisfactory to you, assume the Company's obligations under this Agreement or assent to the fulfillment by the Company of its obligations under this Agreement. Failure of the Company to obtain such assumption or assent prior to or at the time a Person becomes a Successor shall constitute Good Reason for termination by you of your employment and, if a Change in Control of the Company has occurred, shall entitle you immediately to the benefits provided in Section 5.3 hereof upon delivery by you of a Notice of Termination which the Company, by executing this Agreement, hereby assents to. This Agreement will be binding upon and inure to the benefit of the Company and any Successor (and such Successor shall thereafter be deemed the ?Company? for purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. For purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger, consolidation or purchase of assets, or indirectly, by purchase of the Company's Voting Securities or otherwise. 6.2 This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 7. FEES AND EXPENSES. The Company shall pay all legal fees and related legal expenses incurred by you as a result of (i) your termination following a Change in Control of the Company (including all such fees and expenses, if any, incurred in contesting or disputing any such termination) or (ii) your seeking to obtain or enforce any right or benefit provided by this Agreement. 8. SURVIVAL. The respective obligations of, and benefits afforded to, the Company and you as provided in Section 5, 6, 7 and 12 of this Agreement shall survive termination of this Agreement. 9. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid and addressed to the address of the respective party set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chairman of the Board or President of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing. In accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by you and the Chairman of the Board or President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oregon. 11. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Portland, Oregon by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 12. 13. RELATED AGREEMENTS. To the extent that any provision of any other agreement between the Company or any of its subsidiaries and you shall limit, qualify or be inconsistent with any provision of this Agreement, then for purposes of this Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such purpose. 14. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, William R. Tagmyer, CEO Northwest Pipe Company AGREED AND ACCEPTED: - --------------------------------- EX-10.18 5 EXHIBIT 10.18 EXHIBIT 10.18 July 28, 1999 TO THE VICE PRESIDENT: Northwest Pipe Company, an Oregon corporation (the "Company"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interest of the Company and its shareholders. In this connection, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. Accordingly, the Board of Directors of the Company (the "'Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management to their assigned duties without distraction in circumstances arising from the possibility of a Change in Control of the Company. In order to induce you to remain in the employ of the Company, this letter agreement, which has been approved by the Board, sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the Company is terminated subsequent to a "Change in Control" of the Company under the circumstances described below. 1. RIGHT TO TERMINATE. The Company or you may terminate your employment at any time, subject to the Company's obligations to provide the benefits hereinafter specified in accordance with the terms hereof. 2. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect until July 19, 2001; provided, however, that commencing on July 19, 2001 and each July 19 thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 90 days prior to such July 19 date, the Company or you shall have given notice that this Agreement shall not be extended; provided, however, that this Agreement shall continue in effect for a period of twenty-four (24) months beyond the term provided herein if a Change in Control, as defined in Section 3 hereto shall have occurred during such term. Notwithstanding anything in this Section 2 to the contrary, this Agreement shall terminate if you or the Company terminate your employment prior to a Change in Control as defined in Section 3 hereof. 3. CHANGE IN CONTROL; PERSON. 3.1 For purposes of this Agreement, a "Change in Control" shall mean the occurrence of any of the following events: 3.1.1 The approval by the shareholders of the Company of: (a) any consolidation, merger or plan of share exchange involving the Company (a "Merger") in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company ("Company Shares") would be converted into cash, securities or other property, other than a Merger involving Company Shares in which the holders of Company Shares immediately prior to the Merger have the same proportionate ownership of common stock of the surviving corporation immediately after the Merger, (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company; or (c) the adoption of any plan or proposal for the liquidation or dissolution of the Company. 3.1.2 At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board ("Incumbent Directors") shall cease for any reason to constitute at least a majority thereof unless each new director elected during such two-year period was nominated or elected by two-thirds of the Incumbent Directors then in office and voting (with new directors nominated or elected by two-thirds of the Incumbent Directors also being deemed to be Incumbent Directors); or 3.1.3 Any Person (as hereinafter defined) shall, as a result of a tender or exchange offer, open market purchases, or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company ordinarily having the right to vote for the election of directors ("'Voting Securities") representing thirty percent (30%) or more of the combined voting power of the then outstanding Voting Securities. Notwithstanding anything in the foregoing to the contrary, unless otherwise determined by the Board, no Change in Control shall be deemed to have occurred for purposes of this Agreement if (1) you acquire (other than on the same basis as all other holders of the Company Shares) an equity interest in an entity that acquires the Company in a Change in Control otherwise described under subparagraph 3.1.1 above, or (2) you are part of a group that constitutes a Person which becomes a beneficial owner of Voting Securities in a transaction that otherwise would have resulted in a Change in Control under subparagraph 3.1.3 above. 3.2 For purposes of this Agreement, the term "'Person" shall mean and include any individual, corporation, partnership, group, association or other "person," as such term is used in Section 13(d)(3) or Section 14 (d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit plan(s) sponsored by the Company. 4. TERMINATION FOLLOWING CHANGE IN CONTROL. If a Change in Control shall have occurred, you shall be entitled to the benefits provided in Section 5.3 hereof upon the termination of your employment within twenty-four (24) months after such Change in Control unless such termination is (a) because of your death, (b) by the Company for Cause or Disability or (c) by you other than for Good Reason (as all such capitalized terms are hereinafter defined). 4.1 DISABILITY. Termination by the Company of your employment based on "Disability" shall mean termination because of your absence from your duties with the Company on a full-time basis for one hundred eighty (180) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination (as hereinafter defined) is given to you following such absence you shall have returned to the full-time performance of your duties. 4.2 CAUSE. Termination by the Company of your employment for "Cause" shall mean termination upon (a) the willful and continued failure by you to substantially perform your reasonably assigned duties with the Company consistent with those duties assigned to you prior to the Change in Control (other than any such failure resulting from your incapacity due to physical or mental illness) which failure shall not have been corrected within thirty (30) days after a demand for substantial performance is delivered to you by the Chairman of the Board or President of the Company which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (b) the willful engaging by you in illegal conduct which is materially and demonstrably injurious to the Company. For purposes of this paragraph 4.2, no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you in knowing bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the corporation. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth above in (a) or (b) of this paragraph 4.2 and specifying the particulars thereof in detail. 4.3 GOOD REASON. Termination by you of your employment for "Good Reason" shall mean termination based on: 4.3.1 a change in your status, title, position(s) or responsibilities as an officer of the Company which, in your judgment (which shall be exercised in good faith), constitutes an adverse change from your status, title, position(s) and responsibilities as in effect immediately prior to the Change in Control, or the assignment to you of any duties or responsibilities which, in your judgment (which shall be exercised in good faith), are inconsistent with such status, title or position(s), or any removal of you from or any failure to reappoint or reelect you to such position(s), except in connection with the termination of your employment for Cause, Disability or as a result of your death or by you other than for Good Reason; 4.3.2 a reduction by the Company in your base salary as in effect immediately prior to the Change in Control; 4.3.3 the failure by the Company to continue in effect any Plan (as hereinafter defined) in which you are participating at the time of the Change in Control (or Plans providing you with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by the Company which would adversely affect your continued participation in any of such Plans on at least as favorable a basis to you as is the case on the date of the Change in Control or which would materially reduce your benefits in the future under any of such Plans or deprive you of any material benefit enjoyed by you at the time of the Change in Control; 4.3.4 the failure by the Company to provide and credit you with the number of paid vacation days to which you are then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the Change in Control; 4.3.5 the Company's requiring you to be based anywhere other than within ten (10) miles of where your office is located immediately prior to the Change in Control except for required travel on the Company's business to an extent substantially consistent with the business travel obligations which you undertook on behalf of the Company prior to the Change in Control; 4.3.6 the failure by the Company to obtain from any Successor (as hereinafter defined) the assumption or assent to this Agreement contemplated by Section 6 hereof within thirty (30) days after a Change in Control; or 4.3.7 any purported termination by the Company of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph 4.4 below (and, if applicable, paragraph 4.2 above); and for purposes of this Agreement no such purported termination shall be effective. For purpose of this Agreement, "Plan" shall mean any compensation plan such as an incentive, stock option or restricted stock plan or any employee benefit plan such as a thrift, pension, profit sharing, medical, disability, accident, life insurance, or relocation plan or policy or any other plan, program or policy of the Company intended to benefit employees. 4.4 NOTICE OF TERMINATION. Any purported termination by the Company or by you following a Change in Control shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "'Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. 4.5 DATE OF TERMINATION. "Date of Termination" shall mean (a) if your employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such thirty (30) day period), (b) if your employment is to be terminated by the Company for Cause, the date on which a Notice of Termination is given, and (c) if your employment is to be terminated by you or by the Company for any other reason, the date specified in the Notice of Termination, which shall be a date no earlier than ninety (90) days after the date on which a Notice of Termination is given, unless an earlier date has been agreed to by the party receiving the Notice of Termination either in advance of, or after, receiving such Notice of Termination. Notwithstanding anything in the foregoing to the contrary, if the party receiving the Notice of Termination has not previously agreed to the termination, then within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination may notify the other party that a dispute exists concerning the termination, in which event the Date of Termination shall be the date set either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 12 hereof. 5. COMPENSATION UPON TERMINATION OR DURING DISABILITY. 5.1 During any period following a Change in Control that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your full base salary at the rate then in effect and any benefits or awards under any Plans shall continue to accrue during such period, to the extent not inconsistent with such Plans, until your employment is terminated pursuant to and in accordance with paragraphs 4.1, 4.4 and 4.5 hereof. Thereafter, your benefits shall be determined in accordance with the Plans then in effect. 5.2 If your employment shall be terminated for Cause or as a result of your death following a Change in Control of the Company, the Company shall pay you your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both the cash and stock components) which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you. Thereupon the Company shall have no further obligations to you under this Agreement. 5.3 If within twenty-four (24) months after a Change in Control shall have occurred, as defined in Section 3 above, your employment by the Company shall be terminated (a) by the Company other than for Cause or Disability or (b) by you for Good Reason, then, by no later than the fifth day following the Date of Termination (except as otherwise provided), you shall be entitled, without regard to any contrary provisions of any Plan, to a severance benefit (the "Severance Benefit") equal to either (x) the Specified Benefits (as defined in subsection 5.3.1 below), or (y) the Capped Benefit (as defined in subsection 5.3.2 below). You shall be entitled, in your sole discretion, to elect to receive either the Specified Benefits or the Capped Benefit. 5.3.1 The "Specified Benefits" are as follows: (a) the Company shall pay your full base salary through the Date of Termination at the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards (including both cash and stock components) which pursuant to the terms of any Plans have been earned or become payable, but which have not yet been paid to you (including amounts which previously had been deferred at your request); (b) as severance pay and in lieu of any further salary for periods subsequent to the Date of Termination, the Company shall pay to you in a single payment an amount in cash equal to (i) an amount equal to two (2) times the higher of (A) your annual base salary at the rate in effect just prior to the time a Notice of Termination is given, or (B) your annual base salary in effect immediately prior to the Change in Control of the Company, plus (ii) an amount equal to two (2) times the average of the cash bonuses paid to you during the previous three years; (c) for a twenty-four (24) month period after the Date of Termination, the Company shall arrange to provide you and your dependents with life, accident, medical and dental insurance benefits substantially similar to those which you were receiving immediately prior to the Change in Control of the Company. Notwithstanding the foregoing, the Company shall not provide any benefit otherwise receivable by you pursuant to this paragraph 5.3.1(c) to the extent that a similar benefit is actually received by you from a subsequent employer during such twenty-four (24) month period, and any such benefit actually received by you shall be reported to the Company; (d) any and all outstanding options to purchase stock of the Company (or any Successor) held by you shall immediately vest and become exercisable in full; and (e) the Company shall pay you for any vacation time earned but not taken at the Date of Termination, at an hourly rate equal to your annual base salary as in effect immediately prior to the time a Notice of Termination is given divided by 2080. 5.3.2 The "Capped Benefit" equals the Specified Benefits, reduced by the minimum amount necessary to prevent any portion of the Specified Benefits from being a "parachute payment" as defined in Section 280G (b) (2) of the Internal Revenue Code of 1986, as amended ("IRC"), or any successor provision. The amount of the Capped Benefit shall therefore equal (1) three times the "base amount" as defined in IRC, Section 280G (b) (3) (A) reduced by $1 (One Dollar), and further reduced by (2) the present value of all other payments and benefits you are entitled to receive from the Company that are contingent upon a Change in Control of the Company within the meaning of IRC Section 280G (b) (2) (A) (i), including accelerated vesting of options and other awards under the Company's stock option plans, and increased by (3) all Specified Benefits that are not contingent upon a Change in Control within the meaning of IRC Section 280G (b) (2) (A) (i). If you receive the Capped Benefit, you may determine the extent to which each of the Specified Benefits shall be reduced. The parties recognize that there is some uncertainty regarding the computations under IRC Section 280G which must be applied to determine the Capped Benefit. Accordingly, the parties agree that, after the Severance Benefit is paid, the amount of the Capped Benefit may be retroactively adjusted to the extent any subsequent Internal Revenue Service regulations, rulings, audits or other pronouncements establish that the original calculation of the Capped Benefit was incorrect. In that case, amounts shall be paid or reimbursed between the parties so that you will have received the Severance Benefit you would have received if the Capped Benefit had originally been calculated correctly. 5.4 Except as specifically provided above, the amount of any payment provided for in this Section 5 shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by you as the result of employment by another employer after the Date of Termination, or otherwise. Your entitlements under Section 5.3 are in addition to, and not in lieu of any rights, benefits or entitlements you may have under the terms or provisions of any Plan. 6. SUCCESSORS; BINDING AGREEMENT. 6.1 The Company will seek to have any Successor (as hereinafter defined), by agreement in form and substance satisfactory to you, assume the Company's obligations under this Agreement or assent to the fulfillment by the Company of its obligations under this Agreement. Failure of the Company to obtain such assumption or assent prior to or at the time a Person becomes a Successor shall constitute Good Reason for termination by you of your employment and, if a Change in Control of the Company has occurred, shall entitle you immediately to the benefits provided in Section 5.3 hereof upon delivery by you of a Notice of Termination which the Company, by executing this Agreement, hereby assents to. This Agreement will be binding upon and inure to the benefit of the Company and any Successor (and such Successor shall thereafter be deemed the "Company" for purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. For purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger, consolidation or purchase of assets, or indirectly, by purchase of the Company's Voting Securities or otherwise. 6.2 This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 7. FEES AND EXPENSES. The Company shall pay all legal fees and related legal expenses incurred by you as a result of (i) your termination following a Change in Control of the Company (including all such fees and expenses, if any, incurred in contesting or disputing any such termination) or (ii) your seeking to obtain or enforce any right or benefit provided by this Agreement. 8. SURVIVAL. The respective obligations of, and benefits afforded to, the Company and you as provided in Section 5, 6, 7 and 12 of this Agreement shall survive termination of this Agreement. 9. NOTICE. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid and addressed to the address of the respective party set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention of the Chairman of the Board or President of the Company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing. In accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in a writing signed by you and the Chairman of the Board or President of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Oregon. 11. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Portland, Oregon by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 12. 13. RELATED AGREEMENTS. To the extent that any provision of any other agreement between the Company or any of its subsidiaries and you shall limit, qualify or be inconsistent with any provision of this Agreement, then for purposes of this Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of such other agreement shall be deemed to have been superseded, and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such purpose. 14. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same instrument. If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, Brian W. Dunham, President Northwest Pipe Company AGREED AND ACCEPTED: - ------------------------------------ EX-21 6 EXHIBIT 21 EXHIBIT 21 NORTHWEST PIPE COMPANY SUBSIDIARIES OF THE REGISTRANT Southwestern Pipe, Inc. (a Texas Corporation) P&H Tube Corporation (a Texas Corporation) Thompson Tanks Mexico S.A. de C.V. North American Pipe, Inc. (a Texas Corporation) EX-23 7 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Northwest Pipe Company on Form S-8 (File Nos. 333-20165, 333-20167, 333-89949 and 333-64083) of our report dated February 21, 2000 on our audits of the consolidated financial statements and financial statement schedule of Northwest Pipe Company and Subsidiaries as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, which report is included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Portland, Oregon March 20, 2000 EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 969 0 49,830 1,896 44,362 121,622 131,629 30,389 248,271 65,144 0 0 0 64 97,105 248,271 240,307 240,307 191,403 191,403 18,790 0 8,065 22,049 8,764 13,285 0 0 0 13,285 2.06 2.01
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