The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. |
Organization and Basis of Presentation |
Northwest Pipe Company (collectively with its subsidiaries, the “Company”) is a leading manufacturer of water-related infrastructure products, and operates in two segments, Engineered Steel Pressure Pipe (“SPP”) and Precast Infrastructure and Engineered Systems (“Precast”). This segment presentation is consistent with how the Company’s chief operating decision maker, its Chief Executive Officer, evaluates performance of the Company and makes decisions regarding the allocation of resources. See Note 11, “Segment Information” for detailed descriptions of these segments.
In addition to being the largest manufacturer of engineered steel water pipeline systems in North America, the Company manufactures stormwater and wastewater technology products; high-quality precast and reinforced concrete products; pump lift stations; steel casing pipe, bar-wrapped concrete cylinder pipe, and one of the largest offerings of pipeline system joints, fittings, and specialized components. Strategically positioned to meet growing water and wastewater infrastructure needs, the Company provides solution-based products for a wide range of markets under the ParkUSA, Geneva Pipe and Precast, Permalok®, and Northwest Pipe Company lines. The Company is headquartered in Vancouver, Washington, and has 13 manufacturing facilities across North America.
The Condensed Consolidated Financial Statements are expressed in United States Dollars and include the accounts of the Company and its subsidiaries over which the Company exercises control as of the financial statement date. Intercompany accounts and transactions have been eliminated.
The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. The financial information as of December 31, 2022 is derived from the audited Consolidated Financial Statements presented in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2022 (“2022 Form 10‑K”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission and the accounting standards for interim financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements include all adjustments necessary (which are of a normal and recurring nature) for the fair statement of the results of the interim periods presented. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s 2022 Form 10‑K.
Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2023.
Inventories consist of the following (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
45,139 |
|
|
$ |
47,978 |
|
Work-in-process |
|
|
7,520 |
|
|
|
5,114 |
|
Finished goods |
|
|
16,134 |
|
|
|
15,773 |
|
Supplies |
|
|
2,177 |
|
|
|
2,164 |
|
Total inventories |
|
$ |
70,970 |
|
|
$ |
71,029 |
|
3. |
Fair Value Measurements |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date.
The authoritative guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. These levels are: Level 1 (inputs are quoted prices in active markets for identical assets or liabilities); Level 2 (inputs are other than quoted prices that are observable, either directly or indirectly through corroboration with observable market data); and Level 3 (inputs are unobservable, with little or no market data that exists, such as internal financial forecasts). The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table summarizes information regarding the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
As of March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan |
|
$ |
3,677 |
|
|
$ |
3,173 |
|
|
$ |
504 |
|
|
$ |
- |
|
Foreign currency forward contracts |
|
|
463 |
|
|
|
- |
|
|
|
463 |
|
|
|
- |
|
Interest rate swaps |
|
|
626 |
|
|
|
- |
|
|
|
626 |
|
|
|
- |
|
Total financial assets |
|
$ |
4,766 |
|
|
$ |
3,173 |
|
|
$ |
1,593 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
(18 |
) |
|
$ |
- |
|
|
$ |
(18 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan |
|
$ |
3,587 |
|
|
$ |
3,090 |
|
|
$ |
497 |
|
|
$ |
- |
|
Foreign currency forward contracts |
|
|
728 |
|
|
|
- |
|
|
|
728 |
|
|
|
- |
|
Interest rate swaps |
|
|
862 |
|
|
|
- |
|
|
|
862 |
|
|
|
- |
|
Total financial assets |
|
$ |
5,177 |
|
|
$ |
3,090 |
|
|
$ |
2,087 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
(80 |
) |
|
$ |
- |
|
|
$ |
(80 |
) |
|
$ |
- |
|
The deferred compensation plan assets consist of cash and several publicly traded stock and bond mutual funds, valued using quoted market prices in active markets, classified as Level 1 within the fair value hierarchy, as well as guaranteed investment contracts, valued at principal plus interest credited at contract rates, classified as Level 2 within the fair value hierarchy. Deferred compensation plan assets are included within Other assets in the Condensed Consolidated Balance Sheets.
The foreign currency forward contracts and interest rate swaps are derivatives valued using various pricing models or discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates, and are classified as Level 2 within the fair value hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company. The foreign currency forward contracts and interest rate swaps are presented at their gross fair values. Foreign currency forward contract and interest rate swap assets are included within Prepaid expenses and other and foreign currency forward contract liabilities are included within Accrued liabilities in the Condensed Consolidated Balance Sheets.
The net carrying amounts of cash and cash equivalents, trade and other receivables, accounts payable, accrued liabilities, current debt, and borrowings on the line of credit approximate fair value due to the short-term nature of these instruments.
4. | Derivative Instruments and Hedging Activities |
In the normal course of business, the Company is exposed to interest rate and foreign currency exchange rate fluctuations. Consistent with the Company’s strategy for financial risk management, the Company has established a program that utilizes foreign currency forward contracts and interest rate swaps to offset the risks associated with the effects of these exposures.
For each derivative entered into in which the Company seeks to obtain cash flow hedge accounting treatment, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method of measuring ineffectiveness. This process includes linking all derivatives to specific firm commitments or forecasted transactions and designating the derivatives as cash flow hedges. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of these hedged items is reflected in Unrealized gain (loss) on cash flow hedges on the Condensed Consolidated Statements of Comprehensive Income. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, the Company is required to discontinue hedge accounting with respect to that derivative prospectively.
As of March 31, 2023, the total notional amount of the foreign currency forward contracts was $14.4 million (CAD$19.5 million) and $1.1 million (EUR€1.1 million), which included $0.3 million (CAD$0.4 million) of foreign currency forward contracts not designated as cash flow hedges. As of December 31, 2022, the total notional amount of the foreign currency forward contracts was $17.1 million (CAD$23.2 million) and $1.1 million (EUR€1.1 million), which included $0.3 million (CAD$0.4 million) of foreign currency forward contracts not designated as cash flow hedges. As of March 31, 2023, the Company’s foreign currency forward contracts mature at various dates through September 2024 and are subject to an enforceable master netting arrangement.
The Company has an interest rate swap which effectively converts a portion of its variable-rate debt to fixed-rate debt and is designated as a cash flow hedge. The Company receives floating interest payments monthly based on the Secured Overnight Finance Rate (“SOFR”) and pays a fixed rate of 1.941% to the counterparty. As of March 31, 2023 and December 31, 2022, the total notional amount of the interest rate swap was $21.7 million and $26.7 million, respectively, which amortizes ratably on a monthly basis to zero by the April 2024 maturity date.
On August 9, 2022, the Company entered into an interest rate swap transaction which began April 3, 2023 at a notional amount of $15.0 million and amortizes ratably on a monthly basis to zero by the April 2028 maturity date. The Company receives floating interest payments monthly based on the 30 day Average SOFR and pays a fixed rate of 2.96% to the counterparty.
The following table summarizes the gains (losses) recognized on derivatives in the Condensed Consolidated Financial Statements (in thousands):
| | Three Months Ended March 31, | |
| | 2023 | | | 2022 | |
Foreign currency forward contracts: | | | | | | | | |
Net sales | | $ | (282 | ) | | $ | 12 | |
Property and equipment | | | (87 | ) | | | - | |
| | | | | | | | |
Interest rate swaps: | | | | | | | | |
Interest expense | | | 158 | | | | - | |
Total | | $ | (211 | ) | | $ | 12 | |
As of March 31, 2023, unrealized pretax gains on outstanding cash flow hedges in Accumulated other comprehensive loss was $0.8 million, of which $0.2 million, approximately $0, and $0.6 million are expected to be reclassified to Net sales, Property and equipment, and Interest expense, respectively, within the next twelve months as a result of underlying hedged transactions also being recorded in these line items. See Note 9, “Accumulated Other Comprehensive Loss” for additional quantitative information regarding foreign currency forward contract and interest rate swap gains and losses.
5. |
Share-based Compensation |
The Company has one active stock incentive plan for employees and directors, the 2022 Stock Incentive Plan, which provides for awards of stock options to purchase shares of common stock, stock appreciation rights, restricted and unrestricted shares of common stock, restricted stock units (“RSUs”), and performance share awards (“PSAs”). In addition, the Company has one inactive stock incentive plan, the 2007 Stock Incentive Plan, under which previously granted awards remain outstanding.
The Company recognizes the compensation cost of employee and director services received in exchange for awards of equity instruments based on the grant date estimated fair value of the awards. The Company estimates the fair value of RSUs and PSAs using the value of the Company’s stock on the date of grant. Share-based compensation cost is recognized over the period during which the employee or director is required to provide service in exchange for the award and, as forfeitures occur, the associated compensation cost recognized to date is reversed. For awards with performance-based payout conditions, the Company recognizes compensation cost based on the probability of achieving the performance conditions, with changes in expectations recognized as an adjustment to earnings in the period of change. Any recognized compensation cost is reversed if the conditions are ultimately not met.
The following table summarizes share-based compensation expense recorded (in thousands):
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
$ |
275 |
|
|
$ |
240 |
|
Selling, general, and administrative expense |
|
|
715 |
|
|
|
395 |
|
Total |
|
$ |
990 |
|
|
$ |
635 |
|
Restricted Stock Units and Performance Share Awards
The Company’s stock incentive plan provides for equity instruments, such as RSUs and PSAs, which grant the right to receive a specified number of shares at specified times. RSUs and PSAs are service-based awards that vest according to the terms of the grant. PSAs have performance-based payout conditions.
The following table summarizes the Company’s RSU and PSA activity:
|
|
Number of RSUs and PSAs (1) |
|
|
Weighted-Average Grant Date Fair Value |
|
|
|
|
|
|
|
|
|
|
Unvested RSUs and PSAs as of December 31, 2022 |
|
|
200,924 |
|
|
$ |
30.80 |
|
Unvested RSUs and PSAs canceled |
|
|
(2,475 |
) |
|
|
31.94 |
|
RSUs and PSAs vested (2) |
|
|
(95,442 |
) |
|
|
30.12 |
|
Unvested RSUs and PSAs as of March 31, 2023 |
|
|
103,007 |
|
|
|
31.40 |
|
(1) |
The number of PSAs disclosed in this table are at the target level of 100%. |
|
|
(2) |
For the PSAs vested on March 31, 2023, the actual number of common shares that were issued was determined by multiplying the PSAs at the target level of 100%, as disclosed in this table, by a payout percentage based on the performance-based conditions achieved. The payout percentage was 159% for the 2020-2022 performance period, 126% for the 2021-2022 performance period, and 132% for the 2022 performance period. |
The unvested balance of RSUs and PSAs as of March 31, 2023 includes approximately 77,000 PSAs at the target level of 100%. The vesting of these awards is subject to the achievement of specified performance-based conditions, and the actual number of common shares that will ultimately be issued will be determined by multiplying this number of PSAs by a payout percentage ranging from 0% to 200%.
Based on the estimated level of achievement of the performance targets associated with the PSAs as of March 31, 2023, unrecognized compensation expense related to the unvested portion of the Company’s RSUs and PSAs was $2.5 million, which is expected to be recognized over a weighted-average period of 1.5 years.
6. |
Commitments and Contingencies |
Portland Harbor Superfund Site
In December 2000, a section of the lower Willamette River known as the Portland Harbor Superfund Site was included on the National Priorities List at the request of the United States Environmental Protection Agency (“EPA”). While the Company’s Portland, Oregon manufacturing facility does not border the Willamette River, an outfall from the facility’s stormwater system drains into a neighboring property’s privately owned stormwater system and slip. Also in December 2000, the Company was notified by the EPA and the Oregon Department of Environmental Quality (“ODEQ”) of potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). A remedial investigation and feasibility study of the Portland Harbor Superfund Site was directed by a group of 14 potentially responsible parties known as the Lower Willamette Group under agreement with the EPA. The EPA finalized the remedial investigation report in February 2016, and the feasibility study in June 2016, which identified multiple remedial alternatives. In January 2017, the EPA issued its Record of Decision selecting the remedy for cleanup at the Portland Harbor Superfund Site, which it believes will cost approximately $1 billion at net present value and 13 years to complete. The EPA has not yet determined who is responsible for the costs of cleanup or how the cleanup costs will be allocated among the more than 150 potentially responsible parties. Because of the large number of potentially responsible parties and the variability in the range of remediation alternatives, the Company is unable to estimate an amount or an amount within a range of costs for its obligation with respect to the Portland Harbor Superfund Site matters, and no further adjustment to the Condensed Consolidated Financial Statements has been recorded as of the date of this filing.
The ODEQ is separately providing oversight of voluntary investigations and source control activities by the Company involving the Company’s site, which are focused on controlling any current “uplands” releases of contaminants into the Willamette River. No liabilities have been established in connection with these investigations because the extent of contamination and the Company’s responsibility for the contamination have not yet been determined.
Concurrent with the activities of the EPA and the ODEQ, the Portland Harbor Natural Resources Trustee Council (“Trustees”) sent some or all of the same parties, including the Company, a notice of intent to perform a Natural Resource Damage Assessment (“NRDA”) for the Portland Harbor Superfund Site to determine the nature and extent of natural resource damages under CERCLA Section 107. The Trustees for the Portland Harbor Superfund Site consist of representatives from several Northwest Indian Tribes, three federal agencies, and one state agency. The Trustees act independently of the EPA and the ODEQ. The Trustees have encouraged potentially responsible parties to voluntarily participate in the funding of their injury assessments and several of those parties have agreed to do so. In June 2014, the Company agreed to participate in the injury assessment process, which included funding $0.4 million of the assessment. The Company has not assumed any additional payment obligations or liabilities with the participation with the NRDA, nor does the Company expect to incur significant future costs in the resolution of the NRDA.
In January 2017, the Confederated Tribes and Bands of the Yakama Nation, a Trustee until they withdrew from the council in 2009, filed a complaint against the potentially responsible parties including the Company to recover costs related to their own injury assessment and compensation for natural resources damages. The case has been stayed until January 2025, and the Company does not have sufficient information at this time to determine the likelihood of a loss in this matter or the amount of damages that could be allocated to the Company.
The Company has insurance policies for defense costs, as well as indemnification policies it believes will provide reimbursement for the remediation assessed. However, the Company can provide no assurance that those policies will cover all of the costs which the Company may incur.
All Sites
The Company operates its facilities under numerous governmental permits and licenses relating to air emissions, stormwater runoff, and other environmental matters. The Company’s operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health, principally the Occupational Safety and Health Act and regulations thereunder which, among other requirements, establish noise and dust standards. The Company believes it is in material compliance with its permits and licenses and these laws and regulations, and the Company does not believe that future compliance with such laws and regulations will have a material adverse effect on its financial position, results of operations, or cash flows.
Other Contingencies and Legal Proceedings
From time to time, the Company is party to a variety of legal actions, including claims, suits, complaints, and investigations arising out of the ordinary course of its business. The Company maintains insurance coverage against potential claims in amounts that are believed to be adequate. To the extent that insurance does not cover legal, defense, and indemnification costs associated with a loss contingency, the Company records accruals when such losses are considered probable and reasonably estimable. The Company believes that it is not presently a party to legal actions, the outcomes of which would have a material adverse effect on its business, financial condition, results of operations, or cash flows.
Commitments
As of March 31, 2023, the Company’s commitments include approximately $1.1 million remaining relating to its investment in the primary component of the new reinforced concrete pipe mill for which the Company has not yet received the equipment.
Guarantees
The Company has entered into certain letters of credit that total $1.1 million as of March 31, 2023. The letters of credit relate to workers’ compensation insurance.
The Company manufactures water infrastructure steel pipe products, which are generally made to custom specifications for installation contractors serving projects funded by public water agencies, as well as precast and reinforced concrete products. Generally, each of the Company’s contracts with its customers contains a single performance obligation, as the promise to transfer products is not separately identifiable from other promises in the contract and, therefore, is not distinct. The Company generally does not recognize revenue on a contract until the contract has approval and commitment from both parties, the contract rights and payment terms can be identified, the contract has commercial substance, and its collectability is probable.
SPP revenue for water infrastructure steel pipe products is recognized over time as the manufacturing process progresses because of the Company’s right to payment for work performed to date plus a reasonable profit on cancellations for unique products that have no alternative use to the Company. Revenue is measured by the costs incurred to date relative to the estimated total direct costs to fulfill each contract (cost-to-cost method). Contract costs include all material, labor, and other direct costs incurred in satisfying the performance obligations. The cost of steel material is recognized as a contract cost when the steel is introduced into the manufacturing process. Changes in job performance, job conditions, and estimated profitability, including those arising from contract change orders, contract penalty provisions, foreign currency exchange rate movements, changes in raw materials costs, and final contract settlements may result in revisions to estimates of revenue, costs, and income, and are recognized in the period in which the revisions are determined. Provisions for losses on uncompleted contracts, included in Accrued liabilities, are estimated by comparing total estimated contract revenue to the total estimated contract costs and a loss is recognized during the period in which it becomes probable and can be reasonably estimated.
Revisions in contract estimates resulted in an increase (decrease) in SPP net sales of $0.4 million and $(0.8) million for the three months ended March 31, 2023 and 2022, respectively.
Precast revenue for water infrastructure concrete pipe and precast concrete products is recognized at the time control is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for the products. All variable consideration that may affect the total transaction price, including contractual discounts, returns, and credits, is included in net sales. Estimates for variable consideration are based on historical experience, anticipated performance, and management’s judgment. The Company’s contracts do not contain significant financing.
Disaggregation of Revenue
The following table disaggregates revenue by recognition over time or at a point in time, as the Company believes it best depicts how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors (in thousands):
| | Three Months Ended March 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Over time (Engineered Steel Pressure Pipe) | | $ | 63,546 | | | $ | 74,715 | |
Point in time (Precast Infrastructure and Engineered Systems) | | | 35,551 | | | | 34,616 | |
Net sales | | $ | 99,097 | | | $ | 109,331 | |
Contract Assets and Liabilities
Contract assets primarily represent revenue earned over time but not yet billable based on the terms of the contracts. These amounts will be billed based on the terms of the contracts, which can include certain milestones, partial shipments, or completion of the contracts. Payment terms of amounts billed vary based on the customer, but are typically due within 30 days of invoicing.
Contract liabilities represent advance billings on contracts, typically for steel. The Company recognized revenue that was included in the contract liabilities balance at the beginning of each period of $10.5 million and $1.6 million during the three months ended March 31, 2023 and 2022, respectively.
Backlog
Backlog represents the balance of remaining performance obligations under signed contracts for SPP water infrastructure steel pipe products for which revenue is recognized over time. As of March 31, 2023, backlog was $297 million. The Company expects to recognize approximately 54% of the remaining performance obligations in 2023, 39% in 2024, and the balance thereafter.
The Company files income tax returns in the United States Federal jurisdiction, in a limited number of foreign jurisdictions, and in many state jurisdictions. With few exceptions, the Company is no longer subject to United States Federal, state, or foreign income tax examinations for years before 2018.
The Company recorded income tax expense at an estimated effective income tax rate of 28.7% and 27.4% for the three months ended March 31, 2023 and 2022, respectively. The Company’s estimated effective income tax rates for the three months ended March 31, 2023 and 2022 were primarily impacted by non-deductible permanent differences.
9. |
Accumulated Other Comprehensive Loss |
The following table summarizes changes in the components of Accumulated other comprehensive loss (in thousands). All amounts are net of income tax:
|
|
Pension Liability Adjustment |
|
|
Unrealized Gain on Foreign Currency Forward Contracts Designated as Cash Flow Hedges |
|
|
Unrealized Gain on Interest Rate Swap Designated as Cash Flow Hedge |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2022 |
|
$ |
(1,532 |
) |
|
$ |
94 |
|
|
$ |
649 |
|
|
$ |
(789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications |
|
|
26 |
|
|
|
(10 |
) |
|
|
(59 |
) |
|
|
(43 |
) |
Amounts reclassified from Accumulated other comprehensive loss |
|
|
3 |
|
|
|
32 |
|
|
|
(119 |
) |
|
|
(84 |
) |
Net current period other comprehensive income (loss) |
|
|
29 |
|
|
|
22 |
|
|
|
(178 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2023 |
|
$ |
(1,503 |
) |
|
$ |
116 |
|
|
$ |
471 |
|
|
$ |
(916 |
) |
The following table provides additional detail about Accumulated other comprehensive loss components that were reclassified to the Condensed Consolidated Statements of Operations (in thousands):
|
|
Amount reclassified from Accumulated Other Comprehensive Loss |
|
Affected line item in the Condensed Consolidated |
|
|
Three Months Ended March 31, |
|
|
2023 |
|
|
2022 |
|
Statements of Operations |
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment: |
|
|
|
|
|
|
|
|
|
Net periodic pension cost: |
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
(3 |
) |
|
$ |
(2 |
) |
Cost of sales |
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on foreign currency forward contracts: |
|
|
|
|
|
|
|
|
|
Gain on cash flow hedges |
|
|
44 |
|
|
|
14 |
|
Net sales |
Loss on cash flow hedges |
|
|
(87 |
) |
|
|
- |
|
Property and equipment |
Associated income tax (expense) benefit |
|
|
11 |
|
|
|
(3 |
) |
Income tax expense |
|
|
|
(32 |
) |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on interest rate swap: |
|
|
|
|
|
|
|
|
|
Gain on cash flow hedges |
|
|
158 |
|
|
|
- |
|
Interest expense |
Associated income tax expense |
|
|
(39 |
) |
|
|
- |
|
Income tax expense |
|
|
|
119 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications for the period |
|
$ |
84 |
|
|
$ |
9 |
|
|
Basic net income per share is computed by dividing the net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by giving effect to all potential shares of common stock, including stock options, RSUs, and PSAs, to the extent dilutive. Performance-based PSAs are considered dilutive when the related performance conditions have been met assuming the end of the reporting period represents the end of the performance period. In periods with a net loss, all potential shares of common stock are excluded from the computation of diluted net loss per share as the impact would be antidilutive.
Net income per basic and diluted weighted-average common share outstanding was calculated as follows (in thousands, except per share amounts):
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,362 |
|
|
$ |
3,559 |
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
|
9,940 |
|
|
|
9,881 |
|
Effect of potentially dilutive common shares (1) |
|
|
147 |
|
|
|
92 |
|
Diluted weighted-average common shares outstanding |
|
|
10,087 |
|
|
|
9,973 |
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
0.36 |
|
Diluted |
|
$ |
0.23 |
|
|
$ |
0.36 |
|
|
(1) |
The weighted-average number of antidilutive shares not included in the computation of diluted net income per share was approximately 16,000 for the three months ended March 31, 2022. There were no antidilutive shares for the three months ended March 31, 2023. |
The operating segments reported below are based on the nature of the products sold and the manufacturing process used by the Company and are the segments of the Company for which separate financial information is available and for which operating results are regularly evaluated by the Company’s chief operating decision maker, its Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance. Management evaluates segment performance based on gross profit. The Company does not allocate selling, general, and administrative expenses, interest, other non-operating income or expense items, or taxes to segments.
The Company’s Engineered Steel Pressure Pipe segment (SPP) manufactures large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, which are primarily related to drinking water systems. These products are also used for hydroelectric power systems, wastewater systems, seismic resiliency, and other applications. In addition, SPP makes products for industrial plant piping systems and certain structural applications. SPP has manufacturing facilities located in Portland, Oregon; Adelanto and Tracy, California; Parkersburg, West Virginia; Saginaw, Texas; St. Louis, Missouri; and San Luis Río Colorado, Mexico.
The Company’s Precast Infrastructure and Engineered Systems segment (Precast) manufactures stormwater and wastewater technology products, high-quality precast and reinforced concrete products, including manholes, box culverts, vaults, and catch basins, pump lift stations, oil water separators, biofiltration, and other environmental and engineered solutions. Precast has manufacturing facilities located in Dallas, Houston, and San Antonio, Texas; and Orem, Salt Lake City, and St. George, Utah.
The following table disaggregates revenue and gross profit based on the Company’s reportable segments (in thousands):
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Net sales: |
|
|
|
|
|
|
|
|
Engineered Steel Pressure Pipe |
|
$ |
63,546 |
|
|
$ |
74,715 |
|
Precast Infrastructure and Engineered Systems |
|
|
35,551 |
|
|
|
34,616 |
|
Total net sales |
|
$ |
99,097 |
|
|
$ |
109,331 |
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Engineered Steel Pressure Pipe |
|
$ |
7,782 |
|
|
$ |
7,189 |
|
Precast Infrastructure and Engineered Systems |
|
|
8,795 |
|
|
|
7,597 |
|
Total gross profit |
|
$ |
16,577 |
|
|
$ |
14,786 |
|
12. |
Recent Accounting and Reporting Developments |
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s Condensed Consolidated Financial Statements and disclosures in Notes to Condensed Consolidated Financial Statements, from those disclosed in the Company’s 2022 Form 10‑K, except for the following.
Accounting Changes
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021‑08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021‑08”) which requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. The Company adopted ASU 2021‑08 on January 1, 2023 and the impact was not material to the Company’s financial position, results of operations, or cash flows.
Recent Accounting Standards
In March 2023, the FASB issued ASU No. 2023-01 “Leases (Topic 842): Common Control Arrangements” (“ASU 2023‑01”) which requires leasehold improvements associated with common control leases be (1) amortized by the lessee over the useful life of the leasehold improvements to the common control group as long as the lessee controls the use of the underlying asset through a lease and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. ASU 2023‑01 is effective for the Company beginning January 1, 2024, including interim periods in 2024, with early adoption permitted. The Company does not expect a material impact to its financial position, results of operations, or cash flows from adoption of this guidance.
16