-----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, CleNEAt+Zi5qUgTCLXDTY2GqSs4KI+U/HrSnyVC0ZYf1PokzdoZS9EDZQh/bunth VYAhflmr/kD3jdAuk+IRrQ== <SEC-DOCUMENT>0001047469-98-020390.txt : 19980518 <SEC-HEADER>0001047469-98-020390.hdr.sgml : 19980518 ACCESSION NUMBER: 0001047469-98-020390 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980306 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980515 SROS: NASD 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-27140 FILM NUMBER: 98622119 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 </SEC-HEADER> <DOCUMENT> <TYPE>8-K/A <SEQUENCE>1 <DESCRIPTION>FORM 8-K/A <TEXT> <PAGE> SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 MARCH 6, 1998 Date of Report (Date of earliest event reported) NORTHWEST PIPE COMPANY (Exact name of registrant as specified in its charter) OREGON 0-27140 93-0557988 (State or other (Commission File (IRS Employer jurisdiction Number) Identification No.) of incorporation) 12005 N. BURGARD (503)285-1400 PORTLAND, OREGON 97203 (Address of principal executive offices) (Registrant's telephone number, including area code) <PAGE> NORTHWEST PIPE COMPANY FORM 8-K/A INDEX <TABLE> <CAPTION> Item Description Page ---- ----------- ---- <S> <C> <C> 2 Acquisition or Disposition of 3 Assets 7 Financial Statements and 3 Exhibits </TABLE> 2 <PAGE> Item 2. ACQUISITION OR DISPOSITION OF ASSETS On March 6, 1998, Northwest Pipe Company (the "Company") purchased all of the outstanding capital stock of Southwestern Pipe, Inc., a Texas corporation ("Southwestern") and P&H Tube Corporation, a Texas corporation ("P&H Tube") (Southwestern and P&H Tube are referred to herein together as the "SP Companies"), from 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 Company paid a purchase price of $40,148,220 in cash, which is subject to a post-closing adjustment based upon changes in the SP Companies' working capital from February 28, 1998 to the closing date and the amount of indebtedness of the SP Companies at the closing date. The purchase price was determined through arms length negotiations. The Company funded the purchase price through borrowings under its line of credit agreement with Bank of America National Trust and Savings Association. The principal business of the SP Companies is the manufacture and sale of structural and mechanical tubing products. Southwestern owns and operates a manufacturing facility in Houston, Texas. P&H Tube owns and operates a manufacturing facility in Bossier City, Louisiana. The Company will continue to use the plant, equipment and other property acquired for the same purpose, and will operate each of the SP Companies as a separate wholly-owned subsidiary of the Company. The Company retained all employees of each of the SP Companies. Item 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Companies Acquired -- See pages F-1 through F-24 (b) Pro Forma Financial Statements -- See pages PF-1 through PF-5 (c) Exhibits <TABLE> <CAPTION> Number Description ------ ----------- <S> <C> 2.1 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. Hederson, Don S. Brzowski, William H. Cottle, Barry J. Debroeck, Horace M. Jordan and William B. Stuessy (the "Stock Purchase Agreement") (certain schedules to the Agreement and its exhibits are omitted). Incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K filed with the Securities and Exchange Commission on March 20, 1998. </TABLE> 3 <PAGE> Pursuant to the requirements 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. Dated: May 14, 1998 NORTHWEST PIPE COMPANY By: /s/ BRIAN W. DUNHAM ------------------------ Brian W. Dunham, President 4 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION REPORT ON AUDIT OF COMBINED FINANCIAL STATEMENTS FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998 F-1 <PAGE> REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Southwestern Pipe, Inc. and P&H Tube Corporation We have audited the combined balance sheet of Southwestern Pipe, Inc. and P&H Tube Corporation (the Company) as of February 28, 1998 and the related combined statements of income, changes in stockholders' equity and cash flows for the period from September 30, 1997 to February 28, 1998. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Southwestern Pipe, Inc. and P&H Tube Corporation as of February 28, 1998, and the results of their combined operations and their cash flows for the period from September 30, 1997 to February 28, 1998 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Portland, Oregon April 10, 1998 F-2 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION COMBINED BALANCE SHEET FEBRUARY 28, 1998 <TABLE> <CAPTION> ASSETS <S> <C> Current assets: Cash $ 634,617 Accounts receivable, less allowance for doubtful accounts of $80,000 4,354,513 Inventories 6,371,565 Prepaid expenses and other current assets 37,001 Deferred income taxes 138,600 ---------- Total current assets 11,536,296 Property, plant and equipment, net 5,170,053 ---------- Total $16,706,349 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,354,929 Accrued liabilities 849,605 Revolving line of credit 1,229,778 Revolving term loan 2,799,600 ---------- Total current liabilities 7,233,912 Deferred income taxes 52,600 ---------- Total liabilities 7,286,512 ---------- Commitments (Note 8) Stockholders' equity: Common stock 3,745 Additional paid-in capital 7,619,786 Retained earnings 1,796,306 ---------- ---------- Total stockholders' equity 9,419,837 ---------- $ 16,706,349 ---------- ---------- </TABLE> The accompanying notes are an integral part of the combined financial statements. F-3 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION COMBINED STATEMENT OF INCOME FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998 <TABLE> <S> <C> Revenue $13,169,440 Cost of sales 11,088,480 ---------- Gross profit 2,080,960 Selling, general and administrative expenses 1,185,831 Interest expense 99,299 ---------- Income from operations before income taxes 795,830 Provision for income taxes 291,000 ---------- Net income $ 504,830 ---------- ---------- </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL STATEMENTS. F-4 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998 <TABLE> <CAPTION> Additional Common Paid-In Retained Stock Capital Earnings Total ------- --------- --------- ---------- <S> <C> <C> <C> <C> Balance, September 30, 1997 $3,745 $7,619,786 $1,291,476 $8,915,007 Net income 504,830 504,830 ------- --------- --------- ---------- Balance, February 28, 1998 $3,745 $7,619,786 $1,796,306 $9,419,837 ------- --------- --------- ---------- Common stock is comprised of: Southwestern Pipe, Inc., $.01 par value, 1,000,000 shares authorized, 149,800 shares issued and outstanding P&H Tube Corporation, $.01 par value, 1,000,000 shares authorized, 224,700 shares issued and outstanding </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL STATEMENTS. F-5 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION COMBINED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM SEPTEMBER 30, 1997 TO FEBRUARY 28, 1998 <TABLE> <S> <C> Cash flows from operating activities: Net income $ 504,830 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 516,247 Deferred income taxes (74,026) Provision for doubtful accounts 80,000 Changes in operating assets and liabilities: Accounts receivable 235,883 Inventories 264,855 Prepaid expenses and other current assets (19,090) Accounts payable and accrued liabilities (860,486) ----------- Net cash provided by operating activities 648,213 ----------- Cash flows from investing activities: Additions to property and equipment (30,145) ----------- Cash flows from financing activities: Net principal proceeds, revolving line of credit 169,424 Principal repayments, long-term debt (182,400) ----------- Net cash used in financing activities (12,976) ----------- Net increase in cash 605,092 Cash, beginning of period 29,525 ----------- Cash, end of period $ 634,617 ----------- ----------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 95,935 ----------- Income taxes $ 589,532 ----------- </TABLE> THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE COMBINED FINANCIAL STATEMENTS. F-6 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS 1. THE ENTITIES: The combined financial statements include the accounts and operations of Southwestern Pipe, Inc. and P&H Tube Corporation which are under common control and ownership (collectively referred to as the Entities). All material intercompany transactions and balances have been eliminated in combination. Southwestern Pipe, Inc. (SPI), formerly a division of SPAX Incorporated (SPAX), is involved in the manufacturing, fabricating, and finishing of high quality tubular products through its plant in Houston, Texas. P&H Tube Corporation (P&H), also formerly a division of SPAX, is involved in the manufacturing, fabricating, and finishing of high quality tubular products through its plant in Bossier City, Louisiana. Effective May 1, 1997, SPAX completed a tax-free reorganization of its divisions into three separate corporate entities, SPI, P&H and SeaCAT Corporation (SeaCAT), which is a wholly-owned subsidiary of SPAX. The tax-free reorganization and incorporation of the divisions of SPAX at May 1, 1997 resulted in the allocation of assets and liabilities from SPAX to SPI, P&H and SeaCAT. The method of allocation was primarily based upon specific identification; however, the allocation of the current and long-term portions of the revolving line of credit was determined in a manner consistent with the equity ratios of the new entities. On March 6, 1998, SPI and P&H entered into a Stock Purchase Agreement with Northwest Pipe Company, a publicly-held company headquartered in Portland, Oregon, under which Northwest Pipe Company agreed to acquire 100% of the outstanding stock of the Entities for a purchase price of approximately $40 million, subject to adjustment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: INVENTORIES Inventories are stated at the lower of last-in, first-out (LIFO) cost or market. The excess amount of current cost over the stated LIFO value was $486,434 at February 28, 1998. Cost of sales for the period from September 30, 1997 to February 28, 1998 would have increased by $401,132 if the first-in, first-out (FIFO) cost method had been used. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed principally using the straight-line method over the estimated useful lives of the related assets. Maintenance, repairs and minor renewals are expensed as incurred. Gains or losses resulting from the sale or retirement of assets are included in income. F-7 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: INCOME TAXES The Entities record 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. 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. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Entities 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. During the period from September 30, 1997 to February 28, 1998, sales to two customers represented 36% of total P&H sales and sales to one customer represented 11% of total SPI sales. 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 combined 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 carrying value approximates the fair value of the Entities' borrowings under its long-term arrangements based upon interest rates available for the same or similar loans. F-8 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which establishes requirements for disclosure of comprehensive income. The objective of SFAS 130 is to report a measure of all changes in equity that result from transactions and economic events other than transactions with owners. Comprehensive income is the total of net income and all other non-owner changes in equity. SFAS 130 is effective for fiscal years beginning after December 15, 1997. Also in June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This Statement will change the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and earns revenues and its major customers. This Statement is effective for fiscal years beginning after December 15, 1997. In February of 1998, the FASB issued SFAS No. 132, EMPLOYERS' DISCLOSURE ABOUT PENSION AND OTHER POSTRETIREMENT BENEFITS. This statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. The statement suggests combined formats for presentation of pension and other postretirement benefit disclosures. The statement also permits reduced disclosures for nonpublic entities. This statement is effective for fiscal years beginning after December 15, 1997. The Entities' management has studied the implications of SFAS 130, SFAS 131 and SFAS 132 and based on the initial evaluation, expects the adoption to have no impact on the Entities' financial condition or results of operations, but will require revised disclosures when the respective statements become effective. 3. INVENTORY: <TABLE> <S> <C> Raw materials $2,914,041 Slit coil and finished goods 3,943,958 ------------ 6,857,999 LIFO reserve 486,434 ------------ $6,371,565 ------------ </TABLE> F-9 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 4. Property, Plant and Equipment: <TABLE> <S> <C> Buildings and facilities $ 3,758,756 Machinery and equipment 11,996,815 Furniture and fixtures 379,400 Land 594,122 ----------- 16,729,093 Less accumulated depreciation 11,559,040 ----------- Property, plant and equipment, net $ 5,170,053 ----------- </TABLE> 5. DEBT: SPAX has a revolving line of credit and revolving term loan agreement with Fleet Capital Corporation (Fleet Capital), collateralized by accounts receivable, inventories and equipment. Upon the reorganization described in Note 1, the agreement with Fleet Capital was amended to include SPI and P&H, in addition to SPAX. All three companies are jointly and severally liable to Fleet Capital for the amounts outstanding under the line of credit. Subject to the consummation of the Stock Purchase Agreement discussed in Note 1, the agreement with Fleet Capital was amended to release the Entities from any further obligation under the agreement. The total amount due to Fleet Capital by all entities was $9,909,319 at February 28, 1998. The interest rate defined by the agreement is a choice of either the London Interbank Offered Rate (5.6% at February 28, 1998) plus 2% or the lending institution's prime rate (8.5% at February 28, 1998) plus 0.5%. Interest expense is allocated based upon the outstanding average debt balance of the respective entity. On March 9, 1998, the portions of the revolving line of credit and the revolving term loan which relate to the Entities were paid in full as part of the agreement entered into with Northwest Pipe Company, as discussed in Note 1. The agreement contains restrictive covenants prohibiting or limiting certain actions of SPAX, SPI and P&H, including payment of cash dividends, capital expenditures, investments and incurrences of debt, and requires certain actions of the entities, including the maintenance of specified levels of profitability and tangible net worth, as defined. At February 28, 1998, the entities were not in compliance with the restrictive covenant related to capital expenditures. The lender has waived compliance with this covenant. F-10 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 6. INCOME TAXES: The provision for income taxes consisted of the following: <TABLE> <S> <C> Current: Federal $326,299 State 38,727 --------- 365,026 Deferred (74,026) --------- $291,000 --------- </TABLE> The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are presented below: <TABLE> <S> <C> Deferred tax assets: Accounts receivable $ 27,200 Inventories 28,500 Accrued employee benefits 82,900 --------- Total deferred tax assets 138,600 Deferred tax liabilities: Property, plant and equipment (52,600) --------- Net deferred tax assets $ 86,000 --------- </TABLE> No valuation allowance has been established for deferred tax assets as management believes it is more likely than not that the deferred tax assets will be realized. 7. RELATED-PARTY TRANSACTIONS: SeaCAT provides various general and administrative services to SPI and P&H. For the period from September 30, 1997 to February 28, 1998, SPI and P&H were billed $84,000 by SeaCAT for general and administrative services. Such amounts are settled through the current portion of the revolving line of credit and are included in net selling, general and administrative expenses. F-11 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED 8. COMMITMENTS: SPI leases certain office equipment under the terms of a noncancelable agreement which expires in 1999. Minimum future lease payments under this operating lease as of February 28, 1998 are as follows: <TABLE> <S> <C> 1998 $ 8,947 1999 8,052 ------- $16,999 ------- ------- </TABLE> Rent expense for all leases with terms exceeding one year was $10,736 for the period from September 30, 1997 to February 28, 1998. F-12 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION COMBINED FINANCIAL STATEMENTS FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997 AND INDEPENDENT AUDITORS' REPORT F-13 <PAGE> INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Southwestern Pipe, Inc. and P&H Tube Corporation: We have audited the accompanying combined balance sheet of Southwestern Pipe, Inc. ("SPI") and P&H Tube Corporation ("P&H"), collectively referred to as the "Companies," both of which were under common ownership and common management, as of September 30, 1997, and the related combined statements of income, changes in stockholders' equity and cash flows for the period from May 1, 1997 (date of inception) to September 30, 1997. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the combined financial position of the Companies at September 30, 1997, and the combined results of their operations and their combined cash flows for the period from May 1, 1997 (date of inception) to September 30, 1997 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Houston, Texas November 7, 1997 F-14 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION <TABLE> <CAPTION> COMBINED BALANCE SHEET, SEPTEMBER 30, 1997 <S> <C> ASSETS CURRENT ASSETS: Cash $ 29,525 Accounts receivable 4,670,396 Inventories 6,636,420 Prepaid expenses and other current assets 89,489 ------------- Total current assets 11,425,830 PROPERTY, PLANT AND EQUIPMENT, Net 5,656,155 ------------- TOTAL $ 17,081,985 ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 3,514,319 Income taxes payable 550,701 Revolving line of credit 1,060,354 Current maturities of long-term debt 439,200 ------------- Total current liabilities 5,564,574 ------------- LONG-TERM DEBT 2,542,800 ------------- DEFERRED INCOME TAXES 59,604 ------------- Commitments and contingencies (Note 9) STOCKHOLDERS' EQUITY: Common stock: 3,745 SPI - $.01 par value; 1,000,000 shares authorized; 149,800 shares issued and outstanding P&H - $.01 par value; 1,000,000 shares authorized; 224,700 shares issued and outstanding Additional paid-in capital 7,619,786 Retained earnings 1,291,476 ------------- Total stockholders' equity 8,915,007 ------------- TOTAL $ 17,081,985 ------------- ------------- </TABLE> See notes to combined financial statements. F-15 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION <TABLE> <CAPTION> COMBINED STATEMENT OF INCOME FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997 <S> <C> REVENUES $ 18,770,942 COST OF SALES 15,022,843 ------------- GROSS PROFIT 3,748,099 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,419,936 INTEREST EXPENSE 174,406 ------------- INCOME FROM OPERATIONS BEFORE INCOME TAXES 2,153,757 PROVISION FOR INCOME TAXES 862,281 ------------- NET INCOME $ 1,291,476 ------------- ------------- </TABLE> See notes to combined financial statements. F-16 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997 <TABLE> <CAPTION> Additional Common Paid-In Retained Stock Capital Earnings Total ------- --------- --------- ---------- <S> <C> <C> <C> <C> BALANCE, MAY 1, 1997 $3,745 $7,619,786 $7,623,531 Net income $1,291,476 1,291,476 ------- --------- --------- ---------- BALANCE, SEPTEMBER 30, 1997 $3,745 $7,619,786 $1,291,476 $8,915,007 ------- --------- --------- ---------- ------- --------- --------- ---------- </TABLE> See notes to combined financial statements. F-17 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION <TABLE> <CAPTION> COMBINED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997 <S> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,291,476 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 510,026 Gain on sale of equipment (1,000) Deferred income taxes 61,189 Changes in assets and liabilities: Accounts receivable 401,067 Inventories (732,549) Prepaid expenses and other current assets (28,764) Accounts payable and accrued liabilities 456,540 Income taxes payable 550,701 ---------- Net cash provided by operating activities 2,508,686 ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of equipment 1,000 Capital expenditures (41,154) Cash received in reorganization 15,025 ---------- Net cash used in investing activities (25,129) ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Net principal repayments - revolving line of credit (2,741,532) Principal repayments - revolving term loan (212,500) Proceeds received - revolving term loan 500,000 ---------- Net cash used in financing activities (2,454,032) ---------- NET INCREASE IN CASH 29,525 CASH, BEGINNING OF PERIOD ---------- CASH, END OF PERIOD $ 29,525 ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - Cash paid during the period for: Interest $ 174,406 ---------- Income taxes $ 250,391 ---------- ---------- </TABLE> See notes to combined financial statements. F-18 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION NOTES TO COMBINED FINANCIAL STATEMENTS FOR THE PERIOD FROM MAY 1, 1997 (DATE OF INCEPTION) TO SEPTEMBER 30, 1997 1. BACKGROUND BUSINESS - Southwestern Pipe, Inc. ("SPI") and P&H Tube Corporation ("P&H"), collectively referred to as the "Companies", were formerly divisions of SPAX Incorporated ("SPAX"), and are involved in the manufacturing, fabricating and finishing of high quality tubular products through their plants, which are located at their corporate headquarters in Houston, Texas (SPI) and in Bossier City, Louisiana (P&H). Effective May 1, 1997, SPAX completed a tax- free reorganization of its divisions into three separate corporate entities, SPI, P&H and SeaCAT Corporation ("SeaCAT"), which is a wholly owned subsidiary of SPAX. The tax free reorganization and incorporation of the divisions of SPAX at May 1, 1997 resulted in the allocation of assets and liabilities from SPAX to its wholly owned subsidiary, SeaCAT, and to SPI and P&H. The method of allocation was primarily based upon specific identification; however, the allocation of the current and long-term portions of the revolving line of credit was determined in a manner consistent with the equity ratios of the new entities. The table on the following page presents the assets, liabilities and stockholders' equity allocated to SPI and P&H from SPAX at May 1, 1997. F-19 <PAGE> <TABLE> <CAPTION> ALLOCATION ALLOCATION TO SPI AT TO P&H AT DESCRIPTION MAY 1, 1997 MAY 1, 1997 COMBINED <S> <C> <C> <C> Assets Current assets: Cash $ 6,875 $ 8,150 $ 15,025 Accounts receivable 1,766,721 3,304,742 5,071,463 Inventories 2,060,929 3,842,942 5,903,871 Prepaid expenses and other current assets 34,210 28,100 62,310 ------------ ----------- ---------- Total current assets 3,868,735 7,183,934 11,052,669 ------------ ----------- ---------- Property, plant and equipment, net 2,669,422 3,455,605 6,125,027 ------------ ----------- ---------- Total $6,538,157 $10,639,539 $17,177,696 ------------ ----------- ---------- ------------ ----------- ---------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $1,539,776 $ 1,518,003 $ 3,057,779 Revolving line of credit 1,565,482 2,236,404 3,801,886 Current maturities of long-term debt 210,000 300,000 510,000 ------------ ----------- ---------- Total current liabilities 3,315,258 4,054,407 7,369,665 ------------ ----------- ---------- Long-term debt 899,500 1,285,000 2,184,500 Stockholders' equity 2,323,399 5,300,132 7,623,531 ------------ ----------- ---------- Total $6,538,157 $10,639,539 $17,177,696 ------------ ----------- ---------- ------------ ----------- ---------- </TABLE> 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF COMBINATION - The combined financial statements of the Companies include the accounts of SPI and P&H, both of which were under common ownership and management at September 30, 1997. All material intercompany transactions and balances have been eliminated in combination. INVENTORIES - Inventories are stated at the lower of last-in, first-out ("LIFO") cost or market. The excess amount of current cost over the stated LIFO value was $887,566 at September 30, 1997. Cost of sales for the period from May 1, 1997 (date of inception) to September 30, 1997 would have increased by $773,478 if the first-in, first-out (FIFO) cost method had been used. PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION - Property, plant and equipment is stated at cost. Depreciation is computed principally using the straight-line method over the estimated useful lives of the related assets. Maintenance, repairs and minor renewals are expensed as incurred. Gains or losses resulting from the sale or retirement of assets are included in income. INCOME TAXES - The Companies determine income tax expense in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Deferred income taxes are provided for all significant differences between the tax basis of an asset or liability and its reported amount in the financial statements. F-20 <PAGE> COMBINED STATEMENT OF CASH FLOWS - The combined statement of cash flows is prepared using the indirect method. The Companies consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values reflected in the combined balance sheet of the Companies for cash, accounts receivable and accounts payable approximated their fair value due to the short-term nature of such financial instruments. The carrying amount of the Companies' long- term debt was estimated to approximate its fair value at December 31, 1997 based upon interest rates available for similar issues. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - The Companies' trade accounts receivable potentially subject them to concentrations of credit risk. Sales are primarily made across a wide geographic base with a large number of customers. For the period from May 1, 1997 (date of inception) to September 30, 1997, sales to one customer represented 11% of total SPI sales and sales to two customers represented 37% of total P&H sales. NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997 and requires disclosure of all non- stockholder changes in equity during a period. SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," was also issued in June 1997 and establishes standards regarding the manner in which public business enterprises report information about operating segments in interim and annual financial statements. Both statements are effective for fiscal years beginning after December 15, 1997. The Companies' management expects that adoption of these statements will not have an effect on the Companies' combined financial position or results of operations but will impact future financial statement disclosure. USE OF ESTIMATES - The preparation of financial statements requires management to make use of estimates and assumptions that affect amounts reported in the combined financial statements as well as certain disclosures. Actual results could differ from these estimates. 3. DEBT SPAX has a revolving line of credit with Fleet Capital Corporation ("Fleet Capital"), secured by accounts receivable, inventories and equipment. Upon the reorganization described in Note 1, the agreement with Fleet Capital for $15 million, expiring December 31, 2000, was amended to include SPI and P&H in addition to SPAX. All three companies are jointly and severally liable to Fleet Capital for the amounts outstanding under the line of credit. The outstanding debt at May 1, 1997 was assigned to each Company as discussed in Note 1. Subsequent to the reorganization, changes in debt have been allocated based upon cash flow needs and equipment purchases of the individual companies. The total amount due Fleet Capital by all companies is $7,768,301 at September 30, 1997. The interest rate defined by the agreement is a choice of either the London Interbank Offered Rate (6% at September 30, 1997) plus 2% or the lending institution's prime rate (8.5% at September 30, 1997) plus 0.5%. Interest expense is allocated among SPAX, SPI, and P&H based upon the average outstanding debt balance of the respective company on a monthly basis. The unused revolving line of credit available for all three companies, subject to the terms of the agreement, totaled $7,231,699 at September 30, 1997. F-21 <PAGE> Debt for SPI and P&H at September 30, 1997 consisted of the following: <TABLE> <S> <C> Revolving line of credit, due on demand or at December 31, 2000 $1,060,354 ---------- ---------- Revolving term loan agreement, due in monthly installments of $36,600 $2,982,000 Less current maturities 439,200 ---------- Long-term debt $2,542,800 ---------- </TABLE> Scheduled maturities of long-term debt are as follows: <TABLE> <CAPTION> Year Ending September 30, <S> <C> 1998 $ 439,200 1999 439,200 2000 439,200 2001 439,200 2002 439,200 Thereafter 786,000 ---------- Total $2,982,000 ---------- ---------- </TABLE> The credit agreement contains restrictive covenants prohibiting or limiting certain actions of SPAX, SPI and P&H, including payment of cash dividends, capital expenditures, investments and incurrences of debt, and requires certain actions of SPAX, SPI and P&H, including the maintenance of specified levels of profitability and tangible net worth, as defined. At September 30, 1997, SPAX, SPI and P&H were not in compliance with the restrictive covenant related to capital expenditures; however, SPAX, SPI and P&H have received a waiver of such noncompliance. 4. INVENTORIES At September 30, 1997, inventories consisted of the following: <TABLE> <S> <C> Raw materials $ 3,933,541 Slit coil and finished goods 3,590,445 ------------- Total 7,523,986 Less reserve to reduce inventories to LIFO cost (887,566) ------------- Inventories at lower of LIFO cost or market $ 6,636,420 ------------- </TABLE> F-22 <PAGE> 5. PROPERTY, PLANT AND EQUIPMENT At September 30, 1997, property, plant and equipment consisted of the following: <TABLE> <CAPTION> Estimated Useful Life (Years) <S> <C> <C> Buildings and facilities $ 3,758,756 18 Machinery and equipment 11,996,816 5 Furniture and fixtures 270,559 5 Land 594,122 Fixed assets in process 78,695 ------------- Total 16,698,948 Less accumulated depreciation 11,042,793 ------------- Property, plant and equipment, net $ 5,656,155 ------------- </TABLE> 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES At September 30, 1997, accounts payable and accrued liabilities consisted of the following: <TABLE> <S> <C> Trade payables $ 2,851,773 Compensation and related payables 475,981 Ad valorem taxes and other payables 186,565 ------------- Total $ 3,514,319 ------------- ------------- </TABLE> 7. INCOME TAXES The provision for income taxes consisted of the following: <TABLE> <S> <C> Current: Federal $ 701,685 State 99,407 Deferred - Federal 61,189 ------------- Provision for income taxes $ 862,281 ------------- ------------- </TABLE> The provision for income taxes differs from that determined simply by applying the federal income tax rate (statutory rate) to income before taxes, as follows: <TABLE> <S> <C> Statutory rate 34.0 % Tax at statutory rate $ 732,277 Increase (decrease) in taxes resulting from: State income taxes 65,609 Entertainment and other 64,395 ------------- Total federal income tax provision $ 862,281 ------------- ------------- </TABLE> F-23 <PAGE> Temporary differences which give rise to deferred tax assets and liabilities at September 30, 1997 were as follows: <TABLE> Deferred Tax Asset (Liability) <S> <C> Current asset - vacation accrual $ 71,577 ---------- Non-current liability - property, plant and equipment $(59,604) ---------- </TABLE> No valuation allowance has been established for the deferred tax asset as management believes that it is more likely than not that the asset will be realized. 8. RELATED-PARTY TRANSACTIONS Sales by SPI to SeaCat for the period from May 1, 1997 (date of inception) to September 30, 1997 were $541,959. All transactions between SPI and SeaCat are stated at negotiated prices. SPAX provides various general and administrative services to the Companies. For the period from May 1, 1997 to September 30, 1997, SPAX billed SPI and P&H $351,776 and $162,870, respectively, for general and administrative services. Such amounts are settled through the current portion of the revolving line of credit. 9. COMMITMENTS AND CONTINGENCIES SPI leases certain office equipment under the terms of a noncancelable agreement that is accounted for as an operating lease. This lease expires in 1999. Minimum future lease payments under this operating lease as of September 30, 1997 are as follows: <TABLE> <S> <C> 1998 $10,736 1999 10,736 </TABLE> Rent expense for all leases with terms exceeding one year was $5,368 for the period from May 1, 1997 to September 30, 1997. ****** F-24 <PAGE> NORTHWEST PIPE COMPANY PRO FORMA CONSOLIDATED BALANCE SHEET (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> Dec. 31, 1997 --------- Northwest Northwest Feb. 28, 1998 Pipe Pipe ------------- Company Company Southwestern and and and Pro Forma Subsidiaries Subsidiaries P&H Tube Adjustments Pro Forma --------------------------------------------------------------- <S> <C> <C> <C> <C> ASSETS: Current assets: Cash and cash equivalents $ 904 $ 635 - $ 1,539 Trade receivables, net 25,162 4,354 $ 600 a 30,116 Cost and estimated earnings in excess of billings on uncompleted contracts 19,914 - 19,914 Inventories 20,530 6,371 190 b 27,091 Refundable income taxes 3,307 - - 3,307 Deferred income taxes 447 139 - 586 Prepaid expenses and other 1,402 37 - 1,439 --------------------------------------------------------------- Total current assets 71,666 11,536 790 83,992 Property and equipment, net 57,447 5,170 7,454 c 70,071 Restricted assets 2,300 - 2,300 Goodwill - - 19,297 d 19,297 Other assets, net 638 - - 638 --------------------------------------------------------------- $ 132,051 $ 16,706 $ 27,541 $ 176,298 --------------------------------------------------------------- --------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable to financial institution $ 7,000 $ 1,230 $ (241) e $ 7,989 Current portion of long-term debt 250 2,799 (2,799) e 250 Current portion of capital lease obligations 2,175 2,175 Accounts payable 8,116 2,355 - 10,471 Accrued liabilities 3,074 850 - 3,924 --------------------------------------------------------------- Total current liabilities 20,615 7,234 (3,040) 24,809 Long-term debt, less current portion 38,490 - 40,000 f 78,490 Capital lease obligations, less current portion 1,454 - - 1,454 Minimum pension liability 294 - - 294 Deferred income taxes 419 53 - 472 --------------------------------------------------------------- Total liabilities 61,272 7,287 36,960 105,519 --------------------------------------------------------------- --------------------------------------------------------------- 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, 6,432,035 issued and outstanding 64 3 (3) g 64 Additional paid-in capital 38,725 7,620 (7,620) g 38,725 Retained earnings 32,277 1,796 (1,796) g 32,277 Minimum pension liability (287) - - (287) --------------------------------------------------------------- Total stockholders' equity 70,779 9,419 (9,419) 70,779 --------------------------------------------------------------- $ 132,051 $16,706 $ 27,541 $ 176,298 --------------------------------------------------------------- --------------------------------------------------------------- </TABLE> The accompanying notes are an integral part of these pro forma consolidated financial statements. PF-1 <PAGE> NORTHWEST PIPE COMPANY AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> Year ended Dec. 31, Ten months 1997 ended ------------- Feb. 28, 1998 Northwest Pipe Northwest Pipe ------------- Company Company Southwestern and and and Pro Forma Subsidiaries Subsidiaries P&H Tube Adjustments Pro Forma --------------------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $ 150,833 $ 31,940 $ 182,773 Cost of sales 119,716 26,111 $ (462) h 145,749 384 i --------------------------------------------------------------------- Gross profit 31,117 5,829 78 37,024 Selling, general and administrative expenses 11,382 2,606 - 13,988 --------------------------------------------------------------------- Operating income 19,735 3,223 78 23,036 Interest expense 1,616 274 2,300 j 4,190 Interest expense to related parties 201 - 201 --------------------------------------------------------------------- Income before income taxes 17,918 2,949 (2,222) 18,645 Provision for income taxes 6,818 1,153 (867) k 7,104 --------------------------------------------------------------------- Net income $ 11,100 $ 1,796 $ (1,355) $ 11,541 --------------------------------------------------------------------- --------------------------------------------------------------------- Basic earnings per share $ 1.73 $ 1.80 ------------ ----------- ------------ ----------- Diluted earnings per share $ 1.68 $ 1.74 ------------ ----------- ------------ ----------- Shares used in per share calculations: Basic 6,405 6,405 ------------ ----------- ------------ ----------- Diluted 6,622 6,622 ------------ ----------- ------------ ----------- </TABLE> The accompanying notes are an integral part of these pro forma consolidated statements. PF-2 <PAGE> SOUTHWESTERN PIPE, INC. AND P&H TUBE CORPORATION PRO FORMA COMBINED STATEMENTS OF OPERATIONS (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> Southwestern and P&H Tube Combined --------------------------------------------- Five Months Five Months Ten Months Ended Ended Ended Sep. 30, 1997 Feb. 28, 1998 Feb. 28, 1998 ------------- ------------- ------------- <S> <C> <C> <C> Net sales $ 18,771 $ 13,169 $ 31,940 Cost of sales 15,023 11,088 26,111 --------- --------- ---------- Gross profit 3,748 2,081 5,829 Selling, expenses 1,420 1,186 2,606 --------- --------- ---------- Operating 2,328 895 3,223 Interest 175 99 274 --------- --------- ---------- Income 2,153 796 2,949 Provision for 862 291 1,153 --------- --------- ---------- Net income $ 1,291 $ 505 $ 1,796 --------- --------- ---------- --------- --------- ---------- </TABLE> The accompanying notes are an integral part of these pro forma consolidated financial statements. PF-3 <PAGE> NORTHWEST PIPE COMPANY AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AND SHARE AMOUNTS IN THOUSANDS) (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited pro forma consolidated financial statements have been prepared to present the effect of the acquisition by Northwest Pipe Company ("the Company") of Southwestern Pipe, Inc. ("Southwestern") and P&H Tube Corporation ("P&H Tube"). The pro forma consolidated balance sheet has been prepared based upon the historical financial statements of the Company, Southwestern and P&H Tube as if the acquisitions had occurred at February 28, 1998. The pro forma consolidated statement of operations for the year ended December 31, 1997 has been prepared as if the acquisition occurred at the beginning of the period. The pro forma consolidated financial statements may not be indicative of the results of operations that actually would have occurred if the transactions had been in effect as of the beginning of the period nor do they purport to indicate the results of future operations of the Company. The pro forma consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1997 Annual Report on Form 10-K and the combined audited financial statements and notes thereto for Southwestern and P&H included elsewhere in this report on Form 8-K/A. Management of the Company believes that all adjustments necessary to present fairly such pro forma consolidated financial statements have been made based on the terms and structure of the acquisition transactions. 2. PRO FORMA ADJUSTMENTS a. To reflect the estimated receivable from the former shareholders of Southwestern and P&H Tube, resulting from the estimated purchase price adjustment. b. Inventories were adjusted as follows: <TABLE> <S> <C> To record the effect of a change from LIFO to FIFO inventory valuation method for Southwestern and P&H Tube $ 486 To adjust inventories to the lower of cost or market on the date of acquisitions (296) --------- $ 190 --------- --------- </TABLE> c. To adjust property to the approximate fair value on the date of acquisitions. d. To reflect goodwill related to the acquisitions. e. To record repayment of note payable to financial institution and repayment of long-term debt of Southwestern and P&H Tube, net of amounts incurred related to the acquisitions. f. To record the issuance of $40.0 million of senior notes which were issued in April 1998. Proceeds received under the senior notes were used to reduce amounts outstanding under the Company's note payable to financial institution, and accordingly, in the accompanying pro forma consolidated balance sheet, the $40.0 million is classified as long-term debt. PF-4 <PAGE> NORTHWEST PIPE COMPANY AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (DOLLAR AND SHARE AMOUNTS IN THOUSANDS) (UNAUDITED) 2. PRO FORMA ADJUSTMENTS, CONTINUED g. To reflect the elimination of common stock, additional paid-in capital and retained earnings of Southwestern and P&H Tube. h. To reflect the decrease in depreciation and amortization expense related to the adjustment of assets to the estimated fair value at the acquisition date. Depreciation is computed for a ten month period, consistent with the period presented for Southwestern and P&H Tube. i. To reflect amortization of goodwill from the acquisitions, over a period of 40 years. Goodwill amortization is computed for a ten month period, consistent with the period presented for Southwestern and P&H Tube. j. To reflect interest expense related to the additional debt resulting from the acquisition of Southwestern and P&H Tube. Interest expense is computed using the rates of interest on the $40.0 million of senior notes issued in April 1998, the proceeds of which were effectively used to pay for the acquisitions of Southwestern and P&H Tube. Of the total $40.0 million, $10.0 million bears interest at 6.63% and $30.0 million bears interest at 6.91%. Interest is computed for a ten month period, consistent with the period presented for Southwestern and P&H Tube. k. To adjust income taxes to reflect the effect of the acquisitions at the effective tax rate of the Company for 1997. PF-5 </TEXT> </DOCUMENT> </SEC-DOCUMENT> -----END PRIVACY-ENHANCED MESSAGE-----