NORTHWEST PIPE CO

Northwest Pipe Company (collectively with its subsidiaries, the “Company”) is a leading manufacturer of water-related infrastructure products, and operates intwo 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 the performance of the Company and makes decisions regarding the allocation of resources. See Note12, “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, andone 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* December31,* 2023 is derived from the audited Consolidated Financial Statements presented in the Company’s Annual Report on Form10‑K for the year ended* December31,* 2023 (“2023 Form10‑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’s2023 Form10‑K.

Operating results for thethree months ended* March* 31, 2024 arenot necessarily indicative of the results that* maybe expected for the entire fiscal year ending December**31,* 2024.

Inventories consist of the following (in thousands):

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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 intothree broad levels. These levels are: Level1 (inputs are quoted prices in active markets for identical assets or liabilities); Level2 (inputs are other than quoted prices that are observable, either directly or indirectly through corroboration with observable market data); and Level3 (inputs are unobservable, with little orno 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):

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 Level1 within the fair value hierarchy, as well as guaranteed investment contracts, valued at principal plus interest credited at contract rates, classified as Level2 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 Level2 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, and current debt approximate fair value due to the short-term nature of these instruments. The net carrying amount of the borrowings on the line of credit approximates fair value due to its variable interest rate based on market.

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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 isnot 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, 2024, the total notional amount of the foreign currency forward contracts was $4.9 million (CAD$6.6 million) and $1.1 million (EUR€1.1 million), which included $4.8 million (CAD$6.4 million) and $1.1 million (EUR€1.1 million) of foreign currency forward contractsnot designated as cash flow hedges. As of* December* 31, 2023, the total notional amount of the foreign currency forward contracts was $5.1 million (CAD$6.7 million) and $1.2 million (EUR€1.1 million), which included $4.9 million (CAD$6.4 million) and $1.2 million (EUR€1.1 million) of foreign currency forward contractsnot designated as cash flow hedges. As of* March* 31, 2024, the Company’s foreign currency forward contracts mature at various dates through* April 2025* and are subject to an enforceable master netting arrangement.

The Company has entered into interest rate swaps which effectively convert a portion of its variable-rate debt to fixed-rate debt, and are designated as cash flow hedges. Forone cash flow hedge, the Company receives floating interest payments monthly based on Secured Overnight Finance Rate (“SOFR”) and pays a fixed rate of 1.941% to the counterparty on the total notional amount of $1.7 million and $6.7 million as of* March* 31, 2024 and* December* 31, 2023, respectively, which amortizes ratably on a monthly basis tozero by the* April 2024maturity date. For asecond* cash flow hedge, beginning* April**3,* 2023, the Company receives floating interest payments monthly based on the SOFR Average30 day and pays a fixed rate of 2.96% to the counterparty on the total notional amount of $12.3 million and $13.0 million as of* March* 31, 2024 and* December* 31, 2023, respectively, which amortizes ratably on a monthly basis tozero by the* April 2028*maturity date.

The following table summarizes the gains (losses) recognized on derivatives in the Condensed Consolidated Financial Statements (in thousands):

As of* March* 31, 2024, unrealized pretax gains (losses) on outstanding cash flow hedges in Accumulated other comprehensive loss was $0.4 million, of which approximately $0 and $0.2 million are expected to be reclassified to Net sales and Interest expense, respectively, within the nexttwelve months as a result of underlying hedged transactions also being recorded in these line items. See Note10, “Accumulated Other Comprehensive Loss” for additional quantitative information regarding foreign currency forward contract and interest rate swap gains and losses.

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Share Repurchase Program

On* November**2,* 2023, the Company announced its authorization of a share repurchase program of up to $30 million of its outstanding common stock. The program doesnot commit to any particular timing or quantity of purchases, and the program* maybe suspended or discontinued at any time. Under the program, shares maybe purchased in open market, including through plans adopted pursuant to Rule10b5‑1* of the Securities Exchange Act of1934, as amended, or in privately negotiated transactions administered by its broker, D.A. Davidson Companies. At this time, the Company has elected to limit its share repurchase transactions to only those under the Rule10b5‑1 trading plan it executed in* November 2023,*which designates up to $10 million for daily share repurchases with volumes that fluctuate with changes in the trading price of its common stock.

During thethree months ended* March* 31, 2024, the Company repurchased approximately 127,000 shares of the Company’s common stock for an aggregate amount of $3.7 million. There wereno share repurchases authorized during thethree months ended* March* 31, 2023. All shares reacquired in connection with the Company’s share repurchase program are retired and treated as authorized and unissued shares. As of* March* 31, 2024,$25.4 million of the share repurchase authorization remained available for repurchases under this program.

The Company hasone active stock incentive plan for employees and directors, the2022 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 hasone inactive stock incentive plan, the2007 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 ultimatelynot met.

The following table summarizes share-based compensation expense recorded (in thousands):

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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:

The unvested balance of RSUs and PSAs as of* March* 31, 2024 includes approximately 260,000 PSAs at the target level of100%. 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, 2024, unrecognized compensation expense related to the unvested portion of the Company’s RSUs and PSAs was $6.9 million, which is expected to be recognized over a weighted-average period of 2.0 years.

Portland Harbor Superfund Site

In2000, 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 doesnot 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 in2000, 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 in2016, and the feasibility study in2016, which identified multiple remedial alternatives. In2017, 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 hasnot 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, andno further adjustment to the 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 havenot yet been determined.

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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 Section107. The Trustees for the Portland Harbor Superfund Site consist of representatives from several Northwest Indian Tribes,three federal agencies, andone 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. In2014, the Company agreed to participate in the injury assessment process, which included funding $0.4 million of the assessment. The Company hasnot 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.

In2017, the Confederated Tribes and Bands of the Yakama Nation, a Trustee until they withdrew from the council in2009, 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 until2025, and the Company doesnot 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 provideno 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 doesnot 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 doesnot 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 isnot 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, 2024, 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 hasnot yet received the equipment and approximately $4.6 million remaining relating to the construction of a building for the new mill at the Company’s facility in Salt Lake City, Utah.

Guarantees

The Company has entered into certain letters of credit that total $1.1 million as of* March* 31, 2024. The letters of credit relate to workers’ compensation insurance.

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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 isnot separately identifiable from other promises in the contract and, therefore, isnot distinct. The Company generally doesnot 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 haveno 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.

Net revisions in contract estimates resulted in an increase in SPP net sales of $1.9 million and $0.4 million for thethree months ended* March* 31, 2024 and2023, 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* mayaffect 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 donot* 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):

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Contract Assets and Contract Liabilities

Contract assets primarily represent revenue earned over time butnot 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 within30 days of invoicing. Contract liabilities represent advance billings on contracts, typically for steel.

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing difference between the Company’s performance and billings.

The following is a summary of the changes in contract assets (in thousands):

The following is a summary of the changes in contract liabilities (in thousands):

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, 2024, backlog was $255 million. The Company expects to recognize approximately 64% of the remaining performance obligations in 2024,28% in 2025, 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 isno longer subject to United States Federal, state, or foreign income tax examinations for years before 2019.

The Company recorded income tax expense at an estimated effective income tax rate of 27.5% and 28.7% for thethree months ended* March* 31, 2024 and2023, respectively. The Company’s estimated effective income tax rates for thethree months ended* March* 31, 2024 and2023 were primarily impacted by non-deductible permanent differences.

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The following tables summarize changes in the components of Accumulated other comprehensive loss (in thousands). All amounts are net of income tax:

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The following table provides additional detail about Accumulated other comprehensive loss components that were reclassified to the Condensed Consolidated Statements of Operations (in thousands):

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 dilutive potential shares of common stock, including RSUs and PSAs, assumed to be outstanding during the period using the treasury stock method. 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.

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Net income per basic and diluted weighted-average common share outstanding was calculated as follows (in thousands, except per share amounts):

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 doesnot 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 (SPP) segment 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 (Precast) segment manufactures stormwater and wastewater technology products, high-quality precast and reinforced concrete products, including reinforced concrete pipe, manholes, box culverts, vaults, and catch basins, pump lift stations, oil water separators, biofiltration units, 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.

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The following table disaggregates revenue and gross profit based on the Company’s reportable segments (in thousands):

There have beenno 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’s2023 Form10‑K, except for the following.

Accounting Changes

In* March 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)No. 2023‑01 “Leases (Topic842*): Common Control Arrangements” (“ASU2023‑01”) 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 lesseeno longer controls the use of the underlying asset. The Company adopted ASU2023‑01 on* January**1,* 2024 and the impact wasnot material to its financial position, results of operations, or cash flows.

Recent Accounting Standards

In* November 2023,the FASB issued ASUNo.* 2023‑07, “Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures” (“ASU2023‑07”) which requires disclosure of incremental segment information, primarily through enhanced disclosures about significant segment expenses, on an annual and interim basis for all public entities. ASU2023‑07 will be applied retrospectively, and will be effective for the Company’s2024 annual reporting, and for interim periods beginning in2025, with early adoption permitted. The Company doesnot expect a material impact to its financial position, results of operations, or cash flows from adoption of this guidance.

In* December 2023,the FASB issued ASUNo.* 2023‑09, “Income Taxes (Topic740): Improvements to Income Tax Disclosures” (“ASU2023‑09”) which improves the transparency, effectiveness, and comparability of income tax disclosures and allows investors to better assess, in their capital allocation decisions, how an entity’s worldwide operations and related tax risks and tax planning and operation opportunities affect its income tax rate and prospects for future cash flows. ASU2023‑09 will be applied prospectively, and will be effective for the Company’s2025 annual reporting, with early adoption permitted. The Company is currently assessing the impact of ASU2023‑09 on its disclosures in the notes to the consolidated financial statements.

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