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Note 2 - Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Significant Accounting Policies [Text Block] |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation and Presentation The Consolidated Financial Statements are expressed in United States Dollars and include the accounts of Northwest Pipe Company and its subsidiaries over which the Company exercises control as of the financial statement date. Intercompany accounts and transactions have been eliminated. Certain amounts from the prior year financial statements have been reclassified in order to conform to the current year presentation. Immaterial Correction of Error The Company recorded revenue of $1.2 million during the three and twelve months ended December 31, 2018, which should have been recorded in the three months ended March 31, 2019. The misstatement in the timing of revenue recognition was due to an error in the measurement of costs incurred to date relative to estimated total direct costs at a recently acquired Ameron Water Transmission Group, LLC (“Ameron”) facility. Management concluded that this out of period adjustment was not material to the consolidated financial results for the years ended December 31, 2019 or 2018. Use of Estimates The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, the Company evaluates all of its estimates, including those related to allowance for doubtful accounts, inventories, long-lived assets (including depreciation and amortization), revenue recognition, share-based compensation, income taxes, and litigation and other contingencies. Actual results may differ from these estimates under different assumptions or conditions. Business Combinations Business combinations are accounted for under the acquisition method which requires identifiable assets acquired and liabilities assumed in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. The amount by which the net fair value of assets acquired and liabilities assumed exceeds the fair value of consideration transferred as the purchase price is recorded as a bargain purchase gain. Acquisition-related costs are expensed as incurred. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances may occur which may affect the accuracy or validity of such estimates. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill or bargain purchase gain. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s Consolidated Statements of Operations. Cash and Cash Equivalents Cash and cash equivalents consist of cash and short-term, highly-liquid investments with maturities of three months or less when purchased. At times, the Company will have outstanding checks in excess of related bank balances (a “book overdraft”). If this occurs, the amount of the book overdraft will be reclassified to accounts payable, and changes in the book overdraft will be reflected as a component of operating activities in the Consolidated Statement of Cash Flows. The Company had no book overdraft as of December 31, 2019 and 2018. Receivables and Allowance for Doubtful Accounts Trade receivables are reported on the Consolidated Balance Sheet net of doubtful accounts. The Company maintains allowances for estimated losses resulting from the inability of its customers to make required payments or from contract disputes. The amounts of such allowances are based on historical experience and management’s judgment. The Company will write down or write off a receivable account once the account is deemed uncollectible. If the customers’ financial conditions were to deteriorate resulting in their inability to make payments, or if contract disputes were to escalate, additional allowances may need to be recorded which would result in additional expenses being recorded for the period in which such determination was made. 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 include achievement of 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. Inventories Inventories are stated at the lower of cost and net realizable value. The cost of raw material inventories of steel is either on a specific identification basis or on an average cost basis. The cost of all other raw material inventories, as well as work-in-process and supplies, is on an average cost basis. The cost of finished goods uses the first -in, first -out method of accounting. Property and Equipment Property and equipment are recorded at cost. Maintenance and repairs are expensed as incurred, and costs of new equipment and buildings, as well as costs of expansions or refurbishment of existing equipment and buildings, including interest where applicable, are capitalized. Depreciation and amortization are determined by the units of production method for most equipment and by the straight-line method for the remaining assets based on the estimated useful lives of the related assets. Estimated useful lives by major classes of property and equipment are as follows: Land improvements ( 15 – 30 years); Buildings ( 20 – 40 years); and Machinery and equipment ( 3 – 30 years). Depreciation expense calculated under the units of production method may be less than, equal to, or greater than depreciation expense calculated under the straight-line method due to variances in production levels. Upon disposal, costs and related accumulated depreciation of the assets are removed from the accounts and resulting gains or losses are reflected in operating expenses. The Company leases certain equipment under long-term finance leases, which are being amortized on a straight-line basis over the shorter of its useful life or the lease term. The Company assesses impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the asset or asset group(s) may not be recoverable. The asset group is the lowest level at which identifiable cash flows are largely independent of the cash flows of other groups of assets or liabilities. The recoverable value of a long-lived asset group is determined by estimating future undiscounted cash flows using assumptions about the expected future operating performance of the Company. Intangible Assets Intangible assets consist primarily of customer relationships and trade names and trademarks recorded as the result of acquisition activity. Intangible assets are amortized using the straight-line method over estimated useful lives ranging from eleven months to 15 years. Workers Compensation The Company is self-insured, or maintains high deductible policies, for losses and liabilities associated with workers compensation claims. Losses are accrued based upon the Company’s estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions followed in the insurance industry. As of December 31, 2019 and 2018, workers compensation reserves recorded were $1.7 million and $2.7 million, respectively, of which $0.3 million and $0.5 million, respectively, were included in Accrued liabilities and $1.4 million and $2.2 million, respectively, were included in Other long-term liabilities. Accrued Liabilities Accrued liabilities consist of the following (in thousands):
|  | December 31, |
|  | 2019 |  |  | 2018 |
Accrued liabilities: |  |  |  |  |  |  |  |
Accrued bonus |  | $ | 3,977 |  |  | $ | 358 |
Accrued vacation payable |  |  | 2,263 |  |  |  | 2,211 |
Operating lease liabilities |  |  | 1,642 |  |  |  | - |
Accrued sales tax |  |  | 1,537 |  |  |  | 1,753 |
Finance lease liabilities |  |  | 420 |  |  |  | 416 |
Workers compensation reserves |  |  | 269 |  |  |  | 452 |
Other |  |  | 3,684 |  |  |  | 2,773 |
Total accrued liabilities |  | $ | 13,792 |  |  | $ | 7,963 |
Derivative Instruments The Company conducts business in various foreign countries and, from time to time, settles transactions in foreign currencies. The Company has established a program that utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures, typically arising from sales contracts denominated in Canadian currency. Foreign currency forward contracts are consistent with the Company’s strategy for financial risk management. The Company utilizes cash flow hedge accounting treatment for qualifying foreign currency forward contracts. Instruments that do not qualify for cash flow hedge accounting treatment are remeasured at fair value on each balance sheet date and resulting gains and losses are recognized in earnings. Pension Benefits The Company has two defined benefit pension plans that have been frozen since 2001. The Company funds these plans to cover current plan costs plus amortization of the unfunded plan liabilities. To record these obligations, management uses estimates relating to investment returns, mortality, and discount rates. Foreign Currency Transactions The functional currency of the Company, including its Mexican operations, is the United States dollar. Monetary assets and liabilities are remeasured at current exchange rates and non-monetary assets and liabilities are remeasured at historical exchange rates. Revenue and expenses related to monetary assets and liabilities are remeasured at average exchange rates and at historical exchange rates for the related revenue and expenses of non-monetary assets and liabilities. Transaction gains (losses) from foreign currency forward contracts designated as cash flow hedges are included in Accumulated other comprehensive loss as a separate component of Stockholders’ equity. For the years ended December 31, 2019, 2018, and 2017, net foreign currency transaction gains (losses) of $0.5 million, $( 0.4 ) million, and $( 0.2 ) million, respectively, were recognized in earnings. Revenue Recognition 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. 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. For a majority of contracts, revenue 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. The Company 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. Share-based Compensation 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 restricted stock units (“RSUs”) and performance share awards (“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. Income Taxes Income taxes are recorded using an asset and liability approach that requires the recognition of deferred income tax assets and liabilities for the expected future income tax consequences of events that have been recognized in the Company’s financial statements or income tax returns. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. The determination of the provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. The provision for income taxes primarily reflects a combination of income earned and taxed in the various United States federal and state and, to a lesser extent, foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized income tax benefits or valuation allowances, and the change in the mix of earnings from these taxing jurisdictions all affect the overall effective income tax rate. The Company records income tax reserves for federal, state, local, and international exposures relating to periods subject to audit. The development of reserves for these exposures requires judgments about tax issues, potential outcomes and timing, and is a subjective estimate. The Company assesses income tax positions and records income tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those income tax positions where it is more-likely-than- not that an income tax benefit will be sustained, the largest amount of income tax benefit with a greater than 50% likelihood of being realized upon settlement with a tax authority that has full knowledge of all relevant information has been recorded. For those income tax positions where it is not more-likely-than- not that an income tax benefit will be sustained, no income tax benefit has been recognized in the Consolidated Financial Statements. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss includes unrealized gains and losses on derivative instruments related to the effective portion of cash flow hedges and changes in the funded status of the defined benefit pension plans, both net of the related income tax effect. Net Income (Loss) per Share Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) 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 from continuing operations, 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 (loss) per basic and diluted weighted-average common share outstanding was calculated as follows (in thousands, except per share amounts):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Income (loss) from continuing operations |  | $ | 27,902 |  |  | $ | 20,312 |  |  | $ | (8,392 | )
Loss on discontinued operations |  |  | - |  |  |  | - |  |  |  | (1,771 | )
Net income (loss) |  | $ | 27,902 |  |  | $ | 20,312 |  |  | $ | (10,163 | )
Basic weighted-average common shares outstanding |  |  | 9,741 |  |  |  | 9,726 |  |  |  | 9,613 |
Effect of potentially dilutive common shares (1) |  |  | 38 |  |  |  | 7 |  |  |  | - |
Diluted weighted-average common shares outstanding |  |  | 9,779 |  |  |  | 9,733 |  |  |  | 9,613 |
Income (loss) per basic common share: |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | 2.86 |  |  | $ | 2.09 |  |  | $ | (0.88 | )
Discontinued operations |  |  | - |  |  |  | - |  |  |  | (0.18 | )
Net income (loss) per share |  | $ | 2.86 |  |  | $ | 2.09 |  |  | $ | (1.06 | )
Income (loss) per diluted common share: |  |  |  |  |  |  |  |  |  |  |  |
Continuing operations |  | $ | 2.85 |  |  | $ | 2.09 |  |  | $ | (0.88 | )
Discontinued operations |  |  | - |  |  |  | - |  |  |  | (0.18 | )
Net income (loss) per share assuming dilution |  | $ | 2.85 |  |  | $ | 2.09 |  |  | $ | (1.06 | )
| ( 1 ) | There were no antidilutive shares for the year ended December 31, 2019. The weighted-average number of antidilutive shares not included in the computation of diluted net income per share was approximately 63,000, for the year ended December 31, 2018, including approximately 39,000 of performance-based share awards, at the target level of 100%, that were not included because the performance conditions had not been met as of December 31, 2018. The weighted-average number of antidilutive shares not included in the computation of diluted net loss per share was approximately 196,000 for the year ended December 31, 2017.
Concentrations of Credit Risk Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables, foreign currency forward contracts, and deferred compensation plan assets. Trade receivables generally represent a large number of customers, including municipalities, manufacturers, distributors, and contractors, dispersed across a wide geographic base. As of December 31, 2019, one customer had a balance in excess of 10% of total accounts receivable. As of December 31, 2018, one customer had a balance in excess of 10% of total accounts receivable. Foreign currency forward contracts are with a high quality financial institution. The Company’s deferred compensation plan assets, included in Other assets, are invested in a diversified portfolio of stock and bond mutual funds. Recent Accounting and Reporting Developments Accounting Changes In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016‑02, “Leases (Topic 842 )” (“ASU 2016‑02” ), which requires lessees to recognize on the balance sheet right-of-use assets and lease liabilities for the rights and obligations created by the majority of leases, including those historically accounted for as operating leases. During 2018 and 2019, the FASB issued additional ASUs that clarify the implementation guidance for ASU 2016‑02 but do not change the core principle of the guidance. The Company adopted Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“Topic 842” ) on January 1, 2019 using the modified retrospective transition method which allowed it to continue to apply legacy guidance for periods prior to 2019. The Company elected the package of transition practical expedients which, among other things, allowed it to keep the historical lease classifications and not reassess the lease classification for any existing leases as of the date of adoption. The Company also made an accounting policy election to apply the short-term lease exception, which allows it to keep leases with an initial term of twelve months or less off the balance sheet. Upon adoption on January 1, 2019, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately $8.0 million. In August 2017, the FASB issued Accounting Standards Update No. 2017 - 12, “Derivatives and Hedging (Topic 815 ): Targeted Improvements to Accounting for Hedging Activities,” which better aligns risk management activities and financial reporting for hedging relationships, simplifies hedge accounting requirements, and improves disclosures of hedging arrangements. The Company adopted this guidance on January 1, 2019 and the impact was not material to the Company’s financial position, results of operations, or cash flows. In February 2018, the FASB issued Accounting Standards Update No. 2018 - 02, “Income Statement—Reporting Comprehensive Income (Topic 220 ): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” (“ASU 2018 - 02” ), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“TCJA”). The Company adopted this guidance on January 1, 2019, which resulted in reclassification between Accumulated other comprehensive loss and Retained earnings of $0.2 million, and had no impact on the Company’s results of operations or cash flows. In July 2018, the FASB issued Accounting Standards Update No. 2018 - 09, “Codification Improvements,” which clarifies, corrects errors in, or makes minor improvements to the ASC. The Company adopted this guidance on January 1, 2019 and the impact was not material to the Company’s financial position, results of operations, or cash flows. In July 2019, the FASB issued Accounting Standards Update No. 2019 - 07, “Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33 - 10532, Disclosure Update and Simplification , and Nos. 33 - 10231 and 33 - 10442, Investment Company Reporting Modernization , and Miscellaneous Updates (SEC Update),” which aligns the guidance in various Securities and Exchange Commission (“SEC”) sections of the FASB ASC with the requirements of certain already effective SEC final rules. The Company adopted this guidance upon issuance and the impact was not material to the Company's Consolidated Financial Statements. Recent Accounting Standards In August 2018, the FASB issued Accounting Standards Update No. 2018 - 13, “Fair Value Measurement (Topic 820 ): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018 - 13” ), which modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ASU 2018 - 13 is effective for the Company beginning January 1, 2020, with early adoption permitted for the removed and modified disclosures and delayed adoption until the effective date permitted for the additional disclosures. Upon adoption, the removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect a material impact to its financial position, results of operations, or cash flows from adoption of this guidance. In August 2018, the FASB issued Accounting Standards Update No. 2018 - 14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715 - 20 ): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans” (“ASU 2018 - 14” ), which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The eliminated disclosures include the amounts in accumulated other comprehensive income expected to be recognized in net periodic benefit costs over the next fiscal year and the amount and timing of plan assets expected to be returned to the employer. The new disclosures include an explanation of significant gains and losses related to changes in benefit obligations. ASU 2018 - 14 is effective for the Company beginning January 1, 2021, with early adoption permitted, and will be adopted on a retrospective basis. The Company does not expect a material impact to its financial position, results of operations, or cash flows from adoption of this guidance. In December 2019, the FASB issued Accounting Standards Update No. 2019 - 12, “Income Taxes (Topic 740 ): Simplifying the Accounting for Income Taxes” (“ASU 2019 - 12” ), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, “Income Taxes” (“Topic 740” ). ASU 2019 - 12 also improves consistent application of and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019 - 12 is effective for the Company beginning January 1, 2021, with early adoption permitted. The Company is currently assessing the impact of the adoption of this guidance to its financial position, results of operations, and cash flows.

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