Forward-Looking Statements

This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Report contain forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections about our business, management's beliefs, and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "forecasts", "should," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors including changes in demand for our products, product mix, bidding activity, the timing of customer orders and deliveries, the price and availability of raw materials, excess or shortage of production capacity, international trade policy and regulations and other risks discussed at Item 1A under the caption "Risk Factors" and from time to time in our other Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic and international economic conditions. Such forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report. If we do update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements.

Overview

We are a leading North American manufacturer of large-diameter, high-pressure steel pipeline systems for use in water infrastructure applications, primarily related to drinking water systems. Our pipeline systems are also used for hydroelectric power systems, wastewater systems and other applications. We also make products for industrial plant piping systems and certain structural applications. These pipeline systems are produced by our Water Transmission Group from six manufacturing facilities strategically located across the United States in Portland, Oregon; Denver, Colorado; Adelanto, California; Parkersburg, West Virginia; Saginaw, Texas; Pleasant Grove, Utah; and one facility located in Monterrey, Mexico. Our Water Transmission Group accounted for approximately 62% of net sales in 2008.

In February 2009, we announced a temporary shutdown of our Utah facility, as we do not currently see sufficient near-term work located nearby to justify its operation at this time. We will maintain the equipment at this location and closely monitor the project opportunities in and around Utah. We hope to be able to start up this facility again in the future.

Our water infrastructure products are sold generally to installation contractors, who include our products in their bids to municipal agencies or privately-owned water companies for specific projects. We believe our sales are substantially driven by spending on new water infrastructure with a recent trend towards spending on water infrastructure replacement, repair and upgrade. Within the total pipeline, our products tend to fit the larger-diameter, higher-pressure applications.

Our Tubular Products Group operates two manufacturing facilities in Atchison, Kansas, and Houston, Texas and produces a range of products used in several different markets. We currently make energy pipe, fire protection sprinkler pipe, agricultural pipe, traffic signpost systems and structural pipe that is sold to distributors and used in many different applications. Our Tubular Products Group generated approximately 38% of our net sales in 2008.

Our Tubular Products Group's sales volume is typically driven by non-residential construction spending, energy spending, highway spending and general economic conditions. Currently, we are focusing the efforts of our Tubular Products Group on products for which we believe we have a sustainable advantage, and we have seen the most significant increase in this group's sales through growth in energy products.

Our Current Economic Environment

We are monitoring the current economic environment, and while we do not believe the following are necessarily key factors impacting demand for our products, we do believe these factors warrant consideration: the current recession; the current financial crisis; the changing cost of steel; and the American Recovery and Reinvestment Bill of 2009 (the "stimulus plan"). Each of the factors will impact our Groups with varying degrees of significance. Our Water Transmission Group is fundamentally a business with a long-term time horizon. Projects are often planned for many years in advance, and are sometimes part of fifty-year build out plans. As such, we do not expect the current recession to impact this Group in the same way it may impact the Tubular Products Group. We expect the recessionary environment to have the biggest impact to our Tubular Products Group, as sales in our focus markets may decrease as spending in those markets declines. Likewise, we don't believe the current financial crisis will have a significant impact on the Water Transmission Group in the near term, as most of the projects in our backlog or to be bid in 2009 are already funded; water projects are typically funded by revenue bonds which are backed by connection fees or monthly water rates, and are not generally funded by access to general tax obligation bonds. Fluctuating steel costs will be a factor in both our Tubular Products Group and our Water Transmission Group, as our selling prices will adjust as steel costs adjust. Finally, while we are not currently forecasting future sales as a result of the stimulus plan, we do see upside potential; specifically, the infrastructure portion of the plan may benefit our Water Transmission Group, as funds for water infrastructure development are made available. To a lesser extent, our tubular products markets may also benefit from other types of infrastructure development.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

Management Estimates:

The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate all of our estimates, including those related to revenue recognition, allowance for doubtful accounts, warranties, intangible assets, accrued liabilities, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies and related judgments and estimates affect the preparation of our consolidated financial statements.

Revenue Recognition:

Revenue from construction contracts in our water transmission segment is recognized on the percentage-of-completion method, measured by the costs incurred to date as a percentage of the estimated total costs of each contract. Estimated total costs of each contract are reviewed on a monthly basis by project management and operations personnel for substantially all projects that are fifty percent or more complete except that major projects, usually over $5.0 million, are reviewed earlier if sufficient production has been completed to provide enough information to revise the original estimated total cost of the project. All cost revisions that result in the gross profit as a percent of sales increasing or decreasing by more than two percent are reviewed by senior management personnel. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation. Selling, general and administrative costs are charged to expense as incurred. While certain contract costs are reported in the consolidated statements of income as selling, general and administrative costs, they are included in total contract costs incurred to date used to recognize revenue.

Provisions for losses on uncompleted contracts are made in the period such losses are known. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions, foreign currency exchange rate movements, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Historically, actual results have been within management's estimates.

Revenue from our tubular products segment is recognized when all four of the following criteria have been satisfied: persuasive evidence of an arrangement exists; delivery has occurred; the price is fixed or determinable; and collectibility is reasonably assured.

Allowance for Doubtful Accounts and Product Warranties:

We maintain allowances for estimated losses resulting from the inability of our customers to make required payments and contract disputes, together with a reserve for warranty claims, based on management's judgment. The extension and revision of credit is established by obtaining credit rating reports or financial information of a potential customer. An allowance is recorded based on a variety of factors, including our historical collection experience. At least monthly, we review past due balances to identify the reasons for non-payment. We will write off a receivable account once the account is deemed uncollectible, for reasons such as a bankruptcy filing, deterioration in the customer's financial position, contract dispute, product claim or other similar events. As of December 31, 2008, the accounts receivable balance of $75.9 million is reported net of allowances for doubtful accounts of $1.2 million. We believe the reported allowances at December 31, 2008, are adequate. If the customers' financial conditions were to deteriorate resulting in their inability to make payments, or if contract disputes or warranty claims 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. Historically, actual results have been within management's estimates.

Goodwill:

Goodwill represents the excess of cost over the assigned value of the net assets in connection with all acquisitions. Goodwill is reviewed for impairment in accordance with Statement of Financial Accounting Standard ("SFAS") 142 "Goodwill and Other Intangible Assets." SFAS 142 requires that goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed for impairment annually or more frequently if impairment indicators arise. We review for impairment by comparing the fair value of the Tubular Products reporting unit, as measured by discounted cash flows, market multiples based on earnings, and other valuation methodologies, to the carrying value. As required under SFAS 142, we performed our annual assessment for impairment of the goodwill as of December 31, 2008; based on our analysis, we believe no impairment of goodwill exists.

Long-Lived Assets:

Property and equipment are recorded at cost. We depreciate the net book value in excess of the salvage value using either the units of production method or a straight-line method depending on the classification of the asset.

Property and equipment are reviewed for impairment in accordance with SFAS 144, "Accounting for the Disposal of Long-Lived Assets." We assess impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the assets may not be recoverable. The recoverable value of long-lived assets is determined by estimating future undiscounted cash flows using assumptions about our expected future operating performance. Our estimates of undiscounted cash flows may differ from actual cash flow due to, among other things, technological changes, economic conditions, or changes to our business operations. If we determine the carrying value of the property and equipment will not be recoverable, we calculate and record an impairment loss.

Inventories:

Inventories are stated at the lower of cost or market. Raw material inventories of steel are stated at cost either on a specific identification basis or on an average cost basis. All other raw materials, as well as supplies, are stated on an average cost basis. Finished goods are stated at cost using the first-in, first-out method of accounting.

Income Taxes:

We 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.

In July 2006, the Financial Accounting Standards Board ("FASB") issued Financial Interpretation 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48") which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS 109, "Accounting for Income Taxes." FIN 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

Workers Compensation Insurance:

We are self-insured, or maintain high deductible policies, for losses and liabilities associated with workers compensation claims. Losses are accrued based upon our estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions followed in the insurance industry. There is no assurance that such insurance coverage will adequately protect us against liability from all potential consequences.

Pension Benefits:

We have two defined benefit pension plans that are frozen. We fund these plans to cover current plan costs plus amortization of the unfunded plan liabilities. To record these obligations, management uses estimates relating to assumed inflation, investment returns, mortality, employee turnover, and discount rates. Management reviews all of these assumptions on an annual basis.

Derivative Instruments.

We conduct business in various foreign countries, and from time to time settle transactions in foreign currencies. We have 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. At December 31, 2008 these foreign currency forward contracts were consistent with our strategy for financial risk management; however, they do not meet the conditions under SFAS 133 "Accounting for Derivative Instruments and Hedging Activities", as amended ("SFAS 133") to qualify for hedge accounting treatment. Consequently, these instruments are remeasured at fair value on each balance sheet date and resulting gains and losses are recognized in net income.

Foreign Currency Transactions

We record foreign currency transactions in accordance with SFAS 52 "Foreign Currency Translation". Foreign currency transaction gains and losses are included in net income.

Results of Operations

The following table sets forth, for the periods indicated, certain financial information regarding costs and expenses expressed as a percentage of total net sales and net sales of our business segments.

                                                         2008      2007      2006
    Net sales:
    Water transmission                                    61.8 %    75.2 %    75.5 %
    Tubular products                                      38.2      24.8      24.5

    Total net sales                                      100.0     100.0     100.0
    Cost of sales                                         78.7      81.7      83.6

    Gross profit                                          21.3      18.3      16.4
    Selling, general and administrative expenses           8.0       8.0       7.9
    Gain on sale of assets                                  -         -       (2.2 )

    Operating income                                      13.3      10.3      10.7
    Interest expense, net                                  1.5       1.8       1.9

    Income before income taxes                            11.8       8.5       8.8
    Provision for income taxes                             4.5       3.1       3.0

    Net income                                             7.3 %     5.4 %     5.8 %

    Segment gross profit as a percentage of net sales:
    Water transmission                                    20.0 %    20.9 %    18.2 %
    Tubular products                                      23.4      10.5      10.5

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Net sales. Net sales increased to $439.7 million in 2008 from $382.8 million in 2007. No single customer accounted for 10% or more of total net sales in 2008 or 2007.

Water Transmission sales decreased 5.5% to $271.9 million in 2008 from $287.8 million in 2007. Net sales for the year decreased over the prior year as a result of a decline in net sales in the fourth quarter; this decline was due to the following: a major project was postponed in October, and we had no opportunity to replace this volume; we shut down our highest volume production line during the fourth quarter to install a new spiral weld mill; and finally, weather issues impacted production in all but two of our facilities. Bidding activity, backlog and sales resulting from the award of new projects, or the production of current projects, may vary significantly from period to period.

Tubular Products sales increased 76.6% to $167.8 million in 2008 from $95.0 million in 2007. The majority of the increase in net sales over last year resulted from increased sales prices that accompanied rising steel costs, combined with improved energy product sales and solid performance by our other products.

Gross profit. Gross profit increased to $93.7 million (21.3% of total net sales) in 2008 from $70.2 million (18.3% of total net sales) in 2007.

Water Transmission gross profit decreased 9.5% to $54.5 million (20.0% of segment net sales) in 2008 from $60.2 million (20.9% of segment net sales) in 2007. Water Transmission gross profit decreased primarily due to the decreased plant utilization in the fourth quarter of 2008.

Gross profit from Tubular Products increased 291.5% to $39.2 million (23.4% of segment net sales) in 2008 from $10.0 million (10.5% of segment net sales) in 2007. The majority of the increase in gross profit is a result of increased volume of energy product at higher unit sales prices compared to the previous mix of products, combined with generally higher selling prices.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 14.5% to $35.2 million in 2008 from $30.7 million in 2007. Selling, general and administrative expenses as a percentage of total net sales remained consistent at 8.0% in 2008 and 2007.

Interest expense. Interest expense decreased slightly from $6.8 million in 2007 to $6.4 million in 2008. The decrease in interest expense was a result of lower average interest rates, partially offset by higher average borrowings.

Income taxes. Our effective tax rate was approximately 38.0% in 2008 and 36.3% in 2007. The increase in our effective tax rate was mainly due to the additional accrual of a contingent liability related to ongoing income tax audits.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Net sales. Net sales increased to $382.8 million in 2007 from $346.6 million in 2006. No single customer accounted for 10% or more of total net sales in 2007 or 2006.

Water Transmission sales increased 9.9% to $287.8 million in 2007 from $261.8 million in 2006. Net sales for the year increased over the prior year as a result of a consistent higher production level in most of our facilities. The higher production resulted from the increased backlog at the beginning of 2007 of $198.2 million compared to $125.6 million at the beginning of 2006. This allowed the majority of our facilities to increase plant utilization in 2007 and, combined with solid bookings early in the year, maintain this level of production throughout the year. In addition to increased sales, the stronger demand resulted in a record backlog at December 31, 2007 of $211.3 million.

Tubular Products sales increased 12.1% to $95.0 million in 2007 from $84.8 million in 2006. The majority of the increase in net sales over last year resulted from improved energy product and fire protection sprinkler pipe sales.

Gross profit. Gross profit increased to $70.2 million (18.3% of total net sales) in 2007 from $56.7 million (16.4% of total net sales) in 2006.

Water Transmission gross profit increased 26.0% to $60.2 million (20.9% of segment net sales) in 2007 from $47.8 million (18.2% of segment net sales) in 2006. Water Transmission gross profit increased due to higher plant utilization, productivity improvements, and the reduction of rent expense as a result of the purchase in the fourth quarter of 2006 of manufacturing equipment that we previously leased under certain operating leases.

Gross profit from Tubular Products increased 12.0% to $10.0 million (10.5% of segment net sales) in 2007 from $8.9 million (10.5% of segment net sales) in 2006. The increase in the gross profit is consistent with our increase in sales.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 12.1% to $30.7 million (8.0% of total net sales) in 2007 from $27.4 million (7.9% of total net sales) in 2006. The majority of the increase resulted from an increase in incentive compensation in 2007 and higher professional fees.

Gain on the sale of assets. In the year ended December 31, 2006, we completed the sale of our manufacturing facility in Riverside, California, and a gain of $7.7 million was recorded.

Interest expense. Interest expense increased slightly from $6.7 million in 2006 to $6.8 million in 2007. The increase in interest expense resulted from slightly higher average outstanding borrowings on our note payable to financial institution.

Income taxes. Our effective tax rate was approximately 36.3% in 2007 and 33.9% in 2006. The effective tax rate in 2006 was lower than historical rates, primarily due to research and development tax credits that were recorded during the year on amended income tax returns, and were not repeated in 2007.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal sources of liquidity generally include operating cash flow and our bank credit agreement. From time to time our long term capital needs may be met through the issuance of long term debt or additional equity. Our principal uses of liquidity generally include capital expenditures, working capital and debt service. Information regarding our cash flows for the twelve months ended December 31, 2008 is presented in our consolidated statements of cash flows contained in this Form 10-K, and is further discussed below.

As of December 31, 2008, our working capital (current assets minus current liabilities) was $223.2 million as compared to $181.5 million as of December 31, 2007. Cash and cash equivalents decreased from $234,000 as of December 31, 2007 to $90,000 as of December 31, 2008.

Net cash used by operating activities in 2008 was $59,000. This was primarily the result of our net income of $32.3 million combined with a decrease in costs and estimated earnings in excess of billings on uncompleted contracts, net of $20.3 million, offset in part by an increase in inventories of $24.5 million and an increase in trade and other receivables of $26.6 million. The increase in inventory was largely the result of higher steel costs. The decrease in costs and estimated earnings in excess of billings on uncompleted contracts and the increase in trade and other receivables resulted from timing differences between production, shipment and invoicing of products. We are typically obligated to pay for goods and services within 30 days of receipt, while cash collected from our construction contracts typically extends for several months. Our construction contract revenues in the water transmission segment are recognized on a percentage-of-completion method; therefore, there is little correlation between revenue and cash receipts and the elapsed time can be significant. As such, our payment cycle is a significantly shorter interval compared to our collection cycle.

Net cash used in investing activities in 2008 was $24.4 million, which primarily resulted from additions of property and equipment across all of our facilities; the most significant of which was two new spiral weld mills.

Net cash provided by financing activities in 2008 was $24.3 million, which resulted from increased net borrowings under the notes payable to financial institutions of $27.7 million, partially offset by payments on our long-term debt.

We anticipate that our existing cash and cash equivalents, cash flows expected to be generated by operations, and amounts available under our credit agreements will be adequate to fund our working capital and capital requirements for at least the next twelve months. We also expect to continue to rely on cash generated from operations and other sources of available funds to make required principal payments under our long term debt during 2009. To the extent necessary, we may also satisfy capital requirements through additional bank borrowings, senior notes, term notes, subordinated debt, and capital and operating leases, if such resources are available on satisfactory terms. We have from time to time evaluated and continue to evaluate opportunities for acquisitions and expansion. Any such transactions, if consummated, may use a portion of our working capital or necessitate additional bank borrowings or other sources of funding.

Debt

We had the following significant components of debt at December 31, 2008: a . . .