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 and
Section 21E of the Exchange Act 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," "could", 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 as a result of a variety of important factors. While it is impossible to identify all such factors, those that could cause actual results to differ materially from those estimated by us include changes in demand and market prices for our products, product mix, bidding activity, the timing of customer orders and deliveries, production schedules, the price and availability of raw materials, excess or shortage of production capacity, international trade policy and regulations and other risks discussed in our 2011 Form 10-K and from time to time in our other SEC filings and reports. 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, and we also manufacture other welded steel pipe products for use in a wide range of applications, including energy, construction, agriculture, and industrial systems. Our pipeline systems are also used for hydroelectric power systems, wastewater systems and other applications, and we also make products for industrial plant piping systems and certain structural applications. These pipeline systems are produced by our Water Transmission Group from seven manufacturing facilities located in Portland, Oregon; Denver, Colorado; Adelanto, California; Parkersburg, West Virginia; Saginaw, Texas; Pleasant Grove, Utah; and Monterrey, Mexico. During the second quarter of 2012, we began shutting down production at our Pleasant Grove facility and transferring its equipment to other manufacturing locations. The land and buildings at the Pleasant Grove location are leased. Our Water Transmission Group accounted for approximately 43.0% of net sales in the first six months of 2012.

Our water infrastructure products are generally sold to installation contractors, who include our products in their bids to municipal agencies or privately-owned water companies for specific projects. Within the total pipeline, our products best fit the larger-diameter, higher-pressure applications. We believe our sales are substantially driven by spending on new water infrastructure with additional spending on water infrastructure upgrades, replacements, and repairs. Pricing of our water infrastructure products is largely determined by the competitive environment in each regional market, and the regional markets generally operate independently of each other. We operate our Water Transmission 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. In the near-term, we expect strained municipal budgets will impact the Water Transmission Group, although increased infrastructure needs and drought-related projects in Texas will help offset the strained municipal budgets in other parts of the United States.

Our Tubular Products Group manufactures other welded steel products in three facilities: Atchison, Kansas; Houston, Texas; and Bossier City, Louisiana. We produce a range of products used in several different markets. We currently make pipe for a wide variety of uses, including energy, industrial, construction, agriculture, and industrial systems, which are sold to distributors and used in many different applications. Our Tubular Products Group's sales volume is typically driven by energy spending, non-residential construction spending, and general economic conditions. Our Tubular Products Group generated approximately 57.0% of net sales in the first six months of 2012.

We believe the greatest potential for significant sales growth in our Tubular Products Group is through our energy products. In the energy markets, drilling activity as represented by rig counts is holding relatively steady and is not expected to significantly decrease through the end of 2013. However, through the summer of 2012, we expect our energy sales to decline in volume as imports have increased significantly and we believe falling steel prices have caused pipe buyers to delay their inventory replenishment activity.

Purchased steel represents a substantial portion of our cost of sales, and changes in our selling prices often correlate directly to changes in steel costs. This correlation is the greatest in our Tubular Products Group. Tubular Products' margins are highly sensitive to changes in steel costs, although the amounts of margins are also influenced by the current level of demand in the marketplace.

Critical Accounting Policies and Estimates

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. The preparation of these 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. We evaluate our estimates on an on-going basis. 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. A description of our critical accounting policies and related judgments and estimates that affect the preparation of our consolidated financial statements is set forth in our 2011 Form 10-K.

Recent Accounting Pronouncements

See Note 10 of the Condensed Consolidated Financial Statements in Part I-Item I, "Financial Statements" for a description of recent accounting pronouncements, including the dates of adoption and estimated effects on financial position, results of operations and cash flows.

Results of Operations

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



                                         Three months ended June 30,                Six months ended June 30,
                                          2012                  2011                2012                  2011
Net sales
Water Transmission                            45.1 %                51.8 %              43.0 %                52.1 %
Tubular Products                              54.9                  48.2                57.0                  47.9

Total net sales                              100.0                 100.0               100.0                 100.0
Cost of sales                                 89.6                  88.4                89.0                  87.7

Gross profit                                  10.4                  11.6                11.0                  12.3
Selling, general and
administrative expense                         5.0                   3.9                 5.1                   5.1

Operating income                               5.4                   7.7                 5.9                   7.2
Other (income) expense                        (0.0 )                 0.2                 0.0                   0.2
Interest income                               (0.0 )                (0.0 )              (0.0 )                (0.0 )
Interest expense                               1.2                   1.8                 1.2                   2.0

Income before income taxes                     4.2                   5.7                 4.7                   5.0
Provision for income taxes                     1.5                   2.3                 1.7                   1.9

Net income                                     2.7 %                 3.4 %               3.0 %                 3.1 %

Gross profit as a percentage of
segment net sales:
Water Transmission                            13.8 %                15.5 %              15.2 %                16.1 %
Tubular Products                               7.5                   7.4                 7.9                   8.2

Three Months and Six Months Ended June 30, 2012 Compared to Three Months and Six Months Ended June 30, 2011

Net sales. Net sales decreased 8.9% to $131.0 million for the second quarter of 2012 compared to $143.8 million for the second quarter of 2011, and increased 7.0% to $273.2 million for the first six months of 2012 compared to $255.3 million in the same period of 2011. One customer in the Water Transmission segment accounted for 11.6% of total net sales in the second quarter of 2012. No single customer accounted for more than 10% of total net sales in the first six months of 2012. One customer in the Tubular Products segment accounted for 13.5% of total net sales in the second quarter of 2011 and 12.3% of total net sales for the first six months of 2011.

Water Transmission sales decreased by 20.7% to $59.1 million in the second quarter of 2012 from $74.5 million in the second quarter of 2011 and decreased 11.7% to $117.5 million in the first six months of 2012 from $133.1 million in the first six months of 2011. The decrease in sales in the second quarter of 2012 compared to the second quarter of 2011 was due to a 19% decrease in tons produced and a 3% decrease in selling prices per ton. The decrease in selling prices per ton in the second quarter of 2012 was due to a 5% decrease in material costs per ton including steel. Lower steel costs generally lead to lower contract values, and therefore lower selling prices per ton as contractors and municipalities are aware of the widely available steel costs and market conditions. The expectation of contractors and municipalities is that the bid values will decrease when steel costs decrease. There have periodically been contracts that allow for price escalations or reductions that move with steel costs. However, once a bid is accepted, there are usually no opportunities to increase our sales price if steel costs increase. Therefore we manage our steel buying where possible to buy ahead of our scheduled production when we expect steel costs will rise and delay steel commitments until closer to production when steel costs

are falling. The decrease in sales in the first six months of 2012 compared to the first six months of 2011 was due to a 15% decrease in tons produced, partially offset by a 4% increase in average selling price per ton. The increase in average selling price per ton in the first six months of 2012 was due to the mix of contracts produced in the first six months of 2012 compared to the same period of 2011. The decrease in volume resulted from continued weakness in municipal markets. Bidding activity, backlog and production levels may vary significantly from period to period affecting sales volumes.

Tubular Products sales increased 3.8% to $72.0 million in the second quarter of 2012 from $69.3 million in the second quarter of 2011 and increased 27.5% to $155.7 million in the first six months of 2012 from $122.2 million in the same period of 2011. The sales increase in the second quarter of 2012 as compared to the second quarter of 2011 was due to a 1% increase in selling price per ton and a 1% increase in tons sold. We sold 56,500 tons in the second quarter of 2012 as compared to 55,700 tons in the second quarter of 2011. The sales increase in the first six months of 2012 compared to the same period in 2011 was due to a 19% increase in tons sold from 103,200 tons to 122,700 tons and an 8% increase in the average selling price per ton. For the first six months of 2012 compared to the same period in 2011, the most significant increase in demand was the result of increases in natural gas and oil drilling operations, with energy pipe representing 99% of the total Tubular Product volume increase for the first six months of 2012 compared to the same period of 2011. Energy pipe represented 72% of tons sold in the second quarter of 2012 as compared to 71% of tons sold in the second quarter of 2011 and 74% of tons sold for the first six months of 2012 compared to 70% for the same period of 2011. We were able to capitalize on the increase in demand for energy pipe through upgrades made at our Houston, Texas facility to facilitate production of tubing with physical properties suitable for heat treating, and through ongoing expansion projects at our Atchison, Kansas facility.

Gross profit. Gross profit decreased 18.6% to $13.6 million (10.4% of total net sales) in the second quarter of 2012 from $16.7 million (11.6% of total net sales) in the second quarter of 2011 and decreased 4.3% to $30.1 million (11.0% of total net sales) in the first six months of 2012 from $31.4 million (12.3% of total net sales) in the first six months of 2011.

Water Transmission gross profit decreased $3.4 million, or 29.3%, to $8.1 million (13.8% of segment net sales) in the second quarter of 2012 from $11.5 million (15.5% of segment net sales) in the second quarter of 2011. Water Transmission gross profit also decreased in the first six months of 2012 to $17.8 million (15.2% of segment net sales) compared to the same period in the prior year when gross profit was $21.4 million (16.1% of segment net sales). The most significant factor in the reduction in gross margin was the lower volume described above, which had a negative impact on the fixed portion of our cost of goods sold as a percent of sales. In the second quarter of 2012 as compared to the second quarter of 2011, gross profit was negatively impacted by lower selling price per ton. However, selling prices generally move with steel costs and therefore the negative impacts of the decreased selling prices per ton were offset by lower materials costs per ton, including steel, as discussed above. In the first six months of 2012, selling prices increased 4% while materials costs including steel decreased 1% as we were able to opportunistically purchase steel at lower costs than expected.

Gross profit from Tubular Products increased $0.3 million, or 5.6%, to $5.4 million (7.5% of segment net sales) in the second quarter of 2012 from $5.1 million (7.4% of segment net sales) in the second quarter of 2011 and increased 22.1% to $12.2 million (7.9% of segment net sales) in the first six months of 2012 from $10.0 million (8.2% of segment net sales) in the first six months of 2011. As noted above, demand for our Tubular Products has continued to remain strong, particularly for our energy products, which had sales revenue of $49.0 million in the second quarter of 2011 and increased 12% to $54.6 million in the second quarter of 2012, and sales revenue of $83.5 million in the first six months of 2011 and increased 47% to $123.1 million in the first six months of 2012. Margins were positively impacted by lower material costs per ton of 2% in the first six months of 2012 compared to the first six months of 2011. The increase in volume contributed to the increase in total gross profit in 2012, but the gross profit as a percentage of segment sales was negatively impacted by higher inventory costs flowing through from the fourth quarter of 2011. These higher inventory costs resulted from planned downtime, particularly at our Atchison, Kansas facility in December 2011 to install equipment related to our capacity expansion projects. We also had planned downtime in our Atchison facility in May 2012 to complete our previously announced expansion project which negatively impacted our margins in the second quarter of 2012.

Selling, general and administrative expenses. Selling, general and administrative expenses were $6.6 million (5.0% of total net sales) in the second quarter of 2012 and $5.6 million (3.9% of total net sales) in the second quarter of 2011 and increased to $13.9 million (5.1% of total net sales) in the first six months of 2012 from $12.9 million (5.1% of total net sales) in the same period of 2011. The increase in the second quarter of 2012 as compared to the second quarter of 2011 was driven by a $0.7 million increase in wages and benefits and an increase of $0.4 million in stock based compensation expense. In addition, insurance proceeds related to our previous accounting investigation resulted in a net credit of $0.1 million in the second quarter of 2012 as compared to a net credit of $1.5 million in the second quarter of 2011. These were offset by a decrease in Tubular Product sales commission expense of $0.4 million following the termination of an external sales group for energy pipe sales, and a decrease in bonus expense of $1.4 million. The increase in the first six months of 2012 compared to the same period of the prior year was largely driven by insurance proceeds related to our previous accounting investigation, which resulted in a net credit of $0.6 million in the first six months of 2011 as compared to a net expense of $0.2 million in the first six months of 2012. Professional fees also increased $0.7 million related to the work performed for our 2011 restatement. Further, there was a $0.7 million increase in wages and benefits and an increase of $0.7 million in stock based compensation expense. These were offset by a decrease in Tubular Product sales commission expense of $0.9 million following the termination of an external sales group for energy pipe sales, and a decrease in bonus expense of $1.3 million.

Interest expense. Interest expense was $1.5 million in the second quarter of 2012 and $2.6 million in the second quarter of 2011 and $3.2 million in the first six months of 2012 and $5.2 million in the first six months of 2011. Lower average borrowings and lower average interest rates decreased interest expense in the second quarter of 2012 compared to the second quarter of 2011. Average borrowings and average interest rates were also lower in the first six months of 2012 compared to the same period in 2011, which decreased interest expense in the first six months of 2012 compared to 2011.

Income Taxes. The tax provision was $1.9 million in the second quarter of 2012 (an effective tax rate of 34.8%) compared to $3.3 million in the second quarter of 2011 (an effective tax rate of 39.5%) and $4.7 million in the first six months of 2012 (an effective tax rate of 36.2%) compared to $5.1 million in the first six months of 2011 (an effective tax rate of 39.1%). Our effective rate for the six months ended June 30, 2012 and 2011 exceeds our federal statutory rate of 35% due primarily to state taxes and the relationship of permanent income tax deductions and tax credits to estimated pre-tax income for the respective years.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal sources of liquidity generally include operating cash flows and our bank credit agreement. Our principal uses of liquidity generally include capital expenditures, working capital and debt service. Information regarding our cash flows for the six months ended June 30, 2012 is presented in our condensed consolidated statements of cash flows contained in this Form 10-Q, and is further discussed below.

As of June 30, 2012, our working capital (current assets minus current liabilities) was $112.7 million as compared to $170.6 million as of December 31, 2011. The primary reason for the reduction in working capital was the movement of our note payable to financial institution from long-term liabilities to current liabilities and increases in our accounts payable and accrued liabilities.

Net cash provided by operating activities in the first six months of 2012 was $24.4 million. This was primarily the result of fluctuations in working capital including decreases in receivables and increases in payables, partially offset by an increase in costs and estimated earnings in excess of billings on uncompleted contracts, which result from timing differences between production, shipment and invoicing of our products, as well as changes in levels of production and costs of materials. This was further offset by increases in our inventory balances. We typically have a relatively large investment in working capital, as we are generally obligated to pay for goods and services early in the life cycle of a Water Transmission segment project while cash is not received until much later in the project. Our 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 than our collection cycle, although the effect of this difference in the cycles may vary from period to period.

Net cash used in investing activities in the first six months of 2012 was $8.1 million, primarily for capital expenditures for storm water upgrades at our Portland, Oregon facility and planned capacity expansion in our Tubular Products plants. Capital expenditures in 2012 are expected to be approximately $22 million to $25 million for standard capital replacement and recently announced strategic investment projects. These projects include expansion at our Saginaw plant, which will enable production of pipe up to 126" diameter as well as to increase overall capacity, and the installation of an additional horizontal accumulator at our Atchison plant.

Net cash used in financing activities in the first six months of 2012 was $16.5 million, which resulted primarily from repayments under our Credit Agreement and Note Purchase Agreement totaling $86.1 million, partially offset by net borrowings of $71.8 million.

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 through the expiration of the credit agreement on April 30, 2013. We anticipate refinancing our credit agreement during the second half of 2012. We also expect to continue to rely on cash generated from operations or funds available from our line of credit to make required principal payments on our long-term debt during 2012. 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.

Line of Credit and Long-Term Debt

We had the following significant components of debt at June 30, 2012: a $115.0 million Credit Agreement, under which $52.0 million was outstanding; $4.3 million of Series A Term Notes, $3.0 million of Series B Term Notes, $4.3 million of Series C Term Notes and $1.9 million of Series D Term Notes.

The Credit Agreement bears interest at rates related to LIBOR plus 2.50% to 4.50%, or the lending institution's prime rate, plus 1.50% to 3.50%. We were able to borrow at LIBOR plus 2.5% under the credit agreement at June 30, 2012. Borrowings under the Credit Agreement are collateralized by substantially all of our personal property. During the first quarter of 2012, the Company entered into an amendment to the Company's Credit Agreement which extended the expiration date to April 30, 2013, set aggregate commitments of the lenders at $115 million, waived compliance with certain covenants as of December 31, 2011, and made certain changes in the definition, method of calculation and amounts of certain covenants. The credit facility bore interest at a weighted average rate of 3.14% during the first six months of 2012. At June 30, 2012 we had $59.8 million available under the credit facility, net of outstanding letters of credit.

The Series A Term Notes in the principal amount of $4.3 million matures on February 25, 2014 and requires annual payments in the amount of $2.1 million plus interest of 10.50% paid quarterly on February 25, May 25, August 25 and November 25. The Series B Term Notes in the principal amount of $3.0 million mature on June 21, 2014 and require annual payments in the amount of $1.5 million plus interest of 10.22% paid quarterly on March 21, June 21, September 21 and December 21. The Series C Term Notes in the principal amount of $4.3 million mature on October 26, 2014 and require annual payments of $1.4 million plus interest of 9.11% paid quarterly on January 26, April 26, July 26 and October 26. The Series D Term Notes in the principal amount of $1.9 million mature on January 24, 2015 and require annual payments in the amount of $643,000 plus interest of 9.07% paid quarterly on January 24, April 24, July 24 and October 24. The Series A Term Note, the Series B Term Notes, the Series C Term Notes, and the Series D Term Notes (together, the "Term Notes") are collateralized by accounts receivable, inventory and certain equipment.

We had a total of $14.1 million in capital lease obligations outstanding at June 30, 2012. The weighted average interest rate on all of our capital leases is 7.74%. Our capital leases are for certain equipment used in the manufacturing process, with $7.2 million of our capital leases outstanding as of June 30, 2012 representing an agreement entered into as of September 2009 to finance our Bossier City, Louisiana facility (the "Financing Arrangement") under which certain equipment used in the manufacturing process at the facility is leased. As part of the Financing Arrangement, a $10 million escrow account was provided for the Company by a local government entity through a financial institution and funds are released upon qualifying purchase requisitions. As we purchase equipment for the facility, we enter into a sale-leaseback transaction with the governmental entity as part of the Financing Arrangement. As of June 30, 2012, $0.9 million was held in the escrow account, which is included in other assets, as a result of proceeds from the Financing Arrangement. The Financing Arrangement requires us to meet certain loan covenants, measured at the end of each fiscal quarter. These loan covenants follow the covenants required by our Credit Agreement.

The Credit Agreement, the Note Purchase Agreement and certain of our leases place various restrictions on our ability to, among other things, incur certain additional indebtedness, create liens or other encumbrances on assets, and incur additional capital expenditures. The Credit Agreement, Note Purchase Agreement, and certain of our leases require us to be in compliance with certain financial . . .