Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Overview 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 the Company’s business, management’s beliefs, and assumptions made by management. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations of such words and similar expressions are in- tended 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 forecast- ed in such forward-looking statements due to numerous factors including changes in demand for the Company’s products, product mix, bidding activity, the timing of customer orders and deliveries, excess or shortage of production capacity, and other risks discussed from time to time in the Company’s Securities and Exchange Commission filings and reports. In addition, such statements could be affected by gen- eral 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 the Company does not undertake any obligation to update any forward- looking statement to reflect events or circumstances after the date of this Report. If the Company does update or correct one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. The Company's net sales and net income may fluctuate significantly from quarter to quarter due to the size and schedule for deliver- ies of certain Water Transmission orders, the seasonality of the Company's Tubular Products business, and fluctuations in the cost of raw material. The Company has experienced such fluctuations in the past and may experience such fluctuations in the future. Results of oper- ations in any period should not be considered indicative of the results to be expected for any future period, and fluctuations in operating results may also result in fluctuations in the price of the Company’s common stock. The Company's business is subject to cyclical fluctua- tions based on general economic conditions and the economic conditions of the specific industries served. Future economic downturns could have a material adverse effect on the Company's business, financial condition and results of operations. The Company’s Water Transmission products are manufactured in its Portland, Oregon; Denver, Colorado; Adelanto and Riverside, Cali- fornia; Parkersburg, West Virginia; and Saginaw, Texas facilities. Tubular Products are manufactured in the Company's Portland, Oregon; Atchison, Kansas; Houston, Texas; Bossier City, Louisiana; and Monterrey, Mexico facilities. The Company believes that the Tubular Products business, in conjunction with the Water Transmission business, provides a signifi- cant degree of market diversification, because the principal factors affecting demand for Water Transmission products are different from those affecting demand for tubular products. Demand for Water Transmission products is generally based on population growth and move- ment, changing water sources and replacement of aging infrastructure. Demand can vary dramatically within the Company's market area since each population center determines its own waterworks requirements. Demand for tubular products is influenced by construction, the energy market and the general economic conditions.  The following table sets forth, for the periods indicated, certain financial information regarding costs and expenses expressed as a per- centage of total net sales and net sales of the Company’s business segments. Year Ended December 31, 2000 1999 1998 Net sales: Water transmission 55.1% 57.2% 59.5% Tubular products 44.9 42.8 40.5 Total net sales 100.0 100.0 100.0 Cost of sales 82.5 79.7 80.1 Gross profit 17.5 20.3 19.9 Selling, general and administrative expenses 7.6 7.8 7.6 Operating income 9.9 12.5 12.3 Interest expense, net 3.6 3.3 2.3 Income before income taxes 6.3 9.2 10.0 Provision for income taxes 2.5 3.7 4.0 Net income 3.8% 5.5% 6.0% Gross profit as a percentage of segment net sales: Water transmission 21.6% 23.5% 23.0% Tubular products 12.5 16.1 15.3 Northwest Pipe Company | 9