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Northwest Pipe Reports
1st Quarter Results

April 28, 2004 — Northwest Pipe Co. reported net income of $1.1 million on sales of $66.7 million for the first quarter of 2004.

Net income of $1.1 million ($0.17 per diluted share) compares to a net loss of $318,000 ($0.05 per diluted share) in the first quarter of 2003. Sales of $66.7 million compare to $57.7 million in the first quarter of 2003.

"We are pleased to report results that are significantly better than last year," said Brian Dunham, CEO. "Our results reflect the impact of an improving economy, the steps we have taken to reduce our costs, and the impact of higher pricing. We are optimistic that we will see continuing improvement in the months to come."

Sales in the Water Transmission Group were $36.3 million in the first quarter of 2004, compared to $35.3 million for the first quarter last year. Gross profit for this Group was $6.6 million (18.3% of sales) compared to $7.4 million (21.2% of sales) last year.

"The Water Transmission Group's gross margin in the first quarter of 2004 was lower as anticipated. Relatively low volume, combined with increased steel costs, drove the margin below historical levels," said Dunham. "We expect the margin to recover later in the year."

The Tubular Products Group's sales were $30.4 million in the first quarter of 2004, a significant improvement from the $22.4 million reported for the first quarter last year. Gross profit was $1.8 million in the first quarter of 2004, compared to a loss of $0.9 million in the first quarter of 2003. Gross profit as a percent of sales was 5.9% in the first quarter of 2004, compared to a negative 4.2% in 2003.

"The tubular products market improved as expected," Dunham reported. "This is the highest revenue reported by this Group since the third quarter of 2000 and the highest gross profit since the second quarter of 2002." The revenue improvement resulted from both higher prices and increased volume. Prices increased in reaction to higher steel costs. Demand was generally strong throughout the quarter even with higher pricing.

Outlook—Water Transmission bidding activity improved during the first quarter of 2004. Backlog at the end of the first quarter of 2004 was $83.8 million, compared to $73.8 million at the beginning of the quarter. With the improved bidding activity, gross margin in the backlog has also improved. The company is tracking an increasing number of projects scheduled to bid through the end of the year and currently expects that the total 2004 market will substantially exceed the 2003 market. "We expect bidding activity to be strong throughout the year," said Dunham. "While the second quarter will still be light in production due to lead times and project timing, backlog should increase, and the third and fourth quarters should have higher volume."

The cost and availability of steel has been an issue for the Water Transmission Group. This Group typically has longer-term fixed price contracts and can be vulnerable to changing raw material costs. Higher steel costs have been partially responsible for lower margins in the first quarter of 2004 and will contribute to lower margins in the second quarter as well. "Adjusting our purchasing and bidding practices has minimized the impact of cost increases so far," said Dunham. "At this time, we expect the impact to decrease as steel costs level out later in the year."

Demand in the Tubular Products Group is expected to increase or at least maintain current levels in most product lines through the third quarter of 2004. Margins are expected to improve based on the current spread between steel costs and selling prices. "We expect our margins to increase for the next few months and then begin to level out based on our assumption that steel costs are near their peak," stated Dunham.

The company also announced it is in the process of consolidating its Louisiana and Houston plants. "We have made the necessary improvements in Houston to allow us to produce all the tubular products in this one facility that were formerly manufactured in both," said Dunham. "The consolidation will allow us to reduce our costs, improve our competitiveness and serve our customers more effectively." The consolidation is expected to be completed in the second quarter.

Steel prices and availability continue to be issues for the Tubular Products Group. Steel costs have almost doubled since last year. "We have generally been successful in passing these costs along to our customers," said Dunham. "An exception is the energy market we serve in Canada. As a result of higher-cost steel without a corresponding increase in selling prices, we have curtailed production of this product line. We have allocated the steel originally planned for these products to our other products and facilities."

Northwest Pipe Co. manufactures welded steel pipe in two business segments. Its Water Transmission Group is a leading supplier of large-diameter, high-pressure steel pipe products that are used primarily for water transmission in the United States and Canada. Its Tubular Products Group manufactures smaller-diameter steel pipe for a wide range of construction, agricultural, energy, industrial and mechanical applications. The company is headquartered in Portland, Ore., and operates eleven manufacturing facilities across the United States and Mexico.

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