2 .	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates

The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America 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.

Basis of Consolidation and Presentation

The Consolidated Financial Statements 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.

March

30,

2014,

the Company completed the sale of substantially all of the assets and liabilities associated with its oil country tubular goods (“OCTG”) business, as discussed in more detail below. The Company’s results of operations for its disposed OCTG business have been presented as discontinued operations for all periods presented in the Consolidated Statements of Operations.

Lucid Energy Inc. (“Lucid”), over which the Company exercises significant influence but does not control, is accounted for under the cost method of accounting. Lucid is a clean energy company based in Portland, Oregon. The carrying value of this investment is

as of

December

31,

2016

and

2015

due to a history of net losses by Lucid.

Disposal of OCTG Business

March

30,

2014,

the Company completed the sale of substantially all of the assets and liabilities associated with its OCTG business, which was conducted by the Company at its manufacturing facilities in Bossier City, Louisiana and Houston, Texas, excluding the real property located in Houston, Texas. These facilities were previously included in the Company’s Tubular Products Group. Total consideration of

$42.7

million was paid by the buyer, resulting in a loss on sale of

$13.5

million. The calculation of the loss on sale included a write down of

$4.4

million of goodwill. Of the proceeds received,

$4.3

million was placed in escrow to secure the Company’s indemnification obligations under the purchase agreement,

$5.0

million was used to repay capital leases related to and secured by certain assets at the Bossier City, Louisiana manufacturing facility,

$1.8

million was used to pay for transaction costs and

$1.8

million was used to pay a net working capital adjustment made in

September

2014,

resulting in net proceeds of

$29.8

million. In

April

2015,

the

$4.3

million escrow was released to the Company.

The table below presents the operating results for the Company’s discontinued operations (in thousands). These operating results for the year ended

December

31,

2014

do not necessarily reflect what they would have been had the OCTG business not been classified as a discontinued operation.

Net sales	$	22,225
Cost of sales		23,881
Gross loss		(1,656	)
Selling, general and administrative expense		396
Operating loss		(2,052	)
Loss on sale of business		(13,497	)
Interest expense		(99	)
Loss before income taxes		(15,648	)
Income tax benefit		(3,934	)
Loss on discontinued operations	$	(11,714	)

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,

2016

and

2015.

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 Company history and management’s judgment. At least monthly, the Company reviews past due balances to identify the reasons for non-payment. The Company will write off a receivable account once the account is deemed uncollectible. The Company believes the reported allowances as of

December

31,

2016

and

2015

are adequate. 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.

Inventories

Inventories are stated at the lower of cost or market. Raw material inventories of steel, stated at cost, are either on a specific identification basis or on an average cost basis. All other raw material inventories, as well as work-in-process and supplies, stated at cost, are on an average cost basis. Finished goods, stated at cost, use the

first

-in,

first

-out method of accounting.

Property and Equipment

Property and equipment is stated 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

–

years); Buildings

(20

–

years); and Machinery and equipment

–

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 capital 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.

Goodwill

and Intangible Assets

Goodwill represents the excess of purchase price over the assigned fair values of the net assets in connection with an acquisition. Goodwill is reviewed for impairment annually as of

December

or whenever events occur or circumstances change that indicate goodwill

may

be impaired. Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or

one

level below an operating segment (also known as a component). The Company’s reporting units are equivalent to its operating segments as the individual components meet the criteria for aggregation. As of

December

31,

2016,

the Company’s goodwill was fully impaired.

In evaluating goodwill, the Company looks at the long-term prospects for the reporting unit and recognizes that current performance

may

not be the best indicator of future prospects or value, which requires management judgment. The income approach is based upon projected future after-tax cash flows discounted to present value using factors that consider the timing and risk associated with the future after-tax cash flows. The market approach is based upon historical and/or forward-looking measures using multiples of revenue or earnings before interest, taxes, depreciation and amortization. The Company utilizes a weighted average of the income and market approaches, with a heavier weighting on the income approach because of the relatively limited number of comparable entities for which relevant multiples are available. If the carrying value of the reporting unit exceeds its calculated enterprise value, then the Company continues to assess the fair value of individual assets and liabilities, other than goodwill. The difference between the reporting unit enterprise value and the fair value of its identifiable net assets is the implied fair value of the reporting unit’s goodwill. A goodwill impairment loss is recorded for the difference between the implied fair value and its carrying value.

Intangible assets consist primarily of customer relationships, patents 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

years.

See Note

“Goodwill and Intangible Assets” for further discussion of the Company’s goodwill and intangible asset balances.

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,

2016,

workers compensation reserves of

$3.4

million were recorded, of which

$0.6

million was included in Accrued liabilities and

$2.8

million was included in Other long-term liabilities.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	December 31,
	2016		2015
Accrued liabilities:
Accrued vacation payable	$	2,313	$	3,029
Reserves for expected losses on uncompleted contracts		1,409		5,933
Litigation accrual		1,750		-
Accrued property taxes		1,096		1,280
Contingent consideration payable		84		1,211
Other		4,273		4,518
Total accrued liabilities	$	10,925	$	15,971

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. Management reviews all of these assumptions on an annual basis.

Derivative Instruments

The Company conducts business in 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 at each balance sheet date and resulting gains and losses are recognized in net income (loss).

Foreign Currency Transactions

Assets and liabilities subject to foreign currency fluctuations are translated into United States dollars at the period-end exchange rate, and revenue and expenses are translated at exchange rates representing an average for the period. Translation adjustments from designated hedges are included in Accumulated other comprehensive loss as a separate component of Stockholders’ equity. Gains or losses on all other foreign currency transactions are recognized in the Consolidated Statement of Operations. The functional currency of the Company’s Mexican operations is the United States dollar.

Revenue Recognition

Revenue from construction contracts in the Company’s Water Transmission Group is recognized on the percentage-of-completion method. For a majority of contracts, revenue is measured by the costs incurred to date as a percentage of the estimated total costs of each contract (cost-to-cost method). For a small number of contracts, revenue is measured using units of delivery as progress is best estimated by the number of units delivered under the contract. 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. The cost of steel is recognized as a project cost when the steel is introduced into the manufacturing process.

The Company begins recognizing revenue on a project when persuasive evidence of an arrangement exists, recoverability is reasonably assured, and project costs are incurred. Costs

may

be incurred before the Company has persuasive evidence of an arrangement. In those cases, if recoverability from that arrangement is probable, the project costs are deferred and revenue recognition is delayed.

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 are made in the period such losses are known.

Revenue from the Company’s Tubular Products Group is recognized when all

four

of the following criteria have been satisfied: persuasive evidence of an arrangement exists, the price is fixed or determinable, delivery has occurred and collectability is reasonably assured. Deferred revenue is recorded when the manufacturing process is complete and customers are invoiced prior to physical delivery of the product.

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. 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.

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, with the exception of market-based PSAs, for which a Monte Carlo simulation model is used. The Monte Carlo simulation model requires the use of subjective and complex assumptions including the price volatility of the underlying stock. The expected stock price volatility assumption was determined using the historical volatility of the Company’s and a comparator group of companies’ stock over the most recent historical period equivalent to the expected life. The Monte Carlo simulation model calculates many potential outcomes for an award and estimates fair value based on the most likely outcome.

See Note

12,

“Share-based Compensation” for further discussion of the Company’s share-based compensation.

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. For further information, refer to Note

16,

“Accumulated Other Comprehensive Loss.”

Loss per Share

Loss per basic and diluted weighted average common shares outstanding was calculated as follows for the years ended

December

(in thousands, except per share data):

	2016			2015			2014

Loss from continuing operations	$	(9,263	)	$	(29,388	)	$	(6,173	)
Loss from discontinued operations		-			-			(11,714	)
Net loss	$	(9,263	)	$	(29,388	)	$	(17,887	)

Basic weighted-average common shares outstanding		9,588			9,560			9,515
Effect of potentially dilutive common shares (1)		-			-			-
Diluted weighted-average common shares outstanding		9,588			9,560			9,515

Loss per basic and diluted common share:
Continuing operations	$	(0.97	)	$	(3.07	)	$	(0.65	)
Discontinued operations		-			-			(1.23	)
Total	$	(0.97	)	$	(3.07	)	$	(1.88	)

Antidilutive shares excluded from net loss per diluted common share calculation		27			52			65

(1)

Represents the effect of the assumed exercise of stock options and the vesting of restricted stock units and performance share awards, based on the treasury stock method.

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables, derivative 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,

2016,

two

customers had a balance in excess of

10%

of total accounts receivable. As of

December

31,

2015,

no customer had a balance in excess of

10%

of total accounts receivable. Derivative contracts are with a high quality financial institution. The Company’s deferred compensation plan assets, also included in other assets, are invested in a diversified portfolio of stock and bond mutual funds.

Recent Accounting and Reporting Developments

Accounting Changes

August

2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2014

15,

“Presentation of Financial Statements – Going Concern (Subtopic

205

40):

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU

2014

15”).

ASU

2014

requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within

one

year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. The Company adopted this guidance on

December

31,

2016

and the impact was not material on the Company's Consolidated Financial Statements.

May

2015,

the FASB issued Accounting Standards Update No.

2015

07,

“Fair Value Measurement (Topic

820):

Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU

2015

07”).

The amendments in ASU

2015

remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The Company adopted this guidance on

January

2016

and the impact was not material to the Company’s Consolidated Financial Statements or disclosures in Notes to Consolidated Financial Statements.

Recent Accounting Standards

May

2014,

the FASB issued Accounting Standards Update No.

2014

09,

“Revenue from Contracts with Customers (Topic

606)”

(“ASU

2014

09”)

which will replace most existing revenue recognition guidance in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The core principle of ASU

2014

is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for the Company beginning

January

2018,

including interim periods in

2018,

and allows for both retrospective and prospective methods of adoption. The Company is in the process of evaluating its revenue streams to determine accounting treatment under the ASU. In

March

2016,

the FASB issued ASU No.

2016

08,

“Revenue from Contracts with Customers (Topic

606):

Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” In

April

2016,

the FASB issued ASU No.

2016

10,

“Revenue from Contracts with Customers (Topic

606):

Identifying Performance Obligations and Licensing.” In

May

2016,

the FASB issued ASU No.

2016

11,

“Revenue from Contracts with Customers (Topic

606)

and Derivatives and Hedging (Topic

815)–Rescission

of SEC Guidance Because of ASU

2014

and

2014

16”

and ASU No.

2016

12,

“Revenue from Contracts with Customers (Topic

606):

Narrow-Scope Improvements and Practical Expedients.” In

December

2016,

the FASB issued ASU No.

2016

20,

“Technical Corrections and Improvements to Topic

606,

Revenue from Contracts with Customers.” These

five

ASUs do not change the core principle of the guidance in ASU

2014

09,

but rather provide further clarification to improve the operability and understandability of the implementation guidance included in ASU

2014

09.The

effective date for these ASUs is the same as the effective date of ASU

2014

09.

The Company is currently assessing the impact of these ASUs on its Consolidated Financial Statements.

July

2015,

the FASB issued Accounting Standards Update No.

2015

11,

“Inventory (Topic

330):

Simplifying the Measurement of Inventory” (“ASU

2015

11”).

As a result of ASU

2015

11,

companies will be required to measure inventory at the lower of cost and net realizable value. This is a change from the prior requirement to value inventory at the lower of cost or market. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory valued using the LIFO or retail inventory method is exempt from this ASU. The ASU will be effective for the Company beginning

January

2017.

The Company does not expect a material impact to the Company’s financial position, results of operations or cash flows from adoption of this guidance.

January

2016,

the FASB issued Accounting Standards Update No.

2016

01,

“Financial Instruments—Overall (Subtopic

825

10):

Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU

2016

01”).

ASU

2016

makes changes to the accounting for equity investments and financial liabilities accounted for under the fair value option, and changes presentation and disclosure requirements for financial instruments. The ASU will be effective for the Company beginning

January

2018.

The Company does not expect a material impact to the Company’s financial position, results of operations or cash flows from adoption of this guidance.

February

2016,

the FASB issued Accounting Standards Update No.

2016

02,

“Leases (Topic

842)”

(“ASU

2016

02”).

ASU

2016

makes changes to U.S. GAAP, requiring the recognition of lease assets and lease liabilities by lessees for those leases previously classified as operating leases. For operating leases, the lease asset and lease liability will be initially measured at the present value of the lease payments in the balance sheet. The cost of the lease is then allocated over the lease term on a generally straight-line basis. All cash payments will be classified within operating activities in the statement of cash flows. For financing leases, the lease asset and lease liability will be initially measured at the present value of the lease payments in the balance sheet. Interest on the lease liability will be recognized separately from amortization of the lease asset in the statement of comprehensive income. In the statement of cash flows, repayments of the principal portion of the lease liability will be classified within financing activities, and payments of interest on the lease liability and variable payments will be classified within operating activities. For leases with terms of

months or less, a lessee is permitted to make an accounting policy election by asset class not to recognize lease assets and lease liabilities. Lease expense for such leases will be generally recognized straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from previous U.S. GAAP. The ASU requires qualitative disclosures along with specific quantitative disclosures and will be effective for the Company beginning

January

2019,

including interim periods. The ASU provides for a transitional adoption, with lessees and lessors required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. The Company is assessing the impact of this ASU on its Consolidated Financial Statements.

March

2016,

the FASB issued Accounting Standards Update No.

2016

09,

“Compensation–Stock Compensation (Topic

718):

Improvements to Employee Share-Based Payment Accounting” (“ASU

2016

09”).

ASU

2016

identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The guidance will be effective for the fiscal year beginning after

December

15,

2016,

including interim periods within that year. The Company expects the revision to the accounting for income tax consequences to have an impact on the Company’s results of operations, which will be dependent upon the underlying vesting or exercise activity and future stock prices. The Company does not expect a material impact to the Company’s financial position or cash flows from adoption of this guidance.

August

2016,

the FASB issued Accounting Standards Update No.

2016

15,

“Statement of Cash Flows (Topic

230):

Classification of Certain Cash Receipts and Cash Payments” (“ASU

2016

15”).

ASU

2016

clarifies whether

eight

specifically identified cash flow issues, which previous U.S. GAAP did not address, should be categorized as operating, investing or financing activities in the statement of cash flows. The guidance will be effective for the fiscal year beginning after

December

15,

2017,

including interim periods within that year. The Company is currently assessing the impact of this ASU on its Consolidated Financial Statements.