Note 3 - Acquisitions

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Business Combination Disclosure [Text Block]

3. Acquisitions

On June 14, 2018 (“acquisition date”), we completed the acquisition of Layne for $349.8 million in a stock-for-stock merger. We paid $321.0 million of the purchase price with 5.6 million shares of Company common stock and $28.8 million in cash to settle all outstanding stock options, restricted stock awards and unvested performance shares of Layne. In addition to issuances of Granite common stock and the settlement of various equity awards, we assumed $191.5 million in convertible notes at fair value. 

Layne operates as a wholly owned subsidiary of Granite Construction Incorporated and its results have been included in the Water and Mineral Services operating group in the Water, Specialty and Materials segments since the acquisition date. Layne’s customers are in both the public and private sector. We have accounted for this transaction in accordance with ASC Topic 805, Business Combinations (“ASC 805”).

Purchase Price Allocation

In accordance with ASC 805, the total purchase price and assumed liabilities were allocated to the net tangible and identifiable intangible assets based on their estimated fair values as of the acquisition date as presented in the table below (in thousands). There were no material measurement period adjustments during the year ended December 31, 2019. The amounts presented in the table below are considered final and no adjustments are expected in the future.

Assets
Cash	$	2,995
Receivables		70,160
Contract assets		44,947
Inventories		23,424
Other current assets		5,533
Property and equipment		183,030
Investments in affiliates		55,400
Deferred income taxes		20,959
Other noncurrent assets (including $5,906 of restricted cash)		17,868
Total tangible assets		424,316
Identifiable intangible assets		61,548
Liabilities
Identifiable intangible liabilities		6,800
Accounts payable		38,321
Contract liabilities		7,854
Accrued expenses and other current liabilities		47,583
Long-term debt		191,500
Other long-term liabilities		31,585
Total liabilities assumed		323,643
Total identifiable net assets acquired		162,221
Goodwill		187,619
Estimated purchase price	$	349,840

On April 3, 2018, we acquired LiquiForce, a privately-owned company which provides sewer lining rehabilitation services to public and private sector water and wastewater customers in both Canada and the U.S. We acquired LiquiForce for $35.9 million in cash primarily borrowed under the Company’s Credit Agreement described more fully in Note 15. The tangible and intangible assets acquired and liabilities assumed were $14.3 million, $10.9 million and $8.5 million, respectively, resulting in acquired goodwill of $19.3 million. LiquiForce results are reported in the Water and Mineral Services operating group in the Water segment.

In addition, on  May 22, 2019, we acquired certain assets and equipment of Lametti & Sons, Inc. a Minnesota-based company with expertise in cured-in-place pipe rehabilitation and trenchless renewal for $6.2 million in cash.

Intangible Assets

The following table lists amortized intangible assets and liabilities from the Layne and LiquiForce acquisitions that are included in other noncurrent assets and other long-term liabilities in the consolidated balance sheets as of December 31, 2018 (in thousands):

	Weighted Average Useful Lives (Years)		Gross Value		Accumulated Amortization			Net Value
Assets
Customer relationships		3	$	35,937	$	(5,880	)	$	30,057
Backlog		2		9,713		(5,795	)		3,918
Developed technologies		4		9,233		(1,384	)		7,849
Trademarks/trade name		4		9,075		(1,382	)		7,693
Favorable contracts, covenants not to compete and other		1		5,731		(2,461	)		3,270
Intangible assets			$	69,689	$	(16,902	)	$	52,787
Liabilities
Unfavorable contracts and leases		2	$	7,000	$	(4,726	)	$	2,274
Intangible liabilities			$	7,000	$	(4,726	)	$	2,274

The net amortization expense related to the acquired amortized intangible assets and liabilities for the year ended December 31, 2018 was $12.2 million and was included in cost of revenue and selling, general and administrative expenses in the consolidated statements of operations. All of the acquired intangible assets and liabilities are amortized on a straight-line basis except for backlog, favorable contracts and unfavorable contracts which are amortized as the associated projects progress, and customer relationships which will be amortized on a double declining basis. 

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. The factors that contributed to the recognition of goodwill from the acquisitions of Layne and LiquiForce include acquiring a workforce with capabilities in the global water management, construction and drilling markets, cost savings opportunities and synergies. For the Layne acquisition, we recorded $125.7 million, $52.5 million, and $9.4 million of goodwill allocated to our Water, Materials and Specialty reportable segments, respectively. For the LiquiForce acquisition, we recorded $19.2 million in goodwill that was allocated to our Water reportable segment. The goodwill from both acquisitions is not expected to be deductible for income tax purposes.

Pro Forma Financial Information

The financial information in the table below summarizes the unaudited combined results of operations of Granite and Layne, on a pro forma basis, as though the companies had been combined as of January 1, 2017 (unaudited, in thousands, except per share amounts). The pro forma financial information is unaudited and presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2017.

	As Restated
Years Ended December 31,	2018		2017
Revenue	$	3,499,606		$	3,425,317
Net income (loss)		62,480			(40,002	)
Net income (loss) attributable to Granite		51,526			(48,343	)
Basic net income (loss) per share attributable to common shareholders		1.12			(1.06	)
Diluted net income (loss) per share attributable to common shareholders		1.15			(1.06	)

These amounts have been calculated after applying Granite’s accounting policies and adjusting the results of Layne to reflect the additional depreciation and amortization that would have been recorded assuming the fair value adjustments to property and equipment and intangible assets had been applied starting on January 1, 2017. Acquisition and integration expenses related to Layne that were incurred during the year ended December 31, 2018 are reflected in year ended December 31, 2017 due to the assumed timing of the transaction. The statutory tax rate of 26.0% and 39.0% were used for 2018 and 2017, respectively, for the pro forma adjustments.