3. Acquisitions

On June 14, 2018, we completed the $349.8 million acquisition of Layne, a U.S.-based global water management, infrastructure services and drilling company in a stock-for-stock merger which was comprised of $321.0 million in 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. See Note 14 for further discussion of the assumed convertible notes.

Layne will operate as a wholly owned subsidiary of Granite Construction Incorporated and its results will be reported in the newly formed Water and Mineral Services operating group in the Construction and Construction Materials segments. Layne’s customers are in both the public and private sector. Layne is a leader in water management and drilling and therefore this acquisition significantly enhances Granite’s presence in the water infrastructure market. Layne has a network of 52 offices located throughout North and Latin America. We have accounted for this transaction in accordance with ASC Topic 805, Business Combinations (“ASC 805”).

Included in the condensed consolidated statements of operations for three and six months ending June 30, 2018 is approximately two weeks of Layne revenue and net loss before taxes of $21.5 million and $15.1 million, respectively, following the June 14, 2018 acquisition date. The loss before taxes includes Layne’s portion of total acquisition and integration expenses of $14.7 million for three and six months ending June 30, 2018.

Preliminary 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 June 14, 2018 as presented in the table below (in thousands). These estimates are subject to revision, which may result in adjustments to the values presented below. We expect to finalize these amounts within 12 months from the acquisition date.

Assets
Cash	$	2,995
Receivables		70,160
Contract assets		44,947
Inventories		23,424
Other current assets		5,533
Property and equipment		187,890
Investments in affiliates		63,000
Deferred income taxes		23,185
Other noncurrent assets		17,868
Total tangible assets		439,002
Identifiable intangible assets		60,748
Liabilities
Identifiable intangible liabilities		6,700
Accounts payable		38,321
Contract liabilities		7,854
Accrued expenses and other current liabilities		47,694
Long-term debt		191,500
Other long-term liabilities		32,085
Total liabilities assumed		317,454
Total identifiable net assets acquired		175,596
Goodwill		174,244
Estimated purchase price	$	349,840

In addition, 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. The Company acquired LiquiForce for $35.9 million in cash borrowed under the revolving credit facility as defined in Note 14. The tangible and net intangible assets acquired and liabilities assumed were $14.5 million, $10.9 million and $8.6 million, respectively, resulting in acquired goodwill of $19.1 million. LiquiForce results are reported in the Kenny operating group in the Construction segment.

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 condensed consolidated balance sheets as of June 30, 2018 (in thousands):

	Weighted Average Useful Lives (Years)		Gross Value		Accumulated Amortization			Net Value
Assets
Customer relationships		7	$	34,674	$	(728	)	$	33,946
Backlog		3		11,163		(1,890	)		9,273
Developed technologies		4		9,228		(234	)		8,994
Trademarks/trade names		4		8,989		(163	)		8,826
Favorable contracts		3		4,800		(596	)		4,204
Right of ways		12		2,268		(12	)		2,256
Covenants not to compete and other		5		859		(42	)		817
Intangible assets			$	71,981	$	(3,665	)	$	68,316
Liabilities
Unfavorable contracts		2	$	6,892	$	(952	)	$	5,940
Unfavorable leases		1		300		(13	)		287
Intangible liabilities			$	7,192	$	(965	)	$	6,227

The net amortization expense related to the acquired amortized intangible assets for the three and six months ended June 30, 2018 was $2.7 million and was included in cost of revenue and selling, general and administrative expenses in the condensed consolidated statements of operations. All of the acquired intangible assets and liabilities will be amortized on a straight line basis except for backlog, favorable contracts and unfavorable contracts which will be amortized as the associated projects progress, and customer relationships which will be amortized on a double declining basis. Amortization expense related to the acquired amortized intangible asset balances at June 30, 2018 is expected to be recorded in the future as follows: $10.9 million for the remainder of 2018; $13.2 million in 2019; $10.8 million in 2020; $8.8 million in 2021; and $18.4 million thereafter.

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. In connection with the Layne acquisition, the assignment of goodwill to reporting units was not complete as of June 30, 2018 and is expected to be complete as of September 30, 2018. For the LiquiForce acquisition, we recorded $18.8 million within our Construction segment that was allocated to our Kenny Construction reporting unit. The goodwill from both acquisitions is not expected to be deductible for income tax purposes.

Balance at December 31, 2017	$	53,799
Layne acquisition goodwill		174,244
LiquiForce acquisition goodwill		18,838
Balance at June 30, 2018	$	246,881

Pro Forma Financial Information

The financial information in the table below summarizes the combined results of operations of Granite and Layne, on a pro forma basis, as though the companies had been combined as of the beginning of 2017 (in thousands, except per share amounts). The pro forma financial information is 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 at the beginning of 2017.

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Revenue	$	909,783	$	888,176		$	1,583,073	$	1,452,067
Net income (loss)		16,834		(10,974	)		14,454		(61,709	)
Net income (loss) attributable to Granite		14,530		(13,113	)		10,389		(63,787	)
Basic net income (loss) per share attributable to common shareholders		0.32		(0.29	)		0.23		(1.41	)
Diluted net income (loss) per share attributable to common shareholders		0.30		(0.29	)		0.22		(1.41	)

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 three and six months ended June 30, 2018 are reflected in the six months ended June 30, 2017 due to the assumed timing of the transaction. The statutory tax rate of 26% and 39% was used for 2018 and 2017, respectively, for the pro forma adjustments.

Acquisition and integration expenses associated with both the Layne and LiquiForce acquisitions for the three and six months ended June 30, 2018 were comprised of the following (in thousands):

	Three Months Ended		Six Months Ended
	June 30, 2018		June 30, 2018
Professional services and other expenses	$	18,064	$	26,473
Severance and personnel costs		8,223		8,223
Total	$	26,287	$	34,696