GRANITE CONSTRUCTION INCORPORATED

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

19. Business Segment Information

As discussed in Note 1 during the three months ended September 30, 2018, we revised our reportable segments, which are the same as our operating segments, as a result of a change in how our chief operating decision maker (our Chief Executive Officer) regularly reviews financial information to allocate resources and assess performance. This change is consistent with our strategic, end-market diversification strategy. Our new reportable segments which correspond to this end-market focus are: Transportation, Water, Specialty and Materials. The end-market segments Transportation, Water and Specialty replace the Construction and Large Project Construction reportable segments with the composition of our Materials segment remaining unchanged except for the addition of certain material production activity related to the acquisition of Layne. Prior-year information has been recast to reflect this change.

In addition to business segments, we review our business by operating groups. Our operating groups are defined as follows: (i) California; (ii) Northwest, which primarily includes offices in Alaska, Arizona, Nevada, Utah and Washington; (iii) Heavy Civil, which primarily includes offices in California, Florida, New York and Texas; (iv) Federal which primarily includes offices in Texas, California, Colorado and Guam; (v) Midwest (formerly Kenny less the underground business), which primarily includes offices in Illinois and (vi) Water and Mineral Services (which includes LiquiForce, Layne and the underground business of the former Kenny operating group), which primarily includes offices in North America, Canada, Brazil and Latin America. Our California, Northwest and Water and Mineral Services operating groups include financial results from our Materials segment.

The Transportation segment focuses on construction and rehabilitation of roads, pavement preservation, bridges, rail lines, airports and marine ports for use mostly by the general public.

The Water segment focuses on water-related construction and water management solutions for municipal agencies, commercial water suppliers, industrial facilities and energy companies. It also provides trenchless cured-in-place pipe rehabilitation.

The Specialty segment focuses on construction of various complex projects including infrastructure / site development, mining, public safety, tunnel and power projects.

The Materials segment focuses on production of aggregates, asphalt and materials as well as proprietary sanitary and storm water rehabilitation products including cured-in-place pipe felt and fiberglass-based lining tubes all for internal use and for sale to third parties.

Summarized segment information is as follows (in thousands):

Three Months Ended September 30,

	Transportation		Water		Specialty		Materials			Total
2018
Total revenue from reportable segments	$	610,847	$	124,292	$	190,836	$	194,586		$	1,120,561
Elimination of intersegment revenue		—		—		—		(64,970	)		(64,970	)
Revenue from external customers		610,847		124,292		190,836		129,616			1,055,591
Gross profit		70,976		24,103		28,099		21,313			144,491
Depreciation, depletion and amortization		7,592		11,191		7,569		6,496			32,848

2017
Total revenue from reportable segments	$	624,727	$	36,378	$	197,886	$	180,265		$	1,039,256
Elimination of intersegment revenue		—		—		—		(82,130	)		(82,130	)
Revenue from external customers		624,727		36,378		197,886		98,135			957,126
Gross profit		65,540		1,805		27,797		19,388			114,530
Depreciation, depletion and amortization		5,820		550		2,626		5,824			14,820

Nine Months Ended September 30,

	Transportation		Water		Specialty		Materials			Total
2018
Total revenue from reportable segments	$	1,472,703	$	215,951	$	461,149	$	392,633		$	2,542,436
Elimination of intersegment revenue		—		—		—		(116,347	)		(116,347	)
Revenue from external customers		1,472,703		215,951		461,149		276,286			2,426,089
Gross profit		138,401		41,117		65,311		36,314			281,143
Depreciation, depletion and amortization		17,920		16,075		18,908		17,980			70,883
Segment assets		394,981		308,964		150,437		375,016			1,229,398

2017
Total revenue from reportable segments	$	1,423,396	$	100,944	$	452,265	$	352,129		$	2,328,734
Elimination of intersegment revenue		—		—		—		(140,295	)		(140,295	)
Revenue from external customers		1,423,396		100,944		452,265		211,834			2,188,439
Gross profit		119,907		9,772		56,736		27,811			214,226
Depreciation, depletion and amortization		16,047		1,716		6,635		16,439			40,837
Segment assets		372,028		8,130		87,366		287,821			755,345

As of September 30, 2018, segment assets include $21.9 million of property and equipment located in foreign countries (primarily Brazil and Mexico). As of September 30, 2017 and December 31, 2017, all segment assets were located in the United States.

A reconciliation of segment gross profit to consolidated income before provision for income taxes is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2018			2017			2018			2017
Total gross profit from reportable segments	$	144,491		$	114,530		$	281,143		$	214,226
Selling, general and administrative expenses		70,769			49,501			193,337			162,726
Acquisition and integration expenses		9,334			—			44,030			—
Gain on sales of property and equipment		(3,018	)		(1,753	)		(5,066	)		(2,830	)
Total other income		(383	)		(2,522	)		(1,869	)		(2,987	)
Income before provision for income taxes	$	67,789		$	69,304		$	50,711		$	57,317