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4-Traders Homepage  >  Equities  >  Nyse  >  Granite Construction Inc.    GVA

GRANITE CONSTRUCTION INC. (GVA)
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GRANITE CONSTRUCTION : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/16/2018 | 11:34pm CET

General

We are one of the largest diversified heavy civil contractors and construction
materials producers in the United States, engaged in the construction and
improvement of streets, roads, highways, mass transit facilities, airport
infrastructure, bridges, trenchless and underground utilities, power-related
facilities, water-related facilities, utilities, tunnels, dams and other
infrastructure-related projects. We own aggregate reserves and plant facilities
to produce construction materials for use in our construction business and for
sale to third parties. Our permanent offices are located in Alaska, Arizona,
California, Florida, Illinois, Nevada, New York, Texas, Utah and Washington. We
have three reportable business segments: Construction, Large Project
Construction and Construction Materials (see Note 18 of "Notes to the
Consolidated Financial Statements").
In addition to business segments, we review our business by operating groups and
by public and private market sectors. 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; and (iv) Kenny,
which primarily includes offices in Illinois. Each of these operating groups may
include financial results from our Construction and Large Project Construction
segments. A project's results are reported in the operating group that is
responsible for the project, not necessarily the geographic area where the work
is located. In some cases, the operations of an operating group include the
results of work performed outside of that geographic region. Our California and
Northwest operating groups include financial results from our Construction
Materials segment.
The four primary economic drivers of our business are (i) the overall health of
the U.S. economy; (ii) federal, state and local public funding levels; (iii)
population growth resulting in public and private development; and (iv) the need
to replace or repair aging infrastructure. A stagnant or declining economy will
generally result in reduced demand for construction and construction materials
in the private sector. This reduced demand increases competition for private
sector projects and will ultimately also increase competition in the public
sector as companies migrate from bidding on scarce private sector work to
projects in the public sector. In addition, a stagnant or declining economy
tends to produce less tax revenue for public agencies, thereby decreasing a
source of funds available for spending on public infrastructure improvements.
Some funding sources that have been specifically earmarked for infrastructure
spending, such as diesel and gasoline taxes, are not as directly affected by a
stagnant or declining economy, unless actual consumption is reduced or gasoline
sales tax revenues decline consistent with fuel prices. However, even these can
be temporarily at risk as federal, state and local governments take actions to
balance their budgets. Additionally, fuel prices and more fuel efficient
vehicles can have a dampening effect on consumption, resulting in overall lower
tax revenue. Conversely, increased levels of public funding as well as an
expanding or robust economy will generally increase demand for our services and
provide opportunities for revenue growth and margin improvement.
Critical Accounting Policies and Estimates
The financial statements included in "Item 8. Financial Statements and
Supplementary Data" have been prepared in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP"). The
preparation of these financial statements requires management to make estimates
that affect the reported amounts of assets and liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. Our
estimates and related judgments and assumptions are continually evaluated based
on available information and experiences; however, actual amounts could differ
from those estimates.
The following are accounting policies and estimates that involve significant
management judgment and can have significant effects on the Company's reported
results of operations. The Audit/Compliance Committee of our Board of Directors
has reviewed our disclosure of critical accounting policies and estimates.

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Revenue and Earnings Recognition for Construction Contracts
Revenue and earnings on construction contracts, including construction joint
ventures, are recognized under the percentage of completion method using the
ratio of costs incurred to estimated total costs.
Revenue from unapproved change orders is recognized to the extent the related
costs have been incurred, the amount can be reliably estimated and recovery is
probable.
On certain projects we have submitted and have pending unresolved contract
modifications and affirmative claims ("affirmative claims") to recover
additional costs to which the Company believes it is entitled under the terms of
contracts with customers, subcontractors, vendors or others. The owners or their
authorized representatives and/or other third parties may be in partial or full
agreement with the modifications or affirmative claims, or may have rejected or
disagree entirely or partially as to such entitlement.
Revenue related to affirmative claims with customers is recognized to the extent
of costs incurred when it is probable that a claim settlement with a customer
will result in additional revenue and the amount can be reasonably estimated. A
reduction to costs related to affirmative claims with non-customers with whom we
have a contractual arrangement ("back charges") is recognized when the estimated
recovery is probable and the amount can be reasonably estimated. Except for
contractual back charges, a reduction to cost related to affirmative claims
against non-customers is recognized when the claims are settled. Recognizing
affirmative claims and back charge recoveries requires significant judgments of
certain factors including, but not limited to, dispute resolution developments
and outcomes, anticipated negotiation results, and the cost of resolving such
matters and estimates.
Provisions are recognized in the consolidated statements of operations for the
full amount of estimated losses on uncompleted contracts whenever evidence
indicates that the estimated total cost of a contract exceeds its estimated
total revenue. All contract costs, including those associated with affirmative
claims, change orders and back charges, are recorded as incurred and revisions
to estimated total costs are reflected as soon as the obligation to perform is
determined. Contract costs consist of direct costs on contracts, including labor
and materials, amounts payable to subcontractors, direct overhead costs and
equipment expense (primarily depreciation, fuel, maintenance and repairs). All
state and federal government contracts and many of our other contracts provide
for termination of the contract at the convenience of the party contracting with
us, with provisions to pay us for work performed through the date of
termination. Pre-contract costs are expensed as incurred.
The accuracy of our revenue and profit recognition in a given period depends on
the accuracy of our estimates of the cost to complete each project. Cost
estimates for all of our projects use a detailed "bottom up" approach and we
believe our experience allows us to create materially reliable estimates. There
are a number of factors that can contribute to changes in estimates of contract
cost and profitability. The most significant of these include:
• the completeness and accuracy of the original bid;


• costs associated with scope changes;

• changes in costs of labor and/or materials;

• extended overhead and other costs due to owner, weather and other delays;

• subcontractor performance issues;

• changes in productivity expectations;

• site conditions that differ from those assumed in the original bid;

• changes from original design on design-build projects;

• the availability and skill level of workers in the geographic location of

the project;

• a change in the availability and proximity of equipment and materials;

• our ability to fully and promptly recover on affirmative claims and back

charges for additional contract costs; and

• the customer's ability to properly administer the contract.


The foregoing factors, as well as the stage of completion of contracts in
process and the mix of contracts at different margins may cause fluctuations in
gross profit and gross profit margin from period to period. Significant changes
in cost estimates, particularly in our larger, more complex projects have had,
and can in future periods have, a significant effect on our profitability.

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Goodwill

As of December 31, 2017 and 2016, we had five reporting units in which goodwill
was recorded as follows:
• Kenny Group Construction


Kenny Group Large Project Construction

Northwest Group Construction

• Northwest Group Construction Materials

California Group Construction


The most significant goodwill balances reside in the reporting units associated
with the Kenny Group. See Note 9 of "Notes to the Consolidated Financial
Statements" for balances by reportable segment.
We perform impairment tests annually as of November 1 and more frequently when
events and circumstances occur that indicate a possible impairment of goodwill.
In addition, we evaluate goodwill for impairment if events or circumstances
change between annual tests indicating a possible impairment.  Examples of such
events or circumstances include the following:
• a significant adverse change in legal factors or in the business climate;


• an adverse action or assessment by a regulator;

• a more likely than not expectation that a segment or a significant portion

       thereof will be sold; or


•      the testing for recoverability of a significant asset group within the
       segment.


We elected to only perform the quantitative goodwill impairment tests for the
2017 annual test. In performing the quantitative goodwill impairment tests, we
calculate the estimated fair value of the reporting unit in which the goodwill
is recorded using the discounted cash flows and market multiple
methods. Judgments inherent in these methods include the determination of
appropriate discount rates, the amount and timing of expected future cash flows
and growth rates, and appropriate benchmark companies. The cash flows used in
our 2017 discounted cash flow model were based on five-year financial forecasts,
which in turn were based on the 2018-2020 operating plan developed internally by
management adjusted for market participant-based assumptions. Our discount rate
assumptions are based on an assessment of the equity cost of capital and
appropriate capital structure for our reporting units. In assessing the
reasonableness of our determined fair values of our reporting units, we evaluate
the reasonableness of our results against our current market capitalization.
The estimated fair value is compared to the net book value of the reporting
unit, including goodwill. If the fair value of the reporting unit exceeds its
net book value, goodwill of the reporting unit is considered not impaired. If
the fair value of the reporting unit is less than its net book value, goodwill
is impaired and the excess of the reporting unit's net book value over the fair
value is recognized as an impairment loss.
The results of our annual goodwill impairment tests, performed in accordance
with Accounting Standards Codification ("ASC") Topic 350, Intangibles - Goodwill
and Other, indicated that the estimated fair values of our reporting units
exceeded their net book values (i.e., cushion) by at least 20% for the reporting
units with goodwill. Out of the five reporting units with goodwill, the Kenny
Large Project Construction business is the most susceptible to fluctuations in
results depending on awarded work given the large size and limited frequency of
awards. While we believe the current cushion for the reporting unit is adequate
to absorb these fluctuations, a material decline in job win rates could have a
material impact to this reporting unit's estimated fair value.
Long-lived Assets
We review property and equipment and amortizable intangible assets for
impairment at an asset group level whenever events or changes in circumstances
indicate the net book value of an asset group may not be recoverable.
Recoverability of these asset groups is measured by comparing their net book
values to the future undiscounted cash flows the asset groups are expected to
generate. If the asset groups are considered to be impaired, an
impairment charge will be recognized equal to the amount by which the net book
value of the asset group exceeds fair value. We group construction and plant
equipment assets at a regional level, which represents the lowest level for
which identifiable cash flows are largely independent of the cash flows of other
groups of assets. When an individual asset or group of assets is determined to
no longer contribute to the vertically integrated asset group, it is assessed
for impairment independently.

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Insurance Estimates
We carry insurance policies to cover various risks, primarily general liability,
automobile liability, workers compensation and employee medical expenses under
which we are liable to reimburse the insurance company for a portion of each
claim paid. Payment for general liability and workers compensation claim
amounts generally range from the first $0.5 million to $1.0 million per
occurrence. We accrue for probable losses, both reported and unreported, that
are reasonably estimable using actuarial methods based on historic trends,
modified, if necessary, by recent events. Changes in our loss assumptions caused
by changes in actual experience would affect our assessment of the ultimate
liability and could have an effect on our operating results and financial
position up to $1.0 million per occurrence for general liability and workers
compensation or $0.3 million for medical insurance.
Asset Retirement Obligations
We account for the costs related to legal obligations to reclaim aggregate
mining sites and other facilities by recording our estimated asset retirement
obligation at fair value, capitalizing the estimated liability as part of the
related asset's carrying amount and allocating it to expense over the asset's
useful life. To determine the fair value of the obligation, we estimate the cost
for a third-party to perform the legally required reclamation including a
reasonable profit margin. This cost is then increased for future estimated
inflation based on the estimated years to complete and discounted to fair value
using present value techniques with a credit-adjusted, risk-free rate. In
estimating the settlement date, we evaluate the current facts and conditions to
determine the most likely settlement date.
We review reclamation obligations at least annually for a revision to the cost
or a change in the estimated settlement date. Additionally, reclamation
obligations are reviewed in the period that a triggering event occurs that would
result in either a revision to the cost or a change in the estimated settlement
date.
Contingencies
We are currently involved in various claims and legal proceedings. Loss
contingency provisions are recorded if the potential loss from any asserted or
unasserted claim or legal proceeding is considered probable and the amount can
be reasonably estimated. If a potential loss is considered probable but only a
range of loss can be determined, the low-end of the range is recorded. These
accruals represent management's best estimate of probable loss. Disclosure is
also provided when it is reasonably possible and estimable that a loss will be
incurred or when it is reasonably possible that the amount of a loss will exceed
the amount recorded. Significant judgment is required in both the determination
of probability of loss and the determination as to whether an exposure is
reasonably estimable. Because of uncertainties related to these matters,
accruals are based only on the best information available at the time. As
additional information becomes available, we reassess the potential liability
related to claims and litigation and may revise our estimates. See Note 17 of
"Notes to the Consolidated Financial Statements" and "Item 3. Legal Proceedings"
for additional information.

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Current Economic Environment and Outlook
Steady demand across end markets and geographies enabled our teams to finish the
2017 fiscal year in a very solid position. Total Company backlog finished at
$3.7 billion, a year-end record. Public and private markets remain highly
competitive, as economic stability and steady-to-improving demand continue to
provide broad growth opportunities for our businesses. Following decades of
under-investment, state, regional, and local public infrastructure investment is
poised to grow. We continue to emphasize pricing discipline, balancing a
bottom-line focus in 2018 with significant, long-term revenue growth
opportunities for our Construction and Construction Materials segments emanating
from a significant step-up in public investment this year.
State and local infrastructure funding commitments across the country have
improved significantly in the past few years. More than half of U.S. states have
taken action over the past five years to stabilize maintenance and to reinvest
in transportation infrastructure. Recent, long-term voter- and
legislature-approved measures across the Western U.S. totaling more than $200
billion, comprise and are the resources for a long-overdue, long-term
infrastructure investment, one that we expect will fuel increased near-term
public demand in 2018. California's 10-year, $52.4 billion investment from
Senate Bill 1 ("SB1"), The Road Repair and Accountability Act of 2017, passed in
the second quarter of 2017, and spending is slated to accelerate meaningfully in
2018 and beyond. On the June 5, 2018 California ballot, voters will weigh in on
Proposition 69, which amends the California Constitution to protect funds
designated for transportation to only be used for that purpose. Recent polling
appears to indicate broad support for this measure, which would protect the SB1
funds for their designated transportation use. Certain California groups are
attempting to add a voter initiative to repeal SB1 to the November 2018 ballot;
no such initiative has yet qualified. We are continuing to monitor progress on
this initiative.
Congress recently passed and the President signed a two-year federal budget
agreement, ending more than six years of funding by continuing resolution. This
bolsters funding for the Fixing America's Surface Transportation ("FAST") Act,
passed in December 2015, which has broadened and stabilized state and local
visibility through 2020. Should the federal government approve substantive,
incremental infrastructure investment in 2018, it would be an additional growth
catalyst; however, it would be unlikely to create significant business impact
before 2019 or 2020.
Managing risks and being compensated appropriately for the complex skills
required to build tomorrow's great public infrastructure projects guides our
Large Project Construction strategy. The market for these projects remains
robust. As we prioritize and pursue billions of dollars worth of future North
American projects, we are acutely focused on projects that provide appropriate
returns relative to risks.
Results of Operations
Comparative Financial Summary
Years Ended December 31,                              2017            2016            2015
(in thousands)
Total revenue                                     $ 2,989,713     $ 2,514,617     $ 2,371,029
Gross profit                                          314,933         301,370         299,836
Selling, general and administrative expenses          222,811         219,299         203,817
Operating income                                       98,715          92,354         110,308
Total other (income) expense                           (5,748 )        (4,008 )         6,881
Amount attributable to non-controlling
interests                                              (6,703 )        (9,078 )        (7,763 )
Net income attributable to Granite Construction
Incorporated                                           69,098          57,122          60,485



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Revenue
Total Revenue by Segment
Years Ended December 31,            2017                   2016                     2015
(dollars in thousands)
Construction               $ 1,664,708     55.7 % $ 1,365,198     54.3 %   $ 1,262,675     53.2 %
Large Project Construction   1,032,229     34.5       888,193     35.3         812,720     34.3
Construction Materials         292,776      9.8       261,226     10.4         295,634     12.5
Total                      $ 2,989,713    100.0 % $ 2,514,617    100.0 %   $ 2,371,029    100.0 %


Construction Revenue
Years Ended December 31,          2017                   2016                     2015
(dollars in thousands)
California:
Public sector            $   442,374     26.5 % $   370,397     27.1 %   $   403,904     32.0 %
Private sector               181,351     10.9       191,000     14.0         127,338     10.1
Northwest:
Public sector                568,137     34.1       462,529     34.0         415,787     32.9
Private sector               107,482      6.5        93,830      6.9         109,682      8.7
Heavy Civil:
Public sector                 53,346      3.2        23,829      1.7          29,505      2.3
Private sector                 4,212      0.3           651        -               -        -
Kenny:
Public sector                153,511      9.2       166,454     12.2          98,526      7.8
Private sector               154,295      9.3        56,508      4.1          77,933      6.2
Total                    $ 1,664,708    100.0 % $ 1,365,198    100.0 %   $ 1,262,675    100.0 %


Construction revenue in 2017 increased $299.5 million, or 21.9%, compared to
2016 primarily due to increased volumes from entering the year with greater
contract backlog in the Kenny, Northwest and Heavy Civil public sectors, from an
improved success rate on bidding activity on power and airport related
construction in the California public sector and on power work in the Kenny
private sector. The increases were partially offset by declines in the
California private sector from a reduction in solar construction and the Kenny
public sector from the completion of projects in 2016 and a decrease in awards
in 2017.
Large Project Construction Revenue
Years Ended December 31,                      2017                     2016                    2015
(dollars in thousands)
Heavy Civil1                         $   778,068      75.4 %   $ 691,151      77.8 %   $ 615,070      75.7 %
Kenny:
Public sector                            123,286      11.9        95,893      10.8        86,291      10.6
Private sector                            43,141       4.2        24,470       2.8        42,055       5.2
California1                               46,914       4.5        42,770       4.8        23,461       2.9
Northwest1                                40,820       4.0        33,909       3.8        45,843       5.6
Total                                $ 1,032,229     100.0 %   $ 888,193     100.0 %   $ 812,720     100.0 %


1For the periods presented, this Large Project Construction revenue was earned
from the public sector.
Large Project Construction revenue in 2017 increased $144.0 million, or
16.2%, compared to 2016, primarily due to progress on new and existing projects
partially offset by a net negative impact from revisions in estimates (see Note
2 of "Notes to the Consolidated Financial Statements" for more information).

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Construction Materials Revenue
Years Ended December 31,                 2017                   2016                   2015
(dollars in thousands)
California                       $ 178,048     60.8 %   $ 148,778     57.0 %   $ 191,605     64.8 %
Northwest                          114,728     39.2       112,448     43.0       104,029     35.2
Total                            $ 292,776    100.0 %   $ 261,226    100.0 %   $ 295,634    100.0 %


Construction Materials revenue in 2017 increased $31.6 million, or 12.1%,
compared to 2016 primarily due to a net increase in sales volume from improved
demand and a net increase in sales prices from an improved market.
Contract Backlog
Our contract backlog consists of the revenue we expect to record in the future
on awarded contracts, including 100% of our consolidated joint venture
contracts and our proportionate share of unconsolidated joint venture contracts.
We generally include a project in our contract backlog at the time it is awarded
and to the extent we believe funding is probable. Certain government contracts
where funding is appropriated on a periodic basis are included in contract
backlog at the time of the award when it is probable the contract value will be
funded and executed. Certain contracts contain contract options that are
exercisable at the option of our customers without requiring us to go through an
additional competitive bidding process or contain task orders that are signed
under master contracts under which we perform work only when the customer awards
specific task orders to us. Awarded contracts that include unexercised contract
options and unissued task orders are included in contract backlog to the extent
options are exercised or task order issuance is probable as further described in
"Contract Backlog" under "Item 1. Business." Substantially all of the contracts
in our contract backlog may be canceled or modified at the election of the
customer; however, we have not been materially adversely affected by contract
cancellations or modifications in the past.
The following tables illustrate our contract backlog as of the respective dates:
Total Contract Backlog by Segment
December 31,                          2017                     2016
(dollars in thousands)
Construction                 $   896,955     24.1 %   $ 1,030,487     29.6 %
Large Project Construction     2,821,202     75.9       2,453,918     70.4
Total                        $ 3,718,157    100.0 %   $ 3,484,405    100.0 %


Construction Contract Backlog
December 31,                            2017                    2016
(dollars in thousands)
California:
Public sector                   $ 259,933     28.9 %   $   227,379     22.1 %
Private sector                    109,959     12.3          73,958      7.2
Northwest:
Public sector                     223,420     24.9         311,382     30.2
Private sector                     38,697      4.3          27,582      2.7
Heavy Civil:
Public sector                      43,016      4.8          92,214      8.9
Private sector                          -        -           4,195      0.4
Kenny:
Public sector                     141,469     15.8         235,298     22.8
Private sector                     80,461      9.0          58,479      5.7
Total                           $ 896,955    100.0 %   $ 1,030,487    100.0 %


Construction contract backlog of $897.0 million at December 31, 2017 was $133.5
million, or 13.0%, lower than at December 31, 2016 due to the progress and
completion of existing projects in the Northwest, Heavy Civil and Kenny public
sectors partially offset by improved success rate of bidding activity in the
California operating group and Kenny and Northwest private sectors.

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Large Project Construction Contract Backlog
December 31,                                           2017                     2016
(dollars in thousands)
Heavy Civil1                                  $ 2,362,443     83.8 %   $ 1,746,915     71.3 %
California1                                        40,283      1.4          86,703      3.5
Northwest1                                         53,465      1.9          91,894      3.7
Kenny:
Public sector                                     307,904     10.9         428,159     17.4
Private sector                                     57,107      2.0         100,247      4.1
Total                                         $ 2,821,202    100.0 %   $ 2,453,918    100.0 %


1For the periods presented, all Large Project Construction contract backlog is
related to contracts with public agencies.
Large Project Construction contract backlog of $2.8 billion at December 31, 2017
was $367.3 million, or 15.0%, higher than December 31, 2016 primarily due an
improved success rate of bidding activity in the Heavy Civil operating group.
Our share of a highway construction project in Houston, our share of a bridge
replacement project in Washington D.C., a bridge replacement project in New
York, a military infrastructure project in Guam and an interstate improvement
project in Virginia contributed to this backlog. These increases were partially
offset by progress on existing projects in all other operating groups.
Non-controlling partners' share of Large Project Construction contract backlog
as of December 31, 2017 and 2016 was $382.8 million and $141.5 million,
respectively.
One Large Project Construction contract had forecasted losses with remaining
revenue of $106.2 million, or 3.8%, of Large Project Construction contract
backlog at December 31, 2017. At December 31, 2016, there were no loss contracts
with material backlog. Provisions are recognized in the consolidated statements
of operations for the full amount of estimated losses on uncompleted contracts
whenever evidence indicates that the estimated total cost of a contract exceeds
its estimated total revenue. Future revisions to these estimated losses will be
recorded in the periods in which the revisions are estimated.

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Gross Profit
The following table presents gross profit by business segment for the respective
periods:
Years Ended December 31,        2017          2016          2015
(dollars in thousands)
Construction                 $ 247,014     $ 209,215     $ 187,506
Percent of segment revenue        14.8 %        15.3 %        14.8 %
Large Project Construction      29,793        64,137        79,467
Percent of segment revenue         2.9           7.2           9.8
Construction Materials          38,126        28,018        32,863
Percent of segment revenue        13.0          10.7          11.1
Total gross profit           $ 314,933     $ 301,370     $ 299,836
Percent of total revenue          10.5 %        12.0 %        12.6 %


Construction gross profit in 2017 increased $37.8 million, or 18.1%, compared to
2016 primarily due to increased revenue volume. Construction gross margin as a
percentage of segment revenue for 2017 decreased to 14.8% from 15.3% in 2016
primarily due to fewer positive revisions in estimates that individually had an
impact of less than $1.0 million on gross profit partially offset by higher bid
day margins.
Large Project Construction gross profit in 2017 decreased $34.3 million, or
53.5%, compared to 2016. Large Project Construction gross margin as a percentage
of segment revenue for 2017 decreased to 2.9% from 7.2% in 2016. The decreases
were primarily due to a net negative impact from revisions in estimates (see
Note 2 of "Notes to the Consolidated Financial Statements").
As of December 31, 2017, there were three projects for which additional costs
were reasonably possible in excess of the probable amounts included in the cost
forecast. The reasonably possible aggregate range that has the potential to
adversely impact gross profit during the year ended December 31, 2018 was zero
to $44.0 million.
Construction Materials gross profit in 2017 increased $10.1 million, or 36.1%,
compared to 2016. Construction Materials gross margin as a percentage of segment
revenue for 2017 increased to 13.0% from 10.7% in 2016. The increase was
primarily due to an increase in asphalt and aggregate sales volumes as well as
an increase in aggregate sales prices.

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Selling, General and Administrative Expenses
The following table presents the components of selling, general and
administrative expenses for the respective periods:
Years Ended December 31,                       2017          2016          2015
(dollars in thousands)
Selling
Salaries and related expenses               $  45,631     $  46,015     $  43,193
Incentive compensation                          4,412         2,650         3,370
Restricted stock unit amortization              2,569         1,809         1,257
Other selling expenses                          7,688        10,122         7,940
Total selling                                  60,300        60,596        55,760
General and administrative
Salaries and related expenses                  77,571        71,032        67,939
Incentive compensation                          9,402         9,345         8,653
Restricted stock unit amortization             10,996         9,670         

4,611

Other general and administrative expenses 64,542 68,656 66,854 Total general and administrative

              162,511       158,703       

148,057

Total selling, general and administrative $ 222,811 $ 219,299 $ 203,817 Percent of revenue

                                7.5 %         8.7 %         8.6 %


Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2017 increased $3.5 million, or
1.6%, compared to 2016. Selling, general and administrative expenses as a
percentage of revenue decreased to 7.5% in 2017 from 8.7% in 2016.
Selling, general and administrative expenses include variable cash and
restricted stock unit ("RSU") performance-based incentives for select management
personnel on which our compensation strategy heavily relies. The cash portion of
these incentives is expensed when earned while the RSU portion is expensed as
earned over the vesting period of the RSU award of generally three years;
however, immediate vesting may apply to certain awards pursuant to the 2012
Equity Incentive Plan.
Selling Expenses
Selling expenses include the costs for estimating and bidding, including
customer reimbursements for portions of our selling/bid submission expenses
(i.e. stipends), business development and materials facility permits. Selling
expenses can vary depending on the volume of projects in process and the number
of employees assigned to estimating and bidding activities. As projects are
completed or the volume of work slows down, we temporarily redeploy project
employees to bid on new projects, moving their salaries and related costs from
cost of revenue to selling expenses. Selling expenses for 2017 remained
relatively unchanged compared to 2016. The increase in incentive compensation,
due to an increase in operating income in most operating groups, was partially
offset by a decrease in other selling expenses primarily due to an increase in
stipends during 2017.
General and Administrative Expenses
General and administrative expenses include costs related to our operational
offices that are not allocated to direct contract costs and expenses related to
our corporate functions. Other general and administrative expenses include
travel and entertainment, outside services, information technology,
depreciation, occupancy, training, office supplies, changes in the fair market
value of our Non-Qualified Deferred Compensation plan liability and other
miscellaneous expenses, none of which individually exceeded 10% of total general
and administrative expenses. Total general and administrative expenses for 2017
increased $3.8 million, or 2.4%, compared to 2016, primarily due to an increase
in salaries and related expenses from an increase in employee benefits and
compensation. These increases were partially offset by decreases in other
general and administrative expenses primarily due to a write-off of capitalized
software during 2016.

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Other (Income) Expense
The following table presents the components of other (income) expense for the
respective periods:
Years Ended December 31,            2017         2016         2015
(in thousands)
Interest income                  $ (4,742 )   $ (3,225 )   $ (2,135 )
Interest expense                   10,800       12,366       14,257

Equity in income of affiliates (7,107 ) (7,177 ) (3,210 ) Other income, net

                  (4,699 )     (5,972 )     (2,031 )

Total other (income) expense $ (5,748 ) $ (4,008 ) $ 6,881


Interest income for 2017 increased $1.5 million when compared to 2016 primarily
due to an increase in interest rates associated with our marketable securities
and cash equivalents. Interest expense for 2017 decreased $1.6 million when
compared to 2016 primarily due to a reduction of the principal balance of our
2019 Notes (as defined in the Senior Notes Payable section below) from a payment
made in late 2016. Other income, net for 2017 decreased $1.3 million primarily
due to changes in the fair market values of our Non-Qualified Deferred
Compensation plan assets and a gain associated with a consolidated real estate
entity during 2016.
Income Taxes
The following table presents the provision for income taxes for the respective
periods:
Years Ended December 31,        2017         2016         2015
(dollars in thousands)
Provision for income taxes   $ 28,662     $ 30,162     $ 35,179
Effective tax rate               27.4 %       31.3 %       34.0 %


Our 2017 tax rate decreased by 3.9% from 31.3% to 27.4% when compared to 2016
primarily due to the revaluation of our deferred tax assets and liabilities as a
result of the recently enacted U.S. Tax Cuts and Jobs Act of 2017.
On December 22, 2017 the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Reform") was
signed into law. As a result of Tax Reform, the U.S. statutory tax rate was
lowered from 35% to 21% effective January 1, 2018, among other changes. ASC
Topic 740, Accounting for Income Taxes, requires companies to recognize the
effect of tax law changes in the period of enactment; therefore, we were
required to revalue our deferred tax assets and liabilities at December 31, 2017
at the new rate. The Securities and Exchange Commission issued Staff Accounting
Bulletin No. 118 ("SAB 118") to address the application of U.S. GAAP in
situations when a registrant does not have the necessary information available,
prepared, or analyzed (including computations) in reasonable detail to complete
the accounting for certain tax effects of Tax Reform. The Company has recognized
a $3.7 million provisional benefit for the tax impacts of Tax Reform in its
consolidated financial statements for the year ended December 31, 2017. The
majority of the provisional benefit is related to the revaluation of deferred
tax assets and liabilities at December 31, 2017 as a result of Tax Reform. The
ultimate impact may differ from this provisional amount, possibly materially, as
a result of additional analysis, changes in interpretations and assumptions the
Company has made, additional regulatory guidance that may be issued, and actions
the Company may take as a result of Tax Reform. The accounting is expected to be
complete when the 2017 U.S. corporate income tax return is filed in 2018.
Amount Attributable to Non-controlling Interests
The following table presents the amount attributable to non-controlling
interests in consolidated subsidiaries for the respective periods:
Years Ended December 31,                              2017         2016     

2015

(in thousands)
Amount attributable to non-controlling interests   $ (6,703 )   $ (9,078 )  

$ (7,763 )


The amount attributable to non-controlling interests represents the
non-controlling owners' share of the income or loss of our consolidated
construction joint ventures. The decrease for 2017 when compared to 2016 was
primarily due to a decrease in the estimated recovery from back charge claims in
2016 offset by the income from consolidated construction joint ventures awarded
in the third quarter of 2016.


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Prior Years
Revenue: Construction revenue for the year ended December 31, 2016 increased
by $102.5 million, or 8.1%, compared to the year ended December 31, 2015
primarily due to increased volumes from entering the year with greater contract
backlog in the Northwest and Kenny public sectors, as well as from an improved
success rate on bidding activity for solar work in the California private
sector. The increases were partially offset by declines in the Northwest and
Kenny private sectors as well as a decline in the California public sector from
the completion of projects in 2016 coupled with lower beginning contract backlog
and a decline in the volume of awarded work during 2016.
Large Project Construction revenue for the year ended December 31, 2016
increased by $75.5 million, or 9.3%, compared to the year ended December 31,
2015, primarily due to progress on new projects in the California operating
group, Heavy Civil operating group and Kenny public sector. These increases were
partially offset by decreases in the Northwest operating group and Kenny private
sector from completion of projects in late 2015 and early 2016 coupled with
lower beginning contract backlog in the Kenny private sector.
Construction Materials revenue for the year ended December 31, 2016 decreased
$34.4 million, or 11.6%, when compared to the year ended December 31, 2015
primarily due to a net decline in sales volume across most of our markets in
California with demand shifting to increased internal (Construction segment) use
in 2016.
Contract Backlog: Construction contract backlog of $1.0 billion at December 31,
2016 was $169.8 million, or 19.7%, higher than at December 31, 2015. The
increase was primarily due to an improved success rate of bidding activity in
the Northwest, Heavy Civil and Kenny operating groups and in the private sector
of the California operating group, partially offset by progress on existing
projects in the public sector of the California operating group.
Large Project Construction contract backlog of $2.5 billion at December 31, 2016
was $406.1 million, or 19.8%, higher than at December 31, 2015 primarily due to
new awards in all operating groups.
Gross Profit: Construction gross profit in 2016 increased $21.7 million, or
11.6%, compared to 2015. Construction gross margin as a percentage of segment
revenue for 2016 increased to 15.3% from 14.8% in 2015. The increases were
primarily due to increased revenue volume from an increase in beginning backlog
and margin improvement from increased private sector projects, increased margin
on contract backlog at the beginning of 2016 compared to 2015 and reduced net
revisions in estimates.
Large Project Construction gross profit in 2016 decreased $15.3 million, or
19.3%, compared to 2015. Large Project Construction gross margin as a percentage
of segment revenue for 2016 decreased to 7.2% from 9.8% in 2015. The decreases
were primarily due to net changes from revisions in estimates, including an
increase to estimated costs to complete from outstanding affirmative claims,
change orders and back charges.
Construction Materials gross profit in 2016 decreased $4.8 million, or 14.7%,
compared to 2015. Construction Materials gross margin as a percentage of segment
revenue for 2016 decreased to 10.7% from 11.1% in 2015. The decreases were
primarily due to declines in external sales volumes and sales prices partially
offset by a decrease in variable costs from improved efficiency at certain
asphalt plants.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses for 2016 increased $15.5 million, or 7.6%,
compared to 2015. Selling expenses for 2016 increased $4.8 million, or 8.7%,
compared to 2015.The increases were primarily due to increases in salaries and
related expenses and pre-bid costs, both from increased bidding activity. Total
general and administrative expenses for 2016 increased $10.6 million, or 7.2%,
compared to 2015, primarily due to an increase in restricted stock unit
amortization from awards issued in the first quarter of 2016, a portion of which
immediately vested. In addition, the increase in other general and
administrative expense was due to a change in the fair market value of our
Non-Qualified Deferred Compensation plan liability, which is offset in other
(income) expense.
Other Expense (Income): Interest expense for 2016 decreased $1.9 million when
compared to 2015 primarily due to a reduction of the principal balance of our
2019 Notes (as defined in Liquidity and Capital Resources section below) from
payments made in late 2015, partially offset by an increase in the effective
interest rate. Equity in income of affiliates for 2016 increased $4.0 million
when compared to 2015 primarily due to income in the normal course of business
associated with an unconsolidated real estate affiliate and with our asphalt
terminal business in Nevada. Other income, net for 2016 increased $3.9 million
primarily due to a gain associated with a consolidated real estate entity as
well as from changes in the fair market values of our Non-Qualified Deferred
Compensation plan assets and our interest rate swap during 2016.
Provision for Income Taxes: Our 2016 tax rate decreased by 2.7% from 34.0% to
31.3% when compared to 2015 primarily due to an increase in non-controlling
interests and an increase in the domestic production activities deduction.
Amount Attributable to Non-controlling Interests: The increase for 2016 when
compared to 2015 was primarily due to a change in the estimated recovery from
back charge claims in 2016 and income from consolidated construction joint
ventures awarded in the third quarter of 2015.

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Liquidity and Capital Resources
The timing differences between our cash inflows and outflows require us to
maintain adequate levels of working capital. We believe our cash and cash
equivalents, short-term investments, available borrowing capacity and cash
expected to be generated from operations will be sufficient to meet our expected
working capital needs, capital expenditures, financial commitments, cash
dividend payments, and other liquidity requirements associated with our existing
operations for the next twelve months. We maintain a collateralized credit
facility of $290.0 million, of which $136.7 million was available at
December 31, 2017 (see Credit Agreement discussion below), to provide capital
needs to fund growth opportunities, either internal or generated through
acquisitions or to pay installments on our 2019 Notes (see Senior Notes Payable
discussion below). If we experience a prolonged change in our business operating
results or make a significant acquisition, we may need additional sources of
financing, which, if available, may be limited by the terms of our existing debt
covenants, or may require the amendment of our existing debt agreements. There
can be no assurance that sufficient capital will continue to be available in the
future or that it will be available on terms acceptable to us.
Our revenue, gross profit and the resulting cash flows can differ significantly
from period to period due to a variety of factors, including our projects'
progressions toward completion, outstanding contract change orders and
affirmative claims and the payment terms of our contracts. While we typically
invoice our customers on a monthly basis, our contracts frequently call for
retention that is a specified percentage withheld from each payment until the
contract is completed and the work accepted by the customer.
The following table presents our cash, cash equivalents and marketable
securities, including amounts from our consolidated construction joint ventures
("CCJVs"), as of the respective dates:
December 31,                                                2017         

2016

(in thousands)
Cash and cash equivalents excluding CCJVs                $ 139,352    $ 

116,211

CCJV cash and cash equivalents1                             94,359       

73,115

Total consolidated cash and cash equivalents               233,711      

189,326

Short-term and long-term marketable securities2            132,790      

127,779

Total cash, cash equivalents and marketable securities $ 366,501 $ 317,105


1The volume and stage of completion of contracts from our CCJVs may cause
fluctuations in joint venture cash and cash equivalents between periods. These
funds generally are not available for the working capital or other liquidity
needs of Granite until distributed.
2See Note 3 of "Notes to the Consolidated Financial Statements" for the
composition of our marketable securities.
Our primary sources of liquidity are cash and cash equivalents, marketable
securities and cash generated from operations. We may also from time to time
access our Credit Agreement (defined below), issue and sell equity, debt or
hybrid securities or engage in other capital markets transactions.
Our cash and cash equivalents consisted of deposits, money market funds and
commercial paper held with established national financial institutions.
Marketable securities consist of U.S. Government and agency obligations,
commercial paper and corporate bonds.
Total consolidated cash and cash equivalents increased $44.4 million during 2017
due to a $23.1 million increase in cash and cash equivalents excluding CCJVs and
a $21.2 million increase in CCJV cash and cash equivalents - see Cash Flows
discussion below. Granite's portion of CCJV cash and cash equivalents was $56.5
million and $44.7 million as of December 31, 2017 and 2016, respectively.
Excluded from the table above is Granite's portion of unconsolidated
construction joint venture cash and cash equivalents of $91.0 million and $151.3
million as of December 31, 2017 and 2016, respectively. The assets of each
consolidated and unconsolidated construction joint venture relate solely to that
joint venture. The decision to distribute joint venture assets must generally be
made jointly by a majority of the members and, accordingly, these assets,
including those associated with estimated cost recovery of customer affirmative
claims and back charge claims, are generally not available for the working
capital needs of Granite until distributed.
Our principal uses of liquidity are paying the costs and expenses associated
with our operations, servicing outstanding indebtedness, making capital
expenditures and paying dividends on our capital stock. We may also from time to
time prepay or repurchase outstanding indebtedness and acquire assets or
businesses that are complementary to our operations.

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Cash Flows
Years Ended December 31,             2017          2016         2015
(in thousands)
Net cash provided by (used in):
Operating activities              $ 146,195     $ 73,146     $ 66,978
Investing activities                (59,186 )    (96,390 )    (30,707 )
Financing activities                (42,624 )    (40,266 )    (39,396 )


As a large construction and heavy civil contractor and construction materials
producer, our operating cash flows are subject to seasonal cycles, as well as
the cycles associated with winning, performing and completing projects.
Additionally, operating cash flows are impacted by the timing related to funding
construction joint ventures and the resolution of uncertainties inherent in the
complex nature of the work that we perform, including affirmative claims
settlements. Our working capital assets result from both public and private
sector projects. Customers in the private sector can be slower paying than those
in the public sector; however, private sector projects generally have higher
gross profit as a percentage of revenue.
We manage our combined accounts receivable, net, costs and estimated earnings in
excess of billings and billings in excess of costs and estimated earnings
balances, our primary working capital assets, using day's sales outstanding
("DSO"). We calculate DSO by dividing Net DSO Receivables by Net DSO Revenue for
the current quarter multiplied by 90 days, as presented below:
December 31,                                            2017          2016          2015
(in thousands)
Accounts receivable, net                             $ 479,791     $ 419,345     $ 340,822
Less: retentions                                        91,135        84,878        91,670
Less: other receivables                                 17,014        17,523        14,033
Plus: Costs and estimated earnings in excess of
billings                                               103,965        73,102        59,070
Less: Billings in excess of costs and estimated
earnings                                               135,146        97,522        92,515
Net DSO Receivables                                    340,461       292,524       201,674

Current quarter total revenue                        $ 801,274     $ 666,681     $ 630,162
Less: Granite's interest in unconsolidated
construction joint venture
revenue                                                167,201       135,830       162,009
Net DSO Revenue                                        634,073       530,851       468,153

DSO                                                         48            50            39


DSO decreased 2 days to 48 days as of December 31, 2017 when compared to 50 days
at December 31, 2016.
We manage our accounts payable and accrued expenses and other current
liabilities balances, our primary working capital liabilities, using day's
payables outstanding ("DPO"). We calculate DPO by dividing Net DPO Payables by
Net DPO Expenses for the current quarter multiplied by 90 days, as presented
below:
December 31,                                            2017          2016          2015
(in thousands)
Accounts payable                                     $ 237,673     $ 199,029     $ 157,571
Plus: accrued expenses and other current
liabilities                                            236,407       218,587       200,935
Less: performance guarantees                            88,606        83,110        65,514
Less: deficit in unconsolidated construction joint
ventures                                                15,939        16,648         8,626
Net DPO Payables                                       369,535       317,858       284,366

Current quarter total cost of revenue                $ 700,567     $ 585,431     $ 529,538
Less: Granite's interest in unconsolidated
construction joint venture
cost of revenue                                        165,817       136,396       148,163
Plus: current quarter selling, general and
administrative expenses                                 59,068        59,342        60,010
Net DPO Expenses                                       593,818       508,377       441,385

DPO                                                         56            56            58



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Accrued expenses and other current liabilities typically include items such as
accruals for salaries and related benefits, insurance and sales, use and
property tax, some of which are not scalable to our cost volume. DPO remained
flat at 56 days as of December 31, 2017 when compared to December 31, 2016.
Cash provided by operating activities of $146.2 million during 2017 increased
$73.0 million when compared to 2016. The increase was primarily due to a $33.8
million increase in net income after adjusting for non-cash items, a $15.5
million increase in net distributions from unconsolidated joint ventures and a
$23.7 million increase in cash from working capital. The increase in cash from
working capital was due to a $16.9 million increase in cash provided by working
capital liabilities and a $6.8 million decrease in cash used in working capital
assets. The increase in cash provided by working capital liabilities was
primarily due to an increase in cost volume and the decrease in cash used in
working capital assets was primarily due to a one day improvement in DSO
partially offset by an increase in revenue volume.
Cash used in investing activities of $59.2 million during 2017 represents a
$37.2 million decrease from the amount of cash used by investing activities in
2016. The change was primarily due to a decrease in purchases, net of sales
proceeds, of property and equipment (see Capital Expenditures discussion below)
and an increase in maturities, net of purchases and proceeds, of marketable
securities.
Cash used in financing activities of $42.6 million during 2017 represents a $2.4
million increase in cash used when compared to 2016. The change was primarily
due to a $5.0 million decrease in proceeds from long term debt and a $1.8
million increase in repurchases of common stock related to shares surrendered to
pay taxes for vested restricted stock units partially offset by a $4.4 million
increase in net contributions from non-controlling partners related to
consolidated joint ventures.
Prior Year
DSO increased 11 days to 50 days at December 31, 2016 when compared to 39 days
at December 31, 2015. DPO decreased to 56 days at December 31, 2016 compared to
58 at December 31, 2015.
Cash provided by operating activities of $73.1 million during 2016 increased
$6.2 million when compared to 2015. The increase was primarily due to a $5.5
million increase in net income after adjusting for non-cash items and a $23.5
million increase in net distributions from unconsolidated joint ventures
partially offset by a $22.8 million decrease in cash from working capital. The
decrease in cash from working capital was due to a $41.8 million increase in
cash used by working capital assets partially offset by an $18.9 million
increase in cash provided by working capital liabilities. The increase in cash
used by working capital assets was primarily due to a decrease in cash from
accounts receivable from an increase in revenue volume, an increase in DSO due
to an increase in contracts with customers in the private sector, which are
typically slower paying than customers in the public sector and the timing of
new consolidated projects in our Large Project Construction segment. The
increase in cash provided by working capital liabilities was primarily due to an
increase in cost of revenue volume from new consolidated construction joint
ventures year over year.
Cash used in investing activities of $96.4 million during 2016 represents a
$65.7 million increase from the amount of cash used by investing activities in
2015. The increase was primarily due to a $47.0 million increase in purchases,
net of sales proceeds, of property and equipment (see Capital Expenditures
discussion below) and a $24.0 million increase in purchases of marketable
securities net of calls and maturities of investments.
Cash used in financing activities of $40.3 million during 2016 was in line with
2015 driven by dividend payments and net payments on outstanding indebtedness.
Capital Expenditures
During the year ended December 31, 2017, we had capital expenditures of $67.7
million compared to $91.0 million during 2016. Major capital expenditures are
typically for aggregate and asphalt production facilities, aggregate reserves,
construction equipment, buildings and leasehold improvements and investments
in our information technology systems. The timing and amount of such
expenditures can vary based on the progress of planned capital projects, the
type and size of construction projects, changes in business outlook and other
factors. The decrease in capital expenditures during 2017 when compared to 2016
was primarily due to an increase in leasing equipment during 2017 and a decrease
in job specific equipment purchases for our Large Project Construction segment.
We currently anticipate 2018 capital expenditures to be between $100.0 million
and $105.0 million.

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Derivatives

We recognize derivative instruments as either assets or liabilities in the
consolidated balance sheets at fair value using Level 2 inputs.
In January 2016, we entered into an interest rate swap designed to convert the
interest rate on our term loan from a variable to fixed interest rate (see
Credit Agreement section below).
In December 2016, we terminated the interest rate swap we entered in March 2014
due to the possibility of increasing interest rates (see Senior Notes Payable
section below).
Debt and Contractual Obligations
The following table summarizes our significant obligations outstanding as of
December 31, 2017:
                                                             Payments Due by Period
                                                    Less than 1                              More than 5
(in thousands)                             Total        year      1-3 years     3-5 years       years
Long-term debt - principal1             $ 225,056   $   46,277   $  178,779   $         -   $         -
Long-term debt - interest2                 20,872        9,651       11,221             -             -
Operating leases3                          47,951       12,169       16,943        11,668         7,171
Other purchase obligations4                13,696       13,484          212             -             -

Deferred compensation obligations5 24,696 4,298 3,580

        1,881        14,937
Asset retirement obligations6              22,527        4,701        5,002         2,752        10,072
Total                                   $ 354,798   $   90,580   $  215,737   $    16,301   $    32,180


1Debt issuance costs are excluded from the table.
2Included in the total is $7.9 million in interest related to borrowings under
our Credit Agreement, calculated using the fixed rate associated with the cash
flow hedge of 1.47% plus the applicable margin in effect as of December 31,
2017. The future payments were calculated using the applicable margin in effect
as of December 31, 2017 and may differ from actual results. In addition,
included in the total is $7.3 million in interest related to borrowings under
the 2019 Notes, the terms of which include a 6.11% per annum interest rate. See
Note 11 of "Notes to the Consolidated Financial Statements."
3These obligations represent the minimum rental commitments and minimum royalty
requirements under all noncancellable operating leases. See Note 16 of "Notes to
the Consolidated Financial Statements."
4These obligations represent firm purchase commitments for equipment and other
goods and services not directly connected with our construction contract backlog
which are individually greater than $10,000 and have an expected fulfillment
date after December 31, 2017.
5The timing of expected payment of deferred compensation is based on estimated
dates of retirement. Actual dates of retirement could be different and could
cause the timing of payments to change.
6Asset retirement obligations represent reclamation and other related costs
associated with our owned and leased quarry properties, the majority of which
have an estimated settlement date beyond five years. See Note 8 of "Notes to the
Consolidated Financial Statements."
In addition to the significant obligations described above, as of December 31,
2017, we had approximately $3.6 million associated with uncertain tax positions
filed on our tax returns which were excluded because we cannot make a reasonably
reliable estimate of the timing of potential payments relative to such reserves.
Credit Agreement
As of December 31, 2017, we had a $290.0 million credit facility (the "Credit
Agreement"), of which $200.0 million was a revolving credit facility and $90.0
million was a term loan that matures on October 28, 2020 (the "Maturity Date").
The Credit Agreement has a sublimit for letters of credit of $100.0 million. As
of December 31, 2017 and 2016, $6.2 million and $5.0 million of the term loan
balance was included in current maturities of long-term debt, respectively, and
the remaining $83.8 million and $90.0 million, respectively, was included in
long-term debt in the consolidated balance sheets.
Of the $95.0 million term loan outstanding as of December 31, 2016, we paid $5.0
million of the principal balance during 2017. Of the remaining $90.0 million
outstanding as of December 31, 2017, 1.25% of the original principal balance is
due in three quarterly installments beginning in March 2018, 2.50% of the
original principal balance is due in eight quarterly installments beginning in
December 2018 and the remaining balance is due on the Maturity Date.
As of December 31, 2017, the total stated amount of all issued and outstanding
letters of credit under the Credit Agreement was $8.3 million. As of
December 31, 2017 and 2016, $25.0 million and $30.0 million had been drawn for
the 2017 and 2016 installments of the 2019 Notes (defined below), respectively.
As of December 31, 2017, the total unused availability under the Credit
Agreement was $136.7 million. The letters of credit will expire between July
2018 and October 2018.

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Borrowings under the Credit Agreement bear interest at LIBOR or a base rate (at
our option), plus an applicable margin based on certain financial ratios
calculated quarterly. LIBOR varies based on the applicable loan term, market
conditions and other external factors. The applicable margin was 1.75% for loans
bearing interest based on LIBOR and 0.75% for loans bearing interest at the base
rate at December 31, 2017. Accordingly, the effective interest rate using
three-month LIBOR and base rate was 3.44% and 5.25%, respectively, at
December 31, 2017 and we elected to use LIBOR. Borrowings at the base rate have
no designated term and could be repaid without penalty any time prior to the
Maturity Date. Borrowings bearing interest at a LIBOR rate have a term no less
than one month and no greater than six months (or such longer period not to
exceed 12 months if approved by all lenders). At the end of each term, such
borrowings can be paid or continued at our discretion as either a borrowing at
the base rate or a borrowing at a LIBOR rate with similar terms. Our obligations
under the Credit Agreement are guaranteed by certain of our subsidiaries and are
collateralized on an equivalent basis with the obligations under the 2019 Notes
(defined below) by first priority liens (subject only to other permitted liens)
on substantially all of the assets of the Company and our subsidiaries that are
guarantors or borrowers under the Credit Agreement.
In January 2016, we entered into an interest rate swap designated as a cash flow
hedge with an effective date of April 2016 and an initial notional amount of
$98.8 million which matures in October 2020. The interest rate swap is designed
to convert the interest rate on the term loan from a variable rate of interest
of LIBOR plus an applicable margin to a fixed rate of 1.47% plus the same
applicable margin. The interest rate swap is reported at fair value using Level
2 inputs in the consolidated balance sheets. Gains or losses on the effective
portion are initially reported as a component of accumulated other comprehensive
income (loss) and subsequently reclassified to interest expense in the
consolidated statements of operations when the quarterly hedged interest payment
is settled. As of December 31, 2017, and 2016, the fair value of the cash flow
hedge was $1.4 million and $0.8 million, respectively, and was included in other
current assets in the consolidated balance sheets. The unrealized gains and
losses, net of taxes, on the effective portion reported as a component of
accumulated other comprehensive income (loss) and the interest expense
reclassified from accumulated other comprehensive income (loss) were both
immaterial during the years ended December 31, 2017 and 2016.
The Credit Agreement provides for the release of the liens securing the
obligations, at our option and expense, so long as certain conditions as defined
by the terms in the Credit Agreement are satisfied ("Collateral Release
Period"). However, if subsequent to exercising the option, our Consolidated
Fixed Charge Coverage Ratio is less than 1.25 or our Consolidated Leverage Ratio
is greater than 2.50, then we would be required to promptly re-pledge
substantially all of the assets of the Company and our subsidiaries that are
guarantors or borrowers under the Credit Agreement. As of December 31, 2017, the
conditions for the exercise of our right under the Credit Agreement to have
liens released were not satisfied.
Senior Notes Payable
As of December 31, 2017 and 2016, senior notes payable in the amount of $80.0
million and $120.0 million, respectively, were due to a group of institutional
holders and had an interest rate of 6.11% per annum ("2019 Notes"). As of
December 31, 2017, two equal annual installments for 2018 and 2019 were
remaining. As of December 31, 2017, $40.0 million of the outstanding balance was
included in long-term debt in the consolidated balance sheets and the remaining
$40.0 million was included in current maturities of long-term debt in the
consolidated balance sheets. As of December 31, 2016, $110.0 million of the
outstanding balance was included in long-term debt in the consolidated balance
sheets, including $30.0 million due for the 2017 installment as we had the
ability and intent to pay the 2017 installment using borrowings under the Credit
Agreement (defined above) or by obtaining other sources of financing. The
remaining $10.0 million was included in current maturities of long-term debt in
the consolidated balance sheets.
In December 2016, we terminated the interest rate swap we entered in March 2014
due to the possibility of increasing interest rates. The interest rate swap is
reported at fair value using Level 2 inputs in the consolidated balance sheets.
Gains or losses, including net periodic settlement amounts, are recorded in
other income, net, in our consolidated statements of operations. During the
years ended December 31, 2016 and 2015, we recorded net gains of $0.3 million
and $1.5 million, respectively.
Our obligations under the note purchase agreement governing the 2019 Notes (the
"2019 NPA") are guaranteed by certain of our subsidiaries and are collateralized
on an equivalent basis with the Credit Agreement by liens on substantially all
of the assets of the Company and subsidiaries that are guarantors or borrowers
under the Credit Agreement. The 2019 NPA provides for the release of liens and
re-pledge of collateral on substantially the same terms and conditions as those
set forth in the Credit Agreement.

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Surety Bonds and Real Estate Mortgages
We are generally required to provide various types of surety bonds that provide
an additional measure of security under certain public and private sector
contracts. At December 31, 2017, approximately $3.5 billion of our contract
backlog was bonded. Performance bonds do not have stated expiration dates;
rather, we are generally released from the bonds after the owner accepts the
work performed under contract. The ability to maintain bonding capacity to
support our current and future level of contracting requires that we maintain
cash and working capital balances satisfactory to our sureties.
Our investments in real estate affiliates are subject to mortgage indebtedness.
This indebtedness is non-recourse to Granite but is recourse to the real estate
entities. The terms of this indebtedness are typically renegotiated to reflect
the evolving nature of the real estate projects as they progress through
acquisition, entitlement and development. Modification of these terms may
include changes in loan-to-value ratios requiring the real estate entity to
repay portions of the debt. The debt associated with our unconsolidated real
estate ventures is disclosed in Note 7 of "Notes to the Consolidated Financial
Statements."
Covenants and Events of Default
Our debt and credit agreements require us to comply with various affirmative,
restrictive and financial covenants, including the financial covenants described
below. Our failure to comply with any of these covenants, or to pay principal,
interest or other amounts when due thereunder, would constitute an event of
default under the applicable agreements. Under certain circumstances, the
occurrence of an event of default under one of our debt or credit agreements (or
the acceleration of the maturity of the indebtedness under one of our
agreements) may constitute an event of default under one or more of our other
debt or credit agreements. Default under our debt and credit agreements could
result in (i) us no longer being entitled to borrow under the agreements; (ii)
termination of the agreements; (iii) the requirement that any letters of credit
under the agreements be cash collateralized; (iv) acceleration of the maturity
of outstanding indebtedness under the agreements and/or (v) foreclosure on any
collateral securing the obligations under the agreements.
The most significant financial covenants under the terms of our Credit Agreement
and 2019 Notes require the maintenance of a minimum Consolidated Tangible Net
Worth, a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated
Leverage Ratio.
As of December 31, 2017 and pursuant to the definitions in the agreements, our
Consolidated Tangible Net Worth was $953.6 million, which exceeded the minimum
of $752.0 million, our Consolidated Leverage Ratio was 1.25 which did not exceed
the maximum of 3.00 and our Consolidated Interest Coverage Ratio was 15.59 which
exceeded the minimum of 4.00.
As of December 31, 2017, we were in compliance with all covenants contained in
the Credit Agreement and related to the 2019 Notes. We are not aware of any
non-compliance by any of our unconsolidated real estate entities with the
covenants contained in their debt agreements.
Share Purchase Program
On April 7, 2016, the Board of Directors authorized us to purchase up to $200.0
million of our common stock at management's discretion, which replaced the
former authorization including the amount available. We did not purchase shares
under the share purchase program in any of the periods presented. The specific
timing and amount of any future purchases will vary based on market conditions,
securities law limitations and other factors.
Recently Issued and Adopted Accounting Pronouncements
See "Note 1 - Summary of Significant Accounting Policies" of "Notes to the
Consolidated Financial Statements" under the captions Recently Issued Accounting
Pronouncements and Recently Adopted Accounting Pronouncements.

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Financials ($)
Sales 2018 3 297 M
EBIT 2018 188 M
Net income 2018 130 M
Finance 2018 178 M
Yield 2018 0,74%
P/E ratio 2018 18,24
P/E ratio 2019 13,77
EV / Sales 2018 0,67x
EV / Sales 2019 0,55x
Capitalization 2 373 M
Chart GRANITE CONSTRUCTION INC.
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Granite Construction Inc. Technical Analysis Chart | GVA | US3873281071 | 4-Traders
Technical analysis trends GRANITE CONSTRUCTION INC.
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Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 10
Average target price 77,7 $
Spread / Average Target 30%
EPS Revisions
Managers
NameTitle
James Hildebrand Roberts President, Chief Executive Officer & Director
William Howard Powell Chairman
Laurel J. Krzeminski Chief Financial Officer & Executive Vice President
David H. Kelsey Independent Director
James W. Bradford Independent Director
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