VULCAN MATERIALS CO, 10-Q filed on 11/6/2009
Quarterly Report
Condensed Consolidated Balance Sheets (USD $)
In Thousands
Sep. 30, 2009
Assets
 
Cash and cash equivalents
$ 46,547 
Medium-term investments
6,803 
Assets, Current [Abstract]
 
Accounts and notes receivable
 
Accounts and notes receivable, gross
408,407 
Less: Allowance for doubtful accounts
(9,394)
Accounts and notes receivable, net
399,013 
Inventories
 
Finished products
265,422 
Raw materials
24,565 
Products in process
5,085 
Operating supplies and other
36,623 
Inventories
331,695 
Deferred income taxes
67,967 
Prepaid expenses
33,466 
Total current assets
885,491 
Investments and long-term receivables
31,424 
Property, Plant and Equipment, Net [Abstract]
 
Property, plant & equipment
 
Property, plant & equipment, cost
6,678,317 
Less: Reserve for depr., depl. & amort.
(2,713,057)
Property, plant & equipment, net
3,965,260 
Goodwill
3,093,979 
Other intangible assets, net
681,087 
Other assets
105,927 
Total assets
8,763,168 
Liabilities and Stockholders' Equity [Abstract]
 
Liabilities and Shareholders' Equity
 
Current maturities of long-term debt
60,421 
Short-term borrowings
286,357 
Trade payables and accruals
141,884 
Other current liabilities
187,171 
Total current liabilities
675,833 
Long-term debt
2,506,170 
Deferred income taxes
896,598 
Other noncurrent liabilities
599,039 
Total liabilities
4,677,640 
Other commitments and contingencies (Notes 13 & 19)
 
Shareholders' equity
 
Common stock, $1 par value
125,401 
Capital in excess of par value
2,342,765 
Retained earnings
1,797,036 
Accumulated other comprehensive loss
(179,674)
Shareholders' equity
4,085,528 
Total liabilities and shareholders' equity
$ 8,763,168 
Consolidated Balance Sheets [Parenthetical] (USD $)
Sep. 30, 2009
Consolidated Balance Sheets [Parenthetical]
 
Common Stock, Par or Stated Value Per Share
$ 1 
Condensed Consolidated Statements of Earnings (USD $)
In Thousands, except Per Share data
3 Months Ended
Sep. 30, 2009
9 Months Ended
Sep. 30, 2009
3 Months Ended
Sep. 30, 2008
9 Months Ended
Sep. 30, 2008
Net sales
$ 738,664 
$ 1,987,939 
$ 958,839 
$ 2,696,558 
Delivery revenues
39,528 
112,407 
54,510 
155,681 
Total revenues
778,192 
2,100,346 
1,013,349 
2,852,239 
Cost of goods sold
584,184 
1,610,018 
757,993 
2,096,036 
Delivery costs
39,528 
112,407 
54,510 
155,681 
Cost of revenues
623,712 
1,722,425 
812,503 
2,251,717 
Gross profit
154,480 
377,921 
200,846 
600,522 
Selling, administrative and general expenses
79,558 
238,629 
76,364 
253,721 
Gain on sale of property, plant & equipment and businesses, net
7,496 
10,653 
2,247 
86,690 
Other operating (income) expense, net
(286)
2,885 
(1,574)
(40)
Operating earnings
82,704 
147,060 
128,303 
433,531 
Other income (expense), net
2,756 
4,578 
(3,825)
(3,034)
Interest income
433 
1,914 
955 
2,624 
Interest expense
43,952 
131,943 
44,579 
126,230 
Earnings from continuing operations before income taxes
41,941 
21,609 
80,854 
306,891 
Provision (benefit) for income taxes
(5,983)
(9,621)
21,038 
91,365 
Earnings from continuing operations
47,924 
31,230 
59,816 
215,526 
Earnings (loss) on discontinued operations, net of tax (Note 2)
6,308 
12,433 
(766)
(1,788)
Net earnings
54,232 
43,663 
59,050 
213,738 
Earnings Per Share [Abstract]
 
 
 
 
Earnings Per Share, Basic [Abstract]
 
 
 
 
Basic earnings (loss) per share
 
 
 
 
Continuing operations
0.38 
0.27 
0.54 
1.97 
Discontinued operations
0.05 
0.10 
0.00 
(0.02)
Net earnings per share
0.43 
0.37 
0.54 
1.95 
Earnings Per Share, Diluted [Abstract]
 
 
 
 
Diluted earnings (loss) per share
 
 
 
 
Continuing operations
0.38 
0.27 
0.54 
1.94 
Discontinued operations
0.05 
0.10 
(0.01)
(0.01)
Net earnings per share
0.43 
0.37 
0.53 
1.93 
Weighted-average common shares outstanding
 
 
 
 
Basic
125,361 
116,533 
110,114 
109,565 
Assuming dilution
125,859 
117,047 
111,270 
110,837 
Cash dividends declared per share of common stock
0.25 
1.23 
0.49 
1.47 
Depreciation, depletion, accretion and amoritization from continuing operations
$ 99,243 
$ 298,158 
$ 98,716 
$ 291,491 
Effective tax rate from continuing operations
(14.3%)
(44.5%)
26% 
29.8% 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands
9 Months Ended
Sep. 30, 2009
Cash and Cash Equivalents, Period Increase (Decrease) [Abstract]
 
Operating Activites
 
Net earnings
$ 43,663 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activites
 
Depreciation, depletion, accretion and amortization
298,158 
Net gain on sale of property, plant & equipment and businesses
(11,465)
Contributions to pension plans
(26,793)
Share-based compensation
21,870 
Excess tax benefits from share-based compensation
(1,329)
Deferred tax provision
(26,477)
Changes in assets and liabilities before initial effects of business acquisitions and dispostions
51,845 
Other, net
5,350 
Net cash provided by operating activities
354,822 
Net Cash Provided by (Used in) Investing Activities [Abstract]
 
Payments for (Proceeds from) Productive Assets [Abstract]
 
Investing Activities
 
Purchases of property, plant & equipment
(94,165)
Proceeds from sale of property, plant & equipment
6,399 
Proceeds from sale of businesses
16,075 
Payment for businesses acquired, net of acquired cash
(36,980)
Reclassification from cash equivalents to medium-term investments
Redemption of medium-term investments
30,590 
Proceeds from loan on life insurance policies
Other, net
676 
Net cash used for investing activities
(77,405)
Financing Activities
 
Net short-term payments
(798,118)
Payment of short-term debt and current maturities
(296,555)
Proceeds from issuance of long-term debt, net of discounts
397,660 
Debt issuance costs
(3,033)
Settlements of forward starting swaps
Proceeds from issuance of common stock
587,129 
Dividends paid
(140,048)
Proceeds from exercise of stock options
10,958 
Excess tax benefits from share-based compensation
1,329 
Other, net
(386)
Net cash used for financing activities
(241,064)
Net increase in cash and cash equivalents
36,353 
Cash and cash equivalents at beginning of year
10,194 
Cash and cash equivalents at end of period
$ 46,547 
Basis of Presentation
Organization, Consolidation and Presentation and Error Corrections

1.   Basis of Presentation


Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.

Due to the 2005 sale of our Chemicals business as presented in Note 2, the operating results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Earnings.

Subsequent events have been evaluated through the date the financial statements were issued.

Change in Depreciation Method

Effective September 1, 2009, we changed our method of depreciation for our Newberry, Florida cement production facilities from straight-line to units-of-production. We consider the change of depreciation method a change in accounting estimate effected by a change in accounting principle to be accounted for prospectively. The units-of-production depreciation method is grounded on the assumption that depreciation of these assets is primarily a function of usage. The change to a units-of-production method was based on information obtained by continued observation of the pattern of benefits derived from the cement plant assets and is preferable to a straight-line method as it results in depreciation that is more reflective of consumption of the assets.

The effects of the change described above increased earnings from continuing operations and net income by approximately $90,000, or $0.00 per basic and diluted share, for the quarter ended September 30, 2009.

Correction of Prior Period Financial Statements

As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008, we discovered an error in our reporting of cash flows from operating activities and investing activities in our Quarterly Reports on Form 10-Q for the three, six and nine months ended March 31, 2008, June 30, 2008 and September 30, 2008, respectively. This error resulted from the misclassification of certain noncash amounts included in various swap transactions associated with the divestiture of assets required as part of the Florida Rock acquisition. The error solely affected the classification of $47,369,000 between cash used for investing activities and cash provided by operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows, but had no effect on net cash flows. In addition, the error had no effect on our Unaudited Condensed Consolidated Balance Sheet or Unaudited Condensed Consolidated Statement of Earnings for the period ended September 30, 2008. Accordingly, our total revenues, net earnings, earnings per share, total cash flows, cash and cash equivalents, liquidity and shareholders' equity remain unchanged. Our compliance with any financial covenants under our borrowing facilities also was not affected.


A summary of the effects of the correction of this error on our Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2008 is as follows (in thousands of dollars).

 

Nine Months Ended September 30, 2008

 

As
Reported

 


Correction

 

Reclassifi-
cations1

 

As
Restated

Statement of Cash Flows

 

 

 

 

 

 

 

  Excess tax benefits from share-based compensation

$0 

 

$0 

 

($8,452)

 

($8,452)

  Deferred tax provision

 

 

(1,880)

 

(1,880)

  Changes in assets and liabilities before initial effects
    of business acquisitions and dispositions


(107,657)

 


(47,369)

 


10,332 

 


(144,694)

    Net cash provided by operating activities

$325,611 

 

($47,369)

 

$0 

 

$278,242 

 

 

 

 

 

 

 

 

  Purchases of property, plant & equipment

($342,254)

 

$47,369 

 

$0 

 

($294,885)

    Net cash used for investing activities

($182,348)

 

$47,369 

 

$0 

 

($134,979)

 

 

 

 

 

 

 

 

1   We have reclassified certain amounts from prior periods to conform to the 2009 presentation.

 


During 2009, we completed a comprehensive analysis of our deferred income tax balances and concluded that our deferred income tax liabilities were overstated. The errors arose during the fourth quarter of 2008 and during periods prior to January 1, 2006, and are not material to previously issued financial statements. However, correcting the errors in the current period would have a material impact on our Condensed Consolidated Statements of Earnings, specifically our deferred income tax provision. As a result, we have restated all affected prior period financial statements presented in this Form 10-Q, and will restate all affected financial statements in our Annual Report on Form 10-K for the year ending December 31, 2009, and the Condensed Consolidated Balance Sheets in our first and second quarter Form 10-Q reports in 2010.

The errors arising during the fourth quarter of 2008 related to the calculations of deferred income taxes referable to the Florida Rock acquisition and the income tax rate used to compute deferred income tax account balances. The correction of these errors resulted in a decrease to deferred income tax liabilities of $2,578,000, an increase to goodwill referable to our Aggregates segment of $2,455,000, and a $5,033,000 increase to deferred income tax benefit and net earnings, improving earnings per diluted share by $0.05 for the year ended December 31, 2008.

The errors arising during periods prior to January 1, 2006 resulted in an overstatement of deferred income tax liabilities of $25,983,000. Based on the work performed to confirm the current and deferred income tax provisions recorded during 2006, 2007 and 2008, and to determine the correct deferred income tax account balances as of January 1, 2006, we were able to substantiate that the $25,983,000 overstatement relates to periods prior to January 1, 2006. The correction of these errors resulted in a decrease to deferred income tax liabilities and a corresponding increase to retained earnings of $25,983,000 as of January 1, 2006.

A summary of the effects of the correction of these errors on our Condensed Consolidated Balance Sheets as of June 30, 2009, March 31, 2009, December 31, 2008 and September 30, 2008 and on our Consolidated Statement of Earnings for the year ended December 31, 2008, are presented in the tables below (amounts and shares in thousands, except per share data). The errors described above had no impact on our Condensed Consolidated Statements of Earnings for the three or nine months


ended September 30, 2009 or 2008 or on our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 or 2008.

 

Balance Sheets As Reported

 

June 30
2009

 

March 31
2009

 

December 31
2008

 

September 30
2008

 

 

 

 

 

 

 

 

Goodwill

$3,091,524 

 

$3,082,467 

 

$3,083,013 

 

$3,899,517 

  Total assets

$8,847,872 

 

$8,835,564 

 

$8,914,169 

 

$9,127,120 

 

 

 

 

 

 

 

 

Deferred income tax liabilities

$957,248 

 

$954,577 

 

$949,036 

 

$684,098 

  Total liabilities

$4,844,653 

 

$5,382,234 

 

$5,391,433 

 

$5,184,422 

 

 

 

 

 

 

 

 

Retained earnings

$1,743,097 

 

$1,775,587 

 

$1,862,913 

 

$2,134,748 

  Shareholders' equity

$4,003,219 

 

$3,453,330 

 

$3,522,736 

 

$3,942,698 

 

 

 

 

 

 

 

 

  Total liabilities and shareholders' equity

$8,847,872 

 

$8,835,564 

 

$8,914,169 

 

$9,127,120 

 

 

 

 

 

 

 

 

 

 

Corrections

 

June 30
2009

 

March 31
2009

 

December 31
2008

 

September 30
2008

 

 

 

 

 

 

 

 

Goodwill

$2,455 

 

$2,455 

 

$2,455 

 

$0 

  Total assets

$2,455 

 

$2,455 

 

$2,455 

 

$0 

 

 

 

 

 

 

 

 

Deferred income tax liabilities

($28,561)

 

($28,561)

 

($28,561)

 

($25,983)

  Total liabilities

($28,561)

 

($28,561)

 

($28,561)

 

($25,983)

 

 

 

 

 

 

 

 

Retained earnings

$31,016 

 

$31,016 

 

$31,016 

 

$25,983 

  Shareholders' equity

$31,016 

 

$31,016 

 

$31,016 

 

$25,983 

 

 

 

 

 

 

 

 

  Total liabilities and shareholders' equity

$2,455 

 

$2,455 

 

$2,455 

 

$0 

 

 

 

 

 

 

 

 

 

 

Balance Sheets As Restated

 

June 30
2009

 

March 31
2009

 

December 31
2008

 

September 30
2008

 

 

 

 

 

 

 

 

Goodwill

$3,093,979 

 

$3,084,922 

 

$3,085,468 

 

$3,899,517 

  Total assets

$8,850,327 

 

$8,838,019 

 

$8,916,624 

 

$9,127,120 

 

 

 

 

 

 

 

 

Deferred income tax liabilities

$928,687 

 

$926,016 

 

$920,475 

 

$658,115 

  Total liabilities

$4,816,092 

 

$5,353,673 

 

$5,362,872 

 

$5,158,439 

 

 

 

 

 

 

 

 

Retained earnings

$1,774,113 

 

$1,806,603 

 

$1,893,929 

 

$2,160,731 

  Shareholders' equity

$4,034,235 

 

$3,484,346 

 

$3,553,752 

 

$3,968,681 

 

 

 

 

 

 

 

 

  Total liabilities and shareholders' equity

$8,850,327 

 

$8,838,019 

 

$8,916,624 

 

$9,127,120 

 

 

 

 

 

 

 

 

 


 

 

For the Year Ended December 31, 2008

 

As
Reported

 


Correction

 

As
Restated

Statement of Earnings

 

 

 

 

 

  Earnings from continuing operations before
    income taxes


$75,058 

 


$0 

 


$75,058 

  Provision for income taxes

 

 

 

 

 

    Current

92,346 

 

 

92,346 

    Deferred

(15,622)

 

(5,033)

 

(20,655)

      Total provision for income taxes

76,724 

 

(5,033)

 

71,691 

  Earnings (loss) from continuing operations

(1,666)

 

5,033 

 

3,367 

  Loss on discontinued operations, net of income
    taxes


(2,449)

 


 


(2,449)

  Net earnings (loss)

($4,115)

 

$5,033 

 

$918 

 

 

 

 

 

 

  Diluted earnings (loss) per share

 

 

 

 

 

    Earnings (loss) from continuing operations

($0.02)

 

$0.05 

 

$0.03 

    Net earnings (loss) per share

($0.04)

 

$0.05 

 

$0.01 

 

 

 

 

 

 

  Weighted-average common shares outstanding,
    assuming dilution


109,774 

 

 

 


110,954 

 

 

 

 

 

 


In addition to the corrections reflected above, our Consolidated Statement of Cash Flows for the year ended December 31, 2008 will reflect a change in net earnings (loss) from ($4,115,000) to $918,000 and a change in deferred tax provision from ($14,723,000) to ($19,756,000), and comprehensive income will change from ($158,162,000) to ($153,129,000).
Discontinued Operations
Discontinued Operations

2.   Discontinued Operations


In June 2005, we sold substantially all the assets of our Chemicals business, known as Vulcan Chemicals, to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. In addition to the initial cash proceeds, Basic Chemicals was required to make payments under two earn-out agreements subject to certain conditions. During 2007, we received the final payment under the ECU (electrochemical unit) earn-out.

Proceeds under the second earn-out agreement are determined based on the performance of the hydrochlorocarbon product HCC-240fa (commonly referred to as 5CP) from the closing of the transaction through December 31, 2012 (5CP earn-out). Under this earn-out agreement, cash plant margin for 5CP, as defined in the Asset Purchase Agreement, in excess of an annual threshold amount is shared equally between Vulcan and Basic Chemicals. The primary determinant of the value for this earn-out is the level of growth in 5CP sales volume.

At the June 7, 2005 closing date, the fair value of the consideration received in connection with the sale of the Chemicals business, including anticipated cash flows from the two earn-out agreements, was expected to exceed the net carrying value of the assets and liabilities sold. However, since the proceeds under the earn-out agreements were contingent in nature, no gain was recognized on the Chemicals sale and the value recorded at the closing date referable to these two earn-outs was limited to $128,167,000. Furthermore, under Accounting Standards Codification (ASC) Topic 205, "Presentation of Financial Statements," Section 20-S99-2, upward adjustments to the fair value of the ECU earn-out subsequent to closing, which totaled $51,070,000, were reported in continuing operations, and therefore did not contribute to the gain or loss on the sale of the Chemicals business. A gain on disposal of the Chemicals business is recognized to the extent cumulative cash receipts under the 5CP earn-out exceed the initial value recorded.

During the nine months ended September 30, 2009, we received payments totaling $11,625,000 under the 5CP earn-out related to performance during the year ended December 31, 2008. As these cash receipts exceeded the carrying amount of the 5CP receivable, we recorded a gain on disposal of discontinued operations of $812,000 for the nine months ended September 30, 2009. Any future payments received pursuant to the 5CP earn-out will be recorded as additional gain on disposal of discontinued operations. During 2008, we received a payment of $10,014,000 under the 5CP earn-out related to the year ended December 31, 2007. Through September 30, 2009, we have received a total of $33,913,000 under the 5CP earn-out.

We are liable for a cash transaction bonus payable to certain key former Chemicals employees. This transaction bonus is payable if cash receipts realized from the two earn-out agreements described above exceed an established minimum threshold. Amounts due are payable annually based on the prior year's results. Based on the total cumulative receipts from the two earn-outs, we paid $521,000 in transaction bonuses in the nine months ended September 30, 2009.

There were no net sales or revenues from discontinued operations during the three or nine month periods ended September 30, 2009 or 2008. Results from discontinued operations are as follows (in thousands of dollars):

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

Earnings (loss) from results of discontinued
  operations


$10,397 

 


($1,277)

 


$19,889 

 


($2,981)

Gain on disposal of discontinued operations

88 

 

 

812 

 

Income tax (provision) benefit

(4,177)

 

511 

 

(8,268)

 

1,193 

  Earnings (loss) on discontinued operations,
    net of tax


$6,308 

 


($766)

 


$12,433 

 


($1,788)

 

 

 

 

 

 

 

 

 

The pretax earnings from results of discontinued operations in 2009 of $10,397,000 for the third quarter and $19,889,000 for the first nine months relate primarily to settlements during the second and third quarters with two of our insurers in the Modesto case (see Note 19). These settlements resulted in pretax gains of $10,500,000 for the third quarter and $23,500,000 for the first nine months. The insurance proceeds and associated gains represent a partial recovery of legal and settlement costs recognized in prior periods. The pretax losses from discontinued operations in 2008 primarily reflect charges related to general and product liability costs, including legal defense costs, environmental remediation costs associated with our former Chemicals businesses, and charges related to the cash transaction bonus as noted above.
Earnings Per Share (EPS)
Earnings Per Share, Policy [Text Block]

3.   Earnings Per Share (EPS)


We report two earnings per share numbers: basic and diluted. These are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS) as set forth below (in thousands of shares):

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

Weighted-average common shares outstanding

125,361 

 

110,114 

 

116,533 

 

109,565 

Dilutive effect of

 

 

 

 

 

 

 

  Stock options

288 

 

942 

 

234 

 

996 

  Other stock compensation plans

210 

 

214 

 

280 

 

276 

Weighted-average common shares outstanding,
  assuming dilution


125,859 

 


111,270 

 


117,047 

 


110,837 

 

 

 

 

 

 

 

 

 


All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations. The number of antidilutive common stock equivalents are as follows (in thousands of shares):

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

Antidilutive common stock equivalents

3,747 

 

974 

 

3,753 

 

2,131 

 

 

 

 

 

 

 

 

Income Taxes
Income Tax Disclosure [Text Block]

4.   Income Taxes


Our effective tax rate is based on expected income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. For interim financial reporting, we estimate the annual tax rate based on projected taxable income for the full year and record a quarterly income tax provision in accordance with the anticipated annual rate. As the year progresses, we refine the estimates of the year's taxable income as new information becomes available, including year-to-date financial results. This continual estimation process often results in a change to our expected effective tax rate for the year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions.

We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. Our liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. Our effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.

In the third quarter, we recorded a tax benefit of $5,983,000, compared with a tax expense in the prior year of $21,038,000. An adjustment to the current quarter's income tax provision was required so that the year-to-date provision reflects the expected annual tax rate.

During the first nine months of 2009, we recognized a tax benefit from continuing operations of $9,621,000 as compared with a tax expense of $91,365,000 during the same period of 2008. The change in our tax provision resulted from the relatively greater effect that certain items such as statutory depletion, undistributed earnings from foreign operations, and charitable contributions of property had on the 2009 tax rate due to the significantly lower level of earnings.
Medium-term Investments
Medium-term Investments, Policy [Text Block]

5.   Medium-term Investments


At September 30, 2009 and December 31, 2008, we held investments with principal balances totaling approximately $8,247,000 and $38,837,000, respectively, in money market and other money funds at The Reserve, an investment management company specializing in such funds. The substantial majority of our investment was held in the Reserve International Liquidity Fund, Ltd. On September 15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy protection. In the following days, The Reserve announced that it was closing all of its money funds, some of which owned Lehman Brothers securities, and was suspending redemptions from and purchases of its funds, including the Reserve International Liquidity Fund. As a result of the temporary suspension of redemptions and the uncertainty as to the timing of such redemptions, we classified our investments in The Reserve funds as medium-term investments. Based on public statements issued by The Reserve and the maturity dates of the underlying investments, we believe that proceeds from the liquidation of the money funds in which we have investments will be received within one year from the date of the accompanying Condensed Consolidated Balance Sheets, and therefore, such investments are classified as current.

During the first nine months of 2009 and the fourth quarter of 2008, The Reserve redeemed $30,590,000 and $258,000, respectively, of our investment. In addition, during the third quarter of 2008, we recognized a charge of $2,103,000 [included in other income (expense), net] to reduce the principal balance to an estimate of the fair value of our investment in these funds. During the three and nine months ended September 30, 2009, we recognized income [included in other income (expense), net] of $48,000 and $659,000, respectively, to increase the principal balance to an estimate of the fair value of our investment in these funds. See Note 7 for further discussion of the fair value determination. These adjustments resulted in balances as of September 30, 2009, December 31, 2008 and September 30, 2008 of $6,803,000, $36,734,000 and $36,992,000, respectively, as reported on our accompanying Condensed Consolidated Balance Sheets.
Derivative Instruments
Derivative Instruments and Hedging Activities Disclosure [Text Block]

6.   Derivative Instruments


During the normal course of operations, we are exposed to market risks including fluctuations in interest rates, fluctuations in foreign currency exchange rates and changes in commodity pricing. From time to time, and consistent with our risk management policies, we use derivative instruments to hedge against these market risks. We do not utilize derivative instruments for trading or other speculative purposes. The interest rate swap agreements described below were designated as cash flow hedges of future interest payments pursuant to ASC Topic 815, "Derivatives and Hedging" (ASC 815), Section 30.

In December 2007, we issued $325,000,000 of 3-year floating (variable) rate notes that bear interest at 3-month London Interbank Offered Rate (LIBOR) plus 1.25% per annum. Concurrently, we entered into a 3-year interest rate swap agreement in the stated (notional) amount of $325,000,000. Under this agreement, we pay a fixed interest rate of 5.25% and receive 3-month LIBOR plus 1.25% per annum. Concurrent with each quarterly interest payment, the portion of this swap related to that interest payment is settled and the associated realized gain or loss is recognized. For the 12-month period ending September 30, 2010, we estimate that $11,293,000 of the pretax loss accumulated in Other Comprehensive Income (OCI) related to this interest rate swap will be reclassified to earnings.

Additionally, during 2007, we entered into fifteen forward starting interest rate swap agreements for a total notional amount of $1,500,000,000. On December 11, 2007, upon the issuance of the related fixed-rate debt, we terminated and settled for a cash payment of $57,303,000 a portion of these forward starting swaps with an aggregate notional amount of $900,000,000 ($300,000,000 5-year, $350,000,000 10-year and $250,000,000 30-year).

In December 2007, the remaining forward starting swaps on an aggregate notional amount of $600,000,000 were extended to August 29, 2008. On June 20, 2008, upon the issuance of $650,000,000 of related fixed-rate debt, we terminated and settled for a cash payment of $32,474,000 the remaining forward starting swaps.

Amounts accumulated in other comprehensive loss related to the highly effective portion of the fifteen forward starting interest rate swaps will be amortized to interest expense over the remaining term of the related debt. For the 12-month period ending September 30, 2010, we estimate that $7,487,000 of the pretax loss accumulated in OCI will be reclassified to earnings.

ASC 815 requires the recognition of all derivative instruments at fair value in the balance sheet. Fair values of derivative instruments designated as hedging instruments are as follows (in thousands of dollars):

 

 

 

 

Fair Value 1

 

 


Balance Sheet Location

 

September 30
2009

 

December 31
2008

 

September 30
2008

Liability Derivatives

 

 

 

 

 

 

 

 

  Interest rate derivatives

 

Other noncurrent liabilities

 

($13,444)

 

($16,247)

 

($4,622)

Total Derivatives

 

 

 

($13,444)

 

($16,247)

 

($4,622)

 

 

 

 

 

 

 

 

 

1  See Note 7 for further discussion of the fair value determination.

 

 

 

 

 

 

 

 

 

 

The effects of the cash flow hedge derivative instruments on the accompanying Condensed Consolidated Statements of Earnings for the three and nine months ended September 30 are as follows (in thousands of dollars):

 

 


Location on

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

 

Statement

 

2009

 

2008

 

2009

 

2008

Interest rate derivatives

 

 

 

 

 

 

 

 

 

 

  Gain (loss) recognized in OCI
    (effective portion)

 


Note 8

 


($2,174)

 


($2,840)

 


($3,844)

 


$157 

 

 

 

 

 

 

 

 

 

 

 

  Loss reclassified from
    Accumulated OCI
    (effective portion)

 


Interest
expense

 



($4,588)

 



($2,668)

 



($11,915)

 



($6,479)

 

 

 

 

 

 

 

 

 

 

 

  Gain recognized in earnings
    (ineffective portion and
    amounts excluded from
    effectiveness test)

 



Other income
(expense), net

 




$0 

 




$0 

 




$0 

 




$2,169 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements
Fair Value Disclosures [Text Block]

7.   Fair Value Measurements


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:

Level 1:

Quoted prices in active markets for identical assets or liabilities;

Level 2:

Inputs that are derived principally from or corroborated by observable market data;

Level 3:

Inputs that are unobservable and significant to the overall fair value measurement.

 

The following table presents a summary of our assets and liabilities as of September 30, 2009 that are subject to fair value measurement on a recurring basis (in thousands of dollars):

 

 







Total

 

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

 



Significant
Other
Observable
Inputs
(Level 2)

 




Significant
Unobservable
Inputs
(Level 3)

Fair Value

 

 

 

 

 

 

 

 

Medium-term investments

 

$6,803 

 

$0 

 

$6,803 

 

$0 

Interest rate derivative

 

(13,444)

 

 

(13,444)

 

  Net liability

 

($6,641)

 

$0 

 

($6,641)

 

$0 

 

 

 

 

 

 

 

 

 

 

The medium-term investments are comprised of money market and other money funds, as more fully described in Note 5. We estimated the fair value of these funds by adjusting the investment principal to reflect the complete write-down of the funds' investments in securities of Lehman Brothers Holdings Inc. and by estimating a discount against our investment balances to allow for the risk that legal and accounting costs and pending or threatened claims and litigation against The Reserve and its management may reduce the principal available for distribution.

The interest rate derivative consists of an interest rate swap agreement as more fully described in Note 6, and is measured at fair value based on prevailing market interest rates as of the measurement date.
Comprehensive Income
Comprehensive Income Note [Text Block]

8.   Comprehensive Income


Comprehensive income includes charges and credits to equity from nonowner sources and comprises two subsets: net earnings and other comprehensive income (loss). Total comprehensive income comprises the following (in thousands of dollars):

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

Net earnings

$54,232 

 

$59,050 

 

$43,663 

 

$213,738 

Other comprehensive income

 

 

 

 

 

 

 

  Fair value adjustments to cash flow hedges,
    net of tax


(1,286)

 


(1,798)

 


(2,281)

 


249 

  Reclassification adjustment for cash flow hedge
    amounts included in net earnings, net of tax


2,702 

 


1,643 

 


7,036 

 


3,906 

  Amortization of pension and postretirement plan
    actuarial loss and prior service cost, net of tax


283 

 


181 

 


852 

 


542 

Total comprehensive income

$55,931 

 

$59,076 

 

$49,270 

 

$218,435 

 

 

 

 

 

 

 

 

 

Amounts accumulated in other comprehensive loss, net of tax, are as follows (in thousands of dollars):

 

September 30

 

December 31

 

September 30

 

2009

 

2008

 

2008

Cash flow hedges

($51,764)

 

($56,519)

 

($51,692)

Pension and postretirement plans

(127,910)

 

(128,763)

 

25,153 

  Accumulated other comprehensive loss

($179,674)

 

($185,282)

 

($26,539)

 

 

 

 

 

 

Shareholders' Equity
Stockholders' Equity Note Disclosure [Text Block]

9.  Shareholders' Equity


In June 2009, we completed a public offering of common stock (par value of $1 per share) resulting in the issuance of 13,225,000 common shares at a price of $41.00 per share. The total number of shares issued through the offering included 1,725,000 shares issued upon full exercise of the underwriters' option to purchase additional shares. We received net proceeds of $520,079,000 (net of commissions and transaction costs of $22,146,000) from the sale of the shares. The net proceeds from the offering were used for debt reduction and general corporate purposes. The transaction increased shareholders' equity by $520,079,000 (common stock $13,225,000 and capital in excess of par $506,854,000).

During the nine months ended September 30, 2009, we issued 778,162 shares of common stock to the trustee of our 401(k) savings and retirement plan and received proceeds of $34,899,000. For the three months ended September 30, 2009, we issued 216,633 shares and received proceeds of $10,604,000. These issuances were made to satisfy the plan participants' elections to invest in Vulcan's common stock and this arrangement provides a means of improving cash flow, increasing shareholders' equity and reducing leverage.

During the second quarter of 2009, we issued 789,495 shares of common stock in connection with business acquisitions. We originally issued the shares to two exchange accommodation titleholders (selling shareholders) in a private placement pursuant to a planned Section 1031 reverse exchange under the Internal Revenue Code. The selling shareholders assumed our rights and obligations under the asset purchase agreement, and we registered the shares for public resale by the selling shareholders in order to fund their obligation. The selling shareholders will maintain legal ownership of the assets acquired until the entities are dissolved, at which time legal ownership will be transferred to us. The selling shareholders qualify as variable interest entities under the provisions of ASC Topic 810, "Consolidation," Section 10 (ASC 810-10). We are the primary beneficiary of the variable interest entities; accordingly, we have consolidated as applicable the financial position, results of operations and cash flows of the selling shareholders for the period ended September 30, 2009. The consolidated activity principally consists of the receipt of net cash proceeds from the issuance of shares of $33,862,000 and the business acquisition for a cash payment of $36,980,000, including acquisition costs and net of acquired cash.

During the first quarter of 2008, we issued 798,859 shares of common stock in connection with business acquisitions. We originally issued the shares to an exchange accommodation titleholder (selling shareholder) in a private placement pursuant to a planned Section 1031 reverse exchange under the Internal Revenue Code. The selling shareholder assumed our rights and obligations under the asset purchase agreement, and we registered the shares for public resale by the selling shareholder in order to fund its obligation. The selling shareholder maintained legal ownership of the assets acquired until it was dissolved during the fourth quarter of 2008, at which time legal ownership was transferred to us. The selling shareholder qualified as a variable interest entity under the provisions of ASC 810-10. We were the primary beneficiary of the variable interest entity; accordingly, we consolidated as applicable the financial position, results of operations and cash flows of the selling shareholder for the period ended September 30, 2008. The consolidated activity principally consists of the receipt of net cash proceeds from the issuance of shares of $55,072,000 and the business acquisition for a cash payment of $55,763,000, including acquisition costs and net of acquired cash.

During the second quarter of 2008, we issued 352,779 shares of common stock in connection with business acquisitions.

On November 16, 2007, pursuant to the terms of the agreement to acquire Florida Rock, all treasury stock held immediately prior to the close of the transaction was canceled. Our Board of Directors resolved to carry forward the existing authorization to purchase common stock. As of September 30, 2009, 3,411,416 shares remained under the current authorization.

There were no shares purchased during the three and nine month periods ended September 30, 2009 and 2008, and there were no shares held in treasury as of September 30, 2009, December 31, 2008 or September 30, 2008.
Benefit Plans
Pension and Other Postretirement Benefits Disclosure [Text Block]

10.  Benefit Plans


The following tables set forth the components of net periodic benefit cost (in thousands of dollars):


PENSION BENEFITS

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

Components of Net Periodic Benefit Cost

 

 

 

 

 

 

 

  Service cost

$4,660 

 

$4,791 

 

$13,979 

 

$14,374 

  Interest cost

10,485 

 

9,976 

 

31,455 

 

29,927 

  Expected return on plan assets

(11,626)

 

(12,979)

 

(34,878)

 

(38,937)

  Amortization of prior service cost

115 

 

115 

 

345 

 

345 

  Amortization of actuarial loss

412 

 

140 

 

1,238 

 

420 

Net periodic pension benefit cost

$4,046 

 

$2,043 

 

$12,139 

 

$6,129 

 

 

 

 

 

 

 

 

 


OTHER POSTRETIREMENT BENEFITS

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

Components of Net Periodic Benefit Cost

 

 

 

 

 

 

 

  Service cost

$978 

 

$1,306 

 

$2,934 

 

$3,918 

  Interest cost

1,762 

 

1,728 

 

5,284 

 

5,183 

  Amortization of prior service cost

(205)

 

(209)

 

(617)

 

(629)

  Amortization of actuarial loss

149 

 

255 

 

448 

 

765 

Net periodic postretirement benefit cost

$2,684 

 

$3,080 

 

$8,049 

 

$9,237 

 

 

 

 

 

 

 

 


The net periodic benefit costs for pension plans during the three and nine months ended September 30, 2009 include pretax reclassifications from other comprehensive income totaling $527,000 and $1,583,000, respectively. The net periodic benefit costs for pension plans during the three and nine months ended September 30, 2008 include pretax reclassifications from other comprehensive income totaling $255,000 and $765,000, respectively. During the nine months ended September 30, 2009 and 2008, contributions of $26,793,000 and $2,419,000, respectively, were made to our pension plans. The 2009 contributions include $23,700,000 in September related to the salaried pension plan's 2008 plan year. This contribution increased our 2008 funded status in the salaried pension plan to 80%, thereby preserving funding credits that can be used to reduce contributions in later years.

The net periodic benefit costs for postretirement plans during the three and nine months ended September 30, 2009 include pretax reclassifications from other comprehensive income totaling ($56,000) and ($169,000), respectively. The net periodic benefit costs for postretirement plans during the three and nine months ended September 30, 2008 include pretax reclassifications from other comprehensive income totaling $46,000 and $136,000, respectively. These reclassifications from other comprehensive income are related to amortization of prior service costs or credits and actuarial losses.
Credit Facilities, Short-term Borrowings and Long-term Debt
Debt Disclosure [Text Block]

11.  Credit Facilities, Short-term Borrowings and Long-term Debt


Short-term borrowings are summarized as follows (in thousands of dollars):

 

September 30

 

December 31

 

September 30

 

2009

 

2008

 

2008

Bank borrowings

$0 

 

$1,082,500 

 

$1,163,500 

Commercial paper

286,357 

 

 

  Total short-term borrowings

$286,357 

 

$1,082,500 

 

$1,163,500 

 

 

 

 

 

 

Bank borrowings

 

 

 

 

 

  Maturity

n/a

 

2 days

 

1 day

  Weighted-average interest rate

n/a

 

1.63%

 

2.73%

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

  Maturity

1 to 63 days

 

n/a

 

n/a

  Weighted-average interest rate

0.42%

 

n/a

 

n/a

 

 

 

 

 

 

 

We utilize our bank lines of credit as liquidity back-up for outstanding commercial paper or draw on the bank lines to access LIBOR-based short-term loans to fund our borrowing requirements. Periodically, we issue commercial paper for general corporate purposes, including working capital requirements. We plan to continue this practice from time to time as circumstances warrant.

Our policy is to maintain committed credit facilities at least equal to our outstanding commercial paper. Unsecured bank lines of credit totaling $1,675,000,000 were maintained at September 30, 2009. Our $1,500,000,000 bank credit facility expires November 16, 2012. Effective October 1, 2009, we canceled our $175,000,000 bank credit facility prior to its scheduled expiration date of November 16, 2009. As of September 30, 2009, none of the lines of credit was drawn. Interest rates referable to borrowings under these lines of credit are determined at the time of borrowing based on current market conditions.

All lines of credit extended to us in 2009 and 2008 were based solely on a commitment fee; no compensating balances were required. In the normal course of business, we maintain balances for which we are credited with earnings allowances. To the extent the earnings allowances are not sufficient to fully compensate banks for the services they provide, we pay the fee equivalent for the differences.

As of September 30, 2009, $3,669,000 of our long-term debt, including current maturities, was secured. This secured debt was assumed with the November 2007 acquisition of Florida Rock. All other debt obligations, both short-term borrowings and long-term debt, are unsecured.

In February 2009, we issued $400,000,000 of long-term notes in two related series (tranches), as follows: $150,000,000 of 10.125% coupon notes due December 2015 and $250,000,000 of 10.375% coupon notes due December 2018. These notes were issued principally to repay borrowings outstanding under our short- and long-term debt obligations. The notes were initially sold to Goldman Sachs pursuant to an exemption from the Securities Act of 1933 (the Securities Act), as amended, and subsequently resold to Berkshire Hathaway pursuant to Rule 144A under the Securities Act. In May 2009, these notes were exchanged for substantially identical notes that were registered under the Securities Act. The notes are presented in the table below net of unamortized discounts from par. Discounts and debt issuance costs are being amortized using the effective interest method over the respective lives of the notes.



Long-term debt is summarized as follows (in thousands of dollars):

 

 

September 30

 

December 31

 

September 30

 

 

2009

 

2008

 

2008

10.125% 2015 notes issued 20091

$149,524 

 

$0 

 

$0 

10.375% 2018 notes issued 20092

248,241 

 

 

3-year floating loan issued 2008

240,000 

 

285,000 

 

300,000 

6.30% 5-year notes issued 20083

249,609 

 

249,543 

 

249,521 

7.00% 10-year notes issued 20084

399,617 

 

399,595 

 

399,588 

3-year floating notes issued 2007

325,000 

 

325,000 

 

325,000 

5.60% 5-year notes issued 20075

299,640 

 

299,565 

 

299,541 

6.40% 10-year notes issued 20076

349,833 

 

349,822 

 

349,818 

7.15% 30-year notes issued 20077

249,316 

 

249,311 

 

249,310 

6.00% 10-year notes issued 1999

 

250,000 

 

250,000 

Private placement notes

15,276 

 

15,375 

 

48,492 

Medium-term notes

21,000 

 

21,000 

 

21,000 

Industrial revenue bonds

17,550 

 

17,550 

 

17,550 

Other notes

1,985 

 

3,512 

 

3,740 

  Total debt excluding short-term borrowings

$2,566,591 

 

$2,465,273 

 

$2,513,560 

Less current maturities of long-term debt

60,421 

 

311,685 

 

344,753 

  Total long-term debt

$2,506,170 

 

$2,153,588 

 

$2,168,807 

 

 

 

 

 

 

  Estimated fair value of total long-term debt

$2,676,278 

 

$1,843,479 

 

$2,054,336 

 

 

 

 

 

 

1

Includes a decrease for unamortized discounts of $476 thousand as of September 30, 2009. The effective interest rate for these 2015 notes is 10.305%.

 

 

2

Includes a decrease for unamortized discounts of $1,759 thousand as of September 30, 2009. The effective interest rate for these 2018 notes is 10.584%.

 

 

3

Includes decreases for unamortized discounts, as follows: September 30, 2009 - $391 thousand, December 31, 2008 - $457 thousand and September 30, 2008 - $479 thousand. The effective interest rate for these 5-year notes is 7.47%.

 

 

4

Includes decreases for unamortized discounts, as follows: September 30, 2009 - $383 thousand, December 31, 2008 - $405 thousand and September 30, 2008 - $412 thousand. The effective interest rate for these 10-year notes is 7.86%.

 

 

5

Includes decreases for unamortized discounts, as follows: September 30, 2009 - $360 thousand, December 31, 2008 - $435 thousand and September 30, 2008 - $459 thousand. The effective interest rate for these 5-year notes is 6.58%.

 

 

6

Includes decreases for unamortized discounts, as follows: September 30, 2009 - $167 thousand, December 31, 2008 - $178 thousand and September 30, 2008 - $182 thousand. The effective interest rate for these 10-year notes is 7.39%.

 

 

7

Includes decreases for unamortized discounts, as follows: September 30, 2009 - $684 thousand, December 31, 2008 - $689 thousand and September 30, 2008 - $690 thousand. The effective interest rate for these 30-year notes is 8.04%.

 

 

 

The estimated fair values of long-term debt presented in the table above were determined by discounting expected future cash flows based on credit-adjusted interest rates on U.S. Treasury bills, notes or bonds, as appropriate. The fair value estimates were based on information available to management as of the respective balance sheet dates. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since those dates.

Our debt agreements do not subject us to contractual restrictions with regard to working capital or the amount we may expend for cash dividends and purchases of our stock. The percentage of consolidated debt to total capitalization (total debt as a percentage of total capital), as defined in our bank credit facility agreements, must be less than 65%. Our total debt as a percentage of total capital was 41.1% as of September 30, 2009; 50.0% as of December 31, 2008; and 48.1% as of September 30, 2008.
Asset Retirement Obligations
Asset Retirement Obligation Disclosure [Text Block]

12.  Asset Retirement Obligations


Asset retirement obligations are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.

Recognition of a liability for an asset retirement obligation is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the asset retirement obligation is settled for other than the carrying amount of the liability, we recognize a gain or loss on settlement.

We record all asset retirement obligations for which we have legal obligations for land reclamation at estimated fair value. Essentially all these asset retirement obligations relate to our underlying land parcels, including both owned properties and mineral leases. For the three and nine month periods ended September 30, we recognized asset retirement obligation (ARO) operating costs related to accretion of the liabilities and depreciation of the assets as follows (in thousands of dollars):

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

ARO Operating Costs

 

 

 

 

 

 

 

Accretion

$1,994 

 

$1,740 

 

$6,599 

 

$4,969 

Depreciation

3,445 

 

4,238 

 

10,336 

 

12,327 

  Total

$5,439 

 

$5,978 

 

$16,935

 

$17,296 

 

 

 

 

 

 

 

 


ARO operating costs for our continuing operations are reported in cost of goods sold. Asset retirement obligations are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.

Reconciliations of the carrying amounts of our asset retirement obligations are as follows (in thousands of dollars):

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

Balance at beginning of period

$168,475 

 

$141,370 

 

$173,435 

 

$131,383 

  Liabilities incurred

107 

 

1,543 

 

441 

 

2,691 

  Liabilities settled

(2,838)

 

(5,223)

 

(8,763)

 

(13,443)

  Accretion expense

1,994 

 

1,740 

 

6,599 

 

4,969 

  Revisions up (down)

268 

 

1,916 

 

(3,706)

 

15,746 

Balance at end of period

$168,006 

 

$141,346 

 

$168,006 

 

$141,346 

 

 

 

 

 

 

 

 

 

The increase in the balance at the beginning of the nine month period ended September 30, 2009 over the comparable 2008 period beginning balance, relates primarily to reclamation activity required under new development agreements and conditional use permits (collectively the agreements) at two aggregates facilities on owned property near Los Angeles, California. The new agreements allow us access to significant amounts of aggregates reserves at two existing pits, which we expect will result in a significant increase in the mining lives of these quarries. The reclamation requirements under these agreements will result in the restoration and development of mined property into 110 acre and 90 acre tracts of land suitable for commercial and retail development.
Standby Letters of Credit
Standby Letters of Credit

13.  Standby Letters of Credit


We provide certain third parties with irrevocable standby letters of credit in the normal course of business. We use commercial banks to issue standby letters of credit to back our obligations to pay or perform when required to do so pursuant to the requirements of an underlying agreement. The standby letters of credit listed below are cancelable only at the option of the beneficiary who is authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. Since banks consider letters of credit as contingent extensions of credit, we are required to pay a fee until they expire or are canceled. Substantially all of our standby letters of credit have a one-year term and are renewable annually at the option of the beneficiary.

Our standby letters of credit as of September 30, 2009 are summarized in the table below (in thousands of dollars):

 

Sept. 30, 2009

Standby Letters of Credit

 

Risk management requirement for insurance claims

$35,954 

Payment surety required by utilities

308 

Contractual reclamation/restoration requirements

12,163 

Financial requirement for industrial revenue bond

14,230 

  Total

$62,655 

 

 

 

Of the total $62,655,000 outstanding letters of credit, $59,139,000 is backed by our $1,500,000,000 bank credit facility which expires November 16, 2012.
Acquisition
Schedule of Business Acquisitions, by Acquisition [Text Block]

14.  Acquisitions


During the nine months ended September 30, 2009, we acquired the following assets for approximately $38,955,000 (total note and cash consideration) net of acquired cash:

leasehold interest in a rail yard

two aggregates production facilities


The purchase price allocations for these 2009 acquisitions are preliminary and subject to adjustment.
Goodwill
Schedule of Goodwill [Text Block]

15.  Goodwill


Changes in the carrying amount of goodwill by reportable segment for the periods presented are summarized below (in thousands of dollars):

 

 


Aggregates

 

Asphalt mix
and Concrete

 


Cement

 


Total

Goodwill as of September 30, 2008

$3,510,222 

 

$91,633 

 

$297,662 

 

$3,899,517 

 

Goodwill of acquired businesses

1,505 

 

 

 

1,505 

 

Purchase price allocation adjustment1

(517,892)

 

 

(44,998)

 

(562,890)

 

Goodwill impairment

 

 

(252,664)

 

(252,664)

Goodwill as of December 31, 20081

$2,993,835 

 

$91,633 

 

$0 

 

$3,085,468 

 

Goodwill of acquired businesses2

9,558 

 

 

 

9,558 

 

Purchase price allocation adjustment

(1,047)

 

 

 

(1,047)

Goodwill as of September 30, 2009

$3,002,346 

 

$91,633 

 

$0 

 

$3,093,979 

 

 

1

As restated, see Note 1.

2

The goodwill of acquired businesses for 2009 relates to the acquisitions listed in Note 14. We are currently evaluating the final purchase price allocations; therefore, the goodwill amount is subject to change. When finalized, the goodwill from these 2009 acquisitions is expected to be fully deductible for income tax purposes.

 

 

New Accounting Standards
New Accounting Standards

16.  New Accounting Standards


Recently Adopted

Business Combinations Standard — On January 1, 2009, we adopted business combination standards codified in ASC Topic 805, "Business Combinations" (ASC 805), [formerly Statement of Financial Accounting Standards (SFAS) No. 141(R)], which requires the acquirer in a business combination to measure all assets acquired and liabilities assumed at their acquisition-date fair value. ASC 805 applies whenever an acquirer obtains control of one or more businesses. This standard requires prospective application for business combinations consummated after adoption. Our adoption of this standard had no impact on our financial position, results of operations or liquidity.

Fair Value Measurement Standard
— On January 1, 2009, we adopted fair value measurement standards codified in ASC Topic 820, "Fair Value Measurements and Disclosures" (ASC 820), [formerly SFAS No. 157], for nonfinancial assets and liabilities. ASC 820 defines fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosures about fair value measurements. On January 1, 2008, we adopted this standard with respect to financial assets and liabilities and elected to defer our adoption of this standard for nonfinancial assets and liabilities. Our adoption of these standards did not materially affect our financial position, results of operations or liquidity.

Noncontrolling Interests - Consolidation - Standard — On January 1, 2009, we adopted standards governing the accounting and reporting of noncontrolling interests as codified in ASC Topic 810, "Consolidation" (ASC 810), [formerly SFAS No. 160]. ASC 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Our adoption of this standard did not materially affect our results of operations, financial position or liquidity.

Derivative Instruments and Hedging Activities Disclosure Standard — On January 1, 2009, we adopted disclosure standards for derivative instruments and hedging activities as codified in ASC 815, (formerly SFAS No. 161). As a result of our adoption of this standard, we enhanced our interim disclosure of derivative instruments and hedging activities as reflected in Note 6.

Codification — We adopted ASC Topic 105, "Generally Accepted Accounting Principles (commonly known as the Codification), [formerly SFAS No. 168] as of this period ended September 30, 2009. Our adoption of the Codification resulted in eliminating the use of pre-Codification GAAP references in our financial statements.


Pending  Adoption

Retirement Benefits Disclosure Standard — In December 2008, the Financial Accounting Standards Board (FASB) issued standards that require more detailed disclosures about employers' plan assets, including employers' investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. These standards have been codified in ASC Topic 715, "Compensation - Retirement Benefits" (formerly FSP FAS 132(R)-1). The additional disclosure requirements of ASC 715 are effective for fiscal years ending after December 15, 2009. We expect to reflect these additional disclosures within our annual disclosures for the year ending December 31, 2009.

Variable Interest Entities - Consolidation - Standard — In June 2009, the FASB amended the consolidation guidance related to variable interest entities including removing the scope exemption for qualifying special-purpose entities (this standard has not been codified but was issued by the FASB as SFAS No. 167). This standard is effective as of the first fiscal year that begins after November 15, 2009 with early adoption prohibited. We do not expect our adoption of this standard on January 1, 2010 to have a material effect on our results of operations, financial position or liquidity.

ASU 2009-05 — In August 2009, the FASB issued Auditing Standard Update (ASU) 2009-05, "Measuring Liabilities at Fair Value" (ASU 2009-05). ASU 2009-05 provides guidance on measuring the fair value of liabilities under ASC 820 (formerly SFAS No. 157). ASU 2009-06 is effective for the first reporting period beginning after issuance, with early application permitted if financial statements have not been issued. We do not expect our adoption of ASU 2009-05 on October 1, 2009 to have a material effect on our results of operations, financial position or liquidity.

Segment Reporting - Continuing Operations
Segment Reporting Disclosure [Text Block]

17.  Segment Reporting- Continuing Operations


We have four operating segments organized around our principal product lines: aggregates, asphalt mix, concrete and cement. For reporting purposes, we have combined our Asphalt mix and Concrete operating segments into one reporting segment as the products are similar in nature and the businesses exhibit similar economic characteristics, production processes, types and classes of customer, methods of distribution and regulatory environments. Management reviews earnings from the product line reporting units principally at the gross profit level.

The majority of our activities are domestic. We sell a relatively small amount of aggregates outside the United States. Transactions between our reportable segments are recorded at prices approximating market levels.

Segment Financial Disclosure
Amounts in millions

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

2009

 

2008

 

2009

 

2008

TOTAL REVENUES

 

 

 

 

 

 

 

  Aggregates

 

 

 

 

 

 

 

    Segment revenues

$533.0 

 

$661.9 

 

$1,432.3 

 

$1,877.3 

    Intersegment sales

(48.1)

 

(56.2)

 

(128.0)

 

(158.9)

      Net sales

484.9 

 

605.7 

 

1,304.3 

 

1,718.4 

  Asphalt mix and Concrete

 

 

 

 

 

 

 

    Segment revenues

243.2 

 

340.7 

 

654.7 

 

932.7 

    Intersegment sales

0.0 

 

0.0 

 

(0.1)

 

(0.5)

      Net sales

243.2 

 

340.7 

 

654.6 

 

932.1 

  Cement

 

 

 

 

 

 

 

    Segment revenues

19.8 

 

25.6 

 

56.4 

 

85.8 

    Intersegment sales

(9.2)

 

(13.2)

 

(27.4)

 

(39.8)

      Net sales

10.6 

 

12.4 

 

29.0 

 

46.1 

Total

 

 

 

 

 

 

 

      Net sales

738.7 

 

958.8 

 

1,987.9 

 

2,696.6 

      Delivery revenues

39.5 

 

54.5 

 

112.4 

 

155.6 

      Total revenues

$778.2

 

$1,013.3 

 

$2,100.3 

 

$2,852.2 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

 

 

 

 

 

  Aggregates

$133.3 

 

$185.2 

 

$323.7 

 

$529.9 

  Asphalt mix and Concrete

20.7 

 

12.6 

 

55.5 

 

56.1 

  Cement

0.5 

 

3.0 

 

(1.3)

 

14.5 

    Total gross profit

$154.5 

 

$200.8 

 

$377.9 

 

$600.5 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information
Cash Flow, Supplemental Disclosures [Text Block]

18.  Supplemental Cash Flow Information


Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is summarized below (in thousands of dollars):

 

Nine Months Ended
September 30

 

2009

 

2008

Cash payments (refunds)

 

 

 

  Interest (exclusive of amount capitalized)

$109,586 

 

$109,724 

  Income taxes

(9,706)

 

92,554 

 

 

 

 

Noncash investing and financing activities

 

 

 

  Liabilities assumed in business acquisitions

 

2,035 

  Accrued liabilities for purchases of property, plant
    & equipment


13,436 

 


29,883 

  Note received from sale of business

1,450 

 

  Carrying value of noncash assets and liabilities exchanged

 

42,974 

  Debt issued for purchases of property, plant & equipment

1,984

 

389 

  Proceeds receivable from exercise of stock options

 

8,184 

  Proceeds receivable from issuance of common stock

1,712 

 

  Fair value of stock issued in business acquisitions

 

25,023 

 

 

 

 

Other Commitments and Contingencies
Commitments and Contingencies Disclosure [Text Block]

19.  Other Commitments and Contingencies


We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels. In addition to these lawsuits in which we are involved in the ordinary course of business, certain other legal proceedings are more specifically described below.

City of Modesto
On October 12, 2007, we reached an agreement with the City of Modesto in the case styled City of Modesto, et al. v. Dow Chemical Company, et al., filed in San Francisco County Superior Court, California, to resolve all claims against Vulcan relating to groundwater contamination due to perchloroethylene for a sum of $20 million. The agreement provides for a release and dismissal or withdrawal without prejudice of all claims against Vulcan. The agreement also expressly states that the settlement paid by Vulcan is for compensatory damages only and not for any punitive damages, and that Vulcan denies any conduct capable of giving rise to an assignment of punitive damages. The settlement has been approved by the San Francisco Superior Court judge presiding over this case and thus is now final. While we believe the verdicts rendered and damages awarded during the first phase of the trial are contrary to the evidence presented, we settled the city’s claims in order to avoid the costs and uncertainties of protracted litigation. The $20 million was paid during the fourth quarter of 2007. We believe the settlement damages, legal defense costs, and other potential claims are covered by insurance policies purchased by Vulcan, and we are pursuing recovery from the insurers.

We have reached settlement with and received payment from some insurers. To date, those settlements and payments total $23.5 million, received in 2009. We expect to conclude settlement with at least one additional insurer in the near future and continue to pursue recovery from other insurers.

Lyon
On or about September 18, 2007, Vulcan was served with a third-party complaint filed in the U.S. District Court for the Eastern District of California (Fresno Division) in the matter of United States v. Lyon. The underlying action was brought by the U.S. Environmental Protection Agency against various individuals associated with a dry cleaning facility in Modesto called Halford’s, seeking "recovery of unreimbursed costs incurred by it for activities undertaken in response to the release or threatened release of [perchloroethylene] at the Modesto Groundwater Superfund Site in Modesto, Stanislaus County, California." The complaint also seeks certain civil penalties against the named defendants. Vulcan was sued by the original defendants as a third-party defendant in this action. No discovery has been conducted in this matter. At this time we cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter.

Team Enterprises
On June 5, 2008, we were named as a defendant in the matter of Team Enterprises, Inc., v. Century Centers, Ltd., et al., filed in Modesto, Stanislaus County, California but removed to the United States District Court for the Eastern District of California (Fresno Division). This is an action filed by Team Enterprises as the former operator of a dry cleaners located in Modesto, California. The plaintiff is seeking damages from the defendants associated with the remediation of perchloroethylene from the site of the dry cleaners. The complaint also seeks other damages against the named defendants. At this time we cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter.

R.R. Street Indemnity
R.R. Street and Company (Street) and National Union Fire Insurance Company of Pittsburgh, PA, filed a lawsuit against Vulcan on February 26, 2008 in the United States District Court for the Northern District of Illinois, Eastern Division. Street, a former distributor of perchloroethylene manufactured by Vulcan and also a defendant in the City of Modesto, Lyon and other related litigation, alleges that Vulcan owes Street, and its insurer (National Union), a defense and indemnity in all of these litigation matters. National Union alleges that Vulcan is obligated to contribute to National Union's share of defense fees, costs and any indemnity payments made on Street's behalf. Vulcan was successful in having this case dismissed in light of insurance coverage litigation pending in California, which is already addressing these same issues. Street appealed the court's ruling to the U.S. Seventh Circuit. The Seventh Circuit reversed the decision of the trial court on June 25, 2009, and Vulcan filed a request on July 9, 2009 for an en banc rehearing by the Seventh Circuit, which has now been denied. The case was remanded to the U.S. District Court for further proceedings. Subsequent to the remand Street voluntarily dismissed the Illinois action without prejudice. Street also has asserted that it is entitled to a defense in the California Water Service Company litigation.

California Water Service Company
On June 6, 2008, we were served in the action styled California Water Service Company v. Dow, et al, now pending in the San Mateo County Superior Court, California. According to the complaint, California Water Service Company "owns and/or operates public drinking water systems, and supplies drinking water to hundreds of thousands of residents and businesses throughout California." The complaint alleges that water systems in a number of communities have been contaminated with perchloroethylene. Our former Chemicals Division produced and sold perchloroethylene. The plaintiff is seeking compensatory damages and punitive damages. This litigation is in discovery. At this time we cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter.

Sunnyvale, California
On January 6, 2009, we were served in an action styled City of Sunnyvale v. Legacy Vulcan Corporation, f/k/a Vulcan Materials Company, filed in the San Mateo County Superior Court, California. The plaintiffs are seeking cost recovery and other damages for alleged environmental contamination for perchloroethylene and its breakdown products at the Sunnyvale Town Center Redevelopment Project. No discovery has been conducted in this matter. At this time we cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter.

Florida Lake Belt Litigation
On March 22, 2006, the United States District Court for the Southern District of Florida (in a case captioned Sierra Club, National Resources Defense Council and National Parks Conservation Association v. Lt. General Carl A. Stock, et al.) ruled that a mining permit issued for our Miami quarry, which was acquired in the Florida Rock transaction in November 2007, as well as certain permits issued to competitors in the same region, had been improperly issued. The Court remanded the permitting process to the U. S. Army Corps of Engineers (Corps of Engineers) for further review and consideration. In July 2007, the Court ordered us and several other mining operations in the area to cease mining excavation under the vacated permits pending the issuance by the Corps of Engineers of a Supplemental Environmental Impact Statement (SEIS). The District Court decision was appealed to the U.S. Court of Appeals for the Eleventh Circuit, and the Eleventh Circuit reversed and remanded the case to the District Court. With issuance of the Eleventh Circuit's Mandate on July 1, 2008, we resumed mining at the Miami quarry. On January 30, 2009, the District Court again issued an order invalidating certain of the Lakebelt mining permits, which immediately stopped all mining excavation in the majority of the Lakebelt region. We have appealed this order to the Eleventh Circuit but are not currently mining in the areas covered by the District Court order. On May 1, 2009, the Corps of Engineers issued a Final SEIS and accepted public comments until June 8, 2009, pending issuance of the Record of Decision with respect to issuance of permits.

IDOT/Joliet Road
In September 2001, we were named a defendant in a suit brought by the Illinois Department of Transportation (IDOT), in the Circuit Court of Cook County, Chancery Division, Illinois, alleging damage to a 0.9-mile section of Joliet Road that bisects our McCook quarry in McCook, Illinois, a Chicago suburb. IDOT seeks damages to "repair, restore, and maintain" the road or, in the alternative, judgment for the cost to "improve and maintain other roadways to accommodate" vehicles that previously used the road. The complaint also requests that the court enjoin any McCook quarry operations that will further damage the road. The court granted summary judgment in favor of Vulcan on certain claims. The court also granted the plaintiff’s motion to amend their complaint to add a punitive damages claim, although the court made it clear that it was not ruling on the merits of this claim. Discovery is ongoing. The matter has been set for trial on January 19, 2010. We believe that the claims and damages alleged by the State are covered by liability insurance policies purchased by Vulcan. We have received a letter from our primary insurer stating that there is coverage of this lawsuit under its policy; however, the letter indicates that the insurer is currently taking the position that various damages sought by the State are not covered.

Industrial Sand
We produced and marketed industrial sand from 1988 to 1994. Since 1993 we have been sued in numerous suits in a number of states by plaintiffs alleging that they contracted silicosis or incurred personal injuries as a result of exposure to, or use of, industrial sand used for abrasive blasting. As of October 15, 2009, the number of suits totaled 55 involving an aggregate of 526 plaintiffs. There are 51 pending suits with 499 plaintiffs filed in Texas. Those Texas cases are in a State Multidistrict Litigation Court and are stayed pending resolution of discovery issues and a constitutional challenge of the Texas Silica Act brought by the plaintiffs. There are 4 cases pending in Louisiana with 27 plaintiffs. The 27 cases that were pending in California were voluntarily dismissed in July 2009 with no payment made in settlement thereof. We are seeking dismissal of all other suits on the grounds that the plaintiffs were not exposed to our product. To date we have been successful in getting dismissal from cases involving over 17,000 plaintiffs with little or no payments made in settlement.



Florida Antitrust Litigation
Our subsidiary, Florida Rock Industries, Inc., has been named as a defendant in a class action lawsuit filed on October 21, 2009, styled Action Ready Mix Concrete, Inc. et al v. Cemex Corp., et al., in the United States District Court for the Southern District of Florida. The lawsuit was filed by several ready mix producers and construction companies against a number of concrete and cement producers and importers in Florida. The defendants include Cemex Corp., Holcim (US) Inc., Lafarge North America, Inc., Lehigh Cement Company, Oldcastle Materials, Suwannee American Cement LLC, Titan America LLC, and Votorantim Cimentos North America, Inc.

The compliant alleges various violations including price fixing and market allocations under the federal antitrust laws. We have no reason to believe that Florida Rock is liable for any of the matters alleged in the complaint, and we intend to defend the case vigorously.


It is not possible to predict with certainty the ultimate outcome of these and other legal proceedings in which we are involved and a number of factors, including developments in ongoing discovery or adverse rulings, could cause actual losses to differ materially from accrued costs. We believe the amounts accrued in our financial statements as of September 30, 2009 are sufficient to address claims and litigation for which a loss was determined to be probable and reasonably estimable. No liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described in our most recent Annual Report on Form 10-K.
Document and Entity Information
9 Months Ended
Sep. 30, 2009
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
09/30/2009 
Entity Registrant Name
Vulcan Materials CO 
Entity Central Index Key
0001396009 
Current Fiscal Year End Date
12/31 
Entity Filer Category
Large Accelerated Filer 
Entity Common Stock, Shares Outstanding
125,400,686