| Goodwill
|
|
|
|
|
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 |
|
|
|
Reclassifi- |
|
As |
Statement of Cash Flows |
|
|
|
|
|
|
|
Excess tax benefits from share-based compensation |
$0 |
|
$0 |
|
($8,452) |
|
($8,452) |
Deferred tax provision |
0 |
|
0 |
|
(1,880) |
|
(1,880) |
Changes in assets and liabilities before initial effects |
|
|
|
|
|
|
|
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 |
|
March 31 |
|
December 31 |
|
September 30 |
|
|
|
|
|
|
|
|
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 |
|
March 31 |
|
December 31 |
|
September 30 |
|
|
|
|
|
|
|
|
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 |
|
March 31 |
|
December 31 |
|
September 30 |
|
|
|
|
|
|
|
|
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 |
|
|
|
As |
Statement of Earnings |
|
|
|
|
|
Earnings from continuing operations before |
|
|
|
|
|
Provision for income taxes |
|
|
|
|
|
Current |
92,346 |
|
0 |
|
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 |
|
|
|
|
|
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, |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Nine Months Ended |
||||
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Earnings (loss) from results of discontinued |
|
|
|
|
|
|
|
Gain on disposal of discontinued operations |
88 |
|
0 |
|
812 |
|
0 |
Income tax (provision) benefit |
(4,177) |
|
511 |
|
(8,268) |
|
1,193 |
Earnings (loss) on discontinued operations, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
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 |
|||||
|
|
|
|
September 30 |
|
December 31 |
|
September 30 |
|
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):
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||
|
|
Statement |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Interest rate derivatives |
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in OCI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss reclassified from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
Quoted |
|
|
|
|
Fair Value |
|
|
|
|
|
|
|
|
Medium-term investments |
|
$6,803 |
|
$0 |
|
$6,803 |
|
$0 |
Interest rate derivative |
|
(13,444) |
|
0 |
|
(13,444) |
|
0 |
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.
|
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 |
|
Nine Months Ended |
||||
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Net earnings |
$54,232 |
|
$59,050 |
|
$43,663 |
|
$213,738 |
Other comprehensive income |
|
|
|
|
|
|
|
Fair value adjustments to cash flow hedges, |
|
|
|
|
|
|
|
Reclassification adjustment for cash flow hedge |
|
|
|
|
|
|
|
Amortization of pension and postretirement plan |
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
The following tables set forth the components of net periodic benefit cost (in thousands of dollars):
|
Three Months Ended |
|
Nine Months Ended |
||||
|
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 |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||
|
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 |
|
|
|
|
|
|
|
|
|
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 |
|
0 |
|
0 |
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 |
|
0 |
|
0 |
|
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 |
0 |
|
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%. |
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|
|
|||||
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%. |
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|
|
|||||
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%. |
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|
|
|||||
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%. |
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|
|
|||||
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%. |
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|
|
|||||
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%. |
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|
|
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.
|
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 |
|
Nine Months Ended |
||||
|
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 |
|
Nine Months Ended |
||||
|
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.
|
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.
|
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 |
|
Changes in the carrying amount of goodwill by reportable segment for the periods presented are summarized below (in thousands of dollars):
|
|
|
|
Asphalt mix |
|
|
|
|
Goodwill as of September 30, 2008 |
$3,510,222 |
|
$91,633 |
|
$297,662 |
|
$3,899,517 |
|
|
Goodwill of acquired businesses |
1,505 |
|
0 |
|
0 |
|
1,505 |
|
Purchase price allocation adjustment1 |
(517,892) |
|
0 |
|
(44,998) |
|
(562,890) |
|
Goodwill impairment |
0 |
|
0 |
|
(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 |
|
0 |
|
0 |
|
9,558 |
|
Purchase price allocation adjustment |
(1,047) |
|
0 |
|
0 |
|
(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. |
|||||||
|
|
|
|
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 |
Three Months Ended |
|
Nine Months Ended |
||||
|
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 |
|
|
|
|
|
|
|
|
|
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 |
||
|
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 |
0 |
|
2,035 |
Accrued liabilities for purchases of property, plant |
|
|
|
Note received from sale of business |
1,450 |
|
0 |
Carrying value of noncash assets and liabilities exchanged |
0 |
|
42,974 |
Debt issued for purchases of property, plant & equipment |
1,984 |
|
389 |
Proceeds receivable from exercise of stock options |
0 |
|
8,184 |
Proceeds receivable from issuance of common stock |
1,712 |
|
0 |
Fair value of stock issued in business acquisitions |
0 |
|
25,023 |
|
|
|
|
|
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.
|