VULCAN MATERIALS CO, 10-Q filed on 5/12/2014
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2014
Document and Entity Information [Abstract]
 
Document Type
10-Q 
Amendment Flag
false 
Document Period End Date
Mar. 31, 2014 
Document Fiscal Year Focus
2014 
Document Fiscal Period Focus
Q1 
Trading Symbol
VMC 
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
130,801,745 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Mar. 31, 2013
Assets
 
 
 
Cash and cash equivalents
$ 268,773 
$ 193,738 
$ 188,081 
Restricted cash
63,024 
Accounts and notes receivable
 
 
 
Accounts and notes receivable, gross
353,601 
344,475 
328,202 
Less: Allowance for doubtful accounts
(5,264)
(4,854)
(6,030)
Accounts and notes receivable, net
348,337 
339,621 
322,172 
Inventories
 
 
 
Finished products
258,007 
270,603 
267,783 
Raw materials
19,431 
29,996 
27,148 
Products in process
875 
6,613 
6,168 
Operating supplies and other
27,520 
37,394 
39,475 
Inventories
305,833 
344,606 
340,574 
Current deferred income taxes
39,591 
40,423 
38,844 
Prepaid expenses
28,184 
22,549 
24,762 
Assets held for sale
10,559 
12,929 
Total current assets
1,053,742 
951,496 
927,362 
Investments and long-term receivables
42,137 
42,387 
41,707 
Property, plant & equipment
 
 
 
Property, plant & equipment, cost
6,340,034 
6,933,602 
6,675,569 
Reserve for depreciation, depletion & amortization
(3,446,744)
(3,621,585)
(3,507,394)
Property, plant & equipment, net
2,893,290 
3,312,017 
3,168,175 
Goodwill
3,081,521 
3,081,521 
3,086,043 
Other intangible assets, net
633,870 
697,578 
694,659 
Other noncurrent assets
167,675 
174,144 
160,529 
Total assets
7,872,235 
8,259,143 
8,078,475 
Liabilities
 
 
 
Current maturities of long-term debt
171 
170 
140,604 
Trade payables and accruals
150,628 
139,345 
116,677 
Other current liabilities
190,069 
159,620 
212,572 
Total current liabilities
340,868 
299,135 
469,853 
Long-term debt
2,006,782 
2,522,243 
2,525,420 
Noncurrent deferred income taxes
693,234 
701,075 
614,405 
Deferred revenue
218,946 
219,743 
73,392 
Other noncurrent liabilities
581,286 
578,841 
680,476 
Total liabilities
3,841,116 
4,321,037 
4,363,546 
Other commitments and contingencies (Note 8)
   
   
   
Equity
 
 
 
Common stock, $1 par value, Authorized 480,000 shares, Issued 130,802, 130,200 and 129,952 shares, respectively
130,802 
130,200 
129,952 
Capital in excess of par value
2,651,949 
2,611,703 
2,585,696 
Retained earnings
1,343,294 
1,295,834 
1,220,512 
Accumulated other comprehensive loss
(94,926)
(99,631)
(221,231)
Total equity
4,031,119 
3,938,106 
3,714,929 
Total liabilities and equity
$ 7,872,235 
$ 8,259,143 
$ 8,078,475 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Mar. 31, 2014
Dec. 31, 2013
Mar. 31, 2013
CONDENSED CONSOLIDATED BALANCE SHEETS [Abstract]
 
 
 
Common stock, par value
$ 1 
$ 1 
$ 1 
Common stock, shares authorized
480,000,000 
480,000,000 
480,000,000 
Common stock, shares, issued
130,802,000 
130,200,000 
129,952,000 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]
 
 
Net sales
$ 548,496 
$ 504,554 
Delivery revenues
25,924 
33,608 
Total revenues
574,420 
538,162 
Cost of goods sold
514,404 
486,899 
Delivery costs
25,924 
33,608 
Cost of revenues
540,328 
520,507 
Gross profit
34,092 
17,655 
Selling, administrative and general expenses
66,119 
64,655 
Gain on sale of property, plant & equipment and businesses, net
236,364 
4,110 
Restructuring charges
(1,509)
Other operating expense, net
(9,668)
(5,659)
Operating earnings (loss)
194,669 
(50,058)
Other nonoperating income, net
2,825 
2,373 
Interest expense, net
120,089 
52,752 
Earnings (loss) from continuing operations before income taxes
77,405 
(100,437)
Provision for (benefit from) income taxes
22,900 
(38,818)
Earnings (loss) from continuing operations
54,505 
(61,619)
Earnings (loss) on discontinued operations, net of tax
(510)
6,783 
Net earnings (loss)
53,995 
(54,836)
Other comprehensive income, net of tax
 
 
Reclassification adjustment for cash flow hedges
2,985 
854 
Adjustment for remeasurement of postretirement obligation
2,942 
Amortization of pension and postretirement benefit plans actuarial loss and prior service cost
(1,222)
3,432 
Other comprehensive income
4,705 
4,286 
Comprehensive income (loss)
58,700 
(50,550)
Basic earnings (loss) per share
 
 
Continuing operations
$ 0.42 
$ (0.47)
Discontinued operations
$ (0.01)
$ 0.05 
Net earnings (loss)
$ 0.41 
$ (0.42)
Diluted earnings (loss) per share
 
 
Continuing operations
$ 0.41 
$ (0.47)
Discontinued operations
$ 0.00 
$ 0.05 
Net earnings (loss)
$ 0.41 
$ (0.42)
Weighted-average common shares outstanding
 
 
Basic
130,810 
130,186 
Assuming dilution
132,314 
130,186 
Cash dividends per share of common stock
$ 0.05 
$ 0.01 
Depreciation, depletion, accretion and amortization
$ 69,378 
$ 75,597 
Effective tax rate from continuing operations
29.60% 
38.60% 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
3 Months Ended
Mar. 31, 2014
Mar. 31, 2013
Operating Activities
 
 
Net earnings (loss)
$ 53,995,000 
$ (54,836,000)
Adjustments to reconcile net earnings to net cash provided by operating activities
 
 
Depreciation, depletion, accretion and amortization
69,378,000 
75,597,000 
Net gain on sale of property, plant & equipment and businesses
(236,364,000)
(17,141,000)
Contributions to pension plans
(1,355,000)
(1,132,000)
Share-based compensation
4,319,000 
4,933,000 
Excess tax benefits from share-based compensation
(2,997,000)
(856,000)
Deferred tax provision
(7,648,000)
(39,918,000)
Cost of debt purchase
72,949,000 
Changes in assets and liabilities before initial effects of business acquisitions and dispositions
40,127,000 
22,349,000 
Other, net
2,624,000 
(1,863,000)
Net cash used for operating activities
(4,972,000)
(12,867,000)
Investing Activities
 
 
Purchases of property, plant & equipment
(46,006,000)
(26,851,000)
Proceeds from sale of property, plant & equipment
17,785,000 
1,623,000 
Proceeds from sale of businesses, net of transaction costs
720,056,000 
18,164,000 
Payment for businesses acquired, net of acquired cash
(60,212,000)
Increase in restricted cash
(63,024,000)
Other, net
2,000 
Net cash provided by (used for) investing activities
628,811,000 
(67,274,000)
Financing Activities
 
 
Payment of current maturities, long-term debt & line of credit
(579,676,000)
(10,016,000)
Proceeds from issuance of common stock
22,808,000 
Dividends paid
(6,531,000)
(1,299,000)
Proceeds from exercise of stock options
11,599,000 
3,203,000 
Excess tax benefits from share-based compensation
2,997,000 
856,000 
Other, net
(1,000)
Net cash used for financing activities
(548,804,000)
(7,256,000)
Net increase (decrease) in cash and cash equivalents
75,035,000 
(87,397,000)
Cash and cash equivalents at beginning of year
193,738,000 
275,478,000 
Cash and cash equivalents at end of period
$ 268,773,000 
$ 188,081,000 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 1: summary of significant accounting policies

 

NATURE OF OPERATIONS

 

Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation's largest producer of construction aggregates, primarily crushed stone, sand and gravel and a major producer of asphalt mix and ready-mixed concrete.

 

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. Our condensed consolidated balance sheet as of December 31, 2013 was derived from the audited financial statement at that date. 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 month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014. 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 Comprehensive Income.

 

RECLASSIFICATIONS

 

Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2014 presentation.

 

RESTRICTED CASH

 

Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Changes in restricted cash balances are reflected as an investment activity in the accompanying Condensed Consolidated Statements of Cash Flows.

 

RESTRUCTURING CHARGES

 

In 2012, our Board approved a Profit Enhancement Plan that further leveraged our streamlined management structure and substantially completed ERP and Shared Services platforms to achieve cost reductions and other earnings enhancements. During the first three months of 2013, we incurred $1,509,000 of costs (primarily project design, outside advisory and severance) related to the implementation of this plan. We do not anticipate any future material charges related to this Profit Enhancement Plan.

 

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Weighted-average common shares

 

 

 

 

 

 outstanding

130,810 

 

 

130,186 

 

Dilutive effect of

 

 

 

 

 

  Stock options/SOSARs

693 

 

 

 

  Other stock compensation plans

811 

 

 

 

Weighted-average common shares

 

 

 

 

 

 outstanding, assuming dilution

132,314 

 

 

130,186 

 

 

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. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation are excluded. These excluded shares are as follows: three months ended March 31, 20131,144,000.

 

The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Antidilutive common stock equivalents

2,373 

 

 

2,907 

 

 

DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS

Note 2: Discontinued Operations

 

In 2005, we sold substantially all the assets of our Chemicals business 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. In March 2013, we received the final earn-out payment in the amount of $13,031,000. During 2012, we received an earn-out payment of $11,369,000.  We were liable for a cash transaction bonus payable annually to certain former key Chemicals employees based on the prior years’ earn-out results. As of March 31, 2013, we had accrued $1,303,000 for the 2013 transaction bonus which was subsequently paid in 2013.

 

The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. There were no net sales or revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Discontinued Operations

 

 

 

 

 

Pretax loss

$          (842)

 

 

$          (540)

 

Gain on disposal, net of transaction bonus

 

 

11,728 

 

Income tax (provision) benefit

332 

 

 

(4,405)

 

Earnings (loss) on discontinued operations,

 

 

 

 

 

 net of income taxes

$          (510)

 

 

$        6,783 

 

 

The pretax losses from discontinued operations noted above were due primarily to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business.

 

 

INCOME TAXES
INCOME TAXES

 

Note 3: Income Taxes

 

Our estimated annual effective tax rate (EAETR) is based on full year expectations of pretax book earnings, statutory tax rates, permanent differences between book and tax accounting such as percentage depletion and tax planning alternatives available in the various jurisdictions in which we operate. For interim financial reporting, except in circumstances as described in the following paragraph, we calculate our quarterly income tax provision in accordance with the EAETR. Each quarter, we update our EAETR based on our revised full year expectation of pretax book earnings and calculate the income tax provision or benefit so that the year-to-date income tax provision reflects the EAETR. Significant judgment is required in determining our EAETR.

 

When expected pretax book earnings for the full year are at or near breakeven, the EAETR can distort the income tax provision for an interim period due to the size and nature of our permanent differences. In these circumstances, we calculate the interim income tax provision using the year-to-date effective tax rate. This method results in an income tax provision based solely on the year-to-date pretax book earnings as adjusted for permanent differences on a pro rata basis. In the first quarter of 2014, income taxes were calculated based on the EAETR. In the first quarter of 2013, income taxes were calculated based on the year-to-date effective tax rate.

 

We recorded an income tax provision from continuing operations of $22,900,000 in the first quarter of 2014 compared to an income tax benefit from continuing operations of $38,818,000 in the first quarter of 2013.  The change in our income tax provision for the year resulted largely from applying the statutory rate to the increase in our pretax book earnings.

 

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 based upon the technical merits of the position. 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. 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 income tax provision includes the net impact of changes in the liability for unrecognized tax benefits.

 

We recognize deferred tax assets and liabilities based on the differences between the financial statement’s carrying amounts of assets and liabilities and the amounts used for income tax purposes. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period.

 

Each quarter we analyze the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized. A summary of our deferred tax assets is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

On an annual basis, we perform a comprehensive analysis of all forms of positive and negative evidence based on year end results. During each interim period, we update our annual analysis for significant changes to the positive and negative evidence.

 

Based on our first quarter 2014 analysis, we believe it is more likely than not that we will realize the benefit of all our deferred tax assets with the exception of the state net operating loss carryforwards for which a valuation allowance has been recorded. For 2014, we project a valuation allowance of $54,919,000 against our state net operating loss deferred tax asset carryforwards; an increase of $8,639,000 from the prior year-end. Of the $54,919,000 valuation allowance, $53,490,000 relates to our Alabama net operating loss carryforward. The remaining valuation allowance of $1,429,000 relates to other state net operating loss carryforwards. This change in the valuation allowance is reflected as a component of our income tax provision.

 

 

DEFERRED REVENUE
DEFERRED REVENUE

 

Note 4: deferred revenue

 

We have entered into two transactions (September 2013 and December 2012) through which we sold a percentage of the future production from aggregates reserves at eight quarries (seven owned and one leased). These sales were structured as volumetric production payments (VPPs). We received net cash proceeds of $153,282,000 and $73,644,000 for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized on a unit-of-sales basis to revenue over the terms of the VPPs. Concurrently, we entered into marketing agreements with the purchaser through which we are designated the exclusive sales agent for the purchaser’s percentage of future production. Acting as the purchaser’s agent, our consolidated total revenues exclude these sales proceeds.

 

The common key terms of both VPP transactions are:

 

§

the purchaser has a nonoperating interest in reserves entitling them to a percentage of future production

§

there is no minimum annual or cumulative production or sales volume, nor any minimum sales price guarantee

§

the purchaser has the right to take its percentage of future production in physical product, or receive the cash proceeds from the sale of its percentage of future production under the terms of a separate marketing agreement

§

the purchaser's percentage of future production is conveyed free and clear of future costs of production and sales

§

we retain full operational and marketing control of the specified quarries

§

we retain fee simple interest in the land as well as any residual values that may be realized upon the conclusion of mining

 

The key terms specific to the 2013 VPP transaction are:

 

§

terminates at the earlier to occur of September 30, 2051 or the sale of 250.8 million tons of aggregates from the specified quarries subject to the VPP; based on historical and projected volumes from the specified quarries, it is expected that 250.8 million tons will be sold prior to September 30, 2051

§

the purchaser's percentage of the maximum 250.8 million tons of future production is estimated, based on current sales volume projection, to be 11.5% (approximately 29 million tons); the actual percentage may vary

 

The key terms specific to the 2012 VPP transaction are:

 

§

terminates at the earlier to occur of December 31, 2052 or the sale of 143.2 million tons of aggregates from the specified quarries subject to the VPP; based on historical and projected volumes from the specified quarries, it is expected that 143.2 million tons will be sold prior to December 31, 2052

§

the purchaser's percentage of the maximum 143.2 million tons of future production is estimated, based on current sales volume projection, to be 10.5% (approximately 15 million tons); the actual percentage may vary

 

The impact to our net sales and gross margin related to the VPPs is outlined as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Amortization of deferred revenue

$           984 

 

 

$           253 

 

Purchaser's proceeds from sale of production

(2,944)

 

 

(829)

 

Decrease to net sales and gross margin

$       (1,960)

 

 

$          (576)

 

 

Based on expected aggregates sales from the specified quarries, we anticipate recognizing a range of $4,600,000 to $5,600,000 of deferred revenue during the 12-month period ending March 31, 2015.

 

 

FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS

 

 

Note 5: 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

 

Our assets subject to fair value measurement on a recurring basis are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

 

2013 

 

Fair Value Recurring

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Mutual funds

$       14,257 

 

 

$       15,255 

 

 

$       13,628 

 

 Equities

15,502 

 

 

12,828 

 

 

11,207 

 

Total

$       29,759 

 

 

$       28,083 

 

 

$       24,835 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

 

2013 

 

Fair Value Recurring

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Common/collective trust funds

$        1,274 

 

 

$        1,244 

 

 

$        1,545 

 

Total

$        1,274 

 

 

$        1,244 

 

 

$        1,545 

 

 

We have established two Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds and equity securities for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in those funds (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).

 

Net trading gains of the Rabbi Trust investments were $2,395,000 and $1,848,000 for the three months ended March 31, 2014 and 2013, respectively. The portions of the net trading gains related to investments still held by the Rabbi Trusts at March 31, 2014 and 2013 were $1,995,000 and $1,706,000,  respectively.

 

The carrying values of our cash equivalents, accounts and notes receivable, current maturities of long-term debt, short-term borrowings, trade payables and accruals, and other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 6 and 7, respectively.

 

There were no assets or liabilities subject to fair value measurement on a nonrecurring basis in 2013. Assets that were subject to fair value measurement on a nonrecurring basis as of March 31, 2014 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2014

 

 

 

 

 

Impairment

 

in thousands

Level 2

 

 

Charges

 

Fair Value Nonrecurring

 

 

 

 

 

Property, plant & equipment

$        2,280 

 

 

$        2,987 

 

Total

$        2,280 

 

 

$        2,987 

 

 

We recorded a $2,987,000 loss on impairment of long-lived assets in the first quarter of 2014 reducing the carrying value of these assets to their estimated fair value of $2,280,000. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).

 

 

DERIVATIVE INSTRUMENTS
DERIVATIVE INSTRUMENTS

Note 6: Derivative Instruments

 

During the normal course of operations, we are exposed to market risks including fluctuations in interest rates, foreign currency exchange rates and 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 accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate swap agreements described below were designated as either cash flow hedges or fair value hedges. The changes in fair value of our interest rate swap cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. The changes in fair value of our interest rate swap fair value hedges are recorded as interest expense consistent with the change in the fair value of the hedged items attributable to the risk being hedged.

 

CASH FLOW HEDGES

 

We have used interest rate swap agreements designated as cash flow hedges to minimize the variability in cash flows of liabilities or forecasted transactions caused by fluctuations in interest rates. During 2007, we entered into fifteen forward starting interest rate swap agreements for a total stated amount of $1,500,000,000. Upon the 2007 and 2008 issuances of the related fixed-rate debt, we terminated and settled these forward starting swaps for cash payments of $89,777,000. Amounts in AOCI are being amortized to interest expense over the term of the related debt. This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Location on

 

March 31

 

in thousands

Statement

 

2014 

 

 

2013 

 

Cash Flow Hedges

 

 

 

 

 

 

 

Loss reclassified from AOCI

Interest

 

 

 

 

 

 

 (effective portion)

expense

 

$       (4,934)

 

 

$       (1,415)

 

 

The 2014 loss reclassified from AOCI includes the acceleration of a proportional amount of the deferred loss in the amount of $3,762,000 referable to the debt purchase as disclosed in Note 7.

 

For the 12-month period ending March 31, 2015, we estimate that $3,994,000 of the pretax loss in AOCI will be reclassified to earnings.

 

FAIR VALUE HEDGES

We have used interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that results from fluctuations in the benchmark interest rates for such debt. In June 2011, we issued $500,000,000 of 6.50% fixed-rate notes due in 2016. Concurrently, we entered into interest rate swap agreements in the stated amount of $500,000,000. Under these agreements, we paid 6-month LIBOR plus a spread of 4.05% and received a fixed interest rate of 6.50%. Additionally, in June 2011, we entered into interest rate swap agreements on our $150,000,000 10.125% fixed-rate notes due in 2015. Under these agreements, we paid 6-month LIBOR plus a spread of 8.03% and received a fixed interest rate of 10.125%. In August 2011, we terminated and settled these interest rate swap agreements for $25,382,000 of cash proceeds. The $23,387,000 forward component of the settlement (cash proceeds less $1,995,000 of accrued interest) was added to the carrying value of the related debt and is being amortized as a reduction to interest expense over the remaining lives of the related debt using the effective interest method. This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31

 

in thousands

 

 

2014 

 

 

2013 

 

Deferred Gain on Settlement

 

 

 

 

 

 

Amortized to earnings as a reduction

 

 

 

 

 

 

 to interest expense

 

$        9,194 

 

 

$        1,056 

 

 

The 2014 amortized deferred gain includes the acceleration of a proportional amount of the deferred gain in the amount of $8,032,000 referable to the debt purchase as disclosed in Note 7.

 

 

DEBT
DEBT

Note 7: Debt

 

Debt is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

 

2013 

 

Long-term Debt

 

 

 

 

 

 

 

 

6.30% notes due 2013 1

$                  0 

 

 

$                0 

 

 

$     140,430 

 

10.125% notes due 2015 2

151,674 

 

 

151,897 

 

 

152,520 

 

6.50% notes due 2016 3

127,678 

 

 

511,627 

 

 

514,221 

 

6.40% notes due 2017 4

218,578 

 

 

349,907 

 

 

349,892 

 

7.00% notes due 2018 5

399,783 

 

 

399,772 

 

 

399,741 

 

10.375% notes due 2018 6

248,888 

 

 

248,843 

 

 

248,716 

 

7.50% notes due 2021 7

600,000 

 

 

600,000 

 

 

600,000 

 

7.15% notes due 2037 8

239,564 

 

 

239,561 

 

 

239,555 

 

Medium-term notes

6,000 

 

 

6,000 

 

 

6,000 

 

Industrial revenue bonds

14,000 

 

 

14,000 

 

 

14,000 

 

Other notes

788 

 

 

806 

 

 

949 

 

Total long-term debt including current maturities

$    2,006,953 

 

 

$  2,522,413 

 

 

$  2,666,024 

 

Less current maturities

171 

 

 

170 

 

 

140,604 

 

Total long-term debt

$    2,006,782 

 

 

$  2,522,243 

 

 

$  2,525,420 

 

Estimated fair value of long-term debt

$    2,313,964 

 

 

$  2,820,399 

 

 

$  2,851,237 

 

 

 

 

 

Includes decreases for unamortized discounts, as follows: March 31, 2013 — $14 thousand.

Includes an increase for the unamortized portion of the deferred gain realized upon the August 2011 settlement of interest rate swaps, as follows: March 31, 2014 — $1,837 thousand, December 31, 2013 — $2,082 thousand and March 31, 2013 — $2,766 thousand. Additionally, includes decreases for unamortized discounts, as follows: March 31, 2014 — $163 thousand, December 31, 2013 — $185 thousand and March 31, 2013 — $246 thousand. The effective interest rate for these notes is 9.58%.

Includes an increase for the unamortized portion of the deferred gain realized upon the August 2011 settlement of interest rate swaps, as follows: March 31, 2014 — $2,677 thousand, December 31, 2013 — $11,627 thousand and March 31, 2013 — $14,221 thousand. The effective interest rate for these notes is 6.00%.

Includes decreases for unamortized discounts, as follows: March 31, 2014 — $55 thousand, December 31, 2013 — $93 thousand and March 31, 2013 — $108 thousand. The effective interest rate for these notes is 7.41%.

Includes decreases for unamortized discounts, as follows: March 31, 2014 — $217 thousand, December 31, 2013 — $228 thousand and March 31, 2013 — $259 thousand. The effective interest rate for these notes is 7.87%.  

Includes decreases for unamortized discounts, as follows: March 31, 2014 — $1,112 thousand, December 31, 2013 — $1,157 thousand and March 31, 2013 — $1,284 thousand. The effective interest rate for these notes is 10.63%.

The effective interest rate for these notes is 7.75%.

Includes decreases for unamortized discounts, as follows: March 31, 2014 — $624 thousand, December 31, 2013 — $627 thousand and March 31, 2013 — $633 thousand. The effective interest rate for these notes is 8.05%.

 

Our long-term debt is presented in the table above net of unamortized discounts from par and unamortized deferred gains realized upon settlement of interest rate swaps. Discounts and deferred gains are being amortized using the effective interest method over the respective terms of the notes.

 

The estimated fair value of long-term debt presented in the table above was determined by averaging the asking price quotes for the notes. The fair value estimates were based on Level 2 information (as defined in Note 5) available to us as of their respective balance sheet dates. Although we are not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since those dates.

 

There were no material scheduled debt payments during the first quarter of 2014. However, as described below we purchased $506,366,000 principal amount of outstanding debt through a tender offer in the first quarter of 2014. Scheduled debt payments during 2013 included $10,000,000 in January to retire the 8.70% medium-term note and $140,444,000 in June to retire the 6.30% notes.

In March 2014, we purchased $506,366,000 principal amount of outstanding debt through a tender offer as follows: $374,999,000 of 6.50% notes due in 2016 and $131,367,000 of 6.40% notes due in 2017. This debt purchase was funded by the sale of our cement and concrete businesses in the Florida area as described in Note 16. The March 2014 debt purchases cost $579,659,000, including a $71,829,000 premium above the principal amount of the notes and transaction costs of $1,464,000.  The premium primarily reflects the trading prices of the notes relative to par prior to the tender offer commencement. Additionally, we recognized a net benefit of $344,000 associated with the acceleration of a proportional amount of unamortized discounts, deferred gains, deferred financing costs and amounts accumulated in OCI. The combined expense of $72,949,000 is presented in the accompanying Condensed Consolidated Statement of Comprehensive Income as a component of interest expense for the three month period ended March 31, 2014.

 

Additionally, in  March 2014, we amended our $500,000,000 line of credit to, among other things, extend the term from March 2018 to March 2019, eliminate the borrowing capacity governor of eligible accounts receivable and eligible inventory, and provide for the line of credit to become unsecured upon achievement of certain credit metrics and/or credit ratings. Until such metrics/ratings are achieved, the line of credit is secured by accounts receivable and inventory. As of March 31, 2014, our available borrowing capacity was $425,750,000.

 

Borrowings under the line of credit bear interest at a rate determined at the time of borrowing equal to the lower of LIBOR plus a margin ranging from 1.50% to 2.25% based on our total debt to EBITDA ratio, or an alternative rate derived from the lender’s prime rate. Borrowings on our line of credit are classified as short-term due to our intent to repay any borrowings within twelve months. As of March 31, 2014, the applicable margin for LIBOR based borrowing was 2.25%.

 

  

COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

Note 8: Commitments and Contingencies

 

LETTERS OF CREDIT

 

We provide, in the normal course of business, certain third party beneficiaries standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of one year, typically renew automatically, and can only be modified or cancelled with the approval of the beneficiary. All of our letters of credit are issued by banks that participate in our $500,000,000 line of credit, and reduce the borrowing capacity thereunder. We pay a fee for all letters of credit equal to the margin (ranges from 1.50% to 2.25%) applicable to LIBOR based borrowings under the line of credit, plus 0.175%. Our standby letters of credit as of March 31, 2014 are summarized by purpose in the table below:

 

 

 

 

 

 

 

 

in thousands

 

 

Standby Letters of Credit

 

 

Risk management insurance

$       32,839 

 

Industrial revenue bond

14,230 

 

Reclamation/restoration requirements

6,250 

 

Total

$       53,319 

 

 

LITIGATION AND ENVIRONMENTAL MATTERS

 

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 material legal proceedings are more specifically described below. At this time, we cannot determine the likelihood or reasonably estimate a range of loss pertaining to these matters.

 

Perchloroethylene cases

 

We are a defendant in cases involving perchloroethylene (perc), which was a product manufactured by our former Chemicals business. Perc is a cleaning solvent used in dry cleaning and other industrial applications. We are vigorously defending these cases:

 

§

Suffolk County Water Authority — On July 29, 2010, we were served in an action styled Suffolk County Water Authority v. The Dow Chemical Company, et al., in the Supreme Court for Suffolk County, State of New York. The complaint alleges that the plaintiff “owns and/or operates drinking water systems and supplies drinking water to thousands of 8residents and businesses, in Suffolk County, New York.” The complaint alleges that perc and its breakdown products “have been and are contaminating and damaging Plaintiff's drinking water supply wells.” This matter was settled in the first quarter of 2014 for an immaterial amount. We will not report on this case going forward.

 

§

R.R. Street Indemnity — Street, a former distributor of perc manufactured by us, alleges that we owe Street, and its insurer (National Union), a defense and indemnity in several litigation matters in which Street was named as a defendant. National Union alleges that we are obligated to contribute to National Union's share of defense fees, costs and any indemnity payments made on Street's behalf. We have had discussions with Street about the nature and extent of indemnity obligations, if any, and to date there has been no resolution of these issues. Since no suit has been filed with respect to this issue, we will no longer report on this matter.

 

lower passaic river matter

 

§

Lower Passaic River Study Area (Superfund Site) — Vulcan and approximately 70 other companies are parties to a May 2007 Administrative Order on Consent (AOC) with the U.S. Environmental Protection Agency (EPA) to perform a Remedial Investigation/Feasibility Study (RI/FS) of the lower 17 miles of the Passaic River (River).  As an interim step related to the 2007 AOC, Vulcan and 69 other companies voluntarily entered into an Administrative Settlement Agreement and Order on Consent on June 18, 2012 with the EPA for remediation actions focused at River Mile 10.9 of the River. These remedial actions are expected to be completed sometime in 2014. On June 25, 2012, the EPA issued a Unilateral Administrative Order for Removal Response Activities to Occidental Chemical Corporation ordering Occidental to participate and cooperate in this remediation action at River Mile 10.9.  

 

Separately, on April 11, 2014, the EPA issued a proposed Focused Feasibility Study (FFS) that calls for  a  bank-to-bank dredging  remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is approximately $950 million to $1.73 billion. The period for public comment on the proposed FFS remains open and may be further extended. After the comments are received, the EPA will issue its final record of decision, probably sometime in 2015.

 

At this time, our ultimate liability related to this matter is not known because the RI/FS is ongoing and  the FFS is not final. The AOC does not obligate us to fund or perform the remedial action contemplated by either the RI/FS or the FFS. Additionally, the Company has found no evidence that it contributed, through its discontinued Chemicals business, any of the primary contaminants of concern to the Passaic River. Therefore, neither the ultimate remedial approach and associated costs, nor the parties who will participate in funding the remediation and their respective allocations have yet been determined.

 

Based on the facts available at this time, we believe our liability related to any remedial actions is immaterial.

 

OTHER LITIGATION

 

§

TEXAS BRINE MATTER — During the operation of its former Chemicals Division, Vulcan was the lessee under a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company operated this salt mine for the account of Vulcan. Vulcan sold its Chemicals Division in 2005 and assigned the lease to the purchaser, and Vulcan has had no association with the leased premises or Texas Brine Company since that time. In August 2012, a sinkhole developed near the salt dome and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in August 2012 in federal court in the Eastern District of Louisiana in New Orleans. The plaintiffs in the Federal court class action and Texas Brine have recently announced a proposed settlement for $48.1 million. This proposed settlement is still subject to certain court procedures, including notice to the class, before it can be approved and finalized. We understand that Vulcan will be named as a released party in the settlement agreement, although Texas Brine and its insurers are not themselves releasing Vulcan from their claims for contribution and indemnity against Vulcan.

 

There are numerous defendants to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by the Texas Brine Company. Vulcan has since been added as a direct and third-party defendant by other parties, including a direct claim by the State of Louisiana. The damages alleged in the litigation range from individual plaintiffs’ claims for property damage, to the State of Louisiana’s claim for response costs, to claims for alleged physical damages to oil pipelines, to various alleged business interruption claims, and to claims for indemnity and contribution from Texas Brine. It is alleged that the sinkhole was caused, in whole or in part, by Vulcan’s negligent actions or failure to act. It is also alleged that Vulcan breached the salt lease, as well as an operating agreement with Texas Brine. Vulcan denies any liability in this matter and will vigorously defend the litigation. We cannot reasonably estimate any liability related to this matter.

 

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, or the verdict of a particular jury, could cause actual losses to differ materially from accrued costs. 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. Legal costs incurred in defense of lawsuits are expensed as incurred. 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.

 

 

ASSET RETIREMENT OBLIGATIONS
ASSET RETIREMENT OBLIGATIONS

Note 9: Asset Retirement Obligations

 

Asset retirement obligations (AROs) 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 ARO 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 ARO is settled for other than the carrying amount of the liability, we recognize a gain or loss on settlement.

 

We record all AROs for which we have legal obligations for land reclamation at estimated fair value. Essentially all these AROs relate to our underlying land parcels, including both owned properties and mineral leases. For the three month period ended March  31, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

ARO Operating Costs

 

 

 

 

 

Accretion

$        2,940 

 

 

$        2,006 

 

Depreciation

997 

 

 

779 

 

Total

$        3,937 

 

 

$        2,785 

 

 

ARO operating costs are reported in cost of goods sold. AROs are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.

 

Reconciliations of the carrying amounts of our AROs are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Asset Retirement Obligations

 

 

 

 

 

Balance at beginning of year

$     228,234 

 

 

$     150,072 

 

  Liabilities incurred

 

 

 

  Liabilities settled

(5,250)

 

 

(1,292)

 

  Accretion expense

2,940 

 

 

2,006 

 

  Revisions up (down), net

(93)

 

 

5,672 

 

Balance at end of period

$     225,831 

 

 

$     156,458 

 

 

The increase in the carrying amounts of our AROs between the ending balance as of March 31, 2013 and the beginning balance as of January 1, 2014 relates primarily to liabilities incurred during the second quarter of 2013 for reclamation activities required under a development agreement and a conditional use permit at an aggregates facility on owned property in Southern California.

 

 

BENEFIT PLANS
BENEFIT PLANS

Note 10: Benefit Plans

 

We sponsor three funded, noncontributory defined benefit pension plans. These plans cover substantially all employees hired prior to July 15, 2007, other than those covered by union-administered plans. Normal retirement age is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried Plan are generally based on salaries or wages and years of service; the Construction Materials Hourly Plan and the Chemicals Hourly Plan provide benefits equal to a flat dollar amount for each year of service. In addition to these qualified plans, we sponsor three unfunded, nonqualified pension plans.

 

Effective July 15, 2007, we amended our defined benefit pension plans to no longer accept new participants. In December 2013, we amended our defined benefit pension plans so that future service accruals for salaried pension participants will cease effective December 31, 2013. This change included a special transition provision which will allow covered compensation through December 31, 2015 to be considered in the participants’ benefit calculations. The amendment resulted in a curtailment and remeasurement of the salaried and nonqualified pension plans as of May 31, 2013 that reduced our 2013 pension expense by approximately $7,600,000 (net of the one-time curtailment loss) of which $800,000 relates to discontinued operations.

 

The following table sets forth the components of net periodic pension benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

PENSION BENEFITS

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Components of Net Periodic Benefit Cost

 

 

 

 

 

Service cost

$        1,039 

 

 

$        6,070 

 

Interest cost

11,098 

 

 

10,346 

 

Expected return on plan assets

(12,701)

 

 

(11,759)

 

Amortization of prior service cost

47 

 

 

95 

 

Amortization of actuarial loss

2,805 

 

 

6,420 

 

Net periodic pension benefit cost

$        2,288 

 

 

$      11,172 

 

Pretax reclassification from AOCI included in

 

 

 

 

 

 net periodic pension benefit cost

$        2,852 

 

 

$        6,515 

 

 

In addition to pension benefits, we provide certain healthcare and life insurance benefits for retired employees. In the fourth quarter of 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. In the third quarter of 2007, we amended our salaried postretirement healthcare coverage to increase the eligibility age for early retirement coverage to age 62, unless certain grandfathering provisions were met. Substantially all our salaried employees and where applicable, hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, company-provided healthcare benefits terminate when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age 65, whichever occurs first.

 

Prior contributions, along with the existing funding credits, are sufficient to cover required contributions to the qualified plans through 2014. However, we anticipate making an approximate $4,000,000 discretionary pension contribution in 2014.

 

The following table sets forth the components of net periodic postretirement benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER POSTRETIREMENT BENEFITS

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Components of Net Periodic Benefit Cost

 

 

 

 

 

Service cost

$           536 

 

 

$           708 

 

Interest cost

824 

 

 

815 

 

Curtailment gain

(3,832)

 

 

 

Amortization of prior service credit

(1,082)

 

 

(1,216)

 

Amortization of actuarial loss

57 

 

 

343 

 

Net periodic postretirement benefit cost

$       (3,497)

 

 

$           650 

 

Pretax reclassification from AOCI included in

 

 

 

 

 

 net periodic postretirement benefit cost

$       (4,857)

 

 

$          (873)

 

 

The reclassifications from AOCI noted in the tables above are related to curtailment gains, amortization of prior service costs or credits and actuarial losses as shown in Note 11.

 

The March 2014 sale of our cement and concrete businesses in the Florida area (see Note 16) significantly reduced total expected future service of our postretirement plans resulting in a one-time curtailment gain of $3,832,000. This gain was reflected within gain on sale of property, plant & equipment, net in our accompanying Condensed Consolidated Statement of Comprehensive Income.

 

 

OTHER COMPREHENSIVE INCOME
OTHER COMPREHENSIVE INCOME

Note 11: other Comprehensive Income

 

Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.

 

Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

 

2013 

 

AOCI

 

 

 

 

 

 

 

 

Cash flow hedges

$       (22,193)

 

 

$       (25,178)

 

 

$       (27,316)

 

Pension and postretirement benefit plans

(72,733)

 

 

(74,453)

 

 

(193,915)

 

Total

$       (94,926)

 

 

$       (99,631)

 

 

$     (221,231)

 

 

Changes in AOCI, net of tax, for the three months ended March  31, 2014 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and

 

 

 

 

 

Cash Flow

 

 

Postretirement

 

 

 

 

in thousands

Hedges

 

 

Benefit Plans

 

 

Total

 

AOCI

 

 

 

 

 

 

 

 

Balance as of December 31, 2013

$       (25,178)

 

 

$       (74,453)

 

 

$       (99,631)

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 before reclassifications  1

 

 

2,942 

 

 

2,942 

 

Amounts reclassified from AOCI

2,985 

 

 

(1,222)

 

 

1,763 

 

Net current period OCI changes

2,985 

 

 

1,720 

 

 

4,705 

 

Balance as of March 31, 2014

$       (22,193)

 

 

$       (72,733)

 

 

$       (94,926)

 

 

Remeasurement of the postretirement obligation as a result of the March 2014 sale of our cement and concrete businesses in the Florida area (see Note 16).

 

Amounts reclassified from AOCI to earnings, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Reclassification Adjustment for Cash Flow

 

 

 

 

 

 Hedges Losses

 

 

 

 

 

Interest expense

$          4,934 

 

 

$          1,415 

 

Benefit from income taxes

(1,949)

 

 

(561)

 

Total

$          2,985 

 

 

$             854 

 

Amortization of Pension and Postretirement

 

 

 

 

 

 Plan Actuarial Loss and Prior Service Cost

 

 

 

 

 

Cost of goods sold

$         (1,587)

 

 

$          4,457 

 

Selling, administrative and general expenses

(418)

 

 

1,185 

 

(Benefit from) provision for income taxes

783 

 

 

(2,210)

 

Total

$         (1,222)

 

 

$          3,432 

 

Total reclassifications from AOCI to earnings

$          1,763 

 

 

$          4,286 

 

 

 

EQUITY
EQUITY

 

 

Note 12: Equity

 

Our capital stock consists solely of common stock, par value $1.00 per share. Holders of our common stock are entitled to one vote per share. Our Certificate of Incorporation also authorizes preferred stock of which no shares have been issued. The terms and provisions of such shares will be determined by our Board of Directors upon any issuance of preferred shares in accordance with our Certificate of Incorporation.

 

We occasionally sell shares of common stock to the trustee of our 401(k) retirement plans to satisfy the plan participants’ elections to invest in our common stock. The resulting cash proceeds provide a means of improving cash flow, increasing equity and reducing leverage. Under this arrangement, the stock issuances and resulting cash proceeds were as follows:

 

§

three months ended March 31, 2014 —  issued 357,039 shares for cash proceeds of $22,808,000

§

twelve months ended December 31, 2013 —  issued 71,208 shares for cash proceeds of $3,821,000

§

three months ended March 31, 2013 —  no shares issued

 

Changes in total equity for the three months ended March  31, 2014 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

in thousands

 

 

 

Equity

 

Balance at December 31, 2013

 

 

$    3,938,106 

 

Net earnings

 

 

53,995 

 

Common stock issued

 

 

 

 

  401(k) Trustee

 

 

22,808 

 

  Share-based compensation plans

 

 

10,719 

 

Share-based compensation expense

 

 

4,319 

 

Excess tax benefits from share-based compensation

 

 

2,997 

 

Cash dividends on common stock ($0.05 per share)

 

 

(6,531)

 

Other comprehensive income

 

 

4,705 

 

Other

 

 

 

Balance at March 31, 2014

 

 

$    4,031,119 

 

 

There were no shares held in treasury as of March 31, 2014, December 31, 2013 and March  31, 2013. As of March 31, 2014,  3,411,416 shares may be repurchased under the current purchase authorization of our Board of Directors.

 

 

SEGMENT REPORTING
SEGMENT REPORTING

Note 13: Segment Reporting

 

We have four operating (and reportable) segments organized around our principal product lines: aggregates, concrete, asphalt mix and cement. The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Intersegment sales are made at local market prices for the particular grade and quality of product utilized in the production of ready-mixed concrete and asphalt mix. Management reviews earnings from the product line reporting segments principally at the gross profit level.

 

 

segment financial disclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in millions

2014 

 

 

2013 

 

Total Revenues

 

 

 

 

 

Aggregates 1

 

 

 

 

 

  Segment revenues

$        404.2 

 

 

$        359.0 

 

  Intersegment sales

(43.4)

 

 

(33.6)

 

Net sales

360.8 

 

 

325.4 

 

Concrete 2

 

 

 

 

 

  Segment revenues

96.0 

 

 

99.9 

 

Net sales

96.0 

 

 

99.9 

 

Asphalt Mix

 

 

 

 

 

  Segment revenues

83.0 

 

 

67.3 

 

Net sales

83.0 

 

 

67.3 

 

Cement 3

 

 

 

 

 

  Segment revenues

17.9 

 

 

22.7 

 

  Intersegment sales

(9.2)

 

 

(10.7)

 

Net sales

8.7 

 

 

12.0 

 

Totals

 

 

 

 

 

   Net sales

548.5 

 

 

504.6 

 

   Delivery revenues

25.9 

 

 

33.6 

 

Total revenues

$        574.4 

 

 

$        538.2 

 

Gross Profit

 

 

 

 

 

Aggregates

$          38.5 

 

 

$          24.8 

 

Concrete 2

(9.2)

 

 

(10.0)

 

Asphalt Mix

4.7 

 

 

1.9 

 

Cement 3

0.1 

 

 

1.0 

 

Total

$          34.1 

 

 

$          17.7 

 

Depreciation, Depletion, Accretion

 

 

 

 

 

 and Amortization (DDA&A)

 

 

 

 

 

Aggregates

$          54.6 

 

 

$          55.9 

 

Concrete 2

6.0 

 

 

8.0 

 

Asphalt Mix

2.4 

 

 

2.0 

 

Cement 3

1.1 

 

 

3.9 

 

Other

5.3 

 

 

5.8 

 

Total

$          69.4 

 

 

$          75.6 

 

Identifiable Assets 4

 

 

 

 

 

Aggregates

$     7,004.2 

 

 

$     6,737.2 

 

Concrete 2

240.4 

 

 

380.4 

 

Asphalt Mix

225.4 

 

 

268.9 

 

Cement 3

14.6 

 

 

412.2 

 

Total identifiable assets

$     7,484.6 

 

 

$     7,798.7 

 

General corporate assets

118.8 

 

 

91.7 

 

Cash items

268.8 

 

 

188.1 

 

Total

$     7,872.2 

 

 

$     8,078.5 

 

 

 

 

 

Includes crushed stone, sand and gravel, sand, other aggregates, as well as transportation and service revenues associated with the aggregates business.

Includes ready-mixed concrete, concrete block, precast concrete, as well as building materials purchased for resale. On March 7, 2014, we sold our concrete business in the Florida area (see Note 16).

Includes cement and calcium products. On March 7, 2014, we sold our cement business in the Florida area (see Note 16).

Certain temporarily idled assets are included within a segment’s Identifiable Assets but the associated DDA&A is shown within Other in the DDA&A section above as the related DDA&A is excluded from segment gross profit.

 

 

SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION

Note 14: Supplemental Cash Flow Information

 

Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31

 

in thousands

2014 

 

 

2013 

 

Cash Payments

 

 

 

 

 

Interest (exclusive of amount capitalized)

$       83,801 

 

 

$         1,426 

 

Income taxes

3,209 

 

 

584 

 

Noncash Investing and Financing Activities

 

 

 

 

 

Accrued liabilities for purchases of property, plant

 

 

 

 

 

 & equipment

$       16,035 

 

 

$         5,404 

 

 

 

GOODWILL
GOODWILL

Note 15: Goodwill

 

Goodwill is recognized when the consideration paid for a business combination (acquisition) exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. There were no charges for goodwill impairment in the three month periods ended March  31, 2014 and 2013.

 

We have four reportable segments organized around our principal product lines: aggregates, concrete, asphalt mix and cement. There were no  changes in the carrying amount of goodwill by reportable segment from December 31, 2013 to March  31, 2014 summarized below:

 

GOODWILL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in thousands

Aggregates

 

 

Concrete

 

 

Asphalt Mix

 

 

Cement

 

 

Total

 

Goodwill, Gross Carrying Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total as of December 31, 2013

$  2,989,888 

 

 

$             0 

 

 

$    91,633 

 

 

$  252,664 

 

 

$    3,334,185 

 

Total as of March 31, 2014

$  2,989,888 

 

 

$             0 

 

 

$    91,633 

 

 

$  252,664 

 

 

$    3,334,185 

 

Goodwill, Accumulated Impairment Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

Total as of December 31, 2013

$                0 

 

 

$             0 

 

 

$             0 

 

 

$
(252,664)

 

 

$      (252,664)

 

Total as of March 31, 2014

$                0 

 

 

$             0 

 

 

$             0 

 

 

$
(252,664)

 

 

$      (252,664)

 

Goodwill, net of Accumulated Impairment Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

Total as of December 31, 2013

$  2,989,888 

 

 

$             0 

 

 

$    91,633 

 

 

$             0 

 

 

$    3,081,521 

 

Total as of March 31, 2014

$  2,989,888 

 

 

$             0 

 

 

$    91,633 

 

 

$             0 

 

 

$    3,081,521 

 

 

We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.

 

 

ACQUISITIONS AND DIVESTITURES
ACQUISITIONS AND DIVESTITURES

Note 16: Acquisitions and Divestitures

 

In the first quarter of 2014, we sold our cement and concrete businesses in the Florida area for net pretax cash proceeds of $720,056,000 resulting in a pretax gain of $230,061,000. We retained all of our Florida aggregates operations, our Cement segment’s calcium operation in Brooksville, Florida and real estate associated with certain former ready-mixed concrete facilities. Under a separate supply agreement, we will continue to provide aggregates to the divested concrete facilities, at market prices, for a period of 20 years. As a result of the continuing involvement (supply agreement) and the retained operation and assets, the disposition is not reported as discontinued operations.

 

Additionally, in the first quarter of 2014, we sold the following Aggregates segment properties:

§

a previously mined and subsequently reclaimed tract of land for net pretax cash proceeds of $10,727,000 resulting in a pretax gain of $168,000

§

unimproved land previously containing a sales yard for net pretax cash proceeds of $5,820,000 resulting in a pretax gain of $5,790,000

 

 

In 2013, we acquired:

§

Fourth quarterland containing 136 million tons of aggregates reserves at an existing quarry for $117,000,000. We previously mined these reserves under a lease which was scheduled to expire in 2017

§

Second quarteran aggregates production facility and four ready-mixed concrete facilities for $29,983,000

§

First quartertwo aggregates production facilities for $59,968,000. The initial accounting for the business combination was not finalized until the third quarter as appraisals of amortizable intangible assets (contractual rights in place) and property, plant & equipment were not completed. Provisional amounts for contractual rights in place and property, plant & equipment were subsequently adjusted to the appraised values. These adjustments resulted in an increase in contractual rights in place from $800,000 to $3,620,000, an increase in property, plant & equipment from $45,888,000 to $52,583,000, a decrease in goodwill from $9,759,000 to $0 and other minor adjustments to working capital. The Condensed Consolidated Balance Sheet as of March 31, 2013 has been retrospectively adjusted. The Condensed Consolidated Statement of Comprehensive Income has not been retrospectively adjusted as the impact was immaterial

 

In 2013, we sold:

§

Fourth quartermitigation credits for net pretax cash proceeds of $1,463,000 resulting in a pretax gain of $1,377,000

§

Third quarter reclaimed land associated with a former site of a ready-mixed concrete facility for net pretax cash proceeds of $11,261,000 resulting in a pretax gain of $9,027,000

§

Third quarter —  a percentage of the future production from aggregates reserves at certain owned quarries. The sale was structured as a volumetric production payment (VPP) for which we received gross cash proceeds of $154,000,000 and incurred transaction costs of $905,000. The net proceeds were recorded as deferred revenue and are amortized on a unit-of-sales basis to revenues over the term of the VPP. See Note 4 for the key terms of the VPP

§

Second quarter —  four aggregates production facilities resulting in net pretax cash proceeds of $34,743,000 and a pretax gain of $21,183,000. We allocated $4,521,000 of goodwill to these dispositions based on the relative fair values of the businesses disposed of and the portion of the reporting unit retained

§

First quarter —  an aggregates production facility and its related replacement reserve land resulting in net pretax cash proceeds of $5,133,000 and a pretax gain of $2,802,000. We allocated $674,000 of goodwill to this disposition based on the relative fair values of the business disposed of and the portion of the reporting unit retained

§

First quarter —  equipment and other personal property from two idled prestress concrete production facilities resulting in net pretax cash proceeds of $622,000 and a pretax gain of $457,000

 

Effective land management is both a business strategy and a social responsibility. We strive to achieve value through our mining activities as well as incremental value through effective post-mining land management. Our land management strategy includes routinely reclaiming and selling our previously mined land. Additionally, this strategy includes developing conservation banks by preserving land as a suitable habitat for endangered or sensitive species. These conservation banks have received approval from the United States Fish and Wildlife Service to offer mitigation credits for sale to third parties who may be required to compensate for the loss of habitats of endangered or sensitive species.

 

No assets meet the criteria for held for sale at March 31, 2014. As of December 31, 2013 and March 31, 2013, a previously mined and subsequently reclaimed tract of land within our Aggregates segment is presented in the accompanying Condensed Consolidated Balance Sheets as assets held for sale. This land tract sold in the first quarter of 2014. In addition, as of March 31, 2013, reclaimed land associated with a former site of a ready-mixed concrete facility within our Concrete segment is presented in the accompanying Condensed Consolidated Balance Sheet as assets held for sale. This land subsequently sold in the third quarter of 2013. The major classes of assets and liabilities of assets classified as held for sale are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31

 

 

March 31