UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q
(Mark One)	
☒	QUARTERLY REPORT PURSUANT   TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	

For the quarterly period ended   March   3 1 , 201 5	

OR	
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	

For the transition period from                 to
 
Commission File Number 001-33841
 
VULCAN MATERIALS COMPANY
(Exact name of registrant as specified in its charter)

 	

New Jersey
(State or other jurisdiction of incorporation)	
20-8579133
(I.R.S. Employer Identification No.)	

1200 Urban Center Drive, Birmingham, Alabama
(Address of principal executive offices)   	
35242
(zip code)	

(205) 298-3000    (Registrant's telephone number including area code)	
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):	

Large accelerated filer ☒	
Accelerated filer   ☐	

Non -accelerated filer     ☐
(Do not check if a smaller reporting company)	
Smaller reporting company ☐	

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒	

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:	
 
                  Cl ass                  
Common Stock, $1 Par Value	 	Shares outstanding
      at March  3 1 , 201 5       
132,660,492	 	

 

 

 	 	 	 	
 	
VULCAN MATERIALS COMPANY
 
FORM 10-Q
QUARTER ENDED MARCH  3 1 , 201 5
 
CONTENTS	

 	 	 	Page	
PART I	FINANCIAL INFORMATION	 	
 	Item 1.	Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Comprehensive Income
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
 	 
 2
 3
 4
 5	
 	Item 2.	Management’s Discussion and Analysis of Financial
   Condition and Results of Operations
 	 
2 4	
 	Item 3.	Quantitative and Qualitative Disclosures About
   Market Risk
 	 
4 1	
 	Item 4.	Controls and Procedures	4 1	
 	 	 	
PART II	OTHER INFORMATION	 	
 	Item 1.	Legal Proceedings	4 2	
 	Item 1A.	Risk Factors	4 2	
 	Item 4.	Mine Safety Disclosures	4 2	
 	Item 6.	Exhibits	4 3	

Signatures	 
 
4 4	
 
Unless otherwise stated or the context otherwise requires, references in this report to “Vulcan,” the “ C ompany,” “we,” “our,” or “us” refer to Vulcan Materials Company and its consolidated subsidiaries.	

 

1

 

 
 
PART I   FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS

 	 	 	 	 	 	 	 	 	
Unaudited, except for December 31	March 31	 	 	December 31	 	 	March 31	 	
in thousands, except per share data	
2015 	 	 	
2014 	 	 	
2014 	 	
Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	$       392,657 	 	 	$       141,273 	 	 	$       268,773 	 	
Restricted cash	
0 	 	 	
0 	 	 	
63,024 	 	
Accounts and notes receivable	 	 	 	 	 	 	 	 	
  Accounts and notes receivable, gross	
375,196 	 	 	
378,947 	 	 	
353,601 	 	
  Less: Allowance for doubtful accounts	
(5,244)	 	 	
(5,105)	 	 	
(5,264)	 	
   Accounts and notes receivable, net	
369,952 	 	 	
373,842 	 	 	
348,337 	 	
Inventories	 	 	 	 	 	 	 	 	
  Finished products	
285,313 	 	 	
275,172 	 	 	
258,007 	 	
  Raw materials	
21,203 	 	 	
19,741 	 	 	
19,431 	 	
  Products in process	
1,189 	 	 	
1,250 	 	 	
875 	 	
  Operating supplies and other	
25,987 	 	 	
25,641 	 	 	
27,520 	 	
   Inventories	
333,692 	 	 	
321,804 	 	 	
305,833 	 	
Current deferred income taxes	
39,881 	 	 	
39,726 	 	 	
39,591 	 	
Prepaid expenses	
58,483 	 	 	
28,640 	 	 	
28,184 	 	
Assets held for sale	
0 	 	 	
15,184 	 	 	
0 	 	
Total current assets	
1,194,665 	 	 	
920,469 	 	 	
1,053,742 	 	
Investments and long-term receivables	
41,613 	 	 	
41,650 	 	 	
42,137 	 	
Property, plant & equipment	 	 	 	 	 	 	 	 	
  Property, plant & equipment, cost	
6,671,537 	 	 	
6,608,842 	 	 	
6,340,034 	 	
  Reserve for depreciation, depletion & amortization	
(3,587,444)	 	 	
(3,537,212)	 	 	
(3,446,744)	 	
   Property, plant & equipment, net	
3,084,093 	 	 	
3,071,630 	 	 	
2,893,290 	 	
Goodwill	
3,094,824 	 	 	
3,094,824 	 	 	
3,081,521 	 	
Other intangible assets, net	
764,072 	 	 	
758,243 	 	 	
633,870 	 	
Other noncurrent assets	
171,348 	 	 	
175,086 	 	 	
167,675 	 	
Total assets	$    8,350,615 	 	 	$    8,061,902 	 	 	$    7,872,235 	 	
Liabilities	 	 	 	 	 	 	 	 	
Current maturities of long-term debt	
365,441 	 	 	
150,137 	 	 	
171 	 	
Trade payables and accruals	
157,829 	 	 	
145,148 	 	 	
150,628 	 	
Other current liabilities	
180,066 	 	 	
156,073 	 	 	
190,069 	 	
Liabilities of assets held for sale	
0 	 	 	
520 	 	 	
0 	 	
Total current liabilities	
703,336 	 	 	
451,878 	 	 	
340,868 	 	
Long-term debt	
1,912,455 	 	 	
1,855,447 	 	 	
2,006,782 	 	
Noncurrent deferred income taxes	
682,849 	 	 	
691,137 	 	 	
693,234 	 	
Deferred revenue	
212,987 	 	 	
213,968 	 	 	
218,946 	 	
Other noncurrent liabilities	
678,821 	 	 	
672,773 	 	 	
581,286 	 	
Total liabilities	$    4,190,448 	 	 	$    3,885,203 	 	 	$    3,841,116 	 	
Other commitments and contingencies (Note 8)	 	 	 	 	 	 	 	 	
Equity	 	 	 	 	 	 	 	 	
Common stock, $1 par value, Authorized 480,000 shares,	 	 	 	 	 	 	 	 	
 Issued 132,660, 131,907 and 130,802 shares, respectively	
132,660 	 	 	
131,907 	 	 	
130,802 	 	
Capital in excess of par value	
2,765,391 	 	 	
2,734,661 	 	 	
2,651,949 	 	
Retained earnings	
1,418,901 	 	 	
1,471,845 	 	 	
1,343,294 	 	
Accumulated other comprehensive loss	
(156,785)	 	 	
(161,714)	 	 	
(94,926)	 	
Total equity	
4,160,167 	 	 	
4,176,699 	 	 	
4,031,119 	 	
Total liabilities and equity	$    8,350,615 	 	 	$    8,061,902 	 	 	$    7,872,235 	 	
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.	 	

2

 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED STATEMENTS OF
C OMPREHENSIVE INCOME

 	 	 	 	 	 	
 	Three Months Ended	 	
Unaudited	 	 	 	March 31	 	
in thousands, except per share data	
2015 	 	 	
2014 	 	
Total revenues	$       631,293 	 	 	$       574,420 	 	
Cost of revenues	
553,428 	 	 	
540,328 	 	
  Gross profit	
77,865 	 	 	
34,092 	 	
Selling, administrative and general expenses	
66,763 	 	 	
66,119 	 	
Gain on sale of property, plant & equipment	 	 	 	 	 	
 and businesses, net	
6,375 	 	 	
236,364 	 	
Restructuring charges	
(2,818)	 	 	
0 	 	
Other operating expense, net	
(3,900)	 	 	
(9,668)	 	
  Operating earnings	
10,759 	 	 	
194,669 	 	
Other nonoperating income, net	
979 	 	 	
2,825 	 	
Interest expense, net	
62,480 	 	 	
120,089 	 	
Earnings (loss) from continuing operations	 	 	 	 	 	
 before income taxes	
(50,742)	 	 	
77,405 	 	
Provision for (benefit from) income taxes	
(14,075)	 	 	
22,900 	 	
Earnings (loss) from continuing operations	
(36,667)	 	 	
54,505 	 	
Loss on discontinued operations, net of tax	
(3,011)	 	 	
(510)	 	
Net earnings (loss)	$       (39,678)	 	 	$         53,995 	 	
Other comprehensive income, net of tax	 	 	 	 	 	
  Reclassification adjustment for cash flow hedges	
2,248 	 	 	
2,985 	 	
  Adjustment for funded status of benefit plans	
0 	 	 	
2,942 	 	
  Amortization of actuarial loss and prior service	 	 	 	 	 	
    cost for benefit plans	
2,681 	 	 	
(1,222)	 	
Other comprehensive income	
4,929 	 	 	
4,705 	 	
Comprehensive income (loss)	$       (34,749)	 	 	$         58,700 	 	
Basic earnings (loss) per share	 	 	 	 	 	
  Continuing operations	$           (0.28)	 	 	$             0.42 	 	
  Discontinued operations	
(0.02)	 	 	
(0.01)	 	
  Net earnings (loss)	$           (0.30)	 	 	$             0.41 	 	
Diluted earnings (loss) per share	 	 	 	 	 	
  Continuing operations	$           (0.28)	 	 	$             0.41 	 	
  Discontinued operations	
(0.02)	 	 	
0.00 	 	
  Net earnings (loss)	$           (0.30)	 	 	$             0.41 	 	
Weighted-average common shares outstanding	 	 	 	 	 	
  Basic	
132,659 	 	 	
130,810 	 	
  Assuming dilution	
132,659 	 	 	
132,314 	 	
Cash dividends per share of common stock	$             0.10 	 	 	$             0.05 	 	
Depreciation, depletion, accretion and amortization	$         66,723 	 	 	$         69,378 	 	
Effective tax rate from continuing operations	
27.7% 	 	 	
29.6% 	 	
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.	

3

 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 	 	 	 	 	 	
 	Three Months Ended	 	
Unaudited	 	 	 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	
Operating Activities	 	 	 	 	 	
Net earnings (loss)	$       (39,678)	 	 	$         53,995 	 	
Adjustments to reconcile net earnings to net cash provided by operating activities	 	 	 	 	 	
  Depreciation, depletion, accretion and amortization	
66,723 	 	 	
69,378 	 	
  Net gain on sale of property, plant & equipment and businesses	
(6,375)	 	 	
(236,364)	 	
  Contributions to pension plans	
(1,447)	 	 	
(1,355)	 	
  Share-based compensation	
4,700 	 	 	
4,319 	 	
  Excess tax benefits from share-based compensation	
(7,575)	 	 	
(2,997)	 	
  Deferred tax provision (benefit)	
(11,592)	 	 	
(7,648)	 	
  Cost of debt purchase	
21,734 	 	 	
72,949 	 	
  Changes in assets and liabilities before initial effects of business acquisitions	 	 	 	 	 	
    and dispositions	
4,575 	 	 	
40,127 	 	
Other, net	
(11,911)	 	 	
2,624 	 	
Net cash provided by (used for) operating activities	$         19,154 	 	 	$         (4,972)	 	
Investing Activities	 	 	 	 	 	
Purchases of property, plant & equipment	
(49,611)	 	 	
(46,006)	 	
Proceeds from sale of property, plant & equipment	
2,354 	 	 	
17,785 	 	
Proceeds from sale of businesses, net of transaction costs	
0 	 	 	
720,056 	 	
Increase in restricted cash	
0 	 	 	
(63,024)	 	
Other, net	
(334)	 	 	
0 	 	
Net cash provided by (used for) investing activities	$       (47,591)	 	 	$       628,811 	 	
Financing Activities	 	 	 	 	 	
Payment of current maturities, long-term debt and line of credit	
(145,918)	 	 	
(579,676)	 	
Proceeds from issuance of long-term debt	
400,000 	 	 	
0 	 	
Proceeds from issuance of common stock	
0 	 	 	
22,808 	 	
Dividends paid	
(13,253)	 	 	
(6,531)	 	
Proceeds from exercise of stock options	
31,416 	 	 	
11,599 	 	
Excess tax benefits from share-based compensation	
7,575 	 	 	
2,997 	 	
Other, net	
1 	 	 	
(1)	 	
Net cash provided by (used for) financing activities	$       279,821 	 	 	$     (548,804)	 	
Net increase in cash and cash equivalents	
251,384 	 	 	
75,035 	 	
Cash and cash equivalents at beginning of year	
141,273 	 	 	
193,738 	 	
Cash and cash equivalents at end of period	$       392,657 	 	 	$       268,773 	 	
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements.	 	

 

4

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
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, 2014 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, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. 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.
 
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 2014, we announced changes to our executive management team, and a new divisional organization structure that was effective January 1, 2015. During the three months ended March 31, 2015, we incurred $2,818,000 of costs related to these initiatives. Future related cha r ges for these initiatives are estimated to be less than $3,000,0 00.
 
E ARNINGS PER SHARE (EPS)
 
Earnings per share 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	
2015 	 	 	
2014 	 	
Weighted-average common shares	 	 	 	 	 	
 outstanding	
132,659 	 	 	
130,810 	 	
Dilutive effect of	 	 	 	 	 	
  Stock options/SOSARs	
0 	 	 	
693 	 	
  Other stock compensation plans	
0 	 	 	
811 	 	
Weighted-average common shares	 	 	 	 	 	
 outstanding, assuming dilution	
132,659 	 	 	
132,314 	 	
 
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

5

 
been included in our diluted weighted-average common shares outstanding computation are excluded. These excluded shares are as follows: three months ended March 31, 2015 — 1,711,000 shares .
 
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	
2015 	 	 	
2014 	 	
Antidilutive common stock equivalents	
675 	 	 	
2,373 	 	

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.   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 revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:

 	 	 	 	 	 	
 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	
Discontinued Operations	 	 	 	 	 	
Pretax loss	$       (4,981)	 	 	$          (842)	 	
Income tax benefit	
1,970 	 	 	
332 	 	
Loss on discontinued operations,	 	 	 	 	 	
 net of income taxes	$       (3,011)	 	 	$          (510)	 	
 
Th e l osses 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.

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 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 s of 2015   and 2014 , income taxes were calculated based on th e E AETR.
 
We recorded an income tax benefit from continuing operations of $ 14 ,075,000 in the first quarter of 2015 compared to an income tax provision from continuing operations of $22,900,000 in the first quarter of 2014. The change in our income t ax provision resulted largely from applying the statutory rate to the decrease in our pretax book earnings.
 
We recognize deferred tax assets and liabilities based on the differences between the financial statement 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.

6

 

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 realize d.
 
Based on our first quarter 2015 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 2015, we currently project a valuation allowance of $64, 9 7 7 ,000 against our state net operating los s c arryforward s ,  a n   in crease of $ 8,110 ,000 from the prior yea r   e nd. This change in the valuation allowance is reflected as a component of our income tax provisio n.
 
Of the $ 64, 9 7 7 ,000 valuation allowance, $63,572,000 relates to our Alabama net operating loss carryforward.   We are evaluating a tax planning strategy that may allow for utilization of some or all of our Alabama net operating loss carryforward. Should this strategy become prudent and feasible in the future, t he amount of the valuation allowance against the Alabama net operating loss carryforward will be remeasured .
 
W e recognize a tax benefit associated with a 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 measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax benefit . Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislatio n .
 
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, 2014.

NOTE 4: DEFERRED REVENUE
 
We 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.
 
The common key terms of both VPP transactions are:
 
	§		the purchaser has a nonoperating interest in future production 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 the aforementioned marketing agreement	
	§		the purchaser's percentage of future production is conveyed free and clear of all future costs	
	§		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; 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 to be 11.5% (approximately 29 million tons); the actual percentage may vary	

7

 

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; 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 to be 10.5% (approximately 15 million tons); the actual percentage may vary	
 
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:

 	 	 	 	 	 	
 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	
Deferred Revenue	 	 	 	 	 	
Balance at beginning of year	$     219,968 	 	 	$     224,743 	 	
 Cash received and revenue deferred	
0 	 	 	
187 	 	
 Amortization of deferred revenue	
(981)	 	 	
(984)	 	
Balance at end of period	$     218,987 	 	 	$     223,946 	 	
 
Based on expected aggregates sales from the specified quarries, we anticipate recognizing an estimated $6,000,000 of deferred revenue (reflected in o ther current liabilities in our 2015 Condensed Consolidated Balance Sheet) during the 12-month period ending March 31, 2016.

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	
2015 	 	 	
2014 	 	 	
2014 	 	
Fair Value Recurring	 	 	 	 	 	 	 	 	
Rabbi Trust	 	 	 	 	 	 	 	 	
 Mutual funds	$       14,549 	 	 	$       15,532 	 	 	$       14,257 	 	
 Equities	
12,634 	 	 	
11,248 	 	 	
15,502 	 	
Total	$       27,183 	 	 	$       26,780 	 	 	$       29,759 	 	

 

 	 	 	 	 	 	 	 	 	
 	Level 2	
 	March 31	 	 	December 31	 	 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	 	
2014 	 	
Fair Value Recurring	 	 	 	 	 	 	 	 	
Rabbi Trust	 	 	 	 	 	 	 	 	
 Common/collective trust funds	$        1,336 	 	 	$        1,415 	 	 	$        1,274 	 	
Total	$        1,336 	 	 	$        1,415 	 	 	$        1,274 	 	

8

 

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 $807,000 and $2,395,000 for the three months ended March 31, 2015 and 2014, respectively. The portions of the net trading gains related to investments still held by the Rabbi Trusts at March 31, 2015 and 2014 were $ 646 ,000 and $1,995,000 , respectively.
 
The carrying values of our cash equivalents, restricted cash, accounts and notes receivabl e, s hort-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 2015. Assets that were subject to fair value measurement on a nonrecurring basis in 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).

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.

9

 

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	 	
2015 	 	 	
2014 	 	
Cash Flow Hedges	 	 	 	 	 	 	 	
Loss reclassified from AOCI	Interest	 	 	 	 	 	 	
 (effective portion)	expense	 	$       (3,721)	 	 	$       (4,934)	 	
 
The loss reclassified from AOCI for the three months ended March 31, 2015 and 2014 includes the acceleration of a proportional amount of the deferred loss in the amount of $2,700,000 and $3,762,000 , respectively, referable to the debt purchase s a s disclosed in Note 7.
 
For the 12-month period ending March 31, 2016, we estimate that $6,604,000 of the pretax loss in AOCI will be reclassified to earnings. This includes the acceleration of a proportional amount of the deferred loss in the amount of $ 4,503,000 referable to subsequent debt purchases as disclosed in Note 18.
 
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 London Interbank Offered Rate (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	 	 	
2015 	 	 	
2014 	 	
Deferred Gain on Settlement	 	 	 	 	 	 	
Amortized to earnings as a reduction	 	 	 	 	 	 	
 to interest expense	 	$           513 	 	 	$        9,194 	 	
 
The amortized deferred gain for the three months ended March 31, 2014 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.

 

10

 

NOTE 7: DEBT
 
Debt is summarized as follows:

 

 	 	 	March 31	 	 	December 31	 	 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	 	
2014 	 	
Long-term Debt	 	 	 	 	 	 	 	 	
10.125% notes due 2015 1, 13	$        150,728 	 	 	$      150,973 	 	 	$      151,674 	 	
6.50% notes due 2016 2, 11	
126,725 	 	 	
126,969 	 	 	
127,678 	 	
6.40% notes due 2017 3, 11	
218,592 	 	 	
218,589 	 	 	
218,578 	 	
7.00% notes due 2018 4	
272,580 	 	 	
399,816 	 	 	
399,783 	 	
10.375% notes due 2018 5	
249,080 	 	 	
249,030 	 	 	
248,888 	 	
7.50% notes due 2021 6	
600,000 	 	 	
600,000 	 	 	
600,000 	 	
8.85% notes due 2021 7, 11	
6,000 	 	 	
6,000 	 	 	
6,000 	 	
Industrial revenue bond due 2022 8, 11	
14,000 	 	 	
14,000 	 	 	
14,000 	 	
4.50% notes due 2025 9	
400,000 	 	 	
0 	 	 	
0 	 	
7.15% notes due 2037 10	
239,573 	 	 	
239,570 	 	 	
239,564 	 	
Other notes 12	
618 	 	 	
637 	 	 	
788 	 	
Total long-term debt including current maturities	$     2,277,896 	 	 	$   2,005,584 	 	 	$   2,006,953 	 	
Less current maturities 13	
365,441 	 	 	
150,137 	 	 	
171 	 	
Total long-term debt	$     1,912,455 	 	 	$   1,855,447 	 	 	$   2,006,782 	 	
Estimated fair value of long-term debt	$     2,160,255 	 	 	$   2,113,478 	 	 	$   2,313,964 	 	

 	 	

1 	Includes an increase for the unamortize d d eferred gain realized upon the August 2011 settlement of interest rate swaps, as follows: March 31, 2015 — $ 799   thousand, December 31, 2014 — $1,068 thousand and March 31, 2014 — $1,837 thousand. Additionally, includes decreases for unamortized discounts, as follows: March 31, 2015 — $ 71 thousand, December 31, 2014 — $95 thousand and March 31, 2014 — $163 thousand. The effective interest rate for these notes is 9.575 % .	

2 	Includes an increase for the unamortize d d eferred gain realized upon the August 2011 settlement of interest rate swaps, as follows: March 31, 2015 — $ 1,724 thousand, December 31, 2014 — $1,968 thousand and March 31, 2014 — $ 2,677 thousand. The effective interest rate for these notes is 6.00 % .	

3 	Includes decreases for unamortized discounts, as follows: March 31, 2015 — $ 41 thousand, December 31, 2014 — $ 44   thousand and March 31, 2014 — $55 thousand. The effective interest rate for these notes is 7.39 % .	

4 	Includes decreases for unamortized discounts, as follows: March 31, 2015 — $ 117   thousand, December 31, 2014 — $184 thousand and March 31, 2014 — $217 thousand. The effective interest rate for these notes is 7.87 % .  	

5 	Includes decreases for unamortized discounts, as follows: March 31 , 2015 — $ 920 thousand, December 31, 2014 — $ 970 thousand and March 31, 2014 — $1,112 thousand. The effective interest rate for these notes is 10.625 % .	

6 	The effective interest rate for these notes is 7.75 % .	

7 	The effective interest rate for these notes is 8.88 % .	

8 	This variable-rate tax-exempt bond is backed by a letter of credit.	

9 	The effective interest rate for these notes is 4.65 % .  	

10 	Includes decreases for unamortized discounts, as follows: March 31, 2015 — $ 615 thousand, December 31, 2014 — $618 thousand and March 31, 2014 — $624 thousand. The effective interest rate for these notes is 8.05 % .	

11 	A s of March 31, 2015 ,   we had initiated prepayment, or announced our intent to prepay; as such, this debt is classified as current maturities of long-term debt.	

12 	Non-publicly traded debt.	

13 	The 10.125% notes due 2015 are classified as long-term debt (not current maturities) as of March 31, 2015 due to our intent and ability to refinance these notes at maturity using ou r l ine of   credit.	
 
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 de bt presented in the table above was determined by averaging several asking price quotes for the publicly traded notes   and assuming par value for the remainder of the debt . The fair value estimates for the publicly traded notes were based on Level 2 information (as defined in Note 5 ) a s of th e b alance sheet da tes.

11

 
Ou r d ebt , other than the line of credit, is unsecured . E ssentially all such debt agreements contain customary investment-grade type covenants that primarily limit the amount of secured debt we may incur without ratably securing such debt. Such debt may be redeemed prior to maturity at the greater of par value and the make-whole value plus accrued and unpaid interest.
 
In March 2015, we issued $400,000,000  o f   4.50%   senior notes due 2025 . P roceeds (net of underwriter fees and other transaction costs) of $395,207,000 were partially used to fund the March 30 , 2015 purchase , via tender offer, of $ 127,303,000   principal amount of the 7.00% notes due 2018 (and the subsequent purchase of $185,000 in April 2015). The March 2015 debt purchase cost   $145,899,000 , including a n   $18,140,000 premium above the principal amount of the notes and transaction costs of $456,000 . The premium primarily reflects the trading pric e o f the notes relative to par prior to the tender offer commencement. Additionally, we recognized $3,138,000 of non-cash cos t associated with the acceleration of a proportional amount of unamortized discounts, deferred financing costs and amounts accumulated in OCI. The combined charge of $21,734,000 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, 2015.
 
The remaining net proceeds from the March 2015 debt issuance, together with cash on hand and borrowings under our line of credit, wi ll fu nd:  ( 1 ) the April 9, 2015 redemption of our 6.40% notes due 2017, ( 2 ) the April 16, 2015 redemption of our 6.50% notes due 2016, ( 3 ) the expected redemption of our 8.85% notes due 2021  a nd ( 4 ) the expected prepayment of our industrial revenue bond due 2022 . A ll debt as of March 31, 2015 which we intend t o pr epay, as described above, is classified in the accompanying Conde nsed Consolidated Balance Shee t as current maturities of long-term debt. See Note 18 for a discussion of our subsequent debt redemptions.
 
In March 2014, we purchased $506,366,000 principal amount of 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 charge 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.
 
O ur $500,000,000 line of credit is secured by accounts receivable and inventory, but will become unsecured upon the achievement of certain credit metrics and/or credit ratings. In May 2015, we expect to close on a new line of credit that will , among other things, increase the amount to $750,000,000 and extend the term from March 2019 to May 2020. The line of credit also contains affirmative, negative and financial covenants customary for a secured facility.
 
The negative covenants primarily limit our ability to: (1) incur secured debt, (2) make certain investments, (3) execute acquisitions and divestitures, and (4) make restricted payments, including dividends. Such limitations currently do not impact our ability to execute our strategi c, o peratin g, a nd financial plans, and become less restrictive when the line of credit becomes unsecured as described above.
 
The line of credit contains two financial covenants: (1) a maximum ratio of debt to EBITDA that declines over time to 3.5 :1 and (2) a minimum ratio of EBITDA to net cash interest expense that increases over time to 3.0 :1.
 
As of March 31, 2015, we were in compliance with all of our notes and line of credit covenants.
 
As of March 31, 2015, our line of credit available borrowing capacity was $446,528,000 . Borrowings under the line of credit bear interest at a rate determined at the time of borrowing equal to LIBOR plus a margin ranging from 1.50% to 2.25% , or an alternative rate derived from the lender’s prime rate, based on our ratio of debt to EBITDA. As of March 31, 2015, the applicable margin for LIBOR based borrowing was 1.50% .
 
Standby letters of credit issued under the line of credit reduce availability and are charged a fee equal to the margin for LIBOR based borrowings plus 0.175% . We also pay a commitment fee on the daily average unused amount of the line of credit. This commitment fee ranges from 0.25% to 0.40% based on our ratio of debt to EBITDA. As of M arch 31, 2015, the commitment fee was 0.25% . Once the line of credit becomes unsecured, both the LIBOR margin range for borrowings and the commitment fee range will decline.

12

 
NOTE 8: COMMITMENTS AND CONTINGENCIES
 
STANDBY 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 standby letters of credit are issued by banks that participate in our $500,000,000 line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of March 31, 2015 are summarized by purpose in the table below:

 	 	 	
 	 	 	
in thousands	 	 	
Standby Letters of Credit	 	 	
Risk management insurance	$       33,111 	 	
Industrial revenue bond	
14,230 	 	
Reclamation/restoration requirements	
6,131 	 	
Total	$       53,472 	 	

L ITIGATION 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.
 
LOWER PASSAIC RIVER MATTER
 
	§		LOWER PASSAIC RIVER STUDY AREA (SUPERFUND SITE)   — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the “Cooperating Parties Group”) 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). 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 is close d a nd it is anticipated that the EPA will issue its final record of decision sometime in 2015. The Cooperating Parties G roup R I /FS estimates the preferred remedial action presented therein to cost in the range of approximately $475 million to $725 million (including $93 million in operation and maintenance costs for a 30 year period).	
 
T he AOC does not obligate us to fund or perform the remedial action contemplated by either the RI/FS or the FFS. Vulcan formerly owned a chemicals operation near River Mile 0.1, which was sold in 1974. The Company has found no evidence that its former chemicals operation contributed any of the primary contaminants of concern to the River.
 
N either the ultimate remedial approa ch, no r the parties who will participate in funding the remediation and their respective allocations, have been determined.   However, we have recorded an immaterial loss for this matter in the first quarter of 2015 based on the cost estimate of the preferred RI/FS remedial action supported by the Cooperating Parties Group.

13

 

OTHER LITIGATION
 
	§		TEXAS BRINE MATTER — During the operation of its former Chemicals Division, Vulcan was the lessee to a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company (Texas Brine) 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 Brin e s ince 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. Certain of the plaintiffs and Texas Brine settled the Federal Court class action for approximately $48.1 million. This settlement has been approved by the court, and the settlement process is now subject to the terms of the court’s order and settlement agreement. Vulcan is named as a released party in the settlement agreement along with the other released parties, including Texas Brine, and its insurers. Texas Brine and its insurers did not, however, release Vulcan from any alleged claims, including claims for contribution and indemnity.	
 
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 b y T exas Bri ne . 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.

14

 

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 s 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	
2015 	 	 	
2014 	 	
ARO Operating Costs	 	 	 	 	 	
Accretion	$        2,851 	 	 	$        2,940 	 	
Depreciation	
1,433 	 	 	
997 	 	
Total	$        4,284 	 	 	$        3,937 	 	
 
ARO operating costs are reported in cost of revenues . AROs are reported within o ther 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	
2015 	 	 	
2014 	 	
Asset Retirement Obligations	 	 	 	 	 	
Balance at beginning of year	$     226,565 	 	 	$     228,234 	 	
  Liabilities incurred	
1,820 	 	 	
0 	 	
  Liabilities settled	
(6,730)	 	 	
(5,250)	 	
  Accretion expense	
2,851 	 	 	
2,940 	 	
  Revisions up (down), net	
14,183 	 	 	
(93)	 	
Balance at end of period	$     238,689 	 	 	$     225,831 	 	
 
The 20 1 5   upward revision s r elate to revised cost estimates an d   s pending patterns for several quarries located primarily in California.

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 and the Chemicals Hourly Plan are generally based on salaries or wages and years of service; the Construction Materials Hourly Plan provides 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 ceased 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.

15

 

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

 	 	 	 	 	 	
PENSION BENEFITS	Three Months Ended	 	
 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	
Components of Net Periodic Benefit Cost	 	 	 	 	 	
Service cost	$        1,213 	 	 	$        1,039 	 	
Interest cost	
11,037 	 	 	
11,098 	 	
Expected return on plan assets	
(13,684)	 	 	
(12,701)	 	
Amortization of prior service cost	
12 	 	 	
47 	 	
Amortization of actuarial loss	
5,454 	 	 	
2,805 	 	
Net periodic pension benefit cost	$        4,032 	 	 	$        2,288 	 	
Pretax reclassification from AOCI included in	 	 	 	 	 	
 net periodic pension benefit cost	$        5,466 	 	 	$        2,852 	 	
 
Prior contributions, along with the existing funding credits, are sufficient to cover required contributions to the qualified plans through 2015.
 
In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. 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.
 
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 for the three months ended March 31, 2014.
 
The following table sets forth the components of net periodic postretirement benefit cost:

 	 	 	 	 	 	
 	 	 	 	 	 	
OTHER POSTRETIREMENT BENEFITS	Three Months Ended	 	
 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	
Components of Net Periodic Benefit Cost	 	 	 	 	 	
Service cost	$           473 	 	 	$           536 	 	
Interest cost	
617 	 	 	
824 	 	
Curtailment gain	
0 	 	 	
(3,832)	 	
Amortization of prior service credit	
(1,058)	 	 	
(1,082)	 	
Amortization of actuarial (gain) loss	
(4)	 	 	
57 	 	
Net periodic postretirement benefit cost (credit)	$             28 	 	 	$       (3,497)	 	
Pretax reclassification from AOCI included in	 	 	 	 	 	
 net periodic postretirement benefit credit	$       (1,062)	 	 	$       (4,857)	 	
 
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.

 

16

 

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	
2015 	 	 	
2014 	 	 	
2014 	 	
AOCI	 	 	 	 	 	 	 	 	
Cash flow hedges	$       (18,074)	 	 	$       (20,322)	 	 	$       (22,193)	 	
Pension and postretirement benefit plans	
(138,711)	 	 	
(141,392)	 	 	
(72,733)	 	
Total	$     (156,785)	 	 	$     (161,714)	 	 	$       (94,926)	 	
 
Changes in AOCI, net of tax, for the three months ended March 31, 201 5 are as follows:

 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	Pension and 	 	 	 	 	
 	Cash Flow	 	 	Postretirement	 	 	 	 	
in thousands	Hedges	 	 	Benefit Plans	 	 	Total	 	
AOCI	 	 	 	 	 	 	 	 	
Balance as of December 31, 2014	$       (20,322)	 	 	$     (141,392)	 	 	$     (161,714)	 	
Other comprehensive income	 	 	 	 	 	 	 	 	
 before reclassifications	
0 	 	 	
0 	 	 	
0 	 	
Amounts reclassified from AOCI	
2,248 	 	 	
2,681 	 	 	
4,929 	 	
Net current period OCI changes	
2,248 	 	 	
2,681 	 	 	
4,929 	 	
Balance as of March 31, 2015	$       (18,074)	 	 	$     (138,711)	 	 	$     (156,785)	 	
 
Amounts reclassified from AOCI to earnings, are as follows:

 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
 	 	 	Three Months Ended	 	
 	 	 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	
Reclassification Adjustment for Cash Flow	 	 	 	 	 	
 Hedge Losses	 	 	 	 	 	
Interest expense	$          3,721 	 	 	$          4,934 	 	
Benefit from income taxes	
(1,473)	 	 	
(1,949)	 	
Total	$          2,248 	 	 	$          2,985 	 	
Amortization of Pension and Postretirement	 	 	 	 	 	
 Plan Actuarial Loss and Prior Service Cost	 	 	 	 	 	
Cost of revenues	$          3,532 	 	 	$         (1,587)	 	
Selling, administrative and general expenses	
872 	 	 	
(418)	 	
(Benefit from) provision for income taxes	
(1,723)	 	 	
783 	 	
Total 1  	$          2,681 	 	 	$         (1,222)	 	
Total reclassifications from AOCI to earnings	$          4,929 	 	 	$          1,763 	 	

1 	March 2014 includes a one-time curtailment gain (see Note 10) resulting from the sale of our cement and concrete businesses in the Florida area (see Note 16).	

 

17

 

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.
 
Under a program that was discontinued in the fourth quarter of 201 4 , w e occasionally s old 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. Under this arrangement, the stock issuances and resulting cash proceeds were as follows:
 
	§		twelve months ended December 31, 2014   — issued 485,306 shares for cash proceeds of $30,620,000	
	§		three months ended March 31, 2014   — issued 357,039 shares for cash proceeds of $22,808,000	
 
Changes in total equity for the three months ended March 31, 2015 are summarized below:

 	 	 	 	 	 	
 	 	 	 	 	 	
 	 	 	 	Total	 	
in thousands	 	 	 	Equity	 	
Balance at December 31, 2014	 	 	$    4,176,699 	 	
Net loss	 	 	
(39,678)	 	
Common stock issued	 	 	 	 	
  Share-based compensation plans	 	 	
19,194 	 	
Share-based compensation expense	 	 	
4,700 	 	
Excess tax benefits from share-based compensation	 	 	
7,575 	 	
Cash dividends on common stock ($0.10 per share)	 	 	
(13,253)	 	
Other comprehensive income	 	 	
4,929 	 	
Other	 	 	
1 	 	
Balance at March 31, 2015	 	 	$    4,160,167 	 	
 
There were no shares held in treasury as of March 31, 2015, December 31, 2014 and March 31, 2014. As of March 31, 2015, 3,411,416 shares may be repurchased under the current purchase authorization of our Board of Directors.

 

18

 

NOTE 13: SEGMENT REPORTING
 
We have four operating (and reportable) segments organized around our principal product lines: A ggregates, A sphalt M ix, C oncrete and Calciu m . T he 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	
2015 	 	 	
2014 	 	
Total Revenues	 	 	 	 	 	
Aggregates 1	$        503.5 	 	 	$        428.7 	 	
Asphalt Mix 2	
103.1 	 	 	
84.2 	 	
Concrete 2, 3	
59.8 	 	 	
96.0 	 	
Calcium 4	
1.8 	 	 	
18.2 	 	
 Segment sales	
668.2 	 	 	
627.1 	 	
Aggregates intersegment sales	
(36.9)	 	 	
(43.5)	 	
Calcium intersegment sales	
0.0 	 	 	
(9.2)	 	
Total revenues	$        631.3 	 	 	$        574.4 	 	
Gross Profit	 	 	 	 	 	
Aggregates	$          67.7 	 	 	$          38.5 	 	
Asphalt Mix 2	
8.8 	 	 	
4.7 	 	
Concrete 2, 3	
0.8 	 	 	
(9.2)	 	
Calcium 4	
0.6 	 	 	
0.1 	 	
Total	$          77.9 	 	 	$          34.1 	 	
Depreciation, Depletion, Accretion	 	 	 	 	 	
 and Amortization (DDA&A)	 	 	 	 	 	
Aggregates	$          55.5 	 	 	$          54.6 	 	
Asphalt Mix 2	
3.9 	 	 	
2.4 	 	
Concrete 2, 3	
2.7 	 	 	
6.0 	 	
Calcium 4	
0.2 	 	 	
1.1 	 	
Other	
4.4 	 	 	
5.3 	 	
Total	$          66.7 	 	 	$          69.4 	 	
Identifiable Assets 5	 	 	 	 	 	
Aggregates	$     7,331.7 	 	 	$     7,004.2 	 	
Asphalt Mix 2	
324.5 	 	 	
225.4 	 	
Concrete 2, 3	
173.3 	 	 	
240.4 	 	
Calcium 4	
5.7 	 	 	
14.6 	 	
Total identifiable assets	$     7,835.2 	 	 	$     7,484.6 	 	
General corporate assets	
122.7 	 	 	
118.8 	 	
Cash items	
392.7 	 	 	
268.8 	 	
Total	$     8,350.6 	 	 	$     7,872.2 	 	

 	 	

1 	Includes crushed stone, sand and gravel, sand, other aggregates , as well as freight, delivery and transportation revenues, and other revenues related to services .	

2 	In January 201 5 , we exchanged our California ready-mixed concrete operations for 13 asphalt mix plants, primarily in Arizona (see Note 16) .	

3 	Includes ready-mixed concrete. In March 2014, we sold our concrete business in the Florida area (see Note 16) which in addition to ready-mixed concrete, included concrete block, precast concrete, as well as building materials purchased for resale.	

4 	Includes cement and calcium products. In March 201 4 , we sold our cement business (see Note 16).	

5 	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.	

 

19

 
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	
2015 	 	 	
2014 	 	
Cash Payments	 	 	 	 	 	
Interest (exclusive of amount capitalized)	$       21,869 	 	 	$       83,801 	 	
Income taxes	
2,062 	 	 	
3,209 	 	
Noncash Investing and Financing Activities	 	 	 	 	 	
Accrued liabilities for purchases of property, plant & equipment	$       13,340 	 	 	$       16,035 	 	
Amounts referable to business acquisitions	 	 	 	 	 	
 Fair value of noncash assets and liabilities exchanged	
20,000 	 	 	
0 	 	

NOTE 15: GOODWILL
 
Goodwill is recognized when the consideration paid for a business 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 , 201 5 and 201 4 .
 
We have four reportable segments organized around our principal product lines: A ggregates, A sphalt M ix , Concrete and Calciu m .   T he c hanges in the carrying amount of goodwill by reportable segment from December 31, 201 4 to March 31 , 201 5   as summarized below:
 
GOODWILL

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
in thousands	Aggregates	 	 	Asphalt Mix	 	 	Concrete	 	 	Calcium	 	 	Total	 	
Goodwill	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total as of December 31, 2014	$  3,003,191 	 	 	$     91,633 	 	 	$              0 	 	 	$              0 	 	 	$    3,094,824 	 	
Goodwill of acquired businesses	
0 	 	 	
0 	 	 	
0 	 	 	
0 	 	 	
0 	 	
Goodwill of divested businesses	
0 	 	 	
0 	 	 	
0 	 	 	
0 	 	 	
0 	 	
Total as of March 31, 2015	$  3,003,191 	 	 	$     91,633 	 	 	$              0 	 	 	$              0 	 	 	$    3,094,824 	 	
 
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.

 

20

 

NOTE 16: ACQUISITIONS AND DIVESTITURES
 
ACQUISITIONS
Through the three months ended March 31, 2015, we purchased the following for $20,000,000 of consideration (in the form of twelve California ready-mixed concrete operations   valued at $20,000,000 ):
 
	§		thirteen asphalt mix plants, primarily in Arizona	
 
As a result, we recognized $ 7,168,000   of amortizable intangible assets (contractual rights in place). The contractual rights in place will be amortized against earnings on a straight-line basis over   20 years and will be deductible for income tax purposes over 15 years.   The purchase price allocation is preliminary pending appraisals of contractual rights in place and property, plant & equipment.
 
For the full year 2014, we purchased the following for total consideration of $331,836,000  ( $284,237,000   cash ;   $2,414,000   exchanges of real property and businesses; and $45,185,000 Vulcan Materials Company common stock ( 715,004   shares)):
 
	§		two portable asphalt plants and an aggregates facility in southern California	
	§		five aggregates facilities and associated downstream assets in Arizona and New Mexico	
	§		two aggregates facilities in Delaware, serving northern Virginia and Washington, D.C.	
	§		four aggregates facilities in the San Francisco Bay Area	
	§		a rail-connected aggregates operation and two distribution yards that serve the greater Dallas/Fort Worth market	
	§		a permitted aggregates quarry in Alabama	

DIVESTITURES AND PENDING DIVESTITURES
As noted above, in the first quarter of 2015, we exchanged twelve ready-mixed concrete operations in California (representing all of our California concrete operations) for thirteen asphalt mix plants (primarily in Arizona) resulting in a pretax gain of $5,886,000 .
 
For the full year 2014, we sold:
 
	§		First quarter — our cement and concrete businesses in the Florida area for net pretax cash proceeds of $721,359,000 resulting in a pretax gain of $227,910,000 . We retained all of our Florida aggregates operations, our former 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 cash flows (generated via the supply agreement and the retained operation and assets), the disposition is not reported as discontinued operations	
	§		First quarter — a previously mined and subsequently reclaimed tract of land in Maryland (Aggregates segment) for net pretax cash proceeds of $10,727,000 resulting in a pretax gain of $168,000	
	§		First quarter — unimproved land in Tennessee previously containing a sales yard (Aggregates segment) for net pretax cash proceeds of $5,820,000 resulting in a pretax gain of $5,790,000	
 
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.

21

 

No assets met the criteria for held for sale at March 31, 2015. As of December 31, 2014, twelve ready-mixed concrete facilities in California are presented in the accompanying Condensed Consolidated Balance Sheets as assets held for sale and liabilities of assets held for sale. During the first quarter of 2015,   we swapped these ready mixed concrete facilitie s f or thirteen asphalt mix operations, primarily in Arizona (as noted above). No assets met the criteria for held for sale at March 31, 2014. For all periods presented, the major classes of assets and liabilities of assets classified as held for sale are as follows :

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	March 31	 	December 31	 	March 31	 	
in thousands	 	 	 	
2015 	 	 	
2014 	 	 	
2014 	 	
Held for Sale	 	 	 	 	 	 	 	 	 	 	 	
Current assets	 	 	 	$              0 	 	 	$       1,773 	 	 	$              0 	 	
Property, plant & equipment, net	 	 	 	
0 	 	 	
12,764 	 	 	
0 	 	
Other intangible assets, net	 	 	 	
0 	 	 	
647 	 	 	
0 	 	
Total assets held for sale	 	 	 	$              0 	 	 	$     15,184 	 	 	$              0 	 	
Asset retirement obligations	 	 	 	$              0 	 	 	$          520 	 	 	$              0 	 	
Total liabilities of assets held for sale	 	 	 	$              0 	 	 	$          520 	 	 	$              0 	 	

NOTE 17: NEW ACCOUNTING STANDARDS
 
ACCOUNTING STANDARDS RECENTLY ADOPTED
 
SHARE-BASED AWARDS  As of and for the interim period ended March 31, 2015, we adopted Accounting Standards Update (ASU) No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period.” This ASU clarified the proper method of accounting for share-based awards when the terms of an award provide that a performance target could be achieved after the requisite service period. Under prior guidance, there was a lack of consistency in the measurement of the grant-date fair values of awards with these types of performance targets. Under ASU 2014-12, a performance target that affects vesting and could be achieved after completion of the service period should be treated as a performance condition and, as a result, should not be included in the estimation of the grant-date fair value. Rather, an entity should recognize compensation cost for the award when it becomes probable that the performance target will be achieved. Previously, we accounted for share-based awards with these types of performance targets in accordance with ASU 2014-12. Our adoption of this standard had no material impact on our financial position, results of operations or liquidity.
 
DISCONTINUED OPERATIONS REPORTING  As of and for the interim period ended March 31, 2015, we adopted ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU changed the definition of and expanded the disclosure requirements for discontinued operations. Under the new definition, discontinued operations reporting is limited to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The expanded disclosures for discontinued operations are meant to provide users of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations. Additionally, this ASU requires an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. Our adoption of this standard had no material impact on our financial position, results of operations or liquidity.
 
ACCOUNTING STANDARDS PENDING ADOPTION
 
DEBT ISSUANCE COST  In April 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which changes the presentation of debt issuance costs in financial statements. Under the new presentation, debt issuance costs will be presented in the balance sheet as a d eduction from the related debt liability (rather than as a prepaid expense ) . The amortization of such costs will continue to be reported as interest expense. This ASU is effective for annual reporting periods beginning after December 15, 2015, and including interim periods within that reporting period. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

22

 

CONSOLIDATION  In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis,” which amends existing consolidation guidance for reporting entities that are required to evaluate whether they should consolidate certain legal entities. This ASU is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted. We will adopt this standard as of and for the interim period ending March 31, 2016. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
 
GOING CONCERN  In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern (meet its obligations as they become due) within one year after the date that the financial statements are issued. If conditions or events raise substantial doubt about the entity’s ability to continue as a going concern, certain disclosures are required. This ASU is effective for annual reporting periods ending after December 15, 2016, and interim reporting periods thereafter. Early adoption is permitted. We will adopt this standard as of and for the annual period ending December 31, 2016. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
 
REVENUE RECOGNITION  In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU provides a more robust framework for addressing revenue issues and expands required revenue recognition disclosures. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual reporting periods. Early adoption is not permitted. We are currently evaluating the impact of adoption of this ASU on our consolidated financial statements.

NOTE 1 8 :   SUBSEQUENT EVENTS
 
In April 2015, we redeemed $343,819,000   principal amount of debt as follows: $ 125,001,000   of 6.50% notes due 2016 ,   $218,633,000 of 6.40% notes due 2017   and an additional $185,000 of 7.00% notes due 2018 ( $ 127,303,000   of the se 2018   notes were purchased in March ) .   These debt redemptions were funded by a portion of the net proceeds of the March issuance of $400,000,000 of 4.50% senior notes due 2025, cash on hand and   borrowings under our line of credit .   The April 2015 debt redemptions cost $384,990,000 , including a $41,153,000 premium above the principal amount of the notes and   transaction costs of $18,000 .   The premiu m r eflects the make-whole cost of redeeming the 2016 and 2017 notes prior to maturity and the trading price of the 2018 notes relative to par . A dditionally, we recognized a non-cash cost of $4,132,000 associate d with the acceleration of unamortized discounts, deferred gains , deferred financing cost s a nd amounts accumulated in OCI. T he combined charge of $45,303,000 will be presented in the Condensed Consolidated Statement of Comprehensive Income as a component of interest expense.

 

23

 

ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL COMMENTS
 
OVERVIEW
 
Vulcan provides the basic materials for the infrastructure needed to expand the U.S. economy. We are 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 .
 
Demand for our products is dependent on construction activity and correlates positively with changes in population growth, household formation and employment . The primary end uses include public construction, such as highways, bridges, airports, schools and prisons, as well as private nonresidential (e.g., manufacturing, retail, offices, industrial and institutional) and private residential construction (e.g., single-family houses, duplexes, apartment buildings and condominiums). Customers for our products include heavy construction and paving contractors; commercial building contractors; concrete products manufacturers; residential building contractors; state, county and municipal governments; railroads and electric utilities.
 
We operate primarily in the United States and our principal product — aggregates — is used in virtually all types of public and private construction projects and in the production of asphalt mix and ready-mixed concrete. Aggregates have a high weight-to-value ratio and, in most cases, must be produced near where they are used; if not, transportation can cost more than the materials , rendering them uncompetitive compared to locally produced materials . Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available high quality aggregates. We serve these markets from quarries that have access to long-haul transportation — shipping by ba rge and rail — and from our quarry on Mexico's Yucatan Peninsula. We transport aggregates from Mexico to the U.S. principally on our three Panamax-class, self-unloading ships.
 
There are practically no substitutes for quality aggregates. Because of barriers to entry created in many metropolitan markets by zoning and permitting regulation and because of high transportation costs relative to the value of the product, the location of reserves is a critical factor to our long-term success.
 
While aggregates is our focus and primary business, we believe vertical integration between aggregates and downstream products, such as asphalt mix and concrete, can be managed effectively in certain markets to generate acceptable financial returns. We produce and sell asphalt mix and /or ready-mixed concrete primarily in our mid-Atlantic, Georgi a ,  s outhwestern and western markets. Aggregates comprise approximately 95% of asphalt mix by weight and 78% of ready-mixed concrete by weight. In all of these downstream businesse s, a ggregates are primarily suppl ied from our own operations.
 
SEASONALITY AND CYCLICAL NATURE OF OUR BUSINESS
 
Almost all our products are produced and consumed outdoors. Seasonal changes and other weather-related conditions can affect the production and sales volumes of our products. Therefore, the financial results for any quarter do not necessarily indicate the results expected for the year. Normally, the highest sales and earnings are in the third quarter and the lowest are in the first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical swings in construction spending, primarily in the private sector. The levels of construction spending are affected by changing interest rates and demographic and population fluctuations.

24

 
EXECUTIVE SUMMARY
 
FINANCIAL HIGHLIGHTS FOR FIRST QUARTER 201 5
 
Compared to first quarter 201 4 :
	§		Total revenues increased $56.9 million, or 10%, to $631.3 million	
	§		Gross profit increased $43.8 million, or 128%, to $77.9 million	
	§		Aggregates freight-adjusted revenues increased $55.7 million, or 17%, to $379.9 million	
	§		Shipments increased 13%, or 3.9 million tons, to 33.5 million tons	
	§		Same-store shipments increased 9%, or 2.7 million tons	
	§		Average freight-adjusted sales price increased 4%   despite negative product mix	
	§		Segment gross profit increased $29.2 million, or 76%, to $67.7 million	
	§		Incremental gross profit as a percentage of freight-adjusted revenues was 52 %	
	§		A sphalt Mix, Concrete and Calcium segment gross profit improved $14.6 million collectively	
	§		Selling, a dministrative and g eneral expenses were in line with the prior year, at $66. 8 million	
	§		Loss from continuing operations was $36.7 million, or $0.28 per diluted share, compared to earnings of $54.5 million, or $0.41 per diluted share in the first quarter of 2014	
	§		Discrete items in the first quarter of 2015 include:	
	§		a pretax gain of $3.5 million (net of transaction related charges) for our swap of concrete assets for asphalt assets,	
	§		a pretax charge of $2.8 million for restructuring, and	
	§		a pretax charge for debt purchase of $21.7 million	
	§		Discrete items in the first quarter of 2014 include:	
	§		a pretax gain of $226.9 million (net of related charges) for  the sale of real estate and business es including our cement and concrete businesses in the Florida area, and	
	§		a pretax charge for debt purchase of $72.9 million	
	§		Adjusted for these items, loss from continuing operations was $0.16 per diluted share versus a loss of $0.28 per diluted share in the prior year’s first quarter	
	§		Adjusted EBITDA was $ 7 6.8 million, an increase of $ 3 7.8 million, or 97%	
 
Our first quarter results reflect strong earnings growth and improvement in our aggregates unit profitability. Although demand for our products remains well below normal levels, the gradual recovery in construction activity continues across most of our markets. As a result of improving market conditions and our continued focus on internal profit improvements, both pricing and margins continue to expand.
 
We were pleased with our first quarter results, despite challenging weather in several key markets. Underlying demand remains strong and we are seeing accelerating momentum in aggregates volumes and pricing throughout our markets. The growth rate in our trailing twelve month aggregates shipments has increased for seven consecutive quarters and, as expected, that momentum is beginning to benefit aggregates pricing. This momentum underscores our confidence in our full year expectations.
 
Our full year expectations for 2015 include Adjusted EBITDA of $775 to $825 million, driven by strong growth in Aggregates segment gross profit, earnings improvement in our non-aggregates businesses and continuing leverage of our selling, administrative and general expenses. Supporting these expectations for strong earnings growth is an 11% increase in aggregates shipments (8% same-store) and a 6 % increase in pricing. During the first quarter, we realized cost savings from lower costs for diesel fuel. If diesel prices remain at current levels, our Adjusted EBITDA expectations would move towards the high end of our guidance.
 
During March and subsequently in April, we completed major components of the refinancing plan announced during our February 25, 2015 Investor Day. In March, we issued $400.0 million of 4.5 0 % unsecured notes due in 2025, repurchased $127.3 million of 7.00% notes due 2018 and fully syndicated a $250.0 million increase in our revolving credit facility (we expect to close on a new facility in May 2015). Subsequently in April, we repurchased $343.8 million of debt due in 2016, 2017 and 2018. Therefore, through April, we have repurchased $471.1 million of debt that would otherwise have matured over the next five years. Furthermore, we will utilize the expanded capacity of our revolving credit facility to refinance the $150.0 million note due December 2015. The results of these actions include : total debt remaining at approximately $2 .0 billion, enhanced financial flexibility, a better match of the debt portfolio duration to our asset base, and a lower weighted-average interest rate.  

25

 

R efinancing expenses, including the acceleration of previously deferred financing costs associated with the completed and planned actions , are expected to be approximately $68.6 million, $21.7 million of which was incurred in the first quarter and was reported as part of interest expense. The remainder will be reported as part of interest expense in the second quarter. Th e timing of these actions resulted in a temporary $272.3 million year-to-date increase to total debt as of March 31, 2015. Subsequent to the April redemptions, total debt returned to approximately $2.0 billion.
 
In January 2015, we completed an exchange transaction in which we exited the ready-mixed concrete business in California and added thirteen asphalt plant locations ,   primarily in Arizon a. We will continue to supply aggregates t o o ur former ready-mixed concrete plants in California . This transaction resulted in a gain of $5.9 million, partially offset by $2.4 million of transaction related charges.

 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
Gross profi t   margin excluding freight and delivery revenues is not a Generally Accepted Accounting Principle (GAAP) measure. We present this metric as it is consistent with the basis by which we review our operating results. Likewise, we believe that this presentation is consistent with the basis by which investors analyze our operating results considering that freight and delivery services represent pass-through activities. Reconciliation of thi s metric to its nearest GAAP measure is presented below:

GROSS P ROFIT MARGIN IN ACCORDANCE WITH GAAP

 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
dollars in millions	
2015 	 	 	
2014 	 	
Gross profit	$          77.9 	 	 	$          34.1 	 	
Total revenues	$        631.3 	 	 	$        574.4 	 	
Gross profit margin	
12.3% 	 	 	
5.9% 	 	

GROSS PROFIT MARGIN EXCLUDING FREIGHT AND DELIVERY REVENUES

 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
dollars in millions	
2015 	 	 	
2014 	 	
Gross profit	$          77.9 	 	 	$          34.1 	 	
Total revenues	$        631.3 	 	 	$        574.4 	 	
Freight and delivery revenues 1	
106.4 	 	 	
88.9 	 	
Total revenues excluding freight and delivery revenues	$        524.9 	 	 	$        485.5 	 	
Gross profit margin excluding	 	 	 	 	 	
 freight and delivery revenues	
14.8% 	 	 	
7.0% 	 	

1 	Includes freight to remote distribution sites.	

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Aggregates segment gross profi t a s a percentage of freight-adjusted revenues is not a GAAP measure. We present this metric as it is consistent with the basis by which we review our operating results. W e believe that this presentation is more meaningful to our investors as it excludes freight, delivery and transportation revenues which are pass-through activit ies . It also excludes immaterial other revenues related to services, such as landfill tipping fees, that are derived from our aggregates business.   Incremental gross profit as a percentage of freight-adjusted revenues represents the year-over-year change in gross profit divided by the year-over-year change in freight-adjusted revenues. Reconciliation s of these metric s to their nearest GAAP measure s are presented below:

AGGREGATES SEGMENT GROSS PROFIT MARGIN IN ACCORDANCE WITH GAAP

 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
dollars in millions	
2015 	 	 	
2014 	 	
Aggregates segment	 	 	 	 	 	
Gross profit	$          67.7 	 	 	$          38.5 	 	
Segment sales	
503.5 	 	 	
428.7 	 	
Gross profit margin	
13.4% 	 	 	
9.0% 	 	
Incremental gross profit margin	
39.0% 	 	 	 	 	

AGGREGATES SEGMENT GROSS PROFIT A S A PERCENTAGE OF
FREIGHT-ADJUSTED REVENUES

 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
dollars in millions	
2015 	 	 	
2014 	 	
Aggregates segment	 	 	 	 	 	
Gross profit	$          67.7 	 	 	$          38.5 	 	
Segment sales	$        503.5 	 	 	$        428.7 	 	
Excluding	 	 	 	 	 	
 Freight, delivery and transportation revenues 1	
117.4 	 	 	
100.2 	 	
 Other revenues	
6.2 	 	 	
4.3 	 	
Freight-adjusted revenues	$        379.9 	 	 	$        324.2 	 	
Gross profit as a percentage of	 	 	 	 	 	
 freight-adjusted revenues	
17.8% 	 	 	
11.9% 	 	
Incremental gross profit as a percentage of	 	 	 	 	 	
 freight-adjusted revenues	
52.4% 	 	 	 	 	

1 	At the segment level, freight, delivery and transportation revenues include intersegment freight & delivery revenues, which are eliminated at the consolidated level.	

27

 

GAAP does not define “ free cash flow,” "cash gross profit" and “Earnings Before Interest, Taxes, Depreciation and Amortization” (EBITDA). Thus, free cash flow should not be considered as an alternative to net cash provided by operating activities or any other liquidity measure defined by GAAP. Likewise, cash gross profit and EBITDA should not be considered as alternatives to earnings measures defined by GAAP. We present these metrics for the convenience of investment professionals who use such metrics in their analyses   and for shareholders who need to understand the metrics we use to assess performance and to monitor our cash and liquidity positions. The investment community often uses these metrics as indicators of a company's ab ility to incur and service debt and to assess the operating performance of a company’s businesses. We use free cash flow, cash gross profit, EBITDA and other such measures to assess liquidity and the operating performance of our variou s business units and the consolidated company. Additionally, we adjust EBITDA for certain items to provide a more consistent comparison of performance from period to period .   We do not use these metrics as a measure to allocate resources. Reconciliations of these metrics to their nearest GAAP measures are presented below:

FREE CASH FLOW
 
Free cash flow deducts purchases of property, plant & equipment from net cash provided by operating activities.

 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
in millions	
2015 	 	 	
2014 	 	
Net cash provided by (used for) operating activities	$          19.2 	 	 	$           (5.0)	 	
Purchases of property, plant & equipment	
(49.6)	 	 	
(46.0)	 	
Free cash flow	$         (30.4)	 	 	$         (51.0)	 	

CASH GROSS PROFIT
 
Cash gross profit adds back noncash charges for depreciation, depletion, accretion and amortization (DDA&A) to gross profit. Cash gross profit per ton is computed by dividing cash gross profit by tons shipped.

 	 	 	 	 	 	
 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
in millions, except per ton data	
2015 	 	 	
2014 	 	
Aggregates segment	 	 	 	 	 	
Gross profit	$          67.7 	 	 	$          38.5 	 	
DDA&A	
55.5 	 	 	
54.6 	 	
Aggregates segment cash gross profit	$        123.2 	 	 	$          93.1 	 	
Unit shipments - tons	
33.5 	 	 	
29.6 	 	
Aggregates segment cash gross profit per ton	$          3.68 	 	 	$          3.14 	 	
Asphalt Mix segment	 	 	 	 	 	
Gross profit	$            8.8 	 	 	$            4.7 	 	
DDA&A	
3.9 	 	 	
2.4 	 	
Asphalt Mix segment cash gross profit	$          12.7 	 	 	$            7.1 	 	
Concrete segment	 	 	 	 	 	
Gross profit	$            0.8 	 	 	$           (9.2)	 	
DDA&A	
2.7 	 	 	
6.0 	 	
Concrete segment cash gross profit	$            3.5 	 	 	$           (3.2)	 	
Calcium segment	 	 	 	 	 	
Gross profit	$            0.6 	 	 	$            0.1 	 	
DDA&A	
0.2 	 	 	
1.1 	 	
Calcium segment cash gross profit	$            0.8 	 	 	$            1.2 	 	

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EBITDA AND ADJUSTED EBITDA
 
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization   and excludes discontinued operations .   We adjust EBITDA for certain items to provide a more consistent comparison of performance from period to period.

 

 	Three Months Ended	 	
 	March 31	 	
in millions	
2015 	 	 	
2014 	 	
Net earnings (loss)	$         (39.7)	 	 	$          54.0 	 	
Provision for (benefit from) income taxes	
(14.1)	 	 	
22.9 	 	
Interest expense, net	
62.5 	 	 	
120.1 	 	
Loss on discontinued operations, net of taxes	
3.0 	 	 	
0.5 	 	
Depreciation, depletion, accretion and amortization	
66.8 	 	 	
69.4 	 	
EBITDA	$          78.5 	 	 	$        266.9 	 	
Gain on sale of real estate and businesses	$           (5.9)	 	 	$       (236.0)	 	
Charges associated with acquisitions and divestitures	
2.4 	 	 	
9.1 	 	
Amortization of deferred revenue	
(1.0)	 	 	
(1.0)	 	
Restructuring charges	
2.8 	 	 	
0.0 	 	
Adjusted EBITDA	$          76.8 	 	 	$          39.0 	 	

29

 
RESULTS OF OPERATIONS
 
Total revenues include sales of products to customers, net of any discounts and taxes, and freight and delivery revenues billed to customers. Related freight and delivery costs are included in cost of revenues. This presentation is consistent with the basis on which we review our consolidated results of operations. We discuss separately our discontinued operations, which consist of our former Chemicals business.
 
The following table highlights significant components of our consolidated operating results including  E BITDA and Adjusted EBITDA .
 
CON SOLIDATED OPERATING RESULT HIGHLIGHT S

 	 	 	 	 	 	
 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
in millions, except per share data	
2015 	 	 	
2014 	 	
Total revenues	$        631.3 	 	 	$        574.4 	 	
Cost of revenues	
553.4 	 	 	
540.3 	 	
Gross profit	$          77.9 	 	 	$          34.1 	 	
Selling, administrative and general expenses	$          66.8 	 	 	$          66.1 	 	
Gain on sale of property, plant & equipment	 	 	 	 	 	
 and businesses, net	$            6.4 	 	 	$        236.4 	 	
Operating earnings	$          10.8 	 	 	$        194.7 	 	
Interest expense, net	$          62.5 	 	 	$        120.1 	 	
Earnings (loss) from continuing operations	 	 	 	 	 	
 before income taxes	$         (50.7)	 	 	$          77.4 	 	
Earnings (loss) from continuing operations	$         (36.7)	 	 	$          54.5 	 	
Loss on discontinued operations,	 	 	 	 	 	
 net of taxes	
(3.0)	 	 	
(0.5)	 	
Net earnings (loss)	$         (39.7)	 	 	$          54.0 	 	
Basic earnings (loss) per share	 	 	 	 	 	
  Continuing operations	$         (0.28)	 	 	$          0.42 	 	
  Discontinued operations	
(0.02)	 	 	
(0.01)	 	
Basic net earnings (loss) per share	$         (0.30)	 	 	$          0.41 	 	
Diluted earnings (loss) per share	 	 	 	 	 	
  Continuing operations	$         (0.28)	 	 	$          0.41 	 	
  Discontinued operations	
(0.02)	 	 	
0.00 	 	
Diluted net earnings (loss) per share	$         (0.30)	 	 	$          0.41 	 	
EBITDA	$          78.5 	 	 	$        266.9 	 	
Adjusted EBITDA	$          76.8 	 	 	$          39.0 	 	

30

 

ADJUSTED CONCRETE AND C ALCIUM SEGMENT FINANCIAL DATA
 
Comparative financial data adjusted for both the January 2015 exchange of our California concrete business and the March 2014 sale of our concrete and cement businesses in the Florida area is summarized below:

 	 	 	 	 	 	
 	Three Months Ended	 	
 	March 31	 	
in millions	
2015 	 	 	
2014 	 	
Concrete Segment	 	 	 	 	 	
 Segment sales	 	 	 	 	 	
   As reported	$          59.8 	 	 	$          96.0 	 	
   Adjusted	$          54.7 	 	 	$          48.2 	 	
 	 	 	 	 	 	
 Total revenues	 	 	 	 	 	
   As reported	$          59.8 	 	 	$          96.0 	 	
   Adjusted	$          54.7 	 	 	$          48.2 	 	
 	 	 	 	 	 	
 Gross profit	 	 	 	 	 	
   As reported	$            0.8 	 	 	$           (9.2)	 	
   Adjusted	$            1.6 	 	 	$           (4.4)	 	
 	 	 	 	 	 	
  DDA&A	 	 	 	 	 	
   As reported	$            2.7 	 	 	$            6.0 	 	
   Adjusted	$            2.6 	 	 	$            3.9 	 	
 	 	 	 	 	 	
Shipments - cubic yards	 	 	 	 	 	
   As reported	
0.6 	 	 	
1.0 	 	
   Adjusted	
0.5 	 	 	
0.5 	 	
Calcium Segment	 	 	 	 	 	
 Segment sales	 	 	 	 	 	
   As reported	$            1.8 	 	 	$          18.2 	 	
   Adjusted	$            1.8 	 	 	$            2.2 	 	
 	 	 	 	 	 	
 Total revenues	 	 	 	 	 	
   As reported	$            1.8 	 	 	$            9.0 	 	
   Adjusted	$            1.8 	 	 	$            2.2 	 	
 	 	 	 	 	 	
 Gross profit	 	 	 	 	 	
   As reported	$            0.6 	 	 	$            0.1 	 	
   Adjusted	$            0.6 	 	 	$            0.4 	 	
 	 	 	 	 	 	
  DDA&A	 	 	 	 	 	
   As reported	$            0.2 	 	 	$            1.1 	 	
   Adjusted	$            0.2 	 	 	$            0.1 	 	

 

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FIRST QUARTER 2015 COMPARED TO FIRST QUARTER 2014
 
Total revenues for the first quarter of 2015 were $631.3 million, up 10% from the first quarter of 2014. Shipments increased in aggregates (+13%) and asphalt mix (+23%) while they declined in ready-mixed concrete (-40%). The reduction in ready-mixed concrete shipments resulted from our exiting the concrete businesses in Florida and California; as noted on the previous page, same-store concrete shipments were flat. Lower diesel fuel costs resulted in approximately $ 13.8 million in pretax cost savings, with most of the benefit realized in the Aggregates segment.
 
Results for the first quarter of 201 5 were a net loss of $ 39. 7 million, or $ 0.30 per diluted share, compared to net earnings of $ 54.0 million, or $0. 41 per diluted share, in the first quarter of 201 4 . Each period’s results were impacted by discrete items, as follows:
 
	§		The first quarter of 201 5 results include a pretax gain of $ 3.5 million (net of $2. 4 millio n o f   transaction related charges) related to th e e xchange of twelve California ready-mixed concrete operations for thirteen asphalt mix plants (primarily in Arizona) ,   a $2.8 million charge for restructuring, and a pretax loss on debt purchase of $ 21.7 million presented as a component of interest expense (see Note 7 to the condensed consolidated financial statements)	
	§		The first quarter of 201 4 results include a pretax gain of $ 226.9 million (net of $9.1 million of disposition related charges) related to the sale of real estate and businesses including our cement and concrete businesses in the Florida area, and a pretax loss on debt purchase of $72.9 million presented as a component of interest expense (see Note 7   to the condensed consolidated financial statements)	
 
CONTINUING OPERATIONS — Changes in earnings from continuing operations before income taxes for the first quarter of 201 5 versus the first quarter of 201 4 are summarized below:
 
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 	 	 	
 	 	 	
in millions	 	 	
First quarter 2014	$       77.4 	 	
Higher aggregates gross profit	
29.2 	 	
Higher asphalt mix gross profit	
4.1 	 	
Higher concrete gross profit	
10.0 	 	
Higher calcium gross profit	
0.5 	 	
Lower gain on sale of property, plant & equipment and businesses	
(230.0)	 	
Higher restructuring charges	
(2.8)	 	
Lower interest expense, net	
57.6 	 	
All other	
3.3 	 	
First quarter 2015	$      (50.7)	 	
 
Aggregates freight-adjusted revenues were $379.9 million, up 17% from the prior year’s first quarter, supported by strong volume growth across most of our footprint. On a same-store basis, total aggregates shipments increased 9 % from the prior year , despite unseasonably cold winter weather in certain key markets . Overall, first quarter aggregates shipments increased 13%, or 3.9 million tons, compared to the prior year.
 
Shipment momentum continued to improve across most of our footprint, driven by strengthening construction activity across all end-use markets. On a same-store basis, Arizona, Florida, Illinois, North Carolina, Texas and Virginia each saw shipment growth greater than 10%. Same-store aggregates shipments in California increased 8 % .  I n   contras t ,   G eorgia aggregates shipments for the quarter declined 4% due to adverse weather conditions ; our full year outlook for Georgia shipments remains unchanged. These shipment increases, coming despite weather limiting available construction days i n several markets, reflect the growing strength of the recovery in aggregates demand in Vulcan-served markets. For the twelve months ended March 31, same-store shipments rose 11% over the prior year period. This quarter was the seventh consecutive quarter in which the rate of shipment growth, on a consecutive trailing twelve month basis, has increased. We should note, however, that overall demand for aggregates remains well below historic levels despite these recent gains .
 
Freight-adjusted average sales price for aggregates increased approximately 4%, or $0.40 per ton ($0.44 per ton on a same-store basis) , versus the prior year’s first quarter, with most markets realizing accelerating price improvement. Product mix muted the impact of real price increases in some key markets, including Virginia, where lar g e shipments of lower-price d fines product combined with weather-related shipment delays   contributed to an approximately 5% decline in quarterly average selling prices over the prior year. In m any markets , price increases announced April 1 have been well accepted. Given these and other indicators, we expect overall aggregates pricing to continue to rise throughout the year.

32

 
During the first quarter, same-store unit margins continued to expand faster than unit pricing. Aggregates segment gross profit per ton increased $0.81, or 62%, from the prior year. Cash gross profit per ton increased $0.57, or 18%, from the prior year. On a trailing twelve month basis, same-store unit gross profit increased 21%, while unit cash gross profit has increased 10% to $4.85 per ton – a new twelve month high despite cyclically low volumes. These results, which were aided in the first quarter by the year-on-year decline in diesel costs, also reflect our continued commitment to plant-level cost controls and operating disciplines.
 
I ncremental gross profit margin leverage was strong in the first quarter – on a same-store basis we exceeded our goal of 60% over time. Lower costs for diesel fuel helped offset costs associated with the integration of acquisitions completed late last year. Compared to last year, our first quarter cost of revenues benefitted approximately $ 13.8 million from lower diesel fuel costs, with approximately $ 12.7 million of this benefit realized in the Aggregates segment.
 
Asphalt Mix segment gross profit was $8.8 million in the first quarter of 2015 versus $4.7 million in the prior year. This year-over-year improvement was due to improved margins and higher volumes. Same-store asphalt volumes increased 6% due to strong growth in Arizona and California.
 
Concrete segment gross profit improved $10.0 million from a loss of $ 9.2 million in th e p rior year. Last y ear ’ s first quarter results included our Florida concrete business that was sold in March 2014 as well as our California concrete business that was divested via an asset swap in January 2015. On a same-store basis, sales volumes were flat versus the prior year due to unusually cold weather in Virginia and Maryland . Pricing and unit profitability improved and as a result, same store gross profit increased $6.0 million   (see chart two pages preceding ) .
 
Our cement business was also sold in March of last year . W e retained our calcium products business that is now reported separately as a segment .   The Calcium segment reported   first quarter gross profit of $0.6 million as compared to $0.4 million on a same-store basis in the first quarter of 2014 (see chart two pages preceding ) .
 
SAG expenses in the first quarter of 201 5   were in line with the first quarter of 201 4. W e intend to further leverage SAG expenses to sales throughout the remainder of the year.   W e expect that full-year pension and post-retirement related costs, a portion of which flow through selling, administrative and general (SAG) expen ses , wi ll be approximately $ 9.6   million higher (or $5. 8 million excluding a one-time curtailment gain of $3.8 million recognized in the first quarter of 2014) than the prior year primarily due to changes in assumptions used to value future obligations.
 
Gain on sale of property, plant & equipment and businesses was $ 6.4 million in the first quarter of 2015 compared to $236.4 million in the first quarter of 2014. The 2015 gain includes the first quarter exchange (we exited the ready-mixed concrete business in California and added thirteen asphalt plant locations, primarily in Arizona) which resulted in a pretax gain of $ 5.9 million. The 2014 gain includes the first quarter sale of our cement and concrete businesses in Florida to Cementos Argos which resulted in a pretax gain of $230.1 million. Additionally, the sale of two reclaimed production sites increased the 2014 pretax gain by $6.0 million.
 
Restructuring charges   were $ 2.8   million in the first quarter of 201 5 compared to none in the first quarter of 201 4 . See Note 1 to the condensed consolida t ed financial statements for an explanation of these costs.
 
Net interest expense was $ 62.5 million in the first quarter of 201 5 compared to $ 120.1 million in 201 4 .   The lower interest expense resulted primarily from the lower ($ 21.7 million first quarter of 2015 vs. $72.9 million first quarter of 2014) pretax loss on debt purchase .   See Note 7 to the condensed consolida t ed financial statements for an explanation of these costs.
 
We recorded an income tax benefit from continuing operations of $ 14.1   million in the first quarter of 201 5 compared to an income tax provision of $ 22.9 million in the first quarter of 201 4 .   In the first quarter s of 201 5 and 2014 , income taxes were calculated based on the EAET R.   T he EAET R method for calculating income taxes is discussed in Note 3 to the condensed consolidated financial statements. The change in our income tax provision resulted largely from applying the statutory rate to the decrease in our pretax book earnings.
 
Results from continuing operations were a loss of $ 0.28 per diluted share compared to earnings of $0. 41 per diluted share in the first quarter of 201 4 .
 
DISCONTINUED OPERATIONS — First quarter pretax loss from discontinued operations was $ 5.0 million in 2015 and $0.8 million in 2014. Both periods include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 2 to the condensed consolidated financial statements.

 

33

 
LIQUIDITY AND FINANCIAL RESOURCES
 
Our primary sources of liquidity are cash provided by our operating activities, a bank line of credit and access to the capital markets.   A dditional sources of liquidity include the sale of reclaimed and surplus real estate, and dispositions of non-strategic operating assets. We believe these liquidity and financial resources are sufficient to fund our future business requirements, including :
 
	§		cash contractual obligations	
	§		capital expenditures	
	§		debt service obligations	
	§		potential share repurchases	
	§		potential future acquisitions	
	§		dividend payments	
 
We actively manage our capital structure and resources in order to minimize the cost of capital while properly managing financial risk. We seek to meet these objectives by adhering to the following principles:
 
	§		maintain substantial bank line of credit borrowing capacity	
	§		proactively manage our long-term debt maturity schedule such that repayment/refinancing risk in any single year is low	
	§		minimize financial and other covenants that limit our operating and financial flexibility	
	§		opportunistically access the capital markets when conditions and terms are favorable	

C ASH
 
Included in our March 31 , 201 5   cash and cash equivalents balance of $ 392.7   million is $ 56. 6 million of cash held at one of our foreign subsidiaries. A majority of this $ 56. 6 million of cash relates to earnings prior to January 1, 201 2   that are permanently reinvested offshore. Use of this permanently reinvested cash is currently limited to our foreign operations.
 
CASH FROM OPERATING ACTIVITIES

 

 	Three Months Ended	 	
 	March 31	 	
in millions	
2015 	 	 	
2014 	 	
Net earnings (loss)	$          (39.7)	 	 	$           54.0 	 	
Depreciation, depletion, accretion and amortization (DDA&A)	
66.7 	 	 	
69.4 	 	
Net earnings before noncash deductions for DDA&A	$           27.0 	 	 	$         123.4 	 	
Net gain on sale of property, plant & equipment and businesses	
(6.4)	 	 	
(236.4)	 	
Cost of debt purchase	
21.7 	 	 	
72.9 	 	
Other operating cash flows, net	
(23.1)	 	 	
35.1 	 	
Net cash provided by (used for) operating activities	$           19.2 	 	 	$            (5.0)	 	

As noted in the table above, net earnings before noncash deduction for DDA&A decreased $96. 4 million during the first quarter of 2015 to $ 27. 0 million. Included in net earnings for the first quarter of 2014 is a pretax gain of $230.1 million (see Note 16 to the condensed consolidated financial statements) f rom the sale of our cement and concrete businesses in the Florida area. Cash received associated with gain on sale of property, plant & equipment and businesses is presented as a component of investing activities. In the first quarter of 2015, we purchased $127.3 million principal amount of outstanding debt through a tender offer and incurred charges of $21.7 million. In the first quarter of 2014, we purchased $506.4 million principal amount of outstanding debt through a tender offer and incurred charges of $72.9 million (see Note 7 to the condensed consolidated financial statements). Cash paid for the debt purchase s is presented as a component of financing activities.

34

 

CASH FLOWS FROM INVESTING ACTIVITIES
 
Net cash used for investing activities was $ 47.6 million during the three months ended March 31, 201 5 , a $ 676.4 million de crease com pared to the same period of 2014. This de crease resulted from a $ 7 35.5 million de crease in proceeds from the sale of property, plant & equipment and businesses. During the first three months of 2014, we sold: a previously mined and subsequently reclaimed tract of land for $10.7 million, land previously containing a sales yard for $5.8 million, and our cement and concrete businesses in the Florida area for $720.1 million. Conversely, $63.0 milli on of the cash proceeds from this prior year sale of property was placed into an escrow a ccount (restricted cash) that was available for the acquisition of replacement property under like-kind exchange agreements.
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
Net cash provided by financing activities of $ 279.8 million increased $ 828.6 million in the first three months of 201 5 compared with the same period of 201 4 . This increase in cash provided by financing activities is attributable to the issuance of $400.0 million of long-term debt in the first quarter of 2015 and a  $ 433.8 million decrease in debt related payments. In the first quarter of 2015 we purchased $127.3 million principal amount of outstanding debt through a tender offer. Conversely, i n the first quarter of 2014 we purchased $506.4 million principal amount of outstanding debt through a tender offer. Total tender offer costs   (including premiums and transaction costs) were $145.9 million and $579.7 million in 2015 and 2014, respectively.  

DEBT
 
Certain debt measures are outlined below:

 

 	 	March 31	 	December 31	 	March 31	 	
dollars in millions	
2015 	 	 	
2014 	 	 	
2014 	 	
Debt	 	 	 	 	 	 	 	 	
Current maturities of long-term debt	$        365.4 	 	 	$        150.1 	 	 	$            0.2 	 	
Long-term debt	
1,912.5 	 	 	
1,855.5 	 	 	
2,006.8 	 	
Total debt	$     2,277.9 	 	 	$     2,005.6 	 	 	$     2,007.0 	 	
Capital	 	 	 	 	 	 	 	 	
Total debt	$     2,277.9 	 	 	$     2,005.6 	 	 	$     2,007.0 	 	
Equity	
4,160.2 	 	 	
4,176.7 	 	 	
4,031.1 	 	
Total capital	$     6,438.1 	 	 	$     6,182.3 	 	 	$     6,038.1 	 	
Total Debt as a Percentage of Total Capital	
35.4% 	 	 	
32.4% 	 	 	
33.2% 	 	
Weighted-average Effective Interest Rates	 	 	 	 	 	 	 	 	
  Bank line of credit 1	
1.50% 	 	 	
1.50% 	 	 	
2.25% 	 	
  Long-term debt	
7.51% 	 	 	
8.10% 	 	 	
8.10% 	 	
Fixed versus Floating Interest Rate Debt	 	 	 	 	 	 	 	 	
  Fixed-rate debt	
99.4% 	 	 	
99.3% 	 	 	
99.3% 	 	
  Floating-rate debt	
0.6% 	 	 	
0.7% 	 	 	
0.7% 	 	

 	 	

1 	Reflects the margin above LIBOR paid for LIBOR-based borrowings; we also pay fees for unused borrowing capacity and standby letters of credit.	

Ou r d ebt , other than the line of credit, is unsecured . E ssentially all such debt agreements contain customary investment-grade type covenants that primarily limit the amount of secured debt we may incur without ratably securing such debt .   Such debt may be redeemed prior to maturity at the greater of par value and the make-whole value plus accrued and unpaid interest.
 
In March 2015, we issued $400.0 million o f 4 .50% senior notes due 2025 . The net proceeds , after underwriter fees and other transaction expenses, of $ 395.2 million   were partially used to fund the March 30 , 2015 purchase , via tender offer, of $ 127.3 million principal amount of the 7.00% notes due 2018 (and the subsequent purchase of $0.2 million in April 2015). The March 2015 debt purchas e c ost $ 145.9 million , including an   $ 18.1 million premium above the principal amount of the notes and   transaction costs of $ 0.5 million. The premium primarily reflects the trading pric e   of the notes relative to par prior to the tender offer commencemen t. A dditionally, we recognized   $ 3.1 million of non-cash cos t associate d with the acceleration of a proportional amount of unamortized discounts, deferred financing cost s a nd amounts accumulated in OCI.

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T he combined charge of $ 21.7 million is presented as a component of interest expense for the three month period ended March 31, 2015 .
 
The remaining net proceeds from the March 2015 debt issuance, together with cash on hand and borrowings under our line of credit, will be used to fund:  ( 1 ) the April 9, 2015 redemption of our 6.40% notes due 2017 ( $218.6 million ), ( 2 ) the April 16, 2015 redemption of our 6.50% notes due 2016 ( $125.0 million ), ( 3 ) the expected redemption of our 8.85% notes due 2021 ($6.0 million ) and ( 4 ) the expected prepayment of our industrial revenue bond due 2022 ($14.0 million ). All deb t as of March 31, 201 5 w hich we intend t o p repay , as described above , is classified as current maturities of long-term debt. See Note 18   to the condensed consolidated financial statements for a discussion of our subsequent   debt redemptions.
 
In the first quarter of 2014, we purchased $506.4 millio n p rincipal amount of outstanding debt through a tender offer as described in Note 7 to the condensed consolidated financial statements. This debt purchase was funded by the aforementioned sale of our cement and concrete businesses in the Florida area.
 
The  $ 365 .4   million of current maturities of long-term debt as of March 31, 201 5   includes all deb t w hich we intend to pay within twelve months , as described above, and is due as follows:

 	 	 	
 	 	 	
 	Current	 	
in millions	Maturities	 	
Second quarter 2015	$
365.3 	 	
Third quarter 2015	
0.0 	 	
Fourth quarter 2015	
0.1 	 	
First quarter 2016	
0.0 	 	
 
We expect to retire the   second quarter current maturities as described in Note 18 to the condensed consolidated financial statements.
 
O ur $500.0 million line of credit is secured by accounts receivable and inventory, but will become unsecured upon the achievement of certain credit metrics and/or credit ratings. The line of credit contains customary affirmative, negative and financial covenants for a secured facility.
 
The negative covenants primarily limit our ability to: (1) incur secured debt, (2) make investments, (3) execute acquisitions and divestitures, and (4) make restricted payments, including dividends. Such limitations currently do not impact our ability to execute our strategi c, o peratin g, a nd financial plans, and become less restrictive when the line of credit becomes unsecured as described above.
 
The line of credit contains two financial covenants: (1) a maximum ratio of debt to EBITDA that declines over time to 3.5:1 and (2) a minimum ratio of EBITDA to net cash interest expense that increases over time to 3.0:1.
 
As of March 31, 2015, we were   in compliance with all of our notes and line of credit covenan ts.
 
A s of March 31, 2015, o ur available borrowing capacity under the line of credit was $ 446.5 million. Utilization of the borrowing capacity was as follows:
 
	§		none   was drawn	
	§		$ 53. 5 million was used to provide support for outstanding standby letters of credit	
 
Borrowings under the line of credit bear interest at a rate determined at the time of borrowing equal to the London Interbank Offered Rate (LIBOR) plus a margin ranging from   1.50 % to   2.25 %, o r an alternative rate derived from the lender’s prime rat e, b ased on our ratio of debt to EBITDA .   Standby l etters of credit issued under the line of credit reduce availability and are charged a fee equal to the margin for LIBOR based borrowing   plus   0.175 % . As of March 31, 2015, the applicable marg in wa s   1.50 % . We also pay a commitment fee on the daily average unused amount of the line of credit. This commitment fee ranges from 0.25 % to 0.40 % based on our ratio of debt to EBITDA. Once the line of credit becomes unsecured, both the LIBOR margin range for borrowings and the commitment fee range will decline.
 
In May 2015, we expect to close on a new   five year $ 7 50.0 million line of credit with our existing lender group. The line of credit, based on current discussions, is expected to be unsecured and contain affirmative, negative and financial covenants customary for a n   un secured facili ty. Th e negative covenants will primarily limit our ability to in cur secured debt and make foreign investments.
 
The new line of credit will contain two financial covenants: (1) a maximum ratio of debt to EBITDA of 3.5:1 that steps down to 3.25 :1 at December 2016, and (2) a minimum ratio of EBITDA to net cash interes t of   3.0 :1.

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DEBT RATINGS
 
Our debt ratings and outlooks as of March 31 , 20 1 5 are summarized below:

 

 	 	 	Rating/Outlook	 	Date	 	 	Description	 	
Senior Secured Line of Credit	 	 	 	 	
Moody's 1	Ba1/positive	 	2/18/2015	 	 	outlook changed from stable to positive	 	
Senior Unsecured 2	 	 	 	 	 	 	
Moody's 1	Ba3/positive	 	2/18/2015	 	 	outlook changed from stable to positive	 	
Standard & Poor's	BB+/positive	 	3/16/2015	 	 	outlook changed from stable to positive	 	

1 	Ratings and outlook were affirmed on March 16, 2015.	

2 	Not all of our long-term debt is rated.	

EQUITY
 
Our common stock issuances are summarized below:

 

March 31	 	December 31	 	March 31	 	
in thousands	
2015 	 	 	
2014 	 	 	
2014 	 	
Common stock shares at beginning of year,	 	 	 	 	 	 	 	 	
 issued and outstanding	
131,907 	 	 	
130,200 	 	 	
130,200 	 	
Common Stock Issuances	 	 	 	 	 	 	 	 	
Acquisitions	
0 	 	 	
715 	 	 	
0 	 	
401(k) retirement plans	
0 	 	 	
485 	 	 	
357 	 	
Share-based compensation plans	
753 	 	 	
507 	 	 	
245 	 	
Common stock shares at end of period,	 	 	 	 	 	 	 	 	
 issued and outstanding	
132,660 	 	 	
131,907 	 	 	
130,802 	 	
 
D uring 2014, we issued 715.0 thousand shares of our common stock in connection with business acquisitions as described in Note 16 to the condensed consolidated financial statements.
 
Under a program that was discontinued in the fourth quarter of 201 4 , w e occasionally sold shares of our common stock to the trustee of our 401(k ) re tirement plan s to satisfy the plan participants’ elections to invest in our common stoc k. U nder this arrangement, the stock issuances and resulting cash proceeds were as follows:
 
	§		twe lve months ended December 31, 2014   —   issued 485.3 thousand shares for cash proceeds of $ 3 0.6 . million	
	§		three months ended March 31, 2014   —   issued 357.0 thousand   shares for cash proceeds of $ 22.8 million	
 
There were no shares held in treasury as of March 31, 2015, December 31, 201 4 and March 31, 2014 . There were 3,411,416   shares remaining under the current purchase authorization of the Board of Directors as of March 31 , 201 5 .

 

37

 

OFF-BALANCE SHEET ARRANGEMENTS
 
We have no off-balance sheet arrangements, such as financing or unconsolidated variable interest entities, that either have or are reasonably likely to have a current or future material effect on our:
 
	§		results of operations and   financial position	
	§		c apital expenditures	
	§		l iquidity and capital resources	

STANDBY LETTERS OF CREDIT
 
For a discussion of our standby letters of credit see Note 8 to the condensed con solidated financial statements.

CASH CONTRACTUAL OBLIGATIONS
 
Our obligation to make future payments under contracts is presented in our most re cent Annual Report on Form 10-K.
 
As a result of our March 201 5 debt   is suance an d   purchase , and the April 2015 debt restructuring   as described in Note s  7 and 18   t o the condensed consolidated financial statements, our obligations to make future payments under contracts increased (decreased) as follows:

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	Payments Due by Year	
in millions	
2015 	 	2016-2017	 	2018-2019	 	Thereafter	 	Total	 	
Cash Contractual Obligations	 	 	 	 	 	 	 	 	 	 	
 Long-term debt including bank line of credit	 	 	 	 	 	 	 	 	 	 	
   Principal payments	$   (130.0)	 	$      (343.6)	 	$      (127.5)	 	$        601.1 	 	$            0.0 	 	
   Interest payments 1	
(10.6)	 	
(8.2)	 	
43.0 	 	
100.1 	 	
124.3 	 	
Total	$   (140.6)	 	$      (351.8)	 	$        (84.5)	 	$        701.2 	 	$        124.3 	 	

1 	The 2015 decrease in interest payments exclude s   the premium and other transaction costs incurred in connection with the 2015 debt purchases.	

CRITICAL ACCOUNTING POLICIES
 
We follow certain significant accounting policies when preparing our consolidated financial statements. A summary of these policies is included in our Annual Report on Form 10-K for the year ended December 31, 201 4 (Form 10-K).
 
We prepare these financial statements to conform with accounting principles generally accepted in the United States of America. These principles require us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We base our estimates on historical experience, current conditions and various other assumptions we believe reasonable under existing circumstances and evaluate these estimates and judgments on an ongoing basis. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
 
We believe that the accounting policies described in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K require the most significant judgments and estimates used in the preparation of our financial statements, so we consider these to be our critical accounting policies. There have been no changes to our critical acco unting policies during the three mo nths ended March  3 1 , 201 5 .

38

 
NEW ACCOUNTING STANDARDS
 
For a discussion of the accounting standards recently adopted or pending adoption and the affect such accounting changes will have on our results of operations, financial position or liquidity, see Note 17 to the condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS
 
Certain matters discussed in this report, including expectations regarding future performance, contain forward-looking statements that are subject to assumptions, risks and uncertainties that could cause actual results to differ materially from those projected. These assumptions, risks and uncertainties include, but are not limited to:
 
	§		general economic and business conditions	
	§		the timing and amount of federal, state and local funding for infrastructure	
	§		changes in our effective tax rate that can adversely impact results	
	§		the increasing reliance on information technology infrastructure for our ticketing, procurement, financial statements and other processes can adversely affect operations in the event that the infrastructure does not work as intended or experiences technical difficulties or is subjected to cyber attacks	
	§		the impact of the state of the global economy on our business and financial condition and access to capital markets	
	§		changes in the level of spending for residential and private nonresidential construction	
	§		the highly competitive nature of the construction materials industry	
	§		the impact of future regulatory or legislative actions	
	§		the outcome of pending legal proceedings	
	§		pricing of our products	
	§		weather and other natural phenomena	
	§		energy costs	
	§		costs of hydrocarbon-based raw materials	
	§		healthcare costs	
	§		the amount of long-term debt and interest expense we incur	
	§		changes in interest rates	
	§		the impact of our below investment grade debt rating on our cost of capital	
	§		volatility in pension plan asset values and liabilities which may require cash contributions to the pension plans	
	§		the impact of environmental clean-up costs and other liabilities relating to previously divested businesses	
	§		our ability to secure and permit aggregates reserves in strategically located areas	
	§		our ability to successfully implement our new divisional structure and changes in our management team	
	§		our ability to manage and successfully integrate acquisitions	
	§		the potential of goodwill or long-lived asset impairment	
	§		the potential impact of future legislation or regulations relating to climate change or greenhouse gas emissions or the definition of minerals	
	§		other assumptions, risks and uncertainties detailed from time to time in our periodic reports	
 
All forward-looking statements are made as of the date of filing. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission and our press releases with regard to our business and consolidated financial position, results of operations and cash flows.

39

 
INVESTOR INFORMATION
 
We make available on our website, www.vulcanmaterials.com , free of charge, copies of our:
 
	§		Annual Report on Form 10-K	
	§		Quarterly Reports on Form 10-Q	
	§		Current Reports on Form 8-K	
 
We also provide amendments to those reports filed with or furnished to the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database ( www.sec.gov ).
 
The public may read and copy materials filed with the SEC at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D. C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. In addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K, including financial statements, by writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
 
We have a:
 
	§		Business Conduct Policy applicable to all employees and directors	
	§		Code of Ethics for the CEO and Senior Financial Officers	
 
Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the heading “Corporate Governance.” If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC.
 
Our Board of Directors has also adopted:
 
	§		Corporate Governance Guidelines	
	§		Charters for its Audit, Compensation , Executive , Finance, Governance and Safety, Health & Environment Committees	
 
These documents meet all applicable SEC and New York Stock Exchange regulatory requirements.
 
The Audit, Compensation and Governance Charters are available on our website under the heading, “Corporate Governance,” or you may request a copy of any of these documents by writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.

40

 

ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK
 
MARKET RISK
 
We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. In order to manage or reduce these market risks, we may utilize derivative financial instruments. We do not enter into derivative financial instruments for speculative or trading purposes.
 
We are exposed to interest rate risk due to our various credit facilities and long-term debt instruments. At times, we use interest rate swap agreements to manage this risk.
 
At   March 31, 201 5 , the estimated fair value of our long-term debt instruments including current maturities was $ 2,564.0 million compared to a book value of $ 2,277.9 million. The estimated fair value was determined by averaging several asking price quotes for publicly traded notes and assuming par value for the remainder of the debt . The fair value estimate is based on information available as of the measurement date. Although we are not aware of any factors that would significantly affect the estimated fair value amount, it has not been comprehensively revalued since the measurement date. The effect of a decline in interest rates of one percentage point would increase the fair value of our liability by $ 134.5 million.
 
We are exposed to certain economic risks related to the costs of our pension and other postretirement benefit plans. These economic risks include changes in the discount rate for high-quality bonds, the expected return on plan assets and the rate of increase in the per capita cost of covered healthcare benefits. The impact of a change in these assumptions on our annual pension and other postretirement benefits costs is discussed in our most recent Annual Report on Form 10-K.

ITEM 4
CONTROLS AND PROCEDURES
 
DISCLOSURE CONTROLS AND PROCEDUR ES
We maintain a system of controls and procedures designed to ensure that information required to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. These disclosure controls and procedures (as defined in the Securities and Exchange Act of 1934 Rules 13a - 15(e) or 15d - 15(e)), include, without limitation, controls and procedures designed to ensure that information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer, with the participation of other management officials, evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of March 31, 2015 . Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
 
In 2014, as part of the divestiture of our cement and concrete businesses in the Florida area, we entered into a Transition Services Agreement with the buyer, whereby we agreed to continue to provide certain services for the divested facilities during 2014.   All services were performed utilizing our existing systems and under our current control environment. The service agreement did not require significant changes to our current control environment beyond ensuring proper segregation of duties over processing of third-party transactions. Controls were established and implemented to facilitate proper handling of third-party data, including controls to protect against comingling of information and controls to prevent improper access to information.
 
On November 1, 2014, we completed our obligations under the initial Transition Services Agreement for the sold concrete facilities and the buyer began processing transactions of the newly acquired concrete facilities in their systems. A new Transition Services Agreement was put in place for cement operations through March 31, 2015. On March 1, 2015, the buyer began processing transactions for th e c ement operations in their system. We continued to provide support through the terms of the agreement that ended on March 31, 2015. We have now completed our obligation under the new Transition Service Agreement. As of March 31, 2015, the third-party buyer no longer has access to our systems.
 
No other changes were made during the first quarter of 2015 to our internal con trols ov er financial reporting , nor have there been other factors that materially affect these controls .

41

 
PART I I   OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS

Certain legal proceedings in which we are involved are discussed in Note 12 to the consolidated financial statements and Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 201 4 . See Note 8 to the condensed consolidated financial statements of this Form 10-Q for a discussion of certain recent developments concerning our legal proceedings.

ITEM 1A
RISK FACTORS

There were no material changes to the risk factors disclosed in Item 1A of Part I in our Form 10-K for the year ended December 31, 201 4 .

ITEM 4
MINE SAFETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and C onsumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.

42

 

ITEM 6
EXHIBITS

 	 	
Exhibit 10(a)	Independent Contractor Consulting Agreement dated March 26, 2015, between the Company and Danny R. Shepherd	
Exhibit 31(a)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
Exhibit 31(b)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
Exhibit 32(a)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
Exhibit 32(b)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
Exhibit 95	MSHA Citations and Litigation	
Exhibit 101.INS	XBRL Instance Document	
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document	
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document	
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	

 

43

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 	
 	VULCAN MATERIALS COMPANY

 

Date        May 6, 2015	/s/ Ejaz A. Khan
Ejaz A. Khan
Vice President, Controller and Chief Information Officer
(Principal Accounting Officer)	

 
 
Date        May 6, 2015	/s/ John R. McPherson
John R. McPherson
Executive Vice President and Chief Financial and Strategy Officer
(Principal Financial Officer)	

44

Exhibit 10(a)
INDEPENDENT CONTRACTOR
CONSULTING AGREEMENT
BETWEEN
VULCAN MATERIALS COMPANY
AND
DANNY R. SHEPHERD
 
WHEREAS, Vulcan Materials Company ("Vulcan") desires to engage the services of Danny R. Shepherd ("Consultant") in a consulting capacity in connection with Vulcan business, and Consultant desires to act in a consulting capacity to Vulcan upon the terms and conditions hereinafter set forth;
 
NOW THEREFORE, in consideration of the mutual covenants he reinafter set forth and intending to be legally bound, the parties hereto agree as follows:
 
	1.		Execution of this Agreement Constitutes Resignation from Employment	
 
As of the date of Consultant’s execution of this Agreement, Consultant indicates his intent to retire from his position as Vice Chairman, with March 31 , 2015, bei ng his last day of employment.
 
	2.		Engagement and Term	
 
Subject to the provisions of Section 5 of this Agreement, Vulcan agrees to retain Consultant and Consultant hereby agrees to provide consulting services to Vulcan for a period of two year s commencing on April   1 , 2015   (the "Consulting Period") , so long as he is able to perform the following duties:
 
	3.		Duties	
 
	(a)		During the Consulting Period, Consultant shall serve as a consultant to Vulcan with respect to such business matters and at such times and places as the executive officers of Vulcan may reasonably request.  The Consultant shall act in the capacity of an independent contractor and shall not be subject to the direction, control or supervision of Vulcan with respect to consulting services or procedures fo llowed in the performance of his consulting services hereunder.  Consultant represents and warrants that he shall assume all obligations and duties of an independent contractor and that he shall hold the Company harmless from all liabilities, actions, suits,   audits, assessments, or other claims made or brought by any person, corporation, tax authority, governmental agency or entity.	
 
	(b)		Consultant’s assignments shall include, bu t not necessarily be limited to, assisting the senior management of Vulcan with strategic and organizational initiatives.	
 
	(c)		The specific hours during which Consultant performs such services on any given day will be within Consultant's control .	

Exhibit 10(a) - Page 1

 
	(d)		When consulting for Vulcan, Consultant shall report to the President and Chief Executive Office r   or his designee.	
 
	4.		Compensation	
 
	(a)		As compensation for the consulting services described above, Vulcan agrees to pay Consultant $ 20,000 per month for no more than 60 hours of work per month.  In addition, at the time such payments are typically made in 2016, Consultant will receive 3/12s of what a full annual payment would have been for his participation in Vulcan’s Management Incentive Plan in 2015.	
 
	(b)		Vulcan shall reimburse Consultant for all reasonable expenses incurred by h im in connection with the performance of his duties hereunder, provided such expenses are in accordance with the policies of Vulcan in effect at the time of the expenditure and are within such reasonable budgeted limits, if any, as may be established from time to time by the executive officers of Vulcan, upon submission by Consultant of signed vouchers, itemized in such detail as such policies and the executive officers of Vulcan may from time to time request. From time to time, and at the direction of Vulcan’s CEO, the Consultant will be offered use of Company aircraft in order to facilitate the provision of the consulting services.	
 
	(c)		During the term, Consultant shall continue to have the use of his Company-provided electronic communication device (s) and a Company-provided laptop computer , as well as the use of an office in Vulcan’s Southeast Division offices .     Stacie Carvotta, or her successor  as executive assistant in Vulcan’s Southeast Division offices, will continue to provide secretarial services to Consultant in connection with the services to be rendered under this Agreement.  He will also retain a Vulcan email address during the Consulting Period and have access to the Company’ s intra net.	
 
	(d)		Consultant hereby acknowledges and agrees that during the Consulting Period he shall not be eligible to accrue benefits in any employee benefit pension plans maintained by Vulcan (or any of its affiliates), or to receive any fringe benefits or participate in any welfare benefit plan other than that for which he is eligible as a retiree.	
 
	5.		Covenants	
 
	(a)		Consultant agrees that he will not use Confidential Information in any way that might injure or damage Vulcan or disclose such Confidential Information to anyone without Vulcan’s prior written consent, and agrees to return promptly at the close of this Agreement any written Confidential Information including all copies (in electronic, hard copy or other form) that he may have in h is possession. Unless in furtherance of his duties during the term of this Agreement, or   hereafter at   Vulcan ’s request   or as otherwise provided by law, he also agrees to refrain

Exhibit 10(a) - Page 2	

from discussing any of Vulcan’s business matters with anyone including, but not limited to, Vulcan’s employees, customers, vendors, or competitors.	
 
	(b)		As used above, “Confidential Information” means information which meets all of the following criteria:  (1) disclosed to or known by Consultant as a consequence of or through work performed by him   during his employment with Vulcan or pursuant to this Agreement; (2) not generally known outside Vulcan; and (3) which relates to Vulcan’s business or internal procedures.  Confidential Information includes, but is not limited to, trade secrets as defined in the Alabama Trade Secrets Act, Alabama Code §§ 8-27-1 et. seq., as amended.	
 
	(c)		Vulcan shall be deemed to be the absolute and unqualified owner of all work produced by C onsultant under this Agreement, and all data and research materials by Consultant for which Vulcan has reimbursed Consultant, it being understood that Consultant acts as an independent contractor and has no right, title, or interest in or to such material.	
 
	(d)		In the event any covenant contained in this Section 5 shall be to any extent construed by any court of competent jurisdiction as being too broad in area or time, or both, or otherwise to any extent held invalid, then those portions thereof which may be construed to be invalid or unenforceable shall be severed and the remaining portions thereof shall continue in full force and effect.  The covenants set forth in this Section 5 are and shall be construed as independent covenants and shall survive the expiration or sooner termination of the Consultant's services hereunder.	
 
	(e)		D uring the term of this agreement, Consultant acknowledges he may be exposed to industrial activities or to mining activities and areas of mining, both dormant and active, to areas where the production of ready-mix concrete is occurring, and to areas which are otherwise acknowledged to pose a risk of injury to person and property.  Thus, as part of this agreem ent, Consultant, on behalf of him self, h is spouse, legal representatives, personal representatives, estate, heirs, assigns, and beneficiaries (hereinafter collectively referred to as the “Consultant” for purposes of this Section), hereby waives and discharges Vulcan, its subsidiaries, affiliates, agents, employees, officers and directors (hereinafter collectively referred to as “ Vulcan ” for purposes of this Section) from all liability for any and all loss or damage, any claim or damages resulting therefrom, on account of injury to Consultant’s person or property, even injuries resulting in the death of Consultant, while Consultant is on or about the property of Vulcan or performing work for Vulcan.	
 
	(f)		In addition, it is specifically agreed that damages would be inadequate to compensate Vulcan for any breach or threatened breach by Consultant of any such covenants and that the breach by the consultant of any of such covenants will result in irreparable harm and injury to Vulcan.  Therefore, Consultant agrees and consents that Vulcan shall, in addition to and without limiting any other remedy or right it may have, be entitled to such equitable and injunctive relief as may be available to

Exhibit 10(a) - Page 3	

restrain or prevent a breach or contemplated breach of any such covenant, such right to be cumulative and in addition to any other remedy Vulcan may have, including the recovery of damages by Vulcan.	
 
	6.		Termination of the Agreement	
 
This contract may be terminated prior to its termination date by Vulcan, at any time, in the event any of the following occurs:
 
	(a)		Consultant is arrested for, charged with, convicted of or pleads guilty to a crime constituting a felony or involving moral turpitude; or	
 
	(b)		Consultant engages in misconduct that materially and demonstrably injures Vulcan or results or is intended to result, directly or indirectly, in the personal enrichment of Consultant at the expense of Vulcan; or	
 
	(c)		Consultant engages in gross misconduct in violation of this Agreement or is derelict in performance of his duties hereunder.	
 
	7.		Acceleration of Payments	
 
The payment obligations set forth in Section 4 (a) shall accelerate such that all remaining payments will be due within 30 days of a change of control of Vulcan as defined in any plan or a greement to which Vulcan is a party or will be due within 30 days of a termination of Consultant’s services hereunder for any reason other than the causes listed in Section 6 above .
 
	8.		Obligation to Execute in Conjunction with Non-Competition Agreement	
 
Consultant is required to execute a Non-Competition Agreement in connection with the execution of this Agreement.
 
	9.		Miscellaneous	
 
	(a)		This Agreement shall be assignable by the Company only with the prior express written consent of the Consultant .	
 
	(b)		The interpretation and enforcement of this Agreement shall be governed by the laws of the State of Alabama .	
 
	(c)		This Agreement constitutes the entire understanding between the parties with reference to the subject matter hereof and shall not be changed or modified except by a written instrument executed by both parties.  The waiver by either party of a breach of any provisions of this Agreement by the other party shall not be construed as a waiver of any subsequent or other breach by such other party.	

Exhibit 10(a) - Page 4

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of March 26 ,   201 5 .

VULCAN MATERIALS COMPANY

/s/   Michael R. Mills          
MICHAEL R. MILLS

 
/s/   Danny R. Shepherd       
DANNY R. SHEPHERD

Exhibit 10(a) - Page 5

  

 
EXHIBIT 31( a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, J. Thomas Hill , certify that:	
1.	I have reviewed this quarterly report on Form 10-Q of Vulcan Materials Company;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to th e period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has mater ially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financia l reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
	
Date       May   6 , 201 5	
 	 	 	/s/ J. Thomas Hill
J. Thomas Hill
President and Chief Executive Officer	

Exhibit 31(a)

 
EXHIBIT 31( b )
CERTIFICATION OF CHIEF FINANCIAL OFFICER

 	 	 	 	
I, John R. McPherson , certify that:	
1.	I have reviewed this quarterly report on Form 10-Q of Vulcan Materials Company;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 	a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
	
Date       May 6 , 201 5	
 	 	 	/s/ John R. McPherson
John R. McPherson , Executive Vice President
and Chief Financial and Strategy Officer	

Exhibit 31(b)

 
 
Exhibit 32(a)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
  OF
VULCAN MATERIALS COMPANY
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

 	 	 	 	
I, J. Thomas Hill,   President and Chief Executive Officer of Vulcan Materials Company, certify that the Quarterly Report on Form 10-Q (the “r eport ” ) for the quarter ended March 31, 2015 , filed with the Securities and Exchange Commission on the date hereof:	
 	(i)	fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and	 	
 	(ii)	the information contained in the r eport fairly presents, in all material respects, the financial condition and results of operations of Vulcan Materials Company.	 	
 	
/s/  J. Thomas Hill
J. Thomas Hill
President and Chief Executive Officer
May 6 , 201 5	

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Vulcan Materials Company and will be retained by Vulcan Materials Company and furnished to the Securities and Exchange Commission or its staff upon request.	

Exhibit 32( a )

EXHIBIT 32( b )
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF
VULCAN MATERIALS COMPANY
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

 	 	 	 	
I, John R. McPherson , Executive Vice President and Chief Financial and Strategy Officer of Vulcan Materials Company, certify that the Quarterly Report on Form 10-Q (the “report”) for the quarter ended   March 31 , 201 5 , filed with the Securities and Exchange Com mission on the date hereof:	
 	(i)	fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and	 	
 	(ii)	the information contained in the r eport fairly presents, in all material respects, the financial condition and results of operations of Vulcan Materials Company.	 	
 	
/s/ John R. McPherson
John R. McPherson ,   Executive Vice President
and Chief Financial and Strategy Officer
May 6 , 201 5	

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Vulcan Materials Company and will be retained by Vulcan Materials Company and furnished to the Securities and Exchange Commission or its staff upon request.	

 

Exhibit 32(b)

EXHIBIT 9 5
MSHA CITATIONS AND LITIGATION
 
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was enacted. Section 1503 of the Dodd-Frank Act requires companies that are “ operators ” (as such term is defined in the Federal Mine Safety and Health Act of 1977 (the Mine Act) ) to disclose certain mine safety information in each periodic report to the Securities and Exchange Commission. This information is related to the enforcement of the Mine Act by the Mine Safety and Health Administration (MSHA).
 
The Dodd-Frank Act and the subsequent implementing regulation issued by the SEC require disclosure of the following categories of violations, orders and citations: (1) Section 104 S&S Citations, which are citations issued for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard; (2) Section 104(b) Orders, which are orders issued upon a follow up inspection where the inspector finds the violation previously cited has not been totally abated in the prescribed time period; (3) Section 104(d) Citations and Orders, which are issued upon violations of mandatory health or safety standards caused by an unwarrantable failure of the operator to comply with the standards; (4) Section 110(b)(2) Violations, which result from the reckless and repeated failure to eliminate a known violation; (5) Section 107(a) Orders, which are given when MSHA determines that an imminent danger exists and results in an order of immediate withdrawal from the area of the mine affected by the condition; and (6) written notices from MSHA of a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under Section 104(e). In addition, the Dodd-Frank Act requires the disclosure of the total dollar value of proposed assessments from MSHA under the Mine Act and the total number of mining related fatalities.
 
The following disclosures are made pursuant to Section 1503.
 
During the three months ended March 31 , 201 5 ,   none   of our operations: (i) received any orders under Section 104(b), which are issued upon a follow up inspection where the inspector finds the violation previously cited has not been totally abated in the prescribed time period; (ii) received any 104(d) citations and orders, which are issued upon violations of mandatory health or safety standards caused by an unwarrantable failure of the operator to comply with the standards; (iii) had any flagrant violations under Section 110(b)(2); (iv) received notice from MSHA of a pattern of violations of mandatory health or safety standards under Section 104(e); or (v) had any mining-related fatalities.

Exhibit 95 – Page 1

FIRST QUARTER 201 5
 
The table below sets forth, by mine, the total number of citations and/or orders issued by MSHA during the period covered by this report under the indicated provisions of the Mine Act, together with the total dollar value of proposed assessments, if any, from MSHA, received du ring the three months ended March 31, 2015 .   Of our 240 active MSHA-regulated facilities during the quarter, w e received 120 federal mine safety inspections at 117   facilities during the reporting period . Of our inspected facilities ,   106 did not receive any reportable citations or orders .

 

 

 

 

 

 

 	 

 

 

 

 

 	 	
Name of Operation	Number of Inspections	Total Number of S&S Citations	Mine Act § 104(b)
Orders	Mine Act
§ 104(d)
Citations and Orders	Mine Act § 110(b)(2) Violations	Mine Act § 107(a)
Orders	Total Dollar Value of Proposed MSHA Assessments (dollars in thousands)	Total Number of Mining Related Fatalities	Received Written Notice under Mine Act § 104(e)
(yes/no)	
1604 STONE, TX	
1 	
1 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
BROWNWOOD STONE, TX	
1 	
2 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
DAYTON, TN	
1 	
2 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
GRAND RIVERS QUARRY, KY	
1 	
3 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
LEXINGTON STONE, CA	
1 	
1 	
0 	
0 	
0 	
0 	
0.2 	
0 	No	
LIBERTY QUARRY, SC	
1 	
1 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
NORTON QUARRY, VA	
1 	
1 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
NOTASULGA QUARRY, AL	
1 	
2 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
PLEASANTON S&G, CA	
1 	
3 	
0 	
0 	
0 	
0 	
8.7 	
0 	No	
PUDDLEDOCK SAND & GRAVEL, VA	
1 	
1 	
0 	
0 	
0 	
1 	
0.0 	
0 	No	
SUN VALLEY S&G, CA	
1 	
1 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
OTHER OPERATIONS - 106	
109 	
0 	
0 	
0 	
0 	
0 	
0.0 	
0 	No	
Total	
120 	
18 	
0 	
0 	
0 	
1 	
8.9 	
0 	 	
 
The total dollar value of proposed assessments received during the three months ended March 31, 201 5 for all other citations, as well as proposed assessments received during the reporting period for citations previously issued, is  $ 16,295 .
 
The table below set s forth, by mine, category of legal action and number of legal actions pending before the Federal Mine Safety and Health Review Commission as of March 31, 2015 .  

 

 	 

 
 	
 	Number of Legal Actions	
Name of Operation	Contest
Penalty	Contest
Citations	Complaint of
Discharge,
Discrimination	
BLACKSBURG QUARRY, SC	
1 	
0 	
0 	
BROWNWOOD QUARRY, TX	
1 	
0 	
0 	
CENTRAL SERVICE, NC	
1 	
0 	
0 	
EAST FORSYTH, NC	
1 	
0 	
0 	
HOUSTON SALES YARD, TX	
1 	
0 	
0 	
LITHIA SPRINGS QUARRY, GA	
1 	
0 	
0 	
MACON QUARRY, GA	
1 	
0 	
0 	
PUDDLEDOCK SAND & GRAVEL, VA	
1 	
0 	
0 	

Exhibit 95 – Page 2

 

 

 

 	 

The table below sets forth, by mine, category of legal action and number of legal actions filed before the Federal Mine Safety and Health Review Commission during the three months ended March 31, 2015 .

 

 	 

 
 	
 	Number of Legal Actions	
Name of Operation	Contest
Penalty	Contest
Citations	Complaint of
Discharge,
Discrimination	
CHILDERSBURG QUARRY, AL	
1 	
0 	
0 	
FRANKLIN QUARRY, TN	
1 	
0 	
0 	
GURLEY QUARRY, AL	
1 	
0 	
0 	
KANKAKEE QUARRY & MILL, IL	
1 	
0 	
0 	
MCCOOK QUARRY, IL	
2 	
0 	
0 	
RICHMOND ROAD, TN	
1 	
0 	
0 	
SEVIERVILLE QUARRY, TN	
1 	
0 	
0 	
WEIRSDALE SAND PLANT, FL	
1 	
0 	
0 	
 
The table below sets forth, by mine, category of legal action and number of legal actions resolved (disposed) by the Federal Mine Safety and Health Review Commission during the three months ended March 31, 2015 .

 

 	 

 
 	
 	Number of Legal Actions	
Name of Operation	Contest
Penalty	Contest
Citations	Complaint of
Discharge,
Discrimination	
FORT MYERS MINE, FL	
1 	
0 	
0 	
GRAND RIVERS QUARRY, KY	
2 	
0 	
0 	
KODAK QUARRY, TN	
1 	
0 	
0 	
LAKESIDE QUARRY, SC	
1 	
0 	
0 	
LITHIA SPRINGS QUARRY, GA	
2 	
0 	
0 	
NOTASULGA QUARRY, AL	
1 	
0 	
0 	
WEST PLANT, AZ	
1 	
0 	
0 	

 

Exhibit 95 – Page 3