VULCAN MATERIALS CO, 10-K filed on 2/26/2010
Annual Report
Document and Company Information (USD $)
Feb. 19, 2010
Year Ended
Dec. 31, 2009
Jun. 30, 2009
Document and Company Information [Abstract]
 
 
 
Entity Registrant Name
 
Vulcan Materials CO 
 
Entity Central Index Key
 
0001396009 
 
Document Type
 
10-K 
 
Document Period End Date
 
12/31/2009 
 
Amendment Flag
 
FALSE 
 
Current Fiscal Year End Date
 
12/31 
 
Entity Well-known Seasoned Issuer
 
Yes 
 
Entity Voluntary Filers
 
No 
 
Entity Current Reporting Status
 
Yes 
 
Entity Filer Category
 
Large Accelerated Filer 
 
Entity Public Float
 
 
$ 5,362,319,558 
Entity Common Stock, Shares Outstanding
126,334,086 
 
 
Consolidated Statements of Earnings (USD $)
In Thousands, except Per Share data
Year Ended
Dec. 31,
2009
2008
2007
Statements of Earnings [Abstract]
 
 
 
Net sales
$ 2,543,707 
$ 3,453,081 1
$ 3,090,133 
Delivery revenues
146,783 
198,357 1
237,654 
Total revenues
2,690,490 
3,651,438 1
3,327,787 
Cost of goods sold
2,097,745 
2,703,369 1
2,139,230 
Delivery costs
146,783 
198,357 1
237,654 
Cost of revenues
2,244,528 
2,901,726 1
2,376,884 
Gross profit
445,962 
749,712 1
950,903 
Selling, administrative and general expenses
321,608 
342,584 1
289,604 
Goodwill impairment
252,664 1
Gain on sale of property, plant & equipment and businesses, net
27,104 
94,227 1
58,659 
Other operating income (expense), net
(3,006)
411 1
(5,541)
Operating earnings
148,452 
249,102 1
714,417 
Other income (expense), net
5,307 
(4,357)1
(5,322)
Interest income
2,282 
3,126 1
6,625 
Interest expense
175,262 
172,813 1
48,218 
Earnings (loss) from continuing operations before income taxes
(19,221)
75,058 1
667,502 
Provision for income taxes
 
 
 
Current
6,106 
92,346 1
199,931 
Deferred
(43,975)
(20,655)1
4,485 
Total provision for income taxes
(37,869)
71,691 1
204,416 
Earnings from continuing operations
18,648 
3,367 1
463,086 
Earnings (loss) on discontinued operations, net of income taxes (Note 2)
11,666 
(2,449)1
(12,176)
Net earnings
30,314 
918 1
450,910 
Basic earnings (loss) per share
 
 
 
Continuing operations
0.16 
0.03 1
4.77 
Discontinued operations
0.09 
(0.02)1
(0.12)
Net earnings per share
0.25 
0.01 1
4.65 
Diluted earnings (loss) per share
 
 
 
Continuing operations
0.16 
0.03 1
4.66 
Discontinued operations
0.09 
(0.02)1
(0.12)
Net earnings per share
0.25 
0.01 1
4.54 
Dividends declared per share
1.48 
1.96 1
1.84 
Weighted-average common shares outstanding
118,891 
109,774 1
97,036 
Weighted-average common shares outstanding, assuming dilution
119,430 
110,954 1
99,403 
Consolidated Balance Sheets (USD $)
In Thousands
Dec. 31, 2009
Dec. 31, 2008
Assets
 
 
Current assets
 
 
Cash and cash equivalents
$ 22,265 
$ 10,194 1
Medium-term investments
4,111 
36,734 1
Accounts and notes receivable
 
 
Customers, less allowance for doubtful accounts 2009 - $8,722; 2008 - $8,711
254,753 
326,204 1
Other
13,271 
30,773 1
Inventories
325,033 
364,311 1
Deferred income taxes
57,967 
71,205 1
Prepaid expenses
50,817 
54,469 1
Assets held for sale
15,072 
1
Total current assets
743,289 
893,890 1
Investments and long-term receivables
33,283 
27,998 1
Property, plant & equipment, net
3,874,671 
4,155,812 1
Goodwill
3,093,979 
3,085,468 1
Other intangible assets, net
682,643 
673,792 1
Other assets
105,085 
79,664 1
Total assets
8,532,950 
8,916,624 1
Liabilities and Shareholders' Equity
 
 
Current liabilities
 
 
Current maturities of long-term debt
385,381 
311,685 1
Short-term borrowings
236,512 
1,082,500 1
Trade payables and accruals
121,324 
147,104 1
Accrued salaries, wages and management incentives
38,148 
44,858 1
Accrued interest
9,458 
14,384 1
Other accrued liabilities
65,503 
62,535 1
Liabilities of assets held for sale
369 
1
Total current liabilities
856,695 
1,663,066 1
Long-term debt
2,116,120 
2,153,588 1
Deferred income taxes
887,268 
920,475 1
Deferred management incentive and other compensation
33,327 
34,770 1
Pension benefits
212,033 
198,415 1
Other postretirement benefits
109,990 
105,560 1
Asset retirement obligations
167,757 
173,435 1
Other noncurrent liabilities
97,738 
113,563 1
Total liabilities
4,480,928 
5,362,872 1
Other commitments and contingencies
 
 
Shareholders' equity
 
 
Common stock, $1 par value - 125,912 shares issued as of 2009 and 110,270 shares issued as of 2008
125,912 
110,270 1
Capital in excess of par value
2,368,228 
1,734,835 1
Retained earnings
1,752,240 
1,893,929 1
Accumulated other comprehensive loss
(194,358)
(185,282)1
Total shareholders' equity
4,052,022 
3,553,752 1
Total liabilities and shareholders' equity
$ 8,532,950 
$ 8,916,624 1
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data
Dec. 31, 2009
Dec. 31, 2008
Accounts and notes receivable
 
 
Allowance for doubtful accounts
$ 8,722 
$ 8,711 
Shareholders' equity
 
 
Common stock, par value
Common stock, shares issued
125,912 
110,270 
Consolidated Statements of Cash Flows (USD $)
In Thousands
Year Ended
Dec. 31,
2009
2008
2007
Statements of Cash Flows [Abstract]
 
 
 
Operating Activities
 
 
 
Net earnings
$ 30,314 
$ 918 1
$ 450,910 
Adjustments to reconcile net earnings to net cash provided by operating activities
 
 
 
Depreciation, depletion, accretion and amortization
394,612 
389,060 1
271,475 
Goodwill impairment
252,664 1
Net gain on sale of property, plant & equipment and businesses
(27,916)
(94,227)1
(58,659)
Contributions to pension plans
(27,616)
(3,127)1
(1,808)
Share-based compensation
23,120 
19,096 1
16,942 
Excess tax benefits from share-based compensation
(2,072)
(11,209)1
(29,220)
Deferred tax provision
(43,773)
(19,756)1
7,427 
(Increase) decrease in assets before initial effects of business acquisitions and dispositions
 
 
 
Accounts and notes receivable
79,930 
61,352 1
44,779 
Inventories
39,289 
(7,630)1
(29,508)
Prepaid expenses
4,127 
(23,425)1
27,191 
Other assets
(27,670)
(13,568)1
(17,252)
Increase (decrease) in liabilities before initial effects of business acquisitions and dispositions
 
 
 
Accrued interest and income taxes
(2,854)
8,139 1
47,947 
Trade payables and other accruals
(30,810)
(125,167)1
(22,541)
Other noncurrent liabilities
28,263 
15,128 1
(20,967)
Other, net
16,091 
(13,063)1
21,428 
Net cash provided by operating activities
453,035 
435,185 1
708,144 
Investing Activities
 
 
 
Purchases of property, plant & equipment
(109,729)
(353,196)1
(483,322)
Proceeds from sale of property, plant & equipment
17,750 
25,542 1
88,939 
Proceeds from sale of businesses
16,075 
225,783 1
30,560 
Payment for businesses acquired, net of acquired cash
(36,980)
(84,057)1
(3,297,898)
Reclassification from cash equivalents to medium-term investments
(36,734)1
Redemption of medium-term investments
33,282 
1
Proceeds from loan on life insurance policies
28,646 1
Other, net
(400)
4,976 1
7,422 
Net cash used for investing activities
(80,002)
(189,040)1
(3,654,299)
Financing Activities
 
 
 
Net short-term borrowings (payments)
(847,963)
(1,009,000)1
1,892,600 
Payment of current maturities and long-term debt
(361,724)
(48,794)1
(2,075)
Proceeds from issuance of long-term debt, net of discounts
397,660 
949,078 1
1,223,579 
Debt issuance costs
(3,033)
(5,633)1
(9,173)
Settlements of forward starting interest rate swap agreements
(32,474)1
(57,303)
Purchases of common stock
1
(4,800)
Proceeds from issuance of common stock
606,546 
55,072 1
Dividends paid
(171,468)
(214,783)1
(181,315)
Proceeds from exercise of stock options
17,327 
24,602 1
35,074 
Excess tax benefits from share-based compensation
2,072 
11,209 1
29,220 
Other, net
(379)
(116)1
Net cash provided by (used for) financing activities
(360,962)
(270,839)1
2,925,813 
Net increase (decrease) in cash and cash equivalents
12,071 
(24,694)1
(20,342)
Cash and cash equivalents at beginning of year
10,194 1
34,888 1
55,230 
Cash and cash equivalents at end of year
$ 22,265 
$ 10,194 1
$ 34,888 1
Consolidated Statements of Shareholders Equity (USD $)
In Thousands
Previously Reported
Previously Reported | Common Stock
Previously Reported | Capital in Excess of Par Value
Previously Reported | Retained Earnings
Previously Reported | Accumulated Other Comprehensive Income (Loss)
Previously Reported | Treasury Stock
Common Stock
Capital in Excess of Par Value
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total
1/1/2007 - 12/31/2007
 
 
 
 
 
 
 
 
 
 
 
 
Balance Begining
 
 
 
 
 
 
$ 139,705 2
$ 191,695 
$ 3,008,509 1
$ (4,953)
$ (1,298,074)
$ 2,036,882 1
Balance Begining, shares
 
 
 
 
 
 
139,705 2
 
 
 
(45,099)
 
Net earnings
 
 
 
 
 
 
 
 
450,910 
 
 
450,910 
Common stock issued
 
 
 
 
 
 
 
 
 
 
 
 
Public offering
 
 
 
 
 
 
 
 
 
 
 
 
Public offering, shares
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions
 
 
 
 
 
 
12,604 2
1,423,883 
 
 
 
1,436,487 
Acquisitions, shares
 
 
 
 
 
 
12,604 2
 
 
 
 
 
401(k) Trustee (Note 13)
 
 
 
 
 
 
 
 
 
 
 
 
401(k) Trustee (Note 13), shares
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation plans
 
 
 
 
 
 
26 2
26,566 
 
 
10,858 
37,450 
Share-based compensation plans, shares
 
 
 
 
 
 
26 2
 
 
 
1,042 
 
Share-based compensation expense
 
 
 
 
 
 
 
16,942 
 
 
 
16,942 
Excess tax benefits from share-based compensation
 
 
 
 
 
 
 
29,220 
 
 
 
29,220 
Accrued dividends on share-based compensation awards
 
 
 
 
 
 
 
497 
(497)
 
 
Purchases of common stock
 
 
 
 
 
 
 
 
 
 
(4,800)
(4,800)
Purchases of common stock, shares
 
 
 
 
 
 
 
 
 
 
(44)
 
Cash dividends on common stock
 
 
 
 
 
 
 
 
(181,315)
 
 
(181,315)
Fair value adjustment to cash flow hedges, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
(55,922)
 
(55,922)
Adjustment for funded status of pension and postretirement benefit plans, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
20,658 
 
20,658 
Cumulative effect of accounting change (Note 1, New Accounting Standards, 2007 - Uncertainty in Income Taxes)
 
 
 
 
 
 
 
 
(940)
 
 
(940)
Other
 
 
 
 
 
 
 
 
11 
 
 
11 
Cancellation of treasury stock
 
 
 
 
 
 
(44,101)2
(80,938)
(1,166,977)
 
1,292,016 
Cancellation of treasury stock, shares
 
 
 
 
 
 
(44,101)2
 
 
 
44,101 
 
Balance Ending
3,785,583 1
108,234 2
1,607,865 
2,109,701 1
(40,217)
108,234 2
1,607,865 
2,108,389 1
(31,236)
3,793,252 1
Balance Ending, shares
 
108,234 2
 
 
 
108,234 2
 
 
 
 
Accounting Change (Note 1, New Accounting Standards, 2008 - Retirement Benefits Measurement Date)
 
 
 
 
 
 
 
 
(1,312)
8,981 
 
7,669 
1/1/2008 - 12/31/2008
 
 
 
 
 
 
 
 
 
 
 
 
Balance Begining
 
 
 
 
 
 
108,234 2
1,607,865 
2,108,389 1
(31,236)
3,793,252 1
Balance Begining, shares
 
 
 
 
 
 
108,234 2
 
 
 
 
Net earnings
 
 
 
 
 
 
 
 
918 1
 
 
918 1
Common stock issued
 
 
 
 
 
 
 
 
 
 
 
 
Public offering
 
 
 
 
 
 
 
 
 
 
 
 
Public offering, shares
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions
 
 
 
 
 
 
1,152 2
78,948 
 
 
 
80,100 
Acquisitions, shares
 
 
 
 
 
 
1,152 2
 
 
 
 
 
401(k) Trustee (Note 13)
 
 
 
 
 
 
 
 
 
 
 
 
401(k) Trustee (Note 13), shares
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation plans
 
 
 
 
 
 
884 2
17,130 
 
 
 
18,014 
Share-based compensation plans, shares
 
 
 
 
 
 
884 2
 
 
 
 
 
Share-based compensation expense
 
 
 
 
 
 
 
19,096 
 
 
 
19,096 
Excess tax benefits from share-based compensation
 
 
 
 
 
 
 
11,209 
 
 
 
11,209 
Accrued dividends on share-based compensation awards
 
 
 
 
 
 
 
593 
(593)
 
 
Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of common stock, shares
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on common stock
 
 
 
 
 
 
 
 
(214,783)
 
 
(214,783)
Fair value adjustment to cash flow hedges, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
(672)
 
(672)
Adjustment for funded status of pension and postretirement benefit plans, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
(153,375)
 
(153,375)
Cumulative effect of accounting change (Note 1, New Accounting Standards, 2007 - Uncertainty in Income Taxes)
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
(6)
(2)
 
(7)
Cancellation of treasury stock
 
 
 
 
 
 
 
 
 
 
 
 
Cancellation of treasury stock, shares
 
 
 
 
 
 
 
 
 
 
 
 
Balance Ending
 
 
 
 
 
 
110,270 2
1,734,835 
1,893,929 1
(185,282)
3,553,752 1
Balance Ending, shares
 
 
 
 
 
 
110,270 2
 
 
 
 
Accounting Change (Note 1, New Accounting Standards, 2008 - Retirement Benefits Measurement Date)
 
 
 
 
 
 
 
 
 
 
 
 
1/1/2009 - 12/31/2009
 
 
 
 
 
 
 
 
 
 
 
 
Balance Begining
 
 
 
 
 
 
110,270 2
1,734,835 
1,893,929 1
(185,282)
3,553,752 1
Balance Begining, shares
 
 
 
 
 
 
110,270 2
 
 
 
 
Net earnings
 
 
 
 
 
 
 
 
30,314 
 
 
30,314 
Common stock issued
 
 
 
 
 
 
 
 
 
 
 
 
Public offering
 
 
 
 
 
 
13,225 2
506,768 
 
 
 
519,993 
Public offering, shares
 
 
 
 
 
 
13,225 2
 
 
 
 
 
Acquisitions
 
 
 
 
 
 
789 2
33,073 
 
 
 
33,862 
Acquisitions, shares
 
 
 
 
 
 
789 2
 
 
 
 
 
401(k) Trustee (Note 13)
 
 
 
 
 
 
1,135 2
51,556 
 
 
 
52,691 
401(k) Trustee (Note 13), shares
 
 
 
 
 
 
1,135 2
 
 
 
 
 
Share-based compensation plans
 
 
 
 
 
 
493 2
16,279 
 
 
 
16,772 
Share-based compensation plans, shares
 
 
 
 
 
 
493 2
 
 
 
 
 
Share-based compensation expense
 
 
 
 
 
 
 
23,120 
 
 
 
23,120 
Excess tax benefits from share-based compensation
 
 
 
 
 
 
 
2,072 
 
 
 
2,072 
Accrued dividends on share-based compensation awards
 
 
 
 
 
 
 
521 
(521)
 
 
Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of common stock, shares
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends on common stock
 
 
 
 
 
 
 
 
(171,468)
 
 
(171,468)
Fair value adjustment to cash flow hedges, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
7,154 
 
7,154 
Adjustment for funded status of pension and postretirement benefit plans, net of reclassification adjustment
 
 
 
 
 
 
 
 
 
(16,229)
 
(16,229)
Cumulative effect of accounting change (Note 1, New Accounting Standards, 2007 - Uncertainty in Income Taxes)
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
(14)
(1)
 
(11)
Cancellation of treasury stock
 
 
 
 
 
 
 
 
 
 
 
 
Cancellation of treasury stock, shares
 
 
 
 
 
 
 
 
 
 
 
 
Balance Ending
 
 
 
 
 
 
125,912 2
2,368,228 
1,752,240 
(194,358)
2
4,052,022 
Balance Ending, shares
 
 
 
 
 
 
125,912 2
 
 
 
 
Accounting Change (Note 1, New Accounting Standards, 2008 - Retirement Benefits Measurement Date)
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Shareholders Equity (Parenthetical) (USD $)
Share data in Millions, except Per Share data
Dec. 31, 2009
Dec. 31, 2008
Dec. 31, 2007
Consolidated Statements of Shareholders' Equity [Abstract]
 
 
 
Common stock, par value
$ 1 
$ 1 
$ 1 
Common stock, shares authorized
480 
480 
480 
Comprehensive Income (Loss) (USD $)
In Thousands
Year Ended
Dec. 31,
2009
2008
2007
Comprehensive income (loss)
 
 
 
Net earnings
$ 30,314 
$ 918 1
$ 450,910 
Other comprehensive income (loss)
(9,075)
(154,047)
(35,264)
Total comprehensive income (loss) (As Restated for 2008, See Note 20)
$ 21,239 
$ (153,129)1
$ 415,646 
Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation’s largest producer of construction aggregates, primarily crushed stone, sand and gravel; a major producer of asphalt mix and ready-mixed concrete and a leading producer of cement in Florida.
On November 16, 2007, we acquired 100% of the outstanding common stock of Florida Rock Industries, Inc. (Florida Rock), a leading producer of construction aggregates, cement, concrete and concrete products in the southeastern and mid-Atlantic states, in exchange for cash and stock. The acquisition further diversified the geographic scope of our operations.
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 Consolidated Statements of Earnings.
See Note 15 for additional disclosure regarding nature of operations.
Principles of consolidation
The consolidated financial statements include the accounts of Vulcan Materials Company and all our majority or wholly owned subsidiary companies. All intercompany transactions and accounts have been eliminated in consolidation.
Cash equivalents
We classify as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. The carrying amount of these securities approximates fair value due to their short-term maturities.
Medium-term investments
At December 31, 2009 and December 31, 2008, we held investments with principal balances totaling approximately $5,554,000 and $38,837,000, respectively, in money market and other money funds at The Reserve, an investment management company specializing in such funds. The substantial majority of our investment was held in the Reserve International Liquidity Fund, Ltd. On September 15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy protection. In the following days, The Reserve announced that it was closing all of its money funds, some of which owned Lehman Brothers securities, and was suspending redemptions from and purchases of its funds, including the Reserve International Liquidity Fund. As a result of the temporary suspension of redemptions and the uncertainty as to the timing of such redemptions, we changed the classification of our investments in The Reserve funds from cash and cash equivalents to medium-term investments. Based on public statements issued by The Reserve and the maturity dates of the underlying investments, we believe that proceeds from the liquidation of the money funds in which we have investments will be received within twelve months of December 31, 2009, and therefore such investments have been classified as current.
During 2009 and the fourth quarter of 2008, The Reserve redeemed $33,282,000 and $258,000, respectively, of our investment. In addition, during the third quarter of 2008, we recognized a charge of $2,103,000 [included in other income (expense), net] to reduce the principal balance to an estimate of the fair value of our investment in these funds. During 2009, we recognized income [included in other income (expense), net] of $660,000 to increase the principal balance to an estimate of the fair value of our investment in these funds. See the caption Fair Value Measurements under this Note 1 for further discussion of the fair value determination. These adjustments resulted in balances as of December 31, 2009 and 2008 of $4,111,000 and $36,734,000, respectively, as reported on our accompanying Consolidated Balance Sheets.
Accounts and notes receivable
Accounts and notes receivable from customers result from our extending credit to trade customers for the purchase of our products. The terms generally provide for payment within 30 days of being invoiced. On occasion, when necessary to conform to regional industry practices, we sell product under extended payment terms, which may result in either secured or unsecured short-term notes; or, on occasion, notes with durations of less than one year are taken in settlement of existing accounts receivable. Other accounts and notes receivable result from short-term transactions (less than one year) other than the sale of our products, such as interest receivable; insurance claims; freight claims; tax refund claims; bid deposits or rents receivable. Additionally, as of December 31, 2008, other accounts and notes receivable include the current portion of a contingent earn-out agreement referable to the Chemicals business sale as described in Note 2. Receivables are aged and appropriate allowances for doubtful accounts and bad debt expense are recorded.
Inventories
Inventories and supplies are stated at the lower of cost or market. We use the last-in, first-out (LIFO) method of valuation for most of our inventories because it results in a better matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct labor and production overhead. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating supplies inventory is carried at average cost. For additional information regarding our inventories, see Note 3.
Property, plant & equipment
Property, plant & equipment are carried at cost less accumulated depreciation, depletion and amortization. The cost of properties held under capital leases is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease. For additional information regarding our property, plant & equipment, see Note 4.
Repair and maintenance
Repair and maintenance costs generally are charged to operating expense as incurred. Renewals and betterments that add materially to the utility or useful lives of property, plant & equipment are capitalized and subsequently depreciated. Actual costs for planned major maintenance activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and amortized to the next overhaul.
Depreciation, depletion, accretion and amortization
Depreciation is generally computed by the straight-line method at rates based on the estimated service lives of the various classes of assets, which include machinery and equipment (3 to 30 years), buildings (10 to 20 years) and land improvements (7 to 20 years).
Effective September 1, 2009, we changed our method of depreciation for our Newberry, Florida cement production facilities from straight-line to unit-of-production. We consider the change of depreciation method a change in accounting estimate effected by a change in accounting principle to be accounted for prospectively. The unit-of-production depreciation method is grounded on the assumption that depreciation of these assets is primarily a function of usage. The change to a unit-of-production method was based on information obtained by continued observation of the pattern of benefits derived from the cement plant assets and is preferable to a straight-line method as it results in depreciation that is more reflective of consumption of the assets. The effects of the partial year change in depreciation method increased 2009 earnings from continuing operations and net income by approximately $1,026,000, or $0.01 per basic and diluted share when compared to the results using the straight-line method.
Cost depletion on depletable quarry land is computed by the unit-of-production method based on estimated recoverable units.
Accretion reflects the period-to-period increase in the carrying amount of the liability for asset retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to initially measure the liability at fair value. A significant portion of our intangible assets are contractual rights in place associated with zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using a unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.
Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated useful life.
Amortization of intangible assets subject to amortization is computed based on the estimated life of the intangible assets.
We suspended depreciation and amortization expense upon our November 16, 2007 Florida Rock acquisition for sites that were required to be divested. These sites were divested in 2008. Depreciation, depletion, accretion and amortization expense for the years ended December 31 is outlined below (in thousands of dollars):
                         
    2009     2008     2007  
 
Depreciation
  $ 361,530     $ 365,177     $ 253,764  
Depletion
    10,143       7,896       6,042  
Accretion
    8,802       7,082       5,866  
Amortization of leaseholds and capitalized leases
    180       178       185  
Amortization of intangibles
    13,957       8,727       5,618  
 
Total depreciation, depletion, accretion and amortization
  $ 394,612     $ 389,060     $ 271,475  
 
Derivative instruments
We periodically use derivative instruments to reduce our exposure to interest rate risk, currency exchange risk or price fluctuations on commodity energy sources consistent with our risk management policies. We do not use derivative financial instruments for speculative or trading purposes. Additional disclosures regarding our derivative instruments are presented in 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.
The following table presents a summary of our assets and liabilities as of December 31, 2009 and 2008 that are subject to fair value measurement on a recurring basis (in thousands of dollars):
                 
    Level 2  
    2009     2008  
 
Fair Value Recurring
               
Medium-term investments
  $ 4,111     $ 36,734  
Interest rate derivative
    (11,192 )     (16,247 )
Foreign currency derivative
    0       (19 )
 
Net liability
  $ (7,081 )   $ 20,468  
 
The medium-term investments are comprised of money market and other money funds, as more fully described previously in this Note under the caption Medium-term Investments. We estimated the fair value of these funds by adjusting the investment principle to reflect a substantial write-down of the funds’ investments in securities of Lehman Brothers Holdings Inc. and by estimating a discount against our investment balances to allow for the risk that legal and accounting costs and pending or threatened claims and litigation against The Reserve and its management may reduce the principal available for distribution.
The interest rate derivative consists of an interest rate swap agreement applied to our $325.0 million 3-year notes issued December 2007 and is as more fully described in Note 5. This interest rate swap is measured at fair value based on the prevailing market interest rate as of the measurement date. The foreign currency derivative consists of a forward foreign currency exchange contract and is measured at fair value based on the foreign currency spot rate from an actively quoted market.
The carrying values of our cash equivalents, accounts and notes receivable, trade payables, accrued expenses and short-term borrowings 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 5 and 6, respectively.
Goodwill and goodwill impairment
Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. As of December 31, 2009, goodwill totaled $3,093,979,000, as compared to $3,085,468,000 at December 31, 2008. Total goodwill represents 36% of total assets at December 31, 2009, compared to 35% as of December 31, 2008.
Goodwill is reviewed for impairment annually or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Historically, we performed our annual goodwill impairment test as of January 1. In order to better align our annual goodwill impairment test with our budgeting and forecasting process, to meet the accelerated reporting deadlines and to provide adequate time to complete the analysis each year, during the fourth quarter of 2009, we changed the date on which we perform our annual goodwill impairment test from January 1 to November 1. We believe that this accounting change is an alternative method of applying an accounting principle that is preferable under the circumstances.
Goodwill is tested for impairment at the reporting unit level using a two-step process. The first step of the impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is not required. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any. The second step of the impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
We have four operating segments organized around our principal product lines: aggregates, asphalt mix, concrete and cement. Within these four operating segments, we have identified 13 reporting units based primarily on geographic location. The carrying value of each reporting unit is determined by assigning assets and liabilities, including goodwill, to those reporting units as of the measurement date. We estimate the fair values of the reporting units by considering the indicated fair values derived from both an income approach, which involves discounting estimated future cash flows, and a market approach, which involves the application of revenue and earnings multiples of comparable companies. We consider market factors when determining the assumptions and estimates used in our valuation models. To substantiate the fair values derived from these valuations, we reconcile the reporting unit fair values to our market capitalization.
The results of the first step of the annual impairment tests performed as of November 1, 2009 indicated that the fair values of the reporting units exceeded their carrying values by a substantial margin. Accordingly, there was no charge for goodwill impairment in the year ended December 31, 2009. The results of the annual impairment tests performed as of January 1, 2009 indicated that the carrying value of our Cement reporting unit exceeded its fair value. Based on the results of the second step of the impairment test, we concluded that the entire amount of goodwill at this reporting unit was impaired, and we recorded a $252,664,000 pretax goodwill impairment charge for the year ended December 31, 2008. The results of the first step of the annual impairment tests performed as of January 1, 2008 indicated that the fair values of the reporting units exceeded their carrying values by a substantial margin. Accordingly, there was no charge for goodwill impairment in the year ended December 31, 2007.
Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ materially from those estimates. Any changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or significant underperformance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.
For additional information regarding goodwill, see Note 18.
Impairment of long-lived assets excluding goodwill
We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. As of December 31, 2009, property, plant & equipment, net represents 45% of total assets and other intangible assets, net represents 8% of total assets. An impairment charge could be material to our financial condition and results of operations. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, a loss is recognized equal to the amount by which the carrying value exceeds the fair value of the long-lived assets. Fair value is determined by primarily using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.
For additional information regarding long-lived assets and intangible assets, see Notes 4 and 18.
Company owned life insurance
We have Company Owned Life Insurance (COLI) policies that were acquired in the Florida Rock transaction in November 2007. The cash surrender values of these policies, loans outstanding against the policies and the net values included in other noncurrent assets in the accompanying Consolidated Balance Sheets as of December 31 are as follows (in thousands of dollars):
                 
    2009     2008  
 
Cash surrender value
  $ 32,720     $ 30,235  
Loans outstanding
    32,710       30,225  
 
Net value included in noncurrent assets
  $ 10     $ 10  
 
Revenue recognition
Revenue is recognized at the time the sale price is fixed, the product’s title is transferred to the buyer and collectibility of the sales proceeds is reasonably assured. Total revenues include sales of products to customers, net of any discounts and taxes, and third-party delivery revenues billed to customers.
Stripping costs
In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.
Stripping costs incurred during the production phase are considered costs of extracted minerals under our inventory costing system, inventoried, and recognized in cost of sales in the same period as the revenue from the sale of the inventory. Additionally, we capitalize such costs as inventory only to the extent inventory exists at the end of a reporting period.
Conversely, stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from our inventory cost. Pre-production stripping costs are expensed as incurred unless certain criteria are met. Capitalized pre-construction stripping costs are reported within other noncurrent assets in our accompanying Consolidated Balance Sheets and are typically amortized over the productive life of the mine.
Other costs
Costs are charged to earnings as incurred for the start-up of new plants and for normal recurring costs of mineral exploration and research and development. Research and development costs for continuing operations totaled $1,541,000 in 2009, $1,546,000 in 2008 and $1,617,000 in 2007, and are included in selling, administrative and general expenses in the Consolidated Statements of Earnings.
Share-based compensation
We account for our share-based compensation awards using fair-value-based measurement methods. This results in the recognition of compensation expense for all stock-based compensation awards, including stock options, based on their fair value as of the grant date. For awards granted prior to January 1, 2006, compensation cost for all share-based compensation awards is recognized over the nominal (stated) vesting period. For awards granted subsequent to January 1, 2006, compensation cost is recognized over the requisite service period.
We receive an income tax deduction for share-based compensation equal to the excess of the market value of our common stock on the date of exercise or issuance over the exercise price. Tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are classified as financing cash flows. The $2,072,000, $11,209,000 and $29,220,000 in excess tax benefits classified as financing cash inflows for the years ended December 31, 2009, 2008 and 2007, respectively, in the accompanying Consolidated Statements of Cash Flows relate to the exercise of stock options and issuance of shares under long-term incentive plans.
A summary of the estimated future compensation cost (unrecognized compensation expense) as of December 31, 2009 related to share-based awards granted to employees under our long-term incentive plans is presented below (in thousands of dollars):
                 
    Unrecognized     Expected  
    Compensation     Weighted-average  
    Expense     Recognition (Years)  
 
Stock options/SOSARs
  $ 11,904       0.9  
Performance shares
    6,616       1.8  
Deferred stock units
    2,123       1.5  
 
Total/weighted-average
  $ 20,643       1.3  
 
Pretax compensation expense related to our employee share-based compensation awards and related income tax benefits for the years ended December 31 are summarized below (in thousands of dollars):
                         
    2009     2008     2007  
 
Pretax compensation expense
  $ 21,861     $ 17,800     $ 18,261  
Income tax benefits
    8,915       7,038       7,319  
 
For additional information regarding share-based compensation, see Note 11 under the caption Share-based Compensation Plans.
Reclamation costs
Reclamation costs resulting from the normal use of long-lived assets are recognized over the period the asset is in use only if there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from the normal use under a mineral lease are recognized over the lease term only if there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.
In determining the fair value of the obligation, we estimate the cost for a third party to perform the legally required reclamation tasks including a reasonable profit margin. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.
In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.
We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.
The carrying value of these obligations is $167,757,000 as of December 31, 2009. For additional information regarding reclamation obligations (referred to in our financial statements as asset retirement obligations), see Note 17.
Pension and other postretirement benefits
Accounting for pension and postretirement benefits requires that we make significant assumptions regarding the valuation of benefit obligations and the performance of plan assets. The primary assumptions are as follows:
    Discount Rate — The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future.
 
    Expected Return on Plan Assets — We project the future return on plan assets based principally on prior performance and our expectations for future returns for the types of investments held by the plan as well as the expected long-term asset allocation of the plan. These projected returns reduce the recorded net benefit costs.
 
    Rate of Compensation Increase — For salary-related plans only, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement.
 
    Rate of Increase in the Per Capita Cost of Covered Healthcare Benefits — We project the expected increases in the cost of covered healthcare benefits.
ASC 715, “Compensation Retirement Benefits,” Sections 30-35 and 60-35 provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of actual results allows for a smoothed recognition in earnings of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The differences between actual results and expected or estimated results are recognized in full in other comprehensive income. Amounts recognized in other comprehensive income are reclassified to earnings in a systematic manner over the average remaining service period of active employees expected to receive benefits under the plan.
For additional information regarding pension and other postretirement benefits, see Note 10.
Environmental compliance
Our environmental compliance costs include maintenance and operating costs for pollution control facilities, the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. We expense or capitalize environmental expenditures for current operations or for future revenues consistent with our capitalization policy.
We expense expenditures for an existing condition caused by past operations that do not contribute to future revenues. We accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost. At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of varying factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur.
When a range of probable loss can be estimated, we accrue the most likely amount. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2009, the spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $5,024,000. Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates, including key assumptions, for accruing environmental compliance costs; however, a number of factors, including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.
For additional information regarding environmental compliance costs, see Note 8.
Claims and litigation including self-insurance
We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers’ compensation up to $2,000,000 per occurrence and automotive and general/product liability up to $3,000,000 per occurrence. We have excess coverage on a per occurrence basis beyond these deductible levels.
Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. For matters not included in our actuarial studies, legal defense costs are accrued when incurred The following table outlines our liabilities at December 31 under our self-insurance program (in thousands of dollars):
                 
    2009     2008  
 
Liabilities (undiscounted)
  $ 60,072     $ 61,206  
Accrued liabilities (discounted)
    56,998       57,752  
Discount rate
    1.77 %     1.96 %
 
Estimated payments (undiscounted) under our self insurance program for the five years subsequent to December 31, 2009 are as follows (in thousands of dollars):
         
 
Estimated payments for five subsequent years
       
2010
  $ 18,914  
2011
    11,817  
2012
    7,920  
2013
    5,649  
2014
    3,652  
 
Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.
Income taxes
We file various federal, state and foreign income tax returns, including some returns that are consolidated with subsidiaries. We account for the current and deferred tax effects of such returns using the asset and liability method. Our current and deferred tax assets and liabilities reflect our best assessment of estimated future taxes to be paid. Significant judgments and estimates are required in determining the current and deferred assets and liabilities.
Annually, we compare the liabilities calculated for our federal, state and foreign income tax returns to the estimated liabilities calculated as part of the year end income tax provision. Any adjustments are reflected in our current and deferred tax assets and liabilities.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns for which we have already properly recorded the tax benefit in the income statement. At least quarterly, we assess the likelihood that the deferred tax asset balance will be recovered from future taxable income, and we will record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We take into account such factors as prior earnings history, expected future taxable income, mix of taxable income in the jurisdictions in which we operate, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. If we were to determine that we would not be able to realize a portion of our deferred tax assets in the future for which there is currently no valuation allowance, an adjustment to the deferred tax assets would be charged to earnings in the period such determination was made. Conversely, if we were to make a determination that realization is more likely than not for deferred tax assets with a valuation allowance, the related valuation allowance would be reduced and a benefit to earnings would be recorded.
U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely reinvested offshore. We periodically evaluate our investment strategies for each foreign tax jurisdiction in which we operate to determine whether foreign earnings will be indefinitely reinvested offshore and, accordingly, whether U.S. income taxes should be provided when such earnings are recorded.
We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. Our liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. Our effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.
A number of years may elapse before a particular matter for which we have recorded a liability related to an unrecognized tax benefit is audited and finally resolved. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is adequate. Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in our tax provision and effective tax rate in the period of resolution. Unfavorable settlement of an unrecognized tax benefit could increase the tax provision and effective tax rate and may require the use of cash in the period of resolution. Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.
Our largest permanent item in computing both our effective tax rate and taxable income is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9. The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.
The American Jobs Creation Act of 2004 created a new deduction for certain domestic production activities as described in Section 199 of the Internal Revenue Code. Generally, this deduction, subject to certain limitations, was set at 6% for 2007 through 2009 and increases to 9% in 2010 and thereafter. The estimated impact of this deduction on the 2009, 2008 and 2007 effective tax rates is presented in Note 9.
Comprehensive income (loss)
We report comprehensive income (loss) in our Consolidated Statements of Shareholders’ Equity. Comprehensive income includes charges and credits to equity from nonowner sources. Comprehensive income comprises two subsets: net earnings and other comprehensive income (loss). Other comprehensive income (loss) includes fair value adjustments to cash flow hedges, and actuarial gains or losses and prior service costs related to pension and postretirement benefit plans.
Earnings per share (EPS)
We report two earnings per share numbers, basic and diluted. These are computed by dividing net earnings (loss) by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below (in thousands of shares):
                         
    2009     2008     2007  
 
Weighted-average common shares outstanding
    118,891       109,774       97,036  
Dilutive effect of
                       
Stock options/SOSARs
    269       905       1,903  
Other stock compensation plans
    270       275       464  
 
Weighted-average common shares outstanding, assuming dilution
    119,430       110,954       99,403  
 
All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations. The number of antidilutive common stock equivalents for the years ended December 31 are as follows (in thousands of shares):
                         
    2009     2008     2007  
 
Antidilutive common stock equivalents
    3,661       2,130       407  
 
NEW ACCOUNTING STANDARDS
Accounting standards recently adopted
2009 — Retirement benefit disclosures
As of and for the annual period ended December 31, 2009, we adopted the disclosure standards for retirement benefits as codified in ASC 715 (formerly FSP FAS 132(R)-1), which requires more detailed disclosures about employers’ plan assets, including employers’ investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. As a result of our adoption of this standard, we enhanced our annual benefit plan disclosures as reflected in Note 10.
2009 — Measuring liabilities at fair value
On October 1, 2009, we adopted Auditing Standard Update (ASU) 2009-05, “Measuring Liabilities at Fair Value” (ASU 2009-05). ASU 2009-05 provides guidance on measuring the fair value of liabilities under ASC Topic 820, “Fair Value Measurements and Disclosures” (ASC 820), [formerly Statement of Financial Accounting Standards (SFAS) No. 157]. Our adoption of ASU 2009-05 did not materially affect our results of operations, financial position or liquidity.
2009 — Business combinations
On January 1, 2009, we adopted business combination standards codified in ASC Topic 805, “Business Combinations” (ASC 805) [formerly SFAS No. 141(R)], which requires the acquirer in a business combination to measure all assets acquired and liabilities assumed at their acquisition-date fair value. ASC 805 applies whenever an acquirer obtains control of one or more businesses. This standard requires prospective application for business combinations consummated after adoption. Our adoption of this standard had no impact on our results of operations, financial position or liquidity.
2009 — Noncontrolling interests
On January 1, 2009, we adopted standards governing the accounting and reporting of noncontrolling interests as codified in ASC Topic 810, “Consolidation” (ASC 810) (formerly SFAS No. 160). ASC 810 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Our adoption of this standard did not materially affect our results of operations, financial position or liquidity.
2009 — Derivative instruments and hedging activities disclosures
On January 1, 2009, we adopted disclosure standards for derivative instruments and hedging activities as codified in ASC Topic 815, “Derivatives and Hedging” (ASC 815) (formerly SFAS No. 161). As a result of our adoption of this standard, we enhanced our annual disclosure of derivative instruments and hedging activities as reflected in Note 5.
2009/2008 — Fair value measurement
On January 1, 2009, we adopted fair value measurement standards codified in ASC 820 for nonfinancial assets and liabilities. ASC 820 defines fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosures about fair value measurements. On January 1, 2008, we adopted fair value measurement standards with respect to financial assets and liabilities and elected to defer our adoption of this standard for nonfinancial assets and liabilities. Our adoption of these standards did not materially affect our results of operations, financial position or liquidity.
See the caption Fair Value Measurements under this Note 1 for disclosures related to financial assets and liabilities pursuant to the requirements of ASC 820.
2008 — Retirement benefits measurement date
On January 1, 2008, we adopted the measurement date provision of ASC Topic 715, “Compensation - Retirement Benefits” (ASC 715) (formerly SFAS No. 158). ASC 715 requires an employer to measure the plan assets and benefit obligations as of the date of its year-end balance sheet. This requirement was effective for fiscal years ending after December 15, 2008. Upon adopting the measurement date provision, we remeasured plan assets and benefit obligations as of January 1, 2008. This remeasurement resulted in an increase to noncurrent assets of $15,011,000, an increase to noncurrent liabilities of $2,238,000, an increase to deferred tax liabilities of $5,104,000, a decrease to retained earnings of $1,312,000 and an increase to accumulated other comprehensive income, net of tax, of $8,981,000.
2007 — Accounting for uncertainty in income taxes
On January 1, 2007, we adopted the provisions of ASC Topic 740, “Income Taxes” (ASC 740) (formerly FIN 48), that deals with the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under ASC 740, the financial statement effects of a tax position should initially be recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority.
As a result of the implementation of these provisions, as of January 1, 2007, we increased the liability for unrecognized tax benefits by $2,420,000, increased deferred tax assets by $1,480,000 and reduced retained earnings by $940,000. The total liability for unrecognized tax benefits as of January 1, 2007, amounted to $11,760,000, including interest and penalties.
See Note 9 for the tabular reconciliation of unrecognized tax benefits.
Accounting standards pending adoption
Variable interest entities — In June 2009, the Financial Accounting Standards Board (FASB) amended the consolidation guidance related to variable interest entities including removing the scope exemption for qualifying special-purpose entities (this standard has not been codified but was issued by the FASB as SFAS No. 167). This standard is effective as of the first fiscal year that begins after November 15, 2009 with early adoption prohibited.
We do not expect our adoption of this standard to have a material effect on our results of operations, financial position or liquidity.
Enhanced disclosures for fair value measurements — In January 2009, the FASB issued ASU No. 2010-6, “Improving Disclosures about Fair Value Measurements” (ASU 2010-6). ASU 2010-6 adds disclosure requirements about fair value measurements and clarifies the level of disaggregation required for existing fair value disclosures. Additionally, this ASU requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. With the exception of the separate disclosures about purchases, sales, issuances and settlements, which are effective for periods beginning after December 15, 2010, the standard is effective for periods beginning after December 15, 2009. We expect to adopt these new disclosure requirements in the first quarters of 2010 and 2011.
Use of estimates in the preparation of financial statements
The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect 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 evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ materially from these estimates.
Discontinued Operations
DISCONTINUED OPERATIONS
NOTE 2 DISCONTINUED OPERATIONS
In June 2005, we sold substantially all the assets of our Chemicals business, known as Vulcan Chemicals, to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. In addition to the initial cash proceeds, Basic Chemicals was required to make payments under two earn-out agreements subject to certain conditions. The first earn-out agreement was based on ECU and natural gas prices during the five-year period beginning July 1, 2005, and was capped at $150,000,000 (ECU earn-out or ECU derivative). During 2007, we received the final payment under the ECU earn-out of $22,142,000, bringing cumulative cash receipts to the $150,000,000 cap. Upward adjustments to the fair value of the ECU earn-out subsequent to closing, which totaled $51,070,000, were recorded in continuing operations, and therefore did not contribute to the gain or loss on the sale of the Chemicals business. During 2007, we recognized a gain related to changes in the fair value of the ECU earn-out of $1,929,000 (reflected as a component of other income, net in our Consolidated Statements of Earnings).
Proceeds under the second earn-out agreement are based on the performance of the hydrochlorocarbon product HCC-240fa (commonly referred to as 5CP) from the closing of the transaction through December 31, 2012 (5CP earn-out). Under this earn-out agreement, cash plant margin for 5CP, as defined in the Asset Purchase Agreement, in excess of an annual threshold amount is shared equally between Vulcan and Basic Chemicals. The primary determinant of the value for this earn-out is the level of growth in 5CP sales volume. At the June 7, 2005 closing date, the value assigned to the 5CP earn-out was limited to an amount that resulted in no gain on the sale of the business, as such gain was contingent in nature. A gain on disposal of the Chemicals business is recognized to the extent cumulative cash receipts under the 5CP earn-out exceed the initial value recorded.
Through December 31, 2009, we have received a total of $33,913,000 under the 5CP earn-out. During 2009, we received payments totaling $11,625,000 related to the year ended December 31, 2008. As these cash receipts exceeded the carrying amount of the 5CP receivable, during 2009 we recorded a gain on disposal of discontinued operations of $812,000. Any future payments received pursuant to the 5CP earn-out will be recorded as additional gain on disposal of discontinued operations. During 2008 and 2007, we received payments of $10,014,000 and $8,418,000, respectively, under the 5CP earn-out related to the respective years ended December 31, 2007 and December 31, 2006.
The carrying amounts of the 5CP earn-out as of December 31 are reflected in the accompanying Consolidated Balance Sheets as follows (in thousands of dollars):
                 
    2009     2008  
 
5CP earn-out
               
Accounts and notes receivable — other
  $ 0     $ 9,737  
Other noncurrent liabilities
    0       1,077  
 
Total
  $ 0     $ 10,814  
 
We are liable for a cash transaction bonus payable in the future to certain key former Chemicals employees. This transaction bonus is payable if cash receipts realized from the two earn-out agreements described above exceed an established minimum threshold. Amounts due are payable annually based on the prior year’s results. Based on the total cumulative receipts from the two earn-outs, we paid $521,000 in transaction bonuses during 2009.
The financial results of the Chemicals business are classified as discontinued operations in the accompanying Consolidated Statements of Earnings for all periods presented.
There were no net sales or revenues from discontinued operations for the years presented. Results from discontinued operations are as follows (in thousands of dollars):
                         
    2009     2008     2007  
 
Discontinued Operations
                       
Earnings (loss) from results of discontinued operations
  $ 18,644     $ (4,059 )   $ (19,327 )
Gain on disposal of discontinued operations
    812       0       0  
Income tax (provision) benefit
    (7,790 )     1,610       7,151  
 
Earnings (loss) on discontinued operations, net of tax
  $ 11,666     $ ( 2,449 )   $ (12,176 )
 
The 2009 pretax earnings from results of discontinued operations resulted primarily from settlements with two of our insurers in the Modesto perchloroethylene cases which are associated with our former Chemicals business. These settlements resulted in pretax gains of $23,500,000. The insurance proceeds and associated gains represent a partial recovery of legal and settlement costs recognized in prior years. The 2008 and 2007 pretax losses from discontinued operations, and the remaining results from 2009, reflect charges primarily related to general and product liability costs, including legal defense costs, environmental remediation costs associated with our former Chemicals businesses, and charges related to the cash transaction bonus as noted above.
Inventories
INVENTORIES
NOTE 3 INVENTORIES
Inventories at December 31 are as follows (in thousands of dollars):
                 
    2009     2008  
 
Finished products
  $ 261,752     $ 295,525  
Raw materials
    21,807       28,568  
Products in process
    3,907       4,475  
Operating supplies and other
    37,567       35,743  
 
Total inventories
  $ 325,033     $ 364,311  
 
In addition to the inventory balances presented above, as of December 31, 2009, we have $21,091,000 of inventory classified as long-term assets (Other assets) as we do not expect to sell the inventory within one year. Inventories valued under the LIFO method total $252,494,000 at December 31, 2009 and $269,598,000 at December 31, 2008. During 2009, 2008 and 2007, inventory reductions resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years as compared to the cost of current-year purchases. The effect of the LIFO liquidation on 2009 results was to decrease cost of goods sold by $3,839,000; increase earnings from continuing operations by $2,273,000; and increase net earnings by $2,273,000. The effect of the LIFO liquidation on 2008 results was to decrease cost of goods sold by $2,654,000; increase earnings from continuing operations by $1,605,000; and increase net earnings by $1,605,000. The effect of the LIFO liquidation on 2007 results was to decrease cost of goods sold by $85,000; increase earnings from continuing operations by $52,000; and increase net earnings by $52,000.
Estimated current cost exceeded LIFO cost at December 31, 2009 and 2008 by $129,424,000 and $125,997,000, respectively. We use the LIFO method of valuation for most of our inventories as it results in a better matching of costs with revenues. We provide supplemental income disclosures to facilitate comparisons with companies not on LIFO. The supplemental income calculation is derived by tax-effecting the change in the LIFO reserve for the periods presented. If all inventories valued at LIFO cost had been valued under the methods (substantially average cost) used prior to the adoption of the LIFO method, the approximate effect on net earnings would have been an increase of $2,043,000 in 2009, an increase of $26,192,000 in 2008 and an increase of $15,518,000 in 2007.
Property, Plant & Equipment
PROPERTY, PLANT & EQUIPMENT
NOTE 4 PROPERTY, PLANT & EQUIPMENT
Balances of major classes of assets and allowances for depreciation, depletion and amortization at December 31 are as follows (in thousands of dollars):
                 
    2009     2008  
 
Land and land improvements
  $ 2,080,457     $ 2,043,702  
Buildings
    152,615       150,922  
Machinery and equipment
    4,091,209       4,001,194  
Leaseholds
    7,231       7,508  
Deferred asset retirement costs
    147,992       153,360  
Construction in progress
    173,757       279,187  
 
Total
  $ 6,653,261     $ 6,635,873  
 
Less allowances for depreciation, depletion and amortization
    2,778,590       2,480,061  
 
Property, plant & equipment, net
  $ 3,874,671     $ 4,155,812  
 
Capitalized interest costs with respect to qualifying construction projects and total interest costs incurred before recognition of the capitalized amount for the years ended December 31 are as follows (in thousands of dollars):
                         
    2009     2008     2007  
 
Capitalized interest cost
  $ 10,721     $ 14,243     $ 5,130  
Total interest cost incurred before recognition of the capitalized amount
    185,983       187,056       53,348  
 
The recorded asset impairment losses related to long-lived assets were immaterial for all periods presented.
Derivative Instruments
DERIVATIVE INSTRUMENTS
NOTE 5 DERIVATIVE INSTRUMENTS
During the normal course of operation, we are exposed to market risks including fluctuations in interest rates, fluctuations in foreign currency exchange rates and changes in commodity pricing. From time to time, and consistent with our risk management policies, we use derivative instruments to hedge against these market risks. We do not utilize derivative instruments for trading or other speculative purposes. The interest rate swap agreements described below were designated as cash flow hedges of future interest payments.
In December 2007, we issued $325,000,000 of 3-year floating (variable) rate notes that bear interest at 3-month London Interbank Offered Rate (LIBOR) plus 1.25% per annum. Concurrently, we entered into a 3-year interest rate swap agreement in the stated (notional) amount of $325,000,000. Under this agreement, we pay a fixed interest rate of 5.25% and receive 3-month LIBOR plus 1.25% per annum. Concurrent with each quarterly interest payment, the portion of this swap related to that interest payment is settled and the associated realized gain or loss is recognized.
For the 12-month period ending December 31, 2010, we estimate that $11,193,000 of the pretax loss accumulated in Other Comprehensive Income (OCI) will be reclassified to earnings.
Additionally, during 2007, we entered into fifteen forward starting interest rate swap agreements for a total notional amount of $1,500,000,000. On December 11, 2007, upon the issuance of the related fixed-rate debt, we terminated and settled for a cash payment of $57,303,000 a portion of these forward starting swaps with an aggregate notional amount of $900,000,000 ($300,000,000 5-year, $350,000,000 10-year and $250,000,000 30-year).
In December 2007, the remaining forward starting swaps on an aggregate notional amount of $600,000,000 were extended to August 29, 2008. On June 20, 2008, upon the issuance of $650,000,000 of related fixed-rate debt, we terminated and settled for a cash payment of $32,474,000 the remaining forward starting swaps.
Amounts accumulated in other comprehensive loss related to the highly effective portion of the fifteen forward starting interest rate swaps are being amortized to interest expense over the term of the related debt. For the 12-month period ending December 31, 2010, we estimate that $7,624,000 of the pretax loss accumulated in OCI will be reclassified to earnings.
Derivative instruments are recognized at fair value in the accompanying Consolidated Balance Sheets. At December 31, the fair values of derivative instruments designated as hedging instruments are as follows (in thousands of dollars):
                     
        Fair Value 1  
    Balance Sheet Location   2009     2008  
 
Liability Derivatives
                   
Interest rate derivatives
  Other accrued liabilites   $ 11,193     $ 0  
Interest rate derivatives
  Other noncurrent liabilities     0       16,247  
 
Total derivatives
      $ 11,193     $ 16,247  
 
 
1   See Note 1 (caption Fair Value Measurements) for further discussion of the fair value determination.
The effects of the cash flow hedge derivative instruments on the accompanying Consolidated Statements of Earnings for the years ended December 31 are as follows (in thousands of dollars):
                             
    Location on Statement   2009     2008     2007  
 
Interest rate derivatives
                           
Gain (loss) recognized in OCI (effective portion)
  Note 14   $ (4,633 )   $ (12,439 )   $ (93,138 )
Loss reclassified from Accumulated OCI (effective portion)
  Interest expense     (16,776 )     (9,142 )     (198 )
Gain (loss) recognized in earnings (ineffective portion and amounts excluded from effectiveness test)
  Other income (expense), net     0       2,169       (6,576 )
 
Credit Facilities Short-Term Borrowings and Long-Term Debt
CREDIT FACILITIES, SHORT-TERM BORROWINGS AND LONG-TERM DEBT
NOTE 6 CREDIT FACILITIES, SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings at December 31 are summarized as follows (in thousands of dollars):
                 
    2009     2008  
 
Bank borrowings
  $ 0     $ 1,082,500  
Commercial paper
    236,512       0  
 
Total short-term borrowings
  $ 236,512     $ 1,082,500  
 
Bank borrowings
               
Maturity
    n/a     2 days
Weighted-average interest rate
    n/a       1.63 %
Commercial paper
               
Maturity
  42 days     n/a  
Weighted-average interest rate
    0.39 %     n/a  
 
We utilize our bank lines of credit as liquidity back-up for outstanding commercial paper or draw on the bank lines to access LIBOR-based short-term loans to fund our borrowing requirements. Periodically, we issue commercial paper for general corporate purposes, including working capital requirements.
Our policy is to maintain committed credit facilities at least equal to our outstanding commercial paper. Unsecured bank lines of credit totaling $1,500,000,000 were maintained at the end of 2009, all of which expires November 16, 2012. As of December 31, 2009, there were no borrowings under the lines of credit. Interest rates referable to borrowings under these lines of credit are determined at the time of borrowing based on current market conditions. Pricing of bank loans, if any lines were drawn, would be 30 basis points (0.3%) over LIBOR based on our long-term debt ratings at December 31, 2009.
All lines of credit extended to us in 2009, 2008 and 2007 were based solely on a commitment fee; no compensating balances were required. In the normal course of business, we maintain balances for which we are credited with earnings allowances. To the extent the earnings allowances are not sufficient to fully compensate banks for the services they provide, we pay the fee equivalent for the differences.
As of December 31, 2009, $3,659,000 of our long-term debt, including current maturities, was secured. This secured debt was assumed with the November 2007 acquisition of Florida Rock. All other debt obligations, both short-term borrowings and long-term debt, are unsecured.
Long-term debt at December 31 is summarized as follows (in thousands of dollars):
                 
      2009   2008  
 
10.125% 2015 notes issued 20091
  $ 149,538     $ 0  
10.375% 2018 notes issued 20092
    248,270       0  
3-year floating loan issued 2008
    175,000       285,000  
6.30% 5-year notes issued 20083
    249,632       249,543  
7.00% 10-year notes issued 20084
    399,625       399,595  
3-year floating notes issued 2007
    325,000       325,000  
5.60% 5-year notes issued 20075
    299,666       299,565  
6.40% 10-year notes issued 20076
    349,837       349,822  
7.15% 30-year notes issued 20077
    249,317       249,311  
6.00% 10-year notes issued 1999
    0       250,000  
Private placement notes
    15,243       15,375  
Medium-term notes
    21,000       21,000  
Industrial revenue bonds
    17,550       17,550  
Other notes
    1,823       3,512  
 
Total debt excluding short-term borrowings
  $ 2,501,501     $ 2,465,273  
 
Less current maturities of long-term debt
  385,381     311,685  
 
Total long-term debt
  $ 2,116,120     $ 2,153,588  
 
Estimated fair value of long-term debt
  $ 2,300,522     $ 1,843,479  
 
 
1   Includes a decrease for unamortized discounts of $462 thousand as of December 31, 2009. The effective interest rate for these 2015 notes is 10.305%.
 
2     Includes a decrease for unamortized discounts of $1,730 thousand as of December 31, 2009. The effective interest rate for these 2018 notes is 10.584%.
 
3     Includes decreases for unamortized discounts, as follows: December 31, 2009 — $368 thousand and December 31, 2008 — $457 thousand. The effective interest rate for these 5-year notes is 7.47%.
 
4     Includes decreases for unamortized discounts, as follows: December 31, 2009 — $375 thousand and December 31, 2008 — $405 thousand. The effective interest rate for these 10-year notes is 7.86%.
 
5     Includes decreases for unamortized discounts, as follows: December 31, 2009 — $334 thousand and December 31, 2008 — $435 thousand. The effective interest rate for these 5-year notes is 6.58%.
 
6     Includes decreases for unamortized discounts, as follows: December 31, 2009 — $163 thousand and December 31, 2008 — $178 thousand. The effective interest rate for these 10-year notes is 7.39%.
 
7     Includes decreases for unamortized discounts, as follows: December 31, 2009 — $683 thousand and December 31, 2008 — $689 thousand. The effective interest rate for these 30-year notes is 8.04%.
The estimated fair value amounts of long-term debt presented in the table above were determined by discounting expected future cash flows based on credit-adjusted interest rates on U.S. Treasury bills, notes or bonds, as appropriate. The fair value estimates are based on information available to management as of the respective balance sheet dates. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since those dates.
Scheduled debt payments during 2009 included $15,000,000 in March, June, September and December representing the quarterly payments under the 3-year floating rate loan issued in June 2008, $250,000,000 in April to retire the 6.00% 10-year notes issued in 1999, and payments under various miscellaneous notes that either matured at various dates or required monthly payments. In addition to our scheduled debt payments, we voluntarily prepaid $50,000,000 of our 3-year floating rate loan in November of 2009. Scheduled debt payments during 2008 included $33,000,000 in December to retire a private placement note, $15,000,000 in December representing the first quarterly payment under the 3-year floating rate loan and payments under various miscellaneous notes that either matured at various dates or required monthly payments. A note in the amount of $1,276,000 previously scheduled to be retired in 2008 was extended until May 2009.
In February 2009, we issued $400,000,000 of long-term notes in two related series, as follows: $150,000,000 of 10.125% coupon notes due December 2015 and $250,000,000 of 10.375% coupon notes due December 2018. These notes were issued principally to repay borrowings outstanding under our short- and long-term debt obligations. The notes are presented in the table above net of unamortized discounts from par. Discounts and debt issuance costs are being amortized using the effective interest method over the respective terms of the notes.
The 2008 and 2007 debt issuances described below relate primarily to funding the November 2007 acquisition of Florida Rock. These issuances effectively replaced a portion of the short-term borrowings we incurred to initially fund the cash portion of the acquisition.
In June 2008, we established a $300,000,000 3-year syndicated term loan with a floating rate based on a spread over LIBOR (1, 2, 3 or 6-month LIBOR options). As of December 31, 2009, the spread was 1.50 percentage points above the selected LIBOR options, as follows: 2-month LIBOR of 0.25% for $75,000,000 of the outstanding balance and 3-month LIBOR of 0.26% for the remaining $100,000,000. The spread is subject to increase if our long-term credit ratings are downgraded. This loan requires quarterly principal payments of $15,000,000 starting in December 2008 and final principal payments totaling $100,000,000 in June 2011.
Additionally, in June 2008 we issued $650,000,000 of long-term notes in two series, as follows: $250,000,000 of 5-year 6.30% coupon notes and $400,000,000 of 10-year 7.00% coupon notes. These notes are presented in the table above net of unamortized discounts from par. These discounts are being amortized using the effective interest method over the respective terms of the notes. The effective interest rates for these note issuances, including the effects of underwriting commissions and the settlement of the forward starting interest rate swap agreements (see Note 5), are 7.47% for the 5-year notes and 7.86% for the 10-year notes.
In December 2007, we issued $1,225,000,000 of long-term notes in four related series, as follows: $325,000,000 of 3-year floating rate notes, $300,000,000 of 5-year 5.60% coupon notes, $350,000,000 of 10-year 6.40% coupon notes and $250,000,000 of 30-year 7.15% coupon notes. Concurrent with the issuance of the notes, we entered into an interest rate swap agreement on the $325,000,000 3-year floating rate notes to convert them to a fixed interest rate of 5.25%. These notes are presented in the table above net of unamortized discounts from par. These discounts and the debt issuance costs of the notes are being amortized using the effective interest method over the respective terms of the notes. The effective interest rates for these notes, including the effects of underwriting commissions and other debt issuance cost, the above mentioned interest rate swap agreement and the settlement of the forward starting interest rate swap agreements (see Note 5), are 5.41% for the 3-year notes, 6.58% for the 5-year notes, 7.39% for the 10-year notes and 8.04% for the 30-year notes.
During 1999, we accessed the public debt market by issuing $500,000,000 of 5-year and 10-year notes in two related series of $250,000,000 each. The 5.75% 5-year coupon notes matured in April 2004 and the 6.00% 10-year notes matured in April 2009.
In 1999, we purchased all the outstanding common shares of CalMat Co. The private placement notes were issued by CalMat in December 1996 in a series of four tranches at interest rates ranging from 7.19% to 7.66%. Principal payments on the notes began in December 2003 and end in December 2011. The $15,243,000 outstanding as of December 31, 2009 is at 7.66% and matures December 2011.
During 1991, we issued $81,000,000 of medium-term notes ranging in maturity from 3 to 30 years, and in interest rates from 7.59% to 8.85%. The $21,000,000 in medium-term notes outstanding as of December 31, 2009 has a weighted-average maturity of 5.2 years with a weighted-average interest rate of 8.85%.
The industrial revenue bonds were assumed in November 2007 with the acquisition of Florida Rock. These variable-rate tax-exempt bonds mature as follows: $2,250,000 maturing June 2012, $1,300,000 maturing January 2021 and $14,000,000 maturing November 2022. The first two bond maturities are collateralized by certain property, plant & equipment. The remaining $14,000,000 of bonds are backed by a letter of credit.
Other notes of $1,823,000 as of December 31, 2009 were issued at various times to acquire land or businesses or were assumed in business acquisitions.
The total (principal and interest) payments of long-term debt, including current maturities, for the five years subsequent to December 31, 2009 are as follows (in thousands of dollars):
                         
    Total     Principal     Interest  
 
Payments of Long-term Debt
                       
2010
  $ 550,371     $ 385,385     $ 164,986  
2011
    281,302       135,249       146,053  
2012
    445,876       302,452       143,424  
2013
    378,178       260,166       118,012  
2014
    110,158       177       109,981  
 
Our debt agreements do not subject us to contractual restrictions with regard to working capital or the amount we may expend for cash dividends and purchases of our stock. The percentage of consolidated debt to total capitalization (total debt as a percentage of total capital), as defined in our bank credit facility agreements, must be less than 65%. Our total debt as a percentage of total capital was 40.3% as of December 31, 2009 and 50.0% as of December 31, 2008.
Operating Leases
OPERATING LEASES
NOTE 7 OPERATING LEASES
Total rental expense from continuing operations under operating leases primarily for machinery and equipment, exclusive of rental payments made under leases of one month or less, is summarized as follows (in thousands of dollars):
                         
    2009     2008     2007  
  | | |
Minimum rentals
  $ 36,976     $ 34,263     $ 28,674  
Contingent rentals (based principally on usage)
    25,846       39,169       33,904  
 
Total
  $ 62,822     $ 73,432     $ 62,578  
 
Future minimum operating lease payments under all leases with initial or remaining noncancelable lease terms in excess of one year, exclusive of mineral leases, as of December 31, 2009 are payable as follows (in thousands of dollars):
         
 
Future Minimum Operating Lease Payments
     
2010
  $ 27,102  
2011
    21,662  
2012
    19,405  
2013
    14,038  
2014
    6,360  
Thereafter
    29,579  
 
Total
  $ 118,146  
 
Lease agreements frequently include renewal options and require that we pay for utilities, taxes, insurance and maintenance expense. Options to purchase are also included in some lease agreements.
Accrued Environmental Remediation Costs
ACCRUED ENVIRONMENTAL REMEDIATION COSTS
NOTE 8 ACCRUED ENVIRONMENTAL REMEDIATION COSTS
Our Consolidated Balance Sheets as of December 31 include accrued environmental remediation costs as follows (in thousands of dollars):
                 
    2009     2008  
 
Continuing operations
  $ 7,830     $ 8,366  
Retained from former Chemicals businesses
    5,001       5,342  
 
Total
  $ 12,831     $ 13,708  
 
The long-term portion of the accruals noted above is included in other noncurrent liabilities in the accompanying Consolidated Balance Sheets and amounted to $6,813,000 at December 31, 2009 and $6,915,000 at December 31, 2008. The short-term portion of these accruals is included in other accrued liabilities in the accompanying Consolidated Balance Sheets.
The accrued environmental remediation costs in continuing operations relate primarily to the former Florida Rock, CalMat and Tarmac facilities acquired in 2007, 1999 and 2000, respectively. The balances noted above for Chemicals relate to retained environmental remediation costs from the 2003 sale of the Performance Chemicals business and the 2005 sale of the Chloralkali business.
Income Taxes
INCOME TAXES
NOTE 9 INCOME TAXES
The components of earnings (loss) from continuing operations before income taxes are as follows (in thousands of dollars):
                         
    2009     2008     2007  
 
Domestic
  $ (43,180 )   $ 45,445     $ 643,350  
Foreign
    23,959       29,613       24,152  
 
Total
  $ (19,221 )   $ 75,058     $ 667,502  
 
Provision (benefit) for income taxes for continuing operations consists of the following (in thousands of dollars):
                         
  2009   2008   2007  
            (As Restated,          
            See Note 20)          
Current
                       
Federal
  $ (3,965 )   $ 64,428     $ 172,149  
State and local
    7,034       20,883       21,894  
Foreign
    3,037       7,035       5,888  
 
Total
    6,106       92,346       199,931  
 
Deferred
                       
Federal
    (37,790 )     (18,978 )     6,601  
State and local
    (5,794 )     (1,724 )     (488 )
Foreign
    (391 )     47       (1,628 )
 
Total
    (43,975 )     (20,655 )     4,485  
 
Total provision (benefit)
  $ (37,869 )   $ 71,691     $ 204,416  
 
The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to income before provision for income taxes. The sources and tax effects of the differences are as follows (in thousands of dollars):
                                                 
      2009       2008       2007  
                            (As Restated,                  
                            See Note 20)                  
Income tax provision (benefit) at the federal statutory tax rate of 35%
  $ (6,727 )     35.0 %   $ 26,272       35.0 %   $ 233,630       35.0 %
Increase (decrease) in income tax provision (benefit) resulting from Statutory depletion
    (19,464 )     101.3 %     (28,063 )     -37.4 %     (32,005 )     -4.8 %
State and local income taxes, net of federal income tax benefit
    1,457       -7.6 %     11,127       14.8 %     18,235       2.7 %
Nondeductible expense
    1,694       -8.8 %     1,619       2.2 %     1,706       0.3 %
Goodwill impairment
    0       0.0 %     65,031       86.6 %     0       0.0 %
ESOP dividend deduction
    (2,408 )     12.5 %     (3,017 )     -4.0 %     (2,450 )     -0.4 %
U.S. Production Activities Deduction
    0       0.0 %     (2,203 )     -2.9 %     (6,951 )     -1.0 %
Fair market value over tax basis of contributions
    (2,931 )     15.3 %     (3,814 )     -5.1 %     (4,994 )     -0.7 %
Foreign tax rate differential
    (4,461 )     23.2 %     (4,955 )     -6.6 %     (2,999 )     -0.4 %
Tax loss on sale of stock — divestiture
    (4,143 )     21.6 %     0       0.0 %     0       0.0 %
Reversal cash surrender value — COLI plans
    (412 )     2.1 %     (486 )     -0.6 %     0       0.0 %
Prior year true up adjustments
    375       -2.0 %     1,932       2.5 %     1,636       0.2 %
Provision for uncertain tax positions
    (451 )     2.3 %     1,516       2.0 %     (1,363 )     -0.3 %
Gain on sale of goodwill on divested assets
    0       0.0 %     6,937       9.3 %     0       0.0 %
Other
    (398 )     2.1 %     (205 )     -0.3 %     (29 )     0.0 %
 
Total income tax provision (benefit)
  $ (37,869 )     197.0 %   $ 71,691       95.5 %   $ 204,416       30.6 %
 
Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability at December 31 are as follows (in thousands of dollars):
                 
  2009   2008  
            (As Restated,  
            See Note 20)  
Deferred tax assets related to
               
Pensions
  $ 63,881     $ 57,323  
Other postretirement benefits
    46,718       43,741  
Accruals for asset retirement obligations and environmental accruals
    23,569       46,686  
Accounts receivable, principally allowance for doubtful accounts
    3,083       3,381  
Deferred compensation, vacation pay and incentives
    61,197       55,522  
Interest rate swaps
    34,468       38,734  
Self-insurance reserves
    24,551       22,343  
Valuation allowance on net operating loss carryforwards
    (10,768 )     (6,057 )
Other
    37,343       24,453  
 
Total deferred tax assets
    284,042       286,126  
 
Deferred tax liabilities related to
               
Inventory
    3,091       221  
Fixed assets
    848,923       873,999  
Intangible assets
    248,978       237,528  
Other
    12,351       23,648  
 
Total deferred tax liabilities
    1,113,343       1,135,396  
 
Net deferred tax liability
  $ 829,301     $ 849,270  
 
The above amounts are reflected in the accompanying Consolidated Balance Sheets as of December 31 as follows (in thousands of dollars):
                 
  2009   2008  
            (As Restated,  
            See Note 20)  
Deferred income taxes
               
Current assets
  $ (57,967 )   $ (71,205 )
Deferred liabilities
    887,268       920,475  
 
Net deferred tax liability
  $ 829,301     $ 849,270  
 
Our determination of the realization of deferred tax assets is based upon management’s judgment of various future events and uncertainties, including the timing, nature and amount of future income earned by certain subsidiaries and the implementation of various plans to maximize the realization of deferred tax assets. We believe that the subsidiaries will generate sufficient operating earnings to realize the deferred tax benefits. However, we do not believe that it is more likely than not that all of our state net operating loss carryforwards will be realized in future periods. Accordingly, valuation allowances amounting to $10,768,000 and $6,057,000 were established against the state net operating loss deferred tax assets as of December 31, 2009 and December 31, 2008, respectively. At December 31, 2009, we had $345,085,000 of net operating loss carryforwards in various state jurisdictions. The net operating losses relate to jurisdictions with either 15-year or 20-year carryforward periods, and relate to losses generated in years from 2007 forward. As a result, the vast majority of the loss carryforwards do not begin to expire until 2022.
Additionally, due to a significant decrease in 2009 earnings, along with a sizable dividend from our Mexican subsidiary, we generated a foreign tax credit carryforward of approximately $13,051,000. The carryforward period available for utilization is ten years, and we have concluded that it is more likely than not that the full credit carryforward will be utilized within the carryforward period. The primary factors projected over the ten-year carryforward period upon which we relied to reach this conclusion include (1) a return to more normal levels of earnings, (2) our ability to generate sufficient foreign source income, and (3) the reduction of our interest expense from corporate debt. As a result, no valuation allowance has been established against the foreign tax credit carryforward deferred tax asset.
Uncertain tax positions and the resulting unrecognized income tax benefits are discussed in our accounting policy for income taxes (See Note 1, caption Income Taxes). The change in the unrecognized income tax benefits for the years ended 2009, 2008 and 2007 is reconciled below (in thousands of dollars):
                         
    2009     2008     2007  
 
Unrecognized income tax benefits as of January 1
  $ 18,131     $ 7,480     $ 9,700  
 
Increases for tax positions related to
                       
Prior years
    1,108       482       2,148  
Current year
    5,667       6,189       2,323  
Acquisitions
    0       5,250       0  
Decreases for tax positions related to
                       
Prior years
    (9 )     (1,009 )     (1,900 )
Current year
    0       0       0  
Settlements with taxing authorities
    (482 )     (261 )     (281 )
Expiration of applicable statute of limitations
    (3,441 )     0       (4,510 )
 
Unrecognized income tax benefits as of December 31
  $ 20,974     $ 18,131     $ 7,480  
 
We classify interest and penalties recognized on the liability for unrecognized income tax benefits as income tax expense. Interest and penalties recognized as income tax expense (benefit) were $472,000 in 2009, ($202,000) in 2008 and $1,990,000 in 2007. The balance of accrued interest and penalties included in our liability for unrecognized income tax benefits as of December 31 was $3,112,000 in 2009, $1,376,000 in 2008 and $4,050,000 in 2007.
Our unrecognized income tax benefits at December 31 in the table above include $12,181,000 in 2009, $12,724,000 in 2008 and $5,490,000 in 2007 that would affect the effective tax rate if recognized.
We are routinely examined by various taxing authorities. The U.S. federal statute of limitations for 2006 has been extended to March 31, 2011, with no anticipated significant tax increase or decrease to any single tax position. The U.S. federal statute of limitations for years prior to 2006 has expired. We anticipate no single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date.
We file income tax returns in the U.S. federal and various state and foreign jurisdictions. Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for the years prior to 2005.
We have not recognized deferred income taxes on $38,270,000 of undistributed earnings from one of our foreign subsidiaries, since we consider such earnings as indefinitely reinvested. If we distribute the earnings in the form of dividends, the distribution would be subject to U.S. income taxes. In this event, the amount of deferred income taxes to be recognized is $13,395,000.
Benefit Plans
BENEFIT PLANS
NOTE 10 BENEFIT PLANS
Pension 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 a plan we assumed from Florida Rock 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. Effective July 15, 2007, we amended our defined benefit pension plans and our then existing defined contribution 401(k) plans to no longer accept new participants. Existing participants continue to accrue benefits under these plans. Salaried and non-union hourly employees hired on or after July 15, 2007 are eligible for a new single defined contribution 401(k)/Profit-Sharing plan established on that date.
Additionally, we sponsor unfunded, nonqualified pension plans, including one such plan assumed in the Florida Rock acquisition. The projected benefit obligation, accumulated benefit obligation and fair value of assets for these plans were: $70,089,000, $63,220,000 and $0 at December 31, 2009 and $53,701,000, $49,480,000 and $0 at December 31, 2008. Approximately $8,700,000 and $8,100,000 of the obligations at December 31, 2009 and December 31, 2008, respectively, relate to existing Florida Rock retirees receiving benefits under the assumed plan.
The following table sets forth the combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31 (in thousands of dollars):
                 
    2009     2008  
Change in Benefit Obligation
               
Benefit obligation at beginning of year
  $ 620,845     $ 636,270  
Remeasurement adjustment 1
    0       (21,020 )
Service cost
    18,638       19,166  
Interest cost
    41,941       39,903  
Actuarial (gain) loss
    61,019       (21,819 )
Benefits paid
    (32,660 )     (31,655 )
 
Benefit obligation at end of year
  $ 709,783     $ 620,845  
 
Change in Plan Assets
               
Fair value of assets at beginning of year
  $ 418,977     $ 679,747  
Remeasurement adjustment1
    0       (2,809 )
Actual return on plan assets2
    79,713       (229,164 )
Employer contribution
    27,616       2,858  
Benefits paid
    (32,660 )     (31,655 )
 
Fair value of assets at end of year
  $ 493,646     $ 418,977  
 
Funded status
  $ (216,137 )   $ (201,868 )
 
Net amount recognized
  $ (216,137 )   $ (201,868 )
 
Amounts Recognized in the Consolidated Balance Sheets
               
Noncurrent assets
  $ 0     $ 0  
Current liabilities
    (4,104 )     (3,453 )
Noncurrent liabilities
    (212,033 )     (198,415 )
 
Net amount recognized
  $ (216,137 )   $ (201,868 )
 
Amounts Recognized in Accumulated Other Comprehensive Income
               
Net actuarial loss
  $ 225,301     $ 199,141  
Prior service cost
    1,398       1,858  
 
Total amount recognized
  $ 226,699     $ 200,999  
 
 
1   See Note 1, caption New Accounting Standards, Accounting Standards Recently Adopted, 2008—Retirement Benefits Measurement Date for an explanation of the remeasurement adjustment.
 
2   Actual return on plan assets during 2008 includes a $48,018 thousand write-down in the estimated fair value of certain assets invested in Westridge Capital Management, Inc. The write-down, net of income taxes, was recorded in other comprehensive loss for 2008.
The accumulated benefit obligation and the projected benefit obligation exceeded plan assets for all of our defined benefit plans at December 31, 2009 and 2008.
The accumulated benefit obligation for all defined benefit pension plans was $669,171,000 at December 31, 2009 and $581,653,000 at December 31, 2008.
The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income and weighted-average assumptions of the plans at December 31 (amounts in thousands, except percentages):
                         
    2009     2008     2007  
Components of Net Periodic Pension Benefit Cost
                       
Service cost
  $ 18,638     $ 19,166     $ 20,705  
Interest cost
    41,941       39,903       34,683  
Expected return on plan assets
    (46,505 )     (51,916 )     (46,517 )
Amortization of prior service cost
    460       460       755  
Amortization of actuarial loss
    1,651       560       1,822  
 
Net periodic pension benefit cost
  $ 16,185     $ 8,173     $ 11,448  
 
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
                       
Net actuarial loss (gain)
  $ 27,811     $ 259,308     $ (29,287 )
Prior service credit
    0       0       (829 )
Reclassification of actuarial loss to net periodic pension benefit cost
    (1,651 )     (560 )     (1,822 )
Reclassification of prior service cost to net periodic pension benefit cost
    (460 )     (460 )     (755 )
 
Amount recognized in other comprehensive income
  $ 25,700     $ 258,288     $ (32,693 )
 
Amount recognized in net periodic pension benefit cost and other comprehensive income
  $ 41,885     $ 266,461     $ (21,245 )
 
Assumptions
                       
Weighted-average assumptions used to determine benefit obligation at December 31
                       
Discount rate
    5.92 %     6.60 %        
Rate of compensation increase (for salary-related plans):
                       
Inflation
    2.25 %     2.25 %        
Merit/productivity
    1.15 %     2.50 %        
 
Total rate of compensation increase
    3.40 %     4.75 %        
 
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31
                       
Discount rate
    6.60 %     6.45 %     5.70 %
Expected return on plan assets
    8.25 %     8.25 %     8.25 %
Rate of compensation increase (for salary-related plans):
                       
Inflation
    2.25 %     2.25 %     2.25 %
Merit/productivity
    2.50 %     2.50 %     2.50 %
 
Total rate of compensation increase
    4.75 %     4.75 %     4.75 %
 
The estimated net actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension benefit cost during 2010 are $5,825,000 and $460,000, respectively.
Assumptions regarding our expected return on plan assets are based primarily on judgments made by management and the Board’s Finance and Pension Funds Committee. These judgments take into account the expectations of our pension plan consultants and actuaries and our investment advisors, and the opinions of market professionals. We base our expected return on long-term investment expectations. Accordingly, the expected return has historically remained at 8.25% and has not varied due to short-term results above or below our long-term expectations.
We establish our pension investment policy by evaluating asset/liability studies periodically performed by our consultants. These studies estimate trade-offs between expected returns on our investments and the variability in anticipated cash contributions to fund our pension liabilities. Our policy accepts a relatively high level of variability in potential pension fund contributions in exchange for higher expected returns on our investments and lower expected future contributions.
Our current strategy for implementing this policy is to invest a relatively high proportion in publicly traded equities and moderate amounts in publicly traded debt and private, nonliquid opportunities, such as venture capital, commodities, buyout funds and mezzanine debt. The target allocation ranges for plan assets are as follows: equity securities — 50% to 77%; debt securities — 15% to 27%; specialty investments — 10% to 20%; and cash reserves — 0% to 5%. Equity securities include domestic investments and foreign equities in the Europe, Australia and Far East (EAFE) and International Finance Corporation (IFC) Emerging Market Indices. Debt securities include domestic debt instruments, while all specialty investments include investments in venture capital, buyout funds, mezzanine debt private partnerships and an interest in a commodity index fund.
The fair values of our pension plan assets at December 31, 2009 by asset category are as follows (in thousands of dollars):
Fair Value Measurements at December 31, 2009
                                 
    Total     Level 1 1     Level 2 1     Level 3 1  
Asset Category
                               
Debt securities
  $ 163,967     $ 0     $ 163,647     $ 320  
Investment funds
                               
Bond funds
    4,650       4,647       3       0  
Commodity funds
    23,093       0       23,093       0  
Equity funds
    166,005       0       166,005       0  
Short-term funds
    37,308       0       37,308       0  
Venture capital and partnerships
    93,262       0       0       93,262  
Other
    5,361       1,995       3,366       0  
 
Total pension plan assets
  $ 493,646     $ 6,642     $ 393,422     $ 93,582  
 
 
1   See Note 1 under the caption fair value measurements for a description of the fair value heirarchy.
As of December 31, 2008, our Master Pension Trust had assets invested at Westridge Capital Management, Inc. (WCM) with a reported fair value of $59,245,000. In February 2009, the New York District Court appointed a receiver over WCM due to allegations of fraud and other violations of federal commodities and securities laws by principals of WCM. In light of these allegations, we reassessed the fair value of our investments at WCM and recorded a $48,018,000 write-down in the estimated fair value of these assets for the year ended December 31, 2008. WCM assets of $11,227,000 at December 31, 2009 are included in the Equity funds asset category in the table above. All identifiable assets of WCM are currently held by a court-appointed receiver. We intend to pursue all appropriate legal actions to secure the return of our investments.
At each measurement date, we estimate the fair value of our pension assets using various valuation techniques. We utilize, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of our pension assets. When quoted market prices or observable market inputs are not available, we utilize valuation techniques that rely on unobservable inputs to estimate the fair value of our pension assets. The following describes the types of investments included in each asset category listed in the table above and the valuation techniques we used to determine the fair values as of December 31, 2009.
The debt securities category consists of bonds issued by U.S. federal, state and local governments, corporate debt securities, fixed income obligations issued by foreign governments, and asset-backed securities. The fair values of U.S. government and corporate debt securities are based on current market rates and credit spreads for debt securities with similar maturities. The fair values of debt securities issued by foreign governments are based on prices obtained from broker/dealers and international indices. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market.
Investment funds consist of exchange traded and non-exchange traded funds. The bond funds asset category consists primarily of index funds holding U.S. government, U.S. government agency and corporate debt securities. The commodity fund asset category consists of a single open-end commodity mutual fund. The equity funds asset category consists of open-end stock mutual funds and a hedged enhanced index fund. The short-term funds asset category consists of a collective investment trust invested in highly liquid, short-term debt securities. For investment funds publicly traded on a national securities exchange, the fair value is based on quoted market prices. For investment funds not traded on an exchange, the total fair value of the underlying securities is used to determine the net asset value for each unit of the fund held by the pension fund. The estimated fair values of the underlying securities are generally valued based on quoted market prices. For securities without quoted market prices, other observable market inputs are utilized to determine the fair value.
The venture capital and partnerships asset category consists of various limited partnership funds, mezzanine debt funds and leveraged buy-out funds. The fair value of these investments has been estimated based on methods employed by the general partners, including consideration of, among other things, reference to third-party transactions, valuations of comparable companies operating within the same or similar industry, the current economic and competitive environment, creditworthiness of the corporate issuer, as well as market prices for instruments with similar maturity, term, conditions and quality ratings. The use of different assumptions, applying different judgment to inherently subjective matters and changes in future market conditions could result in significantly different estimates of fair value of these securities.
A reconciliation of the fair value measurements of our pension plan assets using significant unobservable inputs (Level 3) for the annual period ended December 31, 2009 is presented below (in thousands of dollars):
Fair Value Measurements at December 31, 2009 Using Significant Unobservable Inputs (Level 3)
                         
            Venture        
    Debt     Capital and        
    Securities     Partnerships     Total  
Beginning balance at December 31, 2008
  $ 342     $ 94,744     $ 95,086  
 
Actual return on plan assets
                       
Relating to assets still held at December 31, 2009
    2       (7,793 )     (7,791 )
Relating to assets sold during the year ended December 31, 2009
    0       0       0  
Purchases, sales and settlements
    (24 )     6,311       6,287  
Transfers in (out) of Level 3
    0       0       0  
 
Ending balance at December 31, 2009
  $ 320     $ 93,262     $ 93,582  
 
Total employer contributions for the pension plans are presented below (in thousands of dollars):
         
    Pension  
 
Employer Contributions
       
2007
  $ 1,808  
2008
    3,127  
2009
    27,616  
2010 (estimated)
    72,500  
 
We expect to make contributions totaling $72,500,000 to the funded pension plans during 2010. It is anticipated that these contributions, along with existing funding credit balances, are sufficient to fund projected minimum required contributions until the 2013 plan year. Currently, we do not anticipate that the funded status of our plans will fall below statutory thresholds requiring accelerated funding or constraints on benefit levels or plan administration.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands of dollars):
         
    Pension  
 
Estimated Future Benefit Payments
       
2010
  $ 34,313  
2011
    36,598  
2012
    39,369  
2013
    41,483  
2014
    45,696  
2015-2019
    254,548  
 
Certain of our hourly employees in unions are covered by multi-employer defined benefit pension plans. Contributions to these plans approximated $6,991,000 in 2009, $8,008,000 in 2008, and $8,368,000 in 2007. The actuarial present value of accumulated plan benefits and net assets available for benefits for employees in the union-administered plans are not determinable from available information. As of December 31, 2009, a total of 20% of our hourly labor force were covered by collective bargaining agreements. Of our hourly workforce covered by collective bargaining agreements, 75% were covered by agreements that expire in 2010.
In addition to the pension plans noted above, we had one unfunded supplemental retirement plan as of December 31, 2009 and 2008. The accrued costs for the supplemental retirement plan were $1,034,000 at December 31, 2009 and $917,000 at December 31, 2008.
Postretirement plans
In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. Effective July 15, 2007, we amended our salaried postretirement healthcare coverage to increase the eligibility age for early retirement coverage to age 62, unless certain grandfathering provisions were met. Substantially all our salaried employees and where applicable, hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, Company-provided healthcare benefits terminate when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age 65, whichever occurs first.
The following table sets forth the combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31 (in thousands of dollars):
                 
    2009     2008  
Change in Benefit Obligation
               
Benefit obligation at beginning of year
  $ 112,837     $ 106,154  
Remeasurement adjustment1
    0       4,459  
Service cost
    3,912       5,224  
Interest cost
    7,045       6,910  
Amendments
    0       100  
Actuarial loss (gain)
    974       (3,621 )
Benefits paid
    (6,455 )     (6,389 )
 
Benefit obligation at end of year
  $ 118,313     $ 112,837  
 
Change in Plan Assets
               
Fair value of assets at beginning of year
  $ 0     $ 0  
Actual return on plan assets
    0       0  
 
Fair value of assets at end of year
  $ 0     $ 0  
 
Funded status
  $ (118,313 )   $ (112,837 )
 
Net amount recognized
  $ (118,313 )   $ (112,837 )
 
Amounts Recognized in the Consolidated Balance Sheets
               
Current liabilities
  $ (8,323 )   $ (7,277 )
Noncurrent liabilities
    (109,990 )     (105,560 )
 
Net amount recognized
  $ (118,313 )   $ (112,837 )
 
Amounts Recognized in Accumulated Other Comprehensive Income
               
Net actuarial loss
  $ 19,165     $ 18,789  
Prior service credit
    (5,543 )     (6,366 )
 
Total amount recognized
  $ 13,622     $ 12,423  
 
 
1   See Note 1, caption New Accounting Standards, Accounting Standards Recently Adopted, 2008—Retirement Benefits Measurement Date for an explanation of the remeasurement adjustment.
The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income, weighted-average assumptions and assumed trend rates of the plans at December 31 (amounts in thousands, except percentages):
                         
    2009     2008     2007  
 
Components of Net Periodic Postretirement Benefit Cost
                       
Service cost
  $ 3,912     $ 5,224     $ 4,096  
Interest cost
    7,045       6,910       5,483  
Expected return on plan assets
    0       0       0  
Amortization of prior service credit
    (823 )     (839 )     (475 )
Amortization of actuarial loss
    598       1,020       910  
 
Net periodic postretirement benefit cost
  $ 10,732     $ 12,315     $ 10,014  
 
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
                       
Net actuarial loss (gain)
  $ 974     $ ( 3,792 )   $ 6,123  
Prior service cost (credit)
    0       100       (7,170 )
Reclassification of actuarial loss to net periodic postretirement benefit cost
    (598 )     (1,020 )     (910 )
Reclassification of prior service credit to net periodic postretirement benefit cost
    823       839       475  
 
Amount recognized in other comprehensive income
  $ 1,199     $ ( 3,873 )   $ ( 1,482 )
 
Amount recognized in net periodic postretirement benefit cost and other comprehensive income
  $ 11,931     $ 8,442     $ 8,532  
 
Assumptions
                       
Weighted-average assumptions used to determine benefit obligation at December 31
                       
Discount rate
    5.45 %     6.65 %        
 
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31
                       
Discount rate
    6.65 %     6.10 %     5.50 %
Assumed Healthcare Cost Trend Rates at December 31
                       
Healthcare cost trend rate assumed for next year
    8.50 %     9.00 %     9.00 %
Rate to which the cost trend rate gradually declines
    5.00 %     5.00 %     5.25 %
Year that the rate reaches the rate it is assumed to maintain
    2017       2017       2012  
 
The estimated net actuarial loss and prior service credit that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost during 2010 are $854,000 and $729,000, respectively.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rate would have the following effects (in thousands of dollars):
                 
    One-percentage-point     One-percentage-point  
    Increase     Decrease  
 
Effect on total of service and interest cost
  $ 1,107     $ (970 )
Effect on postretirement benefit obligation
    10,529       (9,344 )
 
Total employer contributions for the postretirement plans are presented below (in thousands of dollars):
         
    Postretirement  
 
Employer Contributions
       
2007
  $ 6,933  
2008
    6,389  
2009
    6,455  
2010 (estimated)
    8,323  
 
The employer contributions shown above are equal to the cost of benefits during the year. The plans are not funded and are not subject to any regulatory funding requirements.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands of dollars):
         
    Postretirement  
 
Estimated Future Benefit Payments
       
2010
  $ 8,323  
2011
    9,069  
2012
    9,531  
2013
    10,114  
2014
    10,641  
2015-2019
    59,070  
 
Contributions by participants to the postretirement benefit plans for the years ended December 31 are as follows (in thousands of dollars):
         
    Postretirement  
 
Participants Contributions
       
2007
  $ 1,147  
2008
    1,460  
2009
    1,673  
 
Pension and other postretirement benefits assumptions
Each year we review our assumptions about the discount rate, the expected return on plan assets, the rate of compensation increase (for salary-related plans) and the rate of increase in the per capita cost of covered healthcare benefits.
In selecting the discount rate, we consider fixed-income security yields, specifically high-quality bonds. At December 31, 2009, the discount rate for our plans ranged from 5.2% to 6.0%. An analysis of the duration of plan liabilities and the yields for corresponding high-quality bonds is used in the selection of the discount rate.
In estimating the expected return on plan assets, we consider past performance and long-term future expectations for the types of investments held by the plan as well as the expected long-term allocation of plan assets to these investments. At December 31, 2009, the expected return on plan assets remained 8.25%.
In projecting the rate of compensation increase, we consider past experience in light of movements in inflation rates. At December 31, 2009, the inflation component of the assumed rate of compensation increase remained at 2.25%. In addition, based on future expectations of merit and productivity increases, the weighted-average component of the salary increase assumption decreased to 1.15%.
In selecting the rate of increase in the per capita cost of covered healthcare benefits, we consider past performance and forecasts of future healthcare cost trends. At December 31, 2009, our assumed rate of increase in the per capita cost of covered healthcare benefits remains at 8.5% for 2010, decreasing each year until reaching 5.0% in 2017 and remaining level thereafter.
Defined contribution plans
We sponsor four defined contribution plans. Substantially all salaried and nonunion hourly employees are eligible to be covered by one of these plans. As stated above, effective July 15, 2007, we amended our defined benefit pension plans and our defined contribution 401(k) plans to no longer accept new participants. Existing participants continue to accrue benefits under these plans. Salaried and nonunion hourly employees hired on or after July 15, 2007 are eligible for a single defined contribution 401(k)/Profit-Sharing plan. Expense recognized in connection with these plans totaled $13,361,000, $16,930,000, and $10,713,000 for 2009, 2008 and 2007, respectively.
Incentive Plans
INCENTIVE PLANS
NOTE 11 INCENTIVE PLANS
Share-based compensation plans

Our 2006 Omnibus Long-term Incentive Plan (Plan) authorizes the granting of stock options, Stock-Only Stock Appreciation Rights (SOSARs) and other types of share-based awards to key salaried employees and non-employee directors. The maximum number of shares that may be issued under the Plan is 5,400,000. There are an additional 381,000 shares available for issuance under a Florida Rock shareholder approved plan that we assumed in connection with our merger. Shares under the Florida Rock plan are available for grants until September 30, 2010.
Deferred Stock Units — Deferred stock units were granted to executive officers and key employees from 2001 through 2005. These awards vest ratably in years 6 through 10 following the date of grant, accrue dividend equivalents starting one year after grant, carry no voting rights and become payable upon vesting. A single deferred stock unit entitles the recipient to one share of common stock upon vesting. Vesting is accelerated upon retirement at age 62 or older, death, disability or change of control as defined in the award agreement. Nonvested units are forfeited upon termination of employment for any other reason. Expense provisions referable to these awards amounted to $1,317,000 in 2009, $1,206,000 in 2008 and $1,371,000 in 2007.
The fair value of deferred stock units is estimated as of the date of grant based on the market price of our stock on the grant date. The following table summarizes activity for nonvested deferred stock units during the year ended December 31, 2009:
                 
            Weighted-average  
    Number     Grant Date  
    of Shares     Fair Value  
 
Nonvested at January 1, 2009
    238,100     $ 42.35  
Granted
    0     $ 0.00  
Dividend equivalents accrued
    10,729     $ 43.32  
Vested
    (74,718 )   $ 40.31  
Canceled/forfeited
    (609 )   $ 42.80  
         
Nonvested at December 31, 2009
    173,502     $ 43.19  
 
Performance Shares — Each performance share unit is equal to and paid in one share of our common stock, but carries no voting or dividend rights. The units ultimately paid for performance share awards may range from 0% to 200% of target. Fifty percent of the payment is based upon our three-year-average Total Shareholder Return (TSR) performance relative to the three-year-average TSR performance of the S&P 500®. The remaining 50% of the payment is based upon the achievement of established internal financial performance targets. These awards vest on December 31 of the third year after date of grant. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested units are forfeited upon termination for any other reason. Expense provisions referable to these awards amounted to $5,350,000 in 2009, $6,227,000 in 2008 and $7,684,000 in 2007.
The fair value of performance shares is estimated as of the date of grant using a Monte Carlo simulation model. Compensation cost is adjusted for the actual outcome of the internal financial performance target. The following table summarizes the activity for nonvested performance share units during the year ended December 31, 2009:
                 
    Target     Weighted-average  
    Number     Grant Date  
    of Shares     Fair Value  
 
Nonvested at January 1, 2009
    232,196     $ 82.50  
Granted
    235,500     $ 45.72  
Vested
    (85,574 )   $ 105.93  
Canceled/forfeited
    (8,564 )   $ 66.55  
         
Nonvested at December 31, 2009
    373,558     $ 54.34  
 
During 2008 and 2007, the weighted-average grant date fair value of performance shares granted was $68.41 and $105.93, respectively.
Stock Options/SOSARs — Stock options/SOSARs granted have an exercise price equal to the market value of our underlying common stock on the date of grant. With the exceptions of the stock option grants awarded in December 2005 and January 2006, the options/SOSARs vest ratably over 3 or 5 years and expire 10 years subsequent to the grant. The options awarded in December 2005 and January 2006 were fully vested on the date of grant, expire 10 years subsequent to the grant date and shares attained upon exercise of the options were restricted from sale until January 1, 2009 and January 24, 2009, respectively. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested awards are forfeited upon termination for any other reason. Prior to the acquisition of Florida Rock, shares issued upon the exercise of stock options were issued from treasury stock. Since that acquisition, these shares are issued from our authorized and unissued common stock.
The fair value of stock options/SOSARs is estimated as of the date of grant using the Black-Scholes option pricing model. Compensation cost for stock options and SOSARs is based on this grant date fair value and is recognized for awards that ultimately vest. The following table presents the weighted-average fair value and the weighted-average assumptions used in estimating the fair value of grants for the years ended December 31:
                         
    2009   2008   2007
 
Fair value
  $ 14.74     $ 19.76     $ 34.18  
Risk-free interest rate
    2.14 %     3.21 %     4.73 %
Dividend yield
    2.22 %     2.07 %     2.04 %
Volatility
    35.04 %     28.15 %     27.46 %
Expected term
  7.50 years   7.25 years   7.75 years
 
The risk-free interest rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period approximating the option’s expected term. The dividend yield assumption is based on our historical dividend payouts. The volatility assumption is based on the historical volatility and expectations about future volatility of our common stock over a period equal to the option’s/SOSAR’s expected term and the market-based implied volatility derived from options trading on our common stock. The expected term is based on historical experience and expectations about future exercises and represents the period of time that options/SOSARs granted are expected to be outstanding.
A summary of our stock option/SOSAR activity as of December 31, 2009 and changes during the year is presented below:
                                 
                    Weighted-average        
                    Remaining     Aggregate  
    Number     Weighted-average     Contractual     Intrinsic Value  
    of Shares     Exercise Price     Life (Years)     (in thousands)  
 
Outstanding at January 1, 2009
    5,943,027     $ 56.54                  
Granted
    1,086,620     $ 47.47                  
Exercised
    (533,363 )   $ 42.60                  
Forfeited or expired
    (63,708 )   $ 55.61                  
                         
Outstanding at December 31, 2009
    6,432,576     $ 56.17       5.11     $ 33,114  
 
Vested and expected to vest
    6,415,846     $ 56.18       5.10     $ 33,042  
 
Exercisable at December 31, 2009
    4,964,067     $ 55.87       4.02     $ 26,952  
 
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between our stock price on the last trading day of 2009 and the exercise price, multiplied by the number of in-the-money options/SOSARs) that would have been received by the option holders had all options/SOSARs been exercised on December 31, 2009. These values change based on the fair market value of our common stock. The aggregate intrinsic values of options exercised for the years ended December 31 are as follows (in thousands of dollars):
                         
    2009     2008     2007  
 
Aggregate intrinsic value of options
                       
exercised
  $ 4,903     $ 23,714     $ 62,971  
 
To the extent the tax deductions exceed compensation cost recorded, the tax benefit is reflected as a component of shareholders’ equity in our Consolidated Balance Sheets. The following table presents cash and stock consideration received and tax benefit realized from stock option exercises and compensation cost recorded referable to stock options for the years ended December 31 (in thousands of dollars):
                         
    2009     2008     2007  
 
Stock option exercises
                       
Cash and stock consideration received
  $ 22,719     $ 29,278     $ 35,195  
Tax benefit
    1,965       9,502       25,232  
Stock option compensation cost
    15,195       10,367       9,207  
 
Cash-based compensation plans
We have incentive plans under which cash awards may be made annually to officers and key employees. Expense provisions referable to these plans amounted to $1,954,000 in 2009, $5,239,000 in 2008 and $21,187,000 in 2007.
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES
NOTE 12 COMMITMENTS AND CONTINGENCIES
We have commitments in the form of unconditional purchase obligations as of December 31, 2009. These include commitments for the purchase of property, plant & equipment of $8,892,000 and commitments for noncapital purchases of $77,640,000. These commitments are due as follows (in thousands of dollars):
         
    Unconditional  
    Purchase  
    Obligations  
 
Property, Plant & Equipment
       
2010
  $ 7,985  
2011-2012
    907  
 
Total
  $ 8,892  
 
Noncapital
       
2010
  $ 20,877  
2011-2012
    28,250  
2013-2014
    14,682  
Thereafter
    13,831  
 
Total
  $ 77,640  
 
Expenditures under the noncapital purchase commitments totaled $99,838,000 in 2009, $132,543,000 in 2008 and $135,721,000 in 2007.
We have commitments in the form of minimum royalties under mineral leases as of December 31, 2009 in the amount of $193,172,000, due as follows (in thousands of dollars):
         
    Mineral  
    Leases  
 
Mineral Royalties
       
2010
  $ 15,642  
2011-2012
    24,812  
2013-2014
    18,606  
Thereafter
    134,112  
 
Total
  $ 193,172  
 
Expenditures for mineral royalties under mineral leases totaled $43,501,000 in 2009, $50,697,000 in 2008 and $48,120,000 in 2007.
We provide certain third parties with irrevocable standby letters of credit in the normal course of business. We use commercial banks to issue standby letters of credit to back our obligations to pay or perform when required to do so pursuant to the requirements of an underlying agreement. The standby letters of credit listed below are cancelable only at the option of the beneficiaries who are authorized to draw drafts on the issuing bank up to the face amount of the standby letter of credit in accordance with its terms. Since banks consider letters of credit as contingent extensions of credit, we are required to pay a fee until they expire or are canceled. Substantially all our standby letters of credit have a one-year term and are renewable annually at the option of the beneficiary.
Our standby letters of credit as of December 31, 2009 are summarized in the table below (in thousands of dollars):
         
 
Standby Letters of Credit
       
Risk management requirement for insurance claims
  $ 36,144  
Payment surety required by utilities
    133  
Contractual reclamation/restoration requirements
    11,931  
Financing requirement for industrial revenue bond
    14,230  
 
Total standby letters of credit
  $ 62,438  
 
Of the total $62,438,000 outstanding standby letters of credit, $59,154,000 is backed by our $1,500,000,000 bank credit facility which expires November 16, 2012.
As described in Note 2, we may be required to make cash payments in the form of a transaction bonus to certain key former Chemicals employees. The transaction bonus is contingent upon the amounts received under the two earn-out agreements entered into in connection with the sale of the Chemicals business. Amounts due are payable annually based on the prior year’s results. Based on the total cumulative receipts from the two earn-outs, we paid $521,000 in transaction bonuses during 2009. Future expense, if any, is dependent upon our receiving sufficient cash receipts under the remaining (5CP) earn-out and will be accrued in the period the earn-out income is recognized.
As described in Note 9, our liability for unrecognized tax benefits is $20,974,000 as of December 31, 2009.
We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.
We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party’s share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.
We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material adverse effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period. Amounts accrued for environmental matters are presented in Note 8.
We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome of, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels. We are involved in certain legal proceedings that are specifically described below.
Perchloroethylene cases
We are a defendant in several cases involving perchloroethylene (perc), which was a product manufactured by our former Chemicals business. Perc is a cleaning solvent used in dry cleaning and other industrial applications. These cases involve various allegations of groundwater contamination, or exposure to perc allegedly resulting in personal injury. Vulcan is vigorously defending all of these cases. At this time, we cannot determine the likelihood or reasonably estimate a range of loss pertaining to any of these matters, which are listed below:
    Addair This is a purported class action case for medical monitoring damages styled Addair et al. v. Processing Company, LLC, et al., pending in the Circuit Court of Wyoming County, West Virginia. The plaintiffs allege various personal injuries from exposure to perc used in coal sink labs. Discovery is ongoing. No class determination has been made by the court.
    California Water Service Company On June 6, 2008, we were served in the action styled California Water Service Company v. Dow, et al, now pending in the San Mateo County Superior Court, California. According to the complaint, California Water Service Company “owns and/or operates public drinking water systems, and supplies drinking water to hundreds of thousands of residents and businesses throughout California.” The complaint alleges that water systems in a number of communities have been contaminated with perc. The plaintiff is seeking compensatory damages and punitive damages. Discovery is ongoing.
 
    City of Sunnyvale California On January 6, 2009, we were served in an action styled City of Sunnyvale v. Legacy Vulcan Corporation, f/k/a Vulcan Materials Company, filed in the San Mateo County Superior Court, California. The plaintiffs are seeking cost recovery and other damages for alleged environmental contamination from perc and its breakdown products at the Sunnyvale Town Center Redevelopment Project. Discovery is ongoing.
 
    R.R. Street Indemnity Street, a former distributor of perc manufactured by Vulcan, alleges that Vulcan owes Street, and its insurer (National Union), a defense and indemnity in several of these litigation matters, as well as some prior litigation which Vulcan has now settled. National Union alleges that Vulcan is obligated to contribute to National Union’s share of defense fees, costs and any indemnity payments made on Street’s behalf. Street and Vulcan are having ongoing discussions about the nature and extent of indemnity obligations, if any, and to date there has been no resolution of these issues.
 
    Santarsiero This is a case styled Robert Santarsiero v. R.V. Davies, et al., pending in Supreme Court, New York County, New York. The plaintiff alleges personal injury (kidney cancer) from exposure to perc. Vulcan was brought in as a third-party defendant by original defendant R.V. Davies. Discovery is ongoing.
 
    Team Enterprises On June 5, 2008, we were named as a defendant in the matter of Team Enterprises, Inc. v. Century Centers, Ltd., et al., filed in Modesto, Stanislaus County, California but removed to the United States District Court for the Eastern District of California (Fresno Division). This is an action filed by Team Enterprises as the former operator of a dry cleaners located in Modesto, California. The plaintiff is seeking damages from the defendants associated with the remediation of perc from the site of the dry cleaners.
 
    United States Virgin Islands There are currently two cases pending here.
    Government of the United States; Department of Planning and Natural Resources; and Commissioner Robert Mathes, in his capacity as Trustee for the Natural Resources of the Territory of The United States Virgin Islands v. Vulcan Materials Company, et al. Plaintiff brought this action based on parens patriae doctrine for injury to quasi-sovereign interest on the island of St. Thomas (injuries to groundwater resources held in public trust). It is alleged that the island’s sole source of drinking water (the Tutu aquifer) is contaminated with perc. The primary source of perc contamination allegedly emanated from the former Laga facility (a textile manufacturing site). The perc defendants are alleged to have failed to adequately warn perc users of the dangers posed by the use and disposal of perc. It is also alleged that perc from O’Henry Dry Cleaners has contributed to the perc contamination in the Tutu aquifer. There has been no activity in the case since it was filed.
 
    L’Henry, Inc., d/b/a O’Henry Cleaners and Cyril V. Francois, LLC v. Vulcan and Dow. Plaintiffs are the owners of a dry cleaning business on St. Thomas. The dry cleaner began operation in 1981. It is alleged that perc from the dry cleaner contributed to the contamination of the Tutu Wells aquifer, and that Vulcan as a perc manufacturer failed to properly warn the dry cleaner of the proper disposal method for perc, resulting in unspecified damages to the dry cleaners. A motion to dismiss has been pending for two years.
All other cases
    Florida Antitrust Litigation — Our subsidiary, Florida Rock Industries, Inc., has been named as a defendant in a number of class action lawsuits filed in the United States District Court for the Southern District of Florida. The lawsuits were filed by several ready-mixed concrete producers and construction companies against a number of concrete and cement producers and importers in Florida. There are now two consolidated complaints: (1) on behalf of direct independent ready-mixed concrete producers, and (2) on behalf of indirect users of ready-mixed concrete. The defendants include Cemex Corp., Holcim (US) Inc., Lafarge North America, Inc., Lehigh Cement Company, Oldcastle Materials, Suwannee American Cement LLC, Titan America LLC, and Votorantim Cimentos North America, Inc. The complaints allege various violations under the federal antitrust laws, including price fixing and market allocations. We have no reason to believe that Florida Rock is liable for any of the matters alleged in the complaint, and we intend to defend the case vigorously.
    Florida Lake Belt Litigation — On March 22, 2006, the United States District Court for the Southern District of Florida (in a case captioned Sierra Club, National Resources Defense Council and National Parks Conservation Association v. Lt. General Carl A. Stock, et al.) ruled that a mining permit issued for our Miami quarry, which was acquired in the Florida Rock transaction in November 2007, as well as certain permits issued to competitors in the same region, had been improperly issued. The Court remanded the permitting process to the U. S. Army Corps of Engineers (Corps of Engineers) for further review and consideration. In July 2007, the Court ordered us and several other mining operations in the area to cease mining excavation under the vacated permits pending the issuance by the Corps of Engineers of a Supplemental Environmental Impact Statement (SEIS). The District Court decision was appealed to the U.S. Court of Appeals for the Eleventh Circuit, and the Eleventh Circuit reversed and remanded the case to the District Court. With issuance of the Eleventh Circuit’s Mandate on July 1, 2008, we resumed mining at the Miami quarry. On January 30, 2009, the District Court again issued an order invalidating certain of the Lake Belt mining permits, which immediately stopped all mining excavation in the majority of the Lake Belt region. We appealed this order to the Eleventh Circuit but are not currently mining in the areas covered by the District Court order. On January 21, 2010, the Eleventh Circuit upheld the ruling of the District Court. On May 1, 2009, the Corps of Engineers issued a Final SEIS and accepted public comments until June 8, 2009, pending issuance of the Record of Decision with respect to issuance of permits. The Record of Decision was issued on January 29, 2010, and the Corps of Engineers has begun issuing new permits. We anticipate receiving a proposed permit shortly. We believe that when the permit is issued, this litigation over the old permits will be moot.
 
    IDOT/Joliet Road — In September 2001, we were named a defendant in a suit brought by the Illinois Department of Transportation (IDOT), in the Circuit Court of Cook County, Chancery Division, Illinois, alleging damage to a 0.9-mile section of Joliet Road that bisects our McCook quarry in McCook, Illinois, a Chicago suburb. IDOT seeks damages to “repair, restore, and maintain” the road or, in the alternative, judgment for the cost to “improve and maintain other roadways to accommodate” vehicles that previously used the road. The complaint also requests that the court enjoin any McCook quarry operations that will further damage the road. The court granted summary judgment in favor of Vulcan on certain claims. The court also granted the plaintiff’s motion to amend their complaint to add a punitive damages claim, although the court made it clear that it was not ruling on the merits of this claim. The matter has been set for trial on April 26, 2010. We believe that the claims and damages alleged by the State are covered by liability insurance policies purchased by Vulcan. We have received a letter from our primary insurer stating that there is coverage of this lawsuit under its policy; however, the letter indicates that the insurer is currently taking the position that various damages sought by the State are not covered. At this time, we believe a loss related to this litigation is reasonably possible; however, we cannot reasonably estimate the loss or range of loss that may result from a settlement or an adverse judgment at trial.
 
    Lower Passaic River Clean-Up — We have been sued as a third-party defendant in New Jersey Department of Environmental Protection, et al. v. Occidental Chemical Corporation, et al., a case brought by the New Jersey Department of Environmental Protection in the New Jersey Superior Court. The third-party complaint was filed on February 4, 2009. This suit by the New Jersey Department of Environmental Protection seeks recovery of past and future clean-up costs as well as unspecified economic damages, punitive damages, penalties and a variety of other forms of relief arising from alleged discharges into the Passaic River of dioxin and other unspecified hazardous substances. Our former Chemicals Division operated a plant adjacent to the Passaic River and has been sued as a third-party defendant in this New Jersey action, along with approximately 300 other parties. Additionally, Vulcan and approximately 70 other companies are parties to a May 2007 Administrative Order of Consent with the U.S. Environmental Protection Agency to perform a Remedial Investigation/Feasibility Study of the contamination in the lower 17 miles of the Passaic River. This study is ongoing. No remedial remedy for this Superfund site has yet been determined. At this time, we cannot determine the likelihood or reasonably estimate a range of loss pertaining 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, could cause actual losses to differ materially from accrued costs. We believe the amounts accrued in our financial statements as of December 31, 2009 are sufficient to address claims and litigation for which a loss was determined to be probable and reasonably estimable. No liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described more fully in Note 1 under our accounting policy for claims and litigation including self-insurance.
Shareholders Equity
SHAREHOLDERS' EQUITY
NOTE 13 SHAREHOLDERS’ EQUITY
In June 2009, we completed a public offering of common stock (par value of $1 per share) resulting in the issuance of 13,225,000 common shares at a price of $41.00 per share. The total number of shares issued through the offering included 1,725,000 shares issued upon full exercise of the underwriters’ option to purchase additional shares. We received net proceeds of $519,993,000 (net of commissions and transaction costs of $22,232,000) from the sale of the shares. The net proceeds from the offering were used for debt reduction and general corporate purposes. The transaction increased shareholders’ equity by $519,993,000 (common stock $13,225,000 and capital in excess of par $506,768,000).
During 2009, we issued 1,135,510 shares of common stock to the trustee of our 401(k) savings and retirement plan and received proceeds of $52,691,000. These issuances were made to satisfy the plan participants’ elections to invest in Vulcan’s common stock and this arrangement provides a means of improving cash flow, increasing shareholders’ equity and reducing leverage.
During the second quarter of 2009, we issued 789,495 shares of common stock in connection with business acquisitions. We received net cash proceeds of $33,862,000 from the issuance of shares, and acquired the business for a cash payment of $36,980,000, net of acquired cash.
During the first quarter of 2008, we issued 798,859 shares of common stock in connection with business acquisitions. We received net cash proceeds of $55,072,000 from the issuance of shares, and acquired the business for a cash payment of $55,763,000, including acquisition costs and net of acquired cash.
During the second quarter of 2008, we issued 352,779 shares of common stock in connection with business acquisitions.
In November 2007, we issued 12,604,083 shares of common stock in connection with the acquisition of Florida Rock.
On November 16, 2007, pursuant to the terms of the agreement to acquire Florida Rock, all treasury stock held immediately prior to the close of the transaction was canceled. Our Board of Directors resolved to carry forward the existing authorization to purchase common stock. As of December 31, 2009, 3,411,416 shares remained under the current purchase authorization.
There were no shares held in treasury as of December 31, 2009, 2008 and 2007. The number and cost of shares purchased during each of the last three years are shown below:
                         
    2009     2008     2007  
 
Shares purchased
                       
Number
    0       0       44,123  
Total cost (thousands)
  $ 0     $ 0     $ 4,800  
Average cost
  $ 0.00     $ 0.00     $ 108.78  
 
The 44,123 shares purchased in 2007 were purchased directly from employees to satisfy income tax withholding requirements on shares issued pursuant to incentive compensation plans.
Other Comprehensive Income (Loss)
OTHER COMPREHENSIVE INCOME (LOSS)
NOTE 14 OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income includes charges and credits to equity from nonowner sources and comprises two subsets: net earnings and other comprehensive income (loss). The components of other comprehensive income (loss) are presented in the accompanying Consolidated Statements of Shareholders’ Equity, net of applicable taxes.
The amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss) for the years ended December 31, 2009, 2008 and 2007 is summarized as follows (in thousands of dollars):
                         
    Before-tax     Tax (Expense)     Net-of-tax  
    Amount     Benefit     Amount  
 
December 31, 2009
                       
Fair value adjustment to cash flow hedges
  $ (4,643 )   $ 1,895     $ (2,748 )
Reclassification adjustment for cash flow hedge amounts included in net earnings
    16,728       (6,826 )     9,902  
Adjustment for funded status of pension and postretirement benefit plans
    (28,784 )     11,417       (17,367 )
Amortization of pension and postretirement plan actuarial loss and prior service cost
    1,886       (748 )     1,138  
 
Total other comprehensive income (loss)
  $ (14,813 )   $ 5,738     $ (9,075 )
 
December 31, 2008
                       
Fair value adjustment to cash flow hedges
  $ (12,190 )   $ 9,550     $ (2,640 )
Reclassification adjustment for cash flow hedge amounts included in net earnings
    9,088       (7,120 )     1,968  
Adjustment for funded status of pension and postretirement benefit plans
    (255,616 )     101,517       (154,099 )
Amortization of pension and postretirement plan actuarial loss and prior service cost
    1,201       (477 )     724  
 
Total other comprehensive loss
  $ (257,517 )     103,470     $ (154,047 )
 
December 31, 2007
                       
Fair value adjustment to cash flow hedges
  $ (92,718 )   $ 36,676     $ (56,042 )
Reclassification adjustment for cash flow hedge amounts included in net earnings
    198       (78 )     120  
Adjustment for funded status of pension and postretirement benefit plans
    31,163       (12,326 )     18,837  
Amortization of pension and postretirement plan actuarial loss and prior service cost
    3,012       (1,191 )     1,821  
 
Total other comprehensive loss
  $ (58,345 )   $ 23,081     $ (35,264 )
 
Amounts accumulated in other comprehensive income (loss), net of tax, at December 31, are as follows (in thousands of dollars):
                         
    2009     2008     2007  
 
Cash flow hedges
  $ (49,365 )   $ (56,519 )   $ (55,847 )
Pension and postretirement plans
    (144,993 )     (128,763 )     15,630  
 
Accumulated other comprehensive income (loss)
  $ (194,358 )   $ (185,282 )   $ (40,217 )
 
Segment Reporting - Continuing Operations
SEGMENT REPORTING - CONTINUING OPERATIONS
NOTE 15 SEGMENT REPORTING — CONTINUING OPERATIONS
We have four operating segments organized around our principal product lines: aggregates, asphalt mix, concrete and cement. For reporting purposes, we have combined our Asphalt mix and Concrete operating segments into one reporting segment as the products are similar in nature and the businesses exhibit similar economic characteristics, production processes, types and classes of customer, methods of distribution and regulatory environments. Management reviews earnings from the product line reporting units principally at the gross profit level.
The Aggregates segment produces and sells aggregates and related products and services in eight regional divisions. During 2009, the Aggregates segment principally served markets in 21 states and the District of Columbia, the Bahamas, Canada, the Cayman Islands, Chile and Mexico with a full line of aggregates, and 9 additional states with railroad ballast. Customers use aggregates primarily in the construction and maintenance of highways, streets and other public works and in the construction of housing and commercial, industrial and other nonresidential facilities. Customers are served by truck, rail and water distribution networks from our production facilities and sales yards. Due to the high weight-to-value ratio of aggregates, markets generally are local in nature. Quarries located on waterways and rail lines allow us to serve remote markets where local aggregates reserves may not be available. We sell a relatively small amount of construction aggregates outside the United States. Nondomestic net sales were $20,118,000 in 2009, $25,295,000 in 2008 and $19,981,000 in 2007.
The Asphalt mix and Concrete segment produces and sells asphalt mix and ready-mixed concrete in four regional divisions serving eight states primarily in our mid-Atlantic, Florida, southwestern and western markets and the Bahamas. Additionally, two of the divisions produce and sell other concrete products such as block and precast and resell purchased building materials related to the use of ready-mixed concrete and concrete block. Aggregates comprise approximately 95% of asphalt mix by weight and 78% of ready-mixed concrete by weight. Our Asphalt mix and Concrete segment is almost wholly supplied with its aggregates requirements from our Aggregates segment. These transfers are made at local market prices for the particular grade and quality of product utilized in the production of asphalt mix and ready-mixed concrete. Customers for our Asphalt mix and Concrete segment are generally served locally at our production facilities or by truck. Because ready-mixed concrete and asphalt mix harden rapidly, delivery is time constrained and generally confined to a radius of approximately 20 to 25 miles from the producing facility.
The Cement segment produces and sells Portland and masonry cement in both bulk and bags from our Florida cement plant. Other Cement segment facilities in Florida import cement, clinker and slag and either resell, grind, blend, bag or reprocess those materials. This segment also includes a Florida facility that mines, produces and sells calcium products. All of these Cement segment facilities are within the Florida regional division. Our Asphalt mix and Concrete segment is the largest single customer of our Cement segment.
The majority of our activities are domestic. Long-lived assets outside the United States, which primarily consist of property, plant & equipment, were $163,479,000 in 2009, $175,275,000 in 2008 and $175,413,000 in 2007. Transactions between our reportable segments are recorded at prices approximating market levels.
                         
Segment Financial Disclosure                  
Amounts in millions   2009     2008     2007  
 
Total Revenues
                       
Aggregates
                       
Segment revenues
  $ 1,838.6     $ 2,406.8     $ 2,448.2  
Intersegment sales
    (165.2 )     (206.2 )     (131.5 )
 
Net sales
  $ 1,673.4     $ 2,200.6     $ 2,316.7  
 
Asphalt mix and Concrete
                       
Segment revenues
  $ 833.1     $ 1,201.2     $ 765.9  
Intersegment sales
    (0.1 )     (0.6 )     (0.2 )
 
Net sales
  $ 833.0     $ 1,200.6       765.7  
 
Cement
                       
Segment revenues
  $ 72.5     $ 106.5     $ 14.1  
Intersegment sales
    (35.2 )     (54.6 )     (6.4 )
 
Net sales
  $ 37.3     $ 51.9     $ 7.7  
 
Total
                       
Net sales
  $ 2,543.7     $ 3,453.1     $ 3,090.1  
Delivery revenues
    146.8       198.3       237.7  
 
Total revenues
  $ 2,690.5     $ 3,651.4     $ 3,327.8  
 
Gross Profit
                       
Aggregates
  $ 393.3     $ 657.6     $ 828.7  
Asphalt mix and Concrete
    54.5       74.4       122.2  
Cement
    (1.8 )     17.7       0.0  
 
Total gross profit
  $ 446.0     $ 749.7     $ 950.9  
 
Identifiable Assets
                       
Aggregates
  $ 7,208.4     $ 7,530.6          
Asphalt mix and Concrete
    669.5       767.6          
Cement
    446.9       435.2          
         
Identifiable assets
    8,324.8       8,733.4          
General corporate assets
    185.9       173.0          
Cash items
    22.3       10.2          
         
Total
  $ 8,533.0     $ 8,916.6          
         
Depreciation, Depletion,
                       
Accretion and Amortization
                       
Aggregates
  $ 312.2     $ 310.8     $ 246.9  
Asphalt mix and Concrete
    61.2       61.0       20.3  
Cement
    16.3       14.6       1.9  
Corporate and other unallocated
    4.9       2.7       2.4  
 
Total
  $ 394.6     $ 389.1     $ 271.5  
 
Capital Expenditures from
                       
Continuing Operations
                       
Aggregates
  $ 74.6     $ 267.7     $ 445.0  
Asphalt mix and Concrete
    5.3       13.6       24.2  
Cement
    22.4       60.2       10.3  
Corporate
    4.2       12.7       1.0  
 
Total
  $ 106.5     $ 354.2     $ 480.5  
 
Supplemental Cash Flow Information
SUPPLEMENTAL CASH FLOW INFORMATION
NOTE 16 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to the Consolidated Statements of Cash Flows is summarized below (in thousands of dollars):
                         
    2009   2008   2007
 
Cash payments (refunds)
                       
Interest
  $ 181,352     $ 179,880     $ 41,933  
Income taxes
    (25,184 )     91,544       132,697  
 
Noncash investing and financing activities
                       
Accrued liabilities for purchases of property, plant & equipment
  $ 13,459     $ 22,974     $ 32,065  
Note received from sale of business
    1,450       0       0  
Carrying value of noncash assets and liabilities exchanged
    0       42,974       0  
Debt issued for purchases of property, plant & equipment
    1,987       389       19  
Proceeds receivable from exercise of stock options
    0       325       152  
Amounts referable to business acquisitions
                       
Liabilities assumed
    0       2,024       588,184  
Fair value of stock issued
    0       25,023       1,436,487  
 
Asset Retirement Obligations
ASSET RETIREMENT OBLIGATIONS
NOTE 17 ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.
Recognition of a liability for an asset retirement obligation is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the asset retirement obligation is settled for other than the carrying amount of the liability, we recognize a gain or loss on settlement.
We record all asset retirement obligations for which we have legal obligations for land reclamation at estimated fair value. Essentially all these asset retirement obligations relate to our underlying land parcels, including both owned properties and mineral leases. For the years ended December 31, we recognized asset retirement obligation (ARO) operating costs related to accretion of the liabilities and depreciation of the assets as follows (in thousands of dollars):
                         
    2009   2008   2007
 
ARO Operating Costs
                       
Accretion
  $ 8,802     $ 7,082     $ 5,866  
Depreciation
    13,732       15,504       13,172  
 
Total
  $ 22,534     $ 22,586     $ 19,038  
 
ARO operating costs for our continuing operations are reported in cost of goods sold. Asset retirement obligations are reported within other noncurrent liabilities in our accompanying Consolidated Balance Sheets.
Reconciliations of the carrying amounts of our asset retirement obligations for the years ended December 31 are as follows (in thousands of dollars):
                 
    2009   2008
 
Asset retirement obligations at beginning of year
  $ 173,435     $ 131,383  
 
Liabilities incurred
    539       39,926  
Liabilities settled
    (10,610 )     (17,633 )
Accretion expense
    8,802       7,082  
Revisions up (down), net
    (4,409 )     12,677  
 
Asset retirement obligations at end of year
  $ 167,757     $ 173,435  
 
Of the $39,926,000 of liabilities incurred during 2008, $37,234,000 relates to reclamation activity required under new development agreements and conditional use permits (collectively the agreements) at two aggregates facilities on owned property near Los Angeles, California. The new agreements allow us access to significant amounts of aggregates reserves at two existing pits, which we expect will result in a significant increase in the mining lives of these quarries. The reclamation requirements under these agreements will result in the restoration and development of mined property into 110 acre and 90 acre tracts suitable for commercial and retail development.
Revisions to our asset retirement obligations during 2009 and 2008 relate primarily to changes in cost estimates and settlement dates at numerous sites. The underlying increase in cost estimates during 2008 was largely attributable to rising energy-related costs, including diesel fuel.
Goodwill and Intangible Assets
GOODWILL AND INTANGIBLE ASSETS
NOTE 18 GOODWILL AND INTANGIBLE ASSETS
We classify purchased intangible assets into three categories: (1) goodwill, (2) intangible assets with finite lives subject to amortization and (3) intangible assets with indefinite lives. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually. For additional information regarding our policies on impairment reviews, see Note 1 under the captions Goodwill and Goodwill Impairment and Impairment of Long-lived Assets Excluding Goodwill.
Goodwill
Goodwill is recognized when the consideration paid for a business combination (acquisition) exceeds the fair value of the tangible and other intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. At December 31, 2008, ongoing disruptions in the credit and equity markets and weak levels of construction activity, underscored by the negative effects of the prolonged global recession, prompted an increase in our discount rates, which reflect our estimated cost of capital plus a risk premium. The results of our annual impairment test performed as of January 1, 2009 indicated that the estimated fair value of our Cement reporting unit was less than the carrying amount at that time. The estimated fair value was used in the second step of the impairment test as the purchase price in a hypothetical purchase price allocation to the reporting unit’s assets and liabilities. The carrying values of deferred taxes and certain long-term assets were adjusted to reflect their estimated fair values for purposes of the second step of the impairment test and the hypothetical purchase price allocation.
The residual amount of goodwill that resulted from this hypothetical purchase price allocation was compared to the recorded amount of goodwill for the reporting unit to determine if impairment existed. Based on the results of this analysis, we concluded that the entire amount of goodwill at this reporting unit was impaired and we recorded a $252,664,000 ($227,581,000 net of tax benefit) noncash impairment charge for the year ended December 31, 2008.
The 2008 goodwill impairment charge is a noncash item and does not affect our operations, cash flow or liquidity. Our credit agreements and outstanding indebtedness were not impacted by this noncash impairment charge. The income tax benefit associated with this charge was substantially below our normally expected income tax rate because the majority of the goodwill impairment relates to nondeductible goodwill for federal income tax purposes.
There were no charges for goodwill impairment in the years ended December 31, 2009 and 2007.
We have three reportable segments organized around our principal product lines: aggregates; asphalt mix and concrete; and cement. Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2009, 2008 and 2007 are summarized below (in thousands of dollars):
Goodwill
                                 
            Asphalt mix        
    Aggregates   and Concrete   Cement   Total
 
Gross carrying amount
                               
Total as of December 31, 2007
  $ 3,399,796     $ 91,633     $ 297,662     $ 3,789,091  
 
Goodwill of acquired businesses
    30,565       0       0       30,565  
Purchase price allocation adjustments
    (436,526 )     0       (44,998 )     (481,524 )
 
Total as of December 31, 2008
  $ 2,993,835     $ 91,633     $ 252,664     $ 3,338,132  
 
Goodwill of acquired businesses1
    9,558       0       0       9,558  
Purchase price allocation adjustments
    (1,047 )     0       0       (1,047 )
 
Total as of December 31, 2009
  $ 3,002,346     $ 91,633     $ 252,664     $ 3,346,643  
 
Accumulated impairment losses
                               
Total as of December 31, 2007
  $ 0     $ 0     $ 0     $ 0  
 
Goodwill impairment loss
    0       0       (252,664 )     (252,664 )
 
Total as of December 31, 2008
  $ 0     $ 0     $ (252,664 )   $ (252,664 )
 
Goodwill impairment loss
    0       0       0       0  
 
Total as of December 31, 2009
  $ 0     $ 0     $ (252,664 )   $ (252,664 )
 
Goodwill, net of accumulated impairment losses
                               
Total as of December 31, 2007
  $ 3,399,796     $ 91,633     $ 297,662     $ 3,789,091  
 
Total as of December 31, 2008
  $ 2,993,835     $ 91,633     $ 0     $ 3,085,468  
 
Total as of December 31, 2009
  $ 3,002,346     $ 91,633     $ 0     $ 3,093,979  
 
1   The goodwill of acquired businesses for 2009 relates to the 2009 acquisitions listed in Note 19. We are currently evaluating the final purchase price allocation for most of these acquisitions; therefore, the goodwill amount is subject to change. All of the goodwill from the 2009 acquisitions is expected to be fully deductible for income tax purposes.
Intangible assets
Intangible assets acquired in business combinations are stated at their fair value, determined as of the date of acquisition, less accumulated amortization, if applicable. Costs incurred to renew or extend the life of existing intangible assets are capitalized. These capitalized renewal/extension costs were immaterial for the years presented. These assets consist primarily of contractual rights in place, noncompetition agreements, favorable lease agreements, customer relationships and tradenames and trademarks. Intangible assets acquired individually or otherwise obtained outside a business combination consist primarily of permitting, permitting compliance and zoning rights and are stated at their historical cost, less accumulated amortization, if applicable.
Historically, we have acquired intangible assets with only finite lives. Amortization of intangible assets with finite lives is recognized over their estimated useful lives using a method of amortization that closely reflects the pattern in which the economic benefits are consumed or otherwise realized. Intangible assets with finite lives are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. There were no charges for impairment of intangible assets in the years ended December 31, 2009, 2008 and 2007. Intangible assets are reported within other noncurrent assets in our accompanying Consolidated Balance Sheets.
The gross carrying amount and accumulated amortization by major intangible asset class for the years ended December 31 is summarized below (in thousands of dollars):
Intangible assets subject to amortization
                 
    2009   2008
 
Gross carrying amount
               
Contractual rights in place
  $ 617,278     $ 604,236  
Noncompetition agreements
    2,490       1,980  
Favorable lease agreements
    16,773       12,835  
Permitting, permitting compliance and zoning rights
    58,547       52,769  
Customer relationships
    14,393       13,657  
Tradenames and trademarks
    5,006       5,742  
Other
    3,911       10,148  
 
Total gross carrying amount
  $ 718,398     $ 701,367  
 
Accumulated amortization
               
Contractual rights in place
  $ (20,522 )   $ (10,981 )
Noncompetition agreements
    (1,618 )     (1,295 )
Favorable lease agreements
    (1,132 )     (734 )
Permitting, permitting compliance and zoning rights
    (9,592 )     (8,675 )
Customer relationships
    (1,500 )     (50 )
Tradenames and trademarks
    (567 )     (45 )
Other
    (824 )     (5,795 )
 
Total accumulated amortization
  $ (35,755 )   $ (27,575 )
 
Total intangible assets subject to amortization, net
  $ 682,643     $ 673,792  
 
Intangible assets with indefinite lives
    0       0  
 
Total intangible assets, net
  $ 682,643     $ 673,792  
 
Aggregate amortization expense for the period
  $ 13,777     $ 9,482  
 
Estimated amortization expense for the five years subsequent to December 31, 2009 is as follows (in thousands of dollars):
         
 
Estimated amortization expense for five subsequent years
       
2010
  $ 13,612  
2011
    15,197  
2012
    14,424  
2013
    14,530  
2014
    14,597  
 
Acquisitions and Divestitures
ACQUISITIONS AND DIVESTITURES
NOTE 19 ACQUISITIONS AND DIVESTITURES
2009 Pending divestitures
As of December 31, 2009, assets held for sale and liabilities of assets held for sale presented in the accompanying Consolidated Balance Sheets relate to an aggregates production facility and ready-mixed concrete operation located outside the United States. We expect the transaction to close during the first quarter of 2010. The major classes of assets and liabilities of assets classified as held for sale are as follows (in thousands of dollars):
         
    December 31,  
    2009  
Current assets   $ 3,799  
Property, plant & equipment, net
    11,117  
Intangible assets
    96  
Other assets
    60  
 
Total assets held for sale
  $ 15,072  
 
Current liabilities
  $ 369  
 
Total liabilities of assets held for sale
  $ 369  
 
2009 Acquisitions and divestitures
In 2009, we acquired the following assets for approximately $38,955,000 (total note and cash consideration) net of acquired cash:
    leasehold interest in a rail-served aggregates distribution yard
 
    two aggregates production facilities
As a result of these 2009 acquisitions, we recognized $9,558,000 of goodwill and $12,428,000 of amortizable intangible assets, all of which are expected to be fully deductible for income tax purposes. The purchase price allocations for these 2009 acquisitions are preliminary and subject to adjustment.
In 2009, we divested the following assets for approximately $7,043,000 (total note and cash consideration):
    dock and transloading facility
 
    interest in an aggregates production facility
During 2009, we received $3,000,000 of contingent consideration related to the 2008 divestiture of an aggregates production facility located in Georgia.
2008 Acquisitions and divestitures
As a result of the November 2007 Florida Rock acquisition, we entered into a Final Judgment with the Antitrust Division of the U.S. Department of Justice (DOJ) that required us to divest nine Florida Rock and Legacy Vulcan sites. During 2008, we completed the required divestitures. In a transaction with Luck Stone Corporation, we divested two former Florida Rock sites in Virginia, an aggregates production facility and a distribution yard, by exchanging these assets for cash and two aggregates production facilities in Virginia. In a transaction with Martin Marietta Materials, Inc. (Martin Marietta), we divested four aggregates production facilities and a greenfield (undeveloped) aggregates site located in Georgia, and an aggregates production facility located in Tennessee. In return, we received cash, an aggregates production facility near Sacramento, California, real property with proven and permitted reserves adjacent to one of our aggregates production facilities in San Antonio, Texas, and fee ownership of property at one of our aggregates production facilities in North Carolina that we had previously leased from Martin Marietta. In a separate transaction, we sold our interest in an aggregates production facility in Georgia to The Concrete Company, which had been the joint venture partner with Florida Rock in this operation.
Two of the divested sites included in the transaction with Martin Marietta were owned by Vulcan prior to our acquisition of Florida Rock. During the second quarter of 2008, we recognized a pretax gain of $73,847,000 on the sale of these assets.
In addition to the acquisitions in the aforementioned exchanges, during 2008, we acquired the following assets for approximately $108,378,000 (total cash and stock consideration) including acquisition costs and net of acquired cash:
    five aggregates production facilities
 
    one asphalt mix plant
 
    an aggregates recycling facility
 
    our former joint venture partner’s interest in an aggregates production facility
The acquisition payments reported above exclude contingent consideration not to exceed $3,000,000. Upon resolution of the contingency, distributions to the seller, if any, will be considered additional acquisition cost.
As a result of the acquisitions (including the exchanges), we recognized $30,565,000 of goodwill, $25,015,000 of which is expected to be fully deductible for income tax purposes.
Correction of Prior Period Financial Statements
CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS
NOTE 20 CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS
During 2009 we completed a comprehensive analysis of our deferred income tax balances and concluded that our deferred income tax liabilities were overstated. The errors arose during the fourth quarter of 2008 and during periods prior to January 1, 2006, and are not material to previously issued financial statements. However, correcting the errors in 2009 would have had a material impact on this year’s Consolidated Statement of Earnings, specifically the deferred tax provision. As a result, we have restated all affected prior period financial statements presented in this Form 10-K.
The errors that arose during the fourth quarter of 2008 related to the calculations of deferred income taxes referable to the Florida Rock acquisition and the combined effective income tax rate used to compute deferred income tax account balances. The correction of these errors resulted in a decrease to deferred income tax liabilities of $2,578,000, an increase to goodwill referable to our Aggregates segment of $2,455,000, and a $5,033,000 increase to the deferred income tax benefit and net earnings, improving earnings per diluted share by $0.05 for the year ended December 31, 2008.
The errors that arose during periods prior to January 1, 2006 resulted in an overstatement of deferred income tax liabilities of $25,983,000. Based on the work performed to confirm the current and deferred income tax provisions recorded during 2006, 2007 and 2008, and to determine the correct deferred income tax account balances as of January 1, 2006, we were able to substantiate that the $25,983,000 overstatement related to periods prior to January 1, 2006. The correction of these errors resulted in a decrease to deferred income tax liabilities and a corresponding increase to retained earnings of $25,983,000 as of January 1, 2006.
A summary of the effects of the correction of these errors on our consolidated financial statements as of and for the year ended December 31, 2008, are presented in the tables below (amounts and shares in thousands, except per share data):
                         
    For the year ended December 31, 2008  
    As             As  
    Reported     Correction     Restated  
 
 
Statement of Earnings
                       
Earnings from continuing operations before income taxes
  $ 75,058     $ 0     $ 75,058  
Provision for income taxes
                       
Current
    92,346       0       92,346  
Deferred
    (15,622 )     (5,033 )     (20,655 )
 
Total provision for income taxes
    76,724       (5,033 )     71,691  
 
Earnings (loss) from continuing operations
    (1,666 )     5,033       3,367  
Loss on discontinued operations, net of income taxes
    (2,449 )     0       (2,449 )
 
Net earnings (loss)
  $ ( 4,115 )   $ 5,033     $ 918  
 
Basic and diluted earnings (loss) per share
                       
Continuing operations
  (0.02 )   $ 0.05     $ 0.03  
Discontinued operations
  (0.02 )   $ 0.00     $ ( 0.02 )
 
Net earnings (loss) per share
  $ ( 0.04 )   $ 0.05     $ 0.01  
 
Weighted-average common shares outstanding, assuming dilution
    109,774               110,954  
 
                         
    As of December 31, 2008  
    As             As  
    Reported     Correction     Restated  
 
Balance Sheet
                       
Assets
                       
Goodwill
  $ 3,083,013     $ 2,455     $ 3,085,468  
 
Total assets
  $ 8,914,169     $ 2,455     $ 8,916,624  
 
Liabilities and Shareholders’ Equity
                       
Deferred income taxes
  $ 949,036     (28,561 )   $ 920,475  
 
Total liabilities
    5,391,433       (28,561 )     5,362,872  
 
Retained earnings
  $ 1,862,913     $ 31,016     $ 1,893,929  
 
Total shareholders’ equity
    3,522,736       31,016       3,553,752  
 
Total liabilities and shareholders’ equity
  $ 8,914,169     $ 2,455     $ 8,916,624  
 
                         
    For the year ended December 31, 2008  
    As             As  
    Reported     Correction     Restated  
 
Statement of Cash Flows
                       
Operating Activities
                       
Net earnings
  $ (4,115 )   $ 5,033     $ 918  
Deferred tax provision
    (14,723 )     (5,033 )     (19,756 )
 
Net cash provided by operating activities
  $ 435,185     $ 0     $ 435,185  
 
In addition to the corrections above, due to the change in net earnings (loss) from ($4,115,000) to $918,000 for the year ended December 31, 2008, comprehensive income (loss) reflects a change from ($158,162,000) to ($153,129,000) for the same period.
Unaudited Supplementary Data
UNAUDITED SUPPLEMENTARY DATA
NOTE 21 UNAUDITED SUPPLEMENTARY DATA
The following is a summary of selected quarterly financial information (unaudited) for each of the years ended December 31, 2009 and 2008 (amounts in thousands, except per share data):
                                 
    2009  
    Three Months Ended  
    March 31     June 30     Sept 30     Dec 31  
  | | | |
Net sales
  $ 567,895     $ 681,380     $ 738,664     $ 555,768  
Total revenues
    600,294       721,859       778,192       590,145  
Gross profit
    77,607       145,834       154,480       68,041  
Operating earnings (loss)
    (1,326 )     65,684       82,704       1,390  
Earnings (loss) from continuing operations
    (32,255 )     15,561       47,924       (12,582 )
Net earnings (loss)
    (32,780 )     22,212       54,232       (13,350 )
Basic earnings (loss) per share from continuing operations
  $ (0.29 )   $ 0.14     $ 0.38     (0.10 )
Diluted earnings (loss) per share from continuing operations
  $ (0.29 )   $ 0.14     $ 0.38     $ (0.10 )
Basic net earnings (loss) per share
  (0.30 )   $ 0.20     $ 0.43     (0.11 )
Diluted net earnings (loss) per share
  $ (0.30 )   $ 0.20     $ 0.43     $ (0.11 )
 
                                 
    2008  
    Three Months Ended  
    March 31     June 30     Sept 30     Dec 31  
 
                            (As Restated,  
                            See Below)  
 
Net sales
  $ 771,762     $ 965,957     $ 958,839     $ 756,523  
Total revenues
    817,339       1,021,551       1,013,349       799,199  
Gross profit
    154,450       245,226       200,846       149,190  
Operating earnings (loss)
    66,758       238,469       128,303       (184,428 )
Earnings (loss) from continuing operations
    14,485       141,225       59,816       (212,159 )
Net earnings (loss)
    13,933       140,755       59,050       (212,820 )
Basic earnings (loss) per share from continuing operations
  $ 0.13     $ 1.28     $ 0.54     (1.92 )
Diluted earnings (loss) per share from continuing operations
  $ 0.13     $ 1.27     $ 0.54     $ (1.92 )
Basic net earnings (loss) per share
  $ 0.13     $ 1.28     $ 0.54     (1.93 )
Diluted net earnings (loss) per share
  $ 0.13     $ 1.27     $ 0.53     $ (1.93 )
 
                         
    For the three months ended December 31, 2008  
    As             As  
    Reported     Correction     Restated  
 
Earnings (loss) from continuing operations
  $ (217,192 )   $ 5,033     $ (212,159 )
Net earnings (loss)
    (217,853 )     5,033       (212,820 )
Basic earnings (loss) per share
                       
Continuing operations
  $ (1.97 )   $ 0.05     $ (1.92 )
Net earnings (loss) per share
  (1.97 )   $ 0.04     $ (1.93 )
Diluted earnings (loss) per share
                       
Continuing operations
  $ (1.97 )   $ 0.05     $ (1.92 )
Net earnings (loss) per share
  $ (1.97 )   $ 0.04     $ (1.93 )
 
Valuation and Qualifying Accounts and Reserves
Valuation and Qualifying Accounts and Reserves
Schedule Of Valuation And Qualifying Accounts Disclosure
SCHEDULE II
Vulcan Materials Company and Subsidiary Companies
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 2009, 2008 and 2007
Amounts in Thousands
                                         
Column A   Column B     Column C     Column D     Column E     Column F  
    Balance at     Additions Charged To             Balance at  
    Beginning     Costs and     Other             End  
Description   Of Period     Expenses     Accounts     Deductions     Of Period  
 
2009
                                       
Accrued Environmental Costs
  $ 13,708     $ 1,093     $ 0     $ 1,970 1   $ 12,831  
Asset Retirement Obligations
    173,435       8,802       (3,870 )2     10,610 3     167,757  
Doubtful Receivables
    8,711       4,173       0       4,162 4     8,722  
Self-Insurance Reserves
    56,912       15,503       0       17,149 5     55,266  
All Other 6
    901       3,517       0       3,641       777  
 
                                       
2008
                                       
Accrued Environmental Costs
  $ 9,756     $ 451     $ 4,698 7   $ 1,197 1   $ 13,708  
Asset Retirement Obligations
    131,383       7,082       52,603 2     17,633 3     173,435  
Doubtful Receivables
    6,015       5,393       0       2,697 4     8,711  
Self-Insurance Reserves
    61,298       23,191       0       27,577 5     56,912  
All Other 6
    1,244       5,120       0       5,463       901  
 
                                       
2007
                                       
Accrued Environmental Costs
  $ 13,394     $ 966     $ 175 7   $ 4,779 1   $ 9,756  
Asset Retirement Obligations
    114,829       5,866       24,487 2     13,799 3     131,383  
Doubtful Receivables
    3,355       1,144       2,283 7     767 4     6,015  
Self-Insurance Reserves
    45,197       17,182       11,209 7     12,290 5     61,298  
All Other6
    589       1,518       302 7     1,165       1,244  
 
1   Expenditures on environmental remediation projects.
 
2   Net up/down revisions to asset retirement obligations.
 
3   Expenditures related to settlements of asset retirement obligations.
 
4   Write-offs of uncollected accounts and worthless notes, less recoveries.
 
5   Expenditures on self-insurance reserves.
 
6   Valuation and qualifying accounts and reserves for which additions, deductions and balances are individually insignificant.
 
7   The 2008 and 2007 amounts include additions related to the acquisition of Florida Rock.