VULCAN MATERIALS CO, 10-Q filed on 8/5/2009
Quarterly Report
Condensed Consolidated Balance Sheets (USD $)
In Thousands
Jun. 30, 2009
Dec. 31, 2008
Jun. 30, 2008
Assets
 
 
 
Cash and cash equivalents
$ 43,711 
$ 10,194 
$ 151,210 
Medium-term investments
6,755 
36,734 
Assets, Current [Abstract]
 
 
 
Accounts and notes receivable
 
 
 
Accounts and notes receivable, gross
394,938 
365,688 
530,759 
Less: Allowance for doubtful accounts
(9,437)
(8,711)
(7,456)
Accounts and notes receivable, net
385,501 
356,977 
523,303 
Inventories
 
 
 
Finished products
290,451 
295,525 
309,868 
Raw materials
32,035 
28,568 
29,009 
Products in process
5,133 
4,475 
3,113 
Operating supplies and other
35,964 
35,743 
41,510 
Inventories
363,583 
364,311 
383,500 
Deferred income taxes
69,080 
71,205 
62,074 
Prepaid expenses
58,425 
54,469 
19,392 
Total current assets
927,055 
893,890 
1,139,479 
Investments and long-term receivables
30,614 
27,998 
24,265 
Property, Plant and Equipment, Net [Abstract]
 
 
 
Property, plant & equipment
 
 
 
Property, plant & equipment, cost
6,672,394 
6,635,873 
6,047,065 
Less: Reserve for depr., depl. & amort.
(2,644,146)
(2,480,061)
(2,325,181)
Property, plant & equipment, net
4,028,248 
4,155,812 
3,721,884 
Goodwill
3,091,524 
3,083,013 
3,895,267 
Other intangible assets, net
683,092 
673,792 
153,094 
Other assets
87,339 
79,664 
200,493 
Total assets
8,847,872 
8,914,169 
9,134,482 
Liabilities and Stockholders' Equity [Abstract]
 
 
 
Liabilities and Shareholders' Equity
 
 
 
Current maturities of long-term debt
60,417 
311,685 
330,081 
Short-term borrowings
412,300 
1,082,500 
1,209,500 
Trade payables and accruals
145,744 
147,104 
215,835 
Other current liabilities
130,103 
121,777 
178,775 
Total current liabilities
748,564 
1,663,066 
1,934,191 
Long-term debt
2,521,190 
2,153,588 
2,183,584 
Deferred income taxes
957,248 
949,036 
685,432 
Other noncurrent liabilities
617,651 
625,743 
415,506 
Total liabilities
4,844,653 
5,391,433 
5,218,713 
Other commitments and contingencies (Notes 13 & 19)
 
 
 
Shareholders' equity
 
 
 
Common stock, $1 par value
124,989 
110,270 
109,834 
Capital in excess of par value
2,316,507 
1,734,835 
1,702,946 
Retained earnings
1,743,097 
1,862,913 
2,129,554 
Accumulated other comprehensive loss
(181,374)
(185,282)
(26,565)
Shareholders' equity
4,003,219 
3,522,736 
3,915,769 
Total liabilities and shareholders' equity
$ 8,847,872 
$ 8,914,169 
$ 9,134,482 
Consolidated Balance Sheets [Parenthetical] (USD $)
Jun. 30, 2009
Dec. 31, 2008
Jun. 30, 2008
Consolidated Balance Sheets [Parenthetical]
 
 
 
Common Stock, Par or Stated Value Per Share
$ 1 
$ 1 
$ 1 
Condensed Consolidated Statements of Earnings (USD $)
In Thousands, except Per Share data
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
3 Months Ended
Jun. 30, 2008
6 Months Ended
Jun. 30, 2008
Net sales
$ 681,380 
$ 1,249,275 
$ 965,957 
$ 1,737,718 
Delivery revenues
40,479 
72,878 
55,594 
101,172 
Total revenues
721,859 
1,322,153 
1,021,551 
1,838,890 
Cost of goods sold
535,546 
1,025,834 
720,731 
1,338,042 
Delivery costs
40,479 
72,878 
55,594 
101,172 
Cost of revenues
576,025 
1,098,712 
776,325 
1,439,214 
Gross profit
145,834 
223,441 
245,226 
399,676 
Selling, administrative and general expenses
79,353 
159,070 
84,781 
177,357 
Gain on sale of property, plant & equipment and businesses, net
654 
3,157 
80,498 
84,443 
Other operating (income) expense, net
1,451 
3,170 
2,474 
1,534 
Operating earnings
65,684 
64,358 
238,469 
305,228 
Other income (expense), net
2,895 
1,820 
3,444 
792 
Interest income
687 
1,482 
997 
1,669 
Interest expense
44,073 
87,992 
38,193 
81,652 
Earnings (loss) from continuing operations before income taxes
25,193 
(20,332)
204,717 
226,037 
Provision (benefit) for income taxes
9,632 
(3,638)
63,492 
70,327 
Earnings (loss) from continuing operations
15,561 
(16,694)
141,225 
155,710 
Earnings (loss) on discontinued operations, net of tax (Note 2)
6,651 
6,125 
(470)
(1,022)
Net earnings (loss)
22,212 
(10,569)
140,755 
154,688 
Earnings Per Share [Abstract]
 
 
 
 
Earnings Per Share, Basic [Abstract]
 
 
 
 
Basic earnings (loss) per share
 
 
 
 
Continuing operations
0.14 
(0.15)
1.28 
1.42 
Discontinued operations
0.06 
0.06 
Net earnings (loss) per share
0.2 
(0.09)
1.28 
1.42 
Earnings Per Share, Diluted [Abstract]
 
 
 
 
Diluted earnings (loss) per share
 
 
 
 
Continuing operations
0.14 
(0.15)
1.27 
1.41 
Discontinued operations
0.06 
0.06 
(0.01)
Net earnings (loss) per share
0.2 
(0.09)
1.27 
1.4 
Weighted-average common shares outstanding
 
 
 
 
Basic
113,477 
112,045 
109,922 
109,286 
Assuming dilution
113,829 
112,045 
111,117 
110,515 
Cash dividends declared per share of common stock
0.49 
0.98 
0.49 
0.98 
Depreciation, depletion, accretion and amoritization from continuing operations
$ 99,600 
$ 198,915 
$ 96,919 
$ 192,775 
Effective tax rate from continuing operations
38.2% 
17.9% 
31% 
31.1% 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands
6 Months Ended
Jun. 30, 2009
Cash and Cash Equivalents, Period Increase (Decrease) [Abstract]
 
Operating Activites
 
Net earnings (loss)
$ (10,569)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activites
 
Depreciation, depletion, accretion and amortization
198,915 
Net gain on sale of property, plant & equipment and businesses
(3,880)
Contributions to pension plans
(2,242)
Share-based compensation
14,010 
Excess tax benefit from share-based compensation
(325)
Deferred tax provision
5,671 
Changes in assets and liabilities before initial effects of business acquisitions and dispostions
(35,850)
Other, net
3,672 
Net cash provided by operating activities
169,402 
Net Cash Provided by (Used in) Investing Activities [Abstract]
 
Payments for (Proceeds from) Productive Assets [Abstract]
 
Investing Activities
 
Purchases of property, plant & equipment
(60,101)
Proceeds from sale of property, plant & equipment
4,051 
Proceeds from sale of businesses
11,537 
Payment for businesses acquired, net of acquired cash
(36,980)
Redemption of medium-term investments
30,590 
Proceeds from loan on life insurance policies
Withdrawal from nonconsolidated companies, net
63 
Other, net
651 
Net cash used for investing activities
(50,189)
Financing Activities
 
Net short-term payments
(672,176)
Payment of short-term debt and current maturities
(281,461)
Proceeds from issuance of long-term debt, net of discounts
397,660 
Debt issuance costs
(3,033)
Settlements of forward starting swaps
Proceeds from issuance of common stock
578,237 
Dividends paid
(108,752)
Proceeds from exercise of stock options
3,697 
Excess tax benefit from share-based compensation
325 
Other, net
(193)
Net cash used for financing activities
(85,696)
Net increase in cash and cash equivalents
33,517 
Cash and cash equivalents at beginning of year
10,194 
Cash and cash equivalents at end of period
$ 43,711 
Basis of Presentation
Organization, Consolidation and Presentation and Error Corrections

1.   Basis of Presentation


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

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

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

Correction of Cash Flows from Operating Activities and Investing Activities

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

A summary of the effects of the correction of this error for the six months ended June 30, 2008 is as follows (in thousands of dollars):

 

Six Months Ended June 30, 2008

 

As
Reported

 


Correction

 

Reclassifi-
cations1

 

As
Restated

Statement of Cash Flows

 

 

 

 

 

 

 

  Excess tax benefits from share-based compensation

$0 

 

$0 

 

($3,605)

 

($3,605)

  Deferred tax provision

 

 

194 

 

194 

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


(82,608)

 


(47,369)

 


3,411 

 


(126,566)

    Net cash provided by operating activities

$181,422 

 

($47,369)

 

$0 

 

$134,053 

 

 

 

 

 

 

 

 

  Purchases of property, plant & equipment

($246,027)

 

$47,369 

 

$0 

 

($198,658)

    Net cash used for investing activities

($52,367)

 

$47,369 

 

$0 

 

($4,998)

 

 

 

 

 

 

 

 

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

 

Discontinued Operations
Discontinued Operations

2.   Discontinued Operations


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

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

At the closing date, the fair value of the consideration received in connection with the sale of the Chemicals business, including anticipated cash flows from the two earn-out agreements, was expected to exceed the net carrying value of the assets and liabilities sold. However, pursuant to Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies," since the proceeds under the earn-out agreements were contingent in nature, no gain was recognized on the Chemicals sale and the value recorded at the June 7, 2005 closing date referable to these two earn-outs was limited to $128,167,000. Furthermore, under the Securities and Exchange Commission (SEC) Staff Accounting Bulletin Topic 5:Z:5, "Classification and Disclosure of Contingencies Relating to Discontinued Operations" (SAB Topic 5:Z:5), upward adjustments to the fair value of the ECU earn-out subsequent to closing, which totaled $51,070,000, were reported in continuing operations, and therefore did not contribute to the gain or loss on the sale of the Chemicals business. A gain on disposal of the Chemicals business is recognized to the extent cumulative cash receipts under the 5CP earn-out exceed the initial value recorded.

In March 2009, we received a payment of $11,537,000 under the 5CP earn-out related to the year ended December 31, 2008. As this cash receipt exceeded the carrying amount of the 5CP receivable, we recorded a gain on disposal of discontinued operations of $723,000. Any future payments received pursuant to the 5CP earn-out will be recorded as additional gain on disposal of discontinued operations. During 2008, we received a payment of $10,014,000 under the 5CP earn-out related to the year ended December 31, 2007. Through June 30, 2009, we have received a total of $33,825,000 under the 5CP earn-out.

We are liable for a cash transaction bonus payable to certain key former Chemicals employees. This transaction bonus is payable if cash receipts realized from the two earn-out agreements described above exceed an established minimum threshold. Amounts due are payable annually based on the prior year's results. Based on the amount of the 5CP payment received in March 2009, we expect the 2009 payout will be approximately $728,000 and have accrued this amount as of June 30, 2009.



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

 

Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

Gain (loss) from results of discontinued operations

$11,093 

 

($784)

 

$9,493 

 

($1,704)

Gain  on disposal of discontinued operations

 

 

723 

 

Income tax (provision) benefit

(4,442)

 

314 

 

(4,091)

 

682 

  Gain (loss) on discontinued operations, net of tax

$6,651 

 

($470)

 

$6,125 

 

($1,022)

 

 

 

 

 

 

 

 

 

The pretax gains from discontinued operations in 2009 of $11,093,000 for the second quarter and $9,493,000 for the first half of 2009 primarily relate to a settlement during the second quarter with one of our insurers in the Modesto case (see Note 19) resulting in a pretax gain, after deducting legal fees and other expenses, of $12,238,000. The insurance proceeds and associated gain represent a partial recovery of legal and settlement costs recognized in prior periods. The pretax losses from discontinued operations in 2008 primarily reflect charges related to general and product liability costs, including legal defense costs, environmental remediation costs associated with our former Chemicals businesses, and chargesrelated to the cash transaction bonus as noted above.
Earnings Per Share (EPS)
Earnings Per Share, Policy [Text Block]

3.   Earnings Per Share (EPS)


We report two earnings (loss) 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):

 

Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

Weighted-average common shares outstanding

113,477 

 

109,922 

 

112,045 

 

109,286 

Dilutive effect of

 

 

 

 

 

 

 

  Stock options

144 

 

991 

 

 

993 

  Other stock compensation plans

208 

 

204 

 

 

236 

Weighted-average common shares outstanding,
  assuming dilution


113,829 

 


111,117

 


112,045 

 


110,515

 

 

 

 

 

 

 

 

 

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

 

Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

Antidilutive common stock equivalents

5,104

 

804 

 

4,287 

 

804 

 

 

 

 

 

 

 

 

Income Taxes
Income Tax Disclosure [Text Block]

4.   Income Taxes


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

In accordance with FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109," 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.

During the second quarter, we revised our estimated annual effective tax rate to 6.4%, significantly lower than the 23.2% estimated in the first quarter. An adjustment to the current quarter income tax provision was required so that the year-to-date provision reflects the expected annual tax rate. A substantial amount of the tax benefit recognized for the loss reported in the first quarter of 2009 was reversed during the second quarter to reflect the revised annual rate. This adjustment reduced earnings approximately $7,100,000 during the second quarter of 2009, resulting in an effective tax rate of 38.2%, as compared with 31.0% in the second quarter of 2008.

Our projected effective tax rate from continuing operations for the six months ended June 30, 2009 is 17.9%, a decrease of 13.2 percentage points from the 31.1% projected effective tax rate for the six months ended June 30, 2008. The decrease in the projected effective tax rate primarily results from a greater favorable effect of statutory depletion, partially offset by an increase in state taxes.

Medium-term Investments
Medium-term Investments, Policy [Text Block]

5.   Medium-term Investments


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

During the first half of 2009 and the fourth quarter of 2008, The Reserve redeemed $30,590,000 and $258,000, respectively, of our investment. In addition, during the third quarter of 2008, we recognized a charge of $2,103,000 (included in other income (expense), net) to reduce the principal balance to an estimate of the fair value of our investment in these funds. During the second quarter of 2009, we recognized income of $611,000 (included in other income (expense), net) to increase the principal balance to an estimate of the fair value of our investment in these funds. See Note 7 for further discussion of the fair value determination. These adjustments resulted in balances as of June 30, 2009 and December 31, 2008 of $6,755,000 and $36,734,000, respectively, as reported on our accompanying Condensed Consolidated Balance Sheets. Our investment in these funds as of June 30, 2008 amounted to $34,050,000 and was classified as cash equivalents in the accompanying Condensed Consolidated Balance Sheets at such date.
Derivative Instruments
Derivative Instruments and Hedging Activities Disclosure [Text Block]

6.   Derivative Instruments


During the normal course of operations, we are exposed to market risks including fluctuations in interest rates, fluctuations in foreign currency exchange rates and changes in commodity pricing. From time to time, and consistent with our risk management policies, we use derivative instruments to hedge against these market risks. We do not utilize derivative instruments for trading or other speculative purposes. The interest rate swap agreements described below were designated as cash flow hedges of future interest payments pursuant to SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133).

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 June 30, 2010, we estimate that $10,363,000 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 will be amortized to interest expense over the remaining term of the related debt. For the 12-month period ending June 30, 2010, we estimate that $7,351,000 of the pretax loss accumulated in OCI will be reclassified to earnings.

FAS 133 requires the recognition of all derivative instruments at fair value in the balance sheet. Fair values of derivative instruments designated as hedging instruments are summarized as follows (in thousands of dollars):

 

 

 

 

Fair Value 1

 

 


Balance Sheet Location

 

June 30
2009

 

Dec 31
2008

 

June 30
2008

Liability Derivatives

 

 

 

 

 

 

 

 

  Interest rate derivatives

 

Other noncurrent liabilities

 

($14,069)

 

($16,247)

 

($2,788)

Total Derivatives

 

 

 

($14,069)

 

($16,247)

 

($2,788)

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 


The effect of the cash flow hedge derivative instruments on the accompanying Condensed Consolidated Statements of Earnings for the three and six months ended June 30 is summarized below (in thousands of dollars):

 

 


Location on

 

Three Months Ended
June 30

 

Six Months Ended
June 30

 

 

Statement

 

2009

 

2008

 

2009

 

2008

Interest rate derivatives

 

 

 

 

 

 

 

 

 

 

  Gain (loss) recognized in OCI
    (effective portion)

 


Note 8

 


($871)

 


$39,935 

 


($1,670)

 


$2,996 

 

 

 

 

 

 

 

 

 

 

 

  Loss reclassified from
    Accumulated OCI
    (effective portion)

 


Interest
expense

 



($3,957)

 



($1,954)

 



($7,327)

 



($3,811)

 

 

 

 

 

 

 

 

 

 

 

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

 



Other income
(expense), net

 




$0 

 




$3,900 

 




$0 

 




$2,169 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements
Fair Value Disclosures [Text Block]

7.   Fair Value Measurements


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

Level 1:

Quoted prices in active markets for identical assets or liabilities;

Level 2:

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

Level 3:

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


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

 

 







Total

 

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

 



Significant
Other
Observable
Inputs
(Level 2)

 




Significant
Unobservable
Inputs
(Level 3)

Fair Value

 

 

 

 

 

 

 

 

Medium-term investments

 

$6,755 

 

$0 

 

$6,755 

 

$0 

Interest rate derivative

 

(14,069)

 

 

(14,069)

 

  Net liability

 

($7,314)

 

$0 

 

($7,314)

 

$0 

 

 

 

 

 

 

 

 

 

 

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

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

8.   Comprehensive Income


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

 

Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

Net earnings (loss)

$22,212 

 

$140,755 

 

($10,569)

 

$154,688 

Other comprehensive income

 

 

 

 

 

 

 

  Fair value adjustments to cash flow hedges,
    net of tax


(519)

 


24,100 

 


(995)

 


2,006 

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


2,352 

 


1,181 

 


4,334 

 


2,304 

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


294 

 


34 

 


569 

 


361 

Total comprehensive income (loss)

$24,339 

 

$166,070

 

($6,661)

 

$159,359

 

 

 

 

 

 

 

 

 

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

 

June 30

 

December 31

 

June 30

 

2009

 

2008

 

2008

Cash flow hedges

($53,180)

 

($56,519)

 

($51,537)

Pension and postretirement plans

(128,194)

 

(128,763)

 

24,972 

  Accumulated other comprehensive loss

($181,374)

 

($185,282)

 

($26,565)

 

 

 

 

 

 

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

9.  Shareholders' Equity


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

During the six months ended June 30, 2009, we issued 561,529 shares of common stock to the administrator of our 401(k) savings and retirement plan and received cash proceeds of $24,295,000. These issuances were made in accordance with a letter agreement between us and the 401(k) plan administrator and, when applicable, a 10b5-1 Agreement on file with the plan administrator.

During the second quarter of 2009, we issued 789,495 shares of common stock in connection with business acquisitions. We originally issued the shares to two exchange accommodation titleholders (selling shareholders) in a private placement pursuant to a planned Section 1031 reverse exchange under the Internal Revenue Code. The selling shareholders assumed our rights and obligations under the asset purchase agreement, and we registered the shares for public resale by the selling shareholders in order to fund their obligation. The selling shareholders will maintain legal ownership of the assets acquired until the entities are dissolved, at which time legal ownership will be transferred to us. The selling shareholders qualify as variable interest entities under the provisions of FASB Interpretation No. 46 (Revised December 2003), "Consolidation of Variable Interest Entities," [FIN 46(R)] for which we are the primary beneficiary. Accordingly, we have consolidated as applicable the financial position, results of operations and cash flows of the selling shareholders as of and for the period ended June 30, 2009, which principally consist of the receipt of net cash proceeds from the issuance of shares of $33,862,000 and the acquisition noted above for a cash payment of $36,980,000, including acquisition costs and net of acquired cash.

During the first quarter of 2008, we issued 798,859 shares of common stock in connection with business acquisitions. We originally issued the shares to an exchange accommodation titleholder (selling shareholder) in a private placement pursuant to a planned Section 1031 reverse exchange under the Internal Revenue Code. The selling shareholder assumed our rights and obligations under the asset purchase agreement, and we registered the shares for public resale by the selling shareholder in order to fund its obligation. The selling shareholder maintained legal ownership of the assets acquired until it was dissolved during the fourth quarter of 2008, at which time legal ownership was transferred to us. The selling shareholder qualified as a variable interest entity under the provisions of FIN 46(R) for which we were the primary beneficiary. Accordingly, we have consolidated as applicable the financial position, results of operations and cash flows of the selling shareholder as of and for the period ended June 30, 2008, which principally consist of the receipt of net cash proceeds from the issuance of shares of $55,072,000 and the acquisition noted above for a cash payment of $55,763,000, including acquisition costs and net of acquired cash.

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

On February 10, 2006, the Board of Directors increased to 10,000,000 shares the existing authorization to purchase common stock. 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 June 30, 2009, 3,411,416 shares remained under the current authorization.

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

10.  Benefit Plans


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


PENSION BENEFITS

Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

Components of Net Periodic Benefit Cost

 

 

 

 

 

 

 

  Service cost

$4,658 

 

$4,096 

 

$9,319 

 

$9,583 

  Interest cost

10,485 

 

9,322 

 

20,970 

 

19,951 

  Expected return on plan assets

(11,582)

 

(12,980)

 

(23,252)

 

(25,958)

  Amortization of prior service cost

115 

 

115 

 

230 

 

230 

  Amortization of actuarial loss

426 

 

(106)

 

826 

 

280 

Net periodic pension benefit cost

$4,102 

 

$447 

 

$8,093 

 

$4,086 

 

 

 

 

 

 

 

 

 


OTHER POSTRETIREMENT BENEFITS

Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

Components of Net Periodic Benefit Cost

 

 

 

 

 

 

 

  Service cost

$978 

 

$1,306 

 

$1,956 

 

$2,612 

  Interest cost

1,761 

 

1,727 

 

3,522 

 

3,455 

  Amortization of prior service cost

(206)

 

(210)

 

(412)

 

(420)

  Amortization of actuarial loss

150 

 

255 

 

299 

 

510 

Net periodic postretirement benefit cost

$2,683 

 

$3,078 

 

$5,365 

 

$6,157 

 

 

 

 

 

 

 

 

The net periodic benefit costs for pension plans during the three and six months ended June 30, 2009 include pretax reclassifications from other comprehensive income totaling $541,000 and $1,056,000, respectively. The net periodic benefit costs for pension plans during the three and six months ended June 30, 2008 include pretax reclassifications from other comprehensive income totaling $9,000 and $510,000, respectively. During the six months ended June 30, 2009 and 2008, contributions of $2,242,000 and $1,593,000, respectively, were made to our pension plans.

The net periodic benefit costs for postretirement plans during the three and six months ended June 30, 2009 include pretax reclassifications from other comprehensive income totaling ($56,000) and ($113,000), respectively. The net periodic benefit costs for postretirement plans during the three and six months ended June 30, 2008 include pretax reclassifications from other comprehensive income totaling $45,000 and $90,000, respectively. These reclassifications from other comprehensive income are related to amortization of prior service costs or credits and actuarial losses.
Credit Facilities, Short-term Borrowings and Long-term Debt
Debt Disclosure [Text Block]

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


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

 

June 30

 

December 31

 

June 30

 

2009

 

2008

 

2008

Bank borrowings

$46,000 

 

$1,082,500 

 

$1,209,500 

Commercial paper

366,300 

 

 

  Total short-term borrowings

$412,300 

 

$1,082,500 

 

$1,209,500 

 

 

 

 

 

 

Bank borrowings

 

 

 

 

 

  Maturity

1 day

 

2 days

 

1 to 28 days

  Weighted-average interest rate

0.62%

 

1.63%

 

2.63%

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

  Maturity

1 to 43 days

 

n/a

 

n/a

  Weighted-average interest rate

0.72%

 

n/a

 

n/a

 

 

 

 

 

 

 

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

Our policy is to maintain committed credit facilities at least equal to our outstanding commercial paper. Unsecured bank lines of credit totaling $1,675,000,000 were maintained at June 30, 2009, of which $175,000,000 expires November 16, 2009 and $1,500,000,000 expires November 16, 2012. As of June 30, 2009, $46,000,000 of the lines of credit was drawn. Interest rates referable to borrowings under these lines of credit are determined at the time of borrowing based on current market conditions.

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

As of June 30, 2009, $3,680,000 of our long-term debt, including current maturities, was secured. This secured debt was assumed with the November 2007 acquisition of Florida Rock. All other debt obligations, both short-term borrowings and long-term debt, are unsecured.

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

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

 

 

June 30

 

December 31

 

June 30

 

 

2009

 

2008

 

2008

10.125% 2015 notes issued 20091

$149,511 

 

$0 

 

$0 

10.375% 2018 notes issued 20092

248,213 

 

 

3-year floating loan issued 2008

255,000 

 

285,000 

 

300,000 

6.30% 5-year notes issued 20083

249,587 

 

249,543 

 

249,500 

7.00% 10-year notes issued 20084

399,610 

 

399,595 

 

399,581 

3-year floating notes issued 2007

325,000 

 

325,000 

 

325,000 

5.60% 5-year notes issued 20075

299,615 

 

299,565 

 

299,518 

6.40% 10-year notes issued 20076

349,829 

 

349,822 

 

349,815 

7.15% 30-year notes issued 20077

249,314 

 

249,311 

 

249,308 

6.00% 10-year notes issued 1999

 

250,000 

 

250,000 

Private placement notes

15,309 

 

15,375 

 

48,610 

Medium-term notes

21,000 

 

21,000 

 

21,000 

Industrial revenue bonds

17,550 

 

17,550 

 

17,550 

Other notes

2,069 

 

3,512 

 

3,783 

  Total debt excluding short-term borrowings

$2,581,607 

 

$2,465,273 

 

$2,513,665 

Less current maturities of long-term debt

60,417 

 

311,685 

 

330,081 

  Total long-term debt

$2,521,190 

 

$2,153,588 

 

$2,183,584 

 

 

 

 

 

 

  Estimated fair value of total long-term debt

$2,499,454 

 

$1,843,479 

 

$2,168,874 

 

 

 

 

 

 

1

Includes a decrease for unamortized discounts of $489 thousand as of June 30, 2009. The effective interest rate for these 2015 notes is 10.305%.

 

 

2

Includes a decrease for unamortized discounts of $1,787 thousand as of June 30, 2009. The effective interest rate for these 2018 notes is 10.584%.

 

 

3

Includes decreases for unamortized discounts, as follows: June 30, 2009 - $413 thousand, December 31, 2008 - $457 thousand and June 30, 2008 - $500 thousand. The effective interest rate for these 5-year notes is 7.47%.

 

 

4

Includes decreases for unamortized discounts, as follows: June 30, 2009 - $390 thousand, December 31, 2008 - $405 thousand and June 30, 2008 - $419 thousand. The effective interest rate for these 10-year notes is 7.86%.

 

 

5

Includes decreases for unamortized discounts, as follows: June 30, 2009 - $385 thousand, December 31, 2008 - $435 thousand and June 30, 2008 - $482 thousand. The effective interest rate for these 5-year notes is 6.58%.

 

 

6

Includes decreases for unamortized discounts, as follows: June 30, 2009 - $171 thousand, December 31, 2008 - $178 thousand and June 30, 2008 - $185 thousand. The effective interest rate for these 10-year notes is 7.39%.

 

 

7

Includes decreases for unamortized discounts, as follows: June 30, 2009 - $686 thousand, December 31, 2008 - $689 thousand and June 30, 2008 - $692 thousand. The effective interest rate for these 30-year notes is 8.04%.

 

 

 

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

Our debt agreements do not subject us to contractual restrictions with regard to working capital or the amount we may expend for cash dividends and purchases of our stock. The percentage of consolidated debt to total capitalization (total debt as a percentage of total capital), as defined in our bank credit facility agreements, must be less than 65%. Our total debt as a percentage of total capital was 42.8% as of June 30, 2009; 50.2% as of December 31, 2008; and 48.7% as of June 30, 2008.
Asset Retirement Obligations
Asset Retirement Obligation Disclosure [Text Block]

12.  Asset Retirement Obligations


SFAS No. 143, "Accounting for Asset Retirement Obligations" (FAS 143) applies to legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.

FAS 143 requires recognition of a liability for an asset retirement obligation 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. FAS 143 results in ongoing recognition of costs related to the depreciation of the assets and accretion of the liability. For the three and six month periods ended June 30, we recognized operating costs related to FAS 143 as follows (in thousands of dollars):



Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

FAS 143 Operating Costs

 

 

 

 

 

 

 

Accretion

$2,333 

 

$1,610 

 

$4,605 

 

$3,229 

Depreciation

3,288 

 

4,030 

 

6,891 

 

8,089 

  Total

$5,621 

 

$5,640 

 

$11,496 

 

$11,318 

 

 

 

 

 

 

 

 


FAS 143 operating costs for our continuing operations are reported in cost of goods sold. FAS 143 asset retirement obligations are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.

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



Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

Balance at beginning of period

$173,774 

 

$131,455 

 

$173,435 

 

$131,383 

  Liabilities incurred

 

931 

 

334 

 

1,148 

  Liabilities (settled)

(3,326)

 

(4,757)

 

(5,925)

 

(8,220)

  Accretion expense

2,333 

 

1,610 

 

4,605 

 

3,229 

  Revisions up (down)

(4,306)

 

12,131 

 

(3,974)

 

13,830 

Balance at end of period

$168,475 

 

$141,370 

 

$168,475 

 

$141,370 

 

 

 

 

 

 

 

 

 

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

13.  Standby Letters of Credit


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

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

 

June 30, 2009

Standby Letters of Credit

 

Risk management requirement for insurance claims

$35,954 

Payment surety required by utilities

308 

Contractual reclamation/restoration requirements

12,029 

Financial requirement for industrial revenue bond

14,230 

  Total standby letters of credit

$62,521 

 

 

 

Of the total $62,521,000 outstanding letters of credit, $59,006,000 is backed by our $1,500,000,000 bank credit facility which expires November 16, 2012.
Acquisition
Schedule of Business Acquisitions, by Acquisition [Text Block]

14.  Acquisitions


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

leasehold interest in a rail yard

two aggregates production facilities


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

15.  Goodwill


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

 

 


Aggregates

 

Asphalt mix
and Concrete

 


Cement

 


Total

Goodwill as of June 30, 2008

$3,505,972 

 

$91,633 

 

$297,662 

 

$3,895,267 

 

Goodwill of acquired businesses

1,455 

 

 

 

1,455 

 

Purchase price allocation adjustment

(516,047)

 

 

(44,998)

 

(561,045)

 

Goodwill impairment

 

 

(252,664)

 

(252,664)

Goodwill as of December 31, 2008

$2,991,380 

 

$91,633 

 

$0 

 

$3,083,013 

 

Goodwill of acquired businesses1

9,558 

 

 

 

9,558 

 

Purchase price allocation adjustment

(1,047)

 

 

 

(1,047)

Goodwill as of June 30, 2009

$2,999,891 

 

$91,633 

 

$0 

 

$3,091,524 

 

 

1

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

 

 

New Accounting Standards
New Accounting Standards

16.  New Accounting Standards


Recently Adopted

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

FAS 157
— On January 1, 2009, we adopted SFAS No. 157, "Fair Value Measurements" (FAS 157) for nonfinancial assets and liabilities. FAS 157 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 FAS 157 with respect to financial assets and liabilities and elected to defer our adoption of FAS 157 for nonfinancial assets and liabilities as permitted by FSP FAS 157-2. Our adoption FAS 157 for nonfinancial assets and liabilities on January 1, 2009 did not materially affect our financial position, results of operations or liquidity.

FAS 160 — On January 1, 2009, we adopted SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51" (FAS 160). FAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Our adoption of FAS 160 did not materially affect our results of operations, financial position or liquidity.

FAS 161 — On January 1, 2009, we adopted SFAS No. 161, "Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133" (FAS 161). As a result of our adoption of FAS 161, we enhanced our interim disclosure of derivative instruments and hedging activities as reflected in Note 6.


Pending  Adoption

FSP FAS 132(R)-1 — In December 2008, the FASB issued FSP No. FAS 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" (FSP FAS 132(R)-1). This FSP amends SFAS No. 132(R), "Employers' Disclosures about Pensions and Other Postretirement Benefits," to require more detailed disclosures about employers' plan assets, including employers' investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. The additional disclosure requirements of this FSP are effective for fiscal years ending after December 15, 2009. We expect to adopt this FSP within our annual disclosures for the year ending December 31, 2009.

FAS 167 — In June 2009, the FASB issued FAS No. 167,"Amendments to FASB Interpretation No. 46(R)" (FAS 167), which amends the consolidation guidance related to variable interest entities including removing the scope exemption for qualifying special-purpose entities. This statement 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 FAS 167 on January 1, 2010 to have a material effect on our results of operations, financial position or liquidity.

Codification — In June 2009, the FASB issued FAS No. 168,"The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162" (Codification). The Codification is effective for periods ending after September 15, 2009. Upon our adoption of the Codification as of and for the period ending September 30, 2009, we will eliminate the use of pre-Codification GAAP references in our financial statements.
Segment Reporting - Continuing Operations
Segment Reporting Disclosure [Text Block]

17.  Segment Reporting- Continuing Operations


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

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

Segment Financial Disclosure
Amounts in millions

Three Months Ended
June 30

 

Six Months Ended
June 30

 

2009

 

2008

 

2009

 

2008

TOTAL REVENUES

 

 

 

 

 

 

 

  Aggregates

$497.6 

 

$679.3 

 

$899.4 

 

$1,215.3 

  Asphalt mix and Concrete

218.3 

 

325.4 

 

411.5 

 

592.0 

  Cement

16.9 

 

29.2 

 

36.6 

 

60.2 

  Intersegment sales

(51.4)

 

(67.9)

 

(98.2)

 

(129.8)

    Total net sales

681.4 

 

966.0 

 

1,249.3 

 

1,737.7 

    Delivery revenues

40.5 

 

55.6 

 

72.9 

 

101.2 

  Total revenues

$721.9 

 

$1,021.6 

 

$1,322.2 

 

$1,838.9 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

 

 

 

 

 

  Aggregates

$126.8 

 

$217.9 

 

$190.4 

 

$344.8 

  Asphalt mix and Concrete

19.5 

 

23.2 

 

34.8 

 

43.3 

  Cement

(0.5) 

 

4.1 

 

(1.8)

 

11.6 

    Total gross profit

$145.8 

 

$245.2 

 

$223.4 

 

$399.7 

 

 

 

 

 

 

 

 

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

18.  Supplemental Cash Flow Information


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

 

Six Months Ended
June 30

 

2009

 

2008

Cash payments (refunds)

 

 

 

  Interest (exclusive of amount capitalized)

$98,871 

 

$89,532 

  Income taxes

(9,468)

 

37,055

 

 

 

 

Noncash investing and financing activities

 

 

 

  Liabilities assumed in business acquisitions

 

1,292 

  Accrued liabilities for purchases of property, plant
    & equipment


14,684 

 


24,834 

  Carrying value of noncash assets and liabilities exchanged

 

42,974 

  Debt issued for purchases of property, plant & equipment

1,982 

 

  Fair value of stock issued in business acquisitions

 

25,023 

  Other noncash transactions

 

16 

 

 

 

 

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

19.  Other Commitments and Contingencies


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

City of Modesto

On October 12, 2007, we reached an agreement with the City of Modesto in the case styled City of Modesto, et al. v. Dow Chemical Company, et al., filed in San Francisco County Superior Court, California, to resolve all claims against Vulcan for a sum of $20 million. The agreement provides for a release and dismissal or withdrawal with prejudice of all claims against Vulcan. The agreement also expressly states that the settlement paid by Vulcan is for compensatory damages only and not for any punitive damages, and that Vulcan denies any conduct capable of giving rise to an assignment of punitive damages. The settlement was approved by the San Francisco Superior Court judge presiding over this case and thus is now final. While we believe the verdicts rendered and damages awarded during the first phase of the trial are contrary to the evidence presented, we settled the city's claims in order to avoid the costs and uncertainties of protracted litigation. The $20 million was paid during the fourth quarter of 2007. We believe the settlement damages, legal defense costs, and other potential claims are covered, in whole or in part, by insurance policies purchased by Vulcan, and we are pursuing recovery from these insurers.

On June 30, 2009, we reached a settlement with one of our insurers. As a result, we recorded a pretax gain, after deducting legal fees and other expenses, of approximately $12.2 million. As part of the settlement, we agreed to release the insurer from any further claims that could be asserted related to the Modesto case, as well as the Lyon and Team Enterprises cases. We continue to pursue recovery from other insurers.

Although the Company's $20 million settlement resolved all claims against Vulcan by the City of Modesto, certain ancillary claims related to this matter remain unresolved as follows:

·      Lyon

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

·Team Enterprises

On June 5, 2008, we were named as a defendant in the matter of Team Enterprises, Inc., v. Century Centers, Ltd., et al., filed in Modesto, Stanislaus County, California but removed to the United States District Court for the Eastern District of California (Fresno Division). This is an action filed by Team Enterprises as the former operator of a dry cleaners located in Modesto, California. The plaintiff is seeking damages from the defendants associated with the remediation of perchloroethylene from the site of the dry cleaners. The complaint also seeks other damages against the named defendants. No discovery has been conducted in this matter. At this time we cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter.

·R.R. StreetIndemnity

R.R. Street and Company (Street) and National Union Fire Insurance Company of Pittsburgh, PA, filed a lawsuit against the Company on February 26, 2008 in the United States District Court for the Northern District of Illinois, Eastern Division. Street, a former distributor of perchloroethylene manufactured by Vulcan and also a defendant in the City of Modesto, Lyon and Garcia litigation, alleges that Vulcan owes Street, and its insurer (National Union), a defense and indemnity in all of these litigation matters. National Union alleges that Vulcan is obligated to contribute to National Union's share of defense fees, costs and any indemnity payments made on Street's behalf. Vulcan was successful in having this case dismissed in light of insurance coverage litigation pending in California, which is already addressing these same issues. Street appealed the court's ruling to the U.S. Seventh Circuit. The Seventh Circuit reversed the decision of the trial court on June 25, 2009, and Vulcan filed a request on July 9, 2009 for an en banc rehearing by the Seventh Circuit, which was denied. Therefore, the case will be remanded to the U.S. District Court for further proceedings. Street also has asserted that it is entitled to a defense in the California Water Service Company litigation set forth below.


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 were contaminated with perchloroethylene. Our former Chemicals Division produced and sold perchloroethylene. The plaintiff is seeking compensatory damages, treble damages and punitive damages. No discovery has been conducted in this matter. At this time we cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter.



Sunnyvale, California

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

Florida Lake Belt Litigation

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

IDOT/Joliet Road

In September 2001, we were named a defendant in a suit brought by the Illinois Department of Transportation (IDOT), in the Circuit Court of Cook County, Chancery Division, Illinois, alleging damage to a 0.9-mile section of Joliet Road that bisects our McCook quarry in McCook, Illinois, a Chicago suburb. IDOT seeks damages to "repair, restore, and maintain" the road or, in the alternative, judgment for the cost to "improve and maintain other roadways to accommodate" vehicles that previously used the road. The complaint also requests that the court enjoin any McCook quarry operations that will further damage the road. The court in this case granted summary judgment in favor of Vulcan on certain claims. The court also granted the plaintiff's motion to amend their complaint to add a punitive damages claim, although the court made it clear that it was not ruling on the merits of this claim. Discovery is ongoing. 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, although the letter indicates that the insurer is currently taking the position that various damages sought by the State are not covered.

Industrial Sand

We produced and marketed industrial sand from 1988 to 1994. Since 1993 we have been sued in numerous suits in a number of states by plaintiffs alleging that they contracted silicosis or incurred personal injuries as a result of exposure to, or use of, industrial sand used for abrasive blasting. As of July 7, 2009, the number of suits totaled 55 involving an aggregate of 526 plaintiffs. There are 51 pending suits with 499 plaintiffs filed in Texas. Those Texas cases are in a State Multidistrict Litigation Court and are stayed pending resolution of discovery issues and a constitutional challenge of the Texas Silica Act brought by the plaintiffs. There are 4 cases pending in Louisiana with 27 plaintiffs. The 27 cases that were pending in California were voluntarily dismissed in July 2009 with no payment made in settlement thereof. We are seeking dismissal of all other suits on the grounds that plaintiffs were not exposed to our product. To date we have been successful in getting dismissals from cases involving over 17,000 plaintiffs with little or no payments made in settlement.



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 June 30, 2009 are sufficient to address claims and litigation for which a loss was determined to be probable and reasonably estimable. No liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described in our most recent Annual Report on Form 10-K.
Document and Entity Information (USD $)
6 Months Ended
Jun. 30, 2009
Jun. 30, 2008
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Amendment Description
N/A 
 
Document Period End Date
06/30/2009 
 
Entity Registrant Name
Vulcan Materials Company 
 
Entity Central Index Key
0001396009 
 
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
 
$ 6,309,460,043 
Entity Common Stock, Shares Outstanding
124,989,302