| Goodwill
|
|
|
|
|
Our
accompanying unaudited condensed consolidated financial
statements were prepared in compliance with the instructions
to Form 10-Q and Article 10 of Regulation S-X and thus do not
include all of the information and footnotes required by
accounting principles generally accepted in the United States
of America for complete financial statements. In the opinion
of our management, the statements reflect all adjustments,
including those of a normal recurring nature, necessary to
present fairly the results of the reported interim periods.
Operating results for the three and 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
|
|
|
|
Reclassifi-
|
|
As
|
Statement of Cash Flows |
|
|
|
|
|
|
|
Excess tax benefits from share-based compensation |
$0 |
|
$0 |
|
($3,605) |
|
($3,605) |
Deferred tax provision |
0 |
|
0 |
|
194 |
|
194 |
Changes in assets and
liabilities before initial effects
|
|
|
|
|
|
|
|
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. |
|||||||
|
|
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
|
|
Six Months Ended
|
||||
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Gain (loss) from results of discontinued operations |
$11,093 |
|
($784) |
|
$9,493 |
|
($1,704) |
Gain on disposal of discontinued operations |
0 |
|
0 |
|
723 |
|
0 |
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.
|
|
|
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 |
||||
|
|
|
|
June 30
|
|
Dec 31
|
|
June 30
|
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):
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
Statement |
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Interest rate derivatives |
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in OCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss reclassified from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain recognized in earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date. The fair value
hierarchy prioritizes the inputs to valuation techniques used
to measure fair value into three broad levels as described
below:
Level 1: |
Quoted prices in active markets for identical assets or liabilities; |
Level 2: |
Inputs that are derived principally from or corroborated by observable market data; |
Level 3: |
Inputs that are unobservable and significant to the overall fair value measurement. |
The
following table presents a summary of our assets and
liabilities as of June 30, 2009 that are subject to fair
value measurement on a recurring basis (in thousands of
dollars):
|
|
|
|
Quoted
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
|
|
Medium-term investments |
|
$6,755 |
|
$0 |
|
$6,755 |
|
$0 |
Interest rate derivative |
|
(14,069) |
|
0 |
|
(14,069) |
|
0 |
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.
|
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
|
|
Six Months Ended
|
||||
|
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,
|
|
|
|
|
|
|
|
Reclassification adjustment
for cash flow hedge
|
|
|
|
|
|
|
|
Amortization of pension and
postretirement plan
|
|
|
|
|
|
|
|
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) |
|
|
|
|
|
|
|
The
following tables set forth the components of net periodic
benefit cost (in thousands of dollars):
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
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 |
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
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 |
|
|
|
|
|
|
|
|
|
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 |
|
0 |
|
0 |
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 |
|
0 |
|
0 |
|
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 |
0 |
|
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.
|
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
|
|
Six Months Ended
|
||||
|
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
|
|
Six Months Ended
|
||||
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Balance at beginning of period |
$173,774 |
|
$131,455 |
|
$173,435 |
|
$131,383 |
Liabilities incurred |
0 |
|
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.
|
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.
|
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 |
|
Changes
in the carrying amount of goodwill by reportable segment for
the periods presented are summarized below (in thousands of
dollars):
|
|
|
|
Asphalt mix
|
|
|
|
|
Goodwill as of June 30, 2008 |
$3,505,972 |
|
$91,633 |
|
$297,662 |
|
$3,895,267 |
|
|
Goodwill of acquired businesses |
1,455 |
|
0 |
|
0 |
|
1,455 |
|
Purchase price allocation adjustment |
(516,047) |
|
0 |
|
(44,998) |
|
(561,045) |
|
Goodwill impairment |
0 |
|
0 |
|
(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 |
|
0 |
|
0 |
|
9,558 |
|
Purchase price allocation adjustment |
(1,047) |
|
0 |
|
0 |
|
(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. |
|||||||
|
|
|
|
17. Segment Reporting- Continuing Operations
We
have four operating segments organized around our principal
product lines: aggregates, asphalt mix, concrete and cement.
For reporting purposes, we have combined our Asphalt mix and
Concrete operating segments into one reporting segment as the
products are similar in nature and the businesses exhibit
similar economic characteristics, production processes, types
and classes of customer, methods of distribution and
regulatory environments. Management reviews earnings from the
product line reporting units principally at the gross profit
level.
The
majority of our activities are domestic. We sell a relatively
small amount of aggregates outside the United States.
Transactions between our reportable segments are recorded at
prices approximating market levels.
Segment Financial Disclosure
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
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 |
|
|
|
|
|
|
|
|
|
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
|
||
|
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 |
0 |
|
1,292 |
Accrued liabilities for
purchases of property, plant
|
|
|
|
Carrying value of noncash assets and liabilities exchanged |
0 |
|
42,974 |
Debt issued for purchases of property, plant & equipment |
1,982 |
|
8 |
Fair value of stock issued in business acquisitions |
0 |
|
25,023 |
Other noncash transactions |
0 |
|
16 |
|
|
|
|
|
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.
|