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Note 1: summary of significant accounting policies
NATURE OF OPERATIONS
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation's largest producer of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.
BASIS OF PRESENTATION
Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Our Condensed Consolidated Balance Sheet as of December 31, 2014 was derived from the audited financial statement at that date. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three and nine month periods ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.
Due to the 2005 sale of our Chemicals business as presented in Note 2, the operating results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2015 presentation. We early adopted Accounting Standards Update (ASU) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” resulting in adjustments to our prior financial statements. See Note 17 for additional information.
RESTRUCTURING CHARGES
In 2014, we announced changes to our executive management team, and a new divisional organization structure that was effective January 1, 2015. During the three and nine months ended September 30, 2015, we incurred $448,000 and $4,546,000, respectively, of costs related to these initiatives. During the three and nine months ended September 30, 2014, we incurred $750,000 of costs related to these initiatives. Future related charges for these initiatives are estimated to be immaterial.
EARNINGS PER SHARE (EPS)
Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Weighted-average common shares |
|||||||||||
outstanding |
133,474 | 131,797 | 133,082 | 131,256 | |||||||
Dilutive effect of |
|||||||||||
Stock options/SOSARs 1 |
919 | 661 | 1,024 | 671 | |||||||
Other stock compensation plans |
1,165 | 911 | 836 | 832 | |||||||
Weighted-average common shares |
|||||||||||
outstanding, assuming dilution |
135,558 | 133,369 | 134,942 | 132,759 |
1 |
Stock-Only Stock Appreciation Rights (SOSARs) |
All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation are excluded. There were no excluded shares for the periods presented.
The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Antidilutive common stock equivalents |
545 | 2,355 | 555 | 2,355 |
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Note 2: Discontinued Operations
In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. There were no revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Discontinued Operations |
|||||||||||
Pretax loss |
$ (3,974) |
$ (1,393) |
$ (11,627) |
$ (3,132) |
|||||||
Income tax benefit |
1,577 | 551 | 4,561 | 1,236 | |||||||
Loss on discontinued operations, |
|||||||||||
net of income taxes |
$ (2,397) |
$ (842) |
$ (7,066) |
$ (1,896) |
The losses from discontinued operations noted above include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. The current year’s increased losses resulted primarily from charges associated with the Lower Passaic and Texas Brine matters as further discussed in Note 8.
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Note 3: Income Taxes
Our estimated annual effective tax rate (EAETR) is based on full year expectations of pretax book earnings, statutory tax rates, permanent differences between book and tax accounting such as percentage depletion, and tax planning alternatives available in the various jurisdictions in which we operate. For interim financial reporting, we calculate our quarterly income tax provision in accordance with the EAETR. Each quarter, we update our EAETR based on our revised full year expectation of pretax book earnings and calculate the income tax provision so that the year-to-date income tax provision reflects the EAETR. Significant judgment is required in determining our EAETR.
In the third quarter of 2015, we recorded an income tax expense from continuing operations of $45,386,000 compared to $31,066,000 in the third quarter of 2014. The change in our income tax expense for the quarter resulted largely from applying the statutory rate to the increase in our pretax book earnings.
For the nine months ended September 30, 2015, we recorded an income tax expense from continuing operations of $51,177,000 compared to $71,947,000 for the nine months ended September 30, 2014. The change in our income tax expense for the nine month period resulted largely from applying the statutory rate to the decrease in our pretax book earnings.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts of assets and liabilities and the amounts used for income tax purposes. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period.
Each quarter we analyze the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized.
Based on our third quarter 2015 analysis, we believe it is more likely than not that we will realize the benefit of all our deferred tax assets with the exception of certain state net operating loss carryforwards. For 2015, we project deferred tax assets related to state net operating loss carryforwards of $62,170,000, of which $59,354,000 relates to Alabama. Through the second quarter of 2015, we maintained a full valuation allowance against the Alabama net operating loss carryforward.
As disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, we restructured our legal entities during the second quarter of 2015. We communicated then that this restructuring might allow for utilization of some or all of our Alabama net operating loss carryforward prior to its expiration.
At the end of the third quarter, our cumulative three-year Alabama adjusted income turned positive. This development, in conjunction with all other available positive and negative evidence, has led us to conclude that it is more likely than not that $4,655,000 of the Alabama net operating loss carryforward is realizable. As such, a deferred tax benefit of $4,655,000 was recorded in the third quarter to reflect such reduction in the valuation allowance. Each quarter, we will reassess all positive and negative evidence to determine the appropriate amount of the valuation allowance.
We recognize a tax benefit associated with a tax position when, in our judgment, it is more likely than not that the position will be sustained based upon the technical merits of the position. For a tax position that meets the more likely than not recognition threshold, we measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax benefit. Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation.
A summary of our deferred tax assets is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2014.
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Note 4: deferred revenue
We entered into two transactions (September 2013 and December 2012) through which we sold a percentage of the future production from aggregates reserves at eight quarries (seven owned and one leased). These sales were structured as volumetric production payments (VPPs). We received net cash proceeds of $153,282,000 and $73,644,000 for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized on a unit-of-sales basis to revenue over the terms of the VPPs. Concurrently, we entered into marketing agreements with the purchaser through which we are designated the exclusive sales agent for the purchaser’s percentage of future production. Acting as the purchaser’s agent, our consolidated total revenues exclude these sales.
The common key terms of both VPP transactions are:
§ |
the purchaser has a nonoperating interest in future production entitling them to a percentage of future production |
§ |
there is no minimum annual or cumulative production or sales volume, nor any minimum sales price guarantee |
§ |
the purchaser has the right to take its percentage of future production in physical product, or receive the cash proceeds from the sale of its percentage of future production under the terms of the aforementioned marketing agreement |
§ |
the purchaser's percentage of future production is conveyed free and clear of all future costs |
§ |
we retain full operational and marketing control of the specified quarries |
§ |
we retain fee simple interest in the land as well as any residual values that may be realized upon the conclusion of mining |
The key terms specific to the 2013 VPP transaction are:
§ |
terminates at the earlier to occur of September 30, 2051 or the sale of 250.8 million tons of aggregates from the specified quarries; based on historical and projected volumes from the specified quarries, it is expected that 250.8 million tons will be sold prior to September 30, 2051 |
§ |
the purchaser's percentage of the maximum 250.8 million tons of future production is estimated to be 11.5% (approximately 29 million tons); the actual percentage may vary |
The key terms specific to the 2012 VPP transaction are:
§ |
terminates at the earlier to occur of December 31, 2052 or the sale of 143.2 million tons of aggregates from the specified quarries; based on historical and projected volumes from the specified quarries, it is expected that 143.2 million tons will be sold prior to December 31, 2052 |
§ |
the purchaser's percentage of the maximum 143.2 million tons of future production is estimated to be 10.5% (approximately 15 million tons); the actual percentage may vary |
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Deferred Revenue |
|||||||||||
Balance at beginning of period |
$ 217,429 |
$ 222,589 |
$ 219,968 |
$ 224,743 |
|||||||
Cash received and revenue deferred |
0 | 0 | 0 | 187 | |||||||
Amortization of deferred revenue |
(1,778) | (1,384) | (4,317) | (3,725) | |||||||
Balance at end of period |
$ 215,651 |
$ 221,205 |
$ 215,651 |
$ 221,205 |
Based on expected aggregates sales from the specified quarries, we anticipate recognizing an estimated $6,000,000 of deferred revenue (reflected in other current liabilities in our 2015 Condensed Consolidated Balance Sheet) during the 12-month period ending September 30, 2016.
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Note 5: Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs that are derived principally from or corroborated by observable market data
Level 3: Inputs that are unobservable and significant to the overall fair value measurement
Our assets subject to fair value measurement on a recurring basis are summarized below:
Level 1 |
||||||||
September 30 |
December 31 |
September 30 |
||||||
in thousands |
2015 | 2014 | 2014 | |||||
Fair Value Recurring |
||||||||
Rabbi Trust |
||||||||
Mutual funds |
$ 12,081 |
$ 15,532 |
$ 14,986 |
|||||
Equities |
8,778 | 11,248 | 12,838 | |||||
Total |
$ 20,859 |
$ 26,780 |
$ 27,824 |
Level 2 |
||||||||
September 30 |
December 31 |
September 30 |
||||||
in thousands |
2015 | 2014 | 2014 | |||||
Fair Value Recurring |
||||||||
Rabbi Trust |
||||||||
Common/collective trust funds |
$ 1,464 |
$ 1,415 |
$ 1,367 |
|||||
Total |
$ 1,464 |
$ 1,415 |
$ 1,367 |
We have established two Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds and equity securities for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in those funds (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).
Net gains (losses) of the Rabbi Trust investments were $(1,964,000) and $2,571,000 for the nine months ended September 30, 2015 and 2014, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at September 30, 2015 and 2014 were $(2,068,000) and $369,000, respectively.
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 6 and 7, respectively.
Assets that were subject to fair value measurement on a nonrecurring basis are summarized below:
Period ending September 30, 2015 |
Period ending September 30, 2014 |
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Impairment |
Impairment |
||||||||||
in thousands |
Level 2 |
Charges |
Level 2 |
Charges |
|||||||
Fair Value Nonrecurring |
|||||||||||
Property, plant & equipment, net |
$ 0 |
$ 2,176 |
$ 2,280 |
$ 2,987 |
|||||||
Other intangible assets, net |
0 | 2,858 | 0 | 0 | |||||||
Other assets |
0 | 156 | 0 | 0 | |||||||
Total |
$ 0 |
$ 5,190 |
$ 2,280 |
$ 2,987 |
We recorded $5,190,000 and $2,987,000 of losses on impairment of long-lived assets (reported within other operating expense, net in our accompanying Condensed Consolidated Statements of Comprehensive Income) for the nine months ended September 30, 2015 and 2014, respectively, reducing the carrying value of these assets to their estimated fair values of $0 and $2,280,000. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).
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Note 6: Derivative Instruments
During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such expenses. We do not utilize derivative instruments for trading or other speculative purposes.
The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate swap agreements described below were designated as either cash flow hedges or fair value hedges. The changes in fair value of our interest rate swap cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. The changes in fair value of our interest rate swap fair value hedges are recorded as interest expense consistent with the change in the fair value of the hedged items attributable to the risk being hedged.
CASH FLOW HEDGES
During 2007, we entered into fifteen forward starting interest rate locks on $1,500,000,000 of future debt issuances in order to hedge the risk of higher interest rates. Upon the 2007 and 2008 issuances of the related fixed-rate debt, underlying interest rates were lower than the rate locks and we terminated and settled these forward starting locks for cash payments of $89,777,000. This amount was booked to AOCI and is being amortized to interest expense over the term of the related debt.
This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:
Three Months Ended |
Nine Months Ended |
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Location on |
September 30 |
September 30 |
|||||||||||
in thousands |
Statement |
2015 | 2014 | 2015 | 2014 | ||||||||
Cash Flow Hedges |
|||||||||||||
Loss reclassified from AOCI |
Interest |
||||||||||||
(effective portion) |
expense |
$ (467) |
$ (989) |
$ (9,282) |
$ (6,892) |
The loss reclassified from AOCI for the nine months ended September 30, 2015 and 2014 includes the acceleration of a proportional amount of the deferred loss in the amount of $7,208,000 and $3,762,000, respectively, referable to the debt purchases as described in Note 7.
For the 12-month period ending September 30, 2016, we estimate that $1,967,000 of the pretax loss in AOCI will be reclassified to earnings.
FAIR VALUE HEDGES
In June 2011, we issued $500,000,000 of 6.50% fixed-rate notes due in 2016 to refinance near term floating-rate debt. Concurrently, we entered into interest rate swap agreements in the stated amount of $500,000,000 to reestablish the pre-refinancing mix of fixed- and floating-rate debt. Under these agreements, we paid 6-month London Interbank Offered Rate (LIBOR) plus a spread of 4.05% and received a fixed interest rate of 6.50%. Additionally, in June 2011, we entered into interest rate swap agreements on our $150,000,000 of 10.125% fixed-rate notes due in 2015. Under these agreements, we paid 6-month LIBOR plus a spread of 8.03% and received a fixed interest rate of 10.125%. In August 2011, we terminated and settled these interest rate swap agreements for $25,382,000 of cash proceeds. The $23,387,000 gain component of the settlement (cash proceeds less $1,995,000 of accrued interest) was added to the carrying value of the related debt and is being amortized as a reduction to interest expense over the terms of the related debt using the effective interest method.
This deferred gain amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:
Three Months Ended |
Nine Months Ended |
||||||||||||
September 30 |
September 30 |
||||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||||
Deferred Gain on Settlement |
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Amortized to earnings as a reduction |
|||||||||||||
to interest expense |
$ 282 |
$ 493 |
$ 2,795 |
$ 10,171 |
The amortized deferred gain for the nine months ended September 30, 2015 and 2014 includes the acceleration of a proportional amount of the deferred gain in the amount of $1,642,000 and $8,032,000, respectively, referable to the debt purchases as described in Note 7. The deferred gain will be fully amortized in December 2015, concurrent with the retirement of the 10.125% notes due 2015.
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Note 7: Debt
Debt is detailed as follows:
Effective |
September 30 |
December 31 |
September 30 |
|||||||||
in thousands |
Interest Rates |
2015 | 2014 | 2014 | ||||||||
Short-term Debt |
||||||||||||
Bank line of credit expires 2020 1, 2 |
n/a |
$ 0 |
$ 0 |
$ 0 |
||||||||
Total short-term debt |
$ 0 |
$ 0 |
$ 0 |
|||||||||
Long-term Debt |
||||||||||||
Bank line of credit expires 2020 1, 2, 3 |
1.75% |
$ 85,000 |
$ 0 |
$ 0 |
||||||||
10.125% notes due 2015 4 |
9.58% | 150,000 | 150,000 | 150,000 | ||||||||
6.50% notes due 2016 |
n/a |
0 | 125,001 | 125,001 | ||||||||
6.40% notes due 2017 |
n/a |
0 | 218,633 | 218,633 | ||||||||
7.00% notes due 2018 |
7.87% | 272,512 | 400,000 | 400,000 | ||||||||
10.375% notes due 2018 |
10.63% | 250,000 | 250,000 | 250,000 | ||||||||
7.50% notes due 2021 |
7.75% | 600,000 | 600,000 | 600,000 | ||||||||
8.85% notes due 2021 |
8.88% | 6,000 | 6,000 | 6,000 | ||||||||
Industrial revenue bond due 2022 |
n/a |
0 | 14,000 | 14,000 | ||||||||
4.50% notes due 2025 |
4.65% | 400,000 | 0 | 0 | ||||||||
7.15% notes due 2037 |
8.05% | 240,188 | 240,188 | 240,188 | ||||||||
Other notes 2 |
6.25% | 503 | 637 | 753 | ||||||||
Unamortized discounts and debt issuance costs |
n/a |
(24,821) | (22,716) | (23,893) | ||||||||
Unamortized deferred interest rate swap gain 5 |
n/a |
241 | 3,036 | 3,538 | ||||||||
Total long-term debt including current maturities 6 |
$ 1,979,623 |
$ 1,984,779 |
$ 1,984,220 |
|||||||||
Less current maturities |
130 | 150,137 | 145 | |||||||||
Total long-term debt |
$ 1,979,493 |
$ 1,834,642 |
$ 1,984,075 |
|||||||||
Total debt 7 |
$ 1,979,623 |
$ 1,984,779 |
$ 1,984,220 |
|||||||||
Estimated fair value of long-term debt |
$ 2,191,361 |
$ 2,092,673 |
$ 2,237,325 |
1 |
Borrowings on the bank line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt otherwise. |
2 |
Non-publicly traded debt. |
3 |
The effective interest rate is the current credit spread over LIBOR. |
4 |
The 10.125% notes due 2015 are classified as long-term debt (not current maturities) as of September 30, 2015 due to our intent and ability to refinance these notes at maturity (December 15, 2015) using our line of credit. |
5 |
The unamortized deferred gain was realized upon the August 2011 settlement of interest rate swaps as discussed in Note 6. |
6 |
The debt balances as of December 31, 2014 and September 30, 2014 have been adjusted to reflect our early adoption of ASU 2015-03 and related election as discussed in Note 17. |
7 |
Face value of our debt is equal to total debt less unamortized discounts and debt issuance costs, and unamortized deferred interest rate swap gain, as follows: September 30, 2015 — $2,004,203 thousand, December 31, 2014 — $2,004,459 thousand and September 30, 2014 — $2,004,575 thousand. |
Our total debt is presented in the table above net of unamortized discounts from par, unamortized deferred debt issuance costs and unamortized deferred interest rate swap settlement gain. Discounts, deferred debt issuance costs and deferred swap settlement gains are amortized using the effective interest method over the terms of the respective notes.
The estimated fair value of our debt presented in the table above was determined by: (1) averaging several asking price quotes for the publicly traded notes and (2) assuming par value for the remainder of the debt. The fair value estimates for the publicly traded notes were based on Level 2 information (as defined in Note 5) as of their respective balance sheet dates.
LINE OF CREDIT
In June 2015, we cancelled our secured $500,000,000 line of credit and entered into an unsecured $750,000,000 line of credit (incurring $2,589,000 of transaction fees) that expires in June 2020.
The line of credit contains affirmative, negative and financial covenants customary for an unsecured facility. The primary negative covenant limits our ability to incur secured debt. The financial covenants are: (1) a maximum ratio of debt to EBITDA of 3.5:1 through September 2016 and 3.25:1 thereafter, and (2) a minimum ratio of EBITDA to net cash interest expense of 3.0:1. As of September 30, 2015, we were in compliance with the line of credit covenants.
Borrowings on our line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt if we have the intent and ability to extend payment beyond twelve months. Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from 1.00% to 2.00%, or SunTrust Bank’s base rate (generally, its prime rate) plus a credit margin ranging from 0.00% to 1.00%. The credit margin for both LIBOR and base rate borrowings is determined by either our ratio of debt to EBITDA or our credit ratings, based on the metric that produces the lower credit spread. Standby letters of credit, which are issued under the line of credit and reduce availability, are charged a fee equal to the credit margin for LIBOR borrowings plus 0.175%. We also pay a commitment fee on the daily average unused amount of the line of credit that ranges from 0.10% to 0.35% based on either our ratio of debt to EBITDA or our credit ratings, based on the metric that produces the lower fee. As of September 30, 2015, the credit margin for LIBOR borrowings was 1.75%, the credit margin for base rate borrowings was 0.75%, and the commitment fee for the unused amount was 0.25%.
As of September 30, 2015, our available borrowing capacity was $626,136,000. Utilization of the borrowing capacity was as follows:
§ |
$85,000,000 was borrowed |
§ |
$38,864,000 was used to provide support for outstanding standby letters of credit |
TERM DEBT
All of our term debt is unsecured. All such debt, other than the $503,000 of other notes, is governed by two essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in both indentures limits the amount of secured debt we may incur without ratably securing such debt. As of September 30, 2015, we were in compliance with all of the term debt covenants.
In August 2015, we repaid our $14,000,000 industrial revenue bond due 2022 (such repayment did not incur any prepayment penalties) via borrowing on our line of credit.
In March 2015, we issued $400,000,000 of 4.50% senior notes due 2025. Proceeds (net of underwriter fees and other transaction costs) of $395,207,000 were partially used to fund the March 30, 2015 purchase, via tender offer, of $127,303,000 principal amount (32%) of the 7.00% notes due 2018. The March 2015 debt purchase cost $145,899,000, including an $18,140,000 premium above the principal amount of the notes and transaction costs of $456,000. The premium primarily reflects the trading price of the notes relative to par prior to the tender offer commencement. Additionally, we recognized $3,138,000 of net noncash expense associated with the acceleration of a proportional amount of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined first quarter charge of $21,734,000 is presented in the accompanying Condensed Consolidated Statement of Comprehensive Income as a component of interest expense for the nine month period ended September 30, 2015.
The remaining net proceeds from the March 2015 debt issuance, together with cash on hand and borrowings under our line of credit, funded: (1) the April 2015 redemption of $218,633,000 principal amount (100%) of the 6.40% notes due 2017, (2) the April 2015 redemption of $125,001,000 principal amount (100%) of the 6.50% notes due 2016 and (3) the April 2015 purchase, via the tender offer commenced in March 2015 of $185,000 principal amount (less than 1%) of the 7.00% notes due 2018. The April 2015 debt purchases cost $385,024,000, including a $41,153,000 premium above the principal amount of the notes and transaction costs of $52,000. The premium primarily reflects the make-whole value of the 2016 notes and the 2017 notes. Additionally, we recognized $4,136,000 of net noncash expense associated with the acceleration of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined second quarter charge of $45,341,000 is presented in the accompanying Condensed Consolidated Statement of Comprehensive Income as a component of interest expense for the nine month period ended September 30, 2015.
Consistent with our intent and ability to refinance the 10.125% notes due 2015 via borrowing on our line of credit, such notes are classified as long-term debt in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2015.
In March 2014, we purchased $506,366,000 principal amount of debt through a tender offer as follows: $374,999,000 of 6.50% notes due in 2016 and $131,367,000 of 6.40% notes due in 2017. This debt purchase was funded by the sale of our cement and concrete businesses in the Florida area as described in Note 16. The March 2014 debt purchases cost $579,659,000, including a $71,829,000 premium above the principal amount of the notes and transaction costs of $1,464,000. The premium primarily reflects the trading price of the notes relative to par prior to the tender offer commencement. Additionally, we recognized a net noncash benefit of $344,000 associated with the acceleration of a proportional amount of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined charge of $72,949,000 is presented in the accompanying Condensed Consolidated Statement of Comprehensive Income as a component of interest expense for the nine month period ended September 30, 2014.
STANDBY LETTERS OF CREDIT
We provide, in the normal course of business, certain third-party beneficiaries standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of one year, typically renew automatically, and can only be modified or cancelled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our $750,000,000 line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of September 30, 2015 are summarized by purpose in the table below:
in thousands |
||
Standby Letters of Credit |
||
Risk management insurance |
$ 33,111 |
|
Reclamation/restoration requirements |
5,753 | |
Total |
$ 38,864 |
|
Note 8: Commitments and Contingencies
As summarized by purpose in Note 7, our standby letters of credit totaled $38,864,000 as of September 30, 2015.
LITIGATION AND ENVIRONMENTAL MATTERS
We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels.
In addition to these lawsuits in which we are involved in the ordinary course of business, certain other material legal proceedings are more specifically described below.
§ |
Lower Passaic River Study Area (Superfund Site) — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the “Cooperating Parties Group”) to a May 2007 Administrative Order on Consent (AOC) with the U.S. Environmental Protection Agency (EPA) to perform a Remedial Investigation/Feasibility Study (draft RI/FS) of the lower 17 miles of the Passaic River (River). On April 11, 2014, the EPA issued a proposed Focused Feasibility Study (FFS) that calls for a bank-to-bank dredging remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is approximately $950 million to $1.73 billion. The period for public comment on the proposed FFS is closed and it is anticipated that the EPA will issue its final record of decision sometime in 2015. The Cooperating Parties Group draft RI/FS estimates the preferred remedial action presented therein to cost in the range of approximately $475 million to $725 million (including $93 million in operations and maintenance costs for a 30-year period). |
The AOC does not obligate us to fund or perform the remedial action contemplated by either the draft RI/FS or the FFS. Vulcan formerly owned a chemicals operation near River Mile 0.1, which was sold in 1974. The Company has found no evidence that its former chemicals operation contributed any of the primary contaminants of concern to the River.
Neither the ultimate remedial approach, nor the parties who will participate in funding the remediation and their respective allocations, have been determined. However, we recorded an immaterial loss for this matter in the first quarter of 2015 based on the cost estimate of the preferred remedial action supported by the Cooperating Parties Group’s draft RI/FS.
§ |
TEXAS BRINE MATTER — During the operation of its former Chemicals Division, Vulcan was the lessee to a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company (Texas Brine) operated this salt mine for the account of Vulcan. Vulcan sold its Chemicals Division in 2005 and assigned the lease to the purchaser, and Vulcan has had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed near the salt dome and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in August 2012 in federal court in the Eastern District of Louisiana in New Orleans. |
There are numerous defendants to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by Texas Brine. Vulcan has since been added as a direct and third-party defendant by other parties, including a direct claim by the state of Louisiana. The damages alleged in the litigation range from individual plaintiffs’ claims for property damage, to the state of Louisiana’s claim for response costs, to claims for physical damages to oil pipelines, to business interruption claims. In addition to the plaintiffs’ claims, Vulcan has also been sued for contractual indemnity and comparative fault by both Texas Brine and Occidental Chemical Co. (Occidental). The total amount of damages claimed is in excess of $500 million. It is alleged that the sinkhole was caused, in whole or in part, by Vulcan’s negligent actions or failure to act. It is also alleged that Vulcan breached the salt lease, as well as an operating agreement and a drilling agreement with Texas Brine; and that Vulcan is strictly liable for certain property damages in its capacity as a former assignee of the salt lease; and that Vulcan violated certain covenants and conditions in the agreement under which it sold its Chemicals Division in 2005. Vulcan has made claims for contractual indemnity, comparative fault, and breach of contract against Texas Brine, as well as claims for contractual indemnity and comparative fault against Occidental. Discovery is ongoing and the first trial date in any of these cases has been set for April 2016. At this time, we cannot reasonably estimate a range of liability pertaining to this matter.
§ |
HEWITT LANDFILL MATTER — On September 8, 2015, the Los Angeles Regional Water Quality Control Board (RWQCB) issued a Cleanup and Abatement Order (CAO) directing Vulcan to assess, monitor, cleanup and abate wastes that have been discharged to soil, soil vapor, and/or groundwater at Vulcan’s former Hewitt Landfill in Los Angeles. The CAO follows a 2014 Investigative Order from RWQCB that sought data and a technical evaluation regarding the Hewitt Landfill, and a subsequent amendment to the Investigative Order requiring Vulcan to provide groundwater monitoring results to RWQCB and to create and implement a work plan for further investigation of the Hewitt Landfill. Vulcan is engaged in performing site investigation work required by the CAO. |
Vulcan is also engaged in an ongoing dialogue with the U.S. Environmental Protection Agency, the Los Angeles Department of Water and Power, and other stakeholders regarding the potential contribution of the Hewitt Landfill to groundwater contamination in the San Fernando Valley. We are gathering and analyzing data and developing technical information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other sources of contamination. At this time, we cannot reasonably estimate a range of liability pertaining to this matter.
It is not possible to predict with certainty the ultimate outcome of these and other legal proceedings in which we are involved, and a number of factors, including developments in ongoing discovery or adverse rulings, or the verdict of a particular jury, could cause actual losses to differ materially from accrued costs. No liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. Legal costs incurred in defense of lawsuits are expensed as incurred. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described in our most recent Annual Report on Form 10-K.
|
Note 9: Asset Retirement Obligations
Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.
Recognition of a liability for an ARO is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the ARO is settled for other than the carrying amount of the liability, we recognize a gain or loss on settlement.
We record all AROs for which we have legal obligations for land reclamation at estimated fair value. Essentially all these AROs relate to our underlying land parcels, including both owned properties and mineral leases. For the three and nine month periods ended September 30, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
ARO Operating Costs |
|||||||||||
Accretion |
$ 2,766 |
$ 2,892 |
$ 8,553 |
$ 8,745 |
|||||||
Depreciation |
1,681 | 1,080 | 4,683 | 3,060 | |||||||
Total |
$ 4,447 |
$ 3,972 |
$ 13,236 |
$ 11,805 |
ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.
Reconciliations of the carrying amounts of our AROs are as follows:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Asset Retirement Obligations |
|||||||||||
Balance at beginning of period |
$ 234,919 |
$ 225,117 |
$ 226,565 |
$ 228,234 |
|||||||
Liabilities incurred |
0 | 3,604 | 6,159 | 3,604 | |||||||
Liabilities settled |
(5,318) | (7,684) | (13,318) | (20,527) | |||||||
Accretion expense |
2,766 | 2,892 | 8,553 | 8,745 | |||||||
Revisions up, net |
2,313 | 4,539 | 6,721 | 8,412 | |||||||
Balance at end of period |
$ 234,680 |
$ 228,468 |
$ 234,680 |
$ 228,468 |
The net revisions relate to revised cost estimates and spending patterns for several quarries located primarily in California.
|
Note 10: Benefit Plans
We sponsor three funded, noncontributory defined benefit pension plans. These plans cover substantially all employees hired prior to July 2007, other than those covered by union-administered plans. Normal retirement age is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried Plan and the Chemicals Hourly Plan are generally based on salaries or wages and years of service; the Construction Materials Hourly Plan provides benefits equal to a flat dollar amount for each year of service. In addition to these qualified plans, we sponsor three unfunded, nonqualified pension plans.
Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. In December 2013, we amended our defined benefit pension plans so that future service accruals for salaried pension participants ceased effective December 31, 2013. This change included a special transition provision which will allow covered compensation through December 31, 2015 to be considered in the participants’ benefit calculations.
The following table sets forth the components of net periodic pension benefit cost:
PENSION BENEFITS |
Three Months Ended |
Nine Months Ended |
|||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Components of Net Periodic Benefit Cost |
|||||||||||
Service cost |
$ 1,213 |
$ 1,039 |
$ 3,638 |
$ 3,118 |
|||||||
Interest cost |
11,004 | 11,098 | 33,077 | 33,294 | |||||||
Expected return on plan assets |
(13,683) | (12,701) | (41,051) | (38,102) | |||||||
Settlement charge |
2,031 | 0 | 2,031 | 0 | |||||||
Amortization of prior service cost |
12 | 47 | 36 | 141 | |||||||
Amortization of actuarial loss |
5,383 | 2,806 | 16,292 | 8,416 | |||||||
Net periodic pension benefit cost |
$ 5,960 |
$ 2,289 |
$ 14,023 |
$ 6,867 |
|||||||
Pretax reclassifications from AOCI included in |
|||||||||||
net periodic pension benefit cost |
$ 7,426 |
$ 2,853 |
$ 18,359 |
$ 8,557 |
The reclassifications from AOCI noted in the table above are related to a settlement charge, amortization of prior service costs and actuarial losses as shown in Note 11. The settlement charge noted above relates to a lump sum payment to a former employee from the nonqualified plan. This $2,031,000 charge is reflected within both cost of revenues, and selling, administrative and general expenses in our accompanying Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2015.
Prior contributions, along with the existing funding credits, are expected to be sufficient to cover required contributions to the qualified plans through 2015.
In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. Substantially all of our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, Company-provided healthcare benefits terminate when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age 65, whichever occurs first.
The following table sets forth the components of net periodic postretirement benefit cost:
OTHER POSTRETIREMENT BENEFITS |
Three Months Ended |
Nine Months Ended |
|||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Components of Net Periodic Benefit Cost |
|||||||||||
Service cost |
$ 473 |
$ 536 |
$ 1,420 |
$ 1,609 |
|||||||
Interest cost |
621 | 824 | 1,864 | 2,473 | |||||||
Curtailment gain |
0 | 0 | 0 | (3,832) | |||||||
Amortization of prior service credit |
(1,058) | (1,081) | (3,174) | (3,245) | |||||||
Amortization of actuarial loss |
9 | 57 | 28 | 170 | |||||||
Net periodic postretirement benefit cost (credit) |
$ 45 |
$ 336 |
$ 138 |
$ (2,825) |
|||||||
Pretax reclassifications from AOCI included in |
|||||||||||
net periodic postretirement benefit credit |
$ (1,049) |
$ (1,024) |
$ (3,146) |
$ (6,907) |
The reclassifications from AOCI noted in the table above are related to a curtailment gain, amortization of prior service credits and actuarial losses as shown in Note 11. The March 2014 sale of our cement and concrete businesses in the Florida area (see Note 16) significantly reduced total expected future service of our postretirement plans resulting in a one-time curtailment gain of $3,832,000. This gain is reflected within gain on sale of property, plant & equipment and businesses in our accompanying Condensed Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2014.
|
Note 11: other Comprehensive Income
Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.
Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:
September 30 |
December 31 |
September 30 |
||||||||
in thousands |
2015 | 2014 | 2014 | |||||||
AOCI |
||||||||||
Cash flow hedges |
$ (14,715) |
$ (20,322) |
$ (21,011) |
|||||||
Pension and postretirement benefit plans |
(132,131) | (141,392) | (70,504) | |||||||
Total |
$ (146,846) |
$ (161,714) |
$ (91,515) |
Changes in AOCI, net of tax, for the nine months ended September 30, 2015 are as follows:
Pension and |
||||||||||
Cash Flow |
Postretirement |
|||||||||
in thousands |
Hedges |
Benefit Plans |
Total |
|||||||
AOCI |
||||||||||
Balance as of December 31, 2014 |
$ (20,322) |
$ (141,392) |
$ (161,714) |
|||||||
Other comprehensive income (loss) |
||||||||||
before reclassifications |
0 | 0 | 0 | |||||||
Amounts reclassified from AOCI |
5,607 | 9,261 | 14,868 | |||||||
Net current period OCI changes |
5,607 | 9,261 | 14,868 | |||||||
Balance as of September 30, 2015 |
$ (14,715) |
$ (132,131) |
$ (146,846) |
Amounts reclassified from AOCI to earnings, are as follows:
Three Months Ended |
Nine Months Ended |
||||||||||||
September 30 |
September 30 |
||||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||||
Reclassification Adjustment for Cash Flow |
|||||||||||||
Hedge Losses |
|||||||||||||
Interest expense |
$ 467 |
$ 989 |
$ 9,282 |
$ 6,892 |
|||||||||
(Benefit from) provision for income taxes |
(185) | (391) | (3,675) | (2,725) | |||||||||
Total 1 |
$ 282 |
$ 598 |
$ 5,607 |
$ 4,167 |
|||||||||
Amortization of Pension and Postretirement |
|||||||||||||
Plan Actuarial Loss and Prior Service Cost |
|||||||||||||
Cost of revenues |
$ 5,242 |
$ 1,465 |
$ 12,417 |
$ 1,324 |
|||||||||
Selling, administrative and general expenses |
1,136 | 362 | 2,796 | 326 | |||||||||
(Benefit from) provision for income taxes |
(2,495) | (713) | (5,952) | (644) | |||||||||
Total 2 |
$ 3,883 |
$ 1,114 |
$ 9,261 |
$ 1,006 |
|||||||||
Total reclassifications from AOCI to earnings |
$ 4,165 |
$ 1,712 |
$ 14,868 |
$ 5,173 |
1 |
Nine months ended September 30, 2015 and 2014 include the acceleration of a proportional amount of deferred interest rate derivatives (see Note 6) referable to debt purchases (see Note 7). |
2 |
Nine months ended September 30, 2015 includes a one-time settlement loss resulting from a lump sum payment to a former employee (see Note 10). Nine months ended September 30, 2014 includes a one-time curtailment gain (see Note 10) resulting from the sale of our cement and concrete businesses in the Florida area (see Note 16). |
|
Note 12: Equity
Our capital stock consists solely of common stock, par value $1.00 per share. Holders of our common stock are entitled to one vote per share. Our Certificate of Incorporation also authorizes preferred stock of which no shares have been issued. The terms and provisions of such shares will be determined by our Board of Directors upon any issuance of preferred shares in accordance with our Certificate of Incorporation.
In 2014, we issued 715,004 shares of common stock in connection with a business acquisition as described in Note 16.
Under a program that was discontinued in the fourth quarter of 2014, we occasionally sold shares of common stock to the trustee of our 401(k) retirement plans to satisfy the plan participants’ elections to invest in our common stock. Under this arrangement, the stock issuances and resulting cash proceeds were as follows:
§ |
twelve months ended December 31, 2014 — issued 485,306 shares for cash proceeds of $30,620,000 |
§ |
nine months ended September 30, 2014 — issued 485,306 shares for cash proceeds of $30,620,000 |
Changes in total equity for the nine months ended September 30, 2015 are summarized below:
Total |
|||||
in thousands |
Equity |
||||
Balance at December 31, 2014 |
$ 4,176,699 |
||||
Net earnings |
132,289 | ||||
Common stock issued |
|||||
Share-based compensation plans |
48,329 | ||||
Share-based compensation expense |
14,020 | ||||
Excess tax benefits from share-based compensation |
16,950 | ||||
Cash dividends on common stock ($0.30 per share) |
(39,878) | ||||
Other comprehensive income |
14,868 | ||||
Other |
0 | ||||
Balance at September 30, 2015 |
$ 4,363,277 |
There were no shares held in treasury as of September 30, 2015, December 31, 2014 and September 30, 2014. As of September 30, 2015, 3,411,416 shares may be repurchased under the current purchase authorization of our Board of Directors.
|
Note 13: Segment Reporting
We have four operating (and reportable) segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Intersegment sales are made at local market prices for the particular grade and quality of product utilized in the production of asphalt mix and ready-mixed concrete. Management reviews earnings from the product line reporting segments principally at the gross profit level.
segment financial disclosure
Three Months Ended |
Nine Months Ended |
||||||||||||
September 30 |
September 30 |
||||||||||||
in millions |
2015 | 2014 | 2015 | 2014 | |||||||||
Total Revenues |
|||||||||||||
Aggregates 1 |
$ 830.8 |
$ 688.9 |
$ 2,067.7 |
$ 1,752.6 |
|||||||||
Asphalt Mix 2 |
178.9 | 136.4 | 410.9 | 330.0 | |||||||||
Concrete 2, 3 |
88.0 | 99.0 | 226.4 | 288.8 | |||||||||
Calcium 4 |
2.2 | 2.3 | 6.5 | 22.6 | |||||||||
Segment sales |
1,099.9 | 926.6 | 2,711.5 | 2,394.0 | |||||||||
Aggregates intersegment sales |
(61.4) | (53.0) | (146.6) | (145.7) | |||||||||
Calcium intersegment sales |
0.0 | 0.0 | 0.0 | (9.2) | |||||||||
Total revenues |
$ 1,038.5 |
$ 873.6 |
$ 2,564.9 |
$ 2,239.1 |
|||||||||
Gross Profit |
|||||||||||||
Aggregates |
$ 250.9 |
$ 188.0 |
$ 525.8 |
$ 388.1 |
|||||||||
Asphalt Mix 2 |
30.0 | 14.5 | 60.0 | 28.3 | |||||||||
Concrete 2, 3 |
9.6 | 5.5 | 15.3 | (0.5) | |||||||||
Calcium 4 |
0.8 | 1.0 | 2.5 | 2.0 | |||||||||
Total |
$ 291.3 |
$ 209.0 |
$ 603.6 |
$ 417.9 |
|||||||||
Depreciation, Depletion, Accretion |
|||||||||||||
and Amortization (DDA&A) |
|||||||||||||
Aggregates |
$ 57.7 |
$ 58.5 |
$ 170.3 |
$ 169.2 |
|||||||||
Asphalt Mix 2 |
4.1 | 2.6 | 12.1 | 7.5 | |||||||||
Concrete 2, 3 |
3.0 | 5.0 | 8.5 | 15.7 | |||||||||
Calcium 4 |
0.2 | 0.2 | 0.5 | 1.4 | |||||||||
Other |
4.7 | 4.9 | 13.4 | 15.1 | |||||||||
Total |
$ 69.7 |
$ 71.2 |
$ 204.8 |
$ 208.9 |
|||||||||
Identifiable Assets 5 |
|||||||||||||
Aggregates |
$ 7,533.2 |
$ 7,409.1 |
|||||||||||
Asphalt Mix 2 |
315.0 | 238.2 | |||||||||||
Concrete 2, 3 |
188.3 | 235.6 | |||||||||||
Calcium 4 |
5.6 | 5.9 | |||||||||||
Total identifiable assets |
$ 8,042.1 |
$ 7,888.8 |
|||||||||||
General corporate assets |
106.1 | 88.9 | |||||||||||
Cash items |
168.7 | 91.9 | |||||||||||
Total |
$ 8,316.9 |
$ 8,069.6 |
1 |
Includes crushed stone, sand and gravel, sand, other aggregates, as well as freight, delivery and transportation revenues, and other revenues related to services. |
2 |
In January 2015, we exchanged our California ready-mixed concrete operations for 13 asphalt mix plants, primarily in Arizona (see Note 16). |
3 |
Includes ready-mixed concrete. In March 2014, we sold our concrete business in the Florida area (see Note 16) which in addition to ready-mixed concrete, included concrete block, precast concrete, as well as building materials purchased for resale. |
4 |
Includes cement and calcium products. In March 2014, we sold our cement business (see Note 16). |
5 |
Certain temporarily idled assets are included within a segment's Identifiable Assets but the associated DDA&A is shown within Other in the DDA&A section above as the related DDA&A is excluded from segment gross profit. |
|
Note 14: Supplemental Cash Flow Information
Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is summarized below:
Nine Months Ended |
|||||
September 30 |
|||||
in thousands |
2015 | 2014 | |||
Cash Payments |
|||||
Interest (exclusive of amount capitalized) |
$ 136,123 |
$ 163,593 |
|||
Income taxes |
46,271 | 64,539 | |||
Noncash Investing and Financing Activities |
|||||
Accrued liabilities for purchases of property, plant & equipment |
$ 11,941 |
$ 5,777 |
|||
Amounts referable to business acquisitions |
|||||
Liabilities assumed |
2,645 | 24,881 | |||
Fair value of noncash assets and liabilities exchanged |
20,000 | 4,914 | |||
Fair value of equity consideration |
0 | 45,185 |
|
Note 15: Goodwill
Goodwill is recognized when the consideration paid for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. There were no charges for goodwill impairment in the nine month periods ended September 30, 2015 and 2014.
We have four reportable segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. Changes in the carrying amount of goodwill by reportable segment from December 31, 2014 to September 30, 2015 are summarized below:
GOODWILL
in thousands |
Aggregates |
Asphalt Mix |
Concrete |
Calcium |
Total |
|||||||||||
Goodwill |
||||||||||||||||
Total as of December 31, 2014 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
|||||||||||
Goodwill of acquired businesses |
0 | 0 | 0 | 0 | 0 | |||||||||||
Goodwill of divested businesses |
0 | 0 | 0 | 0 | 0 | |||||||||||
Total as of September 30, 2015 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.
|
Note 16: Acquisitions and Divestitures
ACQUISITIONS
Through the nine months ended September 30, 2015, we purchased the following for $40,801,000 of consideration ($20,801,000 cash and $20,000,000 exchanges of real property and businesses (twelve California ready-mixed concrete operations)):
§ |
three aggregates facilities and seven ready-mixed concrete operations in Arizona and New Mexico |
§ |
thirteen asphalt mix plants, primarily in Arizona |
As a result, we recognized $16,176,000 of amortizable intangible assets (contractual rights in place). The contractual rights in place will be amortized against earnings ($7,168,000 - straight-line over 20 years and $9,008,000 - units of production over an estimated 50 years) and deductible for income tax purposes over 15 years. The purchase price allocation is preliminary pending appraisals of contractual rights in place and property, plant & equipment.
For the full year 2014, we purchased the following for total consideration of $331,836,000 ($284,237,000 cash; $2,414,000 exchanges of real property and businesses; and $45,185,000 of our common stock (715,004 shares)):
§ |
two portable asphalt plants and an aggregates facility in southern California |
§ |
five aggregates facilities and associated downstream assets in Arizona and New Mexico |
§ |
two aggregates facilities in Delaware, serving northern Virginia and Washington, D.C. |
§ |
four aggregates facilities in the San Francisco Bay Area |
§ |
a rail-connected aggregates operation and two distribution yards that serve the greater Dallas/Fort Worth market |
§ |
a permitted aggregates quarry in Alabama |
DIVESTITURES AND PENDING DIVESTITURES
As noted above, in the first quarter of 2015, we exchanged twelve ready-mixed concrete operations in California (representing all of our California concrete operations) for thirteen asphalt mix plants (primarily in Arizona) resulting in a pretax gain of $5,886,000.
For the full year 2014, we sold:
§ |
First quarter — our cement and concrete businesses in the Florida area for net pretax cash proceeds of $721,359,000 resulting in a pretax gain of $227,910,000. We retained all of our Florida aggregates operations, our former Cement segment’s calcium operation in Brooksville, Florida and real estate associated with certain former ready-mixed concrete facilities. Under a separate supply agreement, we will continue to provide aggregates to the divested concrete facilities, at market prices, for a period of 20 years. As a result of the continuing cash flows (generated via the supply agreement and the retained operation and assets), the disposition is not reported as discontinued operations |
§ |
First quarter — a previously mined and subsequently reclaimed tract of land in Maryland (Aggregates segment) for net pretax cash proceeds of $10,727,000 resulting in a pretax gain of $168,000 |
§ |
First quarter — unimproved land in Tennessee previously containing a sales yard (Aggregates segment) for net pretax cash proceeds of $5,820,000 resulting in a pretax gain of $5,790,000 |
Effective land management is both a business strategy and a social responsibility. We strive to achieve value through our mining activities as well as incremental value through effective post-mining land management. Our land management strategy includes routinely reclaiming and selling our previously mined land. Additionally, this strategy includes developing conservation banks by preserving land as a suitable habitat for endangered or sensitive species. These conservation banks have received approval from the United States Fish and Wildlife Service to offer mitigation credits for sale to third parties who may be required to compensate for the loss of habitats of endangered or sensitive species.
No assets met the criteria for held for sale at September 30, 2015 or 2014. As of December 31, 2014, twelve ready-mixed concrete facilities in California are presented in the accompanying Condensed Consolidated Balance Sheet as assets held for sale and liabilities of assets held for sale. During the first quarter of 2015, we swapped these ready-mixed concrete facilities for thirteen asphalt mix operations, primarily in Arizona (as noted above). The major classes of assets and liabilities of assets classified as held for sale are as follows:
September 30 |
December 31 |
September 30 |
|||||||||
in thousands |
2015 | 2014 | 2014 | ||||||||
Held for Sale |
|||||||||||
Current assets |
$ 0 |
$ 1,773 |
$ 0 |
||||||||
Property, plant & equipment, net |
0 | 12,764 | 0 | ||||||||
Other intangible assets, net |
0 | 647 | 0 | ||||||||
Total assets held for sale |
$ 0 |
$ 15,184 |
$ 0 |
||||||||
Asset retirement obligations |
$ 0 |
$ 520 |
$ 0 |
||||||||
Total liabilities of assets held for sale |
$ 0 |
$ 520 |
$ 0 |
|
Note 17: New Accounting Standards
ACCOUNTING STANDARDS RECENTLY ADOPTED
DEBT ISSUANCE COSTS As of and for the interim period ended June 30, 2015, we early adopted Accounting Standards Update (ASU) 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” Under ASU 2015-03, debt issuance costs related to a note are presented in the balance sheet as a deduction from the related debt liability rather than as a prepaid expense (the amortization of such costs continues to be reported as interest expense). However, this ASU did not address the balance sheet presentation of debt issuance cost: (1) incurred before a debt liability is recognized or (2) associated with revolving debt arrangements, such as our line of credit. Accordingly, we elected an accounting policy to present these debt issuance costs as a deduction from the total debt liability. This ASU and related election are retrospectively applied to the beginning of the earliest period presented in the financial statements. As a result of the retrospective application of this change in accounting principle, we adjusted our Condensed Consolidated Balance Sheets for all prior periods presented. Debt issuance costs of $20,805,000 and $21,893,000 previously reported as other noncurrent assets on the Condensed Consolidated Balance Sheets as of December 31, 2014 and September 30, 2014, respectively, have been reclassified as a deduction from the principal amount of the total debt liability.
SHARE-BASED AWARDS As of and for the interim period ended March 31, 2015, we adopted ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period.” This ASU clarified the proper method of accounting for share-based awards when the terms of an award provide that a performance target could be achieved after the requisite service period. Under prior guidance, there was a lack of consistency in the measurement of the grant-date fair values of awards with these types of performance targets. Under ASU 2014-12, a performance target that affects vesting and could be achieved after completion of the service period should be treated as a performance condition and, as a result, should not be included in the estimation of the grant-date fair value. Rather, an entity should recognize compensation cost for the award when it becomes probable that the performance target will be achieved. Previously, we accounted for share-based awards with these types of performance targets in accordance with ASU 2014-12. Our adoption of this standard had no material impact on our financial position, results of operations or liquidity.
DISCONTINUED OPERATIONS REPORTING As of and for the interim period ended March 31, 2015, we adopted ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This ASU changed the definition of and expanded the disclosure requirements for discontinued operations. Under the new definition, discontinued operations reporting is limited to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. The expanded disclosures for discontinued operations are meant to provide users of financial statements with more information about the assets, liabilities, revenues, and expenses of discontinued operations. Additionally, this ASU requires an entity to disclose the pretax profit or loss of an individually significant component of an entity that does not qualify for discontinued operations reporting. Our adoption of this standard had no material impact on our financial position, results of operations or liquidity.
ACCOUNTING STANDARDS PENDING ADOPTION
MEASUREMENT-PERIOD ADJUSTMENTS In September 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,” which requires an acquirer to recognize measurement-period adjustments to provisional amounts in the reporting period in which the adjustments are determined. Previously, measurement-period adjustments were retrospectively applied. As an alternative to restating the prior periods for the measurement-period adjustments, the ASU requires acquirers to present separately on the face of the earnings statement, or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustments to the provisional amounts had been recognized as of the acquisition date. This ASU is to be applied prospectively to adjustments to provisional amounts that occur after December 15, 2015. Early adoption is permitted. We will adopt this standard as of and for the interim period ending March 31, 2016. While we are still evaluating the impact of ASU 2015-16, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
INVENTORY MEASUREMENT In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market principle to the lower of cost and net realizable value principle. The guidance applies to inventories that are measured using the first-in, first-out (FIFO) or average cost method, but does not apply to inventories that are measured by using the last-in, first-out (LIFO) or retail inventory method. We use the LIFO method for approximately 70% of our inventory (based on the December 31, 2014 balances); therefore, this ASU will not apply to the majority of our inventory. This ASU is effective prospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We will adopt this standard as of and for the interim period ending March 31, 2017. While we are still evaluating the impact of ASU 2015-11, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
NET ASSET VALUE PER SHARE INVESTMENTS In May 2015, the FASB issued ASU 2015-07, “Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent),” which removes the requirement to categorize investments within the fair value hierarchy when their fair value is measured using the net asset value per share practical expedient. This ASU also removes the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures would be limited to investments for which the entity has elected to measure the fair value using that practical expedient. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim reporting periods within those annual reporting periods. This ASU is to be applied retrospectively to all periods presented. Early adoption is permitted. We will adopt this standard as of and for the interim period ending March 31, 2016. While we are still evaluating the impact of ASU 2015-07, it will not impact our consolidated financial statements as it only affects disclosure. Thus, it will impact the notes to our consolidated financial statements, specifically, our pension plan fair value disclosures.
CONSOLIDATION In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis,” which amends existing consolidation guidance for reporting entities that are required to evaluate whether they should consolidate certain legal entities. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We will adopt this standard as of and for the interim period ending March 31, 2016. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
GOING CONCERN In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern (meet its obligations as they become due) within one year after the date that the financial statements are issued. If conditions or events raise substantial doubt about the entity’s ability to continue as a going concern, certain disclosures are required. This ASU is effective for annual reporting periods ending after December 15, 2016, and interim reporting periods thereafter. Early adoption is permitted. We will adopt this standard as of and for the annual period ending December 31, 2016. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
REVENUE RECOGNITION In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU provides a more robust framework for addressing revenue issues and expands required revenue recognition disclosures. This ASU (as later amended) is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the impact of adoption of this ASU on our consolidated financial statements.
|
NATURE OF OPERATIONS
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation's largest producer of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.
BASIS OF PRESENTATION
Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Our Condensed Consolidated Balance Sheet as of December 31, 2014 was derived from the audited financial statement at that date. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three and nine month periods ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.
Due to the 2005 sale of our Chemicals business as presented in Note 2, the operating results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2015 presentation. We early adopted Accounting Standards Update (ASU) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” resulting in adjustments to our prior financial statements. See Note 17 for additional information.
RESTRUCTURING CHARGES
In 2014, we announced changes to our executive management team, and a new divisional organization structure that was effective January 1, 2015. During the three and nine months ended September 30, 2015, we incurred $448,000 and $4,546,000, respectively, of costs related to these initiatives. During the three and nine months ended September 30, 2014, we incurred $750,000 of costs related to these initiatives. Future related charges for these initiatives are estimated to be immaterial.
EARNINGS PER SHARE (EPS)
Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Weighted-average common shares |
|||||||||||
outstanding |
133,474 | 131,797 | 133,082 | 131,256 | |||||||
Dilutive effect of |
|||||||||||
Stock options/SOSARs 1 |
919 | 661 | 1,024 | 671 | |||||||
Other stock compensation plans |
1,165 | 911 | 836 | 832 | |||||||
Weighted-average common shares |
|||||||||||
outstanding, assuming dilution |
135,558 | 133,369 | 134,942 | 132,759 |
1 |
Stock-Only Stock Appreciation Rights (SOSARs) |
All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation are excluded. There were no excluded shares for the periods presented.
The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Antidilutive common stock equivalents |
545 | 2,355 | 555 | 2,355 |
|
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Weighted-average common shares |
|||||||||||
outstanding |
133,474 | 131,797 | 133,082 | 131,256 | |||||||
Dilutive effect of |
|||||||||||
Stock options/SOSARs 1 |
919 | 661 | 1,024 | 671 | |||||||
Other stock compensation plans |
1,165 | 911 | 836 | 832 | |||||||
Weighted-average common shares |
|||||||||||
outstanding, assuming dilution |
135,558 | 133,369 | 134,942 | 132,759 |
1 |
Stock-Only Stock Appreciation Rights (SOSARs) |
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Antidilutive common stock equivalents |
545 | 2,355 | 555 | 2,355 |
|
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Discontinued Operations |
|||||||||||
Pretax loss |
$ (3,974) |
$ (1,393) |
$ (11,627) |
$ (3,132) |
|||||||
Income tax benefit |
1,577 | 551 | 4,561 | 1,236 | |||||||
Loss on discontinued operations, |
|||||||||||
net of income taxes |
$ (2,397) |
$ (842) |
$ (7,066) |
$ (1,896) |
|
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Deferred Revenue |
|||||||||||
Balance at beginning of period |
$ 217,429 |
$ 222,589 |
$ 219,968 |
$ 224,743 |
|||||||
Cash received and revenue deferred |
0 | 0 | 0 | 187 | |||||||
Amortization of deferred revenue |
(1,778) | (1,384) | (4,317) | (3,725) | |||||||
Balance at end of period |
$ 215,651 |
$ 221,205 |
$ 215,651 |
$ 221,205 |
|
Level 1 |
||||||||
September 30 |
December 31 |
September 30 |
||||||
in thousands |
2015 | 2014 | 2014 | |||||
Fair Value Recurring |
||||||||
Rabbi Trust |
||||||||
Mutual funds |
$ 12,081 |
$ 15,532 |
$ 14,986 |
|||||
Equities |
8,778 | 11,248 | 12,838 | |||||
Total |
$ 20,859 |
$ 26,780 |
$ 27,824 |
Level 2 |
||||||||
September 30 |
December 31 |
September 30 |
||||||
in thousands |
2015 | 2014 | 2014 | |||||
Fair Value Recurring |
||||||||
Rabbi Trust |
||||||||
Common/collective trust funds |
$ 1,464 |
$ 1,415 |
$ 1,367 |
|||||
Total |
$ 1,464 |
$ 1,415 |
$ 1,367 |
Period ending September 30, 2015 |
Period ending September 30, 2014 |
||||||||||
Impairment |
Impairment |
||||||||||
in thousands |
Level 2 |
Charges |
Level 2 |
Charges |
|||||||
Fair Value Nonrecurring |
|||||||||||
Property, plant & equipment, net |
$ 0 |
$ 2,176 |
$ 2,280 |
$ 2,987 |
|||||||
Other intangible assets, net |
0 | 2,858 | 0 | 0 | |||||||
Other assets |
0 | 156 | 0 | 0 | |||||||
Total |
$ 0 |
$ 5,190 |
$ 2,280 |
$ 2,987 |
|
Three Months Ended |
Nine Months Ended |
||||||||||||
Location on |
September 30 |
September 30 |
|||||||||||
in thousands |
Statement |
2015 | 2014 | 2015 | 2014 | ||||||||
Cash Flow Hedges |
|||||||||||||
Loss reclassified from AOCI |
Interest |
||||||||||||
(effective portion) |
expense |
$ (467) |
$ (989) |
$ (9,282) |
$ (6,892) |
Three Months Ended |
Nine Months Ended |
||||||||||||
September 30 |
September 30 |
||||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||||
Deferred Gain on Settlement |
|||||||||||||
Amortized to earnings as a reduction |
|||||||||||||
to interest expense |
$ 282 |
$ 493 |
$ 2,795 |
$ 10,171 |
|
Effective |
September 30 |
December 31 |
September 30 |
|||||||||
in thousands |
Interest Rates |
2015 | 2014 | 2014 | ||||||||
Short-term Debt |
||||||||||||
Bank line of credit expires 2020 1, 2 |
n/a |
$ 0 |
$ 0 |
$ 0 |
||||||||
Total short-term debt |
$ 0 |
$ 0 |
$ 0 |
|||||||||
Long-term Debt |
||||||||||||
Bank line of credit expires 2020 1, 2, 3 |
1.75% |
$ 85,000 |
$ 0 |
$ 0 |
||||||||
10.125% notes due 2015 4 |
9.58% | 150,000 | 150,000 | 150,000 | ||||||||
6.50% notes due 2016 |
n/a |
0 | 125,001 | 125,001 | ||||||||
6.40% notes due 2017 |
n/a |
0 | 218,633 | 218,633 | ||||||||
7.00% notes due 2018 |
7.87% | 272,512 | 400,000 | 400,000 | ||||||||
10.375% notes due 2018 |
10.63% | 250,000 | 250,000 | 250,000 | ||||||||
7.50% notes due 2021 |
7.75% | 600,000 | 600,000 | 600,000 | ||||||||
8.85% notes due 2021 |
8.88% | 6,000 | 6,000 | 6,000 | ||||||||
Industrial revenue bond due 2022 |
n/a |
0 | 14,000 | 14,000 | ||||||||
4.50% notes due 2025 |
4.65% | 400,000 | 0 | 0 | ||||||||
7.15% notes due 2037 |
8.05% | 240,188 | 240,188 | 240,188 | ||||||||
Other notes 2 |
6.25% | 503 | 637 | 753 | ||||||||
Unamortized discounts and debt issuance costs |
n/a |
(24,821) | (22,716) | (23,893) | ||||||||
Unamortized deferred interest rate swap gain 5 |
n/a |
241 | 3,036 | 3,538 | ||||||||
Total long-term debt including current maturities 6 |
$ 1,979,623 |
$ 1,984,779 |
$ 1,984,220 |
|||||||||
Less current maturities |
130 | 150,137 | 145 | |||||||||
Total long-term debt |
$ 1,979,493 |
$ 1,834,642 |
$ 1,984,075 |
|||||||||
Total debt 7 |
$ 1,979,623 |
$ 1,984,779 |
$ 1,984,220 |
|||||||||
Estimated fair value of long-term debt |
$ 2,191,361 |
$ 2,092,673 |
$ 2,237,325 |
1 |
Borrowings on the bank line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt otherwise. |
2 |
Non-publicly traded debt. |
3 |
The effective interest rate is the current credit spread over LIBOR. |
4 |
The 10.125% notes due 2015 are classified as long-term debt (not current maturities) as of September 30, 2015 due to our intent and ability to refinance these notes at maturity (December 15, 2015) using our line of credit. |
5 |
The unamortized deferred gain was realized upon the August 2011 settlement of interest rate swaps as discussed in Note 6. |
6 |
The debt balances as of December 31, 2014 and September 30, 2014 have been adjusted to reflect our early adoption of ASU 2015-03 and related election as discussed in Note 17. |
7 |
Face value of our debt is equal to total debt less unamortized discounts and debt issuance costs, and unamortized deferred interest rate swap gain, as follows: September 30, 2015 — $2,004,203 thousand, December 31, 2014 — $2,004,459 thousand and September 30, 2014 — $2,004,575 thousand. |
in thousands |
||
Standby Letters of Credit |
||
Risk management insurance |
$ 33,111 |
|
Reclamation/restoration requirements |
5,753 | |
Total |
$ 38,864 |
|
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
ARO Operating Costs |
|||||||||||
Accretion |
$ 2,766 |
$ 2,892 |
$ 8,553 |
$ 8,745 |
|||||||
Depreciation |
1,681 | 1,080 | 4,683 | 3,060 | |||||||
Total |
$ 4,447 |
$ 3,972 |
$ 13,236 |
$ 11,805 |
Three Months Ended |
Nine Months Ended |
||||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Asset Retirement Obligations |
|||||||||||
Balance at beginning of period |
$ 234,919 |
$ 225,117 |
$ 226,565 |
$ 228,234 |
|||||||
Liabilities incurred |
0 | 3,604 | 6,159 | 3,604 | |||||||
Liabilities settled |
(5,318) | (7,684) | (13,318) | (20,527) | |||||||
Accretion expense |
2,766 | 2,892 | 8,553 | 8,745 | |||||||
Revisions up, net |
2,313 | 4,539 | 6,721 | 8,412 | |||||||
Balance at end of period |
$ 234,680 |
$ 228,468 |
$ 234,680 |
$ 228,468 |
|
PENSION BENEFITS |
Three Months Ended |
Nine Months Ended |
|||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Components of Net Periodic Benefit Cost |
|||||||||||
Service cost |
$ 1,213 |
$ 1,039 |
$ 3,638 |
$ 3,118 |
|||||||
Interest cost |
11,004 | 11,098 | 33,077 | 33,294 | |||||||
Expected return on plan assets |
(13,683) | (12,701) | (41,051) | (38,102) | |||||||
Settlement charge |
2,031 | 0 | 2,031 | 0 | |||||||
Amortization of prior service cost |
12 | 47 | 36 | 141 | |||||||
Amortization of actuarial loss |
5,383 | 2,806 | 16,292 | 8,416 | |||||||
Net periodic pension benefit cost |
$ 5,960 |
$ 2,289 |
$ 14,023 |
$ 6,867 |
|||||||
Pretax reclassifications from AOCI included in |
|||||||||||
net periodic pension benefit cost |
$ 7,426 |
$ 2,853 |
$ 18,359 |
$ 8,557 |
OTHER POSTRETIREMENT BENEFITS |
Three Months Ended |
Nine Months Ended |
|||||||||
September 30 |
September 30 |
||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||
Components of Net Periodic Benefit Cost |
|||||||||||
Service cost |
$ 473 |
$ 536 |
$ 1,420 |
$ 1,609 |
|||||||
Interest cost |
621 | 824 | 1,864 | 2,473 | |||||||
Curtailment gain |
0 | 0 | 0 | (3,832) | |||||||
Amortization of prior service credit |
(1,058) | (1,081) | (3,174) | (3,245) | |||||||
Amortization of actuarial loss |
9 | 57 | 28 | 170 | |||||||
Net periodic postretirement benefit cost (credit) |
$ 45 |
$ 336 |
$ 138 |
$ (2,825) |
|||||||
Pretax reclassifications from AOCI included in |
|||||||||||
net periodic postretirement benefit credit |
$ (1,049) |
$ (1,024) |
$ (3,146) |
$ (6,907) |
|
September 30 |
December 31 |
September 30 |
||||||||
in thousands |
2015 | 2014 | 2014 | |||||||
AOCI |
||||||||||
Cash flow hedges |
$ (14,715) |
$ (20,322) |
$ (21,011) |
|||||||
Pension and postretirement benefit plans |
(132,131) | (141,392) | (70,504) | |||||||
Total |
$ (146,846) |
$ (161,714) |
$ (91,515) |
Pension and |
||||||||||
Cash Flow |
Postretirement |
|||||||||
in thousands |
Hedges |
Benefit Plans |
Total |
|||||||
AOCI |
||||||||||
Balance as of December 31, 2014 |
$ (20,322) |
$ (141,392) |
$ (161,714) |
|||||||
Other comprehensive income (loss) |
||||||||||
before reclassifications |
0 | 0 | 0 | |||||||
Amounts reclassified from AOCI |
5,607 | 9,261 | 14,868 | |||||||
Net current period OCI changes |
5,607 | 9,261 | 14,868 | |||||||
Balance as of September 30, 2015 |
$ (14,715) |
$ (132,131) |
$ (146,846) |
Three Months Ended |
Nine Months Ended |
||||||||||||
September 30 |
September 30 |
||||||||||||
in thousands |
2015 | 2014 | 2015 | 2014 | |||||||||
Reclassification Adjustment for Cash Flow |
|||||||||||||
Hedge Losses |
|||||||||||||
Interest expense |
$ 467 |
$ 989 |
$ 9,282 |
$ 6,892 |
|||||||||
(Benefit from) provision for income taxes |
(185) | (391) | (3,675) | (2,725) | |||||||||
Total 1 |
$ 282 |
$ 598 |
$ 5,607 |
$ 4,167 |
|||||||||
Amortization of Pension and Postretirement |
|||||||||||||
Plan Actuarial Loss and Prior Service Cost |
|||||||||||||
Cost of revenues |
$ 5,242 |
$ 1,465 |
$ 12,417 |
$ 1,324 |
|||||||||
Selling, administrative and general expenses |
1,136 | 362 | 2,796 | 326 | |||||||||
(Benefit from) provision for income taxes |
(2,495) | (713) | (5,952) | (644) | |||||||||
Total 2 |
$ 3,883 |
$ 1,114 |
$ 9,261 |
$ 1,006 |
|||||||||
Total reclassifications from AOCI to earnings |
$ 4,165 |
$ 1,712 |
$ 14,868 |
$ 5,173 |
1 |
Nine months ended September 30, 2015 and 2014 include the acceleration of a proportional amount of deferred interest rate derivatives (see Note 6) referable to debt purchases (see Note 7). |
2 |
Nine months ended September 30, 2015 includes a one-time settlement loss resulting from a lump sum payment to a former employee (see Note 10). Nine months ended September 30, 2014 includes a one-time curtailment gain (see Note 10) resulting from the sale of our cement and concrete businesses in the Florida area (see Note 16). |
|
Total |
|||||
in thousands |
Equity |
||||
Balance at December 31, 2014 |
$ 4,176,699 |
||||
Net earnings |
132,289 | ||||
Common stock issued |
|||||
Share-based compensation plans |
48,329 | ||||
Share-based compensation expense |
14,020 | ||||
Excess tax benefits from share-based compensation |
16,950 | ||||
Cash dividends on common stock ($0.30 per share) |
(39,878) | ||||
Other comprehensive income |
14,868 | ||||
Other |
0 | ||||
Balance at September 30, 2015 |
$ 4,363,277 |
|
Three Months Ended |
Nine Months Ended |
||||||||||||
September 30 |
September 30 |
||||||||||||
in millions |
2015 | 2014 | 2015 | 2014 | |||||||||
Total Revenues |
|||||||||||||
Aggregates 1 |
$ 830.8 |
$ 688.9 |
$ 2,067.7 |
$ 1,752.6 |
|||||||||
Asphalt Mix 2 |
178.9 | 136.4 | 410.9 | 330.0 | |||||||||
Concrete 2, 3 |
88.0 | 99.0 | 226.4 | 288.8 | |||||||||
Calcium 4 |
2.2 | 2.3 | 6.5 | 22.6 | |||||||||
Segment sales |
1,099.9 | 926.6 | 2,711.5 | 2,394.0 | |||||||||
Aggregates intersegment sales |
(61.4) | (53.0) | (146.6) | (145.7) | |||||||||
Calcium intersegment sales |
0.0 | 0.0 | 0.0 | (9.2) | |||||||||
Total revenues |
$ 1,038.5 |
$ 873.6 |
$ 2,564.9 |
$ 2,239.1 |
|||||||||
Gross Profit |
|||||||||||||
Aggregates |
$ 250.9 |
$ 188.0 |
$ 525.8 |
$ 388.1 |
|||||||||
Asphalt Mix 2 |
30.0 | 14.5 | 60.0 | 28.3 | |||||||||
Concrete 2, 3 |
9.6 | 5.5 | 15.3 | (0.5) | |||||||||
Calcium 4 |
0.8 | 1.0 | 2.5 | 2.0 | |||||||||
Total |
$ 291.3 |
$ 209.0 |
$ 603.6 |
$ 417.9 |
|||||||||
Depreciation, Depletion, Accretion |
|||||||||||||
and Amortization (DDA&A) |
|||||||||||||
Aggregates |
$ 57.7 |
$ 58.5 |
$ 170.3 |
$ 169.2 |
|||||||||
Asphalt Mix 2 |
4.1 | 2.6 | 12.1 | 7.5 | |||||||||
Concrete 2, 3 |
3.0 | 5.0 | 8.5 | 15.7 | |||||||||
Calcium 4 |
0.2 | 0.2 | 0.5 | 1.4 | |||||||||
Other |
4.7 | 4.9 | 13.4 | 15.1 | |||||||||
Total |
$ 69.7 |
$ 71.2 |
$ 204.8 |
$ 208.9 |
|||||||||
Identifiable Assets 5 |
|||||||||||||
Aggregates |
$ 7,533.2 |
$ 7,409.1 |
|||||||||||
Asphalt Mix 2 |
315.0 | 238.2 | |||||||||||
Concrete 2, 3 |
188.3 | 235.6 | |||||||||||
Calcium 4 |
5.6 | 5.9 | |||||||||||
Total identifiable assets |
$ 8,042.1 |
$ 7,888.8 |
|||||||||||
General corporate assets |
106.1 | 88.9 | |||||||||||
Cash items |
168.7 | 91.9 | |||||||||||
Total |
$ 8,316.9 |
$ 8,069.6 |
1 |
Includes crushed stone, sand and gravel, sand, other aggregates, as well as freight, delivery and transportation revenues, and other revenues related to services. |
2 |
In January 2015, we exchanged our California ready-mixed concrete operations for 13 asphalt mix plants, primarily in Arizona (see Note 16). |
3 |
Includes ready-mixed concrete. In March 2014, we sold our concrete business in the Florida area (see Note 16) which in addition to ready-mixed concrete, included concrete block, precast concrete, as well as building materials purchased for resale. |
4 |
Includes cement and calcium products. In March 2014, we sold our cement business (see Note 16). |
5 |
Certain temporarily idled assets are included within a segment's Identifiable Assets but the associated DDA&A is shown within Other in the DDA&A section above as the related DDA&A is excluded from segment gross profit. |
|
Nine Months Ended |
|||||
September 30 |
|||||
in thousands |
2015 | 2014 | |||
Cash Payments |
|||||
Interest (exclusive of amount capitalized) |
$ 136,123 |
$ 163,593 |
|||
Income taxes |
46,271 | 64,539 | |||
Noncash Investing and Financing Activities |
|||||
Accrued liabilities for purchases of property, plant & equipment |
$ 11,941 |
$ 5,777 |
|||
Amounts referable to business acquisitions |
|||||
Liabilities assumed |
2,645 | 24,881 | |||
Fair value of noncash assets and liabilities exchanged |
20,000 | 4,914 | |||
Fair value of equity consideration |
0 | 45,185 |
|
in thousands |
Aggregates |
Asphalt Mix |
Concrete |
Calcium |
Total |
|||||||||||
Goodwill |
||||||||||||||||
Total as of December 31, 2014 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
|||||||||||
Goodwill of acquired businesses |
0 | 0 | 0 | 0 | 0 | |||||||||||
Goodwill of divested businesses |
0 | 0 | 0 | 0 | 0 | |||||||||||
Total as of September 30, 2015 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
|
September 30 |
December 31 |
September 30 |
|||||||||
in thousands |
2015 | 2014 | 2014 | ||||||||
Held for Sale |
|||||||||||
Current assets |
$ 0 |
$ 1,773 |
$ 0 |
||||||||
Property, plant & equipment, net |
0 | 12,764 | 0 | ||||||||
Other intangible assets, net |
0 | 647 | 0 | ||||||||
Total assets held for sale |
$ 0 |
$ 15,184 |
$ 0 |
||||||||
Asset retirement obligations |
$ 0 |
$ 520 |
$ 0 |
||||||||
Total liabilities of assets held for sale |
$ 0 |
$ 520 |
$ 0 |
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