FINANCIAL STATEMENTS
VULCAN
MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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Unaudited, except for December 31
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March 31
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December 31
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March 31
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in thousands
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2017
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2016
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2016
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Assets
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Cash and cash equivalents
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$ 286,957
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$ 258,986
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$ 191,886
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Restricted cash
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0
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9,033
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0
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Accounts and notes receivable
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Accounts and notes receivable, gross
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471,590
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494,634
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449,538
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Less: Allowance for doubtful accounts
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(2,757)
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(2,813)
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(5,775)
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Accounts and notes receivable, net
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468,833
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491,821
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443,763
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Inventories
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Finished products
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306,012
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293,619
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288,891
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Raw materials
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26,213
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22,648
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22,160
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Products in process
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1,314
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1,480
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1,221
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Operating supplies and other
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29,860
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27,869
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25,486
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Inventories
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363,399
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345,616
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337,758
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Prepaid expenses
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38,573
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31,726
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34,096
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Total current assets
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1,157,762
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1,137,182
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1,007,503
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Investments and long-term receivables
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34,311
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39,226
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38,895
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Property, plant & equipment
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Property, plant & equipment, cost
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7,432,388
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7,185,818
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6,984,417
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Allowances for depreciation, depletion & amortization
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(3,980,567)
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(3,924,380)
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(3,786,590)
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Property, plant & equipment, net
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3,451,821
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3,261,438
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3,197,827
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Goodwill
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3,101,241
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3,094,824
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3,094,824
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Other intangible assets, net
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829,114
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769,052
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753,372
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Other noncurrent assets
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170,075
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169,753
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154,604
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Total assets
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$ 8,744,324
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$ 8,471,475
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$ 8,247,025
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Liabilities
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Current maturities of long-term debt
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139
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138
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131
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Trade payables and accruals
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175,906
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145,042
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185,653
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Other current liabilities
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184,853
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227,064
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170,701
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Total current liabilities
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360,898
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372,244
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356,485
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Long-term debt
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2,329,248
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1,982,751
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1,981,425
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Deferred income taxes, net
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703,491
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702,854
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663,364
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Deferred revenue
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196,739
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198,388
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205,892
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Other noncurrent liabilities
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633,187
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642,762
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618,806
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Total liabilities
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$ 4,223,563
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$ 3,898,999
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$ 3,825,972
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Other commitments and contingencies (Note 8)
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Equity
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Common stock, $1 par value, Authorized 480,000 shares,
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Outstanding 132,222, 132,339 and 133,348 shares, respectively
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132,222
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132,339
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133,348
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Capital in excess of par value
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2,792,720
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2,807,995
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2,801,882
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Retained earnings
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1,734,448
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1,771,518
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1,605,578
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Accumulated other comprehensive loss
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(138,629)
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(139,376)
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(119,755)
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Total equity
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$ 4,520,761
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$ 4,572,476
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$ 4,421,053
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Total liabilities and equity
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$ 8,744,324
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$ 8,471,475
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$ 8,247,025
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The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF
C
OMPREHENSIVE INCOME
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Three Months Ended
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Unaudited
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March 31
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in thousands, except per share data
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2017
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2016
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Total revenues
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$ 787,328
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$ 754,728
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Cost of revenues
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627,349
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590,010
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Gross profit
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159,979
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164,718
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Selling, administrative and general expenses
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82,120
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76,468
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Gain on sale of property, plant & equipment
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and businesses
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369
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555
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Impairment of long-lived assets
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0
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(9,646)
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Other operating expense, net
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(5,828)
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(14,238)
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Operating earnings
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72,400
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64,921
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Other nonoperating income (expense), net
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2,024
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(694)
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Interest expense, net
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34,076
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33,732
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Earnings from continuing operations
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before income taxes
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40,348
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30,495
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Income tax benefit
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(3,175)
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(11,470)
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Earnings from continuing operations
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43,523
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41,965
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Earnings (loss) on discontinued operations, net of tax
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1,398
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(1,807)
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Net earnings
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$ 44,921
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$ 40,158
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Other comprehensive income, net of tax
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Reclassification adjustment for cash flow hedges
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320
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294
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Amortization of actuarial loss and prior service
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cost for benefit plans
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427
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20
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Other comprehensive income
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747
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314
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Comprehensive income
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$ 45,668
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$ 40,472
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Basic earnings (loss) per share
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Continuing operations
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$ 0.33
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$ 0.31
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Discontinued operations
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0.01
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(0.01)
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Net earnings
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$ 0.34
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$ 0.30
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Diluted earnings (loss) per share
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Continuing operations
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$ 0.32
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$ 0.31
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Discontinued operations
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0.01
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(0.01)
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Net earnings
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$ 0.33
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$ 0.30
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Weighted-average common shares outstanding
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Basic
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132,636
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133,821
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Assuming dilution
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134,968
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136,100
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Cash dividends per share of common stock
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$ 0.25
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$ 0.20
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Depreciation, depletion, accretion and amortization
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$ 71,563
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$ 69,406
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Effective tax rate from continuing operations
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-7.9%
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-37.6%
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The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended
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Unaudited
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March 31
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in thousands
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2017
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2016
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Operating Activities
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Net earnings
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$ 44,921
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$ 40,158
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Adjustments to reconcile net earnings to net cash provided by operating activities
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Depreciation, depletion, accretion and amortization
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71,563
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69,406
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Net gain on sale of property, plant & equipment and businesses
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(369)
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(555)
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Contributions to pension plans
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(2,374)
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(2,343)
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Share-based compensation expense
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6,488
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|
4,321
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Deferred tax expense (benefit)
|
153
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(17,879)
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Changes in assets and liabilities before initial effects of business acquisitions
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and dispositions
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(28,069)
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(1,566)
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Other, net
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1,839
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(2,814)
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Net cash provided by operating activities
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$ 94,152
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$ 88,728
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Investing Activities
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Purchases of property, plant & equipment
|
(133,022)
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(108,284)
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Proceeds from sale of property, plant & equipment
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1,239
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|
1,086
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Payment for businesses acquired, net of acquired cash
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(185,067)
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|
|
(1,611)
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Decrease in restricted cash
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9,033
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|
1,150
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Other, net
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0
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|
1,549
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Net cash used for investing activities
|
$ (307,817)
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|
$ (106,110)
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Financing Activities
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Payment of current maturities and long-term debt
|
(5)
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|
(5)
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Proceeds from issuance of long-term debt
|
350,000
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|
|
0
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Debt discounts and issuance costs
|
(4,565)
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|
|
0
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Purchases of common stock
|
(49,221)
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|
|
(23,433)
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Dividends paid
|
(33,152)
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|
|
(26,718)
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Share-based compensation, shares withheld for taxes
|
(21,424)
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|
|
(24,636)
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Other, net
|
3
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|
|
0
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|
Net cash provided by (used for) financing activities
|
$ 241,636
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|
|
$ (74,792)
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Net increase (decrease) in cash and cash equivalents
|
27,971
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|
|
(92,174)
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|
Cash and cash equivalents at beginning of year
|
258,986
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|
|
284,060
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|
Cash and cash equivalents at end of period
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$ 286,957
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|
|
$ 191,886
|
|
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements.
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notes to condensed consolidated financial statements
Note 1: summary of significant accounting policies
NATURE OF OPERATIONS
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.
We operate primarily in the United States and our principal product — aggregates — is used in virtually all types of public and private construction projects and in the production of asphalt mix and ready-mixed concrete. We serve markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates. While aggregates is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our mid-Atlantic, Georgia, Southwestern
, Tennessee
and Western markets.
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, 2016 was derived from the audited financial statement, but it does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three month period ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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 described in Note 2, the results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income.
SHARE-BASED COMPENSATION – ACCOUNTING STANDARDS UPDATE
We adopted Accounting Standards Update (ASU) 2016-09, “Improvement to Employee Share-Based Payment Accounting,” in the fourth quarter of 2016. The provisions of this standard were applied as of the beginning of the year of adoption resulting in revisions to our 2016 interim financial statements.
Under ASU 2016-09, tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are reflected as discrete income tax benefits in the period of exercise or issuance. Before the adoption of this standard, excess tax benefits were recorded directly to equity (APIC). Net excess tax benefits are reflected as a reduction to our income tax expense for the three months ended March 31, 2017 ($15,513,000) and revised 2016 ($21,234,000). As a result, we also revised our March 31, 2016 diluted share calculation to exclude the assumption that proceeds from excess tax benefits would be used to purchase shares, resulting in an increase in dilutive shares of 648,000.
Under ASU 2016-09, gross excess tax benefits are classified as operating cash flows rather than financing cash flows. As a result, for the three months ended March 31, 2016 we increased our operating cash flows and decreased our financing cash flows by $21,235,000. Additionally, this ASU requires cash paid for shares withheld to satisfy statutory income tax withholding obligations be classified as financing activities rather than operating activities. As a result, for the three months ended March 31, 2016 we increased our operating cash flows and decreased our financing cash flows by $24,636,000.
CHANGE IN ACCOUNTING ESTIMATE
During the first quarter of 2017, we completed a review of the estimated useful lives of our railcar fleet and determined that the economic useful life of our railcars was greater than the useful life used to calculate depreciation. As a result, effective January 1, 2017, we revised the useful lives of our railcars resulting in a decrease in depreciation expense of $715,000 and an increase in net earnings of $460,000
(no effect on
diluted
earnings per
share
)
for the quarter ended March 31, 2017.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2017 presentation.
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:
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Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Weighted-average common shares
|
|
|
|
|
|
outstanding
|
132,636
|
|
|
133,821
|
|
Dilutive effect of
|
|
|
|
|
|
Stock-Only Stock Appreciation Rights
|
1,334
|
|
|
1,184
|
|
Other stock compensation plans
|
998
|
|
|
1,095
|
|
Weighted-average common shares
|
|
|
|
|
|
outstanding, assuming dilution
|
134,968
|
|
|
136,100
|
|
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:
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Antidilutive common stock equivalents
|
79
|
|
|
631
|
|
Note 2: Discontinued Operations
In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. There were no revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Discontinued Operations
|
|
|
|
|
|
Pretax earnings (loss)
|
$ 2,092
|
|
|
$ (2,981)
|
|
Income tax (expense) benefit
|
(694)
|
|
|
1,174
|
|
Earnings (loss) on discontinued operations,
|
|
|
|
|
|
net of tax
|
$ 1,398
|
|
|
$ (1,807)
|
|
Our
discontinued operations
include charges
related
to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business.
The
results
noted above
primarily
reflect
charges
and insurance recoveries
associated with the Texas Brine matter as further discussed in Note 8.
Note 3: Income Taxes
Our estimated annual effective tax rate (EAETR) is based on full-year expectations of pretax 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 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 first quarter of 2017, we recorded an income tax benefit from continuing operations of $3,175,000 compared to an income tax benefit from continuing operations of $11,470,000 in the first quarter of 2016. Excess tax benefits related to share-based compensation were $15,513,000 for the first quarter of 2017 compared to $21,234,000 for the first quarter of 2016 and represent the majority of the decrease in income tax benefit. In addition, these excess tax benefits resulted in significant variations in the relationship between income tax expense and pretax income in both periods.
We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the book basis and tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns.
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 first quarter 2017 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 December 31, 2017, we project deferred tax assets related to state net operating loss carryforwards of $53,124,000, of which $52,033,000 relates to Alabama. The Alabama net operating loss carryforward, if not utilized, would expire in years 2023 – 2029. Before 2015, this Alabama deferred tax asset carried a full valuation allowance. During 2015, we restructured our legal entities which resulted in a partial release of the valuation allowance in the amount of $4,655,000. During the fourth quarter of 2016, we achieved three consecutive years of positive Alabama adjusted earnings which resulted in an additional partial release of the valuation allowance in the amount of $4,791,000. We expect one additional partial release of this valuation allowance once we have returned to sustained profitability, which we project could occur in the fourth quarter of 2017 (“Alabama adjusted earnings” and “sustained profitability” are defined in our most recent Annual Report on Form 10-K).
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, 2016.
Note 4: deferred revenue
In 2013 and 2012, we sold a percentage interest in future production structured as volumetric production payments (VPPs).
The VPPs:
|
§
|
|
relate to eight quarries in Georgia and South Carolina
|
|
§
|
|
provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future production from aggregates reserves
|
|
§
|
|
are both time and volume limited
|
|
§
|
|
contain no minimum annual or cumulative guarantees for production or sales volume, nor minimum sales price
|
Our consolidated total revenues exclude the sales of aggregates owned by the VPP purchaser.
We received net cash proceeds from the sale of the VPPs 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 to
revenue on a unit-of-sales basis over the terms of the VPPs (expected to be approximately 25 years, limited by volume rather than time).
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Deferred Revenue
|
|
|
|
|
|
Balance at beginning of year
|
$ 206,468
|
|
|
$ 214,060
|
|
Amortization of deferred revenue
|
(1,649)
|
|
|
(1,768)
|
|
Balance at end of period
|
$ 204,819
|
|
|
$ 212,292
|
|
Based on expected sales from the specified quarries, we expect to recognize approximately $
8,080,000
of deferred revenue as income during the 12-month period ending
March
3
1
, 201
8
(reflected in other current liabilities in our 201
7
Condensed Consolidated Balance Sheet).
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 a
ssets subject to fair value measurement on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 Fair Value
|
|
March 31
|
|
|
December 31
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2016
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Mutual funds
|
$ 5,148
|
|
|
$ 6,883
|
|
|
$ 6,185
|
|
Equities
|
10,608
|
|
|
10,033
|
|
|
6,824
|
|
Total
|
$ 15,756
|
|
|
$ 16,916
|
|
|
$ 13,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 Fair Value
|
|
March 31
|
|
|
December 31
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2016
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
$ 2,849
|
|
|
$ 1,705
|
|
|
$ 2,682
|
|
Total
|
$ 2,849
|
|
|
$ 1,705
|
|
|
$ 2,682
|
|
We have 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 the fund (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).
Net gains of the Rabbi Trust investments were $
239,000
and $
82,000
for the
three
months ended
March 31, 2017
and 201
6
, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at
March
31, 2017
and 201
6
were $
(197,000)
and $(
1,024,000
), 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 subject to fair value measurement on a nonrecurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended March 31, 2017
|
|
|
Period ended March 31, 2016
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
Impairment
|
|
in thousands
|
Level 2
|
|
|
Charges
|
|
|
Level 2
|
|
|
Charges
|
|
Fair Value Nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment, net
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 499
|
|
Other intangible assets, net
|
0
|
|
|
0
|
|
|
0
|
|
|
8,180
|
|
Other assets
|
0
|
|
|
0
|
|
|
0
|
|
|
967
|
|
Total
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 9,646
|
|
We recorded
$
9,646,000
of losses on impairment of long-lived assets for the
three
months ended
March 31,
201
6
, reducing the carrying value of these
Aggregates
segment asset
s to their estimated fair value
of $0. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).
Note 6: Derivative Instruments
During the normal course of operations, we are exposed to market risks including 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
use
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
lock
agreements described below were designated as cash flow hedges. The changes in fair value of
our 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.
CASH FLOW HEDGES
During 2007, we entered into fifteen forward starting interest rate locks on $1,500,000,000 of future debt issuances 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
|
|
|
Location on
|
|
March 31
|
|
in thousands
|
Statement
|
|
2017
|
|
|
2016
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
Loss reclassified from AOCI
|
Interest
|
|
|
|
|
|
|
(effective portion)
|
expense
|
|
$ (528)
|
|
|
$ (487)
|
|
For the 12-month period ending
March 31
, 201
8
, we estimate that $
2,224,000
of the pretax loss in AOCI will be reclassified to earnings.
Note 7: Debt
Debt is detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
March 31
|
|
|
December 31
|
|
|
March 31
|
|
in thousands
|
Interest Rates
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Short-term Debt
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit expires 2021
1, 2, 3
|
n/a
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
Total short-term debt
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit expires 2020
1, 2, 3
|
1.25%
|
|
$ 235,000
|
|
|
$ 235,000
|
|
|
$ 235,000
|
|
7.00% notes due 2018
|
7.87%
|
|
272,512
|
|
|
272,512
|
|
|
272,512
|
|
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
|
|
Delayed draw term loan
2, 3
|
1.25%
|
|
0
|
|
|
0
|
|
|
0
|
|
4.50% notes due 2025
|
4.65%
|
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
3.90% notes due 2027
|
4.06%
|
|
350,000
|
|
|
0
|
|
|
0
|
|
7.15% notes due 2037
|
8.05%
|
|
240,188
|
|
|
240,188
|
|
|
240,188
|
|
Other notes
3
|
6.31%
|
|
364
|
|
|
365
|
|
|
494
|
|
Total long-term debt - face value
|
|
|
$ 2,354,064
|
|
|
$ 2,004,065
|
|
|
$ 2,004,194
|
|
Unamortized discounts and debt issuance costs
|
|
|
(24,677)
|
|
|
(21,176)
|
|
|
(22,638)
|
|
Total long-term debt - book value
|
|
|
$ 2,329,387
|
|
|
$ 1,982,889
|
|
|
$ 1,981,556
|
|
Less current maturities
|
|
|
139
|
|
|
138
|
|
|
131
|
|
Total long-term debt - reported value
|
|
|
$ 2,329,248
|
|
|
$ 1,982,751
|
|
|
$ 1,981,425
|
|
Estimated fair value of long-term debt
|
|
|
$ 2,605,379
|
|
|
$ 2,243,213
|
|
|
$ 2,236,669
|
|
|
|
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 if we have the intent and ability to extend payment beyond twelve months.
|
2
|
The effective interest rate is the spread over LIBOR as of the most recent balance sheet date.
|
3
|
Non-publicly traded debt.
|
Our total long-term debt - book value is presented in the table above net of unamortized discounts from par and unamortized deferred debt issuance costs. Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $1,065,000 of net interest expense for these items for the three months ended March 31, 2017.
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 December 2016, among other favorable changes, we extended the maturity date of our unsecured $750,000,000 line of credit from June 2020 to December 2021 (incurring $1,876,000 of transaction fees together with the new term loan described below). The credit agreement contains affirmative, negative and financial covenants customary for an unsecured investment-grade 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 (upon certain acquisitions, the maximum ratio can be 3.75:1 for three quarters), and (2) a minimum ratio of EBITDA to net cash interest expense of 3.0:1. As of March 31, 2017, 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 repayment beyond twelve months. Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from 1.00% to 1.75%, or SunTrust Bank’s base rate (generally, its prime rate) plus a credit margin ranging from 0.00% to 0.75%. The credit margin for both LIBOR and base rate borrowings is determined by our credit ratings. 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 0.25% determined by our credit ratings. As of March 31, 2017, the credit margin for LIBOR borrowings was 1.25%, the credit margin for base rate borrowings was 0.25%, and the commitment fee for the unused amount was 0.15%.
As of March 31, 2017, our available borrowing capacity was $471,462,000. Utilization of the borrowing capacity was as follows:
|
§
|
|
$235,000,000 was borrowed
|
|
§
|
|
$43,538,000 was used to provide support for outstanding standby letters of credit
|
TERM DEBT
All of our term debt is unsecured. $2,118,700,000 of such debt 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 March 31, 2017, we were in compliance with all of the term debt covenants.
In March 2017, we issued $350,000,000 of 3.90% senior notes due April 2027 for proceeds of $345,450,000 (net of original issue discounts, underwriter fees and other transaction costs). The proceeds will be used for general corporate purposes.
In December 2016, we entered into an unsecured $250,000,000 delayed draw term loan (incurring, together with the line of credit extension mentioned previously, $1,876,000 of transaction costs). The term loan is provided by the same group of banks that provides our line of credit, and is governed by the same credit agreement as the line of credit. As such, it is subject to the same affirmative, negative, and financial covenants.
The 2016 term loan may be funded in up to three draws through June 21, 2017, after which any undrawn amount expires. Borrowings bear interest in the same manner as the line of credit. The term loan principal will be repaid quarterly beginning March 2018 as follows: quarters 5 - 8 @ 0.625%; quarters 9 - 12 @ 1.25%; quarters 13 - 19 @ 1.875% and quarter 20 @ 79.375%. The term loan may be prepaid at any time without penalty. As of March 31, 2017, no draws have been made under this term loan.
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 March 31, 2017 are summarized by purpose in the table below:
|
|
|
|
|
|
in thousands
|
|
|
Standby Letters of Credit
|
|
|
Risk management insurance
|
$ 38,111
|
|
Reclamation/restoration requirements
|
5,427
|
|
Total
|
$ 43,538
|
|
Note 8: Commitments and Contingencies
As summarized by purpose directly above in Note 7, our standby letters of credit totaled $
43,538,000
as of
March 31, 2017
.
As described in Note 9, our asset retirement obligations totaled $
226,012,000
as of
March 31, 2017
.
LITIGATION AND ENVIRONMENTAL MATTERS
We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.
We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally, we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party's share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.
We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period.
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, other material legal proceedings are mo
re 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 EPA to perform a Remedial Investigation/Feasibility Study (draft RI/FS) of the lower 17 miles of the Passaic River (River). However, before the draft RI/FS was issued in final form, the EPA issued a record of decision (ROD) in March 2016 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 $1.38 billion.
In September 2016, t
he EPA entered into an Administrative Settlement Agreement and Order on Consent with Occidental Chemical Corporation (Occidental) in which Occidental agreed to undertake
the remedial design for
this bank-to-bank dredging remedy, and to reimburse the United States for certain response costs.
|
Efforts to remediate the River have been underway for many years and have involved hundreds of entities that have had operations on or near the River at some point during the past several decades.
We
formerly owned a chemicals operation near the mouth of the River, which was sold in 1974. The major risk drivers in the River have been identified as dioxins, PCBs, DDx and mercury.
We
did not manufacture any of these risk drivers and ha
ve
no evidence that any of these were discharged into the River by Vulcan.
The AOC does not obligate us to fund or perform the remedial action contemplated by either the draft RI/FS or the ROD. Furthermore, the parties who will participate in funding the remediation and their respective allocations, have not been determined.
We
do not agree that a bank-to-bank remedy is warranted, and
we are
not obligated to fund any of the remedial action at this time; nevertheless, we previously estimated the cost to be incurred by
us
as a potential participant in
a bank-to-bank dredging remedy and recorded an immaterial loss for this matter in 2015.
|
§
|
|
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
our
account.
We
sold
our
Chemicals Division in 2005 and assigned the lease to the purchaser and
we have
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 b
y T
exas Bri
ne
.
We have
since been added as a direct and third-party defendant by other parties, including a direct claim by the
s
tate of Louisian
a. The d
amages alleged in the litigation range from individual plaintiffs’ claims for property damage, to the
s
tate 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,
we have
also been sued for contractual indemnity and comparative fault by both Texas Brine and 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
our
negligent actions or failure to act. It is also alleged that
we
breached the salt lease, as well as an operating agreement
and a drilling agreement
with Texas Brin
e; that
we are
strictly liable for certain property damages in
our
capacity as a former assignee of the salt lease; and that
we
violated certain covenants and conditions in the agreement under which
we
sold
our
Chemicals Division in 2005.
We have
made claims for contractual indemnity
and
comparative fault against Texas Brine, as well as claims for contractual indemnity and comparative fault against Occidental. Discovery is ongoing and
no trials are currently set.
In December 2016, we settled with the plaintiffs in one of these cases involving property damag
es
.
I
n
the first quarter of
2017, we offered to settle with the plaintiffs in the cases involving physical damages to oil pipelines
and settled with one such plaintiff.
The insurers who have coverage
of
these settlement amounts agreed that the cases were covered by our policy
and have funded the settled cases in excess of our self-insured retention amount
. Ex
cept for these cases, at this time we cannot reasonably estimate a range of liability pertaining to this matter.
|
§
|
|
HEWITT LANDFILL MATTER
(SUPERFUND SITE)
—
In September 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 the former Hewitt Landfill in Los Angeles. The CAO follow
ed
a 2014 Investigative Order from the 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 the RWQCB and to create and implement a work plan for further investigation of the Hewitt Landfill. In April 2016,
we
submitted an interim remedial action plan (IRAP) to the RWQCB, proposing a pilot test of a pump and treat system; testing and implementation of a leachate recovery system; and storm water capture and conveyance improvements.
We are currently implementing the IRAP
and a summary evaluation report to the RWQCB is expected in August 2017
. Construction of the treatment plant for the pilot-scale groundwater extraction and re-injection treatment system was completed at the end of 2016, and o
peration of th
is
pilot-scale treatment system began in January 2017.
U
ntil this pilot testing
,
the
evaluation report
and other site investigations
are
complete, we are unable to estimate the cost of remedial action.
|
We are
also
engaged in an ongoing dialogue with the
EPA
, the Los Angeles Department of Water and Power, and other stakeholders regarding
the potential contribution of the Hewitt Landfill to
groundwater contamination in the
North Hollywood Operable Unit (NHOU) of the
San Fernando Valle
y Superfund Site. W
e are gathering and analyzing data and deve
loping techni
cal 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
PRPs that may have contributed to groundwater contamination in the area
.
In July 2016, the EPA sent
us
a lette
r re
questing that we enter into an AOC for remedial design work at the NHOU including, but not limited to, the design of two or more groundwater extraction wells to be located
between
the Hewitt Landfill
and public drinking water wells
. In February 2017, the EPA
provided us with
a draft AO
C
, and we are currently engaged
in negotiation
s.
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 month periods ended March 31, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
ARO Operating Costs
|
|
|
|
|
|
Accretion
|
$ 2,882
|
|
|
$ 2,755
|
|
Depreciation
|
1,632
|
|
|
1,693
|
|
Total
|
$ 4,514
|
|
|
$ 4,448
|
|
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
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Asset Retirement Obligations
|
|
|
|
|
|
Balance at beginning of year
|
$ 223,872
|
|
|
$ 226,594
|
|
Liabilities incurred
|
0
|
|
|
0
|
|
Liabilities settled
|
(4,865)
|
|
|
(4,868)
|
|
Accretion expense
|
2,882
|
|
|
2,755
|
|
Revisions, net
|
4,123
|
|
|
(3,900)
|
|
Balance at end of period
|
$ 226,012
|
|
|
$ 220,581
|
|
Note 10: Benefit Plans
We sponsor three
qualified
, noncontributory defined benefit pension plans. These plans cover substantially all employees hired
before
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.
Effective
December 2013, we amended our defined benefit pension plans so that future service accruals for salaried pension participants ceas
ed
to be considered in their benefit calculation.
The following table sets forth the components of net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
PENSION BENEFITS
|
Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
Service cost
|
$ 1,654
|
|
|
$ 1,336
|
|
Interest cost
|
9,057
|
|
|
9,126
|
|
Expected return on plan assets
|
(12,096)
|
|
|
(12,891)
|
|
Amortization of prior service cost (credit)
|
335
|
|
|
(11)
|
|
Amortization of actuarial loss
|
1,824
|
|
|
1,541
|
|
Net periodic pension benefit cost (credit)
|
$ 774
|
|
|
$ (899)
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
net periodic pension benefit cost
|
$ 2,159
|
|
|
$ 1,530
|
|
The contributions to pension plans for the
three
months ended
March 31, 2017
and 201
6
, as reflected on the Condensed Consolidated Statements of Cash Flows, pertain to benefit payments under nonqualified plans.
While w
e do not expect to be required to make
contributions to the qualified
plans
during 2017, we do
expect
to make a discretionary
qualified plan
contribution of approximately $9,500,000.
In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. Substantially all our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain se
rvice requirements. Generally, C
ompany-provided healthcare benefits
end
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
other
postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
OTHER POSTRETIREMENT BENEFITS
|
Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
Service cost
|
$ 292
|
|
|
$ 281
|
|
Interest cost
|
315
|
|
|
302
|
|
Amortization of prior service credit
|
(1,059)
|
|
|
(1,059)
|
|
Amortization of actuarial gain
|
(397)
|
|
|
(438)
|
|
Net periodic postretirement benefit cost (credit)
|
$ (849)
|
|
|
$ (914)
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
net periodic postretirement benefit credit
|
$ (1,456)
|
|
|
$ (1,497)
|
|
Note 11: other Comprehensive Income
Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.
Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2016
|
|
AOCI
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
$ (12,980)
|
|
|
$ (13,300)
|
|
|
$ (14,200)
|
|
Pension and postretirement plans
|
(125,649)
|
|
|
(126,076)
|
|
|
(105,555)
|
|
Total
|
$ (138,629)
|
|
|
$ (139,376)
|
|
|
$ (119,755)
|
|
Changes in AOCI, net of tax, for the
three
months ended
March 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
Cash Flow
|
|
|
Postretirement
|
|
|
|
|
in thousands
|
Hedges
|
|
|
Benefit Plans
|
|
|
Total
|
|
AOCI
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
$ (13,300)
|
|
|
$ (126,076)
|
|
|
$ (139,376)
|
|
Amounts reclassified from AOCI
|
320
|
|
|
427
|
|
|
747
|
|
Net current period OCI changes
|
320
|
|
|
427
|
|
|
747
|
|
Balance as of March 31, 2017
|
$ (12,980)
|
|
|
$ (125,649)
|
|
|
$ (138,629)
|
|
Amounts reclassified from AOCI to earnings, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Reclassification Adjustment for Cash Flow
|
|
|
|
|
|
Hedge Losses
|
|
|
|
|
|
Interest expense
|
$ 528
|
|
|
$ 487
|
|
Benefit from income taxes
|
(208)
|
|
|
(193)
|
|
Total
|
$ 320
|
|
|
$ 294
|
|
Amortization of Pension and Postretirement
|
|
|
|
|
|
Plan Actuarial Loss and Prior Service Cost
|
|
|
|
|
|
Cost of revenues
|
$ 570
|
|
|
$ 27
|
|
Selling, administrative and general expenses
|
133
|
|
|
6
|
|
Benefit from income taxes
|
(276)
|
|
|
(13)
|
|
Total
|
$ 427
|
|
|
$ 20
|
|
Total reclassifications from AOCI to earnings
|
$ 747
|
|
|
$ 314
|
|
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.
Changes in total equity are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
March 31
|
|
in thousands
|
|
|
|
2017
|
|
|
2016
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
$ 4,572,476
|
|
|
$ 4,454,188
|
|
Net earnings
|
|
|
44,921
|
|
|
40,158
|
|
Share-based compensation plans, net of shares withheld for taxes
|
|
|
(21,498)
|
|
|
(24,613)
|
|
Purchase and retirement of common stock
|
|
|
(49,221)
|
|
|
(26,597)
|
|
Share-based compensation expense
|
|
|
6,488
|
|
|
4,321
|
|
Cash dividends on common stock ($0.25/$0.20 per share)
|
|
|
(33,152)
|
|
|
(26,718)
|
|
Other comprehensive income
|
|
|
747
|
|
|
314
|
|
Balance at end of period
|
|
|
$ 4,520,761
|
|
|
$ 4,421,053
|
|
There were
no
shares held in treasury as of
March 31, 20
17
, December 31, 201
6
and
March
3
1
, 201
6
.
Our common s
tock purchases
(
all
of which were open market purchases)
were as follows:
|
§
|
|
three
months ended
March 31, 2017
– purchased and retired
416,891
shares for a cost of $
49,221,000
|
|
§
|
|
twelve months ended December 31, 201
6
– purchased and retired
1,427,000
shares for a cost of $
161,463,000
|
|
§
|
|
three
months ended
March
3
1
, 201
6
–
purchased and retired 257,000 shares for a cost of $26,597,000 ($23,433,000 cash in the first quarter and $3,164,000 settled in the second quarter)
|
As of
March 31, 2017
,
9,583,109
shares may b
e p
urchased under the current purchase authorizatio
n o
f 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 u
sed
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
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Total Revenues
|
|
|
|
|
|
Aggregates
1
|
$ 650,300
|
|
|
$ 634,868
|
|
Asphalt Mix
|
95,776
|
|
|
89,099
|
|
Concrete
|
88,750
|
|
|
70,397
|
|
Calcium
|
1,886
|
|
|
1,910
|
|
Segment sales
|
$ 836,712
|
|
|
$ 796,274
|
|
Aggregates intersegment sales
|
(49,384)
|
|
|
(41,546)
|
|
Total revenues
|
$ 787,328
|
|
|
$ 754,728
|
|
Gross Profit
|
|
|
|
|
|
Aggregates
|
$ 140,162
|
|
|
$ 148,383
|
|
Asphalt Mix
|
8,640
|
|
|
12,214
|
|
Concrete
|
10,454
|
|
|
3,477
|
|
Calcium
|
723
|
|
|
644
|
|
Total
|
$ 159,979
|
|
|
$ 164,718
|
|
Depreciation, Depletion, Accretion
|
|
|
|
|
|
and Amortization (DDA&A)
|
|
|
|
|
|
Aggregates
|
$ 57,656
|
|
|
$ 57,511
|
|
Asphalt Mix
|
5,731
|
|
|
4,232
|
|
Concrete
|
3,023
|
|
|
2,981
|
|
Calcium
|
195
|
|
|
183
|
|
Other
|
4,958
|
|
|
4,499
|
|
Total
|
$ 71,563
|
|
|
$ 69,406
|
|
Identifiable Assets
2
|
|
|
|
|
|
Aggregates
|
$ 7,810,486
|
|
|
$ 7,614,796
|
|
Asphalt Mix
|
258,982
|
|
|
233,025
|
|
Concrete
|
235,592
|
|
|
193,323
|
|
Calcium
|
4,552
|
|
|
5,306
|
|
Total identifiable assets
|
$ 8,309,612
|
|
|
$ 8,046,450
|
|
General corporate assets
|
147,755
|
|
|
8,689
|
|
Cash and cash equivalents
|
286,957
|
|
|
191,886
|
|
Total
|
$ 8,744,324
|
|
|
$ 8,247,025
|
|
|
|
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
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31
|
|
in thousands
|
2017
|
|
|
2016
|
|
Cash Payments
|
|
|
|
|
|
Interest (exclusive of amount capitalized)
|
$ 2,498
|
|
|
$ 2,715
|
|
Income taxes
|
1,562
|
|
|
6,486
|
|
Noncash Investing and Financing Activities
|
|
|
|
|
|
Accrued liabilities for purchases of property, plant & equipment
|
$ 32,492
|
|
|
$ 25,880
|
|
Accrued liabilities for common stock purchases
|
0
|
|
|
3,164
|
|
Note 15: Goodwill
Goodwill is recognized when the consideration paid for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. There were
no
charges for goodwill impairment in the
three
month periods ended
March 31, 20
17
and 201
6
.
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, 201
6
to
March 31, 2017
are summarized below:
GOODWILL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Aggregates
|
|
|
Asphalt Mix
|
|
|
Concrete
|
|
|
Calcium
|
|
|
Total
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2016
|
$ 3,003,191
|
|
|
$ 91,633
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 3,094,824
|
|
Goodwill of acquired businesses
1
|
6,417
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
6,417
|
|
Goodwill of divested businesses
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total as of March 31, 2017
|
$ 3,009,608
|
|
|
$ 91,633
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 3,101,241
|
|
|
|
1
|
See Note 16 for
a summary of
the current year acquisition
s.
|
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
BUSINESS ACQUISITIONS
Through the three months ended March 31, 2017, we purchased the following for $185,067,000 of cash consideration:
|
§
|
|
California — ready-mixed concrete facilities, a marine aggregates distribution yard and building materials yards
|
|
§
|
|
Tennessee — an aggregates facility, asphalt mix operations, an asphalt paving business and a rail-served aggregates operation
|
The 2017 acquisitions listed above are reported in our condensed consolidated financial statements as of their respective acquisition dates.
None of these acquisitions were material to our results of operations or financial position either individually or collectively
.
The fair value of consideration transferred for these acquisitions and the preliminary amounts of assets acquired and liabilities assumed (based on their estimated fair values at their acquisition dates), are summarized below:
|
|
|
|
|
|
|
March 31
|
|
in thousands
|
2017
|
|
Fair Value of Purchase Consideration
|
|
|
Cash
|
$ 185,067
|
|
Total fair value of purchase consideration
|
$ 185,067
|
|
Identifiable Assets Acquired and Liabilities Assumed
|
|
|
Inventories
|
4,057
|
|
Other current assets
|
90
|
|
Property, plant & equipment, net
|
111,619
|
|
Other intangible assets
|
|
|
Contractual rights in place
|
62,824
|
|
Other intangibles
|
61
|
|
Liabilities assumed
|
(1)
|
|
Net identifiable assets acquired
|
$ 178,650
|
|
Goodwill
|
$ 6,417
|
|
Estimated fair values of assets acquired and liabilities assumed are preliminary pending appraisals of contractual rights in place and property, plant & equipment.
As a result of these acquisitions, we recognized $62,885,000 of amortizable intangible assets (primarily contractual rights in place). The contractual rights in place noted above will be amortized against earnings ($62,824,000 – straight-line over a weighted-average 18.8 years) and deductible for income tax purposes over 15 years. The goodwill noted above will be deductible for income tax purposes over 15 years.
For the full year 2016, we purchased the following for total consideration of $33,287,000 ($32,537,000 cash and $750,000 payable):
|
§
|
|
Georgia — a distribution business to complement our aggregates logistics and distribution activities
|
|
§
|
|
New Mexico — an asphalt mix operation
|
|
§
|
|
Texas — an aggregates facility
|
None of the 2016 acquisitions listed above were material to our results of operations or financial position either individually or collectively. As a result of these 2016 acquisitions, we recognized $16,670,000 of amortizable intangible assets ($15,213,000 contractual rights in place and $1,457,000 noncompetition agreement). The contractual rights in place are amortized against earnings ($6,798,000 – straight-line over 20 years and $8,415,000 units of production over an estimated 20 years) and deductible for income tax purposes over 15 years.
DIVESTITURES AND PENDING DIVESTITURES
No assets met the criteria for held for sale at March 31, 2017, December 31, 2016 or March 31, 2016.
Note 17: New Accounting Standards
ACCOUNTING STANDARDS RECENTLY ADOPTED
INVENTORY MEASUREMENT
For the interim period ended March 31, 2017,
we adopted Accounting Standards Update (ASU)
2015-11, “Simplifying the Measurement of Inventory
.
”
This ASU
change
d
the measurement principle for inventory from the lower of cost or market principle to the lower of cost
prospectively
and net realizable value principle. The guidance applie
d
to inventories measured
by
the first-in, first-out (FIFO) or average cost method, but d
id
not apply to inventories measured
by
the last-in, first-out (LIFO) or retail inventory method. We use
d
the LIFO method for approximately 6
6
% of our inventory (based on the December 31, 201
6
balances); therefore, this ASU
did
not apply to the majority of our inventory.
Our adoption of this standard had no material impact on our financial position, results of operations or liquidity.
DEFINITION OF A BUSINESS
For the interim period ended March 31, 2017,
we early adopted ASU 2017-01, “Clarifying the Definition of a Busines
s
.
” This ASU changed the
definition of a business for, among other
purposes
, determining whether to account for a transaction as an asset acquisition or a business combination.
Under the new guidance,
an entity first determines whether substantially all of the fair value of the gross asset
s
acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met,
it
is not a business
combination
. If it is not met, the entity then evaluates whether
the
acquired
assets and activities meet
the requirements that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.
This change in definition did not impact any of our transactions during the current period.
ACCOUNTING STANDARDS PENDING ADOPTION
PRESENTATION OF NET PERIODIC BENEFIT PLANS In March 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changes the presentation of the net periodic benefit cost in the income statement. Employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs. The other components of net benefit cost will be included in nonoperating expense. Additionally, only the service cost component of net benefit cost is eligible for capitalization. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Retrospective application of the change in income statement presentation is required, while the change in capitalized benefit cost is to be applied prospectively. A practical expedient is provided that permits entities to use the components of cost disclosed in prior years as a basis for the retrospective application of the new income statement presentation. We will adopt ASU 2017-07 in the first quarter of 2018. We do not expect the adoption of this standard to have a material impact on our co
nsolidated financial statements; service cost for
2017 is estimated to be $7,782,
000 while all other components are estimated to be a benefit of $8,083,000.
GOODWILL IMPAIRMENT TESTING
In
January
2017, the
FASB
issued ASU
2017-04, “Simplifying the Test for Goodwill Impairment
,” which eliminates the requirement to calculate the implied fair value of goodwill
(Step 2)
to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying
value
over its fair value. This ASU is effective for annual and interim impairm
e
nt tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.
We will early adopt this standard
a
s of our November 1, 2017 annual
impairment test.
The results of our November 1, 2016 annual impairment test indicated that the fair value of all our reporting units substantially e
xceeded their carrying
values
.
A
s a result, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
INTRA-ENTITY ASSET TRANSFERS In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which requires the tax effects of intercompany transactions other than inventory to be recognized currently. ASU 2016-16 is effective for annual reporting periods beginning after
December 15, 2017,
and interim reporting periods within those annual reporting periods.
We will adopt this standard in the first quarter of 2018.
We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
CASH FLOW CLASSIFICATION In August 2016, the
F
ASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU adds or clarifies guidance on eight specific cash flow issues
.
Additionally, guidance on the presentation of restricted cash is addressed in ASU 2016-18 which was issued in November 2016. Both of these standards are
effective for annual reporting periods beginning after
December 15, 2017,
and interim reporting periods within those annual reporting periods. Early adoption is permitted.
We
do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
CREDIT LOSSES In June 2016, the
F
A
SB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of
financial instruments. The new guidance
estimates credit losses
based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration.
ASU 2016-13
is effective for annual reporting periods beginning after
December 15, 201
9
, and interim reporting periods within those annual reporting periods. Early adoption is permitted
for annual reporting periods beginning after December 15, 2018
.
While w
e are
still
evaluating the impact
of ASU 2016-13, we do not expect
the adoption of this standard
to
have
a material impact
on our consolidated financial statements.
LEASE ACCOUNTING
In February 2016, the
FASB
issued ASU 2016-02, “Leases,” which amends existing accounting standards for lease accounting and adds additional disclosures about leasing arrangements.
Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement
and presentation of cash flow in the statement of cash flows
.
This ASU is effective for annual reporting periods
beginning
after December 15, 201
8
,
and
interim reporting periods
within those annual reporting periods
. Early adoption is permitted
and modified retrospective application is required.
We will adopt this standard in the first quarter of 2019.
We are currently evaluating the impact that the adoption of this standard will have on our consolidated financial statements and related disclosures.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of current guidance on the recognition, measurement and disclosure of financial instruments. Among other changes, this ASU requires most equity investments be measured at fair value. Additionally, the ASU eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value for instruments not recognized at fair value in our financial statements. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitte
d. W
e 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.
In March 2016
, the FASB issued ASU 2016-08,
“
Revenue From Contracts With Customers: Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” which amends the principal versus agent guidance in ASU 2014-09. The amendments in ASU 2016-08 provide guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. These
ASU
s
are
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.
Further, in applying these ASUs an entity is permitted to use either the full retrospective or cumulative effect transition approach.
While w
e are currently evaluating the impact of adoption of th
ese
standard
s
on our consolidated financial statements
, we expect to identify similar performance obligations under ASU 2014-09 compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we expect the timing of our revenues to remain generally the same. We will adopt these standards using the cumulative effect
transition
approach.
ITEM 2