FINANCIAL STATEMENTS
VULCAN
MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited, except for December 31
|
June 30
|
|
|
December 31
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2017
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$ 55,059
|
|
|
$ 141,646
|
|
|
$ 1,129,799
|
|
Restricted cash
|
6,056
|
|
|
5,000
|
|
|
0
|
|
Accounts and notes receivable
|
|
|
|
|
|
|
|
|
Accounts and notes receivable, gross
|
640,742
|
|
|
590,986
|
|
|
573,029
|
|
Less: Allowance for doubtful accounts
|
(2,628)
|
|
|
(2,649)
|
|
|
(2,943)
|
|
Accounts and notes receivable, net
|
638,114
|
|
|
588,337
|
|
|
570,086
|
|
Inventories
|
|
|
|
|
|
|
|
|
Finished products
|
343,948
|
|
|
327,711
|
|
|
318,465
|
|
Raw materials
|
29,684
|
|
|
27,152
|
|
|
27,106
|
|
Products in process
|
1,882
|
|
|
1,827
|
|
|
1,210
|
|
Operating supplies and other
|
28,250
|
|
|
27,648
|
|
|
28,148
|
|
Inventories
|
403,764
|
|
|
384,338
|
|
|
374,929
|
|
Other current assets
|
80,209
|
|
|
60,780
|
|
|
109,998
|
|
Total current assets
|
1,183,202
|
|
|
1,180,101
|
|
|
2,184,812
|
|
Investments and long-term receivables
|
41,989
|
|
|
35,115
|
|
|
38,888
|
|
Property, plant & equipment
|
|
|
|
|
|
|
|
|
Property, plant & equipment, cost
|
8,241,164
|
|
|
7,969,312
|
|
|
7,531,536
|
|
Allowances for depreciation, depletion & amortization
|
(4,134,750)
|
|
|
(4,050,381)
|
|
|
(3,992,728)
|
|
Property, plant & equipment, net
|
4,106,414
|
|
|
3,918,931
|
|
|
3,538,808
|
|
Goodwill
|
3,163,954
|
|
|
3,122,321
|
|
|
3,101,439
|
|
Other intangible assets, net
|
1,156,898
|
|
|
1,063,630
|
|
|
834,971
|
|
Other noncurrent assets
|
192,327
|
|
|
184,793
|
|
|
171,025
|
|
Total assets
|
$ 9,844,784
|
|
|
$ 9,504,891
|
|
|
$ 9,869,943
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
23
|
|
|
41,383
|
|
|
525,776
|
|
Short-term debt
|
360,000
|
|
|
0
|
|
|
0
|
|
Trade payables and accruals
|
231,913
|
|
|
197,335
|
|
|
202,753
|
|
Other current liabilities
|
219,860
|
|
|
204,154
|
|
|
197,264
|
|
Total current liabilities
|
811,796
|
|
|
442,872
|
|
|
925,793
|
|
Long-term debt
|
2,776,906
|
|
|
2,813,482
|
|
|
2,809,293
|
|
Deferred income taxes, net
|
545,756
|
|
|
464,081
|
|
|
706,726
|
|
Deferred revenue
|
188,826
|
|
|
191,476
|
|
|
195,020
|
|
Other noncurrent liabilities
|
500,870
|
|
|
624,087
|
|
|
631,007
|
|
Total liabilities
|
$ 4,824,154
|
|
|
$ 4,535,998
|
|
|
$ 5,267,839
|
|
Other commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value, Authorized 480,000 shares,
|
|
|
|
|
|
|
|
|
Outstanding 132,268, 132,324 and 132,181 shares, respectively
|
132,268
|
|
|
132,324
|
|
|
132,181
|
|
Capital in excess of par value
|
2,788,486
|
|
|
2,805,587
|
|
|
2,797,269
|
|
Retained earnings
|
2,244,545
|
|
|
2,180,448
|
|
|
1,810,528
|
|
Accumulated other comprehensive loss
|
(144,669)
|
|
|
(149,466)
|
|
|
(137,874)
|
|
Total equity
|
$ 5,020,630
|
|
|
$ 4,968,893
|
|
|
$ 4,602,104
|
|
Total liabilities and equity
|
$ 9,844,784
|
|
|
$ 9,504,891
|
|
|
$ 9,869,943
|
|
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
|
|
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF
C
OMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
Unaudited
|
|
|
|
June 30
|
|
|
|
|
|
June 30
|
|
in thousands, except per share data
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Total revenues
|
$ 1,200,151
|
|
|
$ 1,030,763
|
|
|
$ 2,054,625
|
|
|
$ 1,818,091
|
|
Cost of revenues
|
876,967
|
|
|
740,746
|
|
|
1,572,106
|
|
|
1,369,853
|
|
Gross profit
|
323,184
|
|
|
290,017
|
|
|
482,519
|
|
|
448,238
|
|
Selling, administrative and general expenses
|
89,043
|
|
|
83,056
|
|
|
167,383
|
|
|
165,439
|
|
Gain on sale of property, plant & equipment
|
|
|
|
|
|
|
|
|
|
|
|
and businesses
|
2,106
|
|
|
2,773
|
|
|
6,270
|
|
|
3,142
|
|
Other operating expense, net
|
(5,994)
|
|
|
(17,768)
|
|
|
(9,969)
|
|
|
(23,595)
|
|
Operating earnings
|
230,253
|
|
|
191,966
|
|
|
311,437
|
|
|
262,346
|
|
Other nonoperating income, net
|
3,339
|
|
|
3,890
|
|
|
8,421
|
|
|
7,934
|
|
Interest expense, net
|
33,244
|
|
|
38,455
|
|
|
71,018
|
|
|
72,531
|
|
Earnings from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
200,348
|
|
|
157,401
|
|
|
248,840
|
|
|
197,749
|
|
Income tax expense
|
40,046
|
|
|
45,652
|
|
|
35,143
|
|
|
42,477
|
|
Earnings from continuing operations
|
160,302
|
|
|
111,749
|
|
|
213,697
|
|
|
155,272
|
|
Earnings (loss) on discontinued operations, net of tax
|
(650)
|
|
|
8,390
|
|
|
(1,066)
|
|
|
9,788
|
|
Net earnings
|
$ 159,652
|
|
|
$ 120,139
|
|
|
$ 212,631
|
|
|
$ 165,060
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gain on interest rate derivative
|
0
|
|
|
0
|
|
|
2,496
|
|
|
0
|
|
Amortization of prior interest rate derivative loss
|
52
|
|
|
328
|
|
|
118
|
|
|
647
|
|
Amortization of actuarial loss and prior service
|
|
|
|
|
|
|
|
|
|
|
|
cost for benefit plans
|
1,092
|
|
|
427
|
|
|
2,183
|
|
|
855
|
|
Other comprehensive income
|
1,144
|
|
|
755
|
|
|
4,797
|
|
|
1,502
|
|
Comprehensive income
|
$ 160,796
|
|
|
$ 120,894
|
|
|
$ 217,428
|
|
|
$ 166,562
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$ 1.21
|
|
|
$ 0.84
|
|
|
$ 1.61
|
|
|
$ 1.17
|
|
Discontinued operations
|
0.00
|
|
|
0.07
|
|
|
(0.01)
|
|
|
0.08
|
|
Net earnings
|
$ 1.21
|
|
|
$ 0.91
|
|
|
$ 1.60
|
|
|
$ 1.25
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$ 1.20
|
|
|
$ 0.83
|
|
|
$ 1.59
|
|
|
$ 1.15
|
|
Discontinued operations
|
(0.01)
|
|
|
0.06
|
|
|
(0.01)
|
|
|
0.07
|
|
Net earnings
|
$ 1.19
|
|
|
$ 0.89
|
|
|
$ 1.58
|
|
|
$ 1.22
|
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
132,437
|
|
|
132,413
|
|
|
132,563
|
|
|
132,524
|
|
Assuming dilution
|
134,051
|
|
|
134,735
|
|
|
134,280
|
|
|
134,925
|
|
Cash dividends per share of common stock
|
$ 0.28
|
|
|
$ 0.25
|
|
|
$ 0.56
|
|
|
$ 0.50
|
|
Depreciation, depletion, accretion and amortization
|
$ 85,633
|
|
|
$ 76,775
|
|
|
$ 167,072
|
|
|
$ 148,339
|
|
Effective tax rate from continuing operations
|
20.0%
|
|
|
29.0%
|
|
|
14.1%
|
|
|
21.5%
|
|
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
|
|
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Unaudited
|
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
Operating Activities
|
|
|
|
|
|
Net earnings
|
$ 212,631
|
|
|
$ 165,060
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities
|
|
|
|
|
|
Depreciation, depletion, accretion and amortization
|
167,072
|
|
|
148,339
|
|
Net gain on sale of property, plant & equipment and businesses
|
(6,270)
|
|
|
(3,142)
|
|
Contributions to pension plans
|
(104,794)
|
|
|
(4,744)
|
|
Share-based compensation expense
|
14,763
|
|
|
13,671
|
|
Deferred tax expense (benefit)
|
40,549
|
|
|
2,901
|
|
Cost of debt purchase
|
6,922
|
|
|
0
|
|
Changes in assets and liabilities before initial effects of business acquisitions
|
|
|
|
|
|
and dispositions
|
(55,415)
|
|
|
(170,701)
|
|
Other, net
|
302
|
|
|
3,838
|
|
Net cash provided by operating activities
|
$ 275,760
|
|
|
$ 155,222
|
|
Investing Activities
|
|
|
|
|
|
Purchases of property, plant & equipment
|
(247,166)
|
|
|
(291,034)
|
|
Proceeds from sale of property, plant & equipment
|
8,523
|
|
|
8,530
|
|
Proceeds from sale of businesses
|
11,256
|
|
|
0
|
|
Payment for businesses acquired, net of acquired cash
|
(218,996)
|
|
|
(210,562)
|
|
Other, net
|
(10,226)
|
|
|
405
|
|
Net cash used for investing activities
|
$ (456,609)
|
|
|
$ (492,661)
|
|
Financing Activities
|
|
|
|
|
|
Proceeds from short-term debt
|
506,200
|
|
|
5,000
|
|
Payment of short-term debt
|
(146,200)
|
|
|
(5,000)
|
|
Payment of current maturities and long-term debt
|
(892,044)
|
|
|
(235,007)
|
|
Proceeds from issuance of long-term debt
|
850,000
|
|
|
1,600,000
|
|
Debt issuance and exchange costs
|
(45,513)
|
|
|
(15,046)
|
|
Settlements of interest rate derivatives
|
3,378
|
|
|
0
|
|
Purchases of common stock
|
(74,921)
|
|
|
(60,303)
|
|
Dividends paid
|
(74,196)
|
|
|
(66,194)
|
|
Share-based compensation, shares withheld for taxes
|
(31,386)
|
|
|
(24,231)
|
|
Net cash provided by financing activities
|
$ 95,318
|
|
|
$ 1,199,219
|
|
Net increase (decrease) in cash and cash equivalents and restricted cash
|
(85,531)
|
|
|
861,780
|
|
Cash and cash equivalents and restricted cash at beginning of year
|
146,646
|
|
|
268,019
|
|
Cash and cash equivalents and restricted cash at end of period
|
$ 61,115
|
|
|
$ 1,129,799
|
|
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements.
|
|
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
Alabama,
mid-Atlantic, 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.
We prepared the accompanying condensed consolidated financial statements on the same basis as our annual financial statements, except for the adoption of new accounting standards as described in Note 17.
Our Condensed Consolidated Balance Sheet as of December 31, 201
7
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
and six
month period
s
ended
June 30
, 2018
are not necessarily indicative of the results that may be expected for the year ending December 31, 201
8
. 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.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified to conform
to
the 201
8
presentation.
In the first quarter of 2018, we adopted A
ccounting
S
tandards
U
pdate (ASU)
2017-
0
7, “Improving the Presentation of Net Periodic Benefit Cost and Net Perio
dic Postretirement Benefit Cost
,
” resulting in the reclassification of certain benefit costs from operating income to nonoperating income as described in Note 17.
RESTRICTED CASH
Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements and cash reserved by other contractual agreements (such as asset purchase agreements) for a specified purpose and therefore
is
not available for use
for other purposes.
The escrow accounts are administered by an intermediary. Cash restricted pursuant to like-kind exchange agreements remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Restricted cash is included with cash and cash equivalents in the accompanying
Condensed
Consolidated Statements of Cash Flows.
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
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Weighted-average common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
132,437
|
|
|
132,413
|
|
|
132,563
|
|
|
132,524
|
|
Dilutive effect of
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Only Stock Appreciation Rights
|
583
|
|
|
1,317
|
|
|
636
|
|
|
1,330
|
|
Other stock compensation plans
|
1,031
|
|
|
1,005
|
|
|
1,081
|
|
|
1,071
|
|
Weighted-average common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding, assuming dilution
|
134,051
|
|
|
134,735
|
|
|
134,280
|
|
|
134,925
|
|
All dilutive common stock equivalents are reflected 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 would be excluded.
Antidilutive common stock equivalents are not included in our earnings per share calculations. The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Antidilutive common stock equivalents
|
157
|
|
|
79
|
|
|
155
|
|
|
79
|
|
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
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
Pretax earnings (loss)
|
$ (883)
|
|
|
$ 12,804
|
|
|
$ (1,449)
|
|
|
$ 14,896
|
|
Income tax (expense) benefit
|
233
|
|
|
(4,414)
|
|
|
383
|
|
|
(5,108)
|
|
Earnings (loss) on discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
$ (650)
|
|
|
$ 8,390
|
|
|
$ (1,066)
|
|
|
$ 9,788
|
|
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
2017
results
noted above
primarily
reflect
charges
and
related
insurance recoveries
,
including those
associated with the Texas Brine matter a
s
d
iscussed in Note 8.
Note 3: Income Taxes
The Tax Cuts and Jobs Act (TCJA) was enacted in December 2017.
The TCJA, among other changes, (1) reduces the U.S. federal corporate income tax rate from
35%
to
21%
, (2) allows for the immediate
100%
deductibility of certain capital investments, (3) eliminates the alternative minimum tax (though allows for the future use of previously generated alternative minimum tax credits), (4) repeals the domestic production deduction, (5) requires a one-time “transition tax” on earnings of certain foreign subsidiaries that were previously tax deferred, (6) limits the deductibility of interest expense, (7) further limits the deductibility of certain executive compensation and (8) taxes global intangible low taxed income.
The SEC staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that have not completed their accounting for the income tax effects of the TCJA in the period of enactment. SAB 118 provides a one-year measurement period from the TCJA enactment date for companies to complete their income tax accounting. In accordance with SAB 118, a company must reflect the income tax effects of those
elements
of the TCJA for which the income tax accounting is complete. To the extent that a company’s accounting for certain
elements
of the TCJA is incomplete but for which it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company is unable to determine a provisional estimate, it should account for its income taxes on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
Our accounting for certain elements of the TCJA is incomplete. As we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, we were able to make reasonable estimates, and therefore, recorded provisional estimates for the following elements. We have not made any measurement-period adjustments related to these items during the
first
half
of 2018
.
|
§
|
|
DEEMED REPATRIATION TRANSITION TAX — The TCJA subjects companies to a one-time Deemed Repatriation Transition Tax (Transition Tax) on previously untaxed foreign accumulated earnings and profits. We recorded a provisional Transition Tax obligation of
$12,301,000
at December 31, 2017.
|
|
§
|
|
DEDUCTIBILITY OF EXECUTIVE COMPENSATION — The TCJA eliminates the performance-based compensation exception from the limitation on covered employee remuneration. At this time, we believe that a portion of the performance-based remuneration accounted for in our deferred taxes will likely be non-deductible. As such, we included a provisional expense of
$1,403,000
at December 31, 2017.
|
Our accounting for certain other elements of the TCJA is incomplete, and as we
disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017
, we were not yet able to make reasonable estimates of the effects. Therefore, no provisional estimates were recorded. We have not recorded any measurement-period adjustments related to these items during the
first
half
of 2018.
|
§
|
|
OUTSIDE BASIS DIFFERENCE IN FOREIGN SUBSIDIARIES — For U.S. income tax purposes, the Transition Tax will greatly reduce outside basis differences in our foreign subsidiaries. Completing this calculation is dependent on first finalizing the Transition Tax liability. As a result, we are not yet able to reasonably estimate the outside basis difference remaining in our foreign subsidiaries after the Transition Tax, and therefore, continue to assert that our undistributed earnings from foreign subsidiaries are indefinitely reinvested.
|
|
§
|
|
GLOBAL INTANGIBLE LOW TAXED INCOME — We can make an accounting policy election of either (1) treating taxes due on the future U.S. inclusions in taxable income related to global intangible low taxed income (GILTI) as a current period expense when incurred (period cost method) or (2) factoring such amounts into our measurement of deferred taxes (deferred method). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part,
on determin
ing
whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so,
t
he
expected
impac
t.
We have not recorded any amount of GILTI tax in our financial statements nor have we made a
n accounting
policy decision.
|
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 second quarter of 2018, we recorded income tax expense from continuing operations of
$
40,046,000
compared to income tax expense from continuing operations of
$45,652,000
in the second quarter of 2017. The
de
crease in income tax expense
was
largely due to the change in the U.S. statutory income tax rate to 21% in 2018 from 35% in 2017.
For the first six months of 2018, we recorded income tax expense from continuing operations of
$
35,143,000
compared to income tax expense from continuing operations of
$42,477,000
for the first six months of 2017. The
de
crease in income tax expense
was
largely due to the change in the U.S. statutory income tax rate to 21% in 2018 from 35% in 2017
.
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.
At December 31, 2018, we project state net operating loss carryforward deferred tax assets of
$71,
812
,000
(
$67,
611
,000
relates to Alabama), against which we project to have a valuation allowance of
$29,695,000
(
$29,182,000
relates to Alabama). The Alabama net operating loss carryforward, if not utilized, would expire in years
2023
–
2033
.
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, 2017.
Note 4: revenue
S
There have been no
significant
changes to the amount or timing of our revenue recognition as a result of our adoption of Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers” (Accounting Standards Codification Topic 606). Revenues are measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect are excluded from revenues. Costs to obtain and fulfill construction paving contracts are also immaterial and are expensed as incurred when the expected amortization period is
one
year or less.
Total revenues
are primarily derived from our product
sales
of
aggregates, asphalt mix and ready-mixed concrete
, and include freight
&
delivery costs that we pass along to our customers to deliver these products
. We
also
generate
revenues from
our
asphalt
construction paving
business
(represents less than
10%
of our Asphalt segment’s revenues)
and services related to our aggregates business (
represents less than
2%
of our Aggregates segment’s revenues
).
Our products typically are sold to private industry and not directly to governmental entities.
Although approximately
45%
to
55%
of our aggregates shipments have historically been used in publicly funded construction, such as highways, airports and government buildings, relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly funded construction, our business is not directly subject to renegotiation of profits or termination of contracts with state or federal governments.
Our segment total revenues by geographic market for the
three and six month
period
s ended June 30,
2018 and
201
7
are disaggregated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
in thousands
|
Aggregates
|
|
|
Asphalt
|
|
|
Concrete
|
|
|
Calcium
|
|
|
Total
|
|
Total Revenues by Geographic Market
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
$ 313,245
|
|
|
$ 49,339
|
|
|
$ 69,605
|
|
|
$ 0
|
|
|
$ 432,189
|
|
Gulf Coast
|
493,696
|
|
|
38,845
|
|
|
18,354
|
|
|
2,282
|
|
|
553,177
|
|
West
|
149,324
|
|
|
123,644
|
|
|
18,764
|
|
|
0
|
|
|
291,732
|
|
Segment sales
|
$ 956,265
|
|
|
$ 211,828
|
|
|
$ 106,723
|
|
|
$ 2,282
|
|
|
$ 1,277,098
|
|
Intersegment sales
|
(76,947)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(76,947)
|
|
Total revenues
|
$ 879,318
|
|
|
$ 211,828
|
|
|
$ 106,723
|
|
|
$ 2,282
|
|
|
$ 1,200,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
in thousands
|
Aggregates
|
|
|
Asphalt
|
|
|
Concrete
|
|
|
Calcium
|
|
|
Total
|
|
Total Revenues by Geographic Market
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
$ 281,304
|
|
|
$ 29,775
|
|
|
$ 59,647
|
|
|
$ 0
|
|
|
$ 370,726
|
|
Gulf Coast
|
384,793
|
|
|
24,444
|
|
|
25,501
|
|
|
1,971
|
|
|
436,709
|
|
West
|
151,489
|
|
|
121,539
|
|
|
20,065
|
|
|
0
|
|
|
293,093
|
|
Segment sales
|
$ 817,586
|
|
|
$ 175,758
|
|
|
$ 105,213
|
|
|
$ 1,971
|
|
|
$ 1,100,528
|
|
Intersegment sales
|
(69,765)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(69,765)
|
|
Total revenues
|
$ 747,821
|
|
|
$ 175,758
|
|
|
$ 105,213
|
|
|
$ 1,971
|
|
|
$ 1,030,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
in thousands
|
Aggregates
|
|
|
Asphalt
|
|
|
Concrete
|
|
|
Calcium
|
|
|
Total
|
|
Total Revenues by Geographic Market
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
$ 496,459
|
|
|
$ 61,068
|
|
|
$ 131,175
|
|
|
$ 0
|
|
|
$ 688,702
|
|
Gulf Coast
|
888,271
|
|
|
53,488
|
|
|
43,554
|
|
|
4,224
|
|
|
989,537
|
|
West
|
271,192
|
|
|
201,107
|
|
|
32,956
|
|
|
0
|
|
|
505,255
|
|
Segment sales
|
$ 1,655,922
|
|
|
$ 315,663
|
|
|
$ 207,685
|
|
|
$ 4,224
|
|
|
$ 2,183,494
|
|
Intersegment sales
|
(128,869)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(128,869)
|
|
Total revenues
|
$ 1,527,053
|
|
|
$ 315,663
|
|
|
$ 207,685
|
|
|
$ 4,224
|
|
|
$ 2,054,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
in thousands
|
Aggregates
|
|
|
Asphalt
|
|
|
Concrete
|
|
|
Calcium
|
|
|
Total
|
|
Total Revenues by Geographic Market
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East
|
$ 463,762
|
|
|
$ 39,154
|
|
|
$ 113,897
|
|
|
$ 0
|
|
|
$ 616,813
|
|
Gulf Coast
|
752,006
|
|
|
42,480
|
|
|
51,807
|
|
|
3,857
|
|
|
850,150
|
|
West
|
252,118
|
|
|
189,900
|
|
|
28,259
|
|
|
0
|
|
|
470,277
|
|
Segment sales
|
$ 1,467,886
|
|
|
$ 271,534
|
|
|
$ 193,963
|
|
|
$ 3,857
|
|
|
$ 1,937,240
|
|
Intersegment sales
|
(119,149)
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
(119,149)
|
|
Total revenues
|
$ 1,348,737
|
|
|
$ 271,534
|
|
|
$ 193,963
|
|
|
$ 3,857
|
|
|
$ 1,818,091
|
|
|
|
1
|
The geographic markets are defined by states/countries as follows:
|
|
|
East market
— Arkansas, Delaware, Illinois, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia,
and
Washington D.C.
Gulf Coast market
—
Alabama, Florida,
Georgia,
Louisiana, Mexico, Mississippi, Oklahoma
, South Carolina
,
Texas
and
the Bahamas
West market
— Arizona, California and New Mexico
|
PRODUCT AND SERVICE REVENUES
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs at a point in time when our aggregates, asphalt mix and ready-mixed concrete are
shipped/delivered and control passes to the customer.
Revenue for our products and services is recorded at the fixed invoice amount and is due by the 15
th
day of the following month
—
we do not offer discounts for early payment.
Freight
&
delivery generally represents pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers
and are accounted for as a fulfillment activity
.
Likewise, t
he cost related to freight
&
delivery is included in cost of revenues
.
CONSTRUCTION
PAVING
REVENUES
Revenue from our
asphalt
construction
paving
business is recognized
over time
using the percentage-of-completion method under the
co
st approach.
The percentage of completion is determined by costs incurred to date as a percentage of total costs estimated for the project.
Under this approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion.
Our construction contracts are unit priced and an account receivable is recorded for amounts invoiced based on actual units produced.
Contract assets for estimated earnings in excess of billings, contract assets related to retainage provisions and contract liabilities for billings in excess of costs
are
immaterial.
Variable consideration in our construction
paving
contracts is immaterial and consists of incentives and penalties based on the quality of work performed.
Our construction paving contracts may contain warranty provisions covering defects in equipment, materials, design or workmanship that generally run from nine months to one year after project completion. Due to the nature of our construction
paving
projects, including contract owner inspections of the work during construction and prior to acceptance, we have not experienced material warranty costs for these short-term warranties.
VOLUMETRIC PRODUCTION PAYMENT
REVENUE
S
In 2013 and 2012, we sold a percentage interest in
certain
future
aggregates
production
for net cash proceeds of
$226,926,000
. These transactions,
structured as volumetric production payments (VPPs)
:
|
§
|
|
relate to
eight
quarries in Georgia and South Carolina
|
|
§
|
|
provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future aggregates production
|
|
§
|
|
contain no minimum annual or cumulative guarantees by us for production or sales volume, nor minimum sales price
|
|
§
|
|
are both volume and time limited (we expect the transactions will last approximately
25
years, limited by volume rather than time)
|
We are the exclusive sales agent for, and transmit quarterly to the purchaser the proceeds from the sale of, the purchaser’s share of future aggregates production.
Our consolidated total revenues exclude the revenue
from the sale of the purchaser’s share of aggregates.
These proceeds we re
ceived from the sale of the percentage interest were re
corded as deferred revenue
on the balance sheet
. We
recognize revenue
on a unit-of-sales basis
(as we
sell the purchaser’s share of
future production) relative to the volume limitations of the transactions. Given
the nature of the risks and
potential
rewards assum
ed by the buy
er, the transactions
do not reflect f
inancing activities
.
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Deferred Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$ 198,201
|
|
|
$ 204,819
|
|
|
$ 199,556
|
|
|
$ 206,468
|
|
Revenue recognized from deferred revenue
|
(1,905)
|
|
|
(1,719)
|
|
|
(3,260)
|
|
|
(3,368)
|
|
Balance at end of period
|
$ 196,296
|
|
|
$ 203,100
|
|
|
$ 196,296
|
|
|
$ 203,100
|
|
Based on expected sales from the specified quarries, we expect to recognize
$
7,470,000
of deferred revenue as income during the 12-month period ending
June 30
, 2019 (reflected in other current liabilities in our
June 30,
2018 Condensed Consolidated Balan
ce 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
|
|
June 30
|
|
|
December 31
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2017
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Mutual funds
|
$ 20,698
|
|
|
$ 20,348
|
|
|
$ 5,348
|
|
Equities
|
0
|
|
|
0
|
|
|
11,785
|
|
Total
|
$ 20,698
|
|
|
$ 20,348
|
|
|
$ 17,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 Fair Value
|
|
June 30
|
|
|
December 31
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2017
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
$ 1,754
|
|
|
$ 1,203
|
|
|
$ 2,338
|
|
Total
|
$ 1,754
|
|
|
$ 1,203
|
|
|
$ 2,338
|
|
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
(losses)
of the Rabbi Trust investments were
$
(
428,000
)
and
$
848,000
for the
six
months ended
June
3
0
, 2018
and 201
7
, respectively. The portions of the net gains
(losses)
related to investments still held by the Rabbi Trusts at
June
3
0
, 2018
and 201
7
were
$
(
430,000
)
and
$
413,000
, 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.
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 exposure
. 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
locks
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.
We occasionally enter into
interest rate locks of future debt issuances to hedge the risk of higher interest rates. Th
e gain/loss upon settlement is deferred (recorded in
AOCI
)
and 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:
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|
|
|
|
|
|
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|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Location on
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
Statement
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Interest Rate Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss reclassified from AOCI
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
(effective portion)
|
expense
|
|
$ (71)
|
|
|
$ (539)
|
|
|
$ (160)
|
|
|
$ (1,067)
|
|
For the 12-month period ending
June
3
0
, 201
9
, we estimate that
$
297,000
of the pretax loss in AOCI will be reclassified to
interest expense
.
Note 7: Debt
Debt is detailed as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
June 30
|
|
|
December 31
|
|
|
June 30
|
|
in thousands
|
Interest Rates
|
|
2018
|
|
|
2017
|
|
|
2017
|
|
Short-term Debt
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit expires 2021
1
|
1.25%
|
|
$ 360,000
|
|
|
$ 0
|
|
|
$ 0
|
|
Total short-term debt
|
|
|
$ 360,000
|
|
|
$ 0
|
|
|
$ 0
|
|
Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit expires 2021
1
|
|
|
$ 0
|
|
|
$ 250,000
|
|
|
$ 0
|
|
Term loan due 2018
2
|
|
|
0
|
|
|
350,000
|
|
|
0
|
|
7.00% notes due 2018
|
|
|
0
|
|
|
0
|
|
|
272,512
|
|
10.375% notes due 2018
|
|
|
0
|
|
|
0
|
|
|
250,000
|
|
Floating-rate notes due 2020
|
3.00%
|
|
250,000
|
|
|
250,000
|
|
|
250,000
|
|
Floating-rate notes due 2021
|
2.93%
|
|
500,000
|
|
|
0
|
|
|
0
|
|
7.50% notes due 2021
|
|
|
0
|
|
|
35,111
|
|
|
600,000
|
|
8.85% notes due 2021
|
8.88%
|
|
6,000
|
|
|
6,000
|
|
|
6,000
|
|
Term loan due 2021
2
|
|
|
0
|
|
|
250,000
|
|
|
250,000
|
|
4.50% notes due 2025
|
4.65%
|
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
3.90% notes due 2027
|
4.00%
|
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
7.15% notes due 2037
|
8.05%
|
|
129,239
|
|
|
240,188
|
|
|
240,188
|
|
4.50% notes due 2047
|
4.59%
|
|
700,000
|
|
|
700,000
|
|
|
700,000
|
|
4.70% notes due 2048
|
5.42%
|
|
460,949
|
|
|
0
|
|
|
0
|
|
Other notes
2
|
6.46%
|
|
219
|
|
|
230
|
|
|
358
|
|
Total long-term debt - face value
|
|
|
$ 2,846,407
|
|
|
$ 2,881,529
|
|
|
$ 3,369,058
|
|
Unamortized discounts and debt issuance costs
|
|
|
(69,478)
|
|
|
(26,664)
|
|
|
(33,989)
|
|
Total long-term debt - book value
|
|
|
$ 2,776,929
|
|
|
$ 2,854,865
|
|
|
$ 3,335,069
|
|
Less current maturities
|
|
|
23
|
|
|
41,383
|
|
|
525,776
|
|
Total long-term debt - reported value
|
|
|
$ 2,776,906
|
|
|
$ 2,813,482
|
|
|
$ 2,809,293
|
|
Estimated fair value of long-term debt
|
|
|
$ 2,782,543
|
|
|
$ 2,983,419
|
|
|
$ 3,077,069
|
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|
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
|
This short-term loan was refinanced on a long-term basis in February 2018 as discussed below. Thus, it was classified as long-term debt as of December 31, 2017.
|
Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in
$2,698,000
of net interest expense for these items for the six months ended June 3
0
, 2018.
LINE OF CREDIT
Our unsecured $750,000,000 line of credit matures December 2021 and 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 June 30, 2018, 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 June 30, 2018, 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 June 30, 2018, our available borrowing capacity was
$344,933,000
. Utilization of the borrowing capacity was as follows:
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§
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|
$360,000,000
was borrowed
|
|
§
|
|
$45,067,000
was used to provide support for outstanding standby letters of credit
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TERM DEBT
All of our $
2,846,407,000
of term debt is unsecured.
$2,846,188,000
of such debt is governed by
three
essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in all three indentures limits the amount of secured debt we may incur without ratably securing such debt. As of June 30, 2018, we were
in
compliance with all term debt covenants.
In March 2018, we early retired via exchange offer
$110,949,000
of the
$240,188,000
7.15%
notes due 2037 for: (1) a like amount of notes due 2048 (these notes are a further issuance of, and form a single series with, the $350,000,000 of notes due 2048 issued in February 2018 as described below) and (2)
$38,164,000
of cash. The cash payment primarily reflects the trading price of the retired notes relative to par and will be amortized to interest expense over the term of the notes due 2048. We recognized transaction costs of
$1,314,000
with this early retirement.
In February 2018, we issued
$350,000,000
of
4.70%
senior
notes due 2048
(these notes now total
$460,949,000
including the $110,949,000 issued in March as described above) and
$500,000,000
of floating-rate senior
notes due 2021. Total proceeds of
$846,029,000
(net of discounts, transaction costs and an interest rate derivative settlement gain), together with cash on hand, were used to retire/repay without penalty or premium: (1) the $350,000,000 term loan due 2018, (2) the $250,000,000 term loan due 2021, and (3) the $250,000,000 bank line of credit borrowings. We recognized net noncash expense of
$203,000
with the acceleration of unamortized deferred transaction costs.
In January 2018
,
we early retired via redemption the remaining
$35,111,000
of the 7.50%
senior
notes due 2021 at a cost of
$40,719,000
including a premium of
$5,608,00
0
.
A
dditionally, we recognized net noncash expense of
$263,000
with the acceleration of unamortized deferred transaction costs.
As a result of the first quarter 2018 early debt retirements described above, we recognized premiums of
$5,608,000
, transaction costs of
$1,314,000
and noncash expense (acceleration of unamortized deferred transaction costs) of
$466,000
. The combined charge of
$7,388,000
was a component of interest expense in the first quarter of 2018.
In December 2017, we early retired via tender offer,
$564,889,000
of the
$600,000,000
7.50%
senior
notes due 2021 at a cost of
$662,613,000
including a premium of
$96,167,000
and transaction costs of
$1,558,000
. Additionally, we recognized net noncash expense of
$4,228,000
with the acceleration of
unamortized
deferred
transaction
costs.
Also in December 2017, we entered into a
6
-month
$350,000,000
unsecured term loan with one of the banks that provides our line of credit.
Proceeds were used for general corporate purposes.
This term loan
was prepaid, as described above, in February 2018 with the proceeds of the 4.70% senior notes due 2048.
In July 2017, we early retired via redemption: (1) the $272,512,000 7.00% senior notes due 2018 and (2) the $250,000,000 10.375% senior notes due 2018
—
at a combined cost of
$565,560,000
including a premium of
$43,020,000
and transaction costs of
$28,000
. Additionally, we recognized net noncash expense of
$3,029,000
with the acceleration of unamortized deferred discounts, transaction costs and interest rate derivative settlement losses. Such redemptions were partially funded with the proceeds of the senior notes issued in June 2017 as described below.
In June 2017, we issued
$1,000,000,000
of debt composed of three issuances as follows: (1)
$700,000,000
of
4.50%
senior notes due 2047, (2)
$50,000,000
of
3.90%
senior notes due 2027 (these notes are a further issuance of, and form a single series with, the 3.90% notes issued in March 2017), and (3)
$250,000,000
of floating-rate senior notes due 2020. Total proceeds of
$989,512,000
(net of discounts/premiums and transaction costs) were used to partially finance an acquisition and to early retire the notes due in 2018 as described above.
In June 2017, we drew the full
$250,000,000
on the unsecured delayed draw term loan
due 2021
. These funds were used to repay the
$235,000,000
line of credit borrowings and for general corporate purposes. This term loan was prepaid, as described above, in February 2018 with proceeds of the floating-rate senior notes due 2021.
In March 2017, we issued
$350,000,000
of
3.90%
senior notes due 2027. Proceeds of
$345,450,000
(net of discounts and transaction costs) were used for general corporate purposes. This series of notes now totals
$400,000,000
including the additional $50,000,000 issued in June as described above.
A
s a result of the 2017 early debt retirements described above, we recognized
pr
emiums of
$139,187,000
,
t
ransaction costs of
$1,586,000
and
n
et noncash expense
(
acceleration of unamortized
d
eferred
transaction
costs
) of
$7,257,000
. The combined charge of
$148,030,000
was a component of interest expense for the year ended December 31, 2017 with none recognized in the six months ended June 30, 2017.
STANDBY LETTERS OF CREDIT
We provide, in the normal course of business, certain third-party beneficiaries with 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 June 30, 2018 are summarized by purpose in the table below:
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|
|
|
|
|
in thousands
|
|
|
Standby Letters of Credit
|
|
|
Risk management insurance
|
$ 38,111
|
|
Reclamation/restoration requirements
|
6,956
|
|
Total
|
$ 45,067
|
|
Note 8: Commitments and Contingencies
As summarized by purpose directly above in Note 7, our standby letters of credit totaled
$45,067,000
as of June 30, 2018.
As described in Note 9, our asset retirement obligations totaled
$215,421,000
as of June 30, 2018.
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, certain other material legal proceedings are more specifically described below:
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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, the 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.
|
In August 2017, the EPA informed certain members of the Cooperating Parties Group, including Vulcan that it planned to use the services of a third-party allocator with the expectation of offering cash-out settlements to some parties in connection with the bank-to-bank remedy. This voluntary allocation process is intended to establish an impartial third-party expert recommendation that may be considered by the government and the participants as the basis of possible settlements. We have begun participating in this voluntary allocation process, which is likely to take several years.
In July 2018, Vulcan, along with more than one hundred other defendants, was sued by Occidental in United States District Court for the District of New Jersey, Newark Vicinage. Occidental is seeking cost rec
overy and contribution under
C
ERCLA
. It is unknown at this time whether the filing of the Occidental lawsuit will impact the EPA allocation process.
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 have 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.
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§
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TEXAS BRINE MATTER —
During the operation of its former Chemicals Division, Vulcan
secured
the right to mine salt out of an underground salt dome formation in Assumption Parish, Louisiana from 1976 - 2005. Throughout that period and for all times thereafter, the Texas Brine Company (Texas Brine) was the operator contracted by Vulcan (and later Occidental) to mine and deliver the salt. We sold our Chemicals Division in 2005 and transferred our rights and interests related to the salt and mining operations to the purchaser, a subsidiary of Occidental, and we have had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed in the vicinity of the Texas Brine mining operations, and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in federal court before the Eastern District of Louisiana in New Orleans.
|
There
are numerous defendants
, including Texas Brine and Occidental,
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. Damage categories encompassed within
the litigation
include
individual plaintiffs’ claims for property damage,
a claim by
the
S
tate of Louisia
na
for response costs and civil penalties, claims by Texas Brine for response costs and lost profits,
c
laims for physical damages to
nearby
oil
and gas
pipeline
s and storage facilities (pipelines)
,
and
business interruption claims
.
In addition to the plaintiffs’ claims, we were also sued for contractual indemnity and comparative fault by both Texas Brine and Occidental. I
t 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
with Occidental
, as well as an operating agreement
and related contracts
with Texas Brin
e; that we are strictly liable for certain property damages in our capacity as a former lessee of the salt lease; and that we violated certain covenants and conditions in the agreement under which we sold our Chemicals Division to Occidental. We have likewise made claims for contractual indemnity and on a basis of comparative fault against Texas Brine and Occidental.
Vulcan and Occidental have since dismissed all of their claims against one another. Texas Brine has claims that remain pending against Vulcan and against Occident
al.
A
bench trial (judge only) began in September 2017 and ended in October in the pipeline cases. The trial was limited in scope to the allocation of comparative fault or liability for causing the sinkhole, with a damages phase of the trial to be held at a later
date. In
December 2017, the judge issued a ruling on the allocation of fault among the three defendants as follows: Occidental
50%
, Texas Brine
35%
and Vulcan
15%
. This ruling has been appealed by
the parties
.
Also in December 2017, we agreed to a settlement in a federal putative class action
which has now been finalized by the cour
t. O
ur insurers participated in the settlement discussions and have
funded
the settlement. We have settled
all but
three outstanding cases. The remaining cases involve one third-party plaintiff, Texas Brine
,
and the
S
tate of Louisiana.
Di
scovery remains ongoing in
these
cases.
W
e cannot reasonably estimate a range of liability pertaining to
the open cases at this
time
.
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|
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
follows
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
us
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
n on-site
pilot test of a pump and treat system; testing and implementation of a leachate recovery system; and storm water capture and conveyance
improvements.
|
Operation of the
on-site
pilot-scale treatment system began in January 2017,
and
was completed in
April 2017. W
ith completion of the pilot testing and other investigative work
to date, we submitted an amendment to the IRAP (AIRAP) to RWQCB in August 2017 proposing the use of a pump, treat and reinjection system. In December 2017, we submitted an addendum to the AIRAP, incorporating new data acquired since the prior submission. In February 2018, the AIRAP was approved by RWQCB. As a result of this approval, we will begin to implement the on-site source control activities described in the AIRAP. Based on the preliminary design of this system, we
accrued
$15,239,000
in 2017 (
of which
$14,216,000
was recorded to
other operating expense
in the
second quarter
of 2017).
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
.
The EPA and Vulcan entered into an AOC and Statement of Work having an effective date of September 2017, for the design of
two
extraction wells south of the Hewitt Site to protect the North Hollywood West well field. In November 2017, we submitted a Pre-Design Investigation Work Plan to the EPA, which sets forth the activities and schedule for our evaluation of the need for a two-well remedy. Estimated costs to comply with this AOC are immaterial and have been accrued. Until the remedial design work and evaluation of
the two-well remedy is complete,
and a comprehensive remedial action for the NHOU is identified,
we can
not reas
onably estimate a loss pertaining to this matter.
It is not possible to predict with certainty the ultimate outcome of these and other legal proceedings in which we are involved and a number of factors, including developments in ongoing discovery or adverse rulings, 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, including both owned properties and mineral leases. For the three and six month periods ended June 30, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
ARO Operating Costs
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
$ 2,668
|
|
|
$ 2,881
|
|
|
$ 5,352
|
|
|
$ 5,763
|
|
Depreciation
|
1,343
|
|
|
1,615
|
|
|
2,680
|
|
|
3,247
|
|
Total
|
$ 4,011
|
|
|
$ 4,496
|
|
|
$ 8,032
|
|
|
$ 9,010
|
|
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
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Asset Retirement Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$ 214,709
|
|
|
$ 226,012
|
|
|
$ 218,117
|
|
|
$ 223,872
|
|
Liabilities incurred
|
0
|
|
|
335
|
|
|
0
|
|
|
335
|
|
Liabilities settled
|
(1,805)
|
|
|
(5,610)
|
|
|
(7,826)
|
|
|
(10,475)
|
|
Accretion expense
|
2,668
|
|
|
2,881
|
|
|
5,352
|
|
|
5,763
|
|
Revisions, net
|
(151)
|
|
|
335
|
|
|
(222)
|
|
|
4,458
|
|
Balance at end of period
|
$ 215,421
|
|
|
$ 223,953
|
|
|
$ 215,421
|
|
|
$ 223,953
|
|
ARO liabilities settled during the first six months of 2018 and 2017 include
$
5,158,000
and
$5,017,000
, respectively, of reclamation activities required under a development agreement and conditional use permits at
two
adjacent aggregates sites on owned property in Southern California. The reclamation required under the reclamation agreement will result in the restoration and development of
90
acres of previously mined property suitable for retail and commercial development.
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
to freeze
future
benefit
accruals for salaried pension participants
. E
ffective December 31, 2015
, we amended our defined benefit pension plans to free
ze
earnings for salaried pension participants
.
The following table sets forth the components of net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION BENEFITS
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$ 1,429
|
|
|
$ 1,654
|
|
|
$ 2,858
|
|
|
$ 3,308
|
|
Interest cost
|
8,875
|
|
|
9,058
|
|
|
17,751
|
|
|
18,115
|
|
Expected return on plan assets
|
(14,797)
|
|
|
(12,096)
|
|
|
(29,594)
|
|
|
(24,192)
|
|
Amortization of prior service cost
|
335
|
|
|
335
|
|
|
670
|
|
|
670
|
|
Amortization of actuarial loss
|
2,456
|
|
|
1,823
|
|
|
4,913
|
|
|
3,647
|
|
Net periodic pension benefit cost (credit)
|
$ (1,702)
|
|
|
$ 774
|
|
|
$ (3,402)
|
|
|
$ 1,548
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
|
|
|
|
|
|
net periodic pension benefit cost
|
$ 2,791
|
|
|
$ 2,158
|
|
|
$ 5,583
|
|
|
$ 4,317
|
|
The contributions to pension plans for the
six
months ended
June
3
0
, 2018
and 201
7
, as reflected on the Condensed Consolidated Statements of Cash Flows, pertain to benefit payments under nonqualified plans
and a first quarter 2018 discretionary qualified plan
contribution of
$100,000,000
.
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
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$ 340
|
|
|
$ 291
|
|
|
$ 679
|
|
|
$ 583
|
|
Interest cost
|
310
|
|
|
315
|
|
|
620
|
|
|
630
|
|
Amortization of prior service credit
|
(990)
|
|
|
(1,059)
|
|
|
(1,981)
|
|
|
(2,118)
|
|
Amortization of actuarial gain
|
(325)
|
|
|
(396)
|
|
|
(649)
|
|
|
(793)
|
|
Net periodic postretirement benefit credit
|
$ (665)
|
|
|
$ (849)
|
|
|
$ (1,331)
|
|
|
$ (1,698)
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
|
|
|
|
|
|
net periodic postretirement benefit credit
|
$ (1,315)
|
|
|
$ (1,455)
|
|
|
$ (2,630)
|
|
|
$ (2,911)
|
|
We present the service cost component of net periodic benefit cost in cost of revenues and selling, administrative and general expense consistent with employee compensation costs.
The other components of net periodic benefit cost (credit) are
reported within other nonoperating income in our accompanying Condensed Consolidated Statements of Comprehensive Incom
e.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
December 31
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2017
|
|
AOCI
|
|
|
|
|
|
|
|
|
Interest rate hedges
|
$ (8,824)
|
|
|
$ (11,438)
|
|
|
$ (12,653)
|
|
Pension and postretirement plans
|
(135,845)
|
|
|
(138,028)
|
|
|
(125,221)
|
|
Total
|
$ (144,669)
|
|
|
$ (149,466)
|
|
|
$ (137,874)
|
|
Changes in AOCI, net of tax, for the six months ended June 30, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
Interest Rate
|
|
|
Postretirement
|
|
|
|
|
in thousands
|
Hedges
|
|
|
Benefit Plans
|
|
|
Total
|
|
AOCI
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
$ (11,438)
|
|
|
$ (138,028)
|
|
|
$ (149,466)
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
before reclassifications
|
2,496
|
|
|
0
|
|
|
2,496
|
|
Amounts reclassified from AOCI
|
118
|
|
|
2,183
|
|
|
2,301
|
|
Net current period OCI changes
|
2,614
|
|
|
2,183
|
|
|
4,797
|
|
Balance as of June 30, 2018
|
$ (8,824)
|
|
|
$ (135,845)
|
|
|
$ (144,669)
|
|
Amounts reclassified from AOCI to earnings, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Amortization of Interest Rate Hedge Losses
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$ 71
|
|
|
$ 539
|
|
|
$ 160
|
|
|
$ 1,067
|
|
Benefit from income taxes
|
(19)
|
|
|
(211)
|
|
|
(42)
|
|
|
(420)
|
|
Total
|
$ 52
|
|
|
$ 328
|
|
|
$ 118
|
|
|
$ 647
|
|
Amortization of Pension and Postretirement
|
|
|
|
|
|
|
|
|
|
|
|
Plan Actuarial Loss and Prior Service Cost
|
|
|
|
|
|
|
|
|
|
|
|
Other nonoperating income
|
$ 1,477
|
|
|
$ 703
|
|
|
$ 2,953
|
|
|
$ 1,406
|
|
Benefit from income taxes
|
(385)
|
|
|
(276)
|
|
|
(770)
|
|
|
(551)
|
|
Total
|
$ 1,092
|
|
|
$ 427
|
|
|
$ 2,183
|
|
|
$ 855
|
|
Total reclassifications from AOCI to earnings
|
$ 1,144
|
|
|
$ 755
|
|
|
$ 2,301
|
|
|
$ 1,502
|
|
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
5,000,000
shares of preferred stock of which
no
shares have been issued.
There were
no
shares held in treasury as of
June
30, 2018, December 31, 2017 and June 30, 2017.
Our common stock purchases (all of which were open market purchases) and subsequent retirements are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
December 31
|
|
|
June 30
|
|
in thousands, except average price
|
2018
|
|
|
2017
|
|
|
2017
|
|
Shares Purchased and Retired
|
|
|
|
|
|
|
|
|
Number
|
643
|
|
|
510
|
|
|
510
|
|
Total purchase price
|
$ 74,921
|
|
|
$ 60,303
|
|
|
$ 60,303
|
|
Average price per share
|
$ 116.49
|
|
|
$ 118.18
|
|
|
$ 118.18
|
|
As of June 30, 2018,
8,846,570
shares may b
e p
urchased under the current purchase authorizatio
n o
f our Board of Directo
rs.
Ch
anges in total equity are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
June 30
|
|
in thousands
|
|
|
|
2018
|
|
|
2017
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
$ 4,968,893
|
|
|
$ 4,572,476
|
|
Net earnings
|
|
|
212,631
|
|
|
165,060
|
|
Common stock issued
|
|
|
|
|
|
|
|
Share-based compensation plans, net of shares withheld for taxes
|
|
|
(31,337)
|
|
|
(24,108)
|
|
Purchase and retirement of common stock
|
|
|
(74,921)
|
|
|
(60,303)
|
|
Share-based compensation expense
|
|
|
14,763
|
|
|
13,671
|
|
Cash dividends on common stock ($0.56/$0.50 per share)
|
|
|
(74,196)
|
|
|
(66,194)
|
|
Other comprehensive income
|
|
|
4,797
|
|
|
1,502
|
|
Balance at end of period
|
|
|
$ 5,020,630
|
|
|
$ 4,602,104
|
|
Note 13: Segment Reporting
We have
four
operating (and
reportable
) segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States.
Our Asphalt and Concrete segments are primarily supplied with their aggregates requirements from our Aggregates segment. These i
ntersegment 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
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
1
|
$ 956,265
|
|
|
$ 817,586
|
|
|
$ 1,655,922
|
|
|
$ 1,467,886
|
|
Asphalt
|
211,828
|
|
|
175,758
|
|
|
315,663
|
|
|
271,534
|
|
Concrete
|
106,723
|
|
|
105,213
|
|
|
207,685
|
|
|
193,963
|
|
Calcium
|
2,282
|
|
|
1,971
|
|
|
4,224
|
|
|
3,857
|
|
Segment sales
|
$ 1,277,098
|
|
|
$ 1,100,528
|
|
|
$ 2,183,494
|
|
|
$ 1,937,240
|
|
Aggregates intersegment sales
|
(76,947)
|
|
|
(69,765)
|
|
|
(128,869)
|
|
|
(119,149)
|
|
Total revenues
|
$ 1,200,151
|
|
|
$ 1,030,763
|
|
|
$ 2,054,625
|
|
|
$ 1,818,091
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
2
|
$ 283,476
|
|
|
$ 251,419
|
|
|
$ 431,697
|
|
|
$ 390,210
|
|
Asphalt
2
|
25,750
|
|
|
28,760
|
|
|
25,996
|
|
|
37,242
|
|
Concrete
2
|
13,191
|
|
|
9,253
|
|
|
23,511
|
|
|
19,478
|
|
Calcium
|
767
|
|
|
585
|
|
|
1,315
|
|
|
1,308
|
|
Total
|
$ 323,184
|
|
|
$ 290,017
|
|
|
$ 482,519
|
|
|
$ 448,238
|
|
Depreciation, Depletion, Accretion
|
|
|
|
|
|
|
|
|
|
|
|
and Amortization (DDA&A)
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
$ 69,738
|
|
|
$ 60,832
|
|
|
$ 135,691
|
|
|
$ 118,488
|
|
Asphalt
|
7,298
|
|
|
6,615
|
|
|
14,300
|
|
|
12,347
|
|
Concrete
|
3,049
|
|
|
3,672
|
|
|
6,463
|
|
|
6,695
|
|
Calcium
|
70
|
|
|
192
|
|
|
139
|
|
|
387
|
|
Other
|
5,478
|
|
|
5,464
|
|
|
10,479
|
|
|
10,422
|
|
Total
|
$ 85,633
|
|
|
$ 76,775
|
|
|
$ 167,072
|
|
|
$ 148,339
|
|
Identifiable Assets
3
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
|
|
|
|
|
|
$ 8,751,186
|
|
|
$ 7,931,603
|
|
Asphalt
|
|
|
|
|
|
|
625,985
|
|
|
358,801
|
|
Concrete
|
|
|
|
|
|
|
276,743
|
|
|
233,355
|
|
Calcium
|
|
|
|
|
|
|
4,258
|
|
|
3,939
|
|
Total identifiable assets
|
|
|
|
|
|
|
$ 9,658,172
|
|
|
$ 8,527,698
|
|
General corporate assets
|
|
|
|
|
|
|
125,497
|
|
|
212,446
|
|
Cash and cash equivalents and restricted cash
|
|
|
|
|
|
|
61,115
|
|
|
1,129,799
|
|
Total
|
|
|
|
|
|
|
$ 9,844,784
|
|
|
$ 9,869,943
|
|
|
|
1
|
Includes
product sales
, as well as freight
&
delivery
costs that we pass along to our customers
, and
service
revenues related to
aggregates
.
|
2
|
The 2017 amounts have been revised as a result of our adoption of ASU 2017-
0
7 as described in Note 17
.
|
3
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30
|
|
in thousands
|
2018
|
|
|
2017
|
|
Cash Payments (Refunds)
|
|
|
|
|
|
Interest (exclusive of amount capitalized)
|
$ 62,021
|
|
|
$ 67,849
|
|
Income taxes
|
(102,711)
|
|
|
117,204
|
|
Noncash Investing and Financing Activities
|
|
|
|
|
|
Accrued liabilities for purchases of property, plant & equipment
|
$ 21,257
|
|
|
$ 17,924
|
|
Amounts referable to business acquisitions
|
|
|
|
|
|
Liabilities assumed
|
4,040
|
|
|
1,935
|
|
Consideration payable to seller
|
4,500
|
|
|
0
|
|
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
six
month periods ended
June 30
, 2018
and 201
7
.
Accumulated goodwill impairment losses amount to
$25
2
,664,000
in the Calcium segment.
We have
four
reportable segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. Changes in the carrying amount of goodwill by reportable segment from December 31, 201
7
to
June 30
, 2018
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Aggregates
|
|
|
Asphalt
|
|
|
Concrete
|
|
|
Calcium
|
|
|
Total
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2017
|
$ 3,030,688
|
|
|
$ 91,633
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 3,122,321
|
|
Goodwill of acquired businesses
1
|
41,633
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
41,633
|
|
Total as of June 30, 2018
|
$ 3,072,321
|
|
|
$ 91,633
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 3,163,954
|
|
|
|
1
|
See Note 16 for
a summary of
acquisitions
.
|
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
2018 BUSINESS ACQUISITIONS
—
Through
the
six
months ended
June 30
, 2018, we purchased the following
operations
for total consideration of
$
217,
440,
000
:
|
§
|
|
Alabama —
ag
gregates,
asphalt mix
and construction paving
operations
|
|
§
|
|
California
—
asphalt mix operations
|
|
§
|
|
Texas — aggregates
rail yards
, asphalt mix and construction paving
operations
|
The 20
18
acquisitions listed above are reported in our condensed consolidated financial statements as of their respective acquisition dates.
None of these
acquisitions
are
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
(pending appraisals for intangible assets and property, plant & equipment)
of assets acquired and liabilities assumed
,
are summarized below:
|
|
|
|
|
|
|
June 30
|
|
in thousands
|
2018
|
|
Fair Value of Purchase Consideration
|
|
|
Cash
|
$ 212,940
|
|
Payable to seller
|
4,500
|
|
Total fair value of purchase consideration
|
$ 217,440
|
|
Identifiable Assets Acquired and Liabilities Assumed
|
|
|
Accounts and notes receivable, net
|
$ 14,218
|
|
Inventories
|
12,110
|
|
Other current assets
|
826
|
|
Property, plant & equipment
|
105,613
|
|
Other intangible assets
|
|
|
Contractual rights in place
|
90,803
|
|
Deferred income taxes, net
|
(36,172)
|
|
Liabilities assumed
|
(10,599)
|
|
Net identifiable assets acquired
|
$ 176,799
|
|
Goodwill
|
$ 40,641
|
|
As a result of the 2018 acquisitions, we recognized
$
90,803,000
of amortizable intangible assets (contractual rights in place). The contractual rights in place will be amortized against earnings (
$
89,723,000
– straight-line over a weighted-average
20
years and
$
1,080,000
– units of sales over an
excess of
20
years)
of which
$4,720,000
will be
deductible for income tax purposes over
15
years.
Of the
$40,641,000
of goodwill noted above (none of which will be deductible for income tax purposes)
,
$36,172,000
represents the balance of deferred tax liabilities generated from carrying over the seller’s tax basis in the assets acquired.
2017 BUSINESS ACQUISITIONS
—
For the full year 2017, we purchased the following
operations
for total consideration of
$842,013,000
(
$822,432,000
cash,
$9,681,000
payable,
$9,900,000
fair value of assets swapped
), less
$287,292,000
cash received for
assets divested immediately upon acquisition as required by the Department of Justic
e
:
|
§
|
|
Arizona —
asphalt mix operation
s
|
|
§
|
|
California —
aggregates and
ready-mixed concrete
operations
|
|
§
|
|
Florida — aggregates
operations
|
|
§
|
|
Georgia —
aggregates
operations
|
|
§
|
|
Illinois —
aggregates
operations
|
|
§
|
|
New Mexico — aggregates
operations
|
|
§
|
|
South Carolina — aggregates
operations
|
|
§
|
|
Tennessee — agg
regates
, asphalt mix and construction paving
operations
|
|
§
|
|
Virginia — aggregates and ready-mixed concrete
operations
|
The fair value of consideration transferred for the 2017 acquisitions considered to be material, and the preliminary amounts at December 31, 2017 (immaterial adjustments were recorded in the first
and
second
quarter
s
of 2018
including an increase to goodwill of
$992,000
) of assets acquired and liabilities assumed, are summarized below:
|
|
|
|
|
|
|
December 31
|
|
in thousands
|
2017
|
|
Fair Value of Purchase Consideration
|
|
|
Cash
|
$ 1,072,978
|
|
Payable to seller
|
7,837
|
|
Total fair value of purchase consideration
|
$ 1,080,815
|
|
Identifiable Assets Acquired and Liabilities Assumed
|
|
|
Accounts and notes receivable, net
|
$ 14,955
|
|
Inventories
|
21,679
|
|
Other current assets
|
608
|
|
Investments
|
3,590
|
|
Property, plant & equipment
|
433,606
|
|
Other intangible assets
|
|
|
Contractual rights in place
|
295,482
|
|
Liabilities assumed
|
(3,894)
|
|
Net identifiable assets acquired
|
$ 766,026
|
|
Goodwill
|
$ 27,497
|
|
Net Assets Divested Immediately Upon Acquisition
|
$ 287,292
|
|
As a result of the 2017 acquisitions, we recognized
$309,112,000
of amortizable intangible assets (
$309,012,000
contractual rights in place and
$100,000
other intangibles). The contractual rights in place will be amortized against earnings (
$73,879,000
– straight-line over a weighted-average
19.3
years and
$235,133,000
– units of sales over an estimated
54.7
years) and deductible for income tax purposes over
15
years.
DIVESTITURES AND PENDING DIVESTITURES
In the first quarter of 2018, we sold:
|
§
|
|
ready-mixed concrete operations in Georgia resulting in a pretax gain of
$2,929,000
(
we retained all real property which is leased to the buyer, and obtained
a
long-term
aggregates supply agreement)
|
In
2017, we sold:
|
§
|
|
Fourth quarter — swapped ready-mixed concrete operations in Arizona (fair value of
$9,900,000
and book value of
$1,879,000
) for an asphalt mix operation in Arizona resulting in a pretax gain of
$8,021,000
|
|
§
|
|
Fourth quarter — as required by the Department of Justice, we immediately divested certain assets obtained in the Aggregates USA acquisition resulting in
no
gain
|
No
assets met the criteria for held for sale at
June
3
0
, 2018, December 31, 2017 or
June
3
0
, 2017.
Note 17: New Accounting Standards
ACCOUNTING STANDARDS RECENTLY ADOPTED
PRESENTATION OF BENEFIT PLAN
COSTS
During
the first quarter of 2018, we adopted Accounting Standards Update (ASU) 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
,
” on
a
retrospective basis as required. This ASU changed the presentation of the net
b
enefit cost in the income statement
and limits benefit costs eligible for inventory capitalization to the service cost component (benefit costs capitalized in inventory are immaterial to our financial statements).
We continue to
p
resent the service cost component of net benefit cost in
cost of revenues and
s
elling,
a
dministrative and
g
eneral
e
xpense
s
consistent with
employee compensation costs.
The other components of net benefit cost (credit) are now included in
other
nonoperating income.
These othe
r components were a net credit
for all periods presented
resulting in
a decrease in operating earnings and an increase in other nonoperating income, as follows: three months end
ed
June
3
0
, 2018 of $
4,135,000
;
three months end
ed
June
3
0
, 2017 of $
2,021,000
; six months ended June 30, 2018 of $
8,269,000
; and six months ended June 30, 2017 of $
4,041,000
.
AC
COUNTING STANDARDS PENDING ADOPTION
RELEASING STRANDED TAX
EFFECTS
I
n
February 201
8
, the
Financial Accounting Standards Board (
FA
SB
)
issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which
allows
for the reclassification from accumulated other comprehensive income (AOCI) to retained earnings
of
stranded tax effects resulting from the TCJA enacted
i
n Decembe
r 2
017. This ASU also requires entities to disclose their accounting policy for releasing income tax effects from AOCI. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018.
We expect to early adopt this standard in the fourth quarter of 2018
effective as of the beginning of the year.
While we are still evaluating the impact of ASU 2018-02, 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
FA
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, 2019
, and interim reporting periods within those annual reporting periods. Early adoption is permitted for annual reporting periods beginning after December 15,
2018.
While we 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
(excluding mineral 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, 2018, 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 continue to evaluate the impact of this standard on our consolidated financial statements.
The
majority of our leases are for real property (land and buildings), which we have determined will be treated as operating leases under this ASU. As a result, we anticipate recording a right-of-use asset and related lease liability for these leases, but we do not expect our expense recognition pattern to change. Therefore, we do not anticipate any significant change to our statements of comprehensive income or cash flows as a result of adopting this standard.
ITEM 2