FINANCIAL STATEMENTS
VULCAN
MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited, except for December 31
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$ 701,163
|
|
|
$ 258,986
|
|
|
$ 135,365
|
|
Restricted cash
|
0
|
|
|
9,033
|
|
|
0
|
|
Accounts and notes receivable
|
|
|
|
|
|
|
|
|
Accounts and notes receivable, gross
|
582,105
|
|
|
494,634
|
|
|
536,242
|
|
Less: Allowance for doubtful accounts
|
(2,903)
|
|
|
(2,813)
|
|
|
(4,260)
|
|
Accounts and notes receivable, net
|
579,202
|
|
|
491,821
|
|
|
531,982
|
|
Inventories
|
|
|
|
|
|
|
|
|
Finished products
|
307,046
|
|
|
293,619
|
|
|
283,266
|
|
Raw materials
|
27,852
|
|
|
22,648
|
|
|
25,411
|
|
Products in process
|
1,652
|
|
|
1,480
|
|
|
2,753
|
|
Operating supplies and other
|
29,276
|
|
|
27,869
|
|
|
26,612
|
|
Inventories
|
365,826
|
|
|
345,616
|
|
|
338,042
|
|
Prepaid expenses
|
100,781
|
|
|
31,726
|
|
|
71,370
|
|
Total current assets
|
1,746,972
|
|
|
1,137,182
|
|
|
1,076,759
|
|
Investments and long-term receivables
|
35,999
|
|
|
39,226
|
|
|
38,914
|
|
Property, plant & equipment
|
|
|
|
|
|
|
|
|
Property, plant & equipment, cost
|
7,539,928
|
|
|
7,185,818
|
|
|
7,105,036
|
|
Allowances for depreciation, depletion & amortization
|
(4,002,227)
|
|
|
(3,924,380)
|
|
|
(3,876,743)
|
|
Property, plant & equipment, net
|
3,537,701
|
|
|
3,261,438
|
|
|
3,228,293
|
|
Goodwill
|
3,101,337
|
|
|
3,094,824
|
|
|
3,094,824
|
|
Other intangible assets, net
|
835,269
|
|
|
769,052
|
|
|
753,314
|
|
Other noncurrent assets
|
182,056
|
|
|
169,753
|
|
|
165,981
|
|
Total assets
|
$ 9,439,334
|
|
|
$ 8,471,475
|
|
|
$ 8,358,085
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
4,827
|
|
|
138
|
|
|
131
|
|
Trade payables and accruals
|
181,207
|
|
|
145,042
|
|
|
163,139
|
|
Other current liabilities
|
227,665
|
|
|
227,064
|
|
|
197,642
|
|
Total current liabilities
|
413,699
|
|
|
372,244
|
|
|
360,912
|
|
Long-term debt
|
2,809,966
|
|
|
1,982,751
|
|
|
1,983,639
|
|
Deferred income taxes, net
|
716,165
|
|
|
702,854
|
|
|
706,715
|
|
Deferred revenue
|
193,117
|
|
|
198,388
|
|
|
201,732
|
|
Other noncurrent liabilities
|
621,253
|
|
|
642,762
|
|
|
601,117
|
|
Total liabilities
|
$ 4,754,200
|
|
|
$ 3,898,999
|
|
|
$ 3,854,115
|
|
Other commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value, Authorized 480,000 shares,
|
|
|
|
|
|
|
|
|
Outstanding 132,281, 132,339 and 132,309 shares, respectively
|
132,281
|
|
|
132,339
|
|
|
132,309
|
|
Capital in excess of par value
|
2,803,106
|
|
|
2,807,995
|
|
|
2,805,355
|
|
Retained earnings
|
1,886,006
|
|
|
1,771,518
|
|
|
1,685,412
|
|
Accumulated other comprehensive loss
|
(136,259)
|
|
|
(139,376)
|
|
|
(119,106)
|
|
Total equity
|
$ 4,685,134
|
|
|
$ 4,572,476
|
|
|
$ 4,503,970
|
|
Total liabilities and equity
|
$ 9,439,334
|
|
|
$ 8,471,475
|
|
|
$ 8,358,085
|
|
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
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
Unaudited
|
|
|
|
September 30
|
|
|
|
|
|
September 30
|
|
in thousands, except per share data
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Total revenues
|
$ 1,094,715
|
|
|
$ 1,008,140
|
|
|
$ 2,912,806
|
|
|
$ 2,719,693
|
|
Cost of revenues
|
789,199
|
|
|
703,931
|
|
|
2,155,536
|
|
|
1,958,581
|
|
Gross profit
|
305,516
|
|
|
304,209
|
|
|
757,270
|
|
|
761,112
|
|
Selling, administrative and general expenses
|
73,350
|
|
|
76,311
|
|
|
238,263
|
|
|
235,460
|
|
Gain on sale of property, plant & equipment
|
|
|
|
|
|
|
|
|
|
|
|
and businesses
|
1,488
|
|
|
2,023
|
|
|
4,630
|
|
|
2,934
|
|
Business interruption claims recovery
|
0
|
|
|
690
|
|
|
0
|
|
|
11,652
|
|
Impairment of long-lived assets
|
0
|
|
|
0
|
|
|
0
|
|
|
(10,506)
|
|
Other operating expense, net
|
(4,167)
|
|
|
(3,535)
|
|
|
(27,763)
|
|
|
(23,949)
|
|
Operating earnings
|
229,487
|
|
|
227,076
|
|
|
495,874
|
|
|
505,783
|
|
Other nonoperating income, net
|
1,784
|
|
|
990
|
|
|
5,677
|
|
|
325
|
|
Interest expense, net
|
82,041
|
|
|
33,126
|
|
|
154,572
|
|
|
100,192
|
|
Earnings from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
149,230
|
|
|
194,940
|
|
|
346,979
|
|
|
405,916
|
|
Income tax expense
|
39,080
|
|
|
49,803
|
|
|
81,557
|
|
|
91,575
|
|
Earnings from continuing operations
|
110,150
|
|
|
145,137
|
|
|
265,422
|
|
|
314,341
|
|
Earnings (loss) on discontinued operations, net of tax
|
(1,571)
|
|
|
(3,113)
|
|
|
8,217
|
|
|
(7,451)
|
|
Net earnings
|
$ 108,579
|
|
|
$ 142,024
|
|
|
$ 273,639
|
|
|
$ 306,890
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for cash flow hedges
|
1,188
|
|
|
307
|
|
|
1,836
|
|
|
902
|
|
Amortization of actuarial loss and prior service
|
|
|
|
|
|
|
|
|
|
|
|
cost for benefit plans
|
427
|
|
|
20
|
|
|
1,281
|
|
|
61
|
|
Other comprehensive income
|
1,615
|
|
|
327
|
|
|
3,117
|
|
|
963
|
|
Comprehensive income
|
$ 110,194
|
|
|
$ 142,351
|
|
|
$ 276,756
|
|
|
$ 307,853
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$ 0.83
|
|
|
$ 1.09
|
|
|
$ 2.00
|
|
|
$ 2.36
|
|
Discontinued operations
|
(0.01)
|
|
|
(0.02)
|
|
|
0.07
|
|
|
(0.06)
|
|
Net earnings
|
$ 0.82
|
|
|
$ 1.07
|
|
|
$ 2.07
|
|
|
$ 2.30
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$ 0.82
|
|
|
$ 1.07
|
|
|
$ 1.97
|
|
|
$ 2.31
|
|
Discontinued operations
|
(0.01)
|
|
|
(0.02)
|
|
|
0.06
|
|
|
(0.05)
|
|
Net earnings
|
$ 0.81
|
|
|
$ 1.05
|
|
|
$ 2.03
|
|
|
$ 2.26
|
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
132,484
|
|
|
133,019
|
|
|
132,510
|
|
|
133,418
|
|
Assuming dilution
|
134,765
|
|
|
135,823
|
|
|
134,853
|
|
|
135,932
|
|
Cash dividends per share of common stock
|
$ 0.25
|
|
|
$ 0.20
|
|
|
$ 0.75
|
|
|
$ 0.60
|
|
Depreciation, depletion, accretion and amortization
|
$ 79,636
|
|
|
$ 72,049
|
|
|
$ 227,974
|
|
|
$ 213,362
|
|
Effective tax rate from continuing operations
|
26.2%
|
|
|
25.5%
|
|
|
23.5%
|
|
|
22.6%
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Unaudited
|
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
Operating Activities
|
|
|
|
|
|
Net earnings
|
$ 273,639
|
|
|
$ 306,890
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities
|
|
|
|
|
|
Depreciation, depletion, accretion and amortization
|
227,974
|
|
|
213,362
|
|
Net gain on sale of property, plant & equipment and businesses
|
(4,630)
|
|
|
(2,934)
|
|
Contributions to pension plans
|
(17,638)
|
|
|
(7,126)
|
|
Share-based compensation expense
|
19,953
|
|
|
15,645
|
|
Deferred tax expense (benefit)
|
11,298
|
|
|
25,094
|
|
Cost of debt purchase
|
43,048
|
|
|
0
|
|
Changes in assets and liabilities before initial effects of business acquisitions
|
|
|
|
|
|
and dispositions
|
(162,849)
|
|
|
(145,548)
|
|
Other, net
|
8,740
|
|
|
(774)
|
|
Net cash provided by operating activities
|
$ 399,535
|
|
|
$ 404,609
|
|
Investing Activities
|
|
|
|
|
|
Purchases of property, plant & equipment
|
(366,845)
|
|
|
(287,440)
|
|
Proceeds from sale of property, plant & equipment
|
10,403
|
|
|
5,865
|
|
Payment for businesses acquired, net of acquired cash
|
(210,562)
|
|
|
(1,611)
|
|
Decrease in restricted cash
|
9,033
|
|
|
1,150
|
|
Other, net
|
405
|
|
|
2,488
|
|
Net cash used for investing activities
|
$ (557,566)
|
|
|
$ (279,548)
|
|
Financing Activities
|
|
|
|
|
|
Proceeds from line of credit
|
5,000
|
|
|
3,000
|
|
Payment of line of credit
|
(5,000)
|
|
|
(3,000)
|
|
Payment of current maturities and long-term debt
|
(800,572)
|
|
|
(14)
|
|
Proceeds from issuance of long-term debt
|
1,600,000
|
|
|
0
|
|
Debt discounts and issuance costs
|
(15,046)
|
|
|
0
|
|
Purchases of common stock
|
(60,303)
|
|
|
(161,463)
|
|
Dividends paid
|
(99,263)
|
|
|
(79,865)
|
|
Share-based compensation, shares withheld for taxes
|
(24,608)
|
|
|
(32,414)
|
|
Net cash provided by (used for) financing activities
|
$ 600,208
|
|
|
$ (273,756)
|
|
Net increase (decrease) in cash and cash equivalents
|
442,177
|
|
|
(148,695)
|
|
Cash and cash equivalents at beginning of year
|
258,986
|
|
|
284,060
|
|
Cash and cash equivalents at end of period
|
$ 701,163
|
|
|
$ 135,365
|
|
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 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 and
nine
month periods ended
September
30, 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 and
nine
months ended
September
30, 2017 (
$
4,001,000
and
$
20,759,000
, respectively) and revised three and
nine
months ended
September
30, 2016 (
$
2,259,000
and
$2
4,451
,000
, respectively). As a result, we also revised our
September
30, 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
790,000
for the quarter and
7
40
,000
year-to-date.
Under ASU 2016-09, gross excess tax benefits are classified as operating cash flows rather than financing cash flows. As a result, for the
nine
months ended
September
30, 2016 we increased our operating cash flows and
decreased
our financing cash flows by
$2
6
,74
7
,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
nine
months ended
September
30, 2016 we increased our operating cash flows and
decreased
our financing cash flows by
$
32,414
,000
.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Weighted-average common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
132,484
|
|
|
133,019
|
|
|
132,510
|
|
|
133,418
|
|
Dilutive effect of
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Only Stock Appreciation Rights
|
1,249
|
|
|
1,356
|
|
|
1,305
|
|
|
1,322
|
|
Other stock compensation plans
|
1,032
|
|
|
1,448
|
|
|
1,038
|
|
|
1,192
|
|
Weighted-average common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding, assuming dilution
|
134,765
|
|
|
135,823
|
|
|
134,853
|
|
|
135,932
|
|
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
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Antidilutive common stock equivalents
|
79
|
|
|
2
|
|
|
79
|
|
|
234
|
|
Note 2: Discontinued Operations
In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. There were
no
revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
Pretax earnings (loss)
|
$ (1,282)
|
|
|
$ (5,135)
|
|
|
$ 13,614
|
|
|
$ (12,312)
|
|
Income tax (expense) benefit
|
(289)
|
|
|
2,022
|
|
|
(5,397)
|
|
|
4,861
|
|
Earnings (loss) on discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
$ (1,571)
|
|
|
$ (3,113)
|
|
|
$ 8,217
|
|
|
$ (7,451)
|
|
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
,
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
third
quarter of 2017, we recorded income tax expense from continuing operations of
$
39,080,000
compared to income tax expense from continuing operations of
$
49,803
,000
in the
third
quarter of 2016. The
de
crease in our income tax expense
resulted largely from applying the statutory rate to the decrease in our pretax earnings.
For the first
nine
months of 2017, we recorded income tax expense from continuing operations of
$
81,557,000
compared to
$
91,575,
000
for the first
nine
months of 2016. The
de
crease in our income tax expense
resulted largely from applying the statutory rate to the decrease in our pretax earnings.
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
third
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,
751
,000
, of which
$52,
552
,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
significant
partial release of this valuation allowance once we have returned to sustained profitability, which we project
will
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
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Deferred Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$ 203,100
|
|
|
$ 210,200
|
|
|
$ 206,468
|
|
|
$ 214,060
|
|
Amortization of deferred revenue
|
(1,903)
|
|
|
(2,068)
|
|
|
(5,271)
|
|
|
(5,928)
|
|
Balance at end of period
|
$ 201,197
|
|
|
$ 208,132
|
|
|
$ 201,197
|
|
|
$ 208,132
|
|
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
September
3
0
, 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
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2016
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Mutual funds
|
$ 7,431
|
|
|
$ 6,883
|
|
|
$ 6,601
|
|
Equities
|
12,825
|
|
|
10,033
|
|
|
8,574
|
|
Total
|
$ 20,256
|
|
|
$ 16,916
|
|
|
$ 15,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 Fair Value
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2016
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
$ 386
|
|
|
$ 1,705
|
|
|
$ 2,144
|
|
Total
|
$ 386
|
|
|
$ 1,705
|
|
|
$ 2,144
|
|
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
$
1,950,000
and
$
1,379,
000
for the
nine
months ended
September
30
, 2017
and 201
6
, respectively. The portions of the net
gains related
to investments still held by the Rabbi Trusts at
September
30
, 2017
and 201
6
were
$
1,424,000
and
$
273,000
,
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 September 30, 2017
|
|
|
Period ended September 30, 2016
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
Impairment
|
|
in thousands
|
Level 2
|
|
|
Charges
|
|
|
Level 2
|
|
|
Charges
|
|
Fair Value Nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment, net
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 1,359
|
|
Other intangible assets, net
|
0
|
|
|
0
|
|
|
0
|
|
|
8,180
|
|
Other assets
|
0
|
|
|
0
|
|
|
0
|
|
|
967
|
|
Total
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 10,506
|
|
We
recorded
$
10,506,000
of losses on impairment of long-lived assets for the
nine
m
onths ended
September
3
0
,
2
01
6
,
re
ducing the carrying value of these
Aggregates
segment asset
s to their estimated fair value
o
f
$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
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
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 earnin
gs.
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
|
|
|
Nine Months Ended
|
|
|
Location on
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
Statement
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss reclassified from AOCI
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
(effective portion)
|
expense
|
|
$ (1,955)
|
|
|
$ (507)
|
|
|
$ (3,022)
|
|
|
$ (1,490)
|
|
The 2017 losses reclassified from AOCI include the acceleration of deferred losses in the amount of $1,
405
,000 referable to the July debt purchases as described in Note 7.
For the 12-month period ending
September
3
0
, 201
8
, we estimate that
$
344,000
of the pretax loss in AOCI will be reclassified to earnings.
Note 7: Debt
Debt is detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
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 2021
1, 2, 3
|
n/a
|
|
$ 0
|
|
|
$ 235,000
|
|
|
$ 235,000
|
|
7.00% notes due 2018
|
n/a
|
|
0
|
|
|
272,512
|
|
|
272,512
|
|
10.375% notes due 2018
|
n/a
|
|
0
|
|
|
250,000
|
|
|
250,000
|
|
Floating-rate notes due 2020
|
2.13%
|
|
250,000
|
|
|
0
|
|
|
0
|
|
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
|
|
Term loan due 2021
2, 3
|
2.49%
|
|
250,000
|
|
|
0
|
|
|
0
|
|
4.50% notes due 2025
|
4.65%
|
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
3.90% notes due 2027
|
4.00%
|
|
400,000
|
|
|
0
|
|
|
0
|
|
7.15% notes due 2037
|
8.05%
|
|
240,188
|
|
|
240,188
|
|
|
240,188
|
|
4.50% notes due 2047
|
4.59%
|
|
700,000
|
|
|
0
|
|
|
0
|
|
Other notes
3
|
6.31%
|
|
353
|
|
|
365
|
|
|
484
|
|
Total long-term debt - face value
|
|
|
$ 2,846,541
|
|
|
$ 2,004,065
|
|
|
$ 2,004,184
|
|
Unamortized discounts and debt issuance costs
|
|
|
(31,748)
|
|
|
(21,176)
|
|
|
(20,414)
|
|
Total long-term debt - book value
|
|
|
$ 2,814,793
|
|
|
$ 1,982,889
|
|
|
$ 1,983,770
|
|
Less current maturities
|
|
|
4,827
|
|
|
138
|
|
|
131
|
|
Total long-term debt - reported value
|
|
|
$ 2,809,966
|
|
|
$ 1,982,751
|
|
|
$ 1,983,639
|
|
Estimated fair value of long-term debt
|
|
|
$ 3,068,236
|
|
|
$ 2,243,213
|
|
|
$ 2,305,065
|
|
|
|
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
|
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/premium
s a
nd unamortized deferred debt issuance costs. Discounts
/premiums
and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in
$
4,473,000
of net interest expense for these items for the nine months ended September 30, 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. 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 September 30, 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 September 30, 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 September 30, 2017, our available borrowing capacity was
$
706,712,000
. Utilization of the borrowing capacity was as follows:
|
§
|
|
$
43,288,000
was used to provide support for outstanding standby letters of credit
|
TERM DEBT
All of our term debt is unsecured.
$
2,596,188,000
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.
$250,000,000 of such debt is governed, as described below, by the same credit agreement that governs our line of credit.
As of September 30, 2017, we were
in
compliance with
all term
debt covenants.
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 June 2047, (2)
$50,000,000
of
3.90%
senior notes due April 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 June 2020. These issuances resulted in proceeds of
$989,512,000
(net of original issue discounts/premiums, underwriter fees and other transaction costs). The proceeds
will be used
to partially finance the pending acquisition of Aggregates USA, LLC as described in Note 16 and
were used
to early retire the notes due in 2018 (
$272,512,000
@
7.00%
and
$250,000,000
@
10.375%
). This early retirement was completed in July at a cost of
$565,5
60
,000
including a
$43,020,000
premium above the principal amount of the notes and transaction costs of
$2
8
,000
. As a result, in the third quarte
r
,
we recognized
$3,029,000
of net noncash expense associated with the acceleration of unamortized discounts, deferred debt issuance costs and deferred interest rate derivative settlement losses.
The combined charge of
$46,07
7
,000
was a component of interest expense for the
three and
nine months ended September 30, 2017.
In June 2017, we drew the full
$250,000,000
on the unsecured delayed draw term loan entered into in December 2016. These funds were used to repay the
$235,000,000
borrowed on our line of credit and for general corporate purposes. 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 @
$1,562,500
/quarter; 9 - 12 @
$3,125,000
/quarter; 13 - 19 @
$4,687,500
/quarter and
$198,437,500
for quarter 20 (December
2021
). The term loan may be prepaid at any time without penalty.
It
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.
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 were used for general corporate purposes. This series of notes now totals
$400,000,000
due to the additional $50,000,000 of notes issued in June
(as described above)
.
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 September 30, 2017 are summarized by purpose in the table below:
|
|
|
|
|
|
in thousands
|
|
|
Standby Letters of Credit
|
|
|
Risk management insurance
|
$ 38,111
|
|
Reclamation/restoration requirements
|
5,177
|
|
Total
|
$ 43,288
|
|
Note 8: Commitments and Contingencies
As summarized by purpose directly above in Note 7, our standby letters of credit totaled
$
43,288,000
as of September 30, 2017.
As described in Note 9, our asset retirement obligations totaled
$
222,888,000
as of September 30, 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,
certain
other material legal proceedings are more specifically described below:
|
§
|
|
Lower Passaic River Study Area (Superfund Site)
— The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately
70
other companies are parties (collectively the Cooperating Parties Group) to a May 2007 Administrative Order on Consent (AOC) with the 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.
|
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 an
d their respective allocation
s
h
ave 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
le
a
se
d
the right to mine
salt
out of an
underground salt dome formation in Assumption Parish, Louisiana
f
rom 1976 - 200
5
.
Throughout that period and for all times thereafter, t
he Texas Brine Company (Texas Brine)
was the
operat
or contracted by Vulcan to mine and deliver the salt
. We sold our Chemicals Division in 2005 and
transferred our rights and interest
s
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
and Texas Brine
for response costs
, 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
als
o s
ued 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 Occidental.
Discovery
remains
ongoing
in various cases
.
In December 2016, we settled wit
h p
laintiffs in one of
the
cases involving
individual
property damag
es.
During the first nine months of 2017
, w
e settle
d
with the plaintiffs in the cases involving physical damages t
o
pipelines
.
Our
insurers
have
funded the
settle
ments
in excess of our self-insured retention amount.
Each of the pipeline plaintiffs signed a release in favor of Vulcan and agreed that
we
would not be responsible to the p
ipelines
for any amount beyond the settlement amount. A bench t
rial
(judge only)
began
in
September 2017
and ended in October in
two of
the three pipeline cases. The trial was limited in scope to the allocation of comparative fault or liability for causing the sinkhole, with a damages trial to be held at a later date. Vulcan participated in the trial, as it encompasse
d
c
ross-party and third-party claims against
us
.
The court ordered post-trial briefs to be filed early November 2017, and scheduled closing arguments for later that month.
W
e do not know at this time when the judge will issue his ruling.
W
e cannot reasonably estimate a range of liability pertaining to
the open cases at this time
.
|
§
|
|
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 followed 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-si
t
e
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 300 gallon per minute pump, treat and reinjection system. Based on the preliminary design of this system,
we
accrued
$14,216,000
in the second quarter of 2017 (
reflected in other operating expense
).
We are
currently responding to comments and
planning
for implementation of the AIRA
P
.
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
. We entered into
an AOC and Statement of Work
with the EPA
in
September 2017,
for the design of two extraction wells
south of
the Hewi
tt
S
ite
to protect
the North Hollywood West well field. The AOC provides for Vulcan to undertake a preliminary evaluation of the appropriateness of the two-well remedy.
Estimated cost
s
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, we cannot identify an appropriate remedial action or reasonably 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 parcels, including both owned properties and mineral leases. For the three
and
nine
month periods ended
September
3
0
, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
ARO Operating Costs
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
$ 2,857
|
|
|
$ 2,692
|
|
|
$ 8,620
|
|
|
$ 8,163
|
|
Depreciation
|
1,494
|
|
|
1,469
|
|
|
4,741
|
|
|
4,783
|
|
Total
|
$ 4,351
|
|
|
$ 4,161
|
|
|
$ 13,361
|
|
|
$ 12,946
|
|
ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.
Reconciliations of the carrying amounts of our AROs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Asset Retirement Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$ 223,953
|
|
|
$ 217,043
|
|
|
$ 223,872
|
|
|
$ 226,594
|
|
Liabilities incurred
|
731
|
|
|
0
|
|
|
1,066
|
|
|
505
|
|
Liabilities settled
|
(5,263)
|
|
|
(3,937)
|
|
|
(15,739)
|
|
|
(14,256)
|
|
Accretion expense
|
2,857
|
|
|
2,692
|
|
|
8,620
|
|
|
8,163
|
|
Revisions, net
|
610
|
|
|
(1,112)
|
|
|
5,069
|
|
|
(6,320)
|
|
Balance at end of period
|
$ 222,888
|
|
|
$ 214,686
|
|
|
$ 222,888
|
|
|
$ 214,686
|
|
ARO liabilities settled during the first nine months of 2017 and 2016 include $8,117,000 and $10,373,000, 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
accrual
s fo
r salaried pension participants
effective December 31, 2015
.
The following table sets forth the components of net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION BENEFITS
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$ 1,653
|
|
|
$ 1,335
|
|
|
$ 4,961
|
|
|
$ 4,007
|
|
Interest cost
|
9,057
|
|
|
9,127
|
|
|
27,172
|
|
|
27,379
|
|
Expected return on plan assets
|
(12,097)
|
|
|
(12,891)
|
|
|
(36,289)
|
|
|
(38,672)
|
|
Amortization of prior service cost (credit)
|
335
|
|
|
(11)
|
|
|
1,005
|
|
|
(32)
|
|
Amortization of actuarial loss
|
1,824
|
|
|
1,540
|
|
|
5,471
|
|
|
4,622
|
|
Net periodic pension benefit cost (credit)
|
$ 772
|
|
|
$ (900)
|
|
|
$ 2,320
|
|
|
$ (2,696)
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
|
|
|
|
|
|
net periodic pension benefit cost
|
$ 2,159
|
|
|
$ 1,529
|
|
|
$ 6,476
|
|
|
$ 4,590
|
|
The contributions to pension plans for the
nine
months ended
September
3
0
, 2017
and 201
6
, as reflected on the Condensed Consolidated Statements of Cash Flows, pertain to benefit payments under nonqualified plans
and a
third quarter
2017
discretionary
qualified plan
contribution
of $
10,6
00,000
.
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
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$ 292
|
|
|
$ 281
|
|
|
$ 875
|
|
|
$ 842
|
|
Interest cost
|
315
|
|
|
302
|
|
|
945
|
|
|
907
|
|
Amortization of prior service credit
|
(1,059)
|
|
|
(1,059)
|
|
|
(3,177)
|
|
|
(3,177)
|
|
Amortization of actuarial gain
|
(397)
|
|
|
(438)
|
|
|
(1,190)
|
|
|
(1,313)
|
|
Net periodic postretirement benefit credit
|
$ (849)
|
|
|
$ (914)
|
|
|
$ (2,547)
|
|
|
$ (2,741)
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
|
|
|
|
|
|
net periodic postretirement benefit credit
|
$ (1,456)
|
|
|
$ (1,497)
|
|
|
$ (4,367)
|
|
|
$ (4,490)
|
|
Note 11: other Comprehensive Income
Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.
Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2016
|
|
AOCI
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
$ (11,464)
|
|
|
$ (13,300)
|
|
|
$ (13,592)
|
|
Pension and postretirement plans
|
(124,795)
|
|
|
(126,076)
|
|
|
(105,514)
|
|
Total
|
$ (136,259)
|
|
|
$ (139,376)
|
|
|
$ (119,106)
|
|
Changes in AOCI, net of tax, for the
nine
months ended
September
3
0
, 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
|
1,836
|
|
|
1,281
|
|
|
3,117
|
|
Balance as of September 30, 2017
|
$ (11,464)
|
|
|
$ (124,795)
|
|
|
$ (136,259)
|
|
Amounts reclassified from AOCI to earnings, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Reclassification Adjustment for Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Losses
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$ 1,955
|
|
|
$ 507
|
|
|
$ 3,022
|
|
|
$ 1,490
|
|
Benefit from income taxes
|
(767)
|
|
|
(200)
|
|
|
(1,186)
|
|
|
(588)
|
|
Total
1
|
$ 1,188
|
|
|
$ 307
|
|
|
$ 1,836
|
|
|
$ 902
|
|
Amortization of Pension and Postretirement
|
|
|
|
|
|
|
|
|
|
|
|
Plan Actuarial Loss and Prior Service Cost
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
$ 576
|
|
|
$ 27
|
|
|
$ 1,721
|
|
|
$ 82
|
|
Selling, administrative and general expenses
|
127
|
|
|
6
|
|
|
388
|
|
|
18
|
|
Benefit from income taxes
|
(276)
|
|
|
(13)
|
|
|
(828)
|
|
|
(39)
|
|
Total
|
$ 427
|
|
|
$ 20
|
|
|
$ 1,281
|
|
|
$ 61
|
|
Total reclassifications from AOCI to earnings
|
$ 1,615
|
|
|
$ 327
|
|
|
$ 3,117
|
|
|
$ 963
|
|
|
|
1
|
The 2017 losses reclassified from AOCI include the acceleration of deferred losses in the amount of $1,
405
,000 referable to the July debt purchases as described in Note 7.
|
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. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
September 30
|
|
in thousands
|
|
|
|
2017
|
|
|
2016
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
$ 4,572,476
|
|
|
$ 4,454,188
|
|
Net earnings
|
|
|
273,639
|
|
|
306,890
|
|
Share-based compensation plans, net of shares withheld for taxes
|
|
|
(24,485)
|
|
|
(32,388)
|
|
Purchase and retirement of common stock
|
|
|
(60,303)
|
|
|
(161,463)
|
|
Share-based compensation expense
|
|
|
19,953
|
|
|
15,645
|
|
Cash dividends on common stock ($0.75/$0.60 per share)
|
|
|
(99,263)
|
|
|
(79,865)
|
|
Other comprehensive income
|
|
|
3,117
|
|
|
963
|
|
Balance at end of period
|
|
|
$ 4,685,134
|
|
|
$ 4,503,970
|
|
There were
no
shares held in treasury as of September 30, 20
17
, December 31, 2016 and September 30, 2016.
Our common stock purchases (all of which were open market purchases) were as follows:
|
§
|
|
nine months ended September 30, 2017 – purchased and retired
510,283
shares for a cost of
$60,303,000
|
|
§
|
|
twelve months ended December 31, 2016 – purchased and retired
1,426,659
shares for a cost of
$161,463,000
|
|
§
|
|
nine months ended September 30, 2016 – purchased and retired
1,426,659
shares for a cost of
$161,463,000
|
As of September 30, 2017,
9,489,717
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, 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
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
1
|
$ 858,699
|
|
|
$ 821,809
|
|
|
$ 2,326,585
|
|
|
$ 2,248,174
|
|
Asphalt
|
189,940
|
|
|
157,406
|
|
|
461,474
|
|
|
388,560
|
|
Concrete
|
115,485
|
|
|
91,147
|
|
|
309,448
|
|
|
242,790
|
|
Calcium
|
1,965
|
|
|
2,373
|
|
|
5,822
|
|
|
6,732
|
|
Segment sales
|
$ 1,166,089
|
|
|
$ 1,072,735
|
|
|
$ 3,103,329
|
|
|
$ 2,886,256
|
|
Aggregates intersegment sales
|
(71,374)
|
|
|
(64,595)
|
|
|
(190,523)
|
|
|
(166,563)
|
|
Total revenues
|
$ 1,094,715
|
|
|
$ 1,008,140
|
|
|
$ 2,912,806
|
|
|
$ 2,719,693
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
$ 259,122
|
|
|
$ 261,762
|
|
|
$ 652,075
|
|
|
$ 664,154
|
|
Asphalt
|
31,363
|
|
|
32,889
|
|
|
68,921
|
|
|
76,028
|
|
Concrete
|
14,367
|
|
|
8,711
|
|
|
34,302
|
|
|
18,334
|
|
Calcium
|
664
|
|
|
847
|
|
|
1,972
|
|
|
2,596
|
|
Total
|
$ 305,516
|
|
|
$ 304,209
|
|
|
$ 757,270
|
|
|
$ 761,112
|
|
Depreciation, Depletion, Accretion
|
|
|
|
|
|
|
|
|
|
|
|
and Amortization (DDA&A)
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
$ 64,071
|
|
|
$ 60,204
|
|
|
$ 182,559
|
|
|
$ 177,129
|
|
Asphalt
|
6,494
|
|
|
4,100
|
|
|
18,841
|
|
|
12,468
|
|
Concrete
|
3,591
|
|
|
3,072
|
|
|
10,286
|
|
|
9,141
|
|
Calcium
|
180
|
|
|
198
|
|
|
567
|
|
|
577
|
|
Other
|
5,300
|
|
|
4,475
|
|
|
15,721
|
|
|
14,047
|
|
Total
|
$ 79,636
|
|
|
$ 72,049
|
|
|
$ 227,974
|
|
|
$ 213,362
|
|
Identifiable Assets
2
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
|
|
|
|
|
|
$ 7,974,915
|
|
|
$ 7,671,222
|
|
Asphalt
|
|
|
|
|
|
|
355,171
|
|
|
243,909
|
|
Concrete
|
|
|
|
|
|
|
233,565
|
|
|
188,169
|
|
Calcium
|
|
|
|
|
|
|
3,505
|
|
|
5,392
|
|
Total identifiable assets
|
|
|
|
|
|
|
$ 8,567,156
|
|
|
$ 8,108,692
|
|
General corporate assets
|
|
|
|
|
|
|
171,015
|
|
|
114,028
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
701,163
|
|
|
135,365
|
|
Total
|
|
|
|
|
|
|
$ 9,439,334
|
|
|
$ 8,358,085
|
|
|
|
1
|
Includes crushed stone, sand and gravel, sand, other aggregates, as well as freight, delivery and transportation revenues, and
service
revenues related to
aggregates
.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
in thousands
|
2017
|
|
|
2016
|
|
Cash Payments
|
|
|
|
|
|
Interest (exclusive of amount capitalized)
|
$ 118,157
|
|
|
$ 69,865
|
|
Income taxes
|
124,121
|
|
|
92,397
|
|
Noncash Investing and Financing Activities
|
|
|
|
|
|
Accrued liabilities for purchases of property, plant & equipment
|
$ 10,602
|
|
|
$ 10,493
|
|
Amounts referable to business acquisitions
|
|
|
|
|
|
Liabilities assumed
|
1,935
|
|
|
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
nine
month periods ended
September
3
0
, 20
17
and 201
6
.
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
6
to
September
3
0
, 2017
are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Aggregates
|
|
|
Asphalt
|
|
|
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
|
6,513
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
6,513
|
|
Goodwill of divested businesses
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total as of September 30, 2017
|
$ 3,009,704
|
|
|
$ 91,633
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 3,101,337
|
|
|
|
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 AND PENDING ACQUISITIONS
During the second quarter of 2017, we announced the pending acquisition of Aggregates USA, LLC, an aggregates business that
is composed of
32
facilities
(
15
aggregates facilities,
16
aggregates rail distribution yards and
1
aggregates truck distribution yard)
in Florida, Georgia, South Carolina, Tennessee and Virginia, for
$900.0
million in cash. In order to expedite the regulatory approval process, we may dives
t q
uarries in Tennessee
and Virginia
subject to receipt of regulatory approval
. We
expect
to close this acquisition in the fourth quarter of
2017.
During
the nine months ended September 30, 2017, we purchased the following for total consideration of
$
212,406,000
:
|
§
|
|
California — ready-mixed concrete facilities,
an
aggregates marine distribution yard and building materials yards
|
|
§
|
|
Illinois —
two
aggregates facilities
|
|
§
|
|
New Mexico —
an
aggregates facility
|
|
§
|
|
Tennessee —
two
aggregates facilit
ies
, asphalt mix operations
and
a
construction paving business
|
The 2017
completed
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 of assets acquired and liabilities assumed (based on their estimated fair values at their acquisition dates), are summarized below:
|
|
|
|
|
|
|
September 30
|
|
in thousands
|
2017
|
|
Fair Value of Purchase Consideration
|
|
|
Cash
|
$ 210,562
|
|
Payable to seller
|
1,844
|
|
Total fair value of purchase consideration
|
$ 212,406
|
|
Identifiable Assets Acquired and Liabilities Assumed
|
|
|
Inventories
|
6,213
|
|
Other current assets
|
253
|
|
Property, plant & equipment
|
126,426
|
|
Other intangible assets
|
|
|
Contractual rights in place
|
73,092
|
|
Liabilities assumed
|
(91)
|
|
Net identifiable assets acquired
|
$ 205,893
|
|
Goodwill
|
$ 6,513
|
|
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
2017
completed
acquisitions, we recognized
$
73,092,000
of amortizable intangible assets
(c
ontractual rights in place). The
se
contractual rights in plac
e wi
ll be amortized against earnings (
$
66,630,000
– straight-line over a weighted-average
18.8
years and
$
6,462,000
– units of sales over an estimated
20
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
are
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
–
u
nits of sales 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 September 30, 2017, December 31, 2016 or September 30, 2016. However, as stated above, we may divest several quarries in Tennessee in order to expedite the regulatory approval process for the pending Aggregates USA acquisition.
Note 17: New Accounting Standards
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. 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
.
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 consolidated 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 impairment 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 as 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 exceeded their carrying values. As 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. Our current policy is to present changes in restricted cash within the investing section of our consolidated statements of cash flows. 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
th
ese
standard
s
to have a material impact on our consolidated
statements of cash flows
.
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 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. While we expect the adoption of this standard to have a material effect on our consolidated financial statements and related disclosures, we have yet to quantify the effect.
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. 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 permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Further, in applying this ASU an entity is permitted to use either the full retrospective or cumulative effect transition
approach.
W
e
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 this standard using the cumulative effect transition approach.
ITEM 2