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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2013

Commission file number: 001-33841

 

VULCAN MATERIALS COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

New Jersey

(State or other jurisdiction of incorporation or organization)

20-8579133

(I.R.S. Employer Identification No.)

 

1200 Urban Center Drive, Birmingham, Alabama 35242

(Address of Principal Executive Offices) (Zip Code)

 

(205) 298-3000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Common Stock, $1 par value

 

Name of each exchange on which registered

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  X   No __

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or section 15(d) of the Act. Yes       No  X   

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X   No __

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   X  No  __

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

 

                                        Large accelerated filer   X                                            Accelerated filer  __                        

                                          Non-accelerated filer  __                          Smaller reporting company  __
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes __  No  X  

 

 

 

 

Aggregate market value of voting and non-voting common stock held by non-affiliates as of
June 30, 2013:

$
6,270,045,869 

Number of shares of common stock, $1.00 par value, outstanding as of February 12, 2014:

130,564,191 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s annual proxy statement for the annual meeting of its shareholders to be held on May 9, 2014, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 

 

 


 

 

 

 

 

 

VULCAN MATERIALS COMPANY

ANNUAL REPORT ON FORM 10-k
fISCAL YEAR ENDED DECEMBER 31, 2013

CONTENTS

 

Part

Item

 

Page

I

1

Business

 

1A

Risk Factors

17 

 

1B

Unresolved Staff Comments

21 

 

2

Properties

21 

 

3

Legal Proceedings

24 

 

4

Mine Safety Disclosures

24 

II

5

Market for the Registrant’s Common Equity, Related
   Stockholder Matters and Issuer Purchases of Equity Securities

25 

 

6

Selected Financial Data

26 

 

7

Management’s Discussion and Analysis of Financial Condition
   and Results of Operations

27 

 

7A

Quantitative and Qualitative Disclosures about Market Risk

51 

 

8

Financial Statements and Supplementary Data

52 

 

9

Changes in and Disagreements with Accountants on Accounting and
   Financial Disclosure

105 

 

9A

Controls and Procedures

105 

 

9B

Other Information

107 

III

10

Directors, Executive Officers and Corporate Governance

108 

 

11

Executive Compensation

108 

 

12

Security Ownership of Certain Beneficial Owners and
   Management and Related Stockholder Matters

108 

 

13

Certain Relationships and Related Transactions, and Director Independence

108 

 

14

Principal Accounting Fees and Services

108 

IV

15

Exhibits and Financial Statement Schedules 

109 

 

Signatures

110 

 

Unless otherwise stated or the context otherwise requires, references in this report to "Vulcan," the "company," "we," "our," or "us" refer to Vulcan Materials Company and its consolidated subsidiaries.

 

 

 

 

 

 

 

 

Table of Contents

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PART I

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

Certain of the matters and statements made herein or incorporated by reference into this report constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our intent, belief or current expectation. Often, forward-looking statements can be identified by the use of words such as "anticipate," "may," "believe," "estimate," "project," "expect," "intend" and words of similar import. In addition to the statements included in this report, we may from time to time make other oral or written forward-looking statements in other filings under the Securities Exchange Act of 1934 or in other public disclosures. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those indicated by the forward-looking statements. All forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the statements. These assumptions, risks and uncertainties include, but are not limited to:

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general economic and business conditions

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the timing and amount of federal, state and local funding for infrastructure

§

changes in our effective tax rate that can adversely impact results

§

the increasing reliance on information technology infrastructure for our ticketing, procurement, financial statements and other processes can adversely affect operations in the event that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber attacks

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the impact of the state of the global economy  on our business and financial condition and access to capital markets

§

changes in the level of spending for residential and private nonresidential construction

§

the highly competitive nature of the construction materials industry

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the impact of future regulatory or legislative actions

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the outcome of pending legal proceedings

§

pricing of our products

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weather and other natural phenomena

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energy costs

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costs of hydrocarbon-based raw materials

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healthcare costs

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the amount of long-term debt and interest expense we incur

§

changes in interest rates

§

the impact of our below investment grade debt rating on our cost of capital

§

volatility in pension plan asset values and liabilities which may require cash contributions to our pension plans

§

the impact of environmental clean-up costs and other liabilities relating to previously divested businesses

§

our ability to secure and permit aggregates reserves in strategically located areas

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our ability to manage and successfully integrate acquisitions

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our ability to implement successfully a management succession plan

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the potential of goodwill or long-lived asset impairment

§

the potential impact of future legislation or regulations relating to climate change, greenhouse gas emissions or the definition of minerals

§

the risks set forth in Item 1A "Risk Factors," Item 3 "Legal Proceedings," Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and Note 12 "Commitments and Contingencies" to the consolidated financial statements in Item 8 "Financial Statements and Supplementary Data," all as set forth in this report

 

 

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§

other assumptions, risks and uncertainties detailed from time to time in our filings made with the Securities and Exchange Commission

All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission and our press releases with regard to our business and consolidated financial position, results of operations and cash flows.

 

 

 

 

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ITEM 1

BUSINESS

 

Vulcan Materials Company is a New Jersey corporation and the nation’s largest producer of construction aggregates: primarily crushed stone, sand and gravel. We operated 342 aggregates facilities during 2013. We also are a major producer of asphalt mix and ready-mixed concrete as well as a leading producer of cement in Florida. 

VULCAN’S VALUE PROPOSITION

We are the leading construction materials business in the country with superior aggregates operations. Our leading position is based upon:

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a favorable geographic footprint that provides attractive long-term growth prospects

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the largest proven and probable reserve base in the United States

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operational expertise and pricing discipline providing attractive unit profitability

Picture 1

STRATEGY FOR EXISTING AND NEW MARKETS 

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Our aggregates reserves are strategically located throughout the United States in areas that are projected to grow faster than the national average and that require large amounts of aggregates to meet construction demand. Vulcan-served states are estimated to generate 75% of the total growth in U.S. population and 70% of the total growth in U.S. household formations between 2010 and 2020. Our top ten revenue producing states in 2013 were Alabama,  California,  Florida,  Georgia,  Illinois,  North Carolina,  South Carolina,  Tennessee, Texas and Virginia.

 

 

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Picture 3

    Source: Moody’s Analytics as of November 21, 2013

 

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We take a disciplined approach to strengthening our footprint by increasing our presence in U.S. metropolitan areas that are expected to grow more rapidly and by divesting assets that are no longer considered part of our long-term growth strategy. In 2013, we acquired three aggregates production facilities in fast-growing markets in Georgia and Texas; added substantially to our reserves in Georgia, Texas and Virginia; considerably improved our reserve position in California and commenced development of a major quarry in California. Conversely, we divested non-strategic assets in Wisconsin.

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Where practical, we have operations located close to our local markets because the cost of trucking materials long distances is prohibitive. Approximately 80% of our total aggregates shipments are delivered exclusively from the producing location to the customer by truck, and another 13% are delivered by truck after reaching a sales yard by rail or water.  The remaining 7% of aggregates shipments are delivered directly to the customer by rail or water.

COMPETITORS

We operate in an industry that generally is fragmented with a large number of small, privately-held companies. We estimate that the ten largest aggregates producers accounted for approximately 25% to 30%  of total U.S. aggregates production in 2013. Despite being the industry leader, Vulcan’s total U.S. market share is less than 10%.  Other publicly traded companies among the ten largest U.S. aggregates producers include the following:

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Cemex S.A.B. de C.V.

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CRH plc 

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HeidelbergCement AG

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Holcim Ltd.

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Lafarge

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Martin Marietta Materials, Inc.

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MDU Resources Group, Inc.

Because the U.S. aggregates industry is highly fragmented, with over 5,000 companies managing almost 9,000 operations during 2013, many opportunities for consolidation exist. Therefore, companies in the industry tend to grow by acquiring existing facilities to enter new markets or by extending their existing market positions. 

 

 

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BUSINESS STRATEGY

Vulcan provides the basic materials for the infrastructure needed to maintain and expand the U.S. economy. Our strategy is based on our strength in aggregates. Aggregates are used in most types of construction and in the production of asphalt mix and ready-mixed concrete. Our materials are used to build the roads, tunnels, bridges, railroads and airports that connect us, and to build the hospitals, churches, schools, shopping centers, and factories that are essential to our lives and the economy. The following graphs illustrate the relationship of our four operating segments to sales.

AGGREGATES-LED VALUE CREATION — 2013 NET SALES

Picture 10

    *Represents sales to external customers of our aggregates and our downstream products that use our aggregates.

Our business strategies include: 1) aggregates focus, 2) coast-to-coast footprint, 3) profitable growth, 4) tightly managed operational and overhead costs, and 5) effective land management.

1. AGGREGATES FOCUS

Aggregates are used in virtually all types of public and private construction and practically no substitutes for quality aggregates exist. Our focus on aggregates allows us to:

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BUILD AND HOLD SUBSTANTIAL RESERVES:  The locations of our reserves are critical to our long-term success because of barriers to entry created in many metropolitan markets by zoning and permitting regulations and high costs associated with transporting aggregates. Our reserves are strategically located throughout the United States in high-growth areas that will require large amounts of aggregates to meet future construction demand. Aggregates operations have flexible production capabilities and, other than energy inputs required to process the materials, require virtually no other raw material. Our downstream businesses (asphalt mix and concrete) use Vulcan-produced aggregates almost exclusively.

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TAKE ADVANTAGE OF BEING THE LARGEST PRODUCER:  Each aggregates operation is unique because of its location within a local market with particular geological characteristics. Every operation, however, uses a similar group of assets to produce saleable aggregates and provide customer service. Vulcan is the largest aggregates company in the U.S., whether measured by shipments or by revenues. The 342 aggregates facilities we operated during 2013 provided opportunities to standardize operating practices and procure equipment (fixed and mobile), parts, supplies and services in an efficient and cost-effective manner, both regionally and nationally. Additionally, we are able to share best practices across the organization and leverage our size for administrative support, customer service, accounting, accounts receivable and accounts payable, technical support and engineering.

 

 

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2. LARGE AND STRATEGICALLY LOCATED, COAST-TO-COAST

Demand for construction aggregates correlates positively with changes in population growth, household formation and employment. We have pursued a strategy to increase our presence in U.S. metropolitan areas that are expected to grow the most rapidly. In 2013, we divested non-strategic assets in Wisconsin;  increased our presence in fast-growing markets in Georgia, Texas and Virginia; considerably improved our reserve position in California; and commenced development of a major quarry in California.

The following graphic illustrates our projected percentage share of the growth by key demographics for the United States:

               Picture 5

                    Source: Moody’s Analytics as of November 21, 2013

 

Top10States MAP.jpg

 

 

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3. PROFITABLE GROWTH

Our long-term growth is a result of strategic acquisitions and investments in key operations.

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Strategic acquisitions: Since becoming a public company in 1956, Vulcan has principally grown by mergers and acquisitions. For example, in 1999 we acquired CalMat Co., thereby expanding our aggregates operations into California and Arizona and making us one of the nation’s leading producers of asphalt mix and ready-mixed concrete. In 2007, we acquired Florida Rock Industries, Inc., the largest acquisition in our history. This acquisition expanded our aggregates business in Florida and other southeastern and mid-Atlantic states.

In addition to these large acquisitions, we have completed many smaller acquisitions that have contributed significantly to our growth.

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Reinvestment opportunities with high returns: During the current decade,  Moody's Analytics projects that 75% of the U.S. population growth, 70% of household formation and 63% of new jobs will occur in Vulcan-served states. The close proximity of our production facilities and our aggregates reserves to this projected population growth create many opportunities to invest capital in high-return projects — projects that will add reserves, increase production capacity and improve costs.

4. TIGHTLY MANAGED OPERATIONAL AND OVERHEAD COSTS

We  focus on rigorous cost management throughout the economic cycle. Small savings per ton add up to significant cost reductions. We are able to adjust production levels to meet varying market conditions without jeopardizing our ability to take advantage of future increased demand.

 

Our knowledgeable and experienced workforce and our flexible production capabilities have allowed us to manage operational and overhead costs aggressively during the prolonged recession in the construction industry. In 2012, we initiated a Profit Enhancement Plan that focused on improving profitability through more effective sourcing, reducing general & administrative expenses and improving transportation/logistics programs. We also reorganized our company structure in 2012 enabling us to make significant reductions in our Selling, Administrative and General (SAG) expense. In addition to cost reduction steps taken in previous years, in 2013 we continued to control costs aggressively in our operations. As a result of these cost controls coupled with a disciplined approach to pricing, our cash gross profit for each ton of aggregates sold in 2013 was 33%  higher than at the peak of demand in 2005 (refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for Non-GAAP disclosures). 

 

   Picture 3

 

 

 

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5. LAND MANAGEMENT

We believe that effective land management is both a business strategy and a social responsibility that contributes to our success. Good stewardship requires the careful use of existing resources as well as long-term planning because mining, ultimately, is an interim use of the land. Therefore, we strive to achieve a balance between the value we create through our mining activities and the value we create through effective post-mining land management. We continue to expand our thinking and focus our actions on wise decisions regarding the life cycle management of the land we currently hold and will hold in the future.

PRODUCT LINES

We have four operating (and reportable) segments organized around our principal product lines:

1.

Aggregates

2.

Concrete

3.

Asphalt Mix

4.

Cement

1. AGGREGATES

A number of factors affect the U.S. aggregates industry and our business, including markets, the location and quality of reserves and demand cycles.

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Local markets: Aggregates have a high weight-to-value ratio and, in most cases, are produced near where they are used; if not, transportation can cost more than the materials, rendering them uncompetitive compared to locally produced materials. Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available high quality aggregates. We serve these markets from quarries that have access to long-haul transportation — shipping by barge and rail — and from our quarry on Mexico’s Yucatan Peninsula. We transport aggregates from Mexico to the U.S. principally on our three Panamax-class, self-unloading ships.

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Diverse markets: Large quantities of aggregates are used in virtually all types of public- and private-sector construction projects, such as highways, airports, water and sewer systems, industrial manufacturing facilities, residential and nonresidential buildings. Aggregates also are used widely as railroad track ballast.

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Location and quality of reserves: We currently have 15.0 billion tons of permitted and proven or probable aggregates reserves. The bulk of these reserves are located in areas where we expect greater than average rates of growth in population, jobs and households, which require new infrastructure, housing, offices, schools and other development. Such growth depends on aggregates for construction. Zoning and permitting regulations in some markets have made it increasingly difficult for the aggregates industry to expand existing quarries or to develop new quarries. These restrictions could curtail expansion in certain areas, but they also could increase the value of our reserves at existing locations.

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Demand cycles: Long-term growth in demand for aggregates is largely driven by growth in population, jobs and households. While short- and medium-term demand for aggregates fluctuates with economic cycles, declines have historically been followed by strong recoveries, with each peak establishing a new historical high.

 

 

 

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       Picture 1

In addition, the following factors influence the aggregates market:

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Highly fragmented industry: The U.S. aggregates industry is composed of over 5,000 companies that manage almost 9,000 operations. This fragmented structure provides many opportunities for consolidation. Companies in the industry commonly enter new markets or expand positions in existing markets through the acquisition of existing facilities.

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Relatively stable demand from the public sector: Publicly funded construction activity has historically been more stable and less cyclical than privately funded construction,  and generally requires more aggregates per dollar of construction spending. Private construction (primarily residential and nonresidential buildings) typically is more affected by general economic cycles than publicly funded projects (particularly highways, roads and bridges), which tend to receive more consistent levels of funding throughout economic cycles.

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Limited product substitution: There are limited substitutes for quality aggregates. Recycled concrete and asphalt have certain applications as a lower-cost alternative to virgin aggregates. However, due to technical specifications many types of construction projects cannot be served by recycled concrete, but require the use of virgin aggregates to meet specifications and performance-based criteria for durability, strength and other qualities. Moreover, the amount of recycled asphalt included in asphalt mix as a substitute for aggregates is limited due to specifications.

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Widely used in downstream products: In the production process, aggregates are processed for specific applications or uses. Two products that use aggregates as a raw material are asphalt mix and ready-mixed concrete. By weight, aggregates comprise approximately 95% of asphalt mix and 78% of ready-mixed concrete.

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Flexible production capabilities: The production of aggregates is a mechanical process in which stone is crushed and, through a series of screens, separated into various sizes depending on how it will be used. Production capacity can be flexible by adjusting operating hours to meet changing market demand.

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raw material inputs largely under our control: Unlike typical industrial manufacturing industries, the aggregates industry does not require the input of raw material beyond owned or leased aggregates reserves. Stone, sand and gravel are naturally occurring resources. However, production does require the use of explosives, hydrocarbon fuels and electric power.

 

AGGREGATES MARKETS

We focus on the U.S. markets with above-average long-term expected population growth and where construction is expected to expand. Because transportation is a significant part of the delivered cost of aggregates, our facilities are typically located in the markets they serve or have access to economical transportation via rail, barge or ship to a particular end market. We serve both the public and the private sectors.

 

 

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PUBLIC SECTOR CONSTRUCTION

Public sector construction includes spending by federal, state, and local governments for highways, bridges and airports as well as other infrastructure construction for sewer and waste disposal systems, water supply systems, dams, reservoirs and other public construction projects. Construction for power plants and other utilities is funded from both public and private sources. In 2013, publicly funded construction accounted for approximately 52%  of our total aggregates shipments.

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Public Sector Funding: Generally, public sector construction spending is more stable than private sector construction because public sector spending is less sensitive to interest rates and has historically been supported by multi-year legislation and programs. For example, the federal surface transportation bill is a principal source of funding for public infrastructure and transportation projects. For over two decades, a portion of transportation projects has been funded through a series of multi-year bills. Some 40% of transportation projects are federally-funded, with special emphasis given to the largest and most complex projects. The long-term aspect of these bills is important because it provides state departments of transportation with the ability to plan and execute long-range, complex highway projects. Federal highway spending is governed by multi-year authorization bills and annual budget appropriations using funds largely from the Federal Highway Trust Fund. This Trust Fund receives funding from taxes on gasoline and other levies. The level of state spending on infrastructure varies across the United States and depends on individual state needs and economies. In 2013,  approximately 27%  of our aggregates sales by volume was used in highway construction projects.

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federal highway funding: In June 2012, Congress passed the Moving Ahead for Progress in the 21st Century Act (MAP-21), a new multi-year highway bill. There was overwhelming bipartisan support for this legislation in both the House and the Senate, and it was signed into law by the President on July 6, 2012. MAP-21 has provided state departments of transportation with the funding certainty to move forward on infrastructure programs, and it helps rebuild America’s aging infrastructure by modernizing and reforming our current transportation system, while also protecting millions of jobs.

MAP-21 maintains essentially level funding through Fiscal Year 2014, with approximately $105 billion of total funding. It extends the Highway Trust Fund and tax collections through Fiscal Year 2016, adding additional stability to the Federal Highway Program. The act’s substantial highway provisions are more reform-focused than previous bills, with a strong emphasis on improving project delivery and eliminating red tape that has slowed the construction of highway projects. Funding directly for highways has provided a floor of $82 billion for Fiscal Years 2013 and 2014. In addition, MAP-21 provides a significant increase in funding for the Transportation Infrastructure Finance & Innovation Act (TIFIA) program. Funding for this program will increase to $1.75 billion over the two-year period of this act, from $122 million per year under the previous multi-year highway bill. TIFIA funding is typically leveraged by a factor of 10. The U.S. Department of Transportation estimates this TIFIA funding will support $30 to $50 billion in new construction. However, given administrative requirements and other factors, it is difficult to predict the timing of shipments for TIFIA projects.

TIFIA is a highly popular program that stimulates private capital investment for projects of national or regional significance in key growth areas throughout the United States, including large portions of our footprint. The program provides low-cost credit assistance in the form of secured loans, loan guarantees and lines of credit to major transportation infrastructure projects for up to 49% of a project’s estimated cost. Repayment terms are generous and at favorable interest rates. Eligible sponsors for TIFIA projects include state and local governments, private firms, special authorities and transportation improvement districts. Eligible projects include highways and bridges, large multi-modal projects, as well as freight transfer and transit facilities. We are well positioned in states that are likely to get a disproportionate number of TIFIA-funded projects.

Overall, MAP-21 creates a positive framework for future authorizations through its significant reforms, consolidating and simplifying federal highway programs, accelerating the project delivery process, expanding project financing and promoting public-private partnership opportunities. The fact that Congress was able to pass the bill given the political climate in Washington, maintaining funding levels while also adding an additional year of program funding beyond what  was expected, has its own significance and has contributed to our optimism about the ability of Congress to continue to work towards long-term solutions that will rebuild America’s infrastructure. 

WATER INFRASTRUCTURE: Congress is currently working to complete the Water Resources Development Act (WRDA), which will provide legal authority for the U.S. Army Corps of Engineers to proceed with major planned improvements on hundreds of navigation, flood control, and ecosystem restoration infrastructure projects along rivers, canals, ports and inland waterways throughout the nation. In 2013, the U.S. House of Representatives and the Senate both passed versions of the bill with sweeping majorities. Negotiators from each chamber are currently working to produce a conference report that could pass both chambers and go to the president for his signature. We, along with our business allies, have been strong supporters of the WRDA bill given its overall importance to the U.S. economy, and the pressing

 

 

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need to make material improvements to America’s harbors, ports and inland waterways, which are extensively used by us and our customers. The final bill is expected to address a significant backlog of water infrastructure projects, help enable improved dredging at certain ports, and speed up permitting in order to improve the pace of project completion. Many of the large southern ports that would benefit from WRDA, as they gear up for expected increases in freight volumes with the expansion of the Panama Canal, lie within our footprint. Additionally, both the House and Senate bills introduce new innovative public-private financing opportunities; the Senate's proposal is modeled after the Highway program's TIFIA program and is called WIFIA (Water Infrastructure Financing and Innovation Act). It seeks to fund large projects exceeding $25 million that are otherwise unachievable. Further, as with TIFIA, it provides funding for up to 49% of a project's estimated cost, involves low interest rates, and includes favorable repayment terms as well as subrogation of the government's interest in order to encourage other investors. 

 

 

Private sector CONSTRUCTION

The private sector construction markets include both nonresidential building construction and residential construction and are considerably more cyclical than public construction. In 2013, privately-funded construction accounted for approximately 48%  of our total aggregates shipments.

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Nonresidential Construction: Private nonresidential building construction includes a wide array of projects. Such projects generally are more aggregates intensive than residential construction. Overall demand in private nonresidential construction generally is driven by job growth, vacancy rates, private infrastructure needs and demographic trends. The growth of the private workforce creates demand for offices, hotels and restaurants. Likewise, population growth generates demand for stores, shopping centers, warehouses and parking decks as well as hospitals, churches and entertainment facilities. Large industrial projects, such as a new manufacturing facility, can increase the need for other manufacturing plants to supply parts and assemblies. Construction activity in this end market is influenced by a firm's ability to finance a project and the cost of such financing.

Contract awards are a leading indicator of future construction activity and a continuation of the recent trend in awards should translate to growth in demand for aggregates. After bottoming in 2010, trailing twelve-month contract awards for private nonresidential buildings began to improve in 2011, ending the year up 16% from 2010 levels. In 2012, private nonresidential building awards grew another 14%, which was entirely attributable to strength in contract awards for stores and office buildings, up 34% and 17%, respectively. In 2013, contract awards, as measured in square feet, increased for the third year in a row. Total private nonresidential contract awards were up approximately 5 million square feet, or 11%. Stores and office buildings again accounted for all of this growth, up 19% and 20%, respectively. Employment growth, attractive lending standards and general recovery in the economy will help drive continued growth in construction activity in this end market.

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Residential Construction: The majority of residential construction is for single-family houses with the remainder consisting of multi-family construction (i.e., two family houses, apartment buildings and condominiums). Public housing comprises only a small portion of housing demand. Household formations in our markets continue to outpace household formations in the rest of the U.S. Construction activity in this end market is influenced by the cost and availability of mortgage financing.

U.S. housing starts, as measured by McGraw-Hill data, peaked in early 2006 at over 2 million units annually. By the end of 2009, total housing starts had declined to less than 600,000 units, well below prior historical lows of approximately 1 million units annually. In 2013, total annual housing starts increased to 951,000 units. The growth in residential construction bodes well for continued recovery in our markets.

ADDITIONAL AGGREGATES PRODUCTS AND MARKETS

We sell aggregates that are used as ballast for construction and maintenance of railroad tracks. We also sell riprap and jetty stone for erosion control along roads and waterways. In addition, stone can be used as a feedstock for cement and lime plants and for making a variety of adhesives, fillers and extenders. Coal-burning power plants use limestone in scrubbers to reduce harmful emissions. Limestone that is crushed to a fine powder can be sold as agricultural lime.

We sell a relatively small amount of construction aggregates outside of the United States, principally in the areas surrounding our large quarry on the Yucatan Peninsula in Mexico. Nondomestic sales and long-lived assets outside the United States are reported in Note 15 "Segment Reporting" in Item 8 "Financial Statements and Supplementary Data."

 

 

 

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OUR COMPETITIVE ADVANTAGes

The competitive advantages of our aggregates focused strategy include:

COAST-TO-COAST FOOTPRINT

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largest aggregates company in the U.S.

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high-growth markets requiring large amounts of aggregates to meet construction demand

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diversified regional exposure

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benefits of scale in operations, procurement and administrative support

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complementary asphalt mix, concrete and cement businesses in select markets

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effective land management

PROFITABLE GROWTH

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quality top-line growth that converts to higher-margin earnings and cash flow generation

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tightly managed operational and overhead costs

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more opportunities to manage our portfolio of locations to further enhance long-term earnings growth

STRATEGICALLY LOCATED ASSETS

§

our reserves are primarily located in high-growth markets that require large amounts of aggregates to meet construction demand

§

zoning and permitting regulations in many metropolitan markets have made it increasingly difficult to expand existing quarries or to develop new quarries

§

such regulations, while potentially curtailing expansion in certain areas, could also increase the value of our reserves at existing locations

2. CONCRETE

We produce and sell ready-mixed concrete in California, Florida, Georgia, Maryland, Texas, Virginia and the District of Columbia and the Bahamas.  Additionally, we produce and sell, in a limited number of these markets, other concrete products such as block. We also resell purchased building materials for use with ready-mixed concrete and concrete block.

This segment relies on our reserves of aggregates, functioning essentially as a customer to our aggregates operations. Aggregates are a major component in ready-mixed concrete, comprising approximately 78% by weight of this product. We meet the aggregates requirements of our Concrete segment almost wholly through our Aggregates segment. These product transfers are made at local market prices for the particular grade and quality of material required.

We serve our Concrete segment customers from our local production facilities or by truck. Because ready-mixed concrete hardens rapidly, delivery typically is within close proximity to the producing facility.

Ready-mixed concrete production also requires cement. In the Florida market, cement requirements for ready-mixed concrete production were mostly supplied by our Cement segment. In other markets, we purchase cement from third-party suppliers. We do not anticipate any material difficulties in obtaining the raw materials necessary for this segment to operate.

In January 2014, we entered into an agreement to sell our cement and concrete businesses in the Florida area to Cementos Argos. The transaction is expected to close in the first quarter of 2014. For additional details see Note 21 “Subsequent Events” in Item 8 “Financial Statements and Supplementary Data.”

 

 

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3. ASPHALT MIX

We produce and sell asphalt mix in Arizona, California, and Texas. This segment relies on our reserves of aggregates, functioning essentially as a customer to our aggregates operations. Aggregates are a major component in asphalt mix, comprising approximately 95% by weight of this product. We meet the aggregates requirements for our Asphalt Mix segment almost wholly through our Aggregates segment. These product transfers are made at local market prices for the particular grade and quality of material required.

Because asphalt mix hardens rapidly, delivery typically is within close proximity to the producing facility. The asphalt mix production process requires liquid asphalt cement, which we purchase from third-party producers. We do not anticipate any material difficulties in obtaining the raw materials necessary for this segment to operate. We serve our Asphalt Mix segment customers from our local production facilities.

4. CEMENT

Our Newberry, Florida cement plant produces Portland and masonry cement that we sell in both bulk and bags to the concrete products industry. Our Tampa, Florida distribution facility can import and export cement and slag. Cement can be resold, blended, bagged, or reprocessed into specialty cements that we then sell. The slag is ground and sold in blended or unblended form. The Cement segment’s largest single customer is our own ready-mixed concrete operations within the Concrete segment.

Our Brooksville, Florida calcium plant produces calcium products for the animal feed, paint, plastics, water treatment and joint compound industries. This facility is supplied with high quality calcium carbonate material mined at the Brooksville quarry.

An expansion of production capacity at our Newberry, Florida cement plant was completed in 2010. Total annual production capacity is 1.6 million tons per year. This plant is supplied by limestone mined at the facility. As of December 31, 2013, these limestone reserves totaled 188.6 million tons.

In January 2014, we entered into an agreement to sell our cement and concrete businesses in the Florida area to Cementos Argos. We will retain our Cement segment’s calcium operation in Brooksville. The transaction is expected to close in the first quarter of 2014. For additional details see Note 21 “Subsequent Events” in Item 8 “Financial Statements and Supplementary Data.”

OTHER BUSINESS-RELATED ITEMS

SEASONALITY AND CYCLICAL NATURE OF OUR BUSINESS

Almost all of our products are produced and consumed outdoors. Seasonal changes and other weather-related conditions can affect the production and sales volumes of our products. Therefore, the financial results for any quarter do not necessarily indicate the results expected for the year. Normally, the highest sales and earnings are in the third quarter and the lowest are in the first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical swings in construction spending, primarily in the private sector. The levels of construction spending are affected by changing interest rates and demographic and population fluctuations.

 

 

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CUSTOMERS

No material part of our business depends upon any single customer whose loss would have a significant adverse effect on our business. In 2013, our five largest customers accounted for 4.8% of our total revenues (excluding internal sales), and no single customer accounted for more than 1.1% of our total 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.

ENVIRONMENTAL COSTS AND GOVERNMENTAL REGULATION

Our operations are subject to numerous federal, state and local laws and regulations relating to the protection of the environment and worker health and safety; examples include regulation of facility air emissions and water discharges, waste management, protection of wetlands, listed and threatened species, noise and dust exposure control for workers, and safety regulations under both Mine Safety and Health Administration (MSHA) and Occupational Safety and Health Administration (OSHA). Compliance with these various regulations requires a substantial capital investment, and ongoing expenditures for the operation and maintenance of systems and implementation of programs. We estimate that capital expenditures for environmental control facilities in 2014 and 2015 will be approximately $10.6 million and $22.7 million, respectively. These anticipated expenditures are not expected to have a material impact on our earnings or competitive position.

Frequently, we are required by state and local regulations or contractual obligations to reclaim our former mining sites. These reclamation liabilities are recorded in our financial statements as a liability at the time the obligation arises. The fair value of such obligations is capitalized and depreciated over the estimated useful life of the owned or leased site. The liability is accreted through charges to operating expenses. To determine the fair value, we estimate the cost for a third party to perform the legally required reclamation, which is adjusted for inflation and risk and includes a reasonable profit margin. All reclamation obligations are reviewed at least annually. Reclaimed quarries often have potential for use in commercial or residential development or as reservoirs or landfills. However, no projected cash flows from these anticipated uses have been considered to offset or reduce the estimated reclamation liability.

For additional information regarding reclamation obligations (referred to in our financial statements as asset retirement obligations), see Notes 1 and 17 to the consolidated financial statements in Item 8 "Financial Statements and Supplementary Data."

PATENTS AND TRADEMARKS

We do not own or have a license or other rights under any patents, registered trademarks or trade names that are material to any of our reporting segments.

OTHER INFORMATION REGARDING VULCAN

Vulcan is a New Jersey corporation incorporated on February 14, 2007, while its predecessor company was incorporated on September 27, 1956. Our principal sources of energy are electricity, diesel fuel, natural gas and coal. We do not anticipate any difficulty in obtaining sources of energy required for operation of any of our reporting segments in 2014.

As of January 1, 2014, we employed 6,902 people in the U.S. Of these employees, 536 are represented by labor unions. Also, as of that date, we employed 308 people in Mexico and 1 in the Bahamas,  243 of whom are represented by a labor union. We do not anticipate any significant issues with any unions in 2014. 

We do not use a backlog of orders to evaluate and understand our business at a Company level.

 

 

 

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EXECUTIVE OFFICERS OF THE REGISTRANT

The names, positions and ages, as of February 20, 2014, of our executive officers are as follows:

__

 

 

Name

Position

Age  

Donald M. James

Chairman and Chief Executive Officer

65 

Danny R. Shepherd

Vice Chairman

62 

J. Thomas Hill

Executive Vice President and Chief Operating Officer

54 

John R. McPherson

Executive Vice President and Chief Financial Officer

45 

Daniel F. Sansone

Executive Vice President, Strategy

61 

Stanley G. Bass

Senior Vice President – West Region

52 

David P. Clement

Senior Vice President – Central Region

53 

J. Wayne Houston

Senior Vice President, Human Resources

64 

Michael R. Mills

Senior Vice President and General Counsel

53 

Ejaz A. Khan

Vice President, Controller and Chief Information Officer

56 

 

The principal occupations of the executive officers during the past five years are set forth below:

Donald M. James was elected Chief Executive Officer and Chairman of the Board of Directors in 1997.

Danny R. Shepherd was elected Vice Chairman on December 16, 2013. Prior to that he served as Executive Vice President and Chief Operating Officer (November 2012December 2013), Executive Vice President, Construction Materials (February 2011November 2012) and Senior Vice President, Construction Materials East (February 2007February 2011).

J. Thomas Hill was elected Executive Vice President and Chief Operating Officer on December 16, 2013. Prior to that he served as Senior Vice President – South Region (December 2011December 2013), President, Florida Rock Division (September 2010 –  December 2011) and President, Southwest Division (July 2004August 2010).

John R. McPherson was elected Executive Vice President and Chief Financial Officer on December 16, 2013. Prior to that he served as Senior Vice President – East Region (November 2012December 2013) and Senior Vice President, Strategy and Business Development (October 2011 – November 2012). Before joining Vulcan in October 2011, Mr. McPherson was a senior partner at McKinsey & Company, a global management consulting firm, from 1995 to 2011.

Daniel F. Sansone was elected Executive Vice President, Strategy as of January 1, 2014. Prior to that he served as Executive Vice President and Chief Financial Officer (February 2011 – December 2013) and Senior Vice President and Chief Financial Officer (May 2005 – February 2011).

Stanley G. Bass was elected Senior Vice President – West Region as of September 1, 2013. Prior to that he served as Senior Vice President – Central and West Regions (February 2013 – September 2013), Senior Vice President – Central Region (December 2011February 2013), President, Midsouth and Southwest Divisions (September 2010December 2011) and President, Midsouth Division (August 2005August 2010).

David P. Clement was elected Senior Vice President – Central Region in September 2013. Over the past five years he has served in a number of positions with Vulcan including Vice President and General Manager, Midwest Division and Vice President of Operations, Midwest Division.

J. Wayne Houston was elected Senior Vice President, Human Resources in February 2004.

Michael R. Mills was elected Senior Vice President and General Counsel as of November 1, 2012. He most recently served as Senior Vice President – East Region from December 2011. Prior to that, he was President, Southeast Division.

Ejaz A. Khan was elected Vice President and Controller in February 1999. He was elected Chief Information Officer in February 2000.

 

 

 

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shareholder return performance presentation

Below is a graph comparing the performance of our common stock, with dividends reinvested, to that of the Standard & Poor’s 500 Stock Index (S&P 500) and the Materials and Services Sector of the Wilshire 5000 Index (Wilshire 5000 M&S) from December 31, 2008 to December 31, 2013. The Wilshire 5000 M&S is a market capitalization weighted sector containing public equities of firms in the Materials and Services sector, which includes our company and approximately 1,200 other companies.

Picture 10

INVESTOR INFORMATION

We make available on our website, www.vulcanmaterials.com, free of charge, copies of our: 

§

Annual Report on Form 10-K

§

Quarterly Reports on Form 10-Q

§

Current Reports on Form 8-K

We also provide amendments to those reports filed with or furnished to the Securities and Exchange Commission (the "SEC") pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database (www.sec.gov).

The public may read and copy materials filed with the SEC at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D. C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. In addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K, including financial statements, by writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.

We have a: 

§

Business Conduct Policy applicable to all employees and directors

§

Code of Ethics for the CEO and Senior Financial Officers

Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the heading "Corporate Governance." If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC.

Our Board of Directors has also adopted:

§

Corporate Governance Guidelines

§

Charters for its Audit, Compensation, Finance, Governance and Safety Health & Environment Committees

 

 

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These documents meet all applicable SEC and New York Stock Exchange regulatory requirements.

The Audit, Compensation and Finance Charters are available on our website under the heading, "Corporate Governance," or you may request a copy of any of these documents by writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.

 

 

ITEM 1A 

RISK FACTORS

 

An investment in our common stock involves risks. You should carefully consider the following risks, together with the information included in or incorporated by reference in this report, before deciding whether an investment in our common stock is suitable for you. If any of these risks actually occurs, our business, results of operations or financial condition could be materially and adversely affected. In such an event, the trading prices of our common stock could decline and you might lose all or part of your investment. The following is a list of our risk factors.

ECONOMIC/POLITICAL RISKS

both commercial and residential construction are dependent upon the overall U.S. economy which is recovering at a slow pace  — Commercial and residential construction levels generally move with economic cycles. When the economy is strong, construction levels rise and when the economy is weak, construction levels fall. The U.S. economy is recovering from the recession, but the pace of recovery is slow. Since construction activity generally lags the recovery after down cycles, construction projects have not returned to their pre-recession levels.

Changes in legal requirements and governmental policies concerning zoning, land use, environmental and other areas of the law may result in additional liabilities, a reduction in operating hours and additional capital expenditures  — Our operations are affected by numerous federal, state and local laws and regulations related to zoning, land use and environmental matters. Despite our compliance efforts, we have an inherent risk of liability in the operation of our business. These potential liabilities could have an adverse impact on our operations and profitability. In addition, our operations are subject to environmental, zoning and land use requirements and require numerous governmental approvals and permits, which often require us to make significant capital and operating expenditures to comply with the applicable requirements. Stricter laws and regulations, or more stringent interpretations of existing laws or regulations, may impose new liabilities on us, reduce operating hours, require additional investment by us in pollution control equipment, or impede our opening new or expanding existing plants or facilities.

Climate change and climate change legislation or regulations may adversely impact our business  — A number of governmental bodies have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change. Such legislation or regulation, if enacted, potentially could include provisions for a "cap and trade" system of allowances and credits or a carbon tax, among other provisions. The Environmental Protection Agency (EPA) promulgated a mandatory reporting rule covering greenhouse gas emissions from sources considered to be large emitters. The EPA has also promulgated a greenhouse gas emissions permitting rule, referred to as the "Tailoring Rule," which requires permitting of large emitters of greenhouse gases under the Federal Clean Air Act. We have determined that our Newberry cement plant is subject to both the reporting rule and the permitting rule, although the impacts of the permitting rule are uncertain at this time. The first required greenhouse gas emissions report for the Newberry cement plant was submitted to the EPA on March 31, 2011.

Other potential impacts of climate change include physical impacts such as disruption in production and product distribution due to impacts from major storm events, shifts in regional weather patterns and intensities, and potential impacts from sea level changes. There is also a potential for climate change legislation and regulation to adversely impact the cost of purchased energy and electricity.

The impacts of climate change on our operations and the company overall are highly uncertain and difficult to estimate. However, climate change, legislation and regulation concerning greenhouse gases could have a material adverse effect on our future financial position, results of operations or cash flows.

 

 

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GROWTH AND COMPETITIVE RISKS

Within our local markets, we operate in a highly competitive industry which may negatively impact prices, volumes and costs —  The construction aggregates industry is highly fragmented with a large number of independent local producers in a number of our markets. Additionally, in most markets, we also compete against large private and public companies, some of which are significantly vertically integrated. Therefore, there is intense competition in a number of markets in which we operate. This significant competition could lead to lower prices and lower sales volumes in some markets, negatively affecting our earnings and cash flows.

Our long-term success depends upon securing and permitting aggregates reserves in strategically located areas. If we are unable to secure and permit such reserves it could negatively affect our earnings in the future  — Construc-tion aggregates are bulky and heavy and, therefore, difficult to transport efficiently. Because of the nature of the products, the freight costs can quickly surpass the production costs. Therefore, except for geographic regions that do not possess commercially viable deposits of aggregates and are served by rail, barge or ship, the markets for our products tend to be localized around our quarry sites and are served by truck. New quarry sites often take years to develop; therefore, our strategic planning and new site development must stay ahead of actual growth. Additionally, in a number of urban and suburban areas in which we operate, it is increasingly difficult to permit new sites or expand existing sites due to community resistance. Therefore, our future success is dependent, in part, on our ability to accurately forecast future areas of high growth in order to locate optimal facility sites and on our ability to secure operating and environmental permits to operate at those sites.

Our future growth depends in part on acquiring other businesses in our industry and successfully integrating them with our existing operations. If we are unable to integrate acquisitions successfully, it could lead to higher costs and could negatively affect our earnings The expansion of our business is dependent in part on the acquisition of existing businesses that own or control aggregates reserves. Disruptions in the availability of financing could make it more difficult to capitalize on potential acquisitions. Additionally, with regard to the acquisitions we are able to complete, our future results will depend in part on our ability to successfully integrate these businesses with our existing operations.

FINANCIAL/ACCOUNTING RISKS

Our industry is capital intensive, resulting in significant fixed and semi-fixed costs. Therefore, our earnings are highly sensitive to changes in volume  — Due to the high levels of fixed capital required for extracting and producing construction aggregates, our profits and profit margins are negatively affected by significant decreases in volume.

Uneven recovery in the construction industry may result in an impairment of our goodwill  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. While we have not identified any events or changes in circumstances since our annual impairment test on November 1, 2013 that indicate the fair value of any of our reporting units is below its carrying value, the timing of a sustained recovery in the construction industry may have a significant effect on the fair value of our reporting units. A significant 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.

We incurred considerable short-term and long-term debt to finance the Florida Rock merger. This additional debt significantly increased our interest expense and debt service requirements  The combination of this debt and our reduced operating cash flow over the last several years produced substantially higher financial leverage that has resulted in credit rating downgrades. 

Our operating cash flow is burdened by substantial annual interest, and in some years, principal payments. Our ability to make scheduled interest and principal payments, or to refinance the maturing principal of debt, depends on our operating and financial performance. The ability to refinance maturing principal is also dependent upon the state of the capital markets. Operating and financial performance is, in turn, subject to general economic and business conditions, many of which are beyond our control.  

Our debt instruments contain various reporting and financial covenants, as well as affirmative covenants (e.g., requirement to maintain proper insurance) and negative covenants (e.g., restrictions on lines of business). If we fail to comply with any of these covenants, the related debt could become due prior to its stated maturity, and our ability to obtain additional or alternative financing could be impaired.

 

 

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We use estimates in accounting for a number of significant items. Changes in our estimates could adversely affect our future financial results  — As discussed more fully in "Critical Accounting Policies" under Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations," we use significant judgment in accounting for:

§

goodwill and goodwill impairment

§

impairment of long-lived assets excluding goodwill

§

reclamation costs

§

pension and other postretirement benefits

§

environmental compliance

§

claims and litigation including self-insurance

§

income taxes

We believe we have sufficient experience and reasonable procedures to enable us to make appropriate assumptions and formulate reasonable estimates; however, these assumptions and estimates could change significantly in the future and could adversely affect our financial position, results of operations, or cash flows.

PERSONNEL RISKS

Our business depends on a successful succession plan  As a number of our long-serving top executives approach retirement age, effective succession planning has become very important to our long-term success. The Governance and Management Succession Committee of our Board of Directors as well as the full Board routinely reviews and updates the Company's management succession plan. In December 2013, we announced several leadership changes, effective January 1, 2014, in furtherance of our management succession plan. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. Additionally, this change in management may be disruptive to our business and during the transition period there may be uncertainty among investors, vendors, customers and others concerning our future direction and performance.

Our future success greatly depends upon attracting and retaining qualified personnel, particularly in sales and operations  A significant factor in our future profitability is our ability to attract, develop and retain qualified personnel. Our success in attracting qualified personnel, particularly in the areas of sales and operations, is affected by changing demographics of the available pool of workers with the training and skills necessary to fill the available positions, the impact on the labor supply due to general economic conditions, and our ability to offer competitive compensation and benefit packages.

OTHER RISKS

Weather can materially affect our operating results  — Almost all of our products are consumed outdoors in the public or private construction industry, and our production and distribution facilities are located outdoors. Inclement weather affects both our ability to produce and distribute our products and affects our customers’ short-term demand because their work also can be hampered by weather. Therefore, our financial results can be negatively affected by inclement weather.

Our products are transported by truck, rail, barge or ship, often by third-party providers. Significant delays or increased costs affecting these transportation methods could materially affect our operations and earnings  — Our products are distributed either by truck to local markets or by rail, barge or oceangoing vessel to remote markets. The costs of transporting our products could be negatively affected by factors outside of our control, including rail service interruptions or rate increases, tariffs, rising fuel costs and capacity constraints. Additionally, inclement weather, including hurricanes, tornadoes and other weather events, can negatively impact our distribution network.

We use large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources that are subject to potential supply constraints and significant price fluctuation, which could affect our operating results and profitability  — In our production and distribution processes, we consume significant amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources. The availability and pricing of these resources are subject to market forces that are beyond our control. Our suppliers contract separately for the purchase of such resources and our sources of supply could be interrupted should our suppliers not be able to obtain these materials due to higher demand or other factors that interrupt their availability. Variability in the supply and prices of these resources could materially affect our operating results from period to period and rising costs could erode our profitability.

 

 

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We are involved in a number of legal proceedings. We cannot predict the outcome of litigation and other contingencies with certainty We are involved in several complex litigation proceedings, some arising from our previous ownership and operation of our Chemicals and Metals businesses. Although we divested our Chemicals business in June 2005, we retained certain liabilities related to the business. As required by generally accepted accounting principles, we establish reserves when a loss is determined to be probable and the amount can be reasonably estimated. Our assessment of probability and loss estimates are based on the facts and circumstances known to us at a particular point in time. Subsequent developments in legal proceedings may affect our assessment and estimates of a loss contingency, and could result in an adverse effect on our financial position, results of operations or cash flows. For a description of our current significant legal proceedings see Note 12 "Commitments and Contingencies" in Item 8 "Financial Statements and Supplementary Data."

We are involved in certain environmental matters. We cannot predict the outcome of these contingencies with certainty  We are involved in environmental investigations and cleanups at sites where we operate or have operated in the past or sent materials for recycling or disposal, primarily in connection with our divested Chemicals and Metals businesses. As required by generally accepted accounting principles, we establish reserves when a loss is determined to be probable and the amount can be reasonably estimated. Our assessment of probability and loss estimates are based on the facts and circumstances known to us at a particular point in time. Subsequent developments related to these matters may affect our assessment and estimates of loss contingency, and could result in an adverse effect on our financial position, results of operations or cash flows. For a description of our current significant environmental matters see Note 12 “Commitments and Contingencies" in Item 8 "Financial Statements and Supplementary Data."

 

 

 

 

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ITEM 1B

UNRESOLVED STAFF COMMENTS

 

We have not received any written comments from the Securities and Exchange Commission staff regarding our periodic or current reports under the Exchange Act of 1934 that remain unresolved.

 

ITEM 2

PROPERTIES

AGGREGATES

As the largest U.S. producer of construction aggregates, we have operating facilities across the U.S. and in Mexico and the Bahamas. We principally serve markets in 18 states, the District of Columbia and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving states and metropolitan markets in the U.S. 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.

Final Map for 2013 10K 300dpi.jpg

Our current estimate of 15.0 billion tons of proven and probable aggregates reserves is  consistent with the prior year’s level.  Estimates of reserves are of recoverable stone, sand and gravel of suitable quality for economic extraction, based on drilling and studies by our geologists and engineers, recognizing reasonable economic and operating restraints as to maximum depth of overburden and stone excavation, and subject to permit or other restrictions.

 

 

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Proven, or measured, reserves are those reserves for which the quantity is computed from dimensions revealed by drill data, together with other direct and measurable observations such as outcrops, trenches and quarry faces. The grade and quality of those reserves are computed from the results of detailed sampling, and the sampling and measurement data are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Probable, or indicated, reserves are those reserves for which quantity and grade and quality are computed partly from specific measurements and partly from projections based on reasonable, though not drilled, geologic evidence. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

Reported proven and probable reserves include only quantities that are owned in fee or under lease, and for which all appropriate zoning and permitting have been obtained. Leases, zoning, permits, reclamation plans and other government or industry regulations often set limits on the areas, depths and lengths of time allowed for mining, stipulate setbacks and slopes that must be left in place, and designate which areas may be used for surface facilities, berms, and overburden or waste storage, among other requirements and restrictions. Our reserve estimates take into account these factors. Technical and economic factors also affect the estimates of reported reserves regardless of what might otherwise be considered proven or probable based on a geologic analysis. For example, excessive overburden or weathered rock, rock quality issues, excessive mining depths, groundwater issues, overlying wetlands, endangered species habitats, and rights of way or easements may effectively limit the quantity of reserves considered proven and probable. In addition, computations for reserves in-place are adjusted for estimates of unsaleable sizes and materials as well as pit and plant waste.

The 15.0 billion tons of estimated proven and probable aggregates reserves reported at the end of 2013 and 2012  include reserves at inactive and greenfield (undeveloped) sites. The table below presents, by region, the tons of proven and probable aggregates reserves as of December 31, 2013 and the types of facilities operated. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions of tons)

 

Number of Aggregates Operating Facilities  1

 

 

Aggregates Reserves

 

 

2013 

 

 

 

 

 

Sand and

 

 

 

 

 

Proven

 

 

Probable

 

 

Total

 

 

Production

 

 

Stone

 

 

Gravel

 

 

Sales Yards

 

Central 2

2,753.7 

 

 

899.1 

 

 

3,652.8 

 

 

24.3 

 

 

53 

 

 

 

 

 

East 2, 3

4,642.1 

 

 

1,966.9 

 

 

6,609.0 

 

 

47.3 

 

 

71 

 

 

 

 

25 

 

South  2

3,566.4 

 

 

200.8 

 

 

3,767.2 

 

 

48.4 

 

 

48 

 

 

16 

 

 

48 

 

West 2

628.2 

 

 

364.0 

 

 

992.2 

 

 

25.0 

 

 

 

 

21 

 

 

 

Total

11,590.4 

 

 

3,430.8 

 

 

15,021.2 

 

 

145.0 

 

 

176 

 

 

43 

 

 

79 

 

 

 

 

1

In addition to the facilities included in the table above, we operate 29 recrushed concrete plants which are not dependent on reserves.

2

The regions are defined by states as follows: Central region – Illinois, central Kentucky and Tennessee; East region – Delaware, central Georgia, Maryland, North Carolina, Pennsylvania, South Carolina, Virginia and the District of Columbia; South region – Alabama, Arkansas, Florida, south Georgia, western Kentucky, Louisiana, Mississippi, Texas, the Bahamas and Mexico; and West region – Arizona and California.

3

Includes a maximum of 395.9 million tons of reserves encumbered by volumetric production payments as defined in Note 1 "Summary of Significant Accounting Policies" caption “Deferred Revenue” to the consolidated financial statements in Item 8 "Financial Statements and Supplementary Data."

 

Of the 15.0 billion tons of aggregates reserves at December 31, 2013,  8.6 billion tons or 57% are located on owned land and 6.4 billion tons or 43% are located on leased land.

 

 

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The following table lists our ten largest active aggregates facilities based on the total proven and probable reserves at the sites. None of our aggregates facilities, other than Playa del Carmen, contributed more than 5% to our net sales in 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions of tons)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserves at 12/31/2013

 

 

2013 

 

Location (nearest major metropolitan area)

 

Proven

 

 

Probable

 

 

Total

 

 

Production

 

Playa del Carmen (Cancun), Mexico

 

632.4 

 

 

0.0 

 

 

632.4 

 

 

10.0 

 

Hanover (Harrisburg), Pennsylvania

 

278.7 

 

 

274.4 

 

 

553.1 

 

 

2.6 

 

McCook (Chicago), Illinois

 

122.0 

 

 

271.2 

 

 

393.2 

 

 

3.8 

 

DeKalb (Chicago), Illinois

 

162.1 

 

 

193.8 

 

 

355.9 

 

 

0.4 

 

Gold Hill (Charlotte), North Carolina

 

163.0 

 

 

128.9 

 

 

291.9 

 

 

0.7 

 

Macon, Georgia

 

126.7 

 

 

128.0 

 

 

254.7 

 

 

0.8 

 

Rockingham (Charlotte), North Carolina

 

76.6 

 

 

174.6 

 

 

251.2 

 

 

2.1 

 

Norcross (Atlanta), Georgia

 

 

200.1 

 

 

27.7 

 

 

227.8 

 

 

2.2 

 

1604 Stone (San Antonio), Texas

 

224.4 

 

 

0.0 

 

 

224.4 

 

 

2.7 

 

Cabarrus (Charlotte), North Carolina

 

119.2 

 

 

94.9 

 

 

214.1 

 

 

1.4 

 

ASPHALT MIX, CONCRETE AND CEMENT

We also operate a number of facilities producing other products in several of our Regions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asphalt Mix

 

 

Concrete  2

 

 

Cement 3

 

Region 1

 

Facilities

 

 

Facilities

 

 

Facilities

 

East

 

 

 

45 

 

 

 

South

 

10 

 

 

69 

 

 

 

West

 

24 

 

 

13 

 

 

 

 

 

 

1

Central Region has no asphalt mix, concrete or cement facilities.

2

Includes ready-mixed concrete, concrete block and other concrete products facilities.

3

Includes one cement manufacturing facility, one cement import terminal and a ground calcium plant.

 

The asphalt mix and concrete facilities are able to meet their needs for raw material inputs with a combination of internally sourced and purchased raw materials. Our Cement segment operates a limestone quarry in Newberry, Florida which provides our cement production facility with feedstock materials and a quarry at Brooksville, Florida which provides feedstock for the ground calcium operation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions of tons)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserves at 12/31/2013

 

 

2013 

 

Location

 

Proven

 

 

Probable

 

 

Total

 

 

Production

 

Newberry

 

177.7 

 

 

10.9 

 

 

188.6 

 

 

1.3 

 

Brooksville

 

5.4 

 

 

1.2 

 

 

6.6 

 

 

0.3 

 

 

Our Newberry limestone quarry is mined primarily as feedstock for our wholly-owned cement production facility. The process of making cement requires raw materials including high purity limestone to achieve the chemical reactions that generate the final product. The Newberry limestone quarry has an average calcium carbonate (CaCO3) content of 97.0%.

Our Brooksville limestone quarry is mined and processed primarily as a supplement for end-use products such as animal feed, plastics and paint. High purity limestone is inert and relatively inexpensive compared to the other components used in these end-use products. The Brooksville limestone quarry has an average calcium carbonate (CaCO3) content of 98.1%.

 

 

 

Part I

23

 


 

 

HEADQUARTERS

Our headquarters are located in an office complex in Birmingham, Alabama. The office space is leased through December 31, 2023, with three five-year renewal periods thereafter, and consists of approximately 184,125 square feet. The annual rental cost for the current term of the lease is $3.4 million.

 

ITEM 3

LEGAL PROCEEDINGS

 

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 are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome of, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels.

See Note 12 "Commitments and Contingencies" in Item 8 "Financial Statements and Supplementary Data" for a discussion of our material legal proceedings.

 

ITEM 4

MINE SAFETY DISCLOSURES

 

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.

 

 

 

 

 

Part I

24

 


 

 

PART II

ITEM 5

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is traded on the New York Stock Exchange (ticker symbol VMC). As of February 12, 2014, the number of shareholders of record was 3,597. The prices in the following table represent the high and low sales prices for our common stock as reported on the New York Stock Exchange and the quarterly dividends declared by our Board of Directors in 2013 and 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock Prices

 

 

Dividends

 

 

High

 

 

Low

 

 

Declared

 

2013

 

 

 

 

 

 

 

 

First quarter

$    59.48 

 

 

$    49.95 

 

 

$      0.01 

 

Second quarter

$    55.74 

 

 

$    45.42 

 

 

$      0.01 

 

Third quarter

$    54.37 

 

 

$    46.21 

 

 

$      0.01 

 

Fourth quarter

$    60.14 

 

 

$    50.32 

 

 

$      0.01 

 

2012

 

 

 

 

 

 

 

 

First quarter

$    48.09 

 

 

$    38.78 

 

 

$      0.01 

 

Second quarter

$    43.91 

 

 

$    32.31 

 

 

$      0.01 

 

Third quarter

$    49.99 

 

 

$    35.69 

 

 

$      0.01 

 

Fourth quarter

$    53.85 

 

 

$    44.19 

 

 

$      0.01 

 

 

The future payment of dividends is within the discretion of our Board of Directors and depends on our profitability, capital requirements, financial condition, debt levels, growth projects, business opportunities and other factors which our Board of Directors deems relevant. We are not a party to any contracts or agreements that currently materially limit our ability to pay dividends.

On February 14, 2014, our Board declared a dividend of five cents per share for the first quarter of 2014. The new quarterly dividend represents a four cent per share increase over quarterly dividends paid in 2013.

ISSUER PURCHASES OF EQUITY SECURITIES

We did not have any repurchases of stock during the fourth quarter of 2013. We did not have any unregistered sales of equity securities during the fourth quarter of 2013.

 

 

 

 

 

Part II

25

 


 

 

ITEM 6

SELECTED FINANCIAL DATA

 

The selected earnings data, per share data and balance sheet data for each of the five most recent years ended December 31 set forth below, have been derived from our audited consolidated financial statements. The following data should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements in Item 8 "Financial Statements and Supplementary Data."

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2013 

 

 

2012 

 

 

2011 

 

 

2010 

 

 

2009 

 

As of and for the years ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in millions, except per share data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

2,628.7 

 

$

2,411.2 

 

$

2,406.9 

 

$

2,405.9 

 

$

2,543.7 

 

Gross profit

$

426.9 

 

$

334.0 

 

$

283.9 

 

$

300.7 

 

$

446.0 

 

Gross profit as a percentage of net sales

 

16.2% 

 

 

13.9% 

 

 

11.8% 

 

 

12.5% 

 

 

17.5% 

 

Earnings (loss) from continuing operations

$

20.8 

 

$

(53.9)

 

$

(75.3)

 

$

(102.5)

 

$

18.6 

 

Earnings on discontinued operations,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of tax 1

$

3.6 

 

$

1.3 

 

$

4.5 

 

$

6.0 

 

$

11.7 

 

Net earnings (loss)

$

24.4 

 

$

(52.6)

 

$

(70.8)

 

$

(96.5)

 

$

30.3 

 

Basic earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Continuing operations

$

0.16 

 

$

(0.42)

 

$

(0.58)

 

$

(0.80)

 

$

0.16 

 

 Discontinued operations

 

0.03 

 

 

0.01 

 

 

0.03 

 

 

0.05 

 

 

0.09 

 

Basic net earnings (loss) per share

$

0.19 

 

$

(0.41)

 

$

(0.55)

 

$

(0.75)

 

$

0.25 

 

Diluted earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Continuing operations

$

0.16 

 

$

(0.42)

 

$

(0.58)

 

$

(0.80)

 

$

0.16 

 

 Discontinued operations

 

0.03 

 

 

0.01 

 

 

0.03 

 

 

0.05 

 

 

0.09 

 

Diluted net earnings (loss) per share

$

0.19 

 

$

(0.41)

 

$

(0.55)

 

$

(0.75)

 

$

0.25 

 

Cash and cash equivalents

$

193.7 

 

$

275.5 

 

$

155.8 

 

$

47.5 

 

$

22.3 

 

Total assets

$

8,259.1 

 

$

8,126.6 

 

$

8,229.3 

 

$

8,339.5 

 

$

8,526.5 

 

Working capital

$

652.4 

 

$

548.6 

 

$

456.8 

 

$

191.4 

 

$

(138.8)

 

Current maturities and short-term borrowings

$

0.2 

 

$

150.6 

 

$

134.8 

 

$

290.7 

 

$

621.9 

 

Long-term debt

$

2,522.2 

 

$

2,526.4 

 

$

2,680.7 

 

$

2,427.5 

 

$

2,116.1 

 

Equity

$

3,938.1 

 

$

3,761.1 

 

$

3,791.6 

 

$

3,955.8 

 

$

4,028.1 

 

Cash dividends declared per share

$

0.04 

 

$

0.04 

 

$

0.76 

 

$

1.00 

 

$

1.48 

 

 

 

 

1

Discontinued operations include the results from operations attributable to our former Chemicals business.

 

 

 

 

 

 

Part II

26

 


 

 

ITEM 7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

EXECUTIVE SUMMARY

FINANCIAL SUMMARY FOR 2013

§

Earnings from continuing operations were $0.16 per diluted share versus a loss of $0.42 per diluted share in the prior year

§

Net earnings of $24.4 million improved by $77.0 million and Adjusted EBITDA of $467.8 million increased by $56.5 million

§

Gross profit increased $92.9 million and gross profit margin as a percentage of net sales improved 2.3 percentage points (230 basis points) with each operating segment reporting higher earnings

§

Aggregates segment gross profit increased $61.2 million and gross profit as a percentage of segment revenues improved 1.4 percentage points (140 basis points)

§

Aggregates volume increased 4%

§

Aggregates pricing increased 3%

§

Selling, Administrative and General (SAG) expenses of $259.4 million were essentially flat compared with the prior year’s $259.1 million

§

Capital spending was $158.4 million, excluding an investment of $117.0 million for the purchase of land containing 136 million tons of reserves in California that previously were leased

§

Gross cash proceeds of $207.2 million were realized from asset sales and the sale of future production

KEY DRIVERS OF VALUE CREATION

Picture 1

   *Source: Moody's Analytics

 

 

 

 

Part II

27

 


 

 

EARNINGS GROWTH INITIATIVES

In February 2012, our Board of Directors approved a two-part initiative to accelerate earnings and cash flow growth, improve our operating leverage, reduce overhead costs and strengthen our credit profile:

§

A Profit Enhancement Plan that included cost reductions and other earnings enhancements intended to improve our run-rate profitability, as measured by EBITDA, by more than $100 million annually at then current volumes. The Profit Enhancement Plan focused on three areas — sourcing, general & administrative costs and transportation/logistics. During 2012 and 2013, we achieved more than $100 million of run-rate improvement in profitability.

§

Planned Asset Sales with targeted net proceeds of approximately $500 million from the sale of non-core assets.  Through 2013, we have achieved $380.8 million  of  gross proceeds as outlined in Note 19 “Acquisitions and Divestitures” in Item 8 “Financial Statements and Supplementary Data.” On January 23, 2014, we entered into an agreement to sell our cement and concrete businesses in the Florida area to Cementos Argos for gross cash proceeds of $720.0 million as outlined in Note 21 “Subsequent Events” in Item 8 “Financial Statements and Supplementary Data.” The asset sales (actual and intended) are consistent with our strategic focus on building leading aggregates positions in markets with above-average long-term demand growth. The proceeds of these sales, together with the increased earnings resulting from the Profit Enhancement Plan, will be used to strengthen our balance sheet, unlock capital for more productive uses, improve our operating results and create value for shareholders. On condition of closing the transaction with Cementos Argos, we initiated a tender offer to purchase $500.0 million of outstanding debt.

2013 STRATEGIC ACQUISITIONS

§

Fourth quarter — purchased previously leased land containing 136 million tons of aggregates reserves at an existing quarry for $117.0 million

§

Second quarter — acquired an aggregates production facility and four ready-mixed concrete facilities for $30.0 million

§

First quarter — acquired two aggregates production facilities for $60.0 million

MARKET DEVELOPMENTS

We believe economic and construction-related fundamentals that drive demand for our products are continuing to improve from the historically low levels created by the economic downturn. Growth in the private construction end markets, particularly residential, continued to drive increased construction activity and demand for our products in 2013. We have seen significant growth in housing starts in Vulcan-served states such as Arizona, California, Florida, Georgia and Texas. Additionally, leading indicators of private nonresidential construction are continuing to improve.

Highway construction is the largest end market for aggregates demand within public construction. Recent growth in highway construction provides evidence that a more stable and predictable highway funding environment leads to improving construction activity. Future demand should also be positively impacted by the large increase in Transportation Infrastructure Finance and Innovation Act (TIFIA) funding contained in the federal highway bill, MAP-21.

 

 

 

 

 

Part II

28

 


 

 

UNSOLICITED EXCHANGE OFFER

In December 2011, Martin Marietta commenced an unsolicited exchange offer for all outstanding shares of our common stock. After careful consideration, including a thorough review of the offer with its financial and legal advisors, our Board unanimously determined that Martin Marietta’s offer was inadequate, substantially undervalued Vulcan, had substantial execution risk, and therefore was not in the best interests of Vulcan and its shareholders.

In May 2012, the Delaware Chancery Court ruled and the Delaware Supreme Court affirmed that Martin Marietta had breached two confidentiality agreements between the companies, and enjoined Martin Marietta for a period of four months from pursuing its exchange offer for our shares, prosecuting its proxy contest, or otherwise taking steps to acquire control of our shares or assets and from any further violations of the two confidentiality agreements between the parties. As a result of the court ruling, Martin Marietta withdrew its exchange offer and its board nominees.

In response to Martin Marietta’s action, we incurred legal, professional and other costs of $43.4 million in 2012 and $2.2 million in 2011.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Generally Accepted Accounting Principles (GAAP) does not define "free cash flow," "cash gross profit" and "Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). Thus, free cash flow should not be considered as an alternative to net cash provided by operating activities or any other liquidity measure defined by GAAP. Likewise, cash gross profit and EBITDA should not be considered as alternatives to earnings measures defined by GAAP. We present these metrics for the convenience of investment professionals who use such metrics in their analyses and for shareholders who need to understand the metrics we use to assess performance and to monitor our cash and liquidity positions. The investment community often uses these metrics as indicators of a company's ability to incur and service debt and to assess the operating performance of a company’s businesses. We use free cash flow, cash gross profit, EBITDA and other such measures to assess liquidity and the operating performance of our various business units and the consolidated company. Additionally, we adjust EBITDA for certain items to provide a more consistent comparison of performance from period to period and provide the earnings per share impact of these adjustments for the convenience of the investment community. We do not use these metrics as a measure to allocate resources.  Reconciliations of these metrics to their nearest GAAP measures are presented below:

FREE CASH FLOW

Free cash flow is calculated by deducting purchases of property, plant & equipment from net cash provided by operating activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in millions

2013 

 

 

2012 

 

 

2011 

 

Net cash provided by operating activities

$        356.5 

 

 

$        238.5 

 

 

$        169.0 

 

Purchases of property, plant & equipment

(275.4)

 

 

(93.4)

 

 

(98.9)

 

Free cash flow

$          81.1 

 

 

$        145.1 

 

 

$          70.1 

 

 

 

 

 

 

Part II

29

 


 

 

CASH GROSS PROFIT

Cash gross profit adds back noncash charges for depreciation, depletion, accretion and amortization to gross profit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in millions, except per ton data

2013 

 

 

2012 

 

 

2011 

 

Aggregates segment

 

 

 

 

 

 

 

 

Gross profit

$        413.3 

 

 

$        352.1 

 

 

$        306.2 

 

Depreciation, depletion, accretion and amortization

224.8 

 

 

240.7 

 

 

267.0 

 

Aggregates segment cash gross profit

$        638.1 

 

 

$        592.8 

 

 

$        573.2 

 

Unit shipments - tons

145.9 

 

 

141.0 

 

 

143.0 

 

Aggregates segment cash gross profit per ton

$          4.37 

 

 

$          4.21 

 

 

$          4.01 

 

Concrete segment

 

 

 

 

 

 

 

 

Gross profit

$         (24.8)

 

 

$         (38.2)

 

 

$         (43.4)

 

Depreciation, depletion, accretion and amortization

33.0 

 

 

41.3 

 

 

47.7 

 

Concrete segment cash gross profit

$            8.2 

 

 

$            3.1 

 

 

$            4.3 

 

Asphalt Mix segment

 

 

 

 

 

 

 

 

Gross profit

$          32.7 

 

 

$          22.9 

 

 

$          25.6 

 

Depreciation, depletion, accretion and amortization

8.7 

 

 

8.7 

 

 

7.7 

 

Asphalt Mix segment cash gross profit

$          41.4 

 

 

$          31.6 

 

 

$          33.3 

 

Cement segment

 

 

 

 

 

 

 

 

Gross profit

$            5.7 

 

 

$           (2.8)

 

 

$           (4.5)

 

Depreciation, depletion, accretion and amortization

18.1 

 

 

18.1 

 

 

17.8 

 

Cement segment cash gross profit

$          23.8 

 

 

$          15.3 

 

 

$          13.3 

 

 

EBITDA AND ADJUSTED EBITDA

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in millions

2013 

 

 

2012 

 

 

2011 

 

Net earnings (loss)

$         24.4 

 

 

$         (52.6)

 

 

$         (70.8)

 

Benefit from income taxes

(24.5)

 

 

(66.5)

 

 

(78.5)

 

Interest expense, net of interest income

201.7 

 

 

211.9 

 

 

217.3 

 

Earnings on discontinued operations, net of taxes

(3.6)

 

 

(1.3)

 

 

(4.5)

 

Depreciation, depletion, accretion and amortization

307.1 

 

 

332.0 

 

 

361.7 

 

EBITDA

$       505.1 

 

 

$        423.5 

 

 

$        425.2 

 

Gain on sale of real estate and businesses

$        (36.8)

 

 

$         (65.1)

 

 

$         (42.1)

 

Revenue amortized from deferred revenue

(2.0)

 

 

0.0 

 

 

0.0 

 

Recovery from legal settlement

0.0 

 

 

0.0 

 

 

(46.4)

 

Restructuring charges

1.5 

 

 

9.5 

 

 

12.9 

 

Exchange offer costs

0.0 

 

 

43.4 

 

 

2.2 

 

Adjusted EBITDA

$       467.8 

 

 

$        411.3 

 

 

$        351.8 

 

 

 

 

 

 

Part II

30

 


 

 

RESULTS OF OPERATIONS

Net sales and cost of goods sold exclude intersegment sales and delivery revenues and cost. This presentation is consistent with the basis on which we review our consolidated results of operations. We discuss separately our discontinued operations, which consists of our former Chemicals business.

The following table highlights significant components of our consolidated operating results including EBITDA and Adjusted EBITDA.

CONSOLIDATED OPERATING RESULT HIGHLIGHTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the years ended December 31

2013 

 

 

2012 

 

 

2011 

 

in millions, except per share data

 

 

 

 

 

 

 

 

Net sales

$    2,628.7 

 

 

$    2,411.2 

 

 

$    2,406.9 

 

Cost of goods sold

2,201.8 

 

 

2,077.2 

 

 

2,123.0 

 

Gross profit

$       426.9 

 

 

$       334.0 

 

 

$       283.9 

 

Selling, administrative and general expenses

$       259.4 

 

 

$       259.1 

 

 

$       290.0 

 

Operating earnings

$       190.4 

 

 

$         84.8 

 

 

$         63.4 

 

Interest expense

$       202.6 

 

 

$       213.1 

 

 

$       220.6 

 

Earnings (loss) from continuing operations

$         20.8 

 

 

$       (53.9)

 

 

$       (75.3)

 

Earnings on discontinued operations,

 

 

 

 

 

 

 

 

 net of income taxes

3.6 

 

 

1.3 

 

 

4.5 

 

Net earnings (loss)

$         24.4 

 

 

$       (52.6)

 

 

$       (70.8)

 

Basic earnings (loss) per share

 

 

 

 

 

 

 

 

  Continuing operations

$         0.16 

 

 

$       (0.42)

 

 

$       (0.58)

 

  Discontinued operations

0.03 

 

 

0.01 

 

 

0.03 

 

Basic net earnings (loss) per share

$         0.19 

 

 

$       (0.41)

 

 

$       (0.55)

 

Diluted earnings (loss) per share

 

 

 

 

 

 

 

 

  Continuing operations

$         0.16 

 

 

$       (0.42)

 

 

$       (0.58)

 

  Discontinued operations

0.03 

 

 

0.01 

 

 

0.03 

 

Diluted net earnings (loss) per share

$         0.19 

 

 

$       (0.41)

 

 

$       (0.55)

 

EBITDA

$       505.1 

 

 

$       423.5 

 

 

$       425.2 

 

Adjusted EBITDA

$       467.8 

 

 

$       411.3 

 

 

$       351.8 

 

 

OPERATING LEVERAGE IN OUR BUSINESS

The strong recovery in 2013's gross profit demonstrates the operating leverage in our business as demand recovers. We expect this momentum to continue in 2014 due primarily to an improving demand environment, continued improvement in pricing and our continued focus on managing costs. We remain committed to building leading aggregates positions in markets with above average long-term demand growth. As we look ahead to 2014, the operating leverage in our aggregates business sets the stage for even stronger earnings growth and cash generation as volumes continue to grow.

We completed several transactions in 2013 that provided $207.2 million in gross cash proceeds. And, in January 2014 we entered into an agreement to sell our cement and concrete businesses in the Florida area for gross cash proceeds of $720.0 million. For details of these 2013 and 2014 transactions refer to Note 19 “Acquisitions and Divestitures” and Note 21 “Subsequent Events” in Item 8 “Financial Statements and Supplementary Data,” respectively. We remain committed to completing transactions designed to strengthen our balance sheet, unlock capital for more productive uses, improve our operating results and create value for shareholders.

 

 

 

 

Part II