20150331 Q1

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2015


OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from                 to

 

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)


20-8579133
(I.R.S. Employer Identification No.)


1200 Urban Center Drive, Birmingham, Alabama
(Address of principal executive offices)  


35242
(zip code)


(205) 298-3000    (Registrant's telephone number including area code)

 

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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes No

Indicate by check mark whether 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


Accelerated filer 


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


Smaller reporting company


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


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

 

                  Class                  

Common Stock, $1 Par Value

 

Shares outstanding
      at March  31, 2015      

132,660,492

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

 

 

VULCAN MATERIALS COMPANY

 

FORM 10-Q

QUARTER ENDED MARCH  31, 2015

 

Contents

 

 

 

 

 

 

 

 

Page

PART I

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

 

 

 2

 3

 4

 5

 

Item 2.

Management’s Discussion and Analysis of Financial

   Condition and Results of Operations

 

 

24

 

Item 3.

Quantitative and Qualitative Disclosures About

   Market Risk

 

 

41

 

Item 4.

Controls and Procedures

41

 

 

 

PART II

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

42

 

Item 1A.

Risk Factors

42

 

Item 4.

Mine Safety Disclosures

42

 

Item 6.

Exhibits

43

 

 

 

Signatures

 

 

44

 

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.

 

 

 

1

 


 

 

 

 

part I   financial information

ITEM 1

FINANCIAL STATEMENTS

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited, except for December 31

March 31

 

 

December 31

 

 

March 31

 

in thousands, except per share data

2015 

 

 

2014 

 

 

2014 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

$       392,657 

 

 

$       141,273 

 

 

$       268,773 

 

Restricted cash

 

 

 

 

63,024 

 

Accounts and notes receivable

 

 

 

 

 

 

 

 

  Accounts and notes receivable, gross

375,196 

 

 

378,947 

 

 

353,601 

 

  Less: Allowance for doubtful accounts

(5,244)

 

 

(5,105)

 

 

(5,264)

 

   Accounts and notes receivable, net

369,952 

 

 

373,842 

 

 

348,337 

 

Inventories

 

 

 

 

 

 

 

 

  Finished products

285,313 

 

 

275,172 

 

 

258,007 

 

  Raw materials

21,203 

 

 

19,741 

 

 

19,431 

 

  Products in process

1,189 

 

 

1,250 

 

 

875 

 

  Operating supplies and other

25,987 

 

 

25,641 

 

 

27,520 

 

   Inventories

333,692 

 

 

321,804 

 

 

305,833 

 

Current deferred income taxes

39,881 

 

 

39,726 

 

 

39,591 

 

Prepaid expenses

58,483 

 

 

28,640 

 

 

28,184 

 

Assets held for sale

 

 

15,184 

 

 

 

Total current assets

1,194,665 

 

 

920,469 

 

 

1,053,742 

 

Investments and long-term receivables

41,613 

 

 

41,650 

 

 

42,137 

 

Property, plant & equipment

 

 

 

 

 

 

 

 

  Property, plant & equipment, cost

6,671,537 

 

 

6,608,842 

 

 

6,340,034 

 

  Reserve for depreciation, depletion & amortization

(3,587,444)

 

 

(3,537,212)

 

 

(3,446,744)

 

   Property, plant & equipment, net

3,084,093 

 

 

3,071,630 

 

 

2,893,290 

 

Goodwill

3,094,824 

 

 

3,094,824 

 

 

3,081,521 

 

Other intangible assets, net

764,072 

 

 

758,243 

 

 

633,870 

 

Other noncurrent assets

171,348 

 

 

175,086 

 

 

167,675 

 

Total assets

$    8,350,615 

 

 

$    8,061,902 

 

 

$    7,872,235 

 

Liabilities

 

 

 

 

 

 

 

 

Current maturities of long-term debt

365,441 

 

 

150,137 

 

 

171 

 

Trade payables and accruals

157,829 

 

 

145,148 

 

 

150,628 

 

Other current liabilities

180,066 

 

 

156,073 

 

 

190,069 

 

Liabilities of assets held for sale

 

 

520 

 

 

 

Total current liabilities

703,336 

 

 

451,878 

 

 

340,868 

 

Long-term debt

1,912,455 

 

 

1,855,447 

 

 

2,006,782 

 

Noncurrent deferred income taxes

682,849 

 

 

691,137 

 

 

693,234 

 

Deferred revenue

212,987 

 

 

213,968 

 

 

218,946 

 

Other noncurrent liabilities

678,821 

 

 

672,773 

 

 

581,286 

 

Total liabilities

$    4,190,448 

 

 

$    3,885,203 

 

 

$    3,841,116 

 

Other commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock, $1 par value, Authorized 480,000 shares,

 

 

 

 

 

 

 

 

 Issued 132,660, 131,907 and 130,802 shares, respectively

132,660 

 

 

131,907 

 

 

130,802 

 

Capital in excess of par value

2,765,391 

 

 

2,734,661 

 

 

2,651,949 

 

Retained earnings

1,418,901 

 

 

1,471,845 

 

 

1,343,294 

 

Accumulated other comprehensive loss

(156,785)

 

 

(161,714)

 

 

(94,926)

 

Total equity

4,160,167 

 

 

4,176,699 

 

 

4,031,119 

 

Total liabilities and equity

$    8,350,615 

 

 

$    8,061,902 

 

 

$    7,872,235 

 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

 

 

2

 


 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

 

CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Unaudited

 

 

 

March 31

 

in thousands, except per share data

2015 

 

 

2014 

 

Total revenues

$       631,293 

 

 

$       574,420 

 

Cost of revenues

553,428 

 

 

540,328 

 

  Gross profit

77,865 

 

 

34,092 

 

Selling, administrative and general expenses

66,763 

 

 

66,119 

 

Gain on sale of property, plant & equipment

 

 

 

 

 

 and businesses, net

6,375 

 

 

236,364 

 

Restructuring charges

(2,818)

 

 

 

Other operating expense, net

(3,900)

 

 

(9,668)

 

  Operating earnings

10,759 

 

 

194,669 

 

Other nonoperating income, net

979 

 

 

2,825 

 

Interest expense, net

62,480 

 

 

120,089 

 

Earnings (loss) from continuing operations

 

 

 

 

 

 before income taxes

(50,742)

 

 

77,405 

 

Provision for (benefit from) income taxes

(14,075)

 

 

22,900 

 

Earnings (loss) from continuing operations

(36,667)

 

 

54,505 

 

Loss on discontinued operations, net of tax

(3,011)

 

 

(510)

 

Net earnings (loss)

$       (39,678)

 

 

$         53,995 

 

Other comprehensive income, net of tax

 

 

 

 

 

  Reclassification adjustment for cash flow hedges

2,248 

 

 

2,985 

 

  Adjustment for funded status of benefit plans

 

 

2,942 

 

  Amortization of actuarial loss and prior service

 

 

 

 

 

    cost for benefit plans

2,681 

 

 

(1,222)

 

Other comprehensive income

4,929 

 

 

4,705 

 

Comprehensive income (loss)

$       (34,749)

 

 

$         58,700 

 

Basic earnings (loss) per share

 

 

 

 

 

  Continuing operations

$           (0.28)

 

 

$             0.42 

 

  Discontinued operations

(0.02)

 

 

(0.01)

 

  Net earnings (loss)

$           (0.30)

 

 

$             0.41 

 

Diluted earnings (loss) per share

 

 

 

 

 

  Continuing operations

$           (0.28)

 

 

$             0.41 

 

  Discontinued operations

(0.02)

 

 

0.00 

 

  Net earnings (loss)

$           (0.30)

 

 

$             0.41 

 

Weighted-average common shares outstanding

 

 

 

 

 

  Basic

132,659 

 

 

130,810 

 

  Assuming dilution

132,659 

 

 

132,314 

 

Cash dividends per share of common stock

$             0.10 

 

 

$             0.05 

 

Depreciation, depletion, accretion and amortization

$         66,723 

 

 

$         69,378 

 

Effective tax rate from continuing operations

27.7% 

 

 

29.6% 

 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

 

3

 


 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Unaudited

 

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Operating Activities

 

 

 

 

 

Net earnings (loss)

$       (39,678)

 

 

$         53,995 

 

Adjustments to reconcile net earnings to net cash provided by operating activities

 

 

 

 

 

  Depreciation, depletion, accretion and amortization

66,723 

 

 

69,378 

 

  Net gain on sale of property, plant & equipment and businesses

(6,375)

 

 

(236,364)

 

  Contributions to pension plans

(1,447)

 

 

(1,355)

 

  Share-based compensation

4,700 

 

 

4,319 

 

  Excess tax benefits from share-based compensation

(7,575)

 

 

(2,997)

 

  Deferred tax provision (benefit)

(11,592)

 

 

(7,648)

 

  Cost of debt purchase

21,734 

 

 

72,949 

 

  Changes in assets and liabilities before initial effects of business acquisitions

 

 

 

 

 

    and dispositions

4,575 

 

 

40,127 

 

Other, net

(11,911)

 

 

2,624 

 

Net cash provided by (used for) operating activities

$         19,154 

 

 

$         (4,972)

 

Investing Activities

 

 

 

 

 

Purchases of property, plant & equipment

(49,611)

 

 

(46,006)

 

Proceeds from sale of property, plant & equipment

2,354 

 

 

17,785 

 

Proceeds from sale of businesses, net of transaction costs

 

 

720,056 

 

Increase in restricted cash

 

 

(63,024)

 

Other, net

(334)

 

 

 

Net cash provided by (used for) investing activities

$       (47,591)

 

 

$       628,811 

 

Financing Activities

 

 

 

 

 

Payment of current maturities, long-term debt and line of credit

(145,918)

 

 

(579,676)

 

Proceeds from issuance of long-term debt

400,000 

 

 

 

Proceeds from issuance of common stock

 

 

22,808 

 

Dividends paid

(13,253)

 

 

(6,531)

 

Proceeds from exercise of stock options

31,416 

 

 

11,599 

 

Excess tax benefits from share-based compensation

7,575 

 

 

2,997 

 

Other, net

 

 

(1)

 

Net cash provided by (used for) financing activities

$       279,821 

 

 

$     (548,804)

 

Net increase in cash and cash equivalents

251,384 

 

 

75,035 

 

Cash and cash equivalents at beginning of year

141,273 

 

 

193,738 

 

Cash and cash equivalents at end of period

$       392,657 

 

 

$       268,773 

 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements.

 

 

 

 

 

4

 


 

notes to condensed consolidated financial statements

 

Note 1: summary of significant accounting policies

 

NATURE OF OPERATIONS

 

Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation's largest producer of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.

 

BASIS OF PRESENTATION

 

Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Our Condensed Consolidated Balance Sheet as of December 31, 2014 was derived from the audited financial statement at that date. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three month period ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.

 

Due to the 2005 sale of our Chemicals business as presented in Note 2, the operating results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income.

 

RESTRICTED CASH

 

Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Changes in restricted cash balances are reflected as an investment activity in the accompanying Condensed Consolidated Statements of Cash Flows.

 

RESTRUCTURING CHARGES

 

In 2014, we announced changes to our executive management team, and a new divisional organization structure that was effective January 1, 2015. During the three months ended March 31, 2015, we incurred $2,818,000 of costs related to these initiatives. Future related charges for these initiatives are estimated to be less than $3,000,000.

 

EARNINGS PER SHARE (EPS)

 

Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Weighted-average common shares

 

 

 

 

 

 outstanding

132,659 

 

 

130,810 

 

Dilutive effect of

 

 

 

 

 

  Stock options/SOSARs

 

 

693 

 

  Other stock compensation plans

 

 

811 

 

Weighted-average common shares

 

 

 

 

 

 outstanding, assuming dilution

132,659 

 

 

132,314 

 

 

All dilutive common stock equivalents are reflected in our earnings per share calculations.  Antidilutive common stock equivalents are not included in our earnings per share calculations. In periods of loss, shares that otherwise would have

5

 


 

been included in our diluted weighted-average common shares outstanding computation are excluded. These excluded shares are as follows: three months ended March 31, 2015 — 1,711,000 shares.

 

The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Antidilutive common stock equivalents

675 

 

 

2,373 

 

 

 

Note 2: Discontinued Operations

 

In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. There were no revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Discontinued Operations

 

 

 

 

 

Pretax loss

$       (4,981)

 

 

$          (842)

 

Income tax benefit

1,970 

 

 

332 

 

Loss on discontinued operations,

 

 

 

 

 

 net of income taxes

$       (3,011)

 

 

$          (510)

 

 

The losses from discontinued operations noted above were due primarily to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business.

 

 

Note 3: Income Taxes

 

Our estimated annual effective tax rate (EAETR) is based on full year expectations of pretax book earnings, statutory tax rates, permanent differences between book and tax accounting such as percentage depletion, and tax planning alternatives available in the various jurisdictions in which we operate. For interim financial reporting, except in circumstances as described in the following paragraph, we calculate our quarterly income tax provision in accordance with the EAETR. Each quarter, we update our EAETR based on our revised full year expectation of pretax book earnings and calculate the income tax provision so that the year-to-date income tax provision reflects the EAETR. Significant judgment is required in determining our EAETR.

 

When expected pretax book earnings for the full year are at or near breakeven, the EAETR can distort the income tax provision for an interim period due to the size and nature of our permanent differences. In these circumstances, we calculate the interim income tax provision using the year-to-date effective tax rate. This method results in an income tax provision based solely on the year-to-date pretax book earnings as adjusted for permanent differences on a pro rata basis. In the first quarters of 2015 and 2014, income taxes were calculated based on the EAETR.

 

We recorded an income tax benefit from continuing operations of $14,075,000 in the first quarter of 2015 compared to an income tax provision from continuing operations of $22,900,000 in the first quarter of 2014. The change in our income tax provision resulted largely from applying the statutory rate to the decrease in our pretax book earnings.

 

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts of assets and liabilities and the amounts used for income tax purposes. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period.

 

6

 


 

Each quarter we analyze the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized.

 

Based on our first quarter 2015 analysis, we believe it is more likely than not that we will realize the benefit of all our deferred tax assets with the exception of the state net operating loss carryforwards for which a valuation allowance has been recorded. For 2015, we currently project a valuation allowance of $64,977,000 against our state net operating loss carryforwards,  an  increase of $8,110,000 from the prior year end. This change in the valuation allowance is reflected as a component of our income tax provision.

 

Of the $64,977,000 valuation allowance, $63,572,000 relates to our Alabama net operating loss carryforward. We are evaluating a tax planning strategy that may allow for utilization of some or all of our Alabama net operating loss carryforward. Should this strategy become prudent and feasible in the future, the amount of the valuation allowance against the Alabama net operating loss carryforward will be remeasured.

 

We recognize a tax benefit associated with a tax position when, in our judgment, it is more likely than not that the position will be sustained based upon the technical merits of the position. For a tax position that meets the more likely than not recognition threshold, we measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax benefit. Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation.

 

A summary of our deferred tax assets is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

 

Note 4: deferred revenue

 

We entered into two transactions (September 2013 and December 2012) through which we sold a percentage of the future production from aggregates reserves at eight quarries (seven owned and one leased). These sales were structured as volumetric production payments (VPPs). We received net cash proceeds of $153,282,000 and $73,644,000 for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized on a unit-of-sales basis to revenue over the terms of the VPPs. Concurrently, we entered into marketing agreements with the purchaser through which we are designated the exclusive sales agent for the purchaser’s percentage of future production. Acting as the purchaser’s agent, our consolidated total revenues exclude these sales.

 

The common key terms of both VPP transactions are:

 

§

the purchaser has a nonoperating interest in future production entitling them to a percentage of future production

§

there is no minimum annual or cumulative production or sales volume, nor any minimum sales price guarantee

§

the purchaser has the right to take its percentage of future production in physical product, or receive the cash proceeds from the sale of its percentage of future production under the terms of the aforementioned marketing agreement

§

the purchaser's percentage of future production is conveyed free and clear of all future costs

§

we retain full operational and marketing control of the specified quarries

§

we retain fee simple interest in the land as well as any residual values that may be realized upon the conclusion of mining

 

The key terms specific to the 2013 VPP transaction are:

 

§

terminates at the earlier to occur of September 30, 2051 or the sale of 250.8 million tons of aggregates from the specified quarries; based on historical and projected volumes from the specified quarries, it is expected that 250.8 million tons will be sold prior to September 30, 2051

§

the purchaser's percentage of the maximum 250.8 million tons of future production is estimated to be 11.5% (approximately 29 million tons); the actual percentage may vary

 

7

 


 

The key terms specific to the 2012 VPP transaction are:

 

§

terminates at the earlier to occur of December 31, 2052 or the sale of 143.2 million tons of aggregates from the specified quarries; based on historical and projected volumes from the specified quarries, it is expected that 143.2 million tons will be sold prior to December 31, 2052

§

the purchaser's percentage of the maximum 143.2 million tons of future production is estimated to be 10.5% (approximately 15 million tons); the actual percentage may vary

 

Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Deferred Revenue

 

 

 

 

 

Balance at beginning of year

$     219,968 

 

 

$     224,743 

 

 Cash received and revenue deferred

 

 

187 

 

 Amortization of deferred revenue

(981)

 

 

(984)

 

Balance at end of period

$     218,987 

 

 

$     223,946 

 

 

Based on expected aggregates sales from the specified quarries, we anticipate recognizing an estimated $6,000,000 of deferred revenue (reflected in other current liabilities in our 2015 Condensed Consolidated Balance Sheet) during the 12-month period ending March 31, 2016.

 

 

Note 5: Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:

 

Level 1: Quoted prices in active markets for identical assets or liabilities

Level 2: Inputs that are derived principally from or corroborated by observable market data

Level 3: Inputs that are unobservable and significant to the overall fair value measurement

 

Our assets subject to fair value measurement on a recurring basis are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

 

2014 

 

Fair Value Recurring

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Mutual funds

$       14,549 

 

 

$       15,532 

 

 

$       14,257 

 

 Equities

12,634 

 

 

11,248 

 

 

15,502 

 

Total

$       27,183 

 

 

$       26,780 

 

 

$       29,759 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 2

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

 

2014 

 

Fair Value Recurring

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Common/collective trust funds

$        1,336 

 

 

$        1,415 

 

 

$        1,274 

 

Total

$        1,336 

 

 

$        1,415 

 

 

$        1,274 

 

 

8

 


 

We have established two Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds and equity securities for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in those funds (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).

 

Net trading gains of the Rabbi Trust investments were $807,000 and $2,395,000 for the three months ended March 31, 2015 and 2014, respectively. The portions of the net trading gains related to investments still held by the Rabbi Trusts at March 31, 2015 and 2014 were $646,000 and $1,995,000, respectively.

 

The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term borrowings, trade payables and accruals, and other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 6 and 7, respectively.

 

There were no assets or liabilities subject to fair value measurement on a nonrecurring basis in 2015. Assets that were subject to fair value measurement on a nonrecurring basis in 2014 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2014

 

 

 

 

 

Impairment

 

in thousands

Level 2

 

 

Charges

 

Fair Value Nonrecurring

 

 

 

 

 

Property, plant & equipment

$        2,280 

 

 

$        2,987 

 

Total

$        2,280 

 

 

$        2,987 

 

 

We recorded a $2,987,000 loss on impairment of long-lived assets in the first quarter of 2014 reducing the carrying value of these assets to their estimated fair value of $2,280,000. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).

 

 

Note 6: Derivative Instruments

 

During the normal course of operations, we are exposed to market risks including fluctuations in interest rates, foreign currency exchange rates and commodity pricing. From time to time, and consistent with our risk management policies, we use derivative instruments to hedge against these market risks. We do not utilize derivative instruments for trading or other speculative purposes.

 

The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate swap agreements described below were designated as either cash flow hedges or fair value hedges. The changes in fair value of our interest rate swap cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. The changes in fair value of our interest rate swap fair value hedges are recorded as interest expense consistent with the change in the fair value of the hedged items attributable to the risk being hedged.

 

9

 


 

CASH FLOW HEDGES

 

We have used interest rate swap agreements designated as cash flow hedges to minimize the variability in cash flows of liabilities or forecasted transactions caused by fluctuations in interest rates. During 2007, we entered into fifteen forward starting interest rate swap agreements for a total stated amount of $1,500,000,000. Upon the 2007 and 2008 issuances of the related fixed-rate debt, we terminated and settled these forward starting swaps for cash payments of $89,777,000. Amounts in AOCI are being amortized to interest expense over the term of the related debt. This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Location on

 

March 31

 

in thousands

Statement

 

2015 

 

 

2014 

 

Cash Flow Hedges

 

 

 

 

 

 

 

Loss reclassified from AOCI

Interest

 

 

 

 

 

 

 (effective portion)

expense

 

$       (3,721)

 

 

$       (4,934)

 

 

The loss reclassified from AOCI for the three months ended March 31, 2015 and 2014 includes the acceleration of a proportional amount of the deferred loss in the amount of $2,700,000 and $3,762,000, respectively, referable to the debt purchases as disclosed in Note 7.

 

For the 12-month period ending March 31, 2016, we estimate that $6,604,000 of the pretax loss in AOCI will be reclassified to earnings. This includes the acceleration of a proportional amount of the deferred loss in the amount of $4,503,000 referable to subsequent debt purchases as disclosed in Note 18.

 

FAIR VALUE HEDGES

We have used interest rate swap agreements designated as fair value hedges to minimize exposure to changes in the fair value of fixed-rate debt that results from fluctuations in the benchmark interest rates for such debt. In June 2011, we issued $500,000,000 of 6.50% fixed-rate notes due in 2016. Concurrently, we entered into interest rate swap agreements in the stated amount of $500,000,000. Under these agreements, we paid 6-month London Interbank Offered Rate (LIBOR) plus a spread of 4.05% and received a fixed interest rate of 6.50%. Additionally, in June 2011, we entered into interest rate swap agreements on our $150,000,000 10.125% fixed-rate notes due in 2015. Under these agreements, we paid 6-month LIBOR plus a spread of 8.03% and received a fixed interest rate of 10.125%. In August 2011, we terminated and settled these interest rate swap agreements for $25,382,000 of cash proceeds. The $23,387,000 forward component of the settlement (cash proceeds less $1,995,000 of accrued interest) was added to the carrying value of the related debt and is being amortized as a reduction to interest expense over the remaining lives of the related debt using the effective interest method. This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31

 

in thousands

 

 

2015 

 

 

2014 

 

Deferred Gain on Settlement

 

 

 

 

 

 

Amortized to earnings as a reduction

 

 

 

 

 

 

 to interest expense

 

$           513 

 

 

$        9,194 

 

 

The amortized deferred gain for the three months ended March 31, 2014 includes the acceleration of a proportional amount of the deferred gain in the amount of $8,032,000 referable to the debt purchase as disclosed in Note 7.

 

 

 

10

 


 

Note 7: Debt

 

Debt is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

 

2014 

 

Long-term Debt

 

 

 

 

 

 

 

 

10.125% notes due 2015 1, 13

$        150,728 

 

 

$      150,973 

 

 

$      151,674 

 

6.50% notes due 2016 2, 11

126,725 

 

 

126,969 

 

 

127,678 

 

6.40% notes due 2017 3, 11

218,592 

 

 

218,589 

 

 

218,578 

 

7.00% notes due 2018 4

272,580 

 

 

399,816 

 

 

399,783 

 

10.375% notes due 2018 5

249,080 

 

 

249,030 

 

 

248,888 

 

7.50% notes due 2021 6

600,000 

 

 

600,000 

 

 

600,000 

 

8.85% notes due 2021 7, 11

6,000 

 

 

6,000 

 

 

6,000 

 

Industrial revenue bond due 2022 8, 11

14,000 

 

 

14,000 

 

 

14,000 

 

4.50% notes due 2025 9

400,000 

 

 

 

 

 

7.15% notes due 2037 10

239,573 

 

 

239,570 

 

 

239,564 

 

Other notes 12

618 

 

 

637 

 

 

788 

 

Total long-term debt including current maturities

$     2,277,896 

 

 

$   2,005,584 

 

 

$   2,006,953 

 

Less current maturities 13

365,441 

 

 

150,137 

 

 

171 

 

Total long-term debt

$     1,912,455 

 

 

$   1,855,447 

 

 

$   2,006,782 

 

Estimated fair value of long-term debt

$     2,160,255 

 

 

$   2,113,478 

 

 

$   2,313,964 

 

 

 

 

 

Includes an increase for the unamortized deferred gain realized upon the August 2011 settlement of interest rate swaps, as follows: March 31, 2015 — $799 thousand, December 31, 2014 — $1,068 thousand and March 31, 2014 — $1,837 thousand. Additionally, includes decreases for unamortized discounts, as follows: March 31, 2015 — $71 thousand, December 31, 2014 — $95 thousand and March 31, 2014 — $163 thousand. The effective interest rate for these notes is 9.575%.

Includes an increase for the unamortized deferred gain realized upon the August 2011 settlement of interest rate swaps, as follows: March 31, 2015 — $1,724 thousand, December 31, 2014 — $1,968 thousand and March 31, 2014 — $2,677 thousand. The effective interest rate for these notes is 6.00%.

Includes decreases for unamortized discounts, as follows: March 31, 2015 — $41 thousand, December 31, 2014 — $44 thousand and March 31, 2014 — $55 thousand. The effective interest rate for these notes is 7.39%.

Includes decreases for unamortized discounts, as follows: March 31, 2015 — $117 thousand, December 31, 2014 — $184 thousand and March 31, 2014 — $217 thousand. The effective interest rate for these notes is 7.87%.  

Includes decreases for unamortized discounts, as follows: March 31, 2015$920 thousand, December 31, 2014 — $970 thousand and March 31, 2014 — $1,112 thousand. The effective interest rate for these notes is 10.625%.

The effective interest rate for these notes is 7.75%.

The effective interest rate for these notes is 8.88%.

This variable-rate tax-exempt bond is backed by a letter of credit.

The effective interest rate for these notes is 4.65%.  

10 

Includes decreases for unamortized discounts, as follows: March 31, 2015 — $615 thousand, December 31, 2014 — $618 thousand and March 31, 2014 — $624 thousand. The effective interest rate for these notes is 8.05%.

11 

As of March 31, 2015,  we had initiated prepayment, or announced our intent to prepay; as such, this debt is classified as current maturities of long-term debt.

12 

Non-publicly traded debt.

13 

The 10.125% notes due 2015 are classified as long-term debt (not current maturities) as of March 31, 2015 due to our intent and ability to refinance these notes at maturity using our line of credit.

 

Our long-term debt is presented in the table above net of unamortized discounts from par and unamortized deferred gains realized upon settlement of interest rate swaps. Discounts and deferred gains are being amortized using the effective interest method over the respective terms of the notes.

 

The estimated fair value of debt presented in the table above was determined by averaging several asking price quotes for the publicly traded notes and assuming par value for the remainder of the debt. The fair value estimates for the publicly traded notes were based on Level 2 information (as defined in Note 5) as of the balance sheet dates.

 

11

 


 

Our debt, other than the line of credit, is unsecured. Essentially all such debt agreements contain customary investment-grade type covenants that primarily limit the amount of secured debt we may incur without ratably securing such debt. Such debt may be redeemed prior to maturity at the greater of par value and the make-whole value plus accrued and unpaid interest.

 

In March 2015, we issued $400,000,000  of  4.50% senior notes due 2025. Proceeds (net of underwriter fees and other transaction costs) of $395,207,000 were partially used to fund the March 30, 2015 purchase, via tender offer, of $127,303,000 principal amount of the 7.00% notes due 2018 (and the subsequent purchase of $185,000 in April 2015). The March 2015 debt purchase cost $145,899,000, including an $18,140,000 premium above the principal amount of the notes and transaction costs of $456,000. The premium primarily reflects the trading price of the notes relative to par prior to the tender offer commencement. Additionally, we recognized $3,138,000 of non-cash cost associated with the acceleration of a proportional amount of unamortized discounts, deferred financing costs and amounts accumulated in OCI. The combined charge of $21,734,000 is presented in the accompanying Condensed Consolidated Statement of Comprehensive Income as a component of interest expense for the three month period ended March 31, 2015.

 

The remaining net proceeds from the March 2015 debt issuance, together with cash on hand and borrowings under our line of credit, will fund:  (1) the April 9, 2015 redemption of our 6.40% notes due 2017, (2) the April 16, 2015 redemption of our 6.50% notes due 2016, (3) the expected redemption of our 8.85% notes due 2021  and (4) the expected prepayment of our industrial revenue bond due 2022. All debt as of March 31, 2015 which we intend to prepay, as described above, is classified in the accompanying Condensed Consolidated Balance Sheet as current maturities of long-term debt. See Note 18 for a discussion of our subsequent debt redemptions.

 

In March 2014, we purchased $506,366,000 principal amount of debt through a tender offer as follows: $374,999,000 of 6.50% notes due in 2016 and $131,367,000 of 6.40% notes due in 2017. This debt purchase was funded by the sale of our cement and concrete businesses in the Florida area as described in Note 16. The March 2014 debt purchases cost $579,659,000, including a $71,829,000 premium above the principal amount of the notes and transaction costs of $1,464,000. The premium primarily reflects the trading prices of the notes relative to par prior to the tender offer commencement. Additionally, we recognized a net benefit of $344,000 associated with the acceleration of a proportional amount of unamortized discounts, deferred gains, deferred financing costs and amounts accumulated in OCI. The combined charge of $72,949,000 is presented in the accompanying Condensed Consolidated Statement of Comprehensive Income as a component of interest expense for the three month period ended March 31, 2014.

 

Our $500,000,000 line of credit is secured by accounts receivable and inventory, but will become unsecured upon the achievement of certain credit metrics and/or credit ratings. In May 2015, we expect to close on a new line of credit that will, among other things, increase the amount to $750,000,000 and extend the term from March 2019 to May 2020. The line of credit also contains affirmative, negative and financial covenants customary for a secured facility.

 

The negative covenants primarily limit our ability to: (1) incur secured debt, (2) make certain investments, (3) execute acquisitions and divestitures, and (4) make restricted payments, including dividends. Such limitations currently do not impact our ability to execute our strategic, operating, and financial plans, and become less restrictive when the line of credit becomes unsecured as described above.

 

The line of credit contains two financial covenants: (1) a maximum ratio of debt to EBITDA that declines over time to 3.5:1 and (2) a minimum ratio of EBITDA to net cash interest expense that increases over time to 3.0:1.

 

As of March 31, 2015, we were in compliance with all of our notes and line of credit covenants.

 

As of March 31, 2015, our line of credit available borrowing capacity was $446,528,000. Borrowings under the line of credit bear interest at a rate determined at the time of borrowing equal to LIBOR plus a margin ranging from 1.50% to 2.25%, or an alternative rate derived from the lender’s prime rate, based on our ratio of debt to EBITDA. As of March 31, 2015, the applicable margin for LIBOR based borrowing was 1.50%.

 

Standby letters of credit issued under the line of credit reduce availability and are charged a fee equal to the margin for LIBOR based borrowings plus 0.175%. We also pay a commitment fee on the daily average unused amount of the line of credit. This commitment fee ranges from 0.25% to 0.40% based on our ratio of debt to EBITDA. As of March 31, 2015, the commitment fee was 0.25%. Once the line of credit becomes unsecured, both the LIBOR margin range for borrowings and the commitment fee range will decline.

 

 

12

 


 

Note 8: Commitments and Contingencies

 

STANDBY LETTERS OF CREDIT

 

We provide, in the normal course of business, certain third party beneficiaries standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of one year, typically renew automatically, and can only be modified or cancelled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our $500,000,000 line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of March 31, 2015 are summarized by purpose in the table below:

 

 

 

 

 

 

 

 

in thousands

 

 

Standby Letters of Credit

 

 

Risk management insurance

$       33,111 

 

Industrial revenue bond

14,230 

 

Reclamation/restoration requirements

6,131 

 

Total

$       53,472 

 

 

 

LITIGATION AND ENVIRONMENTAL MATTERS

 

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

 

In addition to these lawsuits in which we are involved in the ordinary course of business, certain other material legal proceedings are more specifically described below.

 

lower passaic river matter

 

§

Lower Passaic River Study Area (Superfund Site) — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the “Cooperating Parties Group”) to a May 2007 Administrative Order on Consent (AOC) with the U.S. Environmental Protection Agency (EPA) to perform a Remedial Investigation/Feasibility Study (RI/FS) of the lower 17 miles of the Passaic River (River). On April 11, 2014, the EPA issued a proposed Focused Feasibility Study (FFS) that calls for a bank-to-bank dredging remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is approximately $950 million to $1.73 billion. The period for public comment on the proposed FFS is closed and it is anticipated that the EPA will issue its final record of decision sometime in 2015. The Cooperating Parties Group RI/FS estimates the preferred remedial action presented therein to cost in the range of approximately $475 million to $725 million (including $93 million in operation and maintenance costs for a 30 year period).

 

The AOC does not obligate us to fund or perform the remedial action contemplated by either the RI/FS or the FFS. Vulcan formerly owned a chemicals operation near River Mile 0.1, which was sold in 1974. The Company has found no evidence that its former chemicals operation contributed any of the primary contaminants of concern to the River.

 

Neither the ultimate remedial approach, nor the parties who will participate in funding the remediation and their respective allocations, have been determined. However, we have recorded an immaterial loss for this matter in the first quarter of 2015 based on the cost estimate of the preferred RI/FS remedial action supported by the Cooperating Parties Group.

 

13

 


 

OTHER LITIGATION

 

§

TEXAS BRINE MATTER — During the operation of its former Chemicals Division, Vulcan was the lessee to a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company (Texas Brine) operated this salt mine for the account of Vulcan. Vulcan sold its Chemicals Division in 2005 and assigned the lease to the purchaser, and Vulcan has had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed near the salt dome and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in August 2012 in federal court in the Eastern District of Louisiana in New Orleans. Certain of the plaintiffs and Texas Brine settled the Federal Court class action for approximately $48.1 million. This settlement has been approved by the court, and the settlement process is now subject to the terms of the court’s order and settlement agreement. Vulcan is named as a released party in the settlement agreement along with the other released parties, including Texas Brine, and its insurers. Texas Brine and its insurers did not, however, release Vulcan from any alleged claims, including claims for contribution and indemnity.

 

There are numerous defendants to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by Texas Brine. Vulcan has since been added as a direct and third-party defendant by other parties, including a direct claim by the State of Louisiana. The damages alleged in the litigation range from individual plaintiffs’ claims for property damage, to the State of Louisiana’s claim for response costs, to claims for alleged physical damages to oil pipelines, to various alleged business interruption claims, and to claims for indemnity and contribution from Texas Brine. It is alleged that the sinkhole was caused, in whole or in part, by Vulcan’s negligent actions or failure to act. It is also alleged that Vulcan breached the salt lease, as well as an operating agreement with Texas Brine. Vulcan denies any liability in this matter and will vigorously defend the litigation. We cannot reasonably estimate any liability related to this matter.

 

It is not possible to predict with certainty the ultimate outcome of these and other legal proceedings in which we are involved, and a number of factors, including developments in ongoing discovery or adverse rulings, or the verdict of a particular jury, could cause actual losses to differ materially from accrued costs. No liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. Legal costs incurred in defense of lawsuits are expensed as incurred. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described in our most recent Annual Report on Form 10-K.

 

 

14

 


 

Note 9: Asset Retirement Obligations

 

Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.

 

Recognition of a liability for an ARO is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the ARO is settled for other than the carrying amount of the liability, we recognize a gain or loss on settlement.

 

We record all AROs for which we have legal obligations for land reclamation at estimated fair value. Essentially all these AROs relate to our underlying land parcels, including both owned properties and mineral leases. For the three month periods ended March 31, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

ARO Operating Costs

 

 

 

 

 

Accretion

$        2,851 

 

 

$        2,940 

 

Depreciation

1,433 

 

 

997 

 

Total

$        4,284 

 

 

$        3,937 

 

 

ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.

 

Reconciliations of the carrying amounts of our AROs are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Asset Retirement Obligations

 

 

 

 

 

Balance at beginning of year

$     226,565 

 

 

$     228,234 

 

  Liabilities incurred

1,820 

 

 

 

  Liabilities settled

(6,730)

 

 

(5,250)

 

  Accretion expense

2,851 

 

 

2,940 

 

  Revisions up (down), net

14,183 

 

 

(93)

 

Balance at end of period

$     238,689 

 

 

$     225,831 

 

 

The 2015  upward revisions relate to revised cost estimates and  spending patterns for several quarries located primarily in California.

 

 

Note 10: Benefit Plans

 

We sponsor three funded, noncontributory defined benefit pension plans. These plans cover substantially all employees hired prior to July 15, 2007, other than those covered by union-administered plans. Normal retirement age is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried Plan and the Chemicals Hourly Plan are generally based on salaries or wages and years of service; the Construction Materials Hourly Plan provides benefits equal to a flat dollar amount for each year of service. In addition to these qualified plans, we sponsor three unfunded, nonqualified pension plans.

 

Effective July 15, 2007, we amended our defined benefit pension plans to no longer accept new participants. In December 2013, we amended our defined benefit pension plans so that future service accruals for salaried pension participants ceased effective December 31, 2013. This change included a special transition provision which will allow covered compensation through December 31, 2015 to be considered in the participants’ benefit calculations.

 

15

 


 

The following table sets forth the components of net periodic pension benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

PENSION BENEFITS

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Components of Net Periodic Benefit Cost

 

 

 

 

 

Service cost

$        1,213 

 

 

$        1,039 

 

Interest cost

11,037 

 

 

11,098 

 

Expected return on plan assets

(13,684)

 

 

(12,701)

 

Amortization of prior service cost

12 

 

 

47 

 

Amortization of actuarial loss

5,454 

 

 

2,805 

 

Net periodic pension benefit cost

$        4,032 

 

 

$        2,288 

 

Pretax reclassification from AOCI included in

 

 

 

 

 

 net periodic pension benefit cost

$        5,466 

 

 

$        2,852 

 

 

Prior contributions, along with the existing funding credits, are sufficient to cover required contributions to the qualified plans through 2015.

 

In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. Substantially all our salaried employees and where applicable, hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, Company-provided healthcare benefits terminate when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age 65, whichever occurs first.

 

The March 2014 sale of our cement and concrete businesses in the Florida area (see Note 16) significantly reduced total expected future service of our postretirement plans resulting in a one-time curtailment gain of $3,832,000. This gain was reflected within gain on sale of property, plant & equipment, net in our accompanying Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2014.

 

The following table sets forth the components of net periodic postretirement benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER POSTRETIREMENT BENEFITS

Three Months Ended

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Components of Net Periodic Benefit Cost

 

 

 

 

 

Service cost

$           473 

 

 

$           536 

 

Interest cost

617 

 

 

824 

 

Curtailment gain

 

 

(3,832)

 

Amortization of prior service credit

(1,058)

 

 

(1,082)

 

Amortization of actuarial (gain) loss

(4)

 

 

57 

 

Net periodic postretirement benefit cost (credit)

$             28 

 

 

$       (3,497)

 

Pretax reclassification from AOCI included in

 

 

 

 

 

 net periodic postretirement benefit credit

$       (1,062)

 

 

$       (4,857)

 

 

The reclassifications from AOCI noted in the tables above are related to curtailment gains, amortization of prior service costs or credits and actuarial losses as shown in Note 11.

 

 

 

16

 


 

Note 11: other Comprehensive Income

 

Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.

 

Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

 

2014 

 

AOCI

 

 

 

 

 

 

 

 

Cash flow hedges

$       (18,074)

 

 

$       (20,322)

 

 

$       (22,193)

 

Pension and postretirement benefit plans

(138,711)

 

 

(141,392)

 

 

(72,733)

 

Total

$     (156,785)

 

 

$     (161,714)

 

 

$       (94,926)

 

 

Changes in AOCI, net of tax, for the three months ended March 31, 2015 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and 

 

 

 

 

 

Cash Flow

 

 

Postretirement

 

 

 

 

in thousands

Hedges

 

 

Benefit Plans

 

 

Total

 

AOCI

 

 

 

 

 

 

 

 

Balance as of December 31, 2014

$       (20,322)

 

 

$     (141,392)

 

 

$     (161,714)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 before reclassifications

 

 

 

 

 

Amounts reclassified from AOCI

2,248 

 

 

2,681 

 

 

4,929 

 

Net current period OCI changes

2,248 

 

 

2,681 

 

 

4,929 

 

Balance as of March 31, 2015

$       (18,074)

 

 

$     (138,711)

 

 

$     (156,785)

 

 

Amounts reclassified from AOCI to earnings, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31

 

in thousands

2015 

 

 

2014 

 

Reclassification Adjustment for Cash Flow

 

 

 

 

 

 Hedge Losses

 

 

 

 

 

Interest expense

$          3,721 

 

 

$          4,934 

 

Benefit from income taxes

(1,473)

 

 

(1,949)

 

Total

$          2,248 

 

 

$          2,985 

 

Amortization of Pension and Postretirement

 

 

 

 

 

 Plan Actuarial Loss and Prior Service Cost

 

 

 

 

 

Cost of revenues

$          3,532 

 

 

$         (1,587)

 

Selling, administrative and general expenses

872 

 

 

(418)

 

(Benefit from) provision for income taxes

(1,723)

 

 

783 

 

Total 1 

$          2,681 

 

 

$         (1,222)

 

Total reclassifications from AOCI to earnings

$          4,929 

 

 

$          1,763 

 

 

 

 

March 2014 includes a one-time curtailment gain (see Note 10) resulting from the sale of our cement and concrete businesses in the Florida area (see Note 16).

 

 

 

17

 


 

Note 12: Equity

 

Our capital stock consists solely of common stock, par value $1.00 per share. Holders of our common stock are entitled to one vote per share. Our Certificate of Incorporation also authorizes preferred stock of which no shares have been issued. The terms and provisions of such shares will be determined by our Board of Directors upon any issuance of preferred shares in accordance with our Certificate of Incorporation.

 

Under a program that was discontinued in the fourth quarter of 2014, we occasionally sold shares of common stock to the trustee of our 401(k) retirement plans to satisfy the plan participants’ elections to invest in our common stock. Under this arrangement, the stock issuances and resulting cash proceeds were as follows:

 

§

twelve months ended December 31, 2014 — issued 485,306 shares for cash proceeds of $30,620,000

§

three months ended March 31, 2014 — issued 357,039 shares for cash proceeds of $22,808,000

 

Changes in total equity for the three months ended March 31, 2015 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

in thousands

 

 

 

Equity

 

Balance at December 31, 2014

 

 

$    4,176,699 

 

Net loss