20160331 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, 2016


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 April 29, 2016      

133,188,158

 



 

 

 

 

 



 


 







 

 

 



VULCAN MATERIALS COMPANY

 

FORM 10-Q

QUARTER ENDED MARCH 31, 2016

 

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

 

 

40



Item 4.

Controls and Procedures

40



 

 

PART II

OTHER INFORMATION

 



Item 1.

Legal Proceedings

41



Item 1A.

Risk Factors

41



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41



Item 4.

Mine Safety Disclosures

41



Item 6.

Exhibits

42



 

 

Signatures

 

 

43



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

2016 

 

 

2015 

 

 

2015 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

$       191,886 

 

 

$       284,060 

 

 

$       392,657 

 

Restricted cash

 

 

1,150 

 

 

 

Accounts and notes receivable

 

 

 

 

 

 

 

 

  Accounts and notes receivable, gross

449,538 

 

 

423,600 

 

 

375,196 

 

  Less: Allowance for doubtful accounts

(5,775)

 

 

(5,576)

 

 

(5,244)

 

   Accounts and notes receivable, net

443,763 

 

 

418,024 

 

 

369,952 

 

Inventories

 

 

 

 

 

 

 

 

  Finished products

288,891 

 

 

297,925 

 

 

285,313 

 

  Raw materials

22,160 

 

 

21,765 

 

 

21,203 

 

  Products in process

1,221 

 

 

1,008 

 

 

1,189 

 

  Operating supplies and other

25,486 

 

 

26,375 

 

 

25,987 

 

   Inventories

337,758 

 

 

347,073 

 

 

333,692 

 

Current deferred income taxes

 

 

 

 

39,881 

 

Prepaid expenses

34,096 

 

 

34,284 

 

 

58,483 

 

Total current assets

1,007,503 

 

 

1,084,591 

 

 

1,194,665 

 

Investments and long-term receivables

38,895 

 

 

40,558 

 

 

41,613 

 

Property, plant & equipment

 

 

 

 

 

 

 

 

  Property, plant & equipment, cost

6,984,417 

 

 

6,891,287 

 

 

6,671,537 

 

  Reserve for depreciation, depletion & amortization

(3,786,590)

 

 

(3,734,997)

 

 

(3,587,444)

 

   Property, plant & equipment, net

3,197,827 

 

 

3,156,290 

 

 

3,084,093 

 

Goodwill

3,094,824 

 

 

3,094,824 

 

 

3,094,824 

 

Other intangible assets, net

753,372 

 

 

766,579 

 

 

764,072 

 

Other noncurrent assets

154,604 

 

 

158,790 

 

 

147,258 

 

Total assets

$    8,247,025 

 

 

$    8,301,632 

 

 

$    8,326,525 

 

Liabilities

 

 

 

 

 

 

 

 

Current maturities of long-term debt

131 

 

 

130 

 

 

365,441 

 

Trade payables and accruals

185,653 

 

 

175,729 

 

 

157,829 

 

Other current liabilities

170,701 

 

 

177,620 

 

 

180,066 

 

Total current liabilities

356,485 

 

 

353,479 

 

 

703,336 

 

Long-term debt

1,981,425 

 

 

1,980,334 

 

 

1,888,365 

 

Noncurrent deferred income taxes

663,364 

 

 

681,096 

 

 

682,849 

 

Deferred revenue

205,892 

 

 

207,660 

 

 

212,987 

 

Other noncurrent liabilities

618,806 

 

 

624,875 

 

 

678,821 

 

Total liabilities

$    3,825,972 

 

 

$    3,847,444 

 

 

$    4,166,358 

 

Other commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 Outstanding 133,348, 133,172 and 132,660 shares, respectively

133,348 

 

 

133,172 

 

 

132,660 

 

Capital in excess of par value

2,823,116 

 

 

2,822,578 

 

 

2,765,391 

 

Retained earnings

1,584,344 

 

 

1,618,507 

 

 

1,418,901 

 

Accumulated other comprehensive loss

(119,755)

 

 

(120,069)

 

 

(156,785)

 

Total equity

$    4,421,053 

 

 

$    4,454,188 

 

 

$    4,160,167 

 

Total liabilities and equity

$    8,247,025 

 

 

$    8,301,632 

 

 

$    8,326,525 

 

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

2016 

 

 

2015 

 

Total revenues

$       754,728 

 

 

$       631,293 

 

Cost of revenues

590,010 

 

 

553,428 

 

  Gross profit

164,718 

 

 

77,865 

 

Selling, administrative and general expenses

76,468 

 

 

66,763 

 

Gain on sale of property, plant & equipment

 

 

 

 

 

 and businesses

555 

 

 

6,375 

 

Impairment of long-lived assets

(9,646)

 

 

 

Restructuring charges

(320)

 

 

(2,818)

 

Other operating expense, net

(13,918)

 

 

(3,900)

 

  Operating earnings

64,921 

 

 

10,759 

 

Other nonoperating income (expense), net

(694)

 

 

979 

 

Interest expense, net

33,732 

 

 

62,480 

 

Earnings (loss) from continuing operations

 

 

 

 

 

 before income taxes

30,495 

 

 

(50,742)

 

Provision for (benefit from) income taxes

9,764 

 

 

(14,075)

 

Earnings (loss) from continuing operations

20,731 

 

 

(36,667)

 

Loss on discontinued operations, net of tax

(1,807)

 

 

(3,011)

 

Net earnings (loss)

$         18,924 

 

 

$       (39,678)

 

Other comprehensive income, net of tax

 

 

 

 

 

  Reclassification adjustment for cash flow hedges

294 

 

 

2,248 

 

  Amortization of actuarial loss and prior service

 

 

 

 

 

    cost for benefit plans

20 

 

 

2,681 

 

Other comprehensive income

314 

 

 

4,929 

 

Comprehensive income (loss)

$         19,238 

 

 

$       (34,749)

 

Basic earnings (loss) per share

 

 

 

 

 

  Continuing operations

$             0.15 

 

 

$           (0.28)

 

  Discontinued operations

(0.01)

 

 

(0.02)

 

  Net earnings (loss)

$             0.14 

 

 

$           (0.30)

 

Diluted earnings (loss) per share

 

 

 

 

 

  Continuing operations

$             0.15 

 

 

$           (0.28)

 

  Discontinued operations

(0.01)

 

 

(0.02)

 

  Net earnings (loss)

$             0.14 

 

 

$           (0.30)

 

Weighted-average common shares outstanding

 

 

 

 

 

  Basic

133,821 

 

 

132,659 

 

  Assuming dilution

135,452 

 

 

132,659 

 

Cash dividends per share of common stock

$             0.20 

 

 

$             0.10 

 

Depreciation, depletion, accretion and amortization

$         69,406 

 

 

$         66,723 

 

Effective tax rate from continuing operations

32.0% 

 

 

27.7% 

 

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

2016 

 

 

2015 

 

Operating Activities

 

 

 

 

 

Net earnings (loss)

$         18,924 

 

 

$       (39,678)

 

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

 

 

 

 

 

  Depreciation, depletion, accretion and amortization

69,406 

 

 

66,723 

 

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

(555)

 

 

(6,375)

 

  Contributions to pension plans

(2,343)

 

 

(1,447)

 

  Share-based compensation

4,321 

 

 

4,700 

 

  Excess tax benefits from share-based compensation

(21,235)

 

 

(7,575)

 

  Deferred tax provision (benefit)

(17,879)

 

 

(11,592)

 

  Cost of debt purchase

 

 

21,734 

 

  Changes in assets and liabilities before initial effects of business acquisitions

 

 

 

 

 

    and dispositions

19,668 

 

 

4,575 

 

Other, net

(27,450)

 

 

(11,911)

 

Net cash provided by operating activities

$         42,857 

 

 

$         19,154 

 

Investing Activities

 

 

 

 

 

Purchases of property, plant & equipment

(108,284)

 

 

(49,611)

 

Proceeds from sale of property, plant & equipment

1,086 

 

 

2,354 

 

Payment for businesses acquired, net of acquired cash

(1,611)

 

 

 

Decrease in restricted cash

1,150 

 

 

 

Other, net

1,549 

 

 

(334)

 

Net cash used for investing activities

$     (106,110)

 

 

$       (47,591)

 

Financing Activities

 

 

 

 

 

Payment of current maturities and long-term debt

(5)

 

 

(145,918)

 

Proceeds from issuance of long-term debt

 

 

400,000 

 

Purchases of common stock

(23,433)

 

 

 

Dividends paid

(26,718)

 

 

(13,253)

 

Proceeds from exercise of stock options

 

 

31,416 

 

Excess tax benefits from share-based compensation

21,235 

 

 

7,575 

 

Other, net

 

 

 

Net cash provided by (used for) financing activities

$       (28,921)

 

 

$       279,821 

 

Net increase (decrease) in cash and cash equivalents

(92,174)

 

 

251,384 

 

Cash and cash equivalents at beginning of year

284,060 

 

 

141,273 

 

Cash and cash equivalents at end of period

$       191,886 

 

 

$       392,657 

 

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.



We operate primarily in the United States and our principal product — aggregates — is used in virtually all types of public and private construction projects and in the production of asphalt mix and ready-mixed concrete. We serve markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving states in metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates. While aggregates is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our mid-Atlantic, Georgia, Southwestern and Western markets.



BASIS OF PRESENTATION



Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Our Condensed Consolidated Balance Sheet as of December 31, 2015 was derived from the audited financial statement, but it does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three month period ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.



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



RECLASSIFICATIONS



Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2016 presentation. During the second quarter of 2015, we early adopted Accounting Standards Update (ASU) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” resulting in retrospective adjustments to our prior financial statements. Therefore, debt issuance costs of $24,090,000 previously reported as other noncurrent assets on the Condensed Consolidated Balance Sheet as of March 31, 2015 were reclassified as a deduction from long-term debt.



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, 2016 and March 31, 2015, we incurred $320,000 and $2,818,000, respectively, of costs related to these initiatives. Future related charges for these initiatives are estimated to be immaterial.



5

 


 

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

2016 

 

 

2015 

 

Weighted-average common shares

 

 

 

 

 

 outstanding

133,821 

 

 

132,659 

 

Dilutive effect of

 

 

 

 

 

  Stock options/SOSARs 1

872 

 

 

 

  Other stock compensation plans

759 

 

 

 

Weighted-average common shares

 

 

 

 

 

 outstanding, assuming dilution

135,452 

 

 

132,659 

 





 

Stock-Only Stock Appreciation Rights (SOSARs)



All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation are excluded. 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

2016 

 

 

2015 

 

Antidilutive common stock equivalents

631 

 

 

675 

 

 

 

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

2016 

 

 

2015 

 

Discontinued Operations

 

 

 

 

 

Pretax loss

$       (2,981)

 

 

$       (4,981)

 

Income tax benefit

1,174 

 

 

1,970 

 

Loss on discontinued operations,

 

 

 

 

 

 net of tax

$       (1,807)

 

 

$       (3,011)

 



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

 

 



6

 


 

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, 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.



In the first quarter of 2016, we recorded an income tax expense from continuing operations of $9,764,000 compared to an income tax benefit from continuing operations of $14,075,000 in the first quarter of 2015. The increase in our income tax expense resulted largely from applying the statutory rate to the increase in our pretax book earnings.



We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the financial statement’s 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 while deferred tax liabilities represent items that will result in additional tax in future tax returns.



Each quarter we analyze the likelihood that our deferred tax assets will be realized. 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. 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 2016 analysis, we believe it is more likely than not that we will realize the benefit of all our deferred tax assets with the exception of certain state net operating loss carryforwards. For 2016, we project deferred tax assets related to state net operating loss carryforwards of $59,880,000, of which $57,744,000 relates to Alabama. The Alabama net operating loss carryforward, if not utilized, would expire in years 2022 – 2029. Prior to 2015, we carried a full valuation allowance against this Alabama deferred tax asset as we did not expect to utilize any portion of this deferred tax asset. During 2015, we restructured our legal entities which, among other benefits, resulted in a partial release of the valuation allowance in the amount of $4,655,000 during the third quarter of 2015. Our analyses over the last two quarters have confirmed our third quarter 2015 conclusion but resulted in no further reductions of the valuation allowance. We expect to further reduce, or possibly eliminate, this valuation allowance once we have returned to sustained profitability (as defined in our most recent Annual Report on Form 10-K), which we project could occur in the fourth quarter of 2016.



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, 2015.

 

 

Note 4: deferred revenue



In 2013 and 2012, we sold a percentage interest in future production structured as volumetric production payments (VPPs).



The VPPs:



§

relate to eight quarries in Georgia and South Carolina

§

provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future production from aggregates reserves

§

are both time and volume limited

§

contain no minimum annual or cumulative guarantees for production or sales volume, nor minimum sales price



Our consolidated total revenues exclude the sales of aggregates owned by the VPP purchaser.



7

 


 

We received net cash proceeds from the sale of the VPPs of $153,282,000 and $73,644,000 for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized to revenue on a unit-of-sales basis over the terms of the VPPs (expected to be approximately 25 years, limited by volume rather than time).



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







 

 

 

 

 



 

 

 

 

 



Three Months Ended

 



March 31

 

in thousands

2016 

 

 

2015 

 

Deferred Revenue

 

 

 

 

 

Balance at beginning of year

$     214,060 

 

 

$     219,968 

 

 Amortization of deferred revenue

(1,768)

 

 

(981)

 

Balance at end of period

$     212,292 

 

 

$     218,987 

 



Based on expected sales from the specified quarries, we expect to recognize approximately $6,400,000 of deferred revenue as income during the 12-month period ending March 31, 2017 (reflected in other current liabilities in our 2016 Condensed Consolidated Balance Sheet).

 

 

Note 5: Fair Value Measurements



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



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

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

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



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







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Level 1 Fair Value



March 31

 

 

December 31

 

 

March 31

 

in thousands

2016 

 

 

2015 

 

 

2015 

 

Fair Value

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Mutual funds

$        6,185 

 

 

$      11,472 

 

 

$      14,549 

 

 Equities

6,824 

 

 

8,992 

 

 

12,634 

 

Total

$      13,009 

 

 

$      20,464 

 

 

$      27,183 

 





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Level 2 Fair Value



March 31

 

 

December 31

 

 

March 31

 

in thousands

2016 

 

 

2015 

 

 

2015 

 

Fair Value

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Money market mutual fund

$        2,682 

 

 

$        2,124 

 

 

$        1,336 

 

Total

$        2,682 

 

 

$        2,124 

 

 

$        1,336 

 



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 the fund (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).



8

 


 

Net gains of the Rabbi Trust investments were $82,000 and $807,000 for the three months ended March 31, 2016 and 2015, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at March 31, 2016 and 2015 were $(1,024,000) and $646,000, respectively.



The year-to-date decrease of $6,897,000 in total Rabbi Trust asset values at March 31, 2016 is primarily attributable to the elections by several retired executives to receive their distributions from the nonqualified retirement and deferred compensation plans.



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



There were no assets or liabilities subject to fair value measurement on a nonrecurring basis as of March 31, 2015. Assets that were subject to fair value measurement on a nonrecurring basis are summarized below:







 

 

 

 

 



 

 

 

 

 



Period ending March 31, 2016

 



 

 

 

Impairment

 

in thousands

Level 2 

 

 

Charges

 

Fair Value Nonrecurring

 

 

 

 

 

Property, plant & equipment, net

$              0 

 

 

$          499 

 

Other intangible assets, net

 

 

8,180 

 

Other assets

 

 

967 

 

Total

$              0 

 

 

$       9,646 

 



We recorded a $9,646,000 loss on impairment of long-lived assets as a result of exiting an aggregates site lease for the three months ended March 31, 2016, reducing the carrying value of these assets to their estimated fair values of $0. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).

 

 

Note 6: Derivative Instruments



During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such expenses. We do not 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



During 2007, we entered into fifteen forward starting interest rate locks on $1,500,000,000 of future debt issuances in order to hedge the risk of higher interest rates. Upon the 2007 and 2008 issuances of the related fixed-rate debt, underlying interest rates were lower than the rate locks and we terminated and settled these forward starting locks for cash payments of $89,777,000. This amount was booked to AOCI and is being amortized to interest expense over the term of the related debt.



This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Three Months Ended

 



Location on

 

March 31

 

in thousands

Statement

 

2016 

 

 

2015 

 

Cash Flow Hedges

 

 

 

 

 

 

 

Loss reclassified from AOCI

Interest

 

 

 

 

 

 

 (effective portion)

expense

 

$          (487)

 

 

$       (3,721)

 



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



For the 12-month period ending March 31, 2017, we estimate that $2,049,000 of the pretax loss in AOCI will be reclassified to earnings.



FAIR VALUE HEDGES

In June 2011, we issued $500,000,000 of 6.50% fixed-rate notes due in 2016 to refinance near term floating-rate debt. Concurrently, we entered into interest rate swap agreements in the stated amount of $500,000,000 to reestablish the pre-refinancing mix of fixed- and floating-rate debt. 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 of 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 gain component of the settlement (cash proceeds less $1,995,000 of accrued interest) was added to the carrying value of the related debt and was amortized as a reduction to interest expense over the terms of the related debt using the effective interest method. The deferred gain was fully amortized in December 2015, concurrent with the retirement of the 10.125% notes due 2015.



This deferred gain amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

 

Three Months Ended



 

 

March 31

in thousands

 

 

2016 

 

 

2015 

Deferred Gain on Settlement

 

 

 

 

 

Amortized to earnings as a reduction

 

 

 

 

 

 to interest expense

 

$              0 

 

 

$          513 



 

 

10

 


 

Note 7: Debt



Debt is detailed as follows:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

Effective

 

March 31

 

 

December 31

 

 

March 31

 

in thousands

Interest Rates

 

2016 

 

 

2015 

 

 

2015 

 

Short-term Debt

 

 

 

 

 

 

 

 

 

 

Bank line of credit expires 2020 1, 2. 3

 

 

$                  0 

 

 

$                0 

 

 

$                0 

 

Total short-term debt

 

 

$                  0 

 

 

$                0 

 

 

$                0 

 

Long-term Debt

 

 

 

 

 

 

 

 

 

 

Bank line of credit expires 2020 1, 2, 3

1.50% 

 

$       235,000 

 

 

$     235,000 

 

 

$                0 

 

10.125% notes due 2015

n/a

 

 

 

 

 

150,000 

 

6.50% notes due 2016

n/a

 

 

 

 

 

125,001 

 

6.40% notes due 2017

n/a

 

 

 

 

 

218,633 

 

7.00% notes due 2018

7.87% 

 

272,512 

 

 

272,512 

 

 

272,697 

 

10.375% notes due 2018

10.63% 

 

250,000 

 

 

250,000 

 

 

250,000 

 

7.50% notes due 2021

7.75% 

 

600,000 

 

 

600,000 

 

 

600,000 

 

8.85% notes due 2021

8.88% 

 

6,000 

 

 

6,000 

 

 

6,000 

 

Industrial revenue bond due 2022

n/a

 

 

 

 

 

14,000 

 

4.50% notes due 2025

4.65% 

 

400,000 

 

 

400,000 

 

 

400,000 

 

7.15% notes due 2037

8.05% 

 

240,188 

 

 

240,188 

 

 

240,188 

 

Other notes 3

6.25% 

 

494 

 

 

498 

 

 

618 

 

Unamortized discounts and debt issuance costs

n/a

 

(22,638)

 

 

(23,734)

 

 

(25,852)

 

Unamortized deferred interest rate swap gain 4

n/a

 

 

 

 

 

2,521 

 

Total long-term debt including current maturities 5

 

 

$    1,981,556 

 

 

$  1,980,464 

 

 

$  2,253,806 

 

Less current maturities

 

 

131 

 

 

130 

 

 

365,441 

 

Total long-term debt

 

 

$    1,981,425 

 

 

$  1,980,334 

 

 

$  1,888,365 

 

Total debt 6  

 

 

$    1,981,556 

 

 

$  1,980,464 

 

 

$  2,253,806 

 

Estimated fair value of long-term debt

 

 

$    2,236,669 

 

 

$  2,204,816 

 

 

$  2,160,255 

 







 

Borrowings on the bank line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt otherwise.

The effective interest rate is the spread over LIBOR as of the balance sheet dates.

Non-publicly traded debt.

The unamortized deferred gain was realized upon the August 2011 settlement of interest rate swaps as discussed in Note 6.

The debt balances as of March 31, 2015 have been adjusted to reflect our early adoption of ASU 2015-03 and related election as discussed in Note 1, caption Reclassifications.

Face value of our debt is equal to total debt less unamortized discounts and debt issuance costs, and unamortized deferred interest rate swap gain, as follows: March 31, 2016$2,004,194 thousand, December 31, 2015$2,004,198 thousand and March 31, 2015$2,277,137 thousand.



Our total debt is presented in the table above net of unamortized discounts from par, unamortized deferred debt issuance costs and unamortized deferred interest rate swap settlement gain. Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $1,096,000 of net interest expense for these items for the three months ended March 31, 2016.



The estimated fair value of our debt presented in the table above was determined by: (1) averaging several asking price quotes for the publicly traded notes and (2) assuming par value for the remainder of the debt. The fair value estimates for the publicly traded notes were based on Level 2 information (as defined in Note 5) as of their respective balance sheet dates.





11

 


 

LINE OF CREDIT



In June 2015, we cancelled our secured $500,000,000 line of credit and entered into an unsecured $750,000,000 line of credit (incurring $2,589,000 of transaction fees).



The line of credit agreement expires in June 2020 and contains affirmative, negative and financial covenants customary for an unsecured facility. The primary negative covenant limits our ability to incur secured debt. The financial covenants are: (1) a maximum ratio of debt to EBITDA of 3.5:1, and (2) a minimum ratio of EBITDA to net cash interest expense of 3.0:1. As of March 31, 2016, we were in compliance with the line of credit covenants.



Borrowings on our line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt if we have the intent and ability to extend payment beyond twelve months. Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from 1.00% to 2.00%, or SunTrust Bank’s base rate (generally, its prime rate) plus a credit margin ranging from 0.00% to 1.00%. The credit margin for both LIBOR and base rate borrowings is determined by either our ratio of debt to EBITDA or our credit ratings, based on the metric that produces the lower credit spread. Standby letters of credit, which are issued under the line of credit and reduce availability, are charged a fee equal to the credit margin for LIBOR borrowings plus 0.175%. We also pay a commitment fee on the daily average unused amount of the line of credit that ranges from 0.10% to 0.35% based on either our ratio of debt to EBITDA or our credit ratings, based on the metric that produces the lower fee. As of March 31, 2016, the credit margin for LIBOR borrowings was 1.50%, the credit margin for base rate borrowings was 0.50%, and the commitment fee for the unused amount was 0.20%.



As of March 31, 2016, our available borrowing capacity was $475,136,000. Utilization of the borrowing capacity was as follows:



§

$235,000,000 was borrowed

§

$39,864,000 was used to provide support for outstanding standby letters of credit





TERM DEBT



All of our term debt is unsecured. All such debt, other than the $494,000 of other notes, is governed by two essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in both indentures limits the amount of secured debt we may incur without ratably securing such debt. As of March 31, 2016, we were in compliance with all of the term debt covenants.



In December 2015, we repaid our $150,000,000 10.125% notes due 2015 via borrowing on our line of credit. In August 2015, we repaid our $14,000,000 industrial revenue bond due 2022 via borrowing on our line of credit. These repayments did not incur any prepayment penalties.



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 (32%) of the 7.00% notes due 2018. 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 net noncash expense associated with the acceleration of a proportional amount of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined first quarter 2015 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, funded: (1) the April 2015 redemption of $218,633,000 principal amount (100%) of the 6.40% notes due 2017, (2) the April 2015 redemption of $125,001,000 principal amount (100%) of the 6.50% notes due 2016 and (3) the April 2015 purchase, via the tender offer commenced in March 2015 of $185,000 principal amount (less than 1%) of the 7.00% notes due 2018. The April 2015 debt purchases cost $385,024,000, including a $41,153,000 premium above the principal amount of the notes and transaction costs of $52,000. The premium primarily reflects the make-whole value of the 2016 notes and the 2017 notes. Additionally, we recognized $4,136,000 of net noncash expense associated with the acceleration of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined second quarter 2015 charge of $45,341,000 was a component of interest expense for the six month period ended June 30, 2015.





12

 


 

STANDBY LETTERS OF CREDIT



We provide, in the normal course of business, certain third-party beneficiaries with standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of one year, typically renew automatically, and can only be modified or cancelled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our $750,000,000 line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of March 31, 2016 are summarized by purpose in the table below:







 

 



 

 

in thousands

 

 

Standby Letters of Credit

 

 

Risk management insurance

$       34,111 

 

Reclamation/restoration requirements

5,753 

 

Total

$       39,864 

 

 

 

Note 8: Commitments and Contingencies



As summarized by purpose directly above in Note 7, our standby letters of credit totaled $39,864,000 as of March 31, 2016.



LITIGATION AND ENVIRONMENTAL MATTERS



We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally, we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party's share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.



We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period.



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



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



§

Lower Passaic River Study Area (Superfund Site) — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the Cooperating Parties Group) to a May 2007 Administrative Order on Consent (AOC) with the U.S. Environmental Protection Agency (EPA) to perform a Remedial Investigation/Feasibility Study (draft RI/FS) of the lower 17 miles of the Passaic River (River). However, before the draft RI/FS was issued in final form, the EPA issued a record of decision (ROD) on March 4, 2016, that calls for a bank-to-bank dredging remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is $1.38 billion. The Cooperating Parties Group draft RI/FS estimates the preferred remedial action presented therein to cost in the range of $475 million to $725 million.



Efforts to remediate the River have been underway for many years and have involved hundreds of entities that have had operations on or near the River at some point during the past several decades. Vulcan formerly owned a chemicals operation near the mouth of the River, which was sold in 1974. The major risk drivers in the River have been identified as dioxins, PCBs, DDx and mercury. Vulcan did not manufacture any of these risk drivers and has no evidence that any of these were discharged into the River by Vulcan.



13

 


 

The AOC does not obligate us to fund or perform the remedial action contemplated by either the draft RI/FS or the ROD. Furthermore, the parties who will participate in funding the remediation and their respective allocations, have not been determined. Vulcan does not agree that a bank-to-bank remedy is warranted, and Vulcan is not obligated to fund any of the remedial action at this time; nevertheless, we previously estimated the cost to be incurred by us for a bank-to-bank dredging remedy and recorded an immaterial loss for this matter in 2015.



§

TEXAS BRINE MATTER — During the operation of its former Chemicals Division, Vulcan was the lessee to a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company (Texas Brine) operated this salt mine for 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.



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 physical damages to oil pipelines, to business interruption claims. In addition to the plaintiffs’ claims, Vulcan has also been sued for contractual indemnity and comparative fault by both Texas Brine and Occidental Chemical Co. (Occidental).  The total amount of damages claimed is in excess of $500 million. It is alleged that the sinkhole was caused, in whole or in part, by Vulcan’s negligent actions or failure to act. It is also alleged that Vulcan breached the salt lease, as well as an operating  agreement and a drilling agreement with Texas Brine; that Vulcan is strictly liable for certain property damages in its capacity as a former assignee of the salt lease; and that Vulcan violated certain covenants and conditions in the agreement under which it sold its Chemicals Division in 2005. Vulcan has made claims for contractual indemnity, comparative fault, and breach of contract against Texas Brine, as well as claims for contractual indemnity and comparative fault against Occidental. Discovery is ongoing and the first trial date in any of these cases has been set for March 2017. At this time, we cannot reasonably estimate a range of liability pertaining to this matter.



§

HEWITT LANDFILL MATTER — On September 8, 2015, the Los Angeles Regional Water Quality Control Board (RWQCB) issued a Cleanup and Abatement Order (CAO) directing Vulcan to assess, monitor, cleanup and abate wastes that have been discharged to soil, soil vapor, and/or groundwater at the former Hewitt Landfill in Los Angeles. The CAO follows a 2014 Investigative Order from RWQCB that sought data and a technical evaluation regarding the Hewitt Landfill, and a subsequent amendment to the Investigative Order requiring Vulcan to provide groundwater monitoring results to RWQCB and to create and implement a work plan for further investigation of the Hewitt Landfill. Vulcan is engaged in performing site investigation work and has proposed to conduct an interim-remedial action plan pilot study to provide information needed by Vulcan in determining the most effective remedy to clean up and abate waste discharged to groundwater at the Hewitt Landfill. The costs to perform these investigative actions are immaterial and have been fully accrued. Until this investigative work is complete, we are unable to estimate the cost of a  remedial action plan.



Vulcan is also engaged in an ongoing dialogue with the U.S. Environmental Protection Agency, the Los Angeles Department of Water and Power, and other stakeholders regarding the potential contribution of the Hewitt Landfill to groundwater contamination in the San Fernando Valley. We are gathering and analyzing data and developing technical information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other sources of contamination. At this time, we cannot reasonably estimate a range of liability pertaining to this matter.



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

 

 



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 something 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

2016 

 

 

2015 

 

ARO Operating Costs

 

 

 

 

 

Accretion

$        2,755 

 

 

$        2,851 

 

Depreciation

1,693 

 

 

1,433 

 

Total

$        4,448 

 

 

$        4,284 

 



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

2016 

 

 

2015 

 

Asset Retirement Obligations

 

 

 

 

 

Balance at beginning of year

$     226,594 

 

 

$     226,565 

 

  Liabilities incurred

 

 

1,820 

 

  Liabilities settled

(4,868)

 

 

(6,730)

 

  Accretion expense

2,755 

 

 

2,851 

 

  Revisions, net

(3,900)

 

 

14,183 

 

Balance at end of period

$     220,581 

 

 

$     238,689 

 



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

 

 

15

 


 

Note 10: Benefit Plans



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



Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. 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 allowed covered compensation through December 31, 2015 to be considered in the participants’ benefit calculations.



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





 

 

 

 

 



 

 

 

 

 

PENSION BENEFITS

Three Months Ended

 



March 31

 

in thousands

2016 

 

 

2015 

 

Components of Net Periodic Benefit Cost

 

 

 

 

 

Service cost

$        1,336 

 

 

$        1,213 

 

Interest cost

9,126 

 

 

11,037 

 

Expected return on plan assets

(12,891)

 

 

(13,684)

 

Amortization of prior service cost (credit)

(11)

 

 

12 

 

Amortization of actuarial loss

1,541 

 

 

5,454 

 

Net periodic pension benefit cost (credit)

$          (899)

 

 

$        4,032 

 

Pretax reclassifications from AOCI included in

 

 

 

 

 

 net periodic pension benefit cost

$        1,530 

 

 

$        5,466 

 



Prior contributions, along with the existing funding credits, are expected to be sufficient to cover required contributions to the qualified plans through 2017.



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 of our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain 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 following table sets forth the components of net periodic postretirement benefit cost:







 

 

 

 

 



 

 

 

 

 

OTHER POSTRETIREMENT BENEFITS

Three Months Ended

 



March 31

 

in thousands

2016 

 

 

2015 

 

Components of Net Periodic Benefit Cost

 

 

 

 

 

Service cost

$           281 

 

 

$           473 

 

Interest cost

302 

 

 

617 

 

Amortization of prior service credit

(1,059)

 

 

(1,058)

 

Amortization of actuarial gain

(438)

 

 

(4)

 

Net periodic postretirement benefit cost (credit)

$          (914)

 

 

$             28 

 

Pretax reclassifications from AOCI included in

 

 

 

 

 

 net periodic postretirement benefit credit

$       (1,497)

 

 

$       (1,062)

 

 

 

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

2016 

 

 

2015 

 

 

2015 

 

AOCI

 

 

 

 

 

 

 

 

Cash flow hedges

$       (14,200)

 

 

$       (14,494)

 

 

$       (18,074)

 

Pension and postretirement plans

(105,555)

 

 

(105,575)

 

 

(138,711)

 

Total

$     (119,755)

 

 

$     (120,069)

 

 

$     (156,785)

 



Changes in AOCI, net of tax, for the three months ended March 31, 2016 are as follows:







 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Pension and 

 

 

 

 



Cash Flow

 

 

Postretirement

 

 

 

 

in thousands

Hedges

 

 

Benefit Plans

 

 

Total

 

AOCI

 

 

 

 

 

 

 

 

Balance as of December 31, 2015

$       (14,494)

 

 

$     (105,575)

 

 

$     (120,069)

 

Amounts reclassified from AOCI

294 

 

 

20 

 

 

314 

 

Net current period OCI changes

294 

 

 

20 

 

 

314 

 

Balance as of March 31, 2016

$       (14,200)

 

 

$     (105,555)

 

 

$     (119,755)

 



Amounts reclassified from AOCI to earnings, are as follows:







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Three Months Ended

 



 

 

March 31

 

in thousands

2016 

 

 

2015 

 

Reclassification Adjustment for Cash Flow

 

 

 

 

 

 Hedge Losses

 

 

 

 

 

Interest expense

$            487 

 

 

$         3,721 

 

Benefit from income taxes

(193)

 

 

(1,473)

 

Total

$            294 

 

 

$         2,248 

 

Amortization of Pension and Postretirement

 

 

 

 

 

 Plan Actuarial Loss and Prior Service Cost

 

 

 

 

 

Cost of revenues

$              27 

 

 

$         3,532 

 

Selling, administrative and general expenses

 

 

872 

 

Benefit from income taxes

(13)

 

 

(1,723)

 

Total

$              20 

 

 

$         2,681 

 

Total reclassifications from AOCI to earnings

$            314 

 

 

$         4,929 

 





 

 

 

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.



Changes in total equity for the three months ended March 31, 2016 are summarized below:







 

 

 

 

 



 

 

 

 

 



 

 

 

Total

 

in thousands

 

 

 

Equity

 

Balance at December 31, 2015

 

 

$    4,454,188 

 

Net earnings

 

 

18,924 

 

Common stock issued

 

 

 

 

  Share-based compensation, net of shares withheld for taxes

 

 

(24,613)

 

Purchase and retirement of common stock

 

 

(26,597)

 

Share-based compensation expense

 

 

4,321 

 

Excess tax benefits from share-based compensation

 

 

21,235 

 

Cash dividends on common stock ($0.20 per share)

 

 

(26,718)

 

Other comprehensive income

 

 

314 

 

Other

 

 

(1)

 

Balance at March 31, 2016

 

 

$    4,421,053 

 



There were no shares held in treasury as of March 31, 2016, December 31, 2015 and March 31, 2015. Stock purchases were as follows:



§

three months ended March 31, 2016 – purchased and retired 257,000 shares for a cost of $26,597,000 ($23,433,000 cash in the first quarter and $3,164,000 to be settled in the second quarter)

§

twelve months ended December 31, 2015 – purchased and retired 228,000 shares for a cost of $21,475,000

§

three months ended March 31, 2015 – no shares were purchased



As of March 31, 2016, 2,926,416 shares may be repurchased under the current purchase authorization of our Board of Directors.

 

 



18

 


 

Note 13: Segment Reporting



We have four operating (and reportable) segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Intersegment sales are made at local market prices for the particular grade and quality of product utilized in the production of asphalt mix and ready-mixed concrete. Management reviews earnings from the product line reporting segments principally at the gross profit level.





segment financial disclosure