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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2010
Commission file number: 001-33841
 
VULCAN MATERIALS COMPANY
(Exact name of registrant as specified in its charter)
 
     
New Jersey
  20-8579133
(State or other jurisdiction of incorporation or organization)
  (I.R.S. Employer Identification No.)
 
1200 Urban Center Drive, Birmingham, Alabama 35242
(Address, including zip code, of registrant’s principal executive offices)
 
(205) 298-3000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of each class   Name of each exchange on which registered
 
Common Stock, $1 par value
  New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:  None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  X  No  
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  No  X  
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  X  No  
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  X  No  
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer, ‘” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
 
     
Large accelerated filer X
  Accelerated filer 
Non-accelerated filer   
  Smaller reporting company 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  No  X  
 
     
Aggregate market value of voting stock held by non-affiliates as of June 30, 2010:
  $5,602,210,475
Number of shares of common stock, $1.00 par value, outstanding as of February 21, 2011:
  129,057,358
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s annual proxy statement for the annual meeting of its shareholders to be held on May 13, 2011, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


 

 
VULCAN MATERIALS COMPANY
 
 
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2010
 
 
CONTENTS
 
             
PART   ITEM       PAGE
 
I
  1     2
    1A     14
    1B     18
    2     18
    3     21
    4     22
             
II
  5     23
    6     24
    7     25
    7A     50
    8     51
    9     104
    9A     104
    9B     106
             
III
  10     107
    11     107
    12     107
    13     107
    14     107
             
IV
  15     108
             
        110
 EX-21
 EX-23
 EX-24
 EX-31.A
 EX-31.B
 EX-32.A
 EX-32.B
 EX-99
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT
 
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.
 
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PART I
 
“SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
 
Certain of the matters and statements made herein or incorporated by reference into this report constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our intent, belief or current expectation. Often, forward-looking statements can be identified by the use of words such as “anticipate,” “may,” “believe,” “estimate,” “project,” “expect,” “intend” and words of similar import. In addition to the statements included in this report, we may from time to time make other oral or written forward-looking statements in other filings under the Securities Exchange Act of 1934 or in other public disclosures. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those indicated by the forward-looking statements. All forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the statements. These assumptions, risks and uncertainties include, but are not limited to:
 
§  general economic and business conditions;
 
§  the timing and amount of federal, state and local funding for infrastructure;
 
§  the lack of a multi-year federal highway funding bill with an automatic funding mechanism;
 
§  the reluctance of state departments of transportation to undertake federal highway projects without a reliable method of federal funding;
 
§  the impact of the global economic recession on our business and financial condition and access to capital markets;
 
§  changes in the level of spending for residential and private nonresidential construction;
 
§  the highly competitive nature of the construction materials industry;
 
§  the impact of future regulatory or legislative actions;
 
§  the outcome of pending legal proceedings;
 
§  pricing of our products;
 
§  weather and other natural phenomena;
 
§  energy costs;
 
§  costs of hydrocarbon-based raw materials;
 
§  healthcare costs;
 
§  the amount of long-term debt and interest expense we incur;
 
§  changes in interest rates;
 
§  the negative watch on our debt rating and our increased cost of capital in the event that our debt rating is lowered below investment grade;
 
§  volatility in pension plan asset values which may require cash contributions to our pension plans;
 
§  the impact of environmental clean-up costs and other liabilities relating to previously divested businesses;
 
§  our ability to secure and permit aggregates reserves in strategically located areas;
 
§  our ability to manage and successfully integrate acquisitions;
 
§  the potential impact of future legislation or regulations relating to climate change, greenhouse gas emissions or the definition of minerals;
 
§  the risks set forth in Item 1A “Risk Factors,” Item 3 “Legal Proceedings,” Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 12 “Other Commitments and Contingencies” to the consolidated financial statements in Item 8 “Financial Statements and Supplementary Data ,” all as set forth in this report; and
 
 
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§  other assumptions, risks and uncertainties detailed from time to time in our filings made with the Securities and Exchange Commission.
 
All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission and our press releases with regard to our business and consolidated financial position, results of operations and cash flows.
 
 
ITEM 1
 
BUSINESS
 
SUMMARY
 
Vulcan Materials Company is a New Jersey corporation and the nation’s largest producer of construction aggregates: primarily crushed stone, sand, and gravel. We have 319 aggregates facilities. We also are a major producer of asphalt mix and ready-mixed concrete as well as a leading producer of cement in Florida.
 
STRATEGY FOR EXISTING AND NEW MARKETS
 
§  Our reserves are strategically located throughout the United States in high growth areas that will require large amounts of aggregates to meet construction demand. Vulcan-served states are estimated to have 78% of the total growth in the U.S. population and 75% of the growth in U.S. household formations to 2020. Our top ten revenue producing states in 2010 were California, Virginia, Florida, Texas, Tennessee, Georgia, Illinois, North Carolina, Alabama and South Carolina.
 
U.S. DEMOGRAPHIC GROWTH 2010 – 2020 BY STATE
 
                               
    Population   Households   Employment
        Share of
      Share of
      Share of
  Rank
  State
  Growth   State
  Growth   State
  Growth
1
  Texas     15%   Florida     13%   Texas     14%
2
  California     14%   Texas     13%   Florida     11%
3
  Florida     13%   California     12%   California     9%
4
  Georgia     7%   Arizona     6%   New York     5%
5
  Arizona     6%   Georgia     6%   Georgia     5%
6
  North Carolina     6%   North Carolina     5%   North Carolina     4%
7
  Nevada     3%   Washington     3%   Arizona     4%
8
  Virginia     3%   Virginia     3%   Virginia     3%
9
  Washington     2%   Colorado     2%   Pennsylvania     3%
10
  Colorado     2%   Nevada     2%   Washington     3%
                               
Top 10 Subtotal
    71%         65%         61%
                               
                           
Vulcan-served States
    78%         75%         69%
                               
Note: Vulcan-served states shown in bolded, blue text.
Source: Moody’s Analytics
 
§  We have pursued a strategy of increasing our presence in metropolitan areas that are expected to grow most rapidly.
 
 
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§  We typically operate in locations close to our local markets because the cost of trucking materials long distances is prohibitive. Approximately 80% of our total aggregates shipments are delivered exclusively by truck, and another 13% are delivered by truck after reaching a sales yard by rail or water.
 
MAJOR ACQUISITIONS
 
             
DATE   ACQUISITION   MATERIALS   STATES
1999
  CalMat Co.   Aggregates
Asphalt Mix
Ready-mixed concrete
  Arizona
California
New Mexico
             
2000
  Tarmac
Companies
  Aggregates   Maryland
North Carolina
Pennsylvania
South Carolina
Virginia
             
2007
  Florida Rock
Industries, Inc.
  Aggregates
Ready-mixed concrete
Cement
  Alabama
Florida
Georgia
Maryland
Virginia
Washington, DC
             
 
 
§  Since becoming a public company in 1956, Vulcan has principally grown by mergers and acquisitions. In the last 20 years we have acquired over 276 aggregates operations, including many small bolt-on operations and several large acquisitions.
 
COMPETITORS
 
We operate in an industry that is very fragmented with a large number of small, privately-held companies. We estimate that the ten largest aggregates producers account for approximately 30% to 35% of the total U.S. aggregates production. Despite being the industry leader, Vulcan’s total U.S. market share is less than 10%. Other publicly traded companies among the ten largest U.S. aggregates producers include the following:
 
§  Cemex S.A.B. de C.V.
 
§  CRH, plc
 
§  Heidelberg Cement AG
 
§  Holcim, Ltd.
 
§  Lafarge SA
 
§  Martin Marietta Materials, Inc.
 
§  MDU Resources Group, Inc.
 
Because the U.S. aggregates industry is highly fragmented, with approximately 5,000 companies managing more than 9,000 operations, many opportunities for consolidation exist. Therefore, companies in the industry tend to grow by entering new markets or enhancing their market positions by acquiring existing facilities.
 
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BUSINESS STRATEGY
 
Vulcan provides the basic materials for the infrastructure needed to expand the U.S. economy. Our strategy is based on our strength in aggregates. Aggregates are used in all types of construction and in the production of asphalt mix and ready-mixed concrete. Our materials are used to build the roads, tunnels, bridges, railroads and airports that connect us, and to build the hospitals, churches, shopping centers, and factories that are essential to our lives and the economy. The following graphs illustrate the relationship of our four operating segments to sales.
 
AGGREGATES-LED VALUE CREATION — 2010 NET SALES
 
GRAPH
 
* Represents sales to external customers of our aggregates and our downstream products that use our aggregates.
 
Our business strategies include: 1) aggregates focus, 2) coast-to-coast footprint, 3) profitable growth, and 4) effective land management.
 
1. AGGREGATES FOCUS
 
Aggregates are used in virtually all types of public and private construction projects and practically no substitutes for quality aggregates exist. Our focus on aggregates allows us to
 
§  BUILD AND HOLD SUBSTANTIAL RESERVES: The location of our reserves is critical to our long-term success because of barriers to entry created in some markets by zoning and permitting regulations and high transportation costs. Our reserves are strategically located throughout the United States in high-growth areas that will require large amounts of aggregates to meet future construction demand. Aggregates operations have flexible production capabilities and require no raw material other than our owned or leased aggregates reserves. Our downstream businesses (asphalt mix and concrete) predominantly use Vulcan-produced aggregates.
 
§  TAKE ADVANTAGE OF BEING THE LARGEST PRODUCER: Each aggregates operation is unique because of its location within a local market with particular geological characteristics. Every operation, however, uses a similar group of assets to produce saleable aggregates and provide customer service. Vulcan is the largest aggregates company in the U.S., whether measured by production or by revenues. Our 319 aggregates facilities provide opportunities to standardize and procure equipment (fixed and mobile), parts, supplies and services in the most efficient and cost-effective manner possible both regionally and nationally. Additionally, we are able to share best practices across the organization and leverage our size for administrative support, customer service, accounts receivable and accounts payable, technical support and engineering.
 
§  GENERATE STRONG CASH EARNINGS PER TON, EVEN IN A RECESSION: Our knowledgeable and experienced workforce and our flexible production capabilities have allowed us to manage costs aggressively during the current recession. As a result, our cash earnings for each ton of aggregates sold in 2010 was 26% higher than at the peak of demand in 2005.
 
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2. COAST-TO-COAST FOOTPRINT
 
Demand for construction aggregates positively correlates with changes in population growth, household formation and employment. We have pursued a strategy to increase our presence in metropolitan areas that are expected to grow the most rapidly.
 
GRAPH
 
Source: Moody’s Analytics
 
Our top ten revenue-producing states are predicted to have 66% of the total growth in the U.S. population between now and 2020. Vulcan-served states are predicted to have 78% of the total growth in the U.S. population between now and 2020. Therefore, we have located reserves in those markets expected to have the greatest growth in population. Additionally, many of these reserves are located in areas where zoning and permitting laws have made opening new quarries increasingly difficult. Our diversified geographic locations help insulate Vulcan from variations in regional weather and economies.
 
3. PROFITABLE GROWTH
 
Our growth is a result of acquisitions, cost management and investment activities.
 
§  STRATEGIC ACQUISITIONS: Since becoming a public company in 1956, Vulcan has principally grown by mergers and acquisitions. For example, in 1999 we acquired CalMat Co., thereby expanding our aggregates operations into California, Arizona, and New Mexico and making us one of the nation’s leading producers of asphalt mix and ready-mixed concrete.
 
In 2007, we acquired Florida Rock Industries, Inc., the largest acquisition in our history. This acquisition
 
  §     expanded our aggregates business in Florida and other southeastern and mid-Atlantic states
 
  §     added an extensive ready-mixed concrete business in Florida, Maryland, Virginia and Washington D.C.
 
  §     added cement manufacturing and distribution facilities in Florida
 
In addition to these large acquisitions, we have completed many smaller acquisitions that have contributed significantly to our growth.
 
§  TIGHTLY MANAGED COSTS: In a business where our aggregates sell, on average, for $10.13 per ton, we are accustomed to rigorous cost management throughout economic cycles. Small savings per ton add up to significant cost reductions. We are able to reduce or expand production and adjust employment levels to meet changing market demands without jeopardizing our ability to take advantage of future increased demand.
 
§  REINVESTMENT OPPORTUNITIES WITH HIGH RETURNS: In the next decade, Moody’s Analytics projects that 78% of the U.S. population growth will occur in Vulcan-served states. The close proximity of our production facilities and our aggregates reserves to this projected population growth creates many opportunities to invest capital in high-return projects — projects that will add reserves, increase production capacity and improve costs.
 
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4. EFFECTIVE LAND MANAGEMENT
 
At Vulcan we believe that effective land management is both a business strategy and a social responsibility and that it contributes to our success. Good stewardship requires the careful use of existing resources as well as long-term planning because mining, ultimately, is an interim use of the land. Therefore, we strive to achieve a balance between the value we create through our mining activities and the value we create through effective post-mining land management. We continue to expand our thinking and focus our actions on wise decisions regarding the life cycle management of the land we currently hold and will hold in the future.
 
PRODUCT LINES
 
We have four reporting segments organized around our principal product lines
 
§  aggregates
 
§  concrete
 
§  asphalt mix
 
§  cement
 
1. AGGREGATES
 
GRAPH
 
A number of factors affect the U.S. aggregates industry and our business including markets, reserves and demand cycles.
 
§  LOCAL MARKETS: Aggregates have a high weight-to-value ratio and, in most cases, must be produced near where they are used; if not, transportation can cost more than the materials. Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available high quality aggregates. We serve these markets from inland quarries — shipping by barge and rail — and from our quarry on Mexico’s Yucatan Peninsula. We transport aggregates from Mexico to the U.S. principally on our three Panamax-class, self-unloading ships.
 
§  DIVERSE MARKETS: Large quantities of aggregates are used in virtually all types of public- and private-sector construction projects such as highways, airports, water and sewer systems, industrial manufacturing facilities, residential and nonresidential buildings. Aggregates also are used widely as railroad track ballast.
 
§  LOCATION AND QUALITY OF RESERVES: Vulcan currently has 14.7 billion tons of permitted and proven or probable aggregates reserves. The bulk of these reserves are located in areas where we expect greater than average rates of growth in population, jobs and households, which require new infrastructure, housing, offices, schools and other development. Such growth requires aggregates for construction. Zoning and permitting regulations in some markets have made it increasingly difficult for the aggregates industry to expand existing quarries or to develop new quarries. These restrictions could curtail expansion in certain areas, but they also could increase the value of our reserves at existing locations.
 
 
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§  DEMAND CYCLES: Long-term growth in demand for aggregates is largely driven by growth in population, jobs and households. While short- and medium-term demand for aggregates fluctuates with economic cycles, declines have historically been followed by strong recoveries, with each peak establishing a new historical high. In comparison to all other recent demand cycles, the current downturn has been unusually steep and long, making it difficult to predict the timing or strength of future recovery.
 
Highway construction is the most aggregates-intensive form of construction and residential construction is the least intensive (see table below). A dollar spent for highway construction is estimated to consume seven times the quantity of aggregates consumed by a dollar spent for residential construction. Other non-highway infrastructure markets like airports, sewer and waste disposal, or water supply plants and utilities also require large quantities of aggregates in their foundations and structures. These types of infrastructure-related construction can be four times more aggregates-intensive than residential construction. Generally, nonresidential buildings require two to three times as much aggregates per dollar of spending as a new home with most of the aggregates used in the foundations, building structure and parking lots.
 
U.S. AGGREGATES DEMAND BY END-MARKET
 
GRAPH
 
Source: internal estimates
 
In addition, the following factors influence the aggregates market:
 
§  HIGHLY FRAGMENTED INDUSTRY: The U.S. aggregates industry is composed of approximately 5,000 companies that manage more than 9,000 operations. This fragmented structure provides many opportunities for consolidation. Companies in the industry commonly enter new markets or expand positions in existing markets through the acquisition of existing facilities.
 
§  RELATIVELY STABLE DEMAND FROM THE PUBLIC SECTOR: Publicly funded construction activity has historically been more stable than privately funded construction. Public construction also has been less cyclical than private construction and requires more aggregates per dollar of construction spending. Private construction (primarily residential and nonresidential buildings) is typically more affected by general economic cycles than public construction. Publicly funded projects (particularly highways, roads and bridges) tend to receive more consistent levels of funding throughout economic cycles.
 
§  LIMITED PRODUCT SUBSTITUTION: With few exceptions, there are no practical substitutes for quality aggregates. In urban locations, recycled concrete has limited applications as a lower-cost alternative to virgin aggregates. However, many types of construction projects cannot be served by recycled concrete but require the use of virgin aggregates to meet specifications and performance-based criteria for durability, strength and other qualities.
 
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§  WIDELY USED IN DOWNSTREAM PRODUCTS: In the production process, aggregates are processed for specific applications or uses. Two products that use aggregates are asphalt mix and ready-mixed concrete. By weight, aggregates comprise approximately 95% of asphalt mix and 78% of ready-mixed concrete.
 
§  FLEXIBLE PRODUCTION CAPABILITIES: The production of aggregates is a mechanical process in which stone is crushed and, through a series of screens, separated into various sizes depending on how it will be used. Aggregates plants do not require high start-up costs and typically have lower fixed costs than continuous process manufacturing operations. Production capacity can be flexible by adjusting operating hours to meet changing market demand. For example, we reduced production during 2009 and 2010 in response to the economic downturn but retain the capacity to quickly increase production as economic conditions and demand improve.
 
§  NO RAW MATERIAL INPUTS: Unlike typical industrial manufacturing industries, the aggregates industry does not require the input of raw material beyond owned or leased aggregates reserves. Stone, sand and gravel are naturally occurring resources. However, production does require the use of explosives, hydrocarbon fuels and electric power.
 
OUR MARKETS
 
We focus on the U.S. markets with the greatest expected population growth and where construction is expected to expand. Because transportation is a significant part of the delivered cost of aggregates, our facilities are typically located in the markets they serve or with access to economical transportation to their markets. We serve both the public and the private sectors.
 
PUBLIC SECTOR
 
Public sector construction includes spending by federal, state, and local governments for highways, bridges and airports as well as other infrastructure construction for sewer and waste disposal systems, water supply systems, dams, reservoirs and other public construction projects. Construction for power plants and other utilities is funded from both public and private sources. In 2010, publicly funded construction accounted for 55% of our total aggregates shipments.
 
PUBLIC SECTOR FUNDING: Generally, public sector construction spending is more stable than private sector construction because public sector spending is less sensitive to interest rates and has historically been supported by multi-year legislation and programs. For example, the federal transportation bill is a principal source of federal funding for public infrastructure and transportation projects. For over two decades, projects have been funded through a series of multi-year bills. The long-term aspect of these bills is critical because it provides state departments of transportation with the ability to plan and execute long-term and complex highway projects. Federal highway spending is governed by multi-year authorization bills and annual budget appropriations using funds largely from the Federal Highway Trust Fund. This trust receives funding from taxes on gasoline and other levies. The level of state spending on infrastructure varies across the United States and depends on individual state needs and economies. In 2010, approximately 30% of our aggregates sales by volume were used in highway construction projects.
 
CHANGES IN MULTI-YEAR FUNDING: The most recent federal transportation bill, known as SAFETEA-LU, expired on September 30, 2009. Congress has yet to pass a replacement bill. As a result, funds for highway construction are being provided by a series of authorized extensions with appropriations at fiscal year 2010 levels. This uncertainty in funding may lead some states to defer large multi-year projects until such time as there is greater certainty of funding.
 
NEED FOR PUBLIC INFRASTRUCTURE: A significant need exists for additional and ongoing investments in the nation’s infrastructure. In 2009, a report by the American Society of Civil Engineers (ASCE) gave our nation’s infrastructure an overall grade of “D” and estimated that an investment of $2.2 trillion over a five-year period is needed for improvements. While the needs are clear, the source of funding for infrastructure improvements is not. In its report, the ASCE suggests that all levels of government, owners and users need to renew their commitment to infrastructure investments in all categories and that all available financing options should be explored and debated.
 
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FEDERAL STIMULUS IMPACT: The American Recovery and Reinvestment Act of 2009 (the Stimulus or ARRA) was signed into law on February 17, 2009 to create jobs and restore economic growth through, among other things, the modernization of America’s infrastructure and improving its energy resources. Included in the $787 billion of economic stimulus funding is $50 to $60 billion of heavy construction, including $27.5 billion for highways and bridges. This federal funding for highways and bridges, unlike typical federal funding programs for infrastructure, does not require states to provide matching funds. The nature of the projects that are being funded by ARRA generally will require considerable quantities of aggregates.
 
Publicly-funded construction activity increased in 2010 due mostly to the Stimulus. According to the Federal Highway Administration, approximately $7.1 billion or 43% of the total Stimulus funds apportioned for highways and bridges in Vulcan-served states remains to be spent. The pace of obligating, bidding, awarding and starting stimulus-related highway construction projects has varied widely across states. These state-by-state differences in awarding projects and spending patterns are due, in part, to the types of planned projects and to the proportion sub-allocated to metropolitan planning organizations where project planning and execution can be more complicated and time consuming.
 
Despite the failure of Congress to pass a fully-funded extension of SAFETEA-LU (the previous highway authorization that expired on September 30, 2009), total contract awards for federal, state and local highways in 2010 increased 2% from 2009. Moreover, contract awards for public highway projects in Vulcan-served states increased 5% from the prior year versus a 2% decline in other states. We are encouraged by the increased award activity and are optimistic that stimulus-related highway projects in Vulcan-served states will increase demand for our products in 2011.
 
PRIVATE SECTOR
 
The private sector market includes both nonresidential buildings and residential construction and is more cyclical than public construction. In 2010, privately-funded construction accounted for 45% of our total aggregates shipments.
 
NONRESIDENTIAL CONSTRUCTION: Private nonresidential construction includes a wide array of types of projects. Such projects generally are more aggregates intensive than residential construction, but less aggregates intensive than public construction. Overall demand in private nonresidential construction is generally driven by job growth, vacancy rates, private infrastructure needs and demographic trends. The growth of the private workforce creates demand for offices, hotels and restaurants. Likewise, population growth generates demand for stores, shopping centers, warehouses and parking decks as well as hospitals, churches and entertainment facilities. Large industrial projects, such as a new manufacturing facility, can increase the need for other manufacturing plants to supply parts and assemblies. Construction activity in this end market is influenced by a firm’s ability to finance a project and the cost of such financing.
 
Consistent with past cycles of private sector construction, private nonresidential construction remained strong after residential construction peaked in 2006. However, in late 2007, contract awards for nonresidential buildings peaked. In 2008, contract awards in the U.S. declined 24% from the prior year and in 2009 fell sharply, declining 56% from 2008 levels. Contract awards for stores and office buildings were the weakest categories of nonresidential construction in 2009, declining more than 60% from the prior year. Employment growth, more attractive lending standards and general recovery in the economy will help drive growth in construction activity in this end market.
 
RESIDENTIAL CONSTRUCTION: The majority of residential construction is for single-family houses with the remainder consisting of multi-family construction (i.e., two family houses, apartment buildings and condominiums). Public housing comprises only a small portion of the housing demand. Household formations in Vulcan’s markets have grown faster than the U.S. as a whole in the last 10 years. During that time, household growth was 12% in our markets compared to 6% in the remainder of the U.S. Construction activity in this end market is influenced by the cost and availability of mortgage financing. Demand for our products generally occurs early in the infrastructure phase of residential construction and later as part of driveways or parking lots.
 
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U.S. housing starts, as measured by McGraw-Hill data, peaked in early 2006 at over 2 million units annually. By the end of 2009, total housing starts had declined to less than 600,000 units, well below prior historical lows of approximately 1 million units annually. However, in the summer of 2009, single-family housing starts began to stabilize as evidenced by the graph below. By the end of 2010, single-family starts exhibited some modest growth, breaking almost four consecutive years of decline.
 
PRIVATE CONSTRUCTION ACTIVITY COMPARISON
(Trailing Twelve Months Ending Dec. 2004 =100)
 
GRAPH
 
Source: McGraw-Hill
 
In 2010, total U.S. housing starts increased 4% from the prior year. While these results don’t necessarily indicate a sustained recovery in residential construction, the modest improvement in construction activity is encouraging. Lower home prices, attractive mortgage interest rates and fewer existing homes for sale provide some optimism for housing construction in 2011 and beyond.
 
ADDITIONAL AGGREGATES PRODUCTS AND MARKETS
 
We sell ballast to railroads for construction and maintenance of railroad track. We also sell riprap and jetty stone for erosion control along waterways. In addition, stone can be used as a feedstock for cement and lime plants and for making a variety of adhesives, fillers and extenders. Coal-burning power plants use limestone in scrubbers to reduce harmful emissions. Limestone that is crushed to a fine powder can be sold as agricultural lime.
 
OUR COMPETITIVE ADVANTAGE
 
We are the largest producer of construction aggregates in the United States. The aggregates market is highly fragmented with many small, independent producers. Therefore, depending on the market, we may compete with large national or regional firms as well as relatively small local producers. Since construction aggregates are expensive to transport relative to their value, markets generally are local in nature. Thus, the cost to deliver product to the location where it is used is an important competitive factor.
 
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We serve metropolitan areas that demographers expect will experience the largest absolute growth in population in the future. A market often consists of a single metropolitan area or one or more counties where transportation from the producing location to the customer is by truck only. Approximately 80% of our total aggregates shipments are delivered exclusively by truck, and another 13% are delivered by truck after reaching a sales yard. Sales yards and other distribution facilities located on waterways and rail lines allow us to reach markets that do not have locally available sources of aggregates.
 
Zoning and permitting regulations in some markets have made it increasingly difficult to expand existing quarries or to develop new quarries. However, such regulations, while potentially curtailing expansion in certain areas, could also increase the value of our reserves at existing locations.
 
We sell a relatively small amount of construction aggregates outside of the United States, principally in the areas surrounding our large quarry on the Yucatan Peninsula in Mexico. Nondomestic sales and long-lived assets outside the United States are reported in Note 15 to the consolidated financial statements in Item 8 “Financial Statements and Supplementary Data.”
 
2. CONCRETE
 
We produce and sell ready-mixed concrete in Arizona, California, Florida, Georgia, Maryland, New Mexico, Texas and Virginia. Additionally, we produce and sell, in a limited number of these markets, other concrete products such as block and pre-cast beams. We also resell purchased building materials for use with ready-mixed concrete and concrete block.
 
This segment relies on our reserves of aggregates, functioning essentially as a customer to our aggregates operations. Aggregates are a major component in ready-mixed concrete, comprising approximately 78% by weight of this product. We meet the aggregates requirements of our Concrete segment almost wholly through our Aggregates segment. These product transfers are made at local market prices for the particular grade and quality of material required.
 
We serve our Concrete segment customers from our local production facilities or by truck. Because ready-mixed concrete hardens rapidly, delivery typically is within close proximity to the producing facility.
 
Ready-mixed concrete production also requires cement. In the Florida market, cement requirements for ready-mixed concrete production are supplied substantially by our Cement segment. In other markets, we purchase cement from third-party suppliers. We do not anticipate any material difficulties in obtaining the raw materials necessary for this segment to operate.
 
3. ASPHALT MIX
 
We produce and sell asphalt mix in Arizona, California, New Mexico and Texas. This segment relies on our reserves of aggregates, functioning essentially as a customer to our aggregates operations. Aggregates are a major component in asphalt mix, comprising approximately 95% by weight of this product. We meet the aggregates requirements for our Asphalt mix segment almost wholly through our Aggregates segment. These product transfers are made at local market prices for the particular grade and quality of material required.
 
Because asphalt mix hardens rapidly, delivery typically is within close proximity to the producing facility. The asphalt production process requires liquid asphalt, which we purchase entirely from third-party producers. We serve our Asphalt mix segment customers from our local production facilities or by truck.
 
4. CEMENT
 
Our Newberry, Florida cement plant produces Portland and masonry cement that we sell in both bulk and bags to the concrete products industry. Our Tampa, Florida facility can import and export cement and slag. Some of the imported cement is resold, and the balance of the cement is blended, bagged, or reprocessed into specialty cements that we then sell. The slag is ground and sold in blended or unblended form. Our Port Manatee, Florida facility can import cement clinker
 
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that is ground into bulk cement and sold. Our Brooksville, Florida plant produces calcium products for the animal feed, paint, plastics and joint compound industries.
 
The Cement segment’s largest single customer is our own ready-mixed concrete operations within the Concrete segment.
 
During 2010, we began operating the newly expanded Newberry cement facility. This plant is supplied by limestone mined at the facility. These limestone reserves total 192.7 million tons.
 
Our Brooksville, Florida calcium facility is supplied with high quality calcium carbonate material mined at the Brooksville quarry. The calcium carbonate reserves at this quarry total 6.3 million tons.
 
OTHER BUSINESS RELATED ITEMS
 
SEASONALITY AND CYCLICAL NATURE OF OUR BUSINESS
 
Almost all our products are produced and consumed outdoors. Seasonal changes and other weather-related conditions can affect the production and sales volumes of our products. Therefore, the financial results for any quarter do not necessarily indicate the results expected for the year. Normally, the highest sales and earnings are in the third quarter and the lowest are in the first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local economic conditions and particularly to cyclical swings in construction spending, primarily in the private sector. The levels of construction spending are affected by changing interest rates and demographic and population fluctuations.
 
CUSTOMERS
 
No material part of our business is dependent upon any customers whose loss would have an adverse effect on our business. In 2010, our top five customers accounted for 4.3% of our total revenues (excluding internal sales), and no single customer accounted for more than 1.3% of our total revenues. Our products typically are sold to private industry and not directly to governmental entities. Although approximately 45% to 55% of our aggregates shipments have historically been used in publicly funded construction, such as highways, airports and government buildings, relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly funded construction, our business is not directly subject to renegotiation of profits or termination of contracts with state or federal governments.
 
RESEARCH AND DEVELOPMENT COSTS
 
We conduct research and development and technical service activities at our Technical Service Center in Birmingham, Alabama. In general, these efforts are directed toward new and more efficient uses of our products and support customers in pursuing the most efficient use of our products. We spent $1.6 million in 2010 and $1.5 million in both 2009 and 2008 on research and development activities.
 
ENVIRONMENTAL COSTS AND GOVERNMENTAL REGULATION
 
Our operations are subject to federal, state and local laws and regulations relating to the environment and to health and safety, including regulation of noise, water discharge, air quality, dust control, zoning and permitting. We estimate that capital expenditures for environmental control facilities in 2011 and 2012 will be approximately $8.4 million and $10.5 million, respectively.
 
Frequently, we are required by state and local regulations or contractual obligations to reclaim our former mining sites. These reclamation liabilities are recorded in our financial statements as a liability at the time the obligation arises. The fair value of such obligations is capitalized and depreciated over the estimated useful life of the owned or leased site. The liability is accreted through charges to operating expenses. To determine the fair value, we estimate the cost for a third party to perform the legally required reclamation, which is adjusted for inflation and risk and includes a reasonable profit margin.
 
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All reclamation obligations are reviewed at least annually. Reclaimed quarries often have potential for use in commercial or residential development or as reservoirs or landfills. However, no projected cash flows from these anticipated uses have been considered to offset or reduce the estimated reclamation liability.
 
For additional information regarding reclamation obligations (referred to in our financial statements as asset retirement obligations), see Notes 1 and 17 to the consolidated financial statements in Item 8 “Financial Statements and Supplementary Data.”
 
PATENTS AND TRADEMARKS
 
We do not own or have a license or other rights under any patents, trademarks or trade names that are material to any of our reporting segments.
 
OTHER INFORMATION REGARDING VULCAN
 
Vulcan is a New Jersey corporation incorporated on February 14, 2007, but its predecessor company was incorporated on September 27, 1956. Our principal sources of energy are electricity, diesel fuel, natural gas and coal. We do not anticipate any difficulty in obtaining sources of energy required for operation of any of our reporting segments (i.e., Aggregates, Concrete, Asphalt mix, and Cement).
 
As of January 1, 2011, we employed 7,749 people in the U.S. Of these employees, 795 are represented by labor unions. We also employ 245 union hourly employees in Mexico. We do not anticipate any significant issues with such unions in 2011.
 
We do not consider our backlog of orders to be material to, or a significant factor in, evaluating and understanding our business.
 
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INVESTOR INFORMATION
 
We make available on our website, www.vulcanmaterials.com, free of charge, copies of our
 
§  Annual Report on Form 10-K
 
§  Quarterly Reports on Form 10-Q
 
§  Current Reports on Form 8-K
 
We also provide amendments to those reports filed with or furnished to the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database (www.sec.gov).
 
The public may read and copy materials filed with the SEC at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D. C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. In addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K, including financial statements, by writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
 
We have a
 
§  Business Conduct Policy applicable to all employees and directors
 
§  Code of Ethics for the CEO and Senior Financial Officers
 
Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the heading “Corporate Governance.” If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC.
 
Our Board of Directors has also adopted
 
§  Corporate Governance Guidelines
 
§  Charters for its Audit, Compensation and Governance Committees
 
These documents meet all applicable SEC and New York Stock Exchange regulatory requirements.
 
Each of these documents is available on our website under the heading, “Corporate Governance,” or you may request a copy of any of these documents by writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
 
 
ITEM 1A
 
RISK FACTORS
 
An investment in our common stock involves risks. You should carefully consider the following risks, together with the information included in or incorporated by reference in this report, before deciding whether an investment in our common stock is suitable for you. If any of these risks actually occurs, our business, results of operations or financial condition could be materially and adversely affected. In such an event, the trading prices of our common stock could decline and you might lose all or part of your investment. The following is a list of our risk factors.
 
FINANCIAL/ACCOUNTING RISKS
 
We incurred additional debt to finance the Florida Rock merger which significantly increased our interest expense, financial leverage and debt service requirements — We incurred considerable short-term and long-term debt to finance the Florida Rock merger. This debt, which significantly increased our leverage, has been a significant factor resulting in downgrades in our credit ratings.
 
Our cash flow is reduced by payments of principal and interest on this debt. Our debt instruments contain various financial and contractual restrictions. If we fail to comply with any of these covenants, the related indebtedness (and other unrelated indebtedness) could become due and payable prior to its stated maturity. An event of default under our debt instruments
 
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also could significantly affect our ability to obtain additional or alternative financing. Our debt ratings are currently under review for possible downgrade. If one or both rating agencies downgrade our ratings, it could further affect our ability to access financing.
 
Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness will depend on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors some of which are beyond our control.
 
Difficult and volatile conditions in the credit markets could affect our financial position, results of operations and cash flows — The current economic environment has negatively affected the U.S. economy and demand for our products. Commercial and residential construction may continue to decline if companies and consumers are unable to finance construction projects or if the economic slowdown continues to cause delays or cancellations of capital projects.
 
A slow economic recovery also may increase the likelihood we will not be able to collect on our accounts receivable from our customers. We have experienced payment delays from some of our customers during this economic downturn.
 
The credit environment could limit our ability to obtain additional financing or refinancing and, if available, it may not be at economically favorable terms. Interest rates on new issuances of long-term public debt in the market may increase due to higher credit spreads and risk premiums. There is no guarantee we will be able to access the capital markets at favorable interest rates, which could negatively affect our financial results.
 
We may need to obtain financing in order to fund certain strategic acquisitions, if they arise, or refinance our outstanding debt. We also are exposed to risks from tightening credit markets, especially in regard to access to debt and equity capital.
 
Our industry is capital intensive, resulting in significant fixed and semi-fixed costs. Therefore, our earnings are highly sensitive to changes in volume — Due to the high levels of fixed capital required for extracting and producing construction aggregates, both our dollar profits and our percentage of net sales (margin) can be negatively affected by decreases in volume.
 
We use estimates in accounting for a number of significant items. Changes in our estimates could affect our future financial results — As discussed more fully in “Critical Accounting Policies” under Item 6 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we use significant judgment in accounting for
 
§  goodwill and goodwill impairment
 
§  impairment of long-lived assets excluding goodwill
 
§  reclamation costs
 
§  pension and other postretirement benefits
 
§  environmental compliance
 
§  claims and litigation including self-insurance
 
§  income taxes
 
We believe we have sufficient experience and reasonable procedures to enable us to make appropriate assumptions and formulate reasonable estimates; however, these assumptions and estimates could change significantly in the future and could adversely affect our financial position, results of operations, or cash flows.
 
ECONOMIC/POLITICAL RISKS
 
Both commercial and residential construction are dependent upon the overall U.S. economy which has been recovering at a slow pace — Commercial and residential construction levels generally move with economic cycles. When the economy is strong, construction levels rise and when the economy is weak, construction levels fall. The overall U.S. economy has been adversely affected by this recession. Although most economists believe that the U.S. economy is now in recovery, the pace of recovery has been very slow. Since construction activity generally lags the recovery after down cycles, construction projects have not returned to their pre-recession levels.
 
Above average number of foreclosures, low housing starts and general weakness in the housing market continue to negatively affect demand for our products — In most of our markets, particularly Florida and California, sales volumes have been negatively impacted by foreclosures and a significant decline in residential construction. Our sales volumes and earnings
 
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could continue to be depressed and negatively impacted by this segment of the market until the recovery in residential construction improves.
 
Lack of a multi-year federal highway bill and changes to the funding mechanism for highway funding could cause states to spend less on roads — The last multi-year federal transportation bill, known as SAFETEA-LU, expired on September 30, 2009. Since that time, funding for transportation projects, including highways, has been provided pursuant to a series of continuing resolutions and the HIRE Act. The current continuing resolution is set to expire on March 4, 2011. Additionally, in January 2011, the House passed a new rules package that repealed transportation law dating back to 1998, which protected annual funding levels from amendments that could reduce such funding. This rule change subjects funding for highways to yearly appropriation reviews. Both the lack of a multi-year bill and the change in the funding mechanism increases the uncertainty of many state departments of transportation regarding funds for highway projects. This uncertainty could result in states being reluctant to undertake large multi-year highway projects which could, in turn, negatively affect our sales.
 
Changes in legal requirements and governmental policies concerning zoning, land use, environmental and other areas of the law impact our business — Our operations are affected by numerous federal, state and local laws and regulations related to zoning, land use and environmental matters. Despite our compliance efforts, we have an inherent risk of liability in the operation of our business, especially from an environmental standpoint. These potential liabilities could have an adverse impact on our operations and profitability. In addition, our operations require numerous governmental approvals and permits, which often require us to make significant capital and maintenance expenditures to comply with zoning and environmental laws and regulations. Stricter laws and regulations, or more stringent interpretations of existing laws or regulations, may impose new liabilities on us, reduce operating hours, require additional investment by us in pollution control equipment, or impede our opening new or expanding existing plants or facilities.
 
Climate change and climate change legislation or regulations may adversely impact our business — A number of governmental bodies have introduced or are contemplating legislative and regulatory change in response to the potential impacts of climate change. Such legislation or regulation, if enacted, potentially could include provisions for a “cap and trade” system of allowances and credits, among other provisions. The Environmental Protection Agency (EPA) promulgated a mandatory reporting rule covering greenhouse gas emissions from sources considered to be large emitters. The EPA has also promulgated a greenhouse gas emissions permitting rule, referred to as the “Tailoring Rule” which requires permitting of large emitters of greenhouse gases under the Federal Clean Air Act. We have determined that our Newbery cement plant is subject to both the reporting rule and the permitting rule, although the impacts of the permitting rule are uncertain at this time. The first required greenhouse gas emissions report for the Newberry cement plant will be submitted to the Federal EPA by March 31, 2011.
 
Other potential impacts of climate change include physical impacts such as disruption in production and product distribution due to impacts from major storm events, shifts in regional weather patterns and intensities, and potential impacts from sea level changes. There is also a potential for climate change legislation and regulation to adversely impact the cost of purchased energy and electricity.
 
The impacts of climate change on our operations and the company overall are highly uncertain and difficult to estimate. However, climate change and legislation and regulation concerning greenhouse gases could have a material adverse effect on our future financial position, results of operations or cash flows.
 
GROWTH AND COMPETITIVE RISKS
 
Within our local markets, we operate in a highly competitive industry — The construction aggregates industry is highly fragmented with a large number of independent local producers in a number of our markets. Additionally, in most markets, we also compete against large private and public companies, some of which are more vertically integrated than we are. Therefore, there is intense competition in a number of markets in which we operate. This significant competition could lead to lower prices, lower sales volumes and higher costs in some markets, negatively affecting our earnings and cash flows. In certain markets, vertically integrated competitors have acquired a portion of our asphalt mix and ready-mixed concrete customers and this trend may continue to accelerate.
 
Our long-term success depends upon securing and permitting aggregates reserves in strategically located areas — Construction aggregates are bulky and heavy and, therefore, difficult to transport efficiently. Because of the nature of the products, the freight costs can quickly surpass the production costs. Therefore, except for geographic regions that do not possess commercially viable deposits of aggregates and are served by rail, barge or ship, the markets for our products tend to be very localized around our quarry sites and are served by truck. New quarry sites often take a number of years to develop,
 
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therefore our strategic planning and new site development must stay ahead of actual growth. Additionally, in a number of urban and suburban areas in which we operate, it is increasingly difficult to permit new sites or expand existing sites due to community resistance. Therefore, our future success is dependent, in part, on our ability to accurately forecast future areas of high growth in order to locate optimal facility sites and on our ability to secure operating and environmental permits to operate at those sites.
 
Our future growth depends in part on acquiring other businesses in our industry and successfully integrating them with our existing operations — The expansion of our business is dependent in part on the acquisition of existing businesses that own or control aggregates reserves. Disruptions in the availability of credit and financing could make it more difficult to capitalize on potential acquisitions. Additionally, with regard to the acquisitions we are able to complete, our future results will be dependent in part on our ability to successfully integrate these businesses with our existing operations.
 
PERSONNEL RISKS
 
Our future success greatly depends upon attracting and retaining qualified personnel, particularly in sales and operations — A significant factor in our future profitability is our ability to attract, develop and retain qualified personnel. Our success in attracting qualified personnel, particularly in the areas of sales and operations, is affected by changing demographics of the available pool of workers with the training and skills necessary to fill the available positions, the impact on the labor supply due to general economic conditions, and our ability to offer competitive compensation and benefit packages.
 
The costs of providing pension and healthcare benefits to our employees have risen in recent years. Continuing increases in such costs could negatively affect our earnings — The costs of providing pension and healthcare benefits to our employees have increased substantially over the past several years. We have instituted measures to help slow the rate of increase. However, if these costs continue to rise, we could suffer an adverse effect on our financial position, results of operations or cash flows.
 
OTHER RISKS
 
Weather can materially affect our operating results — Almost all of our products are used in the public or private construction industry, and our production and distribution facilities are located outdoors. Inclement weather affects both our ability to produce and distribute our products and affects our customers’ short-term demand because their work also can be hampered by weather. Therefore, our financial results can be negatively affected by inclement weather.
 
Our products are transported by truck, rail, barge or ship, primarily by third-party providers. Significant delays or increased costs affecting these transportation methods could materially affect our operations and earnings — Our products are distributed either by truck to local markets or by rail, barge or oceangoing vessel to remote markets. The costs of transporting our products could be negatively affected by factors outside of our control, including rail service interruptions or rate increases, tariffs, rising fuel costs and capacity constraints. Additionally, inclement weather, including hurricanes, tornadoes and other weather events, can negatively impact our distribution network.
 
We use large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources that are subject to potential supply constraints and significant price fluctuation — In our production and distribution processes, we consume significant amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based resources. The availability and pricing of these resources are subject to market forces that are beyond our control. Our suppliers contract separately for the purchase of such resources and our sources of supply could be interrupted should our suppliers not be able to obtain these materials due to higher demand or other factors that interrupt their availability. Variability in the supply and prices of these resources could materially affect our operating results from period to period and rising costs could erode our profitability.
 
We are involved in a number of legal proceedings. We cannot predict the outcome of litigation and other contingencies with certainty — We are involved in several class action and complex litigation proceedings, some arising from our previous ownership and operation of our Chemicals business. Although we divested our Chemicals business in June 2005, we retained certain liabilities related to the business. As required by generally accepted accounting principles, we establish reserves when a loss is determined to be probable and the amount can be reasonably estimated. Our assessment of probability and loss estimates are based on the facts and circumstances known to us at a particular point in time. Subsequent developments in legal proceedings may affect our assessment and estimates of a loss contingency, and could result in an adverse effect on our financial position, results of operations, or cash flows. For a description of our current significant legal proceedings see Note 12 “Commitments and Contingencies” in Item 8 “Financial Statements and Supplementary Data.”
 
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We are involved in certain environmental matters. We cannot predict the outcome of these contingencies with certainty — We are involved in environmental investigations and cleanups at sites where we operate or have operated in the past or sent materials for recycling or disposal, primarily in connection with our divested Chemicals and Metals businesses. As required by generally accepted accounting principles, we establish reserves when a loss is determined to be probable and the amount can be reasonably estimated. Our assessment of probability and loss estimates are based on the facts and circumstances known to us at a particular point in time. Subsequent developments related to these matters may affect our assessment and estimates of loss contingency, and could result in an adverse effect on our financial position, results of operations, or cash flows. For a description of our current significant environmental matters see Note 12 “Commitments and Contingencies” in Item 8 “Financial Statements and Supplementary Data.”
 
 
ITEM 1B
 
UNRESOLVED STAFF COMMENTS
 
None.
 
 
 
 
ITEM 2
 
PROPERTIES
 
AGGREGATES
 
As the largest U.S. producer of construction aggregates, we have operating facilities across the U.S. and in Mexico and the Bahamas. We principally serve markets in 21 states, the District of Columbia and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving states and metropolitan markets in the U.S. that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates.
 
(COMPANY LOGO)
 
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Our current estimate of 14.7 billion tons of proven and probable aggregates reserves reflects an increase of 0.5 billion tons from the estimate at the end of 2009. Estimates of reserves are of recoverable stone, sand and gravel of suitable quality for economic extraction, based on drilling and studies by our geologists and engineers, recognizing reasonable economic and operating restraints as to maximum depth of overburden and stone excavation, and subject to permit or other restrictions.
 
Proven, or measured, reserves are those reserves for which the quantity is computed from dimensions revealed by drill data, together with other direct and measurable observations such as outcrops, trenches and quarry faces. The grade and quality of those reserves are computed from the results of detailed sampling, and the sampling and measurement data are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well established. Probable, or indicated, reserves are those reserves for which quantity and grade and quality are computed partly from specific measurements and partly from projections based on reasonable, though not drilled, geologic evidence. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.
 
Reported proven and probable reserves include only quantities that are owned in fee or under lease, and for which all appropriate zoning and permitting have been obtained. Leases, zoning, permits, reclamation plans and other government or industry regulations often set limits on the areas, depths and lengths of time allowed for mining, stipulate setbacks and slopes that must be left in place, and designate which areas may be used for surface facilities, berms, and overburden or waste storage, among other requirements and restrictions. Our reserves estimates take into account these factors. Technical and economic factors also affect the estimates of reported reserves regardless of what might otherwise be considered proven or probable based on a geologic analysis. For example, excessive overburden or weathered rock, rock quality issues, excessive mining depths, groundwater issues, overlying wetlands, endangered species habitats, and rights of way or easements may effectively limit the quantity of reserves considered proven and probable. In addition, computations for reserves in-place are adjusted for estimates of unsaleable sizes and materials as well as pit and plant waste.
 
The 14.7 billion tons of estimated aggregates reserves reported at the end of 2010 include reserves at inactive and greenfield (undeveloped) sites. We reported proven and probable reserves of 14.2 billion tons at the end of 2009 using the same basis. The table below presents, by division, the tons of proven and probable aggregates reserves as of December 31, 2010 and the types of facilities operated.
 
                                         
    Reserves
    Number of Aggregates Operating Facilities1
    (billions of tons)     Stone     Sand and Gravel     Sales Yards        
By Division:
                                       
Florida Rock
    0.5       5       11       8          
Mideast
    3.8       36       2       23          
Midsouth
    2.1       41       1       0          
Midwest
    2.0       17       4       4          
Southeast
    2.6       34       0       3          
Southern and Gulf Coast
    2.0       23       1       27          
Southwest
    0.8       13       1       12          
Western
    0.9       3       23       4          
                                         
Total
    14.7       172       43       81          
                                         
 
1  In addition to the facilities included in the table above, we operate 23 recrushed concrete plants which are not dependent on reserves.
 
Of the 14.7 billion tons of aggregates reserves, 8.3 billion tons or 56% are located on owned land and 6.4 billion tons or 44% are located on leased land. While some of our leases run until reserves at the leased sites are exhausted, generally our leases have definite expiration dates, which range from 2011 to 2159. Most of our leases have renewal options to extend them well beyond their current terms at our discretion.
 
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The following table lists our ten largest active aggregates facilities based on the total proven and probable reserves at the sites. None of the listed aggregates facilities other than Playa del Carmen contributes more than 5% to our net sales.
 
         
Location
  Reserves
 
(nearest major metropolitan area)   (millions of tons)  
Playa del Carmen (Cancun), Mexico
    657.5  
Hanover (Harrisburg), Pennsylvania
    561.2  
McCook (Chicago), Illinois
    442.3  
Dekalb (Chicago), Illinois
    366.3  
Gold Hill (Charlotte), North Carolina
    294.2  
Macon, Georgia
    257.5  
Rockingham (Charlotte), North Carolina
    257.4  
Cabarrus (Charlotte), North Carolina
    217.7  
1604 Stone (San Antonio), Texas
    211.8  
Grand Rivers (Paducah), Kentucky
    175.3  
         
 
ASPHALT MIX, CONCRETE AND CEMENT
 
We also operate a number of other facilities in several of our divisions:
 
                         
    Asphalt mix
    Concrete
    Cement
 
Division   Facilities     Facilities1     Facilities2  
Florida Rock
    0       71       4  
Northern Concrete
    0       34       0  
Southeast
    0       6       0  
Southwest
    11       4       0  
Western
    26       16       0  
                         
 
1  Includes ready-mixed concrete, concrete block and other concrete products facilities.
 
2  Includes one cement manufacturing facility, two cement import terminals and a calcium plant.
 
The asphalt mix and concrete facilities are able to meet their needs for raw material inputs with a combination of internally sourced and purchased raw materials. Our Cement segment operates two limestone quarries in Florida which provide our cement production facility with feedstock materials.
 
         
    Reserves
 
Location   (millions of tons)  
Newberry
    192.7  
Brooksville
    6.3  
         
 
HEADQUARTERS
 
Our headquarters are located in an office complex in Birmingham, Alabama. The office space is leased through December 31, 2023, with three five-year renewal periods, and consists of approximately 184,125 square feet. The annual rental cost for the current term of the lease is $3.4 million.
 
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ITEM 3
 
LEGAL PROCEEDINGS
 
 
We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.
 
We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome of, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels.
 
See Note 12 “Commitments and Contingencies” in Item 8 “Financial Statements and Supplementary Data” for a discussion of our material legal proceedings.
 
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ITEM 4
 
REMOVED AND RESERVED
 
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
The names, positions and ages, as of February 20, 2011, of our executive officers are as follows:
 
           
Name   Position   Age
Donald M. James
  Chairman and Chief Executive Officer     62
Daniel F. Sansone
  Executive Vice President and Chief Financial Officer     58
Danny R. Shepherd
  Executive Vice President, Construction Materials     59
Robert A. Wason IV
  Senior Vice President and General Counsel     59
Ejaz A. Khan
  Vice President, Controller and Chief Information Officer     53
           
 
The principal occupations of the executive officers during the past five years are set forth below:
 
Donald M. James was named Chief Executive Officer and Chairman of the Board of Directors in 1997.
 
Daniel F. Sansone was elected Executive Vice President and Chief Financial Officer effective as of February 1, 2011. Prior to that, he served as Senior Vice President and Chief Financial Officer from May 2005. Prior to May 2005, he served as President, Southern and Gulf Coast Division.
 
Danny R. Shepherd was elected Executive Vice President, Construction Materials effective as of February 1, 2011. From February 2007 through January 2011 he served as Senior Vice President, Construction Materials-East. Prior to that, he served as President, Southeast Division from May 2002 through January 2007.
 
Robert A. Wason IV was elected Senior Vice President and General Counsel in August 2008. Prior to that, he served as Senior Vice President, Corporate Development from December 1998.
 
Ejaz A. Khan was elected Vice President and Controller in February 1999. He was appointed Chief Information Officer in February 2000.
 
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PART II
 
 
ITEM 5
 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
 
 
Our common stock is traded on the New York Stock Exchange (ticker symbol VMC). As of February 7, 2011, the number of shareholders of record was 5,029. The prices in the following table represent the high and low sales prices for our common stock as reported on the New York Stock Exchange and the quarterly dividends declared by our Board of Directors in 2010 and 2009.
 
                         
    Common Stock
       
    Prices     Dividends
 
    High     Low     Declared  
2010
                       
First quarter
  $ 54.36     $ 41.80     $ 0.25  
Second quarter
    59.90       43.60       0.25  
Third quarter
    48.04       35.61       0.25  
Fourth quarter
    48.26       35.40       0.25  
                         
2009
                       
First quarter
  $ 71.26     $ 34.30     $ 0.49  
Second quarter
    53.94       39.65       0.49  
Third quarter
    62.00       39.14       0.25  
Fourth quarter
    54.37       44.70       0.25  
                         
 
Our policy is to pay out a reasonable share of net cash provided by operating activities as dividends, while maintaining debt ratios within what we believe to be prudent and generally acceptable limits. The future payment of dividends is within the discretion of our Board of Directors and depends on our profitability, capital requirements, financial condition, debt levels, growth projects, business opportunities and other factors which our Board of Directors deems relevant. We are not a party to any contracts or agreements that currently materially limit our ability to pay dividends.
 
ISSUER PURCHASES OF EQUITY SECURITIES
 
We did not have any repurchases of stock during the fourth quarter of 2010. We did not have any unregistered sales of equity securities during the fourth quarter of 2010.
 
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ITEM 6
 
SELECTED FINANCIAL DATA
 
The selected earnings data, per share data and balance sheet data for each of the five years ended December 31, 2010, set forth below have been derived from our audited consolidated financial statements. The following data should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements in Item 8 “Financial Statements and Supplementary Data:”
 
                                         
Amounts in millions, except per share data
                             
As of and for the years ended December 31   2010     2009     2008     2007     2006  
Net sales
    $2,405.9       $2,543.7       $3,453.1       $3,090.1       $3,041.1  
Gross profit
    $300.7       $446.0       $749.7       $950.9       $931.9  
Earnings (loss) from continuing operations1
    ($102.5 )     $18.6       $3.4       $463.1       $480.2  
Earnings (loss) on discontinued operations, net of tax 2
    $6.0       $11.7       ($2.4 )     ($12.2 )     ($10.0 )
Net earnings (loss)
    ($96.5 )     $30.3       $0.9       $450.9       $470.2  
Basic earnings (loss) per share
                                       
Earnings from continuing operations
    ($0.80 )     $0.16       $0.03       $4.77       $4.92  
Discontinued operations
    0.05       0.09       (0.02 )     (0.12 )     (0.10 )
                                         
Basic net earnings (loss) per share
    ($0.75 )     $0.25       $0.01       $4.65       $4.82  
                                         
Diluted earnings (loss) per share
                                       
Earnings from continuing operations
    ($0.80 )     $0.16       $0.03       $4.66       $4.81  
Discontinued operations
    0.05       0.09       (0.02 )     (0.12 )     (0.10 )
                                         
Diluted net earnings (loss) per share
    ($0.75 )     $0.25       $0.01       $4.54       $4.71  
                                         
Total assets
    $8,337.9       $8,524.9       $8,916.6       $8,936.4       $3,427.8  
Long-term debt
    $2,427.5       $2,116.1       $2,153.6       $1,529.8       $322.1  
Shareholders’ equity
    $3,965.0       $4,037.2       $3,553.8       $3,785.6       $2,036.9  
Cash dividends declared per share
    $1.00       $1.48       $1.96       $1.84       $1.48  
                                         
 
1  Earnings from continuing operations during 2008 includes an after tax goodwill impairment charge of $227.6 million, or $2.05 per diluted share, for our Cement segment.
 
2  Discontinued operations include the results from operations attributable to our former Chemicals business.
 
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ITEM 7
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
EXECUTIVE SUMMARY
 
KEY DRIVERS OF VALUE CREATION
 
GRAPH
 
* Source: Moody’s Analytics
 
FINANCIAL SUMMARY FOR 2010
 
§  Net earnings were a loss of $96.5 million or ($0.75) per diluted share
 
§  EBITDA was $370.6 million compared to $548.4 million in 2009
 
§  Pretax charges of $43.0 million related to the settlement of a lawsuit in Illinois and a $39.5 million pretax gain associated with the sale of non-strategic assets in rural Virginia
 
§  Unit cost for diesel fuel and liquid asphalt increased 30% and 20%, respectively, reducing pretax earnings $51.3 million
 
§  Freight-adjusted selling prices for aggregates declined 2% due principally to weakness in Florida and California
 
§  Aggregates shipments declined 2% reflecting varied market demand conditions across our footprint
 
§  Full year capital spending was $86.3 million compared with $109.7 million in 2009
 
 
STABILIZING MARKETS IN 2010
 
In 2010, the year-over-year decline in trailing twelve-month aggregates shipments slowed significantly from the prior three years. During the period from 2007 through 2009, aggregates shipments — adjusted to include major acquisitions and exclude divestitures — declined 11% in 2007, 21% in 2008 and 26% in 2009. In 2010, aggregates shipments declined only 2% from the prior year reflecting varied market demand conditions across our markets. Aggregates shipments in 2010 benefited from increased highway construction activity and some improvement in housing. New home construction declined to historically low levels in 2009. Then, after 43 consecutive months of year-over-year declines, single-family housing starts
 
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began to improve in late 2009. By the end of 2010, full year single-family housing starts, as measured by McGraw-Hill Construction, had increased 2% from 2009 and multi-family housing starts increased 8%. Tight credit has contributed to a sharp decrease in construction of nonresidential buildings, particularly stores and offices. However, the rate of decline in private nonresidential construction began to slow late in 2010. Construction activity funded by the public sector, typically less affected in economic cycles, increased in 2010 due mostly to the American Recovery and Reinvestment Act of 2009 (ARRA). During the twelve months ended December 2010, total contract awards for highway construction in Vulcan-served states, including awards for federal, state and local projects, increased 5% from the prior year compared to a decrease of 2% for other states. The positive effects of ARRA spending in 2010 were somewhat offset by the failure of Congress to reauthorize the most recent multi-year federal transportation bill known as SAFETEA-LU, which expired on September 30, 2009. The federal transportation program was funded through a series of short-term extensions in late 2009 and early 2010. Passage of the Hiring Incentives to Restore Employment (HIRE) Act in March 2010 included authorized funding for transportation programs through December 31, 2010.
 
ARRA includes economic stimulus funding of $50 to $60 billion for heavy construction projects, including $27.5 billion for highways and bridges. Vulcan-served states were apportioned 55% more funds than other states; with California, Texas and Florida receiving 23% of the total for highways and bridges. The challenge of meeting ARRA deadlines to ensure use of federal funds, coupled with the uncertainty surrounding the regular federal highway bill, led many states to slow the pace of obligating new projects funded by regular federal funding for highways during the first nine months of fiscal year ended September 30, 2010. During the last three months of the fiscal year 2010, obligation of funds for projects was at record levels.
 
According to the Federal Highway Administration, approximately $7.1 billion or 43% of the total stimulus funds apportioned for highways and bridges in Vulcan-served states remains to be spent. The vast majority of this unspent amount, $5.4 billion, is located in Vulcan’s top 10 revenue producing states — California, Virginia, Florida, Texas, Tennessee, Georgia, Illinois, North Carolina, Alabama and South Carolina.
 
The pace of obligating, bidding, awarding and starting stimulus-related highway construction projects has varied widely across states. These state-by-state differences in awarding projects and spending patterns are due, in part, to the types of planned projects and to the proportion sub-allocated to metropolitan planning organizations where project planning and execution can be more complicated and time consuming.
 
We have worked diligently throughout this downturn to position our company for earnings growth when demand recovers. Improved stability in the economic factors that drive demand for our products will bring the strength of our fundamentals back into focus. Vulcan
 
§  preserved reasonably stable aggregates pricing during the worst year of demand
 
§  maintained productivity levels despite slightly lower sales volumes
 
§  controlled selling, administrative and general expenses
 
As a result of these efforts, cash earnings for each ton of aggregates sold in 2010 was 26% higher than at the peak of demand in 2005.
 
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
Generally Accepted Accounting Principles (GAAP) does not define “free cash flow” and “Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).” Thus, they should not be considered as an alternative to net cash provided by operating activities or any other liquidity or earnings measure defined by GAAP. We present these metrics for the convenience of investment professionals who use such metrics in their analysis, and for shareholders who need to understand the metrics we use to assess performance and to monitor our cash and liquidity positions. The investment community often uses these metrics as indicators of a company’s ability to incur and service debt. We use free cash flow, EBITDA and other such measures to assess the operating performance of our various business units and the consolidated company. We do not use these metrics as a measure to allocate resources. Reconciliations of these metrics to their nearest GAAP measures are presented below:
 
FREE CASH FLOW
 
Free cash flow deducts purchases of property, plant & equipment from net cash provided by operating activities.
 
                         
in millions   2010     2009     2008   
Net cash provided by operating activities
    $202.7       $453.0       $435.2  
Purchases of property, plant & equipment
    (86.3 )     (109.7 )     (353.2 )
                         
Free cash flow
    $116.4       $343.3       $82.0  
                         
 
EBITDA AND ADJUSTED EBITDA
 
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. We adjusted EBITDA in 2008 to exclude the noncash charge for goodwill impairment.
 
                         
in millions   2010     2009     2008   
Net cash provided by operating activities
    $202.7       $453.0     $ 435.2  
Changes in operating assets and liabilities before initial
effects of business acquisitions and dispositions
    (20.0 )     (90.3 )     85.2  
Other net operating items (providing) using cash
    102.9       62.2       (130.4 )
(Earnings) loss on discontinued operations, net of taxes
    (6.0 )     (11.7 )     2.4  
Provision (benefit) for income taxes
    (89.7 )     (37.8 )     71.7  
Interest expense, net
    180.7       173.0       169.7  
                         
EBITDA
    $370.6       $548.4     $ 633.8  
                         
Goodwill impairment
    0.0       0.0       252.7  
                         
Adjusted EBITDA
    $370.6       $548.4     $ 886.5  
                         
 
                         
in millions   2010     2009     2008   
Net earnings (loss)
    ($96.5 )     $30.3       $0.9  
Provision (benefit) for income taxes
    (89.7 )     (37.8 )     71.7  
Interest expense, net
    180.7       173.0       169.7  
(Earnings) loss on discontinued operations, net of taxes
    (6.0 )     (11.7 )     2.4  
Depreciation, depletion, accretion and amortization
    382.1       394.6       389.1  
                         
EBITDA
    $370.6       $548.4       $633.8  
                         
Goodwill impairment
    0.0       0.0       252.7  
                         
Adjusted EBITDA
    $370.6       $548.4       $886.5  
                         
 
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RESULTS OF OPERATIONS
 
Intersegment sales are internal sales between any of our four operating segments:
 
1.  Aggregates
 
2.  Concrete
 
3.  Asphalt mix
 
4.  Cement
 
Intersegment sales consist of our Aggregates and Cement segments selling product to our Concrete segment and our Aggregates segment selling product to our Asphalt mix segment. We include intersegment sales in our comparative analysis of segment revenue at the product line level. These intersegment sales are made at local market prices for the particular grade and quality of material required. Net sales and cost of goods sold exclude intersegment sales and delivery revenues and cost. This presentation is consistent with the basis on which we review results of operations. We discuss separately our discontinued operations, which consist of our former Chemicals business.
 
The following table shows net earnings in relationship to net sales, cost of goods sold, operating earnings and EBITDA.
 
CONSOLIDATED OPERATING RESULTS
 
                         
Amounts in millions, except per share data
                 
For the years ended December 31   2010     2009     2008   
Net sales
    $2,405.9       $2,543.7       $3,453.1  
Cost of goods sold
    2,105.2       2,097.7       2,703.4  
                         
Gross profit
    $300.7       $446.0       $749.7  
                         
Operating earnings (loss)
    ($14.5 )     $148.5       $249.1  
                         
Earnings (loss) from continuing operations
before income taxes
    ($192.2 )     ($19.2 )     $75.1  
                         
Earnings (loss) from continuing operations
    ($102.5 )     $18.6       $3.4  
Earnings (loss) on discontinued operations,
net of income taxes
    6.0       11.7       (2.5 )
                         
Net earnings (loss)
    ($96.5 )     $30.3       $0.9  
                         
Basic earnings (loss) per share
                       
Continuing operations
    ($0.80 )     $0.16       $0.03  
Discontinued operations
    0.05       0.09       (0.02 )
                         
Basic net earnings (loss) per share
    ($0.75 )     $0.25       $0.01  
                         
Diluted earnings (loss) per share
                       
Continuing operations
    ($0.80 )     $0.16       $0.03  
Discontinued operations
    0.05       0.09       (0.02 )
                         
Diluted net earnings (loss) per share
    ($0.75 )     $0.25       $0.01  
                         
EBITDA (adjusted EBITDA in 2008)
    $370.6       $548.4       $886.5  
                         
 
The length and depth of the decline in construction activity and aggregates demand during this economic downturn have been unprecedented. Our aggregates shipments in 2010 were just over half the level shipped in 2005 when demand peaked. We continued to manage our business to maximize cash generation. In 2010, we again reduced inventory levels of aggregates. While this action negatively affected reported earnings, it increased cash generation and better positions us to increase production and earnings as demand recovers. We also continued to reduce our overhead expenses. Cost associated with implementing some of these reductions increased selling, administrative and general expense in 2010; however, the benefits of these overhead reductions should be realized in 2011 and beyond.
 
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The 2010 results include $43.0 million of pretax charges related to the settlement of a lawsuit with the Illinois Department of Transportation (IDOT), a $39.5 million pretax gain associated with the sale of non-strategic assets in rural Virginia and increased pretax costs of $51.4 million related to higher unit costs for diesel fuel and liquid asphalt. While we believed that the IDOT settlement was covered by insurance, we did not recognize its recovery as of December 31, 2010 due to uncertainty as to the amount and timing of a recovery. However, in February 2011 we completed the first of two arbitrations in which two of our three insurers participated. The arbitration panel awarded us a total of $25.5 million in payment of their share of the settlement amount and attorneys’ fees. This award will be recorded as income in the first quarter of 2011.
 
The 2008 results include a $252.7 million pretax goodwill impairment charge for our Cement segment. The 2008 results also include a $73.8 million pretax gain from the sale of mining operations divested as a condition for approval of the Florida Rock acquisition by the Department of Justice.
 
Year-over-year changes in earnings from continuing operations before income taxes are summarized below:
 
         
in millions      
2008 earnings from continuing operations before income taxes
    $75.1  
         
Lower aggregates earnings due to
       
Lower volumes
    (333.7 )
Higher selling prices
    48.3  
Lower costs
    21.1  
Lower concrete earnings
    (37.8 )
Higher asphalt mix earnings
    17.9  
Lower cement earnings
    (19.5 )
Lower selling, administrative and general expenses1
    21.0  
2008 goodwill impairment — cement
    252.7  
Lower gain on sale of property, plant & equipment and businesses
    (67.1 )
All other
    2.8  
         
2009 earnings from continuing operations before income taxes
    ($19.2 )
         
Lower aggregates earnings due to
       
Lower volumes
    (20.6 )
Lower selling prices
    (25.1 )
Higher costs
    (27.4 )
Lower concrete earnings
    (30.5 )
Lower asphalt mix earnings
    (39.7 )
Lower cement earnings
    (2.0 )
Higher selling, administrative and general expenses1, 2
    (2.9 )
Higher gain on sale of property, plant & equipment and businesses
    32.2  
IDOT settlement, including related legal fees
    (43.0 )
Higher interest expense
    (6.3 )
All other
    (7.7 )
         
2010 earnings from continuing operations before income taxes
    ($192.2 )
         
 
1 Includes expenses for property donations recorded at fair value for each comparative
year, as follows: $9.2 million in 2010, $8.5 million in 2009 and $10.5 million in 2008.
 
2 Excludes $3.0 million of 2010 legal expenses charged to selling, administrative
and general expenses which is noted in this table within the IDOT settlement line.
 
OPERATING RESULTS BY SEGMENT
 
We present our results of operations by segment at the gross profit level. We have four reporting segments organized around our principal product lines: 1) aggregates, 2) concrete, 3) asphalt mix and 4) cement. Management reviews earnings for the product line segments principally at the gross profit level.
 
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1.  AGGREGATES
 
Our year-over-year aggregates shipments declined
 
§  2% in 2010
 
§  26% in 2009
 
§  12% in 2008
 
To date, the economic recovery has not had a significant effect on some of our key end-markets or key regional markets. As a result, market conditions varied across our markets throughout the year. Aggregates shipments declined sharply in certain markets such as North Carolina, Florida and Georgia, while shipments increased modestly in other markets such as South Carolina, Tennessee and Texas.
 
Our year-over-year aggregates selling price
 
§  declined 2% in 2010
 
§  improved 3% in 2009
 
§  improved 7% in 2008
 
Since 2006, our aggregates selling price has cumulatively increased 22%. The 2010 decline in aggregates selling price was due primarily to weakness in demand in Florida and California. In Florida, demand remained relatively weak throughout the year while demand for aggregates in California exhibited some modest growth in the fourth quarter versus 2009.
 
AGGREGATES REVENUES AND GROSS PROFITS
 
(LINE GRAPH)
 
     
AGGREGATES UNIT SHIPMENTS   AGGREGATES SELLING PRICE
 
Customer and internal1 tons, in millions
  Freight-adjusted average sales price per ton2
 
(LINE GRAPH)
 
We continued tight management of our controllable plant operating costs to match weak demand. The $73.1 million decline in gross profits resulted primarily from the 2% decreases in both freight-adjusted selling prices and shipments, as well as a
 
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30% increase in the unit cost of diesel fuel. Excluding the earnings effect of higher diesel fuel costs, unit cost of sales for aggregates increased modestly from 2009.
 
2.  CONCRETE
 
Our year-over-year ready-mixed concrete shipments
 
§  declined 5% in 2010
 
§  declined 32% in 2009
 
§  increased 150% in 2008
 
The 2008 year-over-year increase in ready-mixed concrete shipments resulted from the November 2007 acquisition of Florida Rock and the resulting full year of shipments in 2008 versus only two months in 2007.
 
The average selling price for ready-mixed concrete declined 10% in 2010 and accounted for the year-over-year decline in this segment’s gross profit. Raw material costs were lower than 2009 and more than offset the effects of a 5% decline in shipments.
 
CONCRETE REVENUES AND GROSS PROFITS
 
(LINE GRAPH)
 
3.  ASPHALT MIX
 
Our year-over-year asphalt mix shipments declined
 
§  3% in 2010
 
§  22% in 2009
 
§  9% in 2008
 
Asphalt mix segment earnings declined $39.7 million from 2009 due mostly to a 20% increase in the average unit cost for liquid asphalt. Higher liquid asphalt costs lowered segment earnings $27.1 million in 2010. The average selling price for asphalt mix declined 4% as selling prices for asphalt mix generally lag increasing liquid asphalt costs and were further held in check due to competitive pressures.
 
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ASPHALT MIX REVENUES AND GROSS PROFITS
 
(LINE GRAPH)
 
4.  CEMENT
 
The average unit selling price for cement decreased 17%, more than offsetting the earnings effect of a 32% increase in unit sales volumes. The increase in unit sales volumes was primarily attributable to an increase in intersegment sales.
 
CEMENT REVENUES AND GROSS PROFITS
 
(LINE GRAPH)
 
SELLING, ADMINISTRATIVE AND
GENERAL EXPENSES
 
Additional costs associated with implementing some overhead expense reductions actually increased Selling, Administrative and General (SAG) expenses for 2010. However, the benefits of these overhead reductions should be realized in 2011 and beyond. On a comparable basis, SAG costs in 2010 were $4.1 million lower than 2009. Benefits related to our project to replace legacy IT systems began to be realized in 2010, reducing project costs for the year. We expect additional benefits from this project in 2011. The 2009 decline in SAG cost was due primarily to reductions in employee-related expenses which more than offset a year-over-year increase in project costs for the replacement of legacy IT systems.
 
(GRAPH)
 
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SAG includes expenses for property donations recorded at fair value, as follows: $9.2 million in 2010, $8.5 million in 2009 and $10.5 million in 2008. The gains from these donations, which are equal to the excess of the fair value over the carrying value, are included in gain on sale of property, plant & equipment in the Consolidated Statements of Earnings and Comprehensive Income. Excluding the effect of these property donations, SAG expenses increased $5.2 million in 2010 and decreased $19.0 million in 2009.
 
Our year-over year total company employment levels declined
 
§  4% in 2010
 
§  11% in 2009
 
§  14% in 2008
 
GOODWILL IMPAIRMENT
 
There were no charges for goodwill impairment in 2010 and 2009. During 2008, we recorded a $252.7 million pretax goodwill impairment charge related to our Cement segment, representing the entire balance of goodwill at this reporting unit. We acquired these operations as part of the Florida Rock transaction in November 2007. For additional details regarding this impairment, see the Goodwill and Goodwill Impairment Critical Accounting Policy.
 
GAIN ON SALE OF PROPERTY, PLANT &
EQUIPMENT AND BUSINESSES, NET
 
The 2010 gain includes a $39.5 million pretax gain associated with the sale of non-strategic assets in rural Virginia. The 2009 gain was primarily related to sales and donations of real estate, mostly in California. Included in the 2008 gains was a $73.8 million pretax gain for quarry sites divested as a condition for approval of the Florida Rock acquisition by the Department of Justice.
 
(GRAPH)
 
INTEREST EXPENSE
 
(GRAPH)
 
Excluding capitalized interest credits, gross interest expense for 2010 was $185.2 million compared to $186.0 million in 2009 and $187.1 million in 2008.
 
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INCOME TAXES
 
Our income tax provision (benefit) for continuing operations for the years ended December 31 is shown below:
 
                         
dollars in millions   2010     2009     2008   
Earnings (loss) from continuing
operations before income taxes
    ($192.2 )     ($19.2 )     $75.1  
Provision (benefit) for income taxes
    (89.7 )     (37.9 )     71.7  
Effective tax rate
    46.6%       197.0%       95.5%  
                         
 
The $51.8 million increase in our 2010 benefit for income taxes is primarily related to the increased loss from continuing operations. The $109.6 million increase in our 2009 benefit for income taxes is primarily related to the 2009 loss from continuing operations, the nondeductible goodwill impairment charge taken in 2008 and the decrease in the state income tax provision offset in part by a decrease in the benefit for statutory depletion. A reconciliation of the federal statutory rate of 35% to our effective tax rates for 2010, 2009 and 2008 is presented in Note 9, “Income Taxes” in Item 8 “Financial Statements and Supplementary Data.”
 
DISCONTINUED OPERATIONS
 
Pretax earnings (loss) from discontinued operations were
 
§  $10.0 million in 2010
 
§  $19.5 million in 2009
 
§  ($4.1) million in 2008
 
The 2010 pretax earnings include pretax gains totaling $13.9 million related to the 5CP earn-out and a recovery from an insurer in the perchloroethylene lawsuits associated with our former Chemicals business. The 2009 pretax earnings from discontinued operations resulted primarily from settlements with two of our insurers in the aforementioned perchloroethylene lawsuits resulting in pretax gains of $23.5 million. The insurance proceeds and associated gains represent a partial recovery of legal and settlement costs recognized in prior years. The 2008 pretax losses from discontinued operations, and the remaining results from 2009 and 2010, reflect charges primarily related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional information regarding discontinued operations, see Note 2 “Discontinued Operations” in Item 8 “Financial Statements and Supplementary Data.”
 
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CASH AND LIQUIDITY
 
Our primary source of liquidity is cash from our operating activities. Our additional financial resources include unused bank lines of credit and access to the capital markets. We believe these financial resources are sufficient to fund our future business requirements, including
 
§  debt service obligations
 
§  cash contractual obligations
 
§  capital expenditures
 
§  dividend payments
 
§  potential future acquisitions
 
We operate a centralized cash management system using zero-balance disbursement accounts; therefore, our operating cash balance requirements are minimal. When cash on hand is not sufficient to fund daily working capital requirements we draw down on our bank lines of credit. The weighted-average interest rate on short-term debt, including commissions paid to commercial paper broker dealers, when applicable, was 0.52% during the year ended December 31, 2010 and 0.59% at December 31, 2010.
 
During 2010, we issued commercial paper consistently during the first quarter at rates significantly below the short-term borrowing rates available under our bank credit facility. On April 7, Standard & Poor’s downgraded our short-term credit rating to A-3 from A-2. As a result, commercial paper rates rose by about 30 basis points (0.30 percentage points). We continued issuing commercial paper through mid-July when the entire outstanding balance was paid with proceeds from our newly executed $450.0 million 5-year term loan. In mid-December, we utilized the revolving bank line of credit when we retired the $325.0 million floating rate notes issued in 2007.
 
During the second or third quarter of 2011, we intend to replace the $1.5 billion revolving credit facility (expires November 2012) with a new multi-year facility at a substantially reduced level. The new credit facility would reflect then current market conditions for syndicated bank loan facilities for pricing, terms and conditions, and financial covenants.
 
 
CURRENT MATURITIES AND
SHORT-TERM BORROWINGS
 
As of December 31, 2010, current maturities of long-term debt are $5.2 million of which $5.0 million is due as follows:
 
         
    2011 
 
in millions   Maturities   
First quarter
  $ 0.0  
Second quarter
    0.0  
Third quarter
    0.0  
Fourth quarter
    5.0  
         
 
There are various maturity dates for the remaining $0.2 million of current maturities. We expect to retire this debt using available cash generated from operations, by drawing on our bank lines of credit or by accessing the capital markets.
 
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Short-term borrowings at December 31 consisted of the following:
 
         
dollars in millions   2010   2009 
Short-term Borrowings
       
Bank borrowings
  $285.5   $0.0
Commercial paper
  0.0   236.5
 
Total short-term borrowings
  $285.5   $236.5
         
Bank Borrowings
       
Maturity
  3 - 74 days   n/a
Weighted-average interest rate
  0.59%   n/a
Commercial Paper
       
Maturity
  n/a   42 days
Weighted-average interest rate
  n/a   0.39%
         
 
Our outstanding bank credit facility, which provides $1.5 billion of liquidity, expires November 16, 2012. Borrowings under this credit facility, which are classified as short-term, bear an interest rate based on London Interbank Offer Rate (LIBOR) plus a credit spread. This credit spread was 30 basis points (0.30 percentage points) based on our long-term debt ratings at December 31, 2010.
 
As of December 31, 2010
 
§  $285.5 million was drawn from the $1.5 billion line of credit
 
§  $61.9 million was used to provide backup for outstanding letters of credit
 
As a result, we had available lines of credit of $1,152.6 million. This amount provides a sizable level of borrowing capacity that strengthens our financial flexibility. Not only does it enable us to fund working capital needs, it provides liquidity to fund large expenditures, such as long-term debt maturities, on a temporary basis without being forced to issue long-term debt at times that are disadvantageous.
 
Interest rates referable to borrowings under these credit lines are determined at the time of borrowing based on current market conditions for LIBOR. Of the $285.5 million drawn as of December 31, 2010, $35.5 million was borrowed on an overnight basis at 0.56%, $100.0 million was borrowed for two months at 0.581% and $150.0 million was borrowed for three months at 0.602%. Our policy is to maintain committed credit facilities at least equal to our outstanding commercial paper. Our short-term debt ratings/outlook as of December 31, 2010 were
 
§  Standard and Poor’s — A-3/credit watch - negative (rating placed on credit watch - negative effective December 2010)
 
§  Moody’s — P-3/under review (rating placed under review for downgrade December 2010)
 
WORKING CAPITAL
 
Working capital, current assets less current liabilities, is a common measure of liquidity used to assess a company’s ability to meet short-term obligations. Our working capital is calculated as follows:
 
                 
in millions   2010     2009   
Working Capital
               
Current assets
    $772.1       $732.9  
Current liabilities
    (565.7 )     (856.7 )
                 
Total working capital
    $206.4       ($123.8 )
                 
 
The increase in our working capital of $330.2 million was primarily the result of a decrease from 2009 to 2010 in current maturities of long-term debt and short-term borrowings of $331.1 million. This decrease resulted from the closing of the $450.0 million 5-year term loan in July 2010. Proceeds from the term loan were used to pay outstanding commercial paper and current maturities of long-term debt. We continued to focus on maximizing cash generation in 2010. We further reduced
 
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total inventory (current and noncurrent) levels by $9.5 million compared to 2009 for a total reduction of $27.7 million from peak inventory levels in 2008. This strategy better positions us to increase production and earnings as demand increases. The increase in accounts and notes receivable of $49.8 million was mostly offset by an increase in other accrued liabilities of $46.9 million.
 
CASH FLOWS
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
Net cash provided by operating activities is derived primarily from net earnings before deducting noncash charges for depreciation, depletion, accretion and amortization.
 
                         
in millions   2010     2009     2008   
Net earnings (loss)
    ($96.5 )     $30.3       $0.9  
Depreciation, depletion, accretion
and amortization
    382.1       394.6       389.1  
Goodwill impairment
    0.0       0.0       252.7  
Other operating cash flows, net
    (82.9 )     28.1       (207.5 )
                         
Net cash provided by operating activities
    $202.7       $453.0       $435.2  
                         
 
Lower net earnings caused the majority of the $250.3 million decrease in operating cash flows from 2009 to 2010. We continued to manage the business to generate cash as reflected in the year-over-year changes in our working capital accounts, which generated $37.2 million of cash in 2010 and $89.7 million of cash in 2009. Cash received associated with gains on sale of property, plant & equipment and businesses is presented as a component of investing activities and accounts for $39.5 million of the $250.3 million year-over-year decrease in operating cash flows.
 
Net cash provided by operating activities increased by $17.8 million in 2009 compared to 2008 despite a $217.8 million decrease in earnings before noncash deductions for depreciation, depletion, accretion and amortization, and goodwill impairment. Changes in working capital generated $89.7 million of cash in 2009 as compared to using $86.7 million of cash in 2008.
 
CASH FLOWS FROM INVESTING ACTIVITIES
 
Net cash used for investing activities totaled $88.4 million in 2010 compared to $80.0 million in 2009, an increase of $8.4 million. We continued to closely evaluate the nature and timing of all capital projects in order to conserve cash. Cash used for the purchase of property, plant & equipment totaled $86.3 million in 2010, down from $109.7 million in 2009 and $353.2 million in 2008. Proceeds from the sale of non-strategic businesses increased $34.9 million year-over-year to $51.0 million in 2010. These positive cash flows were more than offset by a $33.6 million increase in payments for businesses acquired and a $33.3 million decrease in the redemption of medium-term investments.
 
Cash used for investing activities decreased $109.0 million to $80.0 million from 2008 to 2009 in part due to the aforementioned decrease in cash used for the purchase of property, plant & equipment as well as a $47.1 million decrease in payments for businesses acquired. These decreases were partially offset by a $209.7 million decrease in proceeds from the sale of businesses from 2008 to 2009.
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
Net cash used for financing activities totaled $89.1 million in 2010, compared to $361.0 million during 2009. Debt reduction remains a priority use of available cash flows. During 2010, despite a significant year-over-year decline in cash provided by operating activities, we reduced total debt by $19.8 million. Proceeds from the issuance of the $450.0 million 5-year term loan in July 2010 were used to pay outstanding commercial paper and current maturities of long-term debt.
 
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In the third quarter of 2009, we reduced our dividend per share to $0.25 per quarter from $0.49 per quarter, resulting in comparative cash savings of $91.9 million during 2010.
 
Cash used for financing activities increased $90.1 million from 2008 to 2009 — $270.8 million to $361.0 million. During 2009, proceeds from issuing long-term debt of $397.7 million and common stock of $606.5 million were primarily used to reduce total debt by $809.8 million.
 
CAPITAL STRUCTURE AND RESOURCES
 
We pursue attractive investment opportunities and fund acquisitions using internally generated cash or by issuing debt or equity securities. We actively manage our capital structure and resources consistent with the policies, guidelines and objectives to maximize shareholder wealth, as well as to attract equity and fixed income investors who support us by investing in our stock and debt securities. Our primary goals include
 
§  maintaining a debt to total capital ratio within what we believe to be a prudent and generally acceptable range of 35% to 40%
 
§  paying out a reasonable share of net cash provided by operating activities as dividends
 
§  maintaining credit ratings that allow access to the credit markets on favorable terms
 
Maintaining a leadership position in the U.S. aggregates industry has afforded us the opportunity to raise debt and equity capital even in some of the most challenging times in the modern history of U.S. capital markets. In July 2010, we executed a $450.0 million 5-year term loan. The proceeds were used in the third quarter to retire commercial paper and current maturities of long-term debt. In December 2010, we paid the maturing $325.0 million floating rate note with cash on hand and by drawing against our $1.5 billion revolving credit facility.
 
We maintained the quarterly dividend at a quarterly rate of $0.25 per share throughout 2010, for a payout of $127.8 million. We issued 2,657,864 shares for $113.6 million of equity in 2010 for various purposes
 
§  pension plan contribution — 1,190,000 shares for $53.9 million
 
§  401(k) plan contribution — 882,132 shares for $41.7 million
 
§  incentive compensation plans — 585,732 shares for $18.0 million
 
LONG-TERM DEBT
 
Our total debt as a percentage of total capital as of December 31 increased 0.3 percentage points from 2009 to 2010.
 
                 
dollars in millions   2010     2009   
Debt
               
Current maturities of long-term debt
    $5.2       $385.4  
Short-term borrowings
    285.5       236.5  
Long-term debt
    2,427.5       2,116.1  
                 
Total debt
    $2,718.2       $2,738.0  
                 
Capital
               
Total debt
    $2,718.2       $2,738.0  
Shareholders’ equity
    3,965.0       4,037.2  
                 
Total capital
    $6,683.2       $6,775.2  
                 
Total Debt as a Percentage of Total Capital
    40.7%       40.4%  
                 
Long-term Debt — Weighted-Average Stated
Interest Rate
    7.02%       7.69%  
                 
 
Our debt agreements do not subject us to contractual restrictions for working capital or the amount we may expend for cash dividends and purchases of our stock. Our bank credit facilities (term loan and unsecured bank lines of credit) contain a
 
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covenant that our percentage of consolidated debt to total capitalization (total debt as a percentage of total capital) may not exceed 65%. Our total debt as a percentage of total capital was 40.7% in 2010 compared with 40.4% in 2009.
 
In the future, our total debt as a percentage of total capital will depend on specific investment and financing decisions. We have made acquisitions from time to time and will continue to pursue attractive investment opportunities. Such acquisitions could be funded by using internally generated cash or issuing debt or equity securities.
 
Our long-term debt ratings/outlook as of December 31, 2010 were
 
§  Standard and Poor’s — BBB-/credit watch - negative (rating placed on credit watch - negative effective December 2010)
 
§  Moody’s — Baa3/under review (rating placed under review for downgrade December 2010)
 
EQUITY
 
Our common stock outstanding increased 2.7 million shares from January 1, 2010 to December 31, 2010:
 
                         
in thousands   2010     2009     2008   
Common stock shares at January 1, issued and outstanding
    125,912       110,270       108,234  
                         
Common Stock Issuances
                       
Public offering
    0       13,225       0  
Acquisitions
    0       789       1,152  
401(k) savings and retirement plan
    882       1,135       0  
Pension plan contribution
    1,190       0       0  
Share-based compensation plans
    586       493       884  
                         
Common stock shares at December 31, issued and outstanding
    128,570       125,912       110,270  
                         
 
In March 2010, we issued 1.2 million shares of common stock (par value of $1 per share) to our qualified pension plan as explained in Note 10, “Benefit Plans” in Item 8 “Financial Statements and Supplementary Data .” This transaction increased shareholders’ equity by $53.9 million (common stock $1.2 million and capital in excess of par $52.7 million.)
 
In June 2009, we completed a public offering of common stock (par value of $1 per share) resulting in the issuance of 13.2 million shares for net proceeds of $520.0 million.
 
As explained in more detail in Note 13 “Shareholders’ Equity” in Item 8 “Financial Statements and Supplementary Data,” common stock issued in connection with business acquisitions were
 
§  2009 — 0.8 million shares
 
§  2008 — 1.2 million shares
 
We periodically issue shares of common stock to the trustee of our 401(k) savings and retirement plan to satisfy the plan participants’ elections to invest in our common stock. This arrangement provides a means of improving cash flow, increasing shareholders’ equity and reducing leverage. Under this arrangement, the stock issuances and resulting cash proceeds for the years ended December 31 were
 
§  2010 - issued 0.9 million shares for cash proceeds of $41.7 million
 
§  2009 - issued 1.1 million shares for cash proceeds of $52.7 million
 
There were no shares held in treasury as of December 31, 2010, 2009 and 2008. There were 3,411,416 shares remaining under the current purchase authorization of the Board of Directors as of December 31, 2010.
 
 
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OFF-BALANCE SHEET ARRANGEMENTS
 
We have no off-balance sheet arrangements, such as financing or unconsolidated variable interest entities, that either have or are reasonably likely to have a current or future material effect on our
 
§  results of operations
 
§  financial position
 
§  liquidity
 
§  capital expenditures
 
§  capital resources
 
STANDBY LETTERS OF CREDIT
 
For a discussion of our standby letters of credit see Note 12, “Commitments and Contingencies” in Item 8 “Financial Statements and Supplementary Data.”
 
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CASH CONTRACTUAL OBLIGATIONS
 
We expect to receive a net refund for income taxes of $31.9 million during 2011 as a result of 2010 overpayments. Additionally, we have a number of contracts containing commitments or contingent obligations that are not material to our earnings. These contracts are discrete and it is unlikely that the various contingencies contained within the contracts would be triggered by a common event. Excluding the future payments for income taxes and these discrete in nature contracts, our obligations to make future contractual payments as of December 31, 2010 are summarized in the table below:
 
                                               
          Payments Due by Year  
    Note
                               
in millions   Reference     2011     2012-2013     2014-2015     Thereafter     Total  
Cash Contractual Obligations
                                             
Short-term borrowings
                                             
Lines of credit1
  Note 6       $285.5       $0.0       $0.0       $0.0       $285.5  
Interest payments
          0.0       0.0       0.0       0.0       0.0  
Long-term debt
                                             
Principal payments
  Note 6       5.2       590.4       570.3       1,270.5       2,436.4  
Interest payments
  Note 6       156.4       296.7       251.1       589.1       1,293.3  
Operating leases
  Note 7       26.6       37.4       13.6       25.9       103.5  
Mineral royalties
  Note 12       19.3       37.0       32.1       138.8       227.2  
Unconditional purchase obligations
                                             
Capital
  Note 12       9.8       0.0       0.0       0.0       9.8  
Noncapital2
  Note 12       21.2       23.6       10.5       13.0       68.3  
Benefit plans3
  Note 10       47.8       101.5       123.9       336.4       609.6  
                                               
Total cash contractual obligations4,5
          $571.8       $1,086.6       $1,001.5       $2,373.7       $5,033.6  
                                               
 
 1  Lines of credit represent borrowings under our five-year credit facility which expires November 16, 2012.
 
 2  Noncapital unconditional purchase obligations relate primarily to transportation and electrical contracts.
 
 3  Payments in “Thereafter” column for benefit plans are for the years 2016-2020.
 
 4  The above table excludes discounted asset retirement obligations in the amount of $162.7 million at December 31, 2010, the majority of which have an estimated settlement date beyond 2015 (see Note 17 “Asset Retirement Obligations” in Item 8 “Financial Statements and Supplementary Data”).
 
 5  The above table excludes unrecognized tax benefits in the amount of $28.1 million at December 31, 2010, as we cannot make a reasonably reliable estimate of the amount and period of related future payment of these uncertain tax positions (for more details, see Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data.”)
 
CRITICAL ACCOUNTING POLICIES
 
We follow certain significant accounting policies when we prepare our consolidated financial statements. A summary of these policies is included in Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data.”
 
We prepare these financial statements to conform with accounting principles generally accepted in the United States of America. These principles require us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We base our estimates on historical experience, current conditions and various other assumptions we believe reasonable under existing circumstances and evaluate these estimates and judgments on an ongoing basis. The results of these estimates form the basis for our making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.
 
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We believe the following seven critical accounting policies require the most significant judgments and estimates used in the preparation of our consolidated financial statements:
 
1.  Goodwill and goodwill impairment
 
2.  Impairment of long-lived assets excluding goodwill
 
3.  Reclamation costs
 
4.  Pension and other postretirement benefits
 
5.  Environmental compliance
 
6.  Claims and litigation including self-insurance
 
7.  Income taxes
 
1. GOODWILL AND
GOODWILL IMPAIRMENT
 
Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. Goodwill is tested for impairment on an annual basis or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment evaluation is a critical accounting policy because goodwill is material to our total assets (as of December 31, 2010, goodwill represents 37% of total assets) and the evaluation involves the use of significant estimates and assumptions and considerable management judgment. Thus, an impairment charge could be material to our financial condition and results of operations.
 
OUR ASSUMPTIONS
 
We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. Changes in key assumptions or management judgment with respect to a reporting unit or its prospects may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or significant underperformance relative to historical or projected future operating results. These conditions could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.
 
The significant assumptions in our discounted cash flow models include our estimate of future profitability, capital requirements and the discount rate. The profitability estimates used in the models were derived from internal operating budgets and forecasts for long-term demand and pricing in our industry. Estimated capital requirements reflect replacement capital estimated on a per ton basis and acquisition capital necessary to support growth estimated in the models. The discount rate was derived using a capital asset pricing model.
 
HOW WE TEST GOODWILL FOR IMPAIRMENT
 
Goodwill is tested for impairment at the reporting unit level using a two-step process. We have identified 13 reporting units that represent operations or groups of operations one level below our operating segments.
 
STEP 1
We compare the fair value of a reporting unit to its carrying value, including goodwill
 
§  if the fair value exceeds its carrying value, the goodwill of the reporting unit is not considered impaired
 
§  if the carrying value of a reporting unit exceeds its fair value, we go to step two to measure the amount of impairment loss, if any
 
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STEP 2
We compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by hypothetically allocating the fair value of the reporting unit to its identifiable assets and liabilities in a manner consistent with a business combination, with any excess fair value representing implied goodwill.
 
§  if the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess
 
HOW WE DETERMINE CARRYING VALUE AND FAIR VALUE
 
First, we determine the carrying value of each reporting unit by assigning assets and liabilities, including goodwill, to those units as of the measurement date. Then, we estimate the fair values of the reporting units by considering the indicated fair values derived from both an income approach, which involves discounting estimated future cash flows, and a market approach, which involves the application of revenue and earnings multiples of comparable companies. Finally, we consider market factors when determining the assumptions and estimates used in our valuation models. To substantiate the fair values derived from these valuations, we reconcile the implied fair values to our market capitalization.
 
RESULTS OF OUR IMPAIRMENT TESTS
 
The results of our annual impairment tests for
 
§  November 1, 2010 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values
 
§  November 1, 2009 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values
 
§  January 1, 2009 indicated that the carrying value of our Cement reporting unit exceeded its fair value. Based on the results of the second step of the impairment test, we concluded that the entire amount of goodwill at this reporting unit was impaired, and recorded a $252.7 million pretax goodwill impairment charge for the year ended December 31, 2008. The fair value of all other reporting units with goodwill substantially exceeded their carrying values
 
For additional information regarding goodwill, see Note 18 “Goodwill and Intangible Assets” in Item 8 “Financial Statements and Supplementary Data.”
 
2. IMPAIRMENT OF LONG-LIVED ASSETS
EXCLUDING GOODWILL
 
We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. The impairment evaluation is a critical accounting policy because long-lived assets are material to our total assets (as of December 31, 2010, property, plant & equipment, net represents 44% of total assets, while other intangible assets, net represents 8% of total assets) and the evaluation involves the use of significant estimates and assumptions and considerable management judgment. Thus, an impairment charge could be material to our financial condition and results of operations. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, we recognize a loss equal to the amount by which the carrying value exceeds the fair value of the long-lived assets.
 
Fair value is determined by primarily using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.
 
During 2010 we recorded a $3.9 million loss on impairment of long-lived assets. The loss on impairment was a result of the challenging construction environment which impacted non-strategic assets across multiple operating segments. There were no long-lived asset impairments during 2009 and the recorded long-lived asset impairments during 2008 were immaterial.
 
 
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For additional information regarding long-lived assets and intangible assets, see Note 4 “Property, Plant & Equipment” and Note 18 “Goodwill and Intangible Assets” in Item 8 “Financial Statements and Supplementary Data.”
 
3.  RECLAMATION COSTS
 
Reclamation costs resulting from the normal use of long-lived assets are recognized over the period the asset is in use only if there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from the normal use under a mineral lease are recognized over the lease term only if there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.
 
Reclamation costs are considered a critical accounting policy because of the significant estimates, assumptions and considerable management judgment used to determine the fair value of the obligation and the significant carrying amount of these obligations ($162.7 million as of December 31, 2010).
 
HOW WE DETERMINE FAIR VALUE OF THE OBLIGATION
 
To determine the fair value of the obligation, we estimate the cost for a third party to perform the legally required reclamation tasks including a reasonable profit margin. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.
 
In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.
 
We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.
 
For additional information regarding reclamation obligations (referred to in our financial statements as asset retirement obligations), see Note 17 “Asset Retirement Obligations” in Item 8 “Financial Statements and Supplementary Data.”
 
4. PENSION AND OTHER
POSTRETIREMENT BENEFITS
 
Accounting for pension and postretirement benefits requires that we make significant assumptions regarding the valuation of benefit obligations and the performance of plan assets. Each year we review our assumptions about the discount rate, the expected return on plan assets, the rate of compensation increase (for salary-related plans) and the rate of increase in the per capita cost of covered healthcare benefits.
 
§  DISCOUNT RATE — The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future
 
§  EXPECTED RETURN ON PLAN ASSETS — We project the future return on plan assets based principally on prior performance and our expectations for future returns for the types of investments held by the plan as well as the expected long-term asset allocation of the plan. These projected returns reduce the recorded net benefit costs
 
§  RATE OF COMPENSATION INCREASE — For salary-related plans only, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement
 
§  RATE OF INCREASE IN THE PER CAPITA COST OF COVERED HEALTHCARE BENEFITS — We project the expected increases in the cost of covered healthcare benefits
 
 
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HOW WE SET OUR ASSUMPTIONS
 
In selecting the discount rate, we consider fixed-income security yields, specifically high-quality bonds. We also analyze the duration of plan liabilities and the yields for corresponding high-quality bonds. At December 31, 2010, the discount rates for our various plans ranged from 4.55% to 5.60%.
 
In estimating the expected return on plan assets, we consider past performance and long-term future expectations for the types of investments held by the plan as well as the expected long-term allocation of plan assets to these investments. At December 31, 2010, we reduced the expected return on plan assets to 8.00% from 8.25%.
 
In projecting the rate of compensation increase, we consider past experience and future expectations. At December 31, 2010, we increased our projected weighted-average rate of compensation increase to 3.50% from 3.40%.
 
In selecting the rate of increase in the per capita cost of covered healthcare benefits, we consider past performance and forecasts of future healthcare cost trends. At December 31, 2010, our assumed rate of increase in the per capita cost of covered healthcare benefits remained at 8.0% for 2011, decreasing each year until reaching 5.0% in 2017 and remaining level thereafter.
 
Changes to the assumptions listed above would have an impact on the projected benefit obligations, the accrued other postretirement benefit liabilities, and the annual net periodic pension and other postretirement benefit cost. The following table reflects the favorable and unfavorable outcomes associated with a change in certain assumptions:
 
                                 
    (Favorable) Unfavorable  
    0.5 Percentage Point Increase     0.5 Percentage Point Decrease  
    Inc (Dec) in
    Inc (Dec) in
    Inc (Dec) in
    Inc (Dec) in
 
in millions   Benefit Obligation     Benefit Cost     Benefit Obligation     Benefit Cost  
Actuarial Assumptions
                               
Discount rate
                               
Pension
    ($44.8 )     ($3.1 )     $49.7       $4.8  
Other postretirement benefits
    (5.2 )     (0.1 )     5.6       0.3  
Expected return on plan assets
    not applicable       (3.0 )     not applicable       3.0  
Rate of compensation increase
(for salary-related plans)
    9.2       1.7       (8.4 )     (1.6 )
Rate of increase in the per capita cost of covered healthcare benefits
    6.1       0.9       (5.4 )     (0.7 )
                                 
 
During 2010, the fair value of assets increased from $493.6 million to $630.3 million due primarily to investment gains and contributions to our qualified pension plans in March and July totaling $73.8 million. Additionally in 2010, the pension plans received $21.6 million related to our investments in Westridge Capital Management, Inc. (WCM). These receipts included a $6.6 million release from the court-appointed receiver as a partial distribution and a $15.0 million insurance settlement for the loss. The undistributed balance is held by a court-appointed receiver as a result of allegations of fraud and other violations by principals of a WCM affiliate. During 2008, we wrote down the fair value of our assets invested at WCM by $48.0 million.
 
During 2011, we expect to recognize net periodic pension expense of approximately $24.0 million and net periodic postretirement expense of approximately $12.3 million compared to $16.9 million and $11.1 million, respectively, in 2010. The increase in postretirement expense is primarily related to health care reform provisions. The increase in pension expense is due primarily to the decrease in the discount rate. For the qualified pension plans, the increase in pension expense is also due to the 2008 asset losses subject to amortization. These increases are offset somewhat by the 2010 pension contributions, better than expected asset returns during 2010 and the Westridge recovery. As a result of our 2010 pension contributions (related to plan year 2009) of $72.5 million in March and $1.3 million in July, we do not expect to make any contributions to the funded pension plans during 2011. Assuming actuarial assumptions are realized, existing funding credit balances are sufficient to fund projected minimum required contributions until 2013. We currently do not anticipate that the funded status of any of our plans will fall below statutory thresholds requiring accelerated funding or constraints on benefit levels or plan administration.
 
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For additional information regarding pension and other postretirement benefits, see Note 10 “Benefit Plans” in Item 8 “Financial Statements and Supplementary Data.”
 
5.  ENVIRONMENTAL COMPLIANCE
 
Our environmental compliance costs include maintenance and operating costs for pollution control facilities, the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs.
 
HOW WE ACCOUNT FOR ENVIRONMENTAL EXPENDITURES
 
To account for environmental expenditures, we
 
§  expense or capitalize environmental expenditures for current operations or for future revenues consistent with our capitalization policy
 
§  expense expenditures for an existing condition caused by past operations that do not contribute to future revenues
 
§  accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost
 
At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of varying factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur. When we can estimate a range of probable loss, we accrue the most likely amount. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2010, the difference between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $4.6 million.
 
Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates, including key assumptions, for accruing environmental compliance costs; however, a number of factors, including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.
 
For additional information regarding environmental compliance costs, see Note 8 “Accrued Environmental Remediation Costs” in Item 8 “Financial Statements and Supplementary Data.”
 
6. CLAIMS AND LITIGATION
INCLUDING SELF-INSURANCE
 
We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers’ compensation up to $2.0 million per occurrence and automotive and general/product liability up to $3.0 million per occurrence. We have excess coverage on a per occurrence basis beyond these deductible levels.
 
Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. For matters not included in our actuarial studies, legal defense costs are accrued when incurred.
 
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HOW WE ASSESS THE PROBABILITY OF LOSS
 
We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.
 
For additional information regarding claims and litigation including self-insurance, see Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data” under the caption Claims and Litigation Including Self-insurance.
 
7.  INCOME TAXES
 
HOW WE DETERMINE OUR DEFERRED TAX ASSETS AND LIABILITIES
 
We file various federal, state and foreign income tax returns, including some returns that are consolidated with subsidiaries. We account for the current and deferred tax effects of such returns using the asset and liability method. Our current and deferred tax assets and liabilities reflect our best assessment of the estimated future taxes we will pay. Significant judgments and estimates are required in determining the current and deferred assets and liabilities. Annually, we compare the liabilities calculated for our federal, state and foreign income tax returns to the estimated liabilities calculated as part of the year end income tax provision. Any adjustments are reflected in our current and deferred tax assets and liabilities.
 
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns for which we have already properly recorded the tax benefit in the income statement. At least quarterly, we assess the likelihood that the deferred tax asset balance will be recovered from future taxable income, and we will record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We take into account such factors as
 
§  prior earnings history
 
§  expected future taxable income
 
§  mix of taxable income in the jurisdictions in which we operate
 
§  carryback and carryforward periods
 
§  tax strategies that could potentially enhance the likelihood of realizing a deferred tax asset
 
If we were to determine that we would not be able to realize a portion of our deferred tax assets in the future for which there is currently no valuation allowance, we would charge an adjustment to the deferred tax assets to earnings. Conversely, if we were to determine that realization is more likely than not for deferred tax assets with a valuation allowance, the related valuation allowance would be reduced and we would record a benefit to earnings.
 
FOREIGN EARNINGS
 
U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely reinvested offshore. We periodically evaluate our investment strategies for each foreign tax jurisdiction in which we operate to determine whether foreign earnings will be indefinitely reinvested offshore and, accordingly, whether U.S. income taxes should be provided when such earnings are recorded.
 
UNRECOGNIZED TAX BENEFITS
 
We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. Our liability associated with 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. Such adjustments are recognized entirely in the period in which they are
 
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identified. Our effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as we consider appropriate.
 
Before a particular matter for which we have recorded a liability related to an unrecognized tax benefit is audited and finally resolved, a number of years may elapse. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is adequate. Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in our tax provision and effective tax rate in the period of resolution. Unfavorable settlement of an unrecognized tax benefit could increase the tax provision and effective tax rate and may require the use of cash in the period of resolution.
 
We consider resolution for an issue to occur at the earlier of settlement of an examination, the expiration of the statute of limitations, or when the issue is “effectively settled,” as described in Accounting Standards Codification (ASC) Topic 740, Income Taxes. Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.
 
STATUTORY DEPLETION
 
Our largest permanent item in computing both our effective tax rate and taxable income is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data.” The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.
 
NEW ACCOUNTING STANDARDS
 
For a discussion of accounting standards recently adopted and pending adoption and the affect such accounting changes will have on our results of operations, financial position or liquidity, see Note 1 “Summary of Significant Accounting Policies ‘” in Item 8 “Financial Statements and Supplementary Data” under the caption New Accounting Standards.
 
FORWARD-LOOKING STATEMENTS
 
The foregoing discussion and analysis, as well as certain information contained elsewhere in this Annual Report, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor created thereby. See the discussion in Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 in Part I, above.
 
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FINANCIAL TERMINOLOGY
 
CAPITAL EMPLOYED
 
The sum of interest-bearing debt, other noncurrent liabilities and shareholders’ equity. Average capital employed is a 12-month average.
 
CAPITAL EXPENDITURES
 
Capital expenditures include capitalized replacements of and additions to property, plant & equipment, including capitalized leases, renewals and betterments. Capital expenditures exclude property, plant & equipment obtained by business acquisitions.
 
We classify our capital expenditures into three categories based on the predominant purpose of the project expenditures. Thus, a project is classified entirely as a replacement if that is the principal reason for making the expenditure even though the project may involve some cost-saving and/or capacity-improvement aspects. Likewise, a profit-adding project is classified entirely as such if the principal reason for making the expenditure is to add operating facilities at new locations (which occasionally replace facilities at old locations), to add product lines, to expand the capacity of existing facilities, to reduce costs, to increase mineral reserves, to improve products, etc.
 
Capital expenditures classified as environmental control do not reflect those expenditures for environmental control activities that are expensed currently, including industrial health programs. Such expenditures are made on a continuing basis and at significant levels. Frequently, profit-adding and major replacement projects also include expenditures for environmental control purposes.
 
NET SALES
 
Total customer revenues from continuing operations for our products and services excluding third-party delivery revenues, net of discounts and taxes, if any.
 
RATIO OF EARNINGS TO FIXED CHARGES
 
The sum of earnings from continuing operations before income taxes, minority interest in earnings of a consolidated subsidiary, amortization of capitalized interest and fixed charges net of interest capitalization credits, divided by fixed charges. Fixed charges are the sum of interest expense before capitalization credits, amortization of financing costs and one-third of rental expense.
 
TOTAL DEBT AS A PERCENTAGE OF TOTAL CAPITAL
 
The sum of short-term borrowings, current maturities and long-term debt, divided by total capital. Total capital is the sum of total debt and shareholders’ equity.
 
SHAREHOLDERS’ EQUITY
 
The sum of common stock (less the cost of common stock in treasury), capital in excess of par value, retained earnings and accumulated other comprehensive income (loss), as reported in the balance sheet. Average shareholders’ equity is a 12-month average.
 
TOTAL SHAREHOLDER RETURN
 
Average annual rate of return using both stock price appreciation and quarterly dividend reinvestment. Stock price appreciation is based on a point-to-point calculation, using end-of-year data.
 
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ITEM 7A
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. In order to manage or reduce these market risks, we may utilize derivative financial instruments. We do not enter into derivative financial instruments for speculative or trading purposes.
 
We are exposed to interest rate risk due to our various credit facilities and long-term debt instruments. At times, we use interest rate swap agreements to manage this risk.
 
In December 2007, we issued $325.0 million of 3-year floating (variable) rate notes that bear interest at 3-month LIBOR plus 1.25% per annum. Concurrently, we entered into an interest rate swap agreement in the stated (notional) amount of $325.0 million. This swap agreement terminated December 15, 2010, coinciding with the maturity of the 3-year notes. The realized gains and losses upon settlement related to the swap agreement are reflected in interest expense concurrent with the hedged interest payments on the debt. At December 31, 2009 and 2008, we recognized liabilities, (included in other accrued liabilities), of $11.2 million and $16.2 million, respectively, equal to the fair value of this swap.
 
At December 31, 2010, the estimated fair value of our long-term debt instruments including current maturities was $2,564.3 million as compared to a book value of $2,432.8 million. The estimated fair value was determined by discounting expected future cash flows based on credit-adjusted interest rates on U.S. Treasury bills, notes or bonds, as appropriate. The fair value estimate is based on information available to management as of the measurement date. Although management is not aware of any factors that would significantly affect the estimated fair value amount, it has not been comprehensively revalued since the measurement date. The effect of a decline in interest rates of 1 percentage point would increase the fair market value of our liability by approximately $132.1 million.
 
At December 31, 2010, we had $450.0 million outstanding under our 5-year syndicated term loan established in July 2010. These borrowings bear interest at variable rates — LIBOR plus a spread based on our long-term credit rating at the time of borrowing. An increase in LIBOR or a downgrade in our long-term credit rating would increase our borrowing costs for amounts outstanding under these arrangements.
 
We are exposed to certain economic risks related to the costs of our pension and other postretirement benefit plans. These economic risks include changes in the discount rate for high-quality bonds, the expected return on plan assets, the rate of compensation increase for salaried employees and the rate of increase in the per capita cost of covered healthcare benefits. The impact of a change in these assumptions on our annual pension and other postretirement benefit costs is discussed in greater detail within the Critical Accounting Policies section of this annual report.
 
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ITEM 8
 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders of Vulcan Materials Company:
 
We have audited the accompanying consolidated balance sheets of Vulcan Materials Company and its subsidiary companies (the “Company”) as of December 31, 2010 and December 31, 2009, and the related consolidated statements of earnings and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2010. Our audits also included the financial statement schedule in Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vulcan Materials Company and its subsidiary companies as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
-s- Deliotte Signature
Birmingham, Alabama
February 28, 2011
 
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
 
CONSOLIDATED STATEMENTS OF EARNINGS AND
COMPREHENSIVE INCOME
 
                         
For the years ended December 31
                 
in thousands, except per share data   2010
    2009
    2008
 
Net sales
    $2,405,916       $2,543,707       $3,453,081  
Delivery revenues
    152,946       146,783       198,357  
                         
Total revenues
    2,558,862       2,690,490       3,651,438  
                         
Cost of goods sold
    2,105,190       2,097,745       2,703,369  
Delivery costs
    152,946       146,783       198,357  
                         
Cost of revenues
    2,258,136       2,244,528       2,901,726  
                         
Gross profit
    300,726       445,962       749,712  
Selling, administrative and general expenses
    327,537       321,608       342,584  
Gain on sale of property, plant & equipment and businesses, net
    59,302       27,104       94,227  
Goodwill impairment
    0       0       252,664  
Charge for legal settlement
    40,000       0       0  
Other operating income (expense), net
    (7,031 )     (3,006 )     411  
                         
Operating earnings (loss)
    (14,540 )     148,452       249,102  
Other income (expense), net
    3,074       5,307       (4,357 )
Interest income
    863       2,282       3,126  
Interest expense
    181,603       175,262       172,813  
                         
Earnings (loss) from continuing operations before income taxes
    (192,206 )     (19,221 )     75,058  
Provision (benefit) for income taxes
                       
Current
    (37,805 )     6,106       92,346  
Deferred
    (51,858 )     (43,975 )     (20,655 )
                         
Total provision (benefit) for income taxes
    (89,663 )     (37,869 )     71,691  
                         
Earnings (loss) from continuing operations
    (102,543 )     18,648       3,367  
Earnings (loss) on discontinued operations, net of income taxes (Note 2)
    6,053       11,666       (2,449 )
                         
Net earnings (loss)
    ($96,490 )     $30,314       $918  
                         
Other comprehensive income (loss), net of tax
                       
Fair value adjustments to cash flow hedge
    (481 )     (2,748 )     (2,640 )
Reclassification adjustment for cash flow hedges included in net earnings (loss)
    10,709       9,902       1,968  
Adjustment for funded status of pension and postretirement
benefit plans
    3,201       (17,367 )     (154,099 )
Amortization of pension and postretirement plan actuarial loss and prior service cost
    3,590       1,138       724  
                         
Other comprehensive income (loss)
    17,019       (9,075 )     (154,047 )
                         
Comprehensive income (loss)
    ($79,471 )     $21,239       ($153,129 )
                         
Basic earnings (loss) per share
                       
Continuing operations
    ($0.80 )     $0.16       $0.03  
Discontinued operations
    $0.05       $0.09       ($0.02 )
Net earnings (loss) per share
    ($0.75 )     $0.25       $0.01  
Diluted earnings (loss) per share
                       
Continuing operations
    ($0.80 )     $0.16       $0.03  
Discontinued operations
    $0.05       $0.09       ($0.02 )
Net earnings (loss) per share
    ($0.75 )     $0.25       $0.01  
Dividends declared per share
    $1.00       $1.48       $1.96  
Weighted-average common shares outstanding
    128,050       118,891       109,774  
Weighted-average common shares outstanding, assuming dilution
    128,050       119,430       110,954  
                         
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
 
CONSOLIDATED BALANCE SHEETS
 
                 
          2009
 
As of December 31
        (As Restated,
 
in thousands, except per share data   2010
    See Note 20)  
Assets
               
Cash and cash equivalents
    $47,541       $22,265  
Restricted cash
    547       0  
Medium-term investments
    0       4,111  
Accounts and notes receivable
               
Customers, less allowance for doubtful accounts
               
2010 — $7,505; 2009 — $8,722
    260,814       254,753  
Other
    56,984       13,271  
Inventories
    319,845       325,033  
Deferred income taxes
    53,794       56,017  
Prepaid expenses
    19,374       42,367  
Assets held for sale
    13,207       15,072  
                 
Total current assets
    772,106       732,889  
Investments and long-term receivables
    37,386       33,283  
Property, plant & equipment, net
    3,632,914       3,874,671  
Goodwill
    3,097,016       3,096,300  
Other intangible assets, net
    691,693       682,643  
Other noncurrent assets
    106,776       105,085  
                 
Total assets
    $8,337,891       $8,524,871  
                 
Liabilities
               
Current maturities of long-term debt
    $5,246       $385,381  
Short-term borrowings
    285,500       236,512  
Trade payables and accruals
    102,315       121,324  
Accrued salaries, wages and management incentives
    48,841       38,148  
Accrued interest
    11,246       9,458  
Other accrued liabilities
    112,408       65,503  
Liabilities of assets held for sale
    116       369  
                 
Total current liabilities
    565,672       856,695  
Long-term debt
    2,427,516       2,116,120  
Deferred income taxes
    849,448       893,974  
Deferred management incentive and other compensation
    32,393       33,327  
Pension benefits
    127,136       212,033  
Other postretirement benefits
    124,617       109,990  
Asset retirement obligations
    162,730       167,757  
Other noncurrent liabilities
    83,399       97,738  
                 
Total liabilities
    4,372,911       4,487,634  
                 
Other commitments and contingencies (Note 12)
               
Shareholders’ equity
               
Common stock, $1 par value — 128,570 shares issued as of 2010 and 125,912 shares issued as of 2009
    128,570       125,912  
Capital in excess of par value
    2,500,886       2,368,228  
Retained earnings
    1,512,863       1,737,455  
Accumulated other comprehensive loss
    (177,339 )     (194,358 )
                 
Total shareholders’ equity
    3,964,980       4,037,237  
                 
Total liabilities and shareholders’ equity
    $8,337,891       $8,524,871  
                 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                         
For the years ended December 31
                 
in thousands   2010
    2009
    2008
 
Operating Activities
                       
Net earnings (loss)
    ($96,490 )     $30,314       $918  
Adjustments to reconcile net earnings to net cash provided by operating activities
                       
Depreciation, depletion, accretion and amortization
    382,093       394,612       389,060  
Net gain on sale of property, plant & equipment and businesses
    (68,095 )     (27,916 )     (94,227 )
Goodwill impairment
    0       0       252,664  
Contributions to pension plans
    (24,496 )     (27,616 )     (3,127 )
Share-based compensation
    20,637       23,120       19,096  
Excess tax benefits from share-based compensation
    (808 )     (2,072 )     (11,209 )
Deferred tax provision
    (51,684 )     (43,773 )     (19,756 )
(Increase) decrease in assets before initial effects of business acquisitions and dispositions
                       
Accounts and notes receivable
    (49,656 )     79,930       61,352  
Inventories
    6,708       39,289       (7,630 )
Prepaid expenses
    22,945       4,127       (23,425 )
Other assets
    (58,243 )     (27,670 )     (13,568 )
Increase (decrease) in liabilities before initial effects of business acquisitions and dispositions
                       
Accrued interest and income taxes
    12,661       (2,854 )     8,139  
Trade payables and other accruals
    44,573       (30,810 )     (125,167 )
Other noncurrent liabilities
    40,950       28,263       15,128  
Other, net
    21,611       16,091       (13,063 )
                         
Net cash provided by operating activities
    202,706       453,035       435,185  
                         
Investing Activities
                       
Purchases of property, plant & equipment
    (86,324 )     (109,729 )     (353,196 )
Proceeds from sale of property, plant & equipment
    13,602       17,750       25,542  
Proceeds from sale of businesses, net of transaction costs
    50,954       16,075       225,783  
Payment for businesses acquired, net of acquired cash
    (70,534 )     (36,980 )     (84,057 )
Reclassification of cash equivalents (to) from medium-term investments
    3,630       0       (36,734 )
Redemption of medium-term investments
    23       33,282       0  
Proceeds from loan on life insurance policies
    0       0       28,646  
Other, net
    273       (400 )     4,976  
                         
Net cash used for investing activities
    (88,376 )     (80,002 )     (189,040 )
                         
Financing Activities
                       
Net short-term borrowings (payments)
    48,988       (847,963 )     (1,009,000 )
Payment of current maturities and long-term debt
    (519,204 )     (361,724 )     (48,794 )
Proceeds from issuance of long-term debt, net of discounts
    450,000       397,660       949,078  
Debt issuance costs
    (3,058 )     (3,033 )     (5,633 )
Settlements of forward starting interest rate swap agreements
    0       0       (32,474 )
Proceeds from issuance of common stock
    41,734       606,546       55,072  
Dividends paid
    (127,792 )     (171,468 )     (214,783 )
Proceeds from exercise of stock options
    20,502       17,327       24,602  
Excess tax benefits from share-based compensation
    808       2,072       11,209  
Other, net
    (1,032 )     (379 )     (116 )
                         
Net cash used for financing activities
    (89,054 )     (360,962 )     (270,839 )
                         
Net increase (decrease) in cash and cash equivalents
    25,276       12,071       (24,694 )
Cash and cash equivalents at beginning of year
    22,265       10,194       34,888  
                         
Cash and cash equivalents at end of year
    $47,541       $22,265       $10,194  
                         
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
 
                                                 
                            Accumulated
       
                Capital in
          Other
       
    Common Stock 1     Excess of
    Retained
    Comprehensive
       
in thousands, except per share data   Shares     Amount     Par Value     Earnings     Income (Loss)     Total  
Balances at December 31, 2007 (As Restated, See Note 20)
    108,234       $108,234       $1,607,865       $2,094,916       ($40,217 )     $3,770,798  
                                                 
Accounting Change (Note 1, New Accounting Standards, 2008 — Retirement Benefits Measurement Date)
    0       0       0       (1,312 )     8,981       7,669  
                                                 
Balances at January 1, 2008 adjusted for accounting change
    108,234       $108,234       $1,607,865       $2,093,604       ($31,236 )     $3,778,467  
                                                 
Net earnings
    0       0       0       918       0       918  
Common stock issued
                                               
Acquisitions
    1,152       1,152       78,948       0       0       80,100  
Share-based compensation plans
    884       884       17,130       0       0       18,014  
Share-based compensation expense
    0       0       19,096       0       0       19,096  
Excess tax benefits from share-based compensation
    0       0       11,209       0       0       11,209  
Accrued dividends on share-based compensation awards
    0       0       593       (593 )     0       0  
Cash dividends on common stock
    0       0       0       (214,783 )     0       (214,783 )
Other comprehensive income
    0       0       0       0       (154,047 )     (154,047 )
Other
    0       0       (6 )     (2 )     1       (7 )
                                                 
Balances at December 31, 2008 (As Restated, See Note 20)
    110,270       $110,270       $1,734,835       $1,879,144       ($185,282 )     $3,538,967  
                                                 
Net earnings
    0       0       0       30,314       0       30,314  
Common stock issued
                                               
Public offering
    13,225       13,225       506,768       0       0       519,993  
Acquisitions
    789       789       33,073       0       0       33,862  
401(k) Trustee (Note 13)
    1,135       1,135       51,556       0       0       52,691  
Share-based compensation plans
    493       493       16,279       0       0       16,772  
Share-based compensation expense
    0       0       23,120       0       0       23,120  
Excess tax benefits from share-based compensation
    0       0       2,072       0       0       2,072  
Accrued dividends on share-based compensation awards
    0       0       521       (521 )     0       0  
Cash dividends on common stock
    0       0       0       (171,468 )     0       (171,468 )
Other comprehensive income
    0       0       0       0       (9,075 )     (9,075 )
Other
    0       0       4       (14 )     (1 )     (11 )
                                                 
Balances at December 31, 2009 (As Restated, See Note 20)
    125,912       $125,912       $2,368,228       $1,737,455       ($194,358 )     $4,037,237  
                                                 
Net loss
    0       0       0       (96,490 )     0       (96,490 )
Common stock issued
                                               
401(k) Trustee (Note 13)
    882       882       40,852       0       0       41,734  
Pension plan contribution
    1,190       1,190       52,674       0       0       53,864  
Share-based compensation plans
    586       586       17,382       0       0       17,968  
Share-based compensation expense
    0       0       20,637       0       0       20,637  
Excess tax benefits from share-based compensation
    0       0       808       0       0       808  
Accrued dividends on share-based compensation awards
    0       0       308       (308 )     0       0  
Cash dividends on common stock
    0       0       0       (127,792 )     0       (127,792 )
Other comprehensive income
    0       0       0       0       17,019       17,019  
Other
    0       0       (3 )     (2 )     0       (5 )
                                                 
Balances at December 31, 2010
    128,570       $128,570       $2,500,886       $1,512,863       ($177,339 )     $3,964,980  
                                                 
 
1 Common stock, $1 par value, 480 million shares authorized in 2010, 2009 and 2008
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
 
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NOTES TO 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; a major producer of asphalt mix and ready-mixed concrete and a leading producer of cement in Florida.
 
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 Consolidated Statements of Earnings and Comprehensive Income.
 
We disaggregated our asphalt mix and concrete operating segments for reporting purposes in 2010. See Note 15 for this discussion and additional disclosure regarding nature of operations.
 
PRINCIPLES OF CONSOLIDATION
 
The consolidated financial statements include the accounts of Vulcan Materials Company and all our majority or wholly-owned subsidiary companies. All intercompany transactions and accounts have been eliminated in consolidation.
 
CASH EQUIVALENTS
 
We classify as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. The carrying amount of these securities approximates fair value due to their short-term maturities.
 
MEDIUM-TERM INVESTMENTS
 
We held investments in money market and other money funds at The Reserve, an investment management company specializing in such funds, as follows: December 31, 2010 — $5,531,000 and December 31, 2009 — $5,554,000. The substantial majority of our investment was held in The Reserve International Liquidity Fund, Ltd. On September 15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy protection. In the following days, The Reserve announced that it was closing all of its money funds, some of which owned Lehman Brothers securities, and was suspending redemptions from and purchases of its funds, including The Reserve International Liquidity Fund. As a result of the temporary suspension of redemptions and the uncertainty as to the timing of such redemptions, we changed the classification of our investments in The Reserve funds from cash and cash equivalents to medium-term investments and reduced the carrying value of our investment to its estimated fair value of $4,111,000 as of December 31, 2009. See the caption Fair Value Measurements under this Note 1 for further discussion of the fair value determination.
 
The Reserve redeemed our investment during the twelve months ended December 31, as follows: 2010 — $23,000 and 2009 — $33,282,000, and $258,000 during the fourth quarter of 2008.
 
In January 2011, we received $3,630,000 from The Reserve representing the final redemption. As a result, we reclassified our investments in The Reserve funds from medium-term investments to cash and cash equivalents and reduced the carrying value to $3,630,000 as of December 31, 2010.
 
ACCOUNTS AND NOTES RECEIVABLE
 
Accounts and notes receivable from customers result from our extending credit to trade customers for the purchase of our products. The terms generally provide for payment within 30 days of being invoiced. On occasion, when necessary to conform to regional industry practices, we sell product under extended payment terms, which may result in either secured or unsecured short-term notes; or, on occasion, notes with durations of less than one year are taken in settlement of existing accounts receivable. Other accounts and notes receivable result from short-term transactions (less than one year) other
 
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than the sale of our products, such as interest receivable; insurance claims; freight claims; tax refund claims; bid deposits or rents receivable. Receivables are aged and appropriate allowances for doubtful accounts and bad debt expense are recorded.
 
FINANCING RECEIVABLES
 
Financing receivables are included in accounts and notes receivable and/or investments and long-term receivables in the accompanying Consolidated Balance Sheets. Financing receivables are contractual rights to receive money on demand or on fixed or determinable dates. Trade receivables with normal credit terms are not considered financing receivables. We had $8,043,000 of financing receivables as of December 31, 2010. Our financing receivables consist primarily of a note receivable originating from a divested interest in an aggregates production facility and a note receivable from a charitable organization, both of which mature in four years. We evaluate the collectibility of financing receivables on a periodic basis or whenever events or changes in circumstances indicate we may be exposed to credit losses. As of December 31, 2010, no allowances were recorded for these receivables.
 
INVENTORIES
 
Inventories and supplies are stated at the lower of cost or market. We use the last-in, first-out (LIFO) method of valuation for most of our inventories because it results in a better matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct labor and production overhead. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating supplies inventory is carried at average cost. For additional information regarding our inventories see Note 3.
 
PROPERTY, PLANT & EQUIPMENT
 
Property, plant & equipment are carried at cost less accumulated depreciation, depletion and amortization. The cost of properties held under capital leases, if any, is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease. For additional information regarding our property, plant & equipment see Note 4.
 
REPAIR AND MAINTENANCE
 
Repair and maintenance costs generally are charged to operating expense as incurred. Renewals and betterments that add materially to the utility or useful lives of property, plant & equipment are capitalized and subsequently depreciated. Actual costs for planned major maintenance activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and amortized to the next overhaul.
 
DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION
 
Depreciation is generally computed by the straight-line method at rates based on the estimated service lives of the various classes of assets, which include machinery and equipment (3 to 30 years), buildings (10 to 20 years) and land improvements (7 to 20 years). Depreciation for our Newberry, Florida cement production facilities is computed by the unit-of-production method based on estimated output.
 
Cost depletion on depletable quarry land is computed by the unit-of-production method based on estimated recoverable units.
 
Accretion reflects the period-to-period increase in the carrying amount of the liability for asset retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to initially measure the liability at fair value.
 
Amortization of intangible assets subject to amortization is computed based on the estimated life of the intangible assets. A significant portion of our intangible assets are contractual rights in place associated with zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.
 
Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated useful life.
 
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Depreciation, depletion, accretion and amortization expense for the years ended December 31 is outlined below:
 
                         
in thousands   2010     2009     2008  
Depreciation, Depletion, Accretion and Amortization
                       
Depreciation
    $349,460       $361,530       $365,177  
Depletion
    10,337       10,143       7,896  
Accretion
    8,641       8,802       7,082  
Amortization of leaseholds and
capitalized leases
    195       180       178  
Amortization of intangibles
    13,460       13,957       8,727  
                         
Total
    $382,093       $394,612       $389,060  
                         
 
DERIVATIVE INSTRUMENTS
 
We periodically use derivative instruments to reduce our exposure to interest rate risk, currency exchange risk or price fluctuations on commodity energy sources consistent with our risk management policies. We do not use derivative financial instruments for speculative or trading purposes. Additional disclosures regarding our derivative instruments are presented in 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 and liabilities that are subject to fair value measurement on a recurring basis are summarized below:
 
                 
    Level 1  
in thousands   2010     2009  
Fair Value Recurring
               
Rabbi Trust
               
Mutual funds
    $13,960       $10,490  
Equities
    9,336       8,472  
                 
Net asset
    $23,296       $18,962  
                 
 
                 
    Level 2  
in thousands   2010     2009  
Fair Value Recurring
               
Medium-term investments
    $0       $4,111  
Interest rate derivative
    0       (11,193 )
Rabbi Trust
Common/collective trust funds
    2,431       4,084  
                 
Net asset (liability)
    $2,431       ($2,998 )
                 
 
The Rabbi Trust investments relate to funding for the executive nonqualified deferred compensation and excess benefit 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. Investments in common/collective trust funds are stated at estimated fair value based on the underlying investments in those funds. The underlying investments are comprised of short-term, highly liquid assets in commercial paper, short-term bonds and treasury bills.
 
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The medium-term investments are comprised of money market and other money funds, as more fully described previously in this Note under the caption Medium-term Investments. Using a market approach, we estimated the fair value of these funds by applying our historical distribution ratio to the liquidated value of investments in The Reserve funds. Additionally, we estimated a discount against our investment balances to allow for the risk that legal and accounting costs and pending or threatened claims and litigation against The Reserve and its management may reduce the principal available for distribution.
 
The interest rate derivative consists of an interest rate swap agreement applied to our $325,000,000 3-year notes issued December 2007 and paid December 2010. This agreement is more fully described in Note 5. This interest rate swap is measured at fair value based on the prevailing market interest rate as of the measurement date.
 
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, current maturities of long-term debt, short-term borrowings, trade payables and other accrued expenses 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 5 and 6, respectively.
 
Our assets that are subject to fair value measurement on a nonrecurring basis are summarized below:
 
                 
    2010  
          Impairment
 
in thousands   Level 3     Charges  
Fair Value Nonrecurring
               
Property, plant & equipment
    $1,536       $2,500  
Assets held for sale
    9,625       1,436  
                 
Totals
    $11,161       $3,936  
                 
 
During 2010 we recorded a $3,936,000 loss on impairment of long-lived assets. We utilized an income approach to measure the fair value of the long-lived assets and determined that the carrying value of the assets exceeded the fair value. The loss on impairment represents the difference between the carrying value and the fair value (less costs to sell for assets held for sale) of the impacted long-lived assets.
 
GOODWILL AND GOODWILL IMPAIRMENT
 
Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. As of December 31, 2010, goodwill totaled $3,097,016,000, as compared to $3,096,300,000 at December 31, 2009. Total goodwill represents 37% of total assets at December 31, 2010, compared to 36% as of December 31, 2009.
 
Goodwill is reviewed for impairment annually, as of November 1, or more frequently whenever events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at the reporting unit level using a two-step process.
 
The first step of the impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is not required. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.
 
The second step of the impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by hypothetically allocating the fair value of the reporting unit to its identifiable assets and liabilities in a manner consistent with a business combination, with any excess fair value representing implied goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
 
We have four operating segments organized around our principal product lines: aggregates, concrete, asphalt mix and cement. Within these four operating segments, we have identified 13 reporting units based primarily on geographic location. The carrying value of each reporting unit is determined by assigning assets and liabilities, including goodwill, to those
 
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reporting units as of the measurement date. We estimate the fair values of the reporting units by considering the indicated fair values derived from both an income approach, which involves discounting estimated future cash flows, and a market approach, which involves the application of revenue and earnings multiples of comparable companies. We consider market factors when determining the assumptions and estimates used in our valuation models. To substantiate the fair values derived from these valuations, we reconcile the reporting unit fair values to our market capitalization.
 
The results of the first step of the annual impairment tests performed as of November 1, 2010 and November 1, 2009 indicated that the fair values of the reporting units with goodwill substantially exceeded their carrying values. Accordingly, there were no charges for goodwill impairment in the years ended December 31, 2010 or 2009.
 
The results of the annual impairment tests for 2008 indicated that the carrying value of our Cement reporting unit exceeded its fair value. Based on the results of the second step of the impairment test, we concluded that the entire amount of goodwill at this reporting unit was impaired, and we recorded a $252,664,000 pretax goodwill impairment charge for the year ended December 31, 2008.
 
Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ materially from those estimates. Changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or significant underperformance relative to historical or projected future operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.
 
For additional information regarding goodwill see Note 18.
 
IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL
 
We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. As of December 31, 2010, property, plant & equipment, net represents 44% of total assets, while other intangible assets, net represents 8% of total assets. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, we recognize a loss equal to the amount by which the carrying value exceeds the fair value of the long-lived assets. Fair value is determined by primarily using a discounted cash flow methodology that requires considerable management judgment and long-term assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.
 
During 2010 we recorded a $3,936,000 loss on impairment of long-lived assets. The loss on impairment was a result of the challenging construction environment which impacted certain non-strategic assets across multiple operating segments. We utilized an income approach to measure the fair value of the long-lived assets and determined that the carrying value of the assets exceeded the fair value. The loss on impairment represents the difference between the carrying value and the fair value of the impacted long-lived assets. There were no long-lived asset impairments during 2009 and the recorded long-lived asset impairments during 2008 were immaterial.
 
For additional information regarding long-lived assets and intangible assets see Notes 4 and 18.
 
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COMPANY OWNED LIFE INSURANCE
 
We have Company Owned Life Insurance (COLI) policies for which the cash surrender values, loans outstanding and the net values included in other noncurrent assets in the accompanying Consolidated Balance Sheets as of December 31 are as follows:
 
                 
in thousands   2010     2009  
Company Owned Life Insurance
               
Cash surrender value
    $35,421       $32,720  
Loans outstanding
    35,410       32,710  
                 
Net value included in noncurrent assets
    $11       $10  
                 
 
REVENUE RECOGNITION
 
Revenue is recognized at the time the sale price is fixed, the product’s title is transferred to the buyer and collectibility of the sales proceeds is reasonably assured. Total revenues include sales of products to customers, net of any discounts and taxes, and third-party delivery revenues billed to customers.
 
STRIPPING COSTS
 
In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.
 
Stripping costs incurred during the production phase are considered costs of extracted minerals under our inventory costing system, inventoried, and recognized in cost of sales in the same period as the revenue from the sale of the inventory. The production stage is deemed to begin when the activities, including removal of overburden and waste material that may contain incidental saleable material, required to access the saleable product are complete. Additionally, we capitalize such costs as inventory only to the extent inventory exists at the end of a reporting period. Stripping costs considered as production costs and included in the costs of inventory produced were $40,842,000 in 2010, $40,810,000 in 2009 and $59,946,000 in 2008.
 
Conversely, stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from our inventory cost. Pre-production stripping costs are capitalized and reported within other noncurrent assets in our accompanying Consolidated Balance Sheets. Capitalized pre-production stripping costs are expensed over the productive life of the mine using the unit-of-production method. Pre-production stripping costs included in other noncurrent assets were $17,347,000 as of December 31, 2010 and $16,557,000 as of December 31, 2009.
 
OTHER COSTS
 
Costs are charged to earnings as incurred for the start-up of new plants and for normal recurring costs of mineral exploration and research and development. Research and development costs totaled $1,582,000 in 2010, $1,541,000 in 2009 and $1,546,000 in 2008, and are included in selling, administrative and general expenses in the Consolidated Statements of Earnings and Comprehensive Income.
 
SHARE-BASED COMPENSATION
 
We account for our share-based compensation awards using fair-value-based measurement methods. This results in the recognition of compensation expense for all share-based compensation awards, including stock options, based on their fair value as of the grant date. For awards granted prior to January 1, 2006, compensation cost for all share-based compensation awards is recognized over the nominal (stated) vesting period. For awards granted subsequent to January 1, 2006, compensation cost is recognized over the requisite service period.
 
We receive an income tax deduction for share-based compensation equal to the excess of the market value of our common stock on the date of exercise or issuance over the exercise price. Tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are classified as financing cash flows. The $808,000, $2,072,000 and $11,209,000 in excess tax benefits classified as financing cash inflows for the years ended December 31, 2010, 2009 and
 
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2008, respectively, in the accompanying Consolidated Statements of Cash Flows relate to the exercise of stock options and issuance of shares under long-term incentive plans.
 
A summary of the estimated future compensation cost (unrecognized compensation expense) as of December 31, 2010 related to share-based awards granted to employees under our long-term incentive plans is presented below:
 
                 
    Unrecognized
    Expected
 
    Compensation
    Weighted-average
 
dollars in thousands   Expense     Recognition (Years)  
Share-based Compensation
               
Stock options/SOSARs
    $7,165       1.2  
Performance shares
    7,127       1.7  
Deferred stock units
    1,220       1.0  
                 
Total/weighted-average
    $15,512       1.4  
                 
 
Pretax compensation expense related to our employee share-based compensation awards and related income tax benefits for the years ended December 31 are summarized below:
 
                         
in thousands   2010     2009     2008  
Employee Share-based Compensation Awards
                       
Pretax compensation expense
    $19,746       $21,861       $17,800  
Income tax benefits
    7,968       8,915       7,038  
                         
 
For additional information regarding share-based compensation, see Note 11 under the caption Share-based Compensation Plans.
 
RECLAMATION COSTS
 
Reclamation costs resulting from the normal use of long-lived assets are recognized over the period the asset is in use only if there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from the normal use under a mineral lease are recognized over the lease term only if there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.
 
To determine the fair value of the obligation, we estimate the cost for a third party to perform the legally required reclamation tasks including a reasonable profit margin. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.
 
In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.
 
We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.
 
The carrying value of these obligations is $162,730,000 as of December 31, 2010 and $167,757,000 as of December 31, 2009. For additional information regarding reclamation obligations (referred to in our financial statements as asset retirement obligations) see Note 17.
 
 
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PENSION AND OTHER POSTRETIREMENT BENEFITS
 
Accounting for pension and postretirement benefits requires that we make significant assumptions regarding the valuation of benefit obligations and the performance of plan assets. The primary assumptions are as follows:
§  DISCOUNT RATE — The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future.
 
§  EXPECTED RETURN ON PLAN ASSETS — We project the future return on plan assets based principally on prior performance and our expectations for future returns for the types of investments held by the plan as well as the expected long-term asset allocation of the plan. These projected returns reduce the recorded net benefit costs.
 
§  RATE OF COMPENSATION INCREASE — For salary-related plans only, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement.
 
§  RATE OF INCREASE IN THE PER CAPITA COST OF COVERED HEALTHCARE BENEFITS — We project the expected increases in the cost of covered healthcare benefits.
 
Accounting Standards Codification (ASC) Topic 715, “Compensation Retirement Benefits,” Sections 30–35 and 60–35 provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of actual results allows for a smoothed recognition in earnings of changes in benefit obligations and plan performance over the working lives of the employees who benefit under the plans. The differences between actual results and expected or estimated results are recognized in full in other comprehensive income. Amounts recognized in other comprehensive income are reclassified to earnings in a systematic manner over the average remaining service period of active employees expected to receive benefits under the plan.
 
For additional information regarding pension and other postretirement benefits see Note 10.
 
ENVIRONMENTAL COMPLIANCE
 
Our environmental compliance costs include maintenance and operating costs for pollution control facilities, the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. We expense or capitalize environmental expenditures for current operations or for future revenues consistent with our capitalization policy. We expense expenditures for an existing condition caused by past operations that do not contribute to future revenues. We accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost. At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of varying factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur.
 
When we can estimate a range of probable loss, we accrue the most likely amount. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2010, the spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $4,634,000. Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates, including key assumptions, for accruing environmental compliance costs; however, a number of factors, including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.
 
For additional information regarding environmental compliance costs see Note 8.
 
CLAIMS AND LITIGATION INCLUDING SELF-INSURANCE
 
We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers’ compensation up to $2,000,000 per occurrence and automotive and general/product liability up to $3,000,000 per occurrence. We have excess coverage on a per occurrence basis beyond these deductible levels.
 
Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a
 
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probable loss and the cost can be reasonably estimated. For matters not included in our actuarial studies, legal defense costs are accrued when incurred. The following table outlines our liabilities at December 31 under our self-insurance program:
 
                 
dollars in thousands   2010     2009  
Self-insurance Program
               
Liabilities (undiscounted)
    $70,174       $60,072  
Discount rate
    1.01%       1.77%  
                 
Amounts Recognized in Consolidated
Balance Sheets
               
Other accrued liabilities
    $36,699       $17,610  
Other noncurrent liabilities
    31,990       39,388  
                 
Accrued liabilities (discounted)
    $68,689       $56,998  
                 
                 
 
The $19,089,000 increase in other accrued liabilities is attributable to the settlement of a lawsuit brought by the Illinois Department of Transportation (IDOT) as discussed in Note 12.
 
Estimated payments (undiscounted) under our self-insurance program for the five years subsequent to December 31, 2010 are as follows:
 
         
in thousands      
Estimated Payments under Self-insurance Program
       
2011
    $37,728  
2012
    8,534  
2013
    6,046  
2014
    4,320  
2015
    2,919  
         
 
The 2011 estimated payment above includes $20,000,000 related to the settlement of a lawsuit brought by IDOT as discussed in Note 12.
 
Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.
 
INCOME TAXES
 
We file various federal, state and foreign income tax returns, including some returns that are consolidated with subsidiaries. We account for the current and deferred tax effects of such returns using the asset and liability method. Our current and deferred tax assets and liabilities reflect our best assessment of the estimated future taxes we will pay. Significant judgments and estimates are required in determining the current and deferred assets and liabilities. Annually, we compare the liabilities calculated for our federal, state and foreign income tax returns to the estimated liabilities calculated as part of the year end income tax provision. Any adjustments are reflected in our current and deferred tax assets and liabilities.
 
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns for which we have already properly recorded the tax benefit in the income statement. At least quarterly, we assess the likelihood that the deferred tax asset balance will be recovered from future taxable income, and we will record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We take into account such factors as
 
§  prior earnings history
 
§  expected future taxable income
 
§  mix of taxable income in the jurisdictions in which we operate
 
§  carryback and carryforward periods
 
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§  tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset
 
If we were to determine that we would not be able to realize a portion of our deferred tax assets in the future for which there is currently no valuation allowance, we would charge an adjustment to the deferred tax assets to earnings. Conversely, if we were to make a determination that realization is more likely than not for deferred tax assets with a valuation allowance, the related valuation allowance would be reduced and we would record a benefit to earnings.
 
U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely reinvested offshore. We periodically evaluate our investment strategies for each foreign tax jurisdiction in which we operate to determine whether foreign earnings will be indefinitely reinvested offshore and, accordingly, whether U.S. income taxes should be provided when such earnings are recorded.
 
We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. Our liability associated with 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. Such adjustments are recognized entirely in the period in which they are identified. Our effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as we consider appropriate.
 
Before a particular matter for which we have recorded a liability related to an unrecognized tax benefit is audited and finally resolved, a number of years may elapse. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is adequate. Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in our tax provision and effective tax rate in the period of resolution. Unfavorable settlement of an unrecognized tax benefit could increase the tax provision and effective tax rate and may require the use of cash in the period of resolution.
 
We consider resolution for an issue to occur at the earlier of settlement of an examination, the expiration of the statute of limitations, or when the issue is “effectively settled,” as described in ASC Topic 740, Income Taxes. Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.
 
Our largest permanent item in computing both our effective tax rate and taxable income is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9. The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.
 
COMPREHENSIVE INCOME
 
We report comprehensive income in our Consolidated Statements of Earnings and Comprehensive Income and Consolidated Statements of Shareholders’ Equity. Comprehensive income includes charges and credits to equity from nonowner sources. Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). OCI includes fair value adjustments to cash flow hedges, actuarial gains or losses and prior service costs related to pension and postretirement benefit plans.
 
For additional information regarding comprehensive income see Note 14.
 
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EARNINGS PER SHARE (EPS)
 
We report two earnings per share numbers, basic and diluted. These 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:
 
                         
in thousands   2010     2009     2008  
Weighted-average common shares outstanding
    128,050       118,891       109,774  
Dilutive effect of
Stock options/SOSARs
    0       269       905  
Other stock compensation plans