FINANCIAL STATEMENTS
VULCAN
MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited, except for December 31
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$ 135,365
|
|
|
$ 284,060
|
|
|
$ 168,681
|
|
Restricted cash
|
0
|
|
|
1,150
|
|
|
0
|
|
Accounts and notes receivable
|
|
|
|
|
|
|
|
|
Accounts and notes receivable, gross
|
536,242
|
|
|
423,600
|
|
|
558,755
|
|
Less: Allowance for doubtful accounts
|
(4,260)
|
|
|
(5,576)
|
|
|
(5,770)
|
|
Accounts and notes receivable, net
|
531,982
|
|
|
418,024
|
|
|
552,985
|
|
Inventories
|
|
|
|
|
|
|
|
|
Finished products
|
283,266
|
|
|
297,925
|
|
|
275,717
|
|
Raw materials
|
25,411
|
|
|
21,765
|
|
|
21,680
|
|
Products in process
|
2,753
|
|
|
1,008
|
|
|
1,161
|
|
Operating supplies and other
|
26,612
|
|
|
26,375
|
|
|
28,148
|
|
Inventories
|
338,042
|
|
|
347,073
|
|
|
326,706
|
|
Current deferred income taxes
|
0
|
|
|
0
|
|
|
39,301
|
|
Prepaid expenses
|
71,370
|
|
|
34,284
|
|
|
56,017
|
|
Total current assets
|
1,076,759
|
|
|
1,084,591
|
|
|
1,143,690
|
|
Investments and long-term receivables
|
38,914
|
|
|
40,558
|
|
|
40,516
|
|
Property, plant & equipment
|
|
|
|
|
|
|
|
|
Property, plant & equipment, cost
|
7,105,036
|
|
|
6,891,287
|
|
|
6,803,588
|
|
Reserve for depreciation, depletion & amortization
|
(3,876,743)
|
|
|
(3,734,997)
|
|
|
(3,683,961)
|
|
Property, plant & equipment, net
|
3,228,293
|
|
|
3,156,290
|
|
|
3,119,627
|
|
Goodwill
|
3,094,824
|
|
|
3,094,824
|
|
|
3,094,824
|
|
Other intangible assets, net
|
753,314
|
|
|
766,579
|
|
|
766,695
|
|
Other noncurrent assets
|
165,981
|
|
|
158,790
|
|
|
151,514
|
|
Total assets
|
$ 8,358,085
|
|
|
$ 8,301,632
|
|
|
$ 8,316,866
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
131
|
|
|
130
|
|
|
130
|
|
Trade payables and accruals
|
163,139
|
|
|
175,729
|
|
|
195,536
|
|
Other current liabilities
|
197,642
|
|
|
177,620
|
|
|
216,411
|
|
Total current liabilities
|
360,912
|
|
|
353,479
|
|
|
412,077
|
|
Long-term debt
|
1,983,639
|
|
|
1,980,334
|
|
|
1,979,493
|
|
Noncurrent deferred income taxes
|
706,715
|
|
|
681,096
|
|
|
692,643
|
|
Deferred revenue
|
201,732
|
|
|
207,660
|
|
|
209,651
|
|
Other noncurrent liabilities
|
601,117
|
|
|
624,875
|
|
|
659,725
|
|
Total liabilities
|
$ 3,854,115
|
|
|
$ 3,847,444
|
|
|
$ 3,953,589
|
|
Other commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Common stock, $1 par value, Authorized 480,000 shares,
|
|
|
|
|
|
|
|
|
Outstanding 132,309, 133,172 and 133,315 shares, respectively
|
132,309
|
|
|
133,172
|
|
|
133,315
|
|
Capital in excess of par value
|
2,829,806
|
|
|
2,822,578
|
|
|
2,812,593
|
|
Retained earnings
|
1,660,961
|
|
|
1,618,507
|
|
|
1,564,215
|
|
Accumulated other comprehensive loss
|
(119,106)
|
|
|
(120,069)
|
|
|
(146,846)
|
|
Total equity
|
$ 4,503,970
|
|
|
$ 4,454,188
|
|
|
$ 4,363,277
|
|
Total liabilities and equity
|
$ 8,358,085
|
|
|
$ 8,301,632
|
|
|
$ 8,316,866
|
|
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
|
|
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF
C
OMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
Unaudited
|
|
|
|
September 30
|
|
|
|
|
|
September 30
|
|
in thousands, except per share data
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Total revenues
|
$ 1,008,140
|
|
|
$ 1,038,460
|
|
|
$ 2,719,693
|
|
|
$ 2,564,896
|
|
Cost of revenues
|
703,931
|
|
|
747,170
|
|
|
1,958,581
|
|
|
1,961,292
|
|
Gross profit
|
304,209
|
|
|
291,290
|
|
|
761,112
|
|
|
603,604
|
|
Selling, administrative and general expenses
|
76,311
|
|
|
71,390
|
|
|
235,460
|
|
|
207,350
|
|
Gain on sale of property, plant & equipment
|
|
|
|
|
|
|
|
|
|
|
|
and businesses
|
2,023
|
|
|
799
|
|
|
2,934
|
|
|
7,423
|
|
Business interruption claims recovery
|
690
|
|
|
0
|
|
|
11,652
|
|
|
0
|
|
Impairment of long-lived assets
|
0
|
|
|
0
|
|
|
(10,506)
|
|
|
(5,190)
|
|
Restructuring charges
|
0
|
|
|
(448)
|
|
|
(320)
|
|
|
(4,546)
|
|
Other operating expense, net
|
(3,535)
|
|
|
(8,045)
|
|
|
(23,629)
|
|
|
(17,201)
|
|
Operating earnings
|
227,076
|
|
|
212,206
|
|
|
505,783
|
|
|
376,740
|
|
Other nonoperating income (expense), net
|
990
|
|
|
(2,818)
|
|
|
325
|
|
|
(2,277)
|
|
Interest expense, net
|
33,126
|
|
|
37,800
|
|
|
100,192
|
|
|
183,931
|
|
Earnings from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
194,940
|
|
|
171,588
|
|
|
405,916
|
|
|
190,532
|
|
Provision for income taxes
|
52,062
|
|
|
45,386
|
|
|
116,026
|
|
|
51,177
|
|
Earnings from continuing operations
|
142,878
|
|
|
126,202
|
|
|
289,890
|
|
|
139,355
|
|
Loss on discontinued operations, net of tax
|
(3,113)
|
|
|
(2,397)
|
|
|
(7,451)
|
|
|
(7,066)
|
|
Net earnings
|
$ 139,765
|
|
|
$ 123,805
|
|
|
$ 282,439
|
|
|
$ 132,289
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for cash flow hedges
|
307
|
|
|
282
|
|
|
902
|
|
|
5,607
|
|
Amortization of actuarial loss and prior service
|
|
|
|
|
|
|
|
|
|
|
|
cost for benefit plans
|
20
|
|
|
3,883
|
|
|
61
|
|
|
9,261
|
|
Other comprehensive income
|
327
|
|
|
4,165
|
|
|
963
|
|
|
14,868
|
|
Comprehensive income
|
$ 140,092
|
|
|
$ 127,970
|
|
|
$ 283,402
|
|
|
$ 147,157
|
|
Basic earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$ 1.07
|
|
|
$ 0.95
|
|
|
$ 2.17
|
|
|
$ 1.05
|
|
Discontinued operations
|
(0.02)
|
|
|
(0.02)
|
|
|
(0.05)
|
|
|
(0.06)
|
|
Net earnings
|
$ 1.05
|
|
|
$ 0.93
|
|
|
$ 2.12
|
|
|
$ 0.99
|
|
Diluted earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$ 1.06
|
|
|
$ 0.93
|
|
|
$ 2.14
|
|
|
$ 1.03
|
|
Discontinued operations
|
(0.02)
|
|
|
(0.02)
|
|
|
(0.05)
|
|
|
(0.05)
|
|
Net earnings
|
$ 1.04
|
|
|
$ 0.91
|
|
|
$ 2.09
|
|
|
$ 0.98
|
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
133,019
|
|
|
133,474
|
|
|
133,418
|
|
|
133,082
|
|
Assuming dilution
|
135,033
|
|
|
135,558
|
|
|
135,192
|
|
|
134,942
|
|
Cash dividends per share of common stock
|
$ 0.20
|
|
|
$ 0.10
|
|
|
$ 0.60
|
|
|
$ 0.30
|
|
Depreciation, depletion, accretion and amortization
|
$ 72,049
|
|
|
$ 69,662
|
|
|
$ 213,362
|
|
|
$ 204,770
|
|
Effective tax rate from continuing operations
|
26.7%
|
|
|
26.5%
|
|
|
28.6%
|
|
|
26.9%
|
|
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
|
|
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Unaudited
|
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
Operating Activities
|
|
|
|
|
|
Net earnings
|
$ 282,439
|
|
|
$ 132,289
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities
|
|
|
|
|
|
Depreciation, depletion, accretion and amortization
|
213,362
|
|
|
204,770
|
|
Net gain on sale of property, plant & equipment and businesses
|
(2,934)
|
|
|
(7,423)
|
|
Contributions to pension plans
|
(7,126)
|
|
|
(11,337)
|
|
Share-based compensation expense
|
15,645
|
|
|
14,020
|
|
Excess tax benefits from share-based compensation
|
(26,747)
|
|
|
(16,950)
|
|
Deferred tax provision (benefit)
|
25,094
|
|
|
(7,640)
|
|
Cost of debt purchase
|
0
|
|
|
67,075
|
|
Changes in assets and liabilities before initial effects of business acquisitions
|
|
|
|
|
|
and dispositions
|
(121,097)
|
|
|
(79,000)
|
|
Other, net
|
(33,188)
|
|
|
(14,467)
|
|
Net cash provided by operating activities
|
$ 345,448
|
|
|
$ 281,337
|
|
Investing Activities
|
|
|
|
|
|
Purchases of property, plant & equipment
|
(287,440)
|
|
|
(214,815)
|
|
Proceeds from sale of property, plant & equipment
|
5,865
|
|
|
4,464
|
|
Payment for businesses acquired, net of acquired cash
|
(1,611)
|
|
|
(20,801)
|
|
Decrease in restricted cash
|
1,150
|
|
|
0
|
|
Other, net
|
2,488
|
|
|
(301)
|
|
Net cash used for investing activities
|
$ (279,548)
|
|
|
$ (231,453)
|
|
Financing Activities
|
|
|
|
|
|
Proceeds from line of credit
|
3,000
|
|
|
291,000
|
|
Payments of line of credit
|
(3,000)
|
|
|
(206,000)
|
|
Payments of current maturities and long-term debt
|
(14)
|
|
|
(545,056)
|
|
Proceeds from issuance of long-term debt
|
0
|
|
|
400,000
|
|
Debt and line of credit issuance costs
|
0
|
|
|
(7,382)
|
|
Purchases of common stock
|
(161,463)
|
|
|
0
|
|
Dividends paid
|
(79,865)
|
|
|
(39,878)
|
|
Proceeds from exercise of stock options
|
0
|
|
|
67,888
|
|
Excess tax benefits from share-based compensation
|
26,747
|
|
|
16,950
|
|
Other, net
|
0
|
|
|
2
|
|
Net cash used for financing activities
|
$ (214,595)
|
|
|
$ (22,476)
|
|
Net increase (decrease) in cash and cash equivalents
|
(148,695)
|
|
|
27,408
|
|
Cash and cash equivalents at beginning of year
|
284,060
|
|
|
141,273
|
|
Cash and cash equivalents at end of period
|
$ 135,365
|
|
|
$ 168,681
|
|
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements.
|
|
notes to condensed consolidated financial statements
Note 1: summary of significant accounting policies
NATURE OF OPERATIONS
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a
New Jersey
corporation, is the nation's largest producer of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.
We operate primarily in the United States and our principal product — aggregates — is used in virtually all types of public and private construction projects and in the production of asphalt mix and ready-mixed concrete. We serve markets in
twenty
states, Washington D.C., and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving states in metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These
three
demographic factors are significant drivers of demand for aggregates. While aggregates is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our mid-Atlantic, Georgia, Southwestern and Western markets.
BASIS OF PRESENTATION
Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Our Condensed Consolidated Balance Sheet as of December 31, 2015 was derived from the audited financial statement, but it does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three and
nine
month periods ended
September
30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.
Due to the 2005 sale of our Chemicals business as described in Note 2, the results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2016 presentation.
RESTRUCTURING CHARGES
In 2014, we announced changes to our executive management team, and a new divisional organization structure that was effective January 1, 2015. During the
nine
months ended
September
30, 2016 and
September
30, 2015, we incurred
$
320,000
and
$4,
546
,000
, respectively, of costs related to these initiatives.
We do not expect to incur any f
uture
charges
related
to this
initiative
.
EARNINGS PER SHARE (EPS)
Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Weighted-average common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
133,019
|
|
|
133,474
|
|
|
133,418
|
|
|
133,082
|
|
Dilutive effect of
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Only Stock Appreciation Rights
|
961
|
|
|
919
|
|
|
957
|
|
|
1,024
|
|
Other stock compensation plans
|
1,053
|
|
|
1,165
|
|
|
817
|
|
|
836
|
|
Weighted-average common shares
|
|
|
|
|
|
|
|
|
|
|
|
outstanding, assuming dilution
|
135,033
|
|
|
135,558
|
|
|
135,192
|
|
|
134,942
|
|
All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation are excluded. There were
no
excluded shares for the periods presented.
The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Antidilutive common stock equivalents
|
2
|
|
|
545
|
|
|
234
|
|
|
555
|
|
Note 2: Discontinued Operations
In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. There were
no
revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
$ (5,135)
|
|
|
$ (3,974)
|
|
|
$ (12,312)
|
|
|
$ (11,627)
|
|
Income tax benefit
|
2,022
|
|
|
1,577
|
|
|
4,861
|
|
|
4,561
|
|
Loss on discontinued operations,
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
$ (3,113)
|
|
|
$ (2,397)
|
|
|
$ (7,451)
|
|
|
$ (7,066)
|
|
Th
e l
osses from discontinued operations noted above
include charges related
to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business.
These losses resulted primarily from charges associated with the Lower Passaic and Texas Brine matters as further discussed in Note 8.
Note 3: Income Taxes
Our estimated annual effective tax rate (EAETR) is based on full-year expectations of pretax earnings, statutory tax rates, permanent differences between book and tax accounting such as percentage depletion, and tax planning alternatives available in the various jurisdictions in which we operate. For interim financial reporting, we calculate our quarterly income tax provision in accordance with the EAETR. Each quarter, we update our EAETR based on our revised full-year expectation of pretax earnings and calculate the income tax provision so that the year-to-date income tax provision reflects the EAETR. Significant judgment is required in determining our EAETR.
In the
third
quarter of 2016, we recorded income tax expense from continuing operations of
$
52,062,000
compared to
$
45,386
,000
in the
third
quarter of 2015. The
in
crease in our income tax expense
resulted largely from applying the statutory rate to the increase in our pretax earnings
.
For the first
nine
months of 2016, we recorded income tax expense from continuing operations of
$
116,026,000
compared to
$
51,177,000
for the first
nine
months of 2015. The
in
crease in our income tax expense
resulted largely from applying the statutory rate to the increase in our pretax earnings
.
We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the
book basis and tax basis
of assets and liabilitie
s. D
eferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns. With our adoption of Accounting Standards Update 2015-17, “Balance Sheet Classification of Deferred Taxes” as of December 31, 2015, all deferred tax assets and liabilities are presented as noncurrent. We adopted this standard prospectively and as a result, we did not restate periods prior to adoption.
Each quarter we analyze the likelihood that our deferred tax assets will be realized. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized.
Based on our
third
quarter 2016 analysis, we believe it is more likely than not that we will realize the benefit of all our deferred tax assets with the exception of certain state net operating loss carryforwards.
For
December 31,
2016, we project deferred tax assets related to state net operating loss carryforwards of
$
55,318,000
, of which
$
52,995,000
relates to Alabama. The Alabama net operating loss carryforward, if not utilized, would expire in years
2022
–
2029
. Prior to 2015, we carried a full valuation allowance against this Alabama deferred tax asset as we did not expect to utilize any portion of it. During 2015, we restructured our legal entities which, among other benefits, resulted in a partial release of the valuation allowance in the amount of
$4,655,000
during the third quarter of 2015. Our analyses over the last
four
quarters have confirmed our third quarter 2015 conclusion but resulted in no further reductions of the valuation allowance. We expect to further reduce, or possibly eliminate, this valuation allowance once we have returned to sustained profitability (as defined in our most recent Annual Report on Form 10-K), which we project could occur in the fourth quarter of 2016.
We recognize a tax benefit associated with a tax position when, in our judgment, it is more likely than not that the position will be sustained based upon the technical merits of the position. For a tax position that meets the more likely than not recognition threshold, we measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax benefit. Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation.
A summary of our deferred tax assets is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2015.
Note 4: deferred revenue
In 2013 and 2012, we sold a percentage interest in future production structured as volumetric production payments (VPPs).
The VPPs:
|
§
|
|
relate to
eight
quarries in Georgia and South Carolina
|
|
§
|
|
provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future production from aggregates reserves
|
|
§
|
|
are both time and volume limited
|
|
§
|
|
contain no minimum annual or cumulative guarantees for production or sales volume, nor minimum sales price
|
Our consolidated total revenues exclude the sales of aggregates owned by the VPP purchaser.
We received net cash proceeds from the sale of the VPPs of
$153,282,000
and
$73,644,000
for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized to
revenue on a unit-of-sales basis over the terms of the VPPs (expected to be approximately
25
years, limited by volume rather than time).
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Deferred Revenue
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$ 210,200
|
|
|
$ 217,429
|
|
|
$ 214,060
|
|
|
$ 219,968
|
|
Amortization of deferred revenue
|
(2,068)
|
|
|
(1,778)
|
|
|
(5,928)
|
|
|
(4,317)
|
|
Balance at end of period
|
$ 208,132
|
|
|
$ 215,651
|
|
|
$ 208,132
|
|
|
$ 215,651
|
|
Based on expected sales from the specified quarries, we expect to recognize approximately
$
6,400,000
of deferred revenue as income during the 12-month period ending
September
30
, 2017 (reflected in other current liabilities in our 2016 Condensed Consolidated Balance Sheet).
Note 5: Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:
Level 1:
Quoted prices in active markets for identical assets or liabilities
Level 2:
Inputs that are derived principally from or corroborated by observable market data
Level 3:
Inputs that are unobservable and significant to the overall fair value measurement
Our a
ssets subject to fair value measurement on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 Fair Value
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2015
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Mutual funds
|
$ 6,601
|
|
|
$ 11,472
|
|
|
$ 12,081
|
|
Equities
|
8,574
|
|
|
8,992
|
|
|
8,778
|
|
Total
|
$ 15,175
|
|
|
$ 20,464
|
|
|
$ 20,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 Fair Value
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2015
|
|
Fair Value Recurring
|
|
|
|
|
|
|
|
|
Rabbi Trust
|
|
|
|
|
|
|
|
|
Money market mutual fund
|
$ 2,144
|
|
|
$ 2,124
|
|
|
$ 1,464
|
|
Total
|
$ 2,144
|
|
|
$ 2,124
|
|
|
$ 1,464
|
|
We have established
two
Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds and equity securities for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in the fund (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).
Net gains (losses) of the Rabbi Trust investments were
$1,379,000
and
$(1,964,000)
for the nine months ended September 30, 2016 and 2015, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at September 30, 2016 and 2015 were
$273,000
and
$(2,068,000)
, respectively.
The year-to-date decrease of
$5,269,000
in total Rabbi Trust asset fair values at September 30, 2016 is primarily attributable to the elections by several retired executives to receive their distributions from the nonqualified retirement and deferred compensation plans.
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 6 and 7, respectively.
Assets subject
to fair value measurement on a nonrecurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ending September 30, 2016
|
|
|
Period ending September 30, 2015
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
Impairment
|
|
in thousands
|
Level 2
|
|
|
Charges
|
|
|
Level 2
|
|
|
Charges
|
|
Fair Value Nonrecurring
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment, net
|
$ 0
|
|
|
$ 1,359
|
|
|
$ 0
|
|
|
$ 2,176
|
|
Other intangible assets, net
|
0
|
|
|
8,180
|
|
|
0
|
|
|
2,858
|
|
Other assets
|
0
|
|
|
967
|
|
|
0
|
|
|
156
|
|
Total
|
$ 0
|
|
|
$ 10,506
|
|
|
$ 0
|
|
|
$ 5,190
|
|
We recorded
$
10,50
6,000
and
$5,190,000
of losses on impairment of long-lived assets for the nine months ended September 30, 2016 and 2015, respectively, reducing the carrying value of these Aggregates segment assets to their estimated fair values of
$0
and
$0
. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).
Note 6: Derivative Instruments
During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such expenses. We do not utilize derivative instruments for trading or other speculative purposes.
The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate swap agreements described below were designated as either cash flow hedges or fair value hedges. The changes in fair value of our interest rate swap cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. The changes in fair value of our interest rate swap fair value hedges are recorded as interest expense consistent with the change in the fair value of the hedged items attributable to the risk being hedged.
CASH FLOW HEDGES
During 2007, we entered into
fifteen
forward starting interest rate locks on
$1,500,000,000
of future debt issuances in order to hedge the risk of higher interest rates. Upon the 2007 and 2008 issuances of the related fixed-rate debt, underlying interest rates were lower than the rate locks and we terminated and settled these forward starting locks for cash payments of
$89,777,000
. This amount was booked to AOCI and is being amortized to interest expense over the term of the related debt.
This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Location on
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
Statement
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss reclassified from AOCI
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
(effective portion)
|
expense
|
|
$ (507)
|
|
|
$ (467)
|
|
|
$ (1,490)
|
|
|
$ (9,282)
|
|
The loss reclassified from AOCI for the nine months ended September 30, 2015 includes the acceleration of a proportional amount of the deferred loss in the amount of
$7,208,000
, referable to the debt purchases as described in Note 7.
For the 12-month period ending September 30, 2017, we estimate that
$2,135,000
of the pretax loss in AOCI will be reclassified to earnings.
FAIR VALUE HEDGES
In June 2011, we issued
$500,000,000
of
6.50%
fixed-rate notes due in 2016 to refinance near term floating-rate debt. Concurrently, we entered into interest rate swap agreements in the stated amount of
$500,000,000
to reestablish the pre-refinancing mix of fixed-
rate
and floating-rate debt. Under these agreements, we paid 6-month London Interbank Offered Rate (LIBOR) plus a spread of
4.05%
and received a fixed interest rate of
6.50%
. Additionally, in June 2011, we entered into interest rate swap agreements on our
$150,000,000
of
10.125%
fixed-rate notes due in 2015. Under these agreements, we paid 6-month LIBOR plus a spread of
8.03%
and received a fixed interest rate of
10.125%
. In August 2011, we terminated and settled these interest rate swap agreements for
$25,382,000
of cash proceeds. The
$23,387,000
gain component of the settlement (cash proceeds less
$1,995,000
of accrued interest) was added to the carrying value of the related debt and was amortized as a reduction to interest expense over the terms of the related debt using the effective interest method.
This deferred gain amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Deferred Gain on Settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized to earnings as a reduction
|
|
|
|
|
|
|
|
|
|
|
|
|
to interest expense
|
|
$ 0
|
|
|
$ 282
|
|
|
$ 0
|
|
|
$ 2,795
|
|
The deferred gain was fully amortized in December 2015, concurrent with the retirement of the 10.125% notes due 2015. The amortized deferred gain for the nine months ended September 30, 2015 includes the acceleration of a proportional amount of the deferred gain in the amount of
$1,642,000
referable to the debt purchases as described in Note 7.
Note 7: Debt
Debt is detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
Interest Rates
|
|
2016
|
|
|
2015
|
|
|
2015
|
|
Short-term Debt
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit expires 2020
1, 2, 3
|
n/a
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
Total short-term debt
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 0
|
|
Long-term Debt
|
|
|
|
|
|
|
|
|
|
|
Bank line of credit expires 2020
1, 2, 3
|
1.25%
|
|
$ 235,000
|
|
|
$ 235,000
|
|
|
$ 85,000
|
|
10.125% notes due 2015
|
n/a
|
|
0
|
|
|
0
|
|
|
150,000
|
|
7.00% notes due 2018
|
7.87%
|
|
272,512
|
|
|
272,512
|
|
|
272,512
|
|
10.375% notes due 2018
|
10.63%
|
|
250,000
|
|
|
250,000
|
|
|
250,000
|
|
7.50% notes due 2021
|
7.75%
|
|
600,000
|
|
|
600,000
|
|
|
600,000
|
|
8.85% notes due 2021
|
8.88%
|
|
6,000
|
|
|
6,000
|
|
|
6,000
|
|
4.50% notes due 2025
|
4.65%
|
|
400,000
|
|
|
400,000
|
|
|
400,000
|
|
7.15% notes due 2037
|
8.05%
|
|
240,188
|
|
|
240,188
|
|
|
240,188
|
|
Other notes
3
|
6.24%
|
|
484
|
|
|
498
|
|
|
503
|
|
Total long-term debt - face value
|
|
|
$ 2,004,184
|
|
|
$ 2,004,198
|
|
|
$ 2,004,203
|
|
Unamortized discounts and debt issuance costs
|
|
|
(20,414)
|
|
|
(23,734)
|
|
|
(24,821)
|
|
Unamortized deferred interest rate swap gain
4
|
|
|
0
|
|
|
0
|
|
|
241
|
|
Total long-term debt - book value
|
|
|
$ 1,983,770
|
|
|
$ 1,980,464
|
|
|
$ 1,979,623
|
|
Less current maturities
|
|
|
131
|
|
|
130
|
|
|
130
|
|
Total long-term debt - reported value
|
|
|
$ 1,983,639
|
|
|
$ 1,980,334
|
|
|
$ 1,979,493
|
|
Estimated fair value of long-term debt
|
|
|
$ 2,305,065
|
|
|
$ 2,204,816
|
|
|
$ 2,191,361
|
|
|
|
1
|
Borrowings on the bank line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt otherwise.
|
2
|
The effective interest rate is the spread over LIBOR as of the most recent balance sheet date.
|
3
|
Non-publicly traded debt.
|
4
|
The unamortized deferred gain was realized upon the August 2011 settlement of interest rate swaps as described in Note 6.
|
Our total
long-term
debt
-
book value
is presented in the table above net of unamortized discounts from par, unamortized deferred debt issuance costs and unamortized deferred interest rate swap settlement gain. Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in
$
3,320,000
of net interest expense for these items for the nine months ended September 30, 2016.
The estimated fair value of our debt presented in the table above was determined by: (1) averaging several asking price quotes for the publicly traded notes and (2) assuming par value for the remainder of the debt. The fair value estimates for the publicly traded notes were based on Level 2 information (as defined in Note 5) as of their respective balance sheet dates.
LINE OF CREDIT
In
June 2015, we cancelled our secured
$500,000,000
line of credit and entered into a
n
unsecured
$750,000,000
line of credit
(incurring
$2,589,000
of transaction fees)
.
Th
e l
ine of credit agreement expires in
June 2020
and contains affirmative, negative and financial covenants customary for an unsecured facility. The primary negative covenant limits our ability to incur secured deb
t. The financial covenants are:
(1) a maximum ratio of debt to EBITDA of
3.5
:1, and
(2) a minimum ratio of EBITDA to net cash interest expense of
3.0
:1.
As of September 30, 2016, we were
in
compliance with the line of credit covenants.
Borrowings on our line of credit are classified as short-term debt if we intend to repay with
in
twelve months and as long-term debt if we have the intent and ability to extend
re
payment beyond twelve months.
Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from
1.00%
to
2.00%
, or SunTrust Bank’s base rate (generally, its prime rate) plus a credit margin ranging from
0.00%
to
1.00%
. The credit margin for both LIBOR and base rate borrowings is determined by either our ratio of debt to EBITDA or our credit ratings, based on the metric that produces the lower credit spread. Standby letters of credit, which are issued under the line of credit and reduce availability, are charged a fee equal to the credit margin for LIBOR borrowings plus
0.175%
. We also pay a commitment fee on the daily average unused amount of the line of credit that ranges from
0.10%
to
0.35%
determined by either our ratio of debt to EBITDA or our credit ratings, based on the metric that produces the lower fee. As of September 30, 2016, the credit margin for LIBOR borrowings was
1.25
%
, the credit margin for base rate borrowings was
0.25
%
, and the commitment fee for the unused amount was
0.15
%
.
As of September 30, 2016, our available borrowing capacity was
$
475,160,
000
. Utilization of the borrowing capacity was as follows:
|
§
|
|
$
235,000,000
was borrowed
|
|
§
|
|
$
39,840,000
was used to provide support for outstanding standby letters of credit
|
TERM DEBT
All of our term debt is unsecured. All such debt, other than the
$
484,000
of other notes, is governed by two essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in both indentures limits the amount of secured debt we may incur without ratably securing such debt. As of September 30, 2016, we were
in
compliance with all of the term debt covenants.
In December 2015, we repaid our
$150,000,000
10.125%
notes due
2015
via borrowing on our line of credit. In August 2015, we repaid our
$14,000,000
industrial revenue bond due
2022
via borrowing on our line of credit. These repayments did not incur any prepayment penalties.
In March 2015, we issued
$400,000,000
of
4.50%
senior notes due
2025
. Proceeds (net of underwriter fees and other transaction costs) of
$395,207,000
were partially used to fund the March 30, 2015 purchase, via tender offer, of
$127,303,000
principal amount (
32%
) of the
7.00%
notes due
2018
. The March 2015 debt purchase cost
$145,899,000
, including an
$18,140,000
premium above the principal amount of the notes and transaction costs of
$456,000
. The premium primarily reflects the trading price of the notes relative to par prior to the tender offer commencement. Additionally, we recognized
$3,138,000
of net noncash expense associated with the acceleration of a proportional amount of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined first quarter 2015 charge of
$21,734,000
was
a component of interest expense for the nine month
s
ended September 30, 2015.
The remaining net proceeds from the March 2015 debt issuance, together with cash on hand and borrowings under our line of credit, funded: (1) the April 2015 redemption of
$218,633,000
principal amount (
100%
) of the
6.40%
notes due
2017
, (2) the April 2015 redemption of
$125,001,000
principal amount (
100%
) of the
6.50%
notes due
2016
and (3) the April 2015 purchase, via the tender offer commenced in March 2015 of
$185,000
principal amount (less than
1%
) of the
7.00%
notes due
2018
. The April 2015 debt purchases cost
$385,024,000
, including a
$41,153,000
premium above the principal amount of the notes and transaction costs of
$52,000
. The premium primarily reflects the make-whole value of the 2016 notes and the 2017 notes. Additionally, we recognized
$4,136,000
of net noncash expense associated with the acceleration of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined second quarter 2015 charge of
$45,341,000
was a component of interest expense for the nine month
s
ended September 30, 2015.
STANDBY LETTERS OF CREDIT
We provide, in the normal course of business, certain third-party beneficiaries with standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of
one
year, typically renew automatically, and can only be modified or cancelled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our
$750,000,000
line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of September 30, 2016 are summarized by purpose in the table below:
|
|
|
|
|
|
in thousands
|
|
|
Standby Letters of Credit
|
|
|
Risk management insurance
|
$ 34,111
|
|
Reclamation/restoration requirements
|
5,729
|
|
Total
|
$ 39,840
|
|
Note 8: Commitments and Contingencies
As summarized by purpose directly above in Note 7, our standby letters of credit totaled
$
39,840,000
as of
September
30, 2016.
As described in Note 9, our asset retirement obligations totaled
$
214,686,000
as of September 30, 2016.
LITIGATION AND ENVIRONMENTAL MATTERS
We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally, we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party's share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.
We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period.
We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels.
In addition to these lawsuits in which we are involved in the ordinary course of business, other material legal proceedings are more specifically described below.
|
§
|
|
Lower Passaic River Study Area (Superfund Site)
— The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the Cooperating Parties Group) to a May 2007 Administrative Order on Consent (AOC) with the EPA to perform a Remedial Investigation/Feasibility Study (draft RI/FS) of the lower 17 miles of the Passaic River (River). However, before the draft RI/FS was issued in final form, the EPA issued a record of decision (ROD) in March 2016 that calls for a bank-to-bank dredging remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is $1.38 billion.
In September 2016, t
he EPA entered into an Administrative Settlement Agreement and Order on Consent with Occidental Chemical Corporation (Occidental) in which Occidental agreed to undertake
the remedial design for
this bank-to-bank dredging remedy, and to reimburse the United States for certain response costs.
|
Efforts to remediate the River have been underway for many years and have involved hundreds of entities that have had operations on or near the River at some point during the past several decades.
Vulcan formerly owned a chemicals operation near the mouth of the River, which was sold in 1974. The major risk drivers in the River have been identified as dioxins, PCBs, DDx and mercury. Vulcan did not manufacture any of these risk drivers and has no evidence that any of these were discharged into the River by Vulcan.
The AOC does not obligate us to fund or perform the remedial action contemplated by either the draft RI/FS or the ROD. Furthermore, the parties who will participate in funding the remediation and their respective allocations, have not been determined. Vulcan does not agree that a bank-to-bank remedy is warranted, and Vulcan is not obligated to fund any of the remedial action at this time; nevertheless, we previously estimated the cost to be incurred by
us
as a potential participant in
a bank-to-bank dredging remedy and recorded an immaterial loss for this matter in 2015.
|
§
|
|
TEXAS BRINE MATTER — During the operation of its former Chemicals Division, Vulcan was the lessee to a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company (Texas Brine) operated this salt mine for the account of Vulcan. Vulcan sold its Chemicals Division in 2005 and assigned the lease to the purchaser, and Vulcan has had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed near the salt dome and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in August 2012 in federal court in the Eastern District of Louisiana in New Orleans.
|
There
are numerous defendants to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 b
y T
exas Bri
ne
. Vulcan has since been added as a direct and third-party defendant by other parties, including a direct claim by the
s
tate of Louisian
a. The d
amages alleged in the litigation range from individual plaintiffs’ claims for property damage, to the
s
tate of Louisiana’s claim for response costs, to claims for physical damages to oil pipelines, to business interruption claims
. In addition to the plaintiffs’ claims, Vulcan has also been sued for contractual indemnity and comparative fault by both Texas Brine and
Occidental
.
The total amount of damages claimed is in excess of
$500
million.
It is alleged that the sinkhole was caused, in whole or in part, by Vulcan’s negligent actions or failure to act. It is also alleged that Vulcan breached the salt lease, as well as an operating agreement
and a drilling agreement
with Texas Brin
e; that Vulcan is strictly liable for certain property damages in its capacity as a former assignee of the salt lease; and that Vulcan violated certain covenants and conditions in the agreement under which it sold its Chemicals Division in 2005. Vulcan has made claims for contractual indemnity, comparative fault, and breach of contract against Texas Brine, as well as claims for contractual indemnity and comparative fault against Occidental. Discovery is ongoing and the first trial date in any of these cases has been set for March 2017.
At this time, w
e cannot reasonably estimate
a range of
liability
pertaining
to this matter.
|
§
|
|
HEWITT LANDFILL MATTER
(SUPERFUND SITE)
— In September 2015, the Los Angeles Regional Water Quality Control Board (RWQCB) issued a Cleanup and Abatement Order (CAO) directing Vulcan to assess, monitor, cleanup and abate wastes that have been discharged to soil, soil vapor, and/or groundwater at the former Hewitt Landfill in Los Angeles. The CAO follows a 2014 Investigative Order from the RWQCB that sought data and a technical evaluation regarding the Hewitt Landfill, and a subsequent amendment to the Investigative Order requiring Vulcan to provide groundwater monitoring results to the RWQCB and to create and implement a work plan for further investigation of the Hewitt Landfill. In April 2016, Vulcan submitted an interim remedial action plan (IRAP) to the RWQCB, proposing a pilot test of a pump and treat system; testing and implementation of a leachate recovery system; and storm water capture and conveyance improvements. Until this pilot testing and additional investigative work is complete, we are unable to estimate the cost of remedial action.
|
Vulcan is
also
engaged in an ongoing dialogue with the
EPA
, the Los Angeles Department of Water and Power, and other stakeholders regarding
the potential contribution of the Hewitt Landfill to
groundwater contamination in the
North Hollywood Operable Unit (NHOU) of the
San Fernando Valle
y Superfund Site. W
e are gathering and analyzing data and deve
loping techni
cal information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other
PRPs that may have contributed to groundwater contamination in the area
.
In July 2016, the EPA sent a letter to Vulcan requesting that we enter into an AOC for remedial design work at the NHOU including, but not limited to, the design of
two
or more
groundwater extraction wells
to be located
south of
the Hewitt Landfil
l.
I
n
September 2016, Vulcan sent a letter to the EPA agreeing to negotiate an AOC and develop a remedial design.
T
he estimated costs to develop the remedial design were
immaterial and
accrued in the third quarter
, and w
e
expect negotiation of the AOC to begin
in the fourth quarter of 201
6.
It is not possible to predict with certainty the ultimate outcome of these and other legal proceedings in which we are involved, and a number of factors, including developments in ongoing discovery or adverse rulings, or the verdict of a particular jury, could cause actual losses to differ materially from accrued costs.
No
liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. Legal costs incurred in defense of lawsuits are expensed as incurred. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described in our most recent Annual Report on Form 10-K.
Note 9: Asset Retirement Obligations
Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.
Recognition of a liability for an ARO is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the ARO is settled for something other than the carrying amount of the liability, we recognize a gain or loss on settlement.
We record all AROs for which we have legal obligations for land reclamation at estimated fair value. Essentially all these AROs relate to our underlying land parcels, including both owned properties and mineral leases. For the three and nine month periods ended September 30, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
ARO Operating Costs
|
|
|
|
|
|
|
|
|
|
|
|
Accretion
|
$ 2,692
|
|
|
$ 2,766
|
|
|
$ 8,163
|
|
|
$ 8,553
|
|
Depreciation
|
1,469
|
|
|
1,681
|
|
|
4,783
|
|
|
4,683
|
|
Total
|
$ 4,161
|
|
|
$ 4,447
|
|
|
$ 12,946
|
|
|
$ 13,236
|
|
ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.
Reconciliations of the carrying amounts of our AROs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Asset Retirement Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$ 217,043
|
|
|
$ 234,919
|
|
|
$ 226,594
|
|
|
$ 226,565
|
|
Liabilities incurred
|
0
|
|
|
0
|
|
|
505
|
|
|
6,159
|
|
Liabilities settled
|
(3,937)
|
|
|
(5,318)
|
|
|
(14,256)
|
|
|
(13,318)
|
|
Accretion expense
|
2,692
|
|
|
2,766
|
|
|
8,163
|
|
|
8,553
|
|
Revisions, net
|
(1,112)
|
|
|
2,313
|
|
|
(6,320)
|
|
|
6,721
|
|
Balance at end of period
|
$ 214,686
|
|
|
$ 234,680
|
|
|
$ 214,686
|
|
|
$ 234,680
|
|
The liabilities incurred
for 2015
noted above relate to the acquisition
s
in Arizona and New Mexico as described in Note 16.
T
he net revisions relate to revised cost estimates and spending patterns for several quarries located primarily in California.
Note 10: Benefit Plans
We sponsor
three
qualified
, noncontributory defined benefit pension plans. These plans cover substantially all employees hired prior to July 2007, other than those covered by union-administered plans. Normal retirement age is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried Plan and the Chemicals Hourly Plan are generally based on salaries or wages and years of service; the Construction Materials Hourly Plan provides benefits equal to a flat dollar amount for each year of service. In addition to these qualified plans, we sponsor
three
unfunded, nonqualified pension plans.
Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. In December 2013, we amended our defined benefit pension plans so that future service accruals for salaried pension participants ceased effective December 31, 2013. This change included a special transition provision which allowed covered compensation through December 31, 2015 to be considered in the participants’ benefit calculations.
The following table sets forth the components of net periodic pension benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PENSION BENEFITS
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$ 1,335
|
|
|
$ 1,213
|
|
|
$ 4,007
|
|
|
$ 3,638
|
|
Interest cost
|
9,127
|
|
|
11,004
|
|
|
27,379
|
|
|
33,077
|
|
Expected return on plan assets
|
(12,891)
|
|
|
(13,683)
|
|
|
(38,672)
|
|
|
(41,051)
|
|
Settlement charge
|
0
|
|
|
2,031
|
|
|
0
|
|
|
2,031
|
|
Amortization of prior service cost (credit)
|
(11)
|
|
|
12
|
|
|
(32)
|
|
|
36
|
|
Amortization of actuarial loss
|
1,540
|
|
|
5,383
|
|
|
4,622
|
|
|
16,292
|
|
Net periodic pension benefit cost (credit)
|
$ (900)
|
|
|
$ 5,960
|
|
|
$ (2,696)
|
|
|
$ 14,023
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
|
|
|
|
|
|
net periodic pension benefit cost
|
$ 1,529
|
|
|
$ 7,426
|
|
|
$ 4,590
|
|
|
$ 18,359
|
|
The 2015 settlement charge noted above relates to a lump sum payment to a former employee from the nonqualified plan. Thi
s c
harge is reflected within both cost of revenues, and selling, administrative and general expenses in our accompanying Condensed Consolidated Statement
s
of Comprehensive Income for the three and nine months ended September 30, 2015.
The contributions to pension plans for the nine months ended September 30, 2016 and 2015, as reflected on the Condensed Consolidated Statements of Cash Flows, pertain to benefit payments under the nonqualified plans.
We do not expect to be required to make
contributions to the qualified plans through 2017.
In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. Substantially all of our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, Company-provided healthcare benefits terminate when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age
65
, whichever occurs first.
The following table sets forth the components of net periodic postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER POSTRETIREMENT BENEFITS
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$ 281
|
|
|
$ 473
|
|
|
$ 842
|
|
|
$ 1,420
|
|
Interest cost
|
302
|
|
|
621
|
|
|
907
|
|
|
1,864
|
|
Amortization of prior service credit
|
(1,059)
|
|
|
(1,058)
|
|
|
(3,177)
|
|
|
(3,174)
|
|
Amortization of actuarial (gain) loss
|
(438)
|
|
|
9
|
|
|
(1,313)
|
|
|
28
|
|
Net periodic postretirement benefit cost (credit)
|
$ (914)
|
|
|
$ 45
|
|
|
$ (2,741)
|
|
|
$ 138
|
|
Pretax reclassifications from AOCI included in
|
|
|
|
|
|
|
|
|
|
|
|
net periodic postretirement benefit credit
|
$ (1,497)
|
|
|
$ (1,049)
|
|
|
$ (4,490)
|
|
|
$ (3,146)
|
|
Note 11: other Comprehensive Income
Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.
Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30
|
|
|
December 31
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2015
|
|
AOCI
|
|
|
|
|
|
|
|
|
Cash flow hedges
|
$ (13,592)
|
|
|
$ (14,494)
|
|
|
$ (14,715)
|
|
Pension and postretirement plans
|
(105,514)
|
|
|
(105,575)
|
|
|
(132,131)
|
|
Total
|
$ (119,106)
|
|
|
$ (120,069)
|
|
|
$ (146,846)
|
|
Changes in AOCI, net of tax, for the
nine
months ended
September
30, 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
|
|
|
|
|
|
Cash Flow
|
|
|
Postretirement
|
|
|
|
|
in thousands
|
Hedges
|
|
|
Benefit Plans
|
|
|
Total
|
|
AOCI
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
$ (14,494)
|
|
|
$ (105,575)
|
|
|
$ (120,069)
|
|
Amounts reclassified from AOCI
|
902
|
|
|
61
|
|
|
963
|
|
Net current period OCI changes
|
902
|
|
|
61
|
|
|
963
|
|
Balance as of September 30, 2016
|
$ (13,592)
|
|
|
$ (105,514)
|
|
|
$ (119,106)
|
|
Amounts reclassified from AOCI to earnings, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Reclassification Adjustment for Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Losses
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$ 507
|
|
|
$ 467
|
|
|
$ 1,490
|
|
|
$ 9,282
|
|
Benefit from income taxes
|
(200)
|
|
|
(185)
|
|
|
(588)
|
|
|
(3,675)
|
|
Total
1
|
$ 307
|
|
|
$ 282
|
|
|
$ 902
|
|
|
$ 5,607
|
|
Amortization of Pension and Postretirement
|
|
|
|
|
|
|
|
|
|
|
|
Plan Actuarial Loss and Prior Service Cost
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
$ 27
|
|
|
$ 5,242
|
|
|
$ 82
|
|
|
$ 12,417
|
|
Selling, administrative and general expenses
|
6
|
|
|
1,136
|
|
|
18
|
|
|
2,796
|
|
Benefit from income taxes
|
(13)
|
|
|
(2,495)
|
|
|
(39)
|
|
|
(5,952)
|
|
Total
2
|
$ 20
|
|
|
$ 3,883
|
|
|
$ 61
|
|
|
$ 9,261
|
|
Total reclassifications from AOCI to earnings
|
$ 327
|
|
|
$ 4,165
|
|
|
$ 963
|
|
|
$ 14,868
|
|
|
|
1
|
Total for nine months ended September 30, 2015 includes the acceleration of a proportional amount of deferred losses on interest rate derivatives (see Note 6) referable to debt purchases (see Note 7).
|
2
|
Totals for
the three and
nine months ended September 30, 2015 include a one-time settlement loss resulting from a lump sum payment to a former employee (see Note 10).
|
Note 12: Equity
Our capital stock consists solely of common stock, par value
$1.00
per share. Holders of our common stock are entitled to one vote per share. Our Certificate of Incorporation also authorizes preferred stock of which
no
shares have been issued. The terms and provisions of such shares will be determined by our Board of Directors upon any issuance of preferred shares in accordance with our Certificate of Incorporation.
Changes in total equity are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
September 30
|
|
in thousands
|
|
|
|
2016
|
|
|
2015
|
|
Total Equity
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
$ 4,454,188
|
|
|
$ 4,176,699
|
|
Net earnings
|
|
|
282,439
|
|
|
132,289
|
|
Common stock issued
|
|
|
|
|
|
|
|
Share-based compensation, net of shares withheld for taxes
|
|
|
(34,684)
|
|
|
48,329
|
|
Purchase and retirement of common stock
|
|
|
(161,463)
|
|
|
0
|
|
Share-based compensation expense
|
|
|
15,645
|
|
|
14,020
|
|
Excess tax benefits from share-based compensation
|
|
|
26,747
|
|
|
16,950
|
|
Cash dividends on common stock ($0.60/$0.30 per share)
|
|
|
(79,865)
|
|
|
(39,878)
|
|
Other comprehensive income
|
|
|
963
|
|
|
14,868
|
|
Other
|
|
|
0
|
|
|
0
|
|
Balance at end of period
|
|
|
$ 4,503,970
|
|
|
$ 4,363,277
|
|
There were
no
shares held in treasury as of September 30, 2016, December 31, 2015 and September 30, 2015. Stock purchases were as follows:
|
§
|
|
nine months ended September 30, 2016 – purchased and retired
1,426,659
shares for a cost of
$161,463,000
|
|
§
|
|
twelve months ended December 31, 2015 – purchased and retired
228,000
shares for a cost of
$21,475,000
|
|
§
|
|
nine months ended September 30, 2015 –
no
shares were purchased
|
As of September 30, 2016,
1,756,757
shares may b
e p
urchased under the current purchase authorization of our Board of Directors.
Note 13: Segment Reporting
We have
four
operating (and
reportable
) segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Intersegment sales are made at local market prices for the particular grade and quality of product utilized in the production of asphalt mix and ready-mixed concrete. Management reviews earnings from the product line reporting segments principally at the gross profit level.
segment financial disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Total Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
1
|
$ 821,809
|
|
|
$ 830,783
|
|
|
$ 2,248,174
|
|
|
$ 2,067,671
|
|
Asphalt Mix
|
157,406
|
|
|
178,865
|
|
|
388,560
|
|
|
410,934
|
|
Concrete
|
91,147
|
|
|
88,013
|
|
|
242,790
|
|
|
226,400
|
|
Calcium
|
2,373
|
|
|
2,202
|
|
|
6,732
|
|
|
6,453
|
|
Segment sales
|
$ 1,072,735
|
|
|
$ 1,099,863
|
|
|
$ 2,886,256
|
|
|
$ 2,711,458
|
|
Aggregates intersegment sales
|
(64,595)
|
|
|
(61,403)
|
|
|
(166,563)
|
|
|
(146,562)
|
|
Total revenues
|
$ 1,008,140
|
|
|
$ 1,038,460
|
|
|
$ 2,719,693
|
|
|
$ 2,564,896
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
$ 261,762
|
|
|
$ 250,866
|
|
|
$ 664,154
|
|
|
$ 525,816
|
|
Asphalt Mix
|
32,889
|
|
|
30,020
|
|
|
76,028
|
|
|
59,973
|
|
Concrete
|
8,711
|
|
|
9,578
|
|
|
18,334
|
|
|
15,280
|
|
Calcium
|
847
|
|
|
826
|
|
|
2,596
|
|
|
2,535
|
|
Total
|
$ 304,209
|
|
|
$ 291,290
|
|
|
$ 761,112
|
|
|
$ 603,604
|
|
Depreciation, Depletion, Accretion
|
|
|
|
|
|
|
|
|
|
|
|
and Amortization (DDA&A)
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
$ 60,204
|
|
|
$ 57,732
|
|
|
$ 177,129
|
|
|
$ 170,251
|
|
Asphalt Mix
|
4,100
|
|
|
4,124
|
|
|
12,468
|
|
|
12,131
|
|
Concrete
|
3,072
|
|
|
2,955
|
|
|
9,141
|
|
|
8,457
|
|
Calcium
|
198
|
|
|
170
|
|
|
577
|
|
|
496
|
|
Other
|
4,475
|
|
|
4,681
|
|
|
14,047
|
|
|
13,435
|
|
Total
|
$ 72,049
|
|
|
$ 69,662
|
|
|
$ 213,362
|
|
|
$ 204,770
|
|
Identifiable Assets
2
|
|
|
|
|
|
|
|
|
|
|
|
Aggregates
|
|
|
|
|
|
|
$ 7,671,222
|
|
|
$ 7,533,172
|
|
Asphalt Mix
|
|
|
|
|
|
|
243,909
|
|
|
315,003
|
|
Concrete
|
|
|
|
|
|
|
188,169
|
|
|
188,331
|
|
Calcium
|
|
|
|
|
|
|
5,392
|
|
|
5,615
|
|
Total identifiable assets
|
|
|
|
|
|
|
$ 8,108,692
|
|
|
$ 8,042,121
|
|
General corporate assets
|
|
|
|
|
|
|
114,028
|
|
|
106,064
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
135,365
|
|
|
168,681
|
|
Total
|
|
|
|
|
|
|
$ 8,358,085
|
|
|
$ 8,316,866
|
|
|
|
1
|
Includes crushed stone, sand and gravel, sand, other aggregates, as well as freight, delivery and transportation revenues, and other revenues related to services.
|
2
|
Certain temporarily idled assets are included within a segment's Identifiable Assets but the associated DDA&A is shown within Other in the DDA&A section above as the related DDA&A is excluded from segment gross profit.
|
Note 14: Supplemental Cash Flow Information
Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30
|
|
in thousands
|
2016
|
|
|
2015
|
|
Cash Payments
|
|
|
|
|
|
Interest (exclusive of amount capitalized)
|
$ 69,865
|
|
|
$ 136,123
|
|
Income taxes
|
92,397
|
|
|
46,271
|
|
Noncash Investing and Financing Activities
|
|
|
|
|
|
Accrued liabilities for purchases of property, plant & equipment
|
$ 10,493
|
|
|
$ 11,941
|
|
Amounts referable to business acquisitions
|
|
|
|
|
|
Liabilities assumed
|
0
|
|
|
2,645
|
|
Fair value of noncash assets and liabilities exchanged
|
0
|
|
|
20,000
|
|
Note 15: Goodwill
Goodwill is recognized when the consideration
paid
for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. There were
no
charges for goodwill impairment in the
nine
month periods ended
September
30, 2016 and 2015.
We have
four
reportable segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. Changes in the carrying amount of goodwill by reportable segment from December 31, 2015 to
September
30, 2016 are summarized below:
GOODWILL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Aggregates
|
|
|
Asphalt Mix
|
|
|
Concrete
|
|
|
Calcium
|
|
|
Total
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as of December 31, 2015
|
$ 3,003,191
|
|
|
$ 91,633
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 3,094,824
|
|
Goodwill of acquired businesses
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Goodwill of divested businesses
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total as of September 30, 2016
|
$ 3,003,191
|
|
|
$ 91,633
|
|
|
$ 0
|
|
|
$ 0
|
|
|
$ 3,094,824
|
|
We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.
Note 16: Acquisitions and Divestitures
ACQUISITIONS
Through the
nine
months
ended
September
30
, 2016, we purchased the
following for
$
1,611,000
of cash consideration:
|
§
|
|
assets of a trucking business to complement our aggregates logistics and distribution activities
|
For the full year 2015, we purchased the following for total consideration of
$47,198,000
(
$27,198,000
cash and
$20,000,000
exchanges of real property and businesses (twelve California ready-mixed concrete operations)):
|
§
|
|
one
aggregates facility in Tennessee
|
|
§
|
|
three
aggregates facilities and
seven
ready-mixed concrete operations in Arizona and New Mexico
|
|
§
|
|
thirteen
asphalt mix
operations
, primarily in Arizona
|
O
n September 30, 2016
,
we funded a $19,500,000 acquisition that closed on Saturday, October 1, 2016. This payment is
reflected
in
prepaid assets in our Condensed Consolidated Balance Sheet as of September 30, 2016.
DIVESTITURES AND PENDING DIVESTITURES
As noted above, in 2015 (first quarter), we exchanged
twelve
ready-mixed concrete operations in California (representing all of our California concrete operations) for thirteen asphalt mix plants (primarily in Arizona) resulting in a pretax gain of
$5,886,000
.
No
assets met the criteria for held for sale at
September
30
, 20
16
, December 31, 2015 or
September
30
, 2015.
Note 17: New Accounting Standards
ACCOUNTING STANDARDS RECENTLY ADOPTED
NET ASSET VALUE PER SHARE INVESTMENTS
During the first quarter of 2016
, we adopted A
ccounting
S
tandards
U
pdate (ASU)
201
5
-
07
, “
Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)
.” This ASU
removed the requirement to categorize investments within the fair value hierarchy when their fair value is measured using the net asset value per share practical expedient.
This ASU also removed the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient.
The impact of this standard is limited to
o
ur annual
pension plan fair value disclosures
.
ACCOUNTING STANDARDS PENDING ADOPTION
C
ASH FLOW CLASSIFICATION In August 2016, the
Financial Accounting Standards Board
(FASB) issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU adds or clarifies guidance on eight specific cash flow issues
.
ASU 2016-15 is effective for annual reporting periods beginning after
December 15, 2017,
and interim reporting periods within those annual reporting periods. Early adoption is permitted.
We
do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
CREDIT LOSSES In June 2016, the
F
A
SB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of
financial instruments. The new guidance
estimates credit losses
based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration.
ASU 2016-13
is effective for annual reporting periods beginning after
December 15, 201
9
, and interim reporting periods within those annual reporting periods. Early adoption is permitted
for annual reporting periods beginning after December 15, 2018
.
While w
e are
still
evaluating the impact
of ASU 2016-13, we do not expect
the adoption of this standard
to
have
a material impact
on our consolidated financial statements.
SHARE-BASED PAYMENTS In March 2016, the FASB issued ASU 2016-09, “Improvement to Employee Share-Based Payment Accounting,” which amends several aspects of the accounting for employee share-based payment transactions.
Most significantly, e
ntities will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled (i.e., the use of APIC pools will be eliminated). Additionally, the guidance
requires cash paid for shares withheld (
to satisfy the employer’s statutory income tax withholding obligation
) to be presented as a financing activity in the statement of cash flows
. This ASU is effective for annual reporting periods beginning after
December 15, 2016
, and interim reporting periods within those annual reporting periods. Early adoption is permitted.
While we are still quantifying the impact of ASU 2016-09, we expect that the elimination of APIC pools will significantly impact our provision for income taxes. Likewise, we expect the requirement to classify
cash paid for shares withheld
as a financing activity will significantly impact our operating and financing cash flows.
LEASE ACCOUNTING
In February 2016, the
FASB
issued ASU 2016-02, “Leases,” which amends existing accounting standards for lease accounting and adds additional disclosures about leasing arrangements.
Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement
and presentation of cash flow in the statement of cash flows
.
This ASU is effective for annual reporting periods
beginning
after December 15, 201
8
,
and
interim reporting periods
within those annual reporting periods
. Early adoption is permitted
and modified retrospective application is required.
We are currently evaluating the impact that the adoption of this standard will have on our consolidated financial statements and related disclosures.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of current guidance on the recognition, measurement and disclosure of financial instruments. Among other changes, this ASU requires most equity investments be measured at fair value. Additionally, the ASU eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value for instruments not recognized at fair value in our financial statements. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitte
d. W
e do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
INVENTORY MEASUREMENT In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market principle to the lower of cost and net realizable value principle. The guidance applies to inventories that are measured using the first-in, first-out (FIFO) or average cost method, but does not apply to inventories that are measured using the last-in, first-out (LIFO) or retail inventory method. We use the LIFO method for approximately
67
%
of our inventory (based on the December 31, 201
5
balances); therefore, this ASU will not apply to the majority of our inventory. This ASU is effective prospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual reporting
periods. We
will adopt this standard as of and for the interim period ending March 31, 2017. While we are still evaluating the impact of ASU 2015-11, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
GOING CONCERN In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern (meet its obligations as they become due) within one year after the date that the financial statements are issued. If conditions or events raise substantial doubt about the entity’s ability to continue as a going concern, certain disclosures are required. This ASU is effective for annual reporting periods ending after December 15, 2016, and interim reporting periods
thereafter. We
do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
REVENUE RECOGNITION In May 2014, the FASB issued ASU
2014-09, “Revenue From Contracts With Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU provides a more robust framework for addressing revenue issues and expands required revenue recognition disclosures.
In March 2016
, the FASB issued ASU 2016-08,
“
Revenue From Contracts With Customers: Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” which amends the principal versus agent guidance in ASU 2014-09. The amendments in ASU 2016-08 provide guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. These
ASU
s
are
effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
Further, in applying these ASUs an entity is permitted to use either the full retrospective or cumulative effect transition approach.
We are currently evaluating the impact of adoption of this
standard
on our consolidated financial statements
and determining our transition method
.
ITEM 2