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EX-10.(BB) - EX-10.(BB) - Vulcan Materials COvmc-20160630xex10_bb.htm
EX-10.(AA) - EX-10.(AA) - Vulcan Materials COvmc-20160630xex10_aa.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549



FORM 10-Q

(Mark One)

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


For the quarterly period ended June 30, 2016


OR

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



For the transition period from                 to

Commission File Number 001-33841



VULCAN MATERIALS COMPANY
(Exact name of registrant as specified in its charter)





 

 




New Jersey
(State or other jurisdiction of incorporation)


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


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


35242
(zip code)


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



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Yes No

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

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


Large accelerated filer


Accelerated filer 


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


Smaller reporting company


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


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



                  Class                  

Common Stock, $1 Par Value

 

Shares outstanding
      at July 29, 2016      

133,071,629

 



 

 

 

 

 



 


 







 

 

 



VULCAN MATERIALS COMPANY

 

FORM 10-Q

QUARTER ENDED JUNE 30, 2016

 

Contents





 

 

 



 

 

Page

PART I

FINANCIAL INFORMATION

 



Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

 

 

 2

 3

 4

 5



Item 2.

Management’s Discussion and Analysis of Financial

   Condition and Results of Operations

 

 

24



Item 3.

Quantitative and Qualitative Disclosures About

   Market Risk

 

 

42



Item 4.

Controls and Procedures

42



 

 

PART II

OTHER INFORMATION

 



Item 1.

Legal Proceedings

43



Item 1A.

Risk Factors

43



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

43



Item 4.

Mine Safety Disclosures

43



Item 6.

Exhibits

44



 

 

Signatures

 

 

45



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





 

 

1

 


 







part I   financial information

ITEM 1

FINANCIAL STATEMENTS

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES



CONDENSED CONSOLIDATED BALANCE SHEETS





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Unaudited, except for December 31

June 30

 

 

December 31

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

 

2015 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

$         91,902 

 

 

$       284,060 

 

 

$         74,736 

 

Restricted cash

 

 

1,150 

 

 

 

Accounts and notes receivable

 

 

 

 

 

 

 

 

  Accounts and notes receivable, gross

537,127 

 

 

423,600 

 

 

495,781 

 

  Less: Allowance for doubtful accounts

(4,332)

 

 

(5,576)

 

 

(5,370)

 

   Accounts and notes receivable, net

532,795 

 

 

418,024 

 

 

490,411 

 

Inventories

 

 

 

 

 

 

 

 

  Finished products

295,405 

 

 

297,925 

 

 

292,932 

 

  Raw materials

25,366 

 

 

21,765 

 

 

21,610 

 

  Products in process

2,223 

 

 

1,008 

 

 

1,461 

 

  Operating supplies and other

24,872 

 

 

26,375 

 

 

25,825 

 

   Inventories

347,866 

 

 

347,073 

 

 

341,828 

 

Current deferred income taxes

 

 

 

 

39,562 

 

Prepaid expenses

50,844 

 

 

34,284 

 

 

75,663 

 

Total current assets

1,023,407 

 

 

1,084,591 

 

 

1,022,200 

 

Investments and long-term receivables

38,924 

 

 

40,558 

 

 

41,603 

 

Property, plant & equipment

 

 

 

 

 

 

 

 

  Property, plant & equipment, cost

7,052,051 

 

 

6,891,287 

 

 

6,752,916 

 

  Reserve for depreciation, depletion & amortization

(3,834,680)

 

 

(3,734,997)

 

 

(3,637,392)

 

   Property, plant & equipment, net

3,217,371 

 

 

3,156,290 

 

 

3,115,524 

 

Goodwill

3,094,824 

 

 

3,094,824 

 

 

3,094,824 

 

Other intangible assets, net

754,341 

 

 

766,579 

 

 

767,995 

 

Other noncurrent assets

161,246 

 

 

158,790 

 

 

153,737 

 

Total assets

$    8,290,113 

 

 

$    8,301,632 

 

 

$    8,195,883 

 

Liabilities

 

 

 

 

 

 

 

 

Current maturities of long-term debt

131 

 

 

130 

 

 

14,124 

 

Short-term debt (line of credit)

 

 

 

 

138,500 

 

Trade payables and accruals

176,476 

 

 

175,729 

 

 

190,904 

 

Other current liabilities

156,071 

 

 

177,620 

 

 

163,112 

 

Total current liabilities

332,678 

 

 

353,479 

 

 

506,640 

 

Long-term debt

1,982,527 

 

 

1,980,334 

 

 

1,893,737 

 

Noncurrent deferred income taxes

683,999 

 

 

681,096 

 

 

686,171 

 

Deferred revenue

203,800 

 

 

207,660 

 

 

211,429 

 

Other noncurrent liabilities

607,778 

 

 

624,875 

 

 

670,949 

 

Total liabilities

$    3,810,782 

 

 

$    3,847,444 

 

 

$    3,968,926 

 

Other commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 Outstanding 133,027,  133,172 and 132,984 shares, respectively

133,027 

 

 

133,172 

 

 

132,984 

 

Capital in excess of par value

2,826,471 

 

 

2,822,578 

 

 

2,791,232 

 

Retained earnings

1,639,267 

 

 

1,618,507 

 

 

1,453,752 

 

Accumulated other comprehensive loss

(119,434)

 

 

(120,069)

 

 

(151,011)

 

Total equity

$    4,479,331 

 

 

$    4,454,188 

 

 

$    4,226,957 

 

Total liabilities and equity

$    8,290,113 

 

 

$    8,301,632 

 

 

$    8,195,883 

 

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

 



2

 


 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES



CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

 

Six Months Ended

 

Unaudited

 

 

 

June 30

 

 

 

 

 

June 30

 

in thousands, except per share data

2016 

 

 

2015 

 

 

2016 

 

 

2015 

 

Total revenues

$       956,825 

 

 

$       895,143 

 

 

$    1,711,552 

 

 

$    1,526,436 

 

Cost of revenues

664,641 

 

 

660,694 

 

 

1,254,649 

 

 

1,214,122 

 

  Gross profit

292,184 

 

 

234,449 

 

 

456,903 

 

 

312,314 

 

Selling, administrative and general expenses

82,681 

 

 

69,197 

 

 

159,149 

 

 

135,960 

 

Gain on sale of property, plant & equipment

 

 

 

 

 

 

 

 

 

 

 

 and businesses

356 

 

 

249 

 

 

911 

 

 

6,624 

 

Business interruption claims recovery

10,962 

 

 

 

 

10,962 

 

 

 

Impairment of long-lived assets

(860)

 

 

(5,190)

 

 

(10,506)

 

 

(5,190)

 

Restructuring charges

 

 

(1,280)

 

 

(320)

 

 

(4,098)

 

Other operating expense, net

(6,175)

 

 

(5,255)

 

 

(20,094)

 

 

(9,156)

 

  Operating earnings

213,786 

 

 

153,776 

 

 

278,707 

 

 

164,534 

 

Other nonoperating income (expense), net

29 

 

 

(439)

 

 

(666)

 

 

542 

 

Interest expense, net

33,333 

 

 

83,651 

 

 

67,065 

 

 

146,132 

 

Earnings from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 before income taxes

180,482 

 

 

69,686 

 

 

210,976 

 

 

18,944 

 

Provision for income taxes

54,200 

 

 

19,867 

 

 

63,964 

 

 

5,791 

 

Earnings from continuing operations

126,282 

 

 

49,819 

 

 

147,012 

 

 

13,153 

 

Loss on discontinued operations, net of tax

(2,532)

 

 

(1,657)

 

 

(4,338)

 

 

(4,669)

 

Net earnings

$       123,750 

 

 

$         48,162 

 

 

$       142,674 

 

 

$           8,484 

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

  Reclassification adjustment for cash flow hedges

301 

 

 

3,077 

 

 

595 

 

 

5,325 

 

  Amortization of actuarial loss and prior service

 

 

 

 

 

 

 

 

 

 

 

    cost for benefit plans

20 

 

 

2,697 

 

 

40 

 

 

5,378 

 

Other comprehensive income

321 

 

 

5,774 

 

 

635 

 

 

10,703 

 

Comprehensive income

$       124,071 

 

 

$         53,936 

 

 

$       143,309 

 

 

$         19,187 

 

Basic earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

  Continuing operations

$             0.95 

 

 

$             0.37 

 

 

$             1.10 

 

 

$             0.10 

 

  Discontinued operations

(0.02)

 

 

(0.01)

 

 

(0.03)

 

 

(0.04)

 

  Net earnings

$             0.93 

 

 

$             0.36 

 

 

$             1.07 

 

 

$             0.06 

 

Diluted earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

  Continuing operations

$             0.93 

 

 

$             0.37 

 

 

$             1.09 

 

 

$             0.10 

 

  Discontinued operations

(0.02)

 

 

(0.01)

 

 

(0.04)

 

 

(0.04)

 

  Net earnings

$             0.91 

 

 

$             0.36 

 

 

$             1.05 

 

 

$             0.06 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

  Basic

133,419 

 

 

133,103 

 

 

133,619 

 

 

132,882 

 

  Assuming dilution

135,395 

 

 

135,234 

 

 

135,370 

 

 

134,689 

 

Cash dividends per share of common stock

$             0.20 

 

 

$             0.10 

 

 

$             0.40 

 

 

$             0.20 

 

Depreciation, depletion, accretion and amortization

$         71,908 

 

 

$         68,384 

 

 

$       141,314 

 

 

$       135,108 

 

Effective tax rate from continuing operations

30.0% 

 

 

28.5% 

 

 

30.3% 

 

 

30.6% 

 

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

 



3

 


 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





 

 

 

 

 



 

 

 

 

 



Six Months Ended

 

Unaudited

 

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

Operating Activities

 

 

 

 

 

Net earnings

$       142,674 

 

 

$           8,484 

 

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

 

 

 

 

 

  Depreciation, depletion, accretion and amortization

141,314 

 

 

135,108 

 

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

(911)

 

 

(6,624)

 

  Contributions to pension plans

(4,737)

 

 

(2,822)

 

  Share-based compensation

10,832 

 

 

9,679 

 

  Excess tax benefits from share-based compensation

(23,749)

 

 

(11,457)

 

  Deferred tax provision (benefit)

2,592 

 

 

(11,656)

 

  Cost of debt purchase

 

 

67,075 

 

  Changes in assets and liabilities before initial effects of business acquisitions

 

 

 

 

 

    and dispositions

(135,024)

 

 

(109,790)

 

Other, net

(30,458)

 

 

(13,360)

 

Net cash provided by operating activities

$       102,533 

 

 

$         64,637 

 

Investing Activities

 

 

 

 

 

Purchases of property, plant & equipment

(199,764)

 

 

(148,721)

 

Proceeds from sale of property, plant & equipment

2,427 

 

 

3,419 

 

Payment for businesses acquired, net of acquired cash

(1,611)

 

 

(21,387)

 

Decrease in restricted cash

1,150 

 

 

 

Other, net

1,862 

 

 

(334)

 

Net cash used for investing activities

$     (195,936)

 

 

$     (167,023)

 

Financing Activities

 

 

 

 

 

Proceeds from line of credit

3,000 

 

 

284,000 

 

Payment of line of credit

(3,000)

 

 

(145,500)

 

Payment of current maturities and long-term debt

(9)

 

 

(530,945)

 

Proceeds from issuance of long-term debt

 

 

400,000 

 

Debt and line of credit issuance costs

 

 

(7,382)

 

Purchases of common stock

(69,156)

 

 

 

Dividends paid

(53,338)

 

 

(26,549)

 

Proceeds from exercise of stock options

 

 

50,769 

 

Excess tax benefits from share-based compensation

23,749 

 

 

11,457 

 

Other, net

(1)

 

 

(1)

 

Net cash provided by (used for) financing activities

$       (98,755)

 

 

$         35,849 

 

Net decrease in cash and cash equivalents

(192,158)

 

 

(66,537)

 

Cash and cash equivalents at beginning of year

284,060 

 

 

141,273 

 

Cash and cash equivalents at end of period

$         91,902 

 

 

$         74,736 

 

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

 











4

 


 

notes to condensed consolidated financial statements



Note 1: summary of significant accounting policies



NATURE OF OPERATIONS



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



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



BASIS OF PRESENTATION



Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Our Condensed Consolidated Balance Sheet as of December 31, 2015 was derived from the audited financial statement, but it does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three and six month periods ended June 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 six months ended June 30, 2016 and June 30, 2015, we incurred $320,000 and $4,098,000, respectively, of costs related to these initiatives. Future related charges for these initiatives are estimated to be immaterial.



5

 


 

EARNINGS PER SHARE (EPS)



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







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

 

Six Months Ended

 



June 30

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

 

2016 

 

 

2015 

 

Weighted-average common shares

 

 

 

 

 

 

 

 

 

 

 

 outstanding

133,419 

 

 

133,103 

 

 

133,619 

 

 

132,882 

 

Dilutive effect of

 

 

 

 

 

 

 

 

 

 

 

  Stock options/SOSARs 1

1,007 

 

 

991 

 

 

940 

 

 

996 

 

  Other stock compensation plans

969 

 

 

1,140 

 

 

811 

 

 

811 

 

Weighted-average common shares

 

 

 

 

 

 

 

 

 

 

 

 outstanding, assuming dilution

135,395 

 

 

135,234 

 

 

135,370 

 

 

134,689 

 





 

Stock-Only Stock Appreciation Rights (SOSARs)



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

 

 

Six Months Ended

 



June 30

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

 

2016 

 

 

2015 

 

Antidilutive common stock equivalents

97 

 

 

556 

 

 

327 

 

 

556 

 

 

 

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

 

 

Six Months Ended

 



June 30

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

 

2016 

 

 

2015 

 

Discontinued Operations

 

 

 

 

 

 

 

 

 

 

 

Pretax loss

$       (4,197)

 

 

$       (2,671)

 

 

$       (7,177)

 

 

$       (7,653)

 

Income tax benefit

1,665 

 

 

1,014 

 

 

2,839 

 

 

2,984 

 

Loss on discontinued operations,

 

 

 

 

 

 

 

 

 

 

 

 net of tax

$       (2,532)

 

 

$       (1,657)

 

 

$       (4,338)

 

 

$       (4,669)

 



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

 

 

6

 


 

Note 3: Income Taxes



Our estimated annual effective tax rate (EAETR) is based on full-year expectations of pretax 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 second quarter of 2016, we recorded income tax expense from continuing operations of $54,200,000 compared to $19,867,000 in the second quarter of 2015. The increase in our income tax expense resulted largely from applying the statutory rate to the increase in our pretax earnings.



For the first six months of 2016, we recorded income tax expense from continuing operations of $63,964,000 compared to $5,791,000 for the first six months of 2015. The increase 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 financial statement’s carrying amounts of assets and liabilities and the amounts used for income tax purposes. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns. 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 second quarter 2016 analysis, we believe it is more likely than not that we will realize the benefit of all our deferred tax assets with the exception of certain state net operating loss carryforwards. For 2016, we project deferred tax assets related to state net operating loss carryforwards of $60,131,000, of which $57,841,000 relates to Alabama. The Alabama net operating loss carryforward, if not utilized, would expire in years 20222029. 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 three 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.

 

 

7

 


 

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

 

 

Six Months Ended

 



June 30

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

 

2016 

 

 

2015 

 

Deferred Revenue

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$     212,292 

 

 

$     218,987 

 

 

$     214,060 

 

 

$     219,968 

 

 Amortization of deferred revenue

(2,092)

 

 

(1,558)

 

 

(3,860)

 

 

(2,539)

 

Balance at end of period

$     210,200 

 

 

$     217,429 

 

 

$     210,200 

 

 

$     217,429 

 



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 June 30, 2017 (reflected in other current liabilities in our 2016 Condensed Consolidated Balance Sheet).

 

 

8

 


 

Note 5: Fair Value Measurements



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



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

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

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



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







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Level 1 Fair Value



June 30

 

 

December 31

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

 

2015 

 

Fair Value

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Mutual funds

$        6,389 

 

 

$      11,472 

 

 

$      14,488 

 

 Equities

7,702 

 

 

8,992 

 

 

12,274 

 

Total

$      14,091 

 

 

$      20,464 

 

 

$      26,762 

 





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Level 2 Fair Value



June 30

 

 

December 31

 

 

June 30

 

in thousands

2016 

 

 

2015 

 

 

2015 

 

Fair Value

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

 Money market mutual fund

$        2,134 

 

 

$        2,124 

 

 

$        1,355 

 

Total

$        2,134 

 

 

$        2,124 

 

 

$        1,355 

 



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 of the Rabbi Trust investments were $535,000 and $184,000 for the six months ended June 30, 2016 and 2015, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at June 30, 2016 and 2015 were $(571,000) and $22,000, respectively.



The year-to-date decrease of $6,363,000 in total Rabbi Trust asset fair values at June 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.



9

 


 

Assets that were subject to fair value measurement on a nonrecurring basis are summarized below:







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Period ending June 30, 2016

 

 

Period ending June 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

 

 

8,180 

 

 

 

 

2,858 

 

Other assets

 

 

967 

 

 

 

 

156 

 

Total

$              0 

 

 

$     10,506 

 

 

$              0 

 

 

$       5,190 

 



We recorded $10,506,000 and $5,190,000 of losses on impairment of long-lived assets for the six months ended June 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

 

 

Six Months Ended

 



Location on

 

June 30

 

 

June 30

 

in thousands

Statement

 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

 

Cash Flow Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss reclassified from AOCI

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 (effective portion)

expense

 

$          (497)

 

 

$       (5,094)

 

 

$          (983)

 

 

$       (8,815)

 



The loss reclassified from AOCI for the six months ended June 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 June 30, 2017, we estimate that $2,092,000 of the pretax loss in AOCI will be reclassified to earnings.



10

 


 

FAIR VALUE HEDGES

In June 2011, we issued $500,000,000 of 6.50% fixed-rate notes due in 2016 to refinance near term floating-rate debt. Concurrently, we entered into interest rate swap agreements in the stated amount of $500,000,000 to reestablish the pre-refinancing mix of fixed- and floating-rate debt. Under these agreements, we paid 6-month London Interbank Offered Rate (LIBOR) plus a spread of 4.05% and received a fixed interest rate of 6.50%. Additionally, in June 2011, we entered into interest rate swap agreements on our $150,000,000 of 10.125% fixed-rate notes due in 2015. Under these agreements, we paid 6-month LIBOR plus a spread of 8.03% and received a fixed interest rate of 10.125%. In August 2011, we terminated and settled these interest rate swap agreements for $25,382,000 of cash proceeds. The $23,387,000 gain component of the settlement (cash proceeds less $1,995,000 of accrued interest) was added to the carrying value of the related debt and was amortized as a reduction to interest expense over the terms of the related debt using the effective interest method.



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







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended

 

 

Six Months Ended

 



 

 

June 30

 

 

June 30

 

in thousands

 

 

2016 

 

 

2015 

 

 

2016 

 

 

2015 

 

Deferred Gain on Settlement

 

 

 

 

 

 

 

 

 

 

 

 

Amortized to earnings as a reduction

 

 

 

 

 

 

 

 

 

 

 

 

 to interest expense

 

$              0 

 

 

$       2,000 

 

 

$              0 

 

 

$       2,513 

 



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 six months ended June 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.

 

 

11

 


 

Note 7: Debt



Debt is detailed as follows:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

Effective

 

June 30

 

 

December 31

 

 

June 30

 

in thousands

Interest Rates

 

2016 

 

 

2015 

 

 

2015 

 

Short-term Debt

 

 

 

 

 

 

 

 

 

 

Bank line of credit expires 2020 1, 2, 3

n/a

 

$                  0 

 

 

$                0 

 

 

$     138,500 

 

Total short-term debt

 

 

$                  0 

 

 

$                0 

 

 

$     138,500 

 

Long-term Debt

 

 

 

 

 

 

 

 

 

 

Bank line of credit expires 2020 1, 2, 3

1.25% 

 

$       235,000 

 

 

$     235,000 

 

 

$                0 

 

10.125% notes due 2015 

n/a

 

 

 

 

 

150,000 

 

6.50% notes due 2016

n/a

 

 

 

 

 

 

6.40% notes due 2017

n/a

 

 

 

 

 

 

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 

 

Industrial revenue bond due 2022

n/a

 

 

 

 

 

14,000 

 

4.50% notes due 2025

4.65% 

 

400,000 

 

 

400,000 

 

 

400,000 

 

7.15% notes due 2037

8.05% 

 

240,188 

 

 

240,188 

 

 

240,188 

 

Other notes 3

6.24% 

 

489 

 

 

498 

 

 

613 

 

Unamortized discounts and debt issuance costs

n/a

 

(21,531)

 

 

(23,734)

 

 

(25,975)

 

Unamortized deferred interest rate swap gain 4

n/a

 

 

 

 

 

523 

 

Total long-term debt including current maturities

 

 

$    1,982,658 

 

 

$  1,980,464 

 

 

$  1,907,861 

 

Less current maturities

 

 

131 

 

 

130 

 

 

14,124 

 

Total long-term debt

 

 

$    1,982,527 

 

 

$  1,980,334 

 

 

$  1,893,737 

 

Total debt 5

 

 

$    1,982,658 

 

 

$  1,980,464 

 

 

$  2,046,361 

 

Estimated fair value of long-term debt

 

 

$    2,272,149 

 

 

$  2,204,816 

 

 

$  2,140,942 

 







 

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

The effective interest rate is the spread over LIBOR as of the most recent balance sheet date.

Non-publicly traded debt.

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

Face value of our debt is equal to total debt less unamortized discounts and debt issuance costs, and unamortized deferred interest rate swap gain, as follows: June 30, 2016$2,004,189 thousand, December 31, 2015$2,004,198 thousand and June 30, 2015$2,071,813 thousand.



Our total debt is presented in the table above net of unamortized discounts from par, unamortized deferred debt issuance costs and unamortized deferred interest rate swap settlement gain. Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $2,203,000 of net interest expense for these items for the six months ended June 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.





12

 


 

LINE OF CREDIT



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



The line of credit agreement expires in June 2020 and contains affirmative, negative and financial covenants customary for an unsecured facility. The primary negative covenant limits our ability to incur secured debt. The financial covenants are: (1) a maximum ratio of debt to EBITDA of 3.5:1, and (2) a minimum ratio of EBITDA to net cash interest expense of 3.0:1. As of June 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 within twelve months and as long-term debt if we have the intent and ability to extend repayment 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 June 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 June 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 $489,000 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 June 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 is presented in the accompanying Condensed Consolidated Statement of Comprehensive Income as a component of interest expense for the six month period ended June 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 three and six month periods ended June 30, 2015.





13

 


 

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 June 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 June 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 the