VULCAN MATERIALS CO, 10-Q filed on 5/3/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 30, 2019
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Trading Symbol VMC  
Entity Registrant Name Vulcan Materials CO  
Entity Central Index Key 0001396009  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   132,092,119
Entity Emerging Growth Company false  
Entity Small Business false  
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Mar. 31, 2018
Assets      
Cash and cash equivalents $ 30,838 $ 40,037 $ 38,141
Restricted cash 270 4,367 8,373
Accounts and notes receivable      
Accounts and notes receivable, gross 563,084 542,868 492,103
Allowance for doubtful accounts (2,554) (2,090) (2,667)
Accounts and notes receivable, net 560,530 540,778 489,436
Inventories      
Finished products 369,743 372,604 340,666
Raw materials 27,951 27,942 29,393
Products in process 4,976 3,064 1,303
Operating supplies and other 26,727 25,720 28,392
Inventories 429,397 429,330 399,754
Other current assets 62,816 64,633 75,495
Total current assets 1,083,851 1,079,145 1,011,199
Investments and long-term receivables 50,952 44,615 35,056
Property, plant & equipment      
Property, plant & equipment, cost 8,559,549 8,457,619 8,116,439
Allowances for depreciation, depletion & amortization (4,284,211) (4,220,312) (4,090,574)
Property, plant & equipment, net 4,275,338 4,237,307 4,025,865
Operating lease right-of-use assets, net 426,381 0 0
Goodwill 3,161,842 3,165,396 3,130,161
Other intangible assets, net 1,085,398 1,095,378 1,060,831
Other noncurrent assets 213,090 210,289 190,099
Total assets 10,296,852 9,832,130 9,453,211
Liabilities      
Current maturities of long-term debt 24 23 22
Short-term debt 178,500 133,000 200,000
Trade payables and accruals 248,119 216,473 188,163
Other current liabilities 232,964 253,054 195,122
Total current liabilities 659,607 602,550 583,307
Long-term debt 2,780,589 2,779,357 2,775,687
Deferred income taxes, net 568,229 567,283 479,430
Deferred revenue 184,744 186,397 190,731
Operating lease liabilities 403,426 0 0
Other noncurrent liabilities 483,048 493,640 510,846
Total liabilities 5,079,643 4,629,227 4,540,001
Other commitments and contingencies (Note 8)
Equity      
Common stock, $1 par value, Authorized 480,000 shares, Outstanding 132,069, 131,762, and 132,290 shares, respectively 132,069 131,762 132,290
Capital in excess of par value 2,789,864 2,798,486 2,787,848
Retained earnings 2,467,201 2,444,870 2,138,885
Accumulated other comprehensive loss (171,925) (172,215) (145,813)
Total equity 5,217,209 5,202,903 4,913,210
Total liabilities and equity $ 10,296,852 $ 9,832,130 $ 9,453,211
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 31, 2019
Dec. 31, 2018
Mar. 31, 2018
CONDENSED CONSOLIDATED BALANCE SHEETS [Abstract]      
Common stock, par value $ 1 $ 1 $ 1
Common stock, shares authorized 480,000,000 480,000,000 480,000,000
Common stock, shares outstanding 132,069,000 131,762,000 132,290,000
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]    
Total revenues [1] $ 996,511 $ 854,474
Cost of revenues 804,836 695,140
Gross profit 191,675 159,334
Selling, administrative and general expenses 90,268 78,340
Gain on sale of property, plant & equipment and businesses 7,297 4,164
Other operating expense, net (4,271) (3,963)
Operating earnings 104,433 81,195
Other nonoperating income, net 3,129 5,071
Interest expense, net 32,934 37,774
Earnings from continuing operations before income taxes 74,628 48,492
Income tax expense (benefit) 10,693 (4,903)
Earnings from continuing operations 63,935 53,395
Loss on discontinued operations, net of tax (636) (416)
Net earnings 63,299 52,979
Other comprehensive income, net of tax    
Deferred gain on interest rate derivative 0 2,496
Amortization of prior interest rate derivative loss 55 66
Amortization of actuarial loss and prior service cost for benefit plans 235 1,091
Other comprehensive income 290 3,653
Comprehensive income $ 63,589 $ 56,632
Basic earnings (loss) per share    
Continuing operations $ 0.48 $ 0.40
Discontinued operations 0.00 0.00
Net earnings 0.48 0.40
Diluted earnings (loss) per share    
Continuing operations 0.48 0.40
Discontinued operations 0.00 (0.01)
Net earnings $ 0.48 $ 0.39
Weighted-average common shares outstanding    
Basic 132,043 132,690
Assuming dilution 133,054 134,359
Depreciation, depletion, accretion and amortization $ 89,181 $ 81,439
Effective tax rate from continuing operations 14.30% (10.10%)
[1] The geographic markets are defined by states/countries as follows:East market - Arkansas, Delaware, Illinois, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and Washington D.C.Gulf Coast market - Alabama, Florida, Georgia, Louisiana, Mexico, Mississippi, Oklahoma, South Carolina, Texas and the BahamasWest market - Arizona, California and New Mexico
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating Activities    
Net earnings $ 63,299 $ 52,979
Adjustments to reconcile net earnings to net cash provided by operating activities    
Depreciation, depletion, accretion and amortization 89,181 81,439
Net gain on sale of property, plant & equipment and businesses (7,297) (4,164)
Contributions to pension plans (2,320) (102,443)
Share-based compensation expense 5,724 6,794
Deferred tax expense (benefit) 774 7,968
Cost of debt purchase 0 6,922
Changes in assets and liabilities before initial effects of business acquisitions and dispositions (45,765) 39,832
Other, net 12,568 3,641
Net cash provided by operating activities 116,164 92,968
Investing Activities    
Purchases of property, plant & equipment (122,019) (128,688)
Proceeds from sale of property, plant & equipment 6,512 1,701
Proceeds from sale of businesses 1,744 11,256
Payment for businesses acquired, net of acquired cash 1,122 (76,259)
Other, net (7,237) (34)
Net cash used for investing activities (119,878) (192,024)
Financing Activities    
Proceeds from short-term debt 196,200 252,000
Payment of short-term debt (150,700) (52,000)
Payment of current maturities and long-term debt (6) (892,038)
Proceeds from issuance of long-term debt 0 850,000
Debt issuance and exchange costs 0 (45,513)
Settlements of interest rate derivatives 0 3,378
Purchases of common stock 0 (55,568)
Dividends paid (40,939) (37,176)
Share-based compensation, shares withheld for taxes (14,137) (24,159)
Net cash used for financing activities (9,582) (1,076)
Net decrease in cash and cash equivalents and restricted cash (13,296) (100,132)
Cash and cash equivalents and restricted cash at beginning of year 44,404 146,646
Cash and cash equivalents and restricted cash at end of period $ 31,108 $ 46,514
v3.19.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 supplier 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 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 Alabama, mid-Atlantic, Southwestern, Tennessee 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 (GAAP) for complete financial statements. We prepared the accompanying condensed consolidated financial statements on the same basis as our annual financial statements, except for the adoption of new accounting standards as described in Note 17. Our Condensed Consolidated Balance Sheet as of December 31, 2018 was derived from the audited financial statement, but it does not include all disclosures required by GAAP. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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 within this Note under the caption Discontinued Operations, 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 to the 2019 presentation.



RESTRICTED CASH



Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements and cash reserved by other contractual agreements (such as asset purchase agreements) for a specified purpose and therefore is not available for use for other purposes. The escrow accounts are administered by an intermediary. Cash restricted pursuant to like-kind exchange agreements remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Restricted cash is included with cash and cash equivalents in the accompanying Condensed Consolidated Statements of Cash Flows.



LEASES



Beginning in 2019 (see ASU 2016-02, “Leases,” as presented in Note 17), our nonmineral leases are recognized on the balance sheet as right-of-use (ROU) assets and lease liabilities. Mineral leases continue to be exempt from balance sheet recognition.



ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. ROU assets are adjusted for any prepaid lease payments and lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.



We elected the following practical expedients: (1) the practical expedient package which permits us to not reassess our prior conclusions about lease identification, lease classification, and initial direct costs; (2) to not separate the lease components from the non-lease components for all leases; (3) to apply a portfolio approach to our railcar and barge leases; (4) to not recognize ROU assets and lease liabilities for all pre-existing land easements not previously accounted for as leases; and (5) to not recognize ROU assets or lease liabilities for our short-term leases, including existing short-term leases of those assets in transition.



For additional information about leases see 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. Results from discontinued operations are as follows:







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31

in thousands

2019

 

 

2018

 

Discontinued Operations

 

 

 

 

 

Pretax loss

$          (638)

 

 

$          (566)

 

Income tax benefit

 

 

150 

 

Loss on discontinued operations,

 

 

 

 

 

  net of tax

$          (636)

 

 

$          (416)

 



Our discontinued operations include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business (including certain matters as discussed in Note 8). There were no revenues from discontinued operations for the periods presented.



EARNINGS PER SHARE (EPS)



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







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31

in thousands

2019

 

 

2018

 

Weighted-average common shares

 

 

 

 

 

  outstanding

132,043 

 

 

132,690 

 

Dilutive effect of

 

 

 

 

 

   Stock-Only Stock Appreciation Rights

742 

 

 

1,132 

 

   Other stock compensation plans

269 

 

 

537 

 

Weighted-average common shares

 

 

 

 

 

  outstanding, assuming dilution

133,054 

 

 

134,359 

 



All dilutive common stock equivalents are reflected 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 would be excluded.



Antidilutive common stock equivalents are not included in our earnings per share calculations. The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31

in thousands

2019

 

 

2018

 

Antidilutive common stock equivalents

220 

 

 

157 

 

 

 

v3.19.1
LEASES
3 Months Ended
Mar. 31, 2019
LEASES [Abstract]  
LEASES

Note 2: Leases



Operating lease-related assets and liabilities (we do not have any material finance leases) reflected on our March 31, 2019 balance sheet and the weighted-average lease term and discount rate are as follows:





 

 

 



 

 

 



 

March 31

 

in thousands

Classification on the Balance Sheet

2019

 

Assets

 

 

Operating lease right-of-use assets

 

$     434,970 

 

Accumulated amortization

 

(8,589)

 

Total lease assets

Operating lease right-of-use assets, net

$     426,381 

 

Liabilities

 

 

Current

 

 

  Operating

Other current liabilities

$       31,255 

 

Noncurrent

 

 

  Operating

Operating lease liabilities

403,426 

 

Total lease liabilities

 

$     434,681 

 

Lease Term and Discount Rate

 

 

Weighted-average remaining lease term (years)

 

 

  Operating leases

10.3 

 

Weighted-average discount rate

 

 

  Operating leases

4.4% 

 



Our portfolio of nonmineral leases is composed almost entirely of operating leases for real estate (including office buildings, aggregates sales yards, and concrete and asphalt sites) and equipment (including railcars and rail track, barges, office equipment and plant equipment).



Our building leases have remaining noncancelable periods of 1 - 30 years, and lease terms (including options to extend) of 1 - 30 years. Key factors in determining the certainty of lease renewals include the location of the building, the value of leasehold improvements and the cost to relocate. Rental payments for certain of our building leases are periodically adjusted for inflation and this variable component is recognized as expense when incurred. Many of our building leases contain common area maintenance charges which we include in the calculation of our lease liability (the lease consideration is not allocated between the lease and non-lease components).



Our aggregates sales yard leases have remaining noncancelable periods of 0 - 13 years, and lease terms of  2 - 80 years. The key factor in determining the certainty of lease renewals is the financial impact of extending the lease, including the reserve life of the sourcing aggregates quarry. Certain aggregates sales yard lease agreements include rental payments based on a percentage of sales over contractual levels or the number of shipments received into the sales yard. Variable payments for these sales yards comprise a majority of the overall variable lease cost presented in the table below.



Our concrete and asphalt site leases have remaining noncancelable periods of 0 - 97 years, and lease terms of  1 - 97 years. The key factor in determining the certainty of lease renewals is the financial impact of extending the lease, including the reserve life of the sourcing aggregates quarry. Rental payments are generally fixed for our concrete and asphalt sites.



Our rail (car and track) leases have remaining noncancelable periods of 0 - 7 years, and lease terms of  2 - 76 years. Key factors in determining the certainty of lease renewals include the market rental rate for comparable assets and, in some cases, the cost incurred to restore the asset. Rental payments are fixed for our rail leases. The majority of our rail leases contain substitution rights that allow the supplier to replace damaged equipment. Because these rights are generally limited to either replacing railcars or moving our placement on rail track for purposes of repair or maintenance, we do not consider these substitution rights to be substantive and have recorded a lease liability and ROU asset for all leased rail.



Our barge leases have remaining noncancelable periods of 2 - 3 years, and lease terms (including options to extend) of 10 - 16 years. Key factors in determining the certainty of lease renewals include the market rental rate for comparable assets and, in some cases, the cost incurred to restore the asset. Rental payments are fixed. Like our rail leases, our barge leases contain non-substantive substitution rights that are limited to replacing barges in need of repair or maintenance.



Office and plant equipment leases have remaining noncancelable periods of 0 - 4 years, and lease terms of  0 - 4 years. The key factor in determining the certainty of lease renewals is the market rental rate for comparable assets. Rental payments are generally fixed for our equipment leases with terms greater than 1 year. The significant majority of our short-term lease cost presented in the table below is derived from office and plant equipment leases with terms of 1 year or less.



Our lease agreements do not contain material residual value guarantees, material restrictive covenants or material termination options.



Lease expense for operating leases is recognized on a straight-line basis over the lease term. The components of nonmineral operating lease expense are as follows:





 

 

 

 

 

 



 

 

 

 

 

 



Three Months Ended



March 31

in thousands

 

 

 

2019

 

Lease cost

 

 

 

 

 

Operating lease cost

 

 

 

$       14,127 

 

Short-term lease cost 1

 

 

 

8,700 

 

Variable lease cost

 

 

 

3,068 

 

Sublease income

 

 

 

(610)

 

Total lease cost

 

 

 

$       25,285 

 





 

We have elected to recognize the cost of leases with an initial term of one month or less within our short-term lease cost.



 



Total nonmineral operating lease expense for the prior year’s three months ended March 31, 2018 was $24,352,000.



Cash paid for operating leases was $13,333,000 for the three months ended March 31, 2019 and was reflected as a reduction to operating cash flows. 



Maturity analysis on an undiscounted basis of our nonmineral lease liabilities as of March 31, 2019 is as follows:





 

 

 



 

 

 



Operating

 

in thousands

Leases

 

Maturity of Lease Liabilities

 

 

2019 (remainder)

$       39,281 

 

2020

49,300 

 

2021

45,607 

 

2022

40,680 

 

2023

36,143 

 

Thereafter

605,516 

 

Total minimum lease payments

$     816,527 

 

Less: Lease payments representing interest

381,846 

 

Present value of future minimum lease payments

$     434,681 

 

Less:  Current obligations under leases

31,255 

 

Long-term lease obligations

$     403,426 

 



Future minimum operating lease payments under leases with initial or remaining noncancelable lease terms in excess of one year, exclusive of mineral leases, as of December 31, 2018 were payable as follows:





 

 



 

 

in thousands

 

 

Future Minimum Operating Lease Payments

 

 

2019

$       47,979 

 

2020

43,540 

 

2021

35,732 

 

2022

27,463 

 

2023

19,707 

 

Thereafter

195,104 

 

Total

$     369,525 

 

 

 

v3.19.1
INCOME TAXES
3 Months Ended
Mar. 31, 2019
INCOME TAXES [Abstract]  
INCOME TAXES

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 first quarter of 2019, we recorded income tax expense from continuing operations of $10,693,000 compared to an income tax benefit from continuing operations of $4,903,000 in the first quarter of 2018. The increase in tax expense is related to an increase in earnings along with a decrease in share-based compensation excess tax benefits.



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 liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns.



Each quarter we analyze the likelihood that our deferred tax assets will be realized. 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. At December 31, 2019, we project state net operating loss carryforward deferred tax assets of $65,787,000 ($63,603,000 relates to Alabama), against which we project to have a valuation allowance of $29,678,000  ($29,183,000 relates to Alabama). The Alabama net operating loss carryforward, if not utilized, would expire in years 20232032.



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, 2018.

 

 

v3.19.1
REVENUES
3 Months Ended
Mar. 31, 2019
REVENUES [Abstract]  
REVENUES

Note 4: revenueS



Revenues are measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect are excluded from revenues. Costs to obtain and fulfill contracts (primarily asphalt construction paving contracts) are immaterial and are expensed as incurred when the expected amortization period is one year or less.



Total revenues are primarily derived from our product sales of aggregates (crushed stone, sand and gravel, sand and other aggregates), asphalt mix and ready-mixed concrete, and include freight & delivery costs that we pass along to our customers to deliver these products. We also generate service revenues from our asphalt construction paving business and service revenues related to our aggregates business, such as landfill tipping fees. Our total service revenues were $34,515,000 and $18,639,000 for the three months ended March 31, 2019 and 2018, respectively.



Our products typically are sold to private industry and not directly to governmental entities. Although approximately 45% to 55% of our aggregates shipments have historically been used in publicly funded construction, such as highways, airports and government buildings, relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly-funded construction, our aggregates business is not directly subject to renegotiation of profits or termination of contracts with state or federal governments.



Our segment total revenues by geographic market for the three month periods ended March 31, 2019 and 2018 are disaggregated as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended March 31, 2019

in thousands

Aggregates

 

 

Asphalt

 

 

Concrete

 

 

Calcium

 

 

Total

 

Total Revenues by Geographic Market 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

East

$     224,902 

 

 

$     18,216 

 

 

$     54,716 

 

 

$              0 

 

 

$      297,834 

 

Gulf Coast

496,633 

 

 

37,053 

 

 

16,505 

 

 

1,951 

 

 

552,142 

 

West

113,430 

 

 

76,821 

 

 

12,416 

 

 

 

 

202,667 

 

Segment sales

$     834,965 

 

 

$   132,090 

 

 

$     83,637 

 

 

$       1,951 

 

 

$   1,052,643 

 

Intersegment sales

(56,132)

 

 

 

 

 

 

 

 

(56,132)

 

Total revenues

$     778,833 

 

 

$   132,090 

 

 

$     83,637 

 

 

$       1,951 

 

 

$      996,511 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended March 31, 2018

in thousands

Aggregates

 

 

Asphalt

 

 

Concrete

 

 

Calcium

 

 

Total

 

Total Revenues by Geographic Market 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

East

$     193,848 

 

 

$     11,729 

 

 

$     61,571 

 

 

$              0 

 

 

$      267,148 

 

Gulf Coast

383,941 

 

 

14,644 

 

 

25,199 

 

 

1,942 

 

 

425,726 

 

West

121,868 

 

 

77,462 

 

 

14,192 

 

 

 

 

213,522 

 

Segment sales

$     699,657 

 

 

$   103,835 

 

 

$   100,962 

 

 

$       1,942 

 

 

$      906,396 

 

Intersegment sales

(51,922)

 

 

 

 

 

 

 

 

(51,922)

 

Total revenues

$     647,735 

 

 

$   103,835 

 

 

$   100,962 

 

 

$       1,942 

 

 

$      854,474 

 





 

1

The geographic markets are defined by states/countries as follows:



 

East market — Arkansas, Delaware, Illinois, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and Washington D.C.

Gulf Coast marketAlabama, Florida, Georgia, Louisiana, Mexico, Mississippi, Oklahoma, South Carolina, Texas and the Bahamas

West market — Arizona, California and New Mexico





PRODUCT REVENUES



Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs at a point in time when our aggregates, asphalt mix and ready-mixed concrete are shipped/delivered and control passes to the customer. Revenue for our products is recorded at the fixed invoice amount and is due by the 15th day of the following monthwe do not offer discounts for early payment. Freight & delivery generally represents pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers and are accounted for as a fulfillment activity. Likewise, the costs related to freight & delivery are included in cost of revenues.



Freight & delivery revenues are as follows:







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31

in thousands

2019

 

 

2018

 

Freight & Delivery Revenues

 

 

 

 

 

Total revenues

$     996,511 

 

 

$     854,474 

 

   Freight & delivery revenues 1

(162,605)

 

 

(129,690)

 

Total revenues excluding freight & delivery

$     833,906 

 

 

$     724,784 

 





 

Includes freight & delivery to remote distribution sites.





CONSTRUCTION PAVING SERVICE REVENUES



Revenue from our asphalt construction paving business is recognized over time using the percentage-of-completion method under the cost approach. The percentage of completion is determined by costs incurred to date as a percentage of total costs estimated for the project. Under this approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Our construction contracts are unit priced and an account receivable is recorded for amounts invoiced based on actual units produced. Contract assets for estimated earnings in excess of billings, contract assets related to retainage provisions and contract liabilities for billings in excess of costs are immaterial. Variable consideration in our construction paving contracts is immaterial and consists of incentives and penalties based on the quality of work performed. Our construction paving contracts may contain warranty provisions covering defects in equipment, materials, design or workmanship that generally run from nine months to one year after project completion. Due to the nature of our construction paving projects, including contract owner inspections of the work during construction and prior to acceptance, we have not experienced material warranty costs for these short-term warranties.





VOLUMETRIC PRODUCTION PAYMENT DEFERRED REVENUES



In 2013 and 2012, we sold a percentage interest in certain future aggregates production for net cash proceeds of $226,926,000. These transactions, structured as volumetric production payments (VPPs):



§

relate to eight quarries in Georgia and South Carolina

§

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

§

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

§

are both volume and time limited (we expect the transactions will last approximately 25 years, limited by volume rather than time)



We are the exclusive sales agent for, and transmit quarterly to the purchaser the proceeds from the sale of, the purchaser’s share of future aggregates production. Our consolidated total revenues exclude the revenue from the sale of the purchaser’s share of aggregates.



The proceeds we received from the sale of the percentage interest were recorded as deferred revenue on the balance sheet. We recognize revenue on a unit-of-sales basis (as we sell the purchaser’s share of future production) relative to the volume limitations of the transactions. Given the nature of the risks and potential rewards assumed by the buyer, the transactions do not reflect financing activities.



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







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31

in thousands

2019

 

 

2018

 

Deferred Revenue

 

 

 

 

 

Balance at beginning of year

$     192,783 

 

 

$     199,556 

 

  Revenue recognized from deferred revenue

(1,652)

 

 

(1,355)

 

Balance at end of period

$     191,131 

 

 

$     198,201 

 



Based on expected sales from the specified quarries, we expect to recognize $7,500,000 of deferred revenue as income during the 12-month period ending March 31, 2020 (reflected in other current liabilities in our March 31, 2019 Condensed Consolidated Balance Sheet).

 

 

v3.19.1
FAIR VALUE MEASUREMENTS
3 Months Ended
Mar. 31, 2019
FAIR VALUE MEASUREMENTS [Abstract]  
FAIR VALUE MEASUREMENTS

Note 5: Fair Value Measurements



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



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

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

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



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







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Level 1 Fair Value



March 31

 

 

December 31

 

 

March 31

 

in thousands

2019

 

 

2018

 

 

2018

 

Fair Value Recurring

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

  Mutual funds

$       20,953 

 

 

$       19,164 

 

 

$       19,412 

 

Total

$       20,953 

 

 

$       19,164 

 

 

$       19,412 

 





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Level 2 Fair Value



March 31

 

 

December 31

 

 

March 31

 

in thousands

2019

 

 

2018

 

 

2018

 

Fair Value Recurring

 

 

 

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

 

 

 

  Money market mutual fund

$           490 

 

 

$        1,015 

 

 

$        2,738 

 

Total

$           490 

 

 

$        1,015 

 

 

$        2,738 

 



We have 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 $1,863,000 and $(776,000)  for the three months ended March 31, 2019 and 2018, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at March 31, 2019 and 2018 were $1,905,000 and $(787,000), respectively.



The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and all 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.

 

 

v3.19.1
DERIVATIVE INSTRUMENTS
3 Months Ended
Mar. 31, 2019
DERIVATIVE INSTRUMENTS [Abstract]  
DERIVATIVE INSTRUMENTS

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 exposure. We do not use derivative instruments for trading or other speculative purposes.



In 2007 and 2018, we entered into interest rate locks of future debt issuances to hedge the risk of higher interest rates. These interest rate locks were designated as cash flow hedges. The gain/loss upon settlement of these interest rate hedges is deferred (recorded in AOCI) and amortized to interest expense over the term of the related debt.



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







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Three Months Ended



Location on

 

March 31

in thousands

Statement

 

2019

 

 

2018

 

Interest Rate Hedges

 

 

 

 

 

 

 

Loss reclassified from AOCI

Interest

 

 

 

 

 

 

  (effective portion)

expense

 

$           (75)

 

 

$           (89)

 



For the 12-month period ending March 31, 2020, we estimate that $314,000 of the pretax loss in AOCI will be reclassified to interest expense.

 

 

v3.19.1
DEBT
3 Months Ended
Mar. 31, 2019
DEBT [Abstract]  
DEBT

Note 7: Debt



Debt is detailed as follows:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

Effective

 

March 31

 

December 31

 

 

March 31

 

in thousands

Interest Rates

 

2019

 

2018

 

 

2018

 

Short-term Debt

 

 

 

 

 

 

 

 

 

 

Bank line of credit expires 2021 1, 2

1.25% 

 

$        178,500 

 

 

$      133,000 

 

 

$      200,000 

 

Total short-term debt

 

 

$        178,500 

 

 

$      133,000 

 

 

$      200,000 

 

Long-term Debt

 

 

 

 

 

 

 

 

 

 

Floating-rate notes due 2020

3.61% 

 

$        250,000 

 

 

$      250,000 

 

 

$      250,000 

 

Floating-rate notes due 2021

3.59% 

 

500,000 

 

 

500,000 

 

 

500,000 

 

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 

 

3.90% notes due 2027

4.00% 

 

400,000 

 

 

400,000 

 

 

400,000 

 

7.15% notes due 2037

8.05% 

 

129,239 

 

 

129,239 

 

 

129,239 

 

4.50% notes due 2047

4.59% 

 

700,000 

 

 

700,000 

 

 

700,000 

 

4.70% notes due 2048

5.42% 

 

460,949 

 

 

460,949 

 

 

460,949 

 

Other notes

6.46% 

 

202 

 

 

208 

 

 

224 

 

Total long-term debt - face value

 

 

$     2,846,390 

 

 

$   2,846,396 

 

 

$   2,846,412 

 

Unamortized discounts and debt issuance costs

 

 

(65,777)

 

 

(67,016)

 

 

(70,703)

 

Total long-term debt - book value

 

 

$     2,780,613 

 

 

$   2,779,380 

 

 

$   2,775,709 

 

Less current maturities

 

 

24 

 

 

23 

 

 

22 

 

Total long-term debt - reported value

 

 

$     2,780,589 

 

 

$   2,779,357 

 

 

$   2,775,687 

 

Estimated fair value of long-term debt

 

 

$     2,775,511 

 

 

$   2,695,802 

 

 

$   2,843,943 

 







 

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 if we have the intent and ability to extend payment beyond twelve months.

2

The effective interest rate reflects the margin above LIBOR for LIBOR-based borrowings. We also paid upfront fees that are amortized to interest expense and pay fees for unused borrowing capacity and standby letters of credit.



Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $1,239,000 and $1,473,000 of net interest expense for these items for the three months ended March 31, 2019 and 2018, respectively.





LINE OF CREDIT



Our unsecured $750,000,000 line of credit matures December 2021 and contains affirmative, negative and financial covenants customary for an unsecured investment-grade 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 (upon certain acquisitions, the maximum ratio can be 3.75:1 for three quarters), and (2) a minimum ratio of EBITDA to net cash interest expense of 3.0:1. As of March 31, 2019, 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 1.75%, or SunTrust Bank’s base rate (generally, its prime rate) plus a credit margin ranging from 0.00% to 0.75%. The credit margin for both LIBOR and base rate borrowings is determined by our credit ratings. 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 0.25% determined by our credit ratings. As of March 31, 2019, 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 March 31, 2019, our available borrowing capacity was $516,970,000. Utilization of the borrowing capacity was as follows:



§

$178,500,000 was borrowed

§

$54,530,000 was used to provide support for outstanding standby letters of credit





TERM DEBT



All of our $2,846,390,000 (face value) of term debt is unsecured. $2,846,188,000 of such debt is governed by three essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in all three indentures limits the amount of secured debt we may incur without ratably securing such debt. As of March 31, 2019, we were in compliance with all term debt covenants.



In December 2018, we completed an exchange offer in which all of the $460,949,000 of 4.70% senior unregistered notes due 2048 (issued in February 2018 and March 2018 as described below) were exchanged for new registered notes of like principal amount and like denomination as the unregistered notes, with substantially identical terms. We did not receive any proceeds from the issuance of the new notes.



In March 2018, we early retired via exchange offer $110,949,000 of the $240,188,000 7.15% senior notes due 2037 for: (1) a like amount of notes due 2048 (these notes are a further issuance of, and form a single series with, the $350,000,000 of 4.70% senior notes due 2048 issued in February 2018 as described below) and (2) $38,164,000 of cash. The cash payment primarily reflects the trading price of the retired notes relative to par and will be amortized to interest expense over the term of the notes due 2048. We recognized transaction costs of $1,314,000 with this early retirement.



In February 2018, we issued $350,000,000 of 4.70% senior notes due 2048 (these notes now total $460,949,000 including the notes issued in March as described above) and $500,000,000 of floating-rate senior notes due 2021. Total proceeds of $846,029,000 (net of discounts, transaction costs and an interest rate derivative settlement gain), together with cash on hand, were used to retire/repay without penalty or premium: (1) the $350,000,000 term loan due 2018, (2) the $250,000,000 term loan due 2021, and (3) the $250,000,000 bank line of credit borrowings. We recognized noncash expense of $203,000 with the acceleration of unamortized deferred transaction costs.



In January 2018, we early retired via redemption the remaining $35,111,000 of the 7.50% senior notes due 2021 at a cost of $40,719,000 including a premium of $5,608,000. Additionally, we recognized noncash expense of $263,000 with the acceleration of unamortized deferred transaction costs.



As a result of the first quarter 2018 early debt retirements described above, we recognized premiums of $5,608,000, transaction costs of $1,314,000 and noncash expense (acceleration of unamortized deferred transaction costs) of $466,000. The combined charge of $7,388,000 was a component of interest expense for the first quarter of 2018.





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 canceled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our $750,000,000 line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of March 31, 2019 are summarized by purpose in the table below:







 

 



 

 

in thousands

 

 

Standby Letters of Credit

 

 

Risk management insurance

$       46,611 

 

Reclamation/restoration requirements

7,919 

 

Total

$       54,530 

 

 

 

v3.19.1
COMMITMENTS AND CONTINGENCIES
3 Months Ended
Mar. 31, 2019
COMMITMENTS AND CONTINGENCIES [Abstract]  
COMMITMENTS AND CONTINGENCIES

Note 8: Commitments and Contingencies



As summarized by purpose directly above in Note 7, our standby letters of credit totaled $54,530,000 as of March 31, 2019.



As described in Note 2, our nonmineral operating lease liabilities totaled $434,681,000 as of March 31, 2019.



As described in Note 9, our asset retirement obligations totaled $225,186,000 as of March 31, 2019.



LITIGATION AND ENVIRONMENTAL MATTERS



We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.



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



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



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



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



   Lower Passaic River Study Area (DISCONTINUED OPERATIONS) — 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, CPG) 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). The draft RI/FS was submitted recommending a targeted hot spot remedy; however, 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, the 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.



In August 2017, the EPA informed certain members of the CPG, including Vulcan, that it planned to use the services of a third-party allocator with the expectation of offering cash-out settlements to some parties in connection with the bank-to-bank remedy. This voluntary allocation process is intended to establish an impartial third-party expert recommendation that may be considered by the government and the participants as the basis of possible settlements. We have begun participating in this voluntary allocation process, which is likely to take several years.



In July 2018, Vulcan, along with more than one hundred other defendants, was sued by Occidental in United States District Court for the District of New Jersey, Newark Vicinage. Occidental is seeking cost recovery and contribution under CERCLA. It is unknown at this time whether the filing of the Occidental lawsuit will impact the EPA allocation process.



In October 2018, the EPA ordered the CPG to prepare a streamlined feasibility study specifically for the upper 9 miles of the River. This directive is focused on dioxin and covers the remaining portion of the River not included in the EPA’s March 2016 ROD.



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. We 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. We did not manufacture any of these risk drivers and have 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. We do not agree that a bank-to-bank remedy is warranted, and we are 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 (DISCONTINUED OPERATIONS) — During the operation of its former Chemicals Division, Vulcan secured the right to mine salt out of an underground salt dome formation in Assumption Parish, Louisiana from 1976 - 2005. Throughout that period and for all times thereafter, the Texas Brine Company (Texas Brine) was the operator contracted by Vulcan (and later Occidental) to mine and deliver the salt. We sold our Chemicals Division in 2005 and transferred our rights and interests related to the salt and mining operations to the purchaser, a subsidiary of Occidental, and we have had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed in the vicinity of the Texas Brine mining operations, and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in federal court before the Eastern District of Louisiana in New Orleans.



There are numerous defendants, including Texas Brine and Occidental, to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by Texas Brine. We have since been added as a direct and third-party defendant by other parties, including a direct claim by the state of Louisiana. Damage categories encompassed within the litigation include individual plaintiffs’ claims for property damage, a claim by the state of Louisiana for response costs and civil penalties, claims by Texas Brine for response costs and lost profits,  claims for physical damages to nearby oil and gas pipelines and storage facilities (pipelines),  and business interruption claims.



In addition to the plaintiffs’ claims, we were also sued for contractual indemnity and comparative fault by both Texas Brine and Occidental. It is alleged that the sinkhole was caused, in whole or in part, by our negligent actions or failure to act. It is also alleged that we breached the salt lease with Occidental, as well as an operating agreement and related contracts with Texas Brine; that we are strictly liable for certain property damages in our capacity as a former lessee of the salt lease; and that we violated certain covenants and conditions in the agreement under which we sold our Chemicals Division to Occidental. We likewise made claims for contractual indemnity and on a basis of comparative fault against Texas Brine and Occidental. Vulcan and Occidental have since dismissed all of their claims against one another. Texas Brine has claims that remain pending against Vulcan and against Occidental.



A bench trial (judge only) began in September 2017 and ended in October 2017 in the pipeline cases. The trial was limited in scope to the allocation of comparative fault or liability for causing the sinkhole, with a damages phase of the trial to be held at a later date. In December 2017, the judge issued a ruling on the allocation of fault among the three defendants as follows: Occidental 50%, Texas Brine 35% and Vulcan 15%. This ruling has been appealed by the parties.



We have settled all but two outstanding cases and our insurers have funded these settlements in excess of our self-insured retention amount. The remaining cases involve Texas Brine and the state of Louisiana. Discovery remains ongoing and we cannot reasonably estimate a range of liability pertaining to these open cases at this time.



   NEW YORK WATER DISTRICT CASES (DISCONTINUED OPERATIONS) — During the operation of our former Chemicals Division, which was divested to Occidental in 2005, Vulcan manufactured a chlorinated solvent known as 1,1,1-trichloroethane. We are a defendant in 14 cases allegedly involving 1,1,1-trichloroethane. All of the cases are filed in the United States District Court for the Eastern District of New York. According to the various complaints, the plaintiffs are public drinking water providers who serve customers in Nassau County and Suffolk County, New York. It is alleged that our 1,1,1-trichloroethane was stabilized with 1,4-dioxane and that various water wells of the plaintiffs are contaminated with 1,4-dioxane. The cases, against us and other defendants, have been filed by the following plaintiffs: Albertson Water District, Bethpage Water District, Carle Place Water District, Garden City Park Water District, Jericho Water District, Manhasset-Lakeview Water District, Oyster Bay Water District, Plainview Water District, Port Washington Water District, Roslyn Water District, South Farmingdale Water District, Suffolk County Water Authority, Water Authority of Great Neck North, and the West Hempstead Water District (collectively, the Cases). The plaintiffs are seeking unspecified compensatory and punitive damages. We will vigorously defend the Cases. At this time we cannot determine the likelihood or reasonably estimate a range of loss, if any, pertaining to the Cases.



   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 us 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, we submitted an interim remedial action plan (IRAP) to the RWQCB, proposing an on-site pilot test of a pump and treat system; testing and implementation of a leachate recovery system; and storm water capture and conveyance improvements.



Operation of the on-site pilot-scale treatment system began in January 2017, and was completed in April 2017. With completion of the pilot testing and other investigative work, we submitted an amendment to the IRAP (AIRAP) to RWQCB in August 2017 proposing the use of a pump, treat and reinjection system. In December 2017, we submitted an addendum to the AIRAP, incorporating new data acquired since the prior submission. In February 2018, the AIRAP was approved by RWQCB. As a result of this approval, we have begun to implement the on-site source control activities described in the AIRAP. In 2018, we accrued a total of $19,032,000 (Q3 - $8,640,000 and Q4 - $10,392,000) for the on-site remedy, bringing the life-to-date total to $34,271,000.



We are 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 Valley Superfund Site. We are gathering and analyzing data and developing technical information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area.



The EPA and Vulcan entered into an AOC and Statement of Work having an effective date of September 2017 for the design of two extraction wells south of the Hewitt Site to protect the North Hollywood West (NHW) well field. In November 2017, we submitted a Pre-Design Investigation (PDI) Work Plan to the EPA, which sets forth the activities and schedule for our evaluation of the need for a two-well remedy. These activities were completed between the first and third quarters of 2018, and in December 2018 we submitted a PDI Evaluation Report to the EPA. The PDI Evaluation Report summarizes data collection activities conducted pursuant to the PDI Work Plan, and provides model updates and evaluation of remediation alternatives to protect the NHW and Rinaldi-Toluca well fields from 1,4-dioxane from the Hewitt Site. Vulcan has not yet received comments or feedback from the EPA or the Regional Board on the report. Until the EPA’s review of the PDI Evaluation Report is complete and an effective remedy can be agreed upon, we cannot identify an appropriate remedial action. Given the various stakeholders involved and the uncertainties relating to issues such as testing, monitoring, and remediation alternatives, we cannot reasonably estimate a loss pertaining to this matter.



   NAFTA ARBITRATION — In September 2018, our subsidiary Legacy Vulcan, LLC (Legacy Vulcan), on its own behalf, and on behalf of our Mexican subsidiary Calizas Industriales del Carmen, S.A. de C.V. (Calica), served the United Mexican States (Mexico) a Notice of Intent to Submit a Claim to Arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA). Our NAFTA claim relates to the treatment of a portion of our quarrying operations in the State of Quintana Roo, in Mexico’s Yucatan Peninsula, arising from, among other measures, Mexico’s failure to comply with a legally binding zoning agreement and relates to other unfair, arbitrary and capricious actions by Mexico’s environmental enforcement agency. We assert that these actions are in breach of Mexico’s international obligations under NAFTA and international law.



As required by Article 1118 of NAFTA, we sought to settle this dispute with Mexico through consultations. Notwithstanding our good faith efforts to resolve the dispute amicably, we were unable to do so and filed a Request for Arbitration, which we filed with the International Centre for Settlement of Investment Disputes (ICSID) in December 2018. In January 2019, ICSID registered our Request for Arbitration.



We expect that the NAFTA arbitration will take at least two years to be concluded. At this time, there can be no assurance whether we will be successful in our NAFTA claim, and we cannot quantify the amount we may recover, if any, under this arbitration proceeding if we were successful.



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.

 

 

v3.19.1
ASSET RETIREMENT OBLIGATIONS
3 Months Ended
Mar. 31, 2019
ASSET RETIREMENT OBLIGATIONS [Abstract]  
ASSET RETIREMENT OBLIGATIONS

Note 9: Asset Retirement Obligations



Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets. Recognition of a liability for an ARO is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the ARO is settled for other than the carrying amount of the liability, we recognize a gain or loss on settlement.



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







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31

in thousands

2019

 

 

2018

 

ARO Operating Costs

 

 

 

 

 

Accretion

$        2,733 

 

 

$        2,684 

 

Depreciation

1,841 

 

 

1,337 

 

Total

$        4,574 

 

 

$        4,021 

 



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



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







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31

in thousands

2019

 

 

2018

 

Asset Retirement Obligations

 

 

 

 

 

Balance at beginning of year

$     225,726 

 

 

$     218,117 

 

   Liabilities incurred

 

 

 

   Liabilities settled

(3,578)

 

 

(6,021)

 

   Accretion expense

2,733 

 

 

2,684 

 

   Revisions, net

305 

 

 

(71)

 

Balance at end of period

$     225,186 

 

 

$     214,709 

 



ARO liabilities settled during the first three months of 2019 and 2018 include $1,266,000 and $4,402,000, respectively, of reclamation activities required under a development agreement and conditional use permits at two adjacent aggregates sites on owned property in Southern California. The reclamation required under the reclamation agreement will result in the restoration of 90 acres of previously mined property to conditions suitable for retail and commercial development.

 

 

v3.19.1
BENEFIT PLANS
3 Months Ended
Mar. 31, 2019
BENEFIT PLANS [Abstract]  
BENEFIT PLANS

Note 10: Benefit Plans



PENSION PLANS



We sponsor three qualified, noncontributory defined benefit pension plans. These plans cover substantially all employees hired before 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.



In 2005, benefit accruals for our Chemicals Hourly Plan participants ceased upon the sale of our Chemicals business. Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. Future benefit accruals for participants in our salaried defined benefit pension plans ceased on December 31, 2013, while salaried participants’ earnings considered for benefit calculations were frozen on December 31, 2015. 



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





 

 

 

 

 



 

 

 

 

 

PENSION BENEFITS

Three Months Ended



March 31

in thousands