VULCAN MATERIALS CO, 10-K filed on 2/26/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Feb. 12, 2019
Jun. 29, 2018
Document and Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
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 Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Well-known Seasoned Issuer Yes    
Entity Common Stock, Shares Outstanding   131,830,868  
Entity Public Float     $ 17,035,024,582
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]      
Total revenues [1] $ 4,382,869 $ 3,890,296 $ 3,592,667
Cost of revenues 3,281,924 2,896,783 2,603,782
Gross profit 1,100,945 993,513 988,885
Selling, administrative and general expenses 333,371 324,972 316,769
Gain on sale of property, plant & equipment and businesses 14,944 17,827 15,431
Other operating expense, net (34,805) (47,324) (21,645)
Operating earnings 747,713 639,044 665,902
Other nonoperating income, net 13,000 13,357 14,624
Interest income 554 4,437 807
Interest expense 137,977 295,522 134,076
Earnings from continuing operations before income taxes 623,290 361,316 547,257
Income tax expense (benefit)      
Current 40,516 354 94,254
Deferred 64,933 (232,429) 30,597
Total income tax expense (benefit) 105,449 (232,075) 124,851
Earnings from continuing operations 517,841 593,391 422,406
Earnings (loss) on discontinued operations, net of tax (2,036) 7,794 (2,915)
Net earnings 515,805 601,185 419,491
Other comprehensive income (loss), net of tax      
Deferred gain on interest rate derivative 2,496 0 0
Amortization of prior interest rate derivative loss 226 1,862 1,194
Adjustment for funded status of benefit plans (207) (14,106) (20,583)
Amortization of actuarial loss and prior service cost for benefit plans 4,365 2,154 82
Other comprehensive income (loss) 6,880 (10,090) (19,307)
Comprehensive income $ 522,685 $ 591,095 $ 400,184
Basic earnings (loss) per share      
Continuing operations $ 3.91 $ 4.48 $ 3.17
Discontinued operations (0.01) 0.06 (0.02)
Net earnings 3.90 4.54 3.15
Diluted earnings (loss) per share      
Continuing operations 3.87 4.40 3.11
Discontinued operations (0.02) 0.06 (0.02)
Net earnings $ 3.85 $ 4.46 $ 3.09
Weighted-average common shares outstanding      
Basic 132,393 132,513 133,205
Assuming dilution 133,926 134,878 135,790
[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
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Assets    
Cash and cash equivalents $ 40,037 $ 141,646
Restricted cash 4,367 5,000
Accounts and notes receivable    
Customers, less allowance for doubtful accounts 2018 — $2,090; 2017 — $2,649 512,279 434,089
Other 28,499 154,248
Inventories 429,330 384,338
Other current assets 64,633 60,780
Total current assets 1,079,145 1,180,101
Investments and long-term receivables 44,615 35,115
Property, plant & equipment, net 4,237,307 3,918,931
Goodwill 3,165,396 3,122,321
Other intangible assets, net 1,095,378 1,063,630
Other noncurrent assets 210,289 184,793
Total assets 9,832,130 9,504,891
Liabilities    
Current maturities of long-term debt 23 41,383
Short-term debt 133,000 0
Trade payables and accruals 216,473 197,335
Accrued salaries, wages and management incentives 91,960 87,208
Accrued interest 19,631 11,664
Other current liabilities 141,463 105,282
Total current liabilities 602,550 442,872
Long-term debt 2,779,357 2,813,482
Deferred income taxes, net 567,283 464,081
Deferred management incentive and other compensation 16,604 19,856
Pension benefits 119,587 245,449
Other postretirement benefits 35,274 37,856
Asset retirement obligations 225,726 218,117
Deferred revenue 186,397 191,476
Other noncurrent liabilities 96,449 102,809
Total liabilities 4,629,227 4,535,998
Other commitments and contingencies (Note 12)
Equity    
Common stock, $1 par value, Authorized 480,000 shares, Outstanding 131,762, and 132,324 shares, respectively 131,762 132,324
Capital in excess of par value 2,798,486 2,805,587
Retained earnings 2,444,870 2,180,448
Accumulated other comprehensive loss (172,215) (149,466)
Total equity 5,202,903 4,968,893
Total liabilities and equity $ 9,832,130 $ 9,504,891
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
CONSOLIDATED BALANCE SHEETS [Abstract]    
Customers, allowance for doubtful accounts $ 2,090 $ 2,649
Common stock, par value $ 1 $ 1
Common stock, shares authorized 480,000,000 480,000,000
Common stock, shares outstanding 131,762,000 132,324,000
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Operating Activities      
Net earnings $ 515,805 $ 601,185 $ 419,491
Adjustments to reconcile net earnings to net cash provided by operating activities      
Depreciation, depletion, accretion and amortization 346,246 305,965 284,940
Net gain on sale of property, plant & equipment and businesses (14,944) (17,827) (15,431)
Contributions to pension plans (109,631) (20,023) (9,576)
Share-based compensation expense 25,215 26,635 20,670
Deferred tax expense (benefit) 64,639 (235,697) 33,591
Cost of debt purchase 6,922 140,772 0
(Increase) decrease in assets excluding the initial effects of business acquisitions and dispositions      
Accounts and notes receivable 63,230 (81,561) (72,763)
Inventories (34,976) (14,121) 1,625
Prepaid expenses (2,167) (28,445) 2,558
Other assets (58,489) (23,759) (18,236)
Increase (decrease) in liabilities excluding the initial effects of business acquisitions and dispositions      
Accrued interest and income taxes 12,148 1,303 (7,187)
Trade payables and other accruals 40,181 9,823 30,353
Other noncurrent liabilities (26,901) (32,592) (29,138)
Other, net 5,499 13,020 3,691
Net cash provided by operating activities 832,777 644,678 644,588
Investing Activities      
Purchases of property, plant & equipment (469,088) (459,566) (350,148)
Proceeds from sale of property, plant & equipment 22,210 15,756 23,318
Proceeds from sale of businesses 11,256 287,292 0
Payment for businesses acquired, net of acquired cash (221,419) (1,109,725) (32,537)
Other, net (12,850) (3,248) 2,173
Net cash used for investing activities (669,891) (1,269,491) (357,194)
Financing Activities      
Proceeds from short-term debt 739,900 5,000 3,000
Payment of short-term debt (606,900) (5,000) (3,000)
Payment of current maturities and long-term debt (892,055) (1,463,308) (130)
Proceeds from issuance of long-term debt 850,000 2,200,000 0
Debt issuance and exchange costs (45,513) (15,291) (1,860)
Settlements of interest rate derivatives 3,378 0 0
Purchases of common stock (133,983) (60,303) (161,463)
Dividends paid (148,109) (132,335) (106,333)
Share-based compensation, shares withheld for taxes (31,846) (25,323) (34,799)
Net cash provided by (used for) financing activities (265,128) 503,440 (304,585)
Net decrease in cash and cash equivalents and restricted cash (102,242) (121,373) (17,191)
Cash and cash equivalents and restricted cash at beginning of year 146,646 268,019 285,210
Cash and cash equivalents and restricted cash at end of year $ 44,404 $ 146,646 $ 268,019
v3.10.0.1
CONSOLIDATED STATEMENTS OF EQUITY - USD ($)
shares in Thousands, $ in Thousands
Common Stock [Member]
Capital In Excess Of Par Value [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total
Beginning balance, shares at Dec. 31, 2015 133,172        
Balance at beginning of period at Dec. 31, 2015 $ 133,172 $ 2,822,578 $ 1,618,507 $ (120,069) $ 4,454,188
Net earnings $ 0 0 419,491 0 419,491
Share-based compensation plans, net of shares withheld for taxes, shares 594        
Share-based compensation plans, net of shares withheld for taxes $ 594 (35,363) 0 0 (34,769)
Purchase and retirement of common stock, shares (1,427)        
Purchase and retirement of common stock $ (1,427) 0 (160,036) 0 (161,463)
Share-based compensation expense 0 20,670 0 0 20,670
Cash dividends on common stock 0 0 (106,333) 0 (106,333)
Other comprehensive income (loss) 0 0 0 (19,307) (19,307)
Other $ 0 110 (111) 0 (1)
Ending balance, shares at Dec. 31, 2016 132,339        
Balance at end of period at Dec. 31, 2016 $ 132,339 2,807,995 1,771,518 (139,376) 4,572,476
Net earnings $ 0 0 601,185 0 601,185
Share-based compensation plans, net of shares withheld for taxes, shares 495        
Share-based compensation plans, net of shares withheld for taxes $ 495 (29,168) 0 0 (28,673)
Purchase and retirement of common stock, shares (510)        
Purchase and retirement of common stock $ (510) 0 (59,793) 0 (60,303)
Share-based compensation expense 0 26,635 0 0 26,635
Cash dividends on common stock 0 0 (132,335) 0 (132,335)
Other comprehensive income (loss) 0 0 0 (10,090) (10,090)
Other $ 0 125 (127) 0 (2)
Ending balance, shares at Dec. 31, 2017 132,324        
Balance at end of period at Dec. 31, 2017 $ 132,324 2,805,587 2,180,448 (149,466) 4,968,893
Released stranded tax effects ASU 2018-02 (Note 9) 0 0 29,629 (29,629) 0
Balances at January 1, 2018, due to reclassification 132,324 2,805,587 2,210,077 (179,095) 4,968,893
Net earnings $ 0 0 515,805 0 515,805
Share-based compensation plans, net of shares withheld for taxes, shares 630        
Share-based compensation plans, net of shares withheld for taxes $ 630 (32,428) 0 0 (31,798)
Purchase and retirement of common stock, shares (1,192)        
Purchase and retirement of common stock $ (1,192) 0 (132,791) 0 (133,983)
Share-based compensation expense 0 25,215 0 0 25,215
Cash dividends on common stock 0 0 (148,109) 0 (148,109)
Other comprehensive income (loss) 0 0 0 6,880 6,880
Other $ 0 112 (112) 0 0
Ending balance, shares at Dec. 31, 2018 131,762        
Balance at end of period at Dec. 31, 2018 $ 131,762 $ 2,798,486 $ 2,444,870 $ (172,215) $ 5,202,903
v3.10.0.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation's largest 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.

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

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 Consolidated Statements of Comprehensive Income for all periods presented. Results from discontinued operations are as follows:



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

 

2016

 

Discontinued Operations

 

 

 

 

 

 

 

 

Pretax earnings (loss)

$        (2,748)

 

 

$       12,959 

 

 

$        (4,877)

 

Income tax (expense) benefit

712 

 

 

(5,165)

 

 

1,962 

 

Earnings (loss) on discontinued operations,

 

 

 

 

 

 

 

 

  net of tax

$        (2,036)

 

 

$         7,794 

 

 

$        (2,915)

 



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. The 2017 results also reflect insurance recoveries for past legal expenses associated with the Texas Brine matter (see Note 12). There were no revenues from discontinued operations for the years presented.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Vulcan Materials Company and all our majority or
wholly-owned subsidiary companies. Partially-owned affiliates are either consolidated or accounted for at cost or as equity investments depending on the level of ownership interest or our ability to exercise control over the affiliates’ operations. All intercompany transactions and accounts have been eliminated in consolidation.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of these financial statements in conformity with accounting principles generally accepted (GAAP) in the United States of America requires us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ materially from these estimates. The most significant estimates included in the preparation of these financial statements are related to goodwill and long-lived asset impairments, business combinations and purchase price allocation, pension and other postretirement benefits, environmental compliance, claims and litigation including self-insurance, and income taxes.

BUSINESS COMBINATIONS

We account for business combinations under the acquisition method of accounting. The purchase price of an acquisition is allocated to the underlying identifiable assets acquired and liabilities assumed based on their respective fair values. The purchase price is determined based on the fair value of consideration transferred to and liabilities assumed from the seller as of the date of acquisition. We allocate the purchase price to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition. Goodwill is recorded for the excess of the purchase price over the net of the fair value of the identifiable assets acquired and liabilities assumed.

Determining the fair values of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and therefore represents an exit price. A fair value measurement assumes the highest and best use of the asset by market participants.

We may adjust the amounts recognized in an acquisition during a measurement period after the acquisition date. Any such adjustments are the result of subsequently obtaining additional information that existed at the acquisition date regarding the assets acquired or the liabilities assumed. Measurement period adjustments are generally recorded as increases or decreases to goodwill, if any, recognized in the transaction. The cumulative impact of measurement period adjustments on depreciation, amortization and other income statement items are recognized in the period the adjustment is determined.

FOREIGN CURRENCY TRANSACTIONS

The U.S. dollar is the functional currency for all of our operations. For our non-U.S. subsidiaries, local currency inventories and long-term assets such as property, plant & equipment and intangibles are remeasured into U.S. dollars at approximate rates prevailing when acquired; all other assets and liabilities are remeasured at year-end exchange rates. Inventories charged to cost of sales and depreciation are remeasured at historical rates; all other income and expense items are remeasured at average exchange rates prevailing during the year. Gains and losses which result from remeasurement are included in earnings and are not material for the years presented.

CASH EQUIVALENTS

We classify as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. The carrying amount of these securities approximates fair value due to their short-term maturities.

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 not available for use in our operations. 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 Consolidated Statements of Cash Flows.

ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable from customers result from our extending credit to trade customers for the purchase of our products. The terms generally provide for payment within 15 days of the month following invoice. On occasion, when necessary to conform to regional industry practices, we sell product under extended payment terms, which may result in either secured or unsecured short-term notes; or, on occasion, notes with durations of less than one year are taken in settlement of existing accounts receivable. Other accounts and notes receivable result from short-term transactions (less than one year) other than the sale of our products, such as interest receivable; insurance claims; freight claims; tax refund claims; bid deposits or rents receivable. As of December 31, 2018, income tax receivables of $922,000 are included in other accounts and notes receivable in the accompanying Consolidated Balance Sheet. There were similar receivables of $106,980,000  ($106,000,000 related to 2017 federal estimated payments which were refunded early 2018) as of December 31, 2017.

Receivables are aged and appropriate allowances for doubtful accounts and bad debt expense are recorded. Bad debt expense (net of recoveries) for the years ended December 31 was as follows: 2018$251,000,  2017$812,000 and 2016$(1,190,000). Write-offs of accounts receivables for the years ended December 31 were as follows: 2018$1,291,000,  2017$1,384,000 and 2016$1,544,000. The bad debt recovery in 2016 relates to the collection of previously reserved receivables primarily attributable to the 2014 sale of our Florida area concrete and cement businesses.

INVENTORIES

Inventories and supplies are stated at the lower of cost or net realizable value. We use the last-in, first-out (LIFO) method of valuation for most of our inventories because it results in a better matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct labor and production overhead. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating supplies inventory is carried at average cost. For additional information about our inventories see Note 3.

PROPERTY, PLANT & EQUIPMENT

Property, plant & equipment are carried at cost less accumulated depreciation, depletion and amortization. The cost of properties held under capital leases, if any, is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease.

Capitalized software costs of $4,155,000 and $4,446,000 are reflected in net property, plant & equipment as of December 31, 2018 and 2017, respectively. We capitalized software costs for the years ended December 31 as follows: 2018 — $2,213,000, 2017 — $1,988,000 and 2016 — $152,000.

For additional information about our property, plant & equipment see Note 4.

REPAIR AND MAINTENANCE

Repair and maintenance costs generally are charged to operating expense as incurred. Renewals and betterments that add materially to the utility or useful lives of property, plant & equipment are capitalized and subsequently depreciated. Actual costs for planned major maintenance activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and amortized to the next overhaul.

DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION

Depreciation is generally computed by the straight-line method at rates based on the estimated service lives of the various classes of assets, which include machinery and equipment (3  to 35 years), buildings (7 to 20 years) and land improvements (8 to 20 years). Capitalized software costs are included in machinery and equipment and are depreciated on a straight-line basis beginning when the software project is substantially complete.

Cost depletion on depletable land is computed by the unit-of-sales method based on estimated recoverable units.

Accretion reflects the period-to-period increase in the carrying amount of the liability for asset retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to initially measure the liability at fair value.

Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated useful lives.

Amortization of intangible assets subject to amortization is computed based on the estimated life of the intangible assets.
A significant portion of our intangible assets is contractual rights in place associated with zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-sales method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.

Depreciation, depletion, accretion and amortization expense for the years ended December 31 is outlined below:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

 

2016

 

Depreciation, Depletion, Accretion and Amortization

 

 

 

 

 

 

 

 

Depreciation

$      276,814 

 

 

$     250,835 

 

 

$     238,237 

 

Depletion

23,260 

 

 

19,342 

 

 

17,812 

 

Accretion

10,776 

 

 

11,415 

 

 

11,059 

 

Amortization of leaseholds

472 

 

 

608 

 

 

267 

 

Amortization of intangibles

34,924 

 

 

23,765 

 

 

17,565 

 

Total

$      346,246 

 

 

$     305,965 

 

 

$     284,940 

 



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 use 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. Changes in the fair value of 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. Changes in the fair value of 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. Additional disclosures about our derivative instruments are presented in Note 5.

FAIR VALUE MEASUREMENTS

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

Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs that are derived principally from or corroborated by observable market data
Level 3: Inputs that are unobservable and significant to the overall fair value measurement

Our assets at December 31 subject to fair value measurement on a recurring basis are summarized below:





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Level 1 Fair Value

in thousands

2018

 

 

2017

 

Fair Value Recurring

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

   Mutual funds

$       19,164 

 

 

$     20,348 

 

Total

$       19,164 

 

 

$     20,348 

 





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Level 2 Fair Value

in thousands

2018

 

 

2017

 

Fair Value Recurring

 

 

 

 

 

Rabbi Trust

 

 

 

 

 

   Money market mutual fund

$        1,015 

 

 

$       1,203 

 

Total

$        1,015 

 

 

$       1,203 

 



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 Trusts’ investments were $(2,741,000),  $2,441,000 and $2,741,000 for the years ended December 31, 2018, 2017 and 2016, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at December 31, 2018, 2017 and 2016 were $(4,386,000),  $(3,618,000) and $1,599,000, 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 5 and 6, respectively.

GOODWILL IMPAIRMENT

Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. As of December 31, 2018, goodwill totaled $3,165,396,000, as compared to $3,122,321,000 at December 31, 2017. Goodwill represents 32% of total assets at December 31, 2018 compared to 33% at December 31, 2017.

Goodwill is tested for impairment annually, as of November 1, or more frequently whenever events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at the reporting unit level, one level below our operating segments. We have four operating segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. Within these four operating segments, we have identified 17 reporting units (of which 9 carry goodwill) based primarily on geographic location. We have the option of either assessing qualitative factors to determine whether it is more likely than not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to a quantitative test. We elected to perform the quantitative impairment test for all years presented.

The quantitative impairment test compares the fair value of a reporting unit to its carrying value, including goodwill. If the fair value exceeds its carrying value, the goodwill of the reporting unit is not considered impaired. However, if the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to that excess.

The results of the annual impairment tests performed as of November 1, 2018, 2017 and 2016 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values. Accordingly, there were no charges for goodwill impairment in the years ended December 31, 2018, 2017 or 2016.

We estimate the fair values of the reporting units using both an income approach (which involves discounting estimated future cash flows) and a market approach (which involves the application of revenue and EBITDA multiples of comparable companies). Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty and actual results may differ. Changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or underperformance relative to historical or projected operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.

For additional information about goodwill see Note 18.

IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL

We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, we recognize a loss equal to the amount by which the carrying value exceeds the fair value. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable judgment and assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.

We test long-lived assets for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. As a result, our long-lived asset impairment test is at a significantly lower level than the level at which we test goodwill for impairment. In markets where we do not produce downstream products (e.g., asphalt mix and ready-mixed concrete), the lowest level of largely independent identifiable cash flows is at the individual aggregates operation or a group of aggregates operations collectively serving a local market. Conversely, in vertically integrated markets, the cash flows of our downstream and upstream businesses are not largely independently identifiable as the selling price of the upstream products (aggregates) determines the profitability of the downstream business.

As of December 31, 2018, net property, plant & equipment represents 43% of total assets, while net other intangible assets represents 11% of total assets. During 2018 and 2017, we recorded no losses on impairment of long-lived assets. During 2016, we recorded a $10,506,000 loss on impairment of long-lived assets resulting from the termination of a nonstrategic aggregates lease and the write off of nonrecoverable project costs related to two Aggregates segment capital projects that we no longer intend to complete.

For additional information about long-lived assets and intangible assets see Notes 4 and 18.

STRIPPING COSTS

In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.

Stripping costs incurred during the production phase are considered costs of extracted minerals under our inventory costing system, inventoried, and recognized in cost of sales in the same period as the revenue from the sale of the inventory. The production stage is deemed to begin when the activities, including removal of overburden and waste material that may contain incidental saleable material, required to access the saleable product are complete. Stripping costs considered as production costs and included in the costs of inventory produced were $78,911,000 in 2018, $65,944,000 in 2017 and $55,987,000 in 2016.

Conversely, stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from our inventory cost. Pre-production stripping costs are capitalized and reported within other noncurrent assets in our accompanying Consolidated Balance Sheets. Capitalized pre-production stripping costs are expensed over the productive life of the mine using the unit-of-sales method. Pre-production stripping costs included in other noncurrent assets were $95,800,000 as of December 31, 2018 and $81,241,000 as of December 31, 2017. This year-over-year increase resulted primarily from the removal of overburden at a greenfield site in California.

RECLAMATION COSTS

Reclamation costs resulting from normal use of long-lived assets are recognized over the period the asset is in use when there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from normal use under a mineral lease are recognized over the lease term when there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.

To determine the fair value of the obligation, we estimate the cost (including a reasonable profit margin) for a third party to perform the legally required reclamation tasks. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.

In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.

We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.

The carrying value of these obligations was $225,726,000 as of December 31, 2018 and $218,117,000 as of December 31, 2017. For additional information about reclamation obligations (referred to in our financial statements as asset retirement obligations) see Note 17.

ENVIRONMENTAL COMPLIANCE

Our environmental compliance costs are undiscounted and include the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. We accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost. At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of various factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur, but generally liabilities are recognized no later than the completion of the remedial feasibility study.

When we can estimate a range of probable loss, we accrue the most likely amount. If no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2018, the spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $3,105,000 —  this amount does not represent our maximum exposure to loss for all environmental remediation obligations as it excludes those sites for which a range of loss cannot be reasonably estimated at this time. Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates and key assumptions in response to new information, such as the kinds and quantities of hazardous substances, available technologies and changes to the parties participating in the remediation efforts. However, a number of factors, including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.

For additional information about environmental compliance costs see Note 8.

CLAIMS AND LITIGATION INCLUDING SELF-INSURANCE

We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers' compensation up to $2,000,000 per occurrence and automotive and general/product liability up to $3,000,000 per occurrence. We have excess coverage on a per occurrence basis beyond these retention levels.

Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. For matters not included in our actuarial studies, legal defense costs are accrued when incurred. The following table outlines our self-insurance program at December 31:





 

 

 

 

 



 

 

 

 

 

dollars in thousands

2018

 

 

2017

 

Self-insurance Program

 

 

 

 

 

Self-insured liabilities (undiscounted)

$        68,912 

 

 

$       58,216 

 

Insured liabilities (undiscounted)

4,377 

 

 

7,892 

 

Discount rate

2.93% 

 

 

1.93% 

 

Amounts Recognized in Consolidated

 

 

 

 

 

  Balance Sheets

 

 

 

 

 

Other accounts and notes receivable

$             631 

 

 

$         6,158 

 

Investments and long-term receivables

3,932 

 

 

7,246 

 

Other current liabilities

(18,466)

 

 

(20,036)

 

Other noncurrent liabilities

(48,049)

 

 

(41,792)

 

Net liabilities (discounted)

$       (61,952)

 

 

$     (48,424)

 



Estimated payments (undiscounted and excluding the impact of related receivables) under our self-insurance program for the five years subsequent to December 31, 2018 are as follows:





 

 



 

 

in thousands

 

 

Estimated Payments under Self-insurance Program

 

 

2019

$        20,529 

 

2020

15,232 

 

2021

11,615 

 

2022

6,360 

 

2023

3,665 

 



Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.

SHARE-BASED COMPENSATION

All of our share-based compensation awards are classified as equity awards. We measure share-based compensation awards using fair-value-based measurement methods. This results in the recognition of compensation expense for all share-based compensation awards based on their fair value as of the grant date. Compensation cost is recognized over the requisite service period. Forfeitures are recognized as they occur.

A summary of the estimated future compensation cost (unrecognized compensation expense) as of December 31, 2018 related to share-based awards granted to employees under our long-term incentive plans is presented below:





 

 

 

 

 

 



 

 

 

 

 

 



 

Unrecognized

 

 

Expected

 



 

Compensation

 

 

Weighted-average

 

dollars in thousands

Expense

 

 

Recognition (Years)

 

Share-based Compensation

 

 

 

 

 

SOSARs 1

$          3,376 

 

 

1.4 

 

Performance shares

14,250 

 

 

1.6 

 

Restricted shares

6,098 

 

 

1.7 

 

Total/weighted-average

$        23,724 

 

 

1.6 

 





 

1

Stock-Only Stock Appreciation Rights (SOSARs)



Pretax compensation expense related to our employee share-based compensation awards and related income tax benefits for the years ended December 31 are summarized below:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

 

2016

 

Employee Share-based Compensation Awards

 

 

 

 

 

 

 

 

Pretax compensation expense

$        23,250 

 

 

$       24,367 

 

 

$       17,823 

 

Income tax benefits

5,940 

 

 

6,226 

 

 

6,925 

 



We receive an income tax deduction for share-based compensation equal to the excess of the market value of our common stock on the date of exercise or issuance over the exercise price. Tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are reflected as discrete income tax benefits in the period of exercise or issuance. Net excess tax benefits were recorded as reductions to our income tax expense and reflected as operating cash flows, as follows (combined federal and state): 2018$20,137,000; 2017 $22,962,000; and 2016 $24,847,000.

For additional information about share-based compensation, see Note 11 under the caption Share-based Compensation Plans.

PENSION AND OTHER POSTRETIREMENT BENEFITS

Accounting for pension and other postretirement benefits requires that we use assumptions for the valuation of projected benefit obligations (PBO) and the performance of plan assets. Each year, we review our assumptions for discount rates (used for PBO, service cost, and interest cost calculations) and the expected return on plan assets. Due to plan changes made in 2012 and 2013, annual pay increases and the per capita cost of healthcare benefits do not materially impact plan obligations.

§

DISCOUNT RATES — We use a high-quality bond full yield curve approach (specific spot rates for each annual expected cash flow) to establish the discount rates at each measurement date. See Note 10 for the discount rates used for PBO, service cost, and interest cost calculations.

§

EXPECTED RETURN ON PLAN ASSETS — Our expected return on plan assets is: (1) a long-term view based on our current asset allocation, and (2) a judgment informed by consultation with our retirement plans’ consultant and our pension plans’ actuary. For the year ended December 31, 2018, the expected return on plan assets remained at 7.0%.

Accounting standards provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of actual results allows for a smoothed recognition in earnings of changes in benefit obligations and asset performance. The differences between actual results and expected or estimated results are recognized in full in other comprehensive income. Amounts recognized in other comprehensive income are reclassified to earnings in a systematic manner over the average remaining service period of participants for our active plans or the average remaining lifetime of participants for our inactive plans.

For additional information about pension and other postretirement benefits see Note 10.

INCOME TAXES

We file federal, state and foreign income tax returns and account for the current and deferred tax effects of such returns using the asset and liability method. 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.

Significant judgments and estimates are required in determining our deferred tax assets and liabilities. These estimates are updated throughout the year to consider income tax return filings, our geographic mix of earnings, legislative changes and other relevant items. We are required to account for the effects of changes in income tax rates on deferred tax balances in the period in which the legislation is enacted.

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. A summary of our deferred tax assets is included in Note 9.

U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely reinvested offshore. At least annually, we evaluate our investment strategies for each foreign tax jurisdiction in which we operate to determine whether foreign earnings will be indefinitely reinvested offshore.

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 position. 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.

Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for the years before 2015. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is appropriate.

We consider a tax position to be resolved at the earlier of the issue being “effectively settled,” settlement of an examination, or the expiration of the statute of limitations. Upon resolution of a tax position, any liability for unrecognized tax benefits will be released.

Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties associated with our liability for unrecognized tax benefits as income tax expense.

Our largest permanent item in computing both our taxable income and effective tax rate is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9. The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.

COMPREHENSIVE INCOME

We report comprehensive income in our Consolidated Statements of Comprehensive Income and Consolidated Statements of Equity. Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). OCI includes fair value adjustments to cash flow hedges, as well as actuarial gains or losses and prior service costs related to pension and postretirement benefit plans.

For additional information about comprehensive income see Note 14.

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:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

 

2016

 

Weighted-average common shares outstanding

132,393 

 

 

132,513 

 

 

133,205 

 

Dilutive effect of

 

 

 

 

 

 

 

 

   SOSARs

963 

 

 

1,295 

 

 

1,339 

 

   Other stock compensation plans

570 

 

 

1,070 

 

 

1,246 

 

Weighted-average common shares outstanding,

 

 

 

 

 

 

 

 

  assuming dilution

133,926 

 

 

134,878 

 

 

135,790 

 



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 for the years ended December 31 is as follows:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

 

2016

 

Antidilutive common stock equivalents

162 

 

 

79 

 

 

97 

 

RECLASSIFICATIONS

Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2018 presentation. Refer below to Accounting Standards Recently Adopted (Presentation of Benefit Plan Costs) for the impact of reclassifying certain benefit costs from operating income to nonoperating income in our Statements of Comprehensive Income.

NEW ACCOUNTING STANDARDS

ACCOUNTING STANDARDS RECENTLY ADOPTED

RELEASING STRANDED TAX EFFECTS  During the fourth quarter of 2018, we adopted Accounting Standards Update (ASU) 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” effective as of the beginning of the year. This ASU allowed us to reclassify $29,629,000 of stranded tax effects due to remeasuring certain deferred tax assets as a result of applying the TCJA enacted in December 2017 from accumulated other comprehensive income (AOCI) to retained earnings.

PRESENTATION OF BENEFIT PLAN COSTS  During the first quarter of 2018, we adopted ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” on a retrospective basis as required. This ASU changed the presentation of the net benefit cost in the income statement and limits benefit costs eligible for inventory capitalization to the service cost component (benefit costs capitalized in inventory are immaterial to our financial statements). We continue to present the service cost component of net benefit cost in cost of revenues and selling, administrative and general expense consistent with employee compensation costs. The other components of net benefit cost (credit) are now included in other nonoperating income. These other components were a net credit for all periods presented resulting in a decrease in operating earnings and an increase in other nonoperating income, as follows: 2018 — $16,539,000; 2017 — $8,102,000 and 2016 — $13,715,000.

CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS During the first quarter of 2018, we adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU amends certain aspects of current guidance on the recognition, measurement and disclosure of financial instruments. Among other changes, this ASU requires most equity investments be measured at fair value. Additionally, the ASU eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value for instruments not recognized at fair value in our financial statements. The adoption of this standard had no material impact on our consolidated financial statements.

REVENUE RECOGNITION During the first quarter of 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers” (ASC Topic 606). Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Additionally, it provides a more robust framework for addressing revenue issues and expands required revenue recognition disclosures. We adopted this standard using the cumulative effect transition approach; however, because there was no change in the identified performance obligations under Topic 606 compared with the identification of deliverables and separate units of account under previous guidance (Topic 605), the amount and timing of our revenues remain materially unchanged. Our expanded revenue disclosure is presented in Note 2.

ACCOUNTING STANDARDS PENDING ADOPTION

DEFINED BENEFIT PLANS  In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-14, “Changes to the Disclosure Requirements for Defined Benefit Plans,” which adds, removes and clarifies the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and is to be applied retrospectively. Early adoption is permitted. While we are still evaluating the impact of ASU 2018-14 and whether we will early adopt, it will not impact our consolidated financial statements as it only affects disclosure. Thus, the adoption of this standard will have a minor impact on the notes to our consolidated financial statements, specifically, our benefit plans note.

CREDIT LOSSES    In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of financial instruments. The new guidance estimates credit losses based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim reporting periods within those annual reporting periods. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

LEASE ACCOUNTING  In February 2016, the FASB issued ASU 2016-02, “Leases,” which amends existing accounting standards for lease accounting and adds additional disclosures about leasing arrangements. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases (with certain exclusions, including mineral leases) with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement and presentation of cash flow in the statement of cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods.

We will adopt this standard in the first quarter of 2019 utilizing the comparatives transition option under ASC 840. Under this transition approach, we will not restate our comparative periods in the period of adoption. We currently expect to recognize operating lease liabilities of approximately $430,000,000, with corresponding right-of-use assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification, and initial direct costs. Also, we expect to elect the use of the practical expedient pertaining to land easements. We do not expect to elect the use-of-hindsight practical expedient. The new standard also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all equipment leases. This means, for those leases that qualify, we will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.

 

 

v3.10.0.1
REVENUES
12 Months Ended
Dec. 31, 2018
REVENUES [Abstract]  
REVENUES

NOTE 2: REVENUES

There have been no significant changes to the amount or timing of our revenue recognition as a result of our adoption of ASU 2014-09, “Revenue from Contracts with Customers” (Accounting Standards Codification Topic 606). 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 as follows: 2018 — $198,897,000, 2017 — $113,422,000 and 2016 — $42,904,000. The increased service revenues resulted from acquisitions that included asphalt construction paving businesses (2018 – Alabama and Texas, and 2017 – Tennessee, See Note 19).

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 years ended December 31, 2018, 2017 and 2016 are disaggregated as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

For the Year Ended December 31, 2018

 

in thousands

Aggregates

 

 

Asphalt

 

 

Concrete

 

 

Calcium

 

 

Total

 

Total Revenues by Geographic Market 1

 

 

 

 

 

 

 

 

 

 

 

 

 

East

$  1,109,489 

 

 

$     156,591 

 

 

$     257,250 

 

 

$                0 

 

 

$    1,523,330 

 

Gulf Coast

1,821,853 

 

 

131,745 

 

 

71,739 

 

 

8,110 

 

 

2,033,447 

 

West

582,307 

 

 

444,846 

 

 

73,010 

 

 

 

 

1,100,163 

 

Segment sales

$  3,513,649 

 

 

$     733,182 

 

 

$     401,999 

 

 

$         8,110 

 

 

$    4,656,940 

 

Intersegment sales

(274,071)

 

 

 

 

 

 

 

 

(274,071)

 

Total revenues

$  3,239,578 

 

 

$     733,182 

 

 

$     401,999 

 

 

$         8,110 

 

 

$    4,382,869 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

For the Year Ended December 31, 2017

 

in thousands

Aggregates

 

 

Asphalt

 

 

Concrete

 

 

Calcium

 

 

Total

 

Total Revenues by Geographic Market 1

 

 

 

 

 

 

 

 

 

 

 

 

 

East

$  1,045,682 

 

 

$     112,673 

 

 

$     244,568 

 

 

$                0 

 

 

$    1,402,923 

 

Gulf Coast

1,512,505 

 

 

80,311 

 

 

102,716 

 

 

7,740 

 

 

1,703,272 

 

West

537,907 

 

 

429,090 

 

 

70,461 

 

 

 

 

1,037,458 

 

Segment sales

$  3,096,094 

 

 

$     622,074 

 

 

$     417,745 

 

 

$         7,740 

 

 

$    4,143,653 

 

Intersegment sales

(253,357)

 

 

 

 

 

 

 

 

(253,357)

 

Total revenues

$  2,842,737 

 

 

$     622,074 

 

 

$     417,745 

 

 

$         7,740 

 

 

$    3,890,296 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

For the Year Ended December 31, 2016

 

in thousands

Aggregates

 

 

Asphalt

 

 

Concrete

 

 

Calcium

 

 

Total

 

Total Revenues by Geographic Market 1

 

 

 

 

 

 

 

 

 

 

 

 

 

East

$     994,559 

 

 

$                0 

 

 

$     203,734 

 

 

$                0 

 

 

$    1,198,293 

 

Gulf Coast

1,497,762 

 

 

102,035 

 

 

99,253 

 

 

8,860 

 

 

1,707,910 

 

West

469,514 

 

 

410,275 

 

 

27,138 

 

 

 

 

906,927 

 

Segment sales

$  2,961,835 

 

 

$     512,310 

 

 

$     330,125 

 

 

$         8,860 

 

 

$    3,813,130 

 

Intersegment sales

(220,463)

 

 

 

 

 

 

 

 

(220,463)

 

Total revenues

$  2,741,372 

 

 

$     512,310 

 

 

$     330,125 

 

 

$         8,860 

 

 

$    3,592,667 

 





 

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 Bahamas

West market — Arizona, California and New Mexico



PRODUCT AND SERVICE 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 and services 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 cost related to freight & delivery are included in cost of revenues.

Freight & delivery revenues are as follows:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

 

2016

 

Freight & Delivery Revenues

 

 

 

 

 

 

 

 

Total revenues

$  4,382,869 

 

 

$  3,890,296 

 

 

$  3,592,667 

 

   Freight & delivery revenues 1

(641,815)

 

 

(528,916)

 

 

(535,929)

 

Total revenues excluding freight & delivery

$  3,741,054 

 

 

$  3,361,380 

 

 

$  3,056,738 

 





 

1

Includes freight & delivery to remote distribution sites.

CONSTRUCTION PAVING 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 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:



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

 

2016

 

Deferred Revenue

 

 

 

 

 

 

 

 

Balance at beginning of year

$      199,556 

 

 

$     206,468 

 

 

$     214,060 

 

  Revenue recognized from deferred revenue

(6,773)

 

 

(6,912)

 

 

(7,592)

 

Balance at end of year

$      192,783 

 

 

$     199,556 

 

 

$     206,468 

 



Based on expected sales from the specified quarries, we expect to recognize $7,500,000 of VPP deferred revenue as income in 2019 (reflected in other current liabilities in our December 31, 2018 Consolidated Balance Sheet).

 

 

v3.10.0.1
INVENTORIES
12 Months Ended
Dec. 31, 2018
INVENTORIES [Abstract]  
INVENTORIES

NOTE 3: INVENTORIES

Inventories at December 31 are as follows:





 

 

 

 

 

 

 



 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

Inventories

 

 

 

 

 

Finished products  1

$      372,604 

 

 

$     327,711 

 

Raw materials

27,942 

 

 

27,152 

 

Products in process

3,064 

 

 

1,827 

 

Operating supplies and other

25,720 

 

 

27,648 

 

Total

$      429,330 

 

 

$     384,338 

 





 

1

Includes inventories encumbered by volumetric production payments (see Note 2), as follows: December 31, 2018 — $3,230 thousand and December 31, 2017 — $2,808 thousand.



In addition to the inventory balances presented above, as of December 31, 2018 and December 31, 2017, we have $9,980,000 and $11,810,000, respectively, of inventory classified as long-term assets (other noncurrent assets) as we do not expect to sell the inventory within one year of their respective balance sheet dates. Inventories valued under the LIFO method total $308,257,000 at December 31, 2018 and $252,808,000 at December 31, 2017. During 2018, 2017 and 2016, inventory reductions resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years as compared to current-year costs. The effect of the LIFO liquidation on 2018 results was to increase cost of revenues by $132,000 and decrease net earnings by $99,000. The effect of the LIFO liquidation on 2017 results was to decrease cost of revenues by $2,714,000 and increase net earnings by $1,662,000. The effect of the LIFO liquidation on 2016 results was to decrease cost of revenues by $3,956,000 and increase net earnings by $2,419,000.  

Estimated current cost exceeded LIFO cost at December 31, 2018 and 2017 by $175,844,000 and $168,829,000, respectively. We use the LIFO method of valuation for most of our inventories as it results in a better matching of costs with revenues. In periods of increasing costs, LIFO generally results in higher cost of revenues than under FIFO. In periods of decreasing costs, the results are generally the opposite. We provide supplemental income disclosures to facilitate comparisons with companies not on LIFO. The supplemental income calculation is derived by tax-affecting the change in the LIFO reserve for the periods presented. If all inventories valued at LIFO cost had been valued under first-in, first-out (FIFO) method, the approximate effect on net earnings would have been an increase of $5,223,000 in 2018, an increase of $8,092,000 in 2017 and a decrease of $(8,338,000) in 2016.

 

 

v3.10.0.1
PROPERTY, PLANT & EQUIPMENT
12 Months Ended
Dec. 31, 2018
PROPERTY, PLANT & EQUIPMENT [Abstract]  
PROPERTY, PLANT & EQUIPMENT

NOTE 4: PROPERTY, PLANT & EQUIPMENT

Balances of major classes of assets and allowances for depreciation, depletion and amortization at December 31 are as follows:





 

 

 

 

 

 

 



 

 

 

 

 

 

 

in thousands

2018

 

 

2017

 

Property, Plant & Equipment

 

 

 

 

 

Land and land improvements 1

$    2,823,092 

 

 

$  2,742,285 

 

Buildings

139,948 

 

 

135,655 

 

Machinery and equipment

5,106,918 

 

 

4,740,212 

 

Leasehold improvements

18,217 

 

 

17,354 

 

Deferred asset retirement costs

183,324 

 

 

172,631 

 

Construction in progress

186,120 

 

 

161,175 

 

Total, gross

$    8,457,619 

 

 

$  7,969,312 

 

Less allowances for depreciation, depletion

 

 

 

 

 

  and amortization

4,220,312 

 

 

4,050,381 

 

Total, net

$    4,237,307 

 

 

$  3,918,931 

 





 

1

Includes depletable land, as follows: December 31, 2018 — $1,626,899 thousand and December 31, 2017 — $1,606,303 thousand.



Capitalized interest costs with respect to qualifying construction projects and total interest costs incurred before recognition of the capitalized amount for the years ended December 31 are as follows: