UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
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FORM 10-Q
(Mark One)	
☒	QUARTERLY REPORT PURSUANT   TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	

For the quarterly period ended   June 30 , 2018

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

For the transition period from                 to	

Commission File Number 001-33841	
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VULCAN MATERIALS COMPANY
(Exact name of registrant as specified in its charter)
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New Jersey
(State or other jurisdiction of incorporation)	
20-8579133
(I.R.S. Employer Identification No.)	

1200 Urban Center Drive, Birmingham, Alabama
(Address of principal executive offices)   	
35242
(zip code)	

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 
Yes ☒ No   ☐

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

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

Large accelerated filer   ☒	
Accelerated filer     ☐	
Smaller reporting company   ☐	

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐	

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

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

                   Class                   
Common Stock, $1 Par Value	 	Shares outstanding
      at July 27 , 201 8       
132,268,189	 	
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VULCAN MATERIALS COMPANY
 
FORM 10-Q
QUARTER ENDED JUNE 30 , 2018
 
CONTENTS	
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﻿	 	 	 	
﻿	 	 	Page	
PART I	FINANCIAL INFORMATION	 	
﻿	Item 1.	Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Comprehensive Income
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
 	 
  2
  3
 4
  5	
﻿	Item 2.	Management’s Discussion and Analysis of Financial
   Condition and Results of Operations
 	 
2 8	
﻿	Item 3.	Quantitative and Qualitative Disclosures About
   Market Risk
 	 
4 7	
﻿	Item 4.	Controls and Procedures	4 7	
﻿	 	 	
PART II	OTHER INFORMATION	 	
﻿	Item 1.	Legal Proceedings	4 8	
﻿	Item 1A.	Risk Factors	4 8	
﻿	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4 8	
﻿	Item 4.	Mine Safety Disclosures	4 8	
﻿	Item 6.	Exhibits	49	
﻿	 
 
Signatures	 
 
5 0	
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Unless otherwise stated or the context otherwise requires, references in this report to “Vulcan,” the “ C ompany,” “we,” “our,” or “us” refer to Vulcan Materials Company and its consolidated subsidiaries.	
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1

 

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PART I   FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
﻿
CONDENSED CONSOLIDATED BALANCE SHEETS
﻿
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	
Unaudited, except for December 31	June 30	 	 	December 31	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2017 	 	
Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	$         55,059 	 	 	$       141,646 	 	 	$    1,129,799 	 	
Restricted cash	6,056 	 	 	5,000 	 	 	0 	 	
Accounts and notes receivable	 	 	 	 	 	 	 	 	
  Accounts and notes receivable, gross	640,742 	 	 	590,986 	 	 	573,029 	 	
  Less: Allowance for doubtful accounts	(2,628)	 	 	(2,649)	 	 	(2,943)	 	
   Accounts and notes receivable, net	638,114 	 	 	588,337 	 	 	570,086 	 	
Inventories	 	 	 	 	 	 	 	 	
  Finished products	343,948 	 	 	327,711 	 	 	318,465 	 	
  Raw materials	29,684 	 	 	27,152 	 	 	27,106 	 	
  Products in process	1,882 	 	 	1,827 	 	 	1,210 	 	
  Operating supplies and other	28,250 	 	 	27,648 	 	 	28,148 	 	
   Inventories	403,764 	 	 	384,338 	 	 	374,929 	 	
Other current assets	80,209 	 	 	60,780 	 	 	109,998 	 	
Total current assets	1,183,202 	 	 	1,180,101 	 	 	2,184,812 	 	
Investments and long-term receivables	41,989 	 	 	35,115 	 	 	38,888 	 	
Property, plant & equipment	 	 	 	 	 	 	 	 	
  Property, plant & equipment, cost	8,241,164 	 	 	7,969,312 	 	 	7,531,536 	 	
  Allowances for depreciation, depletion & amortization	(4,134,750)	 	 	(4,050,381)	 	 	(3,992,728)	 	
   Property, plant & equipment, net	4,106,414 	 	 	3,918,931 	 	 	3,538,808 	 	
Goodwill	3,163,954 	 	 	3,122,321 	 	 	3,101,439 	 	
Other intangible assets, net	1,156,898 	 	 	1,063,630 	 	 	834,971 	 	
Other noncurrent assets	192,327 	 	 	184,793 	 	 	171,025 	 	
Total assets	$    9,844,784 	 	 	$    9,504,891 	 	 	$    9,869,943 	 	
Liabilities	 	 	 	 	 	 	 	 	
Current maturities of long-term debt	23 	 	 	41,383 	 	 	525,776 	 	
Short-term debt	360,000 	 	 	0 	 	 	0 	 	
Trade payables and accruals	231,913 	 	 	197,335 	 	 	202,753 	 	
Other current liabilities	219,860 	 	 	204,154 	 	 	197,264 	 	
Total current liabilities	811,796 	 	 	442,872 	 	 	925,793 	 	
Long-term debt	2,776,906 	 	 	2,813,482 	 	 	2,809,293 	 	
Deferred income taxes, net	545,756 	 	 	464,081 	 	 	706,726 	 	
Deferred revenue	188,826 	 	 	191,476 	 	 	195,020 	 	
Other noncurrent liabilities	500,870 	 	 	624,087 	 	 	631,007 	 	
Total liabilities	$    4,824,154 	 	 	$    4,535,998 	 	 	$    5,267,839 	 	
Other commitments and contingencies (Note 8)	 	 	 	 	 	 	 	 	
Equity	 	 	 	 	 	 	 	 	
Common stock, $1 par value, Authorized 480,000 shares,	 	 	 	 	 	 	 	 	
 Outstanding 132,268, 132,324 and 132,181 shares, respectively	132,268 	 	 	132,324 	 	 	132,181 	 	
Capital in excess of par value	2,788,486 	 	 	2,805,587 	 	 	2,797,269 	 	
Retained earnings	2,244,545 	 	 	2,180,448 	 	 	1,810,528 	 	
Accumulated other comprehensive loss	(144,669)	 	 	(149,466)	 	 	(137,874)	 	
Total equity	$    5,020,630 	 	 	$    4,968,893 	 	 	$    4,602,104 	 	
Total liabilities and equity	$    9,844,784 	 	 	$    9,504,891 	 	 	$    9,869,943 	 	
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.	 	
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2

 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
﻿
CONDENSED CONSOLIDATED STATEMENTS OF
C OMPREHENSIVE INCOME
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﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
Unaudited	 	 	 	June 30	 	 	 	 	 	June 30	 	
in thousands, except per share data	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Total revenues	$    1,200,151 	 	 	$    1,030,763 	 	 	$    2,054,625 	 	 	$    1,818,091 	 	
Cost of revenues	876,967 	 	 	740,746 	 	 	1,572,106 	 	 	1,369,853 	 	
  Gross profit	323,184 	 	 	290,017 	 	 	482,519 	 	 	448,238 	 	
Selling, administrative and general expenses	89,043 	 	 	83,056 	 	 	167,383 	 	 	165,439 	 	
Gain on sale of property, plant & equipment	 	 	 	 	 	 	 	 	 	 	 	
 and businesses	2,106 	 	 	2,773 	 	 	6,270 	 	 	3,142 	 	
Other operating expense, net	(5,994)	 	 	(17,768)	 	 	(9,969)	 	 	(23,595)	 	
  Operating earnings	230,253 	 	 	191,966 	 	 	311,437 	 	 	262,346 	 	
Other nonoperating income, net	3,339 	 	 	3,890 	 	 	8,421 	 	 	7,934 	 	
Interest expense, net	33,244 	 	 	38,455 	 	 	71,018 	 	 	72,531 	 	
Earnings from continuing operations	 	 	 	 	 	 	 	 	 	 	 	
 before income taxes	200,348 	 	 	157,401 	 	 	248,840 	 	 	197,749 	 	
Income tax expense	40,046 	 	 	45,652 	 	 	35,143 	 	 	42,477 	 	
Earnings from continuing operations	160,302 	 	 	111,749 	 	 	213,697 	 	 	155,272 	 	
Earnings (loss) on discontinued operations, net of tax	(650)	 	 	8,390 	 	 	(1,066)	 	 	9,788 	 	
Net earnings	$       159,652 	 	 	$       120,139 	 	 	$       212,631 	 	 	$       165,060 	 	
Other comprehensive income, net of tax	 	 	 	 	 	 	 	 	 	 	 	
  Deferred gain on interest rate derivative	0 	 	 	0 	 	 	2,496 	 	 	0 	 	
  Amortization of prior interest rate derivative loss	52 	 	 	328 	 	 	118 	 	 	647 	 	
  Amortization of actuarial loss and prior service	 	 	 	 	 	 	 	 	 	 	 	
    cost for benefit plans	1,092 	 	 	427 	 	 	2,183 	 	 	855 	 	
Other comprehensive income	1,144 	 	 	755 	 	 	4,797 	 	 	1,502 	 	
Comprehensive income	$       160,796 	 	 	$       120,894 	 	 	$       217,428 	 	 	$       166,562 	 	
Basic earnings (loss) per share	 	 	 	 	 	 	 	 	 	 	 	
  Continuing operations	$             1.21 	 	 	$             0.84 	 	 	$             1.61 	 	 	$             1.17 	 	
  Discontinued operations	0.00 	 	 	0.07 	 	 	(0.01)	 	 	0.08 	 	
  Net earnings	$             1.21 	 	 	$             0.91 	 	 	$             1.60 	 	 	$             1.25 	 	
Diluted earnings (loss) per share	 	 	 	 	 	 	 	 	 	 	 	
  Continuing operations	$             1.20 	 	 	$             0.83 	 	 	$             1.59 	 	 	$             1.15 	 	
  Discontinued operations	(0.01)	 	 	0.06 	 	 	(0.01)	 	 	0.07 	 	
  Net earnings	$             1.19 	 	 	$             0.89 	 	 	$             1.58 	 	 	$             1.22 	 	
Weighted-average common shares outstanding	 	 	 	 	 	 	 	 	 	 	 	
  Basic	132,437 	 	 	132,413 	 	 	132,563 	 	 	132,524 	 	
  Assuming dilution	134,051 	 	 	134,735 	 	 	134,280 	 	 	134,925 	 	
Cash dividends per share of common stock	$             0.28 	 	 	$             0.25 	 	 	$             0.56 	 	 	$             0.50 	 	
Depreciation, depletion, accretion and amortization	$         85,633 	 	 	$         76,775 	 	 	$       167,072 	 	 	$       148,339 	 	
Effective tax rate from continuing operations	20.0% 	 	 	29.0% 	 	 	14.1% 	 	 	21.5% 	 	
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.	 	
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3

 

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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﻿	 	 	 	 	 	
﻿	 	 	 	 	 	
﻿	Six Months Ended	 	
Unaudited	 	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	
Operating Activities	 	 	 	 	 	
Net earnings	$       212,631 	 	 	$       165,060 	 	
Adjustments to reconcile net earnings to net cash provided by operating activities	 	 	 	 	 	
  Depreciation, depletion, accretion and amortization	167,072 	 	 	148,339 	 	
  Net gain on sale of property, plant & equipment and businesses	(6,270)	 	 	(3,142)	 	
  Contributions to pension plans	(104,794)	 	 	(4,744)	 	
  Share-based compensation expense	14,763 	 	 	13,671 	 	
  Deferred tax expense (benefit)	40,549 	 	 	2,901 	 	
  Cost of debt purchase	6,922 	 	 	0 	 	
  Changes in assets and liabilities before initial effects of business acquisitions	 	 	 	 	 	
    and dispositions	(55,415)	 	 	(170,701)	 	
Other, net	302 	 	 	3,838 	 	
Net cash provided by operating activities	$       275,760 	 	 	$       155,222 	 	
Investing Activities	 	 	 	 	 	
Purchases of property, plant & equipment	(247,166)	 	 	(291,034)	 	
Proceeds from sale of property, plant & equipment	8,523 	 	 	8,530 	 	
Proceeds from sale of businesses	11,256 	 	 	0 	 	
Payment for businesses acquired, net of acquired cash	(218,996)	 	 	(210,562)	 	
Other, net	(10,226)	 	 	405 	 	
Net cash used for investing activities	$     (456,609)	 	 	$     (492,661)	 	
Financing Activities	 	 	 	 	 	
Proceeds from short-term debt	506,200 	 	 	5,000 	 	
Payment of short-term debt	(146,200)	 	 	(5,000)	 	
Payment of current maturities and long-term debt	(892,044)	 	 	(235,007)	 	
Proceeds from issuance of long-term debt	850,000 	 	 	1,600,000 	 	
Debt issuance and exchange costs	(45,513)	 	 	(15,046)	 	
Settlements of interest rate derivatives	3,378 	 	 	0 	 	
Purchases of common stock	(74,921)	 	 	(60,303)	 	
Dividends paid	(74,196)	 	 	(66,194)	 	
Share-based compensation, shares withheld for taxes	(31,386)	 	 	(24,231)	 	
Net cash provided by financing activities	$         95,318 	 	 	$    1,199,219 	 	
Net increase (decrease) in cash and cash equivalents and restricted cash	(85,531)	 	 	861,780 	 	
Cash and cash equivalents and restricted cash at beginning of year	146,646 	 	 	268,019 	 	
Cash and cash equivalents and restricted cash at end of period	$         61,115 	 	 	$    1,129,799 	 	
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements.	 	
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4

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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NATURE OF OPERATIONS
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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.
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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.
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BASIS OF PRESENTATION
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Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. 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, 201 7 was derived from the audited financial statement, but it does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. Operating results for the three and six month period s ended June 30 , 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 201 8 . For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.
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Due to the 2005 sale of our Chemicals business as described in Note 2, the results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income.
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RECLASSIFICATIONS
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Certain items previously reported in specific financial statement captions have been reclassified to conform to the 201 8 presentation.   In the first quarter of 2018, we adopted A ccounting S tandards U pdate (ASU) 2017- 0 7, “Improving the Presentation of Net Periodic Benefit Cost and Net Perio dic Postretirement Benefit Cost , ” resulting in the reclassification of certain benefit costs from operating income to nonoperating income as described in Note 17.
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RESTRICTED CASH
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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.
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5

 
EARNINGS PER SHARE (EPS)
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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:
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﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Weighted-average common shares	 	 	 	 	 	 	 	 	 	 	 	
 outstanding	132,437 	 	 	132,413 	 	 	132,563 	 	 	132,524 	 	
Dilutive effect of	 	 	 	 	 	 	 	 	 	 	 	
  Stock-Only Stock Appreciation Rights	583 	 	 	1,317 	 	 	636 	 	 	1,330 	 	
  Other stock compensation plans	1,031 	 	 	1,005 	 	 	1,081 	 	 	1,071 	 	
Weighted-average common shares	 	 	 	 	 	 	 	 	 	 	 	
 outstanding, assuming dilution	134,051 	 	 	134,735 	 	 	134,280 	 	 	134,925 	 	
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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:
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﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Antidilutive common stock equivalents	157 	 	 	79 	 	 	155 	 	 	79 	 	

NOTE 2: DISCONTINUED OPERATIONS
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In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. There were no revenues from discontinued operations for the periods presented. Results from discontinued operations are as follows:
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﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Discontinued Operations	 	 	 	 	 	 	 	 	 	 	 	
Pretax earnings (loss)	$          (883)	 	 	$      12,804 	 	 	$       (1,449)	 	 	$      14,896 	 	
Income tax (expense) benefit	233 	 	 	(4,414)	 	 	383 	 	 	(5,108)	 	
Earnings (loss) on discontinued operations,	 	 	 	 	 	 	 	 	 	 	 	
 net of tax	$          (650)	 	 	$        8,390 	 	 	$       (1,066)	 	 	$        9,788 	 	
﻿
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.   The 2017 results   noted above primarily reflect charges and related insurance recoveries ,   including those associated with the Texas Brine matter a s   d iscussed in Note 8.

6

 
NOTE 3: INCOME TAXES
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The Tax Cuts and Jobs Act (TCJA) was enacted in December 2017. The TCJA, among other changes, (1) reduces the U.S. federal corporate income tax rate from 35% to 21% , (2) allows for the immediate 100% deductibility of certain capital investments, (3) eliminates the alternative minimum tax (though allows for the future use of previously generated alternative minimum tax credits), (4) repeals the domestic production deduction, (5) requires a one-time “transition tax” on earnings of certain foreign subsidiaries that were previously tax deferred, (6) limits the deductibility of interest expense, (7) further limits the deductibility of certain executive compensation and (8) taxes global intangible low taxed income.
﻿
The SEC staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that have not completed their accounting for the income tax effects of the TCJA in the period of enactment. SAB 118 provides a one-year measurement period from the TCJA enactment date for companies to complete their income tax accounting. In accordance with SAB 118, a company must reflect the income tax effects of those elements of the TCJA for which the income tax accounting is complete. To the extent that a company’s accounting for certain elements of the TCJA is incomplete but for which it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company is unable to determine a provisional estimate, it should account for its income taxes on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.
﻿
Our accounting for certain elements of the TCJA is incomplete. As we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, we were able to make reasonable estimates, and therefore, recorded provisional estimates for the following elements. We have not made any measurement-period adjustments related to these items during the first half of 2018 .
﻿
	§		DEEMED REPATRIATION TRANSITION TAX — The TCJA subjects companies to a one-time Deemed Repatriation Transition Tax (Transition Tax) on previously untaxed foreign accumulated earnings and profits. We recorded a provisional Transition Tax obligation of $12,301,000 at December 31, 2017.	
	§		DEDUCTIBILITY OF EXECUTIVE COMPENSATION — The TCJA eliminates the performance-based compensation exception from the limitation on covered employee remuneration. At this time, we believe that a portion of the performance-based remuneration accounted for in our deferred taxes will likely be non-deductible. As such, we included a provisional expense of $1,403,000 at December 31, 2017.	
﻿
Our accounting for certain other elements of the TCJA is incomplete, and as we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 , we were not yet able to make reasonable estimates of the effects. Therefore, no provisional estimates were recorded. We have not recorded any measurement-period adjustments related to these items during the first half of 2018.
﻿
	§		OUTSIDE BASIS DIFFERENCE IN FOREIGN SUBSIDIARIES — For U.S. income tax purposes, the Transition Tax will greatly reduce outside basis differences in our foreign subsidiaries. Completing this calculation is dependent on first finalizing the Transition Tax liability. As a result, we are not yet able to reasonably estimate the outside basis difference remaining in our foreign subsidiaries after the Transition Tax, and therefore, continue to assert that our undistributed earnings from foreign subsidiaries are indefinitely reinvested.	
	§		GLOBAL INTANGIBLE LOW TAXED INCOME — We can make an accounting policy election of either (1) treating taxes due on the future U.S. inclusions in taxable income related to global intangible low taxed income (GILTI) as a current period expense when incurred (period cost method) or (2) factoring such amounts into our measurement of deferred taxes (deferred method). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on determin ing whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, t he expected impac t. We have not recorded any amount of GILTI tax in our financial statements nor have we made a n accounting policy decision.	
﻿

7

 
Our estimated annual effective tax rate (EAETR) is based on full-year expectations of pretax earnings, statutory tax rates, permanent differences between book and tax accounting such as percentage depletion, and tax planning alternatives available in the various jurisdictions in which we operate. For interim financial reporting, we calculate our quarterly income tax provision in accordance with the EAETR. Each quarter, we update our EAETR based on our revised full-year expectation of pretax earnings and calculate the income tax provision so that the year-to-date income tax provision reflects the EAETR. Significant judgment is required in determining our EAETR.
﻿
In the second quarter of 2018, we recorded income tax expense from continuing operations of $ 40,046,000 compared to income tax expense from continuing operations of $45,652,000 in the second quarter of 2017. The de crease in income tax expense   was   largely due to the change in the U.S. statutory income tax rate to 21% in 2018 from 35% in 2017.
﻿
For the first six months of 2018, we recorded income tax expense from continuing operations of $ 35,143,000 compared to income tax expense from continuing operations of $42,477,000 for the first six months of 2017. The de crease in income tax expense was largely due to the change in the U.S. statutory income tax rate to 21% in 2018 from 35% in 2017 .
﻿
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, 2018, we project state net operating loss carryforward deferred tax assets of $71, 812 ,000  ( $67, 611 ,000 relates to Alabama), against which we project to have a valuation allowance of $29,695,000  ( $29,182,000 relates to Alabama). The Alabama net operating loss carryforward, if not utilized, would expire in years 2023 – 2033 .
﻿
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, 2017.

NOTE 4: REVENUE S
﻿
There have been no significant changes to the amount or timing of our revenue recognition as a result of our adoption of Accounting Standards Update (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 construction paving contracts are also 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, 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 revenues from our asphalt construction paving business (represents less than 10% of our Asphalt segment’s revenues) and services related to our aggregates business ( represents less than 2% of our Aggregates segment’s revenues ).  
﻿
Our products typically are sold to private industry and not directly to governmental entities. Although approximately 45% to 55% of our aggregates shipments have historically been used in publicly funded construction, such as highways, airports and government buildings, relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly funded construction, our business is not directly subject to renegotiation of profits or termination of contracts with state or federal governments.
﻿

8

 
Our segment total revenues by geographic market for the three and six month period s ended June 30, 2018 and 201 7   are disaggregated as follows:
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	Three Months Ended June 30, 2018	 	
in thousands	Aggregates	 	 	Asphalt	 	 	Concrete	 	 	Calcium	 	 	Total	 	
Total Revenues by Geographic Market 1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
East	$     313,245 	 	 	$     49,339 	 	 	$     69,605 	 	 	$              0 	 	 	$      432,189 	 	
Gulf Coast	493,696 	 	 	38,845 	 	 	18,354 	 	 	2,282 	 	 	553,177 	 	
West	149,324 	 	 	123,644 	 	 	18,764 	 	 	0 	 	 	291,732 	 	
Segment sales	$     956,265 	 	 	$   211,828 	 	 	$   106,723 	 	 	$       2,282 	 	 	$   1,277,098 	 	
Intersegment sales	(76,947)	 	 	0 	 	 	0 	 	 	0 	 	 	(76,947)	 	
Total revenues	$     879,318 	 	 	$   211,828 	 	 	$   106,723 	 	 	$       2,282 	 	 	$   1,200,151 	 	
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	Three Months Ended June 30, 2017	 	
in thousands	Aggregates	 	 	Asphalt	 	 	Concrete	 	 	Calcium	 	 	Total	 	
Total Revenues by Geographic Market 1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
East	$     281,304 	 	 	$     29,775 	 	 	$     59,647 	 	 	$              0 	 	 	$      370,726 	 	
Gulf Coast	384,793 	 	 	24,444 	 	 	25,501 	 	 	1,971 	 	 	436,709 	 	
West	151,489 	 	 	121,539 	 	 	20,065 	 	 	0 	 	 	293,093 	 	
Segment sales	$     817,586 	 	 	$   175,758 	 	 	$   105,213 	 	 	$       1,971 	 	 	$   1,100,528 	 	
Intersegment sales	(69,765)	 	 	0 	 	 	0 	 	 	0 	 	 	(69,765)	 	
Total revenues	$     747,821 	 	 	$   175,758 	 	 	$   105,213 	 	 	$       1,971 	 	 	$   1,030,763 	 	
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	Six Months Ended June 30, 2018	 	
in thousands	Aggregates	 	 	Asphalt	 	 	Concrete	 	 	Calcium	 	 	Total	 	
Total Revenues by Geographic Market 1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
East	$     496,459 	 	 	$     61,068 	 	 	$   131,175 	 	 	$              0 	 	 	$      688,702 	 	
Gulf Coast	888,271 	 	 	53,488 	 	 	43,554 	 	 	4,224 	 	 	989,537 	 	
West	271,192 	 	 	201,107 	 	 	32,956 	 	 	0 	 	 	505,255 	 	
Segment sales	$  1,655,922 	 	 	$   315,663 	 	 	$   207,685 	 	 	$       4,224 	 	 	$   2,183,494 	 	
Intersegment sales	(128,869)	 	 	0 	 	 	0 	 	 	0 	 	 	(128,869)	 	
Total revenues	$  1,527,053 	 	 	$   315,663 	 	 	$   207,685 	 	 	$       4,224 	 	 	$   2,054,625 	 	
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	Six Months Ended June 30, 2017	 	
in thousands	Aggregates	 	 	Asphalt	 	 	Concrete	 	 	Calcium	 	 	Total	 	
Total Revenues by Geographic Market 1	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
East	$     463,762 	 	 	$     39,154 	 	 	$   113,897 	 	 	$              0 	 	 	$      616,813 	 	
Gulf Coast	752,006 	 	 	42,480 	 	 	51,807 	 	 	3,857 	 	 	850,150 	 	
West	252,118 	 	 	189,900 	 	 	28,259 	 	 	0 	 	 	470,277 	 	
Segment sales	$  1,467,886 	 	 	$   271,534 	 	 	$   193,963 	 	 	$       3,857 	 	 	$   1,937,240 	 	
Intersegment sales	(119,149)	 	 	0 	 	 	0 	 	 	0 	 	 	(119,149)	 	
Total revenues	$  1,348,737 	 	 	$   271,534 	 	 	$   193,963 	 	 	$       3,857 	 	 	$   1,818,091 	 	
﻿
﻿	 	
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	
﻿
﻿

9

 
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 15 th day of the following month — we 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, t he cost related to freight &   delivery is included in cost of revenues .
﻿
﻿
CONSTRUCTION PAVING REVENUES
﻿
Revenue from our   asphalt construction   paving business is recognized over time using the percentage-of-completion method under the co st 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 REVENUE S
﻿
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.
﻿
These proceeds we re ceived from the sale of the percentage interest were re corded 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 assum ed by the buy er, the transactions do not reflect f inancing activities .
﻿
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Deferred Revenue	 	 	 	 	 	 	 	 	 	 	 	
Balance at beginning of period	$     198,201 	 	 	$     204,819 	 	 	$     199,556 	 	 	$     206,468 	 	
 Revenue recognized from deferred revenue	(1,905)	 	 	(1,719)	 	 	(3,260)	 	 	(3,368)	 	
Balance at end of period	$     196,296 	 	 	$     203,100 	 	 	$     196,296 	 	 	$     203,100 	 	
﻿
Based on expected sales from the specified quarries, we expect to recognize $ 7,470,000   of deferred revenue as income during the 12-month period ending June 30 , 2019 (reflected in other current liabilities in our June 30, 2018 Condensed Consolidated Balan ce Sheet ) .

10

 
NOTE 5: FAIR VALUE MEASUREMENTS
﻿
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:
﻿
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs that are derived principally from or corroborated by observable market data
Level 3: Inputs that are unobservable and significant to the overall fair value measurement
﻿
Our a ssets subject to fair value measurement on a recurring basis are summarized below:
﻿
﻿
﻿
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	
﻿	Level 1 Fair Value	
﻿	June 30	 	 	December 31	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2017 	 	
Fair Value Recurring	 	 	 	 	 	 	 	 	
Rabbi Trust	 	 	 	 	 	 	 	 	
 Mutual funds	$       20,698 	 	 	$       20,348 	 	 	$         5,348 	 	
 Equities	0 	 	 	0 	 	 	11,785 	 	
Total	$       20,698 	 	 	$       20,348 	 	 	$       17,133 	 	
﻿
﻿
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	
﻿	Level 2 Fair Value	
﻿	June 30	 	 	December 31	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2017 	 	
Fair Value Recurring	 	 	 	 	 	 	 	 	
Rabbi Trust	 	 	 	 	 	 	 	 	
 Money market mutual fund	$        1,754 	 	 	$        1,203 	 	 	$        2,338 	 	
Total	$        1,754 	 	 	$        1,203 	 	 	$        2,338 	 	
﻿
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 $ ( 428,000 ) and $ 848,000   for the six months ended June  3 0 , 2018 and 201 7 , respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at June  3 0 , 2018 and 201 7 were $ ( 430,000 )   and  $ 413,000 , respectively.
﻿
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 6 and 7, respectively.

11

 
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.
﻿
The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate locks described below were designated as cash flow hedges. The changes in fair value of our 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.
﻿
We occasionally enter into interest rate locks of future debt issuances to hedge the risk of higher interest rates. Th e gain/loss upon settlement 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	 	 	Six Months Ended	 	
﻿	Location on	 	June 30	 	 	June 30	 	
in thousands	Statement	 	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Interest Rate Hedges	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss reclassified from AOCI	Interest	 	 	 	 	 	 	 	 	 	 	 	 	
 (effective portion)	expense	 	$           (71)	 	 	$         (539)	 	 	$         (160)	 	 	$      (1,067)	 	
﻿
For the 12-month period ending June  3 0 , 201 9 , we estimate that $ 297,000 of the pretax loss in AOCI will be reclassified to interest expense .

12

 
NOTE 7: DEBT
﻿
Debt is detailed as follows:
﻿
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	Effective	 	June 30	 	 	December 31	 	 	June 30	 	
in thousands	Interest Rates	 	2018 	 	 	2017 	 	 	2017 	 	
Short-term Debt	 	 	 	 	 	 	 	 	 	 	
Bank line of credit expires 2021 1	1.25% 	 	$        360,000 	 	 	$                0 	 	 	$                0 	 	
Total short-term debt	 	 	$        360,000 	 	 	$                0 	 	 	$                0 	 	
Long-term Debt	 	 	 	 	 	 	 	 	 	 	
Bank line of credit expires 2021 1	 	 	$                   0 	 	 	$     250,000 	 	 	$                0 	 	
Term loan due 2018 2	 	 	0 	 	 	350,000 	 	 	0 	 	
7.00% notes due 2018	 	 	0 	 	 	0 	 	 	272,512 	 	
10.375% notes due 2018	 	 	0 	 	 	0 	 	 	250,000 	 	
Floating-rate notes due 2020	3.00% 	 	250,000 	 	 	250,000 	 	 	250,000 	 	
Floating-rate notes due 2021	2.93% 	 	500,000 	 	 	0 	 	 	0 	 	
7.50% notes due 2021	 	 	0 	 	 	35,111 	 	 	600,000 	 	
8.85% notes due 2021	8.88% 	 	6,000 	 	 	6,000 	 	 	6,000 	 	
Term loan due 2021 2	 	 	0 	 	 	250,000 	 	 	250,000 	 	
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 	 	 	240,188 	 	 	240,188 	 	
4.50% notes due 2047	4.59% 	 	700,000 	 	 	700,000 	 	 	700,000 	 	
4.70% notes due 2048	5.42% 	 	460,949 	 	 	0 	 	 	0 	 	
Other notes 2	6.46% 	 	219 	 	 	230 	 	 	358 	 	
Total long-term debt - face value	 	 	$     2,846,407 	 	 	$  2,881,529 	 	 	$  3,369,058 	 	
Unamortized discounts and debt issuance costs	 	 	(69,478)	 	 	(26,664)	 	 	(33,989)	 	
Total long-term debt - book value	 	 	$     2,776,929 	 	 	$  2,854,865 	 	 	$  3,335,069 	 	
Less current maturities	 	 	23 	 	 	41,383 	 	 	525,776 	 	
Total long-term debt - reported value	 	 	$     2,776,906 	 	 	$  2,813,482 	 	 	$  2,809,293 	 	
Estimated fair value of long-term debt	 	 	$     2,782,543 	 	 	$  2,983,419 	 	 	$  3,077,069 	 	
﻿
﻿
﻿	 	
1 	Borrowings on the bank line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt otherwise.	
2 	This short-term loan was refinanced on a long-term basis in February 2018 as discussed below. Thus, it was classified as long-term debt as of December 31, 2017.	
﻿
Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $2,698,000 of net interest expense for these items for the six months ended June 3 0 , 2018.
﻿
﻿
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 June 30, 2018, we were in compliance with the line of credit covenants.
﻿

13

 
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 June 30, 2018, the credit margin for LIBOR borrowings was 1.25% , the credit margin for base rate borrowings was 0.25% , and the commitment fee for the unused amount was 0.15% .
﻿
As of June 30, 2018, our available borrowing capacity was $344,933,000 . Utilization of the borrowing capacity was as follows:
﻿
	§		$360,000,000 was borrowed	
	§		$45,067,000 was used to provide support for outstanding standby letters of credit	
﻿
﻿
TERM DEBT
﻿
All of our $ 2,846,407,000 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 June 30, 2018, we were in compliance with all term debt covenants.
﻿
In March 2018, we early retired via exchange offer $110,949,000   of the $240,188,000   7.15% 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 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 $110,949,000 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 net 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 $5,608,00 0 .  A dditionally, we recognized net 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 in the first quarter of 2018.
﻿
In December 2017, we early retired via tender offer, $564,889,000 of the $600,000,000 7.50% senior notes due 2021 at a cost of $662,613,000 including a premium of $96,167,000 and transaction costs of $1,558,000 . Additionally, we recognized net noncash expense of $4,228,000 with the acceleration of unamortized deferred transaction costs.
﻿
Also in December 2017, we entered into a 6 -month $350,000,000 unsecured term loan with one of the banks that provides our line of credit. Proceeds were used for general corporate purposes. This term loan was prepaid, as described above, in February 2018 with the proceeds of the 4.70% senior notes due 2048.
﻿
In July 2017, we early retired via redemption: (1) the $272,512,000 7.00% senior notes due 2018 and (2) the $250,000,000 10.375% senior notes due 2018 —   at a combined cost of $565,560,000 including a premium of $43,020,000 and transaction costs of $28,000 . Additionally, we recognized net noncash expense of $3,029,000 with the acceleration of unamortized deferred discounts, transaction costs and interest rate derivative settlement losses. Such redemptions were partially funded with the proceeds of the senior notes issued in June 2017 as described below.
﻿

14

 
In June 2017, we issued $1,000,000,000 of debt composed of three issuances as follows: (1) $700,000,000 of 4.50% senior notes due 2047, (2) $50,000,000 of 3.90% senior notes due 2027 (these notes are a further issuance of, and form a single series with, the 3.90% notes issued in March 2017), and (3) $250,000,000 of floating-rate senior notes due 2020. Total proceeds of $989,512,000 (net of discounts/premiums and transaction costs) were used to partially finance an acquisition and to early retire the notes due in 2018 as described above.
﻿
In June 2017, we drew the full $250,000,000 on the unsecured delayed draw term loan due 2021 . These funds were used to repay the   $235,000,000 line of credit borrowings and for general corporate purposes. This term loan was prepaid, as described above, in February 2018 with proceeds of the floating-rate senior notes due 2021.
﻿
In March 2017, we issued $350,000,000 of 3.90% senior notes due 2027. Proceeds of $345,450,000 (net of discounts and transaction costs) were used for general corporate purposes. This series of notes now totals $400,000,000 including the additional $50,000,000 issued in June as described above.
﻿
A s a result of the 2017 early debt retirements described above, we recognized pr emiums of $139,187,000 ,   t ransaction costs of $1,586,000 and n et noncash expense ( acceleration of unamortized d eferred transaction costs ) of   $7,257,000 . The combined charge of $148,030,000 was a component of interest expense for the year ended December 31, 2017 with none recognized in the six months ended June 30, 2017.
﻿
﻿
STANDBY LETTERS OF CREDIT
﻿
We provide, in the normal course of business, certain third-party beneficiaries with standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of one year, typically renew automatically, and can only be modified or cancelled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our $750,000,000 line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of June 30, 2018 are summarized by purpose in the table below:
﻿
﻿
﻿	 	 	
﻿	 	 	
in thousands	 	 	
Standby Letters of Credit	 	 	
Risk management insurance	$       38,111 	 	
Reclamation/restoration requirements	6,956 	 	
Total	$       45,067 	 	

NOTE 8: COMMITMENTS AND CONTINGENCIES
﻿
As summarized by purpose directly above in Note 7, our standby letters of credit totaled $45,067,000 as of June 30, 2018.
﻿
As described in Note 9, our asset retirement obligations totaled $215,421,000 as of June 30, 2018.
﻿
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.
﻿

15

 
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 (SUPERFUND SITE) — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the Cooperating Parties Group) to a May 2007 Administrative Order on Consent (AOC) with the EPA to perform a Remedial Investigation/Feasibility Study (draft RI/FS) of the lower 17 miles of the Passaic River (River). However, before the draft RI/FS was issued in final form, the EPA issued a record of decision (ROD) in March 2016 that calls for a bank-to-bank dredging remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is $1.38 billion. In September 2016, 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 Cooperating Parties Group, 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 rec overy and contribution under   C ERCLA . It is unknown at this time whether the filing of the Occidental lawsuit will impact the EPA allocation process.
﻿
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 — 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.	
﻿

16

 
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 b y T exas Bri ne . We have since been added as a direct and third-party defendant by other parties, including a direct claim by the S tate of Louisian a. Damage categories encompassed within the litigation include individual plaintiffs’ claims for property damage, a claim by the S tate of Louisia na for response costs and civil penalties, claims by Texas Brine for response costs and lost profits,  c laims for physical damages to nearby oil and gas pipeline s 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. I t 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 Brin e; 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 have 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 Occident al.
﻿
A bench trial (judge only) began in September 2017 and ended in October 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 .
﻿
Also in December 2017, we agreed to a settlement in a federal putative class action which has now been finalized by the cour t. O ur insurers participated in the settlement discussions and have funded the settlement. We have settled all but three outstanding cases. The remaining cases involve one third-party plaintiff, Texas Brine , and the S tate of Louisiana. Di scovery remains ongoing in these   cases.
﻿
W e cannot reasonably estimate a range of liability pertaining to the open cases at this time .
﻿
	§		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 a n 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. W ith completion of the pilot testing and other investigative work to date, 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 will begin to implement the on-site source control activities described in the AIRAP. Based on the preliminary design of this system, we accrued $15,239,000 in 2017 ( of which $14,216,000 was recorded to other operating expense in the second quarter of 2017).
﻿

17

 
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 Valle y Superfund Site. W e are gathering and analyzing data and deve loping techni cal information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area .
﻿
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 well field. In November 2017, we submitted a Pre-Design Investigation Work Plan to the EPA, which sets forth the activities and schedule for our evaluation of the need for a two-well remedy. Estimated costs to comply with this AOC are immaterial and have been accrued. Until the remedial design work and evaluation of the two-well remedy is complete,   and a comprehensive remedial action for the NHOU is identified, we can not reas onably estimate a loss pertaining to this matter.
﻿
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.

18

 
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. Essentially all these AROs relate to our underlying land, including both owned properties and mineral leases. For the three and six month periods ended June 30, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
ARO Operating Costs	 	 	 	 	 	 	 	 	 	 	 	
Accretion	$        2,668 	 	 	$        2,881 	 	 	$        5,352 	 	 	$        5,763 	 	
Depreciation	1,343 	 	 	1,615 	 	 	2,680 	 	 	3,247 	 	
Total	$        4,011 	 	 	$        4,496 	 	 	$        8,032 	 	 	$        9,010 	 	
﻿
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	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Asset Retirement Obligations	 	 	 	 	 	 	 	 	 	 	 	
Balance at beginning of period	$     214,709 	 	 	$     226,012 	 	 	$     218,117 	 	 	$     223,872 	 	
  Liabilities incurred	0 	 	 	335 	 	 	0 	 	 	335 	 	
  Liabilities settled	(1,805)	 	 	(5,610)	 	 	(7,826)	 	 	(10,475)	 	
  Accretion expense	2,668 	 	 	2,881 	 	 	5,352 	 	 	5,763 	 	
  Revisions, net	(151)	 	 	335 	 	 	(222)	 	 	4,458 	 	
Balance at end of period	$     215,421 	 	 	$     223,953 	 	 	$     215,421 	 	 	$     223,953 	 	
﻿
ARO liabilities settled during the first six months of 2018 and 2017 include $ 5,158,000 and $5,017,000 , 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 and development of 90 acres of previously mined property suitable for retail and commercial development.

19

 
NOTE 10: BENEFIT 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.
﻿
Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. Effective December 2013, we amended our defined benefit pension plans to freeze future benefit accruals for salaried pension participants . E ffective December 31, 2015 , we amended our defined benefit pension plans to free ze earnings for salaried pension participants .
﻿
The following table sets forth the components of net periodic pension benefit cost:
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
PENSION BENEFITS	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Components of Net Periodic Benefit Cost	 	 	 	 	 	 	 	 	 	 	 	
Service cost	$        1,429 	 	 	$        1,654 	 	 	$        2,858 	 	 	$        3,308 	 	
Interest cost	8,875 	 	 	9,058 	 	 	17,751 	 	 	18,115 	 	
Expected return on plan assets	(14,797)	 	 	(12,096)	 	 	(29,594)	 	 	(24,192)	 	
Amortization of prior service cost	335 	 	 	335 	 	 	670 	 	 	670 	 	
Amortization of actuarial loss	2,456 	 	 	1,823 	 	 	4,913 	 	 	3,647 	 	
Net periodic pension benefit cost (credit)	$       (1,702)	 	 	$           774 	 	 	$       (3,402)	 	 	$        1,548 	 	
Pretax reclassifications from AOCI included in	 	 	 	 	 	 	 	 	 	 	 	
 net periodic pension benefit cost	$        2,791 	 	 	$        2,158 	 	 	$        5,583 	 	 	$        4,317 	 	
﻿
The contributions to pension plans for the six   months ended June  3 0 , 2018 and 201 7 , as reflected on the Condensed Consolidated Statements of Cash Flows, pertain to benefit payments under nonqualified plans and a first quarter 2018 discretionary qualified plan contribution of $100,000,000 .
﻿
In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. Substantially all our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain se rvice requirements. Generally, C ompany-provided healthcare benefits end when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age 65 , whichever occurs first.
﻿
The following table sets forth the components of net periodic other postretirement benefit cost:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
OTHER POSTRETIREMENT BENEFITS	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Components of Net Periodic Benefit Cost	 	 	 	 	 	 	 	 	 	 	 	
Service cost	$           340 	 	 	$           291 	 	 	$           679 	 	 	$           583 	 	
Interest cost	310 	 	 	315 	 	 	620 	 	 	630 	 	
Amortization of prior service credit	(990)	 	 	(1,059)	 	 	(1,981)	 	 	(2,118)	 	
Amortization of actuarial gain	(325)	 	 	(396)	 	 	(649)	 	 	(793)	 	
Net periodic postretirement benefit credit	$          (665)	 	 	$          (849)	 	 	$       (1,331)	 	 	$       (1,698)	 	
Pretax reclassifications from AOCI included in	 	 	 	 	 	 	 	 	 	 	 	
 net periodic postretirement benefit credit	$       (1,315)	 	 	$       (1,455)	 	 	$       (2,630)	 	 	$       (2,911)	 	
﻿
We present the service cost component of net periodic benefit cost in cost of revenues and selling, administrative and general expense consistent with employee compensation costs. The other components of net periodic benefit cost (credit) are reported within other nonoperating income in our accompanying Condensed Consolidated Statements of Comprehensive Incom e.

20

 
NOTE 11: OTHER COMPREHENSIVE INCOME
﻿
Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.
﻿
Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	June 30	 	 	December 31	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2017 	 	
AOCI	 	 	 	 	 	 	 	 	
Interest rate hedges	$        (8,824)	 	 	$      (11,438)	 	 	$      (12,653)	 	
Pension and postretirement plans	(135,845)	 	 	(138,028)	 	 	(125,221)	 	
Total	$    (144,669)	 	 	$    (149,466)	 	 	$    (137,874)	 	
﻿
Changes in AOCI, net of tax, for the six months ended June 30, 2018 are as follows:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	Pension and 	 	 	 	 	
﻿	Interest Rate	 	 	Postretirement	 	 	 	 	
in thousands	Hedges	 	 	Benefit Plans	 	 	Total	 	
AOCI	 	 	 	 	 	 	 	 	
Balance as of December 31, 2017	$       (11,438)	 	 	$     (138,028)	 	 	$     (149,466)	 	
Other comprehensive income	 	 	 	 	 	 	 	 	
 before reclassifications	2,496 	 	 	0 	 	 	2,496 	 	
Amounts reclassified from AOCI	118 	 	 	2,183 	 	 	2,301 	 	
Net current period OCI changes	2,614 	 	 	2,183 	 	 	4,797 	 	
Balance as of June 30, 2018	$         (8,824)	 	 	$     (135,845)	 	 	$     (144,669)	 	
﻿
Amounts reclassified from AOCI to earnings, are as follows:
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	Three Months Ended	 	 	Six Months Ended	 	
﻿	 	 	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Amortization of Interest Rate Hedge Losses	 	 	 	 	 	 	 	 	 	 	 	
Interest expense	$              71 	 	 	$            539 	 	 	$            160 	 	 	$         1,067 	 	
Benefit from income taxes	(19)	 	 	(211)	 	 	(42)	 	 	(420)	 	
Total	$              52 	 	 	$            328 	 	 	$            118 	 	 	$            647 	 	
Amortization of Pension and Postretirement	 	 	 	 	 	 	 	 	 	 	 	
 Plan Actuarial Loss and Prior Service Cost	 	 	 	 	 	 	 	 	 	 	 	
Other nonoperating income	$         1,477 	 	 	$            703 	 	 	$         2,953 	 	 	$         1,406 	 	
Benefit from income taxes	(385)	 	 	(276)	 	 	(770)	 	 	(551)	 	
Total	$         1,092 	 	 	$            427 	 	 	$         2,183 	 	 	$            855 	 	
Total reclassifications from AOCI to earnings	$         1,144 	 	 	$            755 	 	 	$         2,301 	 	 	$         1,502 	 	

21

 
NOTE 12: EQUITY
﻿
Our capital stock consists solely of common stock, par value $1.00 per share. Holders of our common stock are entitled to one vote per share. Our Certificate of Incorporation also authorizes 5,000,000 shares of preferred stock of which no shares have been issued.
﻿
There were no shares held in treasury as of June 30, 2018, December 31, 2017 and June 30, 2017.
﻿
Our common stock purchases (all of which were open market purchases) and subsequent retirements are summarized below:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	
﻿	June 30	 	 	December 31	 	 	June 30	 	
in thousands, except average price	2018 	 	 	2017 	 	 	2017 	 	
Shares Purchased and Retired	 	 	 	 	 	 	 	 	
Number	643 	 	 	510 	 	 	510 	 	
Total purchase price	$       74,921 	 	 	$        60,303 	 	 	$        60,303 	 	
Average price per share	$       116.49 	 	 	$        118.18 	 	 	$        118.18 	 	
﻿
As of June 30, 2018, 8,846,570 shares may b e p urchased under the current purchase authorizatio n o f our Board of Directo rs.
﻿
Ch anges in total equity are summarized below:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	Six Months Ended	 	
﻿	 	 	 	June 30	 	
in thousands	 	 	 	2018 	 	 	2017 	 	
Total Equity	 	 	 	 	 	 	 	 	
Balance at beginning of year	 	 	$    4,968,893 	 	 	$    4,572,476 	 	
Net earnings	 	 	212,631 	 	 	165,060 	 	
Common stock issued	 	 	 	 	 	 	 	
  Share-based compensation plans, net of shares withheld for taxes	 	 	(31,337)	 	 	(24,108)	 	
Purchase and retirement of common stock	 	 	(74,921)	 	 	(60,303)	 	
Share-based compensation expense	 	 	14,763 	 	 	13,671 	 	
Cash dividends on common stock ($0.56/$0.50 per share)	 	 	(74,196)	 	 	(66,194)	 	
Other comprehensive income	 	 	4,797 	 	 	1,502 	 	
Balance at end of period	 	 	$    5,020,630 	 	 	$    4,602,104 	 	
﻿

22

 
NOTE 13: SEGMENT REPORTING
﻿
We have four operating (and reportable ) segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Our Asphalt and Concrete segments are primarily supplied with their aggregates requirements from our Aggregates segment. These i ntersegment sales are made at local market prices for the particular grade and quality of product u sed in the production of asphalt mix and ready-mixed concrete. Management reviews earnings from the product line reporting segments principally at the gross profit level.
﻿
﻿
SEGMENT FINANCIAL DISCLOSURE
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Total Revenues	 	 	 	 	 	 	 	 	 	 	 	
Aggregates 1	$     956,265 	 	 	$     817,586 	 	 	$  1,655,922 	 	 	$  1,467,886 	 	
Asphalt	211,828 	 	 	175,758 	 	 	315,663 	 	 	271,534 	 	
Concrete	106,723 	 	 	105,213 	 	 	207,685 	 	 	193,963 	 	
Calcium	2,282 	 	 	1,971 	 	 	4,224 	 	 	3,857 	 	
Segment sales	$  1,277,098 	 	 	$  1,100,528 	 	 	$  2,183,494 	 	 	$  1,937,240 	 	
Aggregates intersegment sales	(76,947)	 	 	(69,765)	 	 	(128,869)	 	 	(119,149)	 	
Total revenues	$  1,200,151 	 	 	$  1,030,763 	 	 	$  2,054,625 	 	 	$  1,818,091 	 	
Gross Profit	 	 	 	 	 	 	 	 	 	 	 	
Aggregates 2	$     283,476 	 	 	$     251,419 	 	 	$     431,697 	 	 	$     390,210 	 	
Asphalt 2	25,750 	 	 	28,760 	 	 	25,996 	 	 	37,242 	 	
Concrete 2  	13,191 	 	 	9,253 	 	 	23,511 	 	 	19,478 	 	
Calcium	767 	 	 	585 	 	 	1,315 	 	 	1,308 	 	
Total	$     323,184 	 	 	$     290,017 	 	 	$     482,519 	 	 	$     448,238 	 	
Depreciation, Depletion, Accretion	 	 	 	 	 	 	 	 	 	 	 	
 and Amortization (DDA&A)	 	 	 	 	 	 	 	 	 	 	 	
Aggregates	$       69,738 	 	 	$       60,832 	 	 	$     135,691 	 	 	$     118,488 	 	
Asphalt	7,298 	 	 	6,615 	 	 	14,300 	 	 	12,347 	 	
Concrete	3,049 	 	 	3,672 	 	 	6,463 	 	 	6,695 	 	
Calcium	70 	 	 	192 	 	 	139 	 	 	387 	 	
Other	5,478 	 	 	5,464 	 	 	10,479 	 	 	10,422 	 	
Total	$       85,633 	 	 	$       76,775 	 	 	$     167,072 	 	 	$     148,339 	 	
Identifiable Assets 3	 	 	 	 	 	 	 	 	 	 	 	
Aggregates	 	 	 	 	 	 	$  8,751,186 	 	 	$  7,931,603 	 	
Asphalt	 	 	 	 	 	 	625,985 	 	 	358,801 	 	
Concrete	 	 	 	 	 	 	276,743 	 	 	233,355 	 	
Calcium	 	 	 	 	 	 	4,258 	 	 	3,939 	 	
Total identifiable assets	 	 	 	 	 	 	$  9,658,172 	 	 	$  8,527,698 	 	
General corporate assets	 	 	 	 	 	 	125,497 	 	 	212,446 	 	
Cash and cash equivalents and restricted cash	 	 	 	 	 	 	61,115 	 	 	1,129,799 	 	
Total	 	 	 	 	 	 	$  9,844,784 	 	 	$  9,869,943 	 	
﻿
﻿
﻿	 	
1 	Includes product sales , as well as freight  & delivery costs that we pass along to our customers , and service revenues related to aggregates .	
2 	The 2017 amounts have been revised as a result of our adoption of ASU 2017- 0 7 as described in Note 17 .	
3 	Certain temporarily idled assets are included within a segment's Identifiable Assets but the associated DDA&A is shown within Other in the DDA&A section above as the related DDA&A is excluded from segment gross profit.	

 
   
﻿

23

 
NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION
﻿
Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is summarized below:
﻿
﻿
﻿	 	 	 	 	 	
﻿	 	 	 	 	 	
﻿	Six Months Ended	 	
﻿	June 30	 	
in thousands	2018 	 	 	2017 	 	
Cash Payments (Refunds)	 	 	 	 	 	
Interest (exclusive of amount capitalized)	$       62,021 	 	 	$       67,849 	 	
Income taxes	(102,711)	 	 	117,204 	 	
Noncash Investing and Financing Activities	 	 	 	 	 	
Accrued liabilities for purchases of property, plant & equipment	$       21,257 	 	 	$       17,924 	 	
Amounts referable to business acquisitions	 	 	 	 	 	
 Liabilities assumed	4,040 	 	 	1,935 	 	
 Consideration payable to seller	4,500 	 	 	0 	 	

NOTE 15: GOODWILL
﻿
Goodwill is recognized when the consideration paid for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. There were no charges for goodwill impairment in the six month periods ended June 30 , 2018 and 201 7 . Accumulated goodwill impairment losses amount to $25 2 ,664,000 in the Calcium segment.
﻿
We have four reportable segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. Changes in the carrying amount of goodwill by reportable segment from December 31, 201 7 to June 30 , 2018 are summarized below:
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
in thousands	Aggregates	 	 	Asphalt	 	 	Concrete	 	 	Calcium	 	 	Total	 	
Goodwill	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total as of December 31, 2017	$    3,030,688 	 	 	$     91,633 	 	 	$              0 	 	 	$              0 	 	 	$    3,122,321 	 	
Goodwill of acquired businesses 1	41,633 	 	 	0 	 	 	0 	 	 	0 	 	 	41,633 	 	
Total as of June 30, 2018	$    3,072,321 	 	 	$     91,633 	 	 	$              0 	 	 	$              0 	 	 	$    3,163,954 	 	
﻿
﻿
﻿	 	
1 	See Note 16 for a summary of acquisitions .	
﻿
We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.

24

 
NOTE 16: ACQUISITIONS AND DIVESTITURES
﻿
BUSINESS ACQUISITIONS
﻿
2018 BUSINESS ACQUISITIONS — Through the six months ended June 30 , 2018, we purchased the following operations for total consideration of $ 217, 440, 000 :
﻿
	§		Alabama —   ag gregates,   asphalt mix and construction paving operations	
	§		California — asphalt mix operations	
	§		Texas — aggregates   rail yards , asphalt mix and construction paving operations	
﻿
The 20 18 acquisitions listed above are reported in our condensed consolidated financial statements as of their respective acquisition dates. None of these acquisitions are material to our results of operations or financial position either individually or collectively.   The fair value of consideration transferred for these acquisitions and the preliminary amounts (pending appraisals for intangible assets and property, plant & equipment) of assets acquired and liabilities assumed , are summarized below:
﻿
﻿	 	 	
﻿	 	 	
﻿	June 30	 	
in thousands	2018 	 	
Fair Value of Purchase Consideration	 	 	
Cash	$     212,940 	 	
Payable to seller	4,500 	 	
Total fair value of purchase consideration	$     217,440 	 	
Identifiable Assets Acquired and Liabilities Assumed	 	 	
Accounts and notes receivable, net	$       14,218 	 	
Inventories	12,110 	 	
Other current assets	826 	 	
Property, plant & equipment	105,613 	 	
Other intangible assets	 	 	
 Contractual rights in place	90,803 	 	
Deferred income taxes, net	(36,172)	 	
Liabilities assumed	(10,599)	 	
Net identifiable assets acquired	$     176,799 	 	
Goodwill	$       40,641 	 	
﻿
As a result of the 2018 acquisitions, we recognized $ 90,803,000 of amortizable intangible assets (contractual rights in place). The contractual rights in place will be amortized against earnings ( $ 89,723,000 – straight-line over a weighted-average 20 years and $ 1,080,000 – units of sales over an excess of   20   years) of which $4,720,000 will be deductible for income tax purposes over 15 years. Of the $40,641,000 of goodwill noted above (none of which will be deductible for income tax purposes) ,   $36,172,000 represents the balance of deferred tax liabilities generated from carrying over the seller’s tax basis in the assets acquired.
﻿
﻿
2017 BUSINESS ACQUISITIONS — For the full year 2017, we purchased the following operations for total consideration of $842,013,000  ( $822,432,000 cash, $9,681,000 payable, $9,900,000 fair value of assets swapped ), less   $287,292,000   cash received for assets divested immediately upon acquisition as required by the Department of Justic e :
﻿
	§		Arizona —   asphalt mix operation s	
	§		California — aggregates and ready-mixed concrete operations	
	§		Florida — aggregates operations	
	§		Georgia —   aggregates operations	
	§		Illinois —   aggregates operations	
	§		New Mexico — aggregates operations	
	§		South Carolina — aggregates operations	
	§		Tennessee — agg regates , asphalt mix and construction paving operations	
	§		Virginia — aggregates and ready-mixed concrete operations	
﻿

25

 
The fair value of consideration transferred for the 2017 acquisitions considered to be material, and the preliminary amounts at December 31, 2017 (immaterial adjustments were recorded in the first and second quarter s of 2018 including an increase to goodwill of $992,000 ) of assets acquired and liabilities assumed, are summarized below:
﻿
﻿
﻿
﻿	 	 	
﻿	 	 	
﻿	December 31	 	
in thousands	2017 	 	
Fair Value of Purchase Consideration	 	 	
Cash	$  1,072,978 	 	
Payable to seller	7,837 	 	
Total fair value of purchase consideration	$  1,080,815 	 	
Identifiable Assets Acquired and Liabilities Assumed	 	 	
Accounts and notes receivable, net	$       14,955 	 	
Inventories	21,679 	 	
Other current assets	608 	 	
Investments	3,590 	 	
Property, plant & equipment	433,606 	 	
Other intangible assets	 	 	
 Contractual rights in place	295,482 	 	
Liabilities assumed	(3,894)	 	
Net identifiable assets acquired	$     766,026 	 	
Goodwill	$       27,497 	 	
Net Assets Divested Immediately Upon Acquisition	$     287,292 	 	
﻿
As a result of the 2017 acquisitions, we recognized $309,112,000 of amortizable intangible assets ( $309,012,000 contractual rights in place and $100,000 other intangibles). The contractual rights in place will be amortized against earnings ( $73,879,000 – straight-line over a weighted-average 19.3 years and $235,133,000 – units of sales over an estimated 54.7 years) and deductible for income tax purposes over 15 years.
﻿
DIVESTITURES AND PENDING DIVESTITURES
﻿
In the first quarter of 2018, we sold:
	§		ready-mixed concrete operations in Georgia resulting in a pretax gain of $2,929,000  ( we retained all real property which is leased to the buyer, and obtained a   long-term aggregates supply agreement)	
In 2017, we sold:
	§		Fourth quarter — swapped ready-mixed concrete operations in Arizona (fair value of $9,900,000 and book value of $1,879,000 ) for an asphalt mix operation in Arizona resulting in a pretax gain of $8,021,000	
	§		Fourth quarter — as required by the Department of Justice, we immediately divested certain assets obtained in the Aggregates USA acquisition resulting in no gain	
﻿
No assets met the criteria for held for sale at June   3 0 , 2018, December 31, 2017 or June  3 0 , 2017.
﻿

26

 
NOTE 17: NEW ACCOUNTING STANDARDS
﻿
ACCOUNTING STANDARDS RECENTLY ADOPTED
﻿
PRESENTATION OF BENEFIT PLAN   COSTS   During the first quarter of 2018, we adopted Accounting Standards Update (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  b enefit 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   p resent the service cost component of net benefit cost in cost of revenues and s elling, a dministrative and g eneral e xpense s consistent with employee compensation costs. The other components of net benefit cost (credit) are now included in other nonoperating income. These othe r 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: three months end ed June  3 0 , 2018 of $ 4,135,000 ;   three months end ed   June  3 0 , 2017 of $ 2,021,000 ; six months ended June 30, 2018 of $ 8,269,000 ; and six months ended June 30, 2017 of $ 4,041,000 .
﻿
﻿
AC COUNTING STANDARDS PENDING ADOPTION
﻿
RELEASING STRANDED TAX EFFECTS  I n February 201 8 , the Financial Accounting Standards Board ( FA SB ) issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows for the reclassification from accumulated other comprehensive income (AOCI) to retained earnings of stranded tax effects resulting from the TCJA enacted i n Decembe r 2 017. This ASU also requires entities to disclose their accounting policy for releasing income tax effects from AOCI. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018. We expect to early adopt this standard in the fourth quarter of 2018 effective as of the beginning of the year.   While we are still evaluating the impact of ASU 2018-02, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
﻿
CREDIT LOSSES   In June 2016, the FA SB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of financial instruments. The new guidance estimates credit losses based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019 , and interim reporting periods within those annual reporting periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2018. While we are still evaluating the impact of ASU 2016-13, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
﻿
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 (excluding 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. Early adoption is permitted and modified retrospective application is required. We will adopt this standard in the first quarter of 2019. We continue to evaluate the impact of this standard on our consolidated financial statements. The majority of our leases are for real property (land and buildings), which we have determined will be treated as operating leases under this ASU. As a result, we anticipate recording a right-of-use asset and related lease liability for these leases, but we do not expect our expense recognition pattern to change. Therefore, we do not anticipate any significant change to our statements of comprehensive income or cash flows as a result of adopting this standard.
﻿

27

 
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
﻿
﻿
GENERAL COMMENTS
﻿
OVERVIEW
﻿
We provide the basic materials for the infrastructure needed to maintain and expand the U.S. economy. We operate primarily in the U.S. and are 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 .   Our strategy and competitive advantage are based on our strength in a ggregates .   Aggregates are used in most types of construction and in the production of asphalt mix and ready-mixed concrete.
﻿
Demand for our products is dependent on construction activity and correlates positively with growth in populati on, hou sehold formation and employment. E nd u ses include public construction (e.g., highways, bridges, buildings, airports, schools , prison s, s ewer and waste disposal systems, water supply systems, dams and reservoirs ), private nonresidential construction (e.g., manufacturing, retail, offices, industrial and institutional) and private residential construction (e.g., single-family houses, duplexes, apartment buildings and condominiums). Customers for our products include heavy construction and paving contractors; commercial building contractors; concrete products manufacturers; residential building contractors; railroads and electric utilities ;   and to a smaller extent state, county and municipal governments.
﻿
A ggregates have a high weight-to-value ratio and, in most cases, must be produced near where they are used; if not, transportation can cost more than the materials , rendering them uncompetitive compared to locally produced materials . Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available hig h-q uality aggregates. We serve these markets from quarries that have access to cost-effective long-haul transportation — shipping by ba rge and rail — and from our quarry on Mexico's Yucatan Peninsula with our fleet of Panamax-class, self-unloading ships.
﻿
There are practically no substitutes for quality aggregates. Because of barriers to entry created in many metropolitan markets by zoning and permitting regulation and because of high transportation costs relative to the value of the product, the location of reserves is a critical factor to our long-term success.
﻿
N o material part of our business depends upon any single customer whose loss would have a significant adverse effect on our business. In 201 7 , our five largest customers accounted for 7.3 % of our total revenues (excluding internal sales), and no single customer accounted for more than 2.4 %   of our total revenues. Our products typically are sold to private industry and not directly to governmental entities. Although approximately 45% to 55% of our aggregates shipments have historically been used in publicly funded construction, such as highways, airports and government buildings, relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly funded construction, our business is not directly subject to renegotiation of profits or termination of contracts with state or federal governmen ts.
﻿
While aggregates is our focus and primary business, we believe vertical integration between aggregates and downstream products, such as asphalt mix and ready-mixed concrete, can be managed effectively in certain markets generat ing   acceptable f inancial returns and enhancing financial returns in our core Aggregates segmen t.  W e produce and sell asphalt mix and /or ready-mixed concrete primarily in our Alabama, mid-Atlanti c, S outhwestern ,   Tennessee and W estern markets. Aggregates comprise approximately 95 % of asphalt mix by weight and 80 % of ready-mixed concrete by weight. In both of these downstream businesse s, a ggregates are primarily supplied from our own operations.
﻿
SEASONALITY AND CYCLICAL NATURE OF OUR BUSINESS
﻿
Almost all our products are produced and consumed outdoors. Seasonal changes and other weather-related conditions can affect the production and sal e s volume  o f our products. Therefore, the financial results for any quarter do not necessarily indicate the results expected for the year. Normally, the highest sales and earnings are in the third quarter and the lowest are in the first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local economic conditions ,   d emographic and population fluctuation s, and particularly to cyclical swings in construction spending, primarily in the private sector.

28

 
EXECUTIVE SUMMARY
FINANCIAL HIGHLIGHTS FOR SECOND   QUARTER 201 8
﻿
Compared to second   quarter 201 7 :
	§		Total revenues in creased $ 169.4 million, or 16 %, to $ 1,200.2   million	
	§		Gross profit in creased $ 33.2   m illion, or 11 % , to $ 323.2  m illion	
	§		Aggregates segment sales in creased $ 138.7 million, or 17 %, t o $ 956.3 million	
	§		A ggregates segment freight-adjusted revenues   in creased $ 99.1 million, or 16 %, to $ 730.5 million	
	§		S hipments in creased 15 %, or 7.0   million tons , to 55.0 million tons	
	§		Same-store shipments   in creased 11 %, or 5.2   million tons, to 53.0 million tons	
	§		Freight-adjusted sales price   in creased 1 % , or $ 0.13 per ton	
	§		Same-store freight-adjusted sales price in creased 1 % , or $ 0.16 per ton	
	§		Segment gross profit in creased $ 32.1  m illion, or 13 % , to $ 283.5 millio n	
	§		Asphalt, Concrete and Calcium segmen t g ross profit in creased   $ 1.1 million , or   3 %, to   $ 39.7   million, collectively	
	§		Selling, a dministrative and g eneral (SAG) expenses in creased  $ 6.0 million   and declin ed   0.7   percentage points ( 70 basis points) as a percentage of total revenues	
	§		Operating earnings in creased $ 38.3   million, or 20 %, to $ 230.3 million	
	§		Earnings from continuing operations were $ 160.3 million, or $ 1.20   per diluted share, compared to $ 111.7 million, or $ 0.83 per diluted share	
	§		Discrete items in the second   quarter of 201 8   include:	
	§		p retax charges of $ 4.5 million associated with business developmen t	
	§		p retax charges of $ 1.1 million for restructuring	
	§		Discrete items in the second   quarter of 201 7 include:	
	§		pretax interest charges of $5.1 million related to carried interest on the March 2017 debt issuance	
	§		pretax charges of $ 15. 0   million for divested operations	
	§		Net earnings were $ 159.7 million, a n   in c rease of $ 39.5   mil lion, or 33 %	
	§		Adjusted EBITDA was $ 324.8 million, a n   in crease of $ 37.2   million, or   13 %	
	§		Increased c apital returned to shareholders via dividends ($ 37.0 million @ $0.28 per share versus $ 33.0 million @ $0.25 per share) and share repurchases ($ 19.4   million   @   an average of $ 11 3.29 per share versus $ 11.1 million @ an average of $ 118 .67 per share )	
﻿
Second quarter net earnings increased 33% year-over-year to $159.7 million on a 16% increase in total revenues. Earnings from continuing operations of $160.3 million compared favorably to $111.7 million in the prior year period. Adjusted EBITDA increased 13% to $32 4.8 million.
﻿
We reported 11% growth in gross profit led by a 13% increase in our core Aggregates segment. Aggregates shipments increased 15% (same-store 11%) . Vulcan-served markets are experiencing stronger growth in demand than other markets, and higher public funding for transportation infrastructure is now converting to higher shipments of aggregates.   Freight-adjusted sales price i ncreased 1% from the prior year , and a djusted for mix, increased 3%. Apart from geographic mix impacts, our pricing momentum continues to strengthen, including in our backlogged work.
﻿
U nit margins improved versus the prior year despite higher than anticipated costs for energy — a 30% increase in diesel cost per gallon lowered Aggregates segment gross profit by $7.3 million.   Despite this headwind, second quarter Aggregates segment gross profit increased to $283.5 million and cash gross profit was $6.43 per ton (same-store $6.55 per ton).   Our Aggregates segment gross profit flow-through rate has begun to move towards longer-term expectations of 60%. Through the first half of 2018, same-store incremental gross profit was 43% of incremental segment sales excluding freight & delivery, and 56% excluding the impact of higher unit prices for diesel fuel. Our operating disciplines remain strong, and margins should continue to improve as we turn the corner on costs related to last year’s storms.  
﻿
Higher concrete earnings (+$3.9 million) offset lower asphalt earnings ($3.0 million) resulting from a 28% increase in liquid asphalt cost.
﻿

29

 

We remain on track with our full year expectati ons . Higher public funding for transportation is finally converting to higher shipments of aggregates and private end-use demand in Vulcan-served markets continues to recover steadily, growing at a rate that is significantly ahead of the rest of the country .   We expect aggregates shipment growth for the balance of the year consistent with that expe rienced in the second quarter, leading to full year same-store shipment growth of between 7% and 9% (albeit at a lower-priced geographic sales mix).   Given the strong aggregates shipment growth we have seen and expect to continue   through the balance of the year , we reiterate our full-year expectations for 2018   earnings   from continuing operations of between $4.00 and $4.65 per diluted share and Adjusted EBITDA of between $1.1 5 and $1.2 5 billio n .  
﻿
Our capital allocation priorities remain unchanged, as does our intent to maintain an investment-grade credit rating. During the second quarter, we invested $41 .0 million o n core operating and maintenance capita l, in line with expectations. We continue to expect core operating and maintenance capital spending for the full year of approximately $250 .0   million .   During the quarter, we invested $77 .4 million in internal g rowth projects . C urrent projects underway include securing new aggregates reserves, developing new production sites, enhancing our distribution capabilities, and selectively expanding our asphalt and concrete   production capabilities . We plan for $350.0 million in internal growth capital expenditures during 2018 and anticipate a significantly lower figure for 2019.
﻿
We   completed three   bolt-on acquisitions   during the first half of the year for total consideration of $219.0 million . These acquisitions comple ment our existin g p ositions in Alabama, California and Texas . We also divested our Georgia ready-mixed concrete operations during the first half of the year.
﻿
We actively manage our business portfolio with a view toward dr iving long-term growth of afte r   t ax cash flow from earnings. For 2018, we expect to generate approximately $825.0 million of after   tax cash flow from earnings. With disciplined capital deployment and compounding improvements in unit margins, our aggregate-centric business model should enable further significant gains in afte r   t ax cash flo w   from earnings as the recovery moves forward.  

30

 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
﻿
SAME-STORE
﻿
We have provided certain information on a same-store basis. When discussing our financial results in comparison to prior periods, we may exclude the operating results o f a cquired/divested businesses that do not have comparable results in the periods being discussed. These recently acquired/divested businesses are disclosed in Note 16 “Acquisitions and Divestitures.” This approach allows us to evaluate the performance of our operations on a comparable basis. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our operations are performing period over period without the effects of acquisition and divestiture activity. Our same-store information may not be comparable to similar measures used by other companies .
﻿
﻿
AGGREGATES SEGMENT FREIGHT-ADJUSTED REVENUES
﻿
Aggregates segment freight-adjusted revenues is not a   Generally Accepted Accounting Principle (GAAP) measure. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight  & delivery, which are pass-through activities. It also excludes immaterial other revenues related to services, such as landfill tipping fees, that are derived from our aggregates business. Additionally, we use this metric as the basis for calculating the average sales price of our aggregates products. Reconciliation of th is metric to its nearest GAAP measure is presented below:
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
dollars in millions	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Aggregates segment	 	 	 	 	 	 	 	 	 	 	 	
Segment sales	$        956.3 	 	 	$        817.6 	 	 	$     1,655.9 	 	 	$     1,467.9 	 	
Less	 	 	 	 	 	 	 	 	 	 	 	
 Freight & delivery revenues 1	213.5 	 	 	176.4 	 	 	372.4 	 	 	324.3 	 	
 Other revenues	12.3 	 	 	9.8 	 	 	23.6 	 	 	15.4 	 	
Freight-adjusted revenues	$        730.5 	 	 	$        631.4 	 	 	$     1,259.9 	 	 	$     1,128.2 	 	
Unit shipments - tons	55.0 	 	 	48.0 	 	 	95.5 	 	 	86.2 	 	
Freight-adjusted sales price	$        13.29 	 	 	$        13.16 	 	 	$        13.19 	 	 	$        13.09 	 	
﻿
﻿	 	
1 	At the segment level,   freight & delivery revenues include   intersegment freight & delive ry ( which are eliminated at the consolidated level ) and freight to remote distribution sites .	
﻿
﻿

31

 
Aggregates segment gross profi t   margin a s a percentage of segment sales excluding freight  & delivery ( revenues and costs) is not a GAAP measure. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight  & delivery , w hich are pass-through activit ies   (we do not generate a profit associated with the transportation component of the selling price of the product) . In cremental gross profit as a percentage of segment sales excluding freight  & delivery   re presents the year-over-year change in gross profit divided by the year-over-year change in segment sales excluding freight & delivery . Reconciliation s of these metric s to their nearest GAAP measure s are presented below:
﻿
AGGREGATES SEGMENT GROSS PROFIT MARGIN IN ACCORDANCE WITH GAAP
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
dollars in millions	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Aggregates segment	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	$        283.5 	 	 	$        251.4 	 	 	$        431.7 	 	 	$        390.2 	 	
Segment sales	$        956.3 	 	 	$        817.6 	 	 	$     1,655.9 	 	 	$     1,467.9 	 	
Gross profit margin	29.6% 	 	 	30.8% 	 	 	26.1% 	 	 	26.6% 	 	
Incremental gross profit margin	23.1% 	 	 	 	 	 	22.1% 	 	 	 	 	
﻿
﻿
AGGREGATES SEGMENT GROSS PROFIT AS A PERCENTAGE OF 
SEGMENT SALES EXCLUDING FREIGHT  & DELIVERY
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
dollars in millions	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Aggregates segment	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	$        283.5 	 	 	$        251.4 	 	 	$        431.7 	 	 	$        390.2 	 	
Segment sales	$        956.3 	 	 	$        817.6 	 	 	$     1,655.9 	 	 	$     1,467.9 	 	
Freight & delivery revenues 1	213.5 	 	 	176.4 	 	 	372.4 	 	 	324.3 	 	
Segment sales excluding freight & delivery	$        742.8 	 	 	$        641.2 	 	 	$     1,283.5 	 	 	$     1,143.6 	 	
Gross profit as a percentage of segment sales	 	 	 	 	 	 	 	 	 	 	 	
 excluding freight & delivery	38.2% 	 	 	39.2% 	 	 	33.6% 	 	 	34.1% 	 	
Incremental gross profit as a percentage of	 	 	 	 	 	 	 	 	 	 	 	
 segment sales excluding freight & delivery	31.6% 	 	 	 	 	 	29.7% 	 	 	 	 	
﻿
﻿	 	
1 	At the segment level, freight & delivery revenues include   intersegment freight & delive ry ( which are eliminated at the consolidated level ) and freight to remote distribution sites .	

32

 
GAAP does not defin e   “ cash gross profit ”   and it should not be considered as an alternative to earnings measures defined by GAA P. W e   and the investment community us e   this metric to assess the operating performance of our business . Additionally, we present this metric as we believe that it closely correlates to long-term shareholder value.   We do not use this metric as a measure to allocate resources. Aggregates segment c ash gross profit per ton is computed by dividing Aggregates segment cash gross profit by tons shipped. Reconciliation of th is metric to its nearest GAAP measur e i s presented below:
﻿
CASH GROSS PROFIT
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in millions, except per ton data	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Aggregates segment	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	$        283.5 	 	 	$        251.4 	 	 	$        431.7 	 	 	$        390.2 	 	
DDA&A	69.7 	 	 	60.9 	 	 	135.7 	 	 	118.5 	 	
Aggregates segment cash gross profit	$        353.2 	 	 	$        312.3 	 	 	$        567.4 	 	 	$        508.7 	 	
Unit shipments - tons	55.0 	 	 	48.0 	 	 	95.5 	 	 	86.2 	 	
Aggregates segment cash gross profit per ton	$          6.43 	 	 	$          6.51 	 	 	$          5.94 	 	 	$          5.90 	 	
Asphalt segment	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	$          25.8 	 	 	$          28.8 	 	 	$          26.0 	 	 	$          37.2 	 	
DDA&A	7.3 	 	 	6.6 	 	 	14.3 	 	 	12.4 	 	
Asphalt segment cash gross profit	$          33.1 	 	 	$          35.4 	 	 	$          40.3 	 	 	$          49.6 	 	
Concrete segment	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	$          13.2 	 	 	$            9.3 	 	 	$          23.5 	 	 	$          19.5 	 	
DDA&A	3.0 	 	 	3.6 	 	 	6.5 	 	 	6.7 	 	
Concrete segment cash gross profit	$          16.2 	 	 	$          12.9 	 	 	$          30.0 	 	 	$          26.2 	 	
Calcium segment	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	$            0.8 	 	 	$            0.6 	 	 	$            1.3 	 	 	$            1.3 	 	
DDA&A	0.0 	 	 	0.2 	 	 	0.2 	 	 	0.4 	 	
Calcium segment cash gross profit	$            0.8 	 	 	$            0.8 	 	 	$            1.5 	 	 	$            1.7 	 	
﻿
﻿
﻿

33

 

GAAP does not defin e   “Earnings Before Interest, Taxes, Depreciation and Amortization” (EBITDA) and it should not be considered as an alternative to earnings measures defined by GAA P. W e us e   this metric to assess the operating performance of our business and   as a basis for strategic planning and forecasting as we believe that it closely correlates to long-term shareholder value.   We do not use this metric as a measure to allocate resources. We adjust EBITDA for certain items to provide a more consistent comparison of earnings performance from period to period .   Reconciliation of th is metric to its nearest GAAP measur e is presented below:
﻿
EBITDA AND ADJUSTED EBITDA
﻿
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in millions	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Net earnings	$        159.7 	 	 	$        120.1 	 	 	$        212.6 	 	 	$        165.1 	 	
Income tax expense	40.0 	 	 	45.7 	 	 	35.1 	 	 	42.5 	 	
Interest expense, net of interest income	33.2 	 	 	38.5 	 	 	71.0 	 	 	72.5 	 	
(Earnings) loss on discontinued operations, net of tax	0.7 	 	 	(8.4)	 	 	1.1 	 	 	(9.8)	 	
EBIT	233.6 	 	 	195.9 	 	 	319.8 	 	 	270.3 	 	
Depreciation, depletion, accretion and amortization	85.6 	 	 	76.8 	 	 	167.1 	 	 	148.3 	 	
EBITDA	$        319.2 	 	 	$        272.6 	 	 	$        486.9 	 	 	$        418.6 	 	
Gain on sale of businesses	$            0.0 	 	 	$            0.0 	 	 	$           (2.9)	 	 	$            0.0 	 	
Business interruption claims recovery	0.0 	 	 	0.0 	 	 	(1.7)	 	 	0.0 	 	
Charges associated with divested operations	0.0 	 	 	15.0 	 	 	0.0 	 	 	16.4 	 	
Business development 1	4.5 	 	 	0.0 	 	 	5.0 	 	 	0.0 	 	
Restructuring charges	1.1 	 	 	0.0 	 	 	5.4 	 	 	2.0 	 	
Adjusted EBITDA	$        324.8 	 	 	$        287.7 	 	 	$        492.7 	 	 	$        437.0 	 	
Depreciation, depletion, accretion and amortization	(85.6)	 	 	(76.8)	 	 	(167.1)	 	 	(148.3)	 	
Adjusted EBIT	$        239.2 	 	 	$        210.9 	 	 	$        325.6 	 	 	$        288.6 	 	
﻿
﻿	 	
1 	Represents non-routine charges associated with acquisitions including the cost impact of purchase accounting inventory valuations .	
﻿
﻿
201 8 PROJECTED EBITDA AND AFTER TAX CASH FLOW FROM EARNINGS
﻿
The following reconciliation to the mid-point of the range of 201 8 Projected EBITDA excludes adjustments which are difficult to forecast (timing or amount).   Due to the difficulty in forecasting such adjustments, we are unable to estimate the significance of the adjustments. A dditionally, we present the metric Projected After Tax Cash Flow from Earnings   to assess the operating performance of our business and as a basis for strategic planning and forecasting. Th ese metric s are not defined by GAAP and should not be considered as alternative s to earnings measures defined by GAAP. Reconciliation of these metrics to their nearest GAAP measure is presented below:
﻿
﻿	 	 	 	 	 	
﻿	 	 	 	 	 	
﻿	 	 	 	 	 	
﻿	 	2018 Projected	 	
in millions	 	Mid-point	 	
Net earnings	 	$           585 	 	
Income tax expense	 	140 	 	
Interest expense, net	 	135 	 	
Discontinued operations, net of tax	 	0 	 	
Depreciation, depletion, accretion and amortization	 	340 	 	
Projected EBITDA	 	$        1,200 	 	
Less	 	 	 	
 Working capital change	 	50 	 	
 Operating & maintenance capital expenditures	 	250 	 	
 Cash taxes before impact of certain non-recurring benefits	 	 	 	75 	 	
Projected after tax cash flow from earnings	 	$           825 	 	

34

 
RESULTS OF OPERATIONS
﻿
Total revenues are primarily derived from our product sales of 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 revenues from our asphalt construction paving business and services related to our aggregates business. We discuss separately our discontinued operations, which consist of our former Chemicals business.
﻿
The following table highlights significant components of our consolidated operating results including  E BITDA and Adjusted EBITDA .
﻿
CON SOLIDATED OPERATING RESULT HIGHLIGHT S
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	Three Months Ended	 	 	Six Months Ended	 	
﻿	June 30	 	 	June 30	 	
in millions, except per share data	2018 	 	 	2017 	 	 	2018 	 	 	2017 	 	
Total revenues	$      1,200.2 	 	 	$      1,030.8 	 	 	$      2,054.6 	 	 	$      1,818.1 	 	
Cost of revenues	877.0 	 	 	740.8 	 	 	1,572.1 	 	 	1,369.9 	 	
Gross profit	$         323.2 	 	 	$         290.0 	 	 	$         482.5 	 	 	$         448.2 	 	
Selling, administrative and general expenses	$           89.0 	 	 	$           83.1 	 	 	$         167.4 	 	 	$         165.4 	 	
Operating earnings	$         230.3 	 	 	$         192.0 	 	 	$         311.4 	 	 	$         262.3 	 	
Interest expense, net	$           33.2 	 	 	$           38.5 	 	 	$           71.0 	 	 	$           72.5 	 	
Earnings from continuing operations	 	 	 	 	 	 	 	 	 	 	 	
 before income taxes	$         200.3 	 	 	$         157.4 	 	 	$         248.8 	 	 	$         197.7 	 	
Earnings from continuing operations	$         160.3 	 	 	$         111.7 	 	 	$         213.7 	 	 	$         155.3 	 	
Earnings (loss) on discontinued operations,	 	 	 	 	 	 	 	 	 	 	 	
 net of income taxes	(0.6)	 	 	8.4 	 	 	(1.1)	 	 	9.8 	 	
Net earnings	$         159.7 	 	 	$         120.1 	 	 	$         212.6 	 	 	$         165.1 	 	
Basic earnings (loss) per share	 	 	 	 	 	 	 	 	 	 	 	
  Continuing operations	$           1.21 	 	 	$           0.84 	 	 	$           1.61 	 	 	$           1.17 	 	
  Discontinued operations	0.00 	 	 	0.07 	 	 	(0.01)	 	 	0.08 	 	
Basic net earnings per share	$           1.21 	 	 	$           0.91 	 	 	$           1.60 	 	 	$           1.25 	 	
Diluted earnings (loss) per share	 	 	 	 	 	 	 	 	 	 	 	
  Continuing operations	$           1.20 	 	 	$           0.83 	 	 	$           1.59 	 	 	$           1.15 	 	
  Discontinued operations	(0.01)	 	 	0.06 	 	 	(0.01)	 	 	0.07 	 	
Diluted net earnings per share	$           1.19 	 	 	$           0.89 	 	 	$           1.58 	 	 	$           1.22 	 	
EBITDA	$         319.2 	 	 	$         272.6 	 	 	$         486.9 	 	 	$         418.6 	 	
Adjusted EBITDA	$         324.8 	 	 	$         287.7 	 	 	$         492.7 	 	 	$         437.0 	 	

﻿
SECOND QUARTER 2018 COMPARED TO SECOND QUARTER 2017
﻿
Second   quarter 201 8 total revenues were $ 1,200.2   million, up   16 % from the second quarter of 201 7 . Shipments in creased in aggregates ( + 15 %)   and   asphalt mix ( + 5 %)   while they declined in   ready-mixed conc rete   ( -4 %).   Gross profit in creased in the Aggregates ( + $ 32.1   million or + 13 %) and Concrete  ( + $ 3.9 million or + 43 %) segments , while it declined in the Asphalt segment ( - $ 3.0 millio n   or -10% ) .   Asphalt segment earnings were compressed by a 28% increase in unit costs for liquid asphal t.   Likewise, a   30 % increase in the unit cost of diesel fuel   increased costs $7.9 million from the prior year quarter with most ($ 7.3   million ) of this cost increase reflected in the Aggregates segment.
﻿

35

 

Net earnings for the second quarter of 201 8   were   $ 159.7   million, or $ 1.19   per diluted share, compared to $ 120.1 million, or $ 0. 89 per diluted share, in the second   quarter of 201 7 . Each period’s results were impacted by discrete items, as follows:
﻿
Net earnings for the second   quarter of 201 8 in clude :

	§		pre tax charges of $ 4.5 million associated with business develop ment	
	§		pre tax charges of $ 1.1 million for restructuring	
﻿
Net earnings for the second quarter of 201 7 include :

	§		pretax interest charges of $5.1 millio n t o   prefund the early retirement of certain debt and an acquisition in subsequent quarters	
	§		pretax charges of $ 15. 0 million associated with divested operations	
﻿
CONTINUING OPERATIONS — Changes in earnings from continuing operations before income taxes for the second   quarter of 201 8 versus the second quarter of 201 7 are summarized below:
﻿
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
﻿
﻿	 	 	
﻿	 	 	
in millions	 	 	
Second quarter 2017	$     157.4 	 	
Higher aggregates gross profit	32.1 	 	
Lower asphalt gross profit	(3.0)	 	
Higher concrete gross profit	3.9 	 	
Higher calcium gross profit	0.2 	 	
Higher selling, administrative and general expenses	(6.0)	 	
Lower gain on sale of property, plant & equipment and businesses	(0.7)	 	
Lower interest expense, net	5.2 	 	
All other	11.2 	 	
Second quarter 2018	$     200.3 	 	
﻿
Second quarter aggregates shipments increased 15% (same-store 11%) versus the prior yea r q uarte r .  S ame-store daily shipment rates for aggregates were strong throughout the quarter, reflecting solid underlying demand, including strength in public construction activity. Many of our markets are finally seeing the conversion of higher public funding for transportation into higher shipments of aggregates. Despite the overall shipment growth reported for the second quarter, s hipments in some markets, notably California, do   not yet reflect the strength in highway construction activity w e see building   into 2019 and beyond .
﻿
For the quarter, freight-adjusted average sales price for aggregates increased 1 % versus the prior year   quarter ,   with the rate negatively impacted by relatively faster growth in relatively lower-priced markets . Excluding this mix impact, aggregates price increased 3 % . California, Georgia and Virginia realized mid-to-high single digit price growth while prices in Alabama, Arizona   and Illinois decreased modestly v ersus the pr ior year. P ricing in long-haul markets, where locally available aggregates are not available, was negatively impacted by higher distribution costs versus the prior year. Over time, these higher distribution costs will be recovered in higher prices. Additionally, positive trends in backlogged project work along with demand visibility, customer confidence, rising diesel prices, and logistics constraints support continued upward pricing movements for the year and into 2019 .
﻿
Aggregates segment gross profit increased 13% to $283.5 million, or $5.16 per ton despite a 3% increase (same-store 1%) in u nit cost of sales (freight-adjusted) .   F ixed cost leverage and other operating efficiencies mostly offset the 30% increase in the unit cost for diesel fuel . Excluding the impact of higher diesel prices, same-store unit costs improved 1% compared to the prior year. Through June, we also continued to experience higher than normal distribution costs due in part to last year’s storm events. During the second quarter, we completed the dredging of our C o a st al Texas port facilities and took possession of the second of our new, more efficient Panamax-class ships .
﻿
Asphalt segment gross profit of  $ 25.8 million in the second   quarter of 201 8   was down $3.0 million from the prior year period   due to lower material margins. On a same-store basis, shipments increased 3% from the prior year. Although same-store asphalt mix selling prices increased 4%, a 28% increase in unit costs for liquid asphalt compressed margins. For the quarter , higher liquid asphalt costs have affected segment earnings by $1 3 .3 million .
﻿

36

 
Concrete segment gross profit of  $ 13.2 million in the second quarter of 2018 was up $3.9 million from the prior year period. Same-store shipments increased 10% year-over-year. Same-store average price increases of 3% allowed for a 3 % gain in the material margins.
﻿
Our Calcium segment reported gross profit of $ 0.8 million versus $ 0. 6 million in the second   quarter of 201 7 .
﻿
SAG expenses were $ 89.0   millio n v ersus $ 83.1 millio n i n the prior year’s second quarter. As a percentage of total revenues, SAG expense declined from 8. 1% to 7. 4% . Full year expectations for SAG expense remain unchanged at $335 million .
﻿
O ther operating expens e, which has an approximate run-rate of $ 10.0 to $15.0 million a yea r (exclusive of discrete items) , is composed of various operating items not s eparately presented in the accompanying Condensed Consolidated Statements of Comprehensiv e Incom e. Total o t her operating expens e   an d significant items included in the total were:
﻿
	§		$ 6.0 million in second quarter 2018 — includes discrete items as follows:	
	§		$ 4.5   million of non-routine business development charges	
	§		$ 1.1   million of managerial restructuring charges	
﻿
	§		$ 17.8 million in second quarter 201 7 — includes a   discrete item as follows:	
	§		$ 15. 0 million of charges associated with divested operations including $ 14.2 million of environmental liability acc ruals related to the Hewitt Landfill matter (see Note 8 to the condensed consolidated financial statements)	
﻿
Net interest expense was $ 33.2   million in the second   quarter of 201 8 compared to $ 38.5   million in the second quarter of 201 7 .   The prior year amount includes $5.1 million to   prefund the early retirement of certain debt and an acquisition in subsequent quarters .
﻿
Income tax expense   from continuing operations was  $ 40.0   million in the second   quarter of 201 8 compared to $ 45.7 million in the second   quarter of 201 7 .   The de crease i n i ncome tax expense   was largely due to the change in the U.S. statutory income tax rate to 21% in 2018 from 35% in 2017.
﻿
Earnings   from continuing operations were $ 1.20   per diluted share in the second   quarter of 201 8   compared to $ 0.83 per diluted share in the second   quarter of 201 7 .
﻿
DISCONTINUED OPERATIONS — Second quarter pretax loss from discontinued operations w as  $ 0.9   million in 201 8   compared with pretax earnings of $ 12.8 million in 201 7 .   Both periods i nclude 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 include insurance recoveries from previously incurred general liability costs. F or additional details, see Note 2 to the condensed consolidated financial statements.

37

 
YEAR-TO-DATE JUNE 30, 2018 COMPARED TO YEAR-TO-DATE JUNE 30, 2017
﻿
Total revenues for the first six months of 2018 were $ 2,054.6   million, up   13 % from the first six months of 201 7 . Shipments were up in aggregates ( + 11 %)   and asphalt mix ( + 4 %)   while down in   ready-mixed conc rete   ( less than - 1 %).   Gross profit increased in the Aggregates  ( + $ 41.5 million or + 11 %) and   Concrete  ( +$ 4.0 million or + 21 %) segments while it declined in the Asphalt segment ( - $ 11.2 million or - 30 %). Asphalt segment earnings were compressed by a 22 % increase in unit costs for liquid asphal t. Likewise, a   28 % increase in the unit cost of diesel fuel   increased costs $13.5 million from the first half of 201 7   with most ($ 12.2   million) of this cost increase reflected in the Aggregates segment.
﻿
Net earnings for first six months of 201 8   were   $ 212.6 million, or $ 1.58   per diluted share, compared to $ 165.1 million, or $ 1.22 per diluted share, in the first six months of 201 7 . Each period’s results were impacted by discrete items, as follows:
﻿
	§		Net earnings for th e   first six months of 201 8 include pretax interest charges of $ 7.4 million related to early debt retirement, pretax gains of $ 2.9 million related to the sale of businesses , pretax charges of $ 5.0 million associated with non-routine business development, pretax gains of $ 1.7 million for business interruption claims, and pretax charges of $ 5.4 million fo r   r estructuring .	
	§		Net earnings for th e   first six months of 201 7 include pretax interest charges of $5.1 millio n   t o   prefund the early retirement of certain debt and an acquisition in subsequent quarters ,   pretax charges of $ 16.4 million associated with divested operations, and pretax charges of  $ 2.0 millio n f or restructuring.	
﻿
CONTINUING OPERATIONS — Changes in earnings from continuing operations before income taxes for year-to-date June 30, 201 8 versus year-to-date June 30, 201 7 are summarized below:
﻿
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
﻿
﻿	 	 	
﻿	 	 	
in millions	 	 	
Year-to-date June 30, 2017	$     197.7 	 	
Higher aggregates gross profit	41.5 	 	
Lower asphalt gross profit	(11.2)	 	
Higher concrete gross profit	4.0 	 	
Flat calcium gross profit	0.0 	 	
Higher selling, administrative and general expenses	(1.9)	 	
Higher gain on sale of property, plant & equipment and businesses	3.1 	 	
Lower interest expense, net	1.5 	 	
All other	14.1 	 	
Year-to-date June 30, 2018	$     248.8 	 	
﻿
Aggregates segment gross profit through the first half of the year remains on track with full year expecta t ions, despite higher than ex p ected diesel costs. Gross prof it was  $ 431.7 million for the first six months of 201 8 versus $ 390.2 million in comparable 201 7 . Aggregates segment sales of $ 1,655.9 million were up 13 % from the prior year’s first half, while aggregates freight-adjusted revenues of $ 1,259.9 million were up 12 %. First-half aggregates shipments increased 11 %   (same-store 6% ) , or 9.3   million tons   ( same-store 5.5 million tons) , compa red to the prior ye ar . Fre ight-adjusted average sales price for aggregates increased less than 1 %, or $ 0.10 per ton, versus the first half of 201 7 ,   despite a negative geographic/product mix impact. Excluding mix impact, aggregates price increased 3%.   First half 201 8 unit cost of sales (freight-adjusted) in the Aggregates segment was up   1 %, or $ 0.11 per ton, versus the prior year’s first half due primarily to the 28% increase in the unit cost for diesel fuel (exceeding our beginning of the year expectations) . As a result, g ross profit of  $ 4.52 per ton for the first half of 201 8   was down slightly ( $ 0.01 per ton )   compared with t he first half of 201 7 .
﻿
Our Aggregates segment gross profit flow-through rate has begun to move towards longer-term expectations of 60%. Through the first half of 2018, incremental gross profit was 30% (same-store 4 3 %) of incremental segment sales excluding freight & delivery .   Excluding the impact of higher unit prices for diesel fuel, first half incremental gross profit was 38% (same-store 56%) of incremental segment sales excluding freight & delivery — despite the negative impact of geographic mix on these period-over-period comparisons. Although quarterly gross profit flow-through rates can vary widely from quarter to quarter, we expect continued improvement in the second half of the year.
﻿

38

 
Asphalt segment gross profit of $ 26.0 million was down  $ 11.2 million from the first six months of 201 7. Shipments in creased 4 % in total and 1 % on a same-store basis. Material margins were lower as a result of higher liquid asphalt unit cost s .   Year-to-date, higher liquid asphalt costs have negatively affected segment earnings by $16.3 million .   Although Asphalt segment material margins may improve in the second half of the year, we expect them to remain below beginning-of-year expectations.
﻿
Concrete segment gross profit was $ 23.5 million for the first six months of 201 8 ,   up  $ 4.0 million from the prior year period. Shipments de creased 1 %   ( same-store increased 5%) versus the first half of 201 7 .   Strategic m arket restructuring (exiting Georgia and Arizona and entering Northern California) contributed to improved C oncrete segment material margins and unit gross profit versus the first half of 201 7 .   Through the first half of 2018, Concrete segment gross profit is in line with our expectations.
﻿
Our Calcium segment reported gross profit of $ 1.3 million was   essentially flat versu s t he first half of 201 7 .
﻿
On a trailing-twelve-month basis, total gross profit in our non-aggregates segments was $ 131.8 million, a 2 %   in crease from the prior year’s comparable period.
﻿
SAG expenses were $ 167.4 million versus $1 65.4 million in the prior year’s first half reflecting a 1.0 percentage point ( 100 basis point) decrease as a percentage of total revenues.
﻿
O ther operating expens e, which has an approximate run-rate of $ 10.0 to $15.0 million a year (exclusive of discrete items), is composed of various operating items not separately presented in the accompanying Condensed Consolidated Statements of Comprehensive Incom e. Total ot her operating expens e an d significant items included in the total were:
﻿
	§		$ 10.0 million in the first six months of 201 8   — includes discrete items as follows:	
	§		$2.9 million gain on sale of business	
	§		$ 1.7 million gain referable to the settlement of business interruption claims related to the 2010 Gulf Coast oil spill	
	§		$ 5.0 million of non-routine business development charges	
	§		$ 5.4 million of managerial restructuring cha r ges	
﻿
	§		$ 23.6 million in the first six months of 2017   — includes discrete items as follows:	
	§		$ 16.4 million of charges associated with divested operations including $15.5 million of environmental liability accruals related to the Hewitt Landfill matter (see Note 8 to the condensed consolidated financial statements)	
	§		$ 2.0 million of managerial restructuring charges	
﻿
Net interest expense was $ 71.0 million in the first six months of 201 8 compared to $ 72.5   million in the first six months of 201 7 .   The current year expense includes $7.4 million of charges related to the first quarter 2018 debt refinancing while the prior year expense includes $5.1 million to prefund the early retirement of certain debt and an acquisition in subsequent quarters .
﻿
Income tax expense from continuing operations was  $ 35.1   million in the first   six months of 201 8 compared to $ 4 2.5 million in the first six months of 201 7 .   The de crease i n i ncome tax expense   was largely due to the change in the U.S. statutory income tax rate to 21% in 2018 from 35% in 2017.
﻿
Earnings   from continuing operations were $ 1.59   per diluted share in the first six months of 201 8   compared to $ 1. 15 per diluted share in the first six months of 201 7 .
﻿
DISCONTINUED OPERATIONS — Year-to-date June pretax loss   from discontinued operations w as  $ 1.4   million in 201 8   compared with pretax earnings of   $ 14.9   million   in year-to-date June 201 7 .   Our discontinued operations i nclude charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. The prior year results also include insurance recoveries from previously incurred general liability costs. For additional details, see Note 2 to the condensed consolidated financial statements.

39

 
LIQUIDITY AND FINANCIAL RESOURCES
﻿
Our primary sources of liquidity are cash provided by our operating activities and a substantial, committed bank line of credit.   A dditional sources of capital include access to the capital markets, the sale of surplus real estate, and dispositions of nonstrategic operating assets. We believe thes e f inancial resources a re sufficient to fund our business requirements for 201 8 , including :
﻿
	§		cash contractual obligations	
	§		capital expenditures	
	§		debt service obligations	
	§		di vidend payments	
	§		potential share repurchases	
	§		potentia l a cquisitions	
﻿
Our balanced approach to capital deployment remain s unchanged. We intend to balance reinvestment in our business, growth through acquisitions and return of capital to shareholders, while sustaining financial strength and flexibility.
﻿
We actively manage our capital structure and resources in order to minimize the cost of capital while properly managing financial risk. We seek to meet these objectives by adhering to the following principles:
﻿
	§		maintain substantial bank line of credit borrowing capacity	
	§		proactively manage our d ebt maturity schedule such that repayment/refinancing risk in any single year is low	
	§		maintain an appropriate balance of fixed-rate and floating-rate debt	
	§		minimize financial and other covenants that limit our operating and financial flexibility	
﻿
﻿
C ASH
﻿
Included in our June  3 0 , 2018   cash and cash equivalents and restricted cash balanc e   o f $ 61.1   million is $ 21.1 million of cash held at our foreign subsidiaries. All   of this $ 21.1   million of cash relates to earnings that are indefinitely reinvested offshore. Use of this cash is currently limited to our foreign operations.
﻿
CASH FROM OPERATING ACTIVITIES
﻿
﻿
﻿
﻿
﻿	 	 	 	 	 	
﻿	 	 	 	 	 	
﻿	Six Months Ended	 	
﻿	June 30	 	
in millions	2018 	 	 	2017 	 	
Net earnings	$          212.6 	 	 	$          165.1 	 	
Depreciation, depletion, accretion and amortization (DDA&A)	167.1 	 	 	148.3 	 	
Contributions to pension plans	(104.8)	 	 	(4.7)	 	
Cost of debt purchase	6.9 	 	 	0.0 	 	
Other operating cash flows, net 1	(6.0)	 	 	(153.5)	 	
Net cash provided by operating activities	$          275.8 	 	 	$          155.2 	 	
﻿
﻿
﻿	 	
1 	Primarily reflects changes to working capital balances.	
﻿
Net cash provided by operating activities is derived primarily from net earnings before noncash deductions for depreciation, depletion, accretion and amortization. Net cash provided by operating activities was $ 2 75.8   million during the six months ended June  3 0 , 2018 , a $ 12 0.6 million in crease compared to the same period of 201 7 .   During the first quarter of 2018, we made a $100.0 million discretionary contribution to our qualified pen sion plans that was deductible f or tax purpose s in 2017 . Additionally   as noted above , we   early retired debt incurring premium and transaction costs of  $ 6.9 million   which is   added back to operating cash flows and refl ected as a financing cash outflow.
﻿

40

 

CASH FROM INVESTING ACTIVITIES
﻿
Net cash used for investing activities was $ 4 56.6 million during the first six   months of 201 8 , a $ 3 6.1 million de crease compared to the s ame period of 201 7 . We invested $ 247.2 millio n   i n our existing operations in the first six months of 201 8 ,   compared to the $ 291.0  m illion in the prior year   period . Of this $ 247.2 million, $ 141.8 million was invested in internal growth projects to enhance our distribution capabilities, develop new production sites and enhance existing production facilities   and other growth opportunities.   Additionally , d uring the first six months of 201 8 , we acquire d   b usinesses for $ 2 19.0   million of cash consideration as described in Note 16 to the condensed consolidated financial statements. During the first six months of 2017, we acquired the following for $ 210.6 million of cash consideration :   California — ready-mixed concrete facilities, an aggregates marine distribution yard and building materials yards; Illinois — aggregates facilities ; New Mexico — an aggregates facility ;   and   Tennessee — an aggregates facilit y , asphalt mix operations and a construction paving busin ess.   Furthermore, during the first half of 2018, w e divested our ready-mixed concrete operations in Georgia resulting in proceeds of $11.3 mill ion .
﻿
CASH FROM FINANCING ACTIVITIES
﻿
Net cash provided by   financing activities in the first six months of 201 8 was $ 95.3   million, compared to $ 1,199.2 million in   the same period of 201 7 .   The prior year period included $ 1,349.9 million of net proceeds fro m l ong-term debt issued to early retire in a later quarter debt of $525.5 million and to partially finance a n acquisition that closed in a later quarter . T he current yea r   include s   a $ 360.0 million net draw on our line of credit partially offset by several refinancing actions   that used $84.2 million of cash ( as describe d   in the debt section b elow ) .   A dditionally, we increased   by $ 22.6 million the return of capital to our shareholders via higher dividends of $ 8.0 million ( $0 .28 per share compared to $0. 25 per share )   and higher s hare repurchase s of $ 14.6 million   ( 643,147 shares @ $ 116.49   average price per share c ompared to 510,283   shares @ $ 1 18. 18   average price per share ) .

                                                                                                                                                                                                       
DEBT
﻿
Certain debt measures are presented below:
﻿
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	
﻿	 	June 30	 	December 31	 	June 30	 	
dollars in millions	2018 	 	 	2017 	 	 	2017 	 	
Debt	 	 	 	 	 	 	 	 	
Current maturities of long-term debt	$            0.0 	 	 	$          41.4 	 	 	$        525.8 	 	
Short-term debt	360.0 	 	 	0.0 	 	 	0.0 	 	
Long-term debt 1	2,776.9 	 	 	2,813.5 	 	 	2,809.3 	 	
Total debt	$     3,136.9 	 	 	$     2,854.9 	 	 	$     3,335.1 	 	
Capital	 	 	 	 	 	 	 	 	
Total debt	$     3,136.9 	 	 	$     2,854.9 	 	 	$     3,335.1 	 	
Equity	5,020.6 	 	 	4,968.9 	 	 	4,602.1 	 	
Total capital	$     8,157.5 	 	 	$     7,823.8 	 	 	$     7,937.2 	 	
Total Debt as a Percentage of Total Capital	38.5% 	 	 	36.5% 	 	 	42.0% 	 	
Weighted-average Effective Interest Rates	 	 	 	 	 	 	 	 	
  Line of credit 2	1.25% 	 	 	1.25% 	 	 	1.25% 	 	
  Term debt	4.38% 	 	 	4.26% 	 	 	5.71% 	 	
Fixed versus Floating Interest Rate Debt	 	 	 	 	 	 	 	 	
  Fixed-rate debt	65.4% 	 	 	61.8% 	 	 	85.2% 	 	
  Floating-rate debt	34.6% 	 	 	38.2% 	 	 	14.8% 	 	
﻿
﻿
﻿	 	
1 	Includes borrowings under our line of credit for which we have the intent and ability to extend payment beyond twelve months, as follows: June 30 , 2018 — none , December 31, 201 7 — $25 0 .0 million and June  3 0 , 2017 — none .   The December 31, 2017 long-term debt also includes a $350.0 million unsecured term loan due 2018 which was subsequently refinanced in February 2018.	
2 	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.	
﻿	 	
﻿

41

 

LINE OF CREDIT
﻿
Covenants, b orrowing cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. As of June 30 , 2018 , we were in compliance with the line of credit covenants and the credit margin for London Interbank Offered Rate (LIBOR) borrowings was 1.25 %, the credit margin for base rate borrowings was 0.25 %, and the commitment fee for the unused amount was 0.15 % .
﻿
As of June 30 , 2018 , our available borrowing capacity under the line of credit was $ 344.9 million. Utilization of the borrowing capacity was as follows:
﻿
	§		$ 360.0 million was borrowed	
	§		$ 45.1 million was used to provide support for outstanding standby letters of credit	
﻿
TERM DEBT
﻿
All of our $ 2,846.4 million of term debt is unsecured. $ 2,846.2 million 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 de bt.   A s of June  3 0 , 2018 , we were in   compliance with all term debt covenants.
﻿
Throughout 2017 and during the first quarter of 2018, we complet ed a number of debt refinancing activities   (see Note 7 to the Condensed Consolidated Financial Statements) in order to extend the maturity of our debt portfolio consistent with the long-lived nature of our asset base. As a result of these actions, the weighted-average term of our debt portfolio has more than doubled to approximately 16 years.
﻿
As a result of the first quarter 2018 early debt retirement s ,   we   recognized premiums of $5.6 million, transaction costs of $1.3 million and noncash expense (acceleration of unamortized deferred transaction costs) of $0.5 million. The combined charge of $7.4 million was a component of interest expense for the first quarter of 2018 .
﻿
As a result of the 2017 early debt retiremen ts , we recognized premiums of $139.2   million ,   transaction costs of $1.6 million and net noncash expense (acceleration of unamortized deferred transaction costs) of $7. 2 million . The combined charge of $148.0 million was a component of interest expense for the year ended December 31, 2017 with none recognized in the six months ended June  3 0 , 2017.
﻿
CURRENT MATURITIES OF LONG-TERM DEBT
﻿
As a result of the debt refinancing activities completed in the first quarter of 2018 ,   c urrent maturities of long-term debt as of June 30 , 20 18   were immaterial .
﻿
DEBT RATINGS  
﻿
Our debt ratings and outlooks as of June 3 0 , 2018 are as follows:
﻿
﻿
﻿
﻿	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	
﻿	 	 	Rating/Outlook	 	Date	 	 	Description	 	
Senior Unsecured Term Debt	 	 	 	 	 	 	
Fitch	BBB-/stable	 	2/20/2018	 	 	rating/outlook affirmed	 	
Moody's	Baa3/stable	 	2/20/2018	 	 	rating/outlook affirmed	 	
Standard & Poor's	BBB/stable	 	2/20/2018	 	 	rating/outlook affirmed	 	
﻿
﻿	 	

42

 
EQUITY
﻿
Our common stock issuances and purchases are as follows :
﻿
﻿
﻿
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	
June 30	 	December 31	 	June 30	 	
in thousands	2018 	 	 	2017 	 	 	2017 	 	
Common stock shares at January 1,	 	 	 	 	 	 	 	 	
 issued and outstanding	132,324 	 	 	132,339 	 	 	132,339 	 	
Common Stock Issuances	 	 	 	 	 	 	 	 	
Share-based compensation plans	587 	 	 	495 	 	 	352 	 	
Common Stock Purchases	 	 	 	 	 	 	 	 	
Purchased and retired	(643)	 	 	(510)	 	 	(510)	 	
Common stock shares at end of period,	 	 	 	 	 	 	 	 	
 issued and outstanding	132,268 	 	 	132,324 	 	 	132,181 	 	
﻿
On February 10, 20 17 , our Board of Directors authorized us to purchase up to 10,000,000 shares of our common stock.   As of June  3 0 , 2018 , there were 8,846,570 shares remaining under the authorization. Depending upon market, business, legal and other conditions, we may purchase   s hares from time to time through open market (including plans designed to comply with Rule 10b5-1 of the Securities Ex c hange Act of 1934) and/or privately negotiated transactions . The authorization   has no time limit, do es not obligate us to purchase any specific number of shares, and may be suspended or discontinued at any time.
﻿
Our common stock purchases ( all of which were open market purchases) for the year-to-date periods ended are detailed below:
﻿
﻿	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	
June 30	 	December 31	 	June 30	 	
in thousands, except average price	2018 	 	 	2017 	 	 	2017 	 	
Shares Purchased and Retired	 	 	 	 	 	 	 	 	
Number	643 	 	 	510 	 	 	510 	 	
Total purchase price	$       74,921 	 	 	$       60,303 	 	 	$       60,303 	 	
Average price per share	$       116.49 	 	 	$       118.18 	 	 	$       118.18 	 	
﻿
There were no shares held in treasury as of June   3 0 , 2018 , December 31, 201 7 and June  3 0 , 2017 .

OFF-BALANCE SHEET ARRANGEMENTS
﻿
We have no off-balance sheet arrangements, such as financing or unconsolidated variable interest entities, that either have or are reasonably likely to have a current or future material effect on our:
﻿
	§		results of operations and   financial position	
	§		c apital expenditures	
	§		l iquidity and capital resources	
﻿
﻿
STANDBY LETTERS OF CREDIT
﻿
For a discussion of our standby letters of credit, see   Note 7 to the condensed con solidated financial statements.
﻿
﻿

43

 
CASH CONTRACTUAL OBLIGATIONS
﻿
Our obligation to make future payments under contracts is presented in our most re cent Annual Report on Form 10-K. Changes resulting from our first quarter 2018 debt refinancing as described in Note 7 to the condensed consolidated financial statements are outlined in our Quarterly Report on F orm 10-Q for the quarter ended March 31, 2018.
﻿
﻿
CR ITICAL ACCOUNTING POLICIES
﻿
We follow certain significant accounting policies when preparing our consolidated financial statements. A summary of these policies is included in our Annual Report on Form 10-K for the year ended December 31, 201 7 (Form 10-K).
﻿
We prepare these financial statements to conform with accounting principles generally accepted in the United States of America. These principles require us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We base our estimates on historical experience, current conditions and various other assumptions we believe reasonable under existing circumstances and evaluate these estimates and judgments on an ongoing basis. The results of t hese 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. Our actual results may materially differ from these estimates.
﻿
We believe that the accounting policies described in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K require the most significant judgments and estimates used in the preparation of our consolidated financial statements, so we consider these to be our critical accounting policies.   There have been no changes to our critical accounting policies during the six months ended June 30 , 2018 .
﻿
﻿
﻿
NEW ACCOUNTING STANDARDS
﻿
For a discussion of the accounting standards recently adopted or pending adoption and the e ffect such accounting changes will have on our results of operations, financial position or liquidity, see Note 17 to the condensed consolidated financial statements.
﻿
﻿

44

 
FORWARD-LOOKING STATEMENTS
﻿
Certain matters discussed in this report, including expectations regarding future performance, contain forward-looking statements that are subject to assumptions, risks and uncertainties that could cause actual results to differ materially from those projected. These assumptions, risks and uncertainties include, but are not limited to:
﻿
	§		general economic and business conditions	
	§		the timing and amount of federal, state and local funding for infrastructure	
	§		changes in our effective tax rate	
	§		the increasing reliance on information technology infrastructure for our ticketing, procurement, financial statements and other processes could adversely affect operations in the event that the infrastructure does not work as intended , experiences technical difficulties or is subjected to cyber attacks	
	§		the impact of the state of the global economy on our business es and financial condition and access to capital markets	
	§		changes in the level of spending for private residential and private nonresidential construction	
	§		the highly competitive nature of the construction materials industry	
	§		the impact of future regulatory or legislative actions , including those r elating to climate change ,   wetlands, greenhouse gas emissions , the definition of minerals , tax policy or international trade	
	§		the outcome of pending legal proceedings	
	§		pricing of our products	
	§		weather and other natural phenomena	
	§		energy costs	
	§		costs of hydrocarbon-based raw materials	
	§		healthcare costs	
	§		the amount of long-term debt and interest expense we incur	
	§		changes in interest rates	
	§		volatility in pension plan asset values and liabilities , which may require cash contributions to the pension plans	
	§		th e impact of environmental clea n u p costs and other liabilities relating to existing and/ or d ivested businesses	
	§		our ability to secure and permit aggregates reserves in strategically located areas	
	§		our ability to manage and successfully integrate acquisitions	
	§		the effect of changes in tax laws, guidance and interpretations, including those related to the Tax Cuts and Jobs Act that was enacte d   in D ecembe r 2 017	
	§		significant downturn in the construction industry may result in the impairment of goodwill or long-lived asset s	
	§		chang es in   technologies , which could disrupt the way we do business and how our products are distributed	
	§		other assumptions, risks and uncertainties detailed from time to time in our periodic reports filed with the SEC	
﻿
All forward-looking statements are made as of the date of filing or publication . We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise , except to the extent required by law. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission (SEC) and our press releases with regard to our business and consolidated financial position, results of operations and cash flows.
﻿
﻿

45

 
INVESTOR INFORMATION
﻿
We make available on our website, www.vulcanmaterials.com , free of charge, copies of our:
﻿
	§		Annual Report on Form 10-K	
	§		Quarterly Reports on Form 10-Q	
	§		Current Reports on Form 8-K	
﻿
Our website also includes   amendments to those reports filed with or furnished to the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database ( www.sec.gov ).
﻿
The public may read and copy materials filed with the SEC at the Public Reference Room of the SEC at 1 00 F Street, NE, Washington, D . C . 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. In addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K, including financial statements, by writing to Jerry F. Perkins Jr., General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
﻿
We have a:
﻿
	§		Business Conduct Policy applicable to all employees and directors	
	§		Code of Ethics for the CEO and Senior Financial Officers	
﻿
Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the heading “Corporate Governance.” If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC.
﻿
Our Board of Directors has also adopted:
﻿
	§		Corporate Governance Guidelines	
	§		Charters for its Audit, Compensation , Executive , Finance, Governance and Safety, Health & Environment al Affairs   Committees	
﻿
These documents meet all applicable SEC and New York Stock Exchange regulatory requirements.
﻿
The Charters of the Audit, Compensation and Governance   Committees are available on our website under the heading, “Corporate Governance,” or you may request a copy of any of these documents by writing to Jerry F. Perkins Jr., General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
﻿
Information included on our website is not incorporated into, or otherwise made a part of, this report.
﻿

46

 

ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK
﻿
MARKET RISK
﻿
We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. T o manag e t hese market risks, we may use derivative financial instruments. We do not enter into derivative financial instruments for speculative or trading purposes.
﻿
As discussed in the Liquidity and Financial Resources section of Part I, Item 2, we actively manage our capital structure and resources to balance the cost of capital an d r isk   of financial stress . Such activity includes balancing the cost and risk of interest expense. In addition to floating-rate borrowings, we at times use interest rate swaps to manage the mix of fixed- rate and floating-rate debt. Over time , our EBITDA and o perating income are positively correlated to floating interest rates (as measured by 3-month LIBOR). As such, our business serves as a natural hedge to rising interest rates, and floating-rate debt serves as a natural hedge to weaker operating results due to general economic weakness .
﻿
At   June  3 0 , 2018 , the estimated fair value of our long-term deb t i ncluding current maturities was $ 2,782.6 million compared to a book value of $ 2,776.9 million. The estimated fair value   was determined by averaging several asking price quotes for   the publicly traded notes and assuming par value for the remainder of the deb t. The fair value estimate is based on information available as of the balance sheet date. The effect of a decline in interest rates of one percentage point would increase the fair value of our debt by approximately $ 260.6   million.
﻿
We are exposed to certain economic risks related to the costs of our pension and other postretirement benefit plans. These economic risks include changes in the discount rate for high-quality bonds and the expected return on plan assets . The impact of a change in these assumptions on our annual pension and other postretirement benefits costs is discussed in our most recent Annual Report on Form 10-K.

ITEM 4
CONTROLS AND PROCEDURES
﻿
DISCLOSURE CONTROLS AND PROCEDUR ES
﻿
We maintain a system of controls and procedures designed to ensure that information required to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. These disclosure controls and procedures (as defined in the Securitie s E xchange Act of 1934 Rules 13a - 15(e) or 15d - 15(e)), include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer, with the participation of other management officials, evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of   June  3 0 , 2018 . Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30 , 2018 .
﻿
No material changes were made during the second   quarter of 201 8 to our internal controls over financial reporting, nor have there been other factors that materially affect these controls.

47

 
PART I I   OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
﻿
﻿
Certain legal proceedings in which we are involved are discussed in Note 12 to the consolidated financial statements and Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 201 7. See Note 8 to the condensed consolidated financial statements of this Form 10-Q for a discussion of certain recent developments concerning our legal proceedings.
﻿
﻿
ITEM 1A
RISK FACTORS
﻿
﻿
T here were no material changes to the risk factors disclosed in Part I , Item 1A of our Annual Report on Form 10-K for the year ended December 31, 201 7 .
﻿
﻿
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
﻿
﻿
Purchases of our equity securities during the quarter ended June 30 , 2018 are summarized below.
﻿
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	 	 	 	 	 	
﻿	 	 	 	 	 	 	Total Number	 	 	Maximum	 	
﻿	 	 	 	 	 	 	of Shares	 	 	Number of	 	
﻿	 	 	 	 	 	 	Purchased as	 	 	Shares that	 	
﻿	Total	 	 	 	 	 	Part of Publicly	 	 	May Yet Be	 	
﻿	Number of	 	 	Average	 	 	Announced	 	 	Purchased	 	
﻿	Shares	 	 	Price Paid	 	 	Plans or	 	 	Under the Plans	 	
Period	Purchased	 	 	Per Share	 	 	Programs  	 	 	or Programs 1	 	
2018	 	 	 	 	 	 	 	 	 	 	 	
Apr 1 - Apr 30	150,913 	 	 	$       113.29 	 	 	150,913 	 	 	8,846,570 	 	
May 1 - May 31	0 	 	 	$           0.00 	 	 	0 	 	 	8,846,570 	 	
June 1 - June 30	0 	 	 	$           0.00 	 	 	0 	 	 	8,846,570 	 	
Total	150,913 	 	 	$       113.29 	 	 	150,913 	 	 	 	 	
﻿
﻿	 	
1 	On February 10, 20 17 , our Board of Directors authorized us to purchase up to 10,000,000 shares of our common stock. As of June 30 , 2018 , there were 8,846,570 shares remaining under the authorization. Depending upon market, business, legal and other conditions, we may make share purchases from time to time through open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares, and may be suspended or discontinued at any time.	
﻿
We did not   have any unregistered sales of equity securities during the second   quarter of 201 8 .
﻿
﻿
ITEM 4
MINE SAFETY DISCLOSURES
﻿
﻿
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and C onsumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.
﻿
﻿

48

 

ITEM 6
EXHIBITS
﻿
﻿	 	
Exhibit 31(a)	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
Exhibit 31(b)	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	
Exhibit 32(a)	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
Exhibit 32(b)	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	
Exhibit 95	MSHA Citations and Litigation	
Exhibit 101.INS	XBRL Instance Document	
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document	
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	
Exhibit 101.LAB	XBRL Taxonomy Extension Label Linkbase Document	
Exhibit 101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	
﻿
﻿
O ur SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-33841.

49

 

﻿
SIGNATURES
﻿
﻿
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
﻿
﻿	 

﻿	VULCAN MATERIALS COMPANY

 

Date        August 1 , 201 8	/s/ Randy L. Pigg
Randy L. Pigg
Vice President, Controller
(Principal Accounting Officer)	
﻿	 	

 
Date        August 1 , 201 8	/s/ John R. McPherson
John R. McPherson
Executive Vice President and Chief Financial and Strategy Officer
(Principal Financial Officer)	

50

  
 
﻿
 
EXHIBIT 31( a )
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
﻿
﻿
﻿	 	 	 	
I, J. Thomas Hill , certify that:	
1.	I have reviewed this quarterly report on Form 10-Q of Vulcan Materials Company;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to th e period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
﻿	a)	Designed such disclosure controls and procedure s ,  o r caused such disclosure controls and procedures to be designed under our supervisio n ,  t o ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
﻿	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
﻿	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
﻿	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has mater ially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
﻿	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financia l reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
﻿	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.	
Date       August 1 , 201 8	
﻿	 	 	/s/ J. Thomas Hill
J. Thomas Hill
Chairman , President and Chief Executive Officer	

Exhibit 31(a)

﻿
EXHIBIT 31( b)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
﻿
﻿
﻿	 	 	 	
﻿	 	 	 	
I, John R. McPherson , certify that:	
1.	I have reviewed this quarterly report on Form 10-Q of Vulcan Materials Company;	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report;	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
﻿	a)	Designed such disclosure controls and procedure s ,  o r caused such disclosure controls and procedures to be designed under our supervisio n ,  t o ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
﻿	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
﻿	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
﻿	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
﻿	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
﻿	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.	
Date       August 1 , 201 8	
﻿	 	 	/s/ John R. McPherson
John R. McPherson , Executive Vice President
and Chief Financial and Strategy Officer	
﻿
﻿

Exhibit 31(b)

`
﻿
EXHIBIT 32( a )
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF
VULCAN MATERIALS COMPANY
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 20 0 2
C
﻿
﻿	 	 	 	
I, J. Thomas Hill,   Chairman , President and Chief Executive Officer of Vulcan Materials Company, certify that the Quarterly Report on Form 10-Q (the “r eport ” ) for the quarter ended June 30 , 201 8 , filed with the Securities and Exchange Commission on the date hereof:	
﻿	
﻿	(i)	fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and	 	
﻿	(ii)	the information contained in the r eport fairly presents, in all material respects, the financial condition and results of operations of Vulcan Materials Company.	 	
﻿	
/s/  J. Thomas Hill
J. Thomas Hill
Chairman , President and Chief Executive Officer
August 1, 201 8	

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Vulcan Materials Company and will be retained by Vulcan Materials Company and furnished to the Securities and Exchange Commission or its staff upon request.	
﻿

Exhibit 32( a )

EXHIBIT 32 ( b )
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF
VULCAN MATERIALS COMPANY
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 20 0 2
﻿
﻿
﻿	 	 	 	
﻿	 	 	 	
I, John R. McPherson , Executive Vice President and Chief Financial and Strategy Officer of Vulcan Materials Company, certify that the Quarterly Report on Form 10-Q (the “report”) for the quarter ended   June 30 , 201 8 , filed with the Securities and Exchange Com mission on the date hereof:	
﻿	(i)	fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and	 	
﻿	(ii)	the information contained in the r eport fairly presents, in all material respects, the financial condition and results of operations of Vulcan Materials Company.	 	
﻿	
/s/ John R. McPherson
John R. McPherson , Executive Vice President
and Chief Financial and Strategy Officer
August 1, 201 8	

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Vulcan Materials Company and will be retained by Vulcan Materials Company and furnished to the Securities and Exchange Commission or its staff upon request.	
﻿
﻿
﻿

Exhibit 32(b)

EXHIBIT 95
MSHA CITATIONS AND LITIGATION
﻿

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was enacted. Section 1503 of the Dodd-Frank Act requires companies that are “ operators ” (as such term is defined in the Federal Mine Safety and Health Act of 1977 (the Mine Act) ) to disclose certain mine safety information in each periodic report to the Securities and Exchange Commission. This information is related to the enforcement of the Mine Act by the Mine Safety and Health Administration (MSHA).
﻿
The Dodd-Frank Act and the subsequent implementing regulation issued by the SEC require disclosure of the following categories of violations, orders and citations: (1) Section 104 S&S Citations, which are citations issued for violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard; (2) Section 104(b) Orders, which are orders issued upon a follow up inspection where the inspector finds the violation previously cited has not been totally abated in the prescribed time period; (3) Section 104(d) Citations and Orders, which are issued upon violations of mandatory health or safety standards caused by an unwarrantable failure of the operator to comply with the standards; (4) Section 110(b)(2) Violations, which result from the reckless and repeated failure to eliminate a known violation; (5) Section 107(a) Orders, which are given when MSHA determines that an imminent danger exists and results in an order of immediate withdrawal from the area of the mine affected by the condition; and (6) written notices from MSHA of a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under Section 104(e). In addition, the Dodd-Frank Act requires the disclosure of the total dollar value of proposed assessments from MSHA under the Mine Act and the total number of mining related fatalities.
﻿
The following disclosures are made pursuant to Section 1503.
﻿
During the three months ended June 30 , 201 8 ,   none   of our operations: (i) received any orders under Section 104(b), which are issued upon a follow up inspection where the inspector finds the violation previously cited has not been totally abated in the prescribed time period;   (i i ) had any flagrant violations under Section 110(b)(2);  ( i ii ) received notice from MSHA of a pattern of violations of mandatory health or safety standards under Section 104(e) ; or ( i v) had any mining-related fatalities .

Exhibit 95 – Page 1

 

SECOND QUARTER 201 8
﻿
The table below sets forth, by mine, the total number of citations and/or orders issued by MSHA during the period covered by this report under the indicated provisions of the Mine Act, together with the total dollar value of proposed assessments, if any, from MSHA, received du ring the three months ended June 30 , 201 8 .   Of our 253   active MSHA-regulated f acilities during the quarter, w e received   117   federal mine safety inspections at 113   facilities during the reporting period . Of our inspected facilities ,   101 did not receive any reportable citations or orders .
﻿
﻿

 

 	 

 

 

 

 

 

 

 	 

 

 
 	 	
Name of Operation	Number of Inspections	Total Number of S&S Citations	Mine Act § 104(b)
Orders	Mine Act
§ 104(d)
Citations and Orders	Mine Act § 110(b)(2) Violations	Mine Act § 107(a)
Orders	Total Dollar Value of Proposed MSHA Assessments (dollars in thousands)	Total Number of Mining Related Fatalities	Received Written Notice under Mine Act § 104(e)
(yes/no)	
BARTLETT, IL	1 	1 	0 	0 	0 	0 	0 	0 	No	
BLACK ANGUS, AZ	1 	1 	0 	0 	0 	0 	0 	0 	No	
BLAIR, SC	1 	1 	0 	0 	0 	0 	0 	0 	No	
BOLINGBROOK, IL	1 	1 	0 	0 	0 	0 	0 	0 	No	
CENTRAL KY, KY	2 	1 	0 	0 	0 	0 	0 	0 	No	
HUNTSVILLE NORTH, AL	1 	1 	0 	0 	0 	0 	0.4 	0 	No	
KNIPPA, TX	1 	1 	0 	0 	0 	0 	0 	0 	No	
LYMAN, SC	1 	1 	0 	0 	0 	0 	0 	0 	No	
NORTH TROY QUARRY, OK	1 	1 	0 	0 	0 	0 	0 	0 	No	
READYVILLE, TN	1 	1 	0 	0 	0 	0 	0 	0 	No	
SOUTH TEXAS PORTABLE STONE, TX	1 	1 	0 	0 	0 	1 	0 	0 	No	
WEST 43RD, AZ	1 	1 	0 	0 	0 	0 	0 	0 	No	
OTHER OPERATIONS - 101	104 	0 	0 	0 	0 	0 	0 	0 	No	
Total	117 	12 	0 	0 	0 	1 	0.4 	0 	 	
﻿
The total dollar value of proposed assessments received during the three months ended June 30 , 201 8 for all other citations, as well as proposed assessments received during the reporting period for citations previously issued, is  $ 123,290 .
 
The table below set s forth, by mine, category of legal action and number of legal actions pending before the Federal Mine Safety and Health Review Commission as of June 30 , 201 8 .
﻿
﻿

 

 	 

﻿	Number of Legal Actions	
Name of Operation	Contest
Penalty	Contest
Citations	Complaint of
Discharge,
Discrimination	
ENKA, NC	1 	0 	0 	
﻿
﻿
﻿

 

 	 

Exhibit 95 – Page 2

 
The table below sets forth, by mine, category of legal action and number of legal actions filed before the Federal Mine Safety and Health Review Commission during the three months ended June 30 , 201 8 .
﻿
﻿

 

 	 

﻿	Number of Legal Actions	
Name of Operation	Contest
Penalty	Contest
Citations	Complaint of
Discharge,
Discrimination	
CALERA QUARRY, AL	2 	0 	0 	
LAUREL SAND PLANT, FL	1 	0 	0 	
MARANA PLANT, AZ	1 	0 	0 	
PLACITAS, NM	3 	0 	0 	
SCOTTSBORO QUARRY, AL	1 	0 	0 	
ST. ROSE SAND & GRAVEL, LA	1 	0 	0 	
VAL VISTA – CITRUS GROVE 150, AZ	1 	0 	0 	
﻿
The table below sets forth, by mine, category of legal action and number of legal actions resolved (disposed) by the Federal Mine Safety and Health Review Commission during the three months ended June 30 , 201 8 .
﻿
﻿

 

 	 

﻿	Number of Legal Actions	
Name of Operation	Contest
Penalty	Contest
Citations	Complaint of
Discharge,
Discrimination	
BOLINGBROOK UNDERGROUND, IL	10 	0 	0 	
GRAHAM-VIRGINIA, VA	2 	0 	0 	
MICO QUARRY, TX	1 	0 	0 	
PINEVILLE, NC	1 	0 	0 	
﻿
﻿
﻿

Exhibit 95 – Page 3