VULCAN MATERIALS CO, 10-Q filed on 5/6/2020
Quarterly Report
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
Apr. 21, 2020
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Document Fiscal Year Focus 2020  
Entity File Number 001-33841  
Document Fiscal Period Focus Q1  
Entity Registrant Name VULCAN MATERIALS COMPANY  
Entity Central Index Key 0001396009  
Current Fiscal Year End Date --12-31  
Entity Incorporation, State or Country Code NJ  
Entity Tax Identification Number 20-8579133  
Entity Address, Address Line One 1200 Urban Center Drive  
Entity Address, City or Town Birmingham  
Entity Address, State or Province AL  
Entity Address, Postal Zip Code 35242  
City Area Code 205  
Local Phone Number 298-3000  
Title of 12(b) Security Common Stock, $1 par value  
Trading Symbol VMC  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   132,434,322
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Assets      
Cash and cash equivalents $ 120,041 $ 271,589 $ 30,838
Restricted cash 232 2,917 270
Accounts and notes receivable      
Accounts and notes receivable, gross 601,182 573,241 563,084
Allowance for doubtful accounts (3,517) (3,125) (2,554)
Accounts and notes receivable, net 597,665 570,116 560,530
Inventories      
Finished products 403,612 391,666 369,743
Raw materials 33,676 31,318 27,951
Products in process 5,010 5,604 4,976
Operating supplies and other 28,449 29,720 26,727
Inventories 470,747 458,308 429,397
Other current assets 88,095 76,396 62,816
Total current assets 1,276,780 1,379,326 1,083,851
Investments and long-term receivables 57,987 60,709 50,952
Property, plant & equipment      
Property, plant & equipment, cost 8,907,788 8,749,217 8,559,549
Allowances for depreciation, depletion & amortization (4,506,700) (4,433,179) (4,284,211)
Property, plant & equipment, net 4,401,088 4,316,038 4,275,338
Operating lease right-of-use assets, net 420,930 408,189 426,381
Goodwill 3,167,061 3,167,061 3,161,842
Other intangible assets, net 1,083,515 1,091,475 1,085,398
Other noncurrent assets 222,021 225,995 213,090
Total assets 10,629,382 10,648,793 10,296,852
Liabilities      
Current maturities of long-term debt 25 25 24
Short-term debt 0 0 178,500
Trade payables and accruals 243,019 265,159 248,119
Other current liabilities 232,632 270,379 232,964
Total current liabilities 475,676 535,563 659,607
Long-term debt 2,785,566 2,784,315 2,780,589
Deferred income taxes, net 648,405 633,039 568,229
Deferred revenue 178,568 179,880 184,744
Operating lease liabilities 399,489 388,042 403,426
Other noncurrent liabilities 551,352 506,097 483,048
Total liabilities 5,039,056 5,026,936 5,079,643
Other commitments and contingencies (Note 8)
Equity      
Common stock, $1 par value, Authorized 480,000 shares, Outstanding 132,433, 132,371 and 132,069 shares, respectively 132,433 132,371 132,069
Capital in excess of par value 2,782,738 2,791,353 2,789,864
Retained earnings 2,885,084 2,895,871 2,467,201
Accumulated other comprehensive loss (209,929) (197,738) (171,925)
Total equity 5,590,326 5,621,857 5,217,209
Total liabilities and equity $ 10,629,382 $ 10,648,793 $ 10,296,852
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS [Abstract]      
Common stock, par value $ 1 $ 1 $ 1
Common stock, shares authorized 480,000,000 480,000,000 480,000,000
Common stock, shares outstanding 132,433,000 132,371,000 132,069,000
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]    
Total revenues [1] $ 1,049,242 $ 996,511
Cost of revenues 847,519 804,836
Gross profit 201,723 191,675
Selling, administrative and general expenses 86,430 90,268
Gain on sale of property, plant & equipment and businesses 999 7,297
Other operating expense, net (3,991) (4,271)
Operating earnings 112,301 104,433
Other nonoperating income (expense), net (9,336) 3,129
Interest expense, net 30,773 32,934
Earnings from continuing operations before income taxes 72,192 74,628
Income tax expense 12,194 10,693
Earnings from continuing operations 59,998 63,935
Earnings (loss) on discontinued operations, net of tax 260 (636)
Net earnings 60,258 63,299
Other comprehensive income, net of tax    
Deferred loss on interest rate derivative (14,680) 0
Amortization of prior interest rate derivative loss 794 55
Amortization of actuarial loss and prior service cost for benefit plans 1,695 235
Other comprehensive income (loss) (12,191) 290
Comprehensive income $ 48,067 $ 63,589
Basic earnings (loss) per share    
Continuing operations $ 0.45 $ 0.48
Discontinued operations 0.00 0.00
Net earnings 0.45 0.48
Diluted earnings (loss) per share    
Continuing operations 0.45 0.48
Discontinued operations 0.00 0.00
Net earnings $ 0.45 $ 0.48
Weighted-average common shares outstanding    
Basic 132,567 132,043
Assuming dilution 133,259 133,054
Depreciation, depletion, accretion and amortization $ 95,480 $ 89,181
Effective tax rate from continuing operations 16.90% 14.30%
[1]

1

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

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

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

West market — Arizona, California and New Mexico

v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Operating Activities    
Net earnings $ 60,258 $ 63,299
Adjustments to reconcile net earnings to net cash provided by operating activities    
Depreciation, depletion, accretion and amortization 95,480 89,181
Noncash operating lease expense 8,851 8,717
Net gain on sale of property, plant & equipment and businesses (999) (7,297)
Contributions to pension plans (2,144) (2,320)
Share-based compensation expense 6,716 5,724
Deferred tax expense (benefit) 19,671 774
Changes in assets and liabilities before initial effects of business acquisitions and dispositions (99,597) (47,733)
Other, net (5,761) 5,819
Net cash provided by operating activities 82,475 116,164
Investing Activities    
Purchases of property, plant & equipment (142,650) (122,019)
Proceeds from sale of property, plant & equipment 2,536 6,512
Proceeds from sale of businesses 0 1,744
Payment for businesses acquired, net of acquired cash 0 1,122
Other, net 9,872 (7,237)
Net cash used for investing activities (130,242) (119,878)
Financing Activities    
Proceeds from short-term debt 0 196,200
Payment of short-term debt 0 (150,700)
Payment of current maturities and long-term debt (6) (6)
Settlements of interest rate derivatives (19,863) 0
Purchases of common stock (26,132) 0
Dividends paid (45,100) (40,939)
Share-based compensation, shares withheld for taxes (15,365) (14,137)
Net cash used for financing activities (106,466) (9,582)
Net decrease in cash and cash equivalents and restricted cash (154,233) (13,296)
Cash and cash equivalents and restricted cash at beginning of year 274,506 44,404
Cash and cash equivalents and restricted cash at end of period $ 120,273 $ 31,108
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 2020
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Note 1: summary of significant accounting policies

NATURE OF OPERATIONS

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

We operate primarily in the United States and our principal product — aggregates — is used in virtually all types of public and private construction projects and in the production of asphalt mix and ready-mixed concrete. We serve markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico. 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, Arizona, California, Maryland, New Mexico, Tennessee, Texas, Virginia and Washington D.C. markets.

BASIS OF PRESENTATION

Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. We prepared the accompanying condensed consolidated financial statements on the same basis as our annual financial statements, except for the adoption of new accounting standards as described in Note 17. Our Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from the audited financial statement, but it does not include all disclosures required by GAAP. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K. Operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, particularly in light of the uncertainty over the economic and operational impacts of the current novel coronavirus (COVID-19) pandemic.

We are operating as an essential business and while the COVID-19 pandemic has not yet materially impacted our business, operations, or financial results, it may have far-reaching impacts on many aspects of our operations, directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, our employees, and the market generally. Our condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues and expenses. Such estimates and assumptions affect, among other things, our goodwill and long-lived asset valuations; inventory valuation; assessment of the annual effective tax rate; valuation of deferred income taxes; allowance for doubtful accounts; measurement of cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising after March 31, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

Due to the 2005 sale of our Chemicals business as described within this Note under the caption Discontinued Operations, the results of the Chemicals business are presented as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income.

RESTRICTED CASH

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

LEASES

Our nonmineral leases with initial terms in excess of one year are recognized on the balance sheet as right-of-use (ROU) assets and lease liabilities. Mineral leases are exempt from balance sheet recognition.

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

For additional information about leases see Note 2.

DISCONTINUED OPERATIONS

In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. Results from discontinued operations are as follows:

Three Months Ended

March 31

in thousands

2020

2019

Discontinued Operations

Pretax gain (loss)

$           354 

$          (638)

Income tax (expense) benefit

(94)

2 

Earnings (loss) on discontinued operations,

net of tax

$           260 

$          (636)

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

EARNINGS PER SHARE (EPS)

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

Three Months Ended

March 31

in thousands

2020

2019

Weighted-average common shares

outstanding

132,567 

132,043 

Dilutive effect of

Stock-Only Stock Appreciation Rights

345 

742 

Other stock compensation plans

347 

269 

Weighted-average common shares

outstanding, assuming dilution

133,259 

133,054 

All dilutive common stock equivalents are reflected in our earnings per share calculations. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation would be excluded.

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

Three Months Ended

March 31

in thousands

2020

2019

Antidilutive common stock equivalents

174 

220 

 

RECLASSIFICATIONS

Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2020 presentation.

 
v3.20.1
LEASES
3 Months Ended
Mar. 31, 2020
LEASES [Abstract]  
LEASES Note 2: Leases

Our portfolio of nonmineral leases is composed almost entirely of operating leases (we do not have any material finance leases) for real estate (including office buildings, aggregates sales yards, and concrete and asphalt sites) and equipment (including railcars and rail track, barges, office equipment and plant equipment).

Operating lease ROU assets and liabilities and the weighted-average lease term and discount rate are as follows:

March 31

December 31

March 31

in thousands

Classification on the Balance Sheet

2020

2019

2019

Assets

Operating lease ROU assets

$     461,712 

$     441,656 

$     434,970 

Accumulated amortization

(40,782)

(33,467)

(8,589)

Total lease assets

Operating lease right-of-use assets, net

$     420,930 

$     408,189 

$     426,381 

Liabilities

Current

Operating

Other current liabilities

$       32,045 

$       29,971 

$       31,255 

Noncurrent

Operating

Operating lease liabilities

399,489 

388,042 

403,426 

Total lease liabilities

$     431,534 

$     418,013 

$     434,681 

Lease Term and Discount Rate

Weighted-average remaining lease term (years)

Operating leases

10.1 

9.9 

10.3 

Weighted-average discount rate

Operating leases

4.2%

4.3%

4.4%

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

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

Three Months Ended

March 31

in thousands

2020

2019

Lease Cost

Operating lease cost

$       14,106 

$       14,127 

Short-term lease cost 1

9,385 

8,700 

Variable lease cost

3,132 

3,068 

Sublease income

(734)

(610)

Total lease cost

$       25,889 

$       25,285 

1

Our short-term lease cost includes the cost of leases with an initial term of one month or less.

Cash paid for operating leases was $13,328,000 and $13,333,000 for the three months ended March 31, 2020 and 2019, respectively, and was reflected as reductions to operating cash flows.

Maturity analysis on an undiscounted basis of our operating lease liabilities as of March 31, 2020 is as follows:

Operating

in thousands

Leases

Maturity of Lease Liabilities

2020 (remainder)

$       39,045 

2021

49,240 

2022

44,481 

2023

39,295 

2024

35,634 

Thereafter

593,029 

Total minimum lease payments

$     800,724 

Less: Lease payments representing interest

369,190 

Present value of future minimum lease payments

$     431,534 

Less: Current obligations under leases

32,045 

Long-term lease obligations

$     399,489 

 

 
v3.20.1
INCOME TAXES
3 Months Ended
Mar. 31, 2020
INCOME TAXES [Abstract]  
INCOME TAXES Note 3: Income Taxes

In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020. The CARES Act provides numerous tax relief provisions and stimulus measures. A temporary favorable change to the prior year and current year limitations on interest deductions and a temporary suspension of certain payment requirements for the employer portion of Social Security taxes are the relief provisions that are expected to provide us the greatest benefit. In the first quarter of 2020 (i.e., the period of enactment), an expected cash tax benefit of $13,301,000 was recorded to account for the favorable change to the prior year limitation on interest deductions.

Our estimated annual effective tax rate (EAETR) is based on full-year expectations of pretax earnings, statutory tax rates, permanent differences between book and tax accounting such as percentage depletion, and tax planning alternatives available in the various jurisdictions in which we operate. For interim financial reporting, we calculate our quarterly income tax provision in accordance with the EAETR. Each quarter, we update our EAETR based on our revised full-year expectation of pretax earnings and calculate the income tax provision so that the year-to-date income tax provision reflects the EAETR. Significant judgment is required in determining our EAETR.

In the first quarter of 2020, we recorded income tax expense from continuing operations of $12,194,000 compared to income tax expense from continuing operations of $10,693,000 in the first quarter of 2019. The increase in tax expense was primarily related to lower excess tax benefits from share-based compensation quarter over quarter.

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. A summary of our deferred tax assets and liabilities is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2019.

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, 2020, we project Alabama state net operating loss (NOL) carryforward deferred tax assets of $63,384,000 against which we project to have a valuation allowance of $29,183,000. At this time, we do not expect any future adjustment to this valuation allowance. The Alabama NOL carryforward, if not utilized, would expire between 2023 and 2032.

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.

 

 
v3.20.1
REVENUES
3 Months Ended
Mar. 31, 2020
REVENUES [Abstract]  
REVENUES Note 4: revenueS

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

Total revenues are primarily derived from our product sales of aggregates (crushed stone, sand and gravel, sand and other aggregates), asphalt mix and ready-mixed concrete, and include freight & delivery costs that we pass along to our customers to deliver these products. We also generate service revenues from our asphalt construction paving business and service revenues related to our aggregates business, such as landfill tipping fees. Our total service revenues were $39,564,000 and $34,515,000 for the three months ended March 31, 2020 and 2019, respectively.

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

Our segment total revenues by geographic market for the three month periods ended March 31, 2020 and 2019 are disaggregated as follows:

Three Months Ended March 31, 2020

in thousands

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$     239,869 

$     17,883 

$     62,120 

$              0 

$      319,872 

Gulf Coast

493,297 

33,856 

16,965 

2,026 

546,144 

West

135,060 

88,050 

15,680 

0 

238,790 

Segment sales

$     868,226 

$   139,789 

$     94,765 

$       2,026 

$   1,104,806 

Intersegment sales

(55,564)

0 

0 

0 

(55,564)

Total revenues

$     812,662 

$   139,789 

$     94,765 

$       2,026 

$   1,049,242 

Three Months Ended March 31, 2019

in thousands

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$     224,902 

$     18,216 

$     54,716 

$              0 

$      297,834 

Gulf Coast

496,633 

37,053 

16,505 

1,951 

552,142 

West

113,430 

76,821 

12,416 

0 

202,667 

Segment sales

$     834,965 

$   132,090 

$     83,637 

$       1,951 

$   1,052,643 

Intersegment sales

(56,132)

0 

0 

0 

(56,132)

Total revenues

$     778,833 

$   132,090 

$     83,637 

$       1,951 

$      996,511 

1

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

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

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

West market — Arizona, California and New Mexico

PRODUCT REVENUES

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs at a point in time when our aggregates, asphalt mix and ready-mixed concrete are shipped/delivered and control passes to the customer. Revenue for our products is recorded at the fixed invoice amount and payment is due by the 15th day of the following monthwe do not offer discounts for early payment.

Freight & delivery generally represents pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers and are accounted for as a fulfillment activity. Likewise, the costs related to freight & delivery are included in cost of revenues.

Freight & delivery revenues are as follows:

Three Months Ended

March 31

in thousands

2020

2019

Freight & Delivery Revenues

Total revenues

$  1,049,242 

$     996,511 

Freight & delivery revenues 1

(113,961)

(162,605)

Total revenues excluding freight & delivery

$     935,281 

$     833,906 

1

Includes freight & delivery to remote distribution sites.

CONSTRUCTION PAVING SERVICE REVENUES

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

VOLUMETRIC PRODUCTION PAYMENT DEFERRED REVENUES

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

relate to eight quarries in Georgia and South Carolina

provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ 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 aggregates production. Our consolidated total revenues exclude the revenue from the sale of the purchaser’s share of aggregates.

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

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

Three Months Ended

March 31

in thousands

2020

2019

Deferred Revenue

Balance at beginning of year

$     185,339 

$     192,783 

Revenue recognized from deferred revenue

(1,342)

(1,652)

Balance at end of period

$     183,997 

$     191,131 

Based on expected sales from the specified quarries, we expect to recognize $7,500,000 of VPP deferred revenue as income during the 12-month period ending March 31, 2021 (reflected in other current liabilities in our March 31, 2020 Condensed Consolidated Balance Sheet).

 

 
v3.20.1
FAIR VALUE MEASUREMENTS
3 Months Ended
Mar. 31, 2020
FAIR VALUE MEASUREMENTS [Abstract]  
FAIR VALUE MEASUREMENTS Note 5: Fair Value Measurements

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

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

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

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

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

Level 1 Fair Value

March 31

December 31

March 31

in thousands

2020

2019

2019

Fair Value Recurring

Rabbi Trust

Mutual funds

$       19,001 

$       22,883 

$       20,953 

Total

$       19,001 

$       22,883 

$       20,953 

Level 2 Fair Value

March 31

December 31