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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Vulcan Materials Company (the "Company," "Vulcan," "we," "our"), a New Jersey corporation, is the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.
We serve markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving states in metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates. While aggregates is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our mid-Atlantic, Georgia, Southwestern and Western markets.
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 Consolidated Statements of Comprehensive Income.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vulcan Materials Company and all our majority or
wholly-owned subsidiary companies. All intercompany transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of these financial statements in conformity with accounting principles generally accepted (GAAP) in the United States of America requires us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ materially from these estimates. The most significant estimates included in the preparation of these financial statements are related to goodwill and long-lived asset impairments, pension and other postretirement benefits, environmental compliance, claims and litigation including self-insurance, and income taxes.
BUSINESS COMBINATIONS
We account for business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlying identifiable assets acquired and liabilities assumed based on their respective fair values. Determining the fair values of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions.
FOREIGN CURRENCY TRANSACTIONS
The U.S. dollar is the functional currency for all of our operations. For our non-U.S. subsidiaries, local currency inventories and long-term assets such as property, plant & equipment and intangibles are remeasured into U.S. dollars at approximate rates prevailing when acquired; all other assets and liabilities are remeasured at year-end exchange rates. Inventories charged to cost of sales and depreciation are remeasured at historical rates; all other income and expense items are remeasured at average exchange rates prevailing during the year. Gains and losses which result from remeasurement are included in earnings and are not material for the years presented.
CASH EQUIVALENTS
We classify as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. The carrying amount of these securities approximates fair value due to their short-term maturities.
RESTRICTED CASH
Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Changes in restricted cash balances are reflected as an investment activity in the accompanying Consolidated Statements of Cash Flows.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable from customers result from our extending credit to trade customers for the purchase of our products. The terms generally provide for payment within 30 days of being invoiced. On occasion, when necessary to conform to regional industry practices, we sell product under extended payment terms, which may result in either secured or unsecured short-term notes; or, on occasion, notes with durations of less than one year are taken in settlement of existing accounts receivable. Other accounts and notes receivable result from short-term transactions (less than one year) other than the sale of our products, such as interest receivable; insurance claims; freight claims; tax refund claims; bid deposits or rents receivable. Receivables are aged and appropriate allowances for doubtful accounts and bad debt expense are recorded. Bad debt expense (income) for the years ended December 31 was as follows: 2016 — $(1,190,000), 2015 — $1,450,000 and 2014 — $2,031,000. Write-offs of accounts receivables for the years ended December 31 were as follows: 2016 — $1,544,000, 2015 — $1,483,000 and 2014 — $2,561,000. The bad debt income in 2016 relates to the collection of previously reserved receivables primarily attributable to the 2014 sale of our Florida area concrete and cement businesses.
INVENTORIES
Inventories and supplies are stated at the lower of cost or market. We use the last-in, first-out (LIFO) method of valuation for most of our inventories because it results in a better matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct labor and production overhead. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating supplies inventory is carried at average cost. For additional information about our inventories see Note 3.
PROPERTY, PLANT & EQUIPMENT
Property, plant & equipment are carried at cost less accumulated depreciation, depletion and amortization. The cost of properties held under capital leases, if any, is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease.
Capitalized software costs of $4,732,000 and $7,003,000 are reflected in net property, plant & equipment as of December 31, 2016 and 2015, respectively. We capitalized software costs for the years ended December 31 as follows: 2016 — $152,000, 2015 — $1,482,000 and 2014 — $921,000.
For additional information about our property, plant & equipment see Note 4.
REPAIR AND MAINTENANCE
Repair and maintenance costs generally are charged to operating expense as incurred. Renewals and betterments that add materially to the utility or useful lives of property, plant & equipment are capitalized and subsequently depreciated. Actual costs for planned major maintenance activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and amortized to the next overhaul.
DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION
Depreciation is generally computed by the straight-line method at rates based on the estimated service lives of the various classes of assets, which include machinery and equipment (3 to 25 years), buildings (7 to 20 years) and land improvements (8 to 20 years). Capitalized software costs are included in machinery and equipment and are depreciated on a straight-line basis beginning when the software project is substantially complete.
Cost depletion on depletable land is computed by the unit-of-production method based on estimated recoverable units.
Accretion reflects the period-to-period increase in the carrying amount of the liability for asset retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to initially measure the liability at fair value.
Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated useful lives.
Amortization of intangible assets subject to amortization is computed based on the estimated life of the intangible assets.
A significant portion of our intangible assets is contractual rights in place associated with zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.
Depreciation, depletion, accretion and amortization expense for the years ended December 31 is outlined below:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Depreciation, Depletion, Accretion and Amortization |
||||||||
Depreciation |
$ 238,237 |
$ 228,866 |
$ 239,611 |
|||||
Depletion |
17,812 | 18,177 | 16,741 | |||||
Accretion |
11,059 | 11,474 | 11,601 | |||||
Amortization of leaseholds |
267 | 688 | 578 | |||||
Amortization of intangibles |
17,565 | 15,618 | 10,966 | |||||
Total |
$ 284,940 |
$ 274,823 |
$ 279,497 |
DERIVATIVE INSTRUMENTS
We periodically use derivative instruments to manage our mix of fixed-rate and floating-rate debt and to manage our exposure to currency exchange risk or price fluctuations on commodity energy sources consistent with our risk management policies. We do not use derivative financial instruments for speculative or trading purposes. Additional disclosures about our derivative instruments are presented in Note 5.
FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs that are derived principally from or corroborated by observable market data
Level 3: Inputs that are unobservable and significant to the overall fair value measurement
Our assets at December 31 subject to fair value measurement on a recurring basis are summarized below:
|
|||||||
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Level 1 Fair Value |
||||||
in thousands |
2016 | 2015 | |||||
Fair Value Recurring |
|||||||
Rabbi Trust |
|||||||
Mutual funds |
$ 6,883 |
$ 11,472 |
|||||
Equities |
10,033 | 8,992 | |||||
Total |
$ 16,916 |
$ 20,464 |
|
|||||||
|
Level 2 Fair Value |
||||||
in thousands |
2016 | 2015 | |||||
Fair Value Recurring |
|||||||
Rabbi Trust |
|||||||
Money market mutual fund |
$ 1,705 |
$ 2,124 |
|||||
Total |
$ 1,705 |
$ 2,124 |
We have two Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds and equity securities for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in the fund (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).
Net gains (losses) of the Rabbi Trusts’ investments were $2,741,000, $(1,517,000) and $1,169,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at December 31, 2016, 2015 and 2014 were $1,599,000, $(1,769,000) and $(1,049,000), respectively.
The 2016 decrease of $3,967,000 in total Rabbi Trust asset fair values is primarily due to several retired executives receiving distributions from the nonqualified retirement and deferred compensation plans.
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and all other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 5 and 6, respectively.
Assets subject to fair value measurement on a nonrecurring basis in 2016 and 2015 are summarized below:
|
|||||||||||||
|
Year ending December 31, 2016 |
Year ending December 31, 2015 |
|||||||||||
|
Impairment |
Impairment |
|||||||||||
in thousands |
Level 2 |
Charges |
Level 2 |
Charges |
|||||||||
Fair Value Nonrecurring |
|||||||||||||
Property, plant & equipment |
$ 0 |
$ 1,359 |
$ 0 |
$ 2,176 |
|||||||||
Other intangible assets, net |
0 | 8,180 | 0 | 2,858 | |||||||||
Other assets |
0 | 967 | 0 | 156 | |||||||||
Totals |
$ 0 |
$ 10,506 |
$ 0 |
$ 5,190 |
We recorded $10,506,000 and $5,190,000 of losses on impairment of long-lived assets in 2016 and 2015, respectively, reducing the carrying value of these Aggregates segment assets to their estimated fair values of $0 and $0. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).
GOODWILL IMPAIRMENT
Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. As of December 31, 2016, goodwill totaled $3,094,824,000, the same as at December 31, 2015. Goodwill represents 37% of total assets at December 31, 2016, the same as at December 31, 2015.
Goodwill is tested for impairment annually, as of November 1, or more frequently whenever events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at the reporting unit level, one level below our operating segments. We have four operating segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. Within these four operating segments, we have identified 18 reporting units (of which 9 carry goodwill) based primarily on geographic location. We have the option of either assessing qualitative factors to determine whether it is more likely than not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to a two-step quantitative test. We elected to perform the quantitative impairment test for all years presented.
The first step of the quantitative impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is not required. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.
The second step of the quantitative impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by hypothetically allocating the fair value of the reporting unit to its identifiable assets and liabilities in a manner consistent with a business combination, with any excess fair value representing implied goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The results of the first step of the annual impairment tests performed as of November 1, 2016, 2015 and 2014 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values. Accordingly, there were no charges for goodwill impairment in the years ended December 31, 2016, 2015 or 2014.
We estimate the fair values of the reporting units using both an income approach (which involves discounting estimated future cash flows) and a market approach (which involves the application of revenue and EBITDA multiples of comparable companies). Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty and actual results may differ. Changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or underperformance relative to historical or projected operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.
For additional information about goodwill see Note 18.
IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL
We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, we recognize a loss equal to the amount by which the carrying value exceeds the fair value. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable judgment and assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.
We test long-lived assets for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. As a result, our long-lived asset impairment test is at a significantly lower level than the level at which we test goodwill for impairment. In markets where we do not produce downstream products (e.g., asphalt mix and ready-mixed concrete), the lowest level of largely independent identifiable cash flows is at the individual aggregates operation or a group of aggregates operations collectively serving a local market. Conversely, in vertically integrated markets, the cash flows of our downstream and upstream businesses are not largely independently identifiable as the selling price of the upstream products (aggregates) determines the profitability of the downstream business.
As of December 31, 2016, net property, plant & equipment represents 39% of total assets, while net other intangible assets represents 9% of total assets. During 2016, we recorded a $10,506,000 loss on impairment of long-lived assets resulting from the termination of a nonstrategic aggregates lease and the write off of nonrecoverable project costs related to two Aggregates segment capital projects that we no longer intend to complete. During 2015, we recorded a $5,190,000 impairment loss related to exiting a lease for an aggregates site. During 2014, we recorded a $3,095,000 impairment loss related primarily to assets retained in the divestiture of our cement and concrete businesses in the Florida area (see Note 19).
For additional information about long-lived assets and intangible assets see Notes 4 and 18.
TOTAL REVENUES AND REVENUE RECOGNITION
Total revenues include sales of product to customers, net of any discounts and taxes, and freight and delivery revenues billed to customers. Freight and delivery generally represents pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers. The cost related to freight and delivery is included in cost of revenues.
Revenue is recognized at the time the selling price is fixed, the product's title is transferred to the buyer and collectibility of the sales proceeds is reasonably assured (typically occurs when finished products are shipped to the customer).
SALES TAXES
Sales taxes collected from customers are recorded as liabilities (within other current liabilities) until remitted to taxing authorities and therefore, are not reflected in the Consolidated Statements of Comprehensive Income.
DEFERRED REVENUE
In 2013 and 2012, we sold a percentage interest in future production structured as volumetric production payments (VPPs).
The VPPs:
§ |
provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future production from aggregates reserves |
§ |
are both time and volume limited |
§ |
contain no minimum annual or cumulative production or sales volume, nor minimum sales price |
Our consolidated total revenues excludes the sales of aggregates owned by the VPP purchaser.
We received net cash proceeds from the sale of the VPPs of $153,282,000 and $73,644,000 for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized to revenue on a unit-of-sales basis over the terms of the VPPs (expected to be approximately 25 years, limited by volume rather than time).
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Deferred Revenue |
||||||||
Balance at beginning of year |
$ 214,060 |
$ 219,968 |
$ 224,743 |
|||||
Cash received and revenue deferred |
0 | 0 | 187 | |||||
Amortization of deferred revenue |
(7,592) | (5,908) | (4,962) | |||||
Balance at end of year |
$ 206,468 |
$ 214,060 |
$ 219,968 |
Based on expected sales from the specified quarries, we expect to recognize approximately $8,080,000 of deferred revenue as income in 2017 (reflected in other current liabilities in our 2016 Consolidated Balance Sheet).
STRIPPING COSTS
In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.
Stripping costs incurred during the production phase are considered costs of extracted minerals under our inventory costing system, inventoried, and recognized in cost of sales in the same period as the revenue from the sale of the inventory. The production stage is deemed to begin when the activities, including removal of overburden and waste material that may contain incidental saleable material, required to access the saleable product are complete. Stripping costs considered as production costs and included in the costs of inventory produced were $55,987,000 in 2016, $50,409,000 in 2015 and $44,896,000 in 2014.
Conversely, stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from our inventory cost. Pre-production stripping costs are capitalized and reported within other noncurrent assets in our accompanying Consolidated Balance Sheets. Capitalized pre-production stripping costs are expensed over the productive life of the mine using the unit-of-production method. Pre-production stripping costs included in other noncurrent assets were $70,227,000 as of December 31, 2016 and $61,369,000 as of December 31, 2015. This year-over-year increase resulted primarily from the removal of overburden at a greenfield site in California.
SHARE-BASED COMPENSATION
We account for share-based compensation awards using fair-value-based measurement methods. These result in the recognition of compensation expense for all share-based compensation awards (less an estimate for forfeited awards) based on their fair value as of the grant date. Compensation cost is recognized over the requisite service period.
A summary of the estimated future compensation cost (unrecognized compensation expense) as of December 31, 2016 related to share-based awards granted to employees under our long-term incentive plans is presented below:
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||||||
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Unrecognized |
Expected |
||||
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Compensation |
Weighted-average |
||||
dollars in thousands |
Expense |
Recognition (Years) |
||||
Share-based Compensation |
||||||
SOSARs 1 |
$ 4,899 |
1.8 | ||||
Performance shares |
20,965 | 2.4 | ||||
Restricted shares |
4,925 | 2.6 | ||||
Total/weighted-average |
$ 30,789 |
2.3 |
1 |
Stock-Only Stock Appreciation Rights (SOSARs) |
Pretax compensation expense related to our employee share-based compensation awards and related income tax benefits for the years ended December 31 are summarized below:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Employee Share-based Compensation Awards |
||||||||
Pretax compensation expense |
$ 17,823 |
$ 16,362 |
$ 22,217 |
|||||
Income tax benefits |
6,925 | 6,347 | 8,571 |
EARLY ADOPTION OF ASU 2016-09 We receive an income tax deduction for share-based compensation equal to the excess of the market value of our common stock on the date of exercise or issuance over the exercise price. Upon our early adoption of Accounting Standards Update (ASU) 2016-09, tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are reflected as discrete income tax benefits in the period of exercise or issuance. Before the adoption of this standard, excess tax benefits were recorded directly to equity (APIC). Net excess tax benefits of $24,847,000 are reflected as a reduction to our income tax expense for 2016 (see Note 9). Gross excess tax benefits of $28,009,000 are classified as operating cash flows prospectively beginning in 2016 while gross excess tax benefits for 2015 and 2014 of $18,376,000 and $3,464,000, respectively, are reflected as financing cash flows. Upon the adoption of this ASU, we revised our dilutive share calculation to exclude the assumption that proceeds from excess tax benefits would be used to purchase shares, resulting in an increase in dilutive shares as of December 31, 2016 of 773,101.
ASU 2016-09 requires that the cash paid for shares withheld to satisfy statutory income tax withholding obligations be classified as a financing activity in the statement of cash flows. As a result, we revised our accompanying Statements of Cash Flows for prior years to conform to the 2016 presentation as follows: 2015 — increased operating cash flows $16,160,000 with a corresponding decrease in financing cash flows, and 2014 — increased operating cash flows $671,000 with a corresponding decrease in financing cash flows.
For additional information about share-based compensation, see Note 11 under the caption Share-based Compensation Plans.
RECLAMATION COSTS
Reclamation costs resulting from normal use of long-lived assets are recognized over the period the asset is in use when there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from normal use under a mineral lease are recognized over the lease term when there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.
To determine the fair value of the obligation, we estimate the cost (including a reasonable profit margin) for a third party to perform the legally required reclamation tasks. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.
In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.
We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.
The carrying value of these obligations was $223,872,000 as of December 31, 2016 and $226,594,000 as of December 31, 2015. For additional information about reclamation obligations (referred to in our financial statements as asset retirement obligations) see Note 17.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Accounting for pension and postretirement benefits requires that we make significant assumptions about the valuation of benefit obligations and the performance of plan assets. The primary assumptions are as follows:
§ |
Discount Rate — The discount rate is used in calculating the present value of projected benefit payments |
§ |
Expected Return on Plan Assets — The expected future return on plan assets reduces the recorded net benefit costs |
§ |
Rate of Compensation Increase — Annual pay increases after 2015 will not increase our pension plan obligations as a result of a 2013 plan amendment |
§ |
Rate of Increase in the Per Capita Cost of Covered Healthcare Benefits — Increases in the per capita cost after 2015 will not increase our postretirement medical benefits obligation as a result of a 2012 plan amendment |
Accounting standards provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of actual results allows for a smoothed recognition in earnings of changes in benefit obligations and asset performance. The differences between actual results and expected or estimated results are recognized in full in other comprehensive income. Amounts recognized in other comprehensive income are reclassified to earnings in a systematic manner over the average remaining service period of participants for our active plans or the average remaining lifetime of participants for our inactive plans.
For additional information about pension and other postretirement benefits see Note 10.
ENVIRONMENTAL COMPLIANCE
Our environmental compliance costs are undiscounted and include the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. We accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost. At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of various factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur, but generally liabilities are recognized no later than completion of the remedial feasibility study.
When we can estimate a range of probable loss, we accrue the most likely amount. If no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2016, the spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $3,341,000 — this amount does not represent our maximum exposure to loss for all environmental remediation obligations as it excludes those sites for which a range of loss cannot be reasonably estimated at this time. Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates and key assumptions in response to new information, such as the kinds and quantities of hazardous substances, available technologies and changes to the parties participating in the remediation efforts. However, a number of factors, including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.
For additional information about environmental compliance costs see Note 8.
CLAIMS AND LITIGATION INCLUDING SELF-INSURANCE
We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers' compensation up to $2,000,000 per occurrence and automotive and general/product liability up to $3,000,000 per occurrence. We have excess coverage on a per occurrence basis beyond these retention levels.
Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. For matters not included in our actuarial studies, legal defense costs are accrued when incurred. The following table outlines our self-insurance program at December 31:
|
|||||
dollars in thousands |
2016 | 2015 | |||
Self-insurance Program |
|||||
Self-insured liabilities (undiscounted) |
$ 49,310 |
$ 44,618 |
|||
Insured liabilities (undiscounted) |
72,644 | 16,787 | |||
Discount rate |
1.40% | 1.44% | |||
Amounts Recognized in Consolidated |
|||||
Balance Sheets |
|||||
Other accounts and notes receivable |
$ 67,631 |
$ 0 |
|||
Investments and long-term receivables |
16,133 | 15,810 | |||
Other current liabilities |
(69,549) | (14,198) | |||
Other noncurrent liabilities |
(49,074) | (44,102) | |||
Net liabilities (discounted) |
$ (34,859) |
$ (42,490) |
The increase in liabilities and the offsetting increase in receivables as noted above relate primarily to a former Chemicals business litigation matter as discussed in Note 12.
Estimated payments (undiscounted and excluding the impact of related receivables) under our self-insurance program for the five years subsequent to December 31, 2016 are as follows:
|
||
in thousands |
||
Estimated Payments under Self-insurance Program |
||
2017 |
$ 74,027 |
|
2018 |
13,599 | |
2019 |
8,767 | |
2020 |
5,461 | |
2021 |
3,716 |
Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.
INCOME TAXES
We file federal, state and foreign income tax returns and account for the current and deferred tax effects of such returns using the asset and liability method. We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the book basis and tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns.
Significant judgments and estimates are required in determining our deferred tax assets and liabilities. These estimates are updated throughout the year to consider income tax return filings, our geographic mix of earnings, legislative changes and other relevant items.
Each quarter we analyze the likelihood that our deferred tax assets will be realized. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized. A summary of our deferred tax assets is included in Note 9.
U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely reinvested offshore. At least annually, we evaluate our investment strategies for each foreign tax jurisdiction in which we operate to determine whether foreign earnings will be indefinitely reinvested offshore.
We recognize a tax benefit associated with a tax position when, in our judgment, it is more likely than not that the position will be sustained based upon the technical merits of the position. For a tax position that meets the more likely than not recognition threshold, we measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax position. Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation.
The years open to tax examinations vary by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is appropriate.
We consider a tax position to be resolved at the earlier of the issue being “effectively settled,” settlement of an examination, or the expiration of the statute of limitations. Upon resolution of a tax position, any liability for unrecognized tax benefits will be released.
Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties associated with our liability for unrecognized tax benefits as income tax expense.
Our largest permanent item in computing both our taxable income and effective tax rate is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9. The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.
COMPREHENSIVE INCOME
We report comprehensive income in our Consolidated Statements of Comprehensive Income and Consolidated Statements of Equity. Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). OCI includes fair value adjustments to cash flow hedges, actuarial gains or losses and prior service costs related to pension and postretirement benefit plans.
For additional information about comprehensive income see Note 14.
EARNINGS PER SHARE (EPS)
Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Weighted-average common shares outstanding |
133,205 | 133,210 | 131,461 | |||||
Dilutive effect of |
||||||||
Stock options/SOSARs |
1,339 | 1,027 | 656 | |||||
Other stock compensation plans |
1,246 | 856 | 874 | |||||
Weighted-average common shares outstanding, |
||||||||
assuming dilution |
135,790 | 135,093 | 132,991 |
All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations.
The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price for the years ended December 31 is as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Antidilutive common stock equivalents |
97 | 544 | 2,352 |
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2016 presentation. During 2016, we early adopted ASU 2016-09, “Improvement to Employee Share-Based Payment Accounting,” resulting in adjustments to our prior financial statements as noted in the caption Share-based Compensation above.
NEW ACCOUNTING STANDARDS
ACCOUNTING STANDARDS RECENTLY ADOPTED
SHARE-BASED PAYMENTS As of December 31, 2016, we early adopted Accounting Standards Update (ASU) 2016-09, “Improvement to Employee Share-Based Payment Accounting,” which amends several aspects of the accounting for employee share-based payment transactions. Most significantly, the income tax effects of awards are recognized in the income statement when the awards vest or are settled (the use of APIC pools is eliminated). Additionally, the guidance requires cash paid for shares withheld (to satisfy the employer’s statutory income tax withholding obligation) to be presented as a financing activity in the statement of cash flows. See the caption Share-based Compensation above for the impact of the adoption of this standard to our consolidated financial statements.
GOING CONCERN As of December 31, 2016, we adopted ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The adoption of this standard did not have a material impact on our consolidated financial statements and related notes.
NET ASSET VALUE PER SHARE INVESTMENTS During the first quarter of 2016, we adopted ASU 2015-07, “Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent).” This ASU removed the requirement to categorize investments within the fair value hierarchy when their fair value is measured using the net asset value per share practical expedient. This ASU also removed the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share expedient. Rather, those disclosures are limited to investments for which we elected to measure the fair value using that practical expedient. The impact of this standard was limited to our annual pension plan fair value disclosures (see Note 10) and was applied retrospectively.
ACCOUNTING STANDARDS PENDING ADOPTION
INTRA-ENTITY ASSET TRANSFERS In October 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which requires the tax effects of intercompany transactions other than inventory to be recognized currently. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
CASH FLOW CLASSIFICATION In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU adds or clarifies guidance on eight specific cash flow issues. Additionally, guidance on the presentation of restricted cash is addressed in ASU 2016-18 which was issued in November 2016. Both of these standards are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We do not expect the adoption of these standards to have a material impact on our consolidated financial statements.
CREDIT LOSSES In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of financial instruments. The new guidance estimates credit losses based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim reporting periods within those annual reporting periods. 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 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 are currently evaluating the impact that the adoption of this standard will have on our consolidated financial statements and related disclosures.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of current guidance on the recognition, measurement and disclosure of financial instruments. Among other changes, this ASU requires most equity investments be measured at fair value. Additionally, the ASU eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value for instruments not recognized at fair value in our financial statements. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
INVENTORY MEASUREMENT In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market principle to the lower of cost and net realizable value principle. The guidance applies to inventories that are measured using the first-in, first-out (FIFO) or average cost method, but does not apply to inventories that are measured using the last-in, first-out (LIFO) or retail inventory method. We use the LIFO method for approximately 66% of our inventory (based on the December 31, 2016 balances); therefore, this ASU will not apply to the majority of our inventory. This ASU is effective prospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual reporting periods. We will adopt this standard as of and for the interim period ending March 31, 2017. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
REVENUE RECOGNITION In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU provides a more robust framework for addressing revenue issues and expands required revenue recognition disclosures. In March 2016, the FASB issued ASU 2016-08, “Revenue From Contracts With Customers: Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” which amends the principal versus agent guidance in ASU 2014-09. The amendments in ASU 2016-08 provide guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. These ASUs are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Further, in applying these ASUs an entity is permitted to use either the full retrospective or cumulative effect transition approach. While we are currently evaluating the impact of adoption of these standards on our consolidated financial statements, we expect to identify similar performance obligations under ASU 2014-09 compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we expect the timing of our revenues to remain generally the same. We will adopt these standards using the cumulative effect transition approach.
|
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 Consolidated Statements of Comprehensive Income for all periods presented. There were no revenues from discontinued operations for the years presented. Results from discontinued operations are as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Discontinued Operations |
||||||||
Pretax loss |
$ (4,877) |
$ (19,326) |
$ (3,683) |
|||||
Income tax benefit |
1,962 | 7,589 | 1,460 | |||||
Loss on discontinued operations, |
||||||||
net of tax |
$ (2,915) |
$ (11,737) |
$ (2,223) |
The 2016, 2015 and 2014 pretax losses from discontinued operations of $4,877,000, $19,326,000 and $3,683,000, respectively, include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. During 2016, we settled one of the cases in the Texas Brine matter (see Note 12). This settlement was covered by our insurance policy which also reimbursed a portion of our past legal expenses such that the net loss for this matter was immaterial for the year. The prior year’s increased loss resulted primarily from charges associated with the Lower Passaic and Texas Brine matters (see Note 12).
|
NOTE 3: INVENTORIES
Inventories at December 31 are as follows:
|
|||||||
in thousands |
2016 | 2015 | |||||
Inventories |
|||||||
Finished products 1 |
$ 293,619 |
$ 297,925 |
|||||
Raw materials |
22,648 | 21,765 | |||||
Products in process |
1,480 | 1,008 | |||||
Operating supplies and other |
27,869 | 26,375 | |||||
Total |
$ 345,616 |
$ 347,073 |
1 |
Includes inventories encumbered by volumetric production payments (see Note 1, caption Deferred Revenue), as follows: December 31, 2016 — $2,841 thousand and December 31, 2015 — $4,452 thousand. |
In addition to the inventory balances presented above, as of December 31, 2016 and December 31, 2015, we have $15,285,000 and $14,995,000, respectively, of inventory classified as long-term assets (other noncurrent assets) as we do not expect to sell the inventory within one year of their respective balance sheet dates. Inventories valued under the LIFO method total $239,187,000 at December 31, 2016 and $242,147,000 at December 31, 2015. During 2016, 2015 and 2014, inventory reductions resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years as compared to current-year costs. The effect of the LIFO liquidation on 2016 results was to decrease cost of revenues by $3,956,000 and increase net earnings by $2,419,000. The effect of the LIFO liquidation on 2015 results was to decrease cost of revenues by $3,284,000 and increase net earnings by $2,010,000. The effect of the LIFO liquidation on 2014 results was to decrease cost of revenues by $2,686,000 and increase net earnings by $1,650,000.
Estimated current cost exceeded LIFO cost at December 31, 2016 and 2015 by $155,576,000 and $169,257,000, respectively. We use the LIFO method of valuation for most of our inventories as it results in a better matching of costs with revenues. We provide supplemental income disclosures to facilitate comparisons with companies not on LIFO. The supplemental income calculation is derived by tax-effecting the change in the LIFO reserve for the periods presented. If all inventories valued at LIFO cost had been valued under the methods (substantially average cost) used before the adoption of the LIFO method, the approximate effect on net earnings would have been an decrease of $(8,338,000) in 2016, a decrease of $(7,614,000) in 2015 and an increase of $19,108,000 in 2014.
|
NOTE 4: PROPERTY, PLANT & EQUIPMENT
Balances of major classes of assets and allowances for depreciation, depletion and amortization at December 31 are as follows:
|
|||||||
in thousands |
2016 | 2015 | |||||
Property, Plant & Equipment |
|||||||
Land and land improvements 1 |
$ 2,374,051 |
$ 2,305,801 |
|||||
Buildings |
127,369 | 124,950 | |||||
Machinery and equipment |
4,316,243 | 4,124,808 | |||||
Leaseholds |
17,595 | 14,143 | |||||
Deferred asset retirement costs |
168,258 | 166,252 | |||||
Construction in progress |
182,302 | 155,333 | |||||
Total, gross |
$ 7,185,818 |
$ 6,891,287 |
|||||
Less allowances for depreciation, depletion |
|||||||
and amortization |
3,924,380 | 3,734,997 | |||||
Total, net |
$ 3,261,438 |
$ 3,156,290 |
1 |
Includes depletable land, as follows: December 31, 2016 — $1,327,402 thousand and December 31, 2015 — $1,296,211 thousand. |
Capitalized interest costs with respect to qualifying construction projects and total interest costs incurred before recognition of the capitalized amount for the years ended December 31 are as follows:
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
Capitalized interest cost |
$ 7,468 |
$ 2,930 |
$ 2,092 |
|||||||
Total interest cost incurred before recognition |
||||||||||
of the capitalized amount |
141,544 | 223,518 | 245,459 |
|
NOTE 5: DERIVATIVE INSTRUMENTS
During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such expenses. We do not use derivative instruments for trading or other speculative purposes.
The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate swap agreements described below were designated as either cash flow hedges or fair value hedges. The changes in fair value of our interest rate swap cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. The changes in fair value of our interest rate swap fair value hedges are recorded as interest expense consistent with the change in the fair value of the hedged items attributable to the risk being hedged.
CASH FLOW HEDGES
During 2007, we entered into fifteen forward starting interest rate locks on $1,500,000,000 of future debt issuances to hedge the risk of higher interest rates. Upon the 2007 and 2008 issuances of the related fixed-rate debt, underlying interest rates were lower than the rate locks and we terminated and settled these forward starting locks for cash payments of $89,777,000. This amount was booked to AOCI and is being amortized to interest expense over the term of the related debt.
This amortization was reflected in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31 as follows:
|
||||||||||||
in thousands |
Location on Statement |
2016 | 2015 | 2014 | ||||||||
Cash Flow Hedges |
||||||||||||
Loss reclassified from AOCI |
||||||||||||
(effective portion) |
Interest expense |
$ (2,008) |
$ (9,759) |
$ (7,988) |
The losses reclassified from AOCI for the years ended December 31, 2015 and 2014 include the acceleration of a proportional amount of the deferred loss in the amount of $7,208,000 and $3,762,000, respectively, referable to the debt purchases as described in Note 6.
For the 12-month period ending December 31, 2017, we estimate that $2,179,000 of the pretax loss in AOCI will be reclassified to earnings.
FAIR VALUE HEDGES
In June 2011, we issued $500,000,000 of 6.50% fixed-rate notes due in 2016 to refinance near term floating-rate debt. Concurrently, we entered into interest rate swap agreements in the stated amount of $500,000,000 to reestablish the pre-refinancing mix of fixed-rate and floating-rate debt. Under these agreements, we paid 6-month London Interbank Offered Rate (LIBOR) plus a spread of 4.05% and received a fixed interest rate of 6.50%. Additionally, in June 2011, we entered into interest rate swap agreements on our $150,000,000 of 10.125% fixed-rate notes due in 2015. Under these agreements, we paid 6-month LIBOR plus a spread of 8.03% and received a fixed interest rate of 10.125%. In August 2011, we terminated and settled these interest rate swap agreements for $25,382,000 of cash proceeds. The resulting gain was added to the carrying value of the related debt and was amortized as a reduction to interest expense over the terms of the related debt using the effective interest method.
This deferred gain amortization was reflected in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31 as follows:
|
||||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||||
Deferred Gain on Settlement |
||||||||||||
Amortized to earnings as a reduction to interest expense |
$ 0 |
$ 3,036 |
$ 10,674 |
The deferred gain was fully amortized in December 2015, concurrent with the retirement of the 10.125% notes due 2015. The amortized deferred gains for the years ended December 31, 2015 and 2014 include the acceleration of a proportional amount of the deferred gain in the amount of $1,642,000 and $8,032,000, respectively, referable to the debt purchases as described in Note 6.
|
NOTE 6: DEBT
Debt at December 31 is detailed as follows:
|
||||||||||
|
Effective |
|||||||||
in thousands |
Interest Rates |
2016 | 2015 | |||||||
Short-term Debt |
||||||||||
Bank line of credit expires 2021 1, 2, 3 |
n/a |
$ 0 |
$ 0 |
|||||||
Total short-term debt |
$ 0 |
$ 0 |
||||||||
Long-term Debt |
||||||||||
Bank line of credit expires 2021 1, 2, 3 |
1.25% |
$ 235,000 |
$ 235,000 |
|||||||
7.00% notes due 2018 |
7.87% | 272,512 | 272,512 | |||||||
10.375% notes due 2018 |
10.63% | 250,000 | 250,000 | |||||||
7.50% notes due 2021 |
7.75% | 600,000 | 600,000 | |||||||
8.85% notes due 2021 |
8.88% | 6,000 | 6,000 | |||||||
Delayed draw term loan 2, 3 |
1.25% | 0 | 0 | |||||||
4.50% notes due 2025 |
4.65% | 400,000 | 400,000 | |||||||
7.15% notes due 2037 |
8.05% | 240,188 | 240,188 | |||||||
Other notes 3 |
6.31% | 365 | 498 | |||||||
Total long-term debt - face value |
$ 2,004,065 |
$ 2,004,198 |
||||||||
Unamortized discounts and debt issuance costs |
(21,176) | (23,734) | ||||||||
Total long-term debt - book value |
$ 1,982,889 |
$ 1,980,464 |
||||||||
Less current maturities |
138 | 130 | ||||||||
Total long-term debt - reported value |
$ 1,982,751 |
$ 1,980,334 |
||||||||
Estimated fair value of long-term debt |
$ 2,243,213 |
$ 2,204,816 |
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 |
The effective interest rate is the spread over LIBOR as of the most recent balance sheet date. |
3 |
Non-publicly traded debt. |
Our total long-term debt - book value is presented in the table above net of unamortized discounts from par and unamortized deferred debt issuance costs. Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $4,418,000 of net interest expense for these items for the year ended December 31, 2016.
The estimated fair value of our debt presented in the table above was determined by: (1) averaging several asking price quotes for the publicly traded notes and (2) assuming par value for the remainder of the debt. The fair value estimates for the publicly traded notes were based on Level 2 information (as defined in Note 1, caption Fair Value Measurements) as of their respective balance sheet dates.
LINE OF CREDIT
In December 2016, among other favorable changes, we extended the maturity date of our unsecured $750,000,000 line of credit from June 2020 to December 2021 (incurring $1,860,000 of transaction fees together with the new term loan described below). The credit agreement 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 December 31, 2016, we were in compliance with the line of credit covenants.
Borrowings on our line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt if we have the intent and ability to extend repayment beyond twelve months. Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from 1.00% to 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 December 31, 2016, the credit margin for LIBOR borrowings was 1.25%, the credit margin for base rate borrowings was 0.25%, and the commitment fee for the unused amount was 0.15%.
As of December 31, 2016, our available borrowing capacity was $475,462,000. Utilization of the borrowing capacity was as follows:
§ |
$39,538,000 was used to provide support for outstanding standby letters of credit |
TERM DEBT
All of our term debt is unsecured. $1,768,700,000 of such debt is governed by two essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in both indentures limits the amount of secured debt we may incur without ratably securing such debt. As of December 31, 2016, we were in compliance with all of the term debt covenants.
In December 2016, we entered into an unsecured $250,000,000 delayed draw term loan (incurring, together with the line of credit extension mentioned previously, $1,860,000 of transaction costs). The term loan is provided by the same group of banks that provides our line of credit and is governed by the same credit agreement as the line of credit. As such, it is subject to the same affirmative, negative, and financial covenants.
The term loan may be funded in up to three draws through June 21, 2017, after which any undrawn amount expires. Borrowings bear interest in the same manner as the line of credit. Until June 21, 2017, we also pay a commitment fee on the undrawn amount in the same manner as the line of credit. The term loan principal will be repaid quarterly beginning March 2018 (quarter 5 after closing) as follows: quarters 5 - 8 @ 0.625%; quarters 9 - 12 @ 1.25%; quarters 13 - 19 @ 1.875% and quarter 20 @ 79.375%. The term loan may be prepaid at any time without penalty.
In 2015, we issued $400,000,000 of 4.50% senior notes due 2025. Proceeds (net of underwriter fees and other transaction costs) of $395,207,000, together with cash on hand and borrowings under our line of credit, funded: (1) the purchase, via tender offer, of $127,488,000 principal amount (33%) of the 7.00% notes due 2018, (2) the redemption of $218,633,000 principal amount (100%) of the 6.40% notes due 2017, and (3) the redemption of $125,001,000 principal amount (100%) of the 6.50% notes due 2016. These debt purchases cost $530,923,000, including a $59,293,000 premium above the principal amount of the notes and transaction costs of $508,000. The premium primarily reflects the trading price of the notes relative to par before the tender offer commencement. Additionally, we recognized $7,274,000 of net noncash expense associated with the acceleration of a proportional amount of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined charge of $67,075,000 was a component of interest expense for the year ended December 31, 2015.
Additionally in 2015, we repaid our $150,000,000 10.125% notes due 2015 and our $14,000,000 industrial revenue bond due 2022 via borrowing on our line of credit. These repayments did not incur any prepayment penalties.
DEBT PAYMENTS
During 2016, our debt payments, excluding the line of credit, were composed of $130,000 principal and $125,748,000 interest.
As described above, during 2015, we purchased/redeemed $471,122,000 principal amount of debt using the proceeds from the 2015 debt issuance, cash on hand and borrowings on our line of credit. Additionally in 2015, we borrowed on our line of credit to repay our $14,000,000 industrial revenue bond due 2022 and our $150,000,000 10.125% notes due 2015.
The total scheduled (principal and interest) debt payments, excluding the line of credit, for the five years subsequent to December 31, 2016 are as follows:
|
||||||||||
in thousands |
Total |
Principal |
Interest |
|||||||
Debt Payments (excluding the line of credit) |
||||||||||
2017 |
$ 125,878 |
$ 138 |
$ 125,740 |
|||||||
2018 |
638,725 | 522,531 | 116,194 | |||||||
2019 |
80,740 | 23 | 80,717 | |||||||
2020 |
80,741 | 25 | 80,716 | |||||||
2021 |
664,174 | 606,026 | 58,148 |
STANDBY LETTERS OF CREDIT
We provide, in the normal course of business, certain third-party beneficiaries 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 December 31, 2016 are summarized by purpose in the table below:
|
|||||
in thousands |
|||||
Standby Letters of Credit |
|||||
Risk management insurance |
$ 34,111 |
||||
Reclamation/restoration requirements |
5,427 | ||||
Total |
$ 39,538 |
|
NOTE 7: OPERATING LEASES
Rental expense from continuing operations under nonmineral operating leases for the years ended December 31, exclusive of rental payments made under leases of one month or less, is summarized as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Operating Leases |
||||||||
Minimum rentals |
$ 52,713 |
$ 49,461 |
$ 42,887 |
|||||
Contingent rentals (based principally on usage) |
57,278 | 60,380 | 56,717 | |||||
Total |
$ 109,991 |
$ 109,841 |
$ 99,604 |
Future minimum operating lease payments under all leases with initial or remaining noncancelable lease terms in excess of one year, exclusive of mineral leases (see Note 12), as of December 31, 2016 are payable as follows:
|
||
in thousands |
||
Future Minimum Operating Lease Payments |
||
2017 |
$ 31,017 |
|
2018 |
29,389 | |
2019 |
25,132 | |
2020 |
23,022 | |
2021 |
21,312 | |
Thereafter |
119,602 | |
Total |
$ 249,474 |
Lease agreements frequently include renewal options and require that we pay for utilities, taxes, insurance and maintenance expense. Options to purchase are also included in some lease agreements.
|
NOTE 8: ACCRUED ENVIRONMENTAL REMEDIATION COSTS
Our Consolidated Balance Sheets as of December 31 include accrued environmental remediation costs (measured on an undiscounted basis) as follows:
|
|||||
in thousands |
2016 | 2015 | |||
Accrued Environmental Remediation Costs |
|||||
Continuing operations |
$ 9,136 |
$ 6,876 |
|||
Retained from former Chemicals business |
10,716 | 10,988 | |||
Total |
$ 19,852 |
$ 17,864 |
The long-term portion of the accruals noted above is included in other noncurrent liabilities in the accompanying Consolidated Balance Sheets and amounted to $12,655,000 at December 31, 2016 and $12,569,000 at December 31, 2015. The short-term portion of these accruals is included in other current liabilities in the accompanying Consolidated Balance Sheets.
The accrued environmental remediation costs in continuing operations relate primarily to the former Florida Rock, Tarmac, and CalMat facilities acquired in 2007, 2000 and 1999, respectively. The balances noted above for Chemicals relate to retained environmental remediation costs from the 2003 sale of the Performance Chemicals business and the 2005 sale of the Chloralkali business. Refer to Note 12 for additional discussion of these contingent environmental matters.
|
NOTE 9: INCOME TAXES
The components of earnings from continuing operations before income taxes are as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Earnings from Continuing Operations |
||||||||
before Income Taxes |
||||||||
Domestic |
$ 513,721 |
$ 293,547 |
$ 264,473 |
|||||
Foreign |
33,536 | 34,310 | 34,365 | |||||
Total |
$ 547,257 |
$ 327,857 |
$ 298,838 |
Income tax expense from continuing operations consists of the following:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Income Tax Expense from |
||||||||
Continuing Operations |
||||||||
Current |
||||||||
Federal |
$ 72,506 |
$ 67,521 |
$ 47,882 |
|||||
State and local |
14,774 | 14,035 | 18,983 | |||||
Foreign |
6,974 | 7,784 | 7,174 | |||||
Total |
$ 94,254 |
$ 89,340 |
$ 74,039 |
|||||
Deferred |
||||||||
Federal |
$ 37,246 |
$ 11,192 |
$ 13,556 |
|||||
State and local |
(6,647) | (4,888) | 4,120 | |||||
Foreign |
(2) | (701) | (23) | |||||
Total |
$ 30,597 |
$ 5,603 |
$ 17,653 |
|||||
Total expense |
$ 124,851 |
$ 94,943 |
$ 91,692 |
Income tax expense differs from the amount computed by applying the federal statutory income tax rate to earnings from continuing operations before income taxes. The sources and tax effects of the differences are as follows:
|
|||||||||||
dollars in thousands |
2016 | 2015 | 2014 | ||||||||
Income tax expense at the federal |
|||||||||||
statutory tax rate of 35% |
$ 191,540 |
35.0% |
$ 114,750 |
35.0% |
$ 104,594 |
35.0% | |||||
Expense (Benefit) from |
|||||||||||
Income Tax Differences |
|||||||||||
Statutory depletion |
(32,230) |
-5.9% |
(27,702) |
-8.4% |
(25,774) |
-8.6% |
|||||
State and local income taxes, net of federal |
|||||||||||
income tax benefit 1 |
5,283 | 1.0% | 5,945 | 1.8% | 15,017 | 5.0% | |||||
U.S. production deduction |
(8,790) |
-1.6% |
(5,099) |
-1.6% |
0 | 0.0% | |||||
Foreign tax credit carryforward |
(6,513) |
-1.2% |
6,486 | 2.0% | 0 | 0.0% | |||||
Permanently reinvested foreign earnings |
(4,578) |
-0.8% |
(6,396) |
-2.0% |
0 | 0.0% | |||||
Share-based compensation 2 |
(22,443) |
-4.1% |
0 | 0.0% | 0 | 0.0% | |||||
Other, net |
2,582 | 0.4% | 6,959 | 2.2% | (2,145) |
-0.7% |
|||||
Total income tax expense/ |
|||||||||||
Effective tax rate |
$ 124,851 |
22.8% |
$ 94,943 |
29.0% |
$ 91,692 |
30.7% |
1 |
The 2016 amount includes $2,404 thousand of benefit related to the early adoption of ASU 2016-09. |
2 |
As discussed in Note 1, we early adopted ASU 2016-09 as of December 31, 2016. |
Deferred taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability at December 31 are as follows:
|
|||||
in thousands |
2016 | 2015 | |||
Deferred Tax Assets Related to |
|||||
Employee benefits |
$ 85,123 |
$ 78,999 |
|||
Asset retirement obligations & other reserves |
63,617 | 59,507 | |||
Deferred compensation |
103,947 | 117,298 | |||
State net operating losses |
54,498 | 61,658 | |||
Federal credit carryforwards |
18,139 | 34,340 | |||
Other |
44,843 | 48,856 | |||
Total gross deferred tax assets |
370,167 | 400,658 | |||
Valuation allowance |
(44,237) | (59,323) | |||
Total net deferred tax assets |
$ 325,930 |
$ 341,335 |
|||
Deferred Tax Liabilities Related to |
|||||
Property, plant & equipment |
$ 664,763 |
$ 665,057 |
|||
Goodwill/other intangible assets |
327,666 | 324,910 | |||
Other |
36,355 | 32,464 | |||
Total deferred tax liabilities |
$ 1,028,784 |
$ 1,022,431 |
|||
Net deferred tax liability |
$ 702,854 |
$ 681,096 |
The above net deferred tax liabilities are reflected in the accompanying Consolidated Balance Sheets as noncurrent liabilities.
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.
As noted above, we have state net operating loss carryforward deferred tax assets of $54,498,000 of which $53,220,000 relates to Alabama. The Alabama net operating loss carryforward, if not used, would expire in years 2023 – 2029. Before 2015, this Alabama deferred tax asset carried a full valuation allowance. During 2015, we restructured our legal entities which resulted in a partial release of the valuation allowance in the amount of $4,655,000. During the fourth quarter of 2016, based on our continued positive performance, we recorded an additional partial release of the valuation allowance in the amount of $4,791,000.
As of December 31, 2016, income tax receivables of $10,201,000 are included in accounts and notes receivable in the accompanying Consolidated Balance Sheet. These are federal and state amended return receivables and overpayments that we have requested to be refunded. There were similar receivables of $4,138,000 as of December 31, 2015.
Our liability for unrecognized tax benefits is discussed in our accounting policy for income taxes (see Note 1, caption Income Taxes). Changes in our liability for unrecognized tax benefits for the years ended December 31 are as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Unrecognized tax benefits as of January 1 |
$ 8,447 |
$ 7,057 |
$ 12,155 |
|||||
Increases for tax positions related to |
||||||||
Prior years |
1,368 | 491 | 229 | |||||
Current year |
1,040 | 942 | 528 | |||||
Decreases for tax positions related to |
||||||||
Prior years |
0 | 0 | (53) | |||||
Settlements with taxing authorities |
0 | 0 | 0 | |||||
Expiration of applicable statute of limitations |
(27) | (43) | (5,802) | |||||
Unrecognized tax benefits as of December 31 |
$ 10,828 |
$ 8,447 |
$ 7,057 |
We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Interest and penalties recognized as income tax expense (benefit) were $266,000 in 2016, $138,000 in 2015 and $(1,067,000) in 2014. The balance of accrued interest and penalties included in our liability for unrecognized tax benefits as of December 31 was $1,369,000 in 2016, $1,103,000 in 2015 and $965,000 in 2014.
Our liability for unrecognized tax benefits at December 31 in the table above include $9,884,000 in 2016, $7,614,000 in 2015 and $6,282,000 in 2014 that would affect the effective tax rate if recognized.
We are routinely examined by various taxing authorities. We anticipate no single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date.
We file income tax returns in U.S. federal, various state and foreign jurisdictions. Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for the years before 2013.
As of December 31, 2016, we have $154,874,000 of accumulated undistributed earnings from our foreign subsidiaries. We consider these earnings to be indefinitely reinvested and, therefore, have not recorded income taxes on these earnings. If we were to distribute these earnings in the form of dividends, the distribution would result in U.S. income taxes of $32,860,000.
|
NOTE 10: BENEFIT PLANS
PENSION PLANS
We sponsor three qualified, noncontributory defined benefit pension plans. These plans cover substantially all employees hired before July 2007, other than those covered by union-administered plans. Normal retirement age is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried Plan and the Chemicals Hourly Plan are generally based on salaries or wages and years of service; the Construction Materials Hourly Plan provides benefits equal to a flat dollar amount for each year of service. In addition to these qualified plans, we sponsor three unfunded, nonqualified pension plans. The projected benefit obligation presented in the table below includes $85,021,000 and $89,652,000 related to these unfunded, nonqualified pension plans for 2016 and 2015, respectively.
Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. In December 2013, we amended our defined benefit pension plans so that future benefit accruals for salaried pension participants ceased effective December 31, 2015.
The following table sets forth the combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31:
|
|||||||
in thousands |
2016 | 2015 | |||||
Change in Benefit Obligation |
|||||||
Projected benefit obligation at beginning of year |
$ 988,453 |
$ 1,083,222 |
|||||
Service cost |
5,343 | 4,851 | |||||
Interest cost |
36,505 | 44,065 | |||||
Actuarial (gain) loss |
24,675 | (63,725) | |||||
Benefits paid |
(48,302) | (79,960) | |||||
Projected benefit obligation at end of year |
$ 1,006,674 |
$ 988,453 |
|||||
Change in Fair Value of Plan Assets |
|||||||
Fair value of assets at beginning of year |
$ 745,686 |
$ 816,972 |
|||||
Actual return on plan assets |
42,555 | (5,373) | |||||
Employer contribution |
9,576 | 14,047 | |||||
Benefits paid |
(48,302) | (79,960) | |||||
Fair value of assets at end of year |
$ 749,515 |
$ 745,686 |
|||||
Funded status |
(257,159) | (242,767) | |||||
Net amount recognized |
$ (257,159) |
$ (242,767) |
|||||
Amounts Recognized in the Consolidated |
|||||||
Balance Sheets |
|||||||
Noncurrent assets |
$ 0 |
$ 0 |
|||||
Current liabilities |
(9,375) | (9,106) | |||||
Noncurrent liabilities |
(247,784) | (233,661) | |||||
Net amount recognized |
$ (257,159) |
$ (242,767) |
|||||
Amounts Recognized in Accumulated |
|||||||
Other Comprehensive Income |
|||||||
Net actuarial loss |
$ 250,099 |
$ 222,580 |
|||||
Prior service credit |
(361) | (404) | |||||
Total amount recognized |
$ 249,738 |
$ 222,176 |
The accumulated benefit obligation (ABO) and the projected benefit obligation (PBO) exceeded plan assets for all of our defined benefit plans at December 31, 2016 and December 31, 2015, except for the Chemicals Hourly Plan where the plan assets exceeded the ABO by $277,000. The ABO for all of our defined benefit pension plans totaled $1,006,001,000 (unfunded, nonqualified plans of $85,021,000) at December 31, 2016 and $987,724,000 (unfunded, nonqualified plans of $89,652,000) at December 31, 2015.
The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income and weighted-average assumptions of the plans at December 31:
|
||||||||||
dollars in thousands |
2016 | 2015 | 2014 | |||||||
Components of Net Periodic Pension |
||||||||||
Benefit Cost |
||||||||||
Service cost |
$ 5,343 |
$ 4,851 |
$ 4,157 |
|||||||
Interest cost |
36,505 | 44,065 | 44,392 | |||||||
Expected return on plan assets |
(51,562) | (54,736) | (50,802) | |||||||
Settlement charge |
0 | 2,031 | 0 | |||||||
Amortization of prior service cost (credit) |
(43) | 48 | 188 | |||||||
Amortization of actuarial loss |
6,163 | 21,641 | 11,221 | |||||||
Net periodic pension benefit cost (credit) |
$ (3,594) |
$ 17,900 |
$ 9,156 |
|||||||
Changes in Plan Assets and Benefit |
||||||||||
Obligations Recognized in Other |
||||||||||
Comprehensive Income |
||||||||||
Net actuarial loss (gain) |
$ 33,682 |
$ (3,615) |
$ 118,915 |
|||||||
Reclassification of actuarial loss |
(6,163) | (23,672) | (11,221) | |||||||
Reclassification of prior service (cost) credit |
43 | (48) | (188) | |||||||
Amount recognized in other comprehensive |
||||||||||
income |
$ 27,562 |
$ (27,335) |
$ 107,506 |
|||||||
Amount recognized in net periodic pension |
||||||||||
benefit cost and other comprehensive |
||||||||||
income |
$ 23,968 |
$ (9,435) |
$ 116,662 |
|||||||
Assumptions |
||||||||||
Weighted-average assumptions used to |
||||||||||
determine net periodic benefit cost for |
||||||||||
years ended December 31 |
||||||||||
Discount rate — PBO |
4.55% | 4.14% | 4.91% | |||||||
Discount rate — service cost |
4.68% | 4.14% | 4.91% | |||||||
Discount rate — interest cost |
3.79% | 4.14% | 4.91% | |||||||
Expected return on plan assets |
7.50% | 7.50% | 7.50% | |||||||
Rate of compensation increase |
||||||||||
(for salary-related plans) |
3.50% | 3.70% | 3.50% | |||||||
Weighted-average assumptions used to |
||||||||||
determine benefit obligation at |
||||||||||
December 31 |
||||||||||
Discount rate |
4.29% | 4.54% | 4.14% | |||||||
Rate of compensation increase |
||||||||||
(for salary-related plans) |
3.50% | 3.50% | 3.70% |
The 2015 settlement charge noted above relates to a lump sum payment to a former employee from the nonqualified plan. This $2,031,000 charge is reflected within both cost of revenues and selling, administrative and general expenses in our accompanying Consolidated Statement of Comprehensive Income for the year ended December 31, 2015.
The estimated net actuarial loss and prior service credit that will be amortized from accumulated other comprehensive income into net periodic pension benefit cost (credit) during 2017 are $6,988,000 and $(73,000), respectively.
Our expected return on plan assets is: (1) a long-term view based on our current asset allocation, and (2) a judgment informed by consultation with our retirement plans’ consultant and our pension plans’ actuary. The expected return on plan assets used to determine 2016 pension benefit cost was 7.50%.
We establish our pension investment policy by evaluating asset/liability studies periodically performed by our consultants. These studies estimate trade-offs between expected returns on our investments and the variability in anticipated cash contributions to fund our pension liabilities. Our policy balances the variability in potential pension fund contributions to expected returns on our investments.
Our current strategy for implementing this policy is to invest in publicly traded equities and in publicly traded debt and private, nonliquid opportunities, such as venture capital, commodities, buyout funds and mezzanine debt. The target allocation ranges for plan assets are as follows: equity securities — 50% to 77%; debt securities — 15% to 27%; specialty investments — 0% to 20%; commodities — 0% to 6%; and cash reserves — 0% to 5%. Equity securities include domestic investments and foreign equities in the Europe, Australia and Far East (EAFE) and International Finance Corporation (IFC) Emerging Market Indices. Debt securities primarily include domestic debt instruments, while specialty investments include investments in venture capital, buyout funds, mezzanine debt, private partnerships and an interest in a commodity index fund.
The fair values and net asset values of our pension plan assets at December 31, 2016 and 2015 by asset category are as follows:
Fair Value Measurements at December 31, 2016
|
|||||||||||||
in thousands |
Level 1 1 |
Level 2 1 |
Level 3 1 |
Total |
|||||||||
Asset Category |
|||||||||||||
Debt securities |
$ 0 |
$ 162,894 |
$ 0 |
$ 162,894 |
|||||||||
Investment funds |
|||||||||||||
Commodity funds |
0 | 16,594 | 0 | 16,594 | |||||||||
Equity funds |
530 | 124,407 | 0 | 124,937 | |||||||||
Investments in the fair value hierarchy |
$ 530 |
$ 303,895 |
$ 0 |
$ 304,425 |
|||||||||
Interest in common/collective trusts (at NAV) 2 |
358,345 | ||||||||||||
Venture capital and partnerships (at NAV) 2 |
86,745 | ||||||||||||
Total pension plan assets |
$ 749,515 |
Fair Value Measurements at December 31, 2015
|
|||||||||||||
in thousands |
Level 1 1 |
Level 2 1 |
Level 3 1 |
Total |
|||||||||
Asset Category |
|||||||||||||
Debt securities |
$ 0 |
$ 154,745 |
$ 0 |
$ 154,745 |
|||||||||
Investment funds |
|||||||||||||
Commodity funds |
0 | 14,490 | 0 | 14,490 | |||||||||
Equity funds |
647 | 123,078 | 0 | 123,725 | |||||||||
Investments in the fair value hierarchy |
$ 647 |
$ 292,313 |
$ 0 |
$ 292,960 |
|||||||||
Interest in common/collective trusts (at NAV) 2 |
349,854 | ||||||||||||
Venture capital and partnerships (at NAV) 2 |
102,872 | ||||||||||||
Total pension plan assets |
$ 745,686 |
1 |
See Note 1 under the caption Fair Value Measurements for a description of the fair value hierarchy. |
2 |
As discussed in Note 1, we adopted ASU 2015-07 as of March 31, 2016. As a result, pension plan assets measured using the net asset value practical expedient were excluded from the fair value hierarchy. |
At each measurement date, we estimate the fair values and net asset values of our pension assets using various valuation techniques. We use, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of our pension assets. When quoted market prices or observable market inputs are not available, we use valuation techniques that rely on unobservable inputs to estimate the fair value of our pension assets. The following describes the types of investments included in each asset category listed in the tables above and the valuation techniques we used to determine the fair values or net asset values as of December 31, 2016 and 2015.
The debt securities category consists of bonds issued by U.S. federal, state and local governments, corporate debt securities, fixed income obligations issued by foreign governments, and asset-backed securities. The fair values of U.S. government and corporate debt securities are based on current market rates and credit spreads for debt securities with similar maturities. The fair values of debt securities issued by foreign governments are based on prices obtained from broker/dealers and international indices. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market.
Investment funds consist of exchange traded and non-exchange traded funds. The commodity funds asset category consists of a single open-end commodity mutual fund. The equity funds asset category consists of a publicly traded mutual fund investing in domestic equities. For investment funds publicly traded on a national securities exchange, the fair value is based on quoted market prices. For investment funds not traded on an exchange, the total fair value of the underlying securities is used to determine the net asset value for each unit of the fund held by the pension fund. The estimated fair values of the underlying securities are generally valued based on quoted market prices. For securities without quoted market prices, other observable market inputs are used to determine the fair value.
Common/collective trust fund investments consist of index funds for domestic equities, an actively managed fund for international equities, and a short-term investment fund for highly liquid, short-term debt securities. Investments are valued at the net asset value (NAV) of units of a bank collective trust. The NAV is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV.
The venture capital and partnerships asset category consists of various limited partnership funds, mezzanine debt funds and leveraged buyout funds. NAV is used as a practical expedient to estimate fair value. The NAV of these investments has been estimated based on methods employed by the general partners, including consideration of, among other things, reference to third-party transactions, valuations of comparable companies operating within the same or similar industry, the current economic and competitive environment, creditworthiness of the corporate issuer, as well as market prices for instruments with similar maturities, terms, conditions and quality ratings. The use of different assumptions, applying different judgment to inherently subjective matters and changes in future market conditions could result in significantly different estimates of fair value of these securities.
Total employer contributions to the pension plans are presented below:
|
||||
in thousands |
Pension |
|||
Employer Contributions |
||||
2014 |
$ 5,488 |
|||
2015 |
14,047 | |||
2016 |
9,576 | |||
2017 (estimated) |
18,875 |
During 2016, 2015 and 2014, we made no contributions to our qualified pension plans. We anticipate contributing $9,500,000 to our qualified pension plans in 2017. For our nonqualified pension plans, we contributed $9,576,000, $14,047,000 and $5,488,000 during 2016, 2015 and 2014, respectively, and expect to contribute $9,375,000 during 2017.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
||||
in thousands |
Pension |
|||
Estimated Future Benefit Payments |
||||
2017 |
$ 52,691 |
|||
2018 |
55,221 | |||
2019 |
56,720 | |||
2020 |
57,664 | |||
2021 |
58,755 | |||
2022-2026 |
304,149 |
We contribute to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements for union-represented employees. A multiemployer plan is subject to collective bargaining for employees of two or more unrelated companies. Multiemployer plans are managed by boards of trustees on which management and labor have equal representation. However, in most cases, management is not directly represented. The risks of participating in multiemployer plans differ from single employer plans as follows:
§ |
assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers |
§ |
if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers |
§ |
if we cease to have an obligation to contribute to one or more of the multiemployer plans to which we contribute, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability |
None of the multiemployer pension plans that we participate in are individually significant. Our contributions to individual multiemployer pension funds did not exceed 5% of the fund’s total contributions in the three years ended December 31, 2016, 2015 and 2014. Total contributions to multiemployer pension plans were $10,435,000 in 2016, $9,800,000 in 2015 and $8,503,000 in 2014.
As of December 31, 2016, a total of 12.8% of our domestic hourly labor force was covered by collective-bargaining agreements. Of such employees covered by collective-bargaining agreements, 8.5% were covered by agreements that expire in 2017. We also employed 305 union employees in Mexico who are covered by a collective-bargaining agreement that will expire in 2017. None of our union employees in Mexico participate in multiemployer pension plans.
In addition to the pension plans noted above, we had one unfunded supplemental retirement plan as of December 31, 2016 and 2015. The accrued costs for the supplemental retirement plan were $1,320,000 at December 31, 2016 and $1,384,000 at December 31, 2015.
POSTRETIREMENT PLANS
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 service requirements. Generally, Company-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 March 2014 sale of our cement and concrete businesses in the Florida area (see Note 19) significantly reduced total expected future service of our postretirement plans resulting in a reduction in the projected benefit obligation of $2,639,000 and a one-time curtailment gain of $3,832,000. This gain is reflected within gain on sale of property, plant & equipment and businesses in our accompanying Consolidated Statement of Comprehensive Income for the year ended December 31, 2014.
The following table sets forth the combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31:
|
|||||||
in thousands |
2016 | 2015 | |||||
Change in Benefit Obligation |
|||||||
Projected benefit obligation at beginning of year |
$ 48,605 |
$ 85,336 |
|||||
Service cost |
1,123 | 1,894 | |||||
Interest cost |
1,209 | 2,485 | |||||
Actuarial gain |
(111) | (35,195) | |||||
Benefits paid |
(5,280) | (5,915) | |||||
Projected benefit obligation at end of year |
$ 45,546 |
$ 48,605 |
|||||
Change in Fair Value of Plan Assets |
|||||||
Fair value of assets at beginning of year |
$ 0 |
$ 0 |
|||||
Actual return on plan assets |
0 | 0 | |||||
Fair value of assets at end of year |
$ 0 |
$ 0 |
|||||
Funded status |
$ (45,546) |
$ (48,605) |
|||||
Net amount recognized |
$ (45,546) |
$ (48,605) |
|||||
Amounts Recognized in the Consolidated |
|||||||
Balance Sheets |
|||||||
Current liabilities |
$ (6,013) |
$ (6,287) |
|||||
Noncurrent liabilities |
(39,533) | (42,318) | |||||
Net amount recognized |
$ (45,546) |
$ (48,605) |
|||||
Amounts Recognized in Accumulated |
|||||||
Other Comprehensive Income |
|||||||
Net actuarial gain |
$ (22,685) |
$ (24,325) |
|||||
Prior service credit |
(19,692) | (23,928) | |||||
Total amount recognized |
$ (42,377) |
$ (48,253) |
The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income, weighted-average assumptions and assumed trend rates of the plans at December 31:
|
||||||||||
dollars in thousands |
2016 | 2015 | 2014 | |||||||
Components of Net Periodic Postretirement |
||||||||||
Benefit Cost |
||||||||||
Service cost |
$ 1,123 |
$ 1,894 |
$ 2,146 |
|||||||
Interest cost |
1,209 | 2,485 | 3,297 | |||||||
Curtailment gain |
0 | 0 | (3,832) | |||||||
Amortization of prior service credit |
(4,236) | (4,232) | (4,327) | |||||||
Amortization of actuarial (gain) loss |
(1,751) | 37 | 227 | |||||||
Net periodic postretirement benefit cost (credit) |
$ (3,655) |
$ 184 |
$ (2,489) |
|||||||
Changes in Plan Assets and Benefit |
||||||||||
Obligations Recognized in Other |
||||||||||
Comprehensive Income |
||||||||||
Net actuarial gain |
$ (111) |
$ (35,209) |
$ (5,256) |
|||||||
Reclassification of actuarial gain (loss) |
1,751 | (37) | (227) | |||||||
Reclassification of prior service credit |
4,236 | 4,232 | 8,159 | |||||||
Amount recognized in other comprehensive |
||||||||||
income |
$ 5,876 |
$ (31,014) |
$ 2,676 |
|||||||
Amount recognized in net periodic |
||||||||||
postretirement benefit cost and other |
||||||||||
comprehensive income |
$ 2,221 |
$ (30,830) |
$ 187 |
|||||||
Assumptions |
||||||||||
Assumed Healthcare Cost Trend Rates |
||||||||||
at December 31 |
||||||||||
Healthcare cost trend rate assumed |
||||||||||
for next year |
n/a |
n/a |
7.50% | |||||||
Rate to which the cost trend rate gradually |
||||||||||
declines |
n/a |
n/a |
5.00% | |||||||
Year that the rate reaches the rate it is |
||||||||||
assumed to maintain |
n/a |
n/a |
2025 | |||||||
Weighted-average assumptions used to |
||||||||||
determine net periodic benefit cost for |
||||||||||
years ended December 31 |
||||||||||
Discount rate — PBO |
3.69% | 3.50% | 4.10% | |||||||
Discount rate — service cost |
3.77% | 3.50% | 4.10% | |||||||
Discount rate — interest cost |
2.81% | 3.50% | 4.10% | |||||||
Weighted-average assumptions used to |
||||||||||
determine benefit obligation at |
||||||||||
December 31 |
||||||||||
Discount rate |
3.58% | 3.69% | 3.50% |
The estimated net actuarial gain and prior service credit that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost (credit) during 2017 are $(1,724,000) and $(4,236,000), respectively.
Total employer contributions to the postretirement plans are presented below:
|
||||
in thousands |
Postretirement |
|||
Employer Contributions |
||||
2014 |
$ 7,739 |
|||
2015 |
5,915 | |||
2016 |
5,280 | |||
2017 (estimated) |
6,013 |
The employer contributions shown above are equal to the cost of benefits during the year. The plans are not funded and are not subject to any regulatory funding requirements.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
||||
in thousands |
Postretirement |
|||
Estimated Future Benefit Payments |
||||
2017 |
$ 6,013 |
|||
2018 |
5,757 | |||
2019 |
5,510 | |||
2020 |
5,227 | |||
2021 |
4,826 | |||
2022–2026 |
18,546 |
Contributions by participants to the postretirement benefit plans for the years ended December 31 are as follows:
|
||||
in thousands |
Postretirement |
|||
Participants Contributions |
||||
2014 |
$ 1,873 |
|||
2015 |
2,031 | |||
2016 |
2,085 |
PENSION AND OTHER POSTRETIREMENT BENEFITS ASSUMPTIONS
Each year we review our assumptions about the discount rate, the expected return on plan assets, and the rate of increase in the per capita cost of covered healthcare benefits. Annual pay increases after 2015 do not increase our pension plan obligations as a result of a 2013 plan amendment.
In selecting the discount rate, we consider the yield on high-quality bonds with a duration equal to the duration of plan liabilities. At December 31, 2016, the discount rates used to measure the benefit obligation for our various plans ranged from 3.43% to 4.41% (December 31, 2015 ranged from 3.53% to 4.68%).
In 2016, we changed our method to estimate the service and interest cost components of net periodic benefit cost for our defined benefit pension and other postretirement benefit plans. Previously, we estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. As of 2016, we elected to use a full yield curve approach to estimate the service and interest cost, applying the specific spot rates along the yield curve to the relevant projected cash flows. We made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding yield curve spot rates.
We accounted for this change as a change in estimate and, accordingly, accounted for it prospectively as of 2016. The weighted-average discount rates used to measure service cost and interest cost for 2016 were 4.68% and 3.79%, respectively, for our pension plans and 3.77% and 2.81%, respectively, for our other postretirement plans.
Our expected return on plan assets is: (1) a long-term view based on our current asset allocation, and (2) a judgment informed by consultation with our retirement plans’ consultant and our pension plans’ actuary. In estimating the expected return on plan assets, we consider past performance and long-term future expectations for the types of investments held by the plan as well as the expected long-term allocation of plan assets to these investments. At December 31, 2016, the expected return on plan assets was reduced to 7.00% (December 31, 2015 was 7.50%).
Future increases in the per capital cost of healthcare benefits will not increase our postretirement medical benefits obligation as a result of a 2012 plan amendment to cap medical coverage cost at the 2015 level.
DEFINED CONTRIBUTION PLANS
We sponsor two defined contribution plans. Substantially all salaried and nonunion hourly employees are eligible to be covered by one of these plans. Under these plans, we match employees’ eligible contributions at established rates. Expense recognized in connection with these matching obligations totaled $45,295,000 in 2016, $36,085,000 in 2015 and $29,215,000 in 2014.
|
NOTE 11: INCENTIVE PLANS
SHARE-BASED COMPENSATION PLANS
Our 2016 Omnibus Long-term Incentive Plan (Plan) authorizes the granting of stock options, Stock-Only Stock Appreciation Rights (SOSARs) and other types of share-based awards to key salaried employees and nonemployee directors. The maximum number of shares that may be issued under the Plan is 8,000,000.
PERFORMANCE SHARES — Each performance share unit is equal to and paid in one share of our common stock, but carries no voting or dividend rights. The number of units ultimately paid for performance share awards may range from 0% to 200% of the number of units awarded on the date of grant. Payment is based upon our Total Shareholder Return (TSR) performance relative to the TSR performance of the S&P 500®. Awards vest on December 31 of the fourth year after date of grant. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested units are forfeited upon termination for any other reason. Expense provisions referable to performance share awards amounted to $12,074,000 in 2016, $13,159,000 in 2015 and $16,863,000 in 2014.
The fair value of performance shares is estimated as of the date of grant using a Monte Carlo simulation model. The following table summarizes the activity for nonvested performance share units during the year ended December 31, 2016:
|
|||||||
|
Target |
Weighted-average |
|||||
|
Number |
Grant Date |
|||||
|
of Shares |
Fair Value |
|||||
Performance Shares |
|||||||
Nonvested at January 1, 2016 |
806,339 |
$ 63.13 |
|||||
Granted |
164,498 | 87.73 | |||||
Vested |
(289,424) | 53.65 | |||||
Canceled/forfeited |
(14,317) | 68.49 | |||||
Nonvested at December 31, 2016 |
667,096 |
$ 73.20 |
During 2015 and 2014, the weighted-average grant date fair value of performance shares granted was $74.85 and $63.42, respectively.
The aggregate values for distributed performance share awards are based on the closing price of our common stock as of the distribution date. The aggregate values of distributed performance shares for the years ended December 31 are as follows:
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
Aggregate value of distributed |
||||||||||
performance shares |
$ 60,443 |
$ 26,258 |
$ 0 |
RESTRICTED SHARES — Each restricted share unit is equal to and paid in one share of our common stock, but carries no voting or dividend rights. Awards vest on the fourth anniversary of the grant date. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested units are forfeited upon termination for any other reason. Expense provisions referable to restricted share awards amounted to $3,004,000 in 2016, $982,000 in 2015 and $704,000 in 2014.
The fair value of restricted shares is estimated as of the date of grant based on the stock price adjusted for dividends foregone. The following table summarizes the activity for nonvested restricted share units during the year ended December 31, 2016:
|
|||||||
|
Weighted-average |
||||||
|
Number |
Grant Date |
|||||
|
of Shares |
Fair Value |
|||||
Restricted Stock Units |
|||||||
Nonvested at January 1, 2016 |
74,000 |
$ 58.23 |
|||||
Granted |
63,350 | 87.77 | |||||
Vested |
0 | 0.00 | |||||
Canceled/forfeited |
(1,920) | 87.77 | |||||
Nonvested at December 31, 2016 |
135,430 |
$ 71.63 |
The weighted-average grant date fair value of restricted shares granted in 2015 was $74.85. No restricted shares were granted in 2014.
There were no distributions of restricted shares during 2016, 2015 and 2014.
STOCK ONLY STOCK APPRECIATION RIGHTS (SOSARs) — SOSARs granted have an exercise price equal to the market value of our underlying common stock on the date of grant. The SOSARs vest ratably over 4 years and expire 10 years subsequent to the grant. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested awards are forfeited upon termination for any other reason.
The fair value of SOSARs is estimated as of the date of grant using the Black-Scholes option pricing model. Compensation cost for SOSARs is based on this grant date fair value and is recognized for awards that ultimately vest. The following table presents the weighted-average fair value and the weighted-average assumptions used in estimating the fair value of grants during the years ended December 31:
|
|||||||||||
|
2016 | 2015 | 2014 | ||||||||
SOSARs |
|||||||||||
Fair value |
$ 29.20 |
$ 25.17 |
$ 21.94 |
||||||||
Risk-free interest rate |
1.66% | 1.85% | 2.40% | ||||||||
Dividend yield |
1.39% | 1.70% | 1.64% | ||||||||
Volatility |
30.42% | 33.00% | 33.00% | ||||||||
Expected term |
9.00 years |
8.00 years |
8.00 years |
The risk-free interest rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period approximating the SOSARs expected term. The dividend yield assumption is based on our historical dividend payouts adjusted for current expectations of future payouts. The volatility assumption is based on the historical volatility and expectations about future volatility of our common stock over a period equal to the SOSARs expected term. The expected term is based on historical experience and expectations about future exercises and represents the period of time that SOSARs granted are expected to be outstanding.
A summary of our SOSAR activity as of December 31, 2016 and changes during the year are presented below:
|
|||||||||||||
|
Weighted-average |
||||||||||||
|
Remaining |
Aggregate |
|||||||||||
|
Number |
Weighted-average |
Contractual |
Intrinsic Value |
|||||||||
|
of Shares |
Exercise Price |
Life (Years) |
(in thousands) |
|||||||||
SOSARs/Stock Options 1 |
|||||||||||||
Outstanding at January 1, 2016 |
3,052,749 |
$ 58.32 |
|||||||||||
Granted |
97,700 | 92.02 | |||||||||||
Exercised |
(753,251) | 83.29 | |||||||||||
Forfeited or expired |
(4,767) | 78.22 | |||||||||||
Outstanding at December 31, 2016 |
2,392,431 |
$ 51.80 |
4.30 |
$ 178,558 |
|||||||||
Vested and expected to vest |
2,379,036 |
$ 51.70 |
4.28 |
$ 177,794 |
|||||||||
Exercisable at December 31, 2016 |
2,005,030 |
$ 47.30 |
3.62 |
$ 158,651 |
1 |
There were no stock options outstanding at December 31, 2016. |
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between our stock price on the last trading day of 2016 and the exercise price, multiplied by the number of in-the-money SOSARs) that would have been received by the option holders had all SOSARs been exercised on December 31, 2016. These values change based on the fair market value of our common stock. The aggregate intrinsic values of SOSARs/ stock options exercised for the years ended December 31 are as follows:
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
Aggregate intrinsic value of SOSARs/ |
||||||||||
stock options exercised |
$ 27,705 |
$ 43,620 |
$ 7,372 |
The following table presents cash and stock consideration received and tax benefit realized from stock option/SOSAR exercises and compensation cost recorded referable to SOSARs/stock options for the years ended December 31:
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
SOSARs/Stock Options |
||||||||||
Cash and stock consideration received |
||||||||||
from exercises |
$ 0 |
$ 72,884 |
$ 23,199 |
|||||||
Tax benefit from exercises |
10,767 | 16,920 | 2,844 | |||||||
Compensation cost |
2,744 | 2,221 | 4,650 |
DEFERRED STOCK UNITS — In addition to the share-based compensation plans for employees discussed above, we issue a limited number of deferred stock units to our nonemployee directors annually. These deferred stock units vest over three years (except for the 2016 grant which vested upon issuance) and accumulate dividends over the vesting period. Expense provisions referable to nonemployee director deferred stock units amounted to $2,848,000 in 2016, $1,886,000 in 2015 and $1,668,000 in 2014.
CASH-BASED COMPENSATION PLANS
We have incentive plans under which cash awards may be made annually to officers and key employees. Expense provisions referable to these plans amounted to $32,169,000 in 2016, $26,325,000 in 2015 and $27,442,000 in 2014.
|
NOTE 12: COMMITMENTS AND CONTINGENCIES
We have commitments in the form of unconditional purchase obligations as of December 31, 2016. These include commitments for the purchase of property, plant & equipment of $132,046,000 and commitments for noncapital purchases of $55,037,000. These commitments are due as follows:
|
||
|
Unconditional |
|
|
Purchase |
|
in thousands |
Obligations |
|
Property, Plant & Equipment |
||
2017 |
$ 131,846 |
|
Thereafter |
200 | |
Total |
$ 132,046 |
|
Noncapital (primarily transportation and electricity contracts) |
||
2017 |
$ 24,402 |
|
2018–2019 |
19,406 | |
2020–2021 |
7,229 | |
Thereafter |
4,000 | |
Total |
$ 55,037 |
Commitments for the purchase of property, plant & equipment for 2017 include $85,293,000 for the construction of two new Panamax-class, self-unloading ships. Expenditures under noncapital purchase commitments totaled $60,591,000 in 2016, $76,178,000 in 2015 and $65,582,000 in 2014.
We have commitments in the form of minimum royalties under mineral leases as of December 31, 2016 in the amount of $216,241,000, due as follows:
|
||
|
Mineral |
|
in thousands |
Leases |
|
Minimum Royalties |
||
2017 |
$ 22,153 |
|
2018–2019 |
36,196 | |
2020–2021 |
23,513 | |
Thereafter |
134,379 | |
Total |
$ 216,241 |
Expenditures for royalties under mineral leases totaled $62,978,000 in 2016, $58,048,000 in 2015 and $49,685,000 in 2014. Refer to Note 7 for future minimum nonmineral operating lease payments.
Certain of our aggregates reserves are burdened by volumetric production payments (nonoperating interest) as described in Note 1 under the caption Deferred Revenue. As the holder of the working interest, we have responsibility to bear the cost of mining and producing the reserves attributable to this nonoperating interest.
As summarized by purpose in Note 6, our standby letters of credit totaled $39,538,000 as of December 31, 2016.
As described in Note 9, our liability for unrecognized tax benefits is $10,828,000 as of December 31, 2016.
As described in Note 17, our asset retirement obligations totaled $223,872,000 as of December 31, 2016.
LITIGATION AND ENVIRONMENTAL MATTERS
We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.
We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party's share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.
We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period. Amounts accrued for environmental matters are presented in Note 8.
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 specifically described below.
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 was the lessee to a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company (Texas Brine) operated this salt mine for our account. We sold our Chemicals Division in 2005 and assigned the lease to the purchaser and we have had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed near the salt dome and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in August 2012 in federal court in the Eastern District of Louisiana in New Orleans. |
There are numerous defendants to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by Texas Brine. We have since been added as a direct and third-party defendant by other parties, including a direct claim by the state of Louisiana. The damages alleged in the litigation range from individual plaintiffs’ claims for property damage, to the state of Louisiana’s claim for response costs, to claims for physical damages to oil pipelines, to business interruption claims. In addition to the plaintiffs’ claims, we have also been sued for contractual indemnity and comparative fault by both Texas Brine and Occidental. The total amount of damages claimed is in excess of $500 million. It is alleged that the sinkhole was caused, in whole or in part, by our negligent actions or failure to act. It is also alleged that we breached the salt lease, as well as an operating agreement and a drilling agreement with Texas Brine; that we are strictly liable for certain property damages in our capacity as a former assignee of the salt lease; and that we violated certain covenants and conditions in the agreement under which we sold our Chemicals Division in 2005. We have made claims for contractual indemnity, comparative fault, and breach of contract against Texas Brine, as well as claims for contractual indemnity and comparative fault against Occidental. Discovery is ongoing and no trials are currently set.
In December 2016, we settled with the plaintiffs in one of these cases involving property damages but there are cross-claims remaining against us in that case. In February 2017, we offered to settle with the plaintiffs in the cases involving physical damages to oil pipelines. The insurers who have coverage at these settlement amounts agreed that the cases were covered by our policy. An immaterial loss limited to our insurance deductible was recognized during the fourth quarter. Except for these cases, at this time we cannot reasonably estimate a range of liability pertaining to this matter.
§ |
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 Vulcan 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 pilot test of a pump and treat system; testing and implementation of a leachate recovery system; and storm water capture and conveyance improvements. We are currently implementing the IRAP, including the drilling and installation of monitoring wells and construction of a treatment plant for a pilot-scale groundwater extraction and re-injection treatment system. The estimated cost to implement the IRAP is fully accrued. Operation of the pilot-scale treatment system began in January 2017. However, until this pilot testing is complete, we are unable to estimate the cost of remedial action. |
We are also engaged in an ongoing dialogue with the EPA, the Los Angeles Department of Water and Power, and other stakeholders regarding the potential contribution of the Hewitt Landfill to groundwater contamination in the North Hollywood Operable Unit (NHOU) of the San Fernando Valley Superfund Site. We are gathering and analyzing data and developing technical information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area.
In July 2016, the EPA sent a letter to us requesting that we enter into an AOC for remedial design work at the NHOU including, but not limited to, the design of two or more groundwater extraction wells to be located south of the Hewitt Landfill. In February 2017, the EPA sent a draft AOC to us. Vulcan and EPA representatives expect to engage in negotiations for a possible AOC during the first and second quarters of 2017.
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 Note 1 under the caption Claims and Litigation Including Self-insurance.
|
NOTE 13: 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 preferred stock, of which no shares have been issued. The terms and provisions of such shares will be determined by our Board of Directors upon any issuance of preferred shares in accordance with our Certificate of Incorporation.
In 2014, we issued 715,004 shares of common stock in connection with a business acquisition as described in Note 19.
Under a program that was discontinued in the fourth quarter of 2014, we occasionally sold shares of common stock to the trustee of our 401(k) retirement plan to satisfy the plan participants' elections to invest in our common stock. During 2014, we issued 485,306 shares for cash proceeds of $30,620,000 under this arrangement.
There were no shares held in treasury as of December 31, 2016, 2015 and 2014.
Our common stock purchases (all of which were open market purchases) for the years ended December 31 are summarized below:
|
||||||||
in thousands, except average cost |
2016 | 2015 | 2014 | |||||
Shares Purchased and Retired |
||||||||
Number |
1,427 | 228 | 0 | |||||
Total cost 1 |
$ 161,463 |
$ 21,475 |
$ 0 |
|||||
Average cost 1 |
$ 113.18 |
$ 94.19 |
$ 0.00 |
1 |
Excludes commissions of $0.02 per share. |
As of December 31, 2016, 1,756,757 shares may be purchased under the current purchase authorization of our Board of Directors.
|
NOTE 14: 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 Consolidated Statements of Comprehensive Income and Consolidated Statements of Equity, net of applicable taxes.
Amounts in accumulated other comprehensive income (AOCI), net of tax, at December 31, are as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
AOCI |
||||||||
Cash flow hedges |
$ (13,300) |
$ (14,494) |
$ (20,322) |
|||||
Pension and postretirement plans |
(126,076) | (105,575) | (141,392) | |||||
Total |
$ (139,376) |
$ (120,069) |
$ (161,714) |
Changes in AOCI, net of tax, for the three years ended December 31, 2016 are as follows:
|
||||||||
|
Pension and |
|||||||
|
Cash Flow |
Postretirement |
||||||
in thousands |
Hedges |
Benefit Plans |
Total |
|||||
AOCI |
||||||||
Balance as of December 31, 2013 |
$ (25,178) |
$ (74,453) |
$ (99,631) |
|||||
Other comprehensive income (loss) |
||||||||
before reclassifications |
0 | (69,051) | (69,051) | |||||
Amounts reclassified from AOCI |
4,856 | 2,112 | 6,968 | |||||
Net OCI changes |
4,856 | (66,939) | (62,083) | |||||
Balance as of December 31, 2014 |
$ (20,322) |
$ (141,392) |
$ (161,714) |
|||||
Other comprehensive income (loss) |
||||||||
before reclassifications |
0 | 23,832 | 23,832 | |||||
Amounts reclassified from AOCI |
5,828 | 11,985 | 17,813 | |||||
Net OCI changes |
5,828 | 35,817 | 41,645 | |||||
Balance as of December 31, 2015 |
$ (14,494) |
$ (105,575) |
$ (120,069) |
|||||
Other comprehensive income (loss) |
||||||||
before reclassifications |
0 | (20,583) | (20,583) | |||||
Amounts reclassified from AOCI |
1,194 | 82 | 1,276 | |||||
Net OCI changes |
1,194 | (20,501) | (19,307) | |||||
Balance as of December 31, 2016 |
$ (13,300) |
$ (126,076) |
$ (139,376) |
Amounts reclassified from AOCI to earnings, are as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Reclassification Adjustment for Cash Flow |
||||||||
Hedge Losses |
||||||||
Interest expense |
$ 2,008 |
$ 9,759 |
$ 7,988 |
|||||
Benefit from income taxes |
(814) | (3,931) | (3,132) | |||||
Total 1 |
$ 1,194 |
$ 5,828 |
$ 4,856 |
|||||
Amortization of Pension and Postretirement Plan |
||||||||
Actuarial Loss and Prior Service Cost |
||||||||
Cost of revenues |
$ 109 |
$ 15,916 |
$ 2,789 |
|||||
Selling, administrative and general expenses |
25 | 3,608 | 688 | |||||
Benefit from income taxes |
(52) | (7,539) | (1,365) | |||||
Total 2 |
$ 82 |
$ 11,985 |
$ 2,112 |
|||||
Total reclassifications from AOCI to earnings |
$ 1,276 |
$ 17,813 |
$ 6,968 |
1 |
Totals for 2015 and 2014 include the acceleration of a proportional amount of deferred losses on interest rate derivatives (see Note 5) referable to debt purchases (see Note 6). |
2 |
Total for 2015 includes a one-time settlement loss resulting from a lump sum payment to a former employee (see Note 10). Total for 2014 includes a one-time curtailment gain (see Note 10) resulting from the sale of our cement and concrete businesses in the Florida area (see Note 19). |
|
NOTE 15: SEGMENT REPORTING
We have four operating (and reportable) segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium.
The Aggregates segment produces and sells aggregates (crushed stone, sand and gravel, sand, and other aggregates) and related products and services (transportation and other). During 2016, the Aggregates segment principally served markets in twenty states, Washington D.C. and Mexico with a full line of aggregates, and two additional states with railroad ballast. Customers use aggregates primarily in the construction and maintenance of highways, streets and other public works and in the construction of housing and commercial, industrial and other nonresidential facilities. Customers are served by truck, rail and water distribution networks from our production facilities and sales yards. Due to the high weight-to-value ratio of aggregates, markets generally are local in nature. Quarries located on waterways and rail lines allow us to serve remote markets where local aggregates reserves may not be available.
The Asphalt Mix segment produces and sells asphalt mix in four states primarily in our southwestern and western markets.
The Concrete segment produces and sells ready-mixed concrete in six states, Washington D.C. and an immaterial amount in the Bahamas. In January 2015, we swapped our ready-mixed concrete operations in California (see Note 19) for asphalt mix operations, primarily in Arizona. In March 2014, we sold our concrete business in the Florida area (see Note 19) which in addition to ready-mixed concrete, included concrete block, precast concrete, as well as building materials purchased for resale.
The Calcium segment consists of a Florida facility that mines, produces and sells calcium products. Before the sale of our cement business in March 2014 (see Note 19), we produced and sold Portland and masonry cement in both bulk and bags from our Florida cement plant and imported and exported cement, clinker and slag and either resold, ground, blended, bagged or reprocessed those materials from other Florida facilities.
Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. Our Asphalt Mix and Concrete segments are primarily supplied with their aggregates requirements from our Aggregates segment. These intersegment sales are made at local market prices for the particular grade and quality of product used in the production of asphalt mix and ready-mixed concrete. Customers for our Asphalt Mix and Concrete segments are generally served locally at our production facilities or by truck. Because asphalt mix and ready-mixed concrete harden rapidly, delivery is time constrained and generally confined to a radius of approximately 20 to 25 miles from the producing facility.
The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Total domestic revenues were $3,579,427,000 in 2016, $3,410,773,000 in 2015 and $2,979,470,000 in 2014. Nondomestic Aggregates segment revenues were $13,240,000 in 2016, $11,408,000 in 2015 and $14,699,000 in 2014; there were no significant nondomestic revenues in our Asphalt Mix, Concrete or Calcium segments. Long-lived assets outside the United States, which consist primarily of property, plant & equipment, were $188,652,000 in 2016, $160,125,000 in 2015 and $139,427,000 in 2014. Equity method investments of $22,965,000 in 2016, $22,967,000 in 2015 and $22,924,000 in 2014 are included below in the identifiable assets for the Aggregates segment.
SEGMENT FINANCIAL DISCLOSURE
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Total Revenues |
||||||||
Aggregates 1 |
$ 2,961,835 |
$ 2,777,758 |
$ 2,346,411 |
|||||
Asphalt Mix 2 |
512,310 | 530,692 | 445,538 | |||||
Concrete 2, 3 |
330,125 | 299,252 | 375,806 | |||||
Calcium 4 |
8,860 | 8,596 | 25,032 | |||||
Segment sales |
$ 3,813,130 |
$ 3,616,298 |
$ 3,192,787 |
|||||
Aggregates intersegment sales |
(220,463) | (194,117) | (189,393) | |||||
Calcium intersegment sales |
0 | 0 | (9,225) | |||||
Total revenues |
$ 3,592,667 |
$ 3,422,181 |
$ 2,994,169 |
|||||
Gross Profit |
||||||||
Aggregates |
$ 873,118 |
$ 755,666 |
$ 544,070 |
|||||
Asphalt Mix 2 |
97,682 | 78,225 | 38,080 | |||||
Concrete 2, 3 |
26,543 | 20,152 | 2,233 | |||||
Calcium 4 |
3,474 | 3,490 | 3,199 | |||||
Total |
$ 1,000,817 |
$ 857,533 |
$ 587,582 |
|||||
Depreciation, Depletion, Accretion and Amortization (DDA&A) |
||||||||
Aggregates |
$ 236,472 |
$ 228,466 |
$ 227,042 |
|||||
Asphalt Mix 2 |
16,797 | 16,378 | 10,719 | |||||
Concrete 2, 3 |
12,129 | 11,374 | 19,892 | |||||
Calcium 4 |
774 | 679 | 1,554 | |||||
Other |
18,768 | 17,926 | 20,290 | |||||
Total |
$ 284,940 |
$ 274,823 |
$ 279,497 |
|||||
Capital Expenditures 5 |
||||||||
Aggregates |
$ 297,737 |
$ 269,014 |
$ 180,026 |
|||||
Asphalt Mix 2 |
29,002 | 8,111 | 20,796 | |||||
Concrete 2, 3 |
10,047 | 19,053 | 19,542 | |||||
Calcium 4 |
534 | 0 | 201 | |||||
Corporate |
7,621 | 7,846 | 2,532 | |||||
Total |
$ 344,941 |
$ 304,024 |
$ 223,097 |
|||||
Identifiable Assets 6 |
||||||||
Aggregates |
$ 7,589,225 |
$ 7,540,273 |
$ 7,311,336 |
|||||
Asphalt Mix 2 |
259,514 | 251,716 | 264,172 | |||||
Concrete 2, 3 |
192,673 | 198,193 | 227,000 | |||||
Calcium 4 |
4,959 | 5,509 | 5,818 | |||||
Total identifiable assets |
$ 8,046,371 |
$ 7,995,691 |
$ 7,808,326 |
|||||
General corporate assets |
166,118 | 21,881 | 91,498 | |||||
Cash and cash equivalents |
258,986 | 284,060 | 141,273 | |||||
Total assets |
$ 8,471,475 |
$ 8,301,632 |
$ 8,041,097 |
1 |
Includes product sales, as well as freight, delivery and transportation revenues, and other revenues related to services. |
2 |
In January 2015, we exchanged our California ready-mixed concrete operations for 13 asphalt mix plants, primarily in Arizona (see Note 19). |
3 |
In March 2014, we sold our concrete business in the Florida area (see Note 19). |
4 |
Includes cement and calcium products. In March 2014, we sold our cement business (see Note 19). |
5 |
Capital expenditures include capitalized replacements of and additions to property, plant & equipment, including capitalized leases, renewals and betterments. Capital expenditures exclude property, plant & equipment obtained by business acquisitions. |
6 |
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. |
|
NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to the Consolidated Statements of Cash Flows is summarized below:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Cash Payments |
||||||||
Interest (exclusive of amount capitalized) |
$ 135,039 |
$ 208,288 |
$ 241,841 |
|||||
Income taxes |
102,849 | 53,623 | 79,862 | |||||
Noncash Investing and Financing Activities |
||||||||
Accrued liabilities for purchases of property, |
||||||||
plant & equipment |
$ 26,676 |
$ 31,883 |
$ 17,120 |
|||||
Amounts referable to business acquisitions |
||||||||
Liabilities assumed |
798 | 2,645 | 26,622 | |||||
Fair value of noncash assets and liabilities exchanged |
0 | 20,000 | 2,414 | |||||
Fair value of equity consideration |
0 | 0 | 45,185 |
|
NOTE 17: 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 parcels, including both owned properties and mineral leases. For the years ended December 31, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
ARO Operating Costs |
||||||||
Accretion |
$ 11,059 |
$ 11,474 |
$ 11,601 |
|||||
Depreciation |
6,353 | 6,515 | 4,462 | |||||
Total |
$ 17,412 |
$ 17,989 |
$ 16,063 |
ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Consolidated Balance Sheets.
Reconciliations of the carrying amounts of our AROs for the years ended December 31 are as follows:
|
|||||
in thousands |
2016 | 2015 | |||
Asset Retirement Obligations |
|||||
Balance at beginning of year |
$ 226,594 |
$ 226,565 |
|||
Liabilities incurred |
505 | 6,235 | |||
Liabilities settled |
(17,114) | (18,048) | |||
Accretion expense |
11,059 | 11,474 | |||
Revisions, net |
2,828 | 368 | |||
Balance at end of year |
$ 223,872 |
$ 226,594 |
The ARO liabilities incurred during 2016 and 2015 relate primarily to acquisitions (see Note 19). ARO liabilities settled during 2016 and 2015 include $12,602,000 and $13,117,000, 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 development agreement will result in the restoration and development of 90 acres of previously mined property suitable for commercial and retail development.
|
NOTE 18: GOODWILL AND INTANGIBLE ASSETS
Acquired identifiable intangible assets are classified into three categories: (1) goodwill, (2) intangible assets with finite lives subject to amortization and (3) intangible assets with indefinite lives. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually. For additional information about our policies on impairment reviews, see Note 1 under the captions Goodwill and Goodwill Impairment, and Impairment of Long-lived Assets excluding Goodwill.
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 years ended December 31, 2016, 2015 and 2014.
We have four reportable segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2016, 2015 and 2014 are summarized below:
|
|||||||||||||||
in thousands |
Aggregates |
Asphalt Mix |
Concrete |
Calcium |
Total |
||||||||||
Goodwill |
|||||||||||||||
Total as of December 31, 2014 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
||||||||||
Total as of December 31, 2015 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
||||||||||
Total as of December 31, 2016 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
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.
INTANGIBLE ASSETS
Intangible assets acquired in business combinations are stated at their fair value determined as of the date of acquisition. Costs incurred to renew or extend the life of existing intangible assets are capitalized. These capitalized renewal/extension costs were immaterial for the years presented. Intangible assets consist of contractual rights in place (primarily permitting and zoning rights), noncompetition agreements, favorable lease agreements, customer relationships and trade names and trademarks. Intangible assets acquired individually or otherwise obtained outside a business combination consist primarily of permitting, permitting compliance and zoning rights and are stated at their historical cost less accumulated amortization.
See Note 19 for the details of the intangible assets acquired in business acquisitions during 2016, 2015 and 2014. Amortization of finite-lived intangible assets is computed based on the estimated life of the intangible assets. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method. Intangible assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. As shown in Note 1 under the caption Fair Value Measurements, we incurred $8,180,000 and $2,858,000 of impairment charges related to intangible assets in 2016 and 2015, respectively. There were no charges for impairment of intangible assets in 2014.
The gross carrying amount and accumulated amortization by major intangible asset class for the years ended December 31 are summarized below:
|
||||||
in thousands |
2016 | 2015 | ||||
Gross Carrying Amount |
||||||
Contractual rights in place |
$ 742,085 |
$ 735,935 |
||||
Noncompetition agreements |
6,757 | 2,800 | ||||
Favorable lease agreements |
9,479 | 16,677 | ||||
Permitting, permitting compliance and zoning rights |
112,058 | 99,513 | ||||
Other 1 |
4,171 | 4,092 | ||||
Total gross carrying amount |
$ 874,550 |
$ 859,017 |
||||
Accumulated Amortization |
||||||
Contractual rights in place |
$ (77,515) |
$ (65,641) |
||||
Noncompetition agreements |
(1,118) | (506) | ||||
Favorable lease agreements |
(2,822) | (4,002) | ||||
Permitting, permitting compliance and zoning rights |
(21,701) | (20,350) | ||||
Other 1 |
(2,342) | (1,939) | ||||
Total accumulated amortization |
$ (105,498) |
$ (92,438) |
||||
Total Intangible Assets Subject to Amortization, net |
$ 769,052 |
$ 766,579 |
||||
Intangible Assets with Indefinite Lives |
0 | 0 | ||||
Total Intangible Assets, net |
$ 769,052 |
$ 766,579 |
||||
Amortization Expense for the Year |
$ 17,565 |
$ 15,618 |
1 |
Includes customer relationships and tradenames and trademarks. |
Estimated amortization expense for the five years subsequent to December 31, 2016 is as follows:
|
||
in thousands |
||
Estimated Amortization Expense for Five Subsequent Years |
||
2017 |
$ 16,308 |
|
2018 |
15,941 | |
2019 |
16,222 | |
2020 |
15,488 | |
2021 |
14,288 |
|
NOTE 19: ACQUISITIONS AND DIVESTITURES
BUSINESS ACQUISITIONS
During 2016, the following assets were acquired for $33,287,000 of consideration ($32,537,000 cash and $750,000 payable):
§ |
an asphalt mix operation in New Mexico |
§ |
an aggregates facility in Texas |
§ |
a distribution business to complement our aggregates logistics and distribution activities in Georgia |
None of the 2016 acquisitions listed above 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 of assets acquired and liabilities assumed (based on their estimated fair values at their acquisition dates), are summarized below:
|
|||||
in thousands |
2016 | ||||
Fair Value of Purchase Consideration |
|||||
Cash |
$ 32,537 |
||||
Payable to seller |
750 | ||||
Total fair value of purchase consideration |
$ 33,287 |
||||
Identifiable Assets Acquired and Liabilities Assumed |
|||||
Accounts and notes receivable, net |
$ 1,034 |
||||
Inventories |
169 | ||||
Property, plant & equipment, net |
15,462 | ||||
Other intangible assets |
|||||
Contractual rights in place |
15,213 | ||||
Noncompetition agreement |
1,457 | ||||
Liabilities assumed |
(48) | ||||
Net identifiable assets acquired |
$ 33,287 |
||||
Goodwill |
$ 0 |
Estimated fair values of assets acquired and liabilities assumed are preliminary pending appraisals of contractual rights in place and property, plant & equipment.
As a result of these 2016 acquisitions, we recognized $16,670,000 of amortizable intangible assets (primarily contractual rights in place).The contractual rights in place noted above will be amortized against earnings ($6,798,000 - straight-line over 20 years and $8,415,000 - units of production over an estimated 20 years) and deductible for income tax purposes over 15 years.
During 2015, the following assets were acquired for $47,198,000 of consideration ($27,198,000 cash and $20,000,000 exchanges of real property and businesses (twelve California ready-mixed concrete operations)):
§ |
one aggregates facility in Tennessee |
§ |
three aggregates facilities and seven ready-mixed concrete operations in Arizona and New Mexico |
§ |
thirteen asphalt mix operations, primarily in Arizona |
None of the 2015 acquisitions listed above were material to our results of operations or financial position either individually or collectively. As a result of these 2015 acquisitions, we recognized $17,734,000 of amortizable intangible assets ($17,484,000 contractual rights in place and $250,000 noncompetition agreement). The contractual rights in place will be amortized against earnings ($7,168,000 - straight-line over 20 years and $10,317,000 - units of production over an estimated 34 years) and deductible for income tax purposes over 15 years.
During 2014, we purchased the following for total consideration of $331,836,000 ($284,237,000 cash, $2,414,000 exchanges of real property and businesses and $45,185,000 of our common stock (715,004 shares)):
§ |
two portable asphalt plants and an aggregates facility in southern California |
§ |
five aggregates facilities and associated downstream assets in Arizona and New Mexico |
§ |
two aggregates facilities in Delaware, serving northern Virginia and Washington, D.C. |
§ |
four aggregates facilities in the San Francisco Bay Area |
§ |
a rail-connected aggregates operation and two distribution yards that serve the greater Dallas/Fort Worth market |
§ |
a permitted aggregates quarry in Alabama |
None of the 2014 acquisitions listed above were material to our results of operations or financial position either individually or collectively. As a result of these 2014 acquisitions, we recognized $128,286,000 of amortizable intangible assets (primarily contractual rights in place). The contractual rights in place will be amortized against earnings using the unit-of-production method over an estimated weighted-average period in excess of 40 years and all but $36,921,000 will be deductible for income tax purposes over 15 years. The $13,303,000 of goodwill recognized (none of which will be deductible for income tax purposes) represents the balance of deferred tax liabilities generated from carrying over the seller’s tax basis in the assets acquired.
DIVESTITURES
In 2016, we sold:
§ |
Fourth quarter — surplus land in California and Virginia for net pretax cash proceeds of $19,185,000 resulting in pretax gains of $11,871,000 |
§ |
Fourth quarter — plant relocation reimbursement in Virginia for net pretax cash proceeds of $6,000,000 resulting in a pretax gain of $4,335,000 (this item is presented within other operating expense in the accompanying Consolidated Statement of Comprehensive Income) |
As noted above, in 2015 (first quarter), we exchanged twelve ready-mixed concrete operations in California (representing all of our California concrete operations) for thirteen asphalt mix plants (primarily in Arizona) resulting in a pretax gain of $5,886,000.
In 2014, we sold:
§ |
First quarter — our cement and concrete businesses in the Florida area for net pretax cash proceeds of $721,359,000 resulting in a pretax gain of $227,910,000. We retained all of our Florida aggregates operations, our former Cement segment’s calcium operation in Brooksville, Florida and real estate associated with certain former ready-mixed concrete facilities. Under a separate supply agreement, we continue to provide aggregates to the divested concrete facilities, at market prices, for a period of 20 years. As a result of the continuing cash flows (generated via the supply agreement and the retained operation and assets), the disposition is not reported as discontinued operations |
§ |
First quarter — a previously mined and subsequently reclaimed tract of land in Maryland (Aggregates segment) for net pretax cash proceeds of $10,727,000 resulting in a pretax gain of $168,000 |
§ |
First quarter — unimproved land in Tennessee previously containing a sales yard (Aggregates segment) for net pretax cash proceeds of $5,820,000 resulting in a pretax gain of $5,790,000 |
|
NOTE 20: UNAUDITED SUPPLEMENTARY DATA
The following is a summary of selected quarterly financial information (unaudited) for each of the years ended December 31, 2016 and 2015:
|
||||||||
|
2016 |
|||||||
|
Three Months Ended |
|||||||
in thousands, except per share data |
March 31 |
June 30 |
Sept 30 |
Dec 31 |
||||
Total revenues |
$ 754,728 |
$ 956,825 |
$ 1,008,140 |
$ 872,974 |
||||
Gross profit |
164,718 | 292,184 | 304,209 | 239,706 | ||||
Operating earnings |
64,921 | 213,786 | 227,076 | 173,799 | ||||
Earnings from continuing operations 1 |
41,965 | 127,241 | 145,137 | 108,063 | ||||
Net earnings 1 |
40,158 | 124,709 | 142,024 | 112,600 | ||||
Basic earnings per share from continuing operations 1 |
$ 0.31 |
$ 0.95 |
$ 1.09 |
$ 0.82 |
||||
Diluted earnings per share from continuing operations 1 |
$ 0.31 |
$ 0.93 |
$ 1.07 |
$ 0.80 |
||||
Basic net earnings per share 1 |
$ 0.30 |
$ 0.93 |
$ 1.07 |
$ 0.85 |
||||
Diluted net earnings per share 1 |
$ 0.30 |
$ 0.92 |
$ 1.05 |
$ 0.83 |
1 |
Amounts are revised to reflect the early adoption of ASU 2016-09 (See Note 1, caption Accounting Standards Recently Adopted) in the fourth quarter of 2016 and presented as adopted as of the beginning of the year. Earnings from continuing operations and Net earnings were increased, as follows: March 31 — $21,234,000 ($0.16 per share); June 30 — $959,000 ($0.01 in diluted net earnings per share only); and September 30 — $2,259,000 ($0.02 per share basic and $0.01 per share diluted). |
|
||||||||
|
2015 |
|||||||
|
Three Months Ended |
|||||||
in thousands, except per share data |
March 31 |
June 30 |
Sept 30 |
Dec 31 |
||||
Total revenues |
$ 631,293 |
$ 895,143 |
$ 1,038,460 |
$ 857,285 |
||||
Gross profit |
77,865 | 234,449 | 291,290 | 253,929 | ||||
Operating earnings |
10,759 | 153,776 | 212,206 | 173,037 | ||||
Earnings (loss) from continuing operations |
(36,667) | 49,819 | 126,202 | 93,560 | ||||
Net earnings (loss) |
(39,678) | 48,162 | 123,805 | 88,888 | ||||
Basic earnings (loss) per share from continuing operations |
$ (0.28) |
$ 0.37 |
$ 0.95 |
$ 0.70 |
||||
Diluted earnings (loss) per share from continuing operations |
$ (0.28) |
$ 0.37 |
$ 0.93 |
$ 0.69 |
||||
Basic net earnings (loss) per share |
$ (0.30) |
$ 0.36 |
$ 0.93 |
$ 0.67 |
||||
Diluted net earnings (loss) per share |
$ (0.30) |
$ 0.36 |
$ 0.91 |
$ 0.65 |
|
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 serve markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving states in metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates. While aggregates is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our mid-Atlantic, Georgia, Southwestern and Western markets.
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 Consolidated Statements of Comprehensive Income.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Vulcan Materials Company and all our majority or
wholly-owned subsidiary companies. All intercompany transactions and accounts have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of these financial statements in conformity with accounting principles generally accepted (GAAP) in the United States of America requires us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ materially from these estimates. The most significant estimates included in the preparation of these financial statements are related to goodwill and long-lived asset impairments, pension and other postretirement benefits, environmental compliance, claims and litigation including self-insurance, and income taxes.
BUSINESS COMBINATIONS
We account for business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlying identifiable assets acquired and liabilities assumed based on their respective fair values. Determining the fair values of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions.
FOREIGN CURRENCY TRANSACTIONS
The U.S. dollar is the functional currency for all of our operations. For our non-U.S. subsidiaries, local currency inventories and long-term assets such as property, plant & equipment and intangibles are remeasured into U.S. dollars at approximate rates prevailing when acquired; all other assets and liabilities are remeasured at year-end exchange rates. Inventories charged to cost of sales and depreciation are remeasured at historical rates; all other income and expense items are remeasured at average exchange rates prevailing during the year. Gains and losses which result from remeasurement are included in earnings and are not material for the years presented.
CASH EQUIVALENTS
We classify as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. The carrying amount of these securities approximates fair value due to their short-term maturities.
RESTRICTED CASH
Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Changes in restricted cash balances are reflected as an investment activity in the accompanying Consolidated Statements of Cash Flows.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable from customers result from our extending credit to trade customers for the purchase of our products. The terms generally provide for payment within 30 days of being invoiced. On occasion, when necessary to conform to regional industry practices, we sell product under extended payment terms, which may result in either secured or unsecured short-term notes; or, on occasion, notes with durations of less than one year are taken in settlement of existing accounts receivable. Other accounts and notes receivable result from short-term transactions (less than one year) other than the sale of our products, such as interest receivable; insurance claims; freight claims; tax refund claims; bid deposits or rents receivable. Receivables are aged and appropriate allowances for doubtful accounts and bad debt expense are recorded. Bad debt expense (income) for the years ended December 31 was as follows: 2016 — $(1,190,000), 2015 — $1,450,000 and 2014 — $2,031,000. Write-offs of accounts receivables for the years ended December 31 were as follows: 2016 — $1,544,000, 2015 — $1,483,000 and 2014 — $2,561,000. The bad debt income in 2016 relates to the collection of previously reserved receivables primarily attributable to the 2014 sale of our Florida area concrete and cement businesses.
INVENTORIES
Inventories and supplies are stated at the lower of cost or market. We use the last-in, first-out (LIFO) method of valuation for most of our inventories because it results in a better matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct labor and production overhead. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating supplies inventory is carried at average cost. For additional information about our inventories see Note 3.
PROPERTY, PLANT & EQUIPMENT
Property, plant & equipment are carried at cost less accumulated depreciation, depletion and amortization. The cost of properties held under capital leases, if any, is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease.
Capitalized software costs of $4,732,000 and $7,003,000 are reflected in net property, plant & equipment as of December 31, 2016 and 2015, respectively. We capitalized software costs for the years ended December 31 as follows: 2016 — $152,000, 2015 — $1,482,000 and 2014 — $921,000.
For additional information about our property, plant & equipment see Note 4.
REPAIR AND MAINTENANCE
Repair and maintenance costs generally are charged to operating expense as incurred. Renewals and betterments that add materially to the utility or useful lives of property, plant & equipment are capitalized and subsequently depreciated. Actual costs for planned major maintenance activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and amortized to the next overhaul.
DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION
Depreciation is generally computed by the straight-line method at rates based on the estimated service lives of the various classes of assets, which include machinery and equipment (3 to 25 years), buildings (7 to 20 years) and land improvements (8 to 20 years). Capitalized software costs are included in machinery and equipment and are depreciated on a straight-line basis beginning when the software project is substantially complete.
Cost depletion on depletable land is computed by the unit-of-production method based on estimated recoverable units.
Accretion reflects the period-to-period increase in the carrying amount of the liability for asset retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to initially measure the liability at fair value.
Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated useful lives.
Amortization of intangible assets subject to amortization is computed based on the estimated life of the intangible assets.
A significant portion of our intangible assets is contractual rights in place associated with zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.
Depreciation, depletion, accretion and amortization expense for the years ended December 31 is outlined below:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Depreciation, Depletion, Accretion and Amortization |
||||||||
Depreciation |
$ 238,237 |
$ 228,866 |
$ 239,611 |
|||||
Depletion |
17,812 | 18,177 | 16,741 | |||||
Accretion |
11,059 | 11,474 | 11,601 | |||||
Amortization of leaseholds |
267 | 688 | 578 | |||||
Amortization of intangibles |
17,565 | 15,618 | 10,966 | |||||
Total |
$ 284,940 |
$ 274,823 |
$ 279,497 |
DERIVATIVE INSTRUMENTS
We periodically use derivative instruments to manage our mix of fixed-rate and floating-rate debt and to manage our exposure to currency exchange risk or price fluctuations on commodity energy sources consistent with our risk management policies. We do not use derivative financial instruments for speculative or trading purposes. Additional disclosures about our derivative instruments are presented in Note 5.
FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs that are derived principally from or corroborated by observable market data
Level 3: Inputs that are unobservable and significant to the overall fair value measurement
Our assets at December 31 subject to fair value measurement on a recurring basis are summarized below:
|
|||||||
|
Level 1 Fair Value |
||||||
in thousands |
2016 | 2015 | |||||
Fair Value Recurring |
|||||||
Rabbi Trust |
|||||||
Mutual funds |
$ 6,883 |
$ 11,472 |
|||||
Equities |
10,033 | 8,992 | |||||
Total |
$ 16,916 |
$ 20,464 |
|
|||||||
|
Level 2 Fair Value |
||||||
in thousands |
2016 | 2015 | |||||
Fair Value Recurring |
|||||||
Rabbi Trust |
|||||||
Money market mutual fund |
$ 1,705 |
$ 2,124 |
|||||
Total |
$ 1,705 |
$ 2,124 |
We have two Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds and equity securities for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in the fund (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).
Net gains (losses) of the Rabbi Trusts’ investments were $2,741,000, $(1,517,000) and $1,169,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at December 31, 2016, 2015 and 2014 were $1,599,000, $(1,769,000) and $(1,049,000), respectively.
The 2016 decrease of $3,967,000 in total Rabbi Trust asset fair values is primarily due to several retired executives receiving distributions from the nonqualified retirement and deferred compensation plans.
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and all other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 5 and 6, respectively.
Assets subject to fair value measurement on a nonrecurring basis in 2016 and 2015 are summarized below:
|
|||||||||||||
|
Year ending December 31, 2016 |
Year ending December 31, 2015 |
|||||||||||
|
Impairment |
Impairment |
|||||||||||
in thousands |
Level 2 |
Charges |
Level 2 |
Charges |
|||||||||
Fair Value Nonrecurring |
|||||||||||||
Property, plant & equipment |
$ 0 |
$ 1,359 |
$ 0 |
$ 2,176 |
|||||||||
Other intangible assets, net |
0 | 8,180 | 0 | 2,858 | |||||||||
Other assets |
0 | 967 | 0 | 156 | |||||||||
Totals |
$ 0 |
$ 10,506 |
$ 0 |
$ 5,190 |
We recorded $10,506,000 and $5,190,000 of losses on impairment of long-lived assets in 2016 and 2015, respectively, reducing the carrying value of these Aggregates segment assets to their estimated fair values of $0 and $0. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).
GOODWILL IMPAIRMENT
Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. As of December 31, 2016, goodwill totaled $3,094,824,000, the same as at December 31, 2015. Goodwill represents 37% of total assets at December 31, 2016, the same as at December 31, 2015.
Goodwill is tested for impairment annually, as of November 1, or more frequently whenever events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at the reporting unit level, one level below our operating segments. We have four operating segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. Within these four operating segments, we have identified 18 reporting units (of which 9 carry goodwill) based primarily on geographic location. We have the option of either assessing qualitative factors to determine whether it is more likely than not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to a two-step quantitative test. We elected to perform the quantitative impairment test for all years presented.
The first step of the quantitative impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is not required. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.
The second step of the quantitative impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by hypothetically allocating the fair value of the reporting unit to its identifiable assets and liabilities in a manner consistent with a business combination, with any excess fair value representing implied goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The results of the first step of the annual impairment tests performed as of November 1, 2016, 2015 and 2014 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values. Accordingly, there were no charges for goodwill impairment in the years ended December 31, 2016, 2015 or 2014.
We estimate the fair values of the reporting units using both an income approach (which involves discounting estimated future cash flows) and a market approach (which involves the application of revenue and EBITDA multiples of comparable companies). Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty and actual results may differ. Changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or underperformance relative to historical or projected operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.
For additional information about goodwill see Note 18.
IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL
We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, we recognize a loss equal to the amount by which the carrying value exceeds the fair value. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable judgment and assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.
We test long-lived assets for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. As a result, our long-lived asset impairment test is at a significantly lower level than the level at which we test goodwill for impairment. In markets where we do not produce downstream products (e.g., asphalt mix and ready-mixed concrete), the lowest level of largely independent identifiable cash flows is at the individual aggregates operation or a group of aggregates operations collectively serving a local market. Conversely, in vertically integrated markets, the cash flows of our downstream and upstream businesses are not largely independently identifiable as the selling price of the upstream products (aggregates) determines the profitability of the downstream business.
As of December 31, 2016, net property, plant & equipment represents 39% of total assets, while net other intangible assets represents 9% of total assets. During 2016, we recorded a $10,506,000 loss on impairment of long-lived assets resulting from the termination of a nonstrategic aggregates lease and the write off of nonrecoverable project costs related to two Aggregates segment capital projects that we no longer intend to complete. During 2015, we recorded a $5,190,000 impairment loss related to exiting a lease for an aggregates site. During 2014, we recorded a $3,095,000 impairment loss related primarily to assets retained in the divestiture of our cement and concrete businesses in the Florida area (see Note 19).
For additional information about long-lived assets and intangible assets see Notes 4 and 18.
TOTAL REVENUES AND REVENUE RECOGNITION
Total revenues include sales of product to customers, net of any discounts and taxes, and freight and delivery revenues billed to customers. Freight and delivery generally represents pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers. The cost related to freight and delivery is included in cost of revenues.
Revenue is recognized at the time the selling price is fixed, the product's title is transferred to the buyer and collectibility of the sales proceeds is reasonably assured (typically occurs when finished products are shipped to the customer).
SALES TAXES
Sales taxes collected from customers are recorded as liabilities (within other current liabilities) until remitted to taxing authorities and therefore, are not reflected in the Consolidated Statements of Comprehensive Income.
DEFERRED REVENUE
In 2013 and 2012, we sold a percentage interest in future production structured as volumetric production payments (VPPs).
The VPPs:
§ |
provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future production from aggregates reserves |
§ |
are both time and volume limited |
§ |
contain no minimum annual or cumulative production or sales volume, nor minimum sales price |
Our consolidated total revenues excludes the sales of aggregates owned by the VPP purchaser.
We received net cash proceeds from the sale of the VPPs of $153,282,000 and $73,644,000 for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized to revenue on a unit-of-sales basis over the terms of the VPPs (expected to be approximately 25 years, limited by volume rather than time).
Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Deferred Revenue |
||||||||
Balance at beginning of year |
$ 214,060 |
$ 219,968 |
$ 224,743 |
|||||
Cash received and revenue deferred |
0 | 0 | 187 | |||||
Amortization of deferred revenue |
(7,592) | (5,908) | (4,962) | |||||
Balance at end of year |
$ 206,468 |
$ 214,060 |
$ 219,968 |
Based on expected sales from the specified quarries, we expect to recognize approximately $8,080,000 of deferred revenue as income in 2017 (reflected in other current liabilities in our 2016 Consolidated Balance Sheet).
STRIPPING COSTS
In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.
Stripping costs incurred during the production phase are considered costs of extracted minerals under our inventory costing system, inventoried, and recognized in cost of sales in the same period as the revenue from the sale of the inventory. The production stage is deemed to begin when the activities, including removal of overburden and waste material that may contain incidental saleable material, required to access the saleable product are complete. Stripping costs considered as production costs and included in the costs of inventory produced were $55,987,000 in 2016, $50,409,000 in 2015 and $44,896,000 in 2014.
Conversely, stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from our inventory cost. Pre-production stripping costs are capitalized and reported within other noncurrent assets in our accompanying Consolidated Balance Sheets. Capitalized pre-production stripping costs are expensed over the productive life of the mine using the unit-of-production method. Pre-production stripping costs included in other noncurrent assets were $70,227,000 as of December 31, 2016 and $61,369,000 as of December 31, 2015. This year-over-year increase resulted primarily from the removal of overburden at a greenfield site in California.
SHARE-BASED COMPENSATION
We account for share-based compensation awards using fair-value-based measurement methods. These result in the recognition of compensation expense for all share-based compensation awards (less an estimate for forfeited awards) based on their fair value as of the grant date. Compensation cost is recognized over the requisite service period.
A summary of the estimated future compensation cost (unrecognized compensation expense) as of December 31, 2016 related to share-based awards granted to employees under our long-term incentive plans is presented below:
|
||||||
|
Unrecognized |
Expected |
||||
|
Compensation |
Weighted-average |
||||
dollars in thousands |
Expense |
Recognition (Years) |
||||
Share-based Compensation |
||||||
SOSARs 1 |
$ 4,899 |
1.8 | ||||
Performance shares |
20,965 | 2.4 | ||||
Restricted shares |
4,925 | 2.6 | ||||
Total/weighted-average |
$ 30,789 |
2.3 |
1 |
Stock-Only Stock Appreciation Rights (SOSARs) |
Pretax compensation expense related to our employee share-based compensation awards and related income tax benefits for the years ended December 31 are summarized below:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Employee Share-based Compensation Awards |
||||||||
Pretax compensation expense |
$ 17,823 |
$ 16,362 |
$ 22,217 |
|||||
Income tax benefits |
6,925 | 6,347 | 8,571 |
EARLY ADOPTION OF ASU 2016-09 We receive an income tax deduction for share-based compensation equal to the excess of the market value of our common stock on the date of exercise or issuance over the exercise price. Upon our early adoption of Accounting Standards Update (ASU) 2016-09, tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are reflected as discrete income tax benefits in the period of exercise or issuance. Before the adoption of this standard, excess tax benefits were recorded directly to equity (APIC). Net excess tax benefits of $24,847,000 are reflected as a reduction to our income tax expense for 2016 (see Note 9). Gross excess tax benefits of $28,009,000 are classified as operating cash flows prospectively beginning in 2016 while gross excess tax benefits for 2015 and 2014 of $18,376,000 and $3,464,000, respectively, are reflected as financing cash flows. Upon the adoption of this ASU, we revised our dilutive share calculation to exclude the assumption that proceeds from excess tax benefits would be used to purchase shares, resulting in an increase in dilutive shares as of December 31, 2016 of 773,101.
ASU 2016-09 requires that the cash paid for shares withheld to satisfy statutory income tax withholding obligations be classified as a financing activity in the statement of cash flows. As a result, we revised our accompanying Statements of Cash Flows for prior years to conform to the 2016 presentation as follows: 2015 — increased operating cash flows $16,160,000 with a corresponding decrease in financing cash flows, and 2014 — increased operating cash flows $671,000 with a corresponding decrease in financing cash flows.
For additional information about share-based compensation, see Note 11 under the caption Share-based Compensation Plans.
RECLAMATION COSTS
Reclamation costs resulting from normal use of long-lived assets are recognized over the period the asset is in use when there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from normal use under a mineral lease are recognized over the lease term when there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.
To determine the fair value of the obligation, we estimate the cost (including a reasonable profit margin) for a third party to perform the legally required reclamation tasks. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.
In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.
We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.
The carrying value of these obligations was $223,872,000 as of December 31, 2016 and $226,594,000 as of December 31, 2015. For additional information about reclamation obligations (referred to in our financial statements as asset retirement obligations) see Note 17.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Accounting for pension and postretirement benefits requires that we make significant assumptions about the valuation of benefit obligations and the performance of plan assets. The primary assumptions are as follows:
§ |
Discount Rate — The discount rate is used in calculating the present value of projected benefit payments |
§ |
Expected Return on Plan Assets — The expected future return on plan assets reduces the recorded net benefit costs |
§ |
Rate of Compensation Increase — Annual pay increases after 2015 will not increase our pension plan obligations as a result of a 2013 plan amendment |
§ |
Rate of Increase in the Per Capita Cost of Covered Healthcare Benefits — Increases in the per capita cost after 2015 will not increase our postretirement medical benefits obligation as a result of a 2012 plan amendment |
Accounting standards provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of actual results allows for a smoothed recognition in earnings of changes in benefit obligations and asset performance. The differences between actual results and expected or estimated results are recognized in full in other comprehensive income. Amounts recognized in other comprehensive income are reclassified to earnings in a systematic manner over the average remaining service period of participants for our active plans or the average remaining lifetime of participants for our inactive plans.
For additional information about pension and other postretirement benefits see Note 10.
ENVIRONMENTAL COMPLIANCE
Our environmental compliance costs are undiscounted and include the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. We accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost. At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of various factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur, but generally liabilities are recognized no later than completion of the remedial feasibility study.
When we can estimate a range of probable loss, we accrue the most likely amount. If no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2016, the spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $3,341,000 — this amount does not represent our maximum exposure to loss for all environmental remediation obligations as it excludes those sites for which a range of loss cannot be reasonably estimated at this time. Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates and key assumptions in response to new information, such as the kinds and quantities of hazardous substances, available technologies and changes to the parties participating in the remediation efforts. However, a number of factors, including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.
For additional information about environmental compliance costs see Note 8.
CLAIMS AND LITIGATION INCLUDING SELF-INSURANCE
We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers' compensation up to $2,000,000 per occurrence and automotive and general/product liability up to $3,000,000 per occurrence. We have excess coverage on a per occurrence basis beyond these retention levels.
Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. For matters not included in our actuarial studies, legal defense costs are accrued when incurred. The following table outlines our self-insurance program at December 31:
|
|||||
dollars in thousands |
2016 | 2015 | |||
Self-insurance Program |
|||||
Self-insured liabilities (undiscounted) |
$ 49,310 |
$ 44,618 |
|||
Insured liabilities (undiscounted) |
72,644 | 16,787 | |||
Discount rate |
1.40% | 1.44% | |||
Amounts Recognized in Consolidated |
|||||
Balance Sheets |
|||||
Other accounts and notes receivable |
$ 67,631 |
$ 0 |
|||
Investments and long-term receivables |
16,133 | 15,810 | |||
Other current liabilities |
(69,549) | (14,198) | |||
Other noncurrent liabilities |
(49,074) | (44,102) | |||
Net liabilities (discounted) |
$ (34,859) |
$ (42,490) |
The increase in liabilities and the offsetting increase in receivables as noted above relate primarily to a former Chemicals business litigation matter as discussed in Note 12.
Estimated payments (undiscounted and excluding the impact of related receivables) under our self-insurance program for the five years subsequent to December 31, 2016 are as follows:
|
||
in thousands |
||
Estimated Payments under Self-insurance Program |
||
2017 |
$ 74,027 |
|
2018 |
13,599 | |
2019 |
8,767 | |
2020 |
5,461 | |
2021 |
3,716 |
Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.
INCOME TAXES
We file federal, state and foreign income tax returns and account for the current and deferred tax effects of such returns using the asset and liability method. We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the book basis and tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns.
Significant judgments and estimates are required in determining our deferred tax assets and liabilities. These estimates are updated throughout the year to consider income tax return filings, our geographic mix of earnings, legislative changes and other relevant items.
Each quarter we analyze the likelihood that our deferred tax assets will be realized. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized. A summary of our deferred tax assets is included in Note 9.
U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely reinvested offshore. At least annually, we evaluate our investment strategies for each foreign tax jurisdiction in which we operate to determine whether foreign earnings will be indefinitely reinvested offshore.
We recognize a tax benefit associated with a tax position when, in our judgment, it is more likely than not that the position will be sustained based upon the technical merits of the position. For a tax position that meets the more likely than not recognition threshold, we measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax position. Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation.
The years open to tax examinations vary by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is appropriate.
We consider a tax position to be resolved at the earlier of the issue being “effectively settled,” settlement of an examination, or the expiration of the statute of limitations. Upon resolution of a tax position, any liability for unrecognized tax benefits will be released.
Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties associated with our liability for unrecognized tax benefits as income tax expense.
Our largest permanent item in computing both our taxable income and effective tax rate is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9. The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.
COMPREHENSIVE INCOME
We report comprehensive income in our Consolidated Statements of Comprehensive Income and Consolidated Statements of Equity. Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). OCI includes fair value adjustments to cash flow hedges, actuarial gains or losses and prior service costs related to pension and postretirement benefit plans.
For additional information about comprehensive income see Note 14.
EARNINGS PER SHARE (EPS)
Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Weighted-average common shares outstanding |
133,205 | 133,210 | 131,461 | |||||
Dilutive effect of |
||||||||
Stock options/SOSARs |
1,339 | 1,027 | 656 | |||||
Other stock compensation plans |
1,246 | 856 | 874 | |||||
Weighted-average common shares outstanding, |
||||||||
assuming dilution |
135,790 | 135,093 | 132,991 |
All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations.
The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price for the years ended December 31 is as follows:
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Antidilutive common stock equivalents |
97 | 544 | 2,352 |
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2016 presentation. During 2016, we early adopted ASU 2016-09, “Improvement to Employee Share-Based Payment Accounting,” resulting in adjustments to our prior financial statements as noted in the caption Share-based Compensation above.
NEW ACCOUNTING STANDARDS
ACCOUNTING STANDARDS RECENTLY ADOPTED
SHARE-BASED PAYMENTS As of December 31, 2016, we early adopted Accounting Standards Update (ASU) 2016-09, “Improvement to Employee Share-Based Payment Accounting,” which amends several aspects of the accounting for employee share-based payment transactions. Most significantly, the income tax effects of awards are recognized in the income statement when the awards vest or are settled (the use of APIC pools is eliminated). Additionally, the guidance requires cash paid for shares withheld (to satisfy the employer’s statutory income tax withholding obligation) to be presented as a financing activity in the statement of cash flows. See the caption Share-based Compensation above for the impact of the adoption of this standard to our consolidated financial statements.
GOING CONCERN As of December 31, 2016, we adopted ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The adoption of this standard did not have a material impact on our consolidated financial statements and related notes.
NET ASSET VALUE PER SHARE INVESTMENTS During the first quarter of 2016, we adopted ASU 2015-07, “Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent).” This ASU removed the requirement to categorize investments within the fair value hierarchy when their fair value is measured using the net asset value per share practical expedient. This ASU also removed the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share expedient. Rather, those disclosures are limited to investments for which we elected to measure the fair value using that practical expedient. The impact of this standard was limited to our annual pension plan fair value disclosures (see Note 10) and was applied retrospectively.
ACCOUNTING STANDARDS PENDING ADOPTION
INTRA-ENTITY ASSET TRANSFERS In October 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which requires the tax effects of intercompany transactions other than inventory to be recognized currently. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
CASH FLOW CLASSIFICATION In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU adds or clarifies guidance on eight specific cash flow issues. Additionally, guidance on the presentation of restricted cash is addressed in ASU 2016-18 which was issued in November 2016. Both of these standards are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We do not expect the adoption of these standards to have a material impact on our consolidated financial statements.
CREDIT LOSSES In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of financial instruments. The new guidance estimates credit losses based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim reporting periods within those annual reporting periods. 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 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 are currently evaluating the impact that the adoption of this standard will have on our consolidated financial statements and related disclosures.
CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of current guidance on the recognition, measurement and disclosure of financial instruments. Among other changes, this ASU requires most equity investments be measured at fair value. Additionally, the ASU eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value for instruments not recognized at fair value in our financial statements. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
INVENTORY MEASUREMENT In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market principle to the lower of cost and net realizable value principle. The guidance applies to inventories that are measured using the first-in, first-out (FIFO) or average cost method, but does not apply to inventories that are measured using the last-in, first-out (LIFO) or retail inventory method. We use the LIFO method for approximately 66% of our inventory (based on the December 31, 2016 balances); therefore, this ASU will not apply to the majority of our inventory. This ASU is effective prospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual reporting periods. We will adopt this standard as of and for the interim period ending March 31, 2017. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
REVENUE RECOGNITION In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU provides a more robust framework for addressing revenue issues and expands required revenue recognition disclosures. In March 2016, the FASB issued ASU 2016-08, “Revenue From Contracts With Customers: Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” which amends the principal versus agent guidance in ASU 2014-09. The amendments in ASU 2016-08 provide guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. These ASUs are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Further, in applying these ASUs an entity is permitted to use either the full retrospective or cumulative effect transition approach. While we are currently evaluating the impact of adoption of these standards on our consolidated financial statements, we expect to identify similar performance obligations under ASU 2014-09 compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we expect the timing of our revenues to remain generally the same. We will adopt these standards using the cumulative effect transition approach.
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Depreciation, Depletion, Accretion and Amortization |
||||||||
Depreciation |
$ 238,237 |
$ 228,866 |
$ 239,611 |
|||||
Depletion |
17,812 | 18,177 | 16,741 | |||||
Accretion |
11,059 | 11,474 | 11,601 | |||||
Amortization of leaseholds |
267 | 688 | 578 | |||||
Amortization of intangibles |
17,565 | 15,618 | 10,966 | |||||
Total |
$ 284,940 |
$ 274,823 |
$ 279,497 |
|
|||||||
|
Level 1 Fair Value |
||||||
in thousands |
2016 | 2015 | |||||
Fair Value Recurring |
|||||||
Rabbi Trust |
|||||||
Mutual funds |
$ 6,883 |
$ 11,472 |
|||||
Equities |
10,033 | 8,992 | |||||
Total |
$ 16,916 |
$ 20,464 |
|
|||||||
|
Level 2 Fair Value |
||||||
in thousands |
2016 | 2015 | |||||
Fair Value Recurring |
|||||||
Rabbi Trust |
|||||||
Money market mutual fund |
$ 1,705 |
$ 2,124 |
|||||
Total |
$ 1,705 |
$ 2,124 |
|
|||||||||||||
|
Year ending December 31, 2016 |
Year ending December 31, 2015 |
|||||||||||
|
Impairment |
Impairment |
|||||||||||
in thousands |
Level 2 |
Charges |
Level 2 |
Charges |
|||||||||
Fair Value Nonrecurring |
|||||||||||||
Property, plant & equipment |
$ 0 |
$ 1,359 |
$ 0 |
$ 2,176 |
|||||||||
Other intangible assets, net |
0 | 8,180 | 0 | 2,858 | |||||||||
Other assets |
0 | 967 | 0 | 156 | |||||||||
Totals |
$ 0 |
$ 10,506 |
$ 0 |
$ 5,190 |
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Deferred Revenue |
||||||||
Balance at beginning of year |
$ 214,060 |
$ 219,968 |
$ 224,743 |
|||||
Cash received and revenue deferred |
0 | 0 | 187 | |||||
Amortization of deferred revenue |
(7,592) | (5,908) | (4,962) | |||||
Balance at end of year |
$ 206,468 |
$ 214,060 |
$ 219,968 |
|
||||||
|
Unrecognized |
Expected |
||||
|
Compensation |
Weighted-average |
||||
dollars in thousands |
Expense |
Recognition (Years) |
||||
Share-based Compensation |
||||||
SOSARs 1 |
$ 4,899 |
1.8 | ||||
Performance shares |
20,965 | 2.4 | ||||
Restricted shares |
4,925 | 2.6 | ||||
Total/weighted-average |
$ 30,789 |
2.3 |
1 |
Stock-Only Stock Appreciation Rights (SOSARs) |
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Employee Share-based Compensation Awards |
||||||||
Pretax compensation expense |
$ 17,823 |
$ 16,362 |
$ 22,217 |
|||||
Income tax benefits |
6,925 | 6,347 | 8,571 |
|
|||||
dollars in thousands |
2016 | 2015 | |||
Self-insurance Program |
|||||
Self-insured liabilities (undiscounted) |
$ 49,310 |
$ 44,618 |
|||
Insured liabilities (undiscounted) |
72,644 | 16,787 | |||
Discount rate |
1.40% | 1.44% | |||
Amounts Recognized in Consolidated |
|||||
Balance Sheets |
|||||
Other accounts and notes receivable |
$ 67,631 |
$ 0 |
|||
Investments and long-term receivables |
16,133 | 15,810 | |||
Other current liabilities |
(69,549) | (14,198) | |||
Other noncurrent liabilities |
(49,074) | (44,102) | |||
Net liabilities (discounted) |
$ (34,859) |
$ (42,490) |
|
||
in thousands |
||
Estimated Payments under Self-insurance Program |
||
2017 |
$ 74,027 |
|
2018 |
13,599 | |
2019 |
8,767 | |
2020 |
5,461 | |
2021 |
3,716 |
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Weighted-average common shares outstanding |
133,205 | 133,210 | 131,461 | |||||
Dilutive effect of |
||||||||
Stock options/SOSARs |
1,339 | 1,027 | 656 | |||||
Other stock compensation plans |
1,246 | 856 | 874 | |||||
Weighted-average common shares outstanding, |
||||||||
assuming dilution |
135,790 | 135,093 | 132,991 |
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Antidilutive common stock equivalents |
97 | 544 | 2,352 |
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Discontinued Operations |
||||||||
Pretax loss |
$ (4,877) |
$ (19,326) |
$ (3,683) |
|||||
Income tax benefit |
1,962 | 7,589 | 1,460 | |||||
Loss on discontinued operations, |
||||||||
net of tax |
$ (2,915) |
$ (11,737) |
$ (2,223) |
|
|
|||||||
in thousands |
2016 | 2015 | |||||
Inventories |
|||||||
Finished products 1 |
$ 293,619 |
$ 297,925 |
|||||
Raw materials |
22,648 | 21,765 | |||||
Products in process |
1,480 | 1,008 | |||||
Operating supplies and other |
27,869 | 26,375 | |||||
Total |
$ 345,616 |
$ 347,073 |
1 |
Includes inventories encumbered by volumetric production payments (see Note 1, caption Deferred Revenue), as follows: December 31, 2016 — $2,841 thousand and December 31, 2015 — $4,452 thousand. |
|
|
|||||||
in thousands |
2016 | 2015 | |||||
Property, Plant & Equipment |
|||||||
Land and land improvements 1 |
$ 2,374,051 |
$ 2,305,801 |
|||||
Buildings |
127,369 | 124,950 | |||||
Machinery and equipment |
4,316,243 | 4,124,808 | |||||
Leaseholds |
17,595 | 14,143 | |||||
Deferred asset retirement costs |
168,258 | 166,252 | |||||
Construction in progress |
182,302 | 155,333 | |||||
Total, gross |
$ 7,185,818 |
$ 6,891,287 |
|||||
Less allowances for depreciation, depletion |
|||||||
and amortization |
3,924,380 | 3,734,997 | |||||
Total, net |
$ 3,261,438 |
$ 3,156,290 |
1 |
Includes depletable land, as follows: December 31, 2016 — $1,327,402 thousand and December 31, 2015 — $1,296,211 thousand. |
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
Capitalized interest cost |
$ 7,468 |
$ 2,930 |
$ 2,092 |
|||||||
Total interest cost incurred before recognition |
||||||||||
of the capitalized amount |
141,544 | 223,518 | 245,459 |
|
|
||||||||||||
in thousands |
Location on Statement |
2016 | 2015 | 2014 | ||||||||
Cash Flow Hedges |
||||||||||||
Loss reclassified from AOCI |
||||||||||||
(effective portion) |
Interest expense |
$ (2,008) |
$ (9,759) |
$ (7,988) |
|
||||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||||
Deferred Gain on Settlement |
||||||||||||
Amortized to earnings as a reduction to interest expense |
$ 0 |
$ 3,036 |
$ 10,674 |
|
|
||||||||||
|
Effective |
|||||||||
in thousands |
Interest Rates |
2016 | 2015 | |||||||
Short-term Debt |
||||||||||
Bank line of credit expires 2021 1, 2, 3 |
n/a |
$ 0 |
$ 0 |
|||||||
Total short-term debt |
$ 0 |
$ 0 |
||||||||
Long-term Debt |
||||||||||
Bank line of credit expires 2021 1, 2, 3 |
1.25% |
$ 235,000 |
$ 235,000 |
|||||||
7.00% notes due 2018 |
7.87% | 272,512 | 272,512 | |||||||
10.375% notes due 2018 |
10.63% | 250,000 | 250,000 | |||||||
7.50% notes due 2021 |
7.75% | 600,000 | 600,000 | |||||||
8.85% notes due 2021 |
8.88% | 6,000 | 6,000 | |||||||
Delayed draw term loan 2, 3 |
1.25% | 0 | 0 | |||||||
4.50% notes due 2025 |
4.65% | 400,000 | 400,000 | |||||||
7.15% notes due 2037 |
8.05% | 240,188 | 240,188 | |||||||
Other notes 3 |
6.31% | 365 | 498 | |||||||
Total long-term debt - face value |
$ 2,004,065 |
$ 2,004,198 |
||||||||
Unamortized discounts and debt issuance costs |
(21,176) | (23,734) | ||||||||
Total long-term debt - book value |
$ 1,982,889 |
$ 1,980,464 |
||||||||
Less current maturities |
138 | 130 | ||||||||
Total long-term debt - reported value |
$ 1,982,751 |
$ 1,980,334 |
||||||||
Estimated fair value of long-term debt |
$ 2,243,213 |
$ 2,204,816 |
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 |
The effective interest rate is the spread over LIBOR as of the most recent balance sheet date. |
3 |
Non-publicly traded debt. |
|
||||||||||
in thousands |
Total |
Principal |
Interest |
|||||||
Debt Payments (excluding the line of credit) |
||||||||||
2017 |
$ 125,878 |
$ 138 |
$ 125,740 |
|||||||
2018 |
638,725 | 522,531 | 116,194 | |||||||
2019 |
80,740 | 23 | 80,717 | |||||||
2020 |
80,741 | 25 | 80,716 | |||||||
2021 |
664,174 | 606,026 | 58,148 |
|
|||||
in thousands |
|||||
Standby Letters of Credit |
|||||
Risk management insurance |
$ 34,111 |
||||
Reclamation/restoration requirements |
5,427 | ||||
Total |
$ 39,538 |
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Operating Leases |
||||||||
Minimum rentals |
$ 52,713 |
$ 49,461 |
$ 42,887 |
|||||
Contingent rentals (based principally on usage) |
57,278 | 60,380 | 56,717 | |||||
Total |
$ 109,991 |
$ 109,841 |
$ 99,604 |
|
||
in thousands |
||
Future Minimum Operating Lease Payments |
||
2017 |
$ 31,017 |
|
2018 |
29,389 | |
2019 |
25,132 | |
2020 |
23,022 | |
2021 |
21,312 | |
Thereafter |
119,602 | |
Total |
$ 249,474 |
|
|
|||||
in thousands |
2016 | 2015 | |||
Accrued Environmental Remediation Costs |
|||||
Continuing operations |
$ 9,136 |
$ 6,876 |
|||
Retained from former Chemicals business |
10,716 | 10,988 | |||
Total |
$ 19,852 |
$ 17,864 |
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Earnings from Continuing Operations |
||||||||
before Income Taxes |
||||||||
Domestic |
$ 513,721 |
$ 293,547 |
$ 264,473 |
|||||
Foreign |
33,536 | 34,310 | 34,365 | |||||
Total |
$ 547,257 |
$ 327,857 |
$ 298,838 |
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Income Tax Expense from |
||||||||
Continuing Operations |
||||||||
Current |
||||||||
Federal |
$ 72,506 |
$ 67,521 |
$ 47,882 |
|||||
State and local |
14,774 | 14,035 | 18,983 | |||||
Foreign |
6,974 | 7,784 | 7,174 | |||||
Total |
$ 94,254 |
$ 89,340 |
$ 74,039 |
|||||
Deferred |
||||||||
Federal |
$ 37,246 |
$ 11,192 |
$ 13,556 |
|||||
State and local |
(6,647) | (4,888) | 4,120 | |||||
Foreign |
(2) | (701) | (23) | |||||
Total |
$ 30,597 |
$ 5,603 |
$ 17,653 |
|||||
Total expense |
$ 124,851 |
$ 94,943 |
$ 91,692 |
|
|||||||||||
dollars in thousands |
2016 | 2015 | 2014 | ||||||||
Income tax expense at the federal |
|||||||||||
statutory tax rate of 35% |
$ 191,540 |
35.0% |
$ 114,750 |
35.0% |
$ 104,594 |
35.0% | |||||
Expense (Benefit) from |
|||||||||||
Income Tax Differences |
|||||||||||
Statutory depletion |
(32,230) |
-5.9% |
(27,702) |
-8.4% |
(25,774) |
-8.6% |
|||||
State and local income taxes, net of federal |
|||||||||||
income tax benefit 1 |
5,283 | 1.0% | 5,945 | 1.8% | 15,017 | 5.0% | |||||
U.S. production deduction |
(8,790) |
-1.6% |
(5,099) |
-1.6% |
0 | 0.0% | |||||
Foreign tax credit carryforward |
(6,513) |
-1.2% |
6,486 | 2.0% | 0 | 0.0% | |||||
Permanently reinvested foreign earnings |
(4,578) |
-0.8% |
(6,396) |
-2.0% |
0 | 0.0% | |||||
Share-based compensation 2 |
(22,443) |
-4.1% |
0 | 0.0% | 0 | 0.0% | |||||
Other, net |
2,582 | 0.4% | 6,959 | 2.2% | (2,145) |
-0.7% |
|||||
Total income tax expense/ |
|||||||||||
Effective tax rate |
$ 124,851 |
22.8% |
$ 94,943 |
29.0% |
$ 91,692 |
30.7% |
|
|||||
in thousands |
2016 | 2015 | |||
Deferred Tax Assets Related to |
|||||
Employee benefits |
$ 85,123 |
$ 78,999 |
|||
Asset retirement obligations & other reserves |
63,617 | 59,507 | |||
Deferred compensation |
103,947 | 117,298 | |||
State net operating losses |
54,498 | 61,658 | |||
Federal credit carryforwards |
18,139 | 34,340 | |||
Other |
44,843 | 48,856 | |||
Total gross deferred tax assets |
370,167 | 400,658 | |||
Valuation allowance |
(44,237) | (59,323) | |||
Total net deferred tax assets |
$ 325,930 |
$ 341,335 |
|||
Deferred Tax Liabilities Related to |
|||||
Property, plant & equipment |
$ 664,763 |
$ 665,057 |
|||
Goodwill/other intangible assets |
327,666 | 324,910 | |||
Other |
36,355 | 32,464 | |||
Total deferred tax liabilities |
$ 1,028,784 |
$ 1,022,431 |
|||
Net deferred tax liability |
$ 702,854 |
$ 681,096 |
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Unrecognized tax benefits as of January 1 |
$ 8,447 |
$ 7,057 |
$ 12,155 |
|||||
Increases for tax positions related to |
||||||||
Prior years |
1,368 | 491 | 229 | |||||
Current year |
1,040 | 942 | 528 | |||||
Decreases for tax positions related to |
||||||||
Prior years |
0 | 0 | (53) | |||||
Settlements with taxing authorities |
0 | 0 | 0 | |||||
Expiration of applicable statute of limitations |
(27) | (43) | (5,802) | |||||
Unrecognized tax benefits as of December 31 |
$ 10,828 |
$ 8,447 |
$ 7,057 |
|
|
|||||||
in thousands |
2016 | 2015 | |||||
Change in Benefit Obligation |
|||||||
Projected benefit obligation at beginning of year |
$ 988,453 |
$ 1,083,222 |
|||||
Service cost |
5,343 | 4,851 | |||||
Interest cost |
36,505 | 44,065 | |||||
Actuarial (gain) loss |
24,675 | (63,725) | |||||
Benefits paid |
(48,302) | (79,960) | |||||
Projected benefit obligation at end of year |
$ 1,006,674 |
$ 988,453 |
|||||
Change in Fair Value of Plan Assets |
|||||||
Fair value of assets at beginning of year |
$ 745,686 |
$ 816,972 |
|||||
Actual return on plan assets |
42,555 | (5,373) | |||||
Employer contribution |
9,576 | 14,047 | |||||
Benefits paid |
(48,302) | (79,960) | |||||
Fair value of assets at end of year |
$ 749,515 |
$ 745,686 |
|||||
Funded status |
(257,159) | (242,767) | |||||
Net amount recognized |
$ (257,159) |
$ (242,767) |
|||||
Amounts Recognized in the Consolidated |
|||||||
Balance Sheets |
|||||||
Noncurrent assets |
$ 0 |
$ 0 |
|||||
Current liabilities |
(9,375) | (9,106) | |||||
Noncurrent liabilities |
(247,784) | (233,661) | |||||
Net amount recognized |
$ (257,159) |
$ (242,767) |
|||||
Amounts Recognized in Accumulated |
|||||||
Other Comprehensive Income |
|||||||
Net actuarial loss |
$ 250,099 |
$ 222,580 |
|||||
Prior service credit |
(361) | (404) | |||||
Total amount recognized |
$ 249,738 |
$ 222,176 |
|
||||||||||
dollars in thousands |
2016 | 2015 | 2014 | |||||||
Components of Net Periodic Pension |
||||||||||
Benefit Cost |
||||||||||
Service cost |
$ 5,343 |
$ 4,851 |
$ 4,157 |
|||||||
Interest cost |
36,505 | 44,065 | 44,392 | |||||||
Expected return on plan assets |
(51,562) | (54,736) | (50,802) | |||||||
Settlement charge |
0 | 2,031 | 0 | |||||||
Amortization of prior service cost (credit) |
(43) | 48 | 188 | |||||||
Amortization of actuarial loss |
6,163 | 21,641 | 11,221 | |||||||
Net periodic pension benefit cost (credit) |
$ (3,594) |
$ 17,900 |
$ 9,156 |
|||||||
Changes in Plan Assets and Benefit |
||||||||||
Obligations Recognized in Other |
||||||||||
Comprehensive Income |
||||||||||
Net actuarial loss (gain) |
$ 33,682 |
$ (3,615) |
$ 118,915 |
|||||||
Reclassification of actuarial loss |
(6,163) | (23,672) | (11,221) | |||||||
Reclassification of prior service (cost) credit |
43 | (48) | (188) | |||||||
Amount recognized in other comprehensive |
||||||||||
income |
$ 27,562 |
$ (27,335) |
$ 107,506 |
|||||||
Amount recognized in net periodic pension |
||||||||||
benefit cost and other comprehensive |
||||||||||
income |
$ 23,968 |
$ (9,435) |
$ 116,662 |
|||||||
Assumptions |
||||||||||
Weighted-average assumptions used to |
||||||||||
determine net periodic benefit cost for |
||||||||||
years ended December 31 |
||||||||||
Discount rate — PBO |
4.55% | 4.14% | 4.91% | |||||||
Discount rate — service cost |
4.68% | 4.14% | 4.91% | |||||||
Discount rate — interest cost |
3.79% | 4.14% | 4.91% | |||||||
Expected return on plan assets |
7.50% | 7.50% | 7.50% | |||||||
Rate of compensation increase |
||||||||||
(for salary-related plans) |
3.50% | 3.70% | 3.50% | |||||||
Weighted-average assumptions used to |
||||||||||
determine benefit obligation at |
||||||||||
December 31 |
||||||||||
Discount rate |
4.29% | 4.54% | 4.14% | |||||||
Rate of compensation increase |
||||||||||
(for salary-related plans) |
3.50% | 3.50% | 3.70% |
Fair Value Measurements at December 31, 2016
|
|||||||||||||
in thousands |
Level 1 1 |
Level 2 1 |
Level 3 1 |
Total |
|||||||||
Asset Category |
|||||||||||||
Debt securities |
$ 0 |
$ 162,894 |
$ 0 |
$ 162,894 |
|||||||||
Investment funds |
|||||||||||||
Commodity funds |
0 | 16,594 | 0 | 16,594 | |||||||||
Equity funds |
530 | 124,407 | 0 | 124,937 | |||||||||
Investments in the fair value hierarchy |
$ 530 |
$ 303,895 |
$ 0 |
$ 304,425 |
|||||||||
Interest in common/collective trusts (at NAV) 2 |
358,345 | ||||||||||||
Venture capital and partnerships (at NAV) 2 |
86,745 | ||||||||||||
Total pension plan assets |
$ 749,515 |
Fair Value Measurements at December 31, 2015
|
|||||||||||||
in thousands |
Level 1 1 |
Level 2 1 |
Level 3 1 |
Total |
|||||||||
Asset Category |
|||||||||||||
Debt securities |
$ 0 |
$ 154,745 |
$ 0 |
$ 154,745 |
|||||||||
Investment funds |
|||||||||||||
Commodity funds |
0 | 14,490 | 0 | 14,490 | |||||||||
Equity funds |
647 | 123,078 | 0 | 123,725 | |||||||||
Investments in the fair value hierarchy |
$ 647 |
$ 292,313 |
$ 0 |
$ 292,960 |
|||||||||
Interest in common/collective trusts (at NAV) 2 |
349,854 | ||||||||||||
Venture capital and partnerships (at NAV) 2 |
102,872 | ||||||||||||
Total pension plan assets |
$ 745,686 |
1 |
See Note 1 under the caption Fair Value Measurements for a description of the fair value hierarchy. |
2 |
As discussed in Note 1, we adopted ASU 2015-07 as of March 31, 2016. As a result, pension plan assets measured using the net asset value practical expedient were excluded from the fair value hierarchy. |
|
||||
in thousands |
Pension |
|||
Employer Contributions |
||||
2014 |
$ 5,488 |
|||
2015 |
14,047 | |||
2016 |
9,576 | |||
2017 (estimated) |
18,875 |
|
||||
in thousands |
Pension |
|||
Estimated Future Benefit Payments |
||||
2017 |
$ 52,691 |
|||
2018 |
55,221 | |||
2019 |
56,720 | |||
2020 |
57,664 | |||
2021 |
58,755 | |||
2022-2026 |
304,149 |
|
|||||||
in thousands |
2016 | 2015 | |||||
Change in Benefit Obligation |
|||||||
Projected benefit obligation at beginning of year |
$ 48,605 |
$ 85,336 |
|||||
Service cost |
1,123 | 1,894 | |||||
Interest cost |
1,209 | 2,485 | |||||
Actuarial gain |
(111) | (35,195) | |||||
Benefits paid |
(5,280) | (5,915) | |||||
Projected benefit obligation at end of year |
$ 45,546 |
$ 48,605 |
|||||
Change in Fair Value of Plan Assets |
|||||||
Fair value of assets at beginning of year |
$ 0 |
$ 0 |
|||||
Actual return on plan assets |
0 | 0 | |||||
Fair value of assets at end of year |
$ 0 |
$ 0 |
|||||
Funded status |
$ (45,546) |
$ (48,605) |
|||||
Net amount recognized |
$ (45,546) |
$ (48,605) |
|||||
Amounts Recognized in the Consolidated |
|||||||
Balance Sheets |
|||||||
Current liabilities |
$ (6,013) |
$ (6,287) |
|||||
Noncurrent liabilities |
(39,533) | (42,318) | |||||
Net amount recognized |
$ (45,546) |
$ (48,605) |
|||||
Amounts Recognized in Accumulated |
|||||||
Other Comprehensive Income |
|||||||
Net actuarial gain |
$ (22,685) |
$ (24,325) |
|||||
Prior service credit |
(19,692) | (23,928) | |||||
Total amount recognized |
$ (42,377) |
$ (48,253) |
|
||||||||||
dollars in thousands |
2016 | 2015 | 2014 | |||||||
Components of Net Periodic Postretirement |
||||||||||
Benefit Cost |
||||||||||
Service cost |
$ 1,123 |
$ 1,894 |
$ 2,146 |
|||||||
Interest cost |
1,209 | 2,485 | 3,297 | |||||||
Curtailment gain |
0 | 0 | (3,832) | |||||||
Amortization of prior service credit |
(4,236) | (4,232) | (4,327) | |||||||
Amortization of actuarial (gain) loss |
(1,751) | 37 | 227 | |||||||
Net periodic postretirement benefit cost (credit) |
$ (3,655) |
$ 184 |
$ (2,489) |
|||||||
Changes in Plan Assets and Benefit |
||||||||||
Obligations Recognized in Other |
||||||||||
Comprehensive Income |
||||||||||
Net actuarial gain |
$ (111) |
$ (35,209) |
$ (5,256) |
|||||||
Reclassification of actuarial gain (loss) |
1,751 | (37) | (227) | |||||||
Reclassification of prior service credit |
4,236 | 4,232 | 8,159 | |||||||
Amount recognized in other comprehensive |
||||||||||
income |
$ 5,876 |
$ (31,014) |
$ 2,676 |
|||||||
Amount recognized in net periodic |
||||||||||
postretirement benefit cost and other |
||||||||||
comprehensive income |
$ 2,221 |
$ (30,830) |
$ 187 |
|||||||
Assumptions |
||||||||||
Assumed Healthcare Cost Trend Rates |
||||||||||
at December 31 |
||||||||||
Healthcare cost trend rate assumed |
||||||||||
for next year |
n/a |
n/a |
7.50% | |||||||
Rate to which the cost trend rate gradually |
||||||||||
declines |
n/a |
n/a |
5.00% | |||||||
Year that the rate reaches the rate it is |
||||||||||
assumed to maintain |
n/a |
n/a |
2025 | |||||||
Weighted-average assumptions used to |
||||||||||
determine net periodic benefit cost for |
||||||||||
years ended December 31 |
||||||||||
Discount rate — PBO |
3.69% | 3.50% | 4.10% | |||||||
Discount rate — service cost |
3.77% | 3.50% | 4.10% | |||||||
Discount rate — interest cost |
2.81% | 3.50% | 4.10% | |||||||
Weighted-average assumptions used to |
||||||||||
determine benefit obligation at |
||||||||||
December 31 |
||||||||||
Discount rate |
3.58% | 3.69% | 3.50% |
|
||||
in thousands |
Postretirement |
|||
Employer Contributions |
||||
2014 |
$ 7,739 |
|||
2015 |
5,915 | |||
2016 |
5,280 | |||
2017 (estimated) |
6,013 |
|
||||
in thousands |
Postretirement |
|||
Estimated Future Benefit Payments |
||||
2017 |
$ 6,013 |
|||
2018 |
5,757 | |||
2019 |
5,510 | |||
2020 |
5,227 | |||
2021 |
4,826 | |||
2022–2026 |
18,546 |
|
||||
in thousands |
Postretirement |
|||
Participants Contributions |
||||
2014 |
$ 1,873 |
|||
2015 |
2,031 | |||
2016 |
2,085 |
|
|
|||||||||||
|
2016 | 2015 | 2014 | ||||||||
SOSARs |
|||||||||||
Fair value |
$ 29.20 |
$ 25.17 |
$ 21.94 |
||||||||
Risk-free interest rate |
1.66% | 1.85% | 2.40% | ||||||||
Dividend yield |
1.39% | 1.70% | 1.64% | ||||||||
Volatility |
30.42% | 33.00% | 33.00% | ||||||||
Expected term |
9.00 years |
8.00 years |
8.00 years |
|
|||||||||||||
|
Weighted-average |
||||||||||||
|
Remaining |
Aggregate |
|||||||||||
|
Number |
Weighted-average |
Contractual |
Intrinsic Value |
|||||||||
|
of Shares |
Exercise Price |
Life (Years) |
(in thousands) |
|||||||||
SOSARs/Stock Options 1 |
|||||||||||||
Outstanding at January 1, 2016 |
3,052,749 |
$ 58.32 |
|||||||||||
Granted |
97,700 | 92.02 | |||||||||||
Exercised |
(753,251) | 83.29 | |||||||||||
Forfeited or expired |
(4,767) | 78.22 | |||||||||||
Outstanding at December 31, 2016 |
2,392,431 |
$ 51.80 |
4.30 |
$ 178,558 |
|||||||||
Vested and expected to vest |
2,379,036 |
$ 51.70 |
4.28 |
$ 177,794 |
|||||||||
Exercisable at December 31, 2016 |
2,005,030 |
$ 47.30 |
3.62 |
$ 158,651 |
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
Aggregate intrinsic value of SOSARs/ |
||||||||||
stock options exercised |
$ 27,705 |
$ 43,620 |
$ 7,372 |
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
SOSARs/Stock Options |
||||||||||
Cash and stock consideration received |
||||||||||
from exercises |
$ 0 |
$ 72,884 |
$ 23,199 |
|||||||
Tax benefit from exercises |
10,767 | 16,920 | 2,844 | |||||||
Compensation cost |
2,744 | 2,221 | 4,650 |
|
|||||||
|
Target |
Weighted-average |
|||||
|
Number |
Grant Date |
|||||
|
of Shares |
Fair Value |
|||||
Performance Shares |
|||||||
Nonvested at January 1, 2016 |
806,339 |
$ 63.13 |
|||||
Granted |
164,498 | 87.73 | |||||
Vested |
(289,424) | 53.65 | |||||
Canceled/forfeited |
(14,317) | 68.49 | |||||
Nonvested at December 31, 2016 |
667,096 |
$ 73.20 |
|
||||||||||
in thousands |
2016 | 2015 | 2014 | |||||||
Aggregate value of distributed |
||||||||||
performance shares |
$ 60,443 |
$ 26,258 |
$ 0 |
|
|||||||
|
Weighted-average |
||||||
|
Number |
Grant Date |
|||||
|
of Shares |
Fair Value |
|||||
Restricted Stock Units |
|||||||
Nonvested at January 1, 2016 |
74,000 |
$ 58.23 |
|||||
Granted |
63,350 | 87.77 | |||||
Vested |
0 | 0.00 | |||||
Canceled/forfeited |
(1,920) | 87.77 | |||||
Nonvested at December 31, 2016 |
135,430 |
$ 71.63 |
|
|
||
|
Unconditional |
|
|
Purchase |
|
in thousands |
Obligations |
|
Property, Plant & Equipment |
||
2017 |
$ 131,846 |
|
Thereafter |
200 | |
Total |
$ 132,046 |
|
Noncapital (primarily transportation and electricity contracts) |
||
2017 |
$ 24,402 |
|
2018–2019 |
19,406 | |
2020–2021 |
7,229 | |
Thereafter |
4,000 | |
Total |
$ 55,037 |
|
||
|
Mineral |
|
in thousands |
Leases |
|
Minimum Royalties |
||
2017 |
$ 22,153 |
|
2018–2019 |
36,196 | |
2020–2021 |
23,513 | |
Thereafter |
134,379 | |
Total |
$ 216,241 |
|
|
||||||||
in thousands, except average cost |
2016 | 2015 | 2014 | |||||
Shares Purchased and Retired |
||||||||
Number |
1,427 | 228 | 0 | |||||
Total cost 1 |
$ 161,463 |
$ 21,475 |
$ 0 |
|||||
Average cost 1 |
$ 113.18 |
$ 94.19 |
$ 0.00 |
1 |
Excludes commissions of $0.02 per share. |
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
AOCI |
||||||||
Cash flow hedges |
$ (13,300) |
$ (14,494) |
$ (20,322) |
|||||
Pension and postretirement plans |
(126,076) | (105,575) | (141,392) | |||||
Total |
$ (139,376) |
$ (120,069) |
$ (161,714) |
|
||||||||
|
Pension and |
|||||||
|
Cash Flow |
Postretirement |
||||||
in thousands |
Hedges |
Benefit Plans |
Total |
|||||
AOCI |
||||||||
Balance as of December 31, 2013 |
$ (25,178) |
$ (74,453) |
$ (99,631) |
|||||
Other comprehensive income (loss) |
||||||||
before reclassifications |
0 | (69,051) | (69,051) | |||||
Amounts reclassified from AOCI |
4,856 | 2,112 | 6,968 | |||||
Net OCI changes |
4,856 | (66,939) | (62,083) | |||||
Balance as of December 31, 2014 |
$ (20,322) |
$ (141,392) |
$ (161,714) |
|||||
Other comprehensive income (loss) |
||||||||
before reclassifications |
0 | 23,832 | 23,832 | |||||
Amounts reclassified from AOCI |
5,828 | 11,985 | 17,813 | |||||
Net OCI changes |
5,828 | 35,817 | 41,645 | |||||
Balance as of December 31, 2015 |
$ (14,494) |
$ (105,575) |
$ (120,069) |
|||||
Other comprehensive income (loss) |
||||||||
before reclassifications |
0 | (20,583) | (20,583) | |||||
Amounts reclassified from AOCI |
1,194 | 82 | 1,276 | |||||
Net OCI changes |
1,194 | (20,501) | (19,307) | |||||
Balance as of December 31, 2016 |
$ (13,300) |
$ (126,076) |
$ (139,376) |
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Reclassification Adjustment for Cash Flow |
||||||||
Hedge Losses |
||||||||
Interest expense |
$ 2,008 |
$ 9,759 |
$ 7,988 |
|||||
Benefit from income taxes |
(814) | (3,931) | (3,132) | |||||
Total 1 |
$ 1,194 |
$ 5,828 |
$ 4,856 |
|||||
Amortization of Pension and Postretirement Plan |
||||||||
Actuarial Loss and Prior Service Cost |
||||||||
Cost of revenues |
$ 109 |
$ 15,916 |
$ 2,789 |
|||||
Selling, administrative and general expenses |
25 | 3,608 | 688 | |||||
Benefit from income taxes |
(52) | (7,539) | (1,365) | |||||
Total 2 |
$ 82 |
$ 11,985 |
$ 2,112 |
|||||
Total reclassifications from AOCI to earnings |
$ 1,276 |
$ 17,813 |
$ 6,968 |
1 |
Totals for 2015 and 2014 include the acceleration of a proportional amount of deferred losses on interest rate derivatives (see Note 5) referable to debt purchases (see Note 6). |
2 |
Total for 2015 includes a one-time settlement loss resulting from a lump sum payment to a former employee (see Note 10). Total for 2014 includes a one-time curtailment gain (see Note 10) resulting from the sale of our cement and concrete businesses in the Florida area (see Note 19). |
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Total Revenues |
||||||||
Aggregates 1 |
$ 2,961,835 |
$ 2,777,758 |
$ 2,346,411 |
|||||
Asphalt Mix 2 |
512,310 | 530,692 | 445,538 | |||||
Concrete 2, 3 |
330,125 | 299,252 | 375,806 | |||||
Calcium 4 |
8,860 | 8,596 | 25,032 | |||||
Segment sales |
$ 3,813,130 |
$ 3,616,298 |
$ 3,192,787 |
|||||
Aggregates intersegment sales |
(220,463) | (194,117) | (189,393) | |||||
Calcium intersegment sales |
0 | 0 | (9,225) | |||||
Total revenues |
$ 3,592,667 |
$ 3,422,181 |
$ 2,994,169 |
|||||
Gross Profit |
||||||||
Aggregates |
$ 873,118 |
$ 755,666 |
$ 544,070 |
|||||
Asphalt Mix 2 |
97,682 | 78,225 | 38,080 | |||||
Concrete 2, 3 |
26,543 | 20,152 | 2,233 | |||||
Calcium 4 |
3,474 | 3,490 | 3,199 | |||||
Total |
$ 1,000,817 |
$ 857,533 |
$ 587,582 |
|||||
Depreciation, Depletion, Accretion and Amortization (DDA&A) |
||||||||
Aggregates |
$ 236,472 |
$ 228,466 |
$ 227,042 |
|||||
Asphalt Mix 2 |
16,797 | 16,378 | 10,719 | |||||
Concrete 2, 3 |
12,129 | 11,374 | 19,892 | |||||
Calcium 4 |
774 | 679 | 1,554 | |||||
Other |
18,768 | 17,926 | 20,290 | |||||
Total |
$ 284,940 |
$ 274,823 |
$ 279,497 |
|||||
Capital Expenditures 5 |
||||||||
Aggregates |
$ 297,737 |
$ 269,014 |
$ 180,026 |
|||||
Asphalt Mix 2 |
29,002 | 8,111 | 20,796 | |||||
Concrete 2, 3 |
10,047 | 19,053 | 19,542 | |||||
Calcium 4 |
534 | 0 | 201 | |||||
Corporate |
7,621 | 7,846 | 2,532 | |||||
Total |
$ 344,941 |
$ 304,024 |
$ 223,097 |
|||||
Identifiable Assets 6 |
||||||||
Aggregates |
$ 7,589,225 |
$ 7,540,273 |
$ 7,311,336 |
|||||
Asphalt Mix 2 |
259,514 | 251,716 | 264,172 | |||||
Concrete 2, 3 |
192,673 | 198,193 | 227,000 | |||||
Calcium 4 |
4,959 | 5,509 | 5,818 | |||||
Total identifiable assets |
$ 8,046,371 |
$ 7,995,691 |
$ 7,808,326 |
|||||
General corporate assets |
166,118 | 21,881 | 91,498 | |||||
Cash and cash equivalents |
258,986 | 284,060 | 141,273 | |||||
Total assets |
$ 8,471,475 |
$ 8,301,632 |
$ 8,041,097 |
1 |
Includes product sales, as well as freight, delivery and transportation revenues, and other revenues related to services. |
2 |
In January 2015, we exchanged our California ready-mixed concrete operations for 13 asphalt mix plants, primarily in Arizona (see Note 19). |
3 |
In March 2014, we sold our concrete business in the Florida area (see Note 19). |
4 |
Includes cement and calcium products. In March 2014, we sold our cement business (see Note 19). |
5 |
Capital expenditures include capitalized replacements of and additions to property, plant & equipment, including capitalized leases, renewals and betterments. Capital expenditures exclude property, plant & equipment obtained by business acquisitions. |
6 |
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. |
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
Cash Payments |
||||||||
Interest (exclusive of amount capitalized) |
$ 135,039 |
$ 208,288 |
$ 241,841 |
|||||
Income taxes |
102,849 | 53,623 | 79,862 | |||||
Noncash Investing and Financing Activities |
||||||||
Accrued liabilities for purchases of property, |
||||||||
plant & equipment |
$ 26,676 |
$ 31,883 |
$ 17,120 |
|||||
Amounts referable to business acquisitions |
||||||||
Liabilities assumed |
798 | 2,645 | 26,622 | |||||
Fair value of noncash assets and liabilities exchanged |
0 | 20,000 | 2,414 | |||||
Fair value of equity consideration |
0 | 0 | 45,185 |
|
|
||||||||
in thousands |
2016 | 2015 | 2014 | |||||
ARO Operating Costs |
||||||||
Accretion |
$ 11,059 |
$ 11,474 |
$ 11,601 |
|||||
Depreciation |
6,353 | 6,515 | 4,462 | |||||
Total |
$ 17,412 |
$ 17,989 |
$ 16,063 |
|
|||||
in thousands |
2016 | 2015 | |||
Asset Retirement Obligations |
|||||
Balance at beginning of year |
$ 226,594 |
$ 226,565 |
|||
Liabilities incurred |
505 | 6,235 | |||
Liabilities settled |
(17,114) | (18,048) | |||
Accretion expense |
11,059 | 11,474 | |||
Revisions, net |
2,828 | 368 | |||
Balance at end of year |
$ 223,872 |
$ 226,594 |
|
|
|||||||||||||||
in thousands |
Aggregates |
Asphalt Mix |
Concrete |
Calcium |
Total |
||||||||||
Goodwill |
|||||||||||||||
Total as of December 31, 2014 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
||||||||||
Total as of December 31, 2015 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
||||||||||
Total as of December 31, 2016 |
$ 3,003,191 |
$ 91,633 |
$ 0 |
$ 0 |
$ 3,094,824 |
|
||||||
in thousands |
2016 | 2015 | ||||
Gross Carrying Amount |
||||||
Contractual rights in place |
$ 742,085 |
$ 735,935 |
||||
Noncompetition agreements |
6,757 | 2,800 | ||||
Favorable lease agreements |
9,479 | 16,677 | ||||
Permitting, permitting compliance and zoning rights |
112,058 | 99,513 | ||||
Other 1 |
4,171 | 4,092 | ||||
Total gross carrying amount |
$ 874,550 |
$ 859,017 |
||||
Accumulated Amortization |
||||||
Contractual rights in place |
$ (77,515) |
$ (65,641) |
||||
Noncompetition agreements |
(1,118) | (506) | ||||
Favorable lease agreements |
(2,822) | (4,002) | ||||
Permitting, permitting compliance and zoning rights |
(21,701) | (20,350) | ||||
Other 1 |
(2,342) | (1,939) | ||||
Total accumulated amortization |
$ (105,498) |
$ (92,438) |
||||
Total Intangible Assets Subject to Amortization, net |
$ 769,052 |
$ 766,579 |
||||
Intangible Assets with Indefinite Lives |
0 | 0 | ||||
Total Intangible Assets, net |
$ 769,052 |
$ 766,579 |
||||
Amortization Expense for the Year |
$ 17,565 |
$ 15,618 |
1 |
Includes customer relationships and tradenames and trademarks. |
|
||
in thousands |
||
Estimated Amortization Expense for Five Subsequent Years |
||
2017 |
$ 16,308 |
|
2018 |
15,941 | |
2019 |
16,222 | |
2020 |
15,488 | |
2021 |
14,288 |
|
|
|||||
in thousands |
2016 | ||||
Fair Value of Purchase Consideration |
|||||
Cash |
$ 32,537 |
||||
Payable to seller |
750 | ||||
Total fair value of purchase consideration |
$ 33,287 |
||||
Identifiable Assets Acquired and Liabilities Assumed |
|||||
Accounts and notes receivable, net |
$ 1,034 |
||||
Inventories |
169 | ||||
Property, plant & equipment, net |
15,462 | ||||
Other intangible assets |
|||||
Contractual rights in place |
15,213 | ||||
Noncompetition agreement |
1,457 | ||||
Liabilities assumed |
(48) | ||||
Net identifiable assets acquired |
$ 33,287 |
||||
Goodwill |
$ 0 |
|
|
||||||||
|
2016 |
|||||||
|
Three Months Ended |
|||||||
in thousands, except per share data |
March 31 |
June 30 |
Sept 30 |
Dec 31 |
||||
Total revenues |
$ 754,728 |
$ 956,825 |
$ 1,008,140 |
$ 872,974 |
||||
Gross profit |
164,718 | 292,184 | 304,209 | 239,706 | ||||
Operating earnings |
64,921 | 213,786 | 227,076 | 173,799 | ||||
Earnings from continuing operations 1 |
41,965 | 127,241 | 145,137 | 108,063 | ||||
Net earnings 1 |
40,158 | 124,709 | 142,024 | 112,600 | ||||
Basic earnings per share from continuing operations 1 |
$ 0.31 |
$ 0.95 |
$ 1.09 |
$ 0.82 |
||||
Diluted earnings per share from continuing operations 1 |
$ 0.31 |
$ 0.93 |
$ 1.07 |
$ 0.80 |
||||
Basic net earnings per share 1 |
$ 0.30 |
$ 0.93 |
$ 1.07 |
$ 0.85 |
||||
Diluted net earnings per share 1 |
$ 0.30 |
$ 0.92 |
$ 1.05 |
$ 0.83 |
1 |
Amounts are revised to reflect the early adoption of ASU 2016-09 (See Note 1, caption Accounting Standards Recently Adopted) in the fourth quarter of 2016 and presented as adopted as of the beginning of the year. Earnings from continuing operations and Net earnings were increased, as follows: March 31 — $21,234,000 ($0.16 per share); June 30 — $959,000 ($0.01 in diluted net earnings per share only); and September 30 — $2,259,000 ($0.02 per share basic and $0.01 per share diluted). |
|
||||||||
|
2015 |
|||||||
|
Three Months Ended |
|||||||
in thousands, except per share data |
March 31 |
June 30 |
Sept 30 |
Dec 31 |
||||
Total revenues |
$ 631,293 |
$ 895,143 |
$ 1,038,460 |
$ 857,285 |
||||
Gross profit |
77,865 | 234,449 | 291,290 | 253,929 | ||||
Operating earnings |
10,759 | 153,776 | 212,206 | 173,037 | ||||
Earnings (loss) from continuing operations |
(36,667) | 49,819 | 126,202 | 93,560 | ||||
Net earnings (loss) |
(39,678) | 48,162 | 123,805 | 88,888 | ||||
Basic earnings (loss) per share from continuing operations |
$ (0.28) |
$ 0.37 |
$ 0.95 |
$ 0.70 |
||||
Diluted earnings (loss) per share from continuing operations |
$ (0.28) |
$ 0.37 |
$ 0.93 |
$ 0.69 |
||||
Basic net earnings (loss) per share |
$ (0.30) |
$ 0.36 |
$ 0.93 |
$ 0.67 |
||||
Diluted net earnings (loss) per share |
$ (0.30) |
$ 0.36 |
$ 0.91 |
$ 0.65 |
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