VULCAN MATERIALS CO, 10-Q filed on 11/6/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2020
Oct. 22, 2020
Document and Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2020  
Document Transition Report false  
Document Fiscal Year Focus 2020  
Entity File Number 001-33841  
Document Fiscal Period Focus Q3  
Entity Registrant Name VULCAN MATERIALS COMPANY  
Entity Central Index Key 0001396009  
Current Fiscal Year End Date --12-31  
Entity Incorporation, State or Country Code NJ  
Entity Tax Identification Number 20-8579133  
Entity Address, Address Line One 1200 Urban Center Drive  
Entity Address, City or Town Birmingham  
Entity Address, State or Province AL  
Entity Address, Postal Zip Code 35242  
City Area Code 205  
Local Phone Number 298-3000  
Title of 12(b) Security Common Stock, $1 par value  
Trading Symbol  New York Stock Exchange   
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   132,511,361
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2020
Dec. 31, 2019
Sep. 30, 2019
Assets      
Cash and cash equivalents $ 1,084,100 $ 271,589 $ 90,411
Restricted cash 630 2,917 691
Accounts and notes receivable      
Accounts and notes receivable, gross 647,362 573,241 727,900
Allowance for doubtful accounts (3,155) (3,125) (2,960)
Accounts and notes receivable, net 644,207 570,116 724,940
Inventories      
Finished products 384,575 391,666 364,164
Raw materials 34,562 31,318 31,250
Products in process 5,098 5,604 6,062
Operating supplies and other 31,226 29,720 28,184
Inventories 455,461 458,308 429,660
Other current assets 80,935 76,396 78,540
Total current assets 2,265,333 1,379,326 1,324,242
Investments and long-term receivables 41,778 60,709 57,059
Property, plant & equipment      
Property, plant & equipment, cost 8,958,342 8,749,217 8,657,731
Allowances for depreciation, depletion & amortization (4,614,543) (4,433,179) (4,370,386)
Property, plant & equipment, net 4,343,799 4,316,038 4,287,345
Operating lease right-of-use assets, net 431,227 408,189 410,833
Goodwill 3,172,112 3,167,061 3,167,061
Other intangible assets, net 1,107,091 1,091,475 1,071,330
Other noncurrent assets 229,193 225,995 221,803
Total assets 11,590,533 10,648,793 10,539,673
Liabilities      
Current maturities of long-term debt 509,435 25 24
Trade payables and accruals 263,296 265,159 265,012
Other current liabilities 297,162 270,379 270,248
Total current liabilities 1,069,893 535,563 535,284
Long-term debt 2,777,072 2,784,315 2,783,068
Deferred income taxes, net 685,520 633,039 628,726
Deferred revenue 174,488 179,880 180,541
Operating lease liabilities 407,336 388,042 391,079
Other noncurrent liabilities 547,872 506,097 478,736
Total liabilities 5,662,181 5,026,936 4,997,434
Other commitments and contingencies (Note 8)
Equity      
Common stock, $1 par value, Authorized 480,000 shares, Outstanding 132,454, 132,371 and 132,350 shares, respectively 132,454 132,371 132,350
Capital in excess of par value 2,797,222 2,791,353 2,785,245
Retained earnings 3,204,671 2,895,871 2,795,834
Accumulated other comprehensive loss (205,995) (197,738) (171,190)
Total equity 5,928,352 5,621,857 5,542,239
Total liabilities and equity $ 11,590,533 $ 10,648,793 $ 10,539,673
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 30, 2020
Dec. 31, 2019
Sep. 30, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS [Abstract]      
Common stock, par value $ 1 $ 1 $ 1
Common stock, shares authorized 480,000,000 480,000,000 480,000,000
Common stock, shares outstanding 132,454,000 132,371,000 132,350,000
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Sep. 30, 2020
Sep. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]        
Total revenues [1] $ 1,309,890 $ 1,418,758 $ 3,681,707 $ 3,742,951
Cost of revenues 929,392 1,018,115 2,702,967 2,780,131
Gross profit 380,498 400,643 978,740 962,820
Selling, administrative and general expenses 83,511 88,789 261,146 274,747
Gain on sale of property, plant & equipment and businesses 1,576 234 2,317 10,982
Other operating expense, net (10,459) (8,712) (20,610) (15,173)
Operating earnings 288,104 303,376 699,301 683,882
Other nonoperating income, net 5,787 359 3,818 5,954
Interest expense, net 35,782 32,197 100,509 98,165
Earnings from continuing operations before income taxes 258,109 271,538 602,610 591,671
Income tax expense 56,984 53,472 130,530 111,764
Earnings from continuing operations 201,125 218,066 472,080 479,907
Loss on discontinued operations, net of tax (1,337) (2,353) (2,118) (3,338)
Net earnings 199,788 215,713 469,962 476,569
Other comprehensive income (loss), net of tax        
Deferred loss on interest rate derivative 0 0 (14,679) 0
Amortization of prior interest rate derivative loss 350 57 1,338 169
Amortization of actuarial loss and prior service cost for benefit plans 1,695 286 5,085 856
Other comprehensive income (loss) 2,045 343 (8,256) 1,025
Comprehensive income $ 201,833 $ 216,056 $ 461,706 $ 477,594
Basic earnings (loss) per share        
Continuing operations $ 1.52 $ 1.65 $ 3.56 $ 3.63
Discontinued operations (0.01) (0.02) (0.01) (0.03)
Net earnings 1.51 1.63 3.55 3.60
Diluted earnings (loss) per share        
Continuing operations 1.51 1.63 3.54 3.60
Discontinued operations (0.01) (0.01) (0.01) (0.02)
Net earnings $ 1.50 $ 1.62 $ 3.53 $ 3.58
Weighted-average common shares outstanding        
Basic 132,573 132,414 132,564 132,244
Assuming dilution 133,268 133,375 133,192 133,273
Depreciation, depletion, accretion and amortization $ 100,962 $ 96,247 $ 295,912 $ 278,925
Effective tax rate from continuing operations 22.10% 19.70% 21.70% 18.90%
[1]

1

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

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

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

West market — Arizona, California and New Mexico

v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2020
Sep. 30, 2019
Operating Activities    
Net earnings $ 469,962 $ 476,569
Adjustments to reconcile net earnings to net cash provided by operating activities    
Depreciation, depletion, accretion and amortization 295,912 278,925
Noncash operating lease expense 27,820 26,349
Net gain on sale of property, plant & equipment and businesses (2,317) (10,982)
Contributions to pension plans (6,540) (6,767)
Share-based compensation expense 23,239 24,815
Deferred tax expense (benefit) 50,346 62,232
Changes in assets and liabilities before initial effects of business acquisitions and dispositions (76,545) (221,001)
Other, net (3,951) 15,989
Net cash provided by operating activities 777,926 646,129
Investing Activities    
Purchases of property, plant & equipment (268,989) (306,893)
Proceeds from sale of property, plant & equipment 9,440 12,112
Proceeds from sale of businesses 651 1,744
Payment for businesses acquired, net of acquired cash (5,668) 1,122
Other, net 10,819 (11,342)
Net cash used for investing activities (253,747) (303,257)
Financing Activities    
Proceeds from short-term debt 0 366,900
Payment of short-term debt 0 (499,900)
Payment of current maturities and long-term debt (250,018) (17)
Proceeds from issuance of long-term debt 750,000 0
Debt issuance and exchange costs (15,394) 0
Settlements of interest rate derivatives (19,863) 0
Purchases of common stock (26,132) (2,602)
Dividends paid (135,161) (122,943)
Share-based compensation, shares withheld for taxes (16,303) (37,598)
Other, net (1,084) (14)
Net cash provided by (used for) financing activities 286,045 (296,174)
Net increase in cash and cash equivalents and restricted cash 810,224 46,698
Cash and cash equivalents and restricted cash at beginning of year 274,506 44,404
Cash and cash equivalents and restricted cash at end of period $ 1,084,730 $ 91,102
v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2020
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Note 1: summary of significant accounting policies

NATURE OF OPERATIONS

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

We operate primarily in the United States and our principal product — aggregates — is used in virtually all types of public and private construction projects and in the production of asphalt mix and ready-mixed concrete. We serve markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico. Our primary focus is serving metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates. While aggregates is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our Alabama, Arizona, California, Maryland, New Mexico, Tennessee, Texas, Virginia and Washington D.C. markets.

BASIS OF PRESENTATION

Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. We prepared the accompanying condensed consolidated financial statements on the same basis as our annual financial statements, except for the adoption of new accounting standards as described in Note 17. Our Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from the audited financial statement, but it does not include all disclosures required by GAAP. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K. Operating results for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, particularly in light of the uncertainty over the economic and operational impacts of the current novel coronavirus (COVID-19) pandemic.

While we continue to operate as an essential business, the COVID-19 pandemic has impacted our industry and the economy and it may have far-reaching impacts on many aspects of our operations, directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, our employees, and the market generally. Our condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues and expenses. Such estimates and assumptions affect, among other things, our goodwill and long-lived asset valuations; inventory valuation; assessment of the annual effective tax rate; valuation of deferred income taxes; allowance for doubtful accounts; measurement of cash bonus plans; and pension plan assumptions. Events and changes in circumstances arising after September 30, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

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

RESTRICTED CASH

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

LEASES

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

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The lease term only includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. ROU assets are adjusted for any prepaid lease payments and lease incentives. Except for equipment with monthly monitoring service where the service component accounts for a majority of the lease cost, the non-lease components of our lease agreements are not separated from the lease components.

For additional information about leases see Note 2.

DISCONTINUED OPERATIONS

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

Three Months Ended

Nine Months Ended

September 30

September 30

in thousands

2020

2019

2020

2019

Discontinued Operations

Pretax loss

$       (1,810)

$       (3,167)

$       (2,868)

$       (4,506)

Income tax benefit

473 

814 

750 

1,168 

Loss on discontinued operations,

net of tax

$       (1,337)

$       (2,353)

$       (2,118)

$       (3,338)

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

EARNINGS PER SHARE (EPS)

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

Three Months Ended

Nine Months Ended

September 30

September 30

in thousands

2020

2019

2020

2019

Weighted-average common shares

outstanding

132,573 

132,414 

132,564 

132,244 

Dilutive effect of

Stock-Only Stock Appreciation Rights

314 

525 

307 

662 

Other stock compensation plans

381 

436 

321 

367 

Weighted-average common shares

outstanding, assuming dilution

133,268 

133,375 

133,192 

133,273 

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

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

Three Months Ended

Nine Months Ended

September 30

September 30

in thousands

2020

2019

2020

2019

Antidilutive common stock equivalents

146 

71 

269 

161 

 

RECLASSIFICATIONS

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

 
v3.20.2
LEASES
9 Months Ended
Sep. 30, 2020
LEASES [Abstract]  
LEASES Note 2: Leases

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

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

September 30

December 31

September 30

in thousands

Classification on the Balance Sheet

2020

2019

2019

Assets

Operating lease ROU assets

$     483,659 

$     441,656 

$     435,986 

Accumulated amortization

(52,432)

(33,467)

(25,153)

Total lease assets

Operating lease right-of-use assets, net

$     431,227 

$     408,189 

$     410,833 

Liabilities

Current

Operating

Other current liabilities

$       36,434 

$       29,971 

$       30,282 

Noncurrent

Operating

Operating lease liabilities

407,336 

388,042 

391,079 

Total lease liabilities

$     443,770 

$     418,013 

$     421,361 

Lease Term and Discount Rate

Weighted-average remaining lease term (years)

Operating leases

10.1 

9.9 

9.6 

Weighted-average discount rate

Operating leases

3.9%

4.3%

4.4%

Our lease agreements do not contain residual value guarantees, restrictive covenants or early termination options that we deem material. We have not sought or been granted any material lease concessions as a result of the COVID-19 pandemic.

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

Three Months Ended

Nine Months Ended

September 30

September 30

in thousands

2020

2019

2020

2019

Lease Cost

Operating lease cost

$       14,837 

$       14,057 

$       43,177 

$       42,352 

Short-term lease cost 1

8,263 

8,756 

25,704 

25,378 

Variable lease cost

3,236 

3,637 

10,141 

10,194 

Sublease income

(677)

(774)

(2,133)

(2,192)

Total lease cost

$       25,659 

$       25,676 

$       76,889 

$       75,732 

1

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

Cash paid for operating leases was $40,456,000 and $39,326,000 for the nine months ended September 30, 2020 and 2019, respectively, and was reflected as reductions to operating cash flows.

 

 
v3.20.2
INCOME TAXES
9 Months Ended
Sep. 30, 2020
INCOME TAXES [Abstract]  
INCOME TAXES Note 3: Income Taxes

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

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

In the third quarter of 2020, we recorded income tax expense from continuing operations of $56,984,000 compared to $53,472,000 in the third quarter of 2019. The increase in tax expense was primarily related to a decrease in share-based compensation excess tax benefits as compared to the same quarter in 2019.

For the first nine months of 2020, we recorded income tax expense from continuing operations of $130,530,000 compared to $111,764,000 for the first nine months of 2019. The increase in tax expense was primarily related to a decrease in share-based compensation excess tax benefits as compared to the same period in 2019.

We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the book basis and tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns. A summary of our deferred tax assets and liabilities is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Each quarter we analyze the likelihood that our deferred tax assets will be realized. 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. We project Alabama state net operating loss (NOL) carryforward deferred tax assets at December 31, 2020 of $63,267,000 against which we have a valuation allowance of $29,236,000. All but a de minimis portion of the Alabama NOL carryforward, if not utilized, would expire between 2023 and 2032.

We recognize a tax benefit associated with a tax position when, in our judgment, it is more likely than not that the position will be sustained based upon the technical merits of the position. For a tax position that meets the more likely than not recognition threshold, we measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax benefit. Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation.

 

 
v3.20.2
REVENUES
9 Months Ended
Sep. 30, 2020
REVENUES [Abstract]  
REVENUES Note 4: revenueS

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

Our segment total revenues by geographic market for the three and nine month periods ended September 30, 2020 and 2019 are disaggregated as follows:

Three Months Ended September 30, 2020

in thousands

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$     360,985 

$     46,212 

$     73,181 

$              0 

$      480,378 

Gulf Coast

535,215 

55,894 

18,889 

1,354 

611,352 

West

152,762 

133,095 

10,737 

0 

296,594 

Segment sales

$  1,048,962 

$   235,201 

$   102,807 

$       1,354 

$   1,388,324 

Intersegment sales

(78,434)

0 

0 

0 

(78,434)

Total revenues

$     970,528 

$   235,201 

$   102,807 

$       1,354 

$   1,309,890 

Three Months Ended September 30, 2019

in thousands

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$     387,291 

$     59,156 

$     74,446 

$              0 

$      520,893 

Gulf Coast

565,607 

63,803 

18,338 

2,119 

649,867 

West

180,187 

147,278 

20,180 

0 

347,645 

Segment sales

$  1,133,085 

$   270,237 

$   112,964 

$       2,119 

$   1,518,405 

Intersegment sales

(99,647)

0 

0 

0 

(99,647)

Total revenues

$  1,033,438 

$   270,237 

$   112,964 

$       2,119 

$   1,418,758