|
|
 | | | |
- close
- close
- close
- close
| |||||||||
Vulcan Materials Company 10-Q 2011 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
Commission File Number 001-33841
VULCAN MATERIALS COMPANY
(Exact name of registrant as specified in its charter)
(205) 298-3000 (Registrant’s telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes x No o Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
VULCAN MATERIALS COMPANY
FORM 10-Q
QUARTER ENDED MARCH 31, 2011 CONTENTS
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
3
Table of Contents
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND
COMPREHENSIVE INCOME
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of
these statements.
4
Table of Contents
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.
5
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the
nation’s largest producer of construction aggregates, primarily crushed stone, sand and gravel; a
major producer of asphalt mix and ready-mixed concrete and a leading producer of cement in Florida.
Our accompanying unaudited condensed consolidated financial statements were prepared in compliance
with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of
the information and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of our management, the
statements reflect all adjustments, including those of a normal recurring nature, necessary to
present fairly the results of the reported interim periods. Operating results for the three month
period ended March 31, 2011 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2011. For further information, refer to the consolidated financial
statements and footnotes included in our most recent Annual Report on Form 10-K.
Due to the 2005 sale of our Chemicals business as presented in Note 2, the operating results of the
Chemicals business are presented as discontinued operations in the accompanying Condensed
Consolidated Statements of Earnings and Comprehensive Income.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions have been reclassified
to conform with the 2011 presentation.
CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS
During 2010 we completed a comprehensive analysis of our deferred income tax balances and concluded
that our deferred income tax liabilities were understated. The errors arose during 2008 and during
periods prior to January 1, 2007, and are not material to previously issued financial statements.
As a result, we did not amend previously filed financial statements but restated the December 31,
2009 balance sheet in our Annual Report on Form 10-K for the year ended December 31, 2010 and have
restated the March 31, 2010 balance sheet presented in this Form 10-Q.
The errors that arose during 2008 related to the calculations of deferred income taxes referable to
the Florida Rock acquisition and additional 2008 federal return adjustments. The correction of
these errors resulted in a decrease to deferred income tax liabilities of $6,129,000, and an
increase to goodwill referable to our Aggregates segment of $2,321,000 with an offsetting increase
in current taxes payable of $8,450,000 for the year ended December 31, 2008.
The errors that arose during periods prior to January 1, 2007 resulted in an understatement of
deferred income tax liabilities of $14,785,000. Based on the work performed to confirm the current
and deferred income tax provisions recorded during 2007, 2008 and 2009, and to determine the
correct deferred income tax account balances as of January 1, 2007, we were able to substantiate
that the $14,785,000 understatement related to periods prior to January 1, 2007. The correction of
these errors resulted in an increase to deferred income tax liabilities and a corresponding
decrease to retained earnings of $14,785,000 as of January 1, 2007.
6
Table of Contents
A summary of the effects of the correction of the errors on our Condensed Consolidated Balance Sheet as of March 31, 2010, is presented in the table below:
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. In addition to the initial cash proceeds, Basic
Chemicals was required to make payments under two earn-out agreements subject to certain
conditions. During 2007, we received the final payment under the ECU (electrochemical unit)
earn-out, bringing cumulative cash receipts to its $150,000,000 cap.
Proceeds under the second earn-out agreement are based on the performance of the hydrochlorocarbon
product HCC-240fa (commonly referred to as 5CP) from the closing of the transaction through
December 31, 2012 (5CP earn-out). The primary determinant of the value for this earn-out is the
level of growth in 5CP sales volume. At the June 7, 2005 closing date, the value assigned to the
5CP earn-out was limited to an amount that resulted in no gain on the sale of the business, as the
gain was contingent in nature. A gain on disposal of the Chemicals business is recognized to the
extent cumulative cash receipts under the 5CP earn-out exceed the initial value recorded.
In March 2011, we received a payment of $12,284,000 under the 5CP earn-out related to performance
during the year ended December 31, 2010. During the first quarter of 2010, we received $8,794,000
under the 5CP earn-out related to the year ended December 31, 2009. These receipts were recorded as
gains on disposal of discontinued operations. Through March 31, 2011, we have received a total of
$54,991,000 under the 5CP earn-out, a total of $21,890,000 in excess of the receivable recorded on
the date of disposition.
We are liable for a cash transaction bonus payable to certain former key Chemicals employees. This
transaction bonus is payable if cash receipts realized from the two earn-out agreements described
above exceed an established minimum threshold. The bonus is payable annually based on the prior
year’s results. We expect the 2011 payout will be $1,228,000 and have accrued this amount as of
March 31, 2011. In comparison, we had accrued $879,000 as of March 31, 2010.
7
Table of Contents
The financial results of the Chemicals business are classified as discontinued operations in the
accompanying Condensed Consolidated Statements of Earnings and Comprehensive Income for all periods
presented. There were no net sales or revenues from discontinued operations during the three month
periods ended March 31, 2011 and 2010. Results from discontinued operations are as follows:
The first quarter 2011 pretax earnings from results of discontinued operations of $5,306,000
include a $7,500,000 pretax gain recognized on recovery from an insurer in lawsuits involving
perchloroethylene. This gain was offset in part by general and product liability costs, including
legal defense costs, and environmental remediation costs associated with our former Chemicals
business. The first quarter 2010 pretax earnings from results of discontinued operations of
$960,000 include litigation settlements associated with our former Chemicals business offset in
part by general and product liability costs, including legal defense costs, and environmental
remediation costs.
NOTE 3: EARNINGS PER SHARE (EPS)
We report two earnings per share numbers: basic and diluted. These 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:
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.
Because we operated at a loss in the first quarters of 2011 and 2010, shares of 322,000 and
476,000, respectively, that otherwise would have been included in our diluted weighted-average
common shares outstanding computation for the quarters ended March 31, 2011 and 2010, were
excluded.
The number of antidilutive common stock equivalents for which the exercise price exceeds the
weighted-average market price, are as follows:
8
Table of Contents
NOTE 4: INCOME TAXES
Our income tax provision and the corresponding effective tax rate are based on expected income,
statutory tax rates and tax planning opportunities available in the various jurisdictions in which
we operate. For interim financial reporting, except in circumstances as described in the following
paragraph, we estimate the annual tax rate based on projected taxable income for the full year and
record a quarterly tax provision in accordance with the anticipated annual rate. As the year
progresses, we refine the estimates of the year’s taxable income as new information becomes
available, including year-to-date financial results. This continual estimation process often
results in a change to our expected effective tax rate for the year. When this occurs, we adjust
the income tax provision during the quarter in which the change in estimate occurs so that the
year-to-date income tax provision reflects the expected annual tax rate. Significant judgment is
required in determining our effective interim tax rate and in evaluating our tax positions.
When application of the estimated annual effective tax rate distorts the financial results of an
interim period, we calculate the income tax provision or benefit using an alternative methodology
as prescribed by Accounting Standards Codification (ASC) 740-270-30-30 through 30-33. This
alternative methodology results in an income tax provision or benefit based solely on the
year-to-date pretax loss as adjusted for permanent differences on a pro rata basis.
We recognize an income tax benefit associated with an uncertain tax position when, in our judgment,
it is more likely than not that the position will be sustained upon examination by a taxing
authority. For a tax position that meets the more-likely-than-not recognition threshold, we
initially and subsequently measure the income tax benefit as the largest amount that we judge to
have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing
authority. Our liability associated with 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. Such adjustments are recognized entirely in the period in which they are
identified. We consider resolution for an issue to occur at the earlier of settlement of an
examination, the expiration of the statute of limitations, or when the issue is “effectively
settled,” as described in ASC 740. Our effective tax rate includes the net impact of changes in the
liability for unrecognized tax benefits and subsequent adjustments as we consider appropriate.
In the first quarters of 2011 and 2010, we applied the alternative methodology discussed above in
the determination of the income tax provision from continuing operations.
We recorded income tax benefits from continuing operations of $37,430,000 in the first quarter of
2011 compared to $34,212,000 in the first quarter of 2010. The increase in our income tax benefit
resulted mainly from the larger pretax loss and an increase in the depletion benefit partially
offset by discrete income tax adjustments booked in the first quarter of 2011.
NOTE 5: MEDIUM-TERM INVESTMENTS
We held investments in money market and other money funds at The Reserve, an investment management
company specializing in such funds, as follows: March 31, 2011 — $0, December 31, 2010 —
$5,531,000 and March 31, 2010 — $5,532,000. The substantial majority of our investment was held in
the Reserve International Liquidity Fund, Ltd. On September 15, 2008, Lehman Brothers Holdings Inc.
filed for bankruptcy protection. In the following days, The Reserve announced that it was closing
all of its money funds, some of which owned Lehman Brothers securities, and was suspending
redemptions from and purchases of its funds, including the Reserve International Liquidity Fund.
As a result of the temporary suspension of redemptions and the uncertainty as to the timing of such
redemptions, during 2008 we changed the classification of our investments in The Reserve funds from
cash and cash equivalents to medium-term investments. We reduced the carrying value of our
investment to its estimated fair value of $3,630,000 and $4,109,000 as of December 31, 2010 and
March 31, 2010, respectively. See Note 7 for further discussion of the fair value determination.
During January 2011, we received $3,630,000 from the Reserve representing the final redemption of
the investment. As a result of this redemption, we reclassified our investments in The Reserve
funds from medium-term investments to cash and cash equivalents as of December 31, 2010.
9
Table of Contents
NOTE 6: DERIVATIVE INSTRUMENTS
During the normal course of operations, we are exposed to market risks including fluctuations in
interest rates, fluctuations in foreign currency exchange rates and changes in commodity pricing.
From time to time, and consistent with our risk management policies, we use derivative instruments
to hedge against these market risks. We do not utilize derivative instruments for trading or other
speculative purposes. The interest rate swap agreements described below were designated as cash
flow hedges of future interest payments.
In December 2007, we issued $325,000,000 of 3-year floating (variable) rate notes that bear
interest at 3-month London Interbank Offered Rate (LIBOR) plus 1.25% per annum. Concurrently, we
entered into a 3-year interest rate swap agreement in the stated (notional) amount of $325,000,000.
Under this agreement, we paid a fixed interest rate of 5.25% and received 3-month LIBOR plus 1.25%
per annum. Concurrent with each quarterly interest payment, the portion of this swap related to
that interest payment was settled and the associated realized gain or loss was recognized. This
swap agreement terminated December 15, 2010, coinciding with the maturity of the 3-year notes.
Additionally, during 2007, we entered into fifteen forward starting interest rate swap agreements
for a total notional amount of $1,500,000,000. Upon the issuance in 2007 of the related fixed-rate
debt, we terminated and settled these forward starting swaps for cash payments of $89,777,000.
Amounts accumulated in other comprehensive loss are being amortized to interest expense over the
term of the related debt. For the 12-month period ending March 31, 2012, we estimate that
$8,352,000 of the pretax loss accumulated in OCI will be reclassified to earnings.
Derivative instruments are recognized at fair value in the accompanying Condensed Consolidated
Balance Sheets. Fair values of derivative instruments designated as hedging instruments are as
follows:
1 See Note 7 for further discussion of the fair value determination.
The effects of the cash flow hedge derivative instruments on the accompanying Condensed
Consolidated Statements of Earnings and Comprehensive Income are as follows:
10
Table of Contents
NOTE 7: 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 and liabilities that are subject to fair value measurements on a recurring basis are
summarized below:
The Rabbi Trust investments relate to funding for the executive nonqualified deferred compensation
and excess benefit 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. Investments in common/collective trust funds are stated at
estimated fair value based on the underlying investments in those funds. The underlying investments
are comprised of short-term, highly liquid assets in commercial paper, short-term bonds and
treasury bills.
The medium-term investments were comprised of money market and other money funds, as more fully
described in Note 5. Using a market approach, we estimated the fair value of these funds by
applying our historical distribution ratio to the liquidated value of investments in The Reserve
funds. Additionally, we estimated a discount against our investment balances to allow for the risk
that legal and accounting costs and pending or threatened claims and litigation against The Reserve
and its management would reduce the principal available for distribution.
The interest rate derivative consisted of an interest rate swap agreement applied to our
$325,000,000 3-year notes issued December 2007 and paid December 2010. This agreement is more fully
described in Note 6. This interest rate swap was measured at fair value using a market approach
based on the prevailing market interest rate as of the measurement date.
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable,
current maturities of long-term debt, short-term borrowings, trade payables and other accrued
expenses approximate their fair values because of the short-term nature of these instruments.
Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes
6 and 11, respectively.
11
Table of Contents
Assets that were subject to fair value measurement on a nonrecurring basis are summarized below:
During the quarter ended December 31, 2010, we recorded a $3,936,000 loss on impairment of
long-lived assets. We utilized an income approach to measure the fair value of the long-lived
assets and determined that the carrying value of the assets exceeded the fair value. The loss on
impairment represents the difference between the carrying value and the fair value (less costs to
sell for assets held for sale) of the impacted long-lived assets.
NOTE 8: OTHER COMPREHENSIVE INCOME
Comprehensive income includes charges and credits to equity from nonowner sources and comprises two
subsets: net earnings and other comprehensive income. The components of other comprehensive income
are presented in the accompanying Condensed Consolidated Statements of Earnings and Comprehensive
Income, net of applicable taxes.
Amounts accumulated in other comprehensive income (loss), net of tax, are as follows:
NOTE 9: SHAREHOLDERS’ EQUITY
In March 2010, we issued 1,190,000 shares of common stock to our qualified pension plan (par value
of $1 per share) as described in Note 10. This transaction increased shareholders’ equity by
$53,864,000 (common stock $1,190,000 and capital in excess of par $52,674,000).
In February 2011, we issued 372,992 shares (368,527 shares net of acquired cash) of common stock in
connection with a business acquisition as described in Note 14.
We periodically issue shares of common stock to the trustee of our 401(k) savings and retirement
plan to satisfy the plan participants’ elections to invest in our common stock. The resulting cash
proceeds provide a means of improving cash flow, increasing shareholders’ equity and reducing
leverage. Under this arrangement, the stock issuances and resulting cash proceeds were as follows:
three months ended March 31, 2011 — no shares issued; and three months ended March 31, 2010 —
issued 250,368 shares for cash proceeds of $11,249,000.
No shares were held in treasury as of March 31, 2011, December 31, 2010 and March 31, 2010. As of
March 31, 2011, 3,411,416 shares may be repurchased under the current authorization of our Board of
Directors.
12
Table of Contents
NOTE 10: BENEFIT PLANS
The following tables set forth the components of net periodic benefit cost:
The reclassifications from other comprehensive income (OCI) noted in the tables above are related
to amortization of prior service costs or credits and actuarial losses.
In March 2010, we contributed $72,500,000 ($18,636,000 in cash and $53,864,000 in stock —
1,190,000 shares valued at $45.26 per share) and an additional $1,300,000 in July 2010 to our
qualified pension plans for the 2009 plan year. These contributions, along with the existing
funding credits, should be sufficient to cover expected required contributions to the qualified
plans through 2012.
As of December 31, 2008, our Master Pension Trust had assets invested at Westridge Capital
Management, Inc. (WCM) with a reported fair value of $59,245,000. In February 2009, the New York
District Court appointed a receiver over WCM due to allegations of fraud and other violations of
federal commodities and securities laws by principals of a WCM affiliate. In light of these
allegations, we reassessed the fair value of our investments at WCM and recorded a $48,018,000
write-down in the estimated fair value of these assets for the year ended December 31, 2008.
During 2010, the court-appointed receiver released $6,555,000 as a partial distribution and the
Master Pension Trust received a $15,000,000 insurance settlement related to our WCM loss. In April
2011, the court-appointed receiver released an additional $22,041,000 to our Master Pension Trust.
We intend to pursue all appropriate legal actions to recover additional amounts of our investments.
13
Table of Contents
NOTE
11: CREDIT FACILITIES, SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings are summarized as follows:
We utilize our bank lines of credit to access LIBOR-based short-term loans to fund our
borrowing requirements. Unsecured bank lines of credit totaling $1,500,000,000 were maintained at
March 31, 2011, all of which expire November 16, 2012. As of March 31, 2011, we had $300,000,000 of
borrowings under the lines of credit. Interest rates referable to borrowings under these lines of
credit are determined at the time of borrowing based on current market conditions. Pricing of bank
loans was 30 basis points (0.30 percentage points) over LIBOR based on our long-term debt ratings
at March 31, 2011. Bank loans totaled $300,000,000 as of March 31, 2011, of which $50,000,000 was
borrowed on an overnight basis at 0.57%, $100,000,000 was borrowed for 90 days at 0.613% and
$150,000,000 was borrowed for three months at 0.6095%.
All lines of credit extended to us in 2011 and 2010 were based solely on a commitment fee; no
compensating balances were required. In the normal course of business, we maintain balances for
which we are credited with earnings allowances. To the extent the earnings allowances are not
sufficient to fully compensate banks for the services they provide, we pay the fee equivalent for
the differences.
As of March 31, 2011, $52,000 of our long-term debt, including current maturities, was secured.
This secured debt was assumed with the November 2007 acquisition of Florida Rock. All other debt
obligations, both short-term borrowings and long-term debt, are unsecured.
In July 2010, we established a $450,000,000 5-year syndicated term loan with a floating rate based
on a spread over LIBOR (1, 2, 3 or 6-month LIBOR options). The proceeds were used to repay
outstanding borrowings, including the $100,000,000 outstanding balance of our 3-year syndicated
term loan issued in 2008 and all outstanding commercial paper, and for general corporate purposes.
As of March 31, 2011, the spread was 250 basis points (2.5 percentage points) above the 3-month
LIBOR of 0.31% for a total rate of 2.81% on the $450,000,000 outstanding balance. The spread is
capped at 2.5 percentage points. The loan requires quarterly principal payments of $10,000,000
starting in June 2013 and a final principal payment of $360,000,000 in July 2015.
14
Table of Contents
Long-term debt is summarized as follows:
The estimated fair values of long-term debt presented in the table above were determined by
discounting expected future cash flows based on credit-adjusted interest rates on U.S. Treasury
bills, notes or bonds, as appropriate. The fair value estimates were based on information available
to us as of the respective balance sheet dates. Although we are not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not been comprehensively
revalued since those dates.
Our debt agreements do not subject us to contractual restrictions with regard to working capital or
the amount we may expend for cash dividends and purchases of our stock. Our bank credit facilities
(term loan and unsecured bank lines of credit) contain a covenant that our percentage of
consolidated debt to total capitalization (total debt as a percentage of total capital) may not
exceed 65%. Our total debt as a percentage of total capital was 41.2% as of March 31, 2011; 40.7%
as of December 31, 2010; and 40.2% as of March 31, 2010.
15
Table of Contents
NOTE 12: 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 three month periods ended March 31, we recognized ARO
operating costs related to accretion of the liabilities and depreciation of the assets as follows:
ARO operating costs for our continuing operations are reported in cost of goods sold. AROs
are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance
Sheets.
Reconciliations of the carrying amounts of our AROs are as follows:
Revisions to our AROs during 2010 related primarily to extensions in the estimated settlement
dates at numerous sites.
16
Table of Contents
NOTE 13: STANDBY LETTERS OF CREDIT
We provide certain third parties with irrevocable standby letters of credit in the normal
course of business. We use commercial banks to issue such letters to back our obligations to pay or
perform when required to do so according to the requirements of an underlying agreement. The
standby letters of credit listed below are cancelable only at the option of the beneficiaries who
are authorized to draw drafts on the issuing bank up to the face amount of the standby letter of
credit in accordance with its terms.
Our standby letters of credit as of March 31, 2011 are summarized in the table below:
Since banks consider letters of credit as contingent extensions of credit, we are required to
pay a fee until they expire or are canceled. Substantially all our standby letters of credit have a
one-year term and are renewable annually at the option of the beneficiary. Of the total $64,544,000
outstanding letters of credit as of March 31, 2011, $61,512,000 is backed by our $1,500,000,000
bank credit facility which expires November 16, 2012.
NOTE 14: ACQUISITIONS AND DIVESTITURES
During the first quarter of 2011, we acquired ten ready-mixed concrete facilities located in
Georgia for total consideration of $18,898,000 net of acquired cash (441,026 shares of common stock
valued at the closing date price of $42.85 per share). We issued 368,527 shares to the seller at
closing and retained 72,499 shares to fulfill certain working capital adjustments and
indemnification obligations.
As a result of this acquisition, we recognized $8,436,000 of amortizable intangible assets, none of
which is expected to be deductible for income tax purposes. The amortizable intangible assets
consist of contractual rights in place and will be amortized over an estimated weighted-average
period of 20 years. The purchase price allocation for this 2011 acquisition is preliminary and
subject to adjustment.
The pending divestiture of an aggregates production facility and ready-mixed concrete operation
located outside the United States is presented in the accompanying Condensed Consolidated Balance
Sheets as of March 31, 2011, December 31, 2010 and March 31, 2010 as assets held for sale and
liabilities of assets held for sale. We expect the transaction to close during 2011. Depreciation
expense and amortization expense were suspended on the assets classified as held for sale. The
major classes of assets and liabilities of assets classified as held for sale are as follows:
During the first quarter of 2010, we sold three aggregates facilities located in rural
Virginia for approximately $42,750,000 (total cash consideration).
17
Table of Contents
NOTE 15: GOODWILL
Changes in the carrying amount of goodwill by reportable segment from December 31, 2010 to
March 31, 2011 are summarized below:
NOTE 16: NEW ACCOUNTING STANDARDS
ACCOUNTING STANDARDS RECENTLY ADOPTED
ENHANCED DISCLOSURES FOR FAIR VALUE MEASUREMENTS As of and for the interim period ended
March 31, 2011, we adopted Accounting Standards Update (ASU) No. 2010-6, “Improving Disclosures
about Fair Value Measurements” as it relates to separate disclosures about purchases, sales,
issuances and settlements applicable to Level 3 measurements. Our adoption of this standard had no
impact on our financial position, results of operations or liquidity.
18
Table of Contents
NOTE 17: SEGMENT REPORTING
We have four operating segments organized around our principal product lines: aggregates,
concrete, asphalt mix and cement. The vast majority of our activities are domestic. We sell a
relatively small amount of products outside the United States. Transactions between our reportable
segments are recorded at prices approximating market levels. Management reviews earnings from the
product line reporting units principally at the gross profit level.
SEGMENT FINANCIAL DISCLOSURE
19
Table of Contents
NOTE 18: SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is
summarized below:
NOTE 19: COMMITMENTS AND CONTINGENCIES
We are a defendant in various lawsuits in the ordinary course of business. It is not possible
to determine with precision the outcome, or the amount of liability, if any, under these lawsuits,
especially where the cases involve possible jury trials with as yet undetermined jury panels.
In addition to these lawsuits in which we are involved in the ordinary course of business, certain
other material legal proceedings are more specifically described
below. We contend that we are not liable in any of these matters and
intend to defend ourselves vigorously.
PERCHLOROETHYLENE CASES
We are a defendant in cases involving perchloroethylene (perc), which was a product
manufactured by our former Chemicals business. Perc is a cleaning solvent used in dry cleaning and
other industrial applications. These cases involve various allegations of groundwater contamination
or exposure to perc allegedly resulting in personal injury. Vulcan is vigorously defending all of
these cases. At this time, we cannot determine the likelihood or reasonably estimate a range of
loss pertaining to any of these matters, which are listed below:
20
Table of Contents
FLORIDA ANTITRUST LITIGATION — Our subsidiary, Florida Rock Industries, Inc., has been named as a
defendant in a number of class action lawsuits filed in the United States District Court for the
Southern District of Florida. The lawsuits were filed by several ready-mixed concrete producers and
construction companies against a number of concrete and cement producers and importers in Florida.
There are now two consolidated amended complaints: (1) on behalf of direct independent ready-mixed
concrete producers, and (2) on behalf of indirect users of ready-mixed concrete. The other
defendants include Cemex Corp., Votarantim Cimentos North America and Titan America. The complaints
allege various violations under the federal antitrust laws, including price fixing and market
allocations. We have no reason to believe that Florida Rock is liable for any of the matters
alleged in the complaint, and we intend to defend the case vigorously. Discovery is ongoing.
IDOT/JOLIET ROAD — In September 2001, we were named a defendant in a suit brought by the Illinois
Department of Transportation (IDOT), in the Circuit Court of Cook County, Chancery Division,
Illinois, alleging damage to a 0.9-mile section of Joliet Road that bisects our McCook quarry in
McCook, Illinois, a Chicago suburb. On May 18, 2010, we settled this lawsuit for $40,000,000 and
recognized the full settlement as a charge to operations in the second quarter of 2010. Under the
terms of the settlement we paid IDOT $20,000,000 in May 2010 and we paid the second installment of
$20,000,000 on February 17, 2011. We are taking appropriate actions, including participating in two
arbitrations in 2011, to recover the settlement amount in excess of the self-insured retention of
$2,000,000, as well as a portion of our defense costs from our insurers. In February 2011, we
completed the first arbitration with two of our three insurers. The arbitration panel awarded us a
total of $25,546,000 in payment of their share of the settlement amount and attorneys’ fees. This
award was recorded as income in the first quarter of 2011. The second arbitration is scheduled for
May 2011.
LOWER PASSAIC RIVER CLEAN-UP — We have been sued as a third-party defendant in New Jersey
Department of Environmental Protection, et al. v. Occidental Chemical Corporation, et al., a case
brought by the New Jersey Department of Environmental Protection in the New Jersey Superior Court.
The third-party complaint was filed on February 4, 2009. This suit by the New Jersey Department of
Environmental Protection seeks recovery of past and future clean-up costs as well as unspecified
economic damages, punitive damages, penalties and a variety of other forms of relief arising from
alleged discharges into the Passaic River of dioxin and other unspecified hazardous substances. Our
former Chemicals Division operated a plant adjacent to the Passaic River and has been sued as a
third-party defendant, along with approximately 300 other parties. Additionally, Vulcan and
approximately 70 other companies are parties to a May 2007 Administrative Order of Consent with the
U.S. Environmental Protection Agency to perform a Remedial Investigation/Feasibility Study of the
contamination in the lower 17 miles of the Passaic River. This study is ongoing. At this time, we
cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter.
21
Table of Contents
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, 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. In addition, losses on
certain claims and litigation described above may be subject to limitations on a per occurrence
basis by excess insurance, as described in our most recent Annual Report on Form 10-K.
22
Table of Contents
ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL COMMENTS
OVERVIEW
Vulcan provides the basic materials for the infrastructure needed to expand the U.S. economy.
We are the nation’s largest producer of construction aggregates, primarily crushed stone, sand and
gravel. We also are a major producer of asphalt mix and ready-mixed concrete as well as a leading
producer of cement in Florida.
Demand for our products is dependent on construction activity. The primary end uses include public
construction, such as highways, bridges, airports, schools and prisons, as well as private
nonresidential (e.g., manufacturing, retail, offices, industrial and institutional) and private
residential construction (e.g., single-family houses, duplexes, apartment buildings and
condominiums). Customers for our products include heavy construction and paving contractors;
commercial building contractors; concrete products manufacturers; residential building contractors;
state, county and municipal governments; railroads and electric utilities.
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. Aggregates have a high weight-to-value ratio and, in most cases, must
be produced near where they are used; if not, transportation can cost more than the materials.
Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern
Seaboard where there are limited supplies of locally available high quality aggregates. We serve
these markets from inland quarries — shipping by barge and rail — and from our quarry on Mexico’s
Yucatan Peninsula. We transport aggregates from Mexico to the U.S. principally on our three
Panamax-class, self-unloading ships.
There are practically no substitutes for quality aggregates. Because of barriers to entry created
by zoning and permitting regulation and because of high transportation costs relative to the value
of the product, the location of reserves is a critical factor to long-term success.
While aggregates is our primary business, we believe vertical integration between aggregates and
downstream products, such as asphalt mix and concrete, can be managed effectively in certain
markets to generate acceptable financial returns. We produce and sell asphalt mix and ready-mixed
concrete primarily in our mid-Atlantic, Georgia, Florida, southwestern and western markets.
Aggregates comprise approximately 95% of asphalt mix by weight and 78% of ready-mixed concrete by
weight. In all of these downstream businesses, we supply virtually all of the required aggregates
from our own operations.
SEASONALITY AND CYCLICAL NATURE OF OUR BUSINESS
Almost all our products are produced and consumed outdoors. Seasonal changes and other
weather-related conditions can affect the production and sales volumes of our products. Therefore,
the financial results for any quarter do not necessarily indicate the results expected for the
year. Normally, the highest sales and earnings are in the third quarter and the lowest are in the
first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local
economic conditions and particularly to cyclical swings in construction spending, primarily in the
private sector. The levels of construction spending are affected by changing interest rates and
demographic and population fluctuations.
23
Table of Contents
EXECUTIVE SUMMARY
FINANCIAL HIGHLIGHTS FOR FIRST QUARTER 2011
Improvements in first quarter production efficiencies in our Aggregates segment offset most of the
earnings effects of sharply higher diesel fuel costs. Additionally, in the current quarter we
realized positive pricing momentum in both our Asphalt mix and Concrete segments. Shipments in all of
our businesses remained challenged in the first quarter. After a solid start in January and
February, extremely wet weather hampered aggregates, asphalt and concrete shipments in March in
many of our key markets.
24
Table of Contents
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Generally Accepted Accounting Principles (GAAP) does not define “free cash flow” and
“Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).” Thus, they should not be
considered as an alternative to net cash provided by operating activities or any other liquidity or
earnings measure defined by GAAP. We present these metrics for the convenience of investment
professionals who use such metrics in their analysis, and for shareholders who need to understand
the metrics we use to assess performance and to monitor our cash and liquidity positions. The
investment community often uses these metrics as indicators of a company’s ability to incur and
service debt. We use free cash flow, EBITDA and other such measures to assess the operating
performance of our various business units and the consolidated company. We do not use these metrics
as a measure to allocate resources. Reconciliations of these metrics to their nearest GAAP measures
are presented below:
FREE CASH FLOW
Free cash flow deducts purchases of property, plant & equipment from net cash provided by
operating activities.
EBITDA
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization.
25
Table of Contents
RESULTS OF OPERATIONS
We include intersegment sales in our comparative analysis of segment revenue at the product
line level. Net sales and cost of goods sold exclude intersegment sales and delivery revenues and
costs. This presentation is consistent with the basis on which we review results of operations. We
discuss separately our discontinued operations, which consist of our former Chemicals business.
CONSOLIDATED OPERATING RESULTS
FIRST QUARTER 2011 COMPARED TO FIRST QUARTER 2010
First quarter net sales were $456.3 million, down 1.8% from the first quarter of 2010.
Shipments were down in all product lines with the exception of cement which was essentially flat
due to increased internal shipments.
Results for the first quarter were a net loss of $54.7 million or ($0.42) per diluted share
compared to a net loss of $38.7 million or ($0.31) per diluted share in the first quarter of 2010.
Higher unit costs for diesel fuel and liquid asphalt in the current quarter resulted in higher
pretax costs of $9.8 million. The current quarter’s results include a pretax gain of $25.5 million
related to partial recovery of a legal settlement (see Note 19 to the condensed consolidated
financial statements) while the first quarter 2010 results include a pretax gain of $39.5 million
on the sale of three non-strategic aggregates facilities located in rural Virginia.
26
Table of Contents
CONTINUING OPERATIONS — Changes in loss from continuing operations before income taxes for the
first quarter of 2011 versus the first quarter of 2010 are summarized below:
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Gross profit for the Aggregates segment was $10.7 million in the first quarter of 2011
compared to $15.4 million in the first quarter of 2010. This $4.7 million decline was due mostly to
lower shipments. A number of Vulcan-served markets, most notably markets in California, the
mid-Atlantic and the Southeast experienced unusually wet weather in March. Despite the inclement
March weather, our Virginia, Tennessee and Georgia aggregates businesses increased shipments versus
the prior year’s first quarter, due primarily to stronger demand from public infrastructure
projects. Markets that experienced declines in shipments include South Carolina, Florida and
markets along the Gulf Coast.
The average selling price for aggregates was in line with the prior year. Adjusted for freight to
remote distribution yards and mix, the overall average selling price was slightly above last year’s
level. The adjusted selling price in Florida increased from the prior year’s level. A number of
other markets reported unit selling prices at or above the prior year’s first quarter pace.
However, some geographic and end-use markets that have experienced the steepest overall declines in
demand reported lower average prices when compared with the prior year. Reflecting production
efficiencies and effective cost control measures, aggregates unit costs of sales were in line with
the first quarter of 2010 despite sharply higher costs for diesel.
The Concrete segment reported a loss of $14.4 million, an improvement from the prior year’s first
quarter. Unit materials margins in ready-mixed concrete improved from the prior year’s first
quarter due mostly to higher pricing. Concrete prices increased 4% from the prior year’s first
quarter.
Asphalt mix segment earnings were a loss of $0.2 million compared with earnings of $1.1 million in
the prior year’s first quarter. Selling prices for asphalt mix increased approximately 4%,
offsetting most of the earnings effect of higher liquid asphalt costs. Asphalt volumes decreased 2%
from the prior year’s first quarter due primarily to wet weather
in March. Unit
materials margins in the first quarter were higher than the prior
year and were in line with the improved levels achieved in the
second half of 2010.
The Cement segment reported a loss of $3.2 million versus earnings of $0.6 million in the first
quarter of 2010. This $3.8 million decline was due mostly to a scheduled maintenance event in the
current quarter.
SAG expenses in the first quarter were $77.5 million versus $86.5 million in the prior year’s first
quarter. Excluding the effects of the aforementioned donated real estate from the prior year’s
first quarter, SAG expenses were flat with the prior year.
The $8.4 million difference between the fair value of the donated real estate and the carrying
value was recorded as a gain on sale of property, plant & equipment and businesses in the prior
year. In March 2010, we recorded a pretax gain of $39.5 million on the March 2010 sale of three
non-strategic aggregates facilities in rural Virginia. There were no similar gains recorded in the
current quarter.
27
Table of Contents
The $25.5 million in recovery from legal settlement included in the current quarter’s results
reflects the arbitration award from insurers related to the lawsuit settled last year with IDOT.
We recorded income tax benefits from continuing operations of $37.4 million in the first quarter of
2011 compared to $34.2 million in the first quarter of 2010. In both of these quarters, we were
required to apply the alternative methodology to
calculate the income tax benefit as discussed in Note 4 to the condensed consolidated financial
statements. The $3.2 million increase in our income tax benefit resulted mainly from the larger
pretax loss and an increase in the depletion benefit partially offset by discrete income tax
adjustments booked in the first quarter of 2011.
Results from continuing operations were a loss of ($0.50) per diluted share compared with a loss of
($0.35) per diluted share in the first quarter of 2010.
DISCONTINUED OPERATIONS — The first quarter 2011 pretax earnings on discontinued operations of
$16.4 million include pretax gains of $11.1 million related to the 5CP earn-out and $7.5 million
recognized on recovery from an insurer in lawsuits involving perchloroethylene. These gains were
offset in part by general and product liability costs, including legal defense costs, and
environmental remediation costs associated with our former Chemicals business.
The first quarter 2010 pretax earnings on discontinued operations of $8.9 million include pretax
gains of $7.9 million related to the 5CP earn-out and $1.2 million of insurance recoveries. These
gains were also offset in part by general and product liability costs, including legal defense
costs, and environmental remediation costs associated with our former Chemicals business.
CASH AND LIQUIDITY
Our primary source of liquidity is cash provided by our operating activities. Our additional
financial resources include unused bank lines of credit and access to the capital markets. We
believe these financial resources are sufficient to fund our future business requirements,
including
We operate a centralized cash management system using zero-balance disbursement accounts;
therefore, our operating cash balance requirements are minimal. When cash on hand is not sufficient
to fund daily working capital requirements, we draw down on our bank lines of credit. The
weighted-average interest rate on short-term debt was 0.60% during the three months ended March 31,
2011 and 0.60% at March 31, 2011.
CURRENT MATURITIES AND SHORT-TERM BORROWINGS
As of March 31, 2011, current maturities of long-term debt are $5.2 million, of which $5.0
million is due as follows:
There are various maturity dates for the remaining $0.2 million of current maturities. We
expect to retire this debt using available cash generated from operations, by drawing on our bank
lines of credit or by accessing the capital markets.
28
Table of Contents
Short-term borrowings consisted of the following:
Our outstanding bank credit facility, which provides $1.5 billion of liquidity, expires
November 16, 2012. Borrowings under this credit facility, which are classified as short-term, bear
an interest rate based on London Interbank Offer Rate (LIBOR) plus a credit spread. This credit
spread was 30 basis points (0.30 percentage points) based on our long-term debt ratings at March
31, 2011.
As of March 31, 2011
As a result, we had available lines of credit of $1,138.5 million. This amount provides a sizable
level of borrowing capacity that strengthens our financial flexibility. Not only does it enable us
to fund working capital needs, it provides liquidity to fund large expenditures, such as long-term
debt maturities, on a temporary basis without being forced to issue long-term debt at times that
are disadvantageous.
Interest rates referable to borrowings under these credit lines are determined at the time of
borrowing based on current conditions in the LIBOR market. Of the $300.0 million drawn as of March
31, 2011, $50.0 million was borrowed on an overnight basis at 0.57%, $100.0 million was borrowed
for 90 days at 0.613% and $150.0 million was borrowed for three months at 0.6095%.
Our short-term debt ratings/outlook as of March 31, 2011 were
As a
result of our short-term debt rating downgrades, we currently do not have access to the
commercial paper market. We are confident in our ability to fund daily working capital
requirements. We access our bank lines of credit if cash on hand is insufficient.
WORKING
CAPITAL
Working capital, current assets less current liabilities, is a common measure of liquidity
used to assess a company’s ability to meet short-term obligations. Our working capital is
calculated as follows:
29
Table of Contents
The $59.4 million decrease in our working capital over the three month period ended March 31,
2011 was a result of a $39.7 million decrease in accounts and notes receivable and a $37.9 million
increase in trade payables and accruals, and other current liabilities. These changes were
partially offset by a $15.6 million increase in cash and cash
equivalents. The decrease in accounts and notes receivable was largely due to a 17% decrease in net sales from
the quarter ended December 31, 2010. The increase in trade payables and accruals, and other current
liabilities was largely due to seasonal factors.
The $300.5 million increase in our working capital over the twelve month period ended March 31,
2011 was due to a decrease in current maturities of long-term debt of $320.1 million. Proceeds from
a $450.0 million term loan (closed in July 2010) were used to pay outstanding commercial paper and
current maturities of long-term debt, shifting debt from current to long-term.
CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities is derived primarily from net earnings before
deducting noncash charges for depreciation, depletion, accretion and amortization.
Net earnings before noncash deductions for depreciation, depletion, accretion and
amortization were $35.9 million during the first three months of 2011 as compared to $55.5 million
during the same period of 2010. The decrease in net earnings before these noncash deductions was
more than offset by a decrease in contributions to pension plans of $19.1 million and a decrease in
net gain sale of property, plant & equipment and businesses of $44.5 million. Although net gains on
sale of property, plant & equipment and businesses increase net earnings, the associated cash
received is adjusted out of operating activities and presented as a component of investing
activities.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for investing activities was $10.9 million during the three months ended March
31, 2011, a decrease in cash flow of $39.6 million as compared to the same period in the prior
year. The decrease in investing cash flows was largely due to a decrease in proceeds from the sale
of businesses of $38.8 million. In the first quarter of 2010, three non-strategic aggregates
facilities in rural Virginia were sold resulting in net proceeds of $42.3 million.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used for financing activities was $17.5 million during the first quarter of 2011 as
compared to $21.5 million in the first quarter of 2010. During the current quarter, a comparative
$72.0 million decrease in payments of current maturities and long-term debt was partially offset by
a $49.0 million decrease in net short-term borrowings. Additionally, proceeds from issuance of
common stock and from the exercise of stock options decreased $18.1 million from the first quarter
of 2010.
30
Table of Contents
CAPITAL STRUCTURE AND RESOURCES
We pursue attractive investment opportunities and fund acquisitions using internally
generated cash or by issuing debt or equity securities. We actively manage our capital structure
and resources consistent with policies, guidelines and objectives in order to maximize shareholder
wealth, as well as to attract equity and fixed income investors who support us by investing in our
stock and debt securities. Our primary goals include
LONG-TERM DEBT
Our total debt as a percentage of total capital and the weighted-average stated interest
rates on our long-term debt are summarized below:
Our debt agreements do not subject us to contractual restrictions for working capital or the
amount we may expend for cash dividends and purchases of our stock. Our bank credit facilities
(term loan and unsecured bank lines of credit) contain a covenant that our percentage of
consolidated debt to total capitalization (total debt as a percentage of total capital) may not
exceed 65%. Our total debt as a percentage of total capital was 41.2% as of March 31, 2011,
compared with 40.7% three months previously and 40.2% twelve months previously.
In the future, our total debt as a percentage of total capital will depend on specific investment
and financing decisions. We have made acquisitions from time to time and will continue to pursue
attractive investment opportunities. Such acquisitions could be funded by using internally
generated cash or issuing debt or equity securities.
Our long-term debt ratings/outlook as of March 31, 2011 were
The
downgrades to our long-term debt ratings resulted in a 25 basis points (0.25 percentage points)
increase in the interest rate applied to our $450.0 million 5-year syndicated term loan. This
increase brings the spread above LIBOR to the capped rate of 2.50%.
31
Table of Contents
EQUITY
Our common stock issuances are summarized below:
In March 2010, we issued 1.2 million shares of common stock (par value of $1 per share) to
our qualified pension plan as explained in Notes 9 and 10 to the condensed consolidated financial
statements. This transaction increased shareholders’ equity by $53.9 million (common stock $1.2
million and capital in excess of par $52.7 million.)
In February 2011, we issued 0.4 million shares of common stock in connection with a business
acquisition as explained in Note 14 to the condensed consolidated financial statements.
We periodically issue shares of common stock to the trustee of our 401(k) savings and retirement
plan to satisfy the plan participants’ elections to invest in our common stock. This arrangement
provides a means of improving cash flow, increasing shareholders’ equity and reducing leverage.
Under this arrangement, the stock issuances and resulting cash proceeds for the periods presented
were
There were no shares held in treasury as of March 31, 2011, December 31, 2010 and March 31, 2010.
There were 3,411,416 shares remaining under the current purchase authorization of the Board of
Directors as of March 31, 2011.
STANDBY LETTERS OF CREDIT
For a discussion of our standby letters of credit see Note 13 to the condensed consolidated
financial statements.
CASH CONTRACTUAL OBLIGATIONS
Our obligation to make future payments under contracts is presented in our most recent Annual
Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES
We follow certain significant accounting policies when preparing our consolidated financial
statements. A summary of these policies is included in our Annual Report on Form 10-K for the year
ended December 31, 2010 (Form 10-K).
We prepare these financial statements to conform with accounting principles generally accepted
in the United States of America. These principals require us to make estimates and judgments that
affect our reported amounts of assets, liabilities, revenues and expenses, and the related
disclosures of contingent assets and contingent liabilities at the date of the financial
statements.
We base our estimates on historical experience, current conditions and various other assumptions we
believe reasonable under existing circumstances and evaluate these estimates and judgments on an
ongoing basis. The results of
32
Table of Contents
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. Our actual results may differ from these estimates.
We believe that the accounting policies described in the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” section of our Form 10-K require the most
significant judgments and estimates used in the preparation of our financial statements, so we
consider these to be our critical accounting policies. There have been no changes to our critical
accounting policies during the three months ended March 31, 2011.
NEW ACCOUNTING STANDARDS
For a discussion of the accounting standards recently adopted and pending adoption and the
affect such accounting changes will have on our results of operations, financial position or
liquidity, see Note 16 to the condensed consolidated financial statements.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, including expectations regarding future
performance, contain forward-looking statements that are subject to assumptions, risks and
uncertainties that could cause actual results to differ materially from those projected. These
assumptions, risks and uncertainties include, but are not limited to:
All forward-looking statements are made as of the date of filing. We undertake no obligation to
publicly update any forward-looking statements, whether as a result of new information, future
events or otherwise. Investors are cautioned not to rely
33
Table of Contents
unduly on such forward-looking statements when evaluating the information presented in our filings,
and are advised to consult any of our future disclosures in filings made with the Securities and
Exchange Commission and our press releases with regard to our business and consolidated financial
position, results of operations and cash flows.
INVESTOR INFORMATION
We make available on our website, www.vulcanmaterials.com, free of charge, copies of our
We also provide amendments to those reports filed with or furnished to the Securities and Exchange
Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well
as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the
filings are made publicly available by the SEC on its EDGAR database (www.sec.gov).
The public may read and copy materials filed with the SEC at the Public Reference Room of the SEC
at 100 F Street, NE, Washington, D. C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-732-0330. In addition to accessing copies of
our reports online, you may request a copy of our Annual Report on Form 10-K, including financial
statements, by writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban
Center Drive, Birmingham, Alabama 35242.
We have a
Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the
heading “Corporate Governance.” If we make any amendment to, or waiver of, any provision of the
Code of Ethics, we will disclose such information on our website as well as through filings with
the SEC.
Our Board of Directors has also adopted
These documents meet all applicable SEC and New York Stock Exchange regulatory requirements.
Each of these documents is available on our website under the heading, “Corporate Governance,” or
you may request a copy of any of these documents by writing to Jerry F. Perkins Jr., Secretary,
Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
34
Table of Contents
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from transactions that are entered into in the
normal course of business. In order to manage or reduce these market risks, we may utilize
derivative financial instruments. We do not enter into derivative financial instruments for
speculative or trading purposes.
We are exposed to interest rate risk due to our various credit facilities and long-term debt
instruments. At times, we use interest rate swap agreements to manage this risk.
In December 2007, we issued $325.0 million of 3-year floating (variable) rate notes that bear
interest at 3-month LIBOR plus 1.25% per annum. Concurrently, we entered into an interest rate swap
agreement in the stated (notional) amount of $325.0 million. The swap agreement terminated December
15, 2010, coinciding with the maturity of the 3-year notes. The realized gains and losses upon
settlement related to the swap agreement are reflected in interest expense concurrent with the
hedged interest payments on the debt. At March 31, 2010, we recognized a liability of $9.0 million
(included in other current liabilities) equal to the fair value of this swap.
At March 31, 2011, the estimated fair value of our long-term debt instruments including current
maturities was $2,549.6 million compared to a book value of $2,432.8 million. The estimated fair
value was determined by discounting expected future cash flows based on credit-adjusted interest
rates on U.S. Treasury bills, notes or bonds, as appropriate. The fair value estimate is based on
information available as of the measurement date. Although we are not aware of any factors that
would significantly affect the estimated fair value amount, it has not been comprehensively
revalued since the measurement date. The effect of a decline in interest rates of 1 percentage
point would increase the fair value of our liability by approximately $126.2 million.
At March 31, 2011, we had $450.0 million outstanding under our 5-year syndicated term loan
established in July 2010. These borrowings bear interest at variable rates — LIBOR plus a spread
based on our long-term credit rating at the time of borrowing. An increase in LIBOR or a downgrade
in our long-term credit rating would increase our borrowing costs for amounts outstanding under
these arrangements.
We are exposed to certain economic risks related to the costs of our pension and other
postretirement benefit plans. These economic risks include changes in the discount rate for
high-quality bonds, the expected return on plan assets, the rate of compensation increase for
salaried employees and the rate of increase in the per capita cost of covered healthcare benefits.
The impact of a change in these assumptions on our annual pension and other postretirement benefits
costs is discussed in our most recent Annual Report on Form 10-K.
ITEM 4
CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We maintain a system of controls and procedures designed to ensure that information required
to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported
within the time periods specified by the SEC’s rules and forms. These disclosure controls and
procedures (as defined in the Securities and Exchange Act of 1934 Rules 13a — 15(e) or 15d -
15(e)), include, without limitation, controls and procedures designed to ensure that information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive
Officer and Chief Financial Officer, with the participation of other management officials,
evaluated the effectiveness of the design and operation of the disclosure controls and procedures
as of March 31, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective.
We are in the process of replacing our legacy information technology systems. We had completed the
first five phases of this multi-year project as of December 31, 2010 and there were no additional
phases completed during the first quarter of 2011. The new information technology systems were a
source for some of the information presented in this Quarterly Report on Form 10-Q. We are
continuing to work toward the full implementation of the new information technology systems.
35
Table of Contents
No changes were made to our internal controls over financial reporting or other factors that could
materially affect these controls during the first quarter of 2011.
PART II OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
Certain legal proceedings in which we are involved are discussed in Note 12 to the
consolidated financial statements and Part I, Item 3 of our Annual Report on Form 10-K for the year
ended December 31, 2010. See Note 19 to the condensed consolidated financial statements of this
Form 10-Q for a discussion of certain recent developments concerning our legal proceedings.
ITEM 1A
RISK FACTORS
There were no material changes to the risk factors disclosed in Item 1A of Part 1 in our Form
10-K for the year ended December 31, 2010.
ITEM 6
EXHIBITS
36
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
37 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||
