UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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(Exact name of registrant as specified in its charter)
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Common Stock, $1 Par Value |
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VULCAN MATERIALS COMPANY
FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2019
Contents | ||||
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PART I | FINANCIAL INFORMATION
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| Item 1. | Condensed Consolidated Balance Sheets Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Cash Flows Notes to Condensed Consolidated Financial Statements
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2 3 4 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
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27 | |
| Item 3. | Quantitative and Qualitative Disclosures About
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| Item 4. | 46 | ||
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PART II | OTHER INFORMATION
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| Item 1. |
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| Item 1A. |
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
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| Item 4. |
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| Item 6. | 48 | ||
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Unless otherwise stated or the context otherwise requires, references in this report to “Vulcan,” the “Company,” “we,” “our,” or “us” refer to Vulcan Materials Company and its consolidated subsidiaries. | ||||
part I financial information
ITEM 1
FINANCIAL STATEMENTS
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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Unaudited | September 30 |
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| December 31 |
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| September 30 |
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in thousands | 2019 |
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| 2018 |
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Assets |
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Cash and cash equivalents | $ |
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Restricted cash | |
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Accounts and notes receivable |
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Accounts and notes receivable, gross | |
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Allowance for doubtful accounts | ( |
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Accounts and notes receivable, net | |
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Inventories |
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Finished products | |
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Raw materials | |
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Products in process | |
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Operating supplies and other | |
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Inventories | |
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Other current assets | |
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Total current assets | |
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Investments and long-term receivables | |
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Property, plant & equipment |
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Property, plant & equipment, cost | |
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Allowances for depreciation, depletion & amortization | ( |
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Property, plant & equipment, net | |
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Operating lease right-of-use assets, net | |
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Goodwill | |
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Other intangible assets, net | |
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Other noncurrent assets | |
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Total assets | $ |
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Liabilities |
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Current maturities of long-term debt | |
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Short-term debt | |
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Trade payables and accruals | |
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Other current liabilities | |
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Total current liabilities | |
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Long-term debt | |
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Deferred income taxes, net | |
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Deferred revenue | |
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Operating lease liabilities | |
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Other noncurrent liabilities | |
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Total liabilities | $ |
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Other commitments and contingencies (Note 8) |
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Equity |
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Common stock, $ |
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Outstanding | |
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Capital in excess of par value | |
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Retained earnings | |
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Accumulated other comprehensive loss | ( |
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Total equity | $ |
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Total liabilities and equity | $ |
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The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. |
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
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| Three Months Ended |
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| Nine Months Ended |
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Unaudited | September 30 |
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in thousands, except per share data | 2019 |
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| 2018 |
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Total revenues | $ |
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Cost of revenues | |
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Gross profit | |
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Selling, administrative and general expenses | |
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Gain on sale of property, plant & equipment |
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and businesses | |
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Other operating expense, net | ( |
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Operating earnings | |
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Other nonoperating income, net | |
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Interest expense, net | |
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Earnings from continuing operations |
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before income taxes | |
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Income tax expense | |
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Earnings from continuing operations | |
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Loss on discontinued operations, net of tax | ( |
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Net earnings | $ |
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Other comprehensive income, net of tax |
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Deferred gain on interest rate derivative | |
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Amortization of prior interest rate derivative loss | |
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Amortization of actuarial loss and prior service |
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cost for benefit plans | |
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Other comprehensive income | |
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Comprehensive income | $ |
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Basic earnings (loss) per share |
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Continuing operations | $ |
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Discontinued operations | ( |
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Net earnings | $ |
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Diluted earnings (loss) per share |
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Continuing operations | $ |
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Discontinued operations | ( |
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Net earnings | $ |
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Weighted-average common shares outstanding |
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Basic | |
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Assuming dilution | |
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Depreciation, depletion, accretion and amortization | $ |
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Effective tax rate from continuing operations |
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The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements. |
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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| Nine Months Ended |
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Unaudited | September 30 | ||||
in thousands | 2019 |
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| 2018 |
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Operating Activities |
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Net earnings | $ |
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Adjustments to reconcile net earnings to net cash provided by operating activities |
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Depreciation, depletion, accretion and amortization | |
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Noncash operating lease expense | |
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Net gain on sale of property, plant & equipment and businesses | ( |
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Contributions to pension plans | ( |
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Share-based compensation expense | |
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Deferred tax expense (benefit) | |
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Cost of debt purchase | |
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Changes in assets and liabilities before initial |
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effects of business acquisitions and dispositions | ( |
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Other, net | |
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Net cash provided by operating activities | $ |
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Investing Activities |
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Purchases of property, plant & equipment | ( |
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Proceeds from sale of property, plant & equipment | |
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Proceeds from sale of businesses | |
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Payment for businesses acquired, net of acquired cash | |
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Other, net | ( |
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Net cash used for investing activities | $ ( |
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Financing Activities |
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Proceeds from short-term debt | |
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Payment of short-term debt | ( |
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Payment of current maturities and long-term debt | ( |
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Proceeds from issuance of long-term debt | |
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Debt issuance and exchange costs | |
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Settlements of interest rate derivatives | |
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Purchases of common stock | ( |
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Dividends paid | ( |
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Share-based compensation, shares withheld for taxes | ( |
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Net cash used for financing activities | $ ( |
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Net increase (decrease) in cash and cash equivalents and restricted cash | |
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Cash and cash equivalents and restricted cash at beginning of year | |
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Cash and cash equivalents and restricted cash at end of period | $ |
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The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements. |
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notes to condensed consolidated financial statements
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a
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
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, 2018 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. Operating results for the three and nine month periods ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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 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 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.
Beginning in 2019 (see ASU 2016-02, “Leases,” as presented in Note 17), our nonmineral leases are recognized on the balance sheet as right-of-use (ROU) assets and lease liabilities. Mineral leases continue to be exempt from balance sheet recognition.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. ROU assets are adjusted for any prepaid lease payments and lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We elected the following practical expedients: (1) the practical expedient package which permits us to not reassess our prior conclusions about lease identification, lease classification, and initial direct costs; (2) to not separate the lease components from the non-lease components for all leases; (3) to apply a portfolio approach to our railcar and barge leases; (4) to not recognize ROU assets and lease liabilities for all pre-existing land easements not previously accounted for as leases; and (5) to not recognize ROU assets or lease liabilities for our short-term leases, including existing short-term leases of those assets in transition.
For additional information about leases see Note 2.
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:
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| Three Months Ended |
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in thousands | 2019 |
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Discontinued Operations |
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Pretax loss | $ ( |
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Income tax benefit | |
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Loss on discontinued operations, |
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net of tax | $ ( |
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Our discontinued operations include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business (including certain matters as discussed in Note 8). There were
Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:
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| Nine Months Ended | |||||||
| September 30 |
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in thousands | 2019 |
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Weighted-average common shares |
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outstanding | |
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Dilutive effect of |
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Stock-Only Stock Appreciation Rights | |
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Other stock compensation plans | |
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Weighted-average common shares |
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outstanding, assuming dilution | |
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All dilutive common stock equivalents are reflected in our earnings per share calculations. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation would be excluded.
Antidilutive common stock equivalents are not included in our earnings per share calculations. The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:
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| Three Months Ended |
| Nine Months Ended | |||||||
| September 30 |
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in thousands | 2019 |
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Antidilutive common stock equivalents | |
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Operating lease-related assets and liabilities (we do
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| September 30 |
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in thousands | Classification on the Balance Sheet | 2019 |
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Assets |
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Operating lease right-of-use assets |
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Accumulated amortization |
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Total lease assets | Operating lease right-of-use assets, net | $ |
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Liabilities |
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Current |
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Operating | Other current liabilities | $ |
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Noncurrent |
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Operating | Operating lease liabilities | |
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Total lease liabilities |
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Lease Term and Discount Rate |
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Weighted-average remaining lease term (years) |
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Operating leases | |
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Weighted-average discount rate |
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Operating leases |
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Our portfolio of nonmineral leases is composed almost entirely of operating 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).
Our building leases have remaining noncancelable periods of
Our aggregates sales yard leases have remaining noncancelable periods of
Our concrete and asphalt site leases have remaining noncancelable periods of
Our rail (car and track) leases have remaining noncancelable periods of
Our barge leases have remaining noncancelable periods of
Office and plant equipment leases have remaining noncancelable periods of
Our lease agreements do not contain residual value guarantees, restrictive covenants or early termination options that we deem material.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. The components of operating lease expense are as follows:
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| Three Months Ended |
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in thousands |
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Lease Cost |
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Operating lease cost |
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Short-term lease cost 1 |
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Variable lease cost |
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Sublease income |
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Total lease cost |
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1 | |
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Total operating lease expense for the prior year’s three and nine months ended September 30, 2018 was $
Cash paid for operating leases was $
Maturity analysis on an undiscounted basis of our operating lease liabilities as of September 30, 2019 is as follows:
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| Operating |
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in thousands | Leases |
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Maturity of Lease Liabilities |
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2019 (remainder) | $ |
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2020 | |
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2021 | |
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2022 | |
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2023 | |
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Thereafter | |
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Total minimum lease payments | $ |
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Less: Lease payments representing interest | |
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Present value of future minimum lease payments | $ |
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Less: Current obligations under leases | |
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Long-term lease obligations | $ |
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Future minimum operating lease payments under leases with initial or remaining noncancelable lease terms in excess of one year, exclusive of mineral leases, as of December 31, 2018 were payable as follows:
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in thousands |
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Future Minimum Operating Lease Payments |
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2019 | $ |
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2020 | |
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2021 | |
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2022 | |
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2023 | |
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Thereafter | |
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Total | $ |
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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 2019, we recorded income tax expense from continuing operations of $
For the first nine months of 2019, we recorded income tax expense from continuing operations of $
We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the book basis and tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns.
Each quarter we analyze the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized. At December 31, 2019, we project state net operating loss carryforward deferred tax assets of $
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
A summary of our deferred tax assets is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2018.
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
Total revenues are primarily derived from our product sales of aggregates (crushed stone, sand and gravel, sand and other aggregates), asphalt mix and ready-mixed concrete, and include freight & delivery costs that we pass along to our customers to deliver these products. We also generate service revenues from our asphalt construction paving business and service revenues related to our aggregates business, such as landfill tipping fees. Our total service revenues were $
Our products typically are sold to private industry and not directly to governmental entities. Although approximately
Our segment total revenues by geographic market for the three and nine month periods ended September 30, 2019 and 2018 are disaggregated as follows:
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| Three Months Ended September 30, 2019 | |||||||||||||
in thousands | Aggregates |
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| Asphalt |
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| Concrete |
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| Calcium |
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| Total |
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Total Revenues by Geographic Market 1 |
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East | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Gulf Coast | |
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West | |
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Segment sales | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Intersegment sales | ( |
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| |
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| |
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| ( |
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Total revenues | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| Three Months Ended September 30, 2018 | |||||||||||||
in thousands | Aggregates |
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| Asphalt |
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| Concrete |
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| Calcium |
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| Total |
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Total Revenues by Geographic Market 1 |
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East | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Gulf Coast | |
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West | |
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| |
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Segment sales | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Intersegment sales | ( |
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| |
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| |
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| ( |
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Total revenues | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| Nine Months Ended September 30, 2019 | |||||||||||||
in thousands | Aggregates |
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| Asphalt |
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| Concrete |
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| Calcium |
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| Total |
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Total Revenues by Geographic Market 1 |
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East | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Gulf Coast | |
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West | |
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Segment sales | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Intersegment sales | ( |
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| |
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| |
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| ( |
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Total revenues | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| Nine Months Ended September 30, 2018 | |||||||||||||
in thousands | Aggregates |
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| Asphalt |
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| Concrete |
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| Calcium |
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| Total |
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Total Revenues by Geographic Market 1 |
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East | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Gulf Coast | |
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West | |
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Segment sales | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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Intersegment sales | ( |
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| ( |
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Total revenues | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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| |
1 | The geographic markets are defined by states/countries as follows: | |
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| East market — Arkansas, Delaware, Illinois, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and Washington D.C. Gulf Coast market — Alabama, Florida, Georgia, Louisiana, Mexico, Mississippi, Oklahoma, South Carolina, Texas and the Bahamas West market — Arizona, California and New Mexico |
PRODUCT REVENUES
Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs at a point in time when our aggregates, asphalt mix and ready-mixed concrete are shipped/delivered and control passes to the customer. Revenue for our products is recorded at the fixed invoice amount and payment is due by the 15th day of the following month — we do not offer discounts for early payment.
Freight & delivery generally represents pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers and are accounted for as a fulfillment activity. Likewise, the costs related to freight & delivery are included in cost of revenues.
Freight & delivery revenues are as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Freight & Delivery Revenues |
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Total revenues | $ |
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| $ |
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| $ |
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| $ |
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Freight & delivery revenues 1 | ( |
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| ( |
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| ( |
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| ( |
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Total revenues excluding freight & delivery | $ |
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| $ |
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| $ |
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| $ |
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1 |
CONSTRUCTION PAVING SERVICE REVENUES
Revenue from our asphalt construction paving business is recognized over time using the percentage-of-completion method under the cost approach. The percentage of completion is determined by costs incurred to date as a percentage of total costs estimated for the project. Under this approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Our construction contracts are unit priced and an account receivable is recorded for amounts invoiced based on actual units produced. Contract assets for estimated earnings in excess of billings, contract assets related to retainage provisions and contract liabilities for billings in excess of costs are immaterial. Variable consideration in our construction paving contracts is immaterial and consists of incentives and penalties based on the quality of work performed. Our construction paving contracts may contain warranty provisions covering defects in equipment, materials, design or workmanship that generally run from
VOLUMETRIC PRODUCTION PAYMENT DEFERRED REVENUES
In 2013 and 2012, we sold a percentage interest in certain future aggregates production for net cash proceeds of $
relate to
provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ aggregates production
contain no minimum annual or cumulative guarantees by us for production or sales volume, nor minimum sales price
are both volume and time limited (we expect the transactions will last approximately
We are the exclusive sales agent for, and transmit quarterly to the purchaser the proceeds from the sale of, the purchaser’s share of aggregates production. Our consolidated total revenues exclude the revenue from the sale of the purchaser’s share of aggregates.
The proceeds we received from the sale of the percentage interest were recorded as deferred revenue on the balance sheet. We recognize revenue on a unit-of-sales basis (as we sell the purchaser’s share of production) relative to the volume limitations of the transactions. Given the nature of the risks and potential rewards assumed by the buyer, the transactions do not reflect financing activities.
Reconciliation of the VPP deferred revenue balances (current and noncurrent) is as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Deferred Revenue |
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Balance at beginning of period | $ |
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| $ |
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| $ |
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| $ |
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Revenue recognized from deferred revenue | ( |
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| ( |
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| ( |
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| ( |
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Balance at end of period | $ |
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| $ |
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| $ |
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| $ |
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Based on expected sales from the specified quarries, we expect to recognize $
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs that are derived principally from or corroborated by observable market data
Level 3: Inputs that are unobservable and significant to the overall fair value measurement
Our assets subject to fair value measurement on a recurring basis are summarized below:
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| Level 1 Fair Value | |||||||
| September 30 |
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| December 31 |
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| September 30 |
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in thousands | 2019 |
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| 2018 |
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| 2018 |
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Fair Value Recurring |
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Rabbi Trust |
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Mutual funds | $ |
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| $ |
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| $ |
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Total | $ |
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| $ |
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| $ |
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| Level 2 Fair Value | |||||||
| September 30 |
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| December 31 |
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| September 30 |
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in thousands | 2019 |
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| 2018 |
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| 2018 |
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Fair Value Recurring |
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Rabbi Trust |
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Money market mutual fund | $ |
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| $ |
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| $ |
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Total | $ |
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| $ |
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| $ |
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We have
Net gains (losses) of the Rabbi Trust investments were $
The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and all other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 6 and 7, respectively.
During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such exposure. We do not use derivative instruments for trading or other speculative purposes.
In 2007 and 2018, we entered into interest rate locks of future debt issuances to hedge the risk of higher interest rates. These interest rate locks were designated as cash flow hedges. The gain/loss upon settlement of these interest rate hedges is deferred (recorded in AOCI) and amortized to interest expense over the term of the related debt.
This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| Location on |
| September 30 |
| September 30 | ||||||||
in thousands | Statement |
| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Interest Rate Hedges |
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Loss reclassified from AOCI | Interest |
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(effective portion) | expense |
| $ ( |
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| $ ( |
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| $ ( |
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| $ ( |
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For the 12-month period ending September 30, 2020, we estimate that $
Debt is detailed as follows:
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| Effective |
| September 30 |
| December 31 |
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| September 30 |
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in thousands | Interest Rates |
| 2019 |
| 2018 |
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| 2018 |
| |||
Short-term Debt |
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Bank line of credit expires |
| $ |
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| $ |
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| $ |
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Total short-term debt |
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| $ |
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| $ |
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| $ |
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Long-term Debt |
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Bank line of credit expires |
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| $ |
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| $ |
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| $ |
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Floating-rate notes due |
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Floating-rate notes due |
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Other notes |
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Total long-term debt - face value |
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| $ |
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| $ |
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| $ |
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Unamortized discounts and debt issuance costs |
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| ( |
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| ( |
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| ( |
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Total long-term debt - book value |
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| $ |
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| $ |
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| $ |
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Less current maturities |
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Total long-term debt - reported value |
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| $ |
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| $ |
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| $ |
| ||
Estimated fair value of long-term debt |
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| $ |
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| $ |
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| $ |
| ||
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1 | |
2 | |
3 |
Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $
LINE OF CREDIT
Our unsecured $750,000,000 line of credit matures December
Borrowings on our line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt if we have the intent and ability to extend repayment beyond twelve months. Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from
As of September 30, 2019, our available borrowing capacity was $
$
TERM DEBT
All of our $
In December 2018, we completed an exchange offer in which all of the $
In March 2018, we early retired via exchange offer $
In February 2018, we issued $
In January 2018, we early retired via redemption the remaining $
As a result of the first quarter 2018 early debt retirements described above, we recognized premiums of $
STANDBY LETTERS OF CREDIT
We provide, in the normal course of business, certain third-party beneficiaries with standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of
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in thousands |
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Standby Letters of Credit |
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Risk management insurance | $ |
|
Reclamation/restoration requirements | |
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Total | $ |
|
As summarized by purpose directly above in Note 7, our standby letters of credit totaled $
As described in Note 2, our nonmineral operating lease liabilities totaled $
As described in Note 9, our asset retirement obligations totaled $
LITIGATION AND ENVIRONMENTAL MATTERS
We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.
We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally, we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party's share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.
We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period.
We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels.
In addition to these lawsuits in which we are involved in the ordinary course of business, certain other material legal proceedings are more specifically described below:
■ Lower Passaic River Study Area (DISCONTINUED OPERATIONS and superfund site) — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately
In August 2017, the EPA informed certain members of the CPG, including Vulcan, that it planned to use the services of a third-party allocator with the expectation of offering cash-out settlements to some parties in connection with the bank-to-bank remedy. This voluntary allocation process is intended to establish an impartial third-party expert recommendation that may be considered by the government and the participants as the basis of possible settlements. We have begun participating in this voluntary allocation process, which is likely to take several years.
In July 2018, Vulcan, along with more than one hundred other defendants, was sued by Occidental in United States District Court for the District of New Jersey, Newark Vicinage. Occidental is seeking cost recovery and contribution under CERCLA. It is unknown at this time whether the filing of the Occidental lawsuit will impact the EPA allocation process.
In October 2018, the EPA ordered the CPG to prepare a streamlined feasibility study specifically for the upper
Efforts to remediate the River have been underway for many years and have involved hundreds of entities that have had operations on or near the River at some point during the past several decades. We formerly owned a chemicals operation near the mouth of the River, which was sold in 1974. The major risk drivers in the River have been identified as dioxins, PCBs, DDx and mercury. We did not manufacture any of these risk drivers and have no evidence that any of these were discharged into the River by Vulcan.
The AOC does not obligate us to fund or perform the remedial action contemplated by either the draft RI/FS or the ROD. Furthermore, the parties who will participate in funding the remediation and their respective allocations have not been determined. We do not agree that a bank-to-bank remedy is warranted, and we are not obligated to fund any of the remedial action at this time; nevertheless, we previously estimated the cost to be incurred by us as a potential participant in a bank-to-bank dredging remedy and recorded an immaterial loss for this matter in 2015.
■ TEXAS BRINE MATTER (DISCONTINUED OPERATIONS) — During the operation of its former Chemicals Division, Vulcan secured the right to mine salt out of an underground salt dome formation in Assumption Parish, Louisiana from 1976 - 2005. Throughout that period and for all times thereafter, the Texas Brine Company (Texas Brine) was the operator contracted by Vulcan (and later Occidental) to mine and deliver the salt. We sold our Chemicals Division in 2005 and transferred our rights and interests related to the salt and mining operations to the purchaser, a subsidiary of Occidental, and we have had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed in the vicinity of the Texas Brine mining operations, and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in federal court before the Eastern District of Louisiana in New Orleans.
There are numerous defendants, including Texas Brine and Occidental, to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by Texas Brine. We have since been added as a direct and third-party defendant by other parties, including a direct claim by the state of Louisiana. Damage categories encompassed within the litigation include individual plaintiffs’ claims for property damage, a claim by the state of Louisiana for response costs and civil penalties, claims by Texas Brine for response costs and lost profits, claims for physical damages to nearby oil and gas pipelines and storage facilities (pipelines), and business interruption claims.
In addition to the plaintiffs’ claims, we were also sued for contractual indemnity and comparative fault by both Texas Brine and Occidental. It is alleged that the sinkhole was caused, in whole or in part, by our negligent actions or failure to act. It is also alleged that we breached the salt lease with Occidental, as well as an operating agreement and related contracts with Texas Brine; that we are strictly liable for certain property damages in our capacity as a former lessee of the salt lease; and that we violated certain covenants and conditions in the agreement under which we sold our Chemicals Division to Occidental. We likewise made claims for contractual indemnity and on a basis of comparative fault against Texas Brine and Occidental. Vulcan and Occidental have since dismissed all of their claims against one another. Texas Brine has claims that remain pending against Vulcan and against Occidental.
A bench trial (judge only) began in September 2017 and ended in October 2017 in the pipeline cases. The trial was limited in scope to the allocation of comparative fault or liability for causing the sinkhole, with a damages phase of the trial to be held at a later date. In December 2017, the judge issued a ruling on the allocation of fault among the three defendants as follows: Occidental
We have settled all except
■ NEW YORK WATER DISTRICT CASES (DISCONTINUED OPERATIONS) — During the operation of our former Chemicals Division, which was divested to Occidental in 2005, Vulcan manufactured a chlorinated solvent known as 1,1,1-trichloroethane. We are a defendant in
■ HEWITT LANDFILL MATTER (SUPERFUND SITE) — In September 2015, the Los Angeles Regional Water Quality Control Board (RWQCB) issued a Cleanup and Abatement Order (CAO) directing Vulcan to assess, monitor, cleanup and abate wastes that have been discharged to soil, soil vapor, and/or groundwater at the former Hewitt Landfill in Los Angeles. The CAO follows a 2014 Investigative Order from the RWQCB that sought data and a technical evaluation regarding the Hewitt Landfill, and a subsequent amendment to the Investigative Order requiring us to provide groundwater monitoring results to the RWQCB and to create and implement a work plan for further investigation of the Hewitt Landfill. In April 2016, we submitted an interim remedial action plan (IRAP) to the RWQCB, proposing an on-site pilot test of a pump and treat system; testing and implementation of a leachate recovery system; and storm water capture and conveyance improvements.
Operation of the on-site pilot-scale treatment system began in January 2017, and was completed in April 2017. With completion of the pilot testing and other investigative work, we submitted an amendment to the IRAP (AIRAP) to RWQCB in August 2017 proposing the use of a pump, treat and reinjection system. In December 2017, we submitted an addendum to the AIRAP, incorporating new data acquired since the prior submission. In February 2018, the AIRAP was approved by RWQCB. As a result of this approval, we have begun to implement the on-site source control activities described in the AIRAP. During 2018, we accrued a total of $
We are also engaged in an ongoing dialogue with the EPA, the Los Angeles Department of Water and Power, and other stakeholders regarding the potential contribution of the Hewitt Landfill to groundwater contamination in the North Hollywood Operable Unit (NHOU) of the San Fernando Valley Superfund Site. We are gathering and analyzing data and developing technical information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area.
The EPA and Vulcan entered into an AOC and Statement of Work having an effective date of September 2017 for the design of
■ NAFTA ARBITRATION — In September 2018, our subsidiary Legacy Vulcan, LLC (Legacy Vulcan), on its own behalf, and on behalf of our Mexican subsidiary Calizas Industriales del Carmen, S.A. de C.V. (Calica), served the United Mexican States (Mexico) a Notice of Intent to Submit a Claim to Arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA). Our NAFTA claim relates to the treatment of a portion of our quarrying operations in the State of Quintana Roo, in Mexico’s Yucatan Peninsula, arising from, among other measures, Mexico’s failure to comply with a legally binding zoning agreement and relates to other unfair, arbitrary and capricious actions by Mexico’s environmental enforcement agency. We assert that these actions are in breach of Mexico’s international obligations under NAFTA and international law.
As required by Article 1118 of NAFTA, we sought to settle this dispute with Mexico through consultations. Notwithstanding our good faith efforts to resolve the dispute amicably, we were unable to do so and filed a Request for Arbitration, which we filed with the International Centre for Settlement of Investment Disputes (ICSID) in December 2018. In January 2019, ICSID registered our Request for Arbitration.
We expect that the NAFTA arbitration will take at least
Item 103 of Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings, or such proceedings are known to be contemplated, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $100,000. The following matter is disclosed in accordance with that requirement. In June 2019, we received from the EPA a draft administrative order, followed in October 2019 with a proposed penalty of $
It is not possible to predict with certainty the ultimate outcome of these and other legal proceedings in which we are involved and a number of factors, including developments in ongoing discovery or adverse rulings, or the verdict of a particular jury, could cause actual losses to differ materially from accrued costs.
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. These AROs relate to our underlying land parcels, including both owned properties and mineral leases. ARO operating costs related to accretion of the liabilities and depreciation of the assets are as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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ARO Operating Costs |
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Accretion | $ |
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| $ |
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| $ |
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| $ |
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Depreciation | |
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Total | $ |
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| $ |
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| $ |
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| $ |
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ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.
Reconciliations of the carrying amounts of our AROs are as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Asset Retirement Obligations |
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Balance at beginning of period | $ |
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| $ |
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Liabilities incurred | |
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Liabilities settled | ( |
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| ( |
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| ( |
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Accretion expense | |
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Revisions, net | |
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| ( |
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Balance at end of period | $ |
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| $ |
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| $ |
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| $ |
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ARO liabilities settled during the first nine months of 2019 and 2018 include $
PENSION PLANS
We sponsor
In 2005, benefit accruals for our Chemicals Hourly Plan participants ceased upon the sale of our Chemicals business. Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. Future benefit accruals for participants in our salaried defined benefit pension plans ceased on December 31, 2013, while salaried participants’ earnings considered for benefit calculations were frozen on December 31, 2015.
The following table sets forth the components of net periodic pension benefit cost:
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PENSION BENEFITS | Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Components of Net Periodic Benefit Cost |
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Service cost | $ |
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| $ |
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| $ |
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| $ |
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Interest cost | |
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Expected return on plan assets | ( |
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| ( |
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| ( |
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| ( |
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Amortization of prior service cost | |
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Amortization of actuarial loss | |
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Net periodic pension benefit cost (credit) | $ |
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| $ ( |
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| $ |
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| $ ( |
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Pretax reclassifications from AOCI included in |
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net periodic pension benefit cost | $ |
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| $ |
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| $ |
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| $ |
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The contributions to pension plans for the nine months ended September 30, 2019 and 2018, as reflected on the Condensed Consolidated Statements of Cash Flows, pertain to benefit payments under nonqualified plans for both periods and a discretionary qualified plan contribution of $
POSTRETIREMENT PLANS
In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. Substantially all our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, Company-provided healthcare benefits end when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age
The following table sets forth the components of net periodic other postretirement benefit cost:
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OTHER POSTRETIREMENT BENEFITS | Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Components of Net Periodic Benefit Cost |
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Service cost | $ |
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| $ |
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| $ |
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| $ |
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Interest cost | |
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Amortization of prior service credit | ( |
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| ( |
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| ( |
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| ( |
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Amortization of actuarial gain | ( |
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| ( |
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| ( |
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| ( |
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Net periodic postretirement benefit credit | $ ( |
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| $ ( |
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| $ ( |
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| $ ( |
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Pretax reclassifications from AOCI included in |
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net periodic postretirement benefit credit | $ ( |
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| $ ( |
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| $ ( |
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| $ ( |
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DEFINED CONTRIBUTION PLANS
In addition to our pension and postretirement plans, we sponsor
Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.
Amounts in accumulated other comprehensive income (AOCI), net of tax, are as follows:
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| September 30 |
| December 31 |
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| September 30 | ||
in thousands | 2019 |
| 2018 |
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| 2018 | ||||
AOCI |
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Interest rate hedges | $ ( |
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| $ ( |
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| $ ( |
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Pension and postretirement plans | ( |
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| ( |
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| ( |
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Total | $ ( |
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| $ ( |
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| $ ( |
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Changes in AOCI, net of tax, for the nine months ended September 30, 2019 are as follows:
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| Pension and |
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| Interest Rate |
| Postretirement |
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in thousands | Hedges |
| Benefit Plans |
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| Total | ||||
AOCI |
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Balances as of December 31, 2018 | $ ( |
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| $ ( |
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| $ ( |
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Amounts reclassified from AOCI | |
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Balances as of September 30, 2019 | $ ( |
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| $ ( |
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| $ ( |
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Amounts reclassified from AOCI to earnings, are as follows:
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30 |
| September 30 | ||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Amortization of Interest Rate Hedge Losses |
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Interest expense | $ |
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| $ |
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| $ |
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| $ |
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Benefit from income taxes | ( |
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| ( |
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| ( |
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| ( |
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Total | $ |
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| $ |
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| $ |
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| $ |
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Amortization of Pension and Postretirement |
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Plan Actuarial Loss and Prior Service Cost |
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Other nonoperating expense | $ |
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| $ |
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| $ |
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| $ |
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Benefit from income taxes | ( |
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| ( |
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| ( |
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| ( |
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Total | $ |
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| $ |
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| $ |
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| $ |
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Total reclassifications from AOCI to earnings | $ |
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| $ |
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| $ |
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| $ |
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Our capital stock consists solely of common stock, par value $
There were
Our common stock purchases (all of which were open market purchases) and subsequent retirements for the year-to-date periods ended are as follows:
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| September 30 |
| December 31 |
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| September 30 | ||
in thousands, except average price | 2019 |
| 2018 |
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| 2018 | ||
Shares Purchased and Retired |
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Number | |
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Total purchase price | $ |
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| $ |
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| $ |
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Average price per share | $ |
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| $ |
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| $ |
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As of September 30, 2019,
Changes in total equity are summarized below:
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| Three Months Ended |
| Nine Months Ended | ||||||||
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| September 30 |
| September 30 | ||||||||
in thousands, except per share data |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Total Equity |
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Balance at beginning of period |
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| $ |
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| $ |
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| $ |
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Net earnings |
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Common stock issued |
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Share-based compensation plans, net of shares |
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withheld for taxes |
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| ( |
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| ( |
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| ( |
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| ( |
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Purchase and retirement of common stock |
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| ( |
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| ( |
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Share-based compensation expense |
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Cash dividends on common stock |
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($ |
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| ( |
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Other comprehensive income |
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Balance at end of period |
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| $ |
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| $ |
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| $ |
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| $ |
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We have
segment financial disclosure
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| Three Months Ended |
| Nine Months Ended | ||||||||||
| September 30 |
| September 30 | ||||||||||
in thousands | 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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Total Revenues |
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Aggregates 1 | $ |
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| $ |
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| $ |
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| $ |
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Asphalt 2 | |
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Concrete | |
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Calcium | |
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Segment sales | $ |
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| $ |
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| $ |
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| $ |
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Aggregates intersegment sales | ( |
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| ( |
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| ( |
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Total revenues | $ |
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| $ |
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| $ |
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| $ |
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Gross Profit |
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Aggregates | $ |
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| $ |
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| $ |
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| $ |
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Asphalt | |
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Concrete | |
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Calcium | |
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Total | $ |
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| $ |
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| $ |
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| $ |
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Depreciation, Depletion, Accretion |
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and Amortization (DDA&A) |
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Aggregates | $ |
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| $ |
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| $ |
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| $ |
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Asphalt | |
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Concrete | |
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Calcium | |
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Other | |
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Total | $ |
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| $ |
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| $ |
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| $ |
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Identifiable Assets 3 |
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Aggregates |
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| $ |
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| $ |
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Asphalt |
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Concrete |
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Calcium |
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Total identifiable assets |
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| $ |
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| $ |
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General corporate assets |
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Cash and cash equivalents and restricted cash |
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Total assets |
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1 | |
2 | |
3 |
Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is summarized below:
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| Nine Months Ended | ||||
| September 30 | ||||
in thousands | 2019 |
| 2018 |
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Cash Payments (Refunds) |
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Interest (exclusive of amount capitalized) | $ |
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| $ |
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Income taxes | |
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| ( |
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Noncash Investing and Financing Activities |
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Accrued liabilities for purchases of property, plant & equipment | $ |
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| $ |
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Recognition of new asset retirement obligations | |
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Right-of-use assets obtained in exchange for new operating lease liabilities 1 | |
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Amounts referable to business acquisitions |
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Liabilities assumed 2 | |
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Consideration payable to seller | |
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1 | |
2 |
Goodwill is recognized when the consideration paid for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. There were
We have
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in thousands | Aggregates |
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| Asphalt |
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| Concrete |
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| Calcium |
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| Total | |||
Goodwill |
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Total as of December 31, 2018 | $ |
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| $ |
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| $ |
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| $ |
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| $ |
| ||
Goodwill of acquired businesses 1 | |
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Total as of September 30, 2019 | $ |
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| $ |
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| $ |
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| $ |
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| $ |
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1 |
We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.
BUSINESS ACQUISITIONS
2019 BUSINESS ACQUISITIONS — We had
2018 BUSINESS ACQUISITIONS — For the full year 2018, we purchased the following operations, none of which were material to our results of operations or financial position either individually or collectively, for total consideration of $
Alabama — aggregates, asphalt mix and construction paving operations
California — aggregates and asphalt-mix operations
Texas — aggregates rail yards, asphalt mix and construction paving operations
As a result of the 2018 acquisitions, we recognized $
DIVESTITURES AND PENDING DIVESTITURES
In 2019, we sold:
First quarter —
In 2018, we sold:
First quarter — ready-mixed concrete operations in Georgia resulting in a pretax gain of $
ACCOUNTING STANDARDS RECENTLY ADOPTED
LEASE ACCOUNTING During the first quarter of 2019, we adopted Accounting Standards Update (ASU) 2016-02, “Leases,” utilizing the comparatives transition option (we elected not to restate comparative periods) under ASC 840. This ASU amends prior accounting standards for lease accounting and adds additional disclosures about leasing arrangements. Under the new guidance, lessees are required to recognize lease right-of-use assets and lease liabilities on the balance sheet for all leases (excluding mineral leases) with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement and presentation of cash flow in the statement of cash flows. Upon adoption, we recognized operating lease liabilities of $
ACCOUNTING STANDARDS PENDING ADOPTION
defined benefit plans In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-14, “Changes to the Disclosure Requirements for Defined Benefit Plans,” which adds, removes and clarifies the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020 and is to be applied retrospectively. Early adoption is permitted. While we are still evaluating the impact of ASU 2018-14 and whether we will early adopt, it will not impact our consolidated financial statements as it only affects disclosure. Thus, the adoption of this standard will have a minor impact on the notes to our consolidated financial statements, specifically, our benefit plans note.
CREDIT LOSSES In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of financial instruments. The new guidance estimates credit losses based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim reporting periods within those annual reporting periods. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL COMMENTS
Overview
We provide the basic materials for the infrastructure needed to maintain and expand the U.S. economy. We operate primarily in the U.S. and are the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete. Our strategy and competitive advantage are based on our strength in aggregates. Aggregates are used in most types of construction and in the production of asphalt mix and ready-mixed concrete.
Demand for our products is dependent on construction activity and correlates positively with growth in population, household formation and employment. End uses include public construction (e.g., highways, bridges, buildings, airports, schools, prisons, sewer and waste disposal systems, water supply systems, dams and reservoirs), private nonresidential construction (e.g., manufacturing, retail, offices, industrial and institutional) and private residential construction (e.g., single-family houses, duplexes, apartment buildings and condominiums). Customers for our products include heavy construction and paving contractors; commercial building contractors; concrete products manufacturers; residential building contractors; railroads and electric utilities; and to a smaller extent state, county and municipal governments.
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, rendering them uncompetitive compared to locally produced materials. Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available high-quality aggregates. We serve these markets from quarries that have access to cost-effective long-haul transportation — shipping by barge and rail — and from our quarry on Mexico's Yucatan Peninsula with our fleet of Panamax-class, self-unloading ships.
There are limited substitutes for quality aggregates. Due to zoning and permitting regulation and high transportation costs relative to the value of the product, the location of reserves is a critical factor to our long-term success.
No material part of our business depends upon any single customer whose loss would have a significant adverse effect on our business. In 2018, our five largest customers accounted for 8% of our total revenues (excluding internal sales), and no single customer accounted for more than 2% of our total revenues. Although approximately 45% to 55% of our aggregates shipments have historically been used in publicly funded construction, such as highways, airports and government buildings, relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly funded construction, our business is not directly subject to renegotiation of profits or termination of contracts with state or federal governments.
While aggregates is our focus and primary business, we believe vertical integration between aggregates and downstream products, such as asphalt mix and ready-mixed concrete, can be managed effectively in certain markets generating acceptable financial returns and enhancing financial returns in our core Aggregates segment. We produce and sell asphalt mix and/or ready-mixed concrete primarily in our Alabama, mid-Atlantic, Southwestern, Tennessee and Western markets. Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. In both of these downstream businesses, aggregates are primarily supplied from our 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 volume 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, demographic and population fluctuations, and particularly to cyclical swings in construction spending, primarily in the private sector.
EXECUTIVE SUMMARY
Financial highlights for Third Quarter 2019
Compared to third quarter 2018:
Total revenues increased $178.6 million, or 14%, to $1,418.8 million
Gross profit increased $57.5 million, or 17%, to $400.6 million
Aggregates segment sales increased $149.4 million, or 15%, to $1,133.1 million
Aggregates segment freight-adjusted revenues increased $108.7 million, or 15%, to $858.5 million
Shipments increased 8%, or 4.7 million tons, to 60.9 million tons
Same-store shipments increased 8%, or 4.5 million tons, to 60.7 million tons
Freight-adjusted sales price increased 5.6%, or $0.75 per ton
Same-store freight-adjusted sales price increased 5.5%, or $0.74 per ton
Segment gross profit increased $53.4 million, or 18%, to $357.2 million
Asphalt, Concrete and Calcium segment gross profit increased $4.1 million, or 10%, to $43.4 million, collectively
Selling, administrative and general (SAG) expenses increased $7.2 million and decreased 0.3 percentage points (30 basis points) as a percentage of total revenues
Operating earnings increased $54.2 million, or 22%, to $303.4 million
Earnings from continuing operations were $218.1 million, or $1.63 per diluted share, compared to $179.9 million, or $1.34 per diluted share
Adjusted earnings from continuing operations were $1.68 per diluted share, compared to $1.40 per diluted share
Net earnings were $215.7 million, an increase of $36.6 million, or 20%
Adjusted EBITDA was $406.8 million, an increase of $53.4 million, or 15%
Returned capital to shareholders via dividends ($41.0 million @ $0.31 per share versus $37.0 million @ $0.28 per share) and share repurchases ($2.6 million @ an average price of $139.90 per share versus $25.0 million @ an average price of $111.92 per share)
Net earnings in the third quarter of 2019 were $215.7 million, up 20%, and Adjusted EBITDA was $406.8 million, up 15%, compared to last year’s third quarter. The strong earnings growth was driven principally by an 18% increase in Aggregates segment gross profit. Aggregates shipments increased 8% year-over-year and freight-adjusted aggregates pricing increased 5.6% (5.0% mix-adjusted). Adjusted for the extra shipping day in this year’s third quarter, same-store shipments grew by 6%. Same-store aggregates gross profit incremental flow-through rate for the trailing-twelve months was 60%, consistent with long-term expectations.
We continued to execute well during the third quarter. The growth in our aggregates shipments and improvement in pricing were strong. Importantly, our industry-leading unit profitability in aggregates increased from $5.41 to $5.87 per ton, a 9% increase compared to the prior year’s third quarter. We remain focused on creating long-term value by compounding unit margins through our four strategic initiatives — commercial excellence, operational excellence, strategic sourcing and logistics innovation — which enhance price growth and operating efficiencies.
Capital expenditures in the third quarter included $39.5 million of core operating and maintenance capital to improve or replace existing property, plant & equipment. In addition, we invested $41.5 million in internal growth projects to secure new aggregates reserves, develop new production sites and enhance our distribution capabilities. Through the nine months ended September 2019, core operating and maintenance capital investment totaled $170.8 million, and internal growth projects investment was $136.1 million. Our full-year 2019 expectations remain unchanged at $250 million for core operating and maintenance capital and $200 million for internal growth projects.
During the quarter, we returned $41.0 million to shareholders through dividends, an 11% increase versus the prior year quarter. Additionally, we repurchased shares totaling $2.6 million. At quarter-end, total debt was $2.8 billion, or 2.2 times trailing-twelve month Adjusted EBITDA.
We are reaffirming our full-year earnings outlook for 2019. As we enter the final quarter of this year, we are well positioned to have a strong finish to the year, achieving another year of double-digit earnings growth.
Through the first nine months, aggregates shipments have exceeded the upper end of our expectations, pricing has increased in line with our expectations, and we have delivered good incremental earnings. As we consider our outlook for the full year, we expect to finish the year with aggregates profitability better than originally expected. We expect non-aggregates gross profit to be lower than original expectations but in line with 2018 results, offsetting the higher aggregates earnings. We expect earnings from continuing operations between $4.55 and $5.05 per diluted share and Adjusted EBITDA between $1.250 and $1.330 billion.
Looking ahead to 2020, we expect another year of strong earnings growth, led by improvement in aggregates unit margins. With respect to aggregates shipments, our preliminary outlook is for low-to-mid-single-digit growth. Vulcan-served markets should continue to benefit from public construction demand, led by significantly higher levels of highway funding in our key states. Private construction shipment momentum remains positive across most of our markets. We expect this shipment momentum to continue into 2020. Demand fundamentals, including population and employment growth, continue to support longer-term growth in residential and nonresidential construction. We also expect a positive pricing environment as the shipment momentum in private demand and visibility of public demand should help drive sales price increases similar to 2019’s mid-single-digit range.
We remain keenly focused on compounding unit margins through the cycle. Going forward, these compounding unit margins together with disciplined capital allocation will position us well to grow our cash flows and improve our returns on invested capital.
RESULTS OF OPERATIONS
Total revenues are primarily derived from our product sales of aggregates, asphalt mix and ready-mixed concrete, and include freight & delivery costs that we pass along to our customers to deliver these products. We also generate service revenues from our asphalt construction paving business and services related to our aggregates business. We discuss separately our discontinued operations, which consist of our former Chemicals business.
The following table highlights significant components of our consolidated operating results including EBITDA and Adjusted EBITDA.
consolidated operating Result highlights
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in millions, except unit and per unit data | 2019 |
| 2018 |
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| 2019 |
| 2018 |
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Total revenues | $ 1,418.8 |
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| $ 1,240.2 |
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| $ 3,743.0 |
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| $ 3,294.8 |
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Cost of revenues | 1,018.2 |
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| 897.1 |
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| 2,780.2 |
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| 2,469.1 |
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Gross profit | $ 400.6 |
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| $ 343.1 |
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| $ 962.8 |
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| $ 825.7 |
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Gross profit margin | 28.2% |
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| 27.7% |
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| 25.7% |
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| 25.1% |
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Selling, administrative and general (SAG) | $ 88.8 |
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| $ 81.6 |
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| $ 274.7 |
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| $ 249.0 |
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SAG as a percentage of total revenues | 6.3% |
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| 6.6% |
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| 7.3% |
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| 7.6% |
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Operating earnings | $ 303.4 |
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| $ 249.2 |
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| $ 683.9 |
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| $ 561.2 |
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Interest expense, net | $ 32.2 |
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| $ 33.5 |
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| $ 98.2 |
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| $ 104.6 |
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Earnings from continuing operations |
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before income taxes | $ 271.5 |
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| $ 220.5 |
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| $ 591.7 |
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| $ 469.4 |
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Earnings from continuing operations | $ 218.1 |
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| $ 179.9 |
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| $ 479.9 |
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| $ 393.6 |
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Loss on discontinued operations, |
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net of income taxes | (2.4) |
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| (0.7) |
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| (3.3) |
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| (1.8) |
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Net earnings | $ 215.7 |
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| $ 179.2 |
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| $ 476.6 |
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| $ 391.8 |
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Diluted earnings (loss) per share |
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Continuing operations | $ 1.63 |
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| $ 1.34 |
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| $ 3.60 |
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| $ 2.94 |
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Discontinued operations | (0.01) |
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| 0.00 |
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| (0.02) |
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| (0.02) |
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Diluted net earnings per share | $ 1.62 |
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| $ 1.34 |
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| $ 3.58 |
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| $ 2.92 |
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EBITDA 1 | $ 400.0 |
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| $ 343.5 |
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| $ 968.8 |
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| $ 830.4 |
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Adjusted EBITDA 1 | $ 406.8 |
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| $ 353.5 |
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| $ 971.6 |
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| $ 846.2 |
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Average Sales Price and Unit Shipments |
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Aggregates |
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Tons (thousands) | 60,898 |
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| 56,170 |
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| 163,845 |
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| 151,659 |
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Freight-adjusted sales price | $ 14.10 |
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| $ 13.35 |
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| $ 14.00 |
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| $ 13.25 |
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Asphalt Mix |
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Tons (thousands) | 4,007 |
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| 3,399 |
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| 9,624 |
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| 8,548 |
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Average sales price | $ 58.20 |
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| $ 56.58 |
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| $ 57.76 |
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| $ 54.84 |
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Ready-mixed concrete |
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Cubic yards (thousands) | 875 |
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| 795 |
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| 2,359 |
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| 2,487 |
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Average sales price | $ 127.99 |
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| $ 126.42 |
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| $ 126.19 |
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| $ 123.06 |
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Calcium |
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Tons (thousands) | 75 |
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| 67 |
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| 216 |
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| 215 |
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Average sales price | $ 28.33 |
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| $ 28.29 |
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| $ 28.04 |
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| $ 28.43 |
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1 | Non-GAAP measures are defined and reconciled within this Item 2 under the caption Reconciliation of Non-GAAP Measures. |
Third quarter 2019 Compared to Third Quarter 2018
Third quarter 2019 total revenues were $1,418.8 million, up 14% from the third quarter of 2018. Shipments increased in aggregates (+8%), asphalt mix (+18%) and ready-mixed concrete (+10%). Gross profit increased in the Aggregates (+$53.4 million or +18%), Asphalt (+$3.8 million or +16%) and Concrete (+$0.5 million or +3%) segments. An 8% decrease in the unit cost of diesel fuel lowered costs by $2.9 million from the prior year’s third quarter with most ($2.8 million) of this cost decline reflected in the Aggregates segment.
Net earnings for the third quarter of 2019 were $215.7 million, or $1.62 per diluted share, compared to $179.2 million, or $1.34 per diluted share, in the third quarter of 2018. Each period’s results were impacted by discrete items, as follows:
Net earnings for the third quarter of 2019 include:
pretax charges of $0.4 million associated with non-routine business development
pretax charges of $6.5 million for managerial restructuring
Net earnings for the third quarter of 2018 include:
pretax gains of $0.6 million for business interruption claims
pretax charges of $10.0 million for divested operations
pretax charges of $0.2 million associated with non-routine business development
pretax charges of $0.3 million for managerial restructuring
Adjusted for these discrete items, earnings from continuing operations (Adjusted Diluted EPS) was $1.68 per diluted share for the third quarter of 2019 compared to $1.40 per diluted share in the third quarter of 2018.
Continuing Operations — Changes in earnings from continuing operations before income taxes for the third quarter of 2019 versus the third quarter of 2018 are summarized below:
earnings from continuing operations before income taxes
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in millions |
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Third quarter 2018 | $ 220.5 |
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Higher aggregates gross profit | 53.4 |
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Higher asphalt gross profit | 3.8 |
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Higher concrete gross profit | 0.5 |
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Lower calcium gross profit | (0.1) |
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Higher selling, administrative and general expenses | (7.2) |
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Lower gain on sale of property, plant & equipment and businesses | (1.9) |
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Lower interest expense, net | 1.4 |
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All other | 1.1 |
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Third quarter 2019 | $ 271.5 |
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Third quarter Aggregates segment sales increased 15% and gross profit increased 18% to $357.2 million. Unit margins increased $0.46 per ton, or 9%, to $5.87 per ton. These improvements resulted from growth in shipments, price improvements and execution of operating disciplines and efficiencies.
Third quarter aggregates shipments increased 8% (also 8% on a same-store basis) as compared to the prior year quarter. A healthy demand environment, led by transportation-related construction, was the principal driver of volume growth and price improvement. Most markets reported solid shipment growth, including double-digit growth in certain markets in the Mid-Atlantic, Southeast and Texas. All of our key markets reported year-over-year price growth. For the quarter, freight-adjusted average sales price increased 5.6% (5.5% on a same-store basis) versus the prior year’s quarter. Mix-adjusted average sales price increased 5.0%. Positive trends in backlogged project work, along with demand visibility and customer confidence, support our expectations for continued price improvement throughout the remainder of 2019.
Third quarter same-store unit cost of sales (freight-adjusted) increased 3% as compared to the prior year quarter. Trailing-twelve month same-store incremental gross profit flow-through rate was 60%, in-line with our long-term expectations. Quarterly gross profit flow-through rates can vary widely from quarter to quarter; therefore, we evaluate this metric on a trailing-twelve month basis.
Asphalt segment gross profit was $27.6 million for the third quarter, an increase of $3.8 million from the prior year. Asphalt mix shipments increased 18% and selling prices increased 3%, or $1.62 per ton, in the third quarter. The average unit cost for liquid asphalt was 6% higher than the prior year quarter. Material margins in the quarter were slightly lower than the prior year’s third quarter.
Concrete segment gross profit was $15.0 million, 3% higher than the prior year quarter. Ready-mixed concrete shipments of 0.9 million cubic yards were up 10% from the prior year’s third quarter. The average sales price increased 1% while material margins were essentially flat.
Calcium segment gross profit was $0.8 million, a slight decrease versus the prior year quarter.
SAG expenses were $88.8 million versus $81.6 million in the prior year’s third quarter. The year-over-year increase was due mainly to compensation-related expense, including incentives that are tied to earnings expectations and the share price performance, as well as investment in people and processes intended to capture benefits from our strategic initiatives. On a trailing-twelve month basis, SAG expense as a percentage of total revenues was 7.4%, 0.4 percentage points (40 basis points) lower than the prior year period. We remain focused on further leveraging our overhead structure.
Other operating expense, which has an approximate run-rate of $12 million a year (exclusive of discrete items), is composed of various operating items not separately presented in the accompanying Condensed Consolidated Statements of Comprehensive Income. Total other operating expense and significant items included in the total were:
$8.7 million in third quarter 2019 — includes discrete items as follows:
$0.4 million of non-routine business development charges
$6.5 million of managerial restructuring charges
$14.5 million in third quarter 2018 — includes discrete items as follows:
$0.6 million gain referable to the settlement of business interruption claims related to the 2010 Gulf Coast oil spill
$10.0 million of charges associated with divested operations including $9.2 million of environmental liability accruals related to the Hewitt Landfill matter (see Note 8 to the condensed consolidated financial statements)
$0.2 million of non-routine business development charges
$0.3 million of managerial restructuring charges
Net interest expense was $32.2 million in the third quarter of 2019 compared to $33.5 million in the third quarter of 2018.
Income tax expense from continuing operations was $53.5 million in the third quarter of 2019 compared to $40.7 million in the third quarter of 2018. The increase in tax expense was primarily related to the increase in earnings.
Earnings from continuing operations were $1.63 per diluted share in the third quarter of 2019 compared to $1.34 per diluted share in the third quarter of 2018.
Discontinued Operations — Third quarter pretax loss from discontinued operations was $3.2 million in 2019 compared with $1.0 million in 2018. Both periods include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations.
YEAR-TO-DATE September 30, 2019 Compared to YEAR-TO-DATE September 30, 2018
Total revenues for the first nine months of 2019 were $3,743.0 million, up 14% from the first nine months of 2018. Shipments were up in aggregates (+8%) and asphalt mix (+13%) while down in ready-mixed concrete (-5%). Gross profit increased in the Aggregates (+$136.6 million or +19%) and Asphalt (+$2.1 million or +4%) segments, while it declined in the Concrete (-$1.6 million or -4%) segment. A 14% increase in unit costs for liquid asphalt lowered Asphalt segment earnings by $24.3 million. Conversely, a 4% decrease in the unit cost of diesel fuel lowered costs $4.6 million from the first nine months of 2018 with most ($3.9 million) of this cost decline in the Aggregates segment.
Net earnings for the first nine months of 2019 were $476.6 million, or $3.58 per diluted share, compared to $391.8 million, or $2.92 per diluted share, in the first nine months of 2018. Each period’s results were impacted by discrete items, as follows:
Net earnings for the first nine months of 2019 include:
$4.1 million of pretax gains related to the sale of businesses (see Note 16 to the condensed consolidated financial statements)
$0.4 million of pretax charges associated with non-routine business development
$6.5 million of pretax charges for managerial restructuring
Net earnings for the first nine months of 2018 include:
$7.4 million of pretax interest charges related to early debt retirement
$2.9 million of pretax gains related to the sale of businesses
$5.2 million of pretax charges associated with non-routine business development
$2.3 million of pretax gains for business interruption claims
$10.0 million of pretax charges associated with divested operations
$5.7 million of pretax charges for managerial restructuring
Adjusted for these discrete items, earnings from continuing operations (Adjusted Diluted EPS) was $3.62 per diluted share for the first nine months of 2019 compared to $3.07 per diluted share in 2018.
Continuing Operations — Changes in earnings from continuing operations before income taxes for year-to-date September 30, 2019 versus year-to-date September 30, 2018 are summarized below:
earnings from continuing operations before income taxes
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in millions |
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Year-to-date September 30, 2018 | $ 469.4 |
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Higher aggregates gross profit | 136.6 |
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Higher asphalt gross profit | 2.1 |
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Lower concrete gross profit | (1.6) |
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Flat calcium gross profit | 0.0 |
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Higher selling, administrative and general expenses | (25.8) |
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Higher gain on sale of property, plant & equipment and businesses | 2.6 |
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Lower interest expense, net | 6.4 |
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All other | 2.0 |
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Year-to-date September 30, 2019 | $ 591.7 |
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Gross profit for our Aggregates segment was $872.1 million ($5.32 per ton) for the first nine months of 2019 versus $735.5 million ($4.85 per ton) in the comparable period of 2018. As a percentage of segment sales, gross profit margin expanded 0.9 percentage points (90 basis points) due primarily to strong growth in shipments and price improvements. Aggregates segment sales of $3,030.1 million were up 15% from the first nine months of 2018, and aggregates freight-adjusted revenues of $2,293.6 million were up 14%. Aggregates shipments for the first nine months increased 8% (same-store +7%), or 12.2 million tons (same-store +10.6 million tons), compared to the prior year. Freight-adjusted average sales price for aggregates increased 5.7%, or $0.75 per ton, versus the first nine months of 2018. Excluding mix impact, aggregates price increased 5.3%. Unit cost of sales (freight-adjusted) in the Aggregates segment for the first nine months of 2019 was up 3%, or $0.28 per ton, versus the prior year.
Asphalt segment gross profit of $52.0 million was up $2.1 million from the first nine months of 2018. Asphalt mix shipments increased 13% (+10% same-store) while selling prices increased 5.3%, or $2.92 per ton. The average unit cost for liquid asphalt was 14% higher than the first nine months of 2019, negatively affecting earnings by $24.3 million. This negative earnings affect was partially mitigated by the higher price as the material margins were only unfavorable by $0.69 per ton, or approximately $6.6 million.
Concrete segment gross profit was $36.5 million for the first nine months of 2019, down $1.6 million from the prior year period. Ready-mixed concrete shipments decreased 5% (same-store -2%) versus comparable 2018. Both the average sales price and the materials margin increased 3%.
Our Calcium segment’s gross profit of $2.3 million was essentially flat versus the first nine months of 2018.
For the first nine months of 2019, total gross profit in our non-aggregates segments was $90.7 million, a less than 1% increase from the prior year’s comparable period.
SAG expenses were $274.7 million versus $249.0 million in the prior year’s first nine months reflecting a 0.3 percentage point (30 basis points) decrease as a percentage of total revenues.
Other operating expense, which has an approximate run-rate of $12 million a year (exclusive of discrete items), is composed of various operating items not separately presented in the accompanying Condensed Consolidated Statements of Comprehensive Income. Total other operating expense and significant items, if any, included in the total were:
$15.2 million in the first nine months of 2019 — includes discrete items as follows:
$0.4 million of non-routine business development charges
$6.5 million of managerial restructuring charges
$23.8 million in the first nine months of 2018 — includes discrete items as follows:
$2.3 million gain referable to the settlement of business interruption claims related to the 2010 Gulf Coast oil spill
$10.0 million of charges associated with divested operations including $9.2 million of environmental liability accruals related to the Hewitt Landfill matter (see Note 8 to the condensed consolidated financial statements)
$5.2 million of non-routine business development charges
$5.7 million of managerial restructuring charges
Net interest expense was $98.2 million in the first nine months of 2019 compared to $104.6 million in the first nine months of 2018. The prior year expense includes $7.4 million of charges related to the first quarter 2018 debt refinancing.
Income tax expense from continuing operations was $111.8 million in the first nine months of 2019 compared to $75.8 million in the first nine months of 2018. The increase in income tax expense was primarily related to the increase in earnings.
Earnings from continuing operations were $3.60 per diluted share in the first nine months of 2019 compared to $2.94 per diluted share in the first nine months of 2018.
Discontinued Operations — Year-to-date September pretax loss from discontinued operations was $4.5 million in 2019 compared with pretax loss of $2.4 million in year-to-date September 2018. Both periods include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
SAME-STORE
We have provided certain information on a same-store basis. When discussing our financial results in comparison to prior periods, we may exclude the operating results of recently acquired/divested businesses that do not have comparable results in the periods being discussed. These recently acquired/divested businesses are disclosed in Note 16 “Acquisitions and Divestitures.” This approach allows us to evaluate the performance of our operations on a comparable basis. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our operations are performing period over period without the effects of acquisition and divestiture activity. Our same-store information may not be comparable to similar measures used by other companies.
AGGREGATES SEGMENT FREIGHT-ADJUSTED REVENUES
Aggregates segment freight-adjusted revenues is not a Generally Accepted Accounting Principle (GAAP) measure. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities. It also excludes immaterial other revenues related to services, such as landfill tipping fees, that are derived from our aggregates business. Additionally, we use this metric as the basis for calculating the average sales price of our aggregates products. Reconciliation of this metric to its nearest GAAP measure is presented below:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
dollars in millions | 2019 |
| 2018 |
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| 2019 |
| 2018 |
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Aggregates segment |
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Segment sales | $ 1,133.1 |
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| $ 983.7 |
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| $ 3,030.1 |
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| $ 2,639.7 |
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Less |
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Freight & delivery revenues 1 | 259.4 |
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| 221.0 |
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| 695.9 |
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| 593.5 |
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Other revenues | 15.2 |
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| 12.9 |
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| 40.6 |
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| 36.5 |
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Freight-adjusted revenues | $ 858.5 |
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| $ 749.8 |
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| $ 2,293.6 |
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| $ 2,009.7 |
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Unit shipments - tons | 60.9 |
|
| 56.2 |
|
| 163.8 |
|
| 151.7 |
|
Freight-adjusted sales price | $ 14.10 |
|
| $ 13.35 |
|
| $ 14.00 |
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| $ 13.25 |
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|
|
1 | At the segment level, freight & delivery revenues include intersegment freight & delivery (which are eliminated at the consolidated level) and freight to remote distribution sites. |
Aggregates segment incremental gross profit
Aggregates segment incremental gross profit flow-through rate is not a GAAP measure and represents the year-over-year change in gross profit divided by the year-over-year change in segment sales excluding freight & delivery (revenues and costs). We evaluate this metric on a trailing-twelve month basis as quarterly gross profit flow-through rates can vary widely from quarter to quarter. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities. Reconciliations of these metrics to their nearest GAAP measures are presented below:
margin in accordance with gaap
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| Three Months Ended |
| Trailing-Twelve Months | ||||||||
| September 30 |
| September 30 | ||||||||
dollars in millions | 2019 |
| 2018 |
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| 2019 |
| 2018 |
| ||
Aggregates segment |
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Gross profit | $ 357.2 |
|
| $ 303.8 |
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| $ 1,128.5 |
|
| $ 942.0 |
|
Segment sales | $ 1,133.1 |
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| $ 983.7 |
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| $ 3,904.1 |
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| $ 3,409.2 |
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Gross profit margin | 31.5% |
|
| 30.9% |
|
| 28.9% |
|
| 27.6% |
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Incremental gross profit margin | 35.8% |
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| 37.7% |
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FLOW-THROUGH RATE (non-gaap)
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| Three Months Ended |
| Trailing-Twelve Months | ||||||||
| September 30 |
| September 30 | ||||||||
dollars in millions | 2019 |
| 2018 |
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| 2019 |
| 2018 |
| ||
Aggregates segment |
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Gross profit | $ 357.2 |
|
| $ 303.8 |
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| $ 1,128.5 |
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| $ 942.0 |
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Less: Contribution from acquisitions (same-store) | 0.6 |
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| 0.0 |
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| 5.0 |
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| (0.7) |
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Same-store gross profit | $ 356.6 |
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| $ 303.8 |
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| $ 1,123.5 |
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| $ 942.7 |
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Segment sales | $ 1,133.1 |
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| $ 983.7 |
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| $ 3,904.1 |
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| $ 3,409.2 |
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Less: Freight & delivery revenues 1 | 259.4 |
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| 221.0 |
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| 899.4 |
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| 758.6 |
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Segment sales excluding freight & delivery | $ 873.7 |
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| $ 762.7 |
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| $ 3,004.7 |
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| $ 2,650.6 |
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Less: Contribution from acquisitions (same-store) | 4.6 |
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| 0.0 |
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| 53.1 |
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| 1.4 |
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Same-store segment sales excluding freight & delivery | $ 869.1 |
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| $ 762.7 |
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| $ 2,951.6 |
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| $ 2,649.2 |
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Gross profit flow-through rate | 40.9% |
|
| 39.8% |
|
| 37.6% |
|
| 35.5% |
|
Same-store gross profit flow-through rate | 41.0% |
|
| 39.8% |
|
| 38.1% |
|
| 35.6% |
|
Incremental gross profit flow-through rate | 48.2% |
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| 52.7% |
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Same-store incremental gross profit flow-through rate | 49.6% |
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| 59.8% |
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1 | At the segment level, freight & delivery revenues include intersegment freight & delivery (which are eliminated at the consolidated level) and freight to remote distribution sites. |
cash gross profit
GAAP does not define “cash gross profit” and it should not be considered as an alternative to earnings measures defined by GAAP. We and the investment community use this metric to assess the operating performance of our business. Additionally, we present this metric as we believe that it closely correlates to long-term shareholder value. We do not use this metric as a measure to allocate resources. Cash gross profit adds back noncash charges for depreciation, depletion, accretion and amortization to gross profit. Aggregates segment cash gross profit per ton is computed by dividing Aggregates segment cash gross profit by tons shipped. Reconciliation of this metric to its nearest GAAP measure is presented below:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in millions, except per ton data | 2019 |
| 2018 |
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| 2019 |
| 2018 |
| ||
Aggregates segment |
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Gross profit | $ 357.2 |
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| $ 303.8 |
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| $ 872.1 |
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| $ 735.5 |
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Depreciation, depletion, accretion and amortization | 79.0 |
|
| 72.7 |
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| 227.3 |
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| 208.4 |
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Aggregates segment cash gross profit | $ 436.2 |
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| $ 376.5 |
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| $ 1,099.4 |
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| $ 943.9 |
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Unit shipments - tons | 60.9 |
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| 56.2 |
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| 163.8 |
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| 151.7 |
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Aggregates segment gross profit per ton | $ 5.87 |
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| $ 5.41 |
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| $ 5.32 |
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| $ 4.85 |
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Aggregates segment cash gross profit per ton | $ 7.16 |
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| $ 6.70 |
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| $ 6.71 |
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| $ 6.22 |
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Asphalt segment |
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Gross profit | $ 27.6 |
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| $ 23.9 |
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| $ 52.0 |
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| $ 49.9 |
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Depreciation, depletion, accretion and amortization | 8.9 |
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| 8.4 |
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| 26.3 |
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| 22.7 |
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Asphalt segment cash gross profit | $ 36.5 |
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| $ 32.3 |
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| $ 78.3 |
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| $ 72.6 |
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Concrete segment |
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Gross profit | $ 15.0 |
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| $ 14.6 |
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| $ 36.5 |
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| $ 38.1 |
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Depreciation, depletion, accretion and amortization | 3.4 |
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| 3.0 |
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| 9.7 |
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| 9.5 |
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Concrete segment cash gross profit | $ 18.4 |
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| $ 17.6 |
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| $ 46.2 |
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| $ 47.6 |
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Calcium segment |
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Gross profit | $ 0.8 |
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| $ 0.9 |
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| $ 2.3 |
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| $ 2.2 |
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Depreciation, depletion, accretion and amortization | 0.1 |
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| 0.1 |
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| 0.2 |
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| 0.2 |
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Calcium segment cash gross profit | $ 0.9 |
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| $ 1.0 |
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| $ 2.5 |
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| $ 2.4 |
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EBITDA and adjusted ebitda
GAAP does not define “Earnings Before Interest, Taxes, Depreciation and Amortization” (EBITDA) and it should not be considered as an alternative to earnings measures defined by GAAP. We use this metric to assess the operating performance of our business and as a basis for strategic planning and forecasting as we believe that it closely correlates to long-term shareholder value. We do not use this metric as a measure to allocate resources. We adjust EBITDA for certain items to provide a more consistent comparison of earnings performance from period to period. Reconciliation of this metric to its nearest GAAP measure is presented below (numbers may not foot due to rounding):
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
in millions | 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| ||
Net earnings | $ 215.7 |
|
| $ 179.2 |
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| $ 476.6 |
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| $ 391.8 |
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Income tax expense (benefit) | 53.5 |
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| 40.7 |
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| 111.8 |
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| 75.8 |
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Interest expense, net of interest income | 32.2 |
|
| 33.5 |
|
| 98.2 |
|
| 104.6 |
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Loss on discontinued operations, net of tax | 2.4 |
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| 0.7 |
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| 3.3 |
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| 1.8 |
|
EBIT | 303.7 |
|
| 254.1 |
|
| 689.8 |
|
| 573.9 |
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Depreciation, depletion, accretion and amortization | 96.2 |
|
| 89.4 |
|
| 278.9 |
|
| 256.5 |
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EBITDA | $ 400.0 |
|
| $ 343.5 |
|
| $ 968.8 |
|
| $ 830.4 |
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Gain on sale of businesses | $ 0.0 |
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| $ 0.0 |
|
| $ (4.0) |
|
| $ (2.9) |
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Business interruption claims recovery | 0.0 |
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| (0.6) |
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| 0.0 |
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| (2.3) |
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Charges associated with divested operations | 0.0 |
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| 10.0 |
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| 0.0 |
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| 10.0 |
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Business development 1 | 0.4 |
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| 0.2 |
|
| 0.4 |
|
| 5.2 |
|
Restructuring charges 2 | 6.5 |
|
| 0.3 |
|
| 6.5 |
|
| 5.7 |
|
Adjusted EBITDA | $ 406.8 |
|
| $ 353.5 |
|
| $ 971.6 |
|
| $ 846.2 |
|
Depreciation, depletion, accretion and amortization | (96.2) |
|
| (89.4) |
|
| (278.9) |
|
| (256.5) |
|
Adjusted EBIT | $ 310.6 |
|
| $ 264.1 |
|
| $ 692.6 |
|
| $ 589.7 |
|
|
|
1 | Represents non-routine charges associated with acquisitions including the cost impact of purchase accounting inventory valuations. |
2 | Restructuring charges are included with other operating expenses and the 2019 charges are for managerial restructuring. |
Adjusted Diluted EPS from continuing Operations
Similar to our presentation of Adjusted EBITDA, we present Adjusted diluted earnings per share (EPS) from continuing operations to provide a more consistent comparison of earnings performance from period to period. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below:
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| Three Months Ended |
| Nine Months Ended | ||||||||
| September 30 |
| September 30 | ||||||||
| 2019 |
| 2018 |
|
| 2019 |
| 2018 |
| ||
Diluted Earnings Per Share |
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Net earnings | $ 1.62 |
|
| $ 1.34 |
|
| $ 3.58 |
|
| $ 2.92 |
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Less: Discontinued operations (loss) | (0.01) |
|
| 0.00 |
|
| (0.02) |
|
| (0.02) |
|
Diluted EPS from continuing operations | $ 1.63 |
|
| $ 1.34 |
|
| $ 3.60 |
|
| $ 2.94 |
|
Items included in Adjusted EBITDA above | $ 0.05 |
|
| $ 0.06 |
|
| $ 0.02 |
|
| $ 0.09 |
|
Debt refinancing costs | 0.00 |
|
| 0.00 |
|
| 0.00 |
|
| 0.04 |
|
Adjusted diluted EPS from continuing operations | $ 1.68 |
|
| $ 1.40 |
|
| $ 3.62 |
|
| $ 3.07 |
|
2019 projected ebitda
The following reconciliation to the mid-point of the range of 2019 Projected EBITDA excludes adjustments (as noted in Adjusted EBITDA above) as they are difficult to forecast (timing or amount). Due to the difficulty in forecasting such adjustments, we are unable to estimate their significance. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below:
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| 2019 Projected | ||||
in millions | Mid-point | ||||
Net earnings |
| $ 640 |
| ||
Income tax expense |
| 150 |
| ||
Interest expense, net |
| 130 |
| ||
Discontinued operations, net of tax |
| 0 |
| ||
Depreciation, depletion, accretion and amortization |
| 370 |
| ||
Projected EBITDA |
| $ 1,290 |
| ||
LIQUIDITY AND FINANCIAL RESOURCES
Our primary sources of liquidity are cash provided by our operating activities and a substantial, committed bank line of credit. Additional sources of capital include access to the capital markets, the sale of surplus real estate, and dispositions of nonstrategic operating assets. We believe these financial resources are sufficient to fund our business requirements for 2019, including:
cash contractual obligations
capital expenditures
debt service obligations
dividend payments
potential share repurchases
potential acquisitions
Our balanced approach to capital deployment remains unchanged. We intend to balance reinvestment in our business, growth through acquisitions and return of capital to shareholders, while sustaining financial strength and flexibility.
We actively manage our capital structure and resources in order to balance the cost of capital and the risk of financial stress. We seek to meet these objectives by adhering to the following principles:
maintain substantial bank line of credit borrowing capacity
proactively manage our debt maturity schedule such that repayment/refinancing risk in any single year is low
maintain an appropriate balance of fixed-rate and floating-rate debt
minimize financial and other covenants that limit our operating and financial flexibility
Cash
Included in our September 30, 2019 cash and cash equivalents and restricted cash balance of $91.1 million is $0.7 million of restricted cash as described in Note 1 under the caption Restricted Cash.
cash from operating activities
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|
|
| Nine Months Ended | ||||
| September 30 | ||||
in millions | 2019 |
| 2018 |
| |
Net earnings | $ 476.6 |
|
| $ 391.8 |
|
Depreciation, depletion, accretion and amortization (DDA&A) | 278.9 |
|
| 256.5 |
|
Noncash operating lease expense | 26.3 |
|
| 0.0 |
|
Contributions to pension plans | (6.8) |
|
| (107.2) |
|
Cost of debt purchase | 0.0 |
|
| 6.9 |
|
Other operating cash flows, net 1 | (128.9) |
|
| 24.6 |
|
Net cash provided by operating activities | $ 646.1 |
|
| $ 572.6 |
|
|
|
1 | Primarily reflects changes to working capital balances. |
Net cash provided by operating activities was $646.1 million during the nine months ended September 30, 2019, a $73.5 million increase compared to the same period of 2018. During the first nine months of 2018, we made a $100.0 million discretionary contribution to our qualified pension plans that was deductible for tax purposes in 2017 and early retired debt incurring premium and transaction costs of $6.9 million (which is added back to operating cash flows and reflected as a financing cash outflow). Additionally, as noted in the table above, beginning with our adoption of ASU 2016-02 in 2019 (see Note 17 to the condensed consolidated financial statements), the noncash amortization component of operating lease expense is added back to operating cash flows.
cash from investing activities
Net cash used for investing activities was $303.3 million during the first nine months of 2019, a $246.2 million decrease compared to the same period of 2018. During the first nine months of 2019, we invested $306.9 million in our existing operations compared to $348.2 million in the prior year period. Of this $306.9 million, $136.1 million was invested in internal growth projects to enhance our distribution capabilities, develop new production sites and enhance existing production facilities. During the first nine months of 2018, we acquired the following businesses for $213.1 million of cash consideration: Alabama — aggregates, asphalt mix and construction paving operations; California — asphalt mix operations; and Texas — aggregates rail yards, asphalt mix and construction paving operations. Furthermore, during the first quarter of 2018, we divested our ready-mixed concrete operations in Georgia resulting in proceeds of $11.3 million and a long-term aggregates supply agreement.
cash from financing activities
Net cash used for financing activities in the first nine months of 2019 was $296.2 million, compared to $126.7 million in the same period of 2018. The current year includes a net $133.0 million payment on our bank line of credit. The prior year period includes a $200.0 million net draw on our line of credit partially offset by several refinancing actions that used $84.2 million of cash (as described in the debt section below). Additionally, the capital returned to our shareholders decreased by $85.5 million as higher dividends of $11.8 million ($0.93 per share compared to $0.84 per share) were offset by lower share repurchases of $97.3 million (18,600 shares repurchased @ $139.90 average price per share compared to 866,490 shares repurchased @ $115.31 average price per share).
debt
Certain debt measures are presented below:
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|
|
| September 30 |
| December 31 |
| September 30 | |||
dollars in millions | 2019 |
| 2018 |
| 2018 | |||||
Debt |
|
|
|
|
|
|
|
| ||
Current maturities of long-term debt | $ 0.0 |
|
| $ 0.0 |
|
| $ 0.0 |
| ||
Short-term debt | 0.0 |
|
| 133.0 |
|
| 200.0 |
| ||
Long-term debt 1 | 2,783.1 |
|
| 2,779.4 |
|
| 2,778.1 |
| ||
Total debt | $ 2,783.1 |
|
| $ 2,912.4 |
|
| $ 2,978.1 |
| ||
Capital |
|
|
|
|
|
|
|
| ||
Total debt | $ 2,783.1 |
|
| $ 2,912.4 |
|
| $ 2,978.1 |
| ||
Equity | 5,542.2 |
|
| 5,202.9 |
|
| 5,145.8 |
| ||
Total capital | $ 8,325.3 |
|
| $ 8,115.3 |
|
| $ 8,123.9 |
| ||
Total Debt as a Percentage of Total Capital | 33.4% |
|
| 35.9% |
|
| 36.7% |
| ||
Weighted-average Effective Interest Rates |
|
|
|
|
|
|
|
| ||
Line of credit 2 | 1.25% |
|
| 1.25% |
|
| 1.25% |
| ||
Term debt | 4.40% |
|
| 4.56% |
|
| 4.45% |
| ||
Fixed versus Floating Interest Rate Debt |
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|
|
|
|
|
|
| ||
Fixed-rate debt | 73.7% |
|
| 70.4% |
|
| 68.8% |
| ||
Floating-rate debt | 26.3% |
|
| 29.6% |
|
| 31.2% |
| ||
|
| |
1 | Long-term debt includes the $250.0 million floating-rate notes due June 2020 (see Note 7 to the condensed consolidated financial statements) as we intend to refinance these notes and have the ability to do so by borrowing on our line of credit. | |
2 | Reflects the margin above LIBOR for LIBOR-based borrowings; we also paid upfront fees that are amortized to interest expense and pay fees for unused borrowing capacity and standby letters of credit. | |
|
| |
Line of credit
Covenants, borrowings, cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. As of September 30, 2019, we were in compliance with the line of credit covenants, the credit margin for LIBOR borrowings was 1.25%, the credit margin for base rate borrowings was 0.25%, and the commitment fee for the unused amount was 0.15%.
As of September 30, 2019, our available borrowing capacity under the line of credit was $696.7 million. Utilization of the borrowing capacity was as follows:
none was borrowed
$53.3 million was used to provide support for outstanding standby letters of credit
TERM DEBT
All of our $2,846.4 million (face value) of term debt is unsecured. $2,846.2 million of such debt is governed by three essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in all three indentures limits the amount of secured debt we may incur without ratably securing such debt. As of September 30, 2019, we were in compliance with all term debt covenants.
As a result of the first quarter 2018 early debt retirements (see Note 7 to the condensed consolidated financial statements), we recognized premiums of $5.6 million, transaction costs of $1.3 million and noncash expense (acceleration of unamortized deferred transaction costs) of $0.5 million. The combined charge of $7.4 million was recorded as interest expense in the first quarter of 2018.
CURRENT MATURITIES of long-term debt
Current maturities of long-term debt as of September 30, 2019 were insignificant. As previously noted, long-term debt includes the $250.0 million floating-rate notes due June 2020 as we intend to refinance these notes and have the ability to do so by borrowing on our line of credit.
debt ratings
Our debt ratings and outlooks as of September 30, 2019 are as follows:
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| Rating/Outlook |
| Date |
|
| Description |
|
Senior Unsecured Term Debt |
|
|
|
|
|
| |||
Fitch | BBB-/stable |
| 9/24/2018 |
|
| rating/outlook affirmed |
| ||
Moody's | Baa3/stable |
| 3/29/2019 |
|
| rating/outlook affirmed |
| ||
Standard & Poor's | BBB/stable |
| 4/4/2019 |
|
| rating/outlook affirmed |
| ||
|
|
Equity
The number of our common stock issuances and purchases for the year-to-date periods ended are as follows:
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|
|
|
|
|
|
|
|
| September 30 |
| December 31 |
| September 30 | |||
in thousands | 2019 |
| 2018 |
| 2018 | |||
Common stock shares at January 1, |
|
|
|
|
|
|
|
|
issued and outstanding | 131,762 |
|
| 132,324 |
|
| 132,324 |
|
Common Stock Issuances |
|
|
|
|
|
|
|
|
Share-based compensation plans | 607 |
|
| 630 |
|
| 587 |
|
Common Stock Purchases |
|
|
|
|
|
|
|
|
Purchased and retired | (19) |
|
| (1,192) |
|
| (866) |
|
Common stock shares at end of period, |
|
|
|
|
|
|
|
|
issued and outstanding | 132,350 |
|
| 131,762 |
|
| 132,045 |
|
On February 10, 2017, our Board of Directors authorized us to purchase 8,243,243 shares of our common stock to refresh the number of shares we were authorized to purchase to 10,000,000. As of September 30, 2019, there were 8,279,189 shares remaining under the authorization. Depending upon market, business, legal and other conditions, we may purchase shares from time to time through open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares, and may be suspended or discontinued at any time.
The detail of our common stock purchases (all of which were open market purchases) for the year-to-date periods ended are as follows:
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|
|
|
|
|
|
|
| September 30 |
| December 31 |
| September 30 | |||
in thousands, except average price | 2019 |
| 2018 |
| 2018 | |||
Shares Purchased and Retired |
|
|
|
|
|
|
|
|
Number | 19 |
|
| 1,192 |
|
| 866 |
|
Total purchase price | $ 2,602 |
|
| $ 133,983 |
|
| $ 99,916 |
|
Average price per share | $ 139.90 |
|
| $ 112.41 |
|
| $ 115.31 |
|
There were no shares held in treasury as of September 30, 2019, December 31, 2018 and September 30, 2018.
off-balance sheet arrangements
We have no off-balance sheet arrangements, such as financing or unconsolidated variable interest entities, that either have or are reasonably likely to have a current or future material effect on our:
results of operations and financial position
capital expenditures
liquidity and capital resources
Standby Letters of Credit
For a discussion of our standby letters of credit, see Note 7 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, 2018 (Form 10-K).
We prepare these financial statements to conform with accounting principles generally accepted in the United States of America. These principles require us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We base our estimates on historical experience, current conditions and various other assumptions we believe reasonable under existing circumstances and evaluate these estimates and judgments on an ongoing basis. The results of 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 materially differ from these estimates.
We believe that the accounting policies described in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K require the most significant judgments and estimates used in the preparation of our consolidated financial statements, so we consider these to be our critical accounting policies. There have been no changes to our critical accounting policies during the nine months ended September 30, 2019.
new Accounting standards
For a discussion of the accounting standards recently adopted or pending adoption and the effect such accounting changes will have on our results of operations, financial position or liquidity, see Note 17 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:
general economic and business conditions
our dependence on the construction industry, which is subject to economic cycles
the timing and amount of federal, state and local funding for infrastructure
changes in the level of spending for private residential and private nonresidential construction
changes in our effective tax rate
the increasing reliance on information technology infrastructure for our ticketing, procurement, financial statements and other processes could adversely affect operations in the event that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber-attacks
the impact of the state of the global economy on our businesses and financial condition and access to capital markets
the highly competitive nature of the construction materials industry
the impact of future regulatory or legislative actions, including those relating to climate change, wetlands, greenhouse gas emissions, the definition of minerals, tax policy or international trade
the outcome of pending legal proceedings
pricing of our products
weather and other natural phenomena, including the impact of climate change
energy costs
costs of hydrocarbon-based raw materials
healthcare costs
the amount of long-term debt and interest expense we incur
changes in interest rates
volatility in pension plan asset values and liabilities, which may require cash contributions to the pension plans
the impact of environmental cleanup costs and other liabilities relating to existing and/or divested businesses
our ability to secure and permit aggregates reserves in strategically located areas
our ability to manage and successfully integrate acquisitions
the effect of changes in tax laws, guidance and interpretations
significant downturn in the construction industry may result in the impairment of goodwill or long-lived assets
changes in technologies, which could disrupt the way we do business and how our products are distributed
other assumptions, risks and uncertainties detailed from time to time in our periodic reports filed with the SEC
All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission (SEC) and our press releases with regard to our business and consolidated financial position, results of operations and cash flows.
INVESTOR information
We make available on our website, www.vulcanmaterials.com, free of charge, copies of our:
Annual Report on Form 10-K
Quarterly Reports on Form 10-Q
Current Reports on Form 8-K
Our website also includes amendments to those reports filed with or furnished to the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database (www.sec.gov).
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 Suzanne H. Wood, Senior Vice President, Chief Financial Officer and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
We have a:
Business Conduct Policy applicable to all employees and directors
Code of Ethics for the CEO and Senior Financial Officers
Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the heading “Corporate Governance.” If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC.
Our Board of Directors has also adopted:
Corporate Governance Guidelines
Charters for its Audit, Compensation, Executive, Finance, Governance and Safety, Health & Environmental Affairs Committees
These documents meet all applicable SEC and New York Stock Exchange regulatory requirements.
The Charters of the Audit, Compensation and Governance Committees are available on our website under the heading, “Corporate Governance,” or you may request a copy of any of these documents by writing to Suzanne H. Wood, Senior Vice President, Chief Financial Officer and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.
Information included on our website is not incorporated into, or otherwise made a part of, this report.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. To manage these market risks, we may use derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.
As discussed in the Liquidity and Financial Resources section of Part I, Item 2, we actively manage our capital structure and resources to balance the cost of capital and risk of financial stress. Such activity includes balancing the cost and risk of interest expense. In addition to floating-rate borrowings, we at times use interest rate swaps to manage the mix of fixed-rate and floating-rate debt. Over time, our EBITDA and operating income are positively correlated to floating interest rates (as measured by 3-month LIBOR). As such, our business serves as a natural hedge to rising interest rates, and floating-rate debt serves as a natural hedge to weaker operating results due to general economic weakness.
At September 30, 2019, the estimated fair value of our long-term debt including current maturities was $3,036.4 million compared to a book value of $2,783.1 million. The estimated fair value was determined by averaging several asking price quotes for the publicly traded notes and assuming par value for the remainder of the debt. The fair value estimate is based on information available as of the balance sheet date. The effect of a decline in interest rates of one percentage point would increase the fair value of our debt by approximately $299.6 million.
We are exposed to certain economic risks related to the costs of our pension and other postretirement benefit plans. These economic risks include changes in the discount rate for high-quality bonds and the expected return on plan assets. The impact of a change in these assumptions on our annual pension and other postretirement benefits costs is discussed in our most recent Annual Report on Form 10-K.
ITEM 4
controls and procedures
disclosure controls and 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 Exchange Act of 1934 Rules 13a - 15(e) or 15d - 15(e)), include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer, with the participation of other management officials, evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2019. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2019.
No material changes were made during the third quarter of 2019 to our internal controls over financial reporting, nor have there been other factors that materially affect these controls.
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, 2018 and in Note 8 to the condensed consolidated financial statements and Part II, Item 1 of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2019 and June 30, 2019. See Note 8 to the condensed consolidated financial statements of this Form 10-Q for a discussion of certain recent developments concerning our legal proceedings.
ITEM 1A
risk factors
There were no material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.
ITEM 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of our equity securities during the quarter ended September 30, 2019 are summarized below.
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Period | Purchased |
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| Programs |
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| or Programs 1 |
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2019 |
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July 1 - July 31 | 0 |
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| $ 0.00 |
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| 0 |
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| 8,297,789 |
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Aug 1 - Aug 31 | 15,000 |
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| $ 139.93 |
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| 15,000 |
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| 8,282,789 |
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Sept 1 - Sept 30 | 3,600 |
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| $ 139.78 |
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| 3,600 |
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| 8,279,189 |
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Total | 18,600 |
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| $ 139.90 |
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| 18,600 |
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1 | On February 10, 2017, our Board of Directors authorized us to purchase 8,243,243 shares of our common stock to refresh the number of shares we were authorized to purchase to 10,000,000. As of September 30, 2019, there were 8,279,189 shares remaining under the authorization. Depending upon market, business, legal and other conditions, we may make share purchases from time to time through open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares, and may be suspended or discontinued at any time. |
We did not have any unregistered sales of equity securities during the third quarter of 2019.
ITEM 4
MINE SAfETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.
ITEM 6
exhibits
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Exhibit 10.1 | |||
Exhibit 31(a) | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
Exhibit 31(b) | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
Exhibit 32(a) | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
Exhibit 32(b) | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
Exhibit 95 | |||
Exhibit 101 | The following unaudited financial information from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements. | ||
Exhibit 104 | Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 is formatted in iXBRL (contained in Exhibit 101). | ||
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Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-33841.
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.
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| VULCAN MATERIALS COMPANY
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Date November 7, 2019 | /s/ Randy L. Pigg Randy L. Pigg Vice President, Controller (Principal Accounting Officer) |
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Date November 7, 2019 | /s/ Suzanne H. Wood Suzanne H. Wood Senior Vice President, Chief Financial Officer and Secretary (Principal Financial Officer) |