Business description of VULCAN-MATERIALS-COMPANY from last 10-k form
SUMMARY
Largest U.S. aggregates company by production and revenues
We are the nation’s largest producer of construction aggregates, primarily crushed stone, sand
and gravel. We are also a major producer of asphalt mix and ready-mixed concrete and a leading
producer of cement in Florida.
We estimate that the ten largest aggregates producers account for approximately 30% to 35% of the
total U.S. aggregates production. Although the industry leader, Vulcan’s total U.S. market share is
less than 10%. Other publicly traded companies among the ten largest U.S. aggregates producers
include Cemex, CRH, Heidelberg, Holcim, Lafarge, MDU Resources and Martin Marietta Materials. The
U.S. aggregates industry is highly fragmented with approximately 5,000 companies managing more than
10,000 operations. This industry structure provides considerable opportunities for consolidation
and it is common for companies in the industry to grow by entering new markets or enhancing their
market positions by acquiring existing facilities. Since our inception as a public company in 1956,
we have grown mainly through mergers and acquisitions.
Reserves are essential to long-term success in the aggregates business. We have 14.2 billion tons
of permitted and proven or probable reserves.
Reporting segments
We have three reporting segments organized around our principal product lines: aggregates,
asphalt mix and concrete, and cement.
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STRATEGY
Vulcan provides the basic materials for the infrastructure needed to drive the U.S. economy.
Our strategy is based on our strength in aggregates. Aggregates are used in all types of
construction and in the production of asphalt mix and ready-mixed concrete. Our materials are used
to build the roads, tunnels, bridges and airports that connect us, and to build the hospitals,
churches, shopping centers and factories that are essential to our lives and the economy.
AGGREGATES-LED VALUE CREATION — 2009 NET SALES
Aggregates focus
| • | Attractive industry fundamentals — Aggregates are used in virtually all types of public and private construction projects and there are practically no substitutes for quality aggregates. Because of barriers to entry created by zoning and permitting regulations and because of high transportation costs, the location of reserves is critical to long-term success. Our reserves are strategically located in high growth areas throughout the United States that will require large amounts of aggregates to meet construction demand. Aggregates operations have flexible production capabilities and require no raw material inputs other than owned or leased aggregates reserves. | ||
| • | Scale from being largest producer — Each aggregates operation is unique because of its location within a local market and its geological characteristics. However, every operation utilizes a similar group of assets to produce saleable aggregates and provide customer service. As the largest aggregates company in the U.S., whether measured by production or revenues, our 317 aggregates facilities provide opportunities to standardize and procure equipment (fixed and mobile), parts, supplies and services either regionally or nationally in the most efficient and cost-effective manner possible. Additionally, we are able to share best practices across the organization and leverage our size in the areas of administrative support, customer service, accounts receivables and accounts payable, technical support and engineering. | ||
| • | Ability to generate strong cash flows, even in a recession — A knowledgeable and experienced workforce and flexible production capabilities have allowed us to aggressively manage costs during the current recession. As a result, operating cash flow was $453.0 million in 2009 and $435.2 million in 2008. | ||
| • | Our downstream businesses (asphalt-mix and ready-mixed concrete) use Vulcan-produced aggregates — Virtually all of the aggregates used at our asphalt-mix and ready-mixed concrete plants are produced internally. |
Leverage coast-to-coast footprint
Demand for construction aggregates generally correlates with changes in population growth,
household formation and employment. We have pursued a strategy to increase our presence in
metropolitan areas that are expected to grow the most rapidly.
PERCENTAGE SHARE OF PREDICTED U.S. POPULATION GROWTH TO 2020
Source: Woods & Poole Economics and Moody’s Economy.com
Large, high-growth markets — We have aggregates operations in 9 of the 10 metropolitan areas
that demographers expect to have the largest absolute growth in population over the next decade.
Vulcan-served states are predicted to have 74% of the total growth in the U.S. population to 2020.
Our top five revenue producing states are predicted to have 48% of the total growth in the U.S.
population to 2020. This position gives us strategically located reserves where they are most
needed. Additionally, many of these reserves are located in areas where zoning and permitting laws
have made opening new quarries increasingly difficult.
Diversified regional exposure helps insulate Vulcan from variations in local weather and economies.
Profitable growth
| • | Strategic acquisitions — Since its inception as a public company in 1956, Vulcan has principally grown by merger and acquisition. For example, in 1999 we acquired CalMat, Inc., expanding our aggregates operations into California, Arizona and New Mexico and making us one of the nation’s leading producers of hot-mix asphalt and ready-mixed concrete. In 2007, we acquired Florida Rock Industries, Inc. (Florida Rock), the largest acquisition in our history. The Florida Rock acquisition expanded our aggregates business in Florida and other southeastern and mid-Atlantic states, and added to our operations an extensive ready-mixed concrete business in Florida, Maryland, Virginia and Washington, D.C. and cement manufacturing and distribution facilities in Florida. In addition to these large acquisitions, we have completed many smaller acquisitions that over time have contributed significantly to our growth. | ||
| • | Tightly manage costs — In a business where our aggregates sell, on average, for $10.30 per ton, we are accustomed to rigorous cost management throughout economic cycles. Small savings per ton of production add up to significant cost reductions. We are able to rationalize production and adjust employment levels to meet changing market demands without jeopardizing our ability to capitalize on future increased demand. | ||
| • | Reinvestment opportunities with high returns — It is estimated that 74% of the U.S. population growth over the next decade will occur in Vulcan-served states. The close proximity of our production facilities and our aggregates reserves to this projected population growth creates many opportunities to invest capital in high-return projects — projects that will add reserves, increase production capacity and improve costs. |
Effective land management
Responsible land management is important to Vulcan’s success, not only with respect to social
responsibility but also as a component of our business strategy. Good stewardship requires the
careful use of existing resources. It also requires long-term planning, because mining, ultimately,
is an interim use of the land. We therefore strive to achieve a balance between the value we create
through our mining activities and the value created when properties can be reused at the conclusion
of mining. We continue to expand our thinking and focus our actions on wise decisions regarding the
life cycle management of the land we currently hold and will hold in the future.
AGGREGATES
Attractive U.S. market fundamentals for aggregates
There are a number of factors that affect the U.S. aggregates industry and our business.
Primarily local markets
Aggregates have a high weight-to-value ratio and, in most cases, must be produced near where they
are used or transportation can cost more than the materials. Exceptions to this typical market
structure include areas along the U.S. Gulf Coast and the eastern seaboard where there are limited
supplies of locally available aggregates. We serve these markets from inland quarries — shipping
by barge and rail — and from our quarry on Mexico’s Yucatan Peninsula. We transport aggregates
from Mexico to the U.S. principally on our Panamax-class, self-unloading ships.
Location and quality of reserves are critical
Vulcan currently has 14.2 billion tons of permitted and proven or probable reserves. The bulk of
these reserves are located in areas we expect to have greater than average rates of growth in
population, jobs and households, requiring new infrastructure, housing, offices, schools and other
development, all of which require aggregates for construction. Zoning and permitting regulations
have made it increasingly difficult for the aggregates industry to expand existing quarries or to
develop new quarries in some markets. These restrictions could curtail expansion in certain areas
but they could also increase the value of our reserves at existing locations.
Demand cycles characterized by short, steep declines followed by solid recovery
Long-term growth in demand for aggregates is largely driven by growth in population, jobs and
households. While short- and medium-term demand for aggregates fluctuates with economic cycles, the
declines have historically been followed by strong recovery, with each peak establishing a new
historical high. In comparison to all other recent demand cycles, the current downturn has been
unusually steep and long. It is therefore difficult to predict the timing or strength of any future
recovery.
Diverse markets
Large quantities of aggregates are used in virtually all types of public- and private-sector
construction projects — highways, water and sewer systems, industrial manufacturing facilities,
residential and nonresidential buildings. Aggregates also are widely used as railroad track
ballast.
ESTIMATED U.S. AGGREGATES DEMAND BY END-MARKET
Source: internal estimates
Highway construction is the most aggregates-intensive form of construction and residential
construction is the least intensive. A dollar of spending for highway construction is estimated to
consume seven times the quantity of aggregates consumed by a dollar of spending for residential
construction. Other non-highway infrastructure markets like airports, sewer and waste disposal or
water supply plants and utilities also require large quantities of aggregates in their foundations
and structures. These types of infrastructure-related construction can be four times more
aggregates-intensive than residential construction. Generally, nonresidential buildings require two
to three times as much aggregates per dollar of spending as a new home with most of the aggregates
used in the foundations, building structure and parking lots.
Highly fragmented industry
The U.S. aggregates industry is composed of approximately 5,000 companies managing more than 10,000
operations. This fragmented structure provides considerable opportunities for consolidation and it
is common for companies in the industry to enter new markets or expand positions in existing
markets through the acquisition of existing facilities.
Relatively stable demand from the public sector
Publicly funded construction activity historically has been more stable than privately funded
construction. Public construction also has been less cyclical than private construction and it
requires more aggregates per dollar of construction spending. Private construction (primarily
residential and nonresidential buildings) typically is more subject to general economic cycles than
public construction. Publicly funded projects (particularly highways, roads and bridges) tend to
receive consistent levels of funding throughout economic cycles.
Limited product substitution
With few exceptions, there are no practical substitutes for quality aggregates. In some areas,
typically urban locations, recycled concrete has limited applications as a lower-cost alternative
to virgin aggregates. However, many types of construction projects cannot be serviced by recycled
concrete but require the use of virgin aggregates to meet specifications and performance-based
criteria for durability, strength and other qualities.
Widely used in downstream products
In the production process, aggregates are processed for specific applications or uses. Two
downstream products that utilize aggregates are asphalt mix and ready-mixed concrete. Aggregates
comprise approximately 95% of asphalt mix by weight and 78% of ready-mixed concrete by weight.
Flexible production capabilities
The production of aggregates is a mechanical process in which stone is crushed and, through a
series of screens, separated into various sizes depending on ultimate use. The production does not
require high start-up costs like continuous process manufacturing. Production capacity can be
flexed efficiently by adjusting operating hours to meet changing market demand. For example, we
reduced production during 2009 in response to the economic downturn and have the capacity to
quickly increase production as economic conditions and demand improve.
No raw material inputs
Unlike much industrial manufacturing, the aggregates industry does not require raw material inputs
beyond owned or leased aggregates reserves. Stone, sand and gravel are naturally occurring
resources. Production does require the use of explosives, hydrocarbon fuels and electric power.
Our markets
Our markets are local yet national. Because transportation is a significant part of the
delivered cost of aggregates, we focus on the areas of the U.S. with the greatest expected
population growth and where construction is expected to expand. Thus, our distribution facilities
are located in the markets they serve.
Public sector
Public sector construction includes spending by federal, state and local governments for highways,
bridges and airports as well as other infrastructure construction for sewer and waste disposal
systems, water supply systems, dams, reservoirs and other public construction projects.
Construction for power plants and other utilities is funded from both public and private sources.
In 2009, publicly funded construction accounted for 50% of our total aggregates shipments.
Generally, public sector construction spending is more stable than private sector construction.
Public sector spending is less sensitive to interest rates and often is supported by multi-year
legislation and programs. The federal transportation bill is a principal source of federal funding
for public infrastructure and transportation projects. For over two decades, the federal funding
component of these projects has been provided through a series of six-year bills. The multi-year
aspect of these bills is critically important because it provides state departments of
transportation with the ability to plan and execute long-term and complex highway projects. Federal
highway spending has been governed by a six-year authorization bill, the most recent covering
fiscal years 2004-2009, and annual budget appropriations using funds largely taken from the Federal
Highway Trust Fund. This trust fund receives funding from taxes on gasoline and other levies. The
level of state spending on infrastructure varies across the United States and depends on individual
state needs and economies. In 2009, approximately 27% of our aggregates sales by volume were used
in public highway construction projects.
The most recent federal transportation bill, known as SAFETEA-LU, expired on September 30, 2009.
Following the expiration, Congress has yet to extend the legislation or pass a replacement bill. As
a result, funds for highway construction are being provided by a series of relatively short
continuing resolutions and at funding levels considerably below what would have been available had
Congress extended the provisions of SAFETEA-LU. This uncertainty compelled many states to postpone
highway maintenance and improvement projects.
Congress currently is working to finalize a “jobs bill” that includes provisions to restore highway
funding at previously budgeted levels through the end of 2010. This action would be funded by the
transfer of approximately $20 billion in interest owed from the General Fund to the Highway Trust
Fund. If passed, this legislation would be an important first step on the path to long-term highway
funding stability that will occur with the ultimate passage of a multi-year highway bill.
There is significant need for additional and ongoing investments in the nation’s infrastructure. In
2009, a report by the American Society of Civil Engineers (ASCE) gave our nation’s infrastructure
an overall grade of “D” and estimated that an investment of $2.2 trillion over a five-year period
is needed for improvements. While the needs are clear, the source of funding for infrastructure
improvements is not. In its report, the ASCE suggests that all levels of government, owners and
users need to renew their commitment to infrastructure investments in all categories and that all
available financing options should be explored and debated.
The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law on February 17, 2009
to create jobs and restore economic growth through, among other things, the modernization of
America’s infrastructure and improving its energy resources. Included in the $787 billion of
economic stimulus funding is $50 to $60 billion of heavy construction, including $27.5 billion for
highways and bridges. This federal funding for highways and bridges, unlike typical federal funding
programs for infrastructure, will not require states to provide matching funds. The nature of the
projects that are being funded by ARRA generally will require considerable quantities of
aggregates. Also, we expect construction activity will increase due to spending allocated to the
following areas: $1.1 billion for airports; $8.4 billion for mass transit; $8.0 billion for high
speed rail; $4.6 billion for the Army Corps of Engineers; $6.0 billion for water and sewer
projects; and $4.2 billion for United States Department of Defense facilities. Other funding and
tax relief that could generate additional demand for our products includes $6.4 billion to clean
nuclear weapon sites; $6.0 billion to subsidize loans for renewable energy; $20.0 billion for
renewable energy tax incentives; $6.3 billion to states for energy efficiency and clean energy
grants; $8.8 billion for the renovation of schools; and $6.6 billion for a first time homebuyer
credit of $8,000.
Economic stimulus funds of $27.5 billion designated for highway projects under ARRA buoyed
contract awards for highways in the second half of 2009. Through December 2009, the Federal Highway
Administration reported approximately $15 billion of stimulus-related highway projects under
construction with $5.6 billion of these stimulus funds having been paid to contractors for work
performed. During this same period, Vulcan-served states, which were apportioned 55% more funds
than other states, lagged the rest of the country in awarding and starting stimulus-related highway
construction projects. These differences in awarding projects and spending patterns result in part
from the types of projects planned and the proportion sub-allocated to metropolitan planning
organizations where project planning and execution can be more complicated and time consuming.
Despite the failure of Congress to pass a fully-funded extension of SAFETEA-LU, the previous
highway authorization that expired on September 30, 2009, contract awards for highways in the
fourth quarter increased 9% from the same period in the prior year. Moreover, contract awards for
highway projects in Vulcan-served states increased 13% from the prior year fourth quarter versus a
2% increase in other states. We are encouraged by the increased award activity and are optimistic
that stimulus-related highway projects in Vulcan-served states, after a slow start, are now moving
forward and will increase demand for our products in 2010.
Our available production capacity and ongoing efforts to improve cash margins position Vulcan to
participate efficiently and effectively in the $50 to $60 billion of stimulus-related heavy
construction, including significant remaining portions of the $27.5 billion for highways and
bridges. We expect 2010 to be the largest year of stimulus-related highway demand for our products,
followed by another solid year in 2011.
Private sector
This market includes both nonresidential buildings and residential construction and is more
cyclical than public construction. In 2009, privately-funded construction accounted for 50% of our
total aggregates shipments.
Private nonresidential construction includes a wide array of project types and generally is more
aggregates intensive per dollar of construction spending than residential construction but less
aggregates intensive than public construction. Overall demand in private nonresidential
construction is generally driven by job growth, vacancy rates, private infrastructure needs and
demographic trends. The growth of the private workforce creates a demand for offices, hotels and
restaurants. Likewise, population growth generates demand for stores, shopping centers, warehouses
and parking decks as well as hospitals, churches and entertainment facilities. Large industrial
projects, such as a new manufacturing facility, can increase the need for other manufacturing
plants to supply parts and assemblies. Construction activity in this end market is influenced by a
firm’s ability to finance a project and the cost of such financing.
The majority of residential construction is for single-family houses with the remainder consisting
of multi-family construction (i.e., two family houses, apartment buildings and condominiums).
Public housing comprises a small portion of the housing demand. Household formations in Vulcan’s
markets have grown faster than the U.S. as a whole in the last 10 years. During that time, U.S.
household growth was only 11% compared to 14% in our markets. Construction activity in this end
market is influenced by the cost and availability of mortgage financing. Demand for our products
generally occurs early in the infrastructure phase of residential construction and later as part of
driveways or parking lots.
U.S. housing starts peaked in 2005 at just over 2 million units. By the end of 2009, housing starts
had declined to approximately 600,000 units, a 70% decline from the most recent peak and well below
prior historical lows of approximately 1 million units annually. Multi-family starts have remained
weak. However, in November 2009, single-family housing starts increased 28% as compared to the same
period in 2008, breaking a string of 43 consecutive months of year-over-year declines. We believe
this data, while not necessarily reflective of a long-term trend, is encouraging. Lower home
prices, attractive mortgage interest rates and fewer existing homes for sale provide some optimism
in single-family housing construction in 2010 and beyond.
Consistent with past cycles of private sector construction, private nonresidential construction
remained strong after residential construction peaked in 2005. However, in late 2007, contract
awards for nonresidential buildings peaked. In 2008, contract awards in the U.S. declined 24% from
the prior year, and in 2009 fell sharply, declining 56% from 2008 levels. Contract awards for
stores and office buildings were the weakest categories of nonresidential construction in 2009,
declining more than 60% from the prior year.
Other markets
We sell ballast to railroads for construction and maintenance of railroad track. We also sell
riprap and jetty stone for erosion control along waterways. In addition, stone also can be used as
a feedstock for cement and lime plants and for making a variety of adhesives, fillers and
extenders. Coal-burning power plants use limestone in scrubbers to reduce harmful emissions.
Limestone that is crushed to a fine powder also can be sold as agricultural lime.
Our competitive advantage
We are the largest producer of construction aggregates in the United States. The aggregates
market is highly fragmented with many small, independent producers. Therefore, depending on the
market, we may compete with large national or regional firms as well as relatively small local
producers. Since construction aggregates are expensive to transport relative to their value,
markets generally are local in nature. Thus, the cost to deliver product to the location where it
is used is an important competitive factor.
DEMOGRAPHIC TRENDS — 2010 TO 2020
Forecasted compound annual growth rate
Source: Woods & Poole Economics and Moody’s Economy.com
We focus on serving metropolitan areas that demographers expect will experience the largest
absolute growth in population in the future. A market often consists of a single metropolitan area
or one or more counties where
transportation from the producing location to the customer is by
truck only. Approximately 84% of our total aggregates shipments are delivered locally by truck.
Sales yards and other distribution facilities located on waterways and rail lines allow us to reach
markets that do not have locally available sources of aggregates.
Zoning and permitting regulations in some markets have made it increasingly difficult to expand
existing quarries or to develop new quarries. Any such regulations, while potentially curtailing
expansion in certain areas, could also increase the value of our reserves at existing locations.
We sell a relatively small amount of construction aggregates outside of the United States
principally in the areas surrounding our large quarry on the Yucatan Peninsula in Mexico.
Non-domestic sales and long-lived assets outside the United States are reported in Note 15 to the
consolidated financial statements in Item 8 “Financial Statements and Supplementary Data.”
ASPHALT MIX AND CONCRETE
We produce and sell asphalt mix and ready-mixed concrete primarily in our mid-Atlantic,
Florida, southwestern and western markets. Additionally, we produce and sell in a limited number of
these markets other concrete products such as block, prestressed and precast beams, and resell
purchased building materials for use with ready-mixed concrete and concrete block.
This segment relies on our reserves of aggregates, functioning essentially as a customer to our
aggregates operations or as a means of distributing products produced by our aggregates and cement
businesses. Aggregates are a major component in asphalt mix and in ready-mixed concrete, comprising
approximately 95% of asphalt mix by weight and 78% of ready-mixed concrete by weight. Our Asphalt
mix and Concrete segment is almost wholly supplied with its aggregates requirements from our
Aggregates segment. These product transfers are made at local market prices for the particular
grade and quality of material required.
Customers for our Asphalt mix and Concrete segment are generally served locally from our production
facilities or by truck. Because ready-mixed concrete and asphalt mix harden rapidly, delivery
typically is confined to a radius of approximately 20 to 25 miles from the producing facility. Our
Asphalt mix and Concrete segment constituted approximately 30% of our sales dollars before the
elimination of intersegment sales in 2009, compared to 32% in 2008 and 24% in 2007.
Ready-mixed concrete production also requires cement. In the Florida market, cement requirements
for ready-mixed concrete production is supplied substantially by our Cement segment. In other
markets, we purchase cement from third-party suppliers. The asphalt production process requires
liquid asphalt, which we purchase entirely from third-party producers. We do not anticipate any
material difficulties in obtaining the raw materials necessary for this segment to operate.
CEMENT
Our Newberry, Florida cement plant produces Portland and masonry cement that we sell in both
bulk form and bags to the concrete products industry. Our Tampa, Florida facility imports and
exports cement and slag. Some of the imported cement is resold, and the balance of the cement is
blended, bagged, or reprocessed into specialty cements that are then sold. The slag is ground and
sold in blended or unblended form. Our Port Manatee, Florida facility imports cement clinker that
is ground into bulk cement and sold. Our Brooksville, Florida plant produces calcium products for
the animal feed, paint, plastics and joint compound industries.
The Cement segment’s largest single customer is our ready-mixed concrete operations within the
Asphalt mix and Concrete segment.
During 2009, we substantially completed the project to expand our Newberry cement facility to
double its production capacity to 1.6 million tons per year. This plant is supplied by limestone
mined at the facility. These limestone reserves total 193.9 million tons. The new capacity is
expected to become fully operational in 2010.
Our Brooksville calcium facility is supplied with high quality calcium carbonate material mined at
the Brooksville quarry. The calcium carbonate reserves at this quarry total approximately 6.6
million tons.
OTHER BUSINESS RELATED ITEMS
Seasonality and cyclical nature of our business
Almost all our products are produced and consumed outdoors. Our financial results for any
quarter do not necessarily indicate the results expected for the year because seasonal changes and
other weather-related conditions can affect the production and sales volumes of our products.
Normally, the highest sales and earnings are in the third quarter and the lowest are in the first
quarter. Further, our sales and earnings are sensitive to national, regional and local economic
conditions and particularly to cyclical swings in construction spending, primarily in the private
sector. The levels of construction spending are affected by changing interest rates, and
demographic and population fluctuations.
Customers
No material part of our business is dependent upon one or a few customers, the loss of which
would have a material adverse effect on our business. In 2009, our top five customers accounted for
4.2% of our total revenues (excluding internal sales), and no single customer accounted for more
than 1.3% of our total revenues. Our products typically are sold to private industry and not
directly to governmental entities. Although approximately 45% to 55% of our aggregates shipments
have historically gone into 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.
Research and development costs
We conduct research and development and technical service activities at our Technical Service
Center in Birmingham, Alabama. In general, these efforts are directed toward new and more efficient
uses of our products and in supporting customers in pursuing the most efficient use of our
products. We spent $1.5 million in 2009 and 2008 and $1.6 million in 2007 on research and
development activities.
Environmental costs and governmental regulation
Our operations are subject to federal, state and local laws and regulations relating to the
environment and to health and safety, including noise, water discharge, air quality, dust control,
zoning and permitting. We estimate that capital expenditures for environmental control facilities
in 2010 and 2011 will be approximately $8.1 million and $7.2 million, respectively.
Frequently we are required by state and local regulations or contractual obligations to reclaim our
former mining sites. These reclamation liabilities are recorded in our financial statements as a
liability at the time the obligation arises. The fair value of such obligations is capitalized and
depreciated over the estimated useful life of the owned or leased site. The liability is accreted
through charges to operating expenses. To determine the fair value, we estimate the cost for a
third party to perform the legally required reclamation, adjusted for inflation and risk and
including a reasonable profit margin. All reclamation obligations are reviewed at least annually.
For additional information regarding reclamation obligations (referred to in our financial
statements as asset retirement obligations), see Notes 1 and 17 to the consolidated financial
statements in Item 8 “Financial Statements and Supplementary Data.” Reclaimed quarries often have
potential for use in commercial or residential development or as reservoirs or landfills. However,
no projected cash flows from these anticipated uses have been considered to offset or reduce the
estimated reclamation liability.
Patents and trademarks
We do not own or have a license or other rights under any patents, trademarks or trade names
that are material to any of our reporting segments.
Other information regarding Vulcan
Vulcan is
a New Jersey corporation incorporated on February 14, 2007,
but its predecessor company was incorporated on September 27, 1956. Our principal sources of
energy are electricity, diesel fuel, natural gas and coal. We do not anticipate any difficulty in
obtaining sources of energy required for operation of any of our reporting segments (i.e.,
Aggregates, Asphalt mix and Concrete, and Cement).
As of January 1, 2010, we employed 8,227 people in the U.S., a reduction of 1,093 from January 1,
2009. Of these employees, 795 are represented by labor unions. We also employ 252 union hourly
employees in Mexico. We do not anticipate any significant issues with such unions in 2010.
We do not consider our backlog of orders to be material to, or a significant factor in, evaluating
and understanding our business.
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 and
amendments to those reports filed with or furnished to the Securities and Exchange Commission (the
“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all
Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings
are made publicly available by the SEC on its EDGAR database (www.sec.gov). The public may read and
copy materials filed with the SEC at the Public Reference Room of the SEC at 100 F Street, NE,
Washington, D. C. 20549. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-732-0330. In addition to accessing copies of our reports online,
you may request a copy of our Annual Report on Form 10-K, including financial statements, by
writing to Jerry F. Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive,
Birmingham, Alabama 35242.
We have a Business Conduct Policy applicable to all employees and directors. Additionally, we have
adopted a 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 and charters for its Audit, Compensation
and Governance Committees that are designed to meet all applicable SEC and New York Stock Exchange
regulatory requirements. Each of these documents is available on our website under the heading,
“Corporate Governance,” or you may request a copy of any of these documents by writing to Jerry F.
Perkins Jr., Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama
35242.
ITEM 1A. RISK FACTORS
An investment in our common stock involves risks. You should carefully consider the following
risks, together with the information included in or incorporated by reference in this report,
before deciding whether an investment in our common stock is suitable for you. If any of these
risks actually occurs, our business, results of operations or financial condition could be
materially and adversely affected. In such an event, the trading prices of our common stock could
decline and you might lose all or part of your investment.
Our incurrence of additional debt to finance a portion of the Florida Rock merger significantly
increased our interest expense, financial leverage and debt service requirements — We incurred
considerable short-term and long-term debt to finance the Florida Rock merger. Incurrence of this
debt significantly increased our leverage and caused downgrades in our credit rating. There may be
circumstances in which required payments of principal and/or interest on this debt could adversely
affect our cash flows.
There are various financial and restrictive covenants in our debt instruments. If we fail to comply
with any of these requirements, the related indebtedness (and other unrelated indebtedness) could
become due and payable prior to its stated maturity. A default under our debt instruments may also
significantly affect our ability to obtain additional or alternative financing.
Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness
will depend on our operating and financial performance, which in turn is subject to prevailing
economic conditions and to financial, business and other factors beyond our control.
Construction, both commercial and residential, is dependent upon the overall U.S. economy which
remains weak and could weaken further — Commercial and residential construction levels generally
move with economic cycles; when the economy is strong, construction levels rise and when the
economy is weak, construction levels fall. The overall U.S. economy has been hurt by the changes in
the financial services sector, including failures of several large financial institutions,
significant merger and acquisition activity within that industry and the resulting constraints on
credit availability. The commercial construction market declined in 2008 and 2009, due mostly to
the recession and disruptions in credit availability. Also, continued weakness in the residential
construction market negatively affected the commercial construction market. The residential
construction market further softened in 2009 as a result of the housing market downturn. The
overall weakness in the economy and the uncertainty in the credit markets could cause commercial
and residential construction to remain at low levels or weaken further.
The collapse of the subprime mortgage market and, in turn, the housing market could continue to
negatively affect demand for our products — In most of our markets, particularly Florida and
California, sales volumes have been negatively impacted by the collapse of the subprime mortgage
market and a significant decline in residential construction. Our sales volumes and earnings could
continue to be depressed and negatively impacted by this segment of the market until the slowdown
in residential construction improves.
A decline in public sector construction and reductions in governmental funding could adversely
affect our operations and results — In 2009, 50% of our sales volume of construction aggregates was
made to contractors on publicly funded construction projects. If, as a result of a loss of federal
funding, a protracted delay by Congress to extend or replace the multi-year federal transportation
bill that expired on September 30, 2009, or a significant reduction in state or federal budgets,
spending on publicly funded construction were to be reduced significantly, our earnings and cash
flows could be negatively affected. Further, any delays in expenditure of stimulus funds designated
for highways and other public work projects pursuant to the American Recovery and Reinvestment Act
of 2009 could negatively impact our earnings for 2010.
Difficult and volatile conditions in the credit markets could affect our financial position,
results of operations and cash flows — The current credit environment has negatively affected the
U.S. economy and demand for our products. Commercial and residential construction could continue to
decline if companies and consumers are unable to finance construction projects or if the economic
slowdown continues to cause delays or cancellations of capital projects.
A recessionary economy can also increase the likelihood we will not be able to collect on our
accounts receivable from our customers. We have experienced payment delays from some of our
customers during this economic downturn.
The credit environment could limit our ability to issue commercial paper. Additional financing or
refinancing might not be available and, if available, may not be at economically favorable terms.
Interest rates on new issuances of long-term public debt in the market may increase due to higher
credit and risk premiums. There is no guarantee we will be able to access the capital markets at
economical interest rates, which could negatively affect our business.
We may be required to obtain financing in order to fund certain strategic acquisitions, if they
arise, or to refinance our outstanding debt. We are also exposed to risks from tightening credit
markets, through the interest payable on our outstanding short-term debt and the interest cost on
our commercial paper, to the extent it is available to us. While it is our objective to maintain
our credit ratings at investment grade levels, we cannot be assured these ratings will remain at
those levels. While we believe that we will continue to have adequate credit available to meet our
needs, there can be no assurance of such credit availability.
Weather can materially affect our quarterly results — Almost all of our products are used in
the public or private construction industry, and our production and distribution facilities are
located outdoors. Inclement weather affects both our ability to produce and distribute our
products and affects our customers’ short-term demand since their work also can be hampered by
weather. Therefore, our results can be negatively affected by inclement weather.
Within our local markets, we operate in a highly competitive industry — The construction aggregates
industry is highly fragmented with a large number of independent local producers in a number of our
markets. However, in most markets, we also compete against large private and public companies, some
of which are more vertically integrated than we are. This results in intense competition in a
number of markets in which we operate. Significant competition could lead to lower prices, lower
sales volumes and higher costs in some markets, negatively affecting our earnings and cash flows.
In certain markets, vertically integrated competitors have acquired some asphalt mix and
ready-mixed concrete customers and this trend may continue to accelerate.
Our long-term success is dependent upon securing and permitting aggregates reserves in
strategically located areas — Construction aggregates are bulky and heavy and, therefore, difficult
to transport efficiently. Because of the nature of the products, the freight costs can quickly
surpass the production costs. Therefore, except for geographic regions that do not possess
commercially viable deposits of aggregates and are served by rail, barge or ship, the markets for
our products tend to be very localized around our quarry sites. New quarry sites often take a
number of years to develop, so our strategic planning and new site development must stay ahead of
actual growth. Additionally, in a number of urban and suburban areas in which we operate, it is
increasingly difficult to permit new sites or expand existing sites due to community resistance.
Therefore, our future success is dependent, in part, on our ability to accurately forecast future
areas of high growth in order to locate optimal facility sites and on our ability to secure
operating and environmental permits to operate at those sites.
Our future growth is dependent in part on acquiring other businesses in our industry and
successfully integrating them with our existing operations — The expansion of our business is
dependent in part on the acquisition of existing businesses that own or control aggregates
reserves. Credit and financing availability could make it more difficult to capitalize on potential
acquisitions. Additionally, with regard to the acquisitions we are able to complete, our future
results will be dependent in part on our ability to successfully integrate these businesses with
our existing operations.
Changes in legal requirements and governmental policies concerning zoning, land use, environmental
and other areas of the law impact our business — Our operations are affected by numerous federal,
state and local laws and regulations related to zoning, land use and environmental matters. Despite
our compliance efforts, there is the inherent risk of liability in the operation of our business,
especially from an environmental standpoint. These potential liabilities could have an adverse
impact on our operations and profitability. Our operations require numerous governmental approvals
and permits, which often require us to make significant capital and maintenance expenditures to
comply with zoning and environmental laws and regulations. Stricter laws and regulations, or more
stringent interpretations of existing laws or regulations, may impose new liabilities on us, reduce
operating hours, require additional investment by us in pollution control equipment, or impede our
opening new or expanding existing plants or facilities.
Our industry is capital intensive, resulting in significant fixed and semi-fixed costs. Therefore,
our earnings are highly sensitive to changes in volume — Due to the high levels of fixed capital
required for the extraction and production of construction aggregates, profitability as measured in
absolute dollars and as a percentage of net sales (margins) can be greatly impacted due to changes
in volume.
Our products are transported by truck, rail, barge or ship, primarily by third-party providers.
Significant delays or increased costs affecting these transportation methods could materially
affect our operations and earnings — Our products are distributed either by truck to local markets
or by rail, barge or oceangoing vessel to remote markets. Costs of transporting our products could
be negatively affected by factors outside of our control, including rail service interruptions or
rate increases, tariffs, rising fuel costs and capacity constraints. Additionally, inclement
weather, including hurricanes, tornadoes and other weather events, can negatively impact our
distribution network.
Our future success depends greatly upon attracting and retaining qualified personnel, particularly
in sales and operations — A significant factor in our future profitability is our ability to
attract, develop and retain qualified personnel. Our success in attracting qualified personnel,
particularly in the areas of sales and operations, is affected by changing demographics of the
available pool of workers with the training and skills necessary to fill the available positions,
the impact on the labor supply due to general economic conditions, and our ability to offer
competitive compensation and benefit packages.
We use large amounts of electricity, diesel fuel, liquid asphalt and other petroleum-based
resources that are subject to potential supply constraints and significant price fluctuation — In
our production and distribution processes, we consume significant amounts of electricity, diesel
fuel, liquid asphalt and other petroleum-based resources. The availability and pricing of these
resources are subject to market forces that are beyond our control. Our suppliers contract
separately for the purchase of such resources and our sources of supply could be interrupted should
our suppliers not be able to obtain these materials due to higher demand or other factors
interrupting their availability. Variability in the supply and prices of these resources could
materially affect our operating results from period to period and rising costs could erode our
profitability.
The costs of providing pension and healthcare benefits to our employees have risen in recent years.
Continuing increases in such costs could negatively affect our earnings — The costs of providing
pension and healthcare benefits to our employees have increased substantially over the past several
years. We have instituted measures to help slow the rate of increase. However, if these costs
continue to rise, this could have an adverse effect on our financial position, results of
operations, or cash flows.
We are involved in a number of legal proceedings. We cannot predict the outcome of litigation and
other contingencies with certainty — We are involved in several class action and complex litigation
proceedings, some arising from our previous ownership and operation of our Chemicals business.
Although we divested our Chemicals business in June 2005, we retained certain liabilities related
to the business. As required by generally accepted accounting principles, we establish reserves
when a loss is determined to be probable and the amount can be reasonably estimated. Our assessment
of probability and loss estimates are based on the facts and circumstances known to us at a
particular point in time. Subsequent developments in legal proceedings may affect our assessment
and estimates of a loss contingency, and could result in an adverse effect on our financial
position, results of operations, or cash flows. For a description of our current significant legal
proceedings see Note 12 “Commitments and Contingencies” in Item 8 “Financial Statements and
Supplementary Data.”
Climate change and climate change legislation or regulations may adversely impact our business — A
number of governmental bodies have introduced or are contemplating legislative and regulatory
change in response to the potential impacts of climate change including pending U.S. legislation
that, if enacted, would limit and reduce greenhouse gas emissions through a “cap and trade” system
of allowances and credits, among other provisions. In addition, the Environmental Protection Agency
(EPA) has for the first time required large emitters of greenhouse gases to collect and report data
with respect to their greenhouse gas emissions and has proposed a permitting process for large
emitters. We have determined that our Newberry cement plant would likely be subject to this
permitting under the regulations as currently proposed. These regulatory mechanisms may be either
voluntary or legislated and may impact our operations directly or indirectly through customers or
our supply chain. Any such “cap-and-trade”
system or other limitations imposed on the emission of
“greenhouse gases” could have a material adverse affect on our financial position, results of
operation or cash flows.
The potential physical impacts of climate change on our operations are highly uncertain, and will
be particular to the specific geographic location of our facilities and operations. These may
include changes in rainfall patterns, shortages of water or other natural resources, changing sea
levels, changing storm patterns and intensities, and changing temperature levels. The impact of
these laws and regulations could also potentially increase our energy costs. These effects may
adversely impact the cost, production and financial performance of our operations.
We use estimates in accounting for a number of significant items. Changes in our estimates could
affect our future financial results — As discussed more fully in “Critical Accounting Policies”
under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” we use significant judgment in accounting for goodwill and goodwill impairment;
impairment of long-lived assets excluding goodwill; reclamation costs; pension and other
postretirement benefits; environmental compliance; claims and litigation including self-insurance;
and income taxes. Although we believe we have sufficient experience and reasonable procedures to
enable us to make appropriate assumptions and formulate reasonable estimates, these assumptions and
estimates could change significantly in the future and could result in a material adverse effect on
our financial position, results of operations, or cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Aggregates
As the largest U.S. producer of construction aggregates, we have operating facilities across
the U.S. and in Mexico and the Bahamas. We principally serve markets in 21 states, the District of
Columbia and the local markets surrounding our operations in Mexico and the Bahamas. Our primary
focus is serving states and metropolitan markets in the U.S. that are predicted to experience the
most significant growth in population, households and employment. These three demographic factors
are significant drivers of demand for aggregates.
Our current estimate of 14.2 billion tons of proven and probable aggregates reserves reflects a
decrease of 0.2 billion tons, on a comparable basis, from the estimate at the end of 2008.
Estimates of reserves are of recoverable stone, sand and gravel of suitable quality for economic
extraction, based on drilling and studies by our geologists and engineers, recognizing reasonable
economic and operating restraints as to maximum depth of overburden and stone excavation, and
subject to permit or other restrictions.
Proven, or measured, reserves are those reserves for which the quantity is computed from dimensions
revealed by drill data, together with other direct and measurable observations such as outcrops,
trenches and quarry faces; the grade and/or quality are computed from the results of detailed
sampling; and the sampling and measurement data are spaced so closely and the geologic character is
so well defined that size, shape, depth and mineral content of reserves are well-established.
Probable, or indicated, reserves are those reserves for which quantity and grade and/or quality are
computed partly from specific measurements and partly from projections based on reasonable, though
not drilled, geologic evidence. The degree of assurance, although lower than that for proven
reserves, is high enough to assume continuity between points of observation.
Reported proven and probable reserves include only quantities that are owned in fee or under lease,
and for which all appropriate zoning and permitting have been obtained. Leases, zoning, permits,
reclamation plans and other government or industry regulations often set limits on the areas,
depths and lengths of time allowed for mining, stipulate setbacks and slopes that must be left in
place, and designate which areas may be used for surface facilities,
berms, and overburden or waste
storage, among other requirements and restrictions. Our reserve estimates take into account these
factors. Technical and economic factors also affect the estimates of reported reserves regardless
of what might otherwise be considered proven or probable based on a geologic analysis. For example,
excessive overburden or weathered rock, rock quality issues, excessive mining depths, groundwater
issues, overlying wetlands, endangered species habitats, and rights of way or easements may
effectively limit the quantity of reserves considered proven and probable. In addition,
computations for reserves in-place are adjusted for estimates of unsaleable sizes and materials as
well as pit and plant waste.
The 14.2 billion tons of estimated aggregates reserves reported at the end of 2009 include reserves
at inactive and greenfield (undeveloped) sites. We reported proven and probable reserves of 13.3
billion tons at the end of 2008. That determination excluded reserves at inactive and greenfield
sites that otherwise qualified as proven or probable reserves and could be economically and legally
extracted. Including inactive and greenfield sites, proven and probable reserves at the end of 2008
were 14.4 billion tons. This table presents, by division, the tons of proven and probable
aggregates reserves as of December 31, 2009 and the types of facilities operated.
By Division:
Florida Rock
Mideast
Midsouth
Midwest
Southeast
Southern and Gulf Coast
Southwest
Western
Total
Of the 14.2 billion tons of aggregates reserves, 8.0 billion tons or 56% are located on owned
land and 6.2 billion tons or 44% are located on leased land. While some of our leases run until
reserves at the leased sites are exhausted, generally our leases have definite expiration dates,
which range from 2010 to 2159. Most of our leases have renewal options to extend them well beyond
their current terms at our discretion.
The following table lists our ten largest active aggregates facilities based on the total proven
and probable reserves at the sites. None of our aggregates facilities contributes more than 5% to
our net sales.
Playa del Carmen (Cancun), Mexico
Hanover (Harrisburg), Pennsylvania
McCook (Chicago), Illinois
Dekalb (Chicago), Illinois
Gold Hill (Charlotte), North Carolina
Rockingham (Charlotte), North Carolina
1604 Stone (San Antonio), Texas
Grand Rivers (Paducah), Kentucky
Macon, Georgia
Gray Court (Greenville), South Carolina
Asphalt mix, Concrete and Cement
We also operate a number of other facilities in several of our divisions:
Northern Concrete
The asphalt mix and concrete facilities are able to meet their needs for raw material inputs
with a combination of internally sourced and purchased raw materials. Our Cement segment operates
two limestone quarries in Florida:
Newberry
Brooksville
Headquarters
Our headquarters are located in an office complex in Birmingham, Alabama. The office space is
leased through December 31, 2013, with two five-year renewal periods, and consists of approximately
184,125 square feet. The annual rental costs for the current term of the lease is $3.4 million.
ITEM 3. LEGAL PROCEEDINGS
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 are a defendant in various lawsuits in the ordinary course of business. It is not possible to
determine with precision the outcome of, or the amount of liability, if any, under these lawsuits,
especially where the cases involve possible jury trials with as yet undetermined jury panels.
See Note 12 “Commitments and Contingencies” in Item 8 “Financial Statements and Supplementary Data”
for a discussion of our material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to our security holders through the solicitation of proxies or
otherwise during the fourth quarter of 2009.
Executive officers of the registrant
The names, positions and ages, as of February 20, 2010, of our executive officers are as
follows:
Donald M. James
Robert A. Wason IV
Ronald G. McAbee
Daniel F. Sansone
Danny R. Shepherd
Ejaz A. Khan
The principal occupations of the executive officers during the past five years are set forth below:
Donald M. James was named Chief Executive Officer and Chairman of the Board of Directors in 1997.
Robert A. Wason IV was elected Senior Vice President, General Counsel in August 2008. Prior to
that, he served as Senior Vice President, Corporate Development since December 1998.
Ronald G. McAbee was elected Senior Vice President, Construction Materials-West in February 2007.
Prior to that date, he served as President, Western Division from June 2004 through January 2007.
Prior to that, he served as President, Mideast Division.
Daniel F. Sansone was elected Senior Vice President, Chief Financial Officer in May 2005. Prior to
that date, he served as President, Southern and Gulf Coast Division and its predecessor businesses
from May 1997 through May 2005.
Danny R. Shepherd was elected Senior Vice President, Construction Materials-East in February 2007.
Prior to that date, he served as President, Southeast Division from May 2002 through January 2007.
Ejaz A. Khan was elected Vice President and Controller in February 1999. He was appointed Chief
Information Officer in February 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange (ticker symbol VMC). As of February
19, 2010, the number of shareholders of record was 5,201. The prices in the following table
represent the high and low sales prices for our common stock as reported on the New York Stock
Exchange and the quarterly dividends declared by our Board of directors in 2009 and 2008.
First quarter
Second quarter
Third quarter
Fourth quarter
Our policy is to pay out a reasonable share of net cash provided by operating activities as
dividends, while maintaining debt ratios within what we believe to be prudent and generally
acceptable limits. The future payment of dividends is within the discretion of our Board of
Directors and depends on our profitability, capital requirements, financial condition, debt
reduction, growth, business opportunities and other factors which our Board of Directors may deem
relevant. We are not a party to any contracts or agreements that currently materially limit, or are
likely to limit in the future, our ability to pay dividends.
Issuer Purchases of Equity Securities
We did not have any repurchases of stock during the fourth quarter of 2009. We did not have
any unregistered sales of equity securities during the fourth quarter of 2009.
| ITEM 6. | SELECTED FINANCIAL DATA |
The selected statement of earnings, per share data and balance sheet data for each of the five
years ended December 31, 2009, set forth below have been derived from our audited consolidated
financial statements. The following data should be read in conjunction with our consolidated
financial statements and notes to consolidated financial statements in Item 8 “Financial Statements
and Supplementary Data:”
Net sales
Total revenues
Gross profit
Earnings from continuing operations 2
Earnings (loss) on discontinued operations, net of tax 3
Net earnings
Basic earnings (loss) per share
Earnings from continuing operations
Discontinued operations
Net earnings
Diluted earnings (loss) per share
Total assets
Long-term debt
Shareholders’ equity
Cash dividends declared per share
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXECUTIVE SUMMARY
KEY DRIVERS OF VALUE CREATION
*Source: Woods & Poole Economics and Moody’s Economy.com
Financial highlights for 2009
| • | Net earnings from continuing operations were $18.6 million compared to $3.4 million in the prior year | ||
| • | EBITDA was $548.4 million compared to adjusted EBITDA of $886.5 million in the prior year | ||
| • | Aggregates shipments declined 26%, reducing earnings by $333.7 million | ||
| • | Aggregates pricing increased 3%, increasing earnings by $48.3 million | ||
| • | Cost management and productivity improvements reduced the effects of lower volumes on our earnings and cash flow | ||
| • | Aggregates cash fixed costs decreased $48.7 million, or 14% | ||
| • | Selling, administrative and general expense decreased 6% | ||
| • | Cash provided by operating activities increased 4% to $453.0 million in 2009 compared to $435.2 million in 2008 | ||
| • | Full year capital spending was reduced 69% to $109.7 million compared to $353.2 million in the prior year | ||
| • | Free cash flow increased to $343.3 million in 2009 compared to $82.0 million in 2008 | ||
| • | Private placement debt offering in the first quarter raised $394.6 million in net proceeds | ||
| • | Public offering of equity in the second quarter raised $520.0 million in net proceeds | ||
| • | Total debt was reduced by $809.8 million |
In 2009, we faced declining demand for our products due to economic conditions that resulted in a
sharp slowdown in the private construction market. New home construction declined to historically
low levels, while tight credit and business failures contributed to a sharp decrease in
construction of nonresidential buildings, particularly stores and offices. Construction activity
funded by the public sector, typically less affected in economic cycles, was weak as
well in 2009. Declining state revenues reduced the amount of funds available at the state level for
public construction projects. The effects of The American Recovery and Reinvestment Act of 2009
(ARRA) were helpful, but the bulk of funds for transportation infrastructure under this Act will be
spent in 2010 and 2011. The positive effects of ARRA spending in 2009 were somewhat offset by the
failure of Congress to extend or reauthorize the most recent multi-year federal transportation
bill, which expired on September 30, 2009. As a result, funds for highway construction are being
provided by a series of relatively short continuing resolutions and at funding levels considerably
below what would have been available had Congress extended the provisions of SAFETEA-LU. This
uncertainty compelled many states to postpone highway maintenance and improvement projects.
ARRA includes economic stimulus funding of $50 to $60 billion for heavy construction projects that
use our products, including $27.5 billion for highways and bridges. Vulcan-served states were
apportioned 55% more funds than other states, with California, Texas and Florida receiving nearly
23% of the total for highways and bridges. Beginning in mid-year 2009, highway construction awards
were buoyed by stimulus-related funding. Through December 2009, the Federal Highway Administration
reported that approximately 85% of the $27.5 billion of funding for highway and bridge projects had
been obligated, $15 billion was under construction and $5.6 billion had been paid to contractors
for work performed. During this period, most Vulcan-served states lagged the rest of the country in
awarding and starting stimulus-related highway construction projects. These differences in awarding
projects and spending patterns were due in part to the types of projects planned and to the
proportion sub-allocated to metropolitan planning organizations where project planning and
execution can be more complicated and time consuming. However, in the fourth quarter, contract
awards for highways in Vulcan-served states increased 13% from 2008 compared to a 2% increase in
other states. This provides some evidence that construction activity in Vulcan-served states will
improve in 2010.
Despite these challenging conditions, we have worked diligently to manage effectively those aspects
of the business that we are able to control. We were able to achieve modest price increases, which
helped offset lower sales volumes. We reduced selling, administrative and general expenses by $21.0
million compared to 2008. We adjusted production levels to meet demand and, as a result, employment
levels across the company were 12% lower than in 2008. These effective cost management efforts have
allowed us to maximize cash flow in a period of unprecedented and prolonged economic downturn.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Free cash flow and EBITDA are not defined by Generally Accepted Accounting Principles (GAAP);
thus, they should not be considered as an alternative to net cash provided by operating activities
or any other liquidity or earnings measure defined by GAAP. These metrics are presented for the
convenience of investment professionals that use such metrics in their analysis and to provide our
shareholders with an understanding of the metrics we use to assess performance and to monitor our
cash and liquidity positions. These metrics are often used by the investment community as
indicators of a company’s ability to incur and service debt. We internally use free cash flow,
EBITDA and other such measures to assess the operating performance of our various business units
and the consolidated company. We do not use these metrics as a measure to allocate resources
internally. Reconciliations of these metrics to their nearest GAAP measures are presented below:
Free cash flow
Free cash flow deducts purchases of property, plant & equipment from net cash provided by
operating activities.
Net cash provided by operating activities
Less
Purchases of property, plant & equipment
Free cash flow
EBITDA and adjusted EBITDA
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. We
adjusted EBITDA in 2008 to exclude the noncash charge for goodwill impairment.
Net cash provided by operating activities
Decrease in assets before initial effects of business acquisitions and dispositions
(Increase) decrease in liabilities before initial effects of business acquisitions and dispositions
Other net operating items (providing) using cash
(Earnings) loss on discontinued operations, net of tax
Provision for income taxes
Interest expense, net
EBITDA
Plus
Goodwill impairment
Adjusted EBITDA
Operating earnings
Other income (expense), net
Depreciation, depletion, accretion and amortization
RESULTS OF OPERATIONS
On November 16, 2007, we acquired 100% of the outstanding common stock of Florida Rock
Industries, Inc., a leading producer of construction aggregates, cement, ready-mixed concrete and
concrete products in the southeastern and mid-Atlantic states. The results of operations discussed
below include Florida Rock for the periods from November 16, 2007 through December 31, 2007, and
the full calendar years 2008 and 2009. We include intersegment sales in our comparative analysis of
segment revenue at the product line level. Net sales and cost of goods sold exclude intersegment
sales and delivery revenues and cost. This presentation is consistent with the basis on which we
review results of operations. We discuss separately our discontinued operations, which consist of
our former Chemicals business.
Consolidated operating results
Cost of goods sold
Earnings (loss) from continuing operations
before income taxes
Earnings from continuing operations
Earnings (loss) on discontinued operations,
net of income taxes
Continuing operations
EBITDA (adjusted EBITDA in 2008)
The economic downturn and other external factors affecting the construction industry continued
to present challenges for our business. Continued weakness in private construction activity, both
residential and nonresidential, and the uncertainty surrounding the timing and amount of either a
formal extension or reauthorization of the multi-year federal highway program offset the benefits
of stimulus-related construction activity in 2009. Furthermore, construction activity on
stimulus-related highway projects varied widely in Vulcan-served states, and in certain key states
lagged the rest of the country.
We continue to run the business in a cost-efficient manner, with a focus on effectively managing
those aspects of cost we can control or influence in order to maximize our cash generation during
the economic downturn. Our efforts contributed to reductions in cash fixed costs in our operations
as well as reductions in overhead expenses. The average selling price for aggregates increased 3%
in 2009 despite lower shipments, reflecting attractive pricing fundamentals of our business. The
higher selling price for aggregates reflects increased market prices as well as proportionately
greater levels of higher priced aggregates used for highway construction. As a result of these
actions, the cash earnings generated on each ton of aggregates sold in 2009 nearly matched the
record level achieved in 2008. The increased level of unit profitability supports our optimism
about the earnings potential of our business when demand begins to recover.
The 2008 results include an estimated $227.6 million, or $2.05 per diluted share, after tax
goodwill impairment charge for our Cement segment which is located in Florida. The 2008 results
also include net earnings per diluted share of $0.34 from the sale of mining operations divested as
a condition for approval by the Department of Justice of the Florida Rock acquisition. Results in
2007 include net earnings per diluted share of $0.24 from the sale of real estate in California.
Additionally, higher energy-related costs lowered earnings by $0.86 per diluted share in 2008 as
compared to 2007.
Year-over-year changes in earnings from continuing operations before income taxes are summarized
below (in millions of dollars):
2007
Lower aggregates earnings due to
Lower volumes
Higher selling prices
Higher costs
Lower asphalt mix and concrete earnings
Higher cement earnings
Higher selling, administrative and general expenses
Goodwill impairment — cement
Gain on divestitures
Gain on 2007 sale of California real estate
Higher interest expense, net
All other
2008
Lower costs
Lower cement earnings
Lower selling, administrative and general expenses
2008 goodwill impairment — cement
Lower gain on sale of PP&E and divestitures
2009
Operating results by segment
We present our results of operations by segment at the gross profit level. We have three
reporting segments organized around our principal product lines: aggregates, asphalt mix and
concrete, and cement. Management reviews earnings for the product line segments principally at the
gross profit level.
Aggregates
Revenues and Gross Profits
in millions
in millions
Customer and internal1 tons, in millions
1 Represents tons shipped primarily to our downstream operations
(e.g., asphalt mix and ready-mixed concrete)
2 Freight-adjusted sales price is calculated as total sales dollars (internal and
external) less freight to remote distribution sites divided by total sales units
(internal and external)
Our year-over-year aggregates shipments declined 26% in 2009, 12% in 2008 and 9% in 2007. Most
of our geographic markets reported double-digit percentage declines in aggregates volumes in 2009. Pricing
for our products remained strong and helped to partially offset the earnings effect of lower
volumes. Our year-over-year pricing improved 3% in 2009, 7% in 2008 and 13% in 2007. We are tightly
managing plant operating costs and overhead expenses as we continue to adjust our cost structure to
match weak demand. We have limited operating hours, streamlined our work force, and focused on
achieving production efficiencies at reduced operating rates in the face of a sharp decline in
demand for our products. As a result, our cash earnings per ton of aggregates, while essentially
flat compared to 2008 and 2007, is 45% higher than the 2005 level, which was a year of peak demand
for aggregates. We will continue to manage controllable costs aggressively and to focus on cash
margins and earnings.
Asphalt mix and Concrete
Shipments of asphalt mix declined 22% in 2009 compared to 2008 and declined by 9% in 2008
compared to 2007. Asphalt materials margins were higher than the prior year as slightly lower
selling prices for asphalt mix were more than offset by a 29% decline in the costs for liquid
asphalt. Ready-mixed concrete shipments declined by 32% in 2009. From 2007 to 2008, the sharp
increase in ready-mixed concrete shipments resulted from the inclusion of a full year of sales from
the acquired Florida Rock concrete operations. Ready-mixed concrete pricing remained relatively
flat during the three-year period.
Cement
Cement earnings declined from last year because of weaker sales volumes, slightly offset by
lower energy costs. Cement pricing declined 1% year over year. We acquired the Cement segment in
November 2007 as part of the Florida Rock acquisition, so we reported no comparable revenues or
earnings for the first ten months of 2007.
Selling, administrative and general expenses
in millions
in millions
Selling, administrative and general expenses (SAG) include $8.5 million in 2009 and $10.5
million in 2008 of expenses for property donations recorded at fair value. The gains from these
donations, which are equal to the excess of the fair value over the carrying value, are included in
gain on sale of property, plant & equipment in the Consolidated Statements of Earnings. Excluding
the effect of these property donations, SAG in 2009 declined $19.0 million, or 5.5%. The
year-over-year decline is due mostly to reductions in employee-related expenses which more than
offset a year-over-year increase in project costs related to the replacement of legacy IT systems.
Employment levels across Vulcan are down 12% from the prior year. The SAG increase in 2008 over
2007 was primarily attributable to including a full year of expenses for the former Florida Rock
businesses. Employment levels in 2008 were down 14% from 2007.
Goodwill impairment
There were no charges for goodwill impairment in 2009 and 2007. During 2008, we recorded a
$252.7 million pretax goodwill impairment charge related to our Cement segment in Florida,
representing the entire balance of goodwill at this reporting unit. We acquired these operations as
part of the Florida Rock transaction in November 2007. For additional details regarding this
impairment, see the Goodwill and Goodwill Impairment Critical Accounting Policy.
Gain on sale of property, plant & equipment and businesses, net
in millions
in millions
The 2009 gains were primarily related to sales and donations of real estate, mostly in
California. Included in the 2008 gains was a $73.8 million pretax gain for quarry sites divested as
a condition for approval by the Department of Justice of the Florida Rock acquisition. The 2007
gain includes a $43.8 million pretax gain on the sale of real estate in California.
Interest expense
in millions
in millions
The increase in interest expense in 2009 and 2008 was due primarily to debt incurred for the
acquisition of Florida Rock. Excluding capitalized interest credits, gross interest expense for
2009 was $186.0 million compared to $187.1 million in 2008 and $53.3 million in 2007.
Income taxes
Our income tax (benefit) provision for continuing operations for the years ended December 31
are shown below:
Earnings (loss) from continuing operations before income taxes
(Benefit) provision for income taxes
Effective tax rate
The change in our 2009 tax provision resulted from the relatively greater effect of certain items
such as statutory depletion, undistributed earnings from foreign operations, loss on the sale of
the stock of a subsidiary, and charitable contributions of property, coupled with the significantly
lower level of earnings. The 2008 provision included the unfavorable impact of the goodwill
impairment charge. Excluding the impact of the goodwill impairment charge, the 2008 income tax
provision for continuing operations was $96.8 million, or an effective tax rate of 29.5%. A
reconciliation of the federal statutory rate of 35% to our effective tax rates for 2009, 2008 and
2007 is presented in Note 9, “Income Taxes” in Item 8 “Financial Statements and Supplementary
Data.”
Discontinued operations
Pretax operating results from discontinued operations were a gain of $18.6 million in 2009
compared to losses of $4.1 million in 2008 and $19.3 million in 2007. The 2009 pretax gain from
discontinued operations resulted primarily from settlements with two of our insurers in the Modesto
perchloroethylene cases which are associated with our former Chemicals business. These settlements
resulted in pretax gains of $23.5 million. The insurance proceeds and associated gain represent a
partial recovery of legal and settlement costs recognized in prior years. The
2008 and 2007 pretax
losses from discontinued operations, and the remaining results from 2009, reflect charges primarily
related to general and product liability costs, including legal defense costs, and environmental
remediation costs associated with our former Chemicals businesses. For additional information
regarding discontinued operations, see Note 2 “Discontinued Operations” in Item 8 “Financial
Statements and Supplementary Data.”
CASH AND LIQUIDITY
Our primary source of liquidity is cash provided by our operating activities. Our additional
financial resources include unused bank lines of credit and access to the capital markets. We
believe these financial resources are
sufficient to fund our business requirements in the future, including debt service obligations,
cash contractual obligations, capital expenditures, dividend payments and potential future
acquisitions.
We operate a centralized cash management system using zero-balance disbursement accounts;
therefore, our operating cash balance requirements are minimal. When cash on hand is not sufficient
to fund daily working capital requirements, we issue commercial paper or draw down on our bank
lines of credit. During 2009, bank borrowings generally were more expensive than commercial paper.
Since July 2009, we have funded all our short-term cash needs by issuing commercial paper ranging
in maturity from overnight to 91 days. The amount outstanding during the second half of 2009
averaged $279.8 million. The weighted average all-in interest rate, including commissions paid to
commercial paper broker dealers and the cost of back-up lines of credit, was 0.59% during that
period and was 0.49% at year-end.
Current maturities and short-term borrowings
As of December 31, 2009, we have $385.4 million of current maturities of long-term debt that
are due as follows:
There are various maturity dates for the remaining $0.4 million. We expect to retire this debt
using available cash generated from operations, by issuing commercial paper or drawing on our line
of credit or by accessing the capital markets.
Net short-term borrowings at December 31 consisted of the following (in millions of dollars):
Bank borrowings
Commercial paper
Total short-term borrowings
Bank borrowings
Maturity
Weighted-average interest rate
Commercial paper
Our outstanding bank credit facility, which provides $1.5 billion of liquidity, expires November
16, 2012. Borrowings under this credit facility, which are classified as short-term, bear an
interest rate based on London Interbank Offer Rate (LIBOR) plus a credit spread. This credit spread
was 30 basis points (0.3%) based on our long-term debt ratings at December 31, 2009. As of
December 31, 2009, there were no borrowings under the $1.5 billion line of credit, $236.5 million
was used to support outstanding commercial paper and $59.2 million was used to back outstanding
letters of credit, resulting in available lines of credit of $1,204.3 million. This amount provides
a
sizable level of borrowing capacity that strengthens our financial flexibility. Not only does
it enable us to fund working capital needs, it provides liquidity to fund large expenditures, such
as long-term debt maturities, on a temporary basis without being forced to issue long-term debt at
times that are disadvantageous. Interest rates referable to borrowings under these credit lines are
determined at the time of borrowing based on current market conditions for LIBOR. Our policy is to
maintain committed credit facilities at least equal to our outstanding commercial paper.
Short-term debt ratings/outlook
| • | Standard and Poor’s — A-2/stable (last rating attained in August 2009) | ||
| • | Moody’s — P-2/negative (last rating attained in September 2009) |
Working capital
Working capital, current assets less current liabilities, is a common measure of liquidity
used to assess a company’s ability to meet short-term obligations. Our total current liabilities
exceeded total current assets as follows:
| • | $113.4 million in 2009 | ||
| • | $769.2 million in 2008 |
The $655.8 million improvement in working capital reflects our focus on generating and conserving
cash. During 2009, we managed production of aggregates to levels below current demand, resulting in
reduced levels of inventory. While lowering inventory levels negatively impacted our earnings, it
generated cash. Accounts and notes receivable decreased $89.0 million from 2008 to 2009 resulting
from a 26% year-over-year decline in net sales. Despite the weak economy and lower sales, the
collection period on our accounts receivable was relatively flat from 2008 to 2009. Proceeds from
long-term debt issued in February and proceeds from stock issued in June were primarily used to
reduce short-term borrowings by $846.0 million.
Cash flows
Cash flows from operating activities
Net cash provided by operating activities is derived primarily from net earnings before deducting
noncash charges for depreciation, depletion, accretion and amortization and goodwill impairment.
Depreciation, depletion, accretion
and amortization
Goodwill impairment
Other operating cash flows, net
Net cash provided by operating
activities
Net earnings before noncash deductions for depreciation, depletion, accretion and
amortization, and goodwill impairment were $424.9 million in 2009 compared to $642.6 million in
2008. Despite the $217.7 million decrease in earnings before these noncash deductions, we were able
to increase cash provided by operating activities by $17.8 million in 2009 compared to 2008. Our
efforts to manage the business to generate cash are reflected in favorable year-over-year changes
in our working capital accounts. Changes in working capital accounts generated $89.7 million of
cash in 2009 as compared to using $86.7 million of cash in 2008.
Net cash provided by operating activities decreased by $272.9 million in 2008 compared to 2007. Net
earnings before deducting noncash charges for depreciation, depletion, accretion and amortization
and goodwill impairment accounted for $79.7 million of the decrease. Reductions in trade payables
and other accruals accounted for an additional $102.6 million decrease in cash provided by
operating activities.
Cash flows from investing activities
Net cash used for investing activities totaled $80.0 million in 2009 compared to $189.0 million in
2008, a decrease of $109.0 million. We closely evaluated the nature and timing of all capital
projects in an effort to conserve cash. The generally good condition of our property, plant &
equipment afforded us the opportunity to delay expending replacement capital without reducing
operating efficiency. Cash used for the purchase of property, plant & equipment totaled $109.7
million in 2009, down $243.5 million from 2008. These cash savings were partially offset by a
year-over-year reduction in proceeds from the sale of businesses of $209.7 million. Cash used for
investing activities in 2007 of $3,654.3 million was largely attributable to the acquisition of
Florida Rock, which required cash payments of $3,239.0 million, net of cash acquired and including
our direct transaction costs.
Cash flows from financing activities
Net cash used for financing activities totaled $361.0 million in 2009, compared to $270.8 million
during 2008. Debt reduction and achieving target debt ratios remain a priority use of cash flows.
During 2009, proceeds from issuing long-term debt of $394.6 million, net of debt issuance costs,
and common stock of $606.5 million were primarily used to reduce total debt by
$809.8 million. We reduced our dividend per share beginning in the third quarter of 2009 from
$0.49 per quarter to $0.25 per quarter, resulting in $43.3 million of cash savings that further
contributed to debt reduction. During 2008, proceeds from issuing long-term debt of $943.4 million
were used to pay down short-term borrowings drawn during 2007 to fund the Florida Rock acquisition.
Refer to Note 6 “Credit Facilities, Short-term Borrowings and Long-term Debt” in Item 8 “Financial
Statements and Supplementary Data” for further discussion.
CAPITAL STRUCTURE AND RESOURCES
We actively manage our capital structure and resources consistent with the policies,
guidelines and objectives listed below in order to maximize shareholder wealth, as well as to
attract equity and fixed income investors who support us by investing in our stock and debt
securities. We pursue attractive investment opportunities and fund acquisitions using internally
generated cash or by issuing debt or equity securities.
| • | Maintain our investment grade ratings | ||
| • | Maintain debt ratios within what we believe to be prudent and generally acceptable limits of 35% to 40% of total capital | ||
| • | Pay out a reasonable share of net cash provided by operating activities as dividends |
Being a leader in the U.S. aggregates industry and maintaining investment grade credit ratings has
afforded us the opportunity to raise debt and equity capital even in some of the most challenging
times in the modern history of U.S. capital markets. During 2009, we completed two financing
transactions in the face of unsettled economic conditions and during a period of very weak markets
for our products. These transactions strengthened our balance sheet and improved our financial
flexibility. In February, we issued $400 million of debt capital, using the proceeds to retire $250
million of 10-year notes (that matured April 1, 2009) and increase liquidity. In June, we completed
a public equity offering that was significantly oversubscribed and yielded $520.0 million in net
proceeds. Proceeds were used to reduce leverage to a level closer to our target debt to equity
ratio of 35% to 40%. At the same time as our equity offering, we reduced the quarterly dividend for
the first time in our history. The lower quarterly dividend will reduce annualized cash outflows by
about $120 million. We issued an additional $86.6 million of equity in 2009 to fund the acquisition
of two quarries and to fund share requirements in our 401(k) plans.
Long-term debt
The calculations of our total debt as a percentage of total capital and the weighted-average
stated interest rates on our long-term debt as of December 31 are summarized below (amounts in
millions, except percentages):
Debt
Current maturities of long-term debt
Short-term borrowings
Long-term debt
Total debt
Capital
Total debt
Shareholders’ equity 1
Total capital
Total debt as a percentage of total capital
Long-term debt — weighted-average stated
interest rate
Our debt agreements do not subject us to contractual restrictions with regard to working
capital or the amount we may expend for cash dividends and purchases of our stock. The percentage
of consolidated debt to total capitalization (total debt as a percentage of total capital), as
defined in our bank credit facility agreements, must be less than 65%. In the future, our total
debt as a percentage of total capital will depend on specific investment and financing decisions.
We have made acquisitions from time to time and will continue to pursue attractive investment
opportunities. Such acquisitions could be funded by using internally generated cash or issuing debt
or equity securities.
Long-term debt ratings/outlook
| • | Standard and Poor’s — BBB/stable (last rating attained in August 2009) | ||
| • | Moody’s — Baa2/negative (last rating attained in September 2009) |
Equity
Common stock activity is summarized below (in thousands of shares):
Common stock shares at January 1,
issued and outstanding
Common stock issuances
Public offering
Acquisitions
401(k) savings and retirement plan
Share-based compensation plans
Cancellation of treasury stock
Common stock shares at December 31,
issued and outstanding
In June 2009, we completed a public offering of common stock ($1 par value) resulting in the
issuance of 13.2 million shares for net proceeds of $520.0 million.
As explained in more detail in Note 13 “Shareholders’ Equity” in Item 8 “Financial Statements and
Supplementary Data,” common stock issued in connection with business acquisitions were 0.8 million
shares in 2009, 1.2 million shares in 2008 and 12.6 million shares in 2007.
During 2009, we issued 1.1 million shares of common stock to the trustee of our 401(k) savings and
retirement plans and received proceeds of $52.7 million. These issuances were made to satisfy the
plan participants’ elections to invest in Vulcan’s common stock. This arrangement provides a means
of improving cash flow, increasing shareholders’ equity and reducing leverage.
There were no shares held in treasury as of December 31, 2009, 2008 and 2007. The number of shares
remaining under the current purchase authorization of the Board of Directors was 3,411,416 as of
December 31, 2009.
CASH CONTRACTUAL OBLIGATIONS
Our obligations to make future payments under contracts as of December 31, 2009 are summarized
in the table below (in millions of dollars):
Cash Contractual Obligations
Short-term borrowings
Lines of credit / commercial
paper 1
Interest payments
Principal payments
Operating leases
Mineral royalties
Unconditional purchase obligations
Capital
Noncapital2
Benefit plans3
Total cash contractual obligations4,5
We estimate cash requirements for income taxes in 2010 to be $23.5 million, including the
effect of refunds from overpayments during 2009.
We have a number of contracts containing commitments or contingent obligations that are not
material to our earnings. These contracts are discrete in nature, and it is unlikely that the
various contingencies contained within the
contracts would be triggered by a common event. The future payments under these contracts are not
included in the table set forth above.
STANDBY LETTERS OF CREDIT
We provide certain third parties with irrevocable standby letters of credit in the normal
course of business. We use commercial banks to issue standby letters of credit to back our
obligations to pay or perform when required to do so pursuant to the requirements of an underlying
agreement. The standby letters of credit listed below are cancelable only at the option of the
beneficiaries who are authorized to draw drafts on the issuing bank up to the face amount of the
standby letter of credit in accordance with its terms. Since banks consider letters of credit as
contingent extensions of credit, we are required to pay a fee until they expire or are canceled.
Substantially all of our standby letters of credit have a one-year term and are renewable annually
at the option of the beneficiary.
Our standby letters of credit as of December 31, 2009 are summarized in the table below (in
millions of dollars):
Standby Letters of Credit
Risk management requirement for insurance claims
Payment surety required by utilities
Contractual reclamation/restoration requirements
Financing requirement for industrial revenue bond
Total standby letters of credit
Of the total $62.4 million outstanding standby letters of credit, $59.2 million is backed by our
$1,500.0 million bank credit facility which expires November 16, 2012.
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, financial position, liquidity, capital expenditures or capital
resources.
CRITICAL ACCOUNTING POLICIES
We follow certain significant accounting policies when preparing our consolidated financial
statements. A summary of these policies is included in Note 1 “Summary of Significant Accounting
Policies” in Item 8 “Financial Statements and Supplementary Data.” The preparation of these
financial statements in conformity with accounting principles generally accepted in the United
States of America requires us to make estimates and judgments that affect reported amounts of
assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and
contingent liabilities at the date of the financial statements. We evaluate these estimates and
judgments on an ongoing basis and base our estimates on historical experience, current conditions
and various other assumptions that are believed to be reasonable under the circumstances. The
results of these estimates form the basis for making 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 the following critical accounting policies require the most significant judgments and
estimates used in the preparation of our consolidated financial statements.
Goodwill and goodwill impairment
Goodwill is tested for impairment on an annual basis or more frequently whenever events or
circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. The impairment evaluation is a critical accounting policy because
goodwill is material to our total assets and the evaluation involves the use of significant
estimates and assumptions and considerable management judgment. As of December 31, 2009, goodwill
totaled $3,094.0 million and represents 36% of total assets.
How we test goodwill for impairment
Goodwill is tested for impairment at the reporting unit level using a two-step process. We have
identified 13 reporting units, representing operations or groups of operations one level below our
operating segments.
Step One
Compares the fair value of a reporting unit to its carrying value, including goodwill.
If the fair value exceeds its carrying value, the goodwill of the reporting unit is not considered
impaired.
If the carrying value of a reporting unit exceeds its fair value, we go to step two to measure the
amount of impairment loss, if any.
Step Two
Compares the implied fair value of the reporting unit goodwill with the carrying amount of that
goodwill.
The implied fair value of goodwill is determined by hypothetically allocating the fair value of the
reporting unit to its identifiable assets and liabilities in a manner consistent with a business
combination, with any excess fair value representing implied goodwill. If the carrying value of the
reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess.
How we determine carrying value and fair value
The carrying value of each reporting unit is determined by assigning assets and liabilities,
including goodwill, to those reporting units as of the measurement date. We estimate the fair
values of the reporting units by considering the indicated fair values derived from both an income
approach, which involves discounting estimated future cash flows, and a market approach, which
involves the application of revenue and earnings multiples of comparable companies. We consider
market factors when determining the assumptions and estimates used in our valuation models. To
substantiate the fair values derived from these valuations, we reconcile the implied fair values to
our market capitalization.
Our assumptions
We base our fair value estimates on assumptions we believe to be reasonable at the time, but such
assumptions are subject to inherent uncertainty. Actual results may differ materially from those
estimates. Any changes in key assumptions or management judgment with respect to a reporting unit
or its prospects, which may result from a change in market conditions, market trends, interest
rates or other factors outside of our control, or significant underperformance relative to
historical or projected future operating results, could result in a significantly different
estimate of the fair value of our reporting units, which could result in an impairment charge in
the future.
The significant assumptions in our discounted cash flow models include our estimate of future
profitability, capital requirements, and the discount rate. The profitability estimates used in the
models were derived from internal operating budgets and forecasts for long-term demand and pricing
in our industry. Estimated capital requirements reflect replacement capital estimated on a per ton
basis and acquisition capital necessary to support growth estimated in the models. The discount
rate was derived using a capital asset pricing model.
Results of our 2009 impairment tests
Historically, we performed our annual goodwill impairment test as of January 1. In order to better
align our annual goodwill impairment test with our budgeting and forecasting process, to meet the
accelerated reporting deadlines and to provide adequate time to complete the analysis each year,
during the fourth quarter of 2009, we changed the date on which we perform our annual goodwill
impairment test from January 1 to November 1. We believe that this accounting change is an
alternative method of applying an accounting principle that is preferable under the circumstances.
The results of the annual impairment tests performed as of November 1, 2009 indicated that the fair
values of all reporting units exceeded their carrying values by a substantial margin.
The results of the annual impairment tests performed as of January 1, 2009 indicated that the
carrying value of our Cement reporting unit exceeded its fair value. Based on the results of the
second step of the impairment test, we
concluded that the entire amount of goodwill at this reporting unit was impaired, and recorded a
$252.7 million pretax goodwill impairment charge for the year ended December 31, 2008.
For additional information regarding goodwill, see Note 18 “Goodwill and Intangible Assets” in Item
8 “Financial Statements and Supplementary Data.”
Impairment of long-lived assets excluding goodwill
We evaluate the carrying value of long-lived assets, including intangible assets subject to
amortization, when events and circumstances indicate that the carrying value may not be
recoverable. As of December 31, 2009, property, plant & equipment, net represents 45% of total
assets and other intangible assets, net represents 8% of total assets. An impairment charge could
be material to our financial condition and results of operations. The carrying value of long-lived
assets is considered impaired when the estimated undiscounted cash flows from such assets are less
than their carrying value. In that event, a loss is recognized equal to the amount by which the
carrying value exceeds the fair value of the long-lived assets. Fair value is determined by
primarily using a discounted cash flow methodology that requires considerable management judgment
and long-term assumptions. Our estimate of net future cash flows is based on historical experience
and assumptions of future trends, which may be different from actual results. We periodically
review the appropriateness of the estimated useful lives of our long-lived assets.
For additional information regarding long-lived assets and intangible assets,
see Note 4 “Property, Plant & Equipment” and Note 18
“Goodwill and Intangible Assets” in Item 8 ”Financial
Statements and Supplementary Data.”
Reclamation costs
Reclamation costs resulting from the normal use of long-lived assets are recognized over the
period the asset is in use only if there is a legal obligation to incur these costs upon retirement
of the assets. Additionally, reclamation costs resulting from the normal use under a mineral lease
are recognized over the lease term only if there is a legal obligation to incur these costs upon
expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash
flows, is recorded at fair value as a liability at the obligating event date and is accreted
through charges to operating expenses. This fair value is also capitalized as part of the carrying
amount of the underlying asset and depreciated over the estimated useful life of the asset. If the
obligation is settled for other than the carrying amount of the liability, a gain or loss is
recognized on settlement.
In determining the fair value of the obligation, we estimate the cost for a third party to perform
the legally required reclamation tasks including a reasonable profit margin. This cost is then
increased for both future estimated inflation and an estimated market risk premium related to the
estimated years to settlement. Once calculated, this cost is discounted to fair value using present
value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to
settlement.
In estimating the settlement date, we evaluate the current facts and conditions to determine the
most likely settlement date. If this evaluation identifies alternative estimated settlement dates,
we use a weighted-average settlement date considering the probabilities of each alternative.
We review reclamation obligations at least annually for a revision to the cost or a change in the
estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a
triggering event occurs that would result in either a revision to the cost or a change in the
estimated settlement date. Examples of events that would trigger a change in the cost include a new
reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a
change in the estimated settlement date include the acquisition of additional reserves or the
closure of a facility.
The carrying value of these obligations is $167.8 million as of December 31, 2009. For additional
information regarding reclamation obligations (referred to in our financial statements as asset
retirement obligations), see Note 17 “Asset Retirement Obligations” in Item 8 “Financial Statements
and Supplementary Data.”
Pension and other postretirement benefits
Accounting for pension and postretirement benefits requires that we make significant
assumptions regarding the valuation of benefit obligations and the performance of plan assets. The
primary assumptions are as follows:
| • | Discount Rate — The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future. | ||
| • | Expected Return on Plan Assets — We project the future return on plan assets based principally on prior performance and our expectations for future returns for the types of investments held by the plan as well as the expected long-term asset allocation of the plan. These projected returns reduce the recorded net benefit costs. | ||
| • | Rate of Compensation Increase — For salary-related plans only, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement. | ||
| • | Rate of Increase in the Per Capita Cost of Covered Healthcare Benefits — We project the expected increases in the cost of covered healthcare benefits. |
Each year we review our assumptions about the discount rate, the expected return on plan assets,
the rate of compensation increase (for salary-related plans) and the rate of increase in the per
capita cost of covered healthcare benefits.
In selecting the discount rate, we consider fixed-income security yields, specifically high-quality
bonds. At December 31, 2009, the discount rate for our plans ranged from 5.2% to 6.0%. An analysis
of the duration of plan liabilities and the yields for corresponding high-quality bonds is used in
the selection of the discount rate.
In estimating the expected return on plan assets, we consider past performance and long-term future
expectations for the types of investments held by the plan as well as the expected long-term
allocation of plan assets to these investments. At December 31, 2009, the expected return on plan
assets remained 8.25%.
In projecting the rate of compensation increase, we consider past experience in light of movements
in inflation rates. At December 31, 2009, the inflation component of the assumed rate of
compensation increase remained at 2.25%. In addition, based on future expectations of merit and
productivity increases, the weighted-average component of the salary increase assumption decreased
to 1.15%.
In selecting the rate of increase in the per capita cost of covered healthcare benefits, we
consider past performance and forecasts of future healthcare cost trends. At December 31, 2009, our
assumed rate of increase in the per capita cost of covered healthcare benefits remains at 8.5% for
2010, decreasing each year until reaching 5.0% in 2017 and remaining level thereafter.
Changes to the assumptions listed above would have an impact on the projected benefit obligations,
the accrued other postretirement benefit liabilities, and the annual net periodic pension and other
postretirement benefit cost. The following table reflects the sensitivities associated with a
change in certain assumptions (in millions of dollars):
Actuarial Assumptions
Discount rate:
Pension
Other postretirement benefits
Expected return on plan assets
Rate of compensation increase
(for salary-related plans)
Rate of increase in the per capita cost
of covered healthcare benefits
During 2009, the fair value of assets increased from $419.0 million to $493.6 million due
primarily to investment returns and contributions to the pension plans of $27.6 million. The fair
value of assets reflects a $48.0 million write-down recognized in 2008 for certain assets invested
at Westridge Capital Management, Inc. (WCM). In February 2009, the New York District Court
appointed a receiver over WCM due to allegations of fraud and other violations of federal
commodities and securities laws by principles of WCM. In light of these allegations, we reassessed
the fair value of our investments at WCM.
During 2010, we expect to recognize net periodic pension expense of approximately $18.5 million and
net periodic postretirement expense of approximately $11.3 million compared to $16.2 million and
$10.7 million, respectively, in 2009. The increase in pension expense is due primarily to the
decrease in discount rate and for the qualified pension plans, the 2008 asset losses subject to
amortization. Normal cash payments made for pension benefits in 2010 under the unfunded plans are
estimated at $4.1 million. We expect to make contributions totaling $72.5 million to the funded
pension plans during 2010. It is anticipated that these contributions, along with existing funding
credits, are sufficient to fund projected minimum required contributions until the 2013 plan year.
We currently do not anticipate that the funded status of any of our plans will fall below statutory
thresholds requiring accelerated funding or constraints on benefit levels or plan administration.
For additional information regarding pension and other postretirement benefits, see Note 10
“Benefit Plans” in Item 8 “Financial Statements and Supplementary Data.”
Environmental compliance
Our environmental compliance costs include maintenance and operating costs for pollution
control facilities, the cost of ongoing monitoring programs, the cost of remediation efforts and
other similar costs. We expense or capitalize environmental expenditures for current operations or
for future revenues consistent with our capitalization policy. We expense expenditures for an
existing condition caused by past operations that do not contribute to future revenues. We accrue
costs for environmental assessment and remediation efforts when we determine that a liability is
probable and we can reasonably estimate the cost. At the early stages of a remediation effort,
environmental remediation liabilities are not easily quantified due to the uncertainties of varying
factors. The range of an estimated remediation liability is defined and redefined as events in the
remediation effort occur.
When a range of probable loss can be estimated, we accrue the most likely amount. In the event that
no amount in the range of probable loss is considered most likely, the minimum loss in the range is
accrued. As of December 31, 2009, the spread between the amount accrued and the maximum loss in the
range for all sites for which a range can
be reasonably estimated was $5.0 million. Accrual amounts may be based on technical cost
estimations or the professional judgment of experienced environmental managers. Our Safety, Health
and Environmental Affairs Management Committee routinely reviews cost estimates, including key
assumptions, for accruing environmental
compliance costs; however, a number of factors, including
adverse agency rulings and encountering unanticipated conditions as remediation efforts progress,
may cause actual results to differ materially from accrued costs.
For additional information regarding environmental compliance costs, see Note 8 “Accrued
Environmental Remediation Costs” in Item 8 “Financial Statements and Supplementary Data.”
Claims and litigation including self-insurance
We are involved with claims and litigation, including items covered under our self-insurance
program. We are self-insured for losses related to workers’ compensation up to $2.0 million per
occurrence and automotive and general/product liability up to $3.0 million per occurrence. We have
excess coverage on a per occurrence basis beyond these deductible levels.
Under our self-insurance program, we aggregate certain claims and litigation costs that are
reasonably predictable based on our historical loss experience and accrue losses, including future
legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their
unique nature, are not included in our actuarial studies. We use both internal and outside legal
counsel to assess the probability of loss, and establish an accrual when the claims and litigation
represent a probable loss and the cost can be reasonably estimated. For matters not included in our
actuarial studies, legal defense costs are accrued when incurred. Significant judgment is used in
determining the timing and amount of the accruals for probable losses, and the actual liability
could differ materially from the accrued amounts.
Our effective tax rate
We file various federal, state and foreign income tax returns, including some returns that are
consolidated with subsidiaries. We account for the current and deferred tax effects of such returns
using the asset and liability method. Our current and deferred tax assets and liabilities reflect
our best assessment of estimated future taxes to be paid. Significant judgments and estimates are
required in determining the current and deferred assets and liabilities. Annually, we compare the
liabilities calculated for our federal, state and foreign income tax returns to the estimated
liabilities calculated as part of the year end income tax provision. Any adjustments are reflected
in our current and deferred tax assets and liabilities.
We recognize deferred tax assets and liabilities based on the differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets
represent items to be used as a tax deduction or credit in future tax returns for which we have
already properly recorded the tax benefit in the income statement. At least quarterly, we assess
the likelihood that the deferred tax asset balance will be recovered from future taxable income,
and we will record a valuation allowance to reduce our deferred tax assets to the amount that is
more likely than not to be realized. We take into account such factors as prior earnings history,
expected future taxable income, mix of taxable income in the jurisdictions in which we operate,
carryback and carryforward periods, and tax strategies that could potentially enhance the
likelihood of realization of a deferred tax asset. If we were to determine that we would not be
able to realize a portion of our deferred tax assets in the future for which there is currently no
valuation allowance, an adjustment to the deferred tax assets would be charged to earnings in the
period such determination was made. Conversely, if we were to make a determination that realization
is more likely than not for deferred tax assets with a valuation allowance, the related valuation
allowance would be reduced and a benefit to earnings would be recorded.
Foreign earnings
U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely
reinvested offshore. We periodically evaluate our investment strategies for each foreign tax
jurisdiction in which we operate to determine whether foreign earnings will be indefinitely
reinvested offshore and, accordingly, whether U.S. income taxes should be provided when such
earnings are recorded.
Unrecognized tax benefits
We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is
more likely than not that the position will be sustained upon examination by a taxing authority.
For a tax position that meets the more-likely-than-not recognition threshold, we initially and
subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority. Our liability
associated with unrecognized tax benefits is adjusted periodically due to changing circumstances,
such as the progress of tax audits, case law developments and new or emerging legislation. Such
adjustments are recognized entirely in the period in which they are identified. Our effective tax
rate includes the net impact of changes in the liability for unrecognized tax benefits and
subsequent adjustments as considered appropriate by management.
A number of years may elapse before a particular matter for which we have recorded a liability
related to an unrecognized tax benefit is audited and finally resolved. The number of years with
open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or
the timing of resolution of any particular tax matter, we believe our liability for unrecognized
tax benefits is adequate. Favorable resolution of an unrecognized tax benefit could be recognized
as a reduction in our tax provision and effective tax rate in the period of resolution. Unfavorable
settlement of an unrecognized tax benefit could increase the tax provision and effective tax rate
and may require the use of cash in the period of resolution. Our liability for unrecognized tax
benefits is generally presented as noncurrent. However, if we anticipate paying cash within one
year to settle an uncertain tax position, the liability is presented as current. We classify
interest and penalties recognized on the liability for unrecognized tax benefits as income tax
expense.
Statutory depletion
Our largest permanent item in computing both our effective tax rate and taxable income is the
deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax
rate is presented in Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data.”
The deduction for statutory depletion does not necessarily change proportionately to changes in
pretax earnings.
The American Jobs Creation Act of 2004
The American Jobs Creation Act of 2004 created a new deduction for certain domestic production
activities as described in Section 199 of the Internal Revenue Code. Generally, this deduction,
subject to certain limitations, was set at 6% for 2007 through 2009 and increases to 9% in 2010 and
thereafter. The estimated impact of this deduction on the 2009, 2008 and 2007 effective tax rates
is presented in Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data.”
NEW ACCOUNTING STANDARDS
For a discussion of accounting standards recently adopted and pending adoption and the affect
such accounting changes will have on our results of operations, financial position or liquidity,
see Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and
Supplementary Data” under the caption New Accounting Standards.
FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis, as well as certain information contained elsewhere in
this Annual Report, contain “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, and are intended to be covered by the safe harbor created thereby. See the discussion in
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 in Part I, above.
FINANCIAL TERMINOLOGY
Acquisitions
The sum of net assets (assets less liabilities, including acquired debt) obtained in a
business combination. Net assets are recorded at their fair value at the date of the combination,
and include tangible and intangible items.
Capital employed
The sum of interest-bearing debt, other noncurrent liabilities and shareholders’ equity.
Average capital employed is a 12-month average.
Capital expenditures
Capital expenditures include capitalized replacements of and additions to property, plant &
equipment, including capitalized leases, renewals and betterments. Capital expenditures exclude
property, plant & equipment obtained by business acquisitions.
We classify our capital expenditures into three categories based on the predominant purpose of the
project expenditures. Thus, a project is classified entirely as a replacement if that is the
principal reason for making the expenditure even though the project may involve some cost-saving
and/or capacity-improvement aspects. Likewise, a profit-adding project is classified entirely as
such if the principal reason for making the expenditure is to add operating facilities at new
locations (which occasionally replace facilities at old locations), to add product lines, to expand
the capacity of existing facilities, to reduce costs, to increase mineral reserves, to improve
products, etc.
Capital expenditures classified as environmental control do not reflect those expenditures for
environmental control activities that are expensed currently, including industrial health programs.
Such expenditures are made on a continuing basis and at significant levels. Frequently,
profit-adding and major replacement projects also include expenditures for environmental control
purposes.
Net sales
Total customer revenues from continuing operations for our products and services excluding
third-party delivery revenues, net of discounts and taxes, if any.
Ratio of earnings to fixed charges
The sum of earnings from continuing operations before income taxes, minority interest in
earnings of a consolidated subsidiary, amortization of capitalized interest and fixed charges net
of interest capitalization credits, divided by fixed charges. Fixed charges are the sum of interest
expense before capitalization credits, amortization of financing costs and one-third of rental
expense.
Total debt as a percentage of total capital
The sum of short-term borrowings, current maturities and long-term debt, divided by total
capital. Total capital is the sum of total debt and shareholders’ equity.
Shareholders’ equity
The sum of common stock (less the cost of common stock in treasury), capital in excess of par
value, retained earnings and accumulated other comprehensive income (loss), as reported in the
balance sheet. Average shareholders’ equity is a 12-month average.
Total shareholder return
Average annual rate of return using both stock price appreciation and quarterly dividend
reinvestment. Stock price appreciation is based on a point-to-point calculation, using end-of-year
data.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from transactions that are entered into in the
normal course of business. In order to manage or reduce these market risks, we may utilize
derivative financial instruments.
We are exposed to interest rate risk due to our various credit facilities and long-term debt
instruments. At times, we use interest rate swap agreements to manage this risk.
In December 2007, we issued $325.0 million of 3-year floating (variable) rate notes that bear
interest at 3-month LIBOR plus 1.25% per annum. Concurrently, we entered into an interest rate swap
agreement in the stated (notional) amount of $325.0 million. At December 31, 2009, we recognized a
liability of $11.2 million (included in other accrued liabilities), equal to the fair value of this
swap. At December 31, 2008, we recognized a liability of $16.2 million, equal to the fair value of
this swap (included in other noncurrent liabilities). A decline in interest rates of 0.75
percentage point would increase the fair market value of our liability by approximately $1.9
million.
We do not enter into derivative financial instruments for speculative or trading purposes.
At December 31, 2009, the estimated fair value of our long-term debt instruments including current
maturities was $2,685.9 million as compared to a book value of $2,501.5 million. The estimated fair
value was determined by discounting expected future cash flows based on credit-adjusted interest
rates on U.S. Treasury bills, notes or bonds, as appropriate. The fair value estimate is based on
information available to management as of the measurement date. Although management is not aware of
any factors that would significantly affect the estimated fair value amount, it has not been
comprehensively revalued since the measurement date. The effect of a decline in interest rates of 1
percentage point would increase the fair market value of our liability by approximately $134.1
million.
At December 31, 2009, we had $175.0 million outstanding under our 3-year syndicated term loan
established in June 2008. These borrowings bear interest at variable rates, principally LIBOR plus
a spread based on our long-term credit rating. An increase in LIBOR or a downgrade in our long-term
credit rating would increase our borrowing costs for amounts outstanding under these arrangements.
We are exposed to certain economic risks related to the costs of our pension and other
postretirement benefit plans. These economic risks include changes in the discount rate for
high-quality bonds, the expected return on plan assets, the rate of compensation increase for
salaried employees and the rate of increase in the per capita cost of covered healthcare benefits.
The impact of a change in these assumptions on our annual pension and other postretirement benefit
costs is discussed in greater detail within the Critical Accounting Policies section of this annual
report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Vulcan Materials Company:
We have audited the accompanying consolidated balance sheets of Vulcan Materials Company and its
subsidiary companies (the “Company”) as of December 31, 2009 and December 31, 2008, and the related
consolidated statements of earnings, shareholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2009. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement
schedule are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Vulcan Materials Company and its subsidiary companies as of December 31,
2009 and 2008, and the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2009 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26,
2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Birmingham, Alabama
February 26, 2010
CONSOLIDATED STATEMENTS OF EARNINGS
Vulcan Materials Company and Subsidiary Companies
Delivery revenues
Total revenues
Delivery costs
Cost of revenues
Selling, administrative and general expenses
Gain on sale of property, plant & equipment and businesses, net
Other operating income (expense), net
Interest income
Interest expense
Current
Deferred
Total provision for income taxes
Earnings (loss) on discontinued operations, net of income taxes (Note 2)
Net earnings per share
Dividends declared per share
Weighted-average common shares outstanding
Weighted-average common shares outstanding, assuming dilution
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
Assets
Current assets
Cash and cash equivalents
Medium-term investments
Accounts and notes receivable
Customers, less allowance for doubtful accounts
2009 — $8,722; 2008 — $8,711
Other
Inventories
Deferred income taxes
Prepaid expenses
Assets held for sale
Total current assets
Investments and long-term receivables
Property, plant & equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Trade payables and accruals
Accrued salaries, wages and management incentives
Accrued interest
Other accrued liabilities
Liabilities of assets held for sale
Total current liabilities
Deferred income taxes
Deferred management incentive and other compensation
Pension benefits
Other postretirement benefits
Asset retirement obligations
Other noncurrent liabilities
Total liabilities
Other commitments and contingencies (Note 12)
Common stock, $1 par value - 125,912 shares issued as of 2009 and
110,270 shares issued as of 2008
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Adjustments to reconcile net earnings to net cash provided by operating activities
Net gain on sale of property, plant & equipment and businesses
Contributions to pension plans
Share-based compensation
Excess tax benefits from share-based compensation
Deferred tax provision
(Increase) decrease in assets before initial effects of business acquisitions and dispositions
Accounts and notes receivable
Inventories
Prepaid expenses
Other assets
Increase (decrease) in liabilities before initial effects of business acquisitions and dispositions
Accrued interest and income taxes
Trade payables and other accruals
Other noncurrent liabilities
Other, net
Net cash provided by operating activities
Investing Activities
Purchases of property, plant & equipment
Proceeds from sale of property, plant & equipment
Proceeds from sale of businesses
Payment for businesses acquired, net of acquired cash
Reclassification from cash equivalents to medium-term investments
Redemption of medium-term investments
Proceeds from loan on life insurance policies
Net cash used for investing activities
Financing Activities
Net short-term borrowings (payments)
Payment of current maturities and long-term debt
Proceeds from issuance of long-term debt, net of discounts
Debt issuance costs
Settlements of forward starting interest rate swap agreements
Purchases of common stock
Proceeds from issuance of common stock
Dividends paid
Proceeds from exercise of stock options
Excess tax benefits from share-based compensation
Net cash provided by (used for) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Vulcan Materials Company and Subsidiary Companies
Vulcan Materials Company and Subsidiary Companies
Balances at January 1, 2007 (As Restated, See Note 20)
Common stock issued
Share-based compensation expense
Accrued dividends on share-based compensation awards
Cash dividends on common stock
Fair value adjustment to cash flow hedges, net of
reclassification adjustment
Adjustment for funded status of pension and
postretirement benefit plans, net of
reclassification adjustment
Cumulative effect of accounting change (Note 1, New
Accounting Standards, 2007 — Uncertainty in Income
Taxes)
Other
Balances at December 31, 2007 (As Restated, See Note 20)
Accounting Change (Note 1, New Accounting Standards,
2008 — Retirement Benefits Measurement Date)
Balances at January 1, 2008 adjusted for accounting change
Net earnings (As Restated, See Note 20)
Balances at December 31, 2008 (As Restated, See Note 20)
401(k) Trustee (Note 13)
Balances at December 31, 2009
1 Common stock, $1 par value, 480 million shares authorized in 2009, 2008 and 2007
For the years ended December 31
Comprehensive income (loss)
Net earnings, As Restated for 2008, See Note 20
Other comprehensive income (loss)
Total comprehensive income (loss) (As Restated for 2008, See Note 20)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is
the nation’s largest producer of construction aggregates, primarily crushed stone, sand and gravel;
a major producer of asphalt mix and ready-mixed concrete and a leading producer of cement in
Florida.
On November 16, 2007, we acquired 100% of the outstanding common stock of Florida Rock Industries,
Inc. (Florida Rock), a leading producer of construction aggregates, cement, concrete and concrete
products in the southeastern and mid-Atlantic states, in exchange for cash and stock. The
acquisition further diversified the geographic scope of our operations.
Due to the 2005 sale of our Chemicals business as presented in Note 2, the operating results of the
Chemicals business are presented as discontinued operations in the accompanying Consolidated
Statements of Earnings.
See Note 15 for additional disclosure regarding nature of operations.
Principles of consolidation
The consolidated financial statements include the accounts of Vulcan Materials Company and all
our majority or wholly owned subsidiary companies. All intercompany transactions and accounts have
been eliminated in consolidation.
Cash equivalents
We classify as cash equivalents all highly liquid securities with a maturity of three months
or less at the time of purchase. The carrying amount of these securities approximates fair value
due to their short-term maturities.
Medium-term investments
At December 31, 2009 and December 31, 2008, we held investments with principal balances
totaling approximately $5,554,000 and $38,837,000, respectively, in money market and other money
funds at The Reserve, an investment management company specializing in such funds. The substantial
majority of our investment was held in the Reserve International Liquidity Fund, Ltd. On September
15, 2008, Lehman Brothers Holdings Inc. filed for bankruptcy protection. In the following days, The
Reserve announced that it was closing all of its money funds, some of which owned Lehman Brothers
securities, and was suspending redemptions from and purchases of its funds, including the Reserve
International Liquidity Fund. As a result of the temporary suspension of redemptions and the
uncertainty as to the timing of such redemptions, we changed the classification of our investments
in The Reserve funds from cash and cash equivalents to medium-term investments. Based on public
statements issued by The Reserve and the maturity dates of the underlying investments, we believe
that proceeds from the liquidation of the money funds in which we have investments will be received
within twelve months of December 31, 2009, and therefore such investments have been classified as
current.
During 2009 and the fourth quarter of 2008, The Reserve redeemed $33,282,000 and $258,000,
respectively, of our investment. In addition, during the third quarter of 2008, we recognized a
charge of $2,103,000 [included in other income (expense), net] to reduce the principal balance to
an estimate of the fair value of our investment in these funds. During 2009, we recognized income
[included in other income (expense), net] of $660,000 to increase the principal balance to an
estimate of the fair value of our investment in these funds. See the caption Fair Value
Measurements under this Note 1 for further discussion of the fair value determination. These
adjustments resulted in balances as of December 31, 2009 and 2008 of $4,111,000 and $36,734,000,
respectively, as reported on our accompanying Consolidated Balance Sheets.
Accounts and notes receivable
Accounts and notes receivable from customers result from our extending credit to trade
customers for the purchase of our products. The terms generally provide for payment within 30 days
of being invoiced. On occasion, when necessary to conform to regional industry practices, we sell
product under extended payment terms, which may result in either secured or unsecured short-term
notes; or, on occasion, notes with durations of less than one year are taken in settlement of
existing accounts receivable. Other accounts and notes receivable result from short-term
transactions (less than one year) other than the sale of our products, such as interest receivable;
insurance claims; freight claims; tax refund claims; bid deposits or rents receivable.
Additionally, as of December 31, 2008, other accounts and notes receivable include the current
portion of a contingent earn-out agreement referable to the Chemicals business sale as described in
Note 2. Receivables are aged and appropriate allowances for doubtful accounts and bad debt expense
are recorded.
Inventories
Inventories and supplies are stated at the lower of cost or market. We use the last-in,
first-out (LIFO) method of valuation for most of our inventories because it results in a better
matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct
labor and production overhead. An actual valuation of inventory under the LIFO method can be made
only at the end of each year based on the inventory levels and costs at that time. Accordingly,
interim LIFO calculations are based on our estimates of expected year-end inventory levels and
costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating
supplies inventory is carried at average cost. For additional information regarding our
inventories, see Note 3.
Property, plant & equipment
Property, plant & equipment are carried at cost less accumulated depreciation, depletion and
amortization. The cost of properties held under capital leases is equal to the lower of the net
present value of the minimum lease payments or the fair value of the leased property at the
inception of the lease. For additional information regarding our property, plant & equipment, see
Note 4.
Repair and maintenance
Repair and maintenance costs generally are charged to operating expense as incurred. Renewals
and betterments that add materially to the utility or useful lives of property, plant & equipment
are capitalized and subsequently depreciated. Actual costs for planned major maintenance
activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and
amortized to the next overhaul.
Depreciation, depletion, accretion and amortization
Depreciation is generally computed by the straight-line method at rates based on the estimated
service lives of the various classes of assets, which include machinery and equipment (3 to 30
years), buildings (10 to 20 years) and land improvements (7 to 20 years).
Effective September 1, 2009, we changed our method of depreciation for our Newberry, Florida cement
production facilities from straight-line to unit-of-production. We consider the change of
depreciation method a change in accounting estimate effected by a change in accounting principle to
be accounted for prospectively. The unit-of-production depreciation method is grounded on the
assumption that depreciation of these assets is primarily a function of usage. The change to a
unit-of-production method was based on information obtained by continued observation of the pattern
of benefits derived from the cement plant assets and is preferable to a straight-line method as it
results in depreciation that is more reflective of consumption of the assets. The effects of the
partial year change in depreciation method increased 2009 earnings from continuing operations and
net income by approximately $1,026,000, or $0.01 per basic and diluted share when compared to the
results using the straight-line method.
Cost depletion on depletable quarry land is computed by the unit-of-production method based on
estimated recoverable units.
Accretion reflects the period-to-period increase in the carrying amount of the liability for asset
retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to
initially measure the liability at fair value. A significant portion of our intangible assets are
contractual rights in place associated with zoning, permitting
and other rights to access and extract aggregates reserves. Contractual rights in place associated
with aggregates reserves are amortized using a unit-of-production method based on estimated
recoverable units. Other intangible assets are amortized principally by the straight-line method.
Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated
useful life.
Amortization of intangible assets subject to amortization is computed based on the estimated life
of the intangible assets.
We suspended depreciation and amortization expense upon our November 16, 2007 Florida Rock
acquisition for sites that were required to be divested. These sites were divested in 2008.
Depreciation, depletion, accretion and amortization expense for the years ended December 31 is
outlined below (in thousands of dollars):
Depreciation
Depletion
Accretion
Amortization of leaseholds and
capitalized leases
Amortization of intangibles
Total depreciation, depletion,
accretion and amortization
Derivative instruments
We periodically use derivative instruments to reduce our exposure to interest rate risk,
currency exchange risk or price fluctuations on commodity energy sources consistent with our risk
management policies. We do not use derivative financial instruments for speculative or trading
purposes. Additional disclosures regarding our derivative instruments are presented in Note 5.
Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. The fair
value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels as described below:
The following table presents a summary of our assets and liabilities as of December 31,
2009 and 2008 that are subject to fair value measurement on a recurring basis (in thousands of dollars):
Fair Value Recurring
Medium-term investments
Interest rate derivative
Foreign currency derivative
Net liability
The medium-term investments are comprised of money market and other money funds, as more fully
described previously in this Note under the caption Medium-term Investments. We estimated the fair
value of these funds by adjusting the investment principle to reflect a substantial write-down of
the funds’ investments in securities of Lehman Brothers Holdings Inc. and by estimating a discount
against our investment balances to allow for the risk
that legal and accounting costs and pending
or threatened claims and litigation against The Reserve and its management may reduce the principal
available for distribution.
The interest rate derivative consists of an interest rate swap agreement applied to our $325.0
million 3-year notes issued December 2007 and is as more fully described in Note 5. This interest
rate swap is measured at fair value based on the prevailing market interest rate as of the
measurement date. The foreign currency derivative consists of a forward foreign currency exchange
contract and is measured at fair value based on the foreign currency spot rate from an actively
quoted market.
The carrying values of our cash equivalents, accounts and notes receivable, trade payables, accrued
expenses and short-term borrowings approximate their fair values because of the short-term nature
of these instruments. Additional disclosures for derivative instruments and interest-bearing debt
are presented in Notes 5 and 6, respectively.
Goodwill represents the excess of the cost of net assets acquired in business combinations
over the fair value of the identifiable tangible and intangible assets acquired and liabilities
assumed in a business combination. As of December 31, 2009, goodwill totaled $3,093,979,000, as
compared to $3,085,468,000 at December 31, 2008. Total goodwill represents 36% of total assets at
December 31, 2009, compared to 35% as of December 31, 2008.
Goodwill is reviewed for impairment annually or more frequently whenever events or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying
amount. Historically, we performed our annual goodwill impairment test as of January 1. In order to
better align our annual goodwill impairment test with our budgeting and forecasting process, to
meet the accelerated reporting deadlines and to provide adequate time to complete the analysis each
year, during the fourth quarter of 2009, we changed the date on which we perform our annual
goodwill impairment test from January 1 to November 1. We believe that this accounting change is an
alternative method of applying an accounting principle that is preferable under the circumstances.
Goodwill is tested for impairment at the reporting unit level using a two-step process. The first
step of the impairment test identifies potential impairment by comparing the fair value of a
reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit
exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the
second step of the impairment test is not required. If the carrying value of a reporting unit
exceeds its fair value, the second step of the impairment test is performed to measure the amount
of impairment loss, if any. The second step of the impairment test compares the implied fair value
of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of
goodwill is determined in the same manner as the amount of goodwill recognized in a business
combination. If the carrying value of the reporting unit goodwill exceeds the implied fair value of
that goodwill, an impairment loss is recognized in an amount equal to that excess.
We have four operating segments organized around our principal product lines: aggregates, asphalt
mix, concrete and cement. Within these four operating segments, we have identified 13 reporting
units based primarily on geographic location. The carrying value of each reporting unit is
determined by assigning assets and liabilities, including goodwill, to those reporting units as of
the measurement date. We estimate the fair values of the reporting units by considering the
indicated fair values derived from both an income approach, which involves discounting estimated
future cash flows, and a market approach, which involves the application of revenue and earnings
multiples of comparable companies. We consider market factors when determining the assumptions and
estimates used in our valuation models. To substantiate the fair values derived from these
valuations, we reconcile the reporting unit fair values to our market capitalization.
The results of the first step of the annual impairment tests performed as of November 1, 2009
indicated that the fair values of the reporting units exceeded their carrying values by a
substantial margin. Accordingly, there was no charge for goodwill impairment in the year ended
December 31, 2009. The results of the annual impairment tests performed as of January 1, 2009
indicated that the carrying value of our Cement reporting unit exceeded its fair value. Based on
the results of the second step of the impairment test, we concluded that the entire amount of
goodwill at this reporting unit was impaired, and we recorded a $252,664,000 pretax goodwill
impairment charge for the year ended December 31, 2008. The results of the first step of the annual
impairment tests performed as of January 1, 2008 indicated that the fair values of the reporting
units exceeded their carrying values by a substantial margin. Accordingly, there was no charge for
goodwill impairment in the year ended December 31, 2007.
Determining the fair value of our reporting units involves the use of significant estimates and
assumptions and considerable management judgment. We base our fair value estimates on assumptions
we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty.
Actual results may differ materially from those estimates. Any changes in key assumptions or
management judgment with respect to a reporting unit or its prospects, which may result from a
change in market conditions, market trends, interest rates or other factors outside of our control,
or significant underperformance relative to historical or projected future operating results, could
result in a significantly different estimate of the fair value of our reporting units, which could
result in an impairment charge in the future.
For additional information regarding goodwill, see Note 18.
For additional information regarding long-lived assets and intangible assets, see Notes 4 and 18.
Company owned life insurance
We have Company Owned Life Insurance (COLI) policies that were acquired in the Florida Rock
transaction in November 2007. The cash surrender values of these policies, loans outstanding
against the policies and the net values included in other noncurrent assets in the accompanying
Consolidated Balance Sheets as of December 31 are as follows (in thousands of dollars):
Cash surrender value
Loans outstanding
Net value included in noncurrent assets
Revenue recognition
Revenue is recognized at the time the sale price is fixed, the product’s title is transferred
to the buyer and collectibility of the sales proceeds is reasonably assured. Total revenues include
sales of products to customers, net of any discounts and taxes, and third-party delivery revenues
billed to customers.
Stripping costs
In the mining industry, the costs of removing overburden and waste materials to access mineral
deposits are referred to as stripping costs.
Stripping costs incurred during the production phase are considered costs of extracted minerals
under our inventory costing system, inventoried, and recognized in cost of sales in the same period
as the revenue from the sale of the inventory. Additionally, we capitalize such costs as inventory
only to the extent inventory exists at the end of a reporting period.
Conversely, stripping costs incurred during the development stage of a mine (pre-production
stripping) are excluded from our inventory cost. Pre-production stripping costs are expensed as
incurred unless certain criteria are met. Capitalized pre-construction stripping costs are reported
within other noncurrent assets in our accompanying Consolidated Balance Sheets and are typically
amortized over the productive life of the mine.
Other costs
Costs are charged to earnings as incurred for the start-up of new plants and for normal
recurring costs of mineral exploration and research and development. Research and development costs
for continuing operations totaled $1,541,000 in 2009, $1,546,000 in 2008 and $1,617,000 in 2007,
and are included in selling, administrative and general expenses in the Consolidated Statements of
Earnings.
Share-based compensation
We account for our share-based compensation awards using fair-value-based measurement methods.
This results in the recognition of compensation expense for all stock-based compensation awards,
including stock options, based on their fair value as of the grant date. For awards granted prior
to January 1, 2006, compensation cost for all share-based compensation awards is recognized over
the nominal (stated) vesting period. For awards granted subsequent to January 1, 2006, compensation
cost is recognized over the requisite service period.
We receive an income tax deduction for share-based compensation equal to the excess of the market
value of our common stock on the date of exercise or issuance over the exercise price. Tax benefits
resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits)
are classified as financing cash flows. The $2,072,000, $11,209,000 and $29,220,000 in excess tax
benefits classified as financing cash inflows for the years ended December 31, 2009, 2008 and 2007,
respectively, in the accompanying Consolidated Statements of Cash Flows relate to the exercise of
stock options and issuance of shares under long-term incentive plans.
A summary of the estimated future compensation cost (unrecognized compensation expense) as of
December 31, 2009 related to share-based awards granted to employees under our long-term incentive
plans is presented below (in thousands of dollars):
Stock options/SOSARs
Performance shares
Deferred stock units
Total/weighted-average
Pretax compensation expense related to our employee share-based compensation awards and
related income tax benefits for the years ended December 31 are summarized below (in thousands of
dollars):
Pretax compensation expense
Income tax benefits
For additional information regarding share-based compensation, see Note 11 under the caption
Share-based Compensation Plans.
Reclamation costs resulting from the normal use of long-lived assets are recognized over the
period the asset is in use only if there is a legal obligation to incur these costs upon retirement
of the assets. Additionally, reclamation costs resulting from the normal use under a mineral lease
are recognized over the lease term only if there is a legal obligation to incur these costs upon
expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash
flows, is recorded at fair value as a liability at the obligating event date and is accreted
through
charges to operating expenses. This fair value is also capitalized as part of the carrying
amount of the underlying asset and depreciated over the estimated useful life of the asset. If the
obligation is settled for other than the carrying amount of the liability, a gain or loss is
recognized on settlement.
The carrying value of these obligations is $167,757,000 as of December 31, 2009. For additional
information regarding reclamation obligations (referred to in our financial statements as asset
retirement obligations), see Note 17.
| • | Discount Rate — The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future. | ||
| • | Expected Return on Plan Assets — We project the future return on plan assets based principally on prior performance and our expectations for future returns for the types of investments held by the plan as well as the expected long-term asset allocation of the plan. These projected returns reduce the recorded net benefit costs. | ||
| • | Rate of Compensation Increase — For salary-related plans only, we project employees’ annual pay increases, which are used to project employees’ pension benefits at retirement. | ||
| • | Rate of Increase in the Per Capita Cost of Covered Healthcare Benefits — We project the expected increases in the cost of covered healthcare benefits. |
ASC 715, “Compensation Retirement Benefits,” Sections 30-35 and 60-35 provide for the delayed
recognition of differences between actual results and expected or estimated results. This delayed
recognition of actual results allows
for a smoothed recognition in earnings of changes in benefit obligations and plan performance over
the working lives of the employees who benefit under the plans. The differences between actual
results and expected or estimated results are recognized in full in other comprehensive income.
Amounts recognized in other comprehensive income are reclassified to earnings in a systematic
manner over the average remaining service period of active employees expected to receive benefits
under the plan.
For additional information regarding pension and other postretirement benefits, see Note 10.
Our environmental compliance costs include maintenance and operating costs for pollution
control facilities, the cost of ongoing monitoring programs, the cost of remediation efforts and
other similar costs. We expense or capitalize environmental expenditures for current operations or
for future revenues consistent with our capitalization policy.
We expense expenditures for an
existing condition caused by past operations that do not contribute to future revenues. We accrue
costs for environmental assessment and remediation efforts when we determine that a liability is
probable and we can reasonably estimate the cost. At the early stages of a remediation effort,
environmental remediation liabilities are not easily quantified due to the uncertainties of varying
factors. The range of an estimated remediation liability is defined and redefined as events in the
remediation effort occur.
When a range of probable loss can be estimated, we accrue the most likely amount. In the event that
no amount in the range of probable loss is considered most likely, the minimum loss in the range is
accrued. As of December 31, 2009, the spread between the amount accrued and the maximum loss in the
range for all sites for which a range can be reasonably estimated was $5,024,000. Accrual amounts
may be based on technical cost estimations or the professional judgment of experienced
environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely
reviews cost estimates, including key assumptions, for accruing environmental compliance costs;
however, a number of factors, including adverse agency rulings and encountering unanticipated
conditions as remediation efforts progress, may cause actual results to differ materially from
accrued costs.
For additional information regarding environmental compliance costs, see Note 8.
We are involved with claims and litigation, including items covered under our self-insurance
program. We are self-insured for losses related to workers’ compensation up to $2,000,000 per
occurrence and automotive and general/product liability up to $3,000,000 per occurrence. We have
excess coverage on a per occurrence basis beyond these deductible levels.
Under our self-insurance program, we aggregate certain claims and litigation costs that are
reasonably predictable based on our historical loss experience and accrue losses, including future
legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their
unique nature, are not included in our actuarial studies. We use both internal and outside legal
counsel to assess the probability of loss, and establish an accrual when the claims and litigation
represent a probable loss and the cost can be reasonably estimated. For matters not included in our
actuarial studies, legal defense costs are accrued when incurred The following table outlines our
liabilities at December 31 under our self-insurance program (in thousands of dollars):
Liabilities (undiscounted)
Accrued liabilities (discounted)
Discount rate
Estimated payments (undiscounted) under our self insurance program for the five years subsequent to
December 31, 2009 are as follows (in thousands of dollars):
Estimated payments for five subsequent years
2010
2011
2012
2013
2014
Significant judgment is used in determining the timing and amount of the accruals for probable
losses, and the actual liability could differ materially from the accrued amounts.
We file various federal, state and foreign income tax returns, including some returns that are
consolidated with subsidiaries. We account for the current and deferred tax effects of such returns
using the asset and liability method. Our current and deferred tax assets and liabilities reflect
our best assessment of estimated future taxes to be paid. Significant judgments and estimates are
required in determining the current and deferred assets and liabilities.
Annually, we compare the
liabilities calculated for our federal, state and foreign income tax returns to the estimated
liabilities calculated as part of the year end income tax provision. Any adjustments are reflected
in our current and deferred tax assets and liabilities.
A number of years may elapse before a particular matter for which we have recorded a liability
related to an unrecognized tax benefit is audited and finally resolved. The number of years with
open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or
the timing of resolution of any particular tax matter, we believe our liability for unrecognized
tax benefits is adequate. Favorable resolution of an unrecognized
tax benefit could be recognized as a reduction in our tax provision and effective tax rate in the
period of resolution. Unfavorable settlement of an unrecognized tax benefit could increase the tax
provision and effective tax rate and may require the use of cash in the period of resolution. Our
liability for unrecognized tax benefits is generally presented as noncurrent. However, if we
anticipate paying cash within one year to settle an uncertain tax position, the liability is
presented as current. We classify interest and penalties recognized on the liability for
unrecognized tax benefits as income tax expense.
Our largest permanent item in computing both our effective tax rate and taxable income is the
deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax
rate is presented in Note 9. The deduction for statutory depletion does not necessarily change
proportionately to changes in pretax earnings.
The American Jobs Creation Act of 2004 created a new deduction for certain domestic production
activities as described in Section 199 of the Internal Revenue Code. Generally, this deduction,
subject to certain limitations, was set at 6% for 2007 through 2009 and increases to 9% in 2010 and
thereafter. The estimated impact of this deduction on the 2009, 2008 and 2007 effective tax rates
is presented in Note 9.
Comprehensive income (loss)
We report comprehensive income (loss) in our Consolidated Statements of Shareholders’ Equity.
Comprehensive income includes charges and credits to equity from nonowner sources. Comprehensive
income comprises two subsets: net earnings and other comprehensive income (loss). Other
comprehensive income (loss) includes fair value adjustments to cash flow hedges, and actuarial
gains or losses and prior service costs related to pension and postretirement benefit plans.
Earnings per share (EPS)
We report two earnings per share numbers, basic and diluted. These are computed by dividing
net earnings (loss) by the weighted-average common shares outstanding (basic EPS) or
weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below (in
thousands of shares):
Dilutive effect of
Stock options/SOSARs
Other stock compensation plans
Weighted-average common shares outstanding,
assuming dilution
All dilutive common stock equivalents are reflected in our earnings per share calculations.
Antidilutive common stock equivalents are not included in our earnings per share calculations. The
number of antidilutive common stock equivalents for the years ended December 31 are as follows (in
thousands of shares):
Antidilutive common stock equivalents
NEW ACCOUNTING STANDARDS
Accounting standards recently adopted
2009 — Retirement benefit disclosures
As of and for the annual period ended December 31, 2009, we adopted the disclosure standards for
retirement benefits as codified in ASC 715 (formerly FSP FAS 132(R)-1), which requires more
detailed disclosures about employers’ plan assets, including employers’ investment strategies,
major categories of plan assets, concentrations of risk within plan assets and valuation techniques
used to measure the fair value of plan assets. As a result of our adoption of this standard, we
enhanced our annual benefit plan disclosures as reflected in Note 10.
2009 — Measuring liabilities at fair value
On October 1, 2009, we adopted Auditing Standard Update (ASU) 2009-05, “Measuring Liabilities at
Fair Value” (ASU 2009-05). ASU 2009-05 provides guidance on measuring the fair value of liabilities
under ASC Topic 820, “Fair Value Measurements and Disclosures” (ASC 820), [formerly Statement of
Financial Accounting Standards (SFAS) No. 157]. Our adoption of ASU 2009-05 did not materially
affect our results of operations, financial position or liquidity.
2009 — Business combinations
On January 1, 2009, we adopted business combination standards codified in ASC Topic 805, “Business
Combinations” (ASC 805) [formerly SFAS No. 141(R)], which requires the acquirer in a business
combination to measure all assets acquired and liabilities assumed at their acquisition-date fair
value. ASC 805 applies whenever an
acquirer obtains control of one or more businesses. This standard requires prospective application
for business combinations consummated after adoption. Our adoption of this standard had no impact
on our results of operations, financial position or liquidity.
2009 — Noncontrolling interests
On January 1, 2009, we adopted standards governing the accounting and reporting of noncontrolling
interests as codified in ASC Topic 810, “Consolidation” (ASC 810) (formerly SFAS No. 160). ASC 810
establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and
for the deconsolidation of a subsidiary. Our adoption of this standard did not materially affect
our results of operations, financial position or liquidity.
2009 — Derivative instruments and hedging activities disclosures
On January 1, 2009, we adopted disclosure standards for derivative instruments and hedging
activities as codified in ASC Topic 815, “Derivatives and Hedging” (ASC 815) (formerly SFAS No.
161). As a result of our adoption of this standard, we enhanced our annual disclosure of derivative
instruments and hedging activities as reflected in Note 5.
2009/2008 — Fair value measurement
On January 1, 2009, we adopted fair value measurement standards codified in ASC 820 for
nonfinancial assets and liabilities. ASC 820 defines fair value for accounting purposes,
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. On January 1, 2008, we adopted fair value measurement standards with respect to
financial assets and liabilities and elected to defer our adoption of this standard for
nonfinancial assets and liabilities. Our adoption of these standards did not materially affect our
results of operations, financial position or liquidity.
See the caption Fair Value Measurements under this Note 1 for disclosures related to financial
assets and liabilities pursuant to the requirements of ASC 820.
2008 — Retirement benefits measurement date
On January 1, 2008, we adopted the measurement date provision of ASC Topic 715, “Compensation -
Retirement Benefits” (ASC 715) (formerly SFAS No. 158). ASC 715 requires an employer to measure the
plan assets and benefit obligations as of the date of its year-end balance sheet. This requirement
was effective for fiscal years ending after December 15, 2008. Upon adopting the measurement date
provision, we remeasured plan assets and benefit obligations as of January 1, 2008. This
remeasurement resulted in an increase to noncurrent assets of $15,011,000, an increase to
noncurrent liabilities of $2,238,000, an increase to deferred tax liabilities of $5,104,000, a
decrease to retained earnings of $1,312,000 and an increase to accumulated other comprehensive
income, net of tax, of $8,981,000.
2007 — Accounting for uncertainty in income taxes
On January 1, 2007, we adopted the provisions of ASC Topic 740, “Income Taxes” (ASC 740) (formerly
FIN 48), that deals with the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements. ASC 740 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Under ASC 740, the financial statement effects of a tax
position should initially be recognized when it is more likely than not, based on the technical
merits, that the position will be sustained upon examination. A tax position that meets the
more-likely-than-not recognition threshold should initially and subsequently be measured as the
largest amount of tax benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement with a taxing authority.
As a result of the implementation of these provisions, as of January 1, 2007, we increased the
liability for unrecognized tax benefits by $2,420,000, increased deferred tax assets by $1,480,000
and reduced retained earnings by $940,000. The total liability for unrecognized tax benefits as of
January 1, 2007, amounted to $11,760,000, including interest and penalties.
See Note 9 for the tabular reconciliation of unrecognized tax benefits.
Accounting standards pending adoption
Variable interest entities — In June 2009, the Financial Accounting Standards Board (FASB)
amended the consolidation guidance related to variable interest entities including removing the
scope exemption for qualifying special-purpose entities (this standard has not been codified but
was issued by the FASB as SFAS No. 167). This standard is effective as of the first fiscal year
that begins after November 15, 2009 with early adoption prohibited.
We do not expect our adoption of this standard to have a material effect on our results of
operations, financial position or liquidity.
Enhanced disclosures for fair value measurements — In January 2009, the FASB issued ASU No.
2010-6, “Improving Disclosures about Fair Value Measurements” (ASU 2010-6). ASU 2010-6 adds
disclosure requirements about fair value measurements and clarifies the level of disaggregation
required for existing fair value disclosures. Additionally, this ASU requires new disclosures about
transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances
and settlements relating to Level 3 measurements. With the exception of the separate disclosures
about purchases, sales, issuances and settlements, which are effective for periods beginning after
December 15, 2010, the standard is effective for periods beginning after December 15, 2009. We
expect to adopt these new disclosure requirements in the first quarters of 2010 and 2011.
Use of estimates in the preparation of financial statements
The preparation of these financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates and judgments that
affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures
of contingent assets and contingent liabilities at the date of the financial statements. We
evaluate these estimates and judgments on an ongoing basis and base our estimates on historical
experience, current conditions and various other assumptions that are believed to be reasonable
under the circumstances. The results of these estimates form the basis for making judgments about
the carrying values of assets and liabilities as well as identifying and assessing the accounting
treatment with respect to commitments and contingencies. Actual results may differ materially from
these estimates.
NOTE 2
DISCONTINUED OPERATIONS
In June 2005, we sold substantially all the assets of our Chemicals business, known as Vulcan
Chemicals, to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. In addition to the
initial cash proceeds, Basic Chemicals was required to make payments under two earn-out agreements
subject to certain conditions. The first earn-out agreement was based on ECU and natural gas prices
during the five-year period beginning July 1, 2005, and was capped at $150,000,000 (ECU earn-out or
ECU derivative). During 2007, we received the final payment under the ECU earn-out of $22,142,000,
bringing cumulative cash receipts to the $150,000,000 cap. Upward adjustments to the fair value of
the ECU earn-out subsequent to closing, which totaled $51,070,000, were recorded in continuing
operations, and therefore did not contribute to the gain or loss on the sale of the Chemicals
business. During 2007, we recognized a gain related to changes in the fair value of the ECU
earn-out of $1,929,000 (reflected as a component of other income, net in our Consolidated
Statements of Earnings).
Proceeds under the second earn-out agreement are based on the performance of the hydrochlorocarbon
product HCC-240fa (commonly referred to as 5CP) from the closing of the transaction through
December 31, 2012 (5CP earn-out). Under this earn-out agreement, cash plant margin for 5CP, as
defined in the Asset Purchase Agreement, in excess of an annual threshold amount is shared equally
between Vulcan and Basic Chemicals. The primary determinant of the value for this earn-out is the
level of growth in 5CP sales volume. At the June 7, 2005 closing date, the value assigned to the
5CP earn-out was limited to an amount that resulted in no gain on the sale of the business, as such
gain was contingent in nature. A gain on disposal of the Chemicals business is recognized to the
extent cumulative cash receipts under the 5CP earn-out exceed the initial value recorded.
Through December 31, 2009, we have received a total of $33,913,000 under the 5CP earn-out. During
2009, we received payments totaling $11,625,000 related to the year ended December 31, 2008. As
these cash receipts exceeded the carrying amount of the 5CP receivable, during 2009 we recorded a
gain on disposal of discontinued operations of $812,000. Any future payments received pursuant to
the 5CP earn-out will be recorded as additional gain on disposal of discontinued operations. During
2008 and 2007, we received payments of $10,014,000 and $8,418,000, respectively, under the 5CP
earn-out related to the respective years ended December 31, 2007 and December 31, 2006.
The carrying amounts of the 5CP earn-out as of December 31 are reflected in the accompanying
Consolidated Balance Sheets as follows (in thousands of dollars):
5CP earn-out
Accounts and notes receivable — other
Total
We are liable for a cash transaction bonus payable in the future to certain key former
Chemicals employees. This transaction bonus is payable if cash receipts realized from the two
earn-out agreements described above exceed an established minimum threshold. Amounts due are
payable annually based on the prior year’s results. Based on the total cumulative receipts from the
two earn-outs, we paid $521,000 in transaction bonuses during 2009.
The financial results of the Chemicals business are classified as discontinued operations in the
accompanying Consolidated Statements of Earnings for all periods presented.
There were no net sales or revenues from discontinued operations for the years presented.
Results from discontinued operations are as follows (in thousands of dollars):
Discontinued Operations
Earnings (loss) from results of discontinued
operations
Gain on disposal of discontinued operations
Income tax (provision) benefit
Earnings (loss) on discontinued operations,
net of tax
The 2009 pretax earnings from results of discontinued operations resulted primarily from
settlements with two of our insurers in the Modesto perchloroethylene cases which are associated
with our former Chemicals business. These settlements resulted in pretax gains of $23,500,000. The
insurance proceeds and associated gains represent a partial recovery of legal and settlement costs
recognized in prior years. The 2008 and 2007 pretax losses from discontinued operations, and the
remaining results from 2009, reflect charges primarily related to general and product liability
costs, including legal defense costs, environmental remediation costs associated with our former
Chemicals businesses, and charges related to the cash transaction bonus as noted above.
NOTE 3 INVENTORIES
Inventories at December 31 are as follows (in thousands of dollars):
Finished products
Raw materials
Products in process
Operating supplies and other
Total inventories
In addition to the inventory balances presented above, as of December 31, 2009, we have
$21,091,000 of inventory classified as long-term assets (Other assets) as we do not expect to sell
the inventory within one year. Inventories valued under the LIFO method total $252,494,000 at
December 31, 2009 and $269,598,000 at December 31, 2008. During 2009, 2008 and 2007, inventory
reductions resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in
prior years as compared to the cost of current-year purchases. The effect of the LIFO liquidation
on 2009 results was to decrease cost of goods sold by $3,839,000; increase earnings from continuing
operations by
$2,273,000; and increase net earnings by $2,273,000. The effect of the LIFO liquidation on 2008
results was to
decrease cost of goods sold by $2,654,000; increase earnings from continuing
operations by $1,605,000; and increase net earnings by $1,605,000. The effect of the LIFO
liquidation on 2007 results was to decrease cost of goods sold by $85,000; increase earnings from
continuing operations by $52,000; and increase net earnings by $52,000.
Estimated current cost exceeded LIFO cost at December 31, 2009 and 2008 by $129,424,000 and
$125,997,000, respectively. We use the LIFO method of valuation for most of our inventories as it
results in a better matching of costs with revenues. We provide supplemental income disclosures to
facilitate comparisons with companies not on LIFO. The supplemental income calculation is derived
by tax-effecting the change in the LIFO reserve for the periods presented. If all inventories
valued at LIFO cost had been valued under the methods (substantially average cost) used prior to
the adoption of the LIFO method, the approximate effect on net earnings would have been an increase
of $2,043,000 in 2009, an increase of $26,192,000 in 2008 and an increase of $15,518,000 in 2007.
NOTE 4
PROPERTY, PLANT & EQUIPMENT
Balances of major classes of assets and allowances for depreciation, depletion and
amortization at December 31 are as follows (in thousands of dollars):
Land and land improvements
Buildings
Machinery and equipment
Leaseholds
Deferred asset retirement costs
Construction in progress
Total
Less allowances for depreciation, depletion
and amortization
Capitalized interest costs with respect to qualifying construction projects and total interest
costs incurred before recognition of the capitalized amount for the years ended December 31 are as
follows (in thousands of dollars):
Capitalized interest cost
Total interest cost incurred before recognition
of the capitalized amount
The recorded asset impairment losses related to long-lived assets were immaterial for all periods
presented.
NOTE 5
DERIVATIVE INSTRUMENTS
During the normal course of operation, we are exposed to market risks including fluctuations
in interest rates, fluctuations in foreign currency exchange rates and changes in commodity
pricing. From time to time, and consistent with our risk management policies, we use derivative
instruments to hedge against these market risks. We do not utilize derivative instruments for
trading or other speculative purposes. The interest rate swap agreements described below were
designated as cash flow hedges of future interest payments.
In December 2007, we issued $325,000,000 of 3-year floating (variable) rate notes that bear
interest at 3-month London Interbank Offered Rate (LIBOR) plus 1.25% per annum. Concurrently, we
entered into a 3-year interest rate swap agreement in the stated (notional) amount of $325,000,000.
Under this agreement, we pay a fixed interest rate of 5.25% and receive 3-month LIBOR plus 1.25%
per annum. Concurrent with each quarterly interest payment, the portion of this swap related to
that interest payment is settled and the associated realized gain or loss is recognized.
For the
12-month period ending December 31, 2010, we estimate that $11,193,000 of the pretax loss
accumulated in Other Comprehensive Income (OCI) will be reclassified to earnings.
Additionally, during 2007, we entered into fifteen forward starting interest rate swap agreements
for a total notional amount of $1,500,000,000. On December 11, 2007, upon the issuance of the
related fixed-rate debt, we terminated and settled for a cash payment of $57,303,000 a portion of
these forward starting swaps with an aggregate notional amount of $900,000,000 ($300,000,000
5-year, $350,000,000 10-year and $250,000,000 30-year).
In December 2007, the remaining forward starting swaps on an aggregate notional amount of
$600,000,000 were extended to August 29, 2008. On June 20, 2008, upon the issuance of $650,000,000
of related fixed-rate debt, we terminated and settled for a cash payment of $32,474,000 the
remaining forward starting swaps.
Amounts accumulated in other comprehensive loss related to the highly effective portion of the
fifteen forward starting interest rate swaps are being amortized to interest expense over the term
of the related debt. For the 12-month period ending December 31, 2010, we estimate that $7,624,000
of the pretax loss accumulated in OCI will be reclassified to earnings.
Derivative instruments are recognized at fair value in the accompanying Consolidated Balance
Sheets. At December 31, the fair values of derivative instruments designated as hedging instruments
are as follows (in thousands of dollars):
Liability
Derivatives
Interest rate derivatives
Total derivatives
The effects of the cash flow hedge derivative instruments on the accompanying Consolidated
Statements of Earnings for the years ended December 31 are as follows (in thousands of dollars):
Interest
rate derivatives
Gain (loss) recognized in OCI
(effective portion)
Loss
reclassified from Accumulated OCI
(effective portion)
Gain (loss) recognized in earnings
(ineffective portion and amounts excluded from effectiveness test)
NOTE 6 CREDIT FACILITIES, SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings at December 31 are summarized as follows (in thousands of dollars):
Total short-term borrowings
We utilize our bank lines of credit as liquidity back-up for outstanding commercial paper or draw
on the bank lines to access LIBOR-based short-term loans to fund our borrowing requirements.
Periodically, we issue commercial paper for general corporate purposes, including working capital
requirements.
Our policy is to maintain committed credit facilities at least equal to our outstanding commercial
paper. Unsecured bank lines of credit totaling $1,500,000,000 were maintained at the end of 2009,
all of which expires November 16, 2012. As of December 31, 2009, there were no borrowings under the
lines of credit. Interest rates referable to borrowings under these lines of credit are determined
at the time of borrowing based on current market conditions. Pricing of bank loans, if any lines
were drawn, would be 30 basis points (0.3%) over LIBOR based on our long-term debt ratings at
December 31, 2009.
All lines of credit extended to us in 2009, 2008 and 2007 were based solely on a commitment fee; no
compensating balances were required. In the normal course of business, we maintain balances for
which we are credited with earnings allowances. To the extent the earnings allowances are not
sufficient to fully compensate banks for the services they provide, we pay the fee equivalent for
the differences.
As of December 31, 2009, $3,659,000 of our long-term debt, including current maturities, was
secured. This secured debt was assumed with the November 2007 acquisition of Florida Rock. All
other debt obligations, both short-term borrowings and long-term debt, are unsecured.
Long-term debt at December 31 is summarized as follows (in thousands of dollars):
10.125%
2015 notes issued 20091
10.375%
2018 notes issued 20092
3-year floating loan issued 2008
6.30%
5-year notes issued 20083
7.00%
10-year notes issued 20084
3-year floating notes issued 2007
5.60%
5-year notes issued 20075
6.40%
10-year notes issued 20076
7.15%
30-year notes issued 20077
6.00% 10-year notes issued 1999
Private placement notes
Medium-term notes
Industrial revenue bonds
Other notes
Total debt excluding short-term borrowings
Less current maturities of long-term debt
Total long-term debt
Estimated fair value of long-term debt
The estimated fair value amounts of long-term debt presented in the table above were
determined by discounting expected future cash flows based on credit-adjusted interest rates on
U.S. Treasury bills, notes or bonds, as appropriate. The fair value estimates are based on
information available to management as of the respective balance sheet dates. Although management
is not aware of any factors that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued since those dates.
Scheduled debt payments during 2009 included $15,000,000 in March, June, September and December
representing the quarterly payments under the 3-year floating rate loan issued in June 2008,
$250,000,000 in April to retire the 6.00% 10-year notes issued in 1999, and payments under various
miscellaneous notes that either matured at various dates or required monthly payments. In addition
to our scheduled debt payments, we voluntarily prepaid $50,000,000 of our 3-year floating rate loan
in November of 2009. Scheduled debt payments during 2008 included $33,000,000 in December to retire
a private placement note, $15,000,000 in December representing the first quarterly payment under
the 3-year floating rate loan and payments under various miscellaneous notes that either
matured at
various dates or required monthly payments. A note in the amount of $1,276,000 previously scheduled
to be retired in 2008 was extended until May 2009.
In February 2009, we issued $400,000,000 of long-term notes in two related series, as follows:
$150,000,000 of 10.125% coupon notes due December 2015 and $250,000,000 of 10.375% coupon notes due
December 2018. These notes were issued principally to repay borrowings outstanding under our short-
and long-term debt obligations. The notes are presented in the table above net of unamortized
discounts from par. Discounts and debt issuance costs are being amortized using the effective
interest method over the respective terms of the notes.
The 2008 and 2007 debt issuances described below relate primarily to funding the November 2007
acquisition of Florida Rock. These issuances effectively replaced a portion of the short-term
borrowings we incurred to initially fund the cash portion of the acquisition.
In June 2008, we established a $300,000,000 3-year syndicated term loan with a floating rate based
on a spread over LIBOR (1, 2, 3 or 6-month LIBOR options). As of December 31, 2009, the spread was
1.50 percentage points above the selected LIBOR options, as follows: 2-month LIBOR of 0.25% for
$75,000,000 of the outstanding balance and 3-month LIBOR of 0.26% for the remaining $100,000,000.
The spread is subject to increase if our long-term credit ratings are downgraded. This loan
requires quarterly principal payments of $15,000,000 starting in December 2008 and final principal
payments totaling $100,000,000 in June 2011.
Additionally, in June 2008 we issued $650,000,000 of long-term notes in two series, as follows:
$250,000,000 of 5-year 6.30% coupon notes and $400,000,000 of 10-year 7.00% coupon notes. These
notes are presented in the table above net of unamortized discounts from par. These discounts are
being amortized using the effective interest method over the respective terms of the notes. The
effective interest rates for these note issuances, including the effects of underwriting
commissions and the settlement of the forward starting interest rate swap agreements (see Note 5),
are 7.47% for the 5-year notes and 7.86% for the 10-year notes.
In December 2007, we issued $1,225,000,000 of long-term notes in four related series, as follows:
$325,000,000 of 3-year floating rate notes, $300,000,000 of 5-year 5.60% coupon notes, $350,000,000
of 10-year 6.40% coupon notes and $250,000,000 of 30-year 7.15% coupon notes. Concurrent with the
issuance of the notes, we entered into an interest rate swap agreement on the $325,000,000 3-year
floating rate notes to convert them to a fixed interest rate of 5.25%. These notes are presented in
the table above net of unamortized discounts from par. These discounts and the debt issuance costs
of the notes are being amortized using the effective interest method over the respective terms of
the notes. The effective interest rates for these notes, including the effects of underwriting
commissions and other debt issuance cost, the above mentioned interest rate swap agreement and the
settlement of the forward starting interest rate swap agreements (see Note 5), are 5.41% for the
3-year notes, 6.58% for the 5-year notes, 7.39% for the 10-year notes and 8.04% for the 30-year
notes.
During 1999, we accessed the public debt market by issuing $500,000,000 of 5-year and 10-year notes
in two related series of $250,000,000 each. The 5.75% 5-year coupon notes matured in April 2004 and
the 6.00% 10-year notes matured in April 2009.
In 1999, we purchased all the outstanding common shares of CalMat Co. The private placement notes
were issued by CalMat in December 1996 in a series of four tranches at interest rates ranging from
7.19% to 7.66%. Principal payments on the notes began in December 2003 and end in December 2011.
The $15,243,000 outstanding as of December 31, 2009 is at 7.66% and matures December 2011.
During 1991, we issued $81,000,000 of medium-term notes ranging in maturity from 3 to 30 years, and
in interest rates from 7.59% to 8.85%. The $21,000,000 in medium-term notes outstanding as of
December 31, 2009 has a weighted-average maturity of 5.2 years with a weighted-average interest
rate of 8.85%.
The industrial revenue bonds were assumed in November 2007 with the acquisition of Florida Rock.
These variable-rate tax-exempt bonds mature as follows: $2,250,000 maturing June 2012, $1,300,000
maturing January 2021 and $14,000,000 maturing November 2022. The first two bond maturities are
collateralized by certain property, plant & equipment. The remaining $14,000,000 of bonds are
backed by a letter of credit.
Other notes of $1,823,000 as of December 31, 2009 were issued at various times to acquire land
or businesses or were assumed in business acquisitions.
The total (principal and interest) payments of long-term debt, including current maturities, for
the five years subsequent to December 31, 2009 are as follows (in thousands of dollars):
Payments of Long-term Debt
Our debt agreements do not subject us to contractual restrictions with regard to working
capital or the amount we may expend for cash dividends and purchases of our stock. The percentage
of consolidated debt to total capitalization (total debt as a percentage of total capital), as
defined in our bank credit facility agreements, must be less than 65%. Our total debt as a
percentage of total capital was 40.3% as of December 31, 2009 and 50.0% as of December 31, 2008.
NOTE 7 OPERATING LEASES
Total rental expense from continuing operations under operating leases primarily for machinery
and equipment, exclusive of rental payments made under leases of one month or less, is summarized
as follows (in thousands of dollars):
Minimum rentals
Contingent rentals (based principally
on usage)
Future minimum operating lease payments under all leases with initial or remaining
noncancelable lease terms in excess of one year, exclusive of mineral leases, as of December 31,
2009 are payable as follows (in thousands of dollars):
Future Minimum Operating Lease Payments
Thereafter
Lease agreements frequently include renewal options and require that we pay for utilities,
taxes, insurance and maintenance expense. Options to purchase are also included in some lease
agreements.
NOTE 8 ACCRUED ENVIRONMENTAL REMEDIATION COSTS
Our Consolidated Balance Sheets as of December 31 include accrued environmental remediation
costs as follows (in thousands of dollars):
Continuing operations
Retained from former Chemicals businesses
The long-term portion of the accruals noted above is included in other noncurrent liabilities
in the accompanying Consolidated Balance Sheets and amounted to $6,813,000 at December 31, 2009 and
$6,915,000 at December 31, 2008. The short-term portion of these accruals is included in other
accrued liabilities in the accompanying Consolidated Balance Sheets.
The accrued environmental remediation costs in continuing operations relate primarily to the former
Florida Rock, CalMat and Tarmac facilities acquired in 2007, 1999 and 2000, respectively. The
balances noted above for Chemicals relate to retained environmental remediation costs from the 2003
sale of the Performance Chemicals business and the 2005 sale of the Chloralkali business.
NOTE 9 INCOME TAXES
The components of earnings (loss) from continuing operations before income taxes are as
follows (in thousands of dollars):
Domestic
Foreign
Provision (benefit) for income taxes for continuing operations consists of the following (in
thousands of dollars):
Current
Federal
State and local
Deferred
Total provision (benefit)
The provision for income taxes differs from the amount computed by applying the federal
statutory income tax rate to income before provision for income taxes. The sources and tax effects
of the differences are as follows (in thousands of dollars):
Income tax provision (benefit) at the
federal statutory tax rate of 35%
Increase (decrease) in income tax provision
(benefit) resulting from Statutory depletion
State and local income taxes, net of federal
income tax benefit
Nondeductible expense
ESOP dividend deduction
U.S. Production Activities Deduction
Fair market value over tax basis of
contributions
Foreign tax rate differential
Tax loss on sale of stock — divestiture
Reversal cash surrender value — COLI plans
Prior year true up adjustments
Provision for uncertain tax positions
Gain on sale of goodwill on divested assets
Other
Total income tax provision (benefit)
Deferred income taxes on the balance sheet result from temporary differences between the
amount of assets and liabilities recognized for financial reporting and tax purposes. The
components of the net deferred income tax liability at December 31 are as follows (in thousands of
dollars):
Deferred tax assets related to
Pensions
Accruals for asset retirement obligations
and environmental accruals
Accounts receivable, principally allowance
for doubtful accounts
Deferred compensation, vacation pay
and incentives
Interest rate swaps
Self-insurance reserves
Valuation allowance on net operating loss
carryforwards
Total deferred tax assets
Deferred tax liabilities related to
Inventory
Fixed assets
Intangible assets
Total deferred tax liabilities
Net deferred tax liability
The above amounts are reflected in the accompanying Consolidated Balance Sheets as of December
31 as follows (in thousands of dollars):
Current assets
Deferred liabilities
Our determination of the realization of deferred tax assets is based upon management’s
judgment of various future events and uncertainties, including the timing, nature and amount of
future income earned by certain subsidiaries and the implementation of various plans to maximize
the realization of deferred tax assets. We believe that the subsidiaries will generate sufficient
operating earnings to realize the deferred tax benefits. However, we do not believe that it is more
likely than not that all of our state net operating loss carryforwards will be realized in future
periods. Accordingly, valuation allowances amounting to $10,768,000 and $6,057,000 were established
against the state net operating loss deferred tax assets as of December 31, 2009 and December 31,
2008, respectively. At December 31, 2009, we had $345,085,000 of net operating loss carryforwards
in various state jurisdictions. The net operating losses relate to jurisdictions with either
15-year or 20-year carryforward periods, and relate to losses generated in years from 2007 forward.
As a result, the vast majority of the loss carryforwards do not begin to expire until 2022.
Additionally, due to a significant decrease in 2009 earnings, along with a sizable dividend from
our Mexican subsidiary, we generated a foreign tax credit carryforward of approximately
$13,051,000. The carryforward period
available for utilization is ten years, and we have concluded that it is more likely than not that
the full credit carryforward will be utilized within the carryforward period. The primary factors
projected over the ten-year carryforward period upon which we relied to reach this conclusion
include (1) a return to more normal levels of earnings, (2) our ability to generate sufficient
foreign source income, and (3) the reduction of our interest expense from corporate debt. As a
result, no valuation allowance has been established against the foreign tax credit carryforward
deferred tax asset.
Uncertain tax positions and the resulting unrecognized income tax benefits are discussed in our
accounting policy for income taxes (See Note 1, caption Income Taxes). The change in the
unrecognized income tax benefits for the years ended 2009, 2008 and 2007 is reconciled below (in
thousands of dollars):
Unrecognized income tax benefits
as of January 1
Increases for tax positions related to
Prior years
Current year
Acquisitions
Decreases for tax positions related to
Settlements with taxing authorities
Expiration of applicable statute of limitations
Unrecognized income tax benefits
as of December 31
We classify interest and penalties recognized on the liability for unrecognized income tax
benefits as income tax expense. Interest and penalties recognized as income tax expense (benefit)
were $472,000 in 2009, ($202,000) in 2008 and $1,990,000 in 2007. The balance of accrued interest
and penalties included in our liability for unrecognized income tax benefits as of December 31 was
$3,112,000 in 2009, $1,376,000 in 2008 and $4,050,000 in 2007.
Our unrecognized income tax benefits at December 31 in the table above include $12,181,000 in 2009,
$12,724,000 in 2008 and $5,490,000 in 2007 that would affect the effective tax rate if recognized.
We are routinely examined by various taxing authorities. The U.S. federal statute of limitations
for 2006 has been extended to March 31, 2011, with no anticipated significant tax increase or
decrease to any single tax position. The U.S. federal statute of limitations for years prior to
2006 has expired. We anticipate no single tax position generating a significant increase or
decrease in our liability for unrecognized tax benefits within 12 months of this reporting date.
We file income tax returns in the U.S. federal and various state and foreign jurisdictions.
Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for
the years prior to 2005.
We have not recognized deferred income taxes on $38,270,000 of undistributed earnings from one of
our foreign subsidiaries, since we consider such earnings as indefinitely reinvested. If we
distribute the earnings in the form of dividends, the distribution would be subject to U.S. income
taxes. In this event, the amount of deferred income taxes to be recognized is $13,395,000.
NOTE 10 BENEFIT PLANS
Pension plans
We sponsor three funded, noncontributory defined benefit pension plans. These plans cover
substantially all employees hired prior to July 15, 2007, other than those covered by
union-administered plans. Normal retirement age
is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried
Plan and a plan we assumed from Florida Rock are generally based on salaries or wages and years of
service; the Construction Materials Hourly Plan provides benefits equal to a flat dollar amount for
each year of service. Effective July 15, 2007, we amended our defined benefit pension plans and our
then existing defined contribution 401(k) plans to no longer accept new participants. Existing
participants continue to accrue benefits under these plans. Salaried and non-union hourly employees
hired on or after July 15, 2007 are eligible for a new single defined contribution
401(k)/Profit-Sharing plan established on that date.
Additionally, we sponsor unfunded, nonqualified pension plans, including one such plan assumed in
the Florida Rock acquisition. The projected benefit obligation, accumulated benefit obligation and
fair value of assets for these plans were: $70,089,000, $63,220,000 and $0 at December 31, 2009 and
$53,701,000, $49,480,000 and $0 at December 31, 2008. Approximately $8,700,000 and $8,100,000 of
the obligations at December 31, 2009 and December 31, 2008, respectively, relate to existing
Florida Rock retirees receiving benefits under the assumed plan.
The following table sets forth the combined funded status of the plans and their reconciliation
with the related amounts recognized in our consolidated financial statements at December 31 (in
thousands of dollars):
Change in Benefit Obligation
Benefit obligation at beginning of year
Remeasurement adjustment 1
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
Change in Plan Assets
Fair value of assets at beginning of year
Remeasurement adjustment1
Actual return on plan assets2
Employer contribution
Fair value of assets at end of year
Funded status
Net amount recognized
Amounts Recognized in the Consolidated
Balance Sheets
Noncurrent assets
Noncurrent liabilities
Amounts Recognized in Accumulated
Other Comprehensive Income
Net actuarial loss
Prior service cost
Total amount recognized
The accumulated benefit obligation and the projected benefit obligation exceeded plan assets
for all of our defined benefit plans at December 31, 2009 and 2008.
The accumulated benefit obligation for all defined benefit pension plans was $669,171,000 at
December 31, 2009 and $581,653,000 at December 31, 2008.
The following table sets forth the components of net periodic benefit cost, amounts recognized in
other comprehensive income and weighted-average assumptions of the plans at December 31 (amounts in
thousands, except percentages):
Components of Net Periodic Pension
Benefit Cost
Amortization of prior service cost
Amortization of actuarial loss
Net periodic pension benefit cost
Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income
Net actuarial loss (gain)
Prior service credit
Reclassification of actuarial loss to net
periodic pension benefit cost
Reclassification of prior service cost to net
periodic pension benefit cost
Amount recognized in other comprehensive
income
Amount recognized in net periodic pension
benefit cost and other comprehensive
income
Assumptions
Weighted-average assumptions used to
determine benefit obligation at
December 31
Rate of compensation increase
(for salary-related plans):
Inflation
Merit/productivity
Total rate of compensation increase
Weighted-average assumptions used to
determine net periodic benefit cost for
years ended December 31
The estimated net actuarial loss and prior service cost that will be amortized from
accumulated other comprehensive income into net periodic pension benefit cost during 2010 are
$5,825,000 and $460,000, respectively.
Assumptions regarding our expected return on plan assets are based primarily on judgments made by
management and the Board’s Finance and Pension Funds Committee. These judgments take into account
the expectations of our pension plan consultants and actuaries and our investment advisors, and the
opinions of market professionals. We base our expected return on long-term investment expectations.
Accordingly, the expected return has historically remained at 8.25% and has not varied due to
short-term results above or below our long-term expectations.
We establish our pension investment policy by evaluating asset/liability studies periodically
performed by our consultants. These studies estimate trade-offs between expected returns on our
investments and the variability in anticipated cash contributions to fund our pension liabilities.
Our policy accepts a relatively high level of variability in potential pension fund contributions
in exchange for higher expected returns on our investments and lower expected future contributions.
Our current strategy for implementing this policy is to invest a relatively high proportion in
publicly traded equities and moderate amounts in publicly traded debt and private, nonliquid
opportunities, such as venture capital, commodities, buyout funds and mezzanine debt. The target
allocation ranges for plan assets are as follows: equity securities — 50% to 77%; debt securities
— 15% to 27%; specialty investments — 10% to 20%; and cash reserves — 0% to 5%. Equity
securities include domestic investments and foreign equities in the Europe, Australia and Far East
(EAFE) and International Finance Corporation (IFC) Emerging Market Indices. Debt securities include
domestic debt instruments, while all specialty investments include investments in venture capital,
buyout funds, mezzanine debt private partnerships and an interest in a commodity index fund.
The fair values of our pension plan assets at December 31, 2009 by asset category are as follows
(in thousands of dollars):
Fair Value Measurements at December 31, 2009
Asset Category
Debt securities
Investment funds
Bond funds
Commodity funds
Equity funds
Short-term funds
Venture capital and partnerships
Total pension plan assets
As of December 31, 2008, our Master Pension Trust had assets invested at Westridge Capital
Management, Inc. (WCM) with a reported fair value of $59,245,000. In February 2009, the New York
District Court appointed a receiver over WCM due to allegations of fraud and other violations of
federal commodities and securities laws by principals of WCM. In light of these allegations, we
reassessed the fair value of our investments at WCM and recorded a $48,018,000 write-down in the
estimated fair value of these assets for the year ended December 31, 2008. WCM assets of
$11,227,000 at December 31, 2009 are included in the Equity funds asset category in the table
above. All identifiable assets of WCM are currently held by a court-appointed receiver. We intend
to pursue all appropriate legal actions to secure the return of our investments.
At each measurement date, we estimate the fair value of our pension assets using various valuation
techniques. We utilize, to the extent available, quoted market prices in active markets or
observable market inputs in estimating the fair value of our pension assets. When quoted market
prices or observable market inputs are not available, we utilize
valuation techniques that rely on
unobservable inputs to estimate the fair value of our pension assets. The following describes the
types of investments included in each asset category listed in the table above and the valuation
techniques we used to determine the fair values as of December 31, 2009.
The debt securities category consists of bonds issued by U.S. federal, state and local governments,
corporate debt securities, fixed income obligations issued by foreign governments, and asset-backed
securities. The fair values of U.S. government and corporate debt securities are based on current
market rates and credit spreads for debt securities with similar maturities. The fair values of
debt securities issued by foreign governments are based on prices obtained from broker/dealers and
international indices. The fair values of asset-backed securities are priced using prepayment speed
and spread inputs that are sourced from the new issue market.
Investment funds consist of exchange traded and non-exchange traded funds. The bond funds asset
category consists primarily of index funds holding U.S. government, U.S. government agency and
corporate debt securities. The commodity fund asset category consists of a single open-end
commodity mutual fund. The equity funds asset category consists of open-end stock mutual funds and
a hedged enhanced index fund. The short-term funds asset category consists of a collective
investment trust invested in highly liquid, short-term debt securities. For investment funds
publicly traded on a national securities exchange, the fair value is based on quoted market prices.
For investment funds not traded on an exchange, the total fair value of the underlying securities
is used to determine the net asset value for each unit of the fund held by the pension fund. The
estimated fair values of the underlying securities are generally valued based on quoted market
prices. For securities without quoted market prices, other observable market inputs are utilized to
determine the fair value.
The venture capital and partnerships asset category consists of various limited partnership funds,
mezzanine debt funds and leveraged buy-out funds. The fair value of these investments has been
estimated based on methods employed by the general partners, including consideration of, among
other things, reference to third-party transactions, valuations of comparable companies operating
within the same or similar industry, the current economic and competitive environment,
creditworthiness of the corporate issuer, as well as market prices for instruments with similar
maturity, term, conditions and quality ratings. The use of different assumptions, applying
different judgment to inherently subjective matters and changes in future market conditions could
result in significantly different estimates of fair value of these securities.
A reconciliation of the fair value measurements of our pension plan assets using significant
unobservable inputs (Level 3) for the annual period ended December 31, 2009 is presented below (in
thousands of dollars):
Fair Value Measurements at December 31, 2009
Using Significant Unobservable Inputs (Level 3)
Beginning balance at
December 31, 2008
Actual return on plan assets
Relating to assets still held
at December 31, 2009
Relating to assets sold during the
year ended December 31, 2009
Purchases, sales and settlements
Transfers in (out) of Level 3
Ending balance at
December 31, 2009
Total employer contributions for the pension plans are presented below (in thousands of
dollars):
Employer Contributions
2009
2010 (estimated)
We expect to make contributions totaling $72,500,000 to the funded pension plans during 2010.
It is anticipated that these contributions, along with existing funding credit balances, are
sufficient to fund projected minimum required contributions until the 2013 plan year. Currently, we
do not anticipate that the funded status of our plans will fall below statutory thresholds
requiring accelerated funding or constraints on benefit levels or plan administration.
The following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid (in thousands of dollars):
Estimated Future Benefit Payments
2015-2019
Certain of our hourly employees in unions are covered by multi-employer defined benefit pension
plans. Contributions to these plans approximated $6,991,000 in 2009, $8,008,000 in 2008, and
$8,368,000 in 2007. The actuarial present value of accumulated plan benefits and net assets
available for benefits for employees in the union-administered plans are not determinable from
available information. As of December 31, 2009, a total of 20% of our hourly labor force were
covered by collective bargaining agreements. Of our hourly workforce covered by collective
bargaining agreements, 75% were covered by agreements that expire in 2010.
In addition to the pension plans noted above, we had one unfunded supplemental retirement plan as
of December 31, 2009 and 2008. The accrued costs for the supplemental retirement plan were
$1,034,000 at December 31, 2009 and $917,000 at December 31, 2008.
Postretirement plans
In addition to pension benefits, we provide certain healthcare and life insurance benefits for
some retired employees. Effective July 15, 2007, we amended our salaried postretirement healthcare
coverage to increase the eligibility age for early retirement coverage to age 62, unless certain
grandfathering provisions were met. Substantially all our salaried employees and where applicable,
hourly employees may become eligible for these benefits if they reach a qualifying age and meet
certain service requirements. Generally, Company-provided healthcare benefits terminate when
covered individuals become eligible for Medicare benefits, become eligible for other group
insurance coverage or reach age 65, whichever occurs first.
Amendments
Actuarial loss (gain)
Actual return on plan assets
The following table sets forth the components of net periodic benefit cost, amounts recognized
in other comprehensive income, weighted-average assumptions and assumed trend rates of the plans at
December 31 (amounts in thousands, except percentages):
Components of Net Periodic Postretirement
Benefit Cost
Amortization of prior service credit
Net periodic postretirement benefit cost
Prior service cost (credit)
Reclassification of actuarial loss to net
periodic postretirement benefit cost
Reclassification of prior service credit to net
periodic postretirement benefit cost
Amount recognized in net periodic
postretirement benefit cost and other
comprehensive income
Weighted-average assumptions used to
determine benefit obligation at
December 31
Assumed Healthcare Cost Trend Rates
at December 31
Healthcare cost trend rate assumed
for next year
Rate to which the cost trend rate gradually
declines
Year that the rate reaches the rate it is
assumed to maintain
The estimated net actuarial loss and prior service credit that will be amortized from accumulated
other comprehensive income into net periodic postretirement benefit cost during 2010 are $854,000
and $729,000, respectively.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the
healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rate would
have the following effects (in thousands of dollars):
Effect on total of service and interest cost
Effect on postretirement benefit obligation
Total employer contributions for the postretirement plans are presented below (in thousands of
dollars):
The employer contributions shown above are equal to the cost of benefits during the year. The plans
are not funded and are not subject to any regulatory funding requirements.
Contributions by participants to the postretirement benefit plans for the years ended December 31
are as follows (in thousands of dollars):
Participants Contributions
Pension and other postretirement benefits assumptions
Each year we review our assumptions about the discount rate, the expected return on plan
assets, the rate of compensation increase (for salary-related plans) and the rate of increase in
the per capita cost of covered healthcare benefits.
Defined contribution plans
We sponsor four defined contribution plans. Substantially all salaried and nonunion hourly
employees are eligible to be covered by one of these plans. As stated above, effective July 15,
2007, we amended our defined benefit pension plans and our defined contribution 401(k) plans to no
longer accept new participants. Existing participants continue to accrue benefits under these
plans. Salaried and nonunion hourly employees hired on or after July 15, 2007 are eligible for a
single defined contribution 401(k)/Profit-Sharing plan. Expense recognized in connection with these
plans totaled $13,361,000, $16,930,000, and $10,713,000 for 2009, 2008 and 2007, respectively.
NOTE 11
INCENTIVE PLANS
Share-based compensation plans
Our 2006 Omnibus Long-term Incentive Plan (Plan) authorizes the granting of stock options, Stock-Only Stock Appreciation Rights (SOSARs) and other types of share-based awards to key salaried employees and non-employee directors. The maximum number of shares that may be issued under the Plan is 5,400,000. There are an additional 381,000 shares available for issuance under a Florida Rock shareholder approved plan that we assumed in connection with our merger. Shares under the Florida Rock plan are available for grants until September 30, 2010.
Our 2006 Omnibus Long-term Incentive Plan (Plan) authorizes the granting of stock options, Stock-Only Stock Appreciation Rights (SOSARs) and other types of share-based awards to key salaried employees and non-employee directors. The maximum number of shares that may be issued under the Plan is 5,400,000. There are an additional 381,000 shares available for issuance under a Florida Rock shareholder approved plan that we assumed in connection with our merger. Shares under the Florida Rock plan are available for grants until September 30, 2010.
Deferred Stock Units — Deferred stock units were granted to executive officers and key employees
from 2001 through 2005. These awards vest ratably in years 6 through 10 following the date of
grant, accrue dividend equivalents starting one year after grant, carry no voting rights and become
payable upon vesting. A single deferred stock unit entitles the recipient to one share of common
stock upon vesting. Vesting is accelerated upon retirement at age 62 or older, death, disability or
change of control as defined in the award agreement. Nonvested units are forfeited upon termination
of employment for any other reason. Expense provisions referable to these awards amounted to
$1,317,000 in 2009, $1,206,000 in 2008 and $1,371,000 in 2007.
The fair value of deferred stock units is estimated as of the date of grant based on the market
price of our stock on the grant date. The following table summarizes activity for nonvested
deferred stock units during the year ended December 31, 2009:
Nonvested at January 1, 2009
Granted
Dividend equivalents accrued
Vested
Canceled/forfeited
Nonvested at December 31, 2009
Performance Shares — Each performance share unit is equal to and paid in one share of our
common stock, but carries no voting or dividend rights. The units ultimately paid for performance
share awards may range from 0% to 200% of target. Fifty percent of the payment is based upon our
three-year-average Total Shareholder Return (TSR) performance relative to the three-year-average
TSR performance of the S&P 500®. The remaining 50% of the payment is based upon the achievement of
established internal financial performance targets. These awards vest on
December 31 of the third
year after date of grant. Vesting is accelerated upon reaching retirement age, death, disability,
or change of control, all as defined in the award agreement. Nonvested units are forfeited upon
termination for any other reason. Expense provisions referable to these awards amounted to
$5,350,000 in 2009, $6,227,000 in 2008 and $7,684,000 in 2007.
The fair value of performance shares is estimated as of the date of grant using a Monte Carlo
simulation model. Compensation cost is adjusted for the actual outcome of the internal financial
performance target. The following table summarizes the activity for nonvested performance share
units during the year ended December 31, 2009:
During 2008 and 2007, the weighted-average grant date fair value of performance shares granted
was $68.41 and $105.93, respectively.
Stock Options/SOSARs — Stock options/SOSARs granted have an exercise price equal to the market
value of our underlying common stock on the date of grant. With the exceptions of the stock option
grants awarded in December 2005 and January 2006, the options/SOSARs vest ratably over 3 or 5 years
and expire 10 years subsequent to the grant. The options awarded in December 2005 and January 2006
were fully vested on the date of grant, expire 10 years subsequent to the grant date and shares
attained upon exercise of the options were restricted from sale until January 1, 2009 and January
24, 2009, respectively. Vesting is accelerated upon reaching retirement age, death, disability, or
change of control, all as defined in the award agreement. Nonvested awards are forfeited upon
termination for any other reason. Prior to the acquisition of Florida Rock, shares issued upon the
exercise of stock options were issued from treasury stock. Since that acquisition, these shares are
issued from our authorized and unissued common stock.
The fair value of stock options/SOSARs is estimated as of the date of grant using the Black-Scholes
option pricing model. Compensation cost for stock options and SOSARs is based on this grant date
fair value and is recognized for awards that ultimately vest. The following table presents the
weighted-average fair value and the weighted-average assumptions used in estimating the fair value
of grants for the years ended December 31:
Fair value
Risk-free interest rate
Dividend yield
Volatility
Expected term
The risk-free interest rate is based on the yield at the date of grant of a U.S. Treasury security
with a maturity period approximating the option’s expected term. The dividend yield assumption is
based on our historical dividend payouts. The volatility assumption is based on the historical
volatility and expectations about future volatility of our common stock over a period equal to the
option’s/SOSAR’s expected term and the market-based implied volatility derived from options trading
on our common stock. The expected term is based on historical experience and expectations about
future exercises and represents the period of time that options/SOSARs granted are expected to be
outstanding.
A summary of our stock option/SOSAR activity as of December 31, 2009 and changes during the year is
presented below:
Outstanding at January 1, 2009
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2009
Vested and expected to vest
Exercisable at December 31, 2009
The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the
difference between our stock price on the last trading day of 2009 and the exercise price,
multiplied by the number of in-the-money options/SOSARs) that would have been received by the
option holders had all options/SOSARs been exercised on December 31, 2009. These values change
based on the fair market value of our common stock. The aggregate intrinsic values of options
exercised for the years ended December 31 are as follows (in thousands of dollars):
Aggregate intrinsic value of options
exercised
To the extent the tax deductions exceed compensation cost recorded, the tax benefit is reflected as
a component of shareholders’ equity in our Consolidated Balance Sheets. The following table
presents cash and stock consideration received and tax benefit realized from stock option exercises
and compensation cost recorded referable to stock options for the years ended December 31 (in
thousands of dollars):
Stock option exercises
Cash and stock consideration received
Tax benefit
Stock option compensation cost
Cash-based compensation plans
We have incentive plans under which cash awards may be made annually to officers and key
employees. Expense provisions referable to these plans amounted to $1,954,000 in 2009, $5,239,000
in 2008 and $21,187,000 in 2007.
NOTE
12 COMMITMENTS AND CONTINGENCIES
We have commitments in the form of unconditional purchase obligations as of December 31, 2009.
These include commitments for the purchase of property, plant & equipment of $8,892,000 and
commitments for noncapital purchases of $77,640,000. These commitments are due as follows (in
thousands of dollars):
Property, Plant & Equipment
2011-2012
Noncapital
2013-2014
Expenditures under the noncapital purchase commitments totaled $99,838,000 in 2009,
$132,543,000 in 2008 and $135,721,000 in 2007.
We have commitments in the form of minimum royalties under mineral leases as of December 31, 2009
in the amount of $193,172,000, due as follows (in thousands of dollars):
Mineral Royalties
Expenditures for mineral royalties under mineral leases totaled $43,501,000 in 2009,
$50,697,000 in 2008 and $48,120,000 in 2007.
We provide certain third parties with irrevocable standby letters of credit in the normal course of
business. We use commercial banks to issue standby letters of credit to back our obligations to pay
or perform when required to do so pursuant to the requirements of an underlying agreement. The
standby letters of credit listed below are cancelable only at the option of the beneficiaries who
are authorized to draw drafts on the issuing bank up to the face amount of the standby letter of
credit in accordance with its terms. Since banks consider letters of credit as contingent
extensions of credit, we are required to pay a fee until they expire or are canceled. Substantially
all our standby letters of credit have a one-year term and are renewable annually at the option of
the beneficiary.
Our standby letters of credit as of December 31, 2009 are summarized in the table below (in
thousands of dollars):
Of the total $62,438,000 outstanding standby letters of credit, $59,154,000 is backed by our
$1,500,000,000 bank credit facility which expires November 16, 2012.
As described in Note 2, we may be required to make cash payments in the form of a transaction bonus
to certain key former Chemicals employees. The transaction bonus is contingent upon the amounts
received under the two earn-out agreements entered into in connection with the sale of the
Chemicals business. Amounts due are payable annually based on the prior year’s results. Based on
the total cumulative receipts from the two earn-outs, we paid $521,000 in transaction bonuses
during 2009. Future expense, if any, is dependent upon our receiving sufficient cash receipts under
the remaining (5CP) earn-out and will be accrued in the period the earn-out income is recognized.
As described in Note 9, our liability for unrecognized tax benefits is $20,974,000 as of December
31, 2009.
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 adverse effect on our consolidated results of operations,
financial position or cash flows, although amounts recorded in a given period could be material to
our results of operations or cash flows for that period. Amounts accrued for environmental matters
are presented in Note 8.
We are a defendant in various lawsuits in the ordinary course of business. It is not possible to
determine with precision the outcome of, or the amount of liability, if any, under these lawsuits,
especially where the cases involve possible jury trials with as yet undetermined jury panels. We
are involved in certain legal proceedings that are specifically described below.
Perchloroethylene cases
We are a defendant in several cases involving perchloroethylene (perc), which was a product
manufactured by our former Chemicals business. Perc is a cleaning solvent used in dry cleaning and
other industrial applications. These cases involve various allegations of groundwater
contamination, or exposure to perc allegedly resulting in personal injury. Vulcan is vigorously
defending all of these cases. At this time, we cannot determine the likelihood or reasonably
estimate a range of loss pertaining to any of these matters, which are listed below:
| • | Addair — This is a purported class action case for medical monitoring damages styled Addair et al. v. Processing Company, LLC, et al., pending in the Circuit Court of Wyoming County, West Virginia. The plaintiffs allege various personal injuries from exposure to perc used in coal sink labs. Discovery is ongoing. No class determination has been made by the court. |
| • | California Water Service Company — On June 6, 2008, we were served in the action styled California Water Service Company v. Dow, et al, now pending in the San Mateo County Superior Court, California. According to the complaint, California Water Service Company “owns and/or operates public drinking water systems, and supplies drinking water to hundreds of thousands of residents and businesses throughout California.” The complaint alleges that water systems in a number of communities have been contaminated with perc. The plaintiff is seeking compensatory damages and punitive damages. Discovery is ongoing. | ||
| • | City of Sunnyvale California — On January 6, 2009, we were served in an action styled City of Sunnyvale v. Legacy Vulcan Corporation, f/k/a Vulcan Materials Company, filed in the San Mateo County Superior Court, California. The plaintiffs are seeking cost recovery and other damages for alleged environmental contamination from perc and its breakdown products at the Sunnyvale Town Center Redevelopment Project. Discovery is ongoing. | ||
| • | R.R. Street Indemnity — Street, a former distributor of perc manufactured by Vulcan, alleges that Vulcan owes Street, and its insurer (National Union), a defense and indemnity in several of these litigation matters, as well as some prior litigation which Vulcan has now settled. National Union alleges that Vulcan is obligated to contribute to National Union’s share of defense fees, costs and any indemnity payments made on Street’s behalf. Street and Vulcan are having ongoing discussions about the nature and extent of indemnity obligations, if any, and to date there has been no resolution of these issues. | ||
| • | Santarsiero — This is a case styled Robert Santarsiero v. R.V. Davies, et al., pending in Supreme Court, New York County, New York. The plaintiff alleges personal injury (kidney cancer) from exposure to perc. Vulcan was brought in as a third-party defendant by original defendant R.V. Davies. Discovery is ongoing. | ||
| • | Team Enterprises — On June 5, 2008, we were named as a defendant in the matter of Team Enterprises, Inc. v. Century Centers, Ltd., et al., filed in Modesto, Stanislaus County, California but removed to the United States District Court for the Eastern District of California (Fresno Division). This is an action filed by Team Enterprises as the former operator of a dry cleaners located in Modesto, California. The plaintiff is seeking damages from the defendants associated with the remediation of perc from the site of the dry cleaners. | ||
| • | United States Virgin Islands — There are currently two cases pending here. |
| • | Government of the United States; Department of Planning and Natural Resources; and Commissioner Robert Mathes, in his capacity as Trustee for the Natural Resources of the Territory of The United States Virgin Islands v. Vulcan Materials Company, et al. Plaintiff brought this action based on parens patriae doctrine for injury to quasi-sovereign interest on the island of St. Thomas (injuries to groundwater resources held in public trust). It is alleged that the island’s sole source of drinking water (the Tutu aquifer) is contaminated with perc. The primary source of perc contamination allegedly emanated from the former Laga facility (a textile manufacturing site). The perc defendants are alleged to have failed to adequately warn perc users of the dangers posed by the use and disposal of perc. It is also alleged that perc from O’Henry Dry Cleaners has contributed to the perc contamination in the Tutu aquifer. There has been no activity in the case since it was filed. | ||
| • | L’Henry, Inc., d/b/a O’Henry Cleaners and Cyril V. Francois, LLC v. Vulcan and Dow. Plaintiffs are the owners of a dry cleaning business on St. Thomas. The dry cleaner began operation in 1981. It is alleged that perc from the dry cleaner contributed to the contamination of the Tutu Wells aquifer, and that Vulcan as a perc manufacturer failed to properly warn the dry cleaner of the proper disposal method for perc, resulting in unspecified damages to the dry cleaners. A motion to dismiss has been pending for two years. |
All other cases
| • | Florida Antitrust Litigation — Our subsidiary, Florida Rock Industries, Inc., has been named as a defendant in a number of class action lawsuits filed in the United States District Court for the Southern District of Florida. The lawsuits were filed by several ready-mixed concrete producers and construction companies against a number of concrete and cement producers and importers in Florida. There are now two |
| consolidated complaints: (1) on behalf of direct independent ready-mixed concrete producers, and (2) on behalf of indirect users of ready-mixed concrete. The defendants include Cemex Corp., Holcim (US) Inc., Lafarge North America, Inc., Lehigh Cement Company, Oldcastle Materials, Suwannee American Cement LLC, Titan America LLC, and Votorantim Cimentos North America, Inc. The complaints allege various violations under the federal antitrust laws, including price fixing and market allocations. We have no reason to believe that Florida Rock is liable for any of the matters alleged in the complaint, and we intend to defend the case vigorously. |
| • | Florida Lake Belt Litigation — On March 22, 2006, the United States District Court for the Southern District of Florida (in a case captioned Sierra Club, National Resources Defense Council and National Parks Conservation Association v. Lt. General Carl A. Stock, et al.) ruled that a mining permit issued for our Miami quarry, which was acquired in the Florida Rock transaction in November 2007, as well as certain permits issued to competitors in the same region, had been improperly issued. The Court remanded the permitting process to the U. S. Army Corps of Engineers (Corps of Engineers) for further review and consideration. In July 2007, the Court ordered us and several other mining operations in the area to cease mining excavation under the vacated permits pending the issuance by the Corps of Engineers of a Supplemental Environmental Impact Statement (SEIS). The District Court decision was appealed to the U.S. Court of Appeals for the Eleventh Circuit, and the Eleventh Circuit reversed and remanded the case to the District Court. With issuance of the Eleventh Circuit’s Mandate on July 1, 2008, we resumed mining at the Miami quarry. On January 30, 2009, the District Court again issued an order invalidating certain of the Lake Belt mining permits, which immediately stopped all mining excavation in the majority of the Lake Belt region. We appealed this order to the Eleventh Circuit but are not currently mining in the areas covered by the District Court order. On January 21, 2010, the Eleventh Circuit upheld the ruling of the District Court. On May 1, 2009, the Corps of Engineers issued a Final SEIS and accepted public comments until June 8, 2009, pending issuance of the Record of Decision with respect to issuance of permits. The Record of Decision was issued on January 29, 2010, and the Corps of Engineers has begun issuing new permits. We anticipate receiving a proposed permit shortly. We believe that when the permit is issued, this litigation over the old permits will be moot. | ||
| • | IDOT/Joliet Road — In September 2001, we were named a defendant in a suit brought by the Illinois Department of Transportation (IDOT), in the Circuit Court of Cook County, Chancery Division, Illinois, alleging damage to a 0.9-mile section of Joliet Road that bisects our McCook quarry in McCook, Illinois, a Chicago suburb. IDOT seeks damages to “repair, restore, and maintain” the road or, in the alternative, judgment for the cost to “improve and maintain other roadways to accommodate” vehicles that previously used the road. The complaint also requests that the court enjoin any McCook quarry operations that will further damage the road. The court granted summary judgment in favor of Vulcan on certain claims. The court also granted the plaintiff’s motion to amend their complaint to add a punitive damages claim, although the court made it clear that it was not ruling on the merits of this claim. The matter has been set for trial on April 26, 2010. We believe that the claims and damages alleged by the State are covered by liability insurance policies purchased by Vulcan. We have received a letter from our primary insurer stating that there is coverage of this lawsuit under its policy; however, the letter indicates that the insurer is currently taking the position that various damages sought by the State are not covered. At this time, we believe a loss related to this litigation is reasonably possible; however, we cannot reasonably estimate the loss or range of loss that may result from a settlement or an adverse judgment at trial. | ||
| • | Lower Passaic River Clean-Up — We have been sued as a third-party defendant in New Jersey Department of Environmental Protection, et al. v. Occidental Chemical Corporation, et al., a case brought by the New Jersey Department of Environmental Protection in the New Jersey Superior Court. The third-party complaint was filed on February 4, 2009. This suit by the New Jersey Department of Environmental Protection seeks recovery of past and future clean-up costs as well as unspecified economic damages, punitive damages, penalties and a variety of other forms of relief arising from alleged discharges into the Passaic River of dioxin and other unspecified hazardous substances. Our former Chemicals Division operated a plant adjacent to the Passaic River and has been sued as a third-party defendant in this New Jersey action, along with approximately 300 other parties. Additionally, Vulcan and approximately 70 other companies are parties to a May 2007 Administrative Order of Consent with the U.S. Environmental |
| Protection Agency to perform a Remedial Investigation/Feasibility Study of the contamination in the lower 17 miles of the Passaic River. This study is ongoing. No remedial remedy for this Superfund site has yet been determined. At this time, we cannot determine the likelihood or reasonably estimate a range of loss pertaining to this matter. |
It is not possible to predict with certainty the ultimate outcome of these and other legal
proceedings in which we are involved and a number of factors, including developments in ongoing
discovery or adverse rulings, could cause actual losses to differ materially from accrued costs. We
believe the amounts accrued in our financial statements as of December 31, 2009 are sufficient to
address claims and litigation for which a loss was determined to be probable and reasonably
estimable. No liability was recorded for claims and litigation for which a loss was determined to
be only reasonably possible or for which a loss could not be reasonably estimated. In addition,
losses on certain claims and litigation described above may be subject to limitations on a per
occurrence basis by excess insurance, as described more fully in Note 1 under our accounting policy
for claims and litigation including self-insurance.
NOTE 13
SHAREHOLDERS’ EQUITY
In June 2009, we completed a public offering of common stock (par value of $1 per share)
resulting in the issuance of 13,225,000 common shares at a price of $41.00 per share. The total
number of shares issued through the offering included 1,725,000 shares issued upon full exercise of
the underwriters’ option to purchase additional shares. We received net proceeds of $519,993,000
(net of commissions and transaction costs of $22,232,000) from the sale of the shares. The net
proceeds from the offering were used for debt reduction and general corporate purposes. The
transaction increased shareholders’ equity by $519,993,000 (common stock $13,225,000 and capital in
excess of par $506,768,000).
During 2009, we issued 1,135,510 shares of common stock to the trustee of our 401(k) savings and
retirement plan and received proceeds of $52,691,000. These issuances were made to satisfy the plan
participants’ elections to invest in Vulcan’s common stock and this arrangement provides a means of
improving cash flow, increasing shareholders’ equity and reducing leverage.
During the second quarter of 2009, we issued 789,495 shares of common stock in connection with
business acquisitions. We received net cash proceeds of $33,862,000 from the issuance of shares,
and acquired the business for a cash payment of $36,980,000, net of acquired cash.
During the first quarter of 2008, we issued 798,859 shares of common stock in connection with
business acquisitions. We received net cash proceeds of $55,072,000 from the issuance of shares,
and acquired the business for a cash payment of $55,763,000, including acquisition costs and net of
acquired cash.
During the second quarter of 2008, we issued 352,779 shares of common stock in connection with
business acquisitions.
In November 2007, we issued 12,604,083 shares of common stock in connection with the acquisition of
Florida Rock.
On November 16, 2007, pursuant to the terms of the agreement to acquire Florida Rock, all treasury
stock held immediately prior to the close of the transaction was canceled. Our Board of Directors
resolved to carry forward the existing authorization to purchase common stock. As of December 31,
2009, 3,411,416 shares remained under the current purchase authorization.
There were no shares held in treasury as of December 31, 2009, 2008 and 2007. The number and
cost of shares purchased during each of the last three years are shown below:
Shares purchased
Number
Total cost (thousands)
Average cost
The 44,123 shares purchased in 2007 were purchased directly from employees to satisfy income tax
withholding requirements on shares issued pursuant to incentive compensation plans.
NOTE 14 OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income includes charges and credits to equity from nonowner sources and
comprises two subsets: net earnings and other comprehensive income (loss). The components of other
comprehensive income (loss) are presented in the accompanying Consolidated Statements of
Shareholders’ Equity, net of applicable taxes.
The amount of income tax (expense) benefit allocated to each component of other comprehensive
income (loss) for the years ended December 31, 2009, 2008 and 2007 is summarized as follows (in
thousands of dollars):
December 31, 2009
Fair value adjustment to cash flow hedges
Reclassification adjustment for cash flow
hedge amounts included in net earnings
Adjustment for funded status of pension
and postretirement benefit plans
Amortization of pension and postretirement
plan actuarial loss and prior service cost
Total other comprehensive income (loss)
December 31, 2008
Reclassification adjustment for cash flow
hedge amounts included in net earnings
Total other comprehensive loss
December 31, 2007
Amounts accumulated in other comprehensive income (loss), net of tax, at December 31, are as
follows (in thousands of dollars):
Cash flow hedges
Pension and postretirement plans
Accumulated other comprehensive
income (loss)
NOTE 15 SEGMENT REPORTING — CONTINUING OPERATIONS
We have four operating segments organized around our principal product lines: aggregates,
asphalt mix, concrete and cement. For reporting purposes, we have combined our Asphalt mix and
Concrete operating segments into one reporting segment as the products are similar in nature and
the businesses exhibit similar economic characteristics, production processes, types and classes of
customer, methods of distribution and regulatory environments. Management reviews earnings from the
product line reporting units principally at the gross profit level.
The Aggregates segment produces and sells aggregates and related products and services in eight
regional divisions. During 2009, the Aggregates segment principally served markets in 21 states and
the District of Columbia, the Bahamas, Canada, the Cayman Islands, Chile and Mexico with a full
line of aggregates, and 9 additional states with railroad ballast. Customers use aggregates
primarily in the construction and maintenance of highways, streets and other public works and in
the construction of housing and commercial, industrial and other nonresidential facilities.
Customers are served by truck, rail and water distribution networks from our production facilities
and sales yards. Due to the high weight-to-value ratio of aggregates, markets generally are local
in nature. Quarries located on waterways and rail lines allow us to serve remote markets where
local aggregates reserves may not be available. We sell a relatively small amount of construction
aggregates outside the United States. Nondomestic net sales were $20,118,000 in 2009, $25,295,000
in 2008 and $19,981,000 in 2007.
The Asphalt mix and Concrete segment produces and sells asphalt mix and ready-mixed concrete in
four regional divisions serving eight states primarily in our mid-Atlantic, Florida, southwestern
and western markets and the Bahamas. Additionally, two of the divisions produce and sell other
concrete products such as block and precast and resell purchased building materials related to the
use of ready-mixed concrete and concrete block. Aggregates comprise approximately 95% of asphalt
mix by weight and 78% of ready-mixed concrete by weight. Our Asphalt mix and Concrete segment is
almost wholly supplied with its aggregates requirements from our Aggregates segment. These
transfers are made at local market prices for the particular grade and quality of product utilized
in the production of asphalt mix and ready-mixed concrete. Customers for our Asphalt mix and
Concrete segment are generally served locally at our production facilities or by truck. Because
ready-mixed concrete and asphalt mix harden rapidly, delivery is time constrained and generally
confined to a radius of approximately 20 to 25 miles from the producing facility.
The Cement segment produces and sells Portland and masonry cement in both bulk and bags from our
Florida cement plant. Other Cement segment facilities in Florida import cement, clinker and slag
and either resell, grind, blend, bag or reprocess those materials. This segment also includes a
Florida facility that mines, produces and sells calcium products. All of these Cement segment
facilities are within the Florida regional division. Our Asphalt mix and Concrete segment is the
largest single customer of our Cement segment.
The majority of our activities are domestic. Long-lived assets outside the United States, which
primarily consist of property, plant & equipment, were $163,479,000 in 2009, $175,275,000 in 2008
and $175,413,000 in 2007. Transactions between our reportable segments are recorded at prices
approximating market levels.
Total Revenues
Aggregates
Segment revenues
Intersegment sales
Net sales
Asphalt mix and Concrete
Cement
Delivery revenues
Total revenues
Gross Profit
Total gross profit
Identifiable Assets
Identifiable assets
General corporate assets
Cash items
Depreciation, Depletion,
Accretion and Amortization
Corporate and other unallocated
Capital Expenditures from
Continuing Operations
Corporate
NOTE 16 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to the Consolidated Statements of Cash Flows is summarized
below (in thousands of dollars):
Cash payments (refunds)
Interest
Income taxes
Noncash investing and financing activities
Accrued liabilities for purchases of property, plant & equipment
Note received from sale of business
Carrying value of noncash assets and liabilities exchanged
Debt issued for purchases of property,
plant & equipment
Proceeds receivable from exercise of
stock options
Amounts referable to business acquisitions
Liabilities assumed
Fair value of stock issued
NOTE 17 ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations 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 asset retirement obligation 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 asset
retirement obligation is settled for other than the carrying amount of the liability, we recognize
a gain or loss on settlement.
We record all asset retirement obligations for which we have legal obligations for land reclamation
at estimated fair value. Essentially all these asset retirement obligations relate to our
underlying land parcels, including both owned properties and mineral leases. For the years ended
December 31, we recognized asset retirement obligation (ARO) operating costs related to accretion
of the liabilities and depreciation of the assets as follows (in thousands of dollars):
ARO Operating Costs
ARO operating costs for our continuing operations are reported in cost of goods sold. Asset
retirement obligations are reported within other noncurrent liabilities in our accompanying
Consolidated Balance Sheets.
Reconciliations of the carrying amounts of our asset retirement obligations for the years ended
December 31 are as follows (in thousands of dollars):
Asset retirement obligations at beginning of year
Liabilities incurred
Liabilities settled
Accretion expense
Revisions up (down), net
Asset retirement obligations at end of year
Of the $39,926,000 of liabilities incurred during 2008, $37,234,000 relates to reclamation activity
required under new development agreements and conditional use permits (collectively the agreements)
at two aggregates facilities on owned property near Los Angeles, California. The new agreements
allow us access to significant amounts of aggregates reserves at two existing pits, which we expect
will result in a significant increase in the mining lives of these quarries. The reclamation
requirements under these agreements will result in the restoration and development of mined
property into 110 acre and 90 acre tracts suitable for commercial and retail development.
Revisions to our asset retirement obligations during 2009 and 2008 relate primarily to changes in
cost estimates and settlement dates at numerous sites. The underlying increase in cost estimates
during 2008 was largely attributable to rising energy-related costs, including diesel fuel.
NOTE 18 GOODWILL AND INTANGIBLE ASSETS
We classify purchased intangible assets into three categories: (1) goodwill, (2) intangible
assets with finite lives subject to amortization and (3) intangible assets with indefinite lives.
Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed
for impairment at least annually. For additional information regarding our policies on impairment
reviews, see Note 1 under the captions Goodwill and Goodwill Impairment and Impairment of
Long-lived Assets Excluding Goodwill.
Goodwill
Goodwill is recognized when the consideration paid for a business combination (acquisition)
exceeds the fair value of the tangible and other intangible assets acquired. Goodwill is allocated
to reporting units for purposes of testing goodwill for impairment. At December 31, 2008, ongoing
disruptions in the credit and equity markets and weak levels of construction activity, underscored
by the negative effects of the prolonged global recession, prompted an increase in our discount
rates, which reflect our estimated cost of capital plus a risk premium. The results of our annual
impairment test performed as of January 1, 2009 indicated that the estimated fair value of our
Cement reporting unit was less than the carrying amount at that time. The estimated fair value was
used in the second step of the impairment test as the purchase price in a hypothetical purchase
price allocation to the reporting unit’s assets and liabilities. The carrying values of deferred
taxes and certain long-term assets were adjusted to reflect their estimated fair values for
purposes of the second step of the impairment test and the hypothetical purchase price allocation.
The residual amount of goodwill that resulted from this hypothetical purchase price allocation was
compared to the recorded amount of goodwill for the reporting unit to determine if impairment
existed. Based on the results of this analysis, we concluded that the entire amount of goodwill at
this reporting unit was impaired and we recorded a $252,664,000 ($227,581,000 net of tax benefit)
noncash impairment charge for the year ended December 31, 2008.
The 2008 goodwill impairment charge is a noncash item and does not affect our operations, cash flow
or liquidity. Our credit agreements and outstanding indebtedness were not impacted by this noncash
impairment charge. The income tax benefit associated with this charge was substantially below our
normally expected income tax rate because the majority of the goodwill impairment relates to
nondeductible goodwill for federal income tax purposes.
There were no charges for goodwill impairment in the years ended December 31, 2009 and 2007.
We have three reportable segments organized around our principal product lines: aggregates; asphalt
mix and concrete; and cement. Changes in the carrying amount of goodwill by reportable segment for
the years ended December 31, 2009, 2008 and 2007 are summarized below (in thousands of dollars):
Gross carrying amount
Total as of December 31, 2007
Goodwill of acquired businesses
Purchase price allocation adjustments
Total as of December 31, 2008
Goodwill of acquired businesses1
Purchase price allocation adjustments
Total as of December 31, 2009
Accumulated impairment losses
Goodwill impairment loss
Total as of December 31, 2008
Goodwill, net of accumulated impairment losses
Intangible assets
Intangible assets acquired in business combinations are stated at their fair value, determined
as of the date of acquisition, less accumulated amortization, if applicable. Costs incurred to
renew or extend the life of existing intangible assets are capitalized. These capitalized
renewal/extension costs were immaterial for the years presented. These assets consist primarily of
contractual rights in place, noncompetition agreements, favorable lease agreements, customer
relationships and tradenames and trademarks. Intangible assets acquired individually or otherwise
obtained outside a business combination consist primarily of permitting, permitting compliance and
zoning rights and are stated at their historical cost, less accumulated amortization, if
applicable.
Historically, we have acquired intangible assets with only finite lives. Amortization of intangible
assets with finite lives is recognized over their estimated useful lives using a method of
amortization that closely reflects the pattern in which the economic benefits are consumed or
otherwise realized. Intangible assets with finite lives are reviewed for impairment when events or
circumstances indicate that the carrying amount may not be recoverable. There were no charges for
impairment of intangible assets in the years ended December 31, 2009, 2008 and 2007. Intangible
assets are reported within other noncurrent assets in our accompanying Consolidated Balance Sheets.
The gross carrying amount and accumulated amortization by major intangible asset class for the
years ended December 31 is summarized below (in thousands of dollars):
Intangible assets subject to amortization
Contractual rights in place
Noncompetition agreements
Favorable lease agreements
Permitting, permitting compliance and zoning rights
Customer relationships
Tradenames and trademarks
Total gross carrying amount
Accumulated amortization
Total accumulated amortization
Total intangible assets subject to amortization, net
Intangible assets with indefinite lives
Total intangible assets, net
Aggregate amortization expense for the period
Estimated amortization expense for the five years subsequent to December 31, 2009 is as follows (in
thousands of dollars):
Estimated amortization expense for five subsequent years
NOTE 19 ACQUISITIONS AND DIVESTITURES
2009 Pending divestitures
As of December 31, 2009, assets held for sale and liabilities of assets held for sale
presented in the accompanying Consolidated Balance Sheets relate to an aggregates production
facility and ready-mixed concrete operation located outside the United States. We expect the
transaction to close during the first quarter of 2010. The major classes of assets and liabilities
of assets classified as held for sale are as follows (in thousands of dollars):
Intangible assets
Total assets held for sale
Total liabilities of assets held for sale
2009 Acquisitions and divestitures
In 2009, we acquired the following assets for approximately $38,955,000 (total note and cash
consideration) net of acquired cash:
| • | leasehold interest in a rail-served aggregates distribution yard | ||
| • | two aggregates production facilities |
As a result of these 2009 acquisitions, we recognized $9,558,000 of goodwill and $12,428,000 of
amortizable intangible assets, all of which are expected to be fully deductible for income tax
purposes. The purchase price allocations for these 2009 acquisitions are preliminary and subject to
adjustment.
In 2009, we divested the following assets for approximately $7,043,000 (total note and cash
consideration):
| • | dock and transloading facility | ||
| • | interest in an aggregates production facility |
During 2009, we received $3,000,000 of contingent consideration related to the 2008 divestiture of
an aggregates production facility located in Georgia.
2008 Acquisitions and divestitures
As a result of the November 2007 Florida Rock acquisition, we entered into a Final Judgment
with the Antitrust Division of the U.S. Department of Justice (DOJ) that required us to divest nine
Florida Rock and Legacy Vulcan sites. During 2008, we completed the required divestitures. In a
transaction with Luck Stone Corporation, we divested two former Florida Rock sites in Virginia, an
aggregates production facility and a distribution yard, by exchanging these assets for cash and two
aggregates production facilities in Virginia. In a transaction with Martin Marietta Materials, Inc.
(Martin Marietta), we divested four aggregates production facilities and a greenfield (undeveloped)
aggregates site located in Georgia, and an aggregates production facility located in Tennessee. In
return, we received cash, an aggregates production facility near Sacramento, California, real
property with proven and permitted reserves adjacent to one of our aggregates production facilities
in San Antonio, Texas, and fee ownership of property at one of our aggregates production facilities
in North Carolina that we had previously leased from Martin Marietta. In a separate transaction, we
sold our interest in an aggregates production facility in Georgia to The Concrete Company, which
had been the joint venture partner with Florida Rock in this operation.
Two of the divested sites included in the transaction with Martin Marietta were owned by Vulcan
prior to our acquisition of Florida Rock. During the second quarter of 2008, we recognized a pretax
gain of $73,847,000 on the sale of these assets.
In addition to the acquisitions in the aforementioned exchanges, during 2008, we acquired the
following assets for approximately $108,378,000 (total cash and stock consideration) including
acquisition costs and net of acquired cash:
| • | five aggregates production facilities | ||
| • | one asphalt mix plant | ||
| • | an aggregates recycling facility | ||
| • | our former joint venture partner’s interest in an aggregates production facility |
The acquisition payments reported above exclude contingent consideration not to exceed $3,000,000.
Upon resolution of the contingency, distributions to the seller, if any, will be considered
additional acquisition cost.
As a result of the acquisitions (including the exchanges), we recognized $30,565,000 of goodwill,
$25,015,000 of which is expected to be fully deductible for income tax purposes.
NOTE 20 CORRECTION OF PRIOR PERIOD FINANCIAL STATEMENTS
During 2009 we completed a comprehensive analysis of our deferred income tax balances and
concluded that our deferred income tax liabilities were overstated. The errors arose during the
fourth quarter of 2008 and during periods prior to January 1, 2006, and are not material to
previously issued financial statements. However, correcting the errors in 2009 would have had a
material impact on this year’s Consolidated Statement of Earnings, specifically the deferred tax
provision. As a result, we have restated all affected prior period financial statements presented
in this Form 10-K.
The errors that arose during the fourth quarter of 2008 related to the calculations of deferred
income taxes referable to the Florida Rock acquisition and the combined effective income tax rate
used to compute deferred income tax account balances. The correction of these errors resulted in a
decrease to deferred income tax liabilities of $2,578,000, an increase to goodwill referable to our
Aggregates segment of $2,455,000, and a $5,033,000 increase to the deferred income tax benefit and
net earnings, improving earnings per diluted share by $0.05 for the year ended December 31, 2008.
The errors that arose during periods prior to January 1, 2006 resulted in an overstatement of
deferred income tax liabilities of $25,983,000. Based on the work performed to confirm the current
and deferred income tax provisions recorded during 2006, 2007 and 2008, and to determine the
correct deferred income tax account balances as of January 1, 2006, we were able to substantiate
that the $25,983,000 overstatement related to periods prior to January 1, 2006. The correction of
these errors resulted in a decrease to deferred income tax liabilities and a corresponding increase
to retained earnings of $25,983,000 as of January 1, 2006.
A summary of the effects of the correction of these errors on our consolidated financial statements
as of and for the year ended December 31, 2008, are presented in the tables below (amounts and
shares in thousands, except per share data):
Statement of Earnings
Earnings from continuing operations before
income taxes
Total provision for income taxes
Earnings (loss) from continuing operations
Loss on discontinued operations, net of
income taxes
Net earnings (loss)
Basic and diluted earnings (loss) per share
Net earnings (loss) per share
Balance Sheet
Total liabilities
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
Statement of Cash Flows
Deferred tax provision
In addition to the corrections above, due to the change in net earnings (loss) from
($4,115,000) to $918,000 for the year ended December 31, 2008, comprehensive income (loss) reflects
a change from ($158,162,000) to ($153,129,000) for the same period.
NOTE 21 UNAUDITED SUPPLEMENTARY DATA
The following is a summary of selected quarterly financial information (unaudited) for each of
the years ended December 31, 2009 and 2008 (amounts in thousands, except per share data):
Operating earnings (loss)
Basic earnings (loss) per share from continuing operations
Diluted earnings (loss) per share from continuing operations
Basic net earnings (loss) per share
Diluted net earnings (loss) per share
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures
We maintain a system of controls and procedures designed to ensure that information required
to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported
within the time periods specified by the SEC’s rules and forms. These disclosure controls and
procedures (as defined in the Securities and Exchange Act of 1934 Rules 13a — 15(e) or 15d -15(e)),
include, without limitation, controls and procedures designed to ensure that information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive
Officer and Chief Financial Officer, with the participation of other management officials,
evaluated the effectiveness of the design and operation of the disclosure controls and procedures
as of December 31, 2009. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are effective.
We are in the process of replacing our legacy information technology systems. We completed the
first phase of this multi-year project during the third quarter of 2009. The new information
technology systems were a source for some information presented in this Annual Report on Form 10-K.
We are continuing to work toward the full implementation of the new information technology systems
and expect to complete that process in 2011.
Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining an adequate system of internal
control over financial reporting as required by the Sarbanes-Oxley Act of 2002 and as defined in
Exchange Act Rule 13a-15(f). A control system can provide only reasonable, not absolute, assurance
that the objectives of the control system are met.
Under management’s supervision, an evaluation of the design and effectiveness of our internal
control over financial reporting was conducted based on the framework in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that our internal control over financial
reporting was effective as of December 31, 2009.
Deloitte & Touché LLP, an independent registered public accounting firm, as auditors of our
consolidated financial statements, has issued an attestation report on the effectiveness of our
internal control over financial reporting as of December 31, 2009. Deloitte & Touché LLP’s report,
which expresses an unqualified opinion on the effectiveness of our internal control over financial
reporting, follows this report.
Report of Independent Registered Public Accounting Firm — Internal Control Over Financial Reporting
We have audited the internal control over financial reporting of Vulcan Materials Company and its
subsidiary companies (the “Company”) as of December 31, 2009 based on criteria established in
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of effectiveness of the internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009 based on the criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and financial statement schedule of
the Company as of and for the year ended December 31, 2009 and our report dated February 26, 2010
expressed an unqualified opinion on those financial statements.
Birmingham, Alabama
February 26, 2010
ITEM 9B. OTHER INFORMATION
PART
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
On or about March 25, 2010, we expect to file a definitive proxy statement with the Securities
and Exchange Commission pursuant to Regulation 14A (our “2009 Proxy Statement”). The information
under the headings “Election of Directors,” “Nominees for Election to the Board of Directors,”
“Directors Continuing in Office,” “Corporate Governance of our Company and Practices of the Board
of Directors,” and “Section 16(a) Beneficial Ownership Reporting Compliance” included in the 2010
Proxy Statement is incorporated herein by reference. See also the information set forth above in
Part I, Item I “Business” of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings “Compensation Discussion and Analysis,” “Director
Compensation” and “Executive Compensation” included in our 2010 Proxy Statement is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information under the headings “Security Ownership of Certain Beneficial Owners and
Management,” “Equity Compensation Plans” and “Payment Upon Termination and Change in Control”
included in our 2010 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information under the headings “Transactions with Related Persons” and “Director
Independence” included in our 2010 Proxy Statement is hereby incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this section is incorporated by reference from the information in
the section entitled “Independent Registered Public Accounting Firm” in our 2010 Proxy Statement.
PART
IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial statements
The following financial statements are included herein on the pages shown below:
(a) (2) Financial statement schedules
The following financial statement schedule for the years ended December 31, 2009, 2008 and
2007 is included in Part IV of this report on the indicated page:
Schedule II Valuation and Qualifying Accounts and Reserves
Other schedules are omitted because of the absence of conditions under which they are required or
because the required information is provided in the financial statements or notes thereto.
Financial statements (and summarized financial information) of 50% or less owned entities accounted
for by the equity method have been omitted because they do not, considered individually or in the
aggregate, constitute a significant subsidiary.
(a) (3) Exhibits
The exhibits required by Item 601 of Regulation S-K are either incorporated by reference
herein or accompany this report. See the Index to Exhibits set forth below.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on February 26, 2010.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
| The following directors: | ||||
| Philip J. Carroll, Jr. | Director | |||
| Phillip W. Farmer | Director | |||
| H. Allen Franklin | Director | |||
| Ann McLaughlin Korologos | Director | |||
| Douglas J. McGregor | Director | |||
| James V. Napier | Director | |||
| Richard T. O’Brien | Director | |||
| James T. Prokopanko | Director | |||
| Donald B. Rice | Director | |||
| Vincent J. Trosino | Director | |||
| Kathleen Wilson-Thompson | Director |
By
SCHEDULE II
Vulcan Materials Company and Subsidiary Companies
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 2009, 2008 and 2007
Amounts in Thousands
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 2009, 2008 and 2007
Amounts in Thousands
Accrued Environmental Costs
Asset Retirement Obligations
Doubtful Receivables
Self-Insurance Reserves
All Other 6
All Other6
EXHIBIT INDEX
Certificate of Incorporation (Restated 2007) of Vulcan
Materials Company (formerly known as Virginia Holdco,
Inc.), filed as Exhibit 3.1 to the Company’s Current
Report on Form 8-K on November 16, 2007.1
Amended and Restated By-Laws of Vulcan Materials
Company effective as of December 11, 2009 filed as
Exhibit 3.1 to the Company’s Current Report on Form
8-K on December 11, 2009.1
Supplemental Indenture No. 1 dated as of November 16,
2007, among Vulcan Materials Company, Legacy Vulcan
Corp. and The Bank of New York, as Trustee filed as
Exhibit 4.1 to the Company’s Current Report on Form
8-K on November 21, 2007.1
Senior Debt Indenture, dated as of December 11, 2007,
between Vulcan Materials Company and Wilmington Trust
Company, as Trustee, filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K on December 11,
2007.1
First Supplemental Indenture, dated as of December 11,
2007, between Vulcan Materials Company and Wilmington
Trust Company, as Trustee, to that certain Senior Debt
Indenture, dated as of December 11, 2007, between
Vulcan Materials Company and Wilmington Trust Company,
as Trustee, filed as Exhibit 4.2 to the Company’s
Current Report on Form 8-K on December 11,
2007.1
Second Supplemental Indenture dated June 20, 2008
between the Company and Wilmington Trust Company, as
Trustee, to that certain Senior Debt Indenture dated
as of December 11, 2007, filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed June 20,
2008.1
Indenture dated as of May 1, 1991, by and between
Legacy Vulcan Corp. (formerly Vulcan Materials
Company) and First Trust of New York (as successor
trustee to Morgan Guaranty Trust Company of New York)
filed as Exhibit 4 to the Form S-3 on May 2, 1991
(Registration No. 33-40284).1
Underwriting Agreement, dated June 11, 2009, among the
Company and Goldman Sachs & Co., Merrill Lynch, Pierce
Fenner & Smith Incorporated, J. P. Morgan Securities,
Inc. and Wachovia Capital Markets, LLC, as
representatives of the several underwriters named
therein filed as Exhibit 1.1 to the Company’s Report
on Form 8-K filed June 17, 2009.1
Underwriting Agreement, dated June 17, 2008, among the
Company and Banc of America Securities, LLC, Goldman,
Sachs & Co., JP Morgan Securities, Inc. and Wachovia
Capital Markets, LLC as Representatives of several
underwriters named therein filed as Exhibit 1.1 to the
Company’s Current Report on Form 8-K filed June 20,
2008.1
Five-Year Credit Agreement dated as of November 16,
2007, among the Company, certain lenders party thereto
and Bank of America, N.A., as administrative agent
filed as Exhibit 10.3 to the Company’s Current Report
on Form 8-K filed November 21, 2007.1
Term Loan Credit Agreement dated as of June 23, 2008,
among the Company, Wachovia Bank, National
Association, as administrative agent and certain other
Lender Parties thereto filed as Exhibit 1.1 to the
Company’s Current Report on Form 8-K filed June 27,
2008.1
Purchase Agreement dated January 23, 2009, between the
Company and Goldman, Sachs & Co. filed as Exhibit 1.1
to the Company’s Current Report on Form 8-K on January
29, 2009.1
Third Supplemental Indenture dated February 3, 2009, between the Company and Wilmington
Trust Company, as Trustee, to that certain Senior Debt Indenture dated as of December 11,
2007 filed as Exhibit 10(f) to the Company’s Annual Report on Form 10-K filed on March 2,
2009.1
Exchange and Registration Rights Agreement dated February 3, 2009, between the Company and
Goldman, Sachs & Co. filed as Exhibit 10(g) to the Company’s Annual Report on Form 10-K
filed March 2, 2009.1
The Unfunded Supplemental Benefit Plan for Salaried Employees, as amended, filed as
Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 17,
2008.1,2
Amendment to the Unfunded Supplemental Benefit Plan for Salaried Employees filed as
Exhibit 10(c) to Legacy Vulcan Corp.’s Annual Report on Form 10-K for the year ended
December 31, 2001 filed on March 27, 2002.1,2
The Deferred Compensation Plan for Directors Who Are Not Employees of the Company, as
amended, filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on
December 17, 2008.1,2
The 2006 Omnibus Long-Term Incentive Plan of the Company filed as Appendix C to Legacy
Vulcan Corp.’s 2006 Proxy Statement on Schedule 14A filed on April 13, 2006.1,2
The Deferred Stock Plan for Nonemployee Directors of the Company filed as Exhibit 10(f) to
Legacy Vulcan Corp.’s Annual Report on Form 10-K for the year ended December 31, 2001
filed on March 27, 2002.1,2
The Restricted Stock Plan for Nonemployee Directors of the Company, as amended, filed as
Exhibit 10.6 to the Company’s Current Report on Form 8-K filed December 17,
2008.1,2
Executive Deferred Compensation Plan, as amended, filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on December 17, 2008.1,2
Change of Control Employment Agreement Form (Double Trigger) filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on October 2, 2008.1,2
Change of Control Employment Agreement Form (Modified Double Trigger) filed as Exhibit
10.2 to the Company’s Current Report on Form 8-K filed on October 2, 2008.1,2
Executive Incentive Plan of the Company, as amended, filed as Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on December 17, 2008.1,2
Supplemental Executive Retirement Agreement filed as Exhibit 10 to Legacy Vulcan Corp.’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 filed on November
2, 2001.1,2
Form Stock Option Award Agreement filed as Exhibit 10(o) to Legacy Vulcan Corp.’s Report
on Form 8-K filed December 20, 2005.1,2
Form Director Deferred Stock Unit Award Agreement filed as Exhibit 10.9 to the Company’s
Current Report on Form 8-K filed December 17, 2008.1,2
Form Performance Share Unit Award Agreement filed as Exhibit 10.8 to the Company’s Current
Report on Form 8-K filed December 17, 2008.1,2
Form Stock Only Stock Appreciation Rights Agreement filed as Exhibit 10(p) to Legacy
Vulcan Corp.’s Report on Form 10-K filed February 26, 2007. 1,2
Form Employee Deferred Stock Unit Award Amended Agreement filed as Exhibit 10.7 to the
Company’s Current Report on Form 8-K filed December 17, 2008. 1,2
2010 Compensation Arrangements filed in the Company’s Current Report on Form 8-K filed on
February 18, 2010. 1,2
Letter dated February 26, 2009 of Deloitte & Touche LLP, Independent Registered Public
Accounting Firm for Vulcan Materials Company and its subsidiary companies regarding a
change in accounting principles.
List of the Company’s subsidiaries as of December 31, 2009.
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Powers of Attorney.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.