10-K 1 vmc-20171231x10k.htm 10-K 20171231 10K

 

 







 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2017

Commission file number: 001-33841

 

VULCAN MATERIALS COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

New Jersey

(State or other jurisdiction of incorporation or organization)

 

20-8579133

(I.R.S. Employer Identification No.)

1200 Urban Center Drive, Birmingham, Alabama 35242

(Address of Principal Executive Offices) (Zip Code)

 

(205) 298-3000

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Common Stock, $1 par value

 

Name of each exchange on which registered

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a  smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act
(Check one):

 

Large accelerated filer                               Accelerated filer                          Smaller reporting company 

Non-accelerated filer   (Do not check if a smaller reporting company                 Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes No  







 

Aggregate market value of voting and non-voting common stock held by non-affiliates
as of June 30, 2017:

$16,712,817,912 

Number of shares of common stock, $1.00 par value, outstanding as of February 13, 2018:

132,482,375 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s annual proxy statement for the annual meeting of its shareholders to be held on May 11, 2018, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

 

 

 


 

 



 

 

 

VULCAN MATERIALS COMPANY

ANNUAL REPORT ON FORM 10-k
fISCAL YEAR ENDED DECEMBER 31, 2017

CONTENTs



Part

Item

 

Page

I

1

Business



1A

Risk Factors

18 



1B

Unresolved Staff Comments

21 



2

Properties

22 



3

Legal Proceedings

25 



4

Mine Safety Disclosures

25 

II

5

Market for the Registrant’s Common Equity, Related
   Stockholder Matters and Issuer Purchases of Equity Securities

26 



6

Selected Financial Data

27 



7

Management’s Discussion and Analysis of Financial Condition
   and Results of Operations

28 



7A

Quantitative and Qualitative Disclosures about Market Risk

60 



8

Financial Statements and Supplementary Data

61 



9

Changes in and Disagreements with Accountants on Accounting and
   Financial Disclosure

116 



9A

Controls and Procedures

116 



9B

Other Information

118 

III

10

Directors, Executive Officers and Corporate Governance

119 



11

Executive Compensation

119 



12

Security Ownership of Certain Beneficial Owners and
   Management and Related Stockholder Matters

119 



13

Certain Relationships and Related Transactions, and Director Independence

119 



14

Principal Accounting Fees and Services

119 

IV

15

Exhibits and Financial Statement Schedules 

120 



16

Form 10-K Summary

120 



Signatures

121 



Unless otherwise stated or the context otherwise requires, references in this report to "Vulcan," the "Company," "we," "our," or "us" refer to Vulcan Materials Company and its consolidated subsidiaries.

 

 

 

 

 

 

 

 

Table of Contents

i

 


 

 

PART I

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995

Certain of the matters and statements made herein or incorporated by reference into this report constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect our intent, belief or current expectation. Often, forward-looking statements can be identified by the use of words, such as "anticipate," "may," "believe," "estimate," "project," "expect," "intend" and words of similar import. In addition to the statements included in this report, we may from time to time make other oral or written forward-looking statements in other filings under the Securities Exchange Act of 1934 or in other public disclosures. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those indicated by the forward-looking statements. All forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the statements. These assumptions, risks and uncertainties include, but are not limited to:

§

general economic and business conditions

§

the timing and amount of federal, state and local funding for infrastructure

§

changes in our effective tax rate

§

the increasing reliance on information technology infrastructure for our ticketing, procurement, financial statements and other processes could adversely affect operations in the event that the infrastructure does not work as intended or experiences technical difficulties or is subjected to cyber attacks

§

the impact of the state of the global economy  on our businesses and financial condition and access to capital markets

§

changes in the level of spending for private residential and private nonresidential construction

§

the highly competitive nature of the construction materials industry

§

the impact of future regulatory or legislative actions, including those relating to climate change, wetlands, greenhouse gas emissions, the definition of minerals, tax policy or international trade

§

the outcome of pending legal proceedings

§

pricing of our products

§

weather and other natural phenomena

§

energy costs

§

costs of hydrocarbon-based raw materials

§

healthcare costs

§

the amount of long-term debt and interest expense we incur

§

changes in interest rates

§

volatility in pension plan asset values and liabilities, which may require cash contributions to the pension plans

§

the impact of environmental cleanup costs and other liabilities relating to existing and/or divested businesses

§

our ability to secure and permit aggregates reserves in strategically located areas

§

our ability to manage and successfully integrate acquisitions

§

the effect of changes in tax laws, guidance and interpretations, including those related to the Tax Cuts and Jobs Act that was enacted on December 22, 2017

§

the potential of goodwill or long-lived asset impairment

§

changing technologies could disrupt the way we do business and how our products are distributed

§

the risks set forth in Item 1A "Risk Factors," Item 3 "Legal Proceedings," Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and Note 12 "Commitments and Contingencies" to the consolidated financial statements in Item 8 "Financial Statements and Supplementary Data," all as set forth in this report

§

other assumptions, risks and uncertainties detailed from time to time in our filings made with the Securities and Exchange Commission

 

 

Part I

1

 


 

 

All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission and our press releases with regard to our business and consolidated financial position, results of operations and cash flows.

 

 

 

 

Part I

2

 


 

 

ITEM 1

BUSINESS



Vulcan Materials Company, a New Jersey corporation, is the nation’s largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete.  Delivered by trucks, ships, barges and trains, our products are the indispensable materials building homes, offices, places of worship, schools, hospitals and factories, as well as vital infrastructure including highways, bridges, roads, ports and harbors, water systems, campuses, dams, airports and rail networks. As of December 31, 2017, we had 375 active aggregates facilities,  64 asphalt facilities and 57 concrete facilities.

BUSINESS STRATEGY

We provide the basic materials for the infrastructure needed to maintain and expand the U.S. economy. We operate primarily in the U.S. and are the nation’s largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete. Our strategy and competitive advantage are based on our strength in aggregates. Aggregates are used in most types of construction and in the production of asphalt mix and ready-mixed concrete. Our materials are used to build the roads, tunnels, bridges, railroads and airports that connect us, and to build the hospitals, schools, shopping centers, factories and places of worship that are essential to our lives and the economy.

business strategies

Our business strategies include: (1) aggregates focus, (2) coast-to-coast footprint, (3) profitable growth, (4) managing volume, product mix and price to grow profitability, and (5) effective land management.

1. AGGREGATES FOCUS

Aggregates are used in virtually all types of public and private construction and practically no substitutes for quality aggregates exist. Given our focus on aggregates, we:

BUILD AND HOLD SUBSTANTIAL RESERVES:  Our reserves are critical to our long-term success. They are strategically located throughout the United States in high-growth areas that are expected to require large amounts of aggregates to meet future construction demand. Moreover, there are significant barriers to entry in many metropolitan markets due to stringent zoning and permitting regulations. Aggregates operations have flexible production capabilities and, other than energy inputs required to process the materials, require virtually no other raw material. Our downstream businesses (asphalt and concrete) use Vulcan-produced aggregates almost exclusively.

TAKE ADVANTAGE OF SIZE AND SCALE:  Each aggregates operation is unique because of its location within a local market with particular geological characteristics. Every operation, however, uses a similar group of assets to produce saleable aggregates and provide customer service. We are  the largest aggregates supplier in the U.S. Our 375 active aggregates facilities as of December 31, 2017, provide opportunities to standardize operating practices and procure equipment (fixed and mobile), parts, supplies and services in an efficient and cost-effective manner, both regionally and nationally. Additionally, we are able to share best practices across the organization and leverage our size for administrative support, customer service, accounting, procurement, technical support and engineering.

 

 

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2. COAST-TO-COAST FOOTPRINT

Demand for construction aggregates correlates positively with changes in population growth, household formation and employment. We have pursued a strategy to increase our presence in U.S. metropolitan areas that are expected to grow the most rapidly. Our strategic locations serve 19 of the top 25 highest-growth U.S. metropolitan areas in 20 states plus the District of Columbia.

Picture 13



3. PROFITABLE GROWTH

Our long-term growth is a result of strategic acquisitions and investments in key operations.

Strategic acquisitions AND DISPOSITIONS: Since becoming a public company in 1957, Vulcan has principally grown by mergers and acquisitions. For example, in 1999 we acquired CalMat Co., thereby expanding our aggregates operations into California and Arizona and making us one of the nation’s leading producers of asphalt mix. In 2007, we acquired Florida Rock Industries, Inc., the largest acquisition in our history. This acquisition expanded our aggregates business in Florida and our aggregates and ready-mixed concrete businesses in other southeastern and mid-Atlantic states.  

Additionally, throughout our history we have completed many bolt-on acquisitions that have contributed significantly to our growth. In 2017, we made a number of bolt-on acquisitions, making attractive additions to our coast-to-coast footprint in states ranging from Georgia to California and up to Illinois and Virginia. We added approximately 615 million tons of proven and probable reserves to our leading reserve base, further strengthened our best-in-class aggregates distribution network (adding 16 new rail yards in our Florida, Georgia and South Carolina markets) and added asphalt operations in Tennessee to take further advantage of our strong aggregates position.

 

 

Part I

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§

Reinvestment opportunities with high returns: Demand for our products is dependent on construction activity and correlates positively with changes in population growth, household formation and employment. During the period 2018 - 2028,  Moody's Analytics projects that 79% of the U.S. population growth, 70% of household formation and 64% of new jobs 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 decrease costs.



Picture 2

    Source: Moody’s Analytics as of December 13, 2017

4. MANAGING VOLUME, PRODUCT MIX AND PRICE TO GROW PROFITABILITY

We focus on three major profit drivers that must be managed in combination.

§

Price for Service  We seek to receive full and fair value for the quality of products and services we provide. We should be paid appropriately for helping our customers be successful.  Our expanding margins will continue to benefit from the compounding pricing gains associated with cyclical recoveries.

§

Operating Efficiency and Leverage  We focus on rigorous cost management throughout the economic cycle. Small savings per ton add up to significant cost reductions. We are operating a capital-intensive business well below full capacity and are extremely well positioned to further leverage fixed costs to sales as we move forward.

§

Sales and Production Mix  We adjust production levels to meet varying market conditions. Managing inventories responsibly results in improved cost performance and an improved return on capital. As the recovery continues and as we see a larger portion of new construction activity in the end-use mix, we will sell the entire production mix much more efficiently and at fuller value.

We manage these factors locally, and align our talent and incentives accordingly. Our knowledgeable and experienced workforce and our flexible production capabilities allow us to manage operational and overhead costs aggressively. Recovery in demand serves as a tailwind for all three major profit drivers.

 

 

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5. EFFECTIVE LAND MANAGEMENT

We own or lease well over 200,000 acres of land, and we manage it carefully throughout all phases of its productive use. We believe that effective land management is both a business strategy and a social responsibility that contributes to our success. As a land-based company, we feel a special responsibility to the environment and the communities around us. Good stewardship requires the careful use of existing resources as well as long-term planning because mining, ultimately, is an interim use of the land. Therefore, we strive to achieve a balance between the value we create through our mining activities and the value we create through effective post-mining land management. We continue to focus our actions on prudent decisions regarding the life cycle management of the land we own.

PORTFOLIO MANAGEMENT

Our aggregates reserves are strategically located throughout the United States in areas that are projected to grow faster than the national average and that require large amounts of aggregates to meet construction demand. Vulcan-served states are estimated to generate 79% of the total growth in U.S. population and 70% of the total growth in U.S. household formations between 2018 and 2028.



 

 

 

 

 

 



          VULCAN’S TOP TEN REVENUE PRODUCING STATES IN 2017

 



1.

California

 

6.

Florida

 



2.

Texas

 

7.

Arizona

 



3.

Virginia

 

8.

North Carolina

 



4.

Tennessee

 

9.

South Carolina

 



5.

Georgia

 

10.

Illinois

 



Our top ten revenue producing states accounted for 85% of our 2017 revenues while our top five accounted for 60%.

We take a disciplined approach to strengthening our footprint by increasing our presence in U.S. metropolitan areas that are expected to grow more rapidly and by divesting assets that are no longer considered part of our long-term growth strategy. In 2017, we swapped our concrete operations in Arizona for strategic asphalt operations also in Arizona. Additionally, we strengthened our positions in our top ten revenue producing states via bolt-on acquisitions in California, Texas, Virginia, Tennessee, Georgia, Florida, Arizona, South Carolina and Illinois.

PRODUCT LINES

We have four operating (and reportable) segments organized around our principal product lines:

1.

Aggregates73% of 2017’s total revenues and 86% of gross profit

2.

Asphalt16% of 2017’s total revenues and 9% of gross profit

3.

Concrete11% of 2017’s total revenues and 5% of gross profit

4.

Calcium – less than 1% of 2017’s total revenues and less than 1% of gross profit

See Note 15 "Segment Reporting" in Item 8 "Financial Statements and Supplementary Data.”

 

 

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1. AGGREGATES

Our construction aggregates are used in a number of ways:

§

as a base material underneath highways, walkways, airport runways, parking lots and railroads

§

to aid in water filtration, purification and erosion control

§

as a raw material used in combination with other resources to construct many of the items we rely on to sustain our quality of life including:

§

houses and apartments

§

roads, bridges and parking lots

§

schools and hospitals

§

commercial buildings and retail space

§

sewer systems

§

power plants

§

airports and runways

Factors that affect the U.S. aggregates industry and our business include:

§

Location of reserves: We currently have 16.0 billion tons of permitted and proven or probable aggregates reserves. The bulk of these reserves are located in areas where we expect greater than average rates of growth in population, jobs and households, which require new infrastructure, housing, offices, schools and other development. Zoning and permitting regulations in some markets have made it increasingly difficult for the aggregates industry to expand existing quarries or to develop new quarries. These restrictions curtail expansion in certain areas, but they also increase the value of our reserves at existing locations.

§

Limited product substitution: There are limited substitutes for quality aggregates. Recycled concrete and asphalt have certain applications as a lower-cost alternative to virgin aggregates. However, due to technical specifications many types of construction projects cannot be served by recycled concrete and require the use of virgin aggregates to meet specifications and performance-based criteria for durability, strength and other qualities. Moreover, the amount of recycled asphalt included in asphalt mix as a substitute for aggregates is limited due to specifications.

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Highly fragmented industry: The U.S. aggregates industry is composed of over 5,700 companies that manage more than 10,000 operations. This fragmented structure provides many opportunities for consolidation. Companies in the industry commonly enter new markets or expand positions in existing markets through the acquisition of existing facilities.

Through strategic acquisitions and investments, we have developed an unmatched coast-to-coast footprint of strategically located permitted reserves concentrated in and serving the nation’s key growth centers. We have over 20,000 customers in 20 states, the District of Columbia, Mexico and the Bahamas.

§

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 how it will be used. Production capacity can be flexible by adjusting operating hours to meet changing market demand.

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raw material inputs largely under our control: Unlike typical industrial manufacturing industries, the aggregates industry does not require the input of raw material beyond owned or leased aggregates reserves. Stone, sand and gravel are naturally occurring resources. However, production does require the use of explosives, hydrocarbon fuels and electric power.

 

 

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§

Local markets: Aggregates have a high weight-to-value ratio and, in most cases, must be produced near where they are used; if not, transportation can cost more than the materials, rendering them uncompetitive compared to locally produced materials. Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available high-quality aggregates. We serve these markets from quarries that have access to cost-effective long-haul transportation — shipping by barge and rail — and from our quarry on Mexico’s Yucatan Peninsula with our fleet of Panamax-class, self-unloading ships.

We operate an extensive logistics network along the U.S. Gulf Coast and the Eastern Seaboard as shown below:

Picture 11



Where practical, we have operations located close to our local markets because the cost of trucking materials long distances is prohibitive. Approximately 80% of our total aggregates shipments are delivered exclusively from the producing location to the customer by truck, and another 15% are delivered by truck after reaching a sales yard by rail or water.  The remaining 5% of aggregates shipments are delivered directly to the customer by rail or water.

 

 

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Demand cycles: Long-term growth in demand for aggregates is largely driven by growth in population, jobs and households. While short-term and medium-term demand for aggregates fluctuates with economic cycles, declines have historically been followed by strong recoveries, with each peak establishing a new historical high.

The drivers underpinning demand recovery — and sustained, multi-year volume and pricing growth — remain firmly in place, in both the public and private sectors of the economy. They include: population growth; gains in total employment and in household income and wages; a continuing increase in household formations; the growing need for additional housing stock and housing demand; a multi-year federal transportation law in place and continuing increases in transportation funding at state and local levels; record state tax receipts; public investment in infrastructure that is still well below the long-term trend-line, and increasing political awareness and acceptance of the need to invest in infrastructure.

AGGREGATES MARKETS

We focus on the U.S. markets with above-average long-term expected population growth and where construction is expected to expand. Because transportation is a significant part of the delivered cost of aggregates, our facilities are typically located in the markets they serve or have access to economical transportation via rail, barge or ship to a particular end market. We serve both the public and the private sectors.

Public sector construction activity has historically been more stable and less cyclical than privately-funded construction, and generally requires more aggregates per dollar of construction spending. Private sector construction (primarily residential and nonresidential buildings) typically is more affected by general economic cycles than publicly funded projects (particularly highways, roads and bridges), which tend to receive more consistent levels of funding throughout economic cycles.



Picture 5


   Source: Company estimates

 

 

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PUBLIC SECTOR CONSTRUCTION

Public sector construction includes spending by federal, state, and local governments for highways, bridges, buildings, airports, schools and prisons 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 2017, publicly funded construction accounted for approximately 46%  of our total aggregates shipments, and approximately 24%  of our aggregates sales by volume were used in highway construction projects.

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Public Sector Funding: Generally, public sector construction spending is more stable than private sector construction spending; public sector spending is less sensitive to interest rates and spending has historically been supported by multi-year laws, which provide certainty in funding amounts, program structures, and rules and regulations.  Federal spending is governed by authorization, budget and appropriations laws. The level of state and local spending on infrastructure varies across the United States and depends on individual state needs and economies. In 2017, seven state legislatures voted to raise motor fuel taxes for transportation investments, bringing the total to 31 states since 2012. States are also raising revenues through one-time increases in revenues outside of fuel taxes. In the 2017 general election,  voters in twenty states approved more than 80% of local transportation investment ballot measures; since 2007, 74% of more than 1,200 measures have been approved.

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federal highway funding: In December 2015, President Obama signed a new, long-term federal highway and transit authorization bill,  Fixing America’s Surface Transportation Infrastructure Act (FAST Act), into law after the final legislation received strong, bipartisan support in both the House and the Senate. The FAST Act provides multi-year funding to state and local governments in support of road, bridge, intermodal and public transportation projects.

The FAST Act increases Federal-Aid Highway Program funding from $41 billion in the federal fiscal year (FFY) 2015 to $47 billion in FFY 2020. Federal spending for highways is supported by $208 billion in excise taxes on gasoline and diesel fuels, taxes on heavy truck sales and use, and heavy truck tire taxes and by a $70 billion transfer of general funds to the Federal Highway Trust Fund.

The long-term nature of the FAST Act is important. The Federal-Aid Highway Program is the largest component of the law and has provided, on average, 52% of all state capital investment in roads and bridges over the last 10 years. This multi-year authorization and the associated dedicated funding provides state departments of transportation with the ability to plan and execute long-range, complex highway projects.

The FAST Act also contains important policy changes. To further accelerate the project delivery process, it augments the environmental review and permitting process reforms contained in the prior law, Moving Ahead for Progress in the 21st Century Act (MAP-21). The new law also provides assistance for states making investments in major capital projects  particularly freight projects. In states where we operate, we are well-positioned to serve the large general contractors who will compete for new freight and other major capacity projects that will move forward with this FAST Act funding and policy implementation.

Project financing remains an important additional component of overall surface transportation spending, with the Transportation Infrastructure Finance & Innovation Act (TIFIA) program authorized at $275 million  (in line with the previous program outlays) and growing to $300 million by 2020. The FAST Act also created a new National Surface Transportation and Innovative Finance Bureau to provide technical assistance to states seeking to pursue public-private partnerships and other financing arrangements for transportation projects.

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WATER INFRASTRUCTURE: The Water Infrastructure Improvements for the Nation Act of 2016 (WIIN), which we and numerous other business allies strongly supported, was signed into law in December 2016. This law is the successor to the Water Resources Reform and Development Act of 2014 (WRRDA). It reauthorizes needed investment in America’s ports, channels, locks, dams, and other infrastructure that supports the maritime and waterways transportation system and provides flood protection for communities. It also provides funding to the Water Infrastructure Financing and Innovation Act (WIFIA), which was modeled after the highly popular TIFIA program in the surface transportation sector. Created in WRRDA, WIFIA will allow for federal credit assistance to water resources projects in the form of low-cost loans, loan guarantees and lines of credit.

 

 

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Private sector CONSTRUCTION

The private sector construction markets include both nonresidential building construction and residential construction and are considerably more cyclical than public construction. In 2017, privately-funded construction accounted for approximately 54%  of our total aggregates shipments.

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Nonresidential Construction: Private nonresidential building construction includes a wide array of projects. Such projects generally are more aggregates intensive than residential construction. Overall demand in private nonresidential construction generally is driven by job growth, vacancy rates, private infrastructure needs and demographic trends. The growth of the private workforce creates demand for offices, hotels and restaurants. Likewise, population growth generates demand for stores, shopping centers, warehouses and parking decks as well as hospitals, places of worship 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. This end market also includes capital investments in public nonresidential facilities to meet the needs of a growing population.

Nonresidential construction is expected to continue to be a stable source of volume growth in 2018 based on the following assumptions: (1) continuing employment growth should provide support, as it has in the past, (2) current backlogs that our customers,  industry groups and outside economists are reporting should continue to be a source of demand,  and (3) with a stable tax base, local governments should use funds to make capital investments in schools and other public nonresidential facilities to meet the needs of a growing population.

§

Residential Construction: Household formations in our markets continue to outpace household formations in the rest of the United States. The majority of residential construction is for single-family housing with the remainder consisting of multi-family construction (i.e., two family houses, apartment buildings and condominiums). Public housing comprises only a small portion of housing demand. Construction activity in this end market is influenced by the cost and availability of mortgage financing and builders’ ability to maintain skilled labor.

U.S. housing starts, as measured by Dodge Data & Analytics data, peaked in early 2006 at over 2 million units annually. By the end of 2009, total housing starts had declined to less than 0.6 million units, well below prior historical lows of approximately 1 million units annually. In 2017, total annual housing starts in the U.S. reached almost 1.3 million units. Housing starts were particularly robust in our markets, which grew at almost twice the rate of the nation as a whole. The consistent growth in residential construction bodes well for continued recovery in our markets.

ADDITIONAL AGGREGATES PRODUCTS AND MARKETS

We sell aggregates that are used as ballast for construction and maintenance of railroad tracks. We also sell riprap and jetty stone for erosion control along roads and waterways. In addition, stone 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 can be sold as agricultural lime.

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. Nondomestic sales and long-lived assets outside the United States are reported in Note 15 "Segment Reporting" in Item 8 "Financial Statements and Supplementary Data."

VERTICAL INTEGRATION

While aggregates is our focus and primary business, we believe vertical integration between aggregates and downstream products, such as asphalt mix and ready-mixed concrete, can be managed effectively in certain markets generating acceptable financial returns and enhancing financial returns in our core Aggregates segment. We produce and sell asphalt mix and/or ready-mixed concrete primarily in our mid-Atlantic, Georgia, Southwestern, Tennessee and Western markets. Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. In both of these downstream businesses, aggregates are primarily supplied from our operations.

 

 

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2. ASPHALT

We produce and sell asphalt mix in Arizona, California, New Mexico, Tennessee and Texas.  In December 2017, we strengthened our asphalt position in Arizona by swapping ready-mixed concrete operations for an asphalt mix operation. In January 2017, we entered the Tennessee market through the acquisition of several asphalt mix operations and a construction paving business. This segment relies on our reserves of aggregates, functioning essentially as a customer to our aggregates operations. Aggregates are a major component in asphalt mix, comprising approximately 95% by weight of this product. We meet the aggregates requirements for our Asphalt segment primarily through our Aggregates segment. These product transfers are made at local market prices for the particular grade and quality of material required.

Because asphalt mix hardens rapidly, delivery typically is within close proximity to the producing facility. The asphalt mix production process requires liquid asphalt cement, which we purchase from third-party producers. We do not anticipate any significant difficulties in obtaining the raw materials necessary for this segment to operate. We serve our Asphalt segment customers either directly from our local production facilities or through our distribution yards.  

3.  CONCRETE

We produce and sell ready-mixed concrete in  California, Georgia, Maryland, New Mexico, Texas, Virginia, Washington D.C. and the Bahamas. In May 2015, we entered the Arizona ready-mixed concrete market through the acquisition of ready-mixed concrete operations in conjunction with the acquisition of aggregates operations in Arizona and New Mexico. As noted above, in December 2017 we exited the Arizona ready-mixed concrete market via a swap for an asphalt mix operation continuing our strategy to focus on asphalt mix in that market. In January 2015, we swapped our ready-mixed concrete operations in California for asphalt mix operations, primarily in Arizona.  In March 2017, we reentered the California ready-mixed concrete market through an acquisition. For additional details see Note 19 “Acquisitions and Divestitures” in Item 8 “Financial Statements and Supplementary Data.”

This segment relies on our reserves of aggregates, functioning essentially as a customer to our aggregates operations. Aggregates are a major component in ready-mixed concrete, comprising approximately 80% by weight of this product. We meet the aggregates requirements of our Concrete segment primarily through our Aggregates segment. These product transfers are made at local market prices for the particular grade and quality of material required.

We serve our Concrete segment customers from our local production facilities or by truck. Because ready-mixed concrete hardens rapidly, delivery typically is within close proximity to the producing facility. Ready-mixed concrete production also requires cement which we purchase from third-party producers. We do not anticipate any significant difficulties in obtaining the raw materials necessary for this segment to operate.

4. CALCIUM

Our Calcium segment is composed of a single calcium operation in Brooksville, Florida. This facility produces calcium products for the animal feed, plastics and water treatment industries with high quality calcium carbonate material mined at the Brooksville quarry.

OTHER BUSINESS-RELATED ITEMS

SEASONALITY AND CYCLICAL NATURE OF OUR BUSINESS

Almost all of our products are produced and consumed outdoors. Seasonal changes and other weather-related conditions can affect the production and sales volumes of our products. Therefore, the financial results for any quarter do not necessarily indicate the results expected for the year. Normally, the highest sales and earnings are in the third quarter and the lowest are in the first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local economic conditions, demographic and population fluctuations, and particularly to cyclical swings in construction spending, primarily in the private sector.

 

 

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COMPETITORS

We operate in a generally fragmented industry with a large number of small, privately-held companies. We estimate that the ten largest aggregates producers accounted for less than one-third of total U.S. aggregates production in 2017. Despite being 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 the following:

§

Cemex S.A.B. de C.V.

§

CRH plc 

§

HeidelbergCement AG

§

LafargeHolcim

§

Martin Marietta Materials, Inc.

§

MDU Resources Group, Inc.

§

Summit Materials, Inc.

Because the U.S. aggregates industry is highly fragmented, with over 5,700 companies managing more than 10,000 operations during 2017, many opportunities for consolidation exist. Therefore, companies in the industry tend to grow by acquiring existing facilities to enter new markets or extend their existing market positions.

CUSTOMERS

No material part of our business depends upon any single customer whose loss would have a significant adverse effect on our business. In 2017, our five largest customers accounted for 7.3% of our total revenues (excluding internal sales), and no single customer accounted for more than 2.4% 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 been used in publicly funded construction, such as highways, airports and government buildings, relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly funded construction, our business is not directly subject to renegotiation of profits or termination of contracts with state or federal governments.

ENVIRONMENTAL COSTS AND GOVERNMENTAL REGULATION

Our operations are subject to numerous federal, state and local laws and regulations relating to the protection of the environment and worker health and safety; examples include regulation of facility air emissions and water discharges, waste management, protection of wetlands, listed and threatened species, noise and dust exposure control for workers, and safety regulations under both Mine Safety and Health Administration (MSHA) and Occupational Safety and Health Administration (OSHA). Compliance with these various regulations requires a substantial capital investment, and ongoing expenditures for the operation and maintenance of systems and implementation of programs. We estimate that capital expenditures for environmental control facilities in 2018 and 2019 will be $14.9 million and $29.4 million, respectively. These anticipated expenditures are not expected to have a material impact on our earnings or competitive position.

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 about 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.

For additional information about litigation and environmental matters, see Notes 1 and 12 to the consolidated financial statements in Item 8 "Financial Statements and Supplementary Data."

 

 

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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, which is adjusted for inflation and risk and includes a reasonable profit margin. All reclamation obligations are reviewed at least annually. 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.

For additional information about 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."

PATENTS AND TRADEMARKS

We do not own or have a license or other rights under any patents, registered trademarks or trade names that are material to any of our reporting segments.

OTHER INFORMATION ABOUT VULCAN

Vulcan is a New Jersey corporation incorporated on February 14, 2007, while its predecessor company was incorporated on September 27, 1956. Our principal sources of energy are electricity, diesel fuel and natural gas.  We do not anticipate any difficulty in obtaining sources of energy required for operation of any of our reporting segments in 2018.

As of January 1, 2018, we employed 7,900 people in the United States. Of these employees, 643 are represented by labor unions. Also, as of that date, we employed 386 people in Mexico and 1 in the Bahamas,  310 of whom are represented by labor unions. We do not anticipate any significant issues with any unions in 2018. 

We generally ship our products upon receipt of a purchase order or in some cases simply a price quote. Therefore, we do not have a significant order backlog.

EXECUTIVE OFFICERS OF THE REGISTRANT

The names, positions and ages, as of February 20, 2018, of our executive officers are as follows:

__

 

 

Name

Position

Age  

J. Thomas Hill

Chairman, President and Chief Executive Officer

58 

John R. McPherson

Executive Vice President, Chief Financial and Strategy Officer

49 

Stanley G. Bass

Chief Growth Officer

56 

Michael R. Mills

Chief Administrative Officer

57 

Thompson S. Baker II

Senior Vice President

59 

Jerry F. Perkins Jr.

General Counsel and Secretary

48 

Ejaz A. Khan

Vice President, Controller and Chief Information Officer

60 

Jason P. Teter

Vice President, Finance

43 

David P. Clement 1

President, Central Division

57 

C. Brockway Lodge, Jr. 1

President, Western Division

45 





 

1

These Division Presidents are designated as Executive Officers as a result of their significant policy-making function and direct reporting relationship to J. Thomas Hill.



 

 

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The principal occupations of the executive officers during the past five years are set forth below:

J. Thomas Hill was elected Chairman of the Board of Directors effective January 1, 2016. He was elected President and Chief Executive Officer in July 2014. Prior to that, he served as Executive Vice President and Chief Operating Officer (January 2014 – July 2014), Senior Vice President – South Region (December 2011 – December 2013). Prior to that, he served in a number of positions with Vulcan including President, Florida Rock Division (September 2010 – December 2011).

John R. McPherson was elected Executive Vice President, Chief Financial and Strategy Officer in July 2014. Prior to that, he served as Executive Vice President and Chief Financial Officer (January 2014 – July 2014), Senior Vice President – East Region (November 2012 – December 2013) and Senior Vice President, Strategy and Business Development (October 2011 – November 2012). Before joining Vulcan in October 2011, Mr. McPherson was a senior partner at McKinsey & Company, a global management consulting firm, from 1995 to 2011.

Stanley G. Bass was elected Chief Growth Officer in February 2016. He served as Senior Vice President – Western and Mountain West Divisions from January 2015 to February 2016. He served as Senior Vice President – West Region from September 2013 to December 2014. Prior to that, he served as Senior Vice President – Central and West Regions (February 2013 – September 2013), Senior Vice President – Central Region (December 2011 – February 2013). Prior to that, he served in a number of positions with Vulcan including President, Midsouth and Southwest Divisions (September 2010 – December 2011).

Michael R. Mills was elected Chief Administrative Officer in February 2016. He served as Senior Vice President and General Counsel from November 2012 to February 2016; and as Senior Vice President – East Region from December 2011 to October 2012. Prior to that, he was President, Southeast Division.

Thompson S. Baker II was elected Senior Vice President in March 2017.  He served in a number of positions with Vulcan, including President – Florida Rock Division, prior to serving as Chief Executive Officer of FRP Holdings, Inc. from October 2010 to March 2017 and President and Chief Executive Officer of Patriot Transportation Holding, Inc. from December 2014 to March 2017.

Jerry F. Perkins  Jr. was elected General Counsel and Secretary in February 2016. He served as Assistant General Counsel and Secretary since 2011.

Ejaz A. Khan was elected Vice President and Controller in February 1999. He was elected Chief Information Officer in February 2000.

Jason P. Teter began serving as Vice President, Finance on January 1, 2017. Prior to that, he served as President, Southern and Gulf Coast Division from January 2015 to December 2016 and as Vice President – Business Development from October 2013 to December 2014. Before joining Vulcan, he was the Vice President and General Manager, Georgia Aggregates for Lafarge North America.

David P. Clement was named President, Central Division effective January 1, 2015. He served as Senior Vice President – Central Region from September 2013 through December 2014. During the five years prior to such role,  he served in a number of positions with Vulcan including Vice President and General Manager, Midwest Division and Vice President of Operations, Midwest Division.

C. Brockway (Brock) Lodge, Jr. was named President, Western Division in February 2016. He served as Vice President and General Manager, Western Division from April 2015 to February 2016. Before that, he was Senior Area General Manager – Central Division (June 2013 – March 2015) and Director of Sales and Marketing – Midsouth Division (April 2010 – May 2013).

 

 

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shareholder return performance presentation

Below is a graph comparing the performance of our common stock, with dividends reinvested, to that of the Standard & Poor’s 500 Stock Index (S&P 500) and the Materials and Services Sector of the Wilshire 5000 Index (Wilshire 5000 M&S) from December 31, 2012 to December 31, 2017. The Wilshire 5000 M&S is a market capitalization weighted sector containing public equities of firms in the Materials and Services sector, which includes our company and approximately 1,300 other companies.



  Picture 12









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

2012 

 

 

2013 

 

 

2014 

 

 

2015 

 

 

2016 

 

 

2017 

 

Comparative Total Return 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vulcan Materials Company

 

 

$     100.00 

 

 

$     114.20 

 

 

$     126.76 

 

 

$     183.93 

 

 

$     244.08 

 

 

$     252.38 

 

S&P 500

 

 

$     100.00 

 

 

$     132.40 

 

 

$     150.54 

 

 

$     152.65 

 

 

$     170.96 

 

 

$     208.23 

 

Wilshire 5000 M&S

 

 

$     100.00 

 

 

$     136.20 

 

 

$     147.50 

 

 

$     154.58 

 

 

$     172.21 

 

 

$     219.74 

 





 

1

Assumes an initial investment at December 31, 2012 of $100 in each stock/index, with quarterly reinvestment of dividends.

 

 

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INVESTOR INFORMATION

We make available on our website, www.vulcanmaterials.com, free of charge, copies of our: 

§

Annual Report on Form 10-K

§

Quarterly Reports on Form 10-Q

§

Current Reports on Form 8-K

Our website also includes amendments to those reports filed with or furnished to the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database (www.sec.gov).

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., General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.

We have a: 

§

Business Conduct Policy applicable to all employees and directors

§

Code of Ethics for the CEO and Senior Financial Officers

Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the heading "Corporate Governance." If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC.

Our Board of Directors has also adopted:

§

Corporate Governance Guidelines

§

Charters for our Audit, Compensation,  Executive, Finance, Governance and Safety, Health & Environmental Affairs Committees

These documents meet all applicable SEC and New York Stock Exchange (NYSE) regulatory requirements.

The Charters of the Audit, Compensation and Governance Committees are available on our website under the heading, "Corporate Governance," or you may request a copy of any of these documents by writing to Jerry F. Perkins Jr., General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.

Information included on our website is not incorporated into, or otherwise made a part of, this report.

CERTIFICATIONS AND ASSERTIONS

The certifications of our Chief Executive Officer and Chief Financial Officer made pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are included as exhibits to this Annual Report on Form 10-K. Additionally, on June 6, 2017 our Chief Executive Officer submitted to the NYSE the annual written affirmation required by the rules of the NYSE certifying that he was not aware of any violations of Vulcan Materials Company of NYSE corporate governance listing standards. 



 

 

 

 

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ITEM 1A 

RISK FACTORS



The following risks could materially and adversely affect our business,  financial condition and results of operations, and cause the trading price of our common stock to decline. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. You should also refer to the other information set forth in this Annual Report on Form 10-K, including Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial Statements and Supplementary Data.”

ECONOMIC/POLITICAL RISKS

Changes in legal requirements and governmental policies concerning zoning, land use, environmental and other areas of the law may result in additional liabilities, a reduction in operating hours and additional capital expenditures  — 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, we have an inherent risk of liability in the operation of our business. These potential liabilities could have an adverse impact on our operations and profitability. In addition, our operations are subject to environmental, zoning and land use requirements and require numerous governmental approvals and permits, which often require us to make significant capital and operating expenditures to comply with the applicable requirements. Stricter laws and regulations, or more stringent interpretations of existing laws or regulations, may impose new liabilities, taxes or tariffs on us, reduce operating hours, require additional investment by us in pollution control equipment, create restrictions on our products or impede our opening new or expanding existing plants or facilities.

Our business may be materially affected by changes to fiscal and tax policies —  The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. As explained in Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data,” we have included provisional adjustments in the financial statements for certain projected impacts of the legislation and no adjustments for certain other aspects. Our accounting for these items could be adjusted during the measurement period, which could be as late as December 2018.

Our business is dependent on the timing and amount of federal, state and local funding for infrastructure  Our products are used in a variety of public infrastructure projects that are funded and financed by federal, state and local governments. In 2017, three state legislatures in Vulcan-served areas — California, Tennessee and South Carolina — passed new long-term highway funding legislation. In 2016, three states saw one-time revenue increases for transportation and numerous ballot measures were passed to increase investment in several Vulcan-served areas including northern and southern California, Georgia, North Carolina and South Carolina.  The federal FAST Act, a five year, fully-funded road, bridge and public transportation authorization law, is providing assistance to state DOTs and metro areas. However, given varying state and local budgetary situations and the associated pressure on infrastructure spending, we cannot be entirely assured of the existence, amount and timing of appropriations for future public infrastructure projects.

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. Such legislation or regulation, if enacted, potentially could include provisions for a "cap and trade" system of allowances and credits or a carbon tax, among other provisions. 

Other potential impacts of climate change include physical impacts, such as disruption in production and product distribution due to impacts from major storm events, shifts in regional weather patterns and intensities, and potential impacts from sea level changes. There is also a potential for climate change legislation and regulation to adversely impact the cost of purchased energy and electricity. 

The impacts of climate change on our operations and the company overall are highly uncertain and difficult to estimate. However, climate change legislation and regulation concerning greenhouse gases could have a material adverse effect on our future financial position, results of operations or cash flows.

 

 

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We are subject to various risks arising from our international business operations and relationships, which could adversely affect our business  We have international operations and are subject to both the risks of conducting international business and the requirements of the Foreign Corrupt Practices Act of 1977 (the FCPA). We face political and other risks associated with our international operations, including our largest production facility located in Playa del Carmen, Mexico. These risks may include changes in international trade policies, such as the North American Free Trade Agreement, imposition of duties, taxes or government royalties, arbitrary changes to permits, zoning classifications or operating agreements, or overt acts by foreign governments. In addition, failure to comply with the FCPA may result in legal claims against us.

GROWTH AND COMPETITIVE RISKS

Within our local markets, we operate in a highly competitive industry which may negatively impact prices, volumes and costs —  The construction aggregates industry is highly fragmented with a large number of independent local producers in a number of our markets. Additionally, in most markets, we also compete against large private and public companies, some of which are significantly vertically integrated. Therefore, there is intense competition in a number of markets in which we operate. This significant competition could lead to lower prices and lower sales volumes in some markets, negatively affecting our earnings and cash flows.

The expanded use of aggregates substitutes could have a material adverse effect on our business, financial condition and results of operationsRecycled concrete and asphalt are increasingly being used in a number of our markets, particularly urban markets, as a substitute for aggregates. The expanded use of recycled concrete and asphalt could cause a significant reduction in the demand for aggregates.

Our long-term success depends upon securing and permitting aggregates reserves in strategically located areas. If we are unable to secure and permit such reserves it could negatively affect our future earnings  — 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 localized around our quarry sites and are served by truck. New quarry sites often take years to develop; therefore, 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 depends in part on acquiring other businesses in our industry and successfully integrating them with our existing operations. If we are unable to integrate acquisitions successfully, it could lead to higher costs and could negatively affect our earnings The expansion of our business is dependent in part on the acquisition of existing businesses that own or control aggregates reserves. Disruptions in the availability of financing could make it more difficult to capitalize on potential acquisitions. Additionally, with regard to the acquisitions (including Aggregates USA acquired in December 2017) we are able to complete, our future results will depend in part on our ability to successfully integrate these businesses with our existing operations.

FINANCIAL/ACCOUNTING RISKS

Our industry is capital intensive, resulting in significant fixed and semi-fixed costs. Therefore, our earnings are highly sensitive to changes in product shipments  — Due to the high levels of fixed capital required for extracting and producing construction aggregates, our profits are negatively affected by significant decreases in shipments.

Significant downturn in the construction industry may result in an impairment of our goodwill  We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. While we have not identified any events or changes in circumstances since our annual impairment test on November 1, 2017 that indicate the fair value of any of our reporting units is below its carrying value, a significant downturn in the construction industry may have a material effect on the fair value of our reporting units. A significant decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.

 

 

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A deterioration in our credit ratings and/or the state of the capital markets could negatively impact our business  We currently have $2.9 billion of debt with maturities between 2018 and 2047. Given our current credit metrics and ratings, together with other factors, we expect to refinance our nearer term debt maturities rather than repay them when due. Furthermore, we expect to finance acquisitions with a combination of cash flows from existing operations, additional debt and/or additional equity. The mix of financing sources for acquisitions will be situational dependent.

A deterioration in our credit ratings, regardless of the cause, could limit our debt financing options and increase the cost of such debt financing (whether for refinancing existing debt or financing acquisitions). While we do not anticipate a credit ratings downgrade, and plan to manage our capital structure consistent with investment-grade credit metrics, we cannot assure our current credit ratings.

A deterioration in the state of the capital markets, regardless of our credit rating, could impact our access to, and cost of, new debt or equity capital.

We use estimates in accounting for a number of significant items. Changes in our estimates could adversely 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 impairment

§

impairment of long-lived assets excluding goodwill

§

business combinations and purchase price allocation

§

pension and other postretirement benefits

§

environmental compliance costs

§

claims and litigation including self-insurance

§

income taxes

These assumptions and estimates could change significantly in the future and could adversely affect our financial position, results of operations, or cash flows.

PERSONNEL RISKS

Our future success greatly depends 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.

Disputes with organized labor could disrupt our business operations  Labor unions represent approximately 11% of our workforce. Disputes with our trade unions, or the inability to renew our labor agreements,  may lead to strikes or other actions that could disrupt our business operations leading to higher costs and/or reduced revenues resulting in lower earnings.

OTHER RISKS

We are dependent on information technology and our systems and infrastructure face certain risks, including cybersecurity risks and data leakage risks Any significant breakdown, invasion, destruction or interruption of our systems by employees, others with authorized access to our systems or unauthorized persons could negatively impact operations. There is also a risk that we could experience a business interruption, theft of information, or reputational damage, which could adversely affect our results of operations, as a result of a cyber-attack, such as an infiltration of a data center, or data leakage of confidential information either internally or at our third-party providers. While we have invested in the protection of our data and informational technology to reduce these risks and periodically test the security of our information systems network, there can be no assurance that our efforts will prevent breakdowns or breaches in our systems that could adversely affect our business. Management is not aware of a cybersecurity incident that has had a material impact on our operations.

Weather can materially affect our operating results  — Almost all of our products are consumed outdoors 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 because their work also can be hampered by weather. 

 

 

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Our products are transported by truck, rail, barge or ship, often 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. The 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, truck/railcar/barge shortages and capacity constraints. Additionally, inclement weather, including hurricanes, tornadoes and other weather events, can negatively impact our distribution network.

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, which could affect our operating results and profitability  — 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 that interrupt 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.

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 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."

Our construction paving business may subject us to contractually imposed penalties or lost profitsAs a result of a 2017 acquisition, we  operate a construction paving business in Tennessee. In some instances, including many of our fixed price paving contracts, we agree to complete a project by a certain date. If we fail to complete the project as scheduled, we may be held responsible for costs resulting from the delay. Consequently, the total project cost could exceed our original estimate and we could experience reduced profits or even a loss on the project.

We are involved in certain environmental matters. We cannot predict the outcome of these contingencies with certainty  We are involved in environmental investigations and cleanups at sites where we operate or have operated in the past or sent materials for recycling or disposal. 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 related to these matters may affect our assessment and estimates of 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 environmental matters see Note 12 “Commitments and Contingencies" in Item 8 "Financial Statements and Supplementary Data."

 

 

ITEM 1B

UNRESOLVED STAFF COMMENTS



We have not received any written comments from the Securities and Exchange Commission staff regarding our periodic or current reports under the Exchange Act of 1934 that remain unresolved.

 

 

Part I

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ITEM 2

PROPERTIES

AGGREGATES

As the largest U.S. supplier of construction aggregates, we have operating facilities across the U.S. and in Mexico and the Bahamas. We principally serve markets in 20 states, Washington D.C. 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 expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates.

Picture 20



Our current estimate of 16.0 billion tons of proven and probable aggregates reserves  reflects an increase of 0.5 billion tons from the prior year’s estimate.  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 quality of those reserves 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, grade and 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.

 

 

Part I

22

 


 

 

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 16.0 billion tons of estimated proven and probable aggregates reserves reported at the end of 2017 include reserves at inactive and greenfield (undeveloped) sites. The table below presents, by division, the tons of proven and probable aggregates reserves as of December 31, 2017 and the types of facilities operated.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

(millions of tons)

 

Number of Aggregates Operating Facilities  2

 



Aggregates Reserves

 

 

2017 

 

 

 

 

 

Sand and

 

 

 

 

Division 1

Proven

 

 

Probable

 

 

Total

 

 

Production

 

 

Stone

 

 

Gravel

 

 

Sales Yards

 

Central

2,942.2 

 

 

894.2 

 

 

3,836.4 

 

 

34.8 

 

 

58 

 

 

 

 

12 

 

International

566.8 

 

 

0.0 

 

 

566.8 

 

 

11.5 

 

 

 

 

 

 

 

Mideast

2,443.2 

 

 

1,003.7 

 

 

3,446.9 

 

 

35.3 

 

 

35 

 

 

 

 

23 

 

Mountain West

183.5 

 

 

126.6 

 

 

310.1 

 

 

7.6 

 

 

 

 

15 

 

 

 

Southeast 3

3,109.4 

 

 

871.5 

 

 

3,980.9 

 

 

41.5 

 

 

43 

 

 

13 

 

 

24 

 

Southern Gulf Coast

1,252.3 

 

 

30.3 

 

 

1,282.6 

 

 

13.2 

 

 

20 

 

 

 

 

23 

 

Southwest

1,229.5 

 

 

9.5 

 

 

1,239.0 

 

 

20.7 

 

 

15 

 

 

 

 

19 

 

Western

797.5 

 

 

503.7 

 

 

1,301.2 

 

 

20.4 

 

 

 

 

13 

 

 

 

Total

12,524.4 

 

 

3,439.5 

 

 

15,963.9 

 

 

185.0 

 

 

180 

 

 

54 

 

 

105 

 





 

1

The divisions are defined by states/countries as follows:

Central DivisionArkansas, Illinois, Kentucky and Tennessee

International Division  — Mexico

Mideast Division  — Delaware, Maryland, North Carolina, Pennsylvania, Virginia and Washington D.C.

Mountain West DivisionArizona and New Mexico

Southeast DivisionFlorida (excluding panhandle), Georgia, South Carolina and the Bahamas

Southern Gulf Coast DivisionAlabama, Florida Panhandle,  Louisiana and Mississippi

Southwest DivisionOklahoma and Texas

Western DivisionCalifornia

2

In addition to the facilities included in the table above, we operated 36 recycled concrete plants which are not dependent on reserves.

3

Includes a maximum of 352.0 million tons of reserves encumbered by volumetric production payments as defined in Note 1 "Summary of Significant Accounting Policies" in Item 8 "Financial Statements and Supplementary Data" under the caption Deferred Revenue.



Of the 16.0 billion tons of aggregates reserves at December 31, 2017,  8.9 billion tons or 56% are located on owned land and 7.1 billion tons or 44% are located on leased land.

 

 

Part I

23

 


 

 

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, other than Playa del Carmen, contributed more than 5% to our total revenues in 2017.



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

(millions of tons)

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Reserves at 12/31/2017

 

 

2017 

 

Location (nearest major metropolitan area)

 

Proven

 

 

Probable

 

 

Total

 

 

Production

 

Playa del Carmen (Cancun), Mexico

 

566.8 

 

 

0.0 

 

 

566.8 

 

 

11.5 

 

Hanover (Harrisburg), Pennsylvania

 

229.1 

 

 

236.4 

 

 

465.5 

 

 

2.8 

 

McCook (Chicago), Illinois

 

110.3 

 

 

266.5 

 

 

376.8 

 

 

4.0 

 

Corona (Los Angeles), California

 

15.0 

 

 

321.5 

 

 

336.5 

 

 

2.2 

 

Postell (Macon), Georgia

 

199.1 

 

 

72.3 

 

 

271.4 

 

 

5.0 

 

Gold Hill (Charlotte), North Carolina

 

149.7 

 

 

121.2 

 

 

270.9 

 

 

1.0 

 

DeKalb (Chicago), Illinois

 

108.1 

 

 

150.0 

 

 

258.1 

 

 

0.3 

 

San Emidio (Bakersfield), California

 

250.0 

 

 

0.0 

 

 

250.0 

 

 

1.3 

 

Macon, Georgia

 

121.0 

 

 

128.0 

 

 

249.0 

 

 

1.8 

 

Norcross (Atlanta), Georgia

 

189.7 

 

 

27.7 

 

 

217.4 

 

 

3.0 

 



ASPHALT, CONCRETE AND CALCIUM

As of December 31, 2017, we operated a number of facilities producing asphalt mix, ready-mixed concrete and calcium in several of our divisions as reflected in the table below:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asphalt 2

 

 

Concrete  3

 

 

Calcium 4

 

Division 1

 

Facilities

 

 

Facilities

 

 

Facilities

 

Central

 

10 

 

 

 

 

 

Mideast

 

 

 

32 

 

 

 

Mountain West

 

21 

 

 

 

 

 

Southeast

 

 

 

10 

 

 

 

Southwest

 

11 

 

 

 

 

 

Western

 

22 

 

 

 

 

 





 

1

International and Southern Gulf Coast Divisions have no asphalt, concrete or calcium facilities.

2

Central Division Asphalt is comprised of asphalt mix facilities and a construction paving business.

3

Southeast Division Concrete is comprised of ready-mixed concrete facilities and 1 block plant.

4

Comprised of a ground calcium plant.



The asphalt and concrete facilities are able to meet their needs for raw material inputs with a combination of internally sourced and purchased raw materials. Our Calcium segment operates a quarry at Brooksville, Florida which provides feedstock for the ground calcium operation.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(millions of tons)

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Reserves at 12/31/2017

 

 

2017 

 

Location

 

Proven

 

 

Probable

 

 

Total

 

 

Production

 

Brooksville

 

5.3 

 

 

7.1 

 

 

12.4 

 

 

0.3 

 



Our Brooksville limestone quarry is mined and processed primarily as a supplement for end-use products, such as animal feed and plastics. High purity limestone is inert and relatively inexpensive compared to the other components used in these end-use products. The Brooksville limestone quarry has an average calcium carbonate (CaCO3) content of 95%.





 

 

Part I

24

 


 

 

HEADQUARTERS

Our headquarters are located in an office complex in Birmingham, Alabama. The office space consists of approximately 184,410 square feet and is leased through December 31, 2023, with three five-year renewal periods thereafter. The annual rental cost for the current term of the lease is approximately $3.6 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.

We were not subject to any penalties in 2017 for failure to disclose transactions identified by the Internal Revenue Service as abusive under Internal Revenue Code Section 6707A.

See Note 12 "Commitments and Contingencies" in Item 8 "Financial Statements and Supplementary Data" for a discussion of our material legal proceedings.



ITEM 4

MINE SAFETY DISCLOSURES



The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.

 

 

 

 

 

Part I

25

 


 

 

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 13, 2018, the number of shareholders of record was 2,714. 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 2017 and 2016.





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



Common Stock Prices

 

 

Dividends

 



High

 

 

Low

 

 

Declared

 

2017

 

 

 

 

 

 

 

 

First quarter

$       136.82 

 

 

$       108.95 

 

 

$           0.25 

 

Second quarter

$       134.92 

 

 

$       116.26 

 

 

$           0.25 

 

Third quarter

$       130.12 

 

 

$       111.77 

 

 

$           0.25 

 

Fourth quarter

$       129.63 

 

 

$       115.01 

 

 

$           0.25 

 

2016

 

 

 

 

 

 

 

 

First quarter

$       106.78 

 

 

$         78.83 

 

 

$           0.20 

 

Second quarter

$       121.22 

 

 

$       104.61 

 

 

$           0.20 

 

Third quarter

$       127.20 

 

 

$       106.42 

 

 

$           0.20 

 

Fourth quarter

$       138.18 

 

 

$       105.71 

 

 

$           0.20 

 



The future payment of dividends is within the discretion of our Board of Directors and depends on our profitability, capital requirements, financial condition, business opportunities and other factors which our Board of Directors deems relevant. We are not a party to any contracts or agreements that currently materially limit our ability to pay dividends.

On February 9, 2018, our Board declared a dividend of 28 cents per share for the first quarter of 2018. This represents a 3 cent (12%) per share increase over the prior quarter.

ISSUER PURCHASES OF EQUITY SECURITIES

Purchases of our equity securities during the quarter ended December 31, 2017 are summarized below.



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Total Number

 

 

Maximum

 



 

 

 

 

 

 

of Shares

 

 

Number of

 



Total

 

 

 

 

 

Purchased as

 

 

Shares that May

 



Number of

 

 

Average

 

 

Part of Publicly

 

 

Yet Be Purchased

 



Shares

 

 

Price Paid

 

 

Announced Plans

 

 

Under the Plans

 

Period

Purchased

 

 

Per Share

 

 

or Programs

 

 

or Programs 1  

 

2017

 

 

 

 

 

 

 

 

 

 

 

Oct 1 - Oct 31

 

 

$          0.00 

 

 

 

 

9,489,717 

 

Nov 1 - Nov 30

 

 

$          0.00 

 

 

 

 

9,489,717 

 

Dec 1 - Dec 31

 

 

$          0.00 

 

 

 

 

9,489,717 

 

Total

 

 

$          0.00 

 

 

 

 

 

 





 

1

On February 10, 2006, our Board of Directors authorized us to purchase up to 10,000,000 shares of our common stock.  On February 10, 2017, there were 1,756,757 shares remaining under this authorization, and our Board of Directors authorized us to purchase an additional 8,243,243 shares to refresh the number of shares we are authorized to purchase to 10,000,000. As of December 31, 2017, there were 9,489,717 shares remaining under this authorization.  Depending upon market, business, legal and other conditions, we may purchase shares from time to time through the open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or through privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares, and may be suspended or discontinued at any time.



We did not have any unregistered sales of equity securities during the fourth quarter of 2017.

 

 

 

 

Part II

26

 


 

 

ITEM 6

SELECTED FINANCIAL DATA



The selected earnings data, per share data and balance sheet data for each of the five most recent years ended December 31 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."





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

2017 

 

 

2016 

 

 

2015 

 

 

2014 

 

 

2013 

 

As of and for the years ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in millions, except per share data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

3,890.3 

 

$

3,592.7 

 

$

3,422.2 

 

$

2,994.2 

 

$

2,770.7 

 

Gross profit

$

1,000.6 

 

$

1,000.8 

 

$

857.5 

 

$

587.6 

 

$

426.9 

 

Gross profit margin

 

25.7% 

 

 

27.9% 

 

 

25.1% 

 

 

19.6% 

 

 

15.4% 

 

Earnings from continuing operations 1

$

593.4 

 

$

422.4 

 

$

232.9 

 

$

207.1 

 

$

20.8 

 

Earnings (loss) on discontinued operations,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 net of tax 2

$

7.8 

 

$

(2.9)

 

$

(11.7)

 

$

(2.2)

 

$

3.6 

 

Net earnings

$

601.2 

 

$

419.5 

 

$

221.2 

 

$

204.9 

 

$

24.4 

 

Basic earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Continuing operations

$

4.48 

 

$

3.17 

 

$

1.75 

 

$

1.58 

 

$

0.16 

 

 Discontinued operations

 

0.06 

 

 

(0.02)

 

 

(0.09)

 

 

(0.02)

 

 

0.03 

 

Basic net earnings (loss) per share

$

4.54 

 

$

3.15 

 

$

1.66 

 

$

1.56 

 

$

0.19 

 

Diluted earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Continuing operations

$

4.40 

 

$

3.11 

 

$

1.72 

 

$

1.56 

 

$

0.16 

 

 Discontinued operations

 

0.06 

 

 

(0.02)

 

 

(0.08)

 

 

(0.02)

 

 

0.03 

 

Diluted net earnings (loss) per share

$

4.46 

 

$

3.09 

 

$

1.64 

 

$

1.54 

 

$

0.19 

 

Cash and cash equivalents

$

141.6 

 

$

259.0 

 

$

284.1 

 

$

141.3 

 

$

193.7 

 

Total assets

$

9,504.9 

 

$

8,471.5 

 

$

8,301.6 

 

$

8,041.1 

 

$

8,233.1 

 

Working capital

$

737.2 

 

$

764.9 

 

$

731.1 

 

$

468.6 

 

$

652.4 

 

Current maturities and short-term debt

$

41.4 

 

$

0.1 

 

$

0.1 

 

$

150.1 

 

$

0.2 

 

Long-term debt

$

2,813.5 

 

$

1,982.8 

 

$

1,980.3 

 

$

1,834.6 

 

$

2,496.2 

 

Equity

$

4,968.9 

 

$

4,572.5 

 

$

4,454.2 

 

$

4,176.7 

 

$

3,938.1 

 

Cash dividends declared per share

$

1.00 

 

$

0.80 

 

$

0.40 

 

$

0.22 

 

$

0.04 

 





 

1

Earnings from continuing operations for 2017 include pretax interest changes of $148.0 million referable to debt purchases and $297.0 million of discrete net tax benefits. Earnings from continuing operations for 2014 include a pretax gain of $211.4 million referable to the sale of our cement and concrete businesses in the Florida area.

2

Discontinued operations include the results attributable to our former Chemicals business.

 

 

 

 

 

 

Part II

27

 


 

 

 ITEM 7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



EXECUTIVE SUMMARY

FINANCIAL SUMMARY FOR 2017 (compared to 2016)

§

Total revenues increased $297.6 million, or 8%, to $3,890.3  million

§

Gross profit decreased $0.3 million to $1,000.6 million

§

Aggregates segment sales increased $134.3 million, or 5%, to $3,096.1 million

§

Aggregates segment freight-adjusted revenues increased $98.5 million, or 4%, to $2,392.7 million

§

Shipments increased 1%, or 1.8 million tons, to 183.2 million tons

§

Freight-adjusted sales price increased 3%, or $0.41 per ton

§

Segment gross profit decreased $13.1 million, or 2%, to $860.0 million

§

Segment gross profit margin was 27.8%, compared to 29.5%

§

Asphalt, Concrete and Calcium segment gross profit increased  $12.8 million, or 10%, to $140.5 million, collectively

§

Selling, administrative and general (SAG) expenses increased 3% to $323.9 million and decreased 0.45 percentage points (45 basis points) as a percentage of total revenues

§

Operating earnings decreased $32.5 million, or 5%, to $647.1 million

§

Earnings from continuing operations were $593.4 million, or $4.40 per diluted share, compared to $422.4 million, or $3.11 per diluted share

§

Discrete items in 2017 include:

§

$297.0 million of net tax benefits (including $268.2 million related to the Tax Cuts and Jobs Act (TCJA) and a  $28.8 million partial release of a net operating loss (NOL) carryforward valuation allowance)

§

pretax interest charges of $153.1 million related to the July and December debt purchases ($148.0 million) and carried interest on the March debt issuance ($5.1 million)

§

pretax gains of $10.5 million for the sale of real estate and businesses

§

pretax charges of $4.3 million for property donation

§

pretax charges of $18.1 million for divested operations

§

pretax charges of $6.7 million for one-time employee bonuses

§

pretax charges of $3.1 million associated with business development,  net of an asset purchase agreement termination fee

§

pretax charges of $1.9 million for restructuring

§

Discrete items in 2016 include:

§

$11.3 million of tax benefits

§

pretax gains of $16.2 million on the sale of real estate

§

pretax gains of $11.0 million for business interruption claims

§

pretax charges of $16.9 million for divested operations

§

pretax losses of $10.5 million from asset impairment

§

Net earnings were $601.2 million, an  increase of $181.7 million, or 43%

§

Adjusted EBITDA was $981.9 million, an  increase of $15.9 million, or 2%

§

Returned  capital to shareholders via dividends ($132.3 million versus $106.3 million) and share repurchases ($60.3 million versus $161.5 million)



2017 results were negatively impacted by