Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Vulcan Materials Company:

We have audited the accompanying consolidated balance sheets of Vulcan Materials Company and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vulcan Materials Company and its subsidiary companies as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2017 expressed an unqualified opinion on the Company's internal control over financial reporting.

Birmingham, Alabama

February 24, 2017

Part II	61

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	2016			2015			2014
For the years ended December 31
in thousands, except per share data
Total revenues	$ 3,592,667			$ 3,422,181			$ 2,994,169
Cost of revenues	2,591,850			2,564,648			2,406,587
Gross profit	1,000,817			857,533			587,582
Selling, administrative and general expenses	314,986			286,844			272,288
Gain on sale of property, plant & equipment and businesses	15,431			9,927			244,222
Business interruption claims recovery	11,652			0			0
Impairment of long-lived assets	(10,506)			(5,190)			(3,095)
Other operating expense, net	(22,826)			(25,648)			(18,283)
Operating earnings	679,582			549,778			538,138
Other nonoperating income (expense), net	944			(1,678)			3,107
Interest income	807			345			960
Interest expense	134,076			220,588			243,367
Earnings from continuing operations before income taxes	547,257			327,857			298,838
Income tax expense
Current	94,254			89,340			74,039
Deferred	30,597			5,603			17,653
Total income tax expense	124,851			94,943			91,692
Earnings from continuing operations	422,406			232,914			207,146
Loss on discontinued operations, net of tax (Note 2)	(2,915)			(11,737)			(2,223)
Net earnings	$ 419,491			$ 221,177			$ 204,923
Other comprehensive income (loss), net of tax
Reclassification adjustment for cash flow hedges	1,194			5,828			4,856
Adjustment for funded status of benefit plans	(20,583)			23,832			(69,051)
Amortization of actuarial loss and prior service cost for benefit plans	82			11,985			2,112
Other comprehensive income (loss)	(19,307)			41,645			(62,083)
Comprehensive income	$ 400,184			$ 262,822			$ 142,840
Basic earnings (loss) per share
Continuing operations	$ 3.17			$ 1.75			$ 1.58
Discontinued operations	(0.02)			(0.09)			(0.02)
Net earnings	$ 3.15			$ 1.66			$ 1.56
Diluted earnings (loss) per share
Continuing operations	$ 3.11			$ 1.72			$ 1.56
Discontinued operations	(0.02)			(0.08)			(0.02)
Net earnings	$ 3.09			$ 1.64			$ 1.54
Weighted-average common shares outstanding
Basic	133,205			133,210			131,461
Assuming dilution	135,790			135,093			132,991
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Part II	62

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

	2016			2015
As of December 31
in thousands
Assets
Cash and cash equivalents	$ 258,986			$ 284,060
Restricted cash	9,033			1,150
Accounts and notes receivable
Customers, less allowance for doubtful accounts
2016 — $2,813; 2015 — $5,576	398,488			397,287
Other	93,333			20,737
Inventories	345,616			347,073
Prepaid expenses	31,726			34,284
Total current assets	1,137,182			1,084,591
Investments and long-term receivables	39,226			40,558
Property, plant & equipment, net	3,261,438			3,156,290
Goodwill	3,094,824			3,094,824
Other intangible assets, net	769,052			766,579
Other noncurrent assets	169,753			158,790
Total assets	$ 8,471,475			$ 8,301,632
Liabilities
Current maturities of long-term debt	138			130
Trade payables and accruals	145,042			175,729
Accrued salaries, wages and management incentives	91,455			91,440
Accrued interest	9,751			9,752
Other current liabilities	125,858			76,428
Total current liabilities	372,244			353,479
Long-term debt	1,982,751			1,980,334
Deferred income taxes, net	702,854			681,096
Deferred management incentive and other compensation	19,698			15,980
Pension benefits	247,784			233,661
Other postretirement benefits	39,533			42,318
Asset retirement obligations	223,872			226,594
Deferred revenue	198,388			207,660
Other noncurrent liabilities	111,875			106,322
Total liabilities	$ 3,898,999			$ 3,847,444
Other commitments and contingencies (Note 12)
Equity
Common stock, $1 par value — Authorized 480,000 shares,
Outstanding 132,339 and 133,172 shares, respectively	132,339			133,172
Capital in excess of par value	2,807,995			2,822,578
Retained earnings	1,771,518			1,618,507
Accumulated other comprehensive loss	(139,376)			(120,069)
Total equity	4,572,476			4,454,188
Total liabilities and equity	$ 8,471,475			$ 8,301,632
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Part II	63

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	2016			2015			2014
For the years ended December 31
in thousands
Operating Activities
Net earnings	$ 419,491			$ 221,177			$ 204,923
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, depletion, accretion and amortization	284,940			274,823			279,497
Net gain on sale of property, plant & equipment and businesses	(15,431)			(9,927)			(244,222)
Contributions to pension plans	(9,576)			(14,047)			(5,488)
Share-based compensation expense	20,670			18,248			23,884
Excess tax benefits from share-based compensation	0			(18,376)			(3,464)
Deferred tax expense (benefit)	33,591			3,069			18,378
Cost of debt purchase	0			67,075			72,949
(Increase) decrease in assets excluding the initial effects of business
acquisitions and dispositions
Accounts and notes receivable	(72,763)			(42,164)			(25,118)
Inventories	1,625			(20,925)			(5,595)
Prepaid expenses	2,558			(5,288)			(6,256)
Other assets	(18,236)			34,863			(13,930)
Increase (decrease) in liabilities excluding the initial effects of business
acquisitions and dispositions
Accrued interest and income taxes	(7,187)			26,605			(3,840)
Trade payables and other accruals	30,353			26,491			4,229
Other noncurrent liabilities	(29,138)			(42,702)			(42,810)
Other, net	3,691			616			7,870
Net cash provided by operating activities	$ 644,588			$ 519,538			$ 261,007
Investing Activities
Purchases of property, plant & equipment	(350,148)			(289,262)			(224,852)
Proceeds from sale of property, plant & equipment	23,318			8,218			26,028
Proceeds from sale of businesses, net of transaction costs	0			0			721,359
Payment for businesses acquired, net of acquired cash	(32,537)			(27,198)			(284,237)
Increase in restricted cash	(7,883)			(1,150)			0
Other, net	2,173			(350)			33
Net cash provided by (used for) investing activities	$ (365,077)			$ (309,742)			$ 238,331
Financing Activities
Proceeds from line of credit	3,000			441,000			93,000
Payment of line of credit	(3,000)			(206,000)			(93,000)
Payment of current maturities and long-term debt	(130)			(695,060)			(579,829)
Proceeds from issuance of long-term debt	0			400,000			0
Debt and line of credit issuance costs	(1,860)			(7,382)			0
Purchases of common stock	(161,463)			(21,475)			0
Proceeds from issuance of common stock	0			0			30,620
Dividends paid	(106,333)			(53,214)			(28,884)
Proceeds from exercise of stock options	0			72,971			23,502
Share-based compensation, shares withheld for taxes	(34,797)			(16,160)			(671)
Excess tax benefits from share-based compensation	0			18,376			3,464
Other, net	(2)			(65)			(5)
Net cash used for financing activities	$ (304,585)			$ (67,009)			$ (551,803)
Net increase (decrease) in cash and cash equivalents	(25,074)			142,787			(52,465)
Cash and cash equivalents at beginning of year	284,060			141,273			193,738
Cash and cash equivalents at end of year	$ 258,986			$ 284,060			$ 141,273
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Part II	64

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF EQUITY

										Accumulated
						Capital in				Other
	Common Stock					Excess of		Retained		Comprehensive
in thousands	Shares		Amount			Par Value		Earnings		Income (Loss)		Total
Balances at December 31, 2013	130,200		$ 130,200			$ 2,611,703		$ 1,295,834		$ (99,631)		$ 3,938,106
Net earnings	0		0			0		204,923		0		204,923
Common stock issued
Acquisitions	715		715			44,470		0		0		45,185
401(k) Trustee (Note 13)	485		485			30,135		0		0		30,620
Share-based compensation plans, net of
shares withheld for taxes	507		507			20,982		0		0		21,489
Share-based compensation expense	0		0			23,884		0		0		23,884
Excess tax benefits from
share-based compensation	0		0			3,464		0		0		3,464
Cash dividends on common stock
($0.22 per share)	0		0			0		(28,884)		0		(28,884)
Other comprehensive loss	0		0			0		0		(62,083)		(62,083)
Other	0		0			23		(28)		0		(5)
Balances at December 31, 2014	131,907		$ 131,907			$ 2,734,661		$ 1,471,845		$ (161,714)		$ 4,176,699
Net earnings	0		0			0		221,177		0		221,177
Share-based compensation plans, net of
shares withheld for taxes	1,493		1,493			51,240		0		0		52,733
Purchase and retirement of
common stock	(228)		(228)			0		(21,247)		0		(21,475)
Share-based compensation expense	0		0			18,248		0		0		18,248
Excess tax benefits from
share-based compensation	0		0			18,376		0		0		18,376
Cash dividends on common stock
($0.40 per share)	0		0			0		(53,214)		0		(53,214)
Other comprehensive income	0		0			0		0		41,645		41,645
Other	0		0			53		(54)		0		(1)
Balances at December 31, 2015	133,172		$ 133,172			$ 2,822,578		$ 1,618,507		$ (120,069)		$ 4,454,188
Net earnings	0		0			0		419,491		0		419,491
Share-based compensation plans, net of
shares withheld for taxes	594		594			(35,363)		0		0		(34,769)
Purchase and retirement of
common stock	(1,427)		(1,427)			0		(160,036)		0		(161,463)
Share-based compensation expense	0		0			20,670		0		0		20,670
Cash dividends on common stock
($0.80 per share)	0		0			0		(106,333)		0		(106,333)
Other comprehensive loss	0		0			0		0		(19,307)		(19,307)
Other	0		0			110		(111)		0		(1)
Balances at December 31, 2016	132,339		$ 132,339			$ 2,807,995		$ 1,771,518		$ (139,376)		$ 4,572,476
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Part II	65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

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

We serve markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico and the Bahamas. Our primary focus is serving states in metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates. While aggregates is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our mid-Atlantic, Georgia, Southwestern and Western markets.

Due to the 2005 sale of our Chemicals business as described in Note 2, the results of the Chemicals business are presented as discontinued operations in the accompanying Consolidated Statements of Comprehensive Income.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Vulcan Materials Company and all our majority or wholly-owned subsidiary companies. All intercompany transactions and accounts have been eliminated in consolidation.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of these financial statements in conformity with accounting principles generally accepted (GAAP) in the United States of America requires us to make estimates and judgments that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ materially from these estimates. The most significant estimates included in the preparation of these financial statements are related to goodwill and long-lived asset impairments, pension and other postretirement benefits, environmental compliance, claims and litigation including self-insurance, and income taxes.

BUSINESS COMBINATIONS

We account for business combinations under the acquisition method of accounting. The total cost of acquisitions is allocated to the underlying identifiable assets acquired and liabilities assumed based on their respective fair values. Determining the fair values of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions.

FOREIGN CURRENCY TRANSACTIONS

The U.S. dollar is the functional currency for all of our operations. For our non-U.S. subsidiaries, local currency inventories and long-term assets such as property, plant & equipment and intangibles are remeasured into U.S. dollars at approximate rates prevailing when acquired; all other assets and liabilities are remeasured at year-end exchange rates. Inventories charged to cost of sales and depreciation are remeasured at historical rates; all other income and expense items are remeasured at average exchange rates prevailing during the year. Gains and losses which result from remeasurement are included in earnings and are not material for the years presented.

Part II	66

CASH EQUIVALENTS

We classify as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. The carrying amount of these securities approximates fair value due to their short-term maturities.

RESTRICTED CASH

Restricted cash consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Pursuant to the like-kind exchange agreements, the cash remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Changes in restricted cash balances are reflected as an investment activity in the accompanying Consolidated Statements of Cash Flows.

ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable from customers result from our extending credit to trade customers for the purchase of our products. The terms generally provide for payment within 30 days of being invoiced. On occasion, when necessary to conform to regional industry practices, we sell product under extended payment terms, which may result in either secured or unsecured short-term notes; or, on occasion, notes with durations of less than one year are taken in settlement of existing accounts receivable. Other accounts and notes receivable result from short-term transactions (less than one year) other than the sale of our products, such as interest receivable; insurance claims; freight claims; tax refund claims; bid deposits or rents receivable. Receivables are aged and appropriate allowances for doubtful accounts and bad debt expense are recorded. Bad debt expense (income) for the years ended December 31 was as follows: 2016 — $(1,190,000), 2015 — $1,450,000 and 2014 — $2,031,000. Write-offs of accounts receivables for the years ended December 31 were as follows: 2016 — $1,544,000, 2015 — $1,483,000 and 2014 — $2,561,000. The bad debt income in 2016 relates to the collection of previously reserved receivables primarily attributable to the 2014 sale of our Florida area concrete and cement businesses.

INVENTORIES

Inventories and supplies are stated at the lower of cost or market. We use the last-in, first-out (LIFO) method of valuation for most of our inventories because it results in a better matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct labor and production overhead. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating supplies inventory is carried at average cost. For additional information about our inventories see Note 3.

PROPERTY, PLANT & EQUIPMENT

Property, plant & equipment are carried at cost less accumulated depreciation, depletion and amortization. The cost of properties held under capital leases, if any, is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease.

Capitalized software costs of $4,732,000 and $7,003,000 are reflected in net property, plant & equipment as of December 31, 2016 and 2015, respectively. We capitalized software costs for the years ended December 31 as follows: 2016 — $152,000, 2015 — $1,482,000 and 2014 — $921,000.

For additional information about our property, plant & equipment see Note 4.

REPAIR AND MAINTENANCE

Repair and maintenance costs generally are charged to operating expense as incurred. Renewals and betterments that add materially to the utility or useful lives of property, plant & equipment are capitalized and subsequently depreciated. Actual costs for planned major maintenance activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and amortized to the next overhaul.

Part II	67

DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION

Depreciation is generally computed by the straight-line method at rates based on the estimated service lives of the various classes of assets, which include machinery and equipment (3 to 25 years), buildings (7 to 20 years) and land improvements (8 to 20 years). Capitalized software costs are included in machinery and equipment and are depreciated on a straight-line basis beginning when the software project is substantially complete.

Cost depletion on depletable land is computed by the unit-of-production method based on estimated recoverable units.

Accretion reflects the period-to-period increase in the carrying amount of the liability for asset retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to initially measure the liability at fair value.

Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated useful lives.

Amortization of intangible assets subject to amortization is computed based on the estimated life of the intangible assets. A significant portion of our intangible assets is contractual rights in place associated with zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.

Depreciation, depletion, accretion and amortization expense for the years ended December 31 is outlined below:

in thousands	2016			2015			2014
Depreciation, Depletion, Accretion and Amortization
Depreciation	$ 238,237			$ 228,866			$ 239,611
Depletion	17,812			18,177			16,741
Accretion	11,059			11,474			11,601
Amortization of leaseholds	267			688			578
Amortization of intangibles	17,565			15,618			10,966
Total	$ 284,940			$ 274,823			$ 279,497

DERIVATIVE INSTRUMENTS

We periodically use derivative instruments to manage our mix of fixed-rate and floating-rate debt and to manage our exposure to currency exchange risk or price fluctuations on commodity energy sources consistent with our risk management policies. We do not use derivative financial instruments for speculative or trading purposes. Additional disclosures about our derivative instruments are presented in Note 5.

Part II	68

FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:

Level 1: Quoted prices in active markets for identical assets or liabilities Level 2: Inputs that are derived principally from or corroborated by observable market data Level 3: Inputs that are unobservable and significant to the overall fair value measurement

Our assets at December 31 subject to fair value measurement on a recurring basis are summarized below:

			Level 1 Fair Value
in thousands			2016			2015
Fair Value Recurring
Rabbi Trust
Mutual funds			$ 6,883			$ 11,472
Equities			10,033			8,992
Total			$ 16,916			$ 20,464

			Level 2 Fair Value
in thousands			2016			2015
Fair Value Recurring
Rabbi Trust
Money market mutual fund			$ 1,705			$ 2,124
Total			$ 1,705			$ 2,124

We have two Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds and equity securities for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in the fund (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).

Net gains (losses) of the Rabbi Trusts’ investments were $2,741,000, $(1,517,000) and $1,169,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at December 31, 2016, 2015 and 2014 were $1,599,000, $(1,769,000) and $(1,049,000), respectively.

The 2016 decrease of $3,967,000 in total Rabbi Trust asset fair values is primarily due to several retired executives receiving distributions from the nonqualified retirement and deferred compensation plans.

The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and all other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 5 and 6, respectively.

Assets subject to fair value measurement on a nonrecurring basis in 2016 and 2015 are summarized below:

			Year ending December 31, 2016						Year ending December 31, 2015
						Impairment						Impairment
in thousands			Level 2			Charges			Level 2			Charges
Fair Value Nonrecurring
Property, plant & equipment			$ 0			$ 1,359			$ 0			$ 2,176
Other intangible assets, net			0			8,180			0			2,858
Other assets			0			967			0			156
Totals			$ 0			$ 10,506			$ 0			$ 5,190

Part II	69

We recorded $10,506,000 and $5,190,000 of losses on impairment of long-lived assets in 2016 and 2015, respectively, reducing the carrying value of these Aggregates segment assets to their estimated fair values of $0 and $0. Fair value was estimated using a market approach (observed transactions involving comparable assets in similar locations).

GOODWILL IMPAIRMENT

Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. As of December 31, 2016, goodwill totaled $3,094,824,000, the same as at December 31, 2015. Goodwill represents 37% of total assets at December 31, 2016, the same as at December 31, 2015.

Goodwill is tested for impairment annually, as of November 1, or more frequently whenever events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Goodwill is tested for impairment at the reporting unit level, one level below our operating segments. We have four operating segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. Within these four operating segments, we have identified 18 reporting units (of which 9 carry goodwill) based primarily on geographic location. We have the option of either assessing qualitative factors to determine whether it is more likely than not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to a two-step quantitative test. We elected to perform the quantitative impairment test for all years presented.

The first step of the quantitative impairment test identifies potential impairment by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step of the impairment test is not required. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss, if any.

The second step of the quantitative impairment test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by hypothetically allocating the fair value of the reporting unit to its identifiable assets and liabilities in a manner consistent with a business combination, with any excess fair value representing implied goodwill. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The results of the first step of the annual impairment tests performed as of November 1, 2016, 2015 and 2014 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values. Accordingly, there were no charges for goodwill impairment in the years ended December 31, 2016, 2015 or 2014.

We estimate the fair values of the reporting units using both an income approach (which involves discounting estimated future cash flows) and a market approach (which involves the application of revenue and EBITDA multiples of comparable companies). Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty and actual results may differ. Changes in key assumptions or management judgment with respect to a reporting unit or its prospects, which may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or underperformance relative to historical or projected operating results, could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.

For additional information about goodwill see Note 18.

IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL

We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, we recognize a loss equal to the amount by which the carrying value exceeds the fair value. Fair value is determined primarily by using a discounted cash flow methodology that requires considerable judgment and assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.

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We test long-lived assets for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets. As a result, our long-lived asset impairment test is at a significantly lower level than the level at which we test goodwill for impairment. In markets where we do not produce downstream products (e.g., asphalt mix and ready-mixed concrete), the lowest level of largely independent identifiable cash flows is at the individual aggregates operation or a group of aggregates operations collectively serving a local market. Conversely, in vertically integrated markets, the cash flows of our downstream and upstream businesses are not largely independently identifiable as the selling price of the upstream products (aggregates) determines the profitability of the downstream business.

As of December 31, 2016, net property, plant & equipment represents 39% of total assets, while net other intangible assets represents 9% of total assets. During 2016, we recorded a $10,506,000 loss on impairment of long-lived assets resulting from the termination of a nonstrategic aggregates lease and the write off of nonrecoverable project costs related to two Aggregates segment capital projects that we no longer intend to complete. During 2015, we recorded a $5,190,000 impairment loss related to exiting a lease for an aggregates site. During 2014, we recorded a $3,095,000 impairment loss related primarily to assets retained in the divestiture of our cement and concrete businesses in the Florida area (see Note 19).

For additional information about long-lived assets and intangible assets see Notes 4 and 18.

TOTAL REVENUES AND REVENUE RECOGNITION

Total revenues include sales of product to customers, net of any discounts and taxes, and freight and delivery revenues billed to customers. Freight and delivery generally represents pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers. The cost related to freight and delivery is included in cost of revenues.

Revenue is recognized at the time the selling price is fixed, the product's title is transferred to the buyer and collectibility of the sales proceeds is reasonably assured (typically occurs when finished products are shipped to the customer).

SALES TAXES

Sales taxes collected from customers are recorded as liabilities (within other current liabilities) until remitted to taxing authorities and therefore, are not reflected in the Consolidated Statements of Comprehensive Income.

DEFERRED REVENUE

In 2013 and 2012, we sold a percentage interest in future production structured as volumetric production payments (VPPs).

The VPPs:

	§		relate to eight quarries in Georgia and South Carolina

	§		provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future production from aggregates reserves

	§		are both time and volume limited

	§		contain no minimum annual or cumulative production or sales volume, nor minimum sales price

Our consolidated total revenues excludes the sales of aggregates owned by the VPP purchaser.

We received net cash proceeds from the sale of the VPPs of $153,282,000 and $73,644,000 for the 2013 and 2012 transactions, respectively. These proceeds were recorded as deferred revenue on the balance sheet and are amortized to revenue on a unit-of-sales basis over the terms of the VPPs (expected to be approximately 25 years, limited by volume rather than time).

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Reconciliation of the deferred revenue balances (current and noncurrent) is as follows:

in thousands	2016			2015			2014
Deferred Revenue
Balance at beginning of year	$ 214,060			$ 219,968			$ 224,743
Cash received and revenue deferred	0			0			187
Amortization of deferred revenue	(7,592)			(5,908)			(4,962)
Balance at end of year	$ 206,468			$ 214,060			$ 219,968

Based on expected sales from the specified quarries, we expect to recognize approximately $8,080,000 of deferred revenue as income in 2017 (reflected in other current liabilities in our 2016 Consolidated Balance Sheet).

STRIPPING COSTS

In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.

Stripping costs incurred during the production phase are considered costs of extracted minerals under our inventory costing system, inventoried, and recognized in cost of sales in the same period as the revenue from the sale of the inventory. The production stage is deemed to begin when the activities, including removal of overburden and waste material that may contain incidental saleable material, required to access the saleable product are complete. Stripping costs considered as production costs and included in the costs of inventory produced were $55,987,000 in 2016, $50,409,000 in 2015 and $44,896,000 in 2014.

Conversely, stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from our inventory cost. Pre-production stripping costs are capitalized and reported within other noncurrent assets in our accompanying Consolidated Balance Sheets. Capitalized pre-production stripping costs are expensed over the productive life of the mine using the unit-of-production method. Pre-production stripping costs included in other noncurrent assets were $70,227,000 as of December 31, 2016 and $61,369,000 as of December 31, 2015. This year-over-year increase resulted primarily from the removal of overburden at a greenfield site in California.

SHARE-BASED COMPENSATION

We account for share-based compensation awards using fair-value-based measurement methods. These result in the recognition of compensation expense for all share-based compensation awards (less an estimate for forfeited awards) based on their fair value as of the grant date. Compensation cost is recognized over the requisite service period.

A summary of the estimated future compensation cost (unrecognized compensation expense) as of December 31, 2016 related to share-based awards granted to employees under our long-term incentive plans is presented below:

		Unrecognized			Expected
		Compensation			Weighted-average
dollars in thousands		Expense			Recognition (Years)
Share-based Compensation
SOSARs 1		$ 4,899			1.8
Performance shares		20,965			2.4
Restricted shares		4,925			2.6
Total/weighted-average		$ 30,789			2.3

1	Stock-Only Stock Appreciation Rights (SOSARs)

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Pretax compensation expense related to our employee share-based compensation awards and related income tax benefits for the years ended December 31 are summarized below:

in thousands	2016			2015			2014
Employee Share-based Compensation Awards
Pretax compensation expense	$ 17,823			$ 16,362			$ 22,217
Income tax benefits	6,925			6,347			8,571

EARLY ADOPTION OF ASU 2016-09 We receive an income tax deduction for share-based compensation equal to the excess of the market value of our common stock on the date of exercise or issuance over the exercise price. Upon our early adoption of Accounting Standards Update (ASU) 2016-09, tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are reflected as discrete income tax benefits in the period of exercise or issuance. Before the adoption of this standard, excess tax benefits were recorded directly to equity (APIC). Net excess tax benefits of $24,847,000 are reflected as a reduction to our income tax expense for 2016 (see Note 9). Gross excess tax benefits of $28,009,000 are classified as operating cash flows prospectively beginning in 2016 while gross excess tax benefits for 2015 and 2014 of $18,376,000 and $3,464,000, respectively, are reflected as financing cash flows. Upon the adoption of this ASU, we revised our dilutive share calculation to exclude the assumption that proceeds from excess tax benefits would be used to purchase shares, resulting in an increase in dilutive shares as of December 31, 2016 of 773,101.

ASU 2016-09 requires that the cash paid for shares withheld to satisfy statutory income tax withholding obligations be classified as a financing activity in the statement of cash flows. As a result, we revised our accompanying Statements of Cash Flows for prior years to conform to the 2016 presentation as follows: 2015 — increased operating cash flows $16,160,000 with a corresponding decrease in financing cash flows, and 2014 — increased operating cash flows $671,000 with a corresponding decrease in financing cash flows.

For additional information about share-based compensation, see Note 11 under the caption Share-based Compensation Plans.

RECLAMATION COSTS

Reclamation costs resulting from normal use of long-lived assets are recognized over the period the asset is in use when there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from normal use under a mineral lease are recognized over the lease term when there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.

To determine the fair value of the obligation, we estimate the cost (including a reasonable profit margin) for a third party to perform the legally required reclamation tasks. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.

In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.

We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.

The carrying value of these obligations was $223,872,000 as of December 31, 2016 and $226,594,000 as of December 31, 2015. For additional information about reclamation obligations (referred to in our financial statements as asset retirement obligations) see Note 17.

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PENSION AND OTHER POSTRETIREMENT BENEFITS

Accounting for pension and postretirement benefits requires that we make significant assumptions about the valuation of benefit obligations and the performance of plan assets. The primary assumptions are as follows:

	§		Discount Rate — The discount rate is used in calculating the present value of projected benefit payments

	§		Expected Return on Plan Assets — The expected future return on plan assets reduces the recorded net benefit costs

	§		Rate of Compensation Increase — Annual pay increases after 2015 will not increase our pension plan obligations as a result of a 2013 plan amendment

	§		Rate of Increase in the Per Capita Cost of Covered Healthcare Benefits — Increases in the per capita cost after 2015 will not increase our postretirement medical benefits obligation as a result of a 2012 plan amendment

Accounting standards provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of actual results allows for a smoothed recognition in earnings of changes in benefit obligations and asset performance. The differences between actual results and expected or estimated results are recognized in full in other comprehensive income. Amounts recognized in other comprehensive income are reclassified to earnings in a systematic manner over the average remaining service period of participants for our active plans or the average remaining lifetime of participants for our inactive plans.

For additional information about pension and other postretirement benefits see Note 10.

ENVIRONMENTAL COMPLIANCE

Our environmental compliance costs are undiscounted and include the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. We accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost. At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of various factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur, but generally liabilities are recognized no later than completion of the remedial feasibility study.

When we can estimate a range of probable loss, we accrue the most likely amount. If no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2016, the spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $3,341,000 — this amount does not represent our maximum exposure to loss for all environmental remediation obligations as it excludes those sites for which a range of loss cannot be reasonably estimated at this time. Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates and key assumptions in response to new information, such as the kinds and quantities of hazardous substances, available technologies and changes to the parties participating in the remediation efforts. However, a number of factors, including adverse agency rulings and encountering unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.

For additional information about environmental compliance costs see Note 8.

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CLAIMS AND LITIGATION INCLUDING SELF-INSURANCE

We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers' compensation up to $2,000,000 per occurrence and automotive and general/product liability up to $3,000,000 per occurrence. We have excess coverage on a per occurrence basis beyond these retention levels.

Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. For matters not included in our actuarial studies, legal defense costs are accrued when incurred. The following table outlines our self-insurance program at December 31:

dollars in thousands	2016			2015
Self-insurance Program
Self-insured liabilities (undiscounted)	$ 49,310			$ 44,618
Insured liabilities (undiscounted)	72,644			16,787
Discount rate	1.40%			1.44%
Amounts Recognized in Consolidated
Balance Sheets
Other accounts and notes receivable	$ 67,631			$ 0
Investments and long-term receivables	16,133			15,810
Other current liabilities	(69,549)			(14,198)
Other noncurrent liabilities	(49,074)			(44,102)
Net liabilities (discounted)	$ (34,859)			$ (42,490)

The increase in liabilities and the offsetting increase in receivables as noted above relate primarily to a former Chemicals business litigation matter as discussed in Note 12.

Estimated payments (undiscounted and excluding the impact of related receivables) under our self-insurance program for the five years subsequent to December 31, 2016 are as follows:

in thousands
Estimated Payments under Self-insurance Program
2017	$ 74,027
2018	13,599
2019	8,767
2020	5,461
2021	3,716

Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.

INCOME TAXES

We file federal, state and foreign income tax returns and account for the current and deferred tax effects of such returns using the asset and liability method. We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the book basis and tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns.

Significant judgments and estimates are required in determining our deferred tax assets and liabilities. These estimates are updated throughout the year to consider income tax return filings, our geographic mix of earnings, legislative changes and other relevant items.

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Each quarter we analyze the likelihood that our deferred tax assets will be realized. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized. A summary of our deferred tax assets is included in Note 9.

U.S. income taxes are not provided on foreign earnings when such earnings are indefinitely reinvested offshore. At least annually, we evaluate our investment strategies for each foreign tax jurisdiction in which we operate to determine whether foreign earnings will be indefinitely reinvested offshore.

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

The years open to tax examinations vary by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is appropriate.

We consider a tax position to be resolved at the earlier of the issue being “effectively settled,” settlement of an examination, or the expiration of the statute of limitations. Upon resolution of a tax position, any liability for unrecognized tax benefits will be released.

Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties associated with our liability for unrecognized tax benefits as income tax expense.

Our largest permanent item in computing both our taxable income and effective tax rate is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9. The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.

COMPREHENSIVE INCOME

We report comprehensive income in our Consolidated Statements of Comprehensive Income and Consolidated Statements of Equity. Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). OCI includes fair value adjustments to cash flow hedges, actuarial gains or losses and prior service costs related to pension and postretirement benefit plans.

For additional information about comprehensive income see Note 14.

EARNINGS PER SHARE (EPS)

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

in thousands	2016			2015			2014
Weighted-average common shares outstanding	133,205			133,210			131,461
Dilutive effect of
Stock options/SOSARs	1,339			1,027			656
Other stock compensation plans	1,246			856			874
Weighted-average common shares outstanding,
assuming dilution	135,790			135,093			132,991

All dilutive common stock equivalents are reflected in our earnings per share calculations. Antidilutive common stock equivalents are not included in our earnings per share calculations.

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The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price for the years ended December 31 is as follows:

in thousands	2016			2015			2014
Antidilutive common stock equivalents	97			544			2,352

RECLASSIFICATIONS

Certain items previously reported in specific financial statement captions have been reclassified to conform with the 2016 presentation. During 2016, we early adopted ASU 2016-09, “Improvement to Employee Share-Based Payment Accounting,” resulting in adjustments to our prior financial statements as noted in the caption Share-based Compensation above.

NEW ACCOUNTING STANDARDS

ACCOUNTING STANDARDS RECENTLY ADOPTED

SHARE-BASED PAYMENTS As of December 31, 2016, we early adopted Accounting Standards Update (ASU) 2016-09, “Improvement to Employee Share-Based Payment Accounting,” which amends several aspects of the accounting for employee share-based payment transactions. Most significantly, the income tax effects of awards are recognized in the income statement when the awards vest or are settled (the use of APIC pools is eliminated). Additionally, the guidance requires cash paid for shares withheld (to satisfy the employer’s statutory income tax withholding obligation) to be presented as a financing activity in the statement of cash flows. See the caption Share-based Compensation above for the impact of the adoption of this standard to our consolidated financial statements.

GOING CONCERN As of December 31, 2016, we adopted ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The adoption of this standard did not have a material impact on our consolidated financial statements and related notes.

NET ASSET VALUE PER SHARE INVESTMENTS During the first quarter of 2016, we adopted ASU 2015-07, “Disclosures for Investment in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent).” This ASU removed the requirement to categorize investments within the fair value hierarchy when their fair value is measured using the net asset value per share practical expedient. This ASU also removed the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share expedient. Rather, those disclosures are limited to investments for which we elected to measure the fair value using that practical expedient. The impact of this standard was limited to our annual pension plan fair value disclosures (see Note 10) and was applied retrospectively.

ACCOUNTING STANDARDS PENDING ADOPTION

INTRA-ENTITY ASSET TRANSFERS In October 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory,” which requires the tax effects of intercompany transactions other than inventory to be recognized currently. ASU 2016-16 is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

CASH FLOW CLASSIFICATION In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which amends guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU adds or clarifies guidance on eight specific cash flow issues. Additionally, guidance on the presentation of restricted cash is addressed in ASU 2016-18 which was issued in November 2016. Both of these standards are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We do not expect the adoption of these standards to have a material impact on our consolidated financial statements.

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CREDIT LOSSES In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” which amends guidance on the impairment of financial instruments. The new guidance estimates credit losses based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim reporting periods within those annual reporting periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2018. While we are still evaluating the impact of ASU 2016-13, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

LEASE ACCOUNTING In February 2016, the FASB issued ASU 2016-02, “Leases,” which amends existing accounting standards for lease accounting and adds additional disclosures about leasing arrangements. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement and presentation of cash flow in the statement of cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual reporting periods. Early adoption is permitted and modified retrospective application is required. We are currently evaluating the impact that the adoption of this standard will have on our consolidated financial statements and related disclosures.

CLASSIFICATION AND MEASUREMENT OF FINANCIAL INSTRUMENTS In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends certain aspects of current guidance on the recognition, measurement and disclosure of financial instruments. Among other changes, this ASU requires most equity investments be measured at fair value. Additionally, the ASU eliminates the requirement to disclose the method and significant assumptions used to estimate the fair value for instruments not recognized at fair value in our financial statements. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

INVENTORY MEASUREMENT In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which changes the measurement principle for inventory from the lower of cost or market principle to the lower of cost and net realizable value principle. The guidance applies to inventories that are measured using the first-in, first-out (FIFO) or average cost method, but does not apply to inventories that are measured using the last-in, first-out (LIFO) or retail inventory method. We use the LIFO method for approximately 66% of our inventory (based on the December 31, 2016 balances); therefore, this ASU will not apply to the majority of our inventory. This ASU is effective prospectively for annual reporting periods beginning after December 15, 2016, and interim reporting periods within those annual reporting periods. We will adopt this standard as of and for the interim period ending March 31, 2017. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

REVENUE RECOGNITION In May 2014, the FASB issued ASU 2014-09, “Revenue From Contracts With Customers,” which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU provides a more robust framework for addressing revenue issues and expands required revenue recognition disclosures. In March 2016, the FASB issued ASU 2016-08, “Revenue From Contracts With Customers: Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net),” which amends the principal versus agent guidance in ASU 2014-09. The amendments in ASU 2016-08 provide guidance on recording revenue on a gross basis versus a net basis based on the determination of whether an entity is a principal or an agent when another party is involved in providing goods or services to a customer. These ASUs are effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Further, in applying these ASUs an entity is permitted to use either the full retrospective or cumulative effect transition approach. While we are currently evaluating the impact of adoption of these standards on our consolidated financial statements, we expect to identify similar performance obligations under ASU 2014-09 compared with the deliverables and separate units of account we have identified under existing accounting standards. As a result, we expect the timing of our revenues to remain generally the same. We will adopt these standards using the cumulative effect transition approach.

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NOTE 2: DISCONTINUED OPERATIONS

In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Consolidated Statements of Comprehensive Income for all periods presented. There were no revenues from discontinued operations for the years presented. Results from discontinued operations are as follows:

in thousands	2016			2015			2014
Discontinued Operations
Pretax loss	$ (4,877)			$ (19,326)			$ (3,683)
Income tax benefit	1,962			7,589			1,460
Loss on discontinued operations,
net of tax	$ (2,915)			$ (11,737)			$ (2,223)

The 2016, 2015 and 2014 pretax losses from discontinued operations of $4,877,000, $19,326,000 and $3,683,000, respectively, include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. During 2016, we settled one of the cases in the Texas Brine matter (see Note 12). This settlement was covered by our insurance policy which also reimbursed a portion of our past legal expenses such that the net loss for this matter was immaterial for the year. The prior year’s increased loss resulted primarily from charges associated with the Lower Passaic and Texas Brine matters (see Note 12).

NOTE 3: INVENTORIES

Inventories at December 31 are as follows:

in thousands			2016			2015
Inventories
Finished products 1			$ 293,619			$ 297,925
Raw materials			22,648			21,765
Products in process			1,480			1,008
Operating supplies and other			27,869			26,375
Total			$ 345,616			$ 347,073

1	Includes inventories encumbered by volumetric production payments (see Note 1, caption Deferred Revenue), as follows: December 31, 2016 — $2,841 thousand and December 31, 2015 — $4,452 thousand.

In addition to the inventory balances presented above, as of December 31, 2016 and December 31, 2015, we have $15,285,000 and $14,995,000, respectively, of inventory classified as long-term assets (other noncurrent assets) as we do not expect to sell the inventory within one year of their respective balance sheet dates. Inventories valued under the LIFO method total $239,187,000 at December 31, 2016 and $242,147,000 at December 31, 2015. During 2016, 2015 and 2014, inventory reductions resulted in liquidations of LIFO inventory layers carried at lower costs prevailing in prior years as compared to current-year costs. The effect of the LIFO liquidation on 2016 results was to decrease cost of revenues by $3,956,000 and increase net earnings by $2,419,000. The effect of the LIFO liquidation on 2015 results was to decrease cost of revenues by $3,284,000 and increase net earnings by $2,010,000. The effect of the LIFO liquidation on 2014 results was to decrease cost of revenues by $2,686,000 and increase net earnings by $1,650,000.

Estimated current cost exceeded LIFO cost at December 31, 2016 and 2015 by $155,576,000 and $169,257,000, respectively. We use the LIFO method of valuation for most of our inventories as it results in a better matching of costs with revenues. We provide supplemental income disclosures to facilitate comparisons with companies not on LIFO. The supplemental income calculation is derived by tax-effecting the change in the LIFO reserve for the periods presented. If all inventories valued at LIFO cost had been valued under the methods (substantially average cost) used before the adoption of the LIFO method, the approximate effect on net earnings would have been an decrease of $(8,338,000) in 2016, a decrease of $(7,614,000) in 2015 and an increase of $19,108,000 in 2014.

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NOTE 4: PROPERTY, PLANT & EQUIPMENT

Balances of major classes of assets and allowances for depreciation, depletion and amortization at December 31 are as follows:

in thousands			2016			2015
Property, Plant & Equipment
Land and land improvements 1			$ 2,374,051			$ 2,305,801
Buildings			127,369			124,950
Machinery and equipment			4,316,243			4,124,808
Leaseholds			17,595			14,143
Deferred asset retirement costs			168,258			166,252
Construction in progress			182,302			155,333
Total, gross			$ 7,185,818			$ 6,891,287
Less allowances for depreciation, depletion
and amortization			3,924,380			3,734,997
Total, net			$ 3,261,438			$ 3,156,290

1	Includes depletable land, as follows: December 31, 2016 — $1,327,402 thousand and December 31, 2015 — $1,296,211 thousand.

Capitalized interest costs with respect to qualifying construction projects and total interest costs incurred before recognition of the capitalized amount for the years ended December 31 are as follows:

in thousands			2016			2015			2014
Capitalized interest cost			$ 7,468			$ 2,930			$ 2,092
Total interest cost incurred before recognition
of the capitalized amount			141,544			223,518			245,459

NOTE 5: DERIVATIVE INSTRUMENTS

During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such expenses. We do not use derivative instruments for trading or other speculative purposes.

The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate swap agreements described below were designated as either cash flow hedges or fair value hedges. The changes in fair value of our interest rate swap cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. The changes in fair value of our interest rate swap fair value hedges are recorded as interest expense consistent with the change in the fair value of the hedged items attributable to the risk being hedged.

Part II	80

CASH FLOW HEDGES

During 2007, we entered into fifteen forward starting interest rate locks on $1,500,000,000 of future debt issuances to hedge the risk of higher interest rates. Upon the 2007 and 2008 issuances of the related fixed-rate debt, underlying interest rates were lower than the rate locks and we terminated and settled these forward starting locks for cash payments of $89,777,000. This amount was booked to AOCI and is being amortized to interest expense over the term of the related debt.

This amortization was reflected in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31 as follows:

in thousands			Location on Statement		2016			2015			2014
Cash Flow Hedges
Loss reclassified from AOCI
(effective portion)			Interest expense		$ (2,008)			$ (9,759)			$ (7,988)

The losses reclassified from AOCI for the years ended December 31, 2015 and 2014 include the acceleration of a proportional amount of the deferred loss in the amount of $7,208,000 and $3,762,000, respectively, referable to the debt purchases as described in Note 6.

For the 12-month period ending December 31, 2017, we estimate that $2,179,000 of the pretax loss in AOCI will be reclassified to earnings.

FAIR VALUE HEDGES

In June 2011, we issued $500,000,000 of 6.50% fixed-rate notes due in 2016 to refinance near term floating-rate debt. Concurrently, we entered into interest rate swap agreements in the stated amount of $500,000,000 to reestablish the pre-refinancing mix of fixed-rate and floating-rate debt. Under these agreements, we paid 6-month London Interbank Offered Rate (LIBOR) plus a spread of 4.05% and received a fixed interest rate of 6.50%. Additionally, in June 2011, we entered into interest rate swap agreements on our $150,000,000 of 10.125% fixed-rate notes due in 2015. Under these agreements, we paid 6-month LIBOR plus a spread of 8.03% and received a fixed interest rate of 10.125%. In August 2011, we terminated and settled these interest rate swap agreements for $25,382,000 of cash proceeds. The resulting gain was added to the carrying value of the related debt and was amortized as a reduction to interest expense over the terms of the related debt using the effective interest method.

This deferred gain amortization was reflected in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31 as follows:

in thousands					2016			2015			2014
Deferred Gain on Settlement
Amortized to earnings as a reduction to interest expense					$ 0			$ 3,036			$ 10,674

The deferred gain was fully amortized in December 2015, concurrent with the retirement of the 10.125% notes due 2015. The amortized deferred gains for the years ended December 31, 2015 and 2014 include the acceleration of a proportional amount of the deferred gain in the amount of $1,642,000 and $8,032,000, respectively, referable to the debt purchases as described in Note 6.

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NOTE 6: DEBT

Debt at December 31 is detailed as follows:

			Effective
in thousands			Interest Rates		2016			2015
Short-term Debt
Bank line of credit expires 2021 1, 2, 3			n/a		$ 0			$ 0
Total short-term debt					$ 0			$ 0
Long-term Debt
Bank line of credit expires 2021 1, 2, 3			1.25%		$ 235,000			$ 235,000
7.00% notes due 2018			7.87%		272,512			272,512
10.375% notes due 2018			10.63%		250,000			250,000
7.50% notes due 2021			7.75%		600,000			600,000
8.85% notes due 2021			8.88%		6,000			6,000
Delayed draw term loan 2, 3			1.25%		0			0
4.50% notes due 2025			4.65%		400,000			400,000
7.15% notes due 2037			8.05%		240,188			240,188
Other notes 3			6.31%		365			498
Total long-term debt - face value					$ 2,004,065			$ 2,004,198
Unamortized discounts and debt issuance costs					(21,176)			(23,734)
Total long-term debt - book value					$ 1,982,889			$ 1,980,464
Less current maturities					138			130
Total long-term debt - reported value					$ 1,982,751			$ 1,980,334
Estimated fair value of long-term debt					$ 2,243,213			$ 2,204,816

1	Borrowings on the bank line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt otherwise.
2	The effective interest rate is the spread over LIBOR as of the most recent balance sheet date.
3	Non-publicly traded debt.

Our total long-term debt - book value is presented in the table above net of unamortized discounts from par and unamortized deferred debt issuance costs. Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $4,418,000 of net interest expense for these items for the year ended December 31, 2016.

The estimated fair value of our debt presented in the table above was determined by: (1) averaging several asking price quotes for the publicly traded notes and (2) assuming par value for the remainder of the debt. The fair value estimates for the publicly traded notes were based on Level 2 information (as defined in Note 1, caption Fair Value Measurements) as of their respective balance sheet dates.

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LINE OF CREDIT

In December 2016, among other favorable changes, we extended the maturity date of our unsecured $750,000,000 line of credit from June 2020 to December 2021 (incurring $1,860,000 of transaction fees together with the new term loan described below). The credit agreement contains affirmative, negative and financial covenants customary for an unsecured investment-grade facility. The primary negative covenant limits our ability to incur secured debt. The financial covenants are: (1) a maximum ratio of debt to EBITDA of 3.5:1 (upon certain acquisitions, the maximum ratio can be 3.75:1 for three quarters), and (2) a minimum ratio of EBITDA to net cash interest expense of 3.0:1. As of December 31, 2016, we were in compliance with the line of credit covenants.

Borrowings on our line of credit are classified as short-term debt if we intend to repay within twelve months and as long-term debt if we have the intent and ability to extend repayment beyond twelve months. Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from 1.00% to 1.75%, or SunTrust Bank’s base rate (generally, its prime rate) plus a credit margin ranging from 0.00% to 0.75%. The credit margin for both LIBOR and base rate borrowings is determined by our credit ratings. Standby letters of credit, which are issued under the line of credit and reduce availability, are charged a fee equal to the credit margin for LIBOR borrowings plus 0.175%. We also pay a commitment fee on the daily average unused amount of the line of credit that ranges from 0.10% to 0.25% determined by our credit ratings. As of December 31, 2016, the credit margin for LIBOR borrowings was 1.25%, the credit margin for base rate borrowings was 0.25%, and the commitment fee for the unused amount was 0.15%.

As of December 31, 2016, our available borrowing capacity was $475,462,000. Utilization of the borrowing capacity was as follows:

	§		$235,000,000 was borrowed

	§		$39,538,000 was used to provide support for outstanding standby letters of credit

TERM DEBT

All of our term debt is unsecured. $1,768,700,000 of such debt is governed by two essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in both indentures limits the amount of secured debt we may incur without ratably securing such debt. As of December 31, 2016, we were in compliance with all of the term debt covenants.

In December 2016, we entered into an unsecured $250,000,000 delayed draw term loan (incurring, together with the line of credit extension mentioned previously, $1,860,000 of transaction costs). The term loan is provided by the same group of banks that provides our line of credit and is governed by the same credit agreement as the line of credit. As such, it is subject to the same affirmative, negative, and financial covenants.

The term loan may be funded in up to three draws through June 21, 2017, after which any undrawn amount expires. Borrowings bear interest in the same manner as the line of credit. Until June 21, 2017, we also pay a commitment fee on the undrawn amount in the same manner as the line of credit. The term loan principal will be repaid quarterly beginning March 2018 (quarter 5 after closing) as follows: quarters 5 - 8 @ 0.625%; quarters 9 - 12 @ 1.25%; quarters 13 - 19 @ 1.875% and quarter 20 @ 79.375%. The term loan may be prepaid at any time without penalty.

In 2015, we issued $400,000,000 of 4.50% senior notes due 2025. Proceeds (net of underwriter fees and other transaction costs) of $395,207,000, together with cash on hand and borrowings under our line of credit, funded: (1) the purchase, via tender offer, of $127,488,000 principal amount (33%) of the 7.00% notes due 2018, (2) the redemption of $218,633,000 principal amount (100%) of the 6.40% notes due 2017, and (3) the redemption of $125,001,000 principal amount (100%) of the 6.50% notes due 2016. These debt purchases cost $530,923,000, including a $59,293,000 premium above the principal amount of the notes and transaction costs of $508,000. The premium primarily reflects the trading price of the notes relative to par before the tender offer commencement. Additionally, we recognized $7,274,000 of net noncash expense associated with the acceleration of a proportional amount of unamortized discounts, deferred debt issuance costs, and deferred interest rate derivative settlement gains and losses. The combined charge of $67,075,000 was a component of interest expense for the year ended December 31, 2015.

Part II	83

Additionally in 2015, we repaid our $150,000,000 10.125% notes due 2015 and our $14,000,000 industrial revenue bond due 2022 via borrowing on our line of credit. These repayments did not incur any prepayment penalties.

DEBT PAYMENTS

During 2016, our debt payments, excluding the line of credit, were composed of $130,000 principal and $125,748,000 interest.

As described above, during 2015, we purchased/redeemed $471,122,000 principal amount of debt using the proceeds from the 2015 debt issuance, cash on hand and borrowings on our line of credit. Additionally in 2015, we borrowed on our line of credit to repay our $14,000,000 industrial revenue bond due 2022 and our $150,000,000 10.125% notes due 2015.

The total scheduled (principal and interest) debt payments, excluding the line of credit, for the five years subsequent to December 31, 2016 are as follows:

in thousands			Total			Principal			Interest
Debt Payments (excluding the line of credit)
2017			$ 125,878			$ 138			$ 125,740
2018			638,725			522,531			116,194
2019			80,740			23			80,717
2020			80,741			25			80,716
2021			664,174			606,026			58,148

STANDBY LETTERS OF CREDIT

We provide, in the normal course of business, certain third-party beneficiaries standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of one year, typically renew automatically, and can only be modified or cancelled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our $750,000,000 line of credit, and reduce the borrowing capacity thereunder. Our standby letters of credit as of December 31, 2016 are summarized by purpose in the table below:

in thousands
Standby Letters of Credit
Risk management insurance				$ 34,111
Reclamation/restoration requirements				5,427
Total				$ 39,538

Part II	84

NOTE 7: OPERATING LEASES

Rental expense from continuing operations under nonmineral operating leases for the years ended December 31, exclusive of rental payments made under leases of one month or less, is summarized as follows:

in thousands	2016			2015			2014
Operating Leases
Minimum rentals	$ 52,713			$ 49,461			$ 42,887
Contingent rentals (based principally on usage)	57,278			60,380			56,717
Total	$ 109,991			$ 109,841			$ 99,604

Future minimum operating lease payments under all leases with initial or remaining noncancelable lease terms in excess of one year, exclusive of mineral leases (see Note 12), as of December 31, 2016 are payable as follows:

in thousands
Future Minimum Operating Lease Payments
2017	$ 31,017
2018	29,389
2019	25,132
2020	23,022
2021	21,312
Thereafter	119,602
Total	$ 249,474

Lease agreements frequently include renewal options and require that we pay for utilities, taxes, insurance and maintenance expense. Options to purchase are also included in some lease agreements.

NOTE 8: ACCRUED ENVIRONMENTAL REMEDIATION COSTS

Our Consolidated Balance Sheets as of December 31 include accrued environmental remediation costs (measured on an undiscounted basis) as follows:

in thousands	2016			2015
Accrued Environmental Remediation Costs
Continuing operations	$ 9,136			$ 6,876
Retained from former Chemicals business	10,716			10,988
Total	$ 19,852			$ 17,864

The long-term portion of the accruals noted above is included in other noncurrent liabilities in the accompanying Consolidated Balance Sheets and amounted to $12,655,000 at December 31, 2016 and $12,569,000 at December 31, 2015. The short-term portion of these accruals is included in other current liabilities in the accompanying Consolidated Balance Sheets.

The accrued environmental remediation costs in continuing operations relate primarily to the former Florida Rock, Tarmac, and CalMat facilities acquired in 2007, 2000 and 1999, respectively. The balances noted above for Chemicals relate to retained environmental remediation costs from the 2003 sale of the Performance Chemicals business and the 2005 sale of the Chloralkali business. Refer to Note 12 for additional discussion of these contingent environmental matters.

Part II	85

NOTE 9: INCOME TAXES

The components of earnings from continuing operations before income taxes are as follows:

in thousands	2016			2015			2014
Earnings from Continuing Operations
before Income Taxes
Domestic	$ 513,721			$ 293,547			$ 264,473
Foreign	33,536			34,310			34,365
Total	$ 547,257			$ 327,857			$ 298,838

Income tax expense from continuing operations consists of the following:

in thousands	2016			2015			2014
Income Tax Expense from
Continuing Operations
Current
Federal	$ 72,506			$ 67,521			$ 47,882
State and local	14,774			14,035			18,983
Foreign	6,974			7,784			7,174
Total	$ 94,254			$ 89,340			$ 74,039
Deferred
Federal	$ 37,246			$ 11,192			$ 13,556
State and local	(6,647)			(4,888)			4,120
Foreign	(2)			(701)			(23)
Total	$ 30,597			$ 5,603			$ 17,653
Total expense	$ 124,851			$ 94,943			$ 91,692

Income tax expense differs from the amount computed by applying the federal statutory income tax rate to earnings from continuing operations before income taxes. The sources and tax effects of the differences are as follows:

dollars in thousands		2016				2015				2014
Income tax expense at the federal
statutory tax rate of 35%	$ 191,540	35.0%			$ 114,750	35.0%			$ 104,594	35.0%
Expense (Benefit) from
Income Tax Differences
Statutory depletion	(32,230)	-5.9%			(27,702)	-8.4%			(25,774)	-8.6%
State and local income taxes, net of federal
income tax benefit 1	5,283	1.0%			5,945	1.8%			15,017	5.0%
U.S. production deduction	(8,790)	-1.6%			(5,099)	-1.6%			0	0.0%
Foreign tax credit carryforward	(6,513)	-1.2%			6,486	2.0%			0	0.0%
Permanently reinvested foreign earnings	(4,578)	-0.8%			(6,396)	-2.0%			0	0.0%
Share-based compensation 2	(22,443)	-4.1%			0	0.0%			0	0.0%
Other, net	2,582	0.4%			6,959	2.2%			(2,145)	-0.7%
Total income tax expense/
Effective tax rate	$ 124,851	22.8%			$ 94,943	29.0%			$ 91,692	30.7%

1	The 2016 amount includes $2,404 thousand of benefit related to the early adoption of ASU 2016-09.
2	As discussed in Note 1, we early adopted ASU 2016-09 as of December 31, 2016.

Part II	86

Deferred taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability at December 31 are as follows:

in thousands	2016			2015
Deferred Tax Assets Related to
Employee benefits	$ 85,123			$ 78,999
Asset retirement obligations & other reserves	63,617			59,507
Deferred compensation	103,947			117,298
State net operating losses	54,498			61,658
Federal credit carryforwards	18,139			34,340
Other	44,843			48,856
Total gross deferred tax assets	370,167			400,658
Valuation allowance	(44,237)			(59,323)
Total net deferred tax assets	$ 325,930			$ 341,335
Deferred Tax Liabilities Related to
Property, plant & equipment	$ 664,763			$ 665,057
Goodwill/other intangible assets	327,666			324,910
Other	36,355			32,464
Total deferred tax liabilities	$ 1,028,784			$ 1,022,431
Net deferred tax liability	$ 702,854			$ 681,096

The above net deferred tax liabilities are reflected in the accompanying Consolidated Balance Sheets as noncurrent liabilities.

Each quarter we analyze the likelihood that our deferred tax assets will be realized. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized.

As noted above, we have state net operating loss carryforward deferred tax assets of $54,498,000 of which $53,220,000 relates to Alabama. The Alabama net operating loss carryforward, if not used, would expire in years 2023 – 2029. Before 2015, this Alabama deferred tax asset carried a full valuation allowance. During 2015, we restructured our legal entities which resulted in a partial release of the valuation allowance in the amount of $4,655,000. During the fourth quarter of 2016, based on our continued positive performance, we recorded an additional partial release of the valuation allowance in the amount of $4,791,000.

As of December 31, 2016, income tax receivables of $10,201,000 are included in accounts and notes receivable in the accompanying Consolidated Balance Sheet. These are federal and state amended return receivables and overpayments that we have requested to be refunded. There were similar receivables of $4,138,000 as of December 31, 2015.

Part II	87

Our liability for unrecognized tax benefits is discussed in our accounting policy for income taxes (see Note 1, caption Income Taxes). Changes in our liability for unrecognized tax benefits for the years ended December 31 are as follows:

in thousands	2016			2015			2014
Unrecognized tax benefits as of January 1	$ 8,447			$ 7,057			$ 12,155
Increases for tax positions related to
Prior years	1,368			491			229
Current year	1,040			942			528
Decreases for tax positions related to
Prior years	0			0			(53)
Settlements with taxing authorities	0			0			0
Expiration of applicable statute of limitations	(27)			(43)			(5,802)
Unrecognized tax benefits as of December 31	$ 10,828			$ 8,447			$ 7,057

We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Interest and penalties recognized as income tax expense (benefit) were $266,000 in 2016, $138,000 in 2015 and $(1,067,000) in 2014. The balance of accrued interest and penalties included in our liability for unrecognized tax benefits as of December 31 was $1,369,000 in 2016, $1,103,000 in 2015 and $965,000 in 2014.

Our liability for unrecognized tax benefits at December 31 in the table above include $9,884,000 in 2016, $7,614,000 in 2015 and $6,282,000 in 2014 that would affect the effective tax rate if recognized.

We are routinely examined by various taxing authorities. We anticipate no single tax position generating a significant increase or decrease in our liability for unrecognized tax benefits within 12 months of this reporting date.

We file income tax returns in U.S. federal, various state and foreign jurisdictions. Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for the years before 2013.

As of December 31, 2016, we have $154,874,000 of accumulated undistributed earnings from our foreign subsidiaries. We consider these earnings to be indefinitely reinvested and, therefore, have not recorded income taxes on these earnings. If we were to distribute these earnings in the form of dividends, the distribution would result in U.S. income taxes of $32,860,000.

Part II	88

NOTE 10: BENEFIT PLANS

PENSION PLANS

We sponsor three qualified, noncontributory defined benefit pension plans. These plans cover substantially all employees hired before July 2007, other than those covered by union-administered plans. Normal retirement age is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried Plan and the Chemicals Hourly Plan are generally based on salaries or wages and years of service; the Construction Materials Hourly Plan provides benefits equal to a flat dollar amount for each year of service. In addition to these qualified plans, we sponsor three unfunded, nonqualified pension plans. The projected benefit obligation presented in the table below includes $85,021,000 and $89,652,000 related to these unfunded, nonqualified pension plans for 2016 and 2015, respectively.

Effective July 2007, we amended our defined benefit pension plans to no longer accept new participants. In December 2013, we amended our defined benefit pension plans so that future benefit accruals for salaried pension participants ceased effective December 31, 2015.

The following table sets forth the combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31:

in thousands			2016			2015
Change in Benefit Obligation
Projected benefit obligation at beginning of year			$ 988,453			$ 1,083,222
Service cost			5,343			4,851
Interest cost			36,505			44,065
Actuarial (gain) loss			24,675			(63,725)
Benefits paid			(48,302)			(79,960)
Projected benefit obligation at end of year			$ 1,006,674			$ 988,453
Change in Fair Value of Plan Assets
Fair value of assets at beginning of year			$ 745,686			$ 816,972
Actual return on plan assets			42,555			(5,373)
Employer contribution			9,576			14,047
Benefits paid			(48,302)			(79,960)
Fair value of assets at end of year			$ 749,515			$ 745,686
Funded status			(257,159)			(242,767)
Net amount recognized			$ (257,159)			$ (242,767)
Amounts Recognized in the Consolidated
Balance Sheets
Noncurrent assets			$ 0			$ 0
Current liabilities			(9,375)			(9,106)
Noncurrent liabilities			(247,784)			(233,661)
Net amount recognized			$ (257,159)			$ (242,767)
Amounts Recognized in Accumulated
Other Comprehensive Income
Net actuarial loss			$ 250,099			$ 222,580
Prior service credit			(361)			(404)
Total amount recognized			$ 249,738			$ 222,176

Part II	89

The accumulated benefit obligation (ABO) and the projected benefit obligation (PBO) exceeded plan assets for all of our defined benefit plans at December 31, 2016 and December 31, 2015, except for the Chemicals Hourly Plan where the plan assets exceeded the ABO by $277,000. The ABO for all of our defined benefit pension plans totaled $1,006,001,000 (unfunded, nonqualified plans of $85,021,000) at December 31, 2016 and $987,724,000 (unfunded, nonqualified plans of $89,652,000) at December 31, 2015.

The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income and weighted-average assumptions of the plans at December 31:

dollars in thousands			2016			2015			2014
Components of Net Periodic Pension
Benefit Cost
Service cost			$ 5,343			$ 4,851			$ 4,157
Interest cost			36,505			44,065			44,392
Expected return on plan assets			(51,562)			(54,736)			(50,802)
Settlement charge			0			2,031			0
Amortization of prior service cost (credit)			(43)			48			188
Amortization of actuarial loss			6,163			21,641			11,221
Net periodic pension benefit cost (credit)			$ (3,594)			$ 17,900			$ 9,156
Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income
Net actuarial loss (gain)			$ 33,682			$ (3,615)			$ 118,915
Reclassification of actuarial loss			(6,163)			(23,672)			(11,221)
Reclassification of prior service (cost) credit			43			(48)			(188)
Amount recognized in other comprehensive
income			$ 27,562			$ (27,335)			$ 107,506
Amount recognized in net periodic pension
benefit cost and other comprehensive
income			$ 23,968			$ (9,435)			$ 116,662
Assumptions
Weighted-average assumptions used to
determine net periodic benefit cost for
years ended December 31
Discount rate — PBO			4.55%			4.14%			4.91%
Discount rate — service cost			4.68%			4.14%			4.91%
Discount rate — interest cost			3.79%			4.14%			4.91%
Expected return on plan assets			7.50%			7.50%			7.50%
Rate of compensation increase
(for salary-related plans)			3.50%			3.70%			3.50%
Weighted-average assumptions used to
determine benefit obligation at
December 31
Discount rate			4.29%			4.54%			4.14%
Rate of compensation increase
(for salary-related plans)			3.50%			3.50%			3.70%

The 2015 settlement charge noted above relates to a lump sum payment to a former employee from the nonqualified plan. This $2,031,000 charge is reflected within both cost of revenues and selling, administrative and general expenses in our accompanying Consolidated Statement of Comprehensive Income for the year ended December 31, 2015.

Part II	90

The estimated net actuarial loss and prior service credit that will be amortized from accumulated other comprehensive income into net periodic pension benefit cost (credit) during 2017 are $6,988,000 and $(73,000), respectively.

Our expected return on plan assets is: (1) a long-term view based on our current asset allocation, and (2) a judgment informed by consultation with our retirement plans’ consultant and our pension plans’ actuary. The expected return on plan assets used to determine 2016 pension benefit cost was 7.50%.

We establish our pension investment policy by evaluating asset/liability studies periodically performed by our consultants. These studies estimate trade-offs between expected returns on our investments and the variability in anticipated cash contributions to fund our pension liabilities. Our policy balances the variability in potential pension fund contributions to expected returns on our investments.

Our current strategy for implementing this policy is to invest in publicly traded equities and in publicly traded debt and private, nonliquid opportunities, such as venture capital, commodities, buyout funds and mezzanine debt. The target allocation ranges for plan assets are as follows: equity securities — 50% to 77%; debt securities — 15% to 27%; specialty investments — 0% to 20%; commodities — 0% to 6%; and cash reserves — 0% to 5%. Equity securities include domestic investments and foreign equities in the Europe, Australia and Far East (EAFE) and International Finance Corporation (IFC) Emerging Market Indices. Debt securities primarily include domestic debt instruments, while specialty investments include investments in venture capital, buyout funds, mezzanine debt, private partnerships and an interest in a commodity index fund.

The fair values and net asset values of our pension plan assets at December 31, 2016 and 2015 by asset category are as follows:

Fair Value Measurements at December 31, 2016

in thousands			Level 1 1			Level 2 1			Level 3 1			Total
Asset Category
Debt securities			$ 0			$ 162,894			$ 0			$ 162,894
Investment funds
Commodity funds			0			16,594			0			16,594
Equity funds			530			124,407			0			124,937
Investments in the fair value hierarchy			$ 530			$ 303,895			$ 0			$ 304,425
Interest in common/collective trusts (at NAV) 2												358,345
Venture capital and partnerships (at NAV) 2												86,745
Total pension plan assets												$ 749,515

Fair Value Measurements at December 31, 2015

in thousands			Level 1 1			Level 2 1			Level 3 1			Total
Asset Category
Debt securities			$ 0			$ 154,745			$ 0			$ 154,745
Investment funds
Commodity funds			0			14,490			0			14,490
Equity funds			647			123,078			0			123,725
Investments in the fair value hierarchy			$ 647			$ 292,313			$ 0			$ 292,960
Interest in common/collective trusts (at NAV) 2												349,854
Venture capital and partnerships (at NAV) 2												102,872
Total pension plan assets												$ 745,686

1	See Note 1 under the caption Fair Value Measurements for a description of the fair value hierarchy.
2	As discussed in Note 1, we adopted ASU 2015-07 as of March 31, 2016. As a result, pension plan assets measured using the net asset value practical expedient were excluded from the fair value hierarchy.

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At each measurement date, we estimate the fair values and net asset values of our pension assets using various valuation techniques. We use, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of our pension assets. When quoted market prices or observable market inputs are not available, we use valuation techniques that rely on unobservable inputs to estimate the fair value of our pension assets. The following describes the types of investments included in each asset category listed in the tables above and the valuation techniques we used to determine the fair values or net asset values as of December 31, 2016 and 2015.

The debt securities category consists of bonds issued by U.S. federal, state and local governments, corporate debt securities, fixed income obligations issued by foreign governments, and asset-backed securities. The fair values of U.S. government and corporate debt securities are based on current market rates and credit spreads for debt securities with similar maturities. The fair values of debt securities issued by foreign governments are based on prices obtained from broker/dealers and international indices. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market.

Investment funds consist of exchange traded and non-exchange traded funds. The commodity funds asset category consists of a single open-end commodity mutual fund. The equity funds asset category consists of a publicly traded mutual fund investing in domestic equities. For investment funds publicly traded on a national securities exchange, the fair value is based on quoted market prices. For investment funds not traded on an exchange, the total fair value of the underlying securities is used to determine the net asset value for each unit of the fund held by the pension fund. The estimated fair values of the underlying securities are generally valued based on quoted market prices. For securities without quoted market prices, other observable market inputs are used to determine the fair value.

Common/collective trust fund investments consist of index funds for domestic equities, an actively managed fund for international equities, and a short-term investment fund for highly liquid, short-term debt securities. Investments are valued at the net asset value (NAV) of units of a bank collective trust. The NAV is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV.

The venture capital and partnerships asset category consists of various limited partnership funds, mezzanine debt funds and leveraged buyout funds. NAV is used as a practical expedient to estimate fair value. The NAV of these investments has been estimated based on methods employed by the general partners, including consideration of, among other things, reference to third-party transactions, valuations of comparable companies operating within the same or similar industry, the current economic and competitive environment, creditworthiness of the corporate issuer, as well as market prices for instruments with similar maturities, terms, conditions and quality ratings. The use of different assumptions, applying different judgment to inherently subjective matters and changes in future market conditions could result in significantly different estimates of fair value of these securities.

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Total employer contributions to the pension plans are presented below:

in thousands			Pension
Employer Contributions
2014			$ 5,488
2015			14,047
2016			9,576
2017 (estimated)			18,875

During 2016, 2015 and 2014, we made no contributions to our qualified pension plans. We anticipate contributing $9,500,000 to our qualified pension plans in 2017. For our nonqualified pension plans, we contributed $9,576,000, $14,047,000 and $5,488,000 during 2016, 2015 and 2014, respectively, and expect to contribute $9,375,000 during 2017.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

in thousands			Pension
Estimated Future Benefit Payments
2017			$ 52,691
2018			55,221
2019			56,720
2020			57,664
2021			58,755
2022-2026			304,149

We contribute to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements for union-represented employees. A multiemployer plan is subject to collective bargaining for employees of two or more unrelated companies. Multiemployer plans are managed by boards of trustees on which management and labor have equal representation. However, in most cases, management is not directly represented. The risks of participating in multiemployer plans differ from single employer plans as follows:

	§		assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers

	§		if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers

	§		if we cease to have an obligation to contribute to one or more of the multiemployer plans to which we contribute, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability

None of the multiemployer pension plans that we participate in are individually significant. Our contributions to individual multiemployer pension funds did not exceed 5% of the fund’s total contributions in the three years ended December 31, 2016, 2015 and 2014. Total contributions to multiemployer pension plans were $10,435,000 in 2016, $9,800,000 in 2015 and $8,503,000 in 2014.

As of December 31, 2016, a total of 12.8% of our domestic hourly labor force was covered by collective-bargaining agreements. Of such employees covered by collective-bargaining agreements, 8.5% were covered by agreements that expire in 2017. We also employed 305 union employees in Mexico who are covered by a collective-bargaining agreement that will expire in 2017. None of our union employees in Mexico participate in multiemployer pension plans.

In addition to the pension plans noted above, we had one unfunded supplemental retirement plan as of December 31, 2016 and 2015. The accrued costs for the supplemental retirement plan were $1,320,000 at December 31, 2016 and $1,384,000 at December 31, 2015.

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POSTRETIREMENT PLANS

In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level. Substantially all our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, Company-provided healthcare benefits end when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age 65, whichever occurs first.

The March 2014 sale of our cement and concrete businesses in the Florida area (see Note 19) significantly reduced total expected future service of our postretirement plans resulting in a reduction in the projected benefit obligation of $2,639,000 and a one-time curtailment gain of $3,832,000. This gain is reflected within gain on sale of property, plant & equipment and businesses in our accompanying Consolidated Statement of Comprehensive Income for the year ended December 31, 2014.

The following table sets forth the combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31:

in thousands			2016			2015
Change in Benefit Obligation
Projected benefit obligation at beginning of year			$ 48,605			$ 85,336
Service cost			1,123			1,894
Interest cost			1,209			2,485
Actuarial gain			(111)			(35,195)
Benefits paid			(5,280)			(5,915)
Projected benefit obligation at end of year			$ 45,546			$ 48,605
Change in Fair Value of Plan Assets
Fair value of assets at beginning of year			$ 0			$ 0
Actual return on plan assets			0			0
Fair value of assets at end of year			$ 0			$ 0
Funded status			$ (45,546)			$ (48,605)
Net amount recognized			$ (45,546)			$ (48,605)
Amounts Recognized in the Consolidated
Balance Sheets
Current liabilities			$ (6,013)			$ (6,287)
Noncurrent liabilities			(39,533)			(42,318)
Net amount recognized			$ (45,546)			$ (48,605)
Amounts Recognized in Accumulated
Other Comprehensive Income
Net actuarial gain			$ (22,685)			$ (24,325)
Prior service credit			(19,692)			(23,928)
Total amount recognized			$ (42,377)			$ (48,253)

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The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income, weighted-average assumptions and assumed trend rates of the plans at December 31:

dollars in thousands			2016			2015			2014
Components of Net Periodic Postretirement
Benefit Cost
Service cost			$ 1,123			$ 1,894			$ 2,146
Interest cost			1,209			2,485			3,297
Curtailment gain			0			0			(3,832)
Amortization of prior service credit			(4,236)			(4,232)			(4,327)
Amortization of actuarial (gain) loss			(1,751)			37			227
Net periodic postretirement benefit cost (credit)			$ (3,655)			$ 184			$ (2,489)
Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income
Net actuarial gain			$ (111)			$ (35,209)			$ (5,256)
Reclassification of actuarial gain (loss)			1,751			(37)			(227)
Reclassification of prior service credit			4,236			4,232			8,159
Amount recognized in other comprehensive
income			$ 5,876			$ (31,014)			$ 2,676
Amount recognized in net periodic
postretirement benefit cost and other
comprehensive income			$ 2,221			$ (30,830)			$ 187
Assumptions
Assumed Healthcare Cost Trend Rates
at December 31
Healthcare cost trend rate assumed
for next year			n/a			n/a			7.50%
Rate to which the cost trend rate gradually
declines			n/a			n/a			5.00%
Year that the rate reaches the rate it is
assumed to maintain			n/a			n/a			2025
Weighted-average assumptions used to
determine net periodic benefit cost for
years ended December 31
Discount rate — PBO			3.69%			3.50%			4.10%
Discount rate — service cost			3.77%			3.50%			4.10%
Discount rate — interest cost			2.81%			3.50%			4.10%
Weighted-average assumptions used to
determine benefit obligation at
December 31
Discount rate			3.58%			3.69%			3.50%

The estimated net actuarial gain and prior service credit that will be amortized from accumulated other comprehensive income into net periodic postretirement benefit cost (credit) during 2017 are $(1,724,000) and $(4,236,000), respectively.

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Total employer contributions to the postretirement plans are presented below:

in thousands			Postretirement
Employer Contributions
2014			$ 7,739
2015			5,915
2016			5,280
2017 (estimated)			6,013

The employer contributions shown above are equal to the cost of benefits during the year. The plans are not funded and are not subject to any regulatory funding requirements.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

in thousands			Postretirement
Estimated Future Benefit Payments
2017			$ 6,013
2018			5,757
2019			5,510
2020			5,227
2021			4,826
2022–2026			18,546

Contributions by participants to the postretirement benefit plans for the years ended December 31 are as follows:

in thousands			Postretirement
Participants Contributions
2014			$ 1,873
2015			2,031
2016			2,085

PENSION AND OTHER POSTRETIREMENT BENEFITS ASSUMPTIONS

Each year we review our assumptions about the discount rate, the expected return on plan assets, and the rate of increase in the per capita cost of covered healthcare benefits. Annual pay increases after 2015 do not increase our pension plan obligations as a result of a 2013 plan amendment.

In selecting the discount rate, we consider the yield on high-quality bonds with a duration equal to the duration of plan liabilities. At December 31, 2016, the discount rates used to measure the benefit obligation for our various plans ranged from 3.43% to 4.41% (December 31, 2015 ranged from 3.53% to 4.68%).

In 2016, we changed our method to estimate the service and interest cost components of net periodic benefit cost for our defined benefit pension and other postretirement benefit plans. Previously, we estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. As of 2016, we elected to use a full yield curve approach to estimate the service and interest cost, applying the specific spot rates along the yield curve to the relevant projected cash flows. We made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding yield curve spot rates.

We accounted for this change as a change in estimate and, accordingly, accounted for it prospectively as of 2016. The weighted-average discount rates used to measure service cost and interest cost for 2016 were 4.68% and 3.79%, respectively, for our pension plans and 3.77% and 2.81%, respectively, for our other postretirement plans.

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Our expected return on plan assets is: (1) a long-term view based on our current asset allocation, and (2) a judgment informed by consultation with our retirement plans’ consultant and our pension plans’ actuary. In estimating the expected return on plan assets, we consider past performance and long-term future expectations for the types of investments held by the plan as well as the expected long-term allocation of plan assets to these investments. At December 31, 2016, the expected return on plan assets was reduced to 7.00% (December 31, 2015 was 7.50%).

Future increases in the per capital cost of healthcare benefits will not increase our postretirement medical benefits obligation as a result of a 2012 plan amendment to cap medical coverage cost at the 2015 level.

DEFINED CONTRIBUTION PLANS

We sponsor two defined contribution plans. Substantially all salaried and nonunion hourly employees are eligible to be covered by one of these plans. Under these plans, we match employees’ eligible contributions at established rates. Expense recognized in connection with these matching obligations totaled $45,295,000 in 2016, $36,085,000 in 2015 and $29,215,000 in 2014.

NOTE 11: INCENTIVE PLANS

SHARE-BASED COMPENSATION PLANS

Our 2016 Omnibus Long-term Incentive Plan (Plan) authorizes the granting of stock options, Stock-Only Stock Appreciation Rights (SOSARs) and other types of share-based awards to key salaried employees and nonemployee directors. The maximum number of shares that may be issued under the Plan is 8,000,000.

PERFORMANCE SHARES — Each performance share unit is equal to and paid in one share of our common stock, but carries no voting or dividend rights. The number of units ultimately paid for performance share awards may range from 0% to 200% of the number of units awarded on the date of grant. Payment is based upon our Total Shareholder Return (TSR) performance relative to the TSR performance of the S&P 500®. Awards vest on December 31 of the fourth year after date of grant. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested units are forfeited upon termination for any other reason. Expense provisions referable to performance share awards amounted to $12,074,000 in 2016, $13,159,000 in 2015 and $16,863,000 in 2014.

The fair value of performance shares is estimated as of the date of grant using a Monte Carlo simulation model. The following table summarizes the activity for nonvested performance share units during the year ended December 31, 2016:

			Target			Weighted-average
			Number			Grant Date
			of Shares			Fair Value
Performance Shares
Nonvested at January 1, 2016			806,339			$ 63.13
Granted			164,498			87.73
Vested			(289,424)			53.65
Canceled/forfeited			(14,317)			68.49
Nonvested at December 31, 2016			667,096			$ 73.20

During 2015 and 2014, the weighted-average grant date fair value of performance shares granted was $74.85 and $63.42, respectively.

The aggregate values for distributed performance share awards are based on the closing price of our common stock as of the distribution date. The aggregate values of distributed performance shares for the years ended December 31 are as follows:

in thousands			2016			2015			2014
Aggregate value of distributed
performance shares			$ 60,443			$ 26,258			$ 0

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RESTRICTED SHARES — Each restricted share unit is equal to and paid in one share of our common stock, but carries no voting or dividend rights. Awards vest on the fourth anniversary of the grant date. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested units are forfeited upon termination for any other reason. Expense provisions referable to restricted share awards amounted to $3,004,000 in 2016, $982,000 in 2015 and $704,000 in 2014.

The fair value of restricted shares is estimated as of the date of grant based on the stock price adjusted for dividends foregone. The following table summarizes the activity for nonvested restricted share units during the year ended December 31, 2016:

						Weighted-average
			Number			Grant Date
			of Shares			Fair Value
Restricted Stock Units
Nonvested at January 1, 2016			74,000			$ 58.23
Granted			63,350			87.77
Vested			0			0.00
Canceled/forfeited			(1,920)			87.77
Nonvested at December 31, 2016			135,430			$ 71.63

The weighted-average grant date fair value of restricted shares granted in 2015 was $74.85. No restricted shares were granted in 2014.

There were no distributions of restricted shares during 2016, 2015 and 2014.

STOCK ONLY STOCK APPRECIATION RIGHTS (SOSARs) — SOSARs granted have an exercise price equal to the market value of our underlying common stock on the date of grant. The SOSARs vest ratably over 4 years and expire 10 years subsequent to the grant. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested awards are forfeited upon termination for any other reason.

The fair value of SOSARs is estimated as of the date of grant using the Black-Scholes option pricing model. Compensation cost for SOSARs is based on this grant date fair value and is recognized for awards that ultimately vest. The following table presents the weighted-average fair value and the weighted-average assumptions used in estimating the fair value of grants during the years ended December 31:

			2016			2015			2014
SOSARs
Fair value			$ 29.20			$ 25.17			$ 21.94
Risk-free interest rate			1.66%			1.85%			2.40%
Dividend yield			1.39%			1.70%			1.64%
Volatility			30.42%			33.00%			33.00%
Expected term			9.00 years			8.00 years			8.00 years

The risk-free interest rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period approximating the SOSARs expected term. The dividend yield assumption is based on our historical dividend payouts adjusted for current expectations of future payouts. The volatility assumption is based on the historical volatility and expectations about future volatility of our common stock over a period equal to the SOSARs expected term. The expected term is based on historical experience and expectations about future exercises and represents the period of time that SOSARs granted are expected to be outstanding.

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A summary of our SOSAR activity as of December 31, 2016 and changes during the year are presented below:

									Weighted-average
									Remaining			Aggregate
			Number			Weighted-average			Contractual			Intrinsic Value
			of Shares			Exercise Price			Life (Years)			(in thousands)
SOSARs/Stock Options 1
Outstanding at January 1, 2016			3,052,749			$ 58.32
Granted			97,700			92.02
Exercised			(753,251)			83.29
Forfeited or expired			(4,767)			78.22
Outstanding at December 31, 2016			2,392,431			$ 51.80			4.30			$ 178,558
Vested and expected to vest			2,379,036			$ 51.70			4.28			$ 177,794
Exercisable at December 31, 2016			2,005,030			$ 47.30			3.62			$ 158,651

1	There were no stock options outstanding at December 31, 2016.

The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between our stock price on the last trading day of 2016 and the exercise price, multiplied by the number of in-the-money SOSARs) that would have been received by the option holders had all SOSARs been exercised on December 31, 2016. These values change based on the fair market value of our common stock. The aggregate intrinsic values of SOSARs/ stock options exercised for the years ended December 31 are as follows:

in thousands			2016			2015			2014
Aggregate intrinsic value of SOSARs/
stock options exercised			$ 27,705			$ 43,620			$ 7,372

The following table presents cash and stock consideration received and tax benefit realized from stock option/SOSAR exercises and compensation cost recorded referable to SOSARs/stock options for the years ended December 31:

in thousands			2016			2015			2014
SOSARs/Stock Options
Cash and stock consideration received
from exercises			$ 0			$ 72,884			$ 23,199
Tax benefit from exercises			10,767			16,920			2,844
Compensation cost			2,744			2,221			4,650

DEFERRED STOCK UNITS — In addition to the share-based compensation plans for employees discussed above, we issue a limited number of deferred stock units to our nonemployee directors annually. These deferred stock units vest over three years (except for the 2016 grant which vested upon issuance) and accumulate dividends over the vesting period. Expense provisions referable to nonemployee director deferred stock units amounted to $2,848,000 in 2016, $1,886,000 in 2015 and $1,668,000 in 2014.

CASH-BASED COMPENSATION PLANS

We have incentive plans under which cash awards may be made annually to officers and key employees. Expense provisions referable to these plans amounted to $32,169,000 in 2016, $26,325,000 in 2015 and $27,442,000 in 2014.

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NOTE 12: COMMITMENTS AND CONTINGENCIES

We have commitments in the form of unconditional purchase obligations as of December 31, 2016. These include commitments for the purchase of property, plant & equipment of $132,046,000 and commitments for noncapital purchases of $55,037,000. These commitments are due as follows:

	Unconditional
	Purchase
in thousands	Obligations
Property, Plant & Equipment
2017	$ 131,846
Thereafter	200
Total	$ 132,046
Noncapital (primarily transportation and electricity contracts)
2017	$ 24,402
2018–2019	19,406
2020–2021	7,229
Thereafter	4,000
Total	$ 55,037

Commitments for the purchase of property, plant & equipment for 2017 include $85,293,000 for the construction of two new Panamax-class, self-unloading ships. Expenditures under noncapital purchase commitments totaled $60,591,000 in 2016, $76,178,000 in 2015 and $65,582,000 in 2014.

We have commitments in the form of minimum royalties under mineral leases as of December 31, 2016 in the amount of $216,241,000, due as follows:

	Mineral
in thousands	Leases
Minimum Royalties
2017	$ 22,153
2018–2019	36,196
2020–2021	23,513
Thereafter	134,379
Total	$ 216,241

Expenditures for royalties under mineral leases totaled $62,978,000 in 2016, $58,048,000 in 2015 and $49,685,000 in 2014. Refer to Note 7 for future minimum nonmineral operating lease payments.

Certain of our aggregates reserves are burdened by volumetric production payments (nonoperating interest) as described in Note 1 under the caption Deferred Revenue. As the holder of the working interest, we have responsibility to bear the cost of mining and producing the reserves attributable to this nonoperating interest.

As summarized by purpose in Note 6, our standby letters of credit totaled $39,538,000 as of December 31, 2016.

As described in Note 9, our liability for unrecognized tax benefits is $10,828,000 as of December 31, 2016.

As described in Note 17, our asset retirement obligations totaled $223,872,000 as of December 31, 2016.

LITIGATION AND ENVIRONMENTAL MATTERS

We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.

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We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party's share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.

We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period. Amounts accrued for environmental matters are presented in Note 8.

We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels.

In addition to these lawsuits in which we are involved in the ordinary course of business, certain other material legal proceedings are specifically described below.

	§		Lower Passaic River Study Area (Superfund Site) — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the Cooperating Parties Group) to a May 2007 Administrative Order on Consent (AOC) with the EPA to perform a Remedial Investigation/Feasibility Study (draft RI/FS) of the lower 17 miles of the Passaic River (River). However, before the draft RI/FS was issued in final form, the EPA issued a record of decision (ROD) in March 2016 that calls for a bank-to-bank dredging remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is $1.38 billion. In September 2016, the EPA entered into an Administrative Settlement Agreement and Order on Consent with Occidental Chemical Corporation (Occidental) in which Occidental agreed to undertake the remedial design for this bank-to-bank dredging remedy, and to reimburse the United States for certain response costs.

Efforts to remediate the River have been underway for many years and have involved hundreds of entities that have had operations on or near the River at some point during the past several decades. We formerly owned a chemicals operation near the mouth of the River, which was sold in 1974. The major risk drivers in the River have been identified as dioxins, PCBs, DDx and mercury. We did not manufacture any of these risk drivers and have no evidence that any of these were discharged into the River by Vulcan.

The AOC does not obligate us to fund or perform the remedial action contemplated by either the draft RI/FS or the ROD. Furthermore, the parties who will participate in funding the remediation and their respective allocations have not been determined. We do not agree that a bank-to-bank remedy is warranted, and we are not obligated to fund any of the remedial action at this time; nevertheless, we previously estimated the cost to be incurred by us as a potential participant in a bank-to-bank dredging remedy and recorded an immaterial loss for this matter in 2015.

	§		TEXAS BRINE MATTER — During the operation of its former Chemicals Division, Vulcan was the lessee to a salt lease from 1976 – 2005 in an underground salt dome formation in Assumption Parish, Louisiana. The Texas Brine Company (Texas Brine) operated this salt mine for our account. We sold our Chemicals Division in 2005 and assigned the lease to the purchaser and we have had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed near the salt dome and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in August 2012 in federal court in the Eastern District of Louisiana in New Orleans.

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There are numerous defendants to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by Texas Brine. We have since been added as a direct and third-party defendant by other parties, including a direct claim by the state of Louisiana. The damages alleged in the litigation range from individual plaintiffs’ claims for property damage, to the state of Louisiana’s claim for response costs, to claims for physical damages to oil pipelines, to business interruption claims. In addition to the plaintiffs’ claims, we have also been sued for contractual indemnity and comparative fault by both Texas Brine and Occidental. The total amount of damages claimed is in excess of $500 million. It is alleged that the sinkhole was caused, in whole or in part, by our negligent actions or failure to act. It is also alleged that we breached the salt lease, as well as an operating agreement and a drilling agreement with Texas Brine; that we are strictly liable for certain property damages in our capacity as a former assignee of the salt lease; and that we violated certain covenants and conditions in the agreement under which we sold our Chemicals Division in 2005. We have made claims for contractual indemnity, comparative fault, and breach of contract against Texas Brine, as well as claims for contractual indemnity and comparative fault against Occidental. Discovery is ongoing and no trials are currently set.

In December 2016, we settled with the plaintiffs in one of these cases involving property damages but there are cross-claims remaining against us in that case. In February 2017, we offered to settle with the plaintiffs in the cases involving physical damages to oil pipelines. The insurers who have coverage at these settlement amounts agreed that the cases were covered by our policy. An immaterial loss limited to our insurance deductible was recognized during the fourth quarter. Except for these cases, at this time we cannot reasonably estimate a range of liability pertaining to this matter.

	§		HEWITT LANDFILL MATTER (SUPERFUND SITE) — In September 2015, the Los Angeles Regional Water Quality Control Board (RWQCB) issued a Cleanup and Abatement Order (CAO) directing Vulcan to assess, monitor, cleanup and abate wastes that have been discharged to soil, soil vapor, and/or groundwater at the former Hewitt Landfill in Los Angeles. The CAO follows a 2014 Investigative Order from the RWQCB that sought data and a technical evaluation regarding the Hewitt Landfill, and a subsequent amendment to the Investigative Order requiring Vulcan to provide groundwater monitoring results to the RWQCB and to create and implement a work plan for further investigation of the Hewitt Landfill. In April 2016, we submitted an interim remedial action plan (IRAP) to the RWQCB, proposing a pilot test of a pump and treat system; testing and implementation of a leachate recovery system; and storm water capture and conveyance improvements. We are currently implementing the IRAP, including the drilling and installation of monitoring wells and construction of a treatment plant for a pilot-scale groundwater extraction and re-injection treatment system. The estimated cost to implement the IRAP is fully accrued. Operation of the pilot-scale treatment system began in January 2017. However, until this pilot testing is complete, we are unable to estimate the cost of remedial action.

We are also engaged in an ongoing dialogue with the EPA, the Los Angeles Department of Water and Power, and other stakeholders regarding the potential contribution of the Hewitt Landfill to groundwater contamination in the North Hollywood Operable Unit (NHOU) of the San Fernando Valley Superfund Site. We are gathering and analyzing data and developing technical information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area.

In July 2016, the EPA sent a letter to us requesting that we enter into an AOC for remedial design work at the NHOU including, but not limited to, the design of two or more groundwater extraction wells to be located south of the Hewitt Landfill. In February 2017, the EPA sent a draft AOC to us. Vulcan and EPA representatives expect to engage in negotiations for a possible AOC during the first and second quarters of 2017.

It is not possible to predict with certainty the ultimate outcome of these and other legal proceedings in which we are involved and a number of factors, including developments in ongoing discovery or adverse rulings, or the verdict of a particular jury, could cause actual losses to differ materially from accrued costs. No liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. Legal costs incurred in defense of lawsuits are expensed as incurred. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described in Note 1 under the caption Claims and Litigation Including Self-insurance.

Part II	102

NOTE 13: EQUITY

Our capital stock consists solely of common stock, par value $1.00 per share. Holders of our common stock are entitled to one vote per share. Our Certificate of Incorporation also authorizes preferred stock, of which no shares have been issued. The terms and provisions of such shares will be determined by our Board of Directors upon any issuance of preferred shares in accordance with our Certificate of Incorporation.

In 2014, we issued 715,004 shares of common stock in connection with a business acquisition as described in Note 19.

Under a program that was discontinued in the fourth quarter of 2014, we occasionally sold shares of common stock to the trustee of our 401(k) retirement plan to satisfy the plan participants' elections to invest in our common stock. During 2014, we issued 485,306 shares for cash proceeds of $30,620,000 under this arrangement.

There were no shares held in treasury as of December 31, 2016, 2015 and 2014.

Our common stock purchases (all of which were open market purchases) for the years ended December 31 are summarized below:

in thousands, except average cost	2016			2015			2014
Shares Purchased and Retired
Number	1,427			228			0
Total cost 1	$ 161,463			$ 21,475			$ 0
Average cost 1	$ 113.18			$ 94.19			$ 0.00

1	Excludes commissions of $0.02 per share.

As of December 31, 2016, 1,756,757 shares may be purchased under the current purchase authorization of our Board of Directors.

NOTE 14: OTHER COMPREHENSIVE INCOME

Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of other comprehensive income are presented in the accompanying Consolidated Statements of Comprehensive Income and Consolidated Statements of Equity, net of applicable taxes.

Amounts in accumulated other comprehensive income (AOCI), net of tax, at December 31, are as follows:

in thousands	2016			2015			2014
AOCI
Cash flow hedges	$ (13,300)			$ (14,494)			$ (20,322)
Pension and postretirement plans	(126,076)			(105,575)			(141,392)
Total	$ (139,376)			$ (120,069)			$ (161,714)

Part II	103

Changes in AOCI, net of tax, for the three years ended December 31, 2016 are as follows:

				Pension and
	Cash Flow			Postretirement
in thousands	Hedges			Benefit Plans			Total
AOCI
Balance as of December 31, 2013	$ (25,178)			$ (74,453)			$ (99,631)
Other comprehensive income (loss)
before reclassifications	0			(69,051)			(69,051)
Amounts reclassified from AOCI	4,856			2,112			6,968
Net OCI changes	4,856			(66,939)			(62,083)
Balance as of December 31, 2014	$ (20,322)			$ (141,392)			$ (161,714)
Other comprehensive income (loss)
before reclassifications	0			23,832			23,832
Amounts reclassified from AOCI	5,828			11,985			17,813
Net OCI changes	5,828			35,817			41,645
Balance as of December 31, 2015	$ (14,494)			$ (105,575)			$ (120,069)
Other comprehensive income (loss)
before reclassifications	0			(20,583)			(20,583)
Amounts reclassified from AOCI	1,194			82			1,276
Net OCI changes	1,194			(20,501)			(19,307)
Balance as of December 31, 2016	$ (13,300)			$ (126,076)			$ (139,376)

Amounts reclassified from AOCI to earnings, are as follows:

in thousands	2016			2015			2014
Reclassification Adjustment for Cash Flow
Hedge Losses
Interest expense	$ 2,008			$ 9,759			$ 7,988
Benefit from income taxes	(814)			(3,931)			(3,132)
Total 1	$ 1,194			$ 5,828			$ 4,856
Amortization of Pension and Postretirement Plan
Actuarial Loss and Prior Service Cost
Cost of revenues	$ 109			$ 15,916			$ 2,789
Selling, administrative and general expenses	25			3,608			688
Benefit from income taxes	(52)			(7,539)			(1,365)
Total 2	$ 82			$ 11,985			$ 2,112
Total reclassifications from AOCI to earnings	$ 1,276			$ 17,813			$ 6,968

1	Totals for 2015 and 2014 include the acceleration of a proportional amount of deferred losses on interest rate derivatives (see Note 5) referable to debt purchases (see Note 6).
2	Total for 2015 includes a one-time settlement loss resulting from a lump sum payment to a former employee (see Note 10). Total for 2014 includes a one-time curtailment gain (see Note 10) resulting from the sale of our cement and concrete businesses in the Florida area (see Note 19).

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NOTE 15: SEGMENT REPORTING

We have four operating (and reportable) segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium.

The Aggregates segment produces and sells aggregates (crushed stone, sand and gravel, sand, and other aggregates) and related products and services (transportation and other). During 2016, the Aggregates segment principally served markets in twenty states, Washington D.C. and Mexico with a full line of aggregates, and two additional states with railroad ballast. Customers use aggregates primarily in the construction and maintenance of highways, streets and other public works and in the construction of housing and commercial, industrial and other nonresidential facilities. Customers are served by truck, rail and water distribution networks from our production facilities and sales yards. Due to the high weight-to-value ratio of aggregates, markets generally are local in nature. Quarries located on waterways and rail lines allow us to serve remote markets where local aggregates reserves may not be available.

The Asphalt Mix segment produces and sells asphalt mix in four states primarily in our southwestern and western markets.

The Concrete segment produces and sells ready-mixed concrete in six states, Washington D.C. and an immaterial amount in the Bahamas. In January 2015, we swapped our ready-mixed concrete operations in California (see Note 19) for asphalt mix operations, primarily in Arizona. In March 2014, we sold our concrete business in the Florida area (see Note 19) which in addition to ready-mixed concrete, included concrete block, precast concrete, as well as building materials purchased for resale.

The Calcium segment consists of a Florida facility that mines, produces and sells calcium products. Before the sale of our cement business in March 2014 (see Note 19), we produced and sold Portland and masonry cement in both bulk and bags from our Florida cement plant and imported and exported cement, clinker and slag and either resold, ground, blended, bagged or reprocessed those materials from other Florida facilities.

Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. Our Asphalt Mix and Concrete segments are primarily supplied with their aggregates requirements from our Aggregates segment. These intersegment sales are made at local market prices for the particular grade and quality of product used in the production of asphalt mix and ready-mixed concrete. Customers for our Asphalt Mix and Concrete segments are generally served locally at our production facilities or by truck. Because asphalt mix and ready-mixed concrete harden rapidly, delivery is time constrained and generally confined to a radius of approximately 20 to 25 miles from the producing facility.

The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Total domestic revenues were $3,579,427,000 in 2016, $3,410,773,000 in 2015 and $2,979,470,000 in 2014. Nondomestic Aggregates segment revenues were $13,240,000 in 2016, $11,408,000 in 2015 and $14,699,000 in 2014; there were no significant nondomestic revenues in our Asphalt Mix, Concrete or Calcium segments. Long-lived assets outside the United States, which consist primarily of property, plant & equipment, were $188,652,000 in 2016, $160,125,000 in 2015 and $139,427,000 in 2014. Equity method investments of $22,965,000 in 2016, $22,967,000 in 2015 and $22,924,000 in 2014 are included below in the identifiable assets for the Aggregates segment.

Part II	105

SEGMENT FINANCIAL DISCLOSURE

in thousands	2016			2015			2014
Total Revenues
Aggregates 1	$ 2,961,835			$ 2,777,758			$ 2,346,411
Asphalt Mix 2	512,310			530,692			445,538
Concrete 2, 3	330,125			299,252			375,806
Calcium 4	8,860			8,596			25,032
Segment sales	$ 3,813,130			$ 3,616,298			$ 3,192,787
Aggregates intersegment sales	(220,463)			(194,117)			(189,393)
Calcium intersegment sales	0			0			(9,225)
Total revenues	$ 3,592,667			$ 3,422,181			$ 2,994,169
Gross Profit
Aggregates	$ 873,118			$ 755,666			$ 544,070
Asphalt Mix 2	97,682			78,225			38,080
Concrete 2, 3	26,543			20,152			2,233
Calcium 4	3,474			3,490			3,199
Total	$ 1,000,817			$ 857,533			$ 587,582
Depreciation, Depletion, Accretion and Amortization (DDA&A)
Aggregates	$ 236,472			$ 228,466			$ 227,042
Asphalt Mix 2	16,797			16,378			10,719
Concrete 2, 3	12,129			11,374			19,892
Calcium 4	774			679			1,554
Other	18,768			17,926			20,290
Total	$ 284,940			$ 274,823			$ 279,497
Capital Expenditures 5
Aggregates	$ 297,737			$ 269,014			$ 180,026
Asphalt Mix 2	29,002			8,111			20,796
Concrete 2, 3	10,047			19,053			19,542
Calcium 4	534			0			201
Corporate	7,621			7,846			2,532
Total	$ 344,941			$ 304,024			$ 223,097
Identifiable Assets 6
Aggregates	$ 7,589,225			$ 7,540,273			$ 7,311,336
Asphalt Mix 2	259,514			251,716			264,172
Concrete 2, 3	192,673			198,193			227,000
Calcium 4	4,959			5,509			5,818
Total identifiable assets	$ 8,046,371			$ 7,995,691			$ 7,808,326
General corporate assets	166,118			21,881			91,498
Cash and cash equivalents	258,986			284,060			141,273
Total assets	$ 8,471,475			$ 8,301,632			$ 8,041,097

1	Includes product sales, as well as freight, delivery and transportation revenues, and other revenues related to services.
2	In January 2015, we exchanged our California ready-mixed concrete operations for 13 asphalt mix plants, primarily in Arizona (see Note 19).
3	In March 2014, we sold our concrete business in the Florida area (see Note 19).
4	Includes cement and calcium products. In March 2014, we sold our cement business (see Note 19).
5	Capital expenditures include capitalized replacements of and additions to property, plant & equipment, including capitalized leases, renewals and betterments. Capital expenditures exclude property, plant & equipment obtained by business acquisitions.
6	Certain temporarily idled assets are included within a segment's Identifiable Assets but the associated DDA&A is shown within Other in the DDA&A section above as the related DDA&A is excluded from segment gross profit.

Part II	106

NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental information referable to the Consolidated Statements of Cash Flows is summarized below:

in thousands	2016			2015			2014
Cash Payments
Interest (exclusive of amount capitalized)	$ 135,039			$ 208,288			$ 241,841
Income taxes	102,849			53,623			79,862
Noncash Investing and Financing Activities
Accrued liabilities for purchases of property,
plant & equipment	$ 26,676			$ 31,883			$ 17,120
Amounts referable to business acquisitions
Liabilities assumed	798			2,645			26,622
Fair value of noncash assets and liabilities exchanged	0			20,000			2,414
Fair value of equity consideration	0			0			45,185

NOTE 17: ASSET RETIREMENT OBLIGATIONS

Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets.

Recognition of a liability for an ARO is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the ARO is settled for other than the carrying amount of the liability, we recognize a gain or loss on settlement.

We record all AROs for which we have legal obligations for land reclamation at estimated fair value. Essentially all these AROs relate to our underlying land parcels, including both owned properties and mineral leases. For the years ended December 31, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:

in thousands	2016			2015			2014
ARO Operating Costs
Accretion	$ 11,059			$ 11,474			$ 11,601
Depreciation	6,353			6,515			4,462
Total	$ 17,412			$ 17,989			$ 16,063

ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Consolidated Balance Sheets.

Reconciliations of the carrying amounts of our AROs for the years ended December 31 are as follows:

in thousands	2016			2015
Asset Retirement Obligations
Balance at beginning of year	$ 226,594			$ 226,565
Liabilities incurred	505			6,235
Liabilities settled	(17,114)			(18,048)
Accretion expense	11,059			11,474
Revisions, net	2,828			368
Balance at end of year	$ 223,872			$ 226,594

Part II	107

The ARO liabilities incurred during 2016 and 2015 relate primarily to acquisitions (see Note 19). ARO liabilities settled during 2016 and 2015 include $12,602,000 and $13,117,000, respectively, of reclamation activities required under a development agreement and conditional use permits at two adjacent aggregates sites on owned property in Southern California. The reclamation required under the development agreement will result in the restoration and development of 90 acres of previously mined property suitable for commercial and retail development.

NOTE 18: GOODWILL AND INTANGIBLE ASSETS

Acquired identifiable intangible assets are classified into three categories: (1) goodwill, (2) intangible assets with finite lives subject to amortization and (3) intangible assets with indefinite lives. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually. For additional information about our policies on impairment reviews, see Note 1 under the captions Goodwill and Goodwill Impairment, and Impairment of Long-lived Assets excluding Goodwill.

GOODWILL

Goodwill is recognized when the consideration paid for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. There were no charges for goodwill impairment in the years ended December 31, 2016, 2015 and 2014.

We have four reportable segments organized around our principal product lines: Aggregates, Asphalt Mix, Concrete and Calcium. Changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2016, 2015 and 2014 are summarized below:

in thousands		Aggregates			Asphalt Mix			Concrete			Calcium			Total
Goodwill
Total as of December 31, 2014		$ 3,003,191			$ 91,633			$ 0			$ 0			$ 3,094,824
Total as of December 31, 2015		$ 3,003,191			$ 91,633			$ 0			$ 0			$ 3,094,824
Total as of December 31, 2016		$ 3,003,191			$ 91,633			$ 0			$ 0			$ 3,094,824

We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.

Part II	108

INTANGIBLE ASSETS

Intangible assets acquired in business combinations are stated at their fair value determined as of the date of acquisition. Costs incurred to renew or extend the life of existing intangible assets are capitalized. These capitalized renewal/extension costs were immaterial for the years presented. Intangible assets consist of contractual rights in place (primarily permitting and zoning rights), noncompetition agreements, favorable lease agreements, customer relationships and trade names and trademarks. Intangible assets acquired individually or otherwise obtained outside a business combination consist primarily of permitting, permitting compliance and zoning rights and are stated at their historical cost less accumulated amortization.

See Note 19 for the details of the intangible assets acquired in business acquisitions during 2016, 2015 and 2014. Amortization of finite-lived intangible assets is computed based on the estimated life of the intangible assets. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-production method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method. Intangible assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. As shown in Note 1 under the caption Fair Value Measurements, we incurred $8,180,000 and $2,858,000 of impairment charges related to intangible assets in 2016 and 2015, respectively. There were no charges for impairment of intangible assets in 2014.

The gross carrying amount and accumulated amortization by major intangible asset class for the years ended December 31 are summarized below:

in thousands		2016			2015
Gross Carrying Amount
Contractual rights in place		$ 742,085			$ 735,935
Noncompetition agreements		6,757			2,800
Favorable lease agreements		9,479			16,677
Permitting, permitting compliance and zoning rights		112,058			99,513
Other 1		4,171			4,092
Total gross carrying amount		$ 874,550			$ 859,017
Accumulated Amortization
Contractual rights in place		$ (77,515)			$ (65,641)
Noncompetition agreements		(1,118)			(506)
Favorable lease agreements		(2,822)			(4,002)
Permitting, permitting compliance and zoning rights		(21,701)			(20,350)
Other 1		(2,342)			(1,939)
Total accumulated amortization		$ (105,498)			$ (92,438)
Total Intangible Assets Subject to Amortization, net		$ 769,052			$ 766,579
Intangible Assets with Indefinite Lives		0			0
Total Intangible Assets, net		$ 769,052			$ 766,579
Amortization Expense for the Year		$ 17,565			$ 15,618

1	Includes customer relationships and tradenames and trademarks.

Estimated amortization expense for the five years subsequent to December 31, 2016 is as follows:

in thousands
Estimated Amortization Expense for Five Subsequent Years
2017	$ 16,308
2018	15,941
2019	16,222
2020	15,488
2021	14,288

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NOTE 19: ACQUISITIONS AND DIVESTITURES

BUSINESS ACQUISITIONS

During 2016, the following assets were acquired for $33,287,000 of consideration ($32,537,000 cash and $750,000 payable):

	§		an asphalt mix operation in New Mexico

	§		an aggregates facility in Texas

	§		a distribution business to complement our aggregates logistics and distribution activities in Georgia

None of the 2016 acquisitions listed above are material to our results of operations or financial position either individually or collectively. The fair value of consideration transferred for these acquisitions and the preliminary amounts of assets acquired and liabilities assumed (based on their estimated fair values at their acquisition dates), are summarized below:

in thousands				2016
Fair Value of Purchase Consideration
Cash				$ 32,537
Payable to seller				750
Total fair value of purchase consideration				$ 33,287
Identifiable Assets Acquired and Liabilities Assumed
Accounts and notes receivable, net				$ 1,034
Inventories				169
Property, plant & equipment, net				15,462
Other intangible assets
Contractual rights in place				15,213
Noncompetition agreement				1,457
Liabilities assumed				(48)
Net identifiable assets acquired				$ 33,287
Goodwill				$ 0

Estimated fair values of assets acquired and liabilities assumed are preliminary pending appraisals of contractual rights in place and property, plant & equipment.

As a result of these 2016 acquisitions, we recognized $16,670,000 of amortizable intangible assets (primarily contractual rights in place).The contractual rights in place noted above will be amortized against earnings ($6,798,000 - straight-line over 20 years and $8,415,000 - units of production over an estimated 20 years) and deductible for income tax purposes over 15 years.

During 2015, the following assets were acquired for $47,198,000 of consideration ($27,198,000 cash and $20,000,000 exchanges of real property and businesses (twelve California ready-mixed concrete operations)):

	§		one aggregates facility in Tennessee

	§		three aggregates facilities and seven ready-mixed concrete operations in Arizona and New Mexico

	§		thirteen asphalt mix operations, primarily in Arizona

None of the 2015 acquisitions listed above were material to our results of operations or financial position either individually or collectively. As a result of these 2015 acquisitions, we recognized $17,734,000 of amortizable intangible assets ($17,484,000 contractual rights in place and $250,000 noncompetition agreement). The contractual rights in place will be amortized against earnings ($7,168,000 - straight-line over 20 years and $10,317,000 - units of production over an estimated 34 years) and deductible for income tax purposes over 15 years.

Part II	110

During 2014, we purchased the following for total consideration of $331,836,000 ($284,237,000 cash, $2,414,000 exchanges of real property and businesses and $45,185,000 of our common stock (715,004 shares)):

	§		two portable asphalt plants and an aggregates facility in southern California

	§		five aggregates facilities and associated downstream assets in Arizona and New Mexico

	§		two aggregates facilities in Delaware, serving northern Virginia and Washington, D.C.

	§		four aggregates facilities in the San Francisco Bay Area

	§		a rail-connected aggregates operation and two distribution yards that serve the greater Dallas/Fort Worth market

	§		a permitted aggregates quarry in Alabama

None of the 2014 acquisitions listed above were material to our results of operations or financial position either individually or collectively. As a result of these 2014 acquisitions, we recognized $128,286,000 of amortizable intangible assets (primarily contractual rights in place). The contractual rights in place will be amortized against earnings using the unit-of-production method over an estimated weighted-average period in excess of 40 years and all but $36,921,000 will be deductible for income tax purposes over 15 years. The $13,303,000 of goodwill recognized (none of which will be deductible for income tax purposes) represents the balance of deferred tax liabilities generated from carrying over the seller’s tax basis in the assets acquired.

DIVESTITURES

In 2016, we sold:

	§		Fourth quarter — surplus land in California and Virginia for net pretax cash proceeds of $19,185,000 resulting in pretax gains of $11,871,000

	§		Fourth quarter — plant relocation reimbursement in Virginia for net pretax cash proceeds of $6,000,000 resulting in a pretax gain of $4,335,000 (this item is presented within other operating expense in the accompanying Consolidated Statement of Comprehensive Income)

As noted above, in 2015 (first quarter), we exchanged twelve ready-mixed concrete operations in California (representing all of our California concrete operations) for thirteen asphalt mix plants (primarily in Arizona) resulting in a pretax gain of $5,886,000.

In 2014, we sold:

	§		First quarter — our cement and concrete businesses in the Florida area for net pretax cash proceeds of $721,359,000 resulting in a pretax gain of $227,910,000. We retained all of our Florida aggregates operations, our former Cement segment’s calcium operation in Brooksville, Florida and real estate associated with certain former ready-mixed concrete facilities. Under a separate supply agreement, we continue to provide aggregates to the divested concrete facilities, at market prices, for a period of 20 years. As a result of the continuing cash flows (generated via the supply agreement and the retained operation and assets), the disposition is not reported as discontinued operations

	§		First quarter — a previously mined and subsequently reclaimed tract of land in Maryland (Aggregates segment) for net pretax cash proceeds of $10,727,000 resulting in a pretax gain of $168,000

	§		First quarter — unimproved land in Tennessee previously containing a sales yard (Aggregates segment) for net pretax cash proceeds of $5,820,000 resulting in a pretax gain of $5,790,000

Part II	111

NOTE 20: UNAUDITED SUPPLEMENTARY DATA

The following is a summary of selected quarterly financial information (unaudited) for each of the years ended December 31, 2016 and 2015:

	2016
	Three Months Ended
in thousands, except per share data	March 31		June 30		Sept 30		Dec 31
Total revenues	$ 754,728		$ 956,825		$ 1,008,140		$ 872,974
Gross profit	164,718		292,184		304,209		239,706
Operating earnings	64,921		213,786		227,076		173,799
Earnings from continuing operations 1	41,965		127,241		145,137		108,063
Net earnings 1	40,158		124,709		142,024		112,600
Basic earnings per share from continuing operations 1	$ 0.31		$ 0.95		$ 1.09		$ 0.82
Diluted earnings per share from continuing operations 1	$ 0.31		$ 0.93		$ 1.07		$ 0.80
Basic net earnings per share 1	$ 0.30		$ 0.93		$ 1.07		$ 0.85
Diluted net earnings per share 1	$ 0.30		$ 0.92		$ 1.05		$ 0.83

1

Amounts are revised to reflect the early adoption of ASU 2016-09 (See Note 1, caption Accounting Standards Recently Adopted) in the fourth quarter of 2016 and presented as adopted as of the beginning of the year. Earnings from continuing operations and Net earnings were increased, as follows: March 31 — $21,234,000 ($0.16 per share); June 30 — $959,000 ($0.01 in diluted net earnings per share only); and September 30 — $2,259,000 ($0.02 per share basic and $0.01 per share diluted).

	2015
	Three Months Ended
in thousands, except per share data	March 31		June 30		Sept 30		Dec 31
Total revenues	$ 631,293		$ 895,143		$ 1,038,460		$ 857,285
Gross profit	77,865		234,449		291,290		253,929
Operating earnings	10,759		153,776		212,206		173,037
Earnings (loss) from continuing operations	(36,667)		49,819		126,202		93,560
Net earnings (loss)	(39,678)		48,162		123,805		88,888
Basic earnings (loss) per share from continuing operations	$ (0.28)		$ 0.37		$ 0.95		$ 0.70
Diluted earnings (loss) per share from continuing operations	$ (0.28)		$ 0.37		$ 0.93		$ 0.69
Basic net earnings (loss) per share	$ (0.30)		$ 0.36		$ 0.93		$ 0.67
Diluted net earnings (loss) per share	$ (0.30)		$ 0.36		$ 0.91		$ 0.65

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