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Vulcan Materials
2018 Annual Report

Vulcan Announces First Quarter Results

05/04/09
Continuing Cost Management Actions Help Offset Effects of Demand Decline

BIRMINGHAM, Ala.--(BUSINESS WIRE)--May. 4, 2009-- Vulcan Materials Company (NYSE:VMC) announced results today for the first quarter ended March 31, 2009.

First Quarter Summary and Comparisons with the Prior Year

  • Earnings from continuing operations were a loss of $32 million, or $0.29 per diluted share.
  • Aggregates shipments declined 30 percent, reducing earnings $0.58 per diluted share.
  • Aggregates pricing increased 2 percent overall, with wide variations across markets.
  • Aggregates unit variable production costs were flat and cash fixed costs decreased 21 percent.
  • Asphalt material margins recovered from the depressed prior year levels.
  • Selling, administrative and general expenses declined 14 percent.
  • EBITDA was $97 million versus $160 million in the prior year.
  • Cash earnings were $70 million versus $112 million in the prior year.

Commenting for the Company, Don James, Vulcan’s Chairman and Chief Executive Officer, stated, “The sharp decline in demand for construction materials is unprecedented. In response to continuing market weakness and the corresponding reduced demand, we remain focused on reducing costs, improving productivity and maintaining unit variable margins. These actions helped mitigate the earnings effect of lower sales volumes. In contrast to typical seasonal operating plans, during the first quarter we reduced production and inventory levels. These decisions penalized first quarter earnings but improved cash generation and better positioned us for improved operating performance going forward.

“We remain highly focused on cash generation and improving our liquidity during this period of weak demand for our products. Critical evaluation of the strategic nature and timing of all capital projects led us to reduce spending on capital projects to $26 million from the $109 million spent in the first quarter of the prior year. We improved our liquidity through an issuance in early February of $400 million of long-term debt. Proceeds of this debt offering reduced short-term bank borrowings, thereby freeing up a like amount of liquidity under our lines of credit. Overall, in the first quarter, we reduced total debt by $33 million. In April, we utilized $250 million of the liquidity under our bank lines of credit to pay off $250 million of 10-year notes as scheduled.”

First Quarter Operating Results Commentary

First quarter earnings for aggregates declined as lower shipments more than offset the earnings effect from price improvement, lower unit costs for diesel fuel and prudent cost control. Aggregates shipments were sharply lower compared to the prior year’s first quarter in all markets except the Central Gulf Coast where large energy-related and industrial construction projects have sustained aggregates demand. The decrease in aggregates volumes reduced EBITDA by approximately $84 million versus the prior year. The overall increase in the average selling price for aggregates reflects wide variations across Vulcan-served markets. Many major markets realized price improvement from the prior year above the 2 percent average, while markets in the far west reported year-over-year declines in average selling price. Excluding these western markets, aggregates pricing improved 4 percent from the prior year’s first quarter. Aggregates pricing in western markets was lower due to a substantial increase in sales of lower priced products, including fill material and railroad ballast. Excluding the sales of lower priced products, aggregates pricing in western markets decreased 3 percent as compared to the prior year’s first quarter due to lower demand.

Rationalizing production, reducing operating hours, streamlining the work force and effectively managing spending levels reduced aggregates costs versus the prior year. Aggregates unit variable production costs were flat compared to the prior year’s first quarter and cash fixed costs declined 21 percent from the prior year. The unit price for diesel fuel decreased 47 percent from the prior year’s first quarter, increasing earnings $0.07 per diluted share.

Asphalt earnings in the first quarter were higher than last year’s first quarter as material margins recovered to more normal levels reflecting recent moderation in the cost of liquid asphalt. Asphalt sales volumes decreased 27 percent from the prior year’s first quarter level. Concrete earnings decreased from the prior year’s first quarter due to weaker demand.

Cement earnings were a slight loss in the first quarter due to weak demand and lower production levels.

Selling, administrative and general expenses in the first quarter decreased $13 million from the prior year’s first quarter. Cost-saving actions implemented across the Company to align spending levels with weak product demand more than offset project costs related to the replacement of legacy IT systems and higher severance costs. Performance-based compensation accruals as well as employee expenses, including salaries and benefits, were lower compared with the prior year. Employment levels across the Company are down 14 percent from the prior year.

All results are unaudited.

Outlook Highlights and Commentary

  • Full year aggregates pricing is expected to increase 4 to 6 percent from the prior year.
  • Full year aggregates shipments, including some projected incremental demand starting in the second half of 2009 from the economic stimulus plan, are expected to decline 10 to 15 percent from 2008 levels.
  • Diesel fuel and liquid asphalt prices will be lower for the full year 2009 compared to the average price in 2008.
  • Our focus on cash generation and liquidity will continue.

Commenting on the Company’s outlook for 2009, Mr. James stated, “Broad-based economic weakness and extremely tight credit markets continue to hamper private construction activity and add to uncertainty in projecting demand for our products. Our revised volume outlook for the full year assumes lower aggregates demand in all major end markets, offset somewhat by incremental demand starting in the second half of 2009 from the first of the economic stimulus projects.

“The Economic Stimulus Plan passed by Congress and signed by the President in February includes an estimated $50 to $60 billion of much-needed direct funding for transportation and other infrastructure-related projects that will help offset projected weakness in private construction activity. Transportation projects are the most aggregates-intensive form of construction. For every billion dollars spent on highways, we estimate that approximately 14 million tons of aggregates are consumed, assuming a normal mix of highway projects. That same billion dollars spent on highways would also consume, on average, 4 to 5 million tons of asphalt mix and 150,000 cubic yards of concrete. Vulcan-served states will receive 60 percent of the $28 billion in funds for highway and bridge projects.

“Early reports show that state and local departments of transportation are making good progress using stimulus dollars to make highway investments and create jobs in the U.S. economy. In fact, most Vulcan-served states have obligated some portion of their highway stimulus funds in the past two months. Additionally, we expect highway bidding activity in our states to increase both in number of projects and the frequency of bid lettings in order to meet the 120-day deadline for each state to obligate at least 50 percent of its highway stimulus funding.

“Other non-building infrastructure that is funded by the stimulus plan such as water and environmental projects also consume large quantities of aggregates. For every billion dollars spent on water and environmental infrastructure, we estimate 5 to 6 million tons of aggregates could be consumed along with 300,000 tons of asphalt mix and 200,000 cubic yards of concrete. Building-related infrastructure consumes 2 to 3 million tons of aggregates along with 200,000 tons of asphalt mix and 700,000 cubic yards of concrete for every billion dollars spent.

“We are also encouraged by the success to date of the Build America Bonds authorized in the Economic Stimulus Plan. These bonds can be used to finance construction by issuers who have traditionally used tax-free bonds. Build America Bonds have already been issued for construction projects in California and Virginia.

“Our available production capacity and improved cost structure position Vulcan to participate efficiently and effectively in the supply of material for economic stimulus projects. Key Vulcan-served states such as California, Florida and Texas will receive the largest percentage of highway funding under the stimulus plan and are likely targets for above-average funding for other stimulus spending for infrastructure because of their high growth and large population base. Vulcan sales in these three states should benefit from our aggregates-focused strategy that is complemented by our asphalt and concrete operations.

“We expect higher selling prices for our products in 2009 to help offset the earnings effects of lower volumes. The average selling price for asphalt mix in 2009 should increase from 2008 as shipments reflect sales orders that include recovery of the sharp increase in liquid asphalt cost that peaked in late 2008.

“Debt reduction and achieving target debt ratios remain a priority use of cash flows. We expect to reduce total debt by $200 million during 2009. For the full year 2009, we expect capital spending to be approximately $200 million, down sharply from the $354 million spent in 2008.”

Conference Call

Vulcan will host a conference call at 9:00 a.m. CDT on May 5, 2009. Investors and other interested parties in the U.S. may access the teleconference live by calling 888.713.4215 approximately 10 minutes before the scheduled start. International participants can dial 617.213.4867. The access code is 36574572. A live webcast will be available via the Internet through Vulcan's home page at www.vulcanmaterials.com. The conference call will be recorded and available for replay approximately two hours after the call through May 7, 2009.

Vulcan Materials Company, a member of the S&P 500 Index, is the nation's largest producer of construction aggregates, a major producer of asphalt mix and concrete and a leading producer of cement in Florida.

Certain matters discussed in this release, including expectations regarding future performance, contain forward-looking statements that are subject to assumptions, risks and uncertainties that could cause actual results to differ materially from those projected. These assumptions, risks and uncertainties include, but are not limited to, those associated with general economic and business conditions; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; changes in the level of spending for residential and private nonresidential construction; the highly competitive nature of the construction materials industry; the impact of future regulatory or legislative actions; the outcome of pending legal proceedings; pricing; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; increasing healthcare costs; the timing and amount of any future payments to be received under the 5CP earn-out contained in the agreement for the divestiture of the Company's Chemicals business; the Company’s ability to secure and permit aggregates reserves in strategically located areas; the Company’s ability to manage and successfully integrate acquisitions; risks and uncertainties related to the Company’s acquisition of Florida Rock Industries, Inc., including the ability to successfully integrate its operations and to achieve the anticipated cost savings and operational synergies; the possibility that business may suffer because management’s attention is diverted to integration concerns; the impact of the global financial crisis on our business and financial condition; and other assumptions, risks and uncertainties detailed from time to time in the Company’s SEC reports, including the report on Form 10-K for the year. Forward-looking statements speak only as of the date hereof, and Vulcan assumes no obligation to publicly update such statements.

          Table A
Vulcan Materials Company
and Subsidiary Companies
(Amounts and shares in thousands,
except per share data)
 
Three Months Ended
Consolidated Statements of Earnings March 31
(Condensed and unaudited)   2009   2008
 
Net sales $ 567,895 $ 771,762
Delivery revenues   32,399     45,577  
Total revenues 600,294 817,339
 
Cost of goods sold 490,288 617,312
Delivery costs   32,399     45,577  
Cost of revenues   522,687     662,889  
 
Gross profit 77,607 154,450
Selling, administrative and general expenses 79,717 92,576

Gain on sale of property, plant & equipment and businesses, net

2,503 3,945
Other operating (income) expense, net   1,719     (939 )
Operating earnings (loss) (1,326 ) 66,758
 
Other income (expense), net (1,075 ) (2,651 )
Interest income 795 671
Interest expense   43,919     43,458  

Earnings (loss) from continuing operations before income taxes

(45,525 ) 21,320
Provision (benefit) for income taxes   (13,270 )   6,835  
Earnings (loss) from continuing operations (32,255 ) 14,485
Loss on discontinued operations, net of tax   (525 )   (552 )
Net earnings (loss)   $ (32,780 )   $ 13,933  
Basic earnings (loss) per share:
Continuing operations $ (0.29 ) $ 0.13
Discontinued operations   (0.01 )   -  
Net earnings (loss) per share $ (0.30 ) $ 0.13
 
Diluted earnings (loss) per share:
Continuing operations $ (0.29 ) $ 0.13
Discontinued operations   (0.01 )   -  
Net earnings (loss) per share $ (0.30 ) $ 0.13
         

Weighted-average common shares outstanding:

Basic 110,598 108,644
Assuming dilution 110,598 109,898

Cash dividends declared per share of common stock

$ 0.49 $ 0.49

Depreciation, depletion, accretion and amortization from continuing operations

$ 99,315 $ 95,856
Effective tax rate from continuing operations     29.1 %     32.1 %

            Table B
Vulcan Materials Company
and Subsidiary Companies
 
(Amounts in thousands)
 
Consolidated Balance Sheets March 31 December 31 March 31
(Condensed and unaudited)   2009   2008   2008
 

Assets

Cash and cash equivalents $ 47,446 $ 10,194 $ 51,023
Medium-term investments 11,530 36,734 -
Accounts and notes receivable:
Accounts and notes receivable, gross 339,197 365,688 444,406
Less: Allowance for doubtful accounts   (9,134 )   (8,711 )   (7,131 )
Accounts and notes receivable, net 330,063 356,977 437,275
Inventories:
Finished products 292,776 295,525 310,316
Raw materials 29,023 28,568 31,872
Products in process 4,857 4,475 4,356
Operating supplies and other   35,164     35,743     38,292  
Inventories 361,820 364,311 384,836
Deferred income taxes 70,442 71,205 68,522
Prepaid expenses 60,840 54,469 69,537
Assets held for sale   -     -     148,727  
Total current assets 882,141 893,890 1,159,920
Investments and long-term receivables 28,011 27,998 24,743
Property, plant & equipment:
Property, plant & equipment, cost 6,649,867 6,635,873 5,956,433

Less: Reserve for depr., depl. & amort.

  (2,560,199 )   (2,480,061 )   (2,267,613 )
Property, plant & equipment, net 4,089,668 4,155,812 3,688,820
Goodwill 3,082,467 3,083,013 3,900,360
Other intangible assets 672,871 673,792 121,802
Other assets   80,406     79,664     164,360  
Total assets $ 8,835,564   $ 8,914,169   $ 9,060,005  
 
 

Liabilities and Shareholders' Equity

Current maturities of long-term debt $ 311,689 $ 311,685 $ 34,834
Short-term borrowings 667,000 1,082,500 2,192,689
Trade payables and accruals 138,939 147,104 197,529
Other current liabilities 154,432 121,777 183,778
Liabilities of assets held for sale   -     -     6,434  
Total current liabilities 1,272,060 1,663,066 2,615,264
Long-term debt 2,536,211 2,153,588 1,529,672
Deferred income taxes 954,577 949,036 675,425
Other noncurrent liabilities   619,386     625,743     492,625  
Total liabilities   5,382,234     5,391,433     5,312,986  
Shareholders' equity:
Common stock, $1 par value 110,556 110,270 109,441
Capital in excess of par value 1,750,688 1,734,835 1,671,162
Retained earnings 1,775,587 1,862,913 2,040,864
Accumulated other comprehensive loss   (183,501 )   (185,282 )   (74,448 )
Shareholders' equity   3,453,330     3,522,736     3,747,019  
Total liabilities and shareholders' equity   $ 8,835,564     $ 8,914,169     $ 9,060,005  

            Table C
Vulcan Materials Company
and Subsidiary Companies
 
(Amounts in thousands)
Three Months Ended
Consolidated Statements of Cash Flows March 31
(Condensed and unaudited)   2009   2008
 

Operating Activities

Net earnings (loss) $ (32,780 ) $ 13,933

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

Depreciation, depletion, accretion and amortization 99,315 95,856
Net gain on sale of property, plant & equipment and businesses (3,227 ) (3,945 )
Contributions to pension plans (1,131 ) (738 )
Share-based compensation 5,791 4,219
Excess tax benefit from share-based compensation (196 ) (3,162 )
Deferred tax provision 2,619 1,620

Changes in assets and liabilities before initial effects of business acquisitions and dispositions

36,311 (90,689 )
Other, net   (1,604 )   (4,177 )
Net cash provided by operating activities   105,098     12,917  
 

Investing Activities

Purchases of property, plant & equipment (25,638 ) (109,286 )
Proceeds from sale of property, plant & equipment 3,070 6,588
Proceeds from sale of businesses 11,537 17,514
Payment for businesses acquired, net of acquired cash - (55,885 )
Redemption of medium-term investments 25,203 -
Proceeds from loan on life insurance policies - 28,646
Withdrawal from nonconsolidated companies, net 113 519
Other, net   323     4,599  
Net cash provided by (used for) investing activities   14,608     (107,305 )
 

Financing Activities

Net short-term borrowings (payments) (417,475 ) 101,189
Payment of short-term debt and current maturities (15,083 ) (403 )
Proceeds from issuance of long-term debt, net of discounts 397,660 -
Debt issuance costs (3,033 ) (100 )
Proceeds from issuance of common stock 6,800 55,078
Dividends paid (54,069 ) (53,177 )
Proceeds from exercise of stock options 2,755 4,199
Excess tax benefit from share-based compensation 196 3,162
Other, net   (205 )   575  
Net cash provided by (used for) financing activities   (82,454 )   110,523  
 
Net increase in cash and cash equivalents 37,252 16,135

Cash and cash equivalents at beginning of year

  10,194     34,888  
Cash and cash equivalents at end of period   $ 47,446     $ 51,023  

           

Table D

Segment Financial Data and Unit Shipments
(Amounts in thousands, except per unit data)
Three Months Ended
March 31
2009   2008
Total Revenues
Aggregates (a) $ 401,812

$

536,038

Asphalt mix and Concrete (b) 193,199 266,628
Cement (c) 19,741 31,087
Intersegment sales   (46,857 ) (61,991 )
Total net sales 567,895 771,762
Delivery revenues   32,399   45,577  
Total revenues $ 600,294  

$

817,339

 
Gross Profit
Aggregates $ 63,616

$

126,907

Asphalt mix and Concrete 15,317 20,074
Cement   (1,326 ) 7,469  
Total gross profit $ 77,607  

$

154,450

 
Unit Shipments
Aggregates
Customer tons 29,541 42,070
Internal tons (d)   2,512   3,917  
Aggregates - tons   32,053   45,987  
Asphalt mix - tons 1,398 1,903
Ready-mixed concrete - cubic yards 1,087 1,595
Cement
Customer tons 67 173
Internal tons (d)   101   117  
Cement - tons   168   290  
Average Unit Sales Price (including internal sales)
Aggregates (freight-adjusted) (e) $ 10.26

$

10.04

Asphalt mix $ 55.19

$

48.95

Ready-mixed concrete $ 99.47

$

99.51

Cement $ 97.00

$

98.16

 

(a)   Includes crushed stone, sand and gravel, sand, other aggregates, as well as transportation and service revenues associated with the aggregates business.
(b) Includes asphalt mix, ready-mixed concrete, concrete block, precast, as well as building materials purchased for resale.
(c) Includes cement and calcium products.
(d) Represents tons shipped primarily to our downstream operations (e.g., asphalt mix and ready-mixed concrete). Sales from internal shipments are eliminated in net sales presented above and in the accompanying Condensed Consolidated Statements of Earnings.
(e) Freight-adjusted sales price is calculated as total sales dollars (internal and external) less freight to remote distribution sites divided by total sales units (internal and external).
 

  Table E
Supplemental Cash Flow Information
 

Supplemental information referable to the Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31 is summarized below (amounts in thousands):

 
    2009   2008
 

Supplemental Disclosure of Cash Flow Information

Cash paid (refunded) during the period for:      
Interest, net of amount capitalized $ 13,334 $ 31,404
Income taxes (330 ) 13,094
 

Supplemental Schedule of Noncash Investing and Financing Activities

Liabilities assumed in business acquisitions - 559
Accrued liabilities for purchases of property & equipment 19,082 25,754
Carrying value of noncash assets and liabilities exchanged - 29,086
Debt issued for purchases of property, plant & equipment 1,982 4
Proceeds receivable from exercise of stock options - 911
Other noncash transactions 25 16

           

Table F

 

 

 
Reconciliation of Non-GAAP Measures
EBITDA and Cash Earnings Reconciliations
 
(Amounts in thousands)
Three Months Ended
March 31
          2009   2008
 
Reconciliation of Net Cash Provided by Operating Activities to EBITDA and Cash Earnings
 
Net cash provided by operating activities $ 105,099 $ 12,917

Changes in operating assets and liabilities before initial effects of business acquisitions and dispositions

(36,311

)

90,689

Other, net operating activity items (providing) using cash (2,253 ) 6,183
Loss on discontinued operations, net of tax 525 552
Provision for income taxes (13,270 ) 6,835
Interest expense, net 43,124 42,787

Less: Depreciation, depletion, accretion and amortization

  (99,315 )   (95,856 )
EBIT (2,401 ) 64,107
Plus: Depreciation, depletion, accretion and amortization   99,315     95,856  
 
EBITDA $ 96,914 $ 159,963
Less: Interest expense, net (43,124 ) (42,787 )
Current taxes   15,906     (5,152 )
Cash earnings $ 69,696   $ 112,024  
 
Reconciliation of Operating Earnings (Loss) to EBITDA and Cash Earnings
 
Operating earnings (loss) $ (1,326 ) $ 66,758
Other income (expense), net   (1,075 )   (2,651 )
EBIT (2,401 ) 64,107
Plus: Depreciation, depletion, accretion and amortization   99,315     95,856  
 
EBITDA $ 96,914 $ 159,963
Less: Interest expense, net (43,124 ) (42,787 )
Current taxes   15,906     (5,152 )
Cash earnings $ 69,696   $ 112,024  
                   
 
EBITDA and Earnings Per Share (EPS) Bridge EBITDA EPS
(millions) (diluted)
First Quarter Continuing Operations - 2008 Actual $ 160 $ 0.13
Increase / (Decrease) due to:
Aggregates:
Volumes (84 ) (0.58 )
Selling prices 7 0.05
Costs 16 0.11
Asphalt mix and Concrete (4 ) (0.03 )
Cement (9 ) (0.06 )
Selling, administrative and general expenses 13 0.07
Depreciation, depletion, accretion and amortization n/a (0.02 )
Tax rate differential and discrete items n/a 0.03
Additional shares outstanding and other   (2 )   0.01  
 
First Quarter Continuing Operations - 2009 Actual $ 97   $ (0.29 )
                   
EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. Cash earnings adjusts EBITDA for net interest and current taxes. These financial metrics are often used by the investment community as indicators of a company’s ability to incur and service debt. They are not defined by Generally Accepted Accounting Principles (GAAP); thus, it should not be considered as an alternative to net cash provided by operating activities, operating earnings, or any other liquidity or performance measure defined by GAAP.
 
 
These metrics are presented for the convenience of investment professionals that use such metrics in their analysis and to provide the Company's shareholders an understanding of metrics management uses to assess performance and to monitor our cash and liquidity positions. Due to the significant write-up of the assets acquired in the November 2007 acquisition of Florida Rock resulting from the application of SFAS 141, Business Combinations, Vulcan's management internally uses EBITDA, cash earnings, and other such measures to assess the operating performance of the acquired Florida Rock assets and consolidated company. Vulcan's management does not use these metrics as a measure to allocate resources internally.

Source: Vulcan Materials Company

Vulcan Materials Company
Investor Contact:
Mark Warren, 205-298-3220
or
Media Contact:
David Donaldson, 205-298-3220

Contact

Vulcan Materials Company
Corporate Office
1200 Urban Center Drive
P.O. Box 385014
Birmingham, AL 35242

Tel: (205) 298-3000