SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-4033
VULCAN MATERIALS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 63-0366371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Metroplex Drive, Birmingham, Alabama 35209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (205) 877-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Shares outstanding
Class at July 31, 1997
Common Stock, $1 Par Value 33,820,317
VULCAN MATERIALS COMPANY
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
Contents
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Earnings 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 6
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS*
(Amounts in thousands)
June 30, December 31, June 30,
Assets 1997 1996 1996
<S> <C> <C> <C>
Current assets
Cash and cash equivalents...............................$ 34,696 $ 50,816 $ 106
Accounts and notes receivable, less allowance for
doubtful accounts: June 30, 1997, $7,639; Dec. 31,
1996, $8,106; June 30, 1996, $8,637.................... 233,141 185,535 233,175
Inventories:
Finished products..................................... 90,798 87,459 89,265
Raw materials......................................... 12,210 10,115 14,112
Products in process................................... 897 873 610
Operating supplies and other.......................... 30,626 30,131 29,396
Total inventories................................ 134,531 128,578 133,383
Deferred income taxes................................... 22,585 23,474 27,421
Prepaid expenses........................................ 4,415 5,642 11,131
Total current assets............................. 429,368 394,045 405,216
Investments and long-term receivables..................... 61,451 61,274 59,139
Property, plant and equipment, at cost less accumulated
depreciation, depletion and amortization: June 30,
1997, $1,280,568; Dec. 31, 1996, $1,237,674; June 30,
1996, $1,204,203........................................ 801,476 764,490 742,660
Deferred charges and other assets......................... 93,018 100,836 101,702
Total............................................$1,385,313 $ 1,320,645 $ 1,308,717
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term obligations.............$ 5,071 $ 5,021 $ 6,791
Notes payable........................................... 3,186 3,289 36,064
Trade payables and accruals............................. 115,106 98,528 100,226
Other current liabilities............................... 108,816 87,816 107,233
Total current liabilities........................ 232,179 194,654 250,314
Long-term obligations..................................... 80,588 85,535 85,199
Deferred income taxes..................................... 89,405 86,968 87,155
Other noncurrent liabilities.............................. 72,916 69,824 66,035
Shareholders' equity...................................... 910,225 883,664 820,014
Total............................................$1,385,313 $ 1,320,645 $ 1,308,717
<FN>
*Balance sheets as of June 30 are unaudited.
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts and shares in thousands, except per share data)
Three Months Ended Six Months Ended
June 30* June 30*
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales...................................... $445,072 $419,222 $786,430 $727,763
Cost of goods sold............................. 308,593 289,906 573,837 528,313
Gross profit on sales.......................... 136,479 129,316 212,593 199,450
Selling, administrative and general expenses... 47,765 42,914 91,661 81,833
Other operating costs.......................... 902 993 1,766 1,822
Other income, net.............................. 8,239 8,176 11,475 11,416
Earnings before interest
expense and income taxes..................... 96,051 93,585 130,641 127,211
Interest expense............................... 1,712 2,289 3,479 4,460
Earnings before income taxes................... 94,339 91,296 127,162 122,751
Provision for income taxes..................... 31,575 32,744 42,472 44,068
Net earnings .................................. $ 62,764 $ 58,552 $ 84,690 $ 78,683
Primary and fully diluted earnings per
share of common stock........................ $1.83 $1.65 $2.47 $2.22
Average common and common equivalent
shares outstanding**......................... 34,202 35,301 34,308 35,370
Cash dividends per share of common stock....... $0.470 $0.420 $0.940 $0.840
Depreciation, depletion and amortization
deducted above............................... $29,291 $27,472 $57,894 $53,637
Effective tax rate............................. 33.5% 35.9% 33.4% 35.9%
<FN>
* Unaudited
** Primary and fully diluted earnings per share of common stock is computed by
dividing the net earnings by the weighted average number of common shares
and common share equivalents outstanding during the period. Common share
equivalents primarily represent the number of shares contingently issuable
under stock option and long-range performance share plans.
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Six Months Ended
June 30*
1997 1996
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Operations
Net earnings ...............................................$ 84,690 $ 78,683
Adjustments to reconcile net earnings to net cash
provided by continuing operations:
Depreciation, depletion and amortization................ 57,894 53,637
Increase in assets before effects of
business acquisitions................................. (51,413) (55,910)
Increase in liabilities before effects of
business acquisitions................................. 40,558 27,237
Other, net.............................................. 8,270 13,674
Net cash provided by continuing operations........... 139,999 117,321
Net cash used for discontinued operations................... (174) (746)
Net cash provided by operations...................... 139,825 116,575
Investing Activities
Purchases of property, plant and equipment.................. (95,307) (73,997)
Payment for business acquisitions (net of acquired cash).... (1,441) (54,359)
Proceeds from sale of property, plant and equipment......... 9,081 6,888
Investment in nonconsolidated companies..................... - (1,178)
Net cash used for investing activities............... (87,667) (122,646)
Financing Activities
Net borrowings - commercial paper and bank lines of credit.. (103) 32,495
Payment of short-term debt.................................. - (5,479)
Payment of long-term debt................................... (5,000) -
Purchases of common stock................................... (31,277) (13,377)
Dividends paid.............................................. (31,898) (29,331)
Net cash used for financing activities............... (68,278) (15,692)
Net decrease in cash and cash equivalents................... (16,120) (21,763)
Cash and cash equivalents at beginning of year.............. 50,816 21,869
Cash and cash equivalents at end of period..................$ 34,696 $ 106
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)..................$ 3,665 $ 4,430
Income taxes.......................................... 15,572 25,827
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Liabilities assumed in business acquisition...........$ - $ 149
Fair value of stock issued in business acquisition.... - 1,316
<FN>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed financial statements have been prepared in
compliance with Form 10-Q instructions and thus do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, the statements reflect all adjustments, including those of
a normal recurring nature, necessary to present fairly the results of
the reported interim periods. The statements should be read in
conjunction with the summary of accounting policies and notes to
financial statements included in the Company's latest annual report on
Form 10-K. The reporting of segment data required by Statement of
Financial Accounting Standards No. 14, Financial Reporting for Segments
of a Business Enterprise, is confined to complete financial statements
as provided in the Company's Form 10-K and annual report to
shareholders.
2. Effective Tax Rate
In accordance with generally accepted accounting principles, it is the
Company's practice at the end of each interim reporting period to make
a best estimate of the effective tax rate expected to be applicable for
the full fiscal year. The rate so determined is used in providing for
income taxes on a current year-to-date basis.
3. New Accounting Standards
In February 1997 the Financial Accounting Standard Board issued SFAS
No. 128 "Earnings per Share" (EPS), which will be effective for periods
ending after December 15, 1997. Early adoption is not permitted. This
new standard simplifies the method for computing EPS previously found
in APB Opinion No. 15 and makes the calculation comparable to
international standards. The presentation of primary and fully-diluted
EPS will be replaced with basic and diluted EPS. The effects on the
Company of applying SFAS 128 would result in an immaterial change to
1997 and 1996 EPS.
In June 1997 the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" (FAS 130), which is required to be adopted for years beginning
after December 15, 1997. Also during June 1997, the FASB issued SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). This pronouncement must also be adopted for
years beginning after December 15, 1997. The impact of FAS 130 on the
Company's financial reporting is not expected to be material. The
Company is still evaluating the impact of FAS 131.
4. Accounting Policies for Certain Derivative Instruments
The Company does not actively trade or speculate in derivative
instruments. Commodity swap contracts are used to reduce fluctuations
in prices for natural gas. The fair market values for such swaps
purchased and outstanding as of June 30, 1997 and December 31, 1996,
were not material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
GENERAL COMMENTS
Seasonality of the Company's Business
Results of any individual quarter are not necessarily indicative of results
to be expected for the year due principally to the effect that weather can
have on the sales and production volume of the Construction Materials
segment. Normally, the highest sales and earnings of the Construction
Materials segment are attained in the third quarter and the lowest are
realized in the first quarter when sales and earnings are substantially
below the levels realized in all subsequent quarters of the year.
Segment Sales and Earnings
Segment sales and earnings have been determined on the same basis as used
in prior Form 10-Q reports. Segment earnings are earnings before interest
expense and income taxes and after allocation of corporate expenses and
income, other than "interest income, etc.," (principally interest income
earned on cash items and gains or losses on corporate financing transactions),
and after assignment of equity income to the segment with which it is related
in terms of products and services. Allocations are based primarily on one or
a combination of the following factors: average gross investment, average
equity and sales.
Forward Looking Statements
Certain matters discussed in this report contain forward-looking statements
that are subject to risks and uncertainties that could cause actual results
to differ materially from those projected. These include general business
conditions, competitive factors, pricing, energy costs and other risks and
uncertainties detailed in the Company's periodic reports.
RESULTS OF OPERATIONS
Second Quarter 1997 as Compared with Second Quarter 1996
Vulcan's sales, net earnings and earnings per share were at record levels for
the second quarter. Net earnings were $62.8 million, or $1.83 per share, as
compared with 1996 earnings and earnings per share of $58.6 million and $1.65,
respectively. Net earnings and earnings per share were up 7% and 11%,
respectively, from comparable 1996 results.
Sales in the second quarter of 1997 were $445.1 million, up 6% from last
year's total of $419.2 million. The segment detail of that increase is as
follows (amounts in millions):
Second Quarter Sales
1997 1996 Increase
Construction Materials $286.4 $268.9 $17.5
Chemicals 158.7 150.3 8.4
Total $445.1 $419.2 $25.9
Second quarter Construction Materials sales were up 6% from last year's second
quarter total. Shipments of crushed stone increased 2%. Excluding the impact
of freight to remote distribution yards, the average sales price of crushed
stone increased nearly 2%. Chemicals sales increased 6% from last year's
second quarter due to higher prices for chlorine and chlorinated products and
the impact of Chemicals' acquisitions, offset somewhat by lower caustic soda
prices.
Earnings before interest expense and income taxes were $96.1 million as
compared to $93.6 million in the same period last year. The segment detail
of this result is shown in the following summary (amount in millions):
Second Quarter Earnings Before
Interest Expense and Income Taxes
Increase
1997 1996 (Decrease)
Construction Materials $74.4 $68.1 $ 6.3
Chemicals 21.5 24.2 (2.7)
Segment earnings * 95.9 92.3 3.6
Interest income, etc. .2 1.3 (1.1)
Total $96.1 $93.6 $ 2.5
* After allocation of corporate expense and income,
other than "interest income, etc." (principally
interest income earned on short-term investment of
funds and gains or losses on corporate financing
transactions), and after assignment of equity income
to the segment with which it is related in terms of
products and services.
The Construction Materials segment reported record second quarter earnings
of $74.4 million, up 9% from 1996 earnings of $68.1 million. The increase
reflects the effects of higher crushed stone shipments and prices as well
as lower production costs. The Chemicals segment recorded second quarter
earnings of $21.5 million as compared with earnings of $24.2 million in
1996. The decline reflects the effects of a 46% decline in the price of
caustic soda, as well as higher costs for raw materials. This was somewhat
offset by price increases for chlorine and chlorinated products, higher sales
volumes and a $2.6 million pretax gain from the sale of the Company's chlorine
cylinder repackaging business.
Selling, administrative and general expenses of $47.8 million increased 11%
from the 1996 second quarter level. This reflects principally the effect of
acquisitions and the effect that appreciation in the Company's stock had on
stock-based incentive compensation costs.
Other income, net of other charges, was flat when compared to the $8.2 million
in the second quarter of 1996.
The effective tax rate for the quarter was 33.5%, down from last year's second
quarter rate of 35.9%. The decrease reflects principally the greater impact
in 1997 of adjustments to close out provisions referable to completed tax
audits for prior years.
Year to Date Comparisons as of June 30, 1997 and June 30, 1996
Sales of $786.4 million for the first six months of 1997 increased 8% from the
first half 1996 total of $727.8 million. Sales of the segments are summarized
as follows (amounts in millions):
Sales for the Six Months
Ended June 30
1997 1996 Increase
Construction Materials $473.6 $428.6 $45.0
Chemicals 312.8 299.2 13.6
Total $786.4 $727.8 $58.6
Construction Materials sales were up 10% over 1996. Crushed stone shipments
increased nearly 8%, while prices, exclusive of freight to distribution yards,
increased 3%. Chemicals sales increased 5% due to higher prices for chlorine
and chlorinated products and increased sales in the Performance System
Business Unit, partially offset by lower prices for caustic soda.
First half earnings before interest expense and income taxes were $130.6
million, up 3% from the 1996 result. Segment detail is shown below (amounts
in millions):
Earnings Before Interest Expense
and Income Taxes for the
Six Months Ended June 30
Increase
1997 1996 (Decrease)
Construction Materials $ 90.1 $ 71.0 $ 19.1
Chemicals 39.8 54.5 (14.7)
Segment earnings * 129.9 125.5 4.4
Interest income, etc. .7 1.7 (1.0)
Total $130.6 $127.2 $ 3.4
* After allocation of corporate expense and income,
other than "interest income, etc." (principally
interest income earned on short-term investment of
funds and gains or losses on corporate financing
transactions), and after assignment of equity income
to the segment with which it is related in terms of
products and services.
Construction Materials earnings increased 27% due to higher volumes and
prices coupled with lower costs. Chemicals earnings declined 27% due to a
significant drop in the price of caustic soda, as well as higher raw materials
costs. The decline was somewhat offset by price increases for chlorine and
chlorinated products, higher sales volumes and the aforementioned $2.6 million
pretax gain from the sale of the Company's chlorine cylinder repackaging
business.
Selling, administrative and general expenses increased 12% due to the impact
of Chemicals' acquisitions and the effect that appreciation in the Company's
stock had on stock-based incentive compensation costs.
The effective tax rate for the period was 33.4%, down from last year's rate of
35.9%. The decline reflects both the greater impact in 1997 of adjustments
to close out provisions referable to completed tax audits for prior years, as
well as the greater effect of statutory depletion due to the relatively higher
Construction Materials earnings.
On July 21, 1997, Donald M. James, Chairman and Chief Executive Officer of
Vulcan, made certain statements concerning the Company's earnings outlook.
Excerpts of the relevant press release quoting Mr. James are as follows:
"Strong operating results in Vulcan's Construction Materials
segment accounted for the significant improvement in 1997
second quarter results. Aided by a strong economy and
relatively favorable weather conditions, construction
activity proceeded at a brisk pace during April and May.
However, many of our major markets experienced frequent rain
in June, leading to a significant slowdown in construction
activity and shipments of construction aggregates.
Nonetheless, crushed stone shipments exceeded 1996's record
second quarter levels by over 2 percent. Higher prices and
reduced production costs also contributed to the earnings
improvement. Assuming continued economic growth and more
seasonal weather, we expect Construction Materials earnings
for the balance of the year to exceed last year's record
results.
"As anticipated, second quarter earnings comparisons for the
Chemicals segment were adversely impacted by the significant
decline in caustic soda prices. The Chloralkali Business
Unit also experienced slightly higher raw materials costs.
However, improved pricing for chlorine and chlorinated
products, higher sales volumes, and a gain referable to the
sale of the Company's chlorine cylinder repackaging business
partly offset the impact of caustic prices. Caustic soda
prices now are improving. Moreover, during the balance of
the year, we expect Chemicals to benefit from improved
earnings contributions from the Performance Systems Business
Unit and from chlorinated products. All in all, we expect
Chemicals' earnings for the second half of the year to equal,
or possibly exceed, last year's results.
"If our outlooks for both segments hold up, we should be
able to report record net earnings and earnings per share
for the Company for the second half of 1997 as well as for
the full year."
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital, exclusive of debt and cash items, totaled $171.8 million at
June 30, 1997, 9% above the 1996 year-end amount of $158.1 million. Higher
receivables and inventories, due primarily to seasonal build-ups in the
Construction Materials segment, were partially offset by higher accrued
liabilities. Working capital at June 30, 1997 decreased 20% from the same
date last year due primarily to increased accrued liabilities.
The Company's current ratio, which is based on all components of working
capital, including cash and debt items, was 1.8 as of June 30, 1997. This
compares to the 2.0 ratio at year-end 1996 and a 1.6 ratio at June 30, 1996.
Cash Flows
First half net cash provided by operations totaled $139.8 million, up 20% from
the $116.6 million generated in the same period last year. This increase
reflects higher earnings and reduced working capital requirements. Cash used
for investing activities was $87.7 million, as compared with the 1996 total of
$122.6 million. This reduction reflects lower payments for business
acquisitions. Net cash used for financing activities totaled $68.3 million,
up from the 1996 amount of $15.7 million. The increase reflects lower net
borrowings, higher purchases of common stock and higher dividends.
Property Additions
Property additions in the first half of 1997 totaled $99.4 million as compared
with $104.0 million in the first half of last year.
Short-term Borrowings
Short-term borrowings as of June 30, 1997 consisted of notes payable to banks
totaling $3.2 million. June 30, 1996 borrowings consisted of commercial paper
of $24.2 million and notes payable to banks of $11.9 million.
Long-term Obligations
As of June 30, 1997, long-term obligations were 7.0% of long-term capital and
8.9% of shareholders' equity. The corresponding 1996 percentages were 8.0%
and 10.4%.
Common Stock Transactions
Pursuant to the Company's common stock purchase program, 496,056 shares of
common stock were purchased in the first half of 1997 at a total cost of
$31.3 million, equal to an average price of $63.05 per share. In the first
six months of 1996, 237,700 shares were purchased at a total cost of $13.4
million, or $56.28 per share.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in a class action
litigation filed in Calcasieu Parish, Louisiana. There are
fifty-three (53) plaintiffs who purport to be residents of Calcasieu
and Cameron Parishes, and who are alleged to be similarly situated
for purposes of class action certification on behalf of all
Louisiana residents who have sustained injury to their persons or
property due to alleged contamination by hazardous and toxic
chemicals discharged by the defendants. There are twenty-two (22)
individual and corporate defendants. The plaintiffs' complaint
alleges that certain Lake Charles chemical plant operator defendants
released into the air, water, soil, and food chain, various
hazardous and toxic chemicals. The plaintiffs' complaint further
alleges that the Company transported waste products to such plants
for incineration or disposal, thus allegedly adding to the toxic
discharge from the plants. The Company believes that it did not
transport, incinerate, or otherwise dispose of any waste products at
said plants. The Company has retained counsel to defend this
action. Since the lawsuit is only recently filed, at this time the
Company does not expect that settlements or adverse judgments, if
any, will adversely affect the consolidated financial position of
the Company to a material extent.
Since the date of the filing of the 10-Q for the first quarter
1997, the litigation referred to in the Annual Report on 10-K for
the year ended 1996 as the "Jack's Creek/Sitkin Smelting Superfund
Site" has been partially settled. The potentially responsible
party ("PRP") Group has entered into a Consent Order with the EPA,
pursuant to which the PRP Group will construct a temporary cover
over an existing tailings pile present at the site. The estimated
cost of this work is $100,000. The 35 members of the PRP Group,
including the Company, have also entered into an Allocation
Agreement to allocate among the PRP Group certain costs incurred
in connection with the site, including CERCLA response cost for
site remediation, up to a total cost of approximately $12,000,000.
Under the Allocation Agreement, the Company's allocated share of
the total cost is 2.06%.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the six months
ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VULCAN MATERIALS COMPANY
Date August 13, 1997 /s/ E. A. Khan
E. A. Khan
Controller
/s/ P. J. Clemens, III
P. J. Clemens, III
Executive Vice President -
Finance and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Statement of Earnings for the six months ended June 30,
1997, and the Consolidated Balance Sheet as of June 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<PERIOD-END> JUN-30-1997
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</TABLE>
