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 September 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 October 31, 1997
Common Stock, $1 Par Value 33,687,197
VULCAN MATERIALS COMPANY
FORM 10-Q
QUARTER ENDED SEPTEMBER 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 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS *
(Amounts in thousands)
September 30, December 31, September 30,
ASSETS 1997 1996 1996
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Current assets
Cash and cash equivalents.............................. $ 61,780 $ 50,816 $ 23,057
Accounts and notes receivable, less allowance for
doubtful accounts: Sept. 30, 1997, $7,707; Dec. 31,
1996, $8,106; Sept. 30, 1996, $8,434.................. 255,508 185,535 229,595
Inventories:
Finished products.................................... 80,107 87,459 83,431
Raw materials........................................ 11,390 10,115 10,730
Products in process.................................. 659 873 600
Operating supplies and other......................... 31,295 30,131 29,540
Total inventories............................... 123,451 128,578 124,301
Deferred income taxes.................................. 21,800 23,474 28,259
Prepaid expenses....................................... 6,564 5,642 7,659
Total current assets............................ 469,103 394,045 412,871
Investments and long-term receivables.................... 63,106 61,274 60,699
Property, plant and equipment, at cost less accumulated
depreciation, depletion and amortization: Sept. 30,
1997, $1,292,844; Dec. 31, 1996, $1,237,674; Sept. 30,
1996, $1,219,381....................................... 793,401 764,490 754,409
Deferred charges and other assets........................ 84,065 100,836 99,483
Total........................................... $1,409,675 $1,320,645 $1,327,462
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations............ $ 5,071 $ 5,021 $ 6,565
Notes payable.......................................... 4,477 3,289 18,178
Trade payables and accruals............................ 113,447 98,528 92,167
Other current liabilities.............................. 84,930 87,816 91,402
Total current liabilities....................... 207,925 194,654 208,312
Long-term obligations.................................... 80,721 85,535 85,314
Deferred income taxes.................................... 88,248 86,968 89,626
Other noncurrent liabilities............................. 74,719 69,824 68,067
Shareholders' equity..................................... 958,062 883,664 876,143
Total........................................... $1,409,675 $1,320,645 $1,327,462
<FN>
* Balance sheets as of September 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 Nine Months Ended
September 30* September 30*
1997 1996 1997 1996
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Net sales........................................ $477,854 $443,626 $1,264,285 $1,171,389
Cost of goods sold............................... 330,901 304,028 904,738 832,341
Gross profit on sales............................ 146,953 139,598 359,547 339,048
Selling, administrative and general expenses..... 50,512 44,185 142,173 126,018
Other operating costs............................ 1,441 862 3,206 2,684
Other income, net................................ 7,271 3,903 18,744 15,319
Earnings before interest
expense and income taxes....................... 102,271 98,454 232,912 225,665
Interest expense................................. 1,773 1,903 5,252 6,363
Earnings before income taxes..................... 100,498 96,551 227,660 219,302
Provision for income taxes....................... 27,192 34,442 69,664 78,510
Net earnings .................................... $ 73,306 $ 62,109 $ 157,996 $ 140,792
Primary and fully diluted earnings per
share of common stock.......................... $2.14 $1.77 $4.61 $3.99
Average common and common equivalent
shares outstanding**........................... 34,276 35,089 34,301 35,265
Cash dividends per share of common stock......... $0.470 $0.420 $1.410 $1.260
Depreciation, depletion and amortization
deducted above................................. $30,219 $29,071 $88,113 $82,708
Effective tax rate............................... 27.1% 35.7% 30.6% 35.8%
<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)
Nine Months Ended
September 30*
1997 1996
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Operations
Net earnings ............................................... $157,996 $140,792
Adjustments to reconcile net earnings to net cash
provided by continuing operations:
Depreciation, depletion and amortization................ 88,113 82,708
Increase in assets before effects of
business acquisitions................................. (64,064) (38,942)
Increase in liabilities before effects of
business acquisitions................................. 17,381 18,721
Other, net.............................................. 22,124 17,307
Net cash provided by continuing operations........... 221,550 220,586
Net cash used for discontinued operations................... (137) (935)
Net cash provided by operations...................... 221,413 219,651
Investing Activities
Purchases of property, plant and equipment.................. (130,451) (117,704)
Payment for business acquisitions (net of acquired cash).... (1,443) (54,588)
Proceeds from sale of property, plant and equipment......... 14,145 9,732
Investment in nonconsolidated companies..................... - (1,615)
Net cash used for investing activities............... (117,749) (164,175)
Financing Activities
Net borrowings - commercial paper and bank lines of credit.. 1,188 14,609
Payment of short-term debt.................................. - (5,470)
Payment of long-term debt................................... (5,000) (120)
Purchases of common stock................................... (41,096) (19,409)
Dividends paid.............................................. (47,792) (43,898)
Net cash used for financing activities............... (92,700) (54,288)
Net increase in cash and cash equivalents................... 10,964 1,188
Cash and cash equivalents at beginning of year.............. 50,816 21,869
Cash and cash equivalents at end of period.................. $ 61,780 $ 23,057
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized).................. $ 3,943 $ 4,901
Income taxes.......................................... 70,712 68,980
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Liabilities assumed in business acquisitions.......... $ 7 $ 4,720
<FN>
* Unaudited
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. The impact of FAS 130 on the Company's financial
reporting is not expected to be material.
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. Again, the impact of FAS 131 on the Company's financial reporting
is not expected to be material.
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 September 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
Third Quarter 1997 as Compared with Third Quarter 1996
Vulcan's sales, net earnings and earnings per share were at record levels for
the third quarter. Net earnings were $73.3 million, or $2.14 per share, as
compared with 1996 earnings and earnings per share of $62.1 million and $1.77.
Net earnings and earnings per share were up 18% and 21%, respectively, from
comparable 1996 results.
Third quarter sales in 1997 were $477.9 million, up 8% from last year's total
of $443.6 million. The segment detail of that increase is as follows (amounts
in millions):
Third Quarter Sales
1997 1996 Increase
Construction Materials $319.4 $285.5 $33.9
Chemicals 158.5 158.1 .4
Total $477.9 $443.6 $34.3
Third quarter Construction Materials sales were up 12% from last year's third
quarter total. Shipments of crushed stone increased almost 6%. Excluding the
impact of freight to remote distribution yards, the average sales price of
crushed stone increased nearly 5%. Chemicals' sales were just above last
year's level as higher sales volumes and improved prices for chlorine and
chlorinated products offset the effect of lower prices for caustic soda.
Earnings before interest expense and income taxes were $102.3 million as
compared to $98.5 million in the same period last year. The segment detail
of this result is shown in the following summary (amount in millions):
Third Quarter Earnings Before
Interest Expense and Income Taxes
Increase
1997 1996 (Decrease)
Construction Materials $ 83.5 $73.1 $10.4
Chemicals 18.2 25.3 (7.1)
Segment earnings * 101.7 98.4 3.3
Interest income, etc. .6 .1 .5
Total $102.3 $98.5 $ 3.8
* 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 third quarter earnings
of $83.5 million, up 14% from 1996 earnings of $73.1 million. The increase
reflects the effects of higher crushed stone shipments and prices, and a
$3.4 million gain from the sale of a coal unloading and transfer business.
The Chemicals segment recorded third quarter earnings of $18.2 million, down
$7.1 million from last year's third quarter earnings of $25.3 million. The
decrease reflects the effects of a 34% decline in the price of caustic soda,
the impact of scheduled Chloralkali plant outages on production volumes and
maintenance costs, and higher raw materials costs. This was partly offset
by the effects of price increases for chlorine and chlorinated products and
higher sales volumes.
Selling, administrative and general expenses of $50.5 million increased 14%
from the 1996 third quarter level. This reflects principally higher accruals
for charitable contributions, legal and administrative expenses, and the
effect that appreciation in the Company's share price had on stock-based
incentive compensation costs.
Other income, net of other charges, was $7.3 million, up from the $3.9 million
for the third quarter of 1996. The increase reflects mainly the
aforementioned gain from the sale of the coal unloading and transfer
business.
The effective tax rate for the quarter was 27.1%, down significantly from last
year's third quarter rate of 35.7%. The decrease reflects principally the
greater impact of adjustments to close out provisions referable to tax audits
for prior years.
Year-To-Date Comparisons as of September 30, 1997 and September 30, 1996
Vulcan's sales, net earnings and earnings per share were at record levels for
the first nine months of 1997. Net earnings were $158.0 million, or $4.61 per
share, as compared with 1996 earnings and earnings per share of $140.8 million
and $3.99. Net earnings and earnings per share were up 12% and 16%,
respectively, from comparable 1996 results.
Sales of $1.3 billion for the first nine months of 1997 increased 8% from the
1996 total of $1.2 billion. Sales of the segments are summarized as follows
(amounts in millions):
Sales for the Nine Months
Ended September 30
Increase
1997 1996 (Decrease)
Construction Materials $ 793.0 $ 714.1 $78.9
Chemicals 471.3 457.3 14.0
Total $1,264.3 $1,171.4 $92.9
Construction Materials sales were up 11% over 1996. Crushed stone shipments
increased nearly 7%, while prices, exclusive of freight to distribution yards,
increased 4%. Chemicals sales increased 3% due to increased sales in the
Performance Systems Business Unit and higher prices for chlorine and
chlorinated products, partially offset by lower prices for caustic soda.
Earnings for the current year to date before interest expense and income taxes
were $232.9 million, up 3% from the 1996 result. Segment detail is shown
below (amounts in millions):
Earnings Before Interest Expense
and Income Taxes for the
Nine Months Ended September 30
Increase
1997 1996 (Decrease)
Construction Materials $173.6 $144.1 $29.5
Chemicals 57.9 79.8 (21.9)
Segment earnings * 231.5 223.9 7.6
Interest income, etc. 1.4 1.8 (.4)
Total $232.9 $225.7 $ 7.2
* 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 over 20% due primarily to higher
volumes and prices and to a lesser extent 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 partially offset by higher
sales volumes and price increases for chlorine and chlorinated products.
Selling, administrative and general expenses increased 13% 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 provision for income taxes during the first nine months was $69.7 million
as compared with 1996's provision of $78.5 million, reflecting a substantial
decrease in the effective tax rate which offset the increase in pretax
earnings. The effective tax rate for the period was 30.6%, down 5.2% from
last year's rate of 35.8%. 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 October 17, 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 performance from Vulcan's Construction
Materials segment accounted for the significant improvement
in 1997 third quarter results. Crushed stone shipments
exceeded 1996's record third quarter levels by nearly
6 percent while average sales price increased by almost
5 percent. For the first nine months of the year, earnings
were up over 20 percent due to higher stone shipments and
prices and lower production costs. Assuming a continued
stable economic environment and normal weather patterns,
we expect Construction Materials earnings for the fourth
quarter of the year to approximate last year's record
results.
"As expected, Chemicals' third quarter earnings were well
below 1996 results with caustic soda prices falling 34
percent short of the levels realized in 1996. However,
caustic soda prices started to recover during the third
quarter, increasing nearly 15 percent from the low levels
reached in the second quarter of this year. Continued
recovery in caustic soda prices and stable demand for
chlorine and chlorinated products should lead to a
significant improvement in Chemicals' earnings for the
fourth quarter of 1997.
"Overall, we expect fourth quarter 1997 net earnings and
earnings per share to exceed 1996's record results. Combined
with our performance through the third quarter, 1997 should
be another banner year for the Company."
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital exclusive of debt and cash items totaled $211.5 million at
September 30, 1997, 34% above the 1996 year-end amount of $158.1 million.
Higher receivables were partially offset by higher accrued liabilities.
Working capital at September 30, 1997 increased slightly from the same date
last year as higher receivables were essentially offset by higher accrued
liabilities.
The Company's current ratio, which is based on all components of working
capital, including cash and debt items, was 2.3 as of September 30, 1997.
This compares to the 2.0 ratio at both year-end 1996 and September 30, 1996.
Cash Flows
Net cash provided by continuing operations during the first nine months
totaled $221.6 million, up slightly from the $220.6 million generated in
the same period last year. The increase reflects higher earnings and
depreciation, offset by higher working capital requirements. Cash used
for investing activities was $117.7 million, as compared with the 1996
total of $164.2 million. This decrease reflects lower spending for business
acquisitions. Net cash used for financing activities totaled $92.7 million,
up from the 1996 amount of $54.3 million. The increase reflects higher
purchases of common stock, lower net borrowings and higher dividends.
Property Additions
Property additions in the first nine months of 1997 totaled $133.0 million
as compared with $147.0 million in the same period last year.
Short-term Borrowings
Short-term borrowings as of September 30, 1997 and 1996 consisted of notes
payable to banks totaling $4.5 million and $18.2 million, respectively.
Long-term Borrowings
As of September 30, 1997, long-term obligations were 6.7% of long-term capital
and 8.4% of shareholders' equity. The corresponding 1996 percentages were
7.6% and 9.7%.
Common Stock Transactions
Pursuant to the Company's common stock purchase program, 608,356 shares of
common stock were purchased in the first nine months of 1997 at a total cost
of $41.1 million, equal to an average price of $67.55 per share. In the first
nine months of 1996, 343,200 shares were purchased at a total cost of $19.4
million, or $56.55 per share.
PART II. OTHER INFORMATION
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 nine months
ended September 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 November 7, 1997 /s/ E. A. Khan
E. A. Khan
Controller
/s/ P. J. Clemens, III
P. J. Clemens, III
Executive Vice President -
Finance and Administration
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Earnings for the nine months ended September 30,
1997, and the Consolidated Balance Sheet as of September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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</TABLE>
