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 March 31, 1998
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 April 30, 1998
Common Stock, $1 Par Value 33,457,342
VULCAN MATERIALS COMPANY
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
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 5
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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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)
March 31, December 31, March 31,
ASSETS 1998 1997 1997
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Current assets
Cash and cash equivalents............................... $ 95,966 $ 128,566 $ 16,379
Accounts and notes receivable, less allowance for
doubtful accounts: Mar. 31, 1998, $7,775; Dec. 31,
1997, $7,548; Mar. 31, 1997, $7,489................... 205,491 199,750 197,830
Inventories:
Finished products..................................... 103,256 90,118 94,287
Raw materials......................................... 10,229 10,865 11,736
Products in process................................... 988 617 1,030
Operating supplies and other.......................... 30,069 30,759 30,615
Total inventories................................. 144,542 132,359 137,668
Deferred income taxes................................... 21,356 21,385 23,004
Prepaid expenses........................................ 6,784 5,072 5,899
Total current assets.............................. 474,139 487,132 380,780
Investments and long-term receivables..................... 64,942 63,482 59,589
Property, plant and equipment, at cost less accumulated
depreciation, depletion and amortization: Mar. 31,
1998, $1,335,324; Dec. 31, 1997, $1,311,781; Mar. 31,
1997, $1,261,594........................................ 827,307 808,419 777,214
Deferred charges and other assets......................... 106,025 90,213 97,507
Total............................................ $1,472,413 $1,449,246 $1,315,090
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term obligations............. $ 5,408 $ 5,408 $ 5,071
Notes payable........................................... 2,677 3,654 3,105
Trade payables and accruals............................. 114,577 112,547 103,234
Other current liabilities............................... 106,624 86,087 95,699
Total current liabilities........................ 229,286 207,696 207,109
Long-term obligations..................................... 81,931 81,931 85,635
Deferred income taxes..................................... 92,267 88,720 88,947
Other noncurrent liabilities.............................. 77,432 79,402 69,119
Shareholders' equity...................................... 991,497 991,497 864,280
Total............................................ $1,472,413 $1,449,246 $1,315,090
<FN>
*Balance sheets as of March 31 are unaudited.
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts and shares in thousands, except per share data)
Three Months Ended
March 31*
1998 1997
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Net sales............................................ $358,963 $341,358
Cost of goods sold................................... 269,483 265,243
Gross profit on sales................................ 89,480 76,115
Selling, administrative and general expenses......... 46,729 43,896
Other operating costs................................ 2,369 864
Other income, net.................................... 15,895 3,235
Earnings before interest expense and income taxes.... 56,277 34,590
Interest expense..................................... 1,948 1,767
Earnings before income taxes......................... 54,329 32,823
Provision for income taxes........................... 17,820 10,897
Net earnings......................................... $ 36,509 $ 21,926
Basic earnings per share............................. $1.09 $0.64
Diluted earnings per share........................... $1.07 $0.64
Average common shares outstanding
(in thousands)..................................... 33,608 34,040
Average common shares outstanding
assuming dilution (in thousands)................... 34,051 34,415
Cash dividends per share of common stock............. $0.520 $0.470
Depreciation, depletion and amortization
deducted above..................................... $ 31,188 $ 28,603
Effective tax rate................................... 32.8% 33.2%
<FN>
* Unaudited
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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<TABLE>
<CAPTION>
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three Months Ended
March 31*
1998 1997
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Operations
Net earnings ................................................ $ 36,509 $ 21,926
Adjustments to reconcile net earnings to net cash
provided by continuing operations:
Depreciation, depletion and amortization................. 31,188 28,603
Increase in assets before effects of
business acquisitions.................................. (19,420) (21,172)
Increase in liabilities before effects of
business acquisitions.................................. 18,281 10,198
Other, net............................................... (13,300) 3,930
Net cash provided by operations....................... 53,258 43,485
Investing Activities
Purchases of property, plant and equipment................... (47,546) (37,933)
Payment for business acquisitions (net of acquired cash)..... (3,396) -
Cash escrow held for future property purchase................ (13,414) -
Proceeds from sale of property, plant and equipment.......... 17,883 1,511
Investment in nonconsolidated companies...................... (1,591) -
Net cash used for investing activities................ (48,064) (36,422)
Financing Activities
Net borrowings - commercial paper and bank lines of credit... (977) (184)
Purchases of common stock.................................... (19,399) (25,309)
Dividends paid............................................... (17,418) (16,007)
Net cash used for financing activities................ (37,794) (41,500)
Net decrease in cash and cash equivalents.................... (32,600) (34,437)
Cash and cash equivalents at beginning of year............... 128,566 50,816
Cash and cash equivalents at end of period................... $ 95,966 $ 16,379
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)................... $ 798 $ 444
Income taxes........................................... 4,379 3,240
<FN>
*Unaudited
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
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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 June 1997 the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
(FAS 130) and SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" (FAS 131). These pronouncements were required
to be adopted for years beginning after December 15, 1997. There was no
material impact on the Company's financial reporting resulting from the
adoption of SFAS 130 and 131.
In February 1998 the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (FAS 132), which is
required to be adopted for years beginning after December 15, 1997.
This new standard addresses disclosure only. Therefore, there will be
no effect to earnings and the impact of FAS 132 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 March 31, 1998 and December 31, 1997,
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
detailed in the Company's periodic reports.
Year 2000 Issue
The Company has conducted a risk assessment of its major business processes
to identify the computer systems that could be affected by the Year 2000
issue. As a recommendation of this assessment, a Year 2000 Project Management
Office has been established to coordinate compliance activities. The Company
is actively assessing the extent of the problem as it relates to production
equipment and automation, raw material procurement, distribution and packaging,
as well as computer hardware and software. The Company presently believes
that with planned modifications to existing software and conversions to new
software, the Year 2000 issue will not pose significant operational problems.
Despite our efforts, there can be no guarantee that the systems of other
companies and government agencies on which the Company relies will be
converted in a timely manner. Although at this time it is not possible to
reasonably estimate the cost of compliance, based on the risk assessment, the
Company believes that the cost to resolve this issue will not have a material
impact on earnings.
RESULTS OF OPERATIONS
First Quarter 1998 as Compared with First Quarter 1997
Vulcan's first quarter 1998 sales, net earnings and earnings per share were
at record levels. Net earnings of $36.5 million, and $1.07 per share
(diluted), were both 67% higher than last year. The comparable 1997 earnings
and earnings per share were $21.9 million and 64 cents, respectively.
Sales in 1998 were $359.0 million, up 5% from last year's total of $341.4
million. The segment detail of that increase is as follows (amounts in
millions):
First Quarter Sales
1998 1997 Increase
Construction Materials $193.3 $187.2 $ 6.1
Chemicals 165.7 154.2 11.5
Total $359.0 $341.4 $17.6
Construction Materials reported record first quarter sales of $193.3 million,
up 3% from the 1997 first quarter. Excluding the impact of freight to remote
distribution yards, average crushed stone prices increased 4%. Total stone
shipments were virtually identical to last year's record level despite less
favorable weather conditions. Chemicals sales of $165.7 million also were at
a record first quarter level, up 7% from last year's first quarter. This
growth was primarily due to higher prices for caustic soda. Average caustic
soda prices in the first quarter of 1998 were up 33% from last year's first
quarter prices.
Earnings before interest expense and income taxes were $56.3 million as
compared to $34.6 million in the same period last year. The segment detail
of this result is shown in the following summary (amounts in millions):
First Quarter Earnings Before
Interest Expense and Income Taxes *
1998 1997 Increase
Construction Materials $32.4 $15.8 $16.6
Chemicals 22.4 18.3 4.1
Segment earnings * 54.8 34.1 20.7
Interest income, etc. 1.5 .5 1.0
Total $56.3 $34.6 $21.7
* 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 first quarter earnings of
$32.4 million as compared with earnings of $15.8 million in the first quarter
of 1997. This $16.7 million increase included $11.3 million referable to
special items: gains from asset sale of $12.5 million offset somewhat by
additional reserves for environmental and related costs of $1.2 million.
The Chemicals segment reported first quarter earnings of $22.4 million,
up significantly from last year's first quarter earnings of $18.3 million.
This reflects principally the increase in caustic soda prices, partly offset
by a special item of $3.7 million for additional reserves for environmental
and related costs.
Selling, administrative and general expenses of $46.7 million for the
first quarter of 1998 increased 6% from the 1997 level. The increase
reflects principally the impact of higher accruals for incentive-based
compensation costs.
Other income, net of other charges, was $15.9 million as compared with
$3.2 million for the first quarter of 1997. The increase principally
reflects gains from sales of assets within the Construction Materials segment.
Also, earnings continued to increase from the Company's joint venture to
supply limestone from Mexico to the U.S. Gulf Coast market.
The provision for income taxes for the current quarter was $17.8 million as
compared with 1997's provision of $10.9 million, reflecting the significant
increase in pretax earnings of $21.5 million partially offset by a decline
in the effective tax rate. The effective tax rate for the quarter was
32.8%, down from last year's first quarter rate of 33.2%.
On April 17, 1998, Donald M. James, President and Chief Executive Officer,
made certain statements concerning the Company's earnings outlook. Excerpts
of the relevant press release quoting Mr. James are as follows:
"Our first quarter results reflect the strength of the
U.S. economy and our participation as a provider of core
materials. Strong operating results from both business
segments generated another record quarter, which was
further enhanced by gains from sales of assets.
"Relatively strong crushed stone shipments and improved
pricing within our Construction Materials segment combined
for record sales and operating earnings despite less
favorable weather conditions. Based on our confidence in
the continued strength and stability of the U.S. economy
and the performance of our operations, we expect full year
1998 operating earnings in our Construction Materials
segment to exceed 1997's record level.
"First quarter sales for our Chemicals segment were at a
record level, and earnings were well above 1997. The
selling price of caustic soda increased 33 percent from the
first quarter of 1997 while raw materials and natural gas
costs declined. We believe these factors will continue to
some extent throughout the year, and therefore remain
confident that out Chemicals segment earnings in 1998 will
exceed 1997's performance.
"Overall, we expect that Vulcan's 1998 net earnings and
earnings per share will exceed 1997's record results."
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital, exclusive of debt and cash items, totaled $159.5 million
at March 31, 1998, $1.8 million under the 1997 year-end amount of $161.3
million. An increase in accrued liabilities, including income taxes, more
than offset the seasonal increase in receivables and inventories. Working
capital at March 31, 1998 decreased 5% from the same date last year as higher
accrued liabilities offset increases in receivables and inventories.
The Company's current ratio, which is based on all components of working
capital, including cash and debt items, was 2.1 as of March 31, 1998.
This compares to the 2.3 ratio at year-end 1997 and the 1.8 ratio at
March 31, 1997.
Cash Flows
Net cash provided by operations totaled $53.3 million in the first quarter of
1998, up $9.8 million from the $43.5 million generated in the same period
last year. This increase reflects higher earnings and lower working capital
requirements. Cash used for investing activities was $48.1 million as
compared with the 1997 total of $36.4 million. This increase reflects higher
purchases of property, plant and equipment, including a quarry in Tennessee.
Net cash used for financing activities totaled $37.8 million, down from the
1997 amount of $41.5 million, due mainly to lower purchases of common stock.
Cash and cash equivalents, which totaled $96.0 million at March 31, 1998,
were up $79.6 million from the $16.4 million a year ago.
On February 13, 1998, the Board of Directors declared a quarterly dividend of
52 cents per common share payable March 10, 1998. The new quarterly dividend
represents a 10.6% (5 cents per share) increase over quarterly dividends paid
in 1997.
Property Additions
Property additions totaled $54.6 million in 1998 as compared with $41.7
million in the first quarter of 1997.
Short-term Borrowings
Short-term borrowings as of March 31, 1998 and 1997 consisted of notes payable
to banks totaling $2.7 million and $3.1 million, respectively.
Long-term Obligations
As of March 31, 1998, long-term obligations were 6.6% of long-term capital
and 8.3% of shareholders' equity. The corresponding 1997 percentages were
7.7% and 9.9%.
Common Stock Transactions
Pursuant to the Company's long-standing common stock purchase program,
190,100 shares of common stock were purchased in the first quarter of 1998
at a total cost of $19.4 million, equal to an average price of $102.05 per
share. Purchases of common stock in the first quarter of 1997 totaled 404,352
shares at a total cost of $25.3 million, equal to an average price of $62.59
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 three months
ended March 31, 1998.
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 May 13, 1998 /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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<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Earnings for the three months ended March 31,
1998, and the Consolidated Balance Sheet as of March 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
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