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SECURITIES AND EXCHANGE COMMISSION |
(Mark One)
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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 1999
OR
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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)
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1200 Urban Center Drive, Birmingham, Alabama 35242 |
Registrant's telephone number including area code (205) 298-3000
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:
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Shares outstanding |
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VULCAN MATERIALS COMPANY QUARTER ENDED SEPTEMBER 30, 1999 Contents |
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Item 1. |
Financial Statements |
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Item 2. |
Management's Discussion and Analysis of Results |
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Item 3. |
Quantitative and Qualitative Disclosures About |
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Item 6. |
Exhibits and Reports on Form 8-K |
16 |
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PART I. FINANCIAL INFORMATION |
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Item 1. Financial Statements |
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Vulcan Materials Company |
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Consolidated Balance Sheets (Condensed and unaudited) |
September 30 |
December 31 |
September 30 |
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Assets Accounts and notes receivable: Accounts and notes receivable, gross Less: Allowance for doubtful accounts Accounts and notes receivable, net Inventories Finished products Raw materials Products in process Operating supplies and other Inventories Deferred income taxes Prepaid expenses Total current assets Investments and long-term receivables Property, plant and equipment: Property, plant and equipment, cost Less: Reserve for depr., depl., & amort. Property, plant and equipment, net Goodwill Deferred charges and other assets Total Liabilities and Shareholders'Equity Current maturities of long-term debt Notes payable Trade payables and accruals Other current liabilities Total current liabilities Long-term debt Deferred income taxes Other noncurrent liabilities Shareholders' equity Total Current ratio |
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See accompanying Notes to Financial Statements
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Vulcan Materials Company |
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(Thousands of Dollars) |
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Three Months Ended |
Nine Months Ended |
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(Condensed and unaudited) |
1999 |
1998 |
1999 |
1998 |
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Net Earnings |
$ 85,754 |
$ 89,927 |
$ 174,875 |
$ 196,466 |
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Average common shares outstanding |
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Cash dividends per share |
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Depreciation, depletion and |
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See accompanying Notes to Financial Statements
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Vulcan Materials Company |
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(Thousands of Dollars) |
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(Condensed and unaudited) |
1999 |
1998 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion and amortization Increase in assets before effects of business acquisitions Increase (decrease) in liabilities before effects of business acquisitions Other, net Net cash provided by operating activities |
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102,479 (90,871) 4,944 (14,441) 198,577 |
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Purchases of property, plant and equipment Payment for business acquisitions, net of acquired cash Proceeds from sale of property, plant and equipment Withdrawal of earnings from nonconsolidated companies Net cash used for investing activities |
(740,270) 64,084 4,020 (905,321) |
(5,716) 26,490 -0- (118,853) |
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bank lines of credit Payment of short-term debt Payment of long-term debt Proceeds from issuance of long-term debt Purchases of common stock Dividends paid Contribution from minority interest of consolidated subsidiary Other, net Net cash provided by (used for) financing activities |
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See accompanying Notes to Financial Statements
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.
2. Acquisitions
In January 1999, the Company completed its $31.00 per share tender offer for all of the outstanding shares of common stock of CalMat Co. ("CalMat") for a value of $740 million cash, plus $10 million of estimated acquisition costs. As of the
acquisition, CalMat had fixed term debt of $118 million and $90 million in bank borrowings, both of which were assumed by the Company. The acquisition was funded by cash on hand and approximately $590 million of commercial paper. It is being accounted for
under purchase accounting. The excess of the purchase price over the fair market value of net assets acquired is being amortized over 30 years. The estimated fair value of assets acquired and liabilities assumed were considered to be the best estimates as
of the acquisition date and may be adjusted as more information is obtained.
These estimates are summarized as follows (in thousands):
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Current assets |
$165,978 |
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Consideration consisted of: |
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Cash on hand |
$150,000 |
(a) This debt financing was initially all commercial paper. On April 12, 1999, $500 million
was converted to long-term debt.
On April 12, 1999, the Company issued $500 million of unsecured, noncallable notes in two series of $250 million each due on April 1, 2004 and on April 1, 2009. The 2004 notes have a 5.75% coupon and the 2009 notes have a 6.00% coupon. The net proceeds of
these notes were used to retire a corresponding amount of the short-term commercial paper borrowings incurred to acquire CalMat.
The accompanying consolidated statement of earnings for the three and nine months ended September 30, 1999 includes the results of operations of CalMat from its acquisition date.
The following unaudited pro forma consolidated results of operations for the three and nine month periods ended September 30, 1999 and 1998 assume that the CalMat acquisition occurred as of January 1, 1998, (in millions, except per share amounts):
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PRO FORMA |
Three Months Ended |
Nine Months Ended |
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1999 |
1998 |
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1998 |
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Net Sales |
$656.4 |
$658.4 |
$1,750.2 |
$1,698.5 |
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Net Earnings |
$85.8 |
$98.0 |
$174.9 |
$192.6 |
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Earnings per share: |
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Certain pro forma adjustments are based on preliminary estimates. Final allocations will be made on the basis of further evaluations and, therefore, such allocations may differ from those reflected in this pro forma statement. The pro forma statement of
earnings is not necessarily indicative of the results of operations of the Company had the CalMat acquisition occurred at the beginning of the period presented, nor is it necessarily indicative of the results of future operations.
In addition to CalMat, the Company acquired five Construction Materials businesses in Arkansas, Georgia, and North Carolina, including eleven quarries, in the first quarter. During the second quarter, the Company acquired two quarries, one each in Texas and North Carolina. These acquisitions were not significant and are not included in the preceding pro forma.
3. Segment Data
The Company's reportable segments are organized around products and services and continue to be Construction Materials and Chemicals. The accounting policies of the segments are the same as those described in the summary of significant accounting polices
in Form 10-K. The Company's determination of segment earnings (a) recognizes equity in the income or losses of nonconsolidated affiliates as part of segment earnings; (b) reflects allocations of general corporate expenses to the segments; (c) does not
reflect interest revenue or expense; and (d) is before income taxes.
Because the majority of the Company's activities are domestic, sales and assets outside the United States are not material.
Following is the comparative segment financial disclosure (amounts in millions):
SEGMENT FINANCIAL DISCLOSURE
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Three Months Ended |
Nine Months Ended |
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1999 |
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1998 |
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NET SALES |
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Sept. 30, 1999 |
Sept. 30, 1998 |
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IDENTIFIABLE ASSETS |
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4. 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.
5. New Accounting Standards
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). In May 1999, the FASB amended SFAS No. 133 deferring the effective date to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company is currently evaluating SFAS 133 and has not yet determined its impact on the Company's consolidated financial statements.
6. Supplemental Cash Flow Information
Supplemental information referable to the Consolidated Statements of Cash Flows for the nine months ended September 30 is summarized below (amounts in thousands).
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1998 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW |
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Cash paid during the period for: |
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Liabilities and long-term debt assumed in business |
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Item 2. Management's Discussion and Analysis of Results |
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 earnings are earnings before interest and income taxes and after allocation of corporate expenses and income, other than interest 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 average operating investment and customer 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 recognized the importance of Year 2000 issues and began remediation efforts on internal business systems in 1996 and made resolution of Year 2000 issues a priority across the Company in 1997 by creating a Year 2000 Project Management Office
with the appropriate authority and resources. As of September 30, 1999 the company has implemented corrections to internal systems that are critical to its operations and is now Year 2000 ready. Contingency plans for the Company's Key Business Operations
have been developed and will be reexamined in the fourth quarter. As appropriate, certain non-critical systems may be scheduled for correction after December 1999, and the Company believes such systems will not disrupt operations.
The Company's Year 2000 Plan included five stages--pre-project, planning, preparation, implementation and transition, which have overlapped to a significant degree. The Year 2000 Project Management Office organized teams at each major location to research Year 2000 compliance status, implement appropriate solutions, and conduct testing of computer hardware and network equipment, computer software, production equipment and instrumentation. The teams also assisted in identifying key customers and key suppliers. The Company is currently in the preparation and implementation stages, completing the few remaining non-critical changes.
The preliminary supplier and customer readiness assessment was completed in April 1999. The Company has received information concerning the Year 2000 status of most significant suppliers and selected customers, and believes that these business partners
have plans in place to appropriately remedy their Year 2000 issues in a timely manner. Communication with critical customers and suppliers will continue in the fourth quarter.
The Company has spent less than the original estimate of $5.0 million to implement its Year 2000 Plan. After the cost of completing the few remaining non-critical changes, we expect the total cost to remain below the original estimate.
Management believes that the Company's Year 2000 Plan has resolved the issue. Nevertheless, since it is not possible to anticipate all possible future outcomes, especially when third parties are involved, there could be circumstances in which the Company
would be unable to take customer orders, manufacture and ship products, invoice customers or collect payments. In particular, if third-party providers, due to the Year 2000 issue, fail to provide the Company with components or materials that are necessary
to manufacture its products, with sufficient electrical power and other utilities to sustain its manufacturing process, or with adequate, reliable means of transporting its products to its customers, then any such failure could have a material adverse
effect on the business operations and financial performance of the Company. The amount of potential liability and lost revenue has not been estimated.
RESULTS OF OPERATIONS
Third Quarter 1999 as Compared with Third Quarter 1998
The Company's third quarter 1999 sales of $656.4 million were up 29% from the 1998 third quarter record of $509.5 million. This increase was essentially due to the acquisition of CalMat, which was completed in January. Pretax earnings totaled $125.1
million, and net earnings were $85.8 million or $0.84 per share (diluted). Comparable 1998 results were $130.5 million, $89.9 million and $0.88 per share, respectively. The earnings comparison was influenced principally by lower caustic soda prices.
Construction Materials reported record third quarter sales of $523.0 million, up 48% from the 1998 third quarter of $352.2 million. Excluding CalMat, aggregates shipments were up 2%. CalMat shipments increased 6% over their 1998 level. Excluding the
impact of CalMat and freight to remote distribution yards, aggregates prices increased 3%. Chemicals' third quarter sales of $133.4 million were down 15% from last year's third quarter. Sales suffered from lower prices for caustic soda, chlorine and
several other chloralkali products. ECU (Electro Chemical Unit) prices improved slightly over the prior quarter's levels but were well below the levels realized in any other preceding quarter within the last 25 years.
Earnings before interest and income taxes were $137.7 million as compared to $130.8 million in the same period last year. The Construction Materials segment reported record third quarter earnings of $137.0 million up 22% from third quarter 1998. The
Chemicals segment reported third quarter earnings of $.7 million, down significantly from last year's third quarter earnings of $18.3 million. The unprecedented weakness in the ECU prices was somewhat offset by improved earnings within Performance Systems.
Selling, administrative and general expenses of $48.3 million for the third quarter of 1999 increased 3% from the 1998 level. This increase reflects the addition of CalMat, offset by lower accruals for incentive compensation costs.
Other operating costs of $6.0 million increased significantly from last year's level of $2.0 million, reflecting primarily amortization of the goodwill associated with the CalMat acquisition.
Other income, net of other charges, was $13.1 million as compared with $4.5 million for the third quarter of 1998. The increase reflects principally a settlement referable to a legal claim. Also, the Company's joint venture to supply limestone from
Mexico to the U.S. Gulf Coast market recorded higher earnings.
Interest expense of $13.7 million for the third quarter of 1999 increased $12.0 million from the third quarter of 1998. This increase resulted from the financing of the CalMat acquisition.
The effective tax rate for the quarter was 31.4%, up from last year's third quarter rate of 31.1%. This increase was primarily related to CalMat.
Year-to-Date Comparisons for the Nine Months ended Sept. 30, 1999 and Sept. 30, 1998
Year-to-date the Company's sales were a record while the earnings and earnings per share reflected a 11% decline from the prior year. Net earnings were $174.9 million, or $1.71 per share (diluted), as compared with 1998 earnings and earnings per share of
$196.5 million and $1.92. This earnings decline resulted primarily from the Chemicals segment as significant pricing declines in each of its two chloralkali co-products, caustic soda and chlorine adversely impacted profitability.
Sales of $1,750.2 million for the first nine months of 1999 increased 31% from the comparable 1998 total of $1,334.3 million. Construction Materials sales of $1,349.5 million were up 58% from 1998's $854.2 million. Excluding CalMat, aggregates shipments
were up 7% with other recent acquisitions accounting for 2% of this increase. CalMat shipments added another 21%. Excluding the impact of CalMat and freight to remote distribution yards, aggregates prices increased 3%. Chemicals' sales of $400.7 million
were down 17% from 1998's $480.1 million. This decline resulted from lower prices for caustic soda, chlorine and several other chloralkali products, as ECU values were at their lowest levels in 25 years.
Earnings before interest and income taxes were $295.0 million as compared to $288.8 million in the same period last year. At $283.6 million, earnings in the Construction Materials segment increased 22% from the prior year's $232.0 million. Year-to-date
the Chemicals segment reported earnings of $11.4 million, down significantly from last year's earnings of $56.8 million. This decline reflects principally the lower chloralkali prices, only partially offset by higher volumes within Chloralkali and
improved margins within Performance Systems.
Selling, administrative and general expenses reflected a 10% increase when compared to 1998. This increase reflects primarily the addition of CalMat, somewhat offset by decreases in several other items.
Other operating costs of $14.9 million increased significantly from the prior year's year-to-date level of $5.9 million, reflecting primarily amortization of the goodwill associated with the CalMat acquisition.
Other income, net of other charges, was $29.1 million as compared with $23.7 million for 1998. This increase principally reflects settlements referable to legal claims somewhat offset by significantly lower gains from sales of assets.
Interest expense was $39.0 million reflecting a $33.8 million increase from the prior year resulting from the financing of the CalMat acquisition.
The effective tax rate for the period was 32.5%, up from last year's rate of 31.7%. This increase was primarily related to CalMat.
On October 18, 1999, Donald M. James, Chairman 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:
"I am very pleased that our Construction Materials business achieved record sales and earnings. CalMat continued to realize significant gains in aggregates shipments and was slightly accretive to third
quarter earnings per share. Our other Construction Materials operations also turned in another strong performance notwithstanding a one percent decline in aggregates shipments due to the impact of severe weather in certain markets offset by a 3 percent
increase from acquisitions. Our present backlog within Construction Materials is strong and we do not foresee a slowdown in demand for aggregates. TEA-21 is also beginning to boost demand for aggregates, but the impact on shipments varies widely depending
on each state's readiness to initiate new projects.
"Chemicals' results were in line with our expectations. ECU prices during the quarter, although slightly higher than the preceding quarter, remained near historical lows. The severe hot weather in the third
quarter resulted in curtailment of electric power to industrial users including our chloralkali business. We were able to sell electric power and thereby more than offset the impact of lost production. I am also pleased that Performance Systems continues
to improve.
"Through the first nine months of this year, we made no open market purchases of Vulcan stock. In the fourth quarter we resumed purchases of Vulcan common stock under the Company's long-standing share
purchase program."
Turning to the outlook for Vulcan's businesses, Mr. James stated "This year's fourth quarter results will be influenced heavily by the pace of the recovery in chlorine and caustic soda prices, as it appears
that the trough in the current chloralkali cycle is behind us. As far as Construction Materials is concerned, fourth quarter results are always subject to the impact of weather on construction activity. Based on our current expectations, we believe that
fourth quarter results will be slightly below 1998's record results.
"We remain optimistic about the longer term outlook for both of our businesses. TEA-21 should have a significant positive impact on Construction Materials in 2000 and beyond. In 2000, barring significant
increases in interest rates, other construction activity should remain at or near current levels. Within Chemicals, Chloralkali results should benefit from an expected cyclical upturn, and Performance Systems results should continue to improve."
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital, exclusive of debt and cash items, totaled $371.9 million at September 30, 1999, 93% over the 1998 year-end amount of $193.0 million. This increase primarily resulted from the acquisition of CalMat. The $119.0 million increase from
September 30, 1998 also resulted primarily from the acquisition of CalMat.
The Company's current ratio, which is based on all components of working capital, including cash and debt items, was 1.4 as of September 30, 1999. This compares to the 2.7 ratio at both year-end 1998 and September 30, 1998. These decreases in the current
ratio resulted from the increase in current debt items and decrease in marketable securities and cash resulting from the financing of the CalMat acquisition.
Cash Flows
Net cash provided by operating activities totaled $221.0 million during the first nine months of 1999 up from the $198.6 million generated in the same period last year. This $22.4 million increase in cash provided reflects higher depreciation, depletion
and amortization charges offset in part by the lower earnings. Cash used for investing activities was $905.3 million as compared with the 1998 total of $118.9 million. This $786.4 million increase in cash used principally reflects business acquisitions,
primarily CalMat, net of the approximately $55.9 million of proceeds from the ongoing liquidation of the CalMat real estate portfolio. Net cash provided by financing activities totaled $588.4 million, as compared to the 1998 used for financing activities
of $97.9 million. This net increase of cash provided for financing activities of $686.3 million resulted primarily from the financing of the CalMat acquisition with commercial paper and long-term debt.
Cash and cash equivalents, which totaled $84.6 million at September 30, 1999, were down $25.8 million from a year ago.
Short-term Borrowings
Short-term borrowings as of September 30, 1999 consisted of notes payable to banks totaling $2.1 million, other notes payable of $.2 million, and commercial paper of $220.3 million. The prior year amount consisted solely of notes payable to banks of $2.3
million.
Long-term Obligations
As of September 30, 1999, long-term obligations were 29.7% of long-term capital and 53.3% of shareholders' equity. The corresponding 1998 percentages were 5.5% and 6.9%. These increases resulted from the increase in long-term debt pursuant to the
financing of the CalMat acquisition and the debt assumed by the Company in this acquisition.
Common Stock Transactions
At the time of the CalMat acquisition, CalMat owned 1,200 shares of common stock in the Company which the Company purchased as part of the acquisition at a total cost of $49.4 thousand, equal to an average price of $41.19 per share. No other shares were
purchased through the third quarter of 1999. In the first nine months of 1998, 1,832,000 shares were purchased at a total cost of $65.0 million, or $35.48 per share.
For a number of years, the Company has regularly purchased its own shares in the open market under its long-standing share purchase program. Factors considered in such purchases include cash flow generation, alternative investment opportunities, debt
levels, and share price. The Company acquired CalMat in January of 1999 and financed a significant part of the purchase price with debt. Subsequently, the Company elected not to purchase shares in the open market. In October 1999, the Company resumed
share purchases under the existing share authorizations. The amount, if any, of future share purchases will be determined by management from time to time based upon various factors, including those listed above.
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Item 3. Quantitative and Qualitative Disclosure |
The Company is exposed to certain market risks arising from transactions that are entered into in the normal course of business. In order to manage or reduce this market risk, the Company occasionally utilizes derivative financial instruments.
To date, the Company has used commodity swap and option contracts to reduce its exposure to fluctuations in prices for natural gas. The fair value of these contracts as of September 30, 1999 and 1998 was not material. As a result of a 10% reduction in the
price of natural gas, the Company would experience a potential loss in the fair value of the underlying commodity swap and option contracts based on the fair value at September 30, 1999 of approximately $1.5 million.
The Company is exposed to interest rate risk due to its various long-term debt instruments. As substantially all of this debt is at fixed rates, a decline in market interest rates would potentially result in a subsequent increase in the fair value of the
liability. At September 30, 1999, the estimated fair value of these debt instruments was $674.9 million. The effect of a hypothetical decline in the market interest rate of 1% would increase the fair value of the liability by approximately $37.5 million.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (EDGAR filing only)
Exhibit 27 - Restated Financial Data Schedule for 1998 (EDGAR filing only)
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on January 7, 1999 pursuant to which the Company reported under item 2 the acquisition of CalMat Co.
The Company filed a current report on Form 8-K on February 9, 1999 pursuant to which the Company reported under item 5 the Press Release for the fourth quarter 1998.
The Company filed a current report on Form 8-K on February 17, 1999 pursuant to which the Company reported under item 5 the Amended Press Release for the fourth quarter 1998.
The Company filed a current report on Form 8-K/A on March 19, 1999 pursuant to which the Company reported under item 2 and Item 7 the financial statements of CalMat Co. and the combined proforma financial information giving effect to the acquisition.
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 2, 1999
E. A. Khan
Vice President and Controller
P. J. Clemens, III
Executive Vice President - Finance and Administration
and Treasurer
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