<PAGE> 1
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, 1999
-----------------------------------
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.)
1200 Urban Center Drive, Birmingham, Alabama 35242
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
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:
Shares outstanding
Class at June 30, 1999
----- ----------------
Common Stock, $1 Par Value 100,048,991
<PAGE> 2
VULCAN MATERIALS COMPANY
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
Contents
<TABLE>
<CAPTION>
Page No.
PART I FINANCIAL INFORMATION --------
<S> <C> <C> <C>
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................ 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.......................................... 15
PART II OTHER INFORMATION
Item 5. Other Information...................................... 16
Item 6. Exhibits and Reports on Form 8-K....................... 17
SIGNATURES................................................................. 18
</TABLE>
<PAGE> 3
Vulcan Materials Company
and Subsidiary Companies
<TABLE>
<CAPTION>
(Thousands of Dollars)
Consolidated Balance Sheets June 30 December 31 June 30
(Condensed and unaudited) 1999 1998 1998
----------------------------------------
<S> <C> <C> <C>
Assets
Cash and cash equivalents ...... $ 77,455 $ 180,560 $ 76,782
Accounts and notes receivable:
Accts. & notes recv., gross .. 370,764 228,652 278,512
Less: Res. for doubtful accts (11,931) (7,391) (8,053)
---------------------------------------
Accts. & notes recv., net .. 358,833 221,261 270,459
Inventories:
Finished products ............ 135,763 99,814 104,460
Raw materials ................ 14,424 10,466 11,767
Products in process .......... 858 1,183 1,199
Operating supplies & other ... 37,867 32,217 30,194
---------------------------------------
Inventories ................ 188,912 143,680 147,620
Deferred income taxes .......... 37,528 24,923 20,277
Prepaid expenses ............... 11,492 5,949 6,188
---------------------------------------
Total current assets ......... 674,220 576,373 521,326
Invest. & long-term receivables 74,022 71,034 67,373
Property, plant and equipment:
PP&E, cost ................... 3,191,608 2,280,755 2,181,990
Less: Res. for DD&A .......... (1,759,910) (1,384,971) (1,339,677)
---------------------------------------
Prop., plant & equip., net . 1,431,698 895,784 842,313
Goodwill ....................... 544,261 94,008 87,665
Deferred chgs. & other assets .. 58,075 21,412 24,420
---------------------------------------
Total ........................ $2,782,276 $1,658,611 $1,543,097
=======================================
Liabilities and Shareholders' Equity
Current maturities of LTD ...... $ 10,886 $ 5,432 $ 5,411
Notes payable .................. 251,447 2,353 2,385
Trade payables and accruals .... 139,621 107,382 120,199
Other current liabilities ...... 142,020 96,295 95,811
---------------------------------------
Total current liabilities .... 543,974 211,462 223,806
Long-term debt ................. 688,737 76,533 76,879
Deferred income taxes .......... 171,197 98,473 94,702
Other noncurrent liabilities ... 155,000 118,443 89,233
Shareholders' equity ........... 1,223,368 1,153,700 1,058,477
---------------------------------------
Total ........................ $2,782,276 $1,658,611 $1,543,097
=======================================
Current ratio .................. 1.2 2.7 2.3
</TABLE>
See accompanying Notes to Financial Statements
1
<PAGE> 4
Vulcan Materials Company
and Subsidiary Companies
Consolidated Statements of Earnings
(Condensed and unaudited)
<TABLE>
<CAPTION>
(Thousands of Dollars)
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales .................... $611,530 $465,825 $1,093,752 $ 824,788
Cost of goods sold ........... 453,093 318,925 837,105 588,407
-----------------------------------------
Gross profit on sales ........ 158,437 146,900 256,647 236,381
Selling, administrative &
general expenses ........... 52,262 46,940 106,457 93,668
Other operating costs ........ 4,866 1,572 8,896 3,927
Other income, net ............ 5,588 5,010 16,053 19,202
-----------------------------------------
Earnings before interest
and income taxes ........... 106,897 103,398 157,347 157,988
Interest income .............. 938 969 1,920 2,656
Interest expense ............. 13,689 1,559 25,294 3,506
-----------------------------------------
Earnings before inc. taxes ... 94,146 102,808 133,973 157,138
Provision for inc. taxes ..... 31,420 32,778 44,881 50,598
-----------------------------------------
Net earnings ................. $ 62,726 $ 70,030 $ 89,092 $ 106,540
=========================================
Basic earnings per share ..... $ 0.62 $ 0.69 $ 0.88 $ 1.05
Diluted earnings per share ... $ 0.61 $ 0.68 $ 0.87 $ 1.04
=========================================
Average common shares
outstanding (in thousands):
Basic .................... 100,962 101,149 100,863 100,994
Assuming dilution ........ 102,331 102,509 102,293 102,335
Cash dividends per share
of common stock ............ $ 0.195 $ 0.173 $ 0.390 $ 0.347
Depreciation, depletion &
amort. deducted above ...... $ 51,092 $ 34,802 $ 100,059 $ 67,881
Effective tax rate ........... 33.4% 31.9% 33.5% 32.2%
</TABLE>
See accompanying Notes to Financial Statements
2
<PAGE> 5
Vulcan Materials Company
and Subsidiary Companies
<TABLE>
<CAPTION>
(Thousands of Dollars)
Consolidated Statements of Cash Flows Six Months Ended
(Condensed and unaudited) June 30
----------------------
1999 1998
Operating Activities
<S> <C> <C>
Net earnings .................................... $ 89,092 $106,540
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, depletion and amortization .... 100,059 67,881
Increase in assets before
effects of business acquisitions .......... (74,740) (83,855)
Increase (decrease) in liabilities before
effects of business acquisitions .......... (2,250) 17,315
Other, net .................................. (1,303) (13,208)
----------------------
Net cash provided by operating activities ....... 110,858 94,673
----------------------
Investing Activities
Purchases of property, plant and equipment ...... (170,057) (94,489)
Pmt. for businesses acquired, net of acq. cash .. (741,768) (5,705)
Proceeds from sale of property, plant & equip. .. 59,840 23,838
Investment in nonconsolidated companies ......... 1,500 -
----------------------
Net cash used for investing activities .......... (850,485) (76,356)
----------------------
Financing Activities
Net borrowings (payments) - commercial
paper and bank lines of credit ................ 249,094 (1,270)
Payment of short-term debt ...................... (91,133) (5,050)
Payment of long-term debt ....................... (350) -
Proceeds from issuance of long-term debt ........ 496,875 -
Purchases of common stock ....................... (49) (44,704)
Dividends paid .................................. (39,369) (35,086)
Contribution from minority interest
of consolidated subsidiary .................... 12,105 10,307
Other, net ...................................... 9,349 5,702
----------------------
Net cash provided (used) for fin. activities .... 636,522 (70,101)
----------------------
Net decrease in cash and cash equivalents ....... (103,105) (51,784)
Cash and cash equivalents at beginning of year .. 180,560 128,566
----------------------
Cash and cash equivalents at end of period ...... $ 77,455 $ 76,782
======================
</TABLE>
See accompanying Notes to Financial Statements
3
<PAGE> 6
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):
<TABLE>
<S> <C>
Current assets $ 165,978
Investments & long term receivables 13,527
Property and equipment 545,971
Goodwill 443,128
Current liabilities (169,278)
Long-term debt (128,730)
Deferred income taxes (89,447)
Other non-current liabilities (31,149)
---------
Estimated Purchase Allocation $ 750,000
=========
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C>
Consideration consisted of:
Cash on hand $150,000
Debt financing (a) 590,000
Estimated direct acquisition costs 10,000
--------
$750,000
========
</TABLE>
(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. Although completed after
the close of the first quarter, this financing was reflected in the
first quarter's balance sheet and cash flow statements given that the
Company had the ability and intent to refinance this portion of
commercial paper on a long-term basis at March 31, 1999.
The accompanying consolidated statement of earnings for the three and
six months ended June 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 six month periods ended June 30, 1999 and 1998 assume
that the CalMat acquisition occurred as of January 1, 1998, (in
millions, except per share amounts):
<TABLE>
<CAPTION>
PRO FORMA Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
------ ------- -------- -------
<S> <C> <C> <C> <C>
Net Sales $611.5 $ 591.3 $1,093.8 $1,040.0
Net Earnings 62.7 68.4 $ 89.1 $ 94.6
Earnings per share:
Basic $ 0.62 $ 0.68 $ 0.88 $ 0.94
Diluted $ 0.61 $ 0.67 $ 0.87 $ 0.92
</TABLE>
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.
5
<PAGE> 8
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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES
Construction Materials $479.8 $308.7 $ 826.5 $502.0
Chemicals 131.7 157.1 267.3 322.8
------ ------ -------- ------
Total $611.5 $465.8 $1,093.8 $824.8
====== ====== ======== ======
EARNINGS (LOSS) BEFORE INTEREST AND
INCOME TAXES
Construction Materials $107.1 $ 87.5 $ 146.7 $119.4
Chemicals (.2) 15.9 10.6 38.5
------ ------ -------- ------
Total $106.9 $103.4 $ 157.3 $158.0
====== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
IDENTIFIABLE ASSETS
Construction Materials $2,080.3 $ 897.2
Chemicals 483.2 455.4
-------- --------
Identifiable Assets 2,563.5 1,352.6
Investment in nonconsolidated affiliates 73.9 65.0
General corporate assets 67.4 48.7
Cash items 77.5 76.8
-------- --------
Total $2,782.3 $1,543.1
======== ========
</TABLE>
6
<PAGE> 9
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 as of June 30 is summarized below (amounts in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest, net of amount capitalized $ 17,435 $ 3,923
Income taxes 10,197 36,777
Supplemental Schedule of Noncash Investing and Financing
Activities
Liabilities and long-term debt assumed in bus. acq. 386,292 1,456
Fair value of stock issued in business acquisitions 10,580 34,568
Debt issued in purchase of property, plant and equipment 645 -0-
</TABLE>
7
<PAGE> 10
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 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 recognizes the importance of Year 2000 issues and has made
resolution of these problems a priority by creating a Year 2000 Project
Management Office with the appropriate authority and resources. The Company's
Year 2000 Plan includes five stages--pre-project, planning, preparation,
implementation and transition, which will overlap to a significant degree. The
Year 2000 Project Management Office has 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, coordinating the necessary internal and external changes
and performing integration testing. The Company has received
8
<PAGE> 11
information concerning the Year 2000 status of most significant suppliers and
selected customers, and believes plans are in place to appropriately remedy
these issues in a timely manner. The Company plans to have implemented
corrections to internal systems that are critical to its operations no later
than the end of the third quarter of 1999. As appropriate, certain noncritical
systems may be scheduled for correction after December 1999, and the Company
believes such systems will not significantly disrupt operations.
The Company currently estimates that the total cost of implementing its Year
2000 Plan will not exceed $5.0 million. This estimate is based on presently
available information and will be updated as the Company finalizes its
assessment and continues with implementation. In particular, the estimate may
need to be increased as the Company revises and finalizes its contingency plans.
The preliminary business partner readiness assessment was completed in April
1999.
Management believes that the Company's Year 2000 Plan will resolve the issue in
a timely manner. 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.
The preliminary contingency plans were finalized in April 1999.
9
<PAGE> 12
RESULTS OF OPERATIONS
Second Quarter 1999 as Compared with Second Quarter 1998
The Company's second quarter 1999 sales of $611.5 million were up 31% from the
1998 second quarter record of $465.8 million. This increase was essentially due
to the acquisition of CalMat, which was completed in January. Pretax earnings
totaled $94.1 million, and net earnings were $62.7 million or $0.61 per share
(diluted). Comparable 1998 results were $102.8 million, $70.0 million and $0.68
per share, respectively. As indicated in the Company's July 19 earnings release
and June 23 comments on business conditions, significant pricing declines in
each of the two chloralkali co-products, caustic soda and chlorine, affected the
earnings comparison.
Construction Materials reported record second quarter sales of $479.8 million,
up 55% from the 1998 second quarter of $308.7 million. Excluding CalMat,
aggregates shipments were up 6%, nearly half of which were from other recent
acquisitions. CalMat shipments added another 19%. Excluding the impact of CalMat
and freight to remote distribution yards, aggregates prices increased 3%.
Chemicals' second quarter sales of $131.7 million were down 16% from last year's
second quarter. This decline resulted from lower prices for caustic soda,
chlorine and several other chloralkali products, as ECU (Electro Chemical Unit)
values fell to their lowest levels in 25 years.
Earnings before interest and income taxes were $106.9 million as compared to
$103.4 million in the same period last year. The Construction Materials segment
reported record second quarter earnings of $107.1 million up 22% from second
quarter 1998. The Chemicals segment reported a loss in the second quarter of $.2
million, down $16.1 million from last year's second quarter earnings of $15.9
million. This decline reflects principally the lower chloralkali prices,
somewhat offset by higher volumes and lower raw material costs within
Chloralkali and improved margins within Performance Systems.
Selling, administrative and general expenses of $52.3 million for the second
quarter of 1999 increased 11% from the 1998 level. This increase reflects
primarily the addition of CalMat, somewhat offset by decreases in several other
items.
Other operating costs of $4.9 million increased significantly from last year's
level of $1.6 million, reflecting primarily amortization of the goodwill
associated with the CalMat acquisition.
Other income, net of other charges, was $5.6 million as compared with $5.0
million for the second quarter of 1998.
Interest expense of $13.7 million for the second quarter of 1999 increased $12.1
million from the second quarter of 1998. This increase resulted from the
financing of the CalMat acquisition.
The effective tax rate for the quarter was 33.4%, up from last year's second
quarter rate of 31.9%. This increase was primarily related to CalMat.
10
<PAGE> 13
Year-to-Date Comparisons as of June 30, 1999 and June 30, 1998
Year-to-date the Company's sales were a record while the earnings and earnings
per share reflected a 16% decline from the prior year. Net earnings were $89.1
million, or $0.87 per share (diluted), as compared with 1998 earnings and
earnings per share of $106.5 million and $1.04. 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 $1,094 million for the first six months of 1999 increased 33% from the
first half 1998 total of $825 million. Construction Materials sales of $826.5
million were up 65% from 1998's $502.0 million. Excluding CalMat, aggregates
shipments were up 9% with other recent acquisitions accounting for 4% of this
increase. CalMat shipments added another 22%. Excluding the impact of CalMat and
freight to remote distribution yards, aggregates prices increased 3%. Chemicals'
first half sales of $267.3 million were down 17% from 1998's $322.8 million.
This decline resulted from lower prices for caustic soda, chlorine and several
other chloralkali products, as ECU values fell to their lowest levels in 25
years.
Earnings before interest and income taxes were $157.3 million as compared to
$158.0 million in the same period last year. At $146.7 million, earnings in the
Construction Materials segment increased 23% from the prior year's $119.4
million. Year-to-date the Chemicals segment reported earnings of $10.6 million,
down $27.9 million from last year's earnings of $38.5 million. This decline
reflects principally the lower chloralkali prices, only partially offset by
higher volumes and lower raw material costs within Chloralkali and improved
margins within Performance Systems.
Selling, administrative and general expenses reflected a 14% increase when
compared to the first half of 1998. This increase reflects primarily the
addition of CalMat, somewhat offset by decreases in several other items.
Other operating costs of $8.9 million increased significantly from last year's
first half level of $3.9 million, reflecting primarily amortization of the
goodwill associated with the CalMat acquisition.
Other income, net of other charges, was $16.1 million as compared with $19.2
million for 1998. This decrease principally reflects significantly lower gains
from sales of assets somewhat offset by a first quarter non-recurring settlement
referable to a legal claim.
Interest expense was $25.3 million for the first half of 1999 reflecting a $21.8
million increase from the prior year resulting from the financing of the CalMat
acquisition.
The effective tax rate for the period was 33.5%, up from last year's rate of
32.2%. This increase was primarily related to CalMat.
11
<PAGE> 14
On July 19, 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:
"Construction activity in most of our Construction
Materials markets continued at a strong pace, even though TEA-21
has not yet been a factor. During the second half many of our
markets should begin to see the impact of TEA-21, although the
timing of projects will vary significantly from state to state.
"We are very pleased with the progress at CalMat, where
both volumes and margins continue to improve. We are also on track
to realize the projected cash flow referable to the liquidation of
CalMat's real estate portfolio. Through June, we have generated
over $50 million from these sales.
"Our Chemicals business, however, suffered from
unprecedented weakness in the chloralkali markets with ECU prices
declining to the lowest levels in over 25 years. Most industry
forecasters believe ECU values may be at or near the trough for
this cycle and expect some improvements in ECU values, led by
improving chlorine prices, by the end of 1999. At current pricing
levels, we would not expect any improvement in Chemicals' earnings
for the remainder of the year.
"With respect to second half results for our Construction
Materials business, CalMat should be modestly accretive while the
earnings per share contribution from our traditional Construction
Materials business should exceed last year's record results. As far
as our overall earnings outlook for 1999 is concerned, barring a
significant improvement in chloralkali markets, we expect earnings
to fall below the record 1998 performance. "
12
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Working capital, exclusive of debt and cash items, totaled $323.9 million at
June 30, 1999, 68% over the 1998 year-end amount of $193.0 million. This
increase primarily resulted from the acquisition of CalMat. The $94.4 million
increase from June 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 1.2 as of June 30, 1999. This
compares to the 2.7 ratio at year-end 1998 and the 2.3 ratio at June 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
First half net cash provided by operations totaled $110.9 million, up from the
$94.7 million generated in the same period last year. This $16.2 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 $850.4 million as compared with the 1998 total of $76.4
million. This $774.0 increase in cash used principally reflects the heightened
business acquisitions, primarily CalMat, net of the approximately $52.4 million
of proceeds from the ongoing liquidation of the CalMat real estate portfolio.
Net cash provided by financing activities totaled $636.5 million, as compared to
the 1998 used for financing activities of $70.1 million. This net increase of
cash provided for financing activities of $706.6 million resulted primarily from
the financing of the CalMat acquisition with commercial paper and long-term
debt.
Cash and cash equivalents, which totaled $77.5 million at June 30, 1999, were
essentially flat compared to the $76.8 million a year ago.
Short-term Borrowings
Short-term borrowings as of June 30, 1999 consisted of notes payable to banks
totaling $2.3 million, other notes payable of $.2 million, and commercial paper
of $248.9 million. The prior year amount consisted solely of notes payable to
banks of $2.4 million.
Long-term Obligations
As of June 30, 1999, long-term obligations were 30.8% of long-term capital and
56.3% of shareholders' equity. The corresponding 1998 percentages were 5.8% and
7.3%. 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.
13
<PAGE> 16
Common Stock Transactions
The Company purchased 1,200 shares of common stock in the first quarter of 1999
at a total cost of $49.4 thousand, equal to an average price of $41.19 per
share. No shares were purchased in the second quarter of 1999. In the first six
months of 1998, 1,259,700 shares were purchased at a total cost of $44.7
million, or $35.49 per share.
14
<PAGE> 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
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 June 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 June 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 June 30, 1999, the estimated fair value of these
debt instruments was $687.9 million. The effect of a hypothetical decline in the
market interest rate of 1% would increase the fair value of the liability by
approximately $39.7 million.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In January 1999, the Company acquired all of the outstanding common stock of
CalMat. In connection with that acquisition, A. F. Gerstell, formerly the Chief
Executive Officer and Chairman of CalMat, joined the Company's Board. Following
the successful transition of CalMat into the Company, Mr. Gerstell has resigned
from the Board effective on July 31, 1999. Mr. Gerstell will continue to act as
a consultant to the Company pursuant to his existing Consulting Agreement with
the Company and will continue to serve as Chairman of the National Stone
Association.
16
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 - Financial Data Schedule
(EDGAR filing only)
Exhibit 27.2 - 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.
17
<PAGE> 20
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 4, 1999 /s/ E.A. Khan
---------------------- -------------------------------------------
E. A. Khan
Vice President and Controller
/s/ P.J. Clemens, III
-------------------------------------------
P. J. Clemens, III
Executive Vice President - Finance and
Administration and Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 77,455
<SECURITIES> 0
<RECEIVABLES> 370,764
<ALLOWANCES> 11,931
<INVENTORY> 188,912
<CURRENT-ASSETS> 674,220
<PP&E> 3,191,608
<DEPRECIATION> 1,759,910
<TOTAL-ASSETS> 2,782,276
<CURRENT-LIABILITIES> 543,974
<BONDS> 688,737
0
0
<COMMON> 139,705
<OTHER-SE> 1,083,663
<TOTAL-LIABILITY-AND-EQUITY> 2,782,276
<SALES> 1,093,752
<TOTAL-REVENUES> 1,093,752
<CGS> 837,105
<TOTAL-COSTS> 837,105
<OTHER-EXPENSES> 8,896
<LOSS-PROVISION> 68
<INTEREST-EXPENSE> 25,294
<INCOME-PRETAX> 133,973
<INCOME-TAX> 44,881
<INCOME-CONTINUING> 89,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,092
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.87
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS RESTATED FINANCIAL DATA SCHEDULE FOR 1998 RESULTED FROM THE STOCK SPLIT
EFFECTED MARCH 10, 1999. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED
JUNE 30, 1998, AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 76,782
<SECURITIES> 0
<RECEIVABLES> 278,512
<ALLOWANCES> 8,053
<INVENTORY> 147,620
<CURRENT-ASSETS> 521,326
<PP&E> 2,181,990
<DEPRECIATION> 1,339,677
<TOTAL-ASSETS> 1,543,097
<CURRENT-LIABILITIES> 223,806
<BONDS> 76,879
0
0
<COMMON> 139,705
<OTHER-SE> 918,772
<TOTAL-LIABILITY-AND-EQUITY> 1,543,097
<SALES> 824,788
<TOTAL-REVENUES> 824,788
<CGS> 588,407
<TOTAL-COSTS> 588,407
<OTHER-EXPENSES> 3,927
<LOSS-PROVISION> 550
<INTEREST-EXPENSE> 3,506
<INCOME-PRETAX> 157,138
<INCOME-TAX> 50,598
<INCOME-CONTINUING> 106,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,540
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.04
</TABLE>
