-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FWpYeGstWi0SGHpd2LWpxLdg/VQCg3p0WO/inAIP5D56G7hQqy3gkg5H1wkUIf7S X8G6PF74amfmam6WOhrbCQ== 0000950144-98-003404.txt : 19980330 0000950144-98-003404.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950144-98-003404 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VULCAN MATERIALS CO CENTRAL INDEX KEY: 0000103973 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 630366371 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04033 FILM NUMBER: 98576203 BUSINESS ADDRESS: STREET 1: ONE METROPLEX DR CITY: BIRMINGHAM STATE: AL ZIP: 35209 BUSINESS PHONE: 2058773000 MAIL ADDRESS: STREET 1: PO BOX 530187 CITY: BIRMINGHAM STATE: AL ZIP: 35253-0187 10-K 1 VULCAN MATERIALS, CO. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended DECEMBER 31, 1997 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 incorporation (I.R.S. Employer Identification or organization) No.) ONE METROPLEX DRIVE, BIRMINGHAM, ALABAMA 35209 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (205) 877-3000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE - ------------------------------------- -------------------------------------- Securities registered pursuant to Section 12(g) of the Act: NONE 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by referenced in Part III of this Form 10- K or any amendment to this Form 10-K. --- State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES AS OF FEBRUARY 27, 1998: $3,343,016,477. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK, $1.00 PAR VALUE, AS OF FEBRUARY 27, 1998: 33,567,727 SHARES DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the registrant's Annual Report to Shareholders for the year ended December 31, 1997, are incorporated by reference into Parts I, II and IV of this Annual Report on Form 10-K. (2) Portions of the registrant's annual proxy statement for the annual meeting of its shareholders to be held on May 8, 1998, are incorporated by reference into Part III of this Annual Report on Form 10-K. 2 VULCAN MATERIALS COMPANY CROSS REFERENCE SHEET FOR DOCUMENTS INCORPORATED BY REFERENCE
HEADING IN ANNUAL REPORT PAGE IN FORM 10-K TO SHAREHOLDERS FOR ANNUAL ITEM NO. YEAR ENDED DECEMBER 31, 1997 REPORT 1. Business (Financial Results by Segment Financial Data for the 3 Years Ended Business Segments) December 31, 1997 55 Note 12, Segment Data 71 Note 14, Acquisitions 72 3. Legal Proceedings Note 10, Other Commitments and Contingent Liabilities 70 7. Management's Discussion and Management's Discussion and Analysis of Analysis of Financial Condition Financial Condition and Results of Operations 48-54 and Results of Operations Financial Terminology 79 8. Financial Statements and Consolidated Statements of Earnings 44 Supplementary Data Consolidated Balance Sheets 45 Consolidated Statements of Cash Flows 46 Consolidated Statements of Shareholders' Equity 47 Notes to Consolidated Financial Statements 58-72 Management's Responsibility for Financial Reporting and Internal Control 42 Independent Auditors' Report 43 Supplementary Information-Quarterly Financial Data for Each of the 2 Years Ended December 31, 1997 and 1996 (Unaudited) 77 14. Exhibits, Financial Statement Consolidated Statements of Earnings 44 Schedules and Reports on Consolidated Balance Sheets 45 Form 8-K Consolidated Statements of Cash Flows 46 Consolidated Statements of Shareholders' Equity 47 Notes to Consolidated Financial Statements 58-72 Management's Responsibility for Financial Reporting and Internal Control 42 Independent Auditors' Report 43 Supplementary Information-Quarterly Financial Data for Each of the 2 Years Ended December 31, 1997 and 1996 (Unaudited) 77 HEADING IN PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 8, 1998 10. Directors and Executive Officers Election of Directors; Nominees for Election to the Board of of the Registrant Directors; Directors Continuing in Office; Section 16(a) Beneficial Ownership Reporting Compliance 11. Executive Compensation Compensation of Directors; Executive Compensation; Option Grants in 1997; Report of the Compensation Committee; Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values; Shareholder Return Performance Presentation; Retirement Income Plan; Employee Special Severance Plan 12. Security Ownership of Certain Security Ownership of Certain Beneficial Owners; Beneficial Owners and Management Security Holdings of Management and Management
3 VULCAN MATERIALS COMPANY ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 1997 CONTENTS
PART ITEM PAGE I 1 Business 1 2 Properties 4 3 Legal Proceedings 7 4 Submission of Matters to a Vote of Security Holders 8 4 a. Executive Officers of the Registrant 8 II 5 Market for the Registrant's Common Equity and Related Stockholder Matters 10 6 Selected Financial Data 11 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 8 Financial Statements and Supplementary Data 11 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 III 10 Directors and Executive Officers of the Registrant 12 11 Executive Compensation 12 12 Security Ownership of Certain Beneficial Owners and Management 12 13 Certain Relationships and Related Transactions 12 IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 13 -- Signatures 19
4 PART I ITEM 1. BUSINESS Vulcan Materials Company, a New Jersey corporation incorporated in 1956, and its subsidiaries (together called the "Company") are principally engaged in the production, distribution and sale of construction materials ("Construction Materials") and industrial and specialty chemicals ("Chemicals"). Construction Materials and Chemicals may each be considered both a segment (or a line of business) and a class of similar products. The Company is the nation's leading producer of construction aggregates. All of the Company's products are marketed under highly competitive conditions, including competition in price, service and product performance. There are a substantial number of competitors in both the Construction Materials segment and the Chemicals segment. No material part of the business of either segment of the Company is dependent upon a single customer or upon a few customers, the loss of any one of which would have a materially adverse effect on the segment. The Company's products are sold principally to private industry. Although large amounts of construction materials are used in public works, relatively insignificant sales are made directly to federal, state, county or municipal governments, or agencies thereof. The Company conducts research and development activities for both of its business segments. The Construction Materials research and development facility is located near Birmingham, Alabama. The Chemicals research and development laboratories are located in Wichita, Kansas and Columbus, Georgia. In general, the Company's research and development effort is directed to applied technological development for the use of its Construction Materials and Chemicals products as well as for the manufacturing or processing of its Chemicals products. The Company spent approximately $1,142,000 in 1995, $1,091,000 in 1996 and $1,281,000 in 1997 on research and development activities for its Construction Materials segment. The Company spent approximately $9,159,000 in 1995, $7,939,000 in 1996 and $9,474,000 in 1997 on research and development activities for its Chemicals segment. The Company estimates that capital expenditures for environmental control facilities in the current fiscal year (1998) and the succeeding fiscal year (1999) will be approximately $3,733,000 and $1,798,000, respectively, for the Construction Materials segment, and $4,393,000 and $4,437,000, respectively, for the Chemicals segment. The Company's principal sources of energy are electricity, natural gas and diesel fuel. The Company does not anticipate any material difficulty in obtaining the required sources of energy required for its operations. In 1997, the Construction Materials segment employed an average of approximately 5,399 people. The Chemicals segment employed an average of approximately 1,619 people. The Company's corporate office employed an average of approximately 162 people. The Company considers its relationship with its employees to be good. Financial results of the Company for any individual quarter are not necessarily indicative of results to be expected for the year, due primarily 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. CONSTRUCTION MATERIALS The Company's construction materials business consists of the production and sale of crushed stone, sand, gravel, rock asphalt and crushed slag (a by-product of steel production). Crushed stone constituted approximately 79% of the dollar volume of the Construction Materials segment's 1997 sales, as compared to 79% in 1996 and 77% in 1995. Construction aggregates of suitable characteristics are employed in virtually all types of construction, including highway construction and maintenance, and in the production of asphaltic and portland cement concrete mixes. They also are widely used as railroad track ballast. 1 5 Each type of aggregate is sold in competition with other types of aggregates and in competition with other producers of the same type of aggregate. Because of the relatively high transportation costs inherent in the business, competition generally is limited to the areas in relatively close proximity to production facilities. Noteworthy exceptions are the areas along the Mississippi and Tennessee-Tombigbee river systems and the Gulf Coast which are served by the Company's Reed quarry, areas served by rail-connected quarries, and the areas along the U.S. coast served by ocean-going vessels that transport stone from the Company's joint venture operation in Mexico. The Company's construction aggregates are sold in 18 states primarily in the Southeast, Midwest and Southwest regions of the United States and in the District of Columbia. During 1997, the Company acquired four quarries in Arkansas, Georgia and Texas and a sand and gravel operation in Illinois. Shipments to customers of all construction aggregates from the Company's domestic operations in 1997 totaled approximately 155 million tons, with crushed stone shipments to customers accounting for approximately 146 million tons. In 1997, the Company, directly or through joint ventures, operated 132 permanent crushed stone plants in 13 states and Mexico for the production of crushed limestone and granite with estimated reserves totaling approximately 8.2 billion tons. In 1997, the Company, directly or through joint ventures, operated 12 sand and gravel plants, 4 slag plants and various other types of plants which produce rock asphalt and other aggregates. Estimates of sand and gravel reserves, calculated in a manner comparable to the estimates of stone reserves set forth above, total approximately 60 million tons. Other Construction Materials products and services include asphaltic concrete, ready-mixed concrete, trucking services, barge transportation, a Mack Truck distributorship, paving construction, dolomitic lime, emulsified asphalt and several other businesses. Environmental and zoning regulations have made it increasingly difficult for the construction aggregates industry either to expand existing quarries or to develop new quarries. Although it cannot be predicted what policies will be adopted in the future by governmental bodies regarding environmental controls which affect the construction materials industry, the Company anticipates that future environmental control costs will not have a materially adverse effect upon its business. CHEMICALS The Chemicals segment is organized into two business units: the Chloralkali Business Unit which manages the Company's chloralkali and related businesses, and the Performance Systems Business Unit which manages the Company's specialty chemicals and services business. The principal chemicals produced by the Chloralkali Business Unit at the Company's three chloralkali plants described in Item 2 below, are chlorine, caustic soda (sodium hydroxide), muriatic acid, hydrochloric acid, caustic potash (potassium hydroxide), potassium carbonate, chlorinated hydrocarbons and calcium chloride. Chlorine and various hydrocarbons (primarily ethylene and methanol) are used to produce the Unit's line of chlorinated hydrocarbons, including methylene chloride, perchloroethylene, chloroform, methyl chloride, ethylene dichloride, carbon tetrachloride, methyl chloroform and pentachlorophenol. Principal markets for the Chloralkali Business Unit's chemical products include pulp and paper, energy, food, pharmaceutical, cleaning, chemical processing, fluorocarbons, water management and textiles. In the paper-making industry, chlorine is used in pulp and paper bleaching, while caustic soda is used primarily in the kraft and sulfite pulping process. The Company supplies hydrochloric acid to the energy industry for use in oil well stimulation and gas extraction. Caustic soda also is used to demineralize water for steam production at electrical energy facilities and to remove sulfur from gas and coal. Hydrochloric acid, caustic soda, methylene chloride and caustic potash are used 2 6 by the food and pharmaceutical industries. Perchloroethylene, methylene chloride and methyl chloroform are used in industrial cleaning applications. Perchloroethylene is also used in the dry-cleaning industry. The Chloralkali Business Unit's sales to the chemical processing industry serve companies that produce organic and inorganic chemical intermediates and finished products ranging from clay-based catalysts to agricultural herbicides. Products sold to this market include hydrochloric acid, chlorine, caustic soda, caustic potash and potassium carbonate. Potassium carbonate is used in the manufacture of screen glass, rubber antioxidants and other chemicals. The Company sells chloroform, methyl chloroform and perchloroethylene to the fluorocarbons market. Chlorine is used in water and sewage management, and caustic soda and caustic potash are used in the production of soaps and detergents. Chlorine also is used as an industrial bleaching agent, in cleaning applications for the electronics industry, as a biocide in the fruit processing industry and in various applications in the oil industry. Calcium chloride, produced at the Company's Wichita complex, has several uses including de-icing of roads, dust control, road stabilization and oil well completion. The principal chemicals produced for the Performance Systems Business Unit by the Company's Callaway Chemical Company subsidiaries include process aids for the pulp and paper and textile industries and various water management chemicals. Through its Vulcan Chemical Technologies, Inc. ("VCT") subsidiary, the Performance Systems Business Unit assembles and markets small-scale chlorine dioxide generators, and sells related chemicals (primarily sodium chlorite manufactured by the Company) and services to the water management, food and beverage processing and pulp and paper industries. This subsidiary also assembles and markets equipment, and sells related chemicals (primarily hydrogen peroxide purchased from others) and services to the municipal and industrial water management markets. Additionally, the Performance Systems Business Unit markets sodium chlorite produced at the Chloralkali Business Unit's Wichita plant. Sodium chlorite is used in the water management, food and beverage processing, pulp and paper, textile and electronics industries. The Performance Systems Business Unit also markets sodium hydrosulfite which is used primarily in the pulp and paper industry and produced at the Chloralkali Business Unit's Port Edwards plant. The Company competes throughout the United States with numerous companies, including some of the largest chemical companies, in the production and sale of its lines of chemicals. The Company also competes for sales to customers located outside the United States, with sales to such customers currently accounting for approximately 5% of the sales of the Company's Chemicals segment. The Company's underground reserves of salt, which is a basic raw material in the production of chlorine and caustic soda, are located near its Wichita, Kansas and Geismar, Louisiana plants. The Company purchases salt for its Port Edwards, Wisconsin plant. Ethylene, methanol, and vinyl chloride monomer, the other major raw materials used in the Chloralkali Business Unit, and various chemicals used by the Performance Systems Business Unit are purchased from several different suppliers. Sources of salt, ethylene, methanol, vinyl chloride monomer and other various chemicals are believed to be adequate for the Company's operations and the Company does not anticipate any material difficulty in obtaining the raw materials which it uses. Certain of the Company's chemical operations are subject to the Resource Conservation and Recovery Act ("RCRA"). Under the corrective action requirements of RCRA, the Environmental Protection Agency ("EPA") must identify facilities subject to RCRA's hazardous waste permitting provisions where practices in the past have caused releases of hazardous waste or constituents thereof. The owner of any such facility is then required to conduct a Remedial Facility Investigation ("RFI") defining the nature and extent of any such releases described by the EPA. If the results of the RFI determine that constituent concentrations from any such release exceed action levels specified by the EPA, the facility owner is further required to perform a Corrective Measures Study ("CMS") identifying feasible technological alternatives for addressing these releases. Depending upon the results reported to the EPA in the RFI and CMS, the EPA subsequently may require Corrective Measures Implementation ("CMI") by the facility owner--essentially, implementation of a cleanup plan developed by the EPA based on the RFI and CMS. The Company expects to incur RFI and CMS costs over the next several years at its Geismar, Port Edwards and Wichita manufacturing facilities. For each of these three facilities, the RFI and CMS results will determine whether the EPA subsequently requires a CMI to address releases at the facility, and the scope and cost of any such CMI. With respect to those RFI and CMS costs that currently can be reasonably estimated, the Company has determined 3 7 that its accrued reserves are adequate to cover such costs. However, the total costs which ultimately may be incurred by the Company in connection with discharging its obligations under RCRA's corrective action requirements cannot reasonably be estimated at this time. Various other environmental regulations also have a restrictive effect upon the chemicals industry, both as to production and sales, particularly the production and sale of certain chemicals which are subject to regulation as ozone depleting chemicals. The production and marketing of carbon tetrachloride ended effective January 1, 1996, for most end uses except for exports to Article 5 countries as defined by the Montreal Protocol on Ozone Depleting Chemicals. The production of methyl chloroform for emissive applications also ended effective January 1, 1996. Existing inventory of methyl chloroform may continue to be marketed for emissive uses. In addition, methyl chloroform will continue to be produced and marketed for non-emissive uses while carbon tetrachloride will continue to be produced and marketed for export to Article 5 countries. However, sales volume of both products will be lower than in prior years. FINANCIAL RESULTS BY BUSINESS SEGMENTS Net sales, earnings, identifiable assets and related financial data for each of the Company's business segments for the three years ended December 31, 1997, are reported on pages 71 and 72 (Note 12 of the Notes to Financial Statements) and on page 55 (under the caption "Segment Financial Data") in the Company's 1997 Annual Report to Shareholders, which information at said pages is incorporated herein by reference. ITEM 2. PROPERTIES CONSTRUCTION MATERIALS The Company's current estimate of approximately 8.2 billion tons of stone reserves is approximately 90 million tons more than the estimate reported at the end of 1996. These reserves include stone reserves in Mexico owned or controlled by the Company's Mexican joint venture. Increases in the Company's reserves have resulted from 1997 acquisitions in Arkansas, Georgia and Texas and the opening of a greenfield quarry in Alabama. Management believes that the quantities of reserves at the Company's stone quarries are sufficient to result in an average quarry life of approximately 56 years at present operating levels. See Note 1 to the table of the Company's 10 largest active stone quarries at page 5 for a description of the method used by the Company for estimating the years of life of stone reserves. The foregoing estimates of reserves are of recoverable stone of suitable quality for economic extraction, based on drilling and studies by the Company's geologists and engineers, recognizing reasonable economic and operating restraints as to maximum depth of overburden and stone excavation. Of the 132 stone quarries which the Company operates directly or through joint ventures, 37 are located on owned land, 22 are on land owned in part and leased in part, and 73 are on leased land. While some of the Company's leases run until reserves at the leased sites are exhausted, generally the Company's leases have definite expiration dates which range from 1998 to 2105. Most of the Company's leases have options to extend them well beyond their current terms. Due to transportation costs, the marketing areas for most quarries in the construction aggregates industry are limited, often consisting of a single metropolitan area or one or more counties or portions thereof. The following table itemizes the Company's 10 largest active stone quarries in terms of the quantity of stone reserves, with nearby major metropolitan areas (if applicable) shown in parentheses: 4 8
ESTIMATED YEARS OF LIFE LEASE AT AVERAGE EXPIRATION RATE OF NATURE OF DATE, IF LOCATION PRODUCT PRODUCTION(1) INTEREST APPLICABLE(2) - -------- ------- ------------- -------- ------------- McCook (Chicago), Illinois Limestone 90.5(3) Owned Paducah, Kentucky Limestone 41.1 Leased (5) Grayson (Atlanta), Georgia Granite Over 100 Owned Playa Del Carmen, Mexico(4) Limestone Over 100 Owned Gray Court (Greenville), South Carolina Granite Over 100 Owned Warrenton, Virginia (Washington, D.C.) Diabase Over 100 Leased (5) Kennesaw (Atlanta), Georgia Granite 40.7 75% Owned 25% Leased 2013 Manteno, Illinois Limestone Over 100 Leased (5) Skippers, Virginia Granite Over 100 Leased 2016 Lawrenceville (Norfolk/Virginia Beach), Virginia Granite 69.9 31% Owned 69% Leased (6)
- --------------- (1) Estimated years of life of stone reserves are based on the average annual rate of production of the quarry for the most recent three-year period, except that if reserves are acquired or if production has been reactivated during that period, the estimated years of life are based on the annual rate of production from the date of such acquisition or reactivation. Revisions may be necessitated by such occurrences as changes in zoning laws governing quarry properties, changes in stone specifications required by major customers and passage of government regulations applicable to quarry operations. Estimates also are revised when and if additional geological evidence indicates that a revision is necessary. (2) Renewable by the Company through date shown. (3) For some time, the Metropolitan Water Reclamation District of Greater Chicago ("MWRD") has had under consideration the condemnation of a portion of this quarry in order to use it as a reservoir. The Company believes that this action, if it occurs, could significantly reduce the life of this quarry, but will not have a material effect on the financial condition of the Company as a whole. In 1996, the MWRD announced that it plans to have reservoirs created on real property it owns near the McCook quarry and that its current plan does not include using the McCook quarry as a reservoir. (4) The Playa Del Carmen, Mexico location is owned by the Company's joint venture in Mexico. Its ranking in this table is based on counting 49% of its reserves, which represents the Company's ownership interest in the entity which owns the reserves. This quarry's estimated years of life at average rate of production is based on 100% of the reserves. (5) Lease does not expire until reserves are exhausted. Surface rights at the Paducah, Kentucky quarry are owned. (6) Leases expire as follows: 19% in 2020, 13% in 2024 and 68% in 2044. 5 9 The estimated average life of the Company's sand and gravel operations, calculated in the same manner as described in footnote (1) to the table set out above, is approximately 11 years. Approximately 13% of the Company's estimated 60 million tons of sand and gravel reserves are located on owned land, with the remaining 87% located on leased land. CHEMICALS Manufacturing facilities for the chemicals produced by the Chloralkali Business Unit are owned and operated by the Company at Wichita, Kansas, Geismar, Louisiana, and Port Edwards, Wisconsin. With a few exceptions, the Geismar and Wichita facilities produce the full line of products manufactured by the Company's Chloralkali Business Unit. The Port Edwards plant produces chlorine, caustic soda, muriatic acid, caustic potash, potassium carbonate and sodium hydrosulfite. All of the facilities at Wichita are located on a 1,396-acre tract of land owned by the Company. Mineral rights for salt are held by the Company under two leases that are automatically renewable from year to year unless terminated by the Company and under several other leases which may be kept in effect so long as production from the underlying properties is continued. In addition, the Company owns 320 acres of salt reserves and 160 acres of water reserves. The Company maintains an electric power cogeneration facility at the Wichita plant site which is capable of generating approximately one-third of the plant's electricity and two-thirds of its process steam requirements. Effective July 1995, pursuant to a long-term agreement, the Company has placed this facility in reserve and is purchasing all of its requirements for electric power from a local utility at favorable rates. The facilities at Geismar, Louisiana are located on a 1,266-acre tract of land owned by the Company. Included in the facilities at the Geismar plant is an electric power cogeneration facility owned by the Company which supplies substantially all of the electricity and process steam required by the plant. Mineral rights for salt are held under a lease expiring in 2007. The plant facilities at Port Edwards, Wisconsin are located on a 34-acre tract of land, the surface rights to which are owned by the Company. Currently, the Company purchases its salt and electrical power requirements for the Port Edwards facility from regional sources of supply. Manufacturing facilities for chemicals produced by the Performance Systems Business Unit (other than sodium chlorite produced at Wichita and sodium hydrosulfite produced at Port Edwards) are operated by subsidiaries of the Company. Callaway Chemical Company owns a headquarters office building and two production facilities in Columbus, Georgia and additional facilities in Smyrna, Georgia, Dalton, Georgia and Shreveport, Louisiana. Callaway Chemical Limited has an office and small production facility on leased property in Vancouver, British Columbia. Vulcan Chemical Technologies, Inc., leases its office and production facilities in West Sacramento, California and owns a small production facility and warehouse space near Kansas City, Missouri. The Company's Chemicals manufacturing facilities are designed to permit a high degree of flexibility as to feedstocks, product mix and by-product ratios; therefore, actual plant production capacities vary according to these factors. Management does not believe, however, that there is material excess production capacity at the Company's Chemicals facilities. OTHER PROPERTIES The Company's corporate offices are located in an office complex near Birmingham, Alabama. Headquarters staffs of the Construction Materials and Chemicals segments, the Southern Division of the Construction Materials segment, and Vulcan Gulf Coast Materials, Inc., also are located in this complex. The space is occupied pursuant to several leases. The lease pursuant to which the majority of the space is leased runs through December 31, 1998. The Company's space in this complex is leased at an approximate annual rental, as of December 31, 1997, of $1,456,000, which is subject to limited escalation. The Company will not renew the lease of the current location and will move its corporate offices to a new facility effective January 1, 1999. Under a lease entered into by the Company, the Company will begin leasing newly 6 10 constructed corporate headquarters consisting of approximately 189,000 square feet in January 1999. The lease runs through December 31, 2013. The annual rental for each year in the initial 5 year period, the second 5 year period and the final 5 year period of the lease will be approximately $3.2 million, $3.4 million and $3.7 million, respectively. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the probable outcome of or the amount of liability, if any, under these lawsuits; however, in the opinion of the Company and its counsel, the disposition of these lawsuits will not adversely affect the consolidated financial position of the Company to a material extent. In the course of its Construction Materials and Chemicals operations, the Company is subject to occasional governmental proceedings and orders pertaining to occupational health and safety or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of its continuing program of environmental stewardship, however, the Company has been able to resolve such proceedings and to comply with such orders without any materially adverse effects on its business. In 1991, the Company received notification from the State of New Jersey Department of Environmental Protection ("NJDEP") concerning a site located in Newark, New Jersey, which the Company previously owned and upon which the Company operated a chemicals production facility from the early 1960s until 1974. The notification contends that hazardous substances and pollutants contaminate the site and that a Remedial Investigation/ Feasibility Study ("RI/FS") is required in order to determine the nature and extent of such contamination and whether a remedial action plan with respect thereto should be developed. On August 20, 1993, two other allegedly responsible parties, Safety-Kleen Environsystems Company and Bristol-Meyers Squibb Company (collectively, the "Respondents"), entered into an Administrative Consent Order ("ACO") issued by the NJDEP concerning the site. The ACO contains certain findings of fact by the NJDEP, together with provisions governing the conduct by the Respondents of an RI/FS for the site and remedial actions, if any, resulting therefrom. Under a separate agreement with the Respondents and certain successors, the Company will share in the cost of the RI/FS. The Company has been informally advised by the NJDEP that, if the Company continues to participate in the RI/FS, the NJDEP will not seek to enforce a directive issued in 1991 requiring the Company to pay $1 million to the NJDEP to be used for the conduct of the RI/FS. Depending upon the results of the RI/FS, NJDEP will determine what site remediation is required under the ACO, if any. In that event, it is also likely that the Respondents or the NJDEP will assert that the Company should bear some responsibility in connection with such remediation. At this time, however, it is impossible to predict the ultimate outcome of this matter. In 1994, the EPA notified the Company that it was among the approximately 880 potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to the Jack's Creek/Sitkin Smelting Superfund site located in Mifflin County, Pennsylvania, on which site the now defunct Sitkin Smelting Company operated a secondary metals smelting facility from 1958 to 1977. The EPA later and more particularly asserted that during the period 1972-1977 the PRPs shipped to this site a collective total of some 286 million pounds of material which allegedly contained CERCLA hazardous substances, including about 1.8 million pounds of material allegedly shipped by the Company's former Metals Division. The EPA has claimed that there are releases and threatened releases of CERCLA hazardous substances from this site and advised, inter alia, that the EPA may seek recovery of CERCLA response costs which the EPA has incurred or may incur in the future in connection with the investigation and remediation of environmental conditions at the site. The EPA subsequently asserted that by the summer of 1996, the EPA had undertaken investigative and response actions with respect to this site which cost a total of about $6.4 million. In addition to the EPA's claims regarding investigation and response costs, the U.S. Department of Interior ("DOI") has asserted a natural resources damage claim of approximately $2.2 million. The DOI has not, however, quantified or otherwise substantiated its natural resource damage claim. To date, the State natural resource trustees 7 11 have not formally asserted claims arising from alleged impacts to state-protected natural resources, although such State trustee agencies have reportedly conducted evaluations of the impacts of the site on certain natural resources. Similarly, the Pennsylvania Department of Environmental Protection ("PADEP") has allegedly incurred costs for investigation and response at the site. PADEP has indicated that it may assert a claim for such costs, but has not yet formally asserted such a claim or stated the amount of the alleged expenditures. The Company and over 30 other PRPs have entered into an agreement forming the Jack's Creek PRP Group (the "PRP Group") to respond to the claims asserted by EPA, DOI, PADEP and others. The PRP Group has adopted a method for allocating among its membership the costs of designing and implementing the remediation of the site. Under this allocation arrangement, the Company's share percentage would be about 2.1%, subject to rights of the PRP Group and its members, including the Company, to seek contribution from other viable and responsible parties. On September 30, 1997, the EPA issued its Record of Decision ("ROD") for the site. The ROD specifies a remedy consisting of dredging lead contaminated sediments from a limited area of Jack's Creek near the site and excavating lead contaminated soil within certain designated areas of the site, followed by disposal of the most heavily contaminated soil at an appropriately permitted off-site facility, together with consolidating on-site the dredged sediments and the remainder of the excavated material, then covering the consolidated sediments and soil with a multi-layer engineered cap. The EPA estimates that the necessary engineering design work preliminary to implementing the specified remedy and then implementing the resulting remedial design will cost a total of about $12.5 million. Contemporaneous with issuance of the ROD, the EPA issued "special notice letters" to the Company and several hundred other PRP's, inviting "good faith" offers to perform the remedy and pay certain response costs relating to the site. The special notice letter indicated that under the EPA's orphan share policy, for those PRP's who agree to perform the remedy, the EPA would be prepared to forego recovery of up to $3.125 million in past and future response costs. On December 11, 1997, the Jack's Creek PRP Group (on behalf of its members, including the Company) submitted a good faith offer to the EPA in response to the special notice letter. The PRP Group is currently preparing to negotiate with the EPA an enforceable agreement or judicial decree under which the PRP Group would fund and perform the remedial design work and the implementation of the resultant remedial design. The PRP Group is also negotiating with other PRPs an agreement whereby the other PRPs could either resolve liabilities with respect to the site by a cash payment to the PRP Group or participate as a member of the PRP Group in the remedial design and implementation. At present, the Company is not able to predict the likelihood of either a favorable or unfavorable outcome as to the matters described above, or the amount of potential loss in the event of any unfavorable outcome. Note 10, Other Commitments and Contingent Liabilities on page 70 of the Company's 1997 Annual Report to Shareholders is hereby incorporated by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to the Company's security holders through the solicitation of proxies or otherwise during the fourth quarter of 1997. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The names, positions and ages of the executive officers of the Company are as follows:
NAME POSITION AGE Donald M. James Chairman and Chief Executive Officer 49 Peter J. Clemens, III Executive Vice President, Finance and Administration and Treasurer 54 William F. Denson, III Senior Vice President, Law and Secretary 54
8 12 Richard K. Carnwath Vice President, Planning and Development 49 J. Wayne Houston Vice President, Human Resources 48 Ejaz A. Khan Controller 41 John A. Heilala President, Chloralkali Business Unit 57 Robert A. Wason IV President, Performance Systems Business Unit 46 Guy M. Badgett, III Chairman, Southern Division and President, Southeast Division 49 Perry W. Donahoo President, Southern Division 43 William L. Glusac President, Midwest Division 47 Daniel J. Leemon President, Midsouth Division 59 Thomas R. Ransdell President, Southwest Division 55 Daniel F. Sansone President, Vulcan Gulf Coast Materials Divisions 45 James W. Smack President, Mideast Division 54
The principal occupations of the executive officers during the past five years are set forth below: Donald M. James, was elected Chairman of the Board of Directors in May 1997. He became President and Chief Executive Officer in February 1997. He was elected President and Chief Operating Officer in February 1996. Mr. James joined the Company in 1992 as Senior Vice President and General Counsel. In January 1994, Mr. James was elected President of the Southern Division and in August 1995, he was also elected Senior Vice President, South, Construction Materials Group. Peter J. Clemens, III, was elected Executive Vice President, Finance and Administration and Treasurer in May 1997. He served as Executive Vice President and Chief Administrative Officer from May 1996 to May 1997. Prior to that time he served as Senior Vice President, West, Construction Materials Group and Senior Vice President, Finance. William F. Denson, III, was elected Senior Vice President, Law in February 1998. He has served as Secretary since April 1981. He served as Vice President and Assistant General Counsel until he was elected Vice President, Law effective January 1, 1994. Richard K. Carnwath has served as Vice President, Planning and Development since 1985. J. Wayne Houston was elected Vice President, Human Resources in October 1997. Prior to that time he served as Director of Compensation and Benefits. Ejaz A. Khan served as Controller, Chemicals Division, until September 1995, when he was elected Controller of the Company. John A. Heilala has served as President, Chloralkali Business Unit since May 1996. From 1994 until 1996, he served as Executive Vice President, Chloralkali, and prior to that time he served as Vice President, Manufacturing, Chemicals Division. 9 13 Robert A. Wason IV has served as President, Performance Systems Business Unit, since May 1996. From 1994 until 1996, he served as Executive Vice President, Performance Systems, and prior to that time he served as Executive Vice President, Administration and Business Development, Chemicals Division. Guy M. Badgett, III, was elected Chairman, Southern Division in May 1997. He has served as President, Southeast Division, since 1992. Perry W. Donahoo has served as President, Southern Division, since October 1996. From August 1992 until June 1995, Mr. Donahoo served as President of Reed Crushed Stone Company (formerly a subsidiary of the Company) and as Executive Vice President, Southern Division, from June 1995 until October 1996. William L. Glusac has served as President, Midwest Division, since 1994. Prior to that time he served as President, Southwest Division. Daniel J. Leemon has served as President, Midsouth Division, since 1993. Prior to that time he served as Senior Vice President, West, Construction Materials Group. Thomas R. Ransdell has served as President, Southwest Division since 1994. He also served as President, Vulcan Gulf Coast Materials, Inc., from 1987 to May 1997. Daniel F. Sansone was elected, President, Vulcan Gulf Coast Materials Division in May 1997. From January 1994 to May 1997, he served as Vice President, Finance. Prior to that time he served as Vice President and Controller. James W. Smack has served as President, Mideast Division, since 1991. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange ("VMC"). As of February 27, 1998, the number of shareholders of record approximated 3,767. The closing price of the Common Stock on the New York Stock Exchange on February 27, 1998, was $100 5/8. The prices in the table below represent the high and low sales prices for the Company's Common Stock as reported on the New York Stock Exchange.
QUARTER ENDED 1997 1996 - ------------- ---- ---- HIGH LOW HIGH LOW ----- ------ ----- ----- March 31 66 1/2 55 1/4 58 1/4 53 1/8 June 30 80 5/8 61 1/4 59 3/8 55 3/8 September 30 90 7/16 78 3/8 66 1/2 54 1/2 December 31 103 15/16 84 7/16 65 59 1/2
Dividends paid in 1997 totaled $63,622,000, as compared with $58,399,000 paid in 1996. On February 13, 1998, the Board of Directors authorized a quarterly dividend of $.52 per share of Common Stock payable March 10, 1998 to holders of record on February 24, 1998. This quarterly dividend represents a 10.66% increase over quarterly dividends paid in 1997. The Company's policy is to pay out a reasonable share of net cash provided by operating activities as dividends, consistent on average with the payout record of past years, and consistent with the goal of maintaining debt ratios within prudent and generally acceptable limits. The future payment of dividends, however, will be within the discretion of the Board of Directors of the Company and depends on the Company's profitability, capital requirements, financial condition, growth, business opportunities and other factors which the Board of Directors may deem relevant. 10 14 ITEM 6. SELECTED FINANCIAL DATA The selected statement of operations, per share data and balance sheet data for each of the 5 years ended December 31, 1997 set forth below have been derived from the audited consolidated financial statements of the Company. The following data should be read in conjunction with the consolidated financial statements of the Company and notes to consolidated financial statements on pages 43 through 47 and 58 through 72 of the Company's 1997 Annual Report to Shareholders, which are incorporated in this Annual Report on Form 10-K by reference.
Year Ended December 31, ------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ----------- ----------- ----------- -------- (Amounts in millions, except per share date) Net sales........................... $ 1,678.6 $1,568.9 $ 1,461.0 $ 1,253.4 $1,133.5 Net earnings........................ $ 209.1 $ 188.6 $ 166.2 $ 98.0 $ 88.2 Net earnings per: Basic shares outstanding.......... $ 6.18 $ 5.43 $ 4.68 $ 2.69 $ 2.40 Diluted shares outstanding........ $ 6.10 $ 5.36 $ 4.63 $ 2.67 $ 2.39 Total assets........................ $ 1,449.2 $1,320.6 $ 1,215.8 $ 1,181.1 $1,078.6 Long-term obligations............... $ 81.9 $ 85.5 $ 90.3 $ 97.4 $ 102.0 Cash dividends declared per share $ 1.88 $ 1.68 $ 1.46 $ 1.32 $ 1.26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 48 through 54 and "Financial Terminology" on page 79 of the Company's 1997 Annual Report to Shareholders are incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following information relative to this item is included in the Company's 1997 Annual Report to Shareholders on the pages shown below, which are incorporated herein by reference:
PAGE Consolidated Financial Statements 44-47 Notes to Consolidated Financial Statements 58-72 Management's Responsibility for Financial Reporting and Internal Control 42 Independent Auditors' Report 43 Supplementary Information-Quarterly Financial Data for Each of the 2 Years Ended December 31, 1997 and 1996 (Unaudited) 77
With the exception of the aforementioned information and the information incorporated by reference in Items 1, 3, 7, 8 and 14, the Company's 1997 Annual Report to Shareholders is not deemed filed as part of this Annual Report on Form 10-K. 11 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE No information is required to be included herein pursuant to Item 304 of Regulation S-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT On or before March 30, 1998, the Company will file a definitive proxy statement with the Securities and Exchange Commission pursuant to Regulation 14A (the Company's "1998 Proxy Statement"). The information under the headings "Election of Directors," "Nominees for Election to the Board of Directors" and "Directors Continuing in Office" included in the 1998 Proxy Statement are incorporated herein by reference. For the information required by Item 401 of Regulation S-K concerning executive officers of the registrant, reference is made to the information provided in Part I, Item 4(a) of this Annual Report on Form 10-K. Based solely on a review of Forms 3 and 4 and amendments thereto furnished to the Company pursuant to Rule 240.16a-3(e) during 1997, and of Form 5 and amendments thereto furnished to the Company pursuant to Rule 240.16a-3(e) with respect to 1997, the Company has identified certain persons subject to Section 16(a) of the Securities Exchange Act of 1934 who failed to file on a timely basis required forms. Information concerning such failure under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" included in the Company's 1998 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the headings "Compensation of Directors," "Executive Compensation," "Option Grants in 1997," "Report of the Compensation Committee," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values," "Shareholder Return Performance Presentation," "Retirement Income Plan" and "Employee Special Severance Plan" included in the Company's 1998 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the headings "Security Ownership of Certain Beneficial Owners" and "Security Holdings of Management" included in the Company's 1998 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS An executive officer of the Company serves as the chief executive officer of three companies in which the Company has a 51%, 50% and 49% interest, respectively. Each of the companies reimburses the Company for a portion of the executive officer's salary and bonus. In 1997, the total amount of this reimbursement was $150,000. Other than the foregoing, no information is required to be included herein pursuant to Item 404 of Regulation S-K, which requires disclosure of certain information with respect to certain relationships or related transactions of the directors and management. 12 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) (1) FINANCIAL STATEMENTS The following financial statements are included in the Company's 1997 Annual Report to Shareholders on the pages shown below and are incorporated herein by reference: Consolidated Statements of Earnings 44 Consolidated Balance Sheets 45 Consolidated Statements of Cash Flows 46 Consolidated Statements of Shareholders' Equity 47 Notes to Consolidated Financial Statements 58-72 Management's Responsibility for Financial Reporting and Internal Control 42 Independent Auditors' Report 43 Supplementary Information-Quarterly Financial Data for Each of the 2 Years Ended December 31, 1997 and 1996 (Unaudited) 77 (A) (2) FINANCIAL STATEMENT SCHEDULES The following financial statement schedule for the years ended December 31, 1997, 1996 and 1995 is included in Part IV of this report on the indicated pages: Schedule II Valuation and Qualifying Accounts and Reserves 17
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is provided in the financial statements or notes thereto. Financial statements (and summarized financial information) of 50% or less owned entities accounted for by the equity method have been omitted because they do not, considered individually or in the aggregate, constitute a significant subsidiary. (A) (3) EXHIBITS The exhibits required by Item 601 of Regulation S-K and indicated below, other than Exhibit (12) which is on page 18 of this report, are either incorporated by reference herein or accompany the copies of this report filed with the Securities and Exchange Commission and the New York Stock Exchange. Copies of such exhibits will be furnished to any requesting shareholder of the Company upon payment of the costs of copying and transmitting the same. EXHIBIT (3)(I) Certificate of Incorporation (Restated 1988) of the Company filed as Exhibit 3(a) to the Company's 1988 Form 10-K Annual Report (File No. 1-4033).* EXHIBIT (3)(II) By-laws of the Company, as restated February 2, 1990, and as last amended February 14, 1997, filed as Exhibit 3(ii) to the Company's 1997 Form 10-K Annual Report (File No. 1-4033).* 13 17 EXHIBIT (4)(A) Distribution Agreement dated as of May 14, 1991, by and among the Company, Goldman, Sachs & Co., Lehman Brothers and Salomon Brothers Inc., filed as Exhibit 1 to the Form S-3 filed on May 2, 1991 (Registration No. 33-40284).* EXHIBIT (4)(B) Indenture dated as of May 1, 1991, by and between the Company and First Trust of New York (as successor trustee to Morgan Guaranty Trust Company of New York) filed as Exhibit 4 to the Form S-3 on May 2, 1991 (Registration No. 33-40284).* EXHIBIT (10)(A) The Management Incentive Plan of the Company, as last amended and restated filed as Exhibit 10(a) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(B) The 1991 Long-Range Performance Share Plan of the Company filed as Exhibit A to the Company's definitive proxy statement for the annual meeting of its shareholders held May 16, 1991 (File No. 1-4033).** EXHIBIT (10)(C) The Employee Special Severance Plan of the Company filed as Exhibit 10(g) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(D) The Unfunded Supplemental Benefit Plan for Salaried Employees filed as Exhibit 10(d) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(E) The 1983 Long-Term Incentive Plan, as last amended and restated, filed as Exhibit 10(f) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(F) The Deferred Compensation Plan for Directors Who Are Not Employees of the Company, as last amended and restated on February 17, 1996 filed as Exhibit 10(g) to the Company's 1995 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(G) The 1996 Long-Term Incentive Plan of the Company filed as Exhibit 10(h) to the Company's 1995 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(H) The Directors Deferred Stock Plan of the Company filed as Exhibit 10(i) to the Company's 1995 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(I) The Restricted Stock Plan for Nonemployee Directors of the Company.** EXHIBIT (12) Computation of Ratio of Earnings to Fixed Charges for the five years ended December 31, 1997 (set forth on page 18 of this report). EXHIBIT (13) The Company's 1997 Annual Report to Shareholders. EXHIBIT (21) List of the Company's subsidiaries as of December 31, 1997. EXHIBIT (24) Powers of Attorney EXHIBIT (27) Financial Data Schedule (Electronic Submission Only). Information, financial statements and exhibits required by Form 11-K with respect to the Company's Thrift Plan for Salaried Employees, Construction Materials Divisions Hourly Employees Savings Plan and Chemicals Division Hourly Employees Savings Plan, for the fiscal year ended December 31, 1997, will be filed as one or more amendments to this Form 10-K on or before June 29, 1998, as permitted by Rule 15d-21 under the Securities Exchange Act of 1934. - --------------- * Incorporated by reference. **Management Contract or Compensatory Plan. 14 18 (B) REPORTS ON FORM 8-K None. 15 19 INDEPENDENT AUDITORS' REPORT Vulcan Materials Company: We have audited the consolidated financial statements of Vulcan Materials Company and its subsidiary companies as of December 31, 1997, 1996 and 1995 and for the years then ended, and have issued our report thereon dated February 6, 1998; such consolidated financial statements and report are included in your 1997 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of Vulcan Materials Company and its subsidiary companies, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements as a whole, presents fairly in all material respects the information shown therein. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Birmingham, Alabama February 6, 1998 16 20 SCHEDULE II VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended December 31, 1997, 1996 and 1995 Amounts in Thousands
Column A Column B Column C Column D Column E Column F - ---------------------------------------------------------------------------------------------------------------- Balance at Additions Charges to Balance at Beginning Costs and Other End Description of Period Expenses Accounts Deductions Of Period - ---------------------------------------------------------------------------------------------------------------- 1997 Accrued Environmental Costs............. $ 3,732 $ 1,069 $ 516(1) $ 4,285 Doubtful Receivables.................... 8,106 885 1,443(2) 7,548 All Other(3)............................ 1,687 2,010 $ 208 2,531 1,374 1996 Accrued Environmental Costs............. $ 2,765 $ 285 $ 3,000 $ 2,318(1) $ 3,732 Doubtful Receivables.................... 8,176 732 802(2) 8,106 All Other(3)............................ 1,395 1,794 1,502 1,687 1995 Accrued Environmental Costs............. $ 12,867 $ 3,998 $ 14,100(1) $ 2,765 Doubtful Receivables.................... 8,244 984 $ 18 1,070(2) 8,176 All Other(3)............................ 2,005 1,803 2,413 1,395
- --------------------------- (1) Expenditures on environmental remediation projects. (2) Write-offs of uncollected accounts and worthless notes, less recoveries. (3) Valuation and qualifying accounts and reserves for which additions, deductions and balances are not individually significant. 17 21 EXHIBIT 12 VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For the Years Ended December 31 Amounts in Thousands
1997 1996 1995 1994 1993 ---------- ----------- ----------- ----------- -------- Fixed charges: Interest expenses before capitalization credits............................. $ 8,074 $ 9,263 $ 11,396 $ 10,699 $ 10,187 Amortization of financing costs...... 104 164 109 114 115 One-third of rental expense.......... 9,735 9,663 9,532 10,393 7,375 ---------- ----------- ----------- ----------- ----------- Total fixed charges............. $ 17,913 $ 19,090 $ 21,037 $ 21,206 $ 17,677 ========== =========== =========== =========== =========== Net earnings............................ 209,145 188,595 166,240 97,976 88,229 Provisions for income taxes............. 91,356 96,985 92,181 47,930 36,993 Fixed charges........................... 17,913 19,090 21,037 21,206 17,677 Capitalized interest credits............ (1,160) (627) (297) (878) (1,016) Amortization of capitalized interest.... 708 674 1,031 997 882 ---------- ----------- ----------- ----------- ----------- Earnings before income taxes as adjusted........................... $ 317,962 $ 304,717 $ 280,192 $ 167,231 $ 142,765 ========== =========== =========== =========== =========== Ratio of earnings to fixed charges...... 17.8 16.0 13.3 7.9 8.1
18 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 on March 27, 1998. VULCAN MATERIALS COMPANY By /s/ D. M. JAMES ---------------------------------------- D. M. James Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ D. M. James Chairman and Chief Executive Officer March 27, 1998 - ---------------------------------------- (Principal Executive Officer) D. M. James /s/ P.J. Clemens, III Executive Vice President, Finance March 27, 1998 - ---------------------------------------- and Administration and Treasurer P.J. Clemens, III (Principal Financial Officer) /s/ E.A. Khan Controller March 27, 1998 - ---------------------------------------- (Principal Accounting Officer) E.A. Khan The following directors: Marion H. Antonini Director Livio D. DeSimone Director John K. Greene Director Douglas J. McGregor Director Ann D. McLaughlin Director James V. Napier Director Donald B. Rice Director Herbert A. Sklenar Director Orin R. Smith Director By /s/ William F. Denson, III March 27, 1998 ------------------------------------- William F. Denson, III Attorney-in-Fact
19 23 EXHIBITS TO FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OF VULCAN MATERIALS COMPANY FILED MARCH 27, 1998 COMMISSION FILE NUMBER 1-4033 24 EXHIBIT INDEX FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 1997 EXHIBIT (3)(I) Certificate of Incorporation (Restated 1988) of the Company filed as Exhibit 3(a) to the Company's 1988 Form 10-K Annual Report (File No. 1-4033).* EXHIBIT (3)(II) By-laws of the Company, as restated February 2, 1990, and as last amended February 14, 1997, filed as Exhibit 3(ii) to the Company's 1997 Form 10-K Annual Report (File No. 1-4033).* EXHIBIT (4)(A) Distribution Agreement dated as of May 14, 1991, by and among the Company, Goldman, Sachs & Co., Lehman Brothers and Salomon Brothers Inc., filed as Exhibit 1 to the Form S-3 filed on May 2, 1991 (Registration No. 33-40284).* EXHIBIT (4)(B) Indenture dated as of May 1, 1991, by and between the Company and First Trust of New York (as successor trustee to Morgan Guaranty Trust Company of New York) filed as Exhibit 4 to the Form S-3 on May 2, 1991 (Registration No. 33-40284).* EXHIBIT (10)(A) The Management Incentive Plan of the Company, as last amended and restated filed as Exhibit 10(a) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(B) The 1991 Long-Range Performance Share Plan of the Company filed as Exhibit A to the Company's definitive proxy statement for the annual meeting of its shareholders held May 16, 1991 (File No. 1-4033).** EXHIBIT (10)(C) The Employee Special Severance Plan of the Company filed as Exhibit 10(g) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(D) The Unfunded Supplemental Benefit Plan for Salaried Employees filed as Exhibit 10(d) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(E) The 1983 Long-Term Incentive Plan, as last amended and restated, filed as Exhibit 10(f) to the Company's 1989 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(F) The Deferred Compensation Plan for Directors Who Are Not Employees of the Company, as last amended and restated on February 17, 1996, filed as Exhibit 10(g) to the Company's 1995 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(G) The 1996 Long-Term Incentive Plan of the Company filed as Exhibit 10(h) to the Company's 1995 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(H) The Directors Deferred Stock Plan of the Company filed as Exhibit 10(i) to the Company's 1995 Form 10-K Annual Report (File No. 1-4033).** EXHIBIT (10)(I) The Restricted Stock Plan for Nonemployee Directors of the Company.** EXHIBIT (12) Computation of Ratio of Earnings to Fixed Charges for the five years ended December 31, 1997 (set forth on page 18 of this report). EXHIBIT (13) The Company's 1997 Annual Report to Shareholders. EXHIBIT (21) List of the Company's subsidiaries as of December 31, 1997. EXHIBIT (24) Powers of Attorney EXHIBIT (27.1) Financial Data Schedule (Electronic Submission Only). EXHIBIT (27.2) Financial Data Schedule restated for the period ended December 31, 1996 (Electronic Submission Only). EXHIBIT (27.3) Financial Data Schedule restated for the period ended December 31, 1995 (Electronic Submission Only).
Information, financial statements and exhibits required by Form 11-K with respect to the Company's Thrift Plan for Salaried Employees, Construction Materials Divisions Hourly Employees Savings Plan and Chemicals Division Hourly Employees Savings Plan, for the fiscal year ended December 31, 1997, will be filed as one or more amendments to this Form 10-K on or before June 29, 1998, as permitted by Rule 15d-21 under the Securities Exchange Act of 1934. - --------------------- *Incorporated by reference. **Management Contract or Compensatory Plan. EX-10.(I) 2 RESTRICTED STOCK PLAN 1 EXHIBIT (10)(I) VULCAN MATERIALS COMPANY RESTRICTED STOCK PLAN FOR NONEMPLOYEE DIRECTORS EFFECTIVE DATE NOVEMBER 1, 1997 AS APPROVED ON JULY 18, 1997 2 VULCAN MATERIALS COMPANY RESTRICTED STOCK PLAN FOR NONEMPLOYEE DIRECTORS Table of Contents
Page ---- 1. Definitions............................................................. 1 Beneficiary........................................................ 1 Board.............................................................. 1 Change in Control.................................................. 1 Company............................................................ 1 Deferred Stock Unit................................................ 1 Effective Date..................................................... 1 Exchange Act....................................................... 2 Fair Market Value Per Share........................................ 2 Nonemployee Director............................................... 2 Plan............................................................... 2 Restricted Share................................................... 2 Share.............................................................. 2 2. Purposes and Effective Date............................................. 2 3. Eligibility............................................................. 2 4. Grants of Restricted Shares............................................. 2 5. Terms and Conditions of Grants of Restricted Shares..................... 2 6. Delivery of Restricted Shares........................................... 3 7. Deferred Stock Account.................................................. 4 8. Deferred Stock Units.................................................... 4 9. Distribution Attributable to Deferred Stock Units....................... 5 10. Effect of Change in Control............................................. 5 11. Amendment and Termination............................................... 5 12. Term.................................................................... 6 13. Compliance with SEC Regulations......................................... 6 14. Miscellaneous........................................................... 6
3 VULCAN MATERIALS COMPANY RESTRICTED STOCK PLAN FOR NONEMPLOYEE DIRECTORS 1. DEFINITIONS. As used herein, the following terms shall have the meanings hereinafter set forth: (a) "Beneficiary" shall mean the individual or entity designated by the Nonemployee Director to receive, upon the death of the Nonemployee Director, undelivered Restricted Shares as to which the applicable restrictions have expired and the balance of the Nonemployee Director's Account attributable to Deferred Stock Units. If no such designation is made, or if the designated individual predeceases the Nonemployee Director or the entity no longer exists, then the Beneficiary shall be the Nonemployee Director's estate. (b) "Board" shall mean the Board of Directors of the Company. (c) "Change in Control" shall mean (1) The acquisition by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding any employee benefit plan of the Company or any of its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either the then outstanding Shares or the combined voting power of the Company's then outstanding voting securities, in one transaction or a series of transactions; provided, however, that, if prior to such an acquisition, a majority of the Continuing Directors determines that such acquisition shall not, for purposes of the Plan, be deemed a Change in Control, such acquisition shall not constitute a Change in Control hereunder; (2) The cessation, for any reason, of the individuals who, as of the date of a Change in Control, constitute the Board (the "Continuing Directors") to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the Change in Control Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Continuing Directors (other than in election or nomination of the individual whose initial assumption of office is in connection with an actual or threatened solicitation with respect to the election or removal of directors of the Company, as such terms are used in Rule 14a-11 promulgated under the Exchange Act) shall be, for purposes of the Plan, considered as though such person were a Continuing Director, or (3) Approval by the Board of (i) a merger, consolidation, or reorganization of the Company in which, as a consequence of the transaction, either the Continuing Directors do not constitute a majority of the directors of the continuing or surviving corporation, or any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, controls 25% or more of the combined voting power of the continuing or surviving corporation; (ii) any sale, lease or other transfer, in one transaction, or a series of related transactions, of all or substantially all of the assets of the Company; or (iii) any plan or proposal for the liquidation or dissolution of the Company; provided, however, that if at the time of such approval, a majority of the Continuing Directors determines that such merger, consolidation, reorganization, sale, lease, other transfer, liquidation or dissolution shall not, for purposes of the Plan, be deemed a Change in Control, such transaction shall not constitute a Change in Control hereunder, and, provided further, that, if a majority of the Continuing Directors so determines, a Change in Control shall not be deemed to occur until the consummation of any such transaction. (d) "Company" shall mean Vulcan Materials Company, a New Jersey corporation. (e) "Deferred Stock Unit shall mean the equivalent of one Share, as established pursuant to this Plan. (f) "Effective Date shall mean November 1, 1997. 1 4 (g) "Exchange Act shall mean the Securities Exchange Act of 1934, as amended. (h) "Fair Market Value Per Share shall mean the average of the daily closing prices of Shares as reported on the New York Stock Exchange for the twenty (20) trading days prior to the date of determination, or if the Shares are not listed on such exchange, on the principal United States securities exchange registered under the Exchange Act on which the Shares are listed. (i) "Nonemployee Director shall mean any person who is a member of the Board who is not, as of the date of a grant of Restricted Shares under this Plan, an employee or an officer of the Company or any of its subsidiaries. (j) "Plan shall mean this Vulcan Materials Company Restricted Stock Plan for Nonemployee Directors, as it may be amended from time to time. (k) "Restricted Share shall mean a Share granted to a Nonemployee Director in accordance with paragraph 4 and subject to the restrictions set forth in paragraph 5. (l) "Share shall mean a share of the Company's common stock, $1.00 par value, and such other stock and securities as may be substituted therefor in accordance with paragraph 6(b). 2. PURPOSES AND EFFECTIVE DATE. The purposes of the Plan are to promote a greater identity of interests between the Company's Nonemployee Directors and its stockholders through increasing ownership of Company common stock by the Nonemployee Directors and to assist the Company in attracting and retaining qualified individuals to serve as Nonemployee Directors by affording them an opportunity to share in the future successes of the Company. The Plan was adopted on July 18, 1997 and shall become effective on November 1, 1997. No grants of Restricted Shares shall be made until November, 1997. 3. ELIGIBILITY. Each director who as of the date of any grant made pursuant to the Plan is not an employee of the Company or any of its subsidiaries shall be eligible to participate in the Plan. 4. GRANTS OF RESTRICTED SHARES. (a) On or shortly after November 1, 1997, each Nonemployee Director elected to office by the stockholders of the Company on May 16, 1997, shall receive a grant of 65 Restricted Shares. (b) So long as he or she remains a Nonemployee Director, an additional grant of 65 Restricted Shares shall be made to each Nonemployee Director on June 1, 1998, and on each June 1 thereafter (or on the next business day, if June 1 is not a business day). 5. TERMS AND CONDITIONS OF GRANTS OF RESTRICTED SHARES. (a) The terms and conditions set forth in this paragraph shall apply to each grant of Restricted Shares. If required by the Company, each such grant shall be evidenced by a written agreement that sets forth the specific terms of the grant in accordance with the Plan and that is duly executed by or on behalf of the Company and the Nonemployee Director. (b) At the time of each grant, a share certificate or certificates representing the number of Restricted Shares granted to a Nonemployee Director shall be registered in the Nonemployee Director's name but shall be held by or on 2 5 behalf of the Company for the Nonemployee Director's account. As a condition to receipt of the first award of Restricted Shares, each Nonemployee Director shall execute and deliver to the Company a stock power in blank with respect to all Restricted Shares that may be awarded to such Nonemployee Director in the future. Such stock power shall be held in custody by the Secretary of the Company and shall be used only to effect a transfer of Restricted Shares to the Company in connection with a forfeiture of Restricted Shares by such Nonemployee Director. The Nonemployee Director shall have all the rights and privileges of a stockholder as to such Restricted Shares, including the right to receive dividends and the right to vote such Restricted Shares, subject to the restrictions set forth in subparagraph c and subject to deferrals of dividend payments as provided in paragraph 7. (c) The Restricted Shares granted to any Nonemployee Director under paragraph 4 shall be subject to the following restrictions: (i) Such Restricted Shares may not be sold, transferred, assigned, pledged or otherwise encumbered or disposed of until such time as such restrictions have expired as to such Restricted Shares as provided in subparagraph (d). (ii) A Nonemployee Director shall not be entitled to delivery of a share certificate representing any Restricted Shares until the expiration of such restrictions as to such Restricted Shares. (d) Except as otherwise provided in clause (ii) below or in paragraph 10, the restrictions applicable to Restricted Shares covered by any grant to any Nonemployee Director shall expire in accordance with the terms of the following clause (i): (i) Restrictions shall expire as to the Restricted Shares on the date the Nonemployee Director attains age 70; provided, however, that restrictions shall expire as to Restricted Shares only if the Nonemployee Director shall have remained a director of the Company continuously from the date of grant of such Restricted Shares to the scheduled expiration date. (ii) If a Nonemployee Director ceases to be a director of the Company before attaining age 70 because of death or because he or she is totally and permanently disabled as determined by a majority of the Board, the restrictions on all Restricted Shares shall expire as of the date the Nonemployee Director ceases to be a director of the Company. (e) All of the Restricted Shares granted to any Nonemployee Director as to which the restrictions have not previously expired shall be forfeited immediately, and all rights of such Nonemployee Director to such Restricted Shares shall terminate without further obligation on the part of the Company, if the Nonemployee Director shall cease to be a director of the Company before age 70 for any reason other than as set forth in clause (ii) of subparagraph (d) above or in paragraph 10; provided, however, that in cases of special circumstances, the Chief Executive Officer or the Company may, in his sole discretion, when he finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions. (f) As soon as practicable after the expiration of the restrictions on any Restricted Shares as herein provided, a share certificate for such Restricted Shares shall be delivered, free of all such restrictions, to the Nonemployee Director (or to the Nonemployee Director's Beneficiary, if applicable) subject to the withholding requirements of paragraph 6(d)(if applicable). 6. DELIVERY OF RESTRICTED SHARES. (a) Shares granted or delivered under the Plan may be authorized but unissued Shares, Shares reacquired by the Company, or a combination of both, as the Board may from time to time determine. Shares granted under the Plan but subsequently forfeited shall continue to be otherwise available for the purposes of the Plan. 3 6 (b) In the event of any change in the outstanding Shares upon which the stock equivalency hereunder is based, by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, or any other change in corporate structure or in the event of any dividend that is paid in Shares or other property, the number and kind of Restricted Shares which may thereafter be granted under the Plan shall be adjusted and the number and kind of Shares then being held by the Company as Restricted Shares shall be adjusted in such a manner as a majority of the Board shall determine to be fair under the circumstances; provided, however, that if a Change in Control shall have occurred, then such determination shall be made by a majority of the Continuing Directors. Any new or additional Restricted Shares, or stock or other securities substituted therefor, to which an Nonemployee Director may be entitled under this subparagraph shall be subject to all of the terms and conditions of paragraph 5. (c) The Company shall not be required to deliver any fractional Share but shall pay, in lieu thereof, the fair market value (measured as of the date restrictions lapse) of such fractional Share to the Nonemployee Director (or the Nonemployee Director's Beneficiary, if applicable). (d) Before the issuance or delivery of any Restricted Shares on which the restrictions have expired, the Company shall require payment in cash by the Nonemployee Director of any withholding taxes that the Company may be required by law to pay with respect to the issuance or delivery of such Shares. 7. DEFERRED STOCK ACCOUNT. The Company shall establish a deferred stock account (an "Account') for each Nonemployee Director participating in the Plan. A Nonemployee Director shall have no right to immediate payment of dividends on Restricted Shares. On each Dividend Date (as defined below), the Company shall credit the Account with the number of Deferred Stock Units determined in accordance with paragraph 8 below. Distributions from a Nonemployee Director's Account shall be made in Shares upon the retirement of a Nonemployee Director, unless the distributions are accelerated in accordance with paragraphs 9 or 10 below. The value of the Deferred Stock Units is dependent upon the fair market value of the Shares on the date the Shares are distributed to the Nonemployee Director, and is therefore subject to market fluctuations in value until such distribution. 8. DEFERRED STOCK UNITS. (a) There shall be credited to the Account of each Nonemployee Director participating in the Plan Deferred Stock Units on each regular cash dividend payment date (a "Dividend Date"). The number of such Deferred Stock Units shall be determined by (i) multiplying the amount of the dividend by the sum of (x) the total number of Deferred Stock Units (including fractional Deferred Stock Units) credited to such Account immediately prior to the Dividend Date and (y) the total number of Restricted Shares granted to such Nonemployee Director upon which restrictions have not yet lapsed and (ii)dividing the product by the Fair Market Value Per Share as of the day preceding the Dividend Date. (b) In the event of any change in the outstanding Shares upon which the stock equivalency hereunder is based, by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, or any other change in corporate structure or in the event of any dividend that is paid in Shares or other property, the number of Deferred Stock Units credited to the Account shall be adjusted in such a manner as a majority of the Board shall determine to be fair under the circumstances; provided, however, that if a Change in Control shall have occurred, then such determination shall be made by a majority of the Continuing Directors. In the case of dividends payable in property, the amount paid shall be based on the fair market value of the property at the time of distribution of the dividend, as determined by a majority of the Board, or, in the event of a Change in Control, by a majority of the Continuing Directors. 4 7 9. DISTRIBUTION ATTRIBUTABLE TO DEFERRED STOCK UNITS. (a) Except as otherwise provided herein, the balance of each Nonemployee Director's Account shall be paid to the Nonemployee Director, in a lump sum, commencing at the beginning of the first quarter after the first annual meeting of the shareholders of the Company following the date that such director reaches the mandatory retirement age then in effect. (b) In the event of the death of the Nonemployee Director prior to such director's retirement or prior to the distribution of the entire balance in such director's Account, the entire balance in the Account as of the date of the Nonemployee Director's death shall be paid in Shares in a lump sum, to the surviving beneficiary or beneficiaries as the Nonemployee Director may have designated by notice in writing to the Company or by will, or, if no beneficiaries are so designated, the legal representative of such director's estate. (c) If a Nonemployee Director shall become totally and permanently disabled, as determined by a majority of the Board, while he or she is a director of the Company, the entire balance in the Account as of the date of such total and permanent disability shall be paid to such Nonemployee Director, or his or her personal representative, in a lump sum, within one hundred twenty (120) days of the date of such total and permanent disability. (d) If a Nonemployee Director ceases to be a director of the Company for any reason other than due to death or total and permanent disability, including, without limitation, the failure of such person to be re-elected as a director of the Company by the shareholders of the Company, the balance of such director's Account as of the date such person ceases to be a director of the Company shall be paid in a lump sum, to such director within one hundred twenty (120) days of the date such person ceases to be a director of the Company. (e) All distributions of Deferred Stock Units made pursuant to this Plan shall be in an amount equal to the number of Deferred Stock Units held in the Account. On the date of any such distribution, the Company shall cause to be issued and delivered to such Nonemployee Director a stock certificate evidencing the Shares registered in the name of such Nonemployee Director, or such other person as the Nonemployee Director my designate. Deferred Stock Units representing fractional Shares shall be paid in cash. 10. EFFECT OF CHANGE IN CONTROL. (a) Notwithstanding any other provision of the Plan, if a Change in Control occurs and at any time after the occurrence of such Change in Control either of the following events occurs: (i) the Nonemployee Director ceases for any reason to be a director of the Company; or (ii) the Plan is terminated; then the restrictions on all Restricted Shares shall expire and the entire balance of the Account shall be payable in a lump sum to the director in Shares. Such payment shall be made by the Company as promptly as practicable, but not more than thirty (30) days following the date on which the right to such payment arose. (b) The Company shall promptly reimburse the director for all legal fees and expenses reasonably incurred in successfully seeking to obtain or enforce any right or benefit provided under this paragraph 10. (c) This paragraph 10 may not be amended or modified after the occurrence of a Change in Control. 11. AMENDMENT AND TERMINATION. The Board may from time to time amend, suspend or terminate the Plan, in whole or in part; provided, however, that without the Nonemployee Director's consent, no such amendment, suspension or termination shall materially 5 8 adversely affect the rights of any Nonemployee Director in respect of Restricted Shares previously granted to such Nonemployee Director. Notwithstanding the foregoing, the Board may, in any circumstance where it deems such approval necessary or desirable, require stockholder approval as a condition to the effectiveness of any amendment or modification of the Plan. 12. TERM. The Plan shall continue in effect without limit unless and until the Board otherwise determines. 13. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that the Plan comply with the provisions of Section 16 of the Exchange Act and the rules promulgated thereunder. To the extent that any provision of the Plan is later found not to be in compliance with Section 16 or such rules, such provision shall be deemed to be null and void. 14. MISCELLANEOUS. (a) Neither the establishment of the Plan nor the payment of any benefits hereunder nor any action taken hereunder shall be construed as giving any individual any right to continue to serve as a director of the Company or otherwise to be retained in the service of the Company. (b) No Shares shall be issued hereunder unless and until counsel for the Company shall be satisfied such issuance will be in compliance with applicable federal, state and other securities laws and regulations. (c) The expenses of the Plan shall be borne by the Company. (d) Neither the Nonemployee Director nor any other person shall have any interest in any fund or in any specific asset of the Company by reason of amounts credited to the Account of such director, nor the right to exercise any of the rights or privileges of a shareholder with respect to any Deferred Stock Unit credited to such Account, nor the right to receive distribution under the Plan except as expressly provided herein. Distributions hereunder shall be made from the general funds of the Company, and the rights of the directors shall be those of an unsecured general creditor of the Company. (e) The Plan, the grant of Restricted Shares and Deferred Stock Units thereunder, and the obligation of the Company to deliver Shares, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency or national securities exchange as may be required. The Company shall not be required to issue or deliver any certificates for Shares prior to the completion of any registration or qualification of such Shares under any federal or state law or any ruling or regulation of any governmental body or national securities exchange which the Company shall, in its sole discretion, determine to be necessary or advisable. (f) The Plan shall be administered by the Compensation Committee selected by the Board. The Compensation Committee shall have the power to interpret the Plan and, subject to its provisions, to make all determinations necessary or desirable for the Plan's administration. The Compensation Committee shall have the full discretionary authority to adopt rules and regulations for carrying out the Plan, and to interpret, construe and implement the provisions of the Plan. The Compensation Committee's determinations on these matters shall be conclusive, except in the event of a Change in Control, in which case such interpretation and determination shall be made by a majority of the Continuing Directors. (g) No rights or benefits under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, except by will or the laws of descent and distribution, and any 6 9 attempt thereat shall be void. No such right or benefit shall, before receipt thereof, be in any manner liable for or subject to the recipient's debts, contracts, liabilities, engagements, or torts. (h) The provisions of this Plan shall apply to and be binding upon the beneficiaries, distributees, and personal representatives, and any successors in interest of the Nonemployee Director. (i) The Company shall deduct from all distributions hereunder any taxes required to be withheld by the federal, state or local law. (j) The Plan shall be governed by, and construed in accordance with, the laws of the State of Alabama, excluding any choice of law provisions which may indicate the application of the laws of another jurisdiction. Executed and adopted as of this 1st day of November, 1997, pursuant to action taken by the Board of Directors of Vulcan Materials Company at its meeting on July 18, 1997. VULCAN MATERIALS COMPANY By /s/ WILLIAM F. DENSON, III ------------------------------------------ Its Vice President ------------------------------------------ 7 EX-13 3 1997 ANNUAL REPORT 1 EXHIBIT 13 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND INTERNAL CONTROL The Shareholders of Vulcan Materials Company: Vulcan's management acknowledges and accepts its responsibility for all the information contained in the financial statements and other sections of this report. The statements were prepared in conformity with generally accepted accounting principles appropriate in the circumstances and we believe they reflect fairly the Company's financial position, results of operations and cash flows for the periods shown. The financial statements necessarily reflect our informed judgments and estimates of the expected outcome of numerous current events and transactions. The Company maintains an internal control structure which we believe provides reasonable assurance that the Company's financial statements, books and records accurately reflect the Company's financial condition, results of operations and cash flows and that the Company's assets are safeguarded from loss or unauthorized use. This internal control structure includes well-defined and communicated policies and procedures, organizational structures that provide for appropriate separations of responsibilities, high standards applied in the selection and training of management personnel and adequate procedures for properly assessing and applying accounting principles, including careful consideration of the accuracy and appropriateness of all significant accounting estimates. Vulcan also has an internal audit function that continually reviews compliance with established policies and procedures. The Company's independent auditors, Deloitte & Touche LLP, consider the internal control structure as a part of their audits of the Company's financial statements and provide an independent opinion as to the fairness of the presentation of those statements. Their report is presented on the following page. The Board of Directors pursues its oversight role for the financial statements and internal control structure in major part through the Audit Review Committee, which is composed of five outside directors. In addition, the full Board regularly reviews detailed management reports covering all aspects of the Company's financial affairs. The Audit Review Committee meets periodically with management, the independent auditors and the internal auditors to review the work of each and to ensure that each is properly discharging its responsibilities. To ensure independence, the Committee also meets on these matters with the internal and independent auditors without the presence of management representatives. P. J. Clemens, III Executive Vice President, Finance & Administration and Treasurer E. A. Khan Controller February 6, 1998 42 2 INDEPENDENT AUDITORS' REPORT The Shareholders of Vulcan Materials Company: We have audited the accompanying consolidated balance sheets of Vulcan Materials Company and its subsidiary companies as of December 31, 1997, 1996 and 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Vulcan Materials Company and its subsidiary companies at December 31, 1997, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Deloitte & Touche LLP Birmingham, Alabama February 6, 1998 43 3 CONSOLIDATED STATEMENTS OF EARNINGS Vulcan Materials Company and Subsidiary Companies - --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995 Amounts in thousands, except per share data 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- Net sales .......................................... $1,678,581 $1,568,945 $1,460,974 Cost of goods sold ................................. 1,199,453 1,115,442 1,044,710 ---------- -------------------------- Gross profit on sales .............................. 479,128 453,503 416,264 Selling, administrative and general expenses ....... 190,446 175,128 159,829 Other operating costs .............................. 5,112 3,887 6,347 Other income, net Interest income .................................. 3,190 3,179 1,099 Other, net ....................................... 20,655 16,549 18,333 ---------- -------------------------- Total other income, net ............... 23,845 19,728 19,432 ---------- -------------------------- Earnings before interest expense and income taxes .. 307,415 294,216 269,520 Interest expense (Note 4) .......................... 6,914 8,636 11,099 ---------- -------------------------- Earnings before income taxes ....................... 300,501 285,580 258,421 Provision for income taxes (Note 7) Current .......................................... 84,806 95,443 86,437 Deferred ......................................... 6,550 1,542 5,744 ---------- -------------------------- Total provision for income taxes ...... 91,356 96,985 92,181 ---------- -------------------------- Net earnings ....................................... $ 209,145 $ 188,595 $ 166,240 ========== ========================== Basic net earnings per share ....................... $ 6.18 $ 5.43 $ 4.68 Diluted net earnings per share ..................... $ 6.10 $ 5.36 $ 4.63 Dividends per share ................................ $ 1.88 $ 1.68 $ 1.46 Average common shares outstanding .................. 33,828 34,758 35,544 Average common shares outstanding, assuming dilution 34,283 35,173 35,933
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 44 4 CONSOLIDATED BALANCE SHEETS Vulcan Materials Company and Subsidiary Companies - --------------------------------------------------------------------------------
As of December 31, 1997, 1996 and 1995 Amounts in thousands, except per share data 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents (Note 2) ........................ $ 128,566 $ 50,816 $ 21,869 Accounts and notes receivable: Customers, less allowance for doubtful accounts: 1997, $7,548; 1996, $8,106; 1995, $8,176 ............ 189,389 176,864 170,757 Other ................................................... 10,361 8,671 10,303 Inventories (Note 3) ..................................... 132,359 128,578 126,801 Deferred income taxes (Note 7) ............................ 21,385 23,474 26,555 Prepaid expenses .......................................... 5,072 5,642 5,836 ---------- -------------------------- Total current assets ........................... 487,132 394,045 362,121 Investments and long-term receivables ....................... 63,482 61,274 56,272 Property, plant and equipment, net (Note 4) ................. 808,419 764,490 698,033 Deferred charges and other assets (Notes 8, 14) ............. 90,213 100,836 99,368 ---------- -------------------------- Total .......................................... $1,449,246 $1,320,645 $1,215,794 ========== ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt ...................... $ 5,408 $ 5,021 $ 7,070 Notes payable (Note 2) .................................... 3,654 3,289 3,569 Trade payables and accruals ............................... 112,548 98,528 98,253 Accrued income taxes ...................................... 21,749 29,606 22,262 Accrued salaries and wages ................................ 41,858 38,253 28,658 Accrued interest .......................................... 1,360 1,221 1,300 Other accrued liabilities (Note 9) ........................ 21,120 18,736 16,297 ---------- -------------------------- Total current liabilities ...................... 207,697 194,654 177,409 Long-term debt (Note 5) ..................................... 81,931 85,535 90,278 Deferred income taxes (Note 7) .............................. 88,719 86,968 85,935 Deferred management incentive and other compensation (Note 9)................................................... 33,849 26,251 26,618 Other postretirement benefits (Note 8) ...................... 37,924 36,222 32,717 Other noncurrent liabilities (Note 10) ...................... 7,629 7,351 6,199 ---------- -------------------------- Total liabilities .............................. 457,749 436,981 419,156 ---------- -------------------------- Other commitments and contingent liabilities (Note 10) ...... 0 0 0 Shareholders' equity Common stock, $1 par value ................................ 46,573 46,573 46,573 Capital in excess of par value ............................ 14,047 10,344 9,089 Retained earnings ......................................... 1,449,890 1,304,367 1,174,171 ---------- -------------------------- Total .......................................... 1,510,510 1,361,284 1,229,833 Less cost of stock in treasury ............................ 519,013 477,620 433,195 ---------- -------------------------- Total shareholders' equity ..................... 991,497 883,664 796,638 ---------- -------------------------- Total .......................................... $1,449,246 $1,320,645 $1,215,794 ========== ==========================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 45 5 CONSOLIDATED STATEMENTS OF CASH FLOWS Vulcan Materials Company and Subsidiary Companies - --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995 Amounts in thousands 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net earnings ............................................................... $ 209,145 $ 188,595 $ 166,240 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion and amortization ............................. 120,624 112,600 110,677 (Increase) decrease in assets before effects of business acquisitions: Accounts and notes receivable ................................ (14,215) 1,381 3,634 Inventories ................................................. (3,751) 3,915 (11,899) Deferred income taxes ....................................... 2,089 3,081 2,519 Prepaid expenses ............................................ 570 194 (362) Increase (decrease) in liabilities before effects of business acquisitions: Accrued interest and income taxes ........................... 139 (105) (355) Trade payables, accrual, etc ................................ (2,070) 14,118 (1,352) Deferred income taxes ...................................... 1,752 1,032 3,428 Other noncurrent liabilities ............................... 9,578 4,290 7,255 Issuance of common stock in connection with stock-based incentive plans ................................................. 5,451 2,010 699 Other, net ......................................................... 16,502 14,421 (14,028) --------- --------- --------- Net cash provided by operating activities ........................ 345,814 345,532 266,456 INVESTING ACTIVITIES Purchases of property, plant and equipment ................................. (161,238) (151,767) (109,174) Payment for business acquisitions .......................................... (12,086) (64,765) (27,172) Proceeds from sale of property, plant and equipment ........................ 16,446 11,952 31,881 Net investment in nonconsolidated companies ................................ 150 (1,233) (1,913) --------- ------------------------- Net cash used for investing activities ........................... (156,728) (205,813) (106,378) --------- ------------------------- FINANCING ACTIVITIES Net borrowings (payments) - commercial paper and bank lines of credit ...... 365 (280) (39,211) Payment of short-term debt ................................................. (5,000) (6,849) (4,687) Payment of long-term debt .................................................. (19) (62) (32) Purchases of common stock (Note 11) ........................................ (43,060) (45,182) (50,148) Dividends paid ............................................................. (63,622) (58,399) (51,848) --------- ------------------------- Net cash used for financing activities ........................... (111,336) (110,772) (145,926) --------- ------------------------- Net increase in cash and cash equivalents .................................. 77,750 28,947 14,152 Cash and cash equivalents at beginning of year ............................. 50,816 21,869 7,717 --------- ------------------------- Cash and cash equivalents at end of year ................................... $ 128,566 $ 50,816 $ 21,869 ========= =========================
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 46 6 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Vulcan Materials Company and Subsidiary Companies - --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995 Amounts in thousands, except per share data 1997 1996 1995 SHARES AMOUNT Shares Amount Shares Amount - ------------------------------------------------------------------------------------------------------------------- Common stock, $1 par value Authorized: 160,000 shares Issued (no changes in 1997, 1996 and 1995) ................... 46,573 $ 46,573 46,573 $ 46,573 46,573 $ 46,573 ------- ---------- ------- ---------- ------- ---------- Capital in excess of par value Balance at beginning of year .. 10,344 9,089 8,585 Distributions under stock-based incentive plans .......... 3,784 1,253 438 Other ......................... (81) 2 66 ---------- ---------- ---------- Balance at end of year ........ 14,047 10,344 9,089 ---------- ---------- ---------- Retained earnings Balance at beginning of year .. 1,304,367 1,174,171 1,059,779 Net earnings .................. 209,145 188,595 166,240 Cash dividends on common stock. (63,622) (58,399) (51,848) ---------- ---------- ---------- Balance at end of year ........ 1,449,890 1,304,367 1,174,171 ---------- ---------- ---------- Common stock held in treasury Balance at beginning of year .. (12,332) (477,620) (11,602) (433,195) (10,666) (383,308) Purchase of common shares ..... (631) (43,060) (765) (45,182) (948) (50,148) Distributions under stock-based incentive plans .......... 78 1,667 35 757 12 261 ------- ---------- ------- ---------- ------- ---------- Balance at end of year ........ (12,885) (519,013) (12,332) (477,620) (11,602) (433,195) ------- ---------- ------- ---------- ------- ---------- Total ................ $ 991,497 $ 883,664 $ 796,638 ========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 47 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Vulcan is the largest producer of construction aggregates in the United States and is recognized as one of the nation's leading producers of chemicals. The following is a discussion and analysis of the results of operations and the financial condition of the Company. The discussion and analysis should be read in connection with the historical financial information included in the Consolidated Financial Statements and their notes. RESULTS OF OPERATIONS Vulcan's 1997 sales, net earnings and earnings per share were at record levels. Net earnings and diluted earnings per share were $209.1 million and $6.10, respectively. The comparable 1996 net earnings and diluted earnings per share were $188.6 million and $5.36, respectively. Sales in 1997 were $1.679 billion, up from the 1996 total of $1.569 billion. Pretax earnings totaled $300.5 million, up 5% from last year's amount of $285.6 million. CONSTRUCTION MATERIALS 1997 VS. 1996 For the fifth consecutive year, Construction Materials sales surpassed previous records. Net sales for 1997 totaled $1.051 billion, up 9% from the 1996 result of $961.9 million. The 1997 result reflects a 6% increase in shipments and a 3% rise in the average unit selling price of crushed stone, the segment's principal product. Of the total increase in sales of $89.1 million, $63.3 million was related to increased volume and $25.8 million was due to higher prices. Segment earnings of $229.3 million, which are before interest expense and income taxes, also were at a record level and were up 16% from 1996's record level of $197.3 million. The favorable effects of higher crushed stone shipments and prices as well as lower production costs were partially offset by higher overhead costs due mainly to increased provisions associated with stock-based incentive plans. 1996 VS. 1995 Net sales for 1996 totaled $961.9 million, up 9% from the 1995 result of $884.7 million. The 1996 result reflected a 7% increase in shipments and a 3% rise in the average unit selling price of crushed stone. Of the total increase in sales of $77.2 million, $54.4 million was related to increased volume and $22.8 million was due to higher prices. Segment earnings of $197.3 million were up 9% from 1995's record level of $181.5 million. Results for 1996 include pretax gains totaling approximately $5.2 million from the sale of assets, primarily surplus land, as compared to the 1995 total of $16.5 million. When gains referable to asset sales are excluded from both years' results, 1996 earnings were 16% better than 1995 due principally to higher crushed stone shipments and improved prices. The favorable effects of higher volume and prices were partially offset by higher operating costs due mainly to the full-year impact of new operations. 48 8 CHEMICALS 1997 VS. 1996 Record 1997 sales of $627.6 million were up 3% from the record 1996 level of $607 million. The growth came primarily from increased Performance Systems sales. Chloralkali sales were essentially unchanged from 1996 as the effect of lower caustic soda prices was nearly offset by higher revenues from chlorine and chlorine derivative products. Segment earnings of $75.8 million in 1997 were down 20% from the record 1996 level of $94.7 million. The decrease primarily reflects a 34% decline in caustic soda prices and higher raw material costs. This was partially offset by higher pricing for chlorine and derivative products, as well as improved earnings from Performance Systems. 1996 VS. 1995 Sales of $607.0 million were up 5% from the 1995 level of $576.3 million. Excluding the effects of 1995 and 1996 acquisitions from both years' results, 1996 sales were effectively even with the prior year. Sales for Performance Systems increased due to acquisitions as well as internal growth. Sales for the Chloralkali Business Unit were virtually unchanged from 1995 as the effect of lower caustic soda prices was offset by higher revenues from chlorinated organic products and other inorganic products. Segment earnings of $94.7 million in 1996 were up 8% from the 1995 level of $87.8 million. The increase reflected improved earnings in the Performance Systems Business Unit. Earnings for the Chloralkali Business Unit were even with results reported for 1995. Chloralkali results in 1995 included a $7.1 million pretax charge referable to the Company's suspended joint venture soda ash project as well as a $3.5 million charge for environmental remediation at the Cleve Reber Superfund site. Chloralkali operating earnings declined in 1996 due to the decline in caustic soda prices, as well as higher costs referable to energy and plant maintenance. These effects were partially offset by higher earnings from chlorinated organic products. In 1996, the Company's Chemicals segment completed several acquisitions through its Performance Systems Business Unit, all with a focus on niche markets in the water management, textile, industrial cleaning, food processing, mining, and pulp and paper industries. The most significant of these was the acquisition of Mayo Chemical Company during the second quarter. These acquisitions contributed $22 million in sales during 1996. AVERAGE OPERATING INCOME AFTER TAXES CAPITAL EMPLOYED AS A PERCENT OF AVERAGE (in millions of dollars) CAPITAL EMPLOYED (percent) [GRAPH] [GRAPH] 9 SELLING, ADMINISTRATIVE AND GENERAL Selling, administrative and general expenses of $190.4 million in 1997 increased 9% from the 1996 level of $175.1 million. This reflects principally the effect that the 68% appreciation in the Company's share price during 1997 had on stock-based incentive compensation costs. In 1996, selling, administrative and general expenses were up 10% from the 1995 level. This reflects principally the impact of Chemicals acquisitions and expenses referable to a significant project to redesign the Construction Materials' procurement process. INCOME TAXES The Company's 1997 effective tax rate was 30.4%, down from the 1996 rate of 34.0%. The decrease reflects principally adjustments referable to tax audits for prior years. The effective tax rate decreased in 1996 as well, from the 1995 rate of 35.7%. This decrease also reflected principally adjustments referable to tax audits for prior years, as well as the effect of statutory depletion due to relatively higher Construction Materials earnings. OUTLOOK With regard to 1998, the Company's starting point is the assumption that moderate growth in GDP and stable interest rates will continue to provide a healthy economic environment for construction activity in the U.S. The market for construction aggregates should remain strong, overall. Demand in all major construction end-use markets should equal or exceed 1997 levels, with the exception of residential construction, which is predicted to decline modestly. Based on this outlook, 1998 earnings in the Construction Materials segment should equal or exceed 1997's record result. In 1998, the Chemicals segment should benefit from a continued recovery in caustic soda pricing. Although caustic soda pricing in the fourth quarter of 1997 was 10% below the level realized in the fourth quarter of 1996, it was 27% higher than the average for the first nine months of 1997. In addition to the continued recovery in caustic soda pricing, earnings should be helped by the effects of increased sales of chlorinated organics and higher Performance Systems sales. Overall, Chemicals segment earnings are expected to exceed 1997's level. Taking all of the current expectations into account, it is anticipated that the Company's 1998 net earnings and earnings per share should exceed 1997's record results. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Net cash provided by operating activities amounted to $345.8 million in 1997, virtually equal to 1996's total of $345.5 million. Net cash provided by the Construction Materials segment increased 16% to $255.9 million, while net cash provided by the Chemicals segment decreased $42.5 million, or 33%, to $86.3 million. The Company's long-standing ability to generate significant cash flows enabled it to fund capital requirements internally, reduce long-term debt, and return $106.7 million to shareholders through dividends and share purchases. 10 Cash expenditures for property, plant and equipment, including acquisitions, were $173.3 million in 1997, down $43.3 million. Cash spending for acquisitions totaled $12.1 million compared with $64.8 million in 1996. The Company's policy is to pay out a reasonable share of net cash provided by operating activities as dividends consistent, on average, with the payout record of past years, and consistent with the goal of maintaining debt ratios within prudent and generally acceptable limits. Additionally, management believes that purchases of the Company's stock frequently may represent an attractive long-term investment. Management intends to continue buying shares when appropriate based on prevailing market conditions and based on the Company's cash position and long-term capital requirements. NET CASH PROVIDED BY OPERATING ACTIVITIES (in millions of dollars) [GRAPH] WORKING CAPITAL Working capital, exclusive of debt and cash items (cash, cash equivalents and short-term investments), totaled $161.3 million at December 31, 1997, up $3.2 million from the 1996 level. This compares with a decrease of $16.7 million and an increase of $8.2 million in 1996 and 1995, respectively. The current ratio increased 15% in 1997, primarily due to a higher cash balance. The current ratio in 1996 remained unchanged from 1995, as higher cash balances were offset by increased payables. 11 PROPERTY ADDITIONS Property additions, including acquisitions, totaled $182.0 million in 1997, down marginally from the 1996 level of $187.2 million. As explained on page 79, the Company classifies its property additions into three categories based upon the predominant purpose of the project. Profit-adding projects continued to bolster spending in both segments. Within the Construction Materials segment, this included the acquisition of stone quarries in Arkansas, Georgia and Texas; the opening of a greenfield quarry in Alabama; and the purchase of a sand and gravel operation in Illinois. Within the Chemicals segment, this included projects to expand chloromethanes production capacity and to produce a new generation of chlorinated feedstocks. Commitments for capital expenditures were $33.1 million at December 31, 1997. Internally generated cash flow for the next year is expected to be adequate to cover commitments. PROPERTY ADDITIONS (in millions of dollars) [GRAPH] SHORT-TERM BORROWINGS AND INVESTMENTS The Company was a net short-term investor during 1997 as marketable securities reached a peak of $131.1 million, and amounted to $111.3 million at year-end. During most of the years 1995 and 1996, the Company was in a net short-term borrowing position. Short-term borrowings in 1996 reached a maximum of $48.2 million, averaged $9.7 million and were $3.3 million at year end. Comparable 1995 amounts were $93.9 million, $41.8 million and $3.6 million, respectively. The Company's policy is to maintain unused bank lines of credit and/or committed credit facilities at least equal to its outstanding commercial paper. Unsecured bank lines of credit totaling $130 million were maintained at the end of 1997. Standard & Poor's Corporation and Moody's Investors Services, Inc. have assigned ratings of A-1+ and P-1, respectively, to the Company's commercial paper. 12 LONG-TERM OBLIGATIONS During 1997 the Company reduced its total long-term obligations by $3.6 million to $81.9 million as compared with a net decrease of $4.8 million in 1996. During the three-year period ended December 31, 1997, long-term obligations decreased cumulatively by $15.5 million from the $97.4 million outstanding at December 31, 1994. During the same three-year period, shareholders' equity, net of common stock purchases of $138.4 million and dividends of $173.8 million, increased by $259.9 million to $991.5 million. In the future, the ratio of long-term debt to total long-term capital will depend upon specific investment and financing decisions. Nonetheless, management believes the Company's cash-generating capability, along with its financial strength and business diversification, can reasonably support a ratio of 25% to 30%. The actual ratio at the end of 1997 was 6.6%. The Company has made acquisitions from time to time and will continue actively to pursue attractive investment opportunities. If financing is required for this purpose, it may be accomplished either temporarily on a short-term basis or by incurring long-term debt. The Company's commercial paper rating is A-1+ by Standard & Poor's and P-1 by Moody's. The Company's long-term borrowing requirements can be satisfied in either the public debt or private placement markets. The Company's medium-term notes issued in 1991 are rated AA- by Standard & Poor's and A1 by Moody's. LONG-TERM OBLIGATIONS AS A PERCENT OF LONG-TERM CAPITAL (percent) [GRAPH] COMMON STOCK During 1997 the Company purchased 630,856 shares of its common stock at a cost of $43.1 million, equal to an average price of $68.26 per share. The acquired shares are being held for general corporate purposes, including distributions under management incentive plans. The Company's decisions to purchase shares of common stock are made based upon the common stock's valuation and price, the Company's liquidity, its actual and projected needs for cash for investment projects and regular dividends, and the Company's debt level. 13 The number and cost of shares purchased during each of the last three years is shown below:
1997 1996 1995 ----------- ----------- ----------- Shares purchased: Number .............. 630,856 765,400 947,908 Total cost (millions)........... $ 43.1 $ 45.2 $ 50.1 Average cost ........ $ 68.26 $ 59.03 $ 52.90 Shares in treasury at year-end: Number .............. 12,885,004 12,332,047 11,602,590 Average cost ........ $ 39.48 $ 38.73 $ 37.34
The number of shares remaining under the current purchase authorization of the Board was 3,547,496 shares as of December 31, 1997. NEW ACCOUNTING STANDARDS In June 1997 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. These pronouncements must be adopted for years beginning after December 15, 1997. The impact of SFAS Nos. 130 and 131 on the Company's financial reporting is not expected to be material. YEAR 2000 ISSUE The "Year 2000" issue is the result of computer programs that were written using two digits rather than four to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company has conducted a risk assessment of its major business processes to identify the systems that could be affected by the Year 2000 issue and is in the process of developing an implementation plan to address the issue. 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. However, 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. SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION 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. 14 SEGMENT FINANCIAL DATA Vulcan Materials Company and Subsidiary Companies - -------------------------------------------------------------------------------- Amounts in millions 1997 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------- NET SALES Construction Materials .................. $1,051.0 $ 961.9 $ 884.7 $ 842.9 $ 756.7 $ 686.4 Chemicals ............................... 627.6 607.0 576.3 410.5 376.8 391.6 -------------------------------------------------------------------- Total ................................. $1,678.6 $1,568.9 $1,461.0 $1,253.4 $1,133.5 $1,078.0 ==================================================================== EARNINGS (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES Construction Materials .................. $ 229.3 $ 197.3 $ 181.5 $ 162.5 $ 116.7 $ 88.3 Chemicals ............................... 75.8 94.7 87.8 (7.3) 17.4 51.3 -------------------------------------------------------------------- Segment earnings ........................ 305.1 292.0 269.3 155.2 134.1 139.6 Interest income, etc .................... 2.3 2.2 0.2 0.5 0.3 0.9 -------------------------------------------------------------------- Total ................................. $ 307.4 $ 294.2 $ 269.5 $ 155.7 $ 134.4 $ 140.5 ==================================================================== OPERATING INCOME (LOSS) AFTER TAXES Construction Materials .................. $ 160.2 $ 134.9 $ 120.6 $ 108.8 $ 81.6 $ 65.3 Chemicals ............................... 51.4 58.0 52.7 (4.7) 11.5 32.7 Interest income, etc .................... 1.8 1.5 0.1 0.4 0.2 0.7 -------------------------------------------------------------------- Total ................................. $ 213.4 $ 194.4 $ 173.4 $ 104.5 $ 93.3 $ 98.7 ==================================================================== NET CASH PROVIDED BY OPERATING ACTIVITIES Construction Materials .................. $ 255.9 $ 219.8 $ 182.9 $ 182.5 $ 156.6 $ 141.9 Chemicals ............................... 86.3 128.8 90.8 31.5 41.1 63.8 Net interest, other, net ................ 3.6 (3.1) (7.2) (5.7) (4.7) (4.6) -------------------------------------------------------------------- Total ................................. $ 345.8 $ 345.5 $ 266.5 $ 208.3 $ 193.0 $ 201.1 ==================================================================== AVERAGE CAPITAL EMPLOYED Construction Materials .................. $ 737.5 $ 710.6 $ 681.5 $ 688.1 $ 707.4 $ 708.4 Chemicals ............................... 373.1 356.0 353.9 294.0 248.5 226.4 Cash items and other .................... 62.5 27.5 6.8 11.0 7.0 22.4 -------------------------------------------------------------------- Total ................................. $1,173.1 $1,094.1 $1,042.2 $ 993.1 $ 962.9 $ 957.2 ==================================================================== DEPRECIATION, DEPLETION AND AMORTIZATION Construction Materials .................. $ 81.2 $ 75.2 $ 72.0 $ 72.8 $ 74.3 $ 75.5 Chemicals ............................... 39.5 37.4 38.7 33.9 28.5 27.8 -------------------------------------------------------------------- Total ................................. $ 120.7 $ 112.6 $ 110.7 $ 106.7 $ 102.8 $ 103.3 ==================================================================== PROPERTY ADDITIONS* Construction Materials Replacement ............................ $ 65.8 $ 63.0 $ 53.2 $ 42.3 $ 39.4 $ 17.9 Environmental control .................. 2.5 2.5 3.5 2.2 1.7 1.6 Profit adding .......................... 57.2 58.6 37.7 24.8 18.2 37.0 -------------------------------------------------------------------- Total ................................. $ 125.5 $ 124.1 $ 94.4 $ 69.3 $ 59.3 $ 56.5 ==================================================================== Chemicals Replacement ............................ $ 26.2 $ 21.5 $ 15.8 $ 10.7 $ 9.3 $ 11.3 Environmental control .................. 2.4 7.4 4.9 1.7 5.4 10.1 Profit adding .......................... 27.9 34.2 10.5 78.1 26.6 20.6 -------------------------------------------------------------------- Total ................................. $ 56.5 $ 63.1 $ 31.2 $ 90.5 $ 41.3 $ 42.0 ==================================================================== Total Company Replacement ............................ $ 92.0 $ 84.5 $ 69.0 $ 53.0 $ 48.7 $ 29.2 Environmental control .................. 4.9 9.9 8.4 3.9 7.1 11.7 Profit adding .......................... 85.1 92.8 48.2 102.9 44.8 57.6 -------------------------------------------------------------------- Total ................................. $ 182.0 $ 187.2 $ 125.6 $ 159.8 $ 100.6 $ 98.5 ==================================================================== INCREASE (DECREASE) IN WORKING CAPITAL ** Construction Materials .................. $ (8.7) $ (3.2) $ (9.9) $ 3.9 $ 2.6 $ 14.1 Chemicals ............................... 11.9 (13.5) 18.1 11.8 (8.3) (3.2) -------------------------------------------------------------------- Total ................................. $ 3.2 $ (16.7) $ 8.2 $ 15.7 $ (5.7) $ 10.9 ====================================================================
15
Amounts in millions 1991 1990 1989 1988 1987 - ---------------------------------------------------------------------------------------------------- NET SALES Construction Materials .................. $ 648.1 $ 696.1 $ 645.7 $ 670.6 $ 625.5 Chemicals ............................... 359.4 409.2 430.5 382.6 297.8 -------------------------------------------------------- Total ................................. $1,007.5 $1,105.3 $1,076.2 $1,053.2 $ 923.3 ======================================================== EARNINGS (LOSS) BEFORE INTEREST EXPENSE AND INCOME TAXES Construction Materials .................. $ 41.8 $ 112.0 $ 115.3 $ 141.5 $ 149.6 Chemicals ............................... 42.6 72.4 86.4 66.2 32.7 -------------------------------------------------------- Segment earnings ........................ 84.4 184.4 201.7 207.7 182.3 Interest income, etc .................... 0.3 2.6 5.8 5.2 4.8 -------------------------------------------------------- Total ................................. $ 84.7 $ 187.0 $ 207.5 $ 212.9 $ 187.1 ======================================================== OPERATING INCOME (LOSS) AFTER TAXES Construction Materials .................. $ 32.1 $ 77.3 $ 78.4 $ 94.7 $ 95.9 Chemicals ............................... 27.3 46.0 54.5 41.7 19.4 Interest income, etc .................... 0.1 1.8 4.3 3.8 3.4 -------------------------------------------------------- Total ................................. $ 59.5 $ 125.1 $ 137.2 $ 140.2 $ 118.7 ======================================================== NET CASH PROVIDED BY OPERATING ACTIVITIES Construction Materials .................. $ 141.8 $ 130.2 $ 159.4 $ 115.3 $ 162.0 Chemicals ............................... 50.0 76.4 93.6 62.4 57.1 Net interest, other, net ................ (8.5) (6.5) (2.8) (2.4) (5.7) -------------------------------------------------------- Total ................................. $ 183.3 $ 200.1 $ 250.2 $ 175.3 $ 213.4 ======================================================== AVERAGE CAPITAL EMPLOYED Construction Materials .................. $ 748.4 $ 656.8 $ 550.6 $ 485.2 $ 380.9 Chemicals ............................... 226.1 228.9 227.8 230.5 244.0 Cash items and other .................... 3.1 29.2 73.7 73.0 122.1 -------------------------------------------------------- Total ................................. $ 977.6 $ 914.9 $ 852.1 $ 788.7 $ 747.0 ======================================================== DEPRECIATION, DEPLETION AND AMORTIZATION Construction Materials .................. $ 80.4 $ 71.7 $ 63.6 $ 57.9 $ 48.8 Chemicals ............................... 29.3 28.5 27.3 28.0 28.9 -------------------------------------------------------- Total ................................. $ 109.7 $ 100.2 $ 90.9 $ 85.9 $ 77.7 ======================================================== PROPERTY ADDITIONS* Construction Materials Replacement ............................ $ 26.9 $ 63.9 $ 62.8 $ 61.0 $ 41.3 Environmental control .................. 1.7 2.5 1.7 0.9 0.5 Profit adding .......................... 32.2 120.9 63.2 36.5 99.0 -------------------------------------------------------- Total ................................. $ 60.8 $ 187.3 $ 127.7 $ 98.4 $ 140.8 ======================================================== Chemicals Replacement ............................ $ 9.2 $ 13.0 $ 7.3 $ 9.0 $ 6.9 Environmental control .................. 1.6 3.6 3.4 2.0 3.0 Profit adding .......................... 14.1 18.6 8.3 6.3 2.0 -------------------------------------------------------- Total ................................. $ 24.9 $ 35.2 $ 19.0 $ 17.3 $ 11.9 ======================================================== Total Company Replacement ............................ $ 36.1 $ 76.9 $ 70.1 $ 70.0 $ 48.2 Environmental control .................. 3.3 6.1 5.1 2.9 3.5 Profit adding .......................... 46.3 139.5 71.5 42.8 101.0 -------------------------------------------------------- Total ................................. $ 85.7 $ 222.5 $ 146.7 $ 115.7 $ 152.7 ======================================================== INCREASE (DECREASE) IN WORKING CAPITAL ** Construction Materials .................. $ (10.8) $ 37.0 $ (20.2) $ 47.0 $ (0.7) Chemicals ............................... (0.5) (0.7) (8.2) 24.1 (5.0) -------------------------------------------------------- Total ................................. $ (11.3) $ 36.3 $ (28.4) $ 71.1 $ (5.7) ========================================================
* Refer to page 79 for a discussion of the three categories used by the company to classify property additions. ** Exclusive of debt and cash items. 16 VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all majority or wholly-owned subsidiary companies. All significant intercompany transactions and accounts have been eliminated in consolidation. Investments in joint ventures and the common stock of associated companies in which the Company has ownership interests of 20% to 50% are accounted for by the equity method. All other investments are carried at the lower of cost or market, and income is recorded as dividends are received or interest is earned. CASH EQUIVALENTS The Company classifies as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. INVENTORIES The Company uses the last-in, first-out ("LIFO") method of valuation for most of its inventories because it results in a better matching of costs with revenues. Inventories, other than operating supplies, are stated at the lower of cost, as determined by the LIFO method, or market. Such cost includes raw materials, direct labor and production overhead. Substantially all operating supplies are carried at average cost, which does not exceed market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost less allowances for accumulated depreciation, depletion and amortization. The cost of properties held under capital leases is equal to the lower of the net present value of the minimum lease payments or the fair value of the leased property at the inception of the lease. DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation is computed by the straight-line method at rates based upon the estimated service lives of the various classes of assets, which include machinery and equipment, buildings, and land improvements. Amortization of capitalized leases is included with depreciation expense. Cost depletion on depletable quarry land is computed by the unit of production method based upon estimated recoverable units. Leaseholds are amortized over varying periods not in excess of applicable lease terms. GOODWILL Goodwill represents the excess of the cost of net assets acquired in business combinations over their fair value. Goodwill is amortized on a straight-line basis over periods ranging from fifteen to thirty years. OTHER COSTS Income is charged as costs are incurred for start-up of new plants and for normal recurring costs of mineral exploration, removal of overburden from active mineral deposits, and research and development. 17 Repairs and maintenance are charged to costs and operating expenses. Renewals and betterments which add materially to the utility or useful lives of property, plant and equipment are capitalized. Environmental expenditures that pertain to current operations or relate to future revenues are expensed or capitalized consistent with the Company's capitalization policy. Expenditures that relate to an existing condition caused by past operations and do not contribute to future revenue are expensed. Environmental compliance costs include maintenance and operating costs with respect to pollution control facilities, the cost of ongoing monitoring programs and similar costs. Costs are expensed and accrued as liabilities when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. These amounts are accrued no later than the feasibility study and/or when the Company commits to a formal plan of action. INCOME TAXES Annual provisions for income taxes are based primarily on reported earnings before income taxes and include appropriate provisions for deferred income taxes resulting from the tax effect of the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. In addition, such provisions reflect adjustments for the following items: - - Permanent differences, principally the excess of percentage depletion over the tax basis of depletable properties. - - An estimate of additional cost that may be incurred, including interest on deficiencies but excluding adjustments representing temporary differences, upon final settlement of returns after audit by various taxing authorities. - - Balances or deficiencies in prior year provisions that become appropriate as audits of those years progress. EARNINGS PER SHARE In March 1997, the Financial Accounting Standards Board ("FASB") released Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share, which is effective for fiscal years ending after December 15, 1997. In accordance with this standard, the Company is now required to report two separate earnings per share numbers, basic and diluted. Both are computed by dividing net earnings by the average common shares outstanding (basic EPS) or average common shares outstanding assuming dilution (diluted EPS) as detailed below (in thousands of shares):
1997 1996 1995 ------ ------ ------ Average common shares outstanding ............... 33,828 34,758 35,544 Dilutive effect of: Stock options ............. 176 6 -- Performance shares ........ 279 409 389 ------ ------ ------ Average common shares outstanding assuming dilution .................. 34,283 35,173 35,933 ====== ====== ======
Diluted earnings per share is the same number as the Company has previously been reporting as earnings per share and includes the dilutive impact of options and shares contingently issuable under long-term performance share plans. 18 USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain items previously reported in specific financial statement captions have been reclassified to conform with the 1997 presentation. 2. CASH Bank lines of credit amounted to $130,000,000 at year-end 1997, 1996 and 1995. At year-end 1997, 1996 and 1995, the Company did not have any commercial paper outstanding but did have $2,900,000, $3,100,000 and $3,400,000, respectively, in bank borrowings referable to a Canadian subsidiary. All of the lines of credit extended to the Company in 1997, 1996 and 1995 were based on a commitment fee arrangement. The Company also maintained balances or paid fees to compensate its banks for certain services. The Company was in compliance with these informal compensation arrangements during all three years. Because the arrangements are evaluated on a twelve-month average basis, the Company does not consider any of its cash balances to be restricted as of any specific date. 3. INVENTORIES Inventories at December 31 are as follows (in thousands of dollars):
1997 1996 1995 -------- -------- -------- Finished products .... $ 90,118 $ 87,459 $ 90,009 Raw materials ........ 10,865 10,115 10,062 Products in process .. 617 873 979 Operating supplies and other ......... 30,759 30,131 25,751 -------- -------- -------- Total inventories $132,359 $128,578 $126,801 ======== ======== ========
The above amounts include inventories valued under the LIFO method totaling $99,321,000, $96,045,000 and $97,959,000 at December 31, 1997, 1996 and 1995, respectively. Estimated current cost exceeded LIFO cost at December 31, 1997, 1996 and 1995 by $37,344,000, $35,747,000 and $36,899,000, respectively. If all inventories valued at LIFO cost had been valued under the methods (substantially average cost) used prior to the adoption of the LIFO method, the approximate effect on net earnings would have been an increase of $973,000 ($0.03 per share effect) in 1997, a decrease of $702,000 ($0.02 per share effect) in 1996 and an increase of $4,784,000 ($0.13 per share effect) in 1995. 19 4. PROPERTY, PLANT AND EQUIPMENT Balances of major classes of assets and allowances for depreciation, depletion and amortization at December 31 are as follows (in thousands of dollars):
1997 1996 1995 ---------- ---------- ---------- Land and land improvements ......... $ 211,058 $ 222,546 $ 203,920 Buildings ............... 81,805 82,049 77,732 Machinery and equipment ............ 1,753,683 1,630,089 1,536,742 Leaseholds .............. 7,107 7,118 6,483 Construction in progress ............. 66,547 60,362 34,559 ---------- ---------- ---------- Total .............. 2,120,200 2,002,164 1,859,436 Less allowances for depreciation, depletion and amortization ......... 1,311,781 1,237,674 1,161,403 ---------- ---------- ---------- Property, plant and equipment, net ....... $ 808,419 $ 764,490 $ 698,033 ========== ========== ==========
The Company capitalized interest costs of $1,160,000 in 1997, $627,000 in 1996 and $297,000 in 1995 with respect to qualifying construction projects. Total interest costs incurred before recognition of the capitalized amount was $8,074,000 in 1997, $9,263,000 in 1996 and $11,396,000 in 1995. 5. DEBT Long-term debt, exclusive of current maturities, at December 31 is summarized as follows (in thousands of dollars):
1997 1996 1995 ------- ------- -------- Medium-term notes ...... $61,000 $66,000 $ 71,000 Variable rate pollution control revenue bonds 8,200 8,200 1,200 6 5/8% pollution control revenue bonds ....... -- -- 6,800 6 3/8% pollution control revenue bonds ....... 5,800 5,800 5,800 Other notes ............ 6,931 5,535 5,478 ------- ------- -------- Total ............. $81,931 $85,535 $ 90,278 ======= ======= ======== Estimated fair value ... $93,142 $93,507 $101,782 ======= ======= ========
In May 1991 the Company filed a shelf registration statement with the Securities and Exchange Commission for the registration of $200,000,000 principal amount of debt securities. The issuances of the medium-term notes in 1991 totaled $81,000,000. The dollar-weighted average maturity of the notes, as calculated from the dates of issuance, approximated 13 years. Maturities 20 at the time of issuance ranged from three to thirty years with a maximum of $10,000,000 due in any one year. At that time, the weighted average interest rate on the notes was 8.53% with a range of 7.59% to 8.85%. The $61,000,000 in notes outstanding as of December 31, 1997 have a weighted average maturity of 9.3 years with a weighted average interest rate of 8.69%. The 6 5/8% pollution control revenue bonds and the variable rate pollution control revenue bonds were called and refunded in 1996. In connection with the refunding, $8,200,000 of tax-exempt bonds were issued and currently bear interest at a variable rate which is reset weekly by the remarketing agent. The interest rate on these bonds may be changed to another variable rate option, or to a fixed rate, in accordance with the provisions of the trust indenture. The 6 3/8% pollution control revenue bonds issued in 1992 mature in 2012. Other notes include $3,000,000 representing a fixed rate tax-exempt industrial development bond issue which matures in 2011 and notes issued for businesses acquired. The aggregate principal payments for the five years subsequent to December 31, 1997 are: 1998-$5,388,000; 1999-$5,412,000; 2000-$5,226,000; 2001-$5,208,000; and 2002-$5,491,000. The Company is not subject to any contractual restrictions on the aggregate amount of its indebtedness or minimum working capital, or the amount it may expend for cash dividends and purchases of its stock. The estimated fair value amounts of long-term debt have been determined by discounting expected future cash flows using interest rates on U.S. Treasury bills, notes or bonds, as appropriate. For cash equivalents, accounts and notes receivable, accounts payable, accrued interest, and other applicable accrued liabilities, the carrying amounts are a reasonable estimate of fair value. The fair value estimates presented are based on information available to management as of December 31, 1997, 1996 and 1995. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued since those dates. 6. OPERATING LEASES Total rental expense of nonmineral leases, exclusive of rental payments made under leases of one month or less, is summarized as follows (in thousands of dollars):
1997 1996 1995 ------- ------- ------- Minimum rentals .............. $17,894 $17,188 $14,260 Contingent rentals (based principally on usage) ..... 11,840 10,677 11,205 ------- ------- ------- Total ............... $29,734 $27,865 $25,465 ======= ======= =======
Future minimum operating lease payments under all leases with initial or remaining noncancellable lease terms in excess of one year, exclusive of mineral leases, at December 31, 1997 range from $6,523,000 to $10,476,000 annually through 2002 and aggregate $46,587,000 thereafter. Lease agreements frequently include renewal options and require that the Company pay for utilities, taxes, insurance and maintenance expense. Options to purchase also are included in some lease agreements. 21 7. INCOME TAXES The components of earnings before income taxes are as follows (in thousands of dollars):
1997 1996 1995 -------- -------- -------- Domestic ........... $294,904 $279,801 $253,991 Foreign ............ 5,597 5,779 4,430 -------- -------- -------- Total ........... $300,501 $285,580 $258,421 ======== ======== ========
Provisions for income taxes consist of the following (in thousands of dollars):
1997 1996 1995 -------- ------- ------- Current: Federal .............. $ 73,767 $80,704 $72,332 State and local ...... 10,907 14,595 14,087 Foreign .............. 132 144 18 -------- ------- ------- Total ............. 84,806 95,443 86,437 -------- ------- ------- Deferred: Federal .............. 5,231 1,446 4,861 State and local ...... 1,321 96 883 Foreign .............. (2) -- -- -------- ------- ------- Total ............. 6,550 1,542 5,744 -------- ------- ------- Total provision ......... $ 91,356 $96,985 $92,181 ======== ======= =======
The effective tax rate varied from the federal statutory income tax rate due to the following:
1997 1996 1995 ------ ------ ------ Federal statutory tax rate ........ 35.0% 35.0% 35.0% Increase (decrease) in tax rate resulting from: Depletion ...................... (5.0) (4.8) (4.5) State and local income taxes, net of federal income tax benefit ........... 2.6 3.3 3.8 Miscellaneous items ............ (2.2) .5 1.4 ------ ------ ------ Effective tax rate ................ 30.4% 34.0% 35.7% ====== ====== ======
22 Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability are as follows (in thousands of dollars):
1997 1996 1995 -------- -------- -------- Deferred tax assets related to: Accrual for post- retirement benefits ............. $ 15,283 $ 14,149 $ 13,318 Accrual for environmental reclamation ..................... 554 396 1,604 Accounts receivable, principally allowance for doubtful accounts ........... 3,248 3,493 3,592 Inventory adjustments ............. 5,748 6,101 7,278 Pensions, incentives and deferred compensation ........... 11,844 10,463 10,066 Other items ....................... 10,714 10,339 9,518 -------- -------- -------- Total deferred tax assets .................. 47,391 44,941 45,376 -------- -------- -------- Deferred tax liabilities related to: Fixed assets, principally depreciation .................. 107,170 101,316 98,821 Other items ..................... 7,555 7,119 5,935 -------- -------- -------- Total deferred tax liabilities ................ 114,725 108,435 104,756 -------- -------- -------- Net deferred tax liability ........... $ 67,334 $ 63,494 $ 59,380 ======== ======== ========
8. PENSION AND POSTRETIREMENT BENEFIT PLANS PENSION PLANS The Company sponsors three noncontributory defined benefit pension plans. These plans cover substantially all employees other than those covered by union-administered plans. Normal retirement age is 65, but the plans contain provisions for earlier retirement. Benefits for the Salaried Plan and the Chemicals Hourly Plan are based on salaries or wages and years of service; the Construction Materials Hourly Plan provides benefits equal to a flat dollar amount for each year of service. 23 Charges to earnings referable to Company-administered pension plans totaled $4,695,000 in 1997, $5,185,000 in 1996 and $1,187,000 in 1995. Components of the net periodic pension charges are as follows (in thousands of dollars):
1997 1996 1995 -------- -------- -------- Service cost - benefits earned during the period ........ $ 11,228 $ 11,631 $ 8,665 Interest cost ...................... 20,987 19,069 18,019 Actual return on plan assets ....... (72,874) (43,867) (51,744) Net amortization and deferral .................... 45,354 18,352 26,247 -------- -------- -------- Net periodic pension charge ........................ $ 4,695 $ 5,185 $ 1,187 ======== ======== ========
The Company's qualified pension plans have assets in excess of the accumulated benefit obligation. Plan assets are composed primarily of marketable domestic and international equity securities and corporate and government debt securities. Unrecognized net plan assets at the implementation of SFAS No. 87, Employers' Accounting for Pensions, in 1986, are being amortized over the average of the covered employees' remaining service lives, which range from 12 to 16 years. The following table reconciles the funded status of all the Company's plans with the related amounts recognized in the Company's consolidated balance sheets at December 31 (in thousands of dollars):
1997 1996 1995 --------- --------- --------- Actuarial present value of benefit obligations: Based on employment service to date and current salary levels: Vested ...................... $(205,369) $(173,166) $(174,436) Nonvested ................... (10,466) (8,693) (7,143) --------- --------- --------- Accumulated benefit obligation ................ (215,835) (181,859) (181,579) Effect of projected future salary increases ....... (90,681) (85,430) (83,011) --------- --------- --------- Projected benefit obligation .................... (306,516) (267,289) (264,590) Plan assets at fair market value ........................... 395,245 337,326 305,398 --------- --------- --------- Plan assets in excess of projected benefit obligation ...................... 88,729 70,037 40,808 Unamortized portion of unrecognized net asset at implementation of SFAS No. 87 ..................... (7,486) (10,212) (13,225) Unrecognized net gain .............. (85,526) (68,163) (26,057) Unrecognized prior service cost .................... 10,722 12,632 8,148 --------- --------- --------- Net prepaid pension cost ........ $ 6,439 $ 4,294 $ 9,674 ========= ========= =========
24 Annual net periodic pension charges and credits are calculated using plan assumptions as of the end of the prior year, whereas the funded status and related pension obligations are determined using the assumptions as of the end of the current year. Plan assumptions at December 31 were as follows:
1997 1996 1995 ------- ------- ------- Discount rates used to determine the pension obligations .............. 7.00% 7.50% 7.00% Discount rates used to determine the net periodic cost .................... 7.50 7.00 8.50 Rates of increase in compensation levels (for salary-related plans) ....... 4.25 4.25 4.25 Expected long-term rates of return on plan assets ......... 8.25 8.25 8.25
The Company funds the pension trusts currently in amounts determined under the individual entry age level premium method, including benefit increases expected as a result of projected wage and salary increases occurring between the date of valuation and the individual retirement dates. Certain of the Company's hourly employees in unions are covered by multi-employer defined benefit pension plans. Contributions to these plans approximated $2,115,000 in 1997, $2,090,000 in 1996 and $1,859,000 in 1995. The actuarial present value of accumulated plan benefits and net assets available for benefits for employees in the union-administered plans are not determinable from available information. Seventeen percent of the labor force is covered by collective bargaining agreements and 7% are covered by labor agreements that expire within one year. POSTRETIREMENT PLANS In addition to pension benefits, the Company provides certain health care benefits and life insurance for some retired employees. Substantially all of the Company's salaried employees and, where applicable, hourly employees may become eligible for those benefits if they reach at least age 55 and meet certain service requirements while working for the Company. Generally, Company-provided health care benefits terminate when covered individuals become eligible for Medicare benefits or reach age 65, whichever first occurs. 25 The components of net periodic postretirement benefit costs are as follows (in thousands of dollars):
1997 1996 1995 ------- ------- ------- Service cost - benefits attributed to service during the period ......... $ 2,036 $ 2,045 $ 1,965 Interest cost ................ 3,464 3,013 3,558 Actual return on assets ...... (203) (196) (158) Net amortization and deferral .............. 124 88 209 ------- ------- ------- Net periodic postretirement benefit cost .............. $ 5,421 $ 4,950 $ 5,574 ======= ======= =======
The Company funds the postretirement benefits plan each year through contributions to a trust fund for health care benefits and through payments of premiums to providers of life insurance. All assets of the plan relate to the life insurance and are composed of reserves held by the insurer. The following table sets forth the combined funded status of the plan and its reconciliation with the related amounts recognized in the Company's consolidated balance sheets at December 31 (in thousands of dollars):
1997 1996 1995 -------- -------- -------- Accumulated postretirement benefit obligation: Retirees ...................... $(13,044) $ (9,991) $(11,355) Fully eligible active plan participants ........... (15,968) (13,227) (13,658) Other active plan participants ................ (19,701) (20,415) (19,478) -------- -------- -------- Total accumulated postretirement benefit obligation ........ (48,713) (43,633) (44,491) Plan assets at fair market value .................. 3,323 3,119 2,842 -------- -------- -------- Accumulated postretirement benefit obligation in excess of plan assets ................... (45,390) (40,514) (41,649) Unrecognized prior service cost .................. 5 5 6 Unrecognized net loss ............ 6,261 4,287 7,726 -------- -------- -------- Accrued postretirement benefit cost ................ $(39,124) $(36,222) $(33,917) ======== ======== ========
26 Annual net periodic postretirement benefit costs are calculated using plan assumptions as of the end of the prior year, whereas the funded status and related benefit obligations are determined using the assumptions as of the end of the current year. Plan assumptions at December 31 were as follows:
1997 1996 1995 ------- ------- ------- Discount rates ................................. 7.00% 7.50% 7.00% Expected long-term rate of return on plan assets .................... 7.00 7.00 7.00 Rate of increase in per capita claims cost: First year ............................... 8.00 9.00 10.00 Ultimate rate ............................ 5.00 5.00 5.00
If the health care cost trend rates were increased 1.0% each year, the accumulated postretirement benefit obligation as of December 31, 1997 would have increased by $5,065,000 (or 10.4%) and the aggregate of the service and interest cost for 1997 would have increased by $758,000 (or 13.4%). 9. INCENTIVE PLANS STOCK-BASED COMPENSATION PLANS The Company's 1996 Long-Term Incentive Plan authorizes the granting of stock-based awards to key salaried employees of the Company and its affiliates. The Plan permits the granting of stock options (including incentive stock options), stock appreciation rights, restricted stock and restricted stock units, performance share awards, dividend equivalents, and other awards valued in whole or in part by reference to or otherwise based on common stock of the Company. The number of shares available for awards is .95% of the issued common shares of the Company (including treasury shares) as of the first day of each calendar year plus the unused shares that are carried over from prior years. Stock options issued during 1997 and 1996 were granted at the fair market value of the stock on the date of the grant. They vest ratably over five years and expire ten years subsequent to the grant. Performance share awards were granted through 1995. These awards are based on the achievement of established performance goals and the majority of the awards vest over five years. In 1995, 126,760 shares were awarded with a weighted average grant date fair value of $39.35. Expense provisions referable to these plans amounted to $11,671,000 in 1997, $4,373,000 in 1996 and $6,742,000 in 1995. Expense provisions are affected by changes in the market value of the Company's common stock. 27 The Company applies Accounting Principle Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock-based compensation. Pro forma information regarding net earnings and earnings per share is required by SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), and has been determined as if the Company had accounted for its employee stock options and performance share awards under the fair value method of that Statement. The fair value for options was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 6.0%; dividend yields of 2.9%; volatility factors of the expected market price of the Company's common stock of 14.4%; and a weighted-average expected life of the option of five years. The fair value for performance share awards was based on a discounted fair market value of the Company's stock at grant date. For purposes of pro forma disclosures, the estimated fair value of the options and performance share awards is amortized to expense over the options' vesting period. The effects of applying SFAS 123 on a pro forma basis would have increased net earnings by approximately $4,234,000, $83,000 and $271,000 in 1997, 1996 and 1995, respectively. The impact on basic and diluted earnings per share in 1997 would have been a $0.13 and $0.12 increase, respectively. There would have been no change in 1996 earnings per share, but a $0.01 increase for both basic and diluted earnings per share in 1995. A summary of the Company's stock option activity, related information as of December 31, 1997 and 1996, and changes during each year is presented below:
1997 1996 -------------------------- -------------------------- Weighted Average Weighted Average Shares Exercise Price Shares Exercise Price ------- ---------------- ------- ---------------- Outstanding at beginning of year ......... 428,950 $56.61 -- $ -- Granted ................. 408,050 $63.96 429,800 $56.61 Exercised ............... 6,940 $57.57 -- $ -- Forfeited ............... 20,825 $57.47 850 $56.56 ------- ------- Outstanding at end of year ... 809,235 $60.28 428,950 $56.61 ======= ======= Options exercisable at year-end ............... 159,765 $58.05 -- $ -- Weighted-average grant date fair value of each option granted during the year . $11.14 $10.35
Exercise prices for substantially all options outstanding at December 31, 1997 ranged from $55.75 to $63.94. The weighted-average remaining contractual life of the options is 8.75 years. CASH BASED COMPENSATION PLANS The Company has a management incentive plan under which cash awards may be made annually to officers and key employees. Expense provisions referable to the plans amounted to $7,198,000 in 1997, $8,500,000 in 1996 and $5,550,000 in 1995. 28 10. OTHER COMMITMENTS AND CONTINGENT LIABILITIES In 1987 the Company formed three jointly owned companies with Industrias ICA, S.A. de C.V., ("Indica"), a principal member of Grupo ICA, one of Mexico's leading diversified industrial entities, to develop and operate a limestone quarry on Mexico's Yucatan Peninsula and to import Mexican crushed stone for sale along the U.S. Gulf Coast. The shareholder agreements for these three companies provide that each sponsor will contribute its share of the equity required to fund the joint venture. The Company's share of $71,903,000 had been contributed as of December 31, 1997; Indica contributed a substantially equal pro rata amount. The jointly owned companies have entered into credit agreements which have loan balances totaling $23,890,000. The Company and Indica have agreed to guarantee these loans on a several and pro rata basis equal to approximately 50% each. Certain of the loan guarantees will be terminated if and when the project meets defined financial tests. In addition, the Company has approximately $2,205,000 outstanding from the three companies at December 31, 1997 as its share of loans to the joint venture. The carrying amount of net assets of the entities located outside the United States was $55,034,000 as of December 31, 1997. Other commitments of the Company include the purchase of property, plant and equipment approximating $33,137,000 at December 31, 1997. The Company is a defendant in various lawsuits incident to the ordinary course of business. It is not possible to determine with precision the probable outcome or the amount of liability, if any, with respect to these lawsuits; however, in the opinion of the Company and its counsel, the disposition of these lawsuits will not adversely affect the consolidated financial statements of the Company to a material extent. The Company's consolidated balance sheets as of December 31 include accrued environmental cleanup costs for the Chemicals segment of $4,285,000 in 1997, $3,732,000 in 1996 and $2,765,000 in 1995. Current liabilities reported on the Company's consolidated balance sheets include accrued provisions for discontinued operations in the following amounts as of December 31: $508,000 in 1997, $905,000 in 1996 and $1,805,000 in 1995. In addition, other noncurrent liabilities include $144,000 in 1997, $240,000 in 1996 and $493,000 in 1995 referable to discontinued operations. 29 11. COMMON STOCK A total of 13,447,827 shares has been purchased at a cost of $530,912,000 pursuant to a common stock purchase plan initially authorized by the Board of Directors in July 1985 and increased in subsequent years, and pursuant to a tender offer during the period November 5, 1986 through December 4, 1986. The number of shares remaining under the current purchase authorization was 3,547,496 shares as of December 31, 1997. 12. SEGMENT DATA Operations in the Company's Construction Materials segment principally involve the production and sale of aggregates and related products and services. Sales are in 18 states located in the southeast, midwest and southwest regions of the United States and the District of Columbia. Customers primarily use aggregates in the construction and maintenance of highways, roads and streets and in the construction of housing and nonresidential, commercial and industrial facilities. The Chemicals segment, through its Chloralkali and Performance Systems operations, produces and sells chlorine, caustic soda, chlorinated organic chemicals and other industrial chemicals principally to the chemical, pulp and paper, energy, water management, food processing, pharmaceuticals and textile industries. Segment data referable to net sales to unaffiliated customers, property additions, and depreciation, depletion and amortization are provided in Segment Financial Data on pages 55. The Company's determination of segment earnings recognizes equity in the income or losses of nonconsolidated affiliates as part of segment earnings and also reflects allocations of general corporate expenses to the segments. SFAS No. 14, Financial Reporting for Segments of a Business Enterprise, does not provide for the inclusion of these items in "operating profit or loss of reportable segments." The net amounts of those items were expenses of $17,336,000 in 1997, $16,231,000 in 1996 and $22,533,000 in 1995. Segment earnings are reconciled with earnings before income taxes as follows (in thousands of dollars):
1997 1996 1995 --------- --------- --------- Segment Earnings: Construction Materials ...... $ 229,275 $ 197,315 $ 181,528 Chemicals ................... 75,787 94,707 87,792 --------- --------- --------- 305,062 292,022 269,320 Interest income, etc ........... 2,353 2,194 200 Interest expense ............... (6,914) (8,636) (11,099) --------- --------- --------- Earnings before income taxes ................ $ 300,501 $ 285,580 $ 258,421 ========= ========= =========
30 Identifiable assets by segment at December 31 are as follows (in thousands of dollars):
1997 1996 1995 ---------- ---------- ---------- Construction Materials ............. $ 751,191 $ 719,618 $ 690,044 Chemicals .......................... 459,051 441,088 395,487 ---------- ---------- ---------- Total identifiable assets .......... 1,210,242 1,160,706 1,085,531 Investment in nonconsolidated affiliates ..... 61,036 56,043 50,780 General corporate assets ........... 49,402 53,080 57,614 Cash items ......................... 128,566 50,816 21,869 ---------- ---------- ---------- Total assets ....................... $1,449,246 $1,320,645 $1,215,794 ========== ========== ==========
13. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental information referable to the Consolidated Statements of Cash Flows is summarized below (amounts in thousands of dollars):
1997 1996 1995 ------- ------- ------- Cash payments: Interest (exclusive of amount capitalized) .............................. $ 6,774 $ 8,715 $11,214 Income taxes ....................................... 92,315 85,492 85,324 Noncash investing and financing activities: Amounts referable to business acquisitions: Liabilities assumed .......................... 1,441 5,051 1,382
14. ACQUISITIONS At various dates during 1997 and 1996 the Company acquired the net assets and businesses of several companies. The combined purchase price was approximately $12,000,000 and $64,000,000, respectively. Funds for the purchases were primarily provided by internally generated cash flows. The amount by which the total cost of these acquisitions exceeded the fair value of the net assets acquired was recognized as goodwill and will be amortized under the Company's normal amortization policy. All of the 1997 and 1996 acquisitions described above were accounted for as purchases and accordingly, the results of operations of the acquired businesses are included in the accompanying financial statements from their respective dates of acquisition. On a pro forma basis, as if the net assets and businesses had been acquired at the beginning of fiscal 1996 and 1995, respectively, revenue, net income and earnings per share would not differ materially from the amounts reflected in the accompanying consolidated financial statements for 1997, 1996 and 1995. Goodwill recorded on the Company's balance sheet as of December 31, 1997 amounted to $59,345,000. 31 NET SALES, NET EARNINGS AND EARNINGS PER SHARE Vulcan Materials Company and Subsidiary Companies - --------------------------------------------------------------------------------
Amounts in millions, except per share data 1997 1996 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------- NET SALES First quarter ......... $ 341.4 $ 308.5 $ 294.4 $ 216.9 $ 214.1 $ 210.6 $ 197.0 Second quarter ........ 445.1 419.2 382.8 326.7 306.0 284.2 266.4 Third quarter ......... 477.9 443.6 422.0 360.4 331.4 312.3 289.3 Fourth quarter ........ 414.2 397.6 361.8 349.4 282.0 270.9 254.8 ---------------------------------------------------------------------------------- Total ............. $1,678.6 $1,568.9 $1,461.0 $1,253.4 $1,133.5 $1,078.0 $1,007.5 ================================================================================== GROSS PROFIT ON SALES First quarter ......... $ 76.1 $ 70.1 $ 58.8 $ 21.0 $ 29.7 $ 35.6 $ 27.6 Second quarter ........ 136.5 129.3 113.2 77.4 74.0 74.5 66.7 Third quarter ......... 147.0 139.6 133.8 90.4 85.1 80.8 71.3 Fourth quarter ........ 119.5 114.5 110.5 79.4 57.9 58.2 46.5 ---------------------------------------------------------------------------------- Total ............. $ 479.1 $ 453.5 $ 416.3 $ 268.2 $ 246.7 $ 249.1 $ 212.1 ================================================================================== NET EARNINGS (LOSS) First quarter ......... $ 21.9 $ 20.1 $ 16.0 $ (5.2) $ (0.5) $ 7.6 $ (2.2) Second quarter ........ 62.8 58.6 47.7 33.7 31.6 30.2 25.9 Third quarter ......... 73.3 62.1 59.1 37.6 36.6 35.8 30.2 Fourth quarter ........ 51.1 47.8 43.4 31.9 20.5 20.4 (1.3) ---------------------------------------------------------------------------------- Total ............. $ 209.1 $ 188.6 $ 166.2 $ 98.0 $ 88.2 $ 94.0 $ 52.6 ================================================================================== BASIC EARNINGS (LOSS) PER SHARE First quarter ......... $ 0.64 $ 0.58 $ 0.44 $ (0.14) $ (0.01) $ 0.20 $ (0.06) Second quarter ........ 1.86 1.67 1.34 0.92 0.85 0.80 0.68 Third quarter ......... 2.16 1.79 1.66 1.03 0.99 0.95 0.80 Fourth quarter ........ 1.52 1.39 1.24 0.88 0.57 0.55 (0.04) ---------------------------------------------------------------------------------- Total ............. $ 6.18 $ 5.43 $ 4.68 $ 2.69 $ 2.40 $ 2.50 $ 1.38 ================================================================================== DILUTED EARNINGS (LOSS) PER SHARE First quarter ......... $ 0.64 $ 0.57 $ 0.44 $ (0.14) $ (0.01) $ 0.20 $ (0.06) Second quarter ........ 1.83 1.65 1.32 0.92 0.84 0.80 0.68 Third quarter ......... 2.14 1.77 1.64 1.02 0.99 0.94 0.79 Fourth quarter ........ 1.49 1.37 1.23 0.87 0.57 0.55 $ (0.03) ---------------------------------------------------------------------------------- Total ............. $ 6.10 $ 5.36 $ 4.63 $ 2.67 $ 2.39 $ 2.49 $ 1.38 ================================================================================== Amounts in millions, except per share data 1990 1989 1988 1987 - ------------------------------------------------------------------------ NET SALES First quarter ......... $ 232.0 $ 217.5 $ 202.7 $ 168.9 Second quarter ........ 295.7 293.7 284.5 237.9 Third quarter ......... 306.6 307.3 298.5 270.1 Fourth quarter ........ 271.0 257.7 267.5 246.4 --------------------------------------------- Total ............. $1,105.3 $1,076.2 $1,053.2 $ 923.3 ============================================= GROSS PROFIT ON SALES First quarter ......... $ 52.3 $ 47.4 $ 46.8 $ 36.4 Second quarter ........ 88.6 90.5 93.9 79.5 Third quarter ......... 90.0 103.2 98.8 91.6 Fourth quarter ........ 60.5 58.9 64.5 64.6 --------------------------------------------- Total ............. $ 291.4 $ 300.0 $ 304.0 $ 272.1 ============================================= NET EARNINGS (LOSS) First quarter ......... $ 18.7 $ 17.2 $ 15.6 $ 11.4 Second quarter ........ 39.6 43.5 46.0 38.7 Third quarter ......... 42.2 50.5 49.3 38.7 Fourth quarter ........ 19.8 19.7 25.1 27.4 --------------------------------------------- Total ............. $ 120.3 $ 130.9 $ 136.0 $ 116.2 ============================================= BASIC EARNINGS (LOSS) PER SHARE First quarter ......... $ 0.48 $ 0.42 $ 0.38 $ 0.27 Second quarter ........ 1.01 1.08 1.12 0.91 Third quarter ......... 1.10 1.25 1.20 0.92 Fourth quarter ........ 0.52 0.50 0.61 0.65 --------------------------------------------- Total ............. $ 3.11 $ 3.25 $ 3.31 $ 2.75 ============================================= DILUTED EARNINGS (LOSS) PER SHARE First quarter ......... $ 0.47 $ 0.42 $ 0.38 $ 0.27 Second quarter ........ 1.02 1.07 1.11 0.91 Third quarter ......... 1.08 1.25 1.19 0.91 Fourth quarter ........ 0.53 0.50 0.62 0.64 --------------------------------------------- Total ............. $ 3.10 $ 3.24 $ 3.30 $ 2.73 =============================================
77 32 FINANCIAL TERMINOLOGY CAPITAL EMPLOYED For the Company: the sum of interest-bearing debt, other noncurrent liabilities and shareholders' equity; for a segment: the net sum of the segment's assets, current liabilities, and allocated corporate assets and current liabilities, exclusive of cash items and short-term debt CASH ITEMS The sum of cash, cash equivalents and short-term investments COMMON SHAREHOLDERS' EQUITY The sum of common stock (less the cost of common stock in treasury), capital in excess of par value and retained earnings, as reported in the balance sheet LONG-TERM CAPITAL The sum of long-term debt, other noncurrent liabilities and shareholders' equity OPERATING INCOME AFTER TAXES For the Company: net earnings from operations plus the after-tax cost of interest expense; for a segment: segment earnings less the segment's computed share of the consolidated provision for income taxes PROPERTY ADDITIONS* Capitalized replacements of and additions to property, plant and equipment (and such assets of businesses acquired), including capitalized leases, renewals and betterments; each segment's property additions include allocated corporate amounts RATIO OF EARNINGS TO FIXED CHARGES The sum of earnings from continuing operations before income taxes, amortization of capitalized interest and fixed charges net of interest capitalization credits, divided by fixed charges. Fixed charges are the sum of interest expense before capitalization credits, amortization of financing costs and one-third of rental expense. SEGMENT EARNINGS 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 segments 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. SHORT-TERM DEBT The sum of current interest-bearing debt, including current maturities of long-term debt and interest-bearing notes payable * The Company classifies its property additions into three categories based upon the predominant purpose of the project expenditures. Thus, a project is classified entirely as a replacement if that is the principal reason for making the expenditure even though the project may involve some cost saving and/or capacity improvement aspects. Likewise, a profit-adding project is classified entirely as such if the principal reason for making the expenditure is to add operating facilities at new locations (which occasionally replace facilities at old locations), to add product lines, to expand the capacity of existing facilities, to reduce costs, to increase mineral reserves or to improve products, etc. Property additions classified as environmental control expenditures do not reflect those expenditures for environmental control activities, including industrial health programs, which are expensed currently. Such expenditures are made on a continuing basis and at significant levels in each of the Company's segments. Frequently, profit-adding and major replacement projects also include expenditures for environmental control purposes. 79 EX-21 4 LIST OF COMPANY'S SUBSIDIARIES 1 EXHIBIT (21) VULCAN MATERIALS COMPANY SUBSIDIARIES AS OF DECEMBER 31, 1997
STATE OR OTHER % OWNED DIRECTLY JURISDICTION OF OR INDIRECTLY INCORPORATION BY VULCAN ENTITY OR ORGANIZATION ---------- - ------ --------------- Subsidiaries - ------------ Atlantic Granite Company* South Carolina 33 1/3 Birmingham Slag Company* Alabama 100 Calizas Industriales del Carmen, S.A. de C.V. Mexico 49 Callaway Chemical Company New Jersey 100 Callaway Chemical Limited British Columbia 100 Dixie Sand and Gravel Company, Inc.* Tennessee 100 Knoxville Mack Distributors, Inc.* Tennessee 100 Lambert Bros., Inc.* Tennessee 100 Midsouth Machine and Service Company Tennessee 100 Reco Transportation, Inc. Kentucky 100 Statewide Transport, Inc. Texas 100 Vulcan Chemical Technologies, Inc. Delaware 100 Vulcan/ICA Distribution Company (Partnership) Texas 51 Vulcan Gulf Coast Aggregates, Inc. New Jersey 100 Vulcan Gulf Coast Materials, Inc. New Jersey 100 Vulcan Holdings, Inc. New Jersey 100 Vulcan International, Ltd. U.S. Virgin Islands 100 Vulcan Lands, Inc. New Jersey 100 Vulcan Soda Ash Company California 100 VULICA Shipping Company, Limited Bahamas 50 Wanatah Trucking Co., Inc. Indiana 100 Wesco Contracting Company* Tennessee 100 White's Mines, Inc.* Texas 100
- ------------------- *Inactive EX-24 5 POWERS OF ATTORNEY 1 EXHIBIT (24) POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 19th day of January, 1998. /s/Marion H. Antonini ------------------------------- Marion H. Antonini 2 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 19th day of January, 1998. /s/Livio D. DeSimone --------------------------- Livio D. DeSimone 3 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 20th day of January, 1998. /s/John K. Greene ----------------------------- John K. Greene 4 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 17th day of January, 1998. /s/Donald M. James -------------------------- Donald M. James 5 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 19th day of January, 1998. /s/Douglas J. McGregor -------------------------------- Douglas J. McGregor 6 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 19th day of January, 1998. /s/Ann D. McLaughlin -------------------------------- Ann D. McLaughlin 7 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 23rd day of January, 1998. /s/James V. Napier -------------------------- James V. Napier 8 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 19th day of January, 1998. /s/Donald B. Rice ------------------------ Donald B. Rice 9 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 19th day of January, 1998. /s/Herbert A. Sklenar ------------------------------- Herbert A. Sklenar 10 POWER OF ATTORNEY The undersigned director of Vulcan Materials Company, a New Jersey corporation, hereby nominates, constitutes and appoints William F. Denson, III, and E. Starke Sydnor, and each of them, the true and lawful attorneys of the undersigned to sign the name of the undersigned as director to the Annual Report on Form 10-K for the year ended December 31, 1997 of said corporation to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and to any and all amendments to said report. The undersigned hereby grants to said attorneys full power of substitution, resubstitution and revocation, all as fully as the undersigned could do if personally present, hereby ratifying all that said attorneys or their substitutes may lawfully do by virtue hereof. IN WITNESS WHEREOF, the undersigned director of Vulcan Materials Company has executed this Power of Attorney this 19th day of January, 1998. /s/Orin R. Smith ---------------------- Orin R. Smith EX-27.1 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997, AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 DEC-31-1997 128,566 0 196,937 7,548 132,359 487,132 2,120,200 1,311,781 1,449,246 207,697 81,931 0 0 46,573 944,924 1,449,246 1,678,581 1,678,581 1,199,453 1,199,453 5,112 662 6,914 300,501 91,356 209,145 0 0 0 209,145 6.18 6.10
EX-27.2 7 FINANCIAL DATA SCHEDULE
5 THIS RESTATED FINANCIAL DATA SCHEDULE FOR 1996 CONFORMS WITH SFAS NO. 128. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996, AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 50,816 0 184,970 8,106 128,578 394,045 2,002,164 1,237,674 1,320,645 194,654 85,535 0 0 46,573 837,091 1,320,645 1,568,945 1,568,945 1,115,442 1,115,442 3,887 652 8,636 285,580 96,985 188,595 0 0 0 188,595 5.43 5.36
EX-27.3 8 FINANCIAL DATA SCHEDULE
5 THIS RESTATED FINANCIAL DATA SCHEDULE FOR 1995 CONFORMS WITH SFAS NO. 128. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995, AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 DEC-31-1995 21,869 0 178,933 8,176 126,801 362,121 1,859,436 1,161,403 1,215,794 177,409 90,278 0 0 46,573 750,065 1,215,794 1,460,974 1,460,974 1,044,710 1,044,710 6,347 983 11,099 258,421 92,181 166,240 0 0 0 166,240 4.68 4.63
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