-----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, C1vfwIcey6M0XhoHg+IQFkzDcx9S2OXYWu7+eapOQyFOLCN+8mLFsKr+y/tOfyqH b5cUS9pYuv6vaEDK0bTtqA== 0000950144-99-009545.txt : 19990805 0000950144-99-009545.hdr.sgml : 19990805 ACCESSION NUMBER: 0000950144-99-009545 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990804 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-Q SEC ACT: SEC FILE NUMBER: 001-04033 FILM NUMBER: 99677901 BUSINESS ADDRESS: STREET 1: PO BOX 385014 CITY: BIRMINGHAM STATE: AL ZIP: 352385014 BUSINESS PHONE: 2052983000 MAIL ADDRESS: STREET 1: PO BOX 530187 CITY: BIRMINGHAM STATE: AL ZIP: 35253-0187 10-Q 1 VULCAN MATERIALS COMPANY 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 ----------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission file number 1-4033 -------- VULCAN MATERIALS COMPANY ------------------------ (Exact name of registrant as specified in its charter) New Jersey 63-0366371 - ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1200 Urban Center Drive, Birmingham, Alabama 35242 -------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (205) 298-3000 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Shares outstanding Class at June 30, 1999 ----- ---------------- Common Stock, $1 Par Value 100,048,991 2 VULCAN MATERIALS COMPANY FORM 10-Q QUARTER ENDED JUNE 30, 1999 Contents
Page No. PART I FINANCIAL INFORMATION -------- Item 1. Financial Statements Condensed Consolidated Balance Sheets.................. 1 Condensed Consolidated Statements of Earnings.......... 2 Condensed Consolidated Statements of Cash Flows........ 3 Notes to Condensed Consolidated Financial Statements... 4 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition................ 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 15 PART II OTHER INFORMATION Item 5. Other Information...................................... 16 Item 6. Exhibits and Reports on Form 8-K....................... 17 SIGNATURES................................................................. 18
3 Vulcan Materials Company and Subsidiary Companies
(Thousands of Dollars) Consolidated Balance Sheets June 30 December 31 June 30 (Condensed and unaudited) 1999 1998 1998 ---------------------------------------- Assets Cash and cash equivalents ...... $ 77,455 $ 180,560 $ 76,782 Accounts and notes receivable: Accts. & notes recv., gross .. 370,764 228,652 278,512 Less: Res. for doubtful accts (11,931) (7,391) (8,053) --------------------------------------- Accts. & notes recv., net .. 358,833 221,261 270,459 Inventories: Finished products ............ 135,763 99,814 104,460 Raw materials ................ 14,424 10,466 11,767 Products in process .......... 858 1,183 1,199 Operating supplies & other ... 37,867 32,217 30,194 --------------------------------------- Inventories ................ 188,912 143,680 147,620 Deferred income taxes .......... 37,528 24,923 20,277 Prepaid expenses ............... 11,492 5,949 6,188 --------------------------------------- Total current assets ......... 674,220 576,373 521,326 Invest. & long-term receivables 74,022 71,034 67,373 Property, plant and equipment: PP&E, cost ................... 3,191,608 2,280,755 2,181,990 Less: Res. for DD&A .......... (1,759,910) (1,384,971) (1,339,677) --------------------------------------- Prop., plant & equip., net . 1,431,698 895,784 842,313 Goodwill ....................... 544,261 94,008 87,665 Deferred chgs. & other assets .. 58,075 21,412 24,420 --------------------------------------- Total ........................ $2,782,276 $1,658,611 $1,543,097 ======================================= Liabilities and Shareholders' Equity Current maturities of LTD ...... $ 10,886 $ 5,432 $ 5,411 Notes payable .................. 251,447 2,353 2,385 Trade payables and accruals .... 139,621 107,382 120,199 Other current liabilities ...... 142,020 96,295 95,811 --------------------------------------- Total current liabilities .... 543,974 211,462 223,806 Long-term debt ................. 688,737 76,533 76,879 Deferred income taxes .......... 171,197 98,473 94,702 Other noncurrent liabilities ... 155,000 118,443 89,233 Shareholders' equity ........... 1,223,368 1,153,700 1,058,477 --------------------------------------- Total ........................ $2,782,276 $1,658,611 $1,543,097 ======================================= Current ratio .................. 1.2 2.7 2.3
See accompanying Notes to Financial Statements 1 4 Vulcan Materials Company and Subsidiary Companies Consolidated Statements of Earnings (Condensed and unaudited)
(Thousands of Dollars) Three Months Ended Six Months Ended June 30 June 30 ----------------------------------------- 1999 1998 1999 1998 Net sales .................... $611,530 $465,825 $1,093,752 $ 824,788 Cost of goods sold ........... 453,093 318,925 837,105 588,407 ----------------------------------------- Gross profit on sales ........ 158,437 146,900 256,647 236,381 Selling, administrative & general expenses ........... 52,262 46,940 106,457 93,668 Other operating costs ........ 4,866 1,572 8,896 3,927 Other income, net ............ 5,588 5,010 16,053 19,202 ----------------------------------------- Earnings before interest and income taxes ........... 106,897 103,398 157,347 157,988 Interest income .............. 938 969 1,920 2,656 Interest expense ............. 13,689 1,559 25,294 3,506 ----------------------------------------- Earnings before inc. taxes ... 94,146 102,808 133,973 157,138 Provision for inc. taxes ..... 31,420 32,778 44,881 50,598 ----------------------------------------- Net earnings ................. $ 62,726 $ 70,030 $ 89,092 $ 106,540 ========================================= Basic earnings per share ..... $ 0.62 $ 0.69 $ 0.88 $ 1.05 Diluted earnings per share ... $ 0.61 $ 0.68 $ 0.87 $ 1.04 ========================================= Average common shares outstanding (in thousands): Basic .................... 100,962 101,149 100,863 100,994 Assuming dilution ........ 102,331 102,509 102,293 102,335 Cash dividends per share of common stock ............ $ 0.195 $ 0.173 $ 0.390 $ 0.347 Depreciation, depletion & amort. deducted above ...... $ 51,092 $ 34,802 $ 100,059 $ 67,881 Effective tax rate ........... 33.4% 31.9% 33.5% 32.2%
See accompanying Notes to Financial Statements 2 5 Vulcan Materials Company and Subsidiary Companies
(Thousands of Dollars) Consolidated Statements of Cash Flows Six Months Ended (Condensed and unaudited) June 30 ---------------------- 1999 1998 Operating Activities Net earnings .................................... $ 89,092 $106,540 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion and amortization .... 100,059 67,881 Increase in assets before effects of business acquisitions .......... (74,740) (83,855) Increase (decrease) in liabilities before effects of business acquisitions .......... (2,250) 17,315 Other, net .................................. (1,303) (13,208) ---------------------- Net cash provided by operating activities ....... 110,858 94,673 ---------------------- Investing Activities Purchases of property, plant and equipment ...... (170,057) (94,489) Pmt. for businesses acquired, net of acq. cash .. (741,768) (5,705) Proceeds from sale of property, plant & equip. .. 59,840 23,838 Investment in nonconsolidated companies ......... 1,500 - ---------------------- Net cash used for investing activities .......... (850,485) (76,356) ---------------------- Financing Activities Net borrowings (payments) - commercial paper and bank lines of credit ................ 249,094 (1,270) Payment of short-term debt ...................... (91,133) (5,050) Payment of long-term debt ....................... (350) - Proceeds from issuance of long-term debt ........ 496,875 - Purchases of common stock ....................... (49) (44,704) Dividends paid .................................. (39,369) (35,086) Contribution from minority interest of consolidated subsidiary .................... 12,105 10,307 Other, net ...................................... 9,349 5,702 ---------------------- Net cash provided (used) for fin. activities .... 636,522 (70,101) ---------------------- Net decrease in cash and cash equivalents ....... (103,105) (51,784) Cash and cash equivalents at beginning of year .. 180,560 128,566 ---------------------- Cash and cash equivalents at end of period ...... $ 77,455 $ 76,782 ======================
See accompanying Notes to Financial Statements 3 6 VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The accompanying condensed financial statements have been prepared in compliance with Form 10-Q instructions and thus do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. The statements should be read in conjunction with the summary of accounting policies and notes to financial statements included in the Company's latest annual report on Form 10-K. 2. Acquisitions In January 1999, the Company completed its $31.00 per share tender offer for all of the outstanding shares of common stock of CalMat Co. ("CalMat") for a value of $740 million cash, plus $10 million of estimated acquisition costs. As of the acquisition, CalMat had fixed term debt of $118 million and $90 million in bank borrowings, both of which were assumed by the Company. The acquisition was funded by cash on hand and approximately $590 million of commercial paper. It is being accounted for under purchase accounting. The excess of the purchase price over the fair market value of net assets acquired is being amortized over 30 years. The estimated fair value of assets acquired and liabilities assumed were considered to be the best estimates as of the acquisition date and may be adjusted as more information is obtained. These estimates are summarized as follows (in thousands): Current assets $ 165,978 Investments & long term receivables 13,527 Property and equipment 545,971 Goodwill 443,128 Current liabilities (169,278) Long-term debt (128,730) Deferred income taxes (89,447) Other non-current liabilities (31,149) --------- Estimated Purchase Allocation $ 750,000 =========
4 7 Consideration consisted of: Cash on hand $150,000 Debt financing (a) 590,000 Estimated direct acquisition costs 10,000 -------- $750,000 ========
(a) This debt financing was initially all commercial paper. On April 12, 1999, $500 million was converted to long-term debt. On April 12, 1999, the Company issued $500 million of unsecured, noncallable notes in two series of $250 million each due on April 1, 2004 and on April 1, 2009. The 2004 notes have a 5.75% coupon and the 2009 notes have a 6.00% coupon. The net proceeds of these notes were used to retire a corresponding amount of the short-term commercial paper borrowings incurred to acquire CalMat. Although completed after the close of the first quarter, this financing was reflected in the first quarter's balance sheet and cash flow statements given that the Company had the ability and intent to refinance this portion of commercial paper on a long-term basis at March 31, 1999. The accompanying consolidated statement of earnings for the three and six months ended June 30, 1999 includes the results of operations of CalMat from its acquisition date. The following unaudited pro forma consolidated results of operations for the three and six month periods ended June 30, 1999 and 1998 assume that the CalMat acquisition occurred as of January 1, 1998, (in millions, except per share amounts):
PRO FORMA Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 ------ ------- -------- ------- Net Sales $611.5 $ 591.3 $1,093.8 $1,040.0 Net Earnings 62.7 68.4 $ 89.1 $ 94.6 Earnings per share: Basic $ 0.62 $ 0.68 $ 0.88 $ 0.94 Diluted $ 0.61 $ 0.67 $ 0.87 $ 0.92
Certain pro forma adjustments are based on preliminary estimates. Final allocations will be made on the basis of further evaluations and, therefore, such allocations may differ from those reflected in this pro forma statement. The pro forma statement of earnings is not necessarily indicative of the results of operations of the Company had the CalMat acquisition occurred at the beginning of the period presented, nor is it necessarily indicative of the results of future operations. 5 8 In addition to CalMat, the Company acquired five Construction Materials businesses in Arkansas, Georgia, and North Carolina, including eleven quarries, in the first quarter. During the second quarter, the Company acquired two quarries, one each in Texas and North Carolina. These acquisitions were not significant and are not included in the preceding pro forma. 3. Segment Data The Company's reportable segments are organized around products and services and continue to be Construction Materials and Chemicals. The accounting policies of the segments are the same as those described in the summary of significant accounting polices in Form 10-K. The Company's determination of segment earnings (a) recognizes equity in the income or losses of nonconsolidated affiliates as part of segment earnings; (b) reflects allocations of general corporate expenses to the segments; (c) does not reflect interest revenue or expense; and (d) is before income taxes. Because the majority of the Company's activities are domestic, sales and assets outside the United States are not material. Following is the comparative segment financial disclosure (amounts in millions): SEGMENT FINANCIAL DISCLOSURE
Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 ---- ---- ---- ---- NET SALES Construction Materials $479.8 $308.7 $ 826.5 $502.0 Chemicals 131.7 157.1 267.3 322.8 ------ ------ -------- ------ Total $611.5 $465.8 $1,093.8 $824.8 ====== ====== ======== ====== EARNINGS (LOSS) BEFORE INTEREST AND INCOME TAXES Construction Materials $107.1 $ 87.5 $ 146.7 $119.4 Chemicals (.2) 15.9 10.6 38.5 ------ ------ -------- ------ Total $106.9 $103.4 $ 157.3 $158.0 ====== ====== ======== ======
June 30, 1999 June 30, 1998 ------------- ------------- IDENTIFIABLE ASSETS Construction Materials $2,080.3 $ 897.2 Chemicals 483.2 455.4 -------- -------- Identifiable Assets 2,563.5 1,352.6 Investment in nonconsolidated affiliates 73.9 65.0 General corporate assets 67.4 48.7 Cash items 77.5 76.8 -------- -------- Total $2,782.3 $1,543.1 ======== ========
6 9 4. Effective Tax Rate In accordance with generally accepted accounting principles, it is the Company's practice at the end of each interim reporting period to make a best estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined is used in providing for income taxes on a current year-to-date basis. 5. New Accounting Standards In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). In May 1999, the FASB amended SFAS No. 133 deferring the effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is currently evaluating SFAS 133 and has not yet determined its impact on the Company's consolidated financial statements. 6. Supplemental Cash Flow Information Supplemental information referable to the Consolidated Statements of Cash Flows as of June 30 is summarized below (amounts in thousands):
1999 1998 ---- ---- Supplemental Disclosure of Cash Flow Information Cash paid during the period for: Interest, net of amount capitalized $ 17,435 $ 3,923 Income taxes 10,197 36,777 Supplemental Schedule of Noncash Investing and Financing Activities Liabilities and long-term debt assumed in bus. acq. 386,292 1,456 Fair value of stock issued in business acquisitions 10,580 34,568 Debt issued in purchase of property, plant and equipment 645 -0-
7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL COMMENTS Seasonality of the Company's Business Results of any individual quarter are not necessarily indicative of results to be expected for the year due principally to the effect that weather can have on the sales and production volume of the Construction Materials segment. Normally, the highest sales and earnings of the Construction Materials segment are attained in the third quarter and the lowest are realized in the first quarter when sales and earnings are substantially below the levels realized in all subsequent quarters of the year. Segment Sales and Earnings Segment earnings are earnings before interest and income taxes and after allocation of corporate expenses and income, other than interest and after assignment of equity income to the segment with which it is related in terms of products and services. Allocations are based primarily on average operating investment and customer sales. Forward Looking Statements Certain matters discussed in this report contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These include general business conditions, competitive factors, pricing, energy costs and other risks detailed in the Company's periodic reports. Year 2000 Issue The Company recognizes the importance of Year 2000 issues and has made resolution of these problems a priority by creating a Year 2000 Project Management Office with the appropriate authority and resources. The Company's Year 2000 Plan includes five stages--pre-project, planning, preparation, implementation and transition, which will overlap to a significant degree. The Year 2000 Project Management Office has organized teams at each major location to research Year 2000 compliance status, implement appropriate solutions, and conduct testing of computer hardware and network equipment, computer software, production equipment and instrumentation. The teams also assisted in identifying key customers and key suppliers. The Company is currently in the preparation and implementation stages, coordinating the necessary internal and external changes and performing integration testing. The Company has received 8 11 information concerning the Year 2000 status of most significant suppliers and selected customers, and believes plans are in place to appropriately remedy these issues in a timely manner. The Company plans to have implemented corrections to internal systems that are critical to its operations no later than the end of the third quarter of 1999. As appropriate, certain noncritical systems may be scheduled for correction after December 1999, and the Company believes such systems will not significantly disrupt operations. The Company currently estimates that the total cost of implementing its Year 2000 Plan will not exceed $5.0 million. This estimate is based on presently available information and will be updated as the Company finalizes its assessment and continues with implementation. In particular, the estimate may need to be increased as the Company revises and finalizes its contingency plans. The preliminary business partner readiness assessment was completed in April 1999. Management believes that the Company's Year 2000 Plan will resolve the issue in a timely manner. Nevertheless, since it is not possible to anticipate all possible future outcomes, especially when third parties are involved, there could be circumstances in which the Company would be unable to take customer orders, manufacture and ship products, invoice customers or collect payments. In particular, if third-party providers, due to the Year 2000 issue, fail to provide the Company with components or materials that are necessary to manufacture its products, with sufficient electrical power and other utilities to sustain its manufacturing process, or with adequate, reliable means of transporting its products to its customers, then any such failure could have a material adverse effect on the business operations and financial performance of the Company. The amount of potential liability and lost revenue has not been estimated. The preliminary contingency plans were finalized in April 1999. 9 12 RESULTS OF OPERATIONS Second Quarter 1999 as Compared with Second Quarter 1998 The Company's second quarter 1999 sales of $611.5 million were up 31% from the 1998 second quarter record of $465.8 million. This increase was essentially due to the acquisition of CalMat, which was completed in January. Pretax earnings totaled $94.1 million, and net earnings were $62.7 million or $0.61 per share (diluted). Comparable 1998 results were $102.8 million, $70.0 million and $0.68 per share, respectively. As indicated in the Company's July 19 earnings release and June 23 comments on business conditions, significant pricing declines in each of the two chloralkali co-products, caustic soda and chlorine, affected the earnings comparison. Construction Materials reported record second quarter sales of $479.8 million, up 55% from the 1998 second quarter of $308.7 million. Excluding CalMat, aggregates shipments were up 6%, nearly half of which were from other recent acquisitions. CalMat shipments added another 19%. Excluding the impact of CalMat and freight to remote distribution yards, aggregates prices increased 3%. Chemicals' second quarter sales of $131.7 million were down 16% from last year's second quarter. This decline resulted from lower prices for caustic soda, chlorine and several other chloralkali products, as ECU (Electro Chemical Unit) values fell to their lowest levels in 25 years. Earnings before interest and income taxes were $106.9 million as compared to $103.4 million in the same period last year. The Construction Materials segment reported record second quarter earnings of $107.1 million up 22% from second quarter 1998. The Chemicals segment reported a loss in the second quarter of $.2 million, down $16.1 million from last year's second quarter earnings of $15.9 million. This decline reflects principally the lower chloralkali prices, somewhat offset by higher volumes and lower raw material costs within Chloralkali and improved margins within Performance Systems. Selling, administrative and general expenses of $52.3 million for the second quarter of 1999 increased 11% from the 1998 level. This increase reflects primarily the addition of CalMat, somewhat offset by decreases in several other items. Other operating costs of $4.9 million increased significantly from last year's level of $1.6 million, reflecting primarily amortization of the goodwill associated with the CalMat acquisition. Other income, net of other charges, was $5.6 million as compared with $5.0 million for the second quarter of 1998. Interest expense of $13.7 million for the second quarter of 1999 increased $12.1 million from the second quarter of 1998. This increase resulted from the financing of the CalMat acquisition. The effective tax rate for the quarter was 33.4%, up from last year's second quarter rate of 31.9%. This increase was primarily related to CalMat. 10 13 Year-to-Date Comparisons as of June 30, 1999 and June 30, 1998 Year-to-date the Company's sales were a record while the earnings and earnings per share reflected a 16% decline from the prior year. Net earnings were $89.1 million, or $0.87 per share (diluted), as compared with 1998 earnings and earnings per share of $106.5 million and $1.04. This earnings decline resulted primarily from the Chemicals segment as significant pricing declines in each of its two chloralkali co-products, caustic soda and chlorine adversely impacted profitability. Sales of $1,094 million for the first six months of 1999 increased 33% from the first half 1998 total of $825 million. Construction Materials sales of $826.5 million were up 65% from 1998's $502.0 million. Excluding CalMat, aggregates shipments were up 9% with other recent acquisitions accounting for 4% of this increase. CalMat shipments added another 22%. Excluding the impact of CalMat and freight to remote distribution yards, aggregates prices increased 3%. Chemicals' first half sales of $267.3 million were down 17% from 1998's $322.8 million. This decline resulted from lower prices for caustic soda, chlorine and several other chloralkali products, as ECU values fell to their lowest levels in 25 years. Earnings before interest and income taxes were $157.3 million as compared to $158.0 million in the same period last year. At $146.7 million, earnings in the Construction Materials segment increased 23% from the prior year's $119.4 million. Year-to-date the Chemicals segment reported earnings of $10.6 million, down $27.9 million from last year's earnings of $38.5 million. This decline reflects principally the lower chloralkali prices, only partially offset by higher volumes and lower raw material costs within Chloralkali and improved margins within Performance Systems. Selling, administrative and general expenses reflected a 14% increase when compared to the first half of 1998. This increase reflects primarily the addition of CalMat, somewhat offset by decreases in several other items. Other operating costs of $8.9 million increased significantly from last year's first half level of $3.9 million, reflecting primarily amortization of the goodwill associated with the CalMat acquisition. Other income, net of other charges, was $16.1 million as compared with $19.2 million for 1998. This decrease principally reflects significantly lower gains from sales of assets somewhat offset by a first quarter non-recurring settlement referable to a legal claim. Interest expense was $25.3 million for the first half of 1999 reflecting a $21.8 million increase from the prior year resulting from the financing of the CalMat acquisition. The effective tax rate for the period was 33.5%, up from last year's rate of 32.2%. This increase was primarily related to CalMat. 11 14 On July 19, 1999, Donald M. James, Chairman and Chief Executive Officer, made certain statements concerning the Company's earnings outlook. Excerpts of the relevant press release quoting Mr. James are as follows: "Construction activity in most of our Construction Materials markets continued at a strong pace, even though TEA-21 has not yet been a factor. During the second half many of our markets should begin to see the impact of TEA-21, although the timing of projects will vary significantly from state to state. "We are very pleased with the progress at CalMat, where both volumes and margins continue to improve. We are also on track to realize the projected cash flow referable to the liquidation of CalMat's real estate portfolio. Through June, we have generated over $50 million from these sales. "Our Chemicals business, however, suffered from unprecedented weakness in the chloralkali markets with ECU prices declining to the lowest levels in over 25 years. Most industry forecasters believe ECU values may be at or near the trough for this cycle and expect some improvements in ECU values, led by improving chlorine prices, by the end of 1999. At current pricing levels, we would not expect any improvement in Chemicals' earnings for the remainder of the year. "With respect to second half results for our Construction Materials business, CalMat should be modestly accretive while the earnings per share contribution from our traditional Construction Materials business should exceed last year's record results. As far as our overall earnings outlook for 1999 is concerned, barring a significant improvement in chloralkali markets, we expect earnings to fall below the record 1998 performance. " 12 15 LIQUIDITY AND CAPITAL RESOURCES Working Capital Working capital, exclusive of debt and cash items, totaled $323.9 million at June 30, 1999, 68% over the 1998 year-end amount of $193.0 million. This increase primarily resulted from the acquisition of CalMat. The $94.4 million increase from June 30, 1998 also resulted primarily from the acquisition of CalMat. The Company's current ratio, which is based on all components of working capital, including cash and debt items, was 1.2 as of June 30, 1999. This compares to the 2.7 ratio at year-end 1998 and the 2.3 ratio at June 30, 1998. These decreases in the current ratio resulted from the increase in current debt items and decrease in marketable securities and cash resulting from the financing of the CalMat acquisition. Cash Flows First half net cash provided by operations totaled $110.9 million, up from the $94.7 million generated in the same period last year. This $16.2 million increase in cash provided reflects higher depreciation, depletion and amortization charges offset in part by the lower earnings. Cash used for investing activities was $850.4 million as compared with the 1998 total of $76.4 million. This $774.0 increase in cash used principally reflects the heightened business acquisitions, primarily CalMat, net of the approximately $52.4 million of proceeds from the ongoing liquidation of the CalMat real estate portfolio. Net cash provided by financing activities totaled $636.5 million, as compared to the 1998 used for financing activities of $70.1 million. This net increase of cash provided for financing activities of $706.6 million resulted primarily from the financing of the CalMat acquisition with commercial paper and long-term debt. Cash and cash equivalents, which totaled $77.5 million at June 30, 1999, were essentially flat compared to the $76.8 million a year ago. Short-term Borrowings Short-term borrowings as of June 30, 1999 consisted of notes payable to banks totaling $2.3 million, other notes payable of $.2 million, and commercial paper of $248.9 million. The prior year amount consisted solely of notes payable to banks of $2.4 million. Long-term Obligations As of June 30, 1999, long-term obligations were 30.8% of long-term capital and 56.3% of shareholders' equity. The corresponding 1998 percentages were 5.8% and 7.3%. These increases resulted from the increase in long-term debt pursuant to the financing of the CalMat acquisition and the debt assumed by the Company in this acquisition. 13 16 Common Stock Transactions The Company purchased 1,200 shares of common stock in the first quarter of 1999 at a total cost of $49.4 thousand, equal to an average price of $41.19 per share. No shares were purchased in the second quarter of 1999. In the first six months of 1998, 1,259,700 shares were purchased at a total cost of $44.7 million, or $35.49 per share. 14 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to certain market risks arising from transactions that are entered into in the normal course of business. In order to manage or reduce this market risk, the Company occasionally utilizes derivative financial instruments. To date, the Company has used commodity swap and option contracts to reduce its exposure to fluctuations in prices for natural gas. The fair value of these contracts as of June 30, 1999 and 1998 was not material. As a result of a 10% reduction in the price of natural gas, the Company would experience a potential loss in the fair value of the underlying commodity swap and option contracts based on the fair value at June 30, 1999 of approximately $1.5 million. The Company is exposed to interest rate risk due to its various long-term debt instruments. As substantially all of this debt is at fixed rates, a decline in market interest rates would potentially result in a subsequent increase in the fair value of the liability. At June 30, 1999, the estimated fair value of these debt instruments was $687.9 million. The effect of a hypothetical decline in the market interest rate of 1% would increase the fair value of the liability by approximately $39.7 million. 15 18 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION In January 1999, the Company acquired all of the outstanding common stock of CalMat. In connection with that acquisition, A. F. Gerstell, formerly the Chief Executive Officer and Chairman of CalMat, joined the Company's Board. Following the successful transition of CalMat into the Company, Mr. Gerstell has resigned from the Board effective on July 31, 1999. Mr. Gerstell will continue to act as a consultant to the Company pursuant to his existing Consulting Agreement with the Company and will continue to serve as Chairman of the National Stone Association. 16 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27.1 - Financial Data Schedule (EDGAR filing only) Exhibit 27.2 - Restated Financial Data Schedule for 1998 (EDGAR filing only) (b) Reports on Form 8-K The Company filed a current report on Form 8-K on January 7, 1999 pursuant to which the Company reported under item 2 the acquisition of CalMat Co. The Company filed a current report on Form 8-K on February 9, 1999 pursuant to which the Company reported under item 5 the Press Release for the fourth quarter 1998. The Company filed a current report on Form 8-K on February 17, 1999 pursuant to which the Company reported under item 5 the Amended Press Release for the fourth quarter 1998. The Company filed a current report on Form 8-K/A on March 19, 1999 pursuant to which the Company reported under item 2 and Item 7 the financial statements of CalMat Co. and the combined proforma financial information giving effect to the acquisition. 17 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VULCAN MATERIALS COMPANY Date August 4, 1999 /s/ E.A. Khan ---------------------- ------------------------------------------- E. A. Khan Vice President and Controller /s/ P.J. Clemens, III ------------------------------------------- P. J. Clemens, III Executive Vice President - Finance and Administration and Treasurer 18 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JUN-30-1999 77,455 0 370,764 11,931 188,912 674,220 3,191,608 1,759,910 2,782,276 543,974 688,737 0 0 139,705 1,083,663 2,782,276 1,093,752 1,093,752 837,105 837,105 8,896 68 25,294 133,973 44,881 89,092 0 0 0 89,092 0.88 0.87
EX-27.2 3 RESTATED FINANCIAL DATA SCHEDULE FOR 1998
5 THIS RESTATED FINANCIAL DATA SCHEDULE FOR 1998 RESULTED FROM THE STOCK SPLIT EFFECTED MARCH 10, 1999. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 76,782 0 278,512 8,053 147,620 521,326 2,181,990 1,339,677 1,543,097 223,806 76,879 0 0 139,705 918,772 1,543,097 824,788 824,788 588,407 588,407 3,927 550 3,506 157,138 50,598 106,540 0 0 0 106,540 1.05 1.04
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