Vulcan Materials Company (NYSE:VMC) announced today that
second quarter earnings from continuing operations increased 50
percent to a record level of $1.47 per diluted share as compared to
$0.98 per diluted share in the prior year. Second quarter earnings per
diluted share include $0.15 attributable to the sale of certain
contractual rights and $0.06 due to an increase in the carrying value
of the ECU earn-out (see Table E), partially offset by $0.03 referable
to an adjustment to estimated income tax liabilities for prior years.
Operating income was approximately $218 million, an increase of 42
percent from the prior year's second quarter. Second quarter net
earnings of $1.45 per diluted share include a $0.02 per diluted share
loss from discontinued operations.
Don James, Vulcan's Chairman and Chief Executive Officer, stated, "We are very pleased with the earnings growth realized in the second quarter. Revenue in all three major product lines increased sharply and margins continued to expand. The strong pricing momentum and solid demand for our products we experienced in 2005 is continuing in 2006.
"Aggregates pricing improved 13 percent, driving aggregates earnings and margins higher despite increased energy costs. Our asphalt and concrete product lines also realized considerable growth in earnings and margins as price improvements more than offset higher costs for key raw materials. Following a very strong increase in the first quarter, second quarter shipments of aggregates were somewhat lower than a year ago. Year-to-date, aggregates shipments have met our expectations of 4 percent growth above our all-time record first-half shipments in 2005 and are consistent with the upper end of our full year guidance for 2006."
Second quarter net sales were $808 million, an increase of approximately 15 percent from the prior year's level. Gross profit increased 23 percent from the prior year due to improved pricing for all major product lines. As a percent of net sales, gross profit improved to 32 percent from the 30 percent realized in the prior year.
The average unit price for aggregates, excluding freight to remote distribution sites, increased 13 percent compared to the second quarter of 2005. Aggregates shipments were approximately 2 percent lower than last year's record second quarter level. Shipments in the second quarter were influenced by the effects of extremely favorable weather in the first quarter which accelerated demand as well as by abnormally wet weather in certain key markets in the second quarter. Earnings from asphalt and concrete product lines improved as price increases more than offset the effects of lower shipments and higher costs for key raw materials.
Selling, administrative and general expenses increased $9 million from the prior year due primarily to higher provisions for incentive compensation, including a $1.6 million expense related to stock options for which there was no comparable amount in the prior year, and increased professional fees.
Other operating income in the second quarter was $27 million higher than the prior year's second quarter due principally to the sale of the Company's contractual rights to mine its Bellwood quarry in Atlanta, Georgia (Table E). The City of Atlanta plans to convert the property into a city park and greenspace as part of a larger economic growth and development project around the city's perimeter. The Company worked with city and county officials to achieve this mutually beneficial transaction. Over the next two years, the Company will continue operating the quarry as it transitions customers to its existing 12 quarries in the greater Atlanta area and to a new, zoned site purchased in 2004 in anticipation of the Bellwood sale.
Other income increased $10 million from the prior year's second quarter due to an $11 million increase in the carrying value of the ECU earn-out. This earn-out agreement is accounted for as a derivative instrument, with any adjustments to the carrying value recorded as other income or charges in continuing operations (Table E).
During the second quarter, the Company purchased 4,235,200 shares of its common stock at a total cost of approximately $334 million, representing an average cost of $78.76 per share. Year to date, the Company has purchased 4,507,322 shares at a total cost of approximately $353 million, representing an average cost of $78.30 per share.
During the first six months of 2006, the Company completed 3 acquisitions for a total cash expenditure of approximately $20 million. The businesses acquired included 3 aggregates quarries in North Carolina, Virginia and Indiana.
All results are unaudited.
Outlook
"Construction spending remains strong due to continuing economic and infrastructure growth," observed Mr. James. "Our broad geographic footprint, with operations strategically located in high growth U.S. markets, positions us to benefit from the continuing strength in construction activity and provides regional diversification. Highway construction should benefit from both higher funding as a result of the new multi-year federal highway bill passed in 2005 and improving state and local tax receipts. The recovery in private nonresidential construction appears to be broad-based and is evident in most categories of this end market. Approximately 75 percent of our aggregates shipments go to public construction and private nonresidential construction and we are well positioned to benefit from growing demand in these end markets. Residential construction activity remains at high levels. Key markets such as Texas and Georgia continue to have significant backlogs of residential construction activity while in certain other markets, such as California, Arizona and Florida, residential demand is slowing.
"California, which is our largest state by revenue, is poised for significant growth in its transportation construction activity. The fiscal year 2007 budget, signed by the governor last month, allocates approximately $5 billion for new projects, an $800 million increase from the $4.2 billion allocated in 2006 and significantly more than the $900 million in 2005. In addition to this significant increase in highway funding, the governor and state legislators in California have approved a $37 billion general bond issue for the November ballot which includes $20 billion for transportation projects.
"Overall, we expect the broad strength in public infrastructure and private nonresidential construction in our markets to more than offset weaker residential construction activity in certain key markets. As a result, we expect our full year aggregates shipments to increase 2 to 4 percent from the record 260 million tons shipped in 2005.
"The strong pricing momentum we experienced in 2005 is continuing in 2006. For the full year, we now expect the average price for aggregates to increase 12 to 13 percent. Unit cost for diesel fuel is projected to continue to increase during the second half of 2006. Earnings from asphalt and concrete should increase from the prior year's levels with improved product pricing more than offsetting higher costs for key raw materials.
"In light of our year-to-date results and our outlook for the remainder of the year, we now expect earnings from continuing operations for the full year to be in the range of $4.60 to $4.85 per diluted share, compared to $3.30 per diluted share in 2005. We expect to earn $1.40 to $1.56 per diluted share from continuing operations in the third quarter as compared to $1.23 per diluted share in the third quarter of 2005. In the third quarter of 2005, earnings per diluted share benefited by $0.06 from an adjustment to the carrying value of the ECU earn-out and by $0.10 from a reduction in estimated income tax liabilities for prior years and a favorable settlement of federal income tax refund claims. Our earnings guidance for the third quarter and full year 2006 does not assume any potential adjustment in the carrying value of the ECU earn-out beyond the $0.13 per diluted share recorded in the first half of the year.
"Additionally, our 2006 earnings guidance for continuing operations includes $0.05 per diluted share in expense referable to stock options for the full year and $0.01 in the third quarter. Our 2005 earnings from continuing operations did not include any expense for stock options.
"Costs related to our former Chemicals business should result in a full year loss of $0.05 per diluted share from discontinued operations.
"In recent years, we have generated significant value for our shareholders through the development and sale of reclaimed and surplus real estate and we are continuing this process. Our current estimate for real estate gains in the second half of 2006 ranges from $0 to $40 million of pretax earnings. However, the timing of real estate sales is difficult to predict and as such, we have not included any future real estate gains in our current year earnings guidance."
In keeping with past practice, the Company will give quarterly and annual earnings guidance. The Company will issue press releases to revise such guidance if it is reasonably certain that comparable earnings per share, on either a quarterly or an annual basis, will be outside its latest published estimates.
Conference Call
Vulcan will host a conference call at 10:00 a.m. CDT on August 1, 2006. Investors and other interested parties may access the teleconference live by calling (800) 510-0146 approximately 10 minutes before the scheduled start. International participants can dial (617) 614-3449. The access code is 21813582. A live webcast will be available via the Internet through Vulcan's home page at vulcanmaterials.com. The conference call will be recorded and available for replay approximately two hours after the call through August 8, 2006.
Vulcan Materials Company, a member of the S&P 500 index, is the nation's largest producer of construction aggregates and a major producer of other construction materials.
Certain matters discussed in this release, including expectations regarding future performance, contain forward-looking statements that are subject to risks, assumptions and uncertainties that could cause actual results to differ materially from those projected. These risks, assumptions and uncertainties include, but are not limited to, those associated with general economic and business conditions; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; changes in the level of spending for residential and private nonresidential construction; the highly competitive nature of the construction materials industry; pricing; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; increasing healthcare costs; the timing and amount of any future payments to be received by the Company under two earn-outs contained in the agreement for the divestiture of the Company's Chemicals business; and other risks, assumptions and uncertainties detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year. Forward-looking statements speak only as of the date hereof, and Vulcan assumes no obligation to update such statements. -0- Table A Vulcan Materials Company and Subsidiary Companies (Amounts and shares in thousands, except per share data) Consolidated Statements Three Months Ended Six Months Ended of Earnings June 30 June 30 ------------------- ----------------------- (Condensed and unaudited) 2006 2005 2006 2005 --------------------------------------------------------------------- Net sales $807,781 $705,348 $1,450,053 $1,184,748 Delivery revenues 80,381 76,726 146,797 125,942 -------- -------- ---------- ---------- Total revenues 888,162 782,074 1,596,850 1,310,690 Cost of goods sold 550,045 494,973 1,028,654 882,139 Delivery costs 80,381 76,726 146,797 125,942 -------- -------- ---------- ---------- Cost of revenues 630,426 571,699 1,175,451 1,008,081 -------- -------- ---------- ---------- Gross profit 257,736 210,375 421,399 302,609 Selling, administrative and general expenses 65,180 55,688 130,222 107,124 Other operating (income) expense, net (25,392) 1,182 (25,524) 4,211 -------- -------- ---------- ---------- Operating income 217,948 153,505 316,701 191,274 Other income, net 10,756 680 22,849 2,234 Interest income 1,472 3,146 4,119 5,634 Interest expense 5,690 9,615 11,975 18,873 -------- -------- ---------- ---------- Earnings from continuing operations before income taxes 224,486 147,716 331,694 180,269 Provision for income taxes 75,080 45,764 110,551 56,883 -------- -------- ---------- ---------- Earnings from continuing operations 149,406 101,952 221,143 123,386 Earnings (loss) on discontinued operations, net of tax (1,715) 19,595 (3,534) 52,512 -------- -------- ---------- ---------- Net earnings $147,691 $121,547 $ 217,609 $ 175,898 ===================================================================== Basic earnings (loss) per share: Earnings from continuing operations $ 1.50 $ 1.00 $ 2.21 $ 1.20 Discontinued operations (0.01) 0.19 (0.03) 0.51 -------- -------- ---------- ---------- Net earnings per share $ 1.49 $ 1.19 $ 2.18 $ 1.71 Diluted earnings (loss) per share: Earnings from continuing operations $ 1.47 $ 0.98 $ 2.16 $ 1.18 Discontinued operations (0.02) 0.19 (0.03) 0.51 -------- -------- ---------- ---------- Net earnings per share $ 1.45 $ 1.17 $ 2.13 $ 1.69 ===================================================================== Weighted-average common shares outstanding: Basic 99,430 102,259 99,988 102,595 Assuming dilution 101,636 104,026 102,153 104,316 Cash dividends declared per share of common stock $ 0.37 $ 0.29 $ 0.74 $ 0.58 Depreciation, depletion, accretion and amortization from continuing operations $ 54,785 $ 54,833 $ 107,999 $ 107,185 Effective tax rate 33.4% 31.0% 33.3% 31.6% ===================================================================== Table B Vulcan Materials Company and Subsidiary Companies (Amounts in thousands) Consolidated Balance Sheets June 30 December 31 June 30 (Condensed and unaudited) 2006 2005 2005 --------------------------------------------------------------------- Assets ------ Cash and cash equivalents $ 71,191 $ 275,138 $ 286,134 Medium-term investments - 175,140 248,980 Accounts and notes receivable: Accounts and notes receivable, gross 612,484 480,647 430,490 Less: Allowance for doubtful accounts (4,238) (4,277) (4,467) ----------- ----------- ----------- Accounts and notes receivable, net 608,246 476,370 426,023 Inventories: Finished products 204,114 170,539 167,620 Raw materials 10,138 9,602 7,738 Products in process 1,959 1,589 1,409 Operating supplies and other 18,452 16,022 14,568 ----------- ----------- ----------- Inventories 234,663 197,752 191,335 Deferred income taxes 19,441 23,184 36,264 Prepaid expenses 13,830 17,138 13,470 ----------- ----------- ----------- Total current assets 947,371 1,164,722 1,202,206 Investments and long-term receivables 6,729 6,942 6,994 Property, plant and equipment: Property, plant and equipment, cost 3,668,316 3,481,708 3,373,095 Less: Reserve for depr., depl., & amort (1,953,064) (1,877,741) (1,797,210) ----------- ----------- ----------- Property, plant and equipment, net 1,715,252 1,603,967 1,575,885 Goodwill 630,802 617,083 636,582 Other assets 185,292 196,170 234,731 ----------- ----------- ----------- Total assets $ 3,485,446 $ 3,588,884 $ 3,656,398 =========== =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current maturities of long- term debt $ 32,547 $ 272,067 $ 242,065 Short-term borrowings 217,000 - - Trade payables and accruals 186,978 142,221 141,716 Other current liabilities 187,193 164,726 197,310 ----------- ----------- ----------- Total current liabilities 623,718 579,014 581,091 Long-term debt 322,645 323,392 355,706 Deferred income taxes 278,778 275,065 326,363 Other noncurrent liabilities 289,608 284,872 300,560 Shareholders' equity 1,970,697 2,126,541 2,092,678 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 3,485,446 $ 3,588,884 $ 3,656,398 ===================================================================== Table C Vulcan Materials Company and Subsidiary Companies (Amounts in thousands) Six Months Ended Consolidated Statements of Cash Flows June 30 (Condensed and unaudited) ------------------------- 2006 2005 --------------------------------------------------------------------- Operating Activities -------------------- Net earnings $ 217,609 $ 175,898 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion, accretion and amortization 108,018 107,639 Net gain on sale of property, plant and equipment (2,061) (3,091) Net gain on sale of contractual rights (24,849) - Contributions to pension plans (778) (502) Increase in assets before initial effects of business acquisitions and dispositions (139,718) (147,847) Increase in liabilities before initial effects of business acquisitions and dispositions 34,190 88,650 Other, net 1,690 (6,680) ---------- --------- Net cash provided by operating activities 194,101 214,067 ---------- --------- Investing Activities -------------------- Purchases of property, plant and equipment (187,273) (100,125) Proceeds from sale of property, plant and equipment 4,742 4,347 Proceeds from sale of contractual rights, net of cash transaction fees 24,888 - Proceeds from sale of Chemicals business, net of cash transaction fees - 213,624 Payment for partner's interest in consolidated Chemicals joint venture - (62,701) Payment for businesses acquired, net of acquired cash (20,355) (72,715) Purchases of medium-term investments - (203,360) Proceeds from sales and maturities of medium-term investments 175,140 133,590 Change in investments and long-term receivables 240 544 Other, net 4,473 - ---------- --------- Net cash provided by (used for) investing activities 1,855 (86,796) ---------- --------- Financing Activities -------------------- Net short-term borrowings 217,000 - Payment of short-term debt and current maturities (240,305) (1,127) Payment of long-term debt - (8,253) Purchases of common stock (335,224) (69,005) Dividends paid (73,855) (59,436) Proceeds from exercise of stock options 19,537 25,187 Excess tax benefits from exercise of stock options 9,626 - Other, net 3,318 47 ---------- --------- Net cash used for financing activities (399,903) (112,587) ---------- --------- Net (decrease) increase in cash and cash equivalents (203,947) 14,684 Cash and cash equivalents at beginning of period 275,138 271,450 ---------- --------- Cash and cash equivalents at end of period $ 71,191 $ 286,134 ===================================================================== Table D 1. Supplemental Cash Flow Information Supplemental information referable to the Condensed Consolidated Statements of Cash Flows for the six months ended June 30 is summarized below (amounts in thousands): 2006 2005 --------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information ------------------------------------------------- Cash paid during the period for: Interest, net of amount capitalized $18,059 $18,936 Income taxes 57,958 61,697 Supplemental Schedule of Noncash Investing and Financing Activities --------------------------------------------------- Liabilities assumed in business acquisitions - 5,634 Accrued liabilities for purchases of property, plant and equipment 15,194 4,943 Accrued liabilities for purchases of treasury stock 17,678 - Noncash proceeds from the sale of the Chemicals business: Earn-outs - 128,167 Working capital adjustments - 13,559 2. Net Sales and Unit Shipments (Amounts in thousands) Three Months Ended Six Months Ended June 30 June 30 ------------------- ----------------------- Net Sales by Product 2006 2005 2006 2005 ------------------- ----------------------- Aggregates, excluding freight to remote distribution sites $531,902 $480,431 $958,754 $808,906 Freight to remote distribution sites 37,810 31,712 70,824 59,479 --------- --------- ----------- ----------- Aggregates 569,712 512,143 1,029,578 868,385 Asphalt mix 126,111 95,205 211,311 148,593 Concrete 72,510 66,788 137,083 116,833 Other products 39,448 31,212 72,081 50,937 --------- --------- ----------- ----------- Total net sales $807,781 $705,348 $1,450,053 $1,184,748 ========= ========= =========== =========== Unit Shipments Aggregates Customer tons 66,623 67,938 119,915 115,040 Internal tons * 3,485 3,848 6,357 6,426 --------- --------- ----------- ----------- Aggregates - tons 70,108 71,786 126,272 121,466 ========= ========= =========== =========== Asphalt mix - tons 3,041 3,254 5,305 5,107 Concrete - cubic yards 817 883 1,567 1,558 *Represents tons shipped to our non-aggregates operations (e.g., asphalt mix and concrete). Revenue from internal shipments is not included in net sales as presented in the accompanying Consolidated Statements of Earnings. Table E 3. Reconciliation of Non- GAAP Performance Measures (Amounts in thousands, except per share data) Three Months Ended Six Months Ended June 30 June 30 ------------------- ------------------- 2006 2005 2006 2005 ------------------- ------------------- GAAP Earnings from continuing operations before income taxes $224,486 $147,716 $331,694 $180,269 Gain on sale of contractual rights (1) (24,849) - (24,849) - (Gain) loss from adjustment in the carrying value of the ECU earn-out (2) (10,805) 270 (22,986) 270 --------- --------- --------- --------- Earnings from continuing operations before income taxes, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out (3) $188,832 $147,986 $283,859 $180,539 ========= ========= ========= ========= GAAP Earnings from continuing operations, net of tax $149,406 $101,952 $221,143 $123,386 Gain on sale of contractual rights, net of tax (1) (14,850) - (14,850) - (Gain) loss from adjustment in the carrying value of the ECU earn-out, net of tax (2) (6,475) 167 (13,775) 167 --------- --------- --------- --------- Earnings from continuing operations, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out, net of tax (3) $128,081 $102,119 $192,518 $123,553 ========= ========= ========= ========= GAAP Diluted earnings per share from continuing operations $1.47 $0.98 $2.16 $1.18 After-tax gain per diluted share resulting from the sale of contractual rights (1) (0.15) - (0.15) - After-tax gain per diluted share resulting from the adjustment in the carrying value of the ECU earn-out (2) (0.06) - (0.13) - --------- --------- --------- --------- Earnings per share from continuing operations, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out, net of tax (3) $1.26 $0.98 $1.88 $1.18 ========= ========= ========= ========= (1) During the second quarter of 2006, the Company recognized a $25 million pretax gain from the sale of its contractual rights to mine the Bellwood quarry in Atlanta, Georgia. The City of Atlanta plans to convert the property into a city park and greenspace as part of a larger economic growth and development project around the city's perimeter. The Company worked with city and county officials to achieve this mutually beneficial transaction. Over the next two years, the Company will continue operating the quarry as it transitions customers to its existing 12 quarries in the greater Atlanta area and to a new, zoned site purchased in 2004 in anticipation of the Bellwood sale. (2) In June 2005, the Company sold substantially all the assets of its Chemicals business, known as Vulcan Chemicals, to a subsidiary of Occidental Chemical Corporation, Basic Chemicals. Subject to certain conditions as defined in a separate earn-out agreement, Basic Chemicals is required to make future payments based on ECU and natural gas prices during the five-year period beginning July 1, 2005, and is capped at $150 million (ECU earn-out or ECU derivative). The ECU earn-out is accounted for as a derivative instrument; accordingly, it is reported at fair value. Changes to the fair value of the ECU derivative are recorded within continuing operations pursuant to SAB Topic 5:Z:5. (3) The Company prepares and reports its financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Internally, management monitors the operating performance of its construction materials business using non-GAAP metrics similar to those above. These non-GAAP measures exclude the effects of two items, described more fully above: 1) the gain on the sale of contractual rights at the Bellwood quarry in Atlanta, Georgia, during the second quarter of 2006 (included in other operating income, net in the accompanying condensed consolidated statements of earnings), and 2) the ECU earn-out obtained in connection with the June 2005 sale of our Chemicals business, including the associated changes in carrying value (included in other income, net in the accompanying condensed consolidated statements of earnings). In Management's opinion, these non-GAAP measures are important indicators of the ongoing operations of our construction materials business and provide better comparability between reporting periods because they exclude items that may not be indicative of or are unrelated to our core business and provide a better baseline for analyzing trends in our core operations. The Company does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company believes the disclosure of the effects of these items increases the reader's understanding of the underlying performance of the business and that such non-GAAP financial measures provide investors with an additional tool to evaluate our financial results and assess our prospects for future performance.
Don James, Vulcan's Chairman and Chief Executive Officer, stated, "We are very pleased with the earnings growth realized in the second quarter. Revenue in all three major product lines increased sharply and margins continued to expand. The strong pricing momentum and solid demand for our products we experienced in 2005 is continuing in 2006.
"Aggregates pricing improved 13 percent, driving aggregates earnings and margins higher despite increased energy costs. Our asphalt and concrete product lines also realized considerable growth in earnings and margins as price improvements more than offset higher costs for key raw materials. Following a very strong increase in the first quarter, second quarter shipments of aggregates were somewhat lower than a year ago. Year-to-date, aggregates shipments have met our expectations of 4 percent growth above our all-time record first-half shipments in 2005 and are consistent with the upper end of our full year guidance for 2006."
Second quarter net sales were $808 million, an increase of approximately 15 percent from the prior year's level. Gross profit increased 23 percent from the prior year due to improved pricing for all major product lines. As a percent of net sales, gross profit improved to 32 percent from the 30 percent realized in the prior year.
The average unit price for aggregates, excluding freight to remote distribution sites, increased 13 percent compared to the second quarter of 2005. Aggregates shipments were approximately 2 percent lower than last year's record second quarter level. Shipments in the second quarter were influenced by the effects of extremely favorable weather in the first quarter which accelerated demand as well as by abnormally wet weather in certain key markets in the second quarter. Earnings from asphalt and concrete product lines improved as price increases more than offset the effects of lower shipments and higher costs for key raw materials.
Selling, administrative and general expenses increased $9 million from the prior year due primarily to higher provisions for incentive compensation, including a $1.6 million expense related to stock options for which there was no comparable amount in the prior year, and increased professional fees.
Other operating income in the second quarter was $27 million higher than the prior year's second quarter due principally to the sale of the Company's contractual rights to mine its Bellwood quarry in Atlanta, Georgia (Table E). The City of Atlanta plans to convert the property into a city park and greenspace as part of a larger economic growth and development project around the city's perimeter. The Company worked with city and county officials to achieve this mutually beneficial transaction. Over the next two years, the Company will continue operating the quarry as it transitions customers to its existing 12 quarries in the greater Atlanta area and to a new, zoned site purchased in 2004 in anticipation of the Bellwood sale.
Other income increased $10 million from the prior year's second quarter due to an $11 million increase in the carrying value of the ECU earn-out. This earn-out agreement is accounted for as a derivative instrument, with any adjustments to the carrying value recorded as other income or charges in continuing operations (Table E).
During the second quarter, the Company purchased 4,235,200 shares of its common stock at a total cost of approximately $334 million, representing an average cost of $78.76 per share. Year to date, the Company has purchased 4,507,322 shares at a total cost of approximately $353 million, representing an average cost of $78.30 per share.
During the first six months of 2006, the Company completed 3 acquisitions for a total cash expenditure of approximately $20 million. The businesses acquired included 3 aggregates quarries in North Carolina, Virginia and Indiana.
All results are unaudited.
Outlook
"Construction spending remains strong due to continuing economic and infrastructure growth," observed Mr. James. "Our broad geographic footprint, with operations strategically located in high growth U.S. markets, positions us to benefit from the continuing strength in construction activity and provides regional diversification. Highway construction should benefit from both higher funding as a result of the new multi-year federal highway bill passed in 2005 and improving state and local tax receipts. The recovery in private nonresidential construction appears to be broad-based and is evident in most categories of this end market. Approximately 75 percent of our aggregates shipments go to public construction and private nonresidential construction and we are well positioned to benefit from growing demand in these end markets. Residential construction activity remains at high levels. Key markets such as Texas and Georgia continue to have significant backlogs of residential construction activity while in certain other markets, such as California, Arizona and Florida, residential demand is slowing.
"California, which is our largest state by revenue, is poised for significant growth in its transportation construction activity. The fiscal year 2007 budget, signed by the governor last month, allocates approximately $5 billion for new projects, an $800 million increase from the $4.2 billion allocated in 2006 and significantly more than the $900 million in 2005. In addition to this significant increase in highway funding, the governor and state legislators in California have approved a $37 billion general bond issue for the November ballot which includes $20 billion for transportation projects.
"Overall, we expect the broad strength in public infrastructure and private nonresidential construction in our markets to more than offset weaker residential construction activity in certain key markets. As a result, we expect our full year aggregates shipments to increase 2 to 4 percent from the record 260 million tons shipped in 2005.
"The strong pricing momentum we experienced in 2005 is continuing in 2006. For the full year, we now expect the average price for aggregates to increase 12 to 13 percent. Unit cost for diesel fuel is projected to continue to increase during the second half of 2006. Earnings from asphalt and concrete should increase from the prior year's levels with improved product pricing more than offsetting higher costs for key raw materials.
"In light of our year-to-date results and our outlook for the remainder of the year, we now expect earnings from continuing operations for the full year to be in the range of $4.60 to $4.85 per diluted share, compared to $3.30 per diluted share in 2005. We expect to earn $1.40 to $1.56 per diluted share from continuing operations in the third quarter as compared to $1.23 per diluted share in the third quarter of 2005. In the third quarter of 2005, earnings per diluted share benefited by $0.06 from an adjustment to the carrying value of the ECU earn-out and by $0.10 from a reduction in estimated income tax liabilities for prior years and a favorable settlement of federal income tax refund claims. Our earnings guidance for the third quarter and full year 2006 does not assume any potential adjustment in the carrying value of the ECU earn-out beyond the $0.13 per diluted share recorded in the first half of the year.
"Additionally, our 2006 earnings guidance for continuing operations includes $0.05 per diluted share in expense referable to stock options for the full year and $0.01 in the third quarter. Our 2005 earnings from continuing operations did not include any expense for stock options.
"Costs related to our former Chemicals business should result in a full year loss of $0.05 per diluted share from discontinued operations.
"In recent years, we have generated significant value for our shareholders through the development and sale of reclaimed and surplus real estate and we are continuing this process. Our current estimate for real estate gains in the second half of 2006 ranges from $0 to $40 million of pretax earnings. However, the timing of real estate sales is difficult to predict and as such, we have not included any future real estate gains in our current year earnings guidance."
In keeping with past practice, the Company will give quarterly and annual earnings guidance. The Company will issue press releases to revise such guidance if it is reasonably certain that comparable earnings per share, on either a quarterly or an annual basis, will be outside its latest published estimates.
Conference Call
Vulcan will host a conference call at 10:00 a.m. CDT on August 1, 2006. Investors and other interested parties may access the teleconference live by calling (800) 510-0146 approximately 10 minutes before the scheduled start. International participants can dial (617) 614-3449. The access code is 21813582. A live webcast will be available via the Internet through Vulcan's home page at vulcanmaterials.com. The conference call will be recorded and available for replay approximately two hours after the call through August 8, 2006.
Vulcan Materials Company, a member of the S&P 500 index, is the nation's largest producer of construction aggregates and a major producer of other construction materials.
Certain matters discussed in this release, including expectations regarding future performance, contain forward-looking statements that are subject to risks, assumptions and uncertainties that could cause actual results to differ materially from those projected. These risks, assumptions and uncertainties include, but are not limited to, those associated with general economic and business conditions; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; changes in the level of spending for residential and private nonresidential construction; the highly competitive nature of the construction materials industry; pricing; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; increasing healthcare costs; the timing and amount of any future payments to be received by the Company under two earn-outs contained in the agreement for the divestiture of the Company's Chemicals business; and other risks, assumptions and uncertainties detailed from time to time in the Company's SEC reports, including the report on Form 10-K for the year. Forward-looking statements speak only as of the date hereof, and Vulcan assumes no obligation to update such statements. -0- Table A Vulcan Materials Company and Subsidiary Companies (Amounts and shares in thousands, except per share data) Consolidated Statements Three Months Ended Six Months Ended of Earnings June 30 June 30 ------------------- ----------------------- (Condensed and unaudited) 2006 2005 2006 2005 --------------------------------------------------------------------- Net sales $807,781 $705,348 $1,450,053 $1,184,748 Delivery revenues 80,381 76,726 146,797 125,942 -------- -------- ---------- ---------- Total revenues 888,162 782,074 1,596,850 1,310,690 Cost of goods sold 550,045 494,973 1,028,654 882,139 Delivery costs 80,381 76,726 146,797 125,942 -------- -------- ---------- ---------- Cost of revenues 630,426 571,699 1,175,451 1,008,081 -------- -------- ---------- ---------- Gross profit 257,736 210,375 421,399 302,609 Selling, administrative and general expenses 65,180 55,688 130,222 107,124 Other operating (income) expense, net (25,392) 1,182 (25,524) 4,211 -------- -------- ---------- ---------- Operating income 217,948 153,505 316,701 191,274 Other income, net 10,756 680 22,849 2,234 Interest income 1,472 3,146 4,119 5,634 Interest expense 5,690 9,615 11,975 18,873 -------- -------- ---------- ---------- Earnings from continuing operations before income taxes 224,486 147,716 331,694 180,269 Provision for income taxes 75,080 45,764 110,551 56,883 -------- -------- ---------- ---------- Earnings from continuing operations 149,406 101,952 221,143 123,386 Earnings (loss) on discontinued operations, net of tax (1,715) 19,595 (3,534) 52,512 -------- -------- ---------- ---------- Net earnings $147,691 $121,547 $ 217,609 $ 175,898 ===================================================================== Basic earnings (loss) per share: Earnings from continuing operations $ 1.50 $ 1.00 $ 2.21 $ 1.20 Discontinued operations (0.01) 0.19 (0.03) 0.51 -------- -------- ---------- ---------- Net earnings per share $ 1.49 $ 1.19 $ 2.18 $ 1.71 Diluted earnings (loss) per share: Earnings from continuing operations $ 1.47 $ 0.98 $ 2.16 $ 1.18 Discontinued operations (0.02) 0.19 (0.03) 0.51 -------- -------- ---------- ---------- Net earnings per share $ 1.45 $ 1.17 $ 2.13 $ 1.69 ===================================================================== Weighted-average common shares outstanding: Basic 99,430 102,259 99,988 102,595 Assuming dilution 101,636 104,026 102,153 104,316 Cash dividends declared per share of common stock $ 0.37 $ 0.29 $ 0.74 $ 0.58 Depreciation, depletion, accretion and amortization from continuing operations $ 54,785 $ 54,833 $ 107,999 $ 107,185 Effective tax rate 33.4% 31.0% 33.3% 31.6% ===================================================================== Table B Vulcan Materials Company and Subsidiary Companies (Amounts in thousands) Consolidated Balance Sheets June 30 December 31 June 30 (Condensed and unaudited) 2006 2005 2005 --------------------------------------------------------------------- Assets ------ Cash and cash equivalents $ 71,191 $ 275,138 $ 286,134 Medium-term investments - 175,140 248,980 Accounts and notes receivable: Accounts and notes receivable, gross 612,484 480,647 430,490 Less: Allowance for doubtful accounts (4,238) (4,277) (4,467) ----------- ----------- ----------- Accounts and notes receivable, net 608,246 476,370 426,023 Inventories: Finished products 204,114 170,539 167,620 Raw materials 10,138 9,602 7,738 Products in process 1,959 1,589 1,409 Operating supplies and other 18,452 16,022 14,568 ----------- ----------- ----------- Inventories 234,663 197,752 191,335 Deferred income taxes 19,441 23,184 36,264 Prepaid expenses 13,830 17,138 13,470 ----------- ----------- ----------- Total current assets 947,371 1,164,722 1,202,206 Investments and long-term receivables 6,729 6,942 6,994 Property, plant and equipment: Property, plant and equipment, cost 3,668,316 3,481,708 3,373,095 Less: Reserve for depr., depl., & amort (1,953,064) (1,877,741) (1,797,210) ----------- ----------- ----------- Property, plant and equipment, net 1,715,252 1,603,967 1,575,885 Goodwill 630,802 617,083 636,582 Other assets 185,292 196,170 234,731 ----------- ----------- ----------- Total assets $ 3,485,446 $ 3,588,884 $ 3,656,398 =========== =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current maturities of long- term debt $ 32,547 $ 272,067 $ 242,065 Short-term borrowings 217,000 - - Trade payables and accruals 186,978 142,221 141,716 Other current liabilities 187,193 164,726 197,310 ----------- ----------- ----------- Total current liabilities 623,718 579,014 581,091 Long-term debt 322,645 323,392 355,706 Deferred income taxes 278,778 275,065 326,363 Other noncurrent liabilities 289,608 284,872 300,560 Shareholders' equity 1,970,697 2,126,541 2,092,678 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 3,485,446 $ 3,588,884 $ 3,656,398 ===================================================================== Table C Vulcan Materials Company and Subsidiary Companies (Amounts in thousands) Six Months Ended Consolidated Statements of Cash Flows June 30 (Condensed and unaudited) ------------------------- 2006 2005 --------------------------------------------------------------------- Operating Activities -------------------- Net earnings $ 217,609 $ 175,898 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, depletion, accretion and amortization 108,018 107,639 Net gain on sale of property, plant and equipment (2,061) (3,091) Net gain on sale of contractual rights (24,849) - Contributions to pension plans (778) (502) Increase in assets before initial effects of business acquisitions and dispositions (139,718) (147,847) Increase in liabilities before initial effects of business acquisitions and dispositions 34,190 88,650 Other, net 1,690 (6,680) ---------- --------- Net cash provided by operating activities 194,101 214,067 ---------- --------- Investing Activities -------------------- Purchases of property, plant and equipment (187,273) (100,125) Proceeds from sale of property, plant and equipment 4,742 4,347 Proceeds from sale of contractual rights, net of cash transaction fees 24,888 - Proceeds from sale of Chemicals business, net of cash transaction fees - 213,624 Payment for partner's interest in consolidated Chemicals joint venture - (62,701) Payment for businesses acquired, net of acquired cash (20,355) (72,715) Purchases of medium-term investments - (203,360) Proceeds from sales and maturities of medium-term investments 175,140 133,590 Change in investments and long-term receivables 240 544 Other, net 4,473 - ---------- --------- Net cash provided by (used for) investing activities 1,855 (86,796) ---------- --------- Financing Activities -------------------- Net short-term borrowings 217,000 - Payment of short-term debt and current maturities (240,305) (1,127) Payment of long-term debt - (8,253) Purchases of common stock (335,224) (69,005) Dividends paid (73,855) (59,436) Proceeds from exercise of stock options 19,537 25,187 Excess tax benefits from exercise of stock options 9,626 - Other, net 3,318 47 ---------- --------- Net cash used for financing activities (399,903) (112,587) ---------- --------- Net (decrease) increase in cash and cash equivalents (203,947) 14,684 Cash and cash equivalents at beginning of period 275,138 271,450 ---------- --------- Cash and cash equivalents at end of period $ 71,191 $ 286,134 ===================================================================== Table D 1. Supplemental Cash Flow Information Supplemental information referable to the Condensed Consolidated Statements of Cash Flows for the six months ended June 30 is summarized below (amounts in thousands): 2006 2005 --------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information ------------------------------------------------- Cash paid during the period for: Interest, net of amount capitalized $18,059 $18,936 Income taxes 57,958 61,697 Supplemental Schedule of Noncash Investing and Financing Activities --------------------------------------------------- Liabilities assumed in business acquisitions - 5,634 Accrued liabilities for purchases of property, plant and equipment 15,194 4,943 Accrued liabilities for purchases of treasury stock 17,678 - Noncash proceeds from the sale of the Chemicals business: Earn-outs - 128,167 Working capital adjustments - 13,559 2. Net Sales and Unit Shipments (Amounts in thousands) Three Months Ended Six Months Ended June 30 June 30 ------------------- ----------------------- Net Sales by Product 2006 2005 2006 2005 ------------------- ----------------------- Aggregates, excluding freight to remote distribution sites $531,902 $480,431 $958,754 $808,906 Freight to remote distribution sites 37,810 31,712 70,824 59,479 --------- --------- ----------- ----------- Aggregates 569,712 512,143 1,029,578 868,385 Asphalt mix 126,111 95,205 211,311 148,593 Concrete 72,510 66,788 137,083 116,833 Other products 39,448 31,212 72,081 50,937 --------- --------- ----------- ----------- Total net sales $807,781 $705,348 $1,450,053 $1,184,748 ========= ========= =========== =========== Unit Shipments Aggregates Customer tons 66,623 67,938 119,915 115,040 Internal tons * 3,485 3,848 6,357 6,426 --------- --------- ----------- ----------- Aggregates - tons 70,108 71,786 126,272 121,466 ========= ========= =========== =========== Asphalt mix - tons 3,041 3,254 5,305 5,107 Concrete - cubic yards 817 883 1,567 1,558 *Represents tons shipped to our non-aggregates operations (e.g., asphalt mix and concrete). Revenue from internal shipments is not included in net sales as presented in the accompanying Consolidated Statements of Earnings. Table E 3. Reconciliation of Non- GAAP Performance Measures (Amounts in thousands, except per share data) Three Months Ended Six Months Ended June 30 June 30 ------------------- ------------------- 2006 2005 2006 2005 ------------------- ------------------- GAAP Earnings from continuing operations before income taxes $224,486 $147,716 $331,694 $180,269 Gain on sale of contractual rights (1) (24,849) - (24,849) - (Gain) loss from adjustment in the carrying value of the ECU earn-out (2) (10,805) 270 (22,986) 270 --------- --------- --------- --------- Earnings from continuing operations before income taxes, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out (3) $188,832 $147,986 $283,859 $180,539 ========= ========= ========= ========= GAAP Earnings from continuing operations, net of tax $149,406 $101,952 $221,143 $123,386 Gain on sale of contractual rights, net of tax (1) (14,850) - (14,850) - (Gain) loss from adjustment in the carrying value of the ECU earn-out, net of tax (2) (6,475) 167 (13,775) 167 --------- --------- --------- --------- Earnings from continuing operations, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out, net of tax (3) $128,081 $102,119 $192,518 $123,553 ========= ========= ========= ========= GAAP Diluted earnings per share from continuing operations $1.47 $0.98 $2.16 $1.18 After-tax gain per diluted share resulting from the sale of contractual rights (1) (0.15) - (0.15) - After-tax gain per diluted share resulting from the adjustment in the carrying value of the ECU earn-out (2) (0.06) - (0.13) - --------- --------- --------- --------- Earnings per share from continuing operations, excluding gains on sale of contractual rights and adjustment in the carrying value of the ECU earn-out, net of tax (3) $1.26 $0.98 $1.88 $1.18 ========= ========= ========= ========= (1) During the second quarter of 2006, the Company recognized a $25 million pretax gain from the sale of its contractual rights to mine the Bellwood quarry in Atlanta, Georgia. The City of Atlanta plans to convert the property into a city park and greenspace as part of a larger economic growth and development project around the city's perimeter. The Company worked with city and county officials to achieve this mutually beneficial transaction. Over the next two years, the Company will continue operating the quarry as it transitions customers to its existing 12 quarries in the greater Atlanta area and to a new, zoned site purchased in 2004 in anticipation of the Bellwood sale. (2) In June 2005, the Company sold substantially all the assets of its Chemicals business, known as Vulcan Chemicals, to a subsidiary of Occidental Chemical Corporation, Basic Chemicals. Subject to certain conditions as defined in a separate earn-out agreement, Basic Chemicals is required to make future payments based on ECU and natural gas prices during the five-year period beginning July 1, 2005, and is capped at $150 million (ECU earn-out or ECU derivative). The ECU earn-out is accounted for as a derivative instrument; accordingly, it is reported at fair value. Changes to the fair value of the ECU derivative are recorded within continuing operations pursuant to SAB Topic 5:Z:5. (3) The Company prepares and reports its financial statements in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Internally, management monitors the operating performance of its construction materials business using non-GAAP metrics similar to those above. These non-GAAP measures exclude the effects of two items, described more fully above: 1) the gain on the sale of contractual rights at the Bellwood quarry in Atlanta, Georgia, during the second quarter of 2006 (included in other operating income, net in the accompanying condensed consolidated statements of earnings), and 2) the ECU earn-out obtained in connection with the June 2005 sale of our Chemicals business, including the associated changes in carrying value (included in other income, net in the accompanying condensed consolidated statements of earnings). In Management's opinion, these non-GAAP measures are important indicators of the ongoing operations of our construction materials business and provide better comparability between reporting periods because they exclude items that may not be indicative of or are unrelated to our core business and provide a better baseline for analyzing trends in our core operations. The Company does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company believes the disclosure of the effects of these items increases the reader's understanding of the underlying performance of the business and that such non-GAAP financial measures provide investors with an additional tool to evaluate our financial results and assess our prospects for future performance.
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