Vulcan Materials Company — FY 2010 Form 10-K
Reporting period: Year ended December 31, 2010. The filing also reports fourth-quarter results. Vulcan is a major U.S. producer of construction aggregates, with concrete, asphalt mix and Florida cement businesses.
Financial performance and liquidity
| Metric | 2010 | 2009 |
|---|---|---|
| Net sales | $2.406 billion | $2.544 billion |
| Gross profit / gross margin | $300.7 million / 12.5% | $446.0 million / 17.5% |
| Operating earnings (loss) | ($14.5 million) | $148.5 million |
| Continuing operations earnings (loss) | ($102.5 million) | $18.6 million |
| Net earnings (loss) / diluted EPS | ($96.5 million) / ($0.75) | $30.3 million / $0.25 |
| Net cash from operating activities | $202.7 million | $453.0 million |
| Capital expenditures / free cash flow | $86.3 million / $116.4 million | $109.7 million / $343.3 million |
| EBITDA | $370.6 million | $548.4 million |
Net sales fell 5.4%; gross margin contracted to 12.5%. Operating results included a $40.0 million IDOT settlement charge, while the company reported a $39.5 million pretax gain on rural Virginia asset sales. Higher diesel and liquid asphalt unit costs reduced pretax earnings by approximately $51.3 million. Net interest expense was $180.7 million.
At year-end, cash was $47.5 million, working capital was $206.4 million (versus negative $123.8 million in 2009), and total debt was $2.718 billion versus $2.738 billion. Debt was 40.7% of total capital. The $1.5 billion revolving facility had $1.153 billion of availability after borrowings and letters of credit. Long-term debt ratings were BBB-/negative watch at S&P and Baa3/under review at Moody’s.
Quarterly dividend was maintained at $0.25 per share; dividends declared totaled $1.00 per share for 2010, down from $1.48 in 2009. No fourth-quarter share repurchases were reported.
Material changes and operating trends
- Aggregates shipments declined 2% in 2010, compared with a 26% decline in 2009; aggregates selling prices also fell 2%, principally due to weakness in Florida and California.
- Concrete shipments fell 5%, and average selling price declined 10%. Asphalt mix shipments fell 3%; average selling price declined 4% as liquid asphalt costs rose 20%. Cement selling price fell 17%, despite a 32% increase in unit sales volume, largely from intersegment sales.
- Publicly funded construction represented 55% of aggregates shipments; privately funded construction represented 45%. Highway construction activity and housing showed modest improvement, while nonresidential construction remained weak.
- Aggregates shipments remained just over half of their 2005 peak. Management reported that 2010 cash earnings per aggregates ton were 26% above the 2005 peak-demand level.
- Fourth-quarter net sales were $548.8 million versus $555.8 million a year earlier. Fourth-quarter operating loss was $29.4 million versus operating earnings of $1.4 million; net loss was $47.0 million versus $13.4 million.
Outlook, risks and unusual items
- Management was optimistic that stimulus-funded highway projects in Vulcan-served states could support demand in 2011. About $7.1 billion of apportioned highway and bridge stimulus funds remained unspent in those states at the time of the filing. This was not formal earnings or revenue guidance.
- The federal multi-year transportation authorization had expired, with funding continuing through short-term extensions. Management warned that funding uncertainty could cause states to defer large projects.
- In February 2011, an arbitration panel awarded Vulcan $25.5 million from two insurers for their share of the IDOT settlement and attorneys’ fees; the company expected to record the award in first-quarter 2011 income. Recovery from a third insurer remained unresolved.
- Other notable items include a $3.9 million long-lived-asset impairment and a $6.0 million after-tax gain on discontinued operations. The latter included insurance recoveries and proceeds related to the former Chemicals business.
- Risks include continued weakness in construction demand, volume-sensitive fixed costs, fuel and asphalt price volatility, competition, weather, permitting and environmental requirements, pension and healthcare costs, and legal and environmental contingencies. The company identified the negative credit outlook and refinancing/access-to-capital risks as significant.
- Environmental capital expenditures were estimated at $8.4 million in 2011 and $10.5 million in 2012. Management planned to replace the $1.5 billion revolving credit facility, which expires in November 2012, with a substantially smaller multi-year facility in 2011.
- The 2009 balance sheet was restated for deferred-tax errors. The filing states the errors did not affect earnings or cash flows for the periods presented. Auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether aggregates volumes and pricing stabilize, particularly in Florida and California, and whether stimulus-funded projects translate into actual orders and shipments.
- Cash generation, capital spending and debt maturities, together with the outcome and terms of the planned credit-facility replacement and any change in credit ratings.
- Final insurance recoveries for the IDOT settlement and the timing and amount of any additional proceeds.
- Potential exposure from former Chemicals business litigation, environmental remediation and other contingencies, including matters for which losses could not be reasonably estimated.
- Whether pension, healthcare, energy and transportation costs, as well as permitting constraints, materially affect margins and liquidity.