Vulcan Materials Company — FY 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. The filing also provides unaudited fourth-quarter results; this is an annual report, not a standalone Q4 filing. Vulcan is the largest U.S. construction-aggregates producer, with asphalt mix, ready-mixed concrete and Florida cement businesses.
Financial performance and position
| Metric | FY 2009 | FY 2008 |
|---|---|---|
| Net sales | $2.544 billion | $3.453 billion |
| Total revenues | $2.690 billion | $3.651 billion |
| Gross profit | $446.0 million | $749.7 million |
| Operating earnings | $148.5 million | $249.1 million |
| Continuing-operations earnings | $18.6 million | $3.4 million |
| Net earnings | $30.3 million | $0.9 million |
| Diluted EPS, continuing operations | $0.16 | $0.03 |
| Cash from operating activities | $453.0 million | $435.2 million |
| Capital expenditures | $109.7 million | $353.2 million |
| Free cash flow (non-GAAP) | $343.3 million | $82.0 million |
Net sales fell about 26%; gross margin on net sales declined to about 17.5% from 21.7%. EBITDA was $548.4 million in 2009; 2008 adjusted EBITDA was $886.5 million, excluding that year’s goodwill impairment. Cash and cash equivalents were $22.3 million at year-end. Total debt, including current maturities and short-term borrowings, was $2.738 billion, down $809.8 million year over year; debt was 40.3% of total capital versus 50.0%. Shareholders’ equity was $4.052 billion.
Working capital was negative $113.4 million, an improvement from negative $769.2 million in 2008. The company had $1.204 billion available under its $1.5 billion credit facility after commercial-paper support and letters of credit. Current maturities of long-term debt were $385.4 million, including $340 million due in the fourth quarter of 2010.
Material changes and operating drivers
- Aggregates shipments declined 26%, reducing earnings by $333.7 million; average aggregates pricing rose 3%, adding $48.3 million to earnings. Aggregates cash fixed costs fell $48.7 million, or 14%.
- Asphalt-mix shipments fell 22%; ready-mixed concrete shipments fell 32%. Cement earnings weakened, with pricing down 1%.
- Management reduced employment by 12% year over year, cut selling, administrative and general expense, and reduced capital spending 69%. Cash from operations rose 4% despite the sales decline.
- In 2009 Vulcan issued $400 million of notes and raised $520 million net through a common-stock offering; proceeds primarily supported debt reduction. Shares outstanding increased materially. The quarterly dividend was reduced from $0.49 to $0.25 beginning in Q3; declared dividends for 2009 totaled $1.48 per share.
- Q4 2009 net sales were $555.8 million versus $756.5 million in Q4 2008. Q4 net loss was $13.4 million, compared with a restated $212.8 million loss in Q4 2008; the prior-year quarter included the cement goodwill impairment.
Outlook, risks and unusual items
- Management expected stimulus-funded highway demand to be greatest in 2010, with another solid year in 2011. It noted that stimulus project awards in many Vulcan-served states had lagged, though Q4 highway contract awards rose 13% year over year in those states.
- The federal transportation authorization expired September 30, 2009; continued reliance on short-term funding measures and delayed project spending could constrain public construction demand. Private residential and nonresidential construction remained severely depressed.
- The Newberry, Florida cement expansion was substantially complete; doubled capacity of 1.6 million tons per year was expected to become fully operational in 2010. The company estimated environmental-control capital spending of $8.1 million in 2010 and $7.2 million in 2011.
- Key risks include economic and construction weakness, public-infrastructure funding delays, weather, competitive pricing, fuel and energy costs, permitting and reserve access, debt service and refinancing, and pension funding. The company expected $72.5 million of funded-pension contributions in 2010.
- Legal and environmental contingencies include former Chemicals-business claims and Florida Lake Belt quarry permitting litigation. Vulcan said losses on certain cases could not be reasonably estimated; it also reported the Corps of Engineers began issuing new permits after its January 2010 Record of Decision.
- FY 2009 continuing-operations pretax loss was $19.2 million, offset by a $37.9 million income-tax benefit; the unusually high 197% effective tax rate reflected depletion and other items relative to low pretax earnings. Discontinued-operations income included insurer settlements related to legacy Chemicals litigation.
- The 2008 comparative financial statements were restated for deferred-tax errors: 2008 net earnings increased by $5.0 million to $0.9 million. A $252.7 million pretax goodwill impairment was recorded in 2008, with no impairment charge in 2009. The auditor gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether stimulus and longer-term federal and state highway funding translated into awards, construction activity and Vulcan shipments in 2010–2011.
- How the $385.4 million of 2010 debt maturities were refinanced or repaid, and whether cash flow, credit-facility access and debt ratios remained adequate.
- Whether volume recovery and cost controls sustained aggregates cash margins despite the sharp 2009 shipment decline.
- The status and potential financial exposure of Lake Belt permitting, antitrust, Joliet Road and legacy Chemicals litigation, plus environmental and reclamation obligations.
- The effect of the 2009 equity issuance and dividend reduction on per-share results and future shareholder distributions; also confirm comparisons use the restated 2008 figures.