Vulcan Materials Company — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also provides unaudited fourth-quarter results. Vulcan is the largest U.S. producer of construction aggregates, with businesses in concrete, asphalt mix and cement.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net sales | $2,411.2 million | $2,406.9 million |
| Total revenues, including delivery revenues | $2,567.3 million | $2,564.6 million |
| Gross profit / gross margin | $334.0 million / 13.9% | $283.9 million / 11.8% |
| Operating earnings | $84.8 million | $63.4 million |
| Net loss / diluted loss per share | $(52.6) million / $(0.41) | $(70.8) million / $(0.55) |
| Adjusted EBITDA | $411.3 million | $351.8 million |
| Operating cash flow | $238.5 million | $169.0 million |
| Capital expenditures | $93.4 million | $98.9 million |
| Free cash flow (non-GAAP) | $145.1 million | $70.1 million |
| Cash and cash equivalents at year-end | $275.5 million | $155.8 million |
| Total debt at year-end | $2,677.0 million | $2,815.5 million |
| Working capital at year-end | $548.6 million | $456.8 million |
Cash flow benefited by $73.6 million of net proceeds from a volumetric production payment (prepayment for future aggregates production). Vulcan retired $134.8 million of debt as scheduled. It had no bank-line borrowings at year-end; $57.3 million of the $600 million facility supported standby letters of credit. Debt was 41.6% of total capital, and the weighted-average effective rate on long-term debt excluding the bank line was 7.71%. Moody’s rated long-term debt Ba3/negative; S&P rated it BB/stable.
Fourth-quarter results
For the three months ended December 31, 2012, net sales were $574.9 million and total revenues were $608.4 million. Gross profit was $79.2 million, operating earnings were $55.5 million, continuing-operations earnings were $4.5 million, and net earnings were $3.5 million (diluted EPS $0.03). In fourth-quarter 2011, net sales were $578.2 million, gross profit was $74.4 million, operating loss was $5.5 million, and net loss was $27.9 million. The 2011 quarter included restructuring and exchange-offer costs; 2012 results also included discrete charges and gains described below.
Changes versus prior year and operating segments
- Net sales were nearly flat, but gross profit rose $50.2 million and gross margin increased 2.1 percentage points. Selling, administrative and general expense fell 11% to $259.1 million.
- Aggregates shipments declined 1%, while freight-adjusted average selling price rose 2%. Aggregates gross profit increased $45.9 million; cash gross profit per ton rose 5% to $4.21.
- Concrete shipments increased 9%; the segment’s gross loss narrowed to $38.2 million from $43.4 million.
- Asphalt mix shipments declined 7%, and gross profit fell to $22.9 million from $25.6 million. Cement shipments rose 18%, pricing increased 6%, and the segment’s gross loss narrowed to $2.8 million.
- Management attributed improved aggregates profitability to pricing discipline and lower unit costs. Cash earnings per aggregates ton were reported as 27% above the 2005 demand peak.
Outlook, management commentary and notable items
- Management said construction indicators were improving, including housing starts, nonresidential contract awards and federal highway funding. MAP-21 provides approximately $105 billion of funding through fiscal 2014; management expected the increased TIFIA funding to support demand principally from 2014 onward.
- The company targeted more than $100 million in annual run-rate EBITDA benefit from its Profit Enhancement Plan. Including benefits from restructuring and technology initiatives, management expected pretax earnings to improve by $130 million in 2013 and $155 million in 2014 versus 2011 levels. These are company targets, not guarantees.
- Vulcan targeted approximately $500 million in net proceeds from planned non-core asset sales over the 18 months ending July 2013. Through 2012, it reported $168.6 million in proceeds net of transaction costs. The timing and composition of further sales were uncertain.
- 2012 included a $65.1 million pretax gain on sales of real estate and businesses, $9.6 million of restructuring charges and $43.4 million of Martin Marietta exchange-offer costs. The offer was withdrawn after court rulings; Vulcan reported $43.4 million of related costs for 2012.
- Environmental-control capital expenditures were estimated at $11.4 million in 2013 and $17.1 million in 2014, with no expected material earnings or competitive impact. The company expected no required contribution to funded pension plans in 2013, while estimating 2013 pension expense of approximately $46 million.
- Risks include a slow or weaker-than-expected construction recovery, construction-volume sensitivity, fuel and asphalt input costs, competition, weather and transportation disruptions, permitting and reserve access, below-investment-grade debt ratings and refinancing needs, pension assumptions, potential impairment, environmental regulation and unresolved litigation. The company reported $150.1 million of asset retirement obligations and $11.5 million of accrued environmental remediation costs.
- Goodwill was $3.09 billion, 38% of total assets. The 2012 annual impairment test found reporting-unit fair values substantially above carrying values; future deterioration could still lead to a material noncash impairment.
Key facts for investors to verify
- Whether the forecast cost savings and asset-sale proceeds were achieved, and the resulting effect on debt and liquidity.
- Whether construction recovery, shipment volumes and pricing improved as management expected, particularly in aggregates and private construction.
- Debt maturities and refinancing capacity: $150.6 million of principal was due in 2013, with larger maturities scheduled in 2016 and 2017.
- The sustainability of operating cash flow and adjusted EBITDA, including the impact of asset-sale gains and the $73.6 million production prepayment.
- Developments in environmental and legal matters, including former Chemicals-business liabilities and the Lower Passaic River proceedings; the filing says some potential losses could not be reasonably estimated.
- Potential sensitivity of goodwill and pension obligations to changes in market assumptions. The filing reported an unqualified audit opinion and an unqualified opinion on internal control over financial reporting.