Vulcan Materials Company
1995 Annual Report
Financial Review
Selected Financial Data
Amounts and shares in millions, except per share data
1995 1994 1993 1992 1991
Operations
Net sales........................................................ $1,461.0 $1,253.4 $1,133.5 $1,078.0 $1,007.5
Gross profit..................................................... $ 416.3 $ 268.2 $ 246.7 $ 249.1 $ 212.1
As a percent of net sales.................................... 28.5% 21.4% 21.8% 23.1% 21.1%
Interest expense................................................. $ 11.1 $ 9.8 $ 9.2 $ 9.8 $ 11.3
Net earnings before cumulative effect of accounting change....... $ 166.2 $ 98.0 $ 88.2 $ 91.0 $ 52.6
As a percent of average shareholders' equity................. 21.9% 13.6% 12.8% 13.3% 7.7%
Cumulative effect of accounting change........................... $ - $ - $ - $ 3.0 $ -
Net earnings..................................................... $ 166.2 $ 98.0 $ 88.2 $ 94.0 $ 52.6
Primary and fully diluted earnings per common share:
Net earnings before cumulative effect of accounting change... $ 4.63 $ 2.67 $ 2.39 $ 2.41 $ 1.38
Cumulative effect of accounting change....................... $ - $ - $ - $ 0.08 $ -
Net earnings................................................. $ 4.63 $ 2.67 $ 2.39 $ 2.49 $ 1.38
Effective tax rate............................................... 35.7% 32.8% 29.5% 30.4% 28.4%
Operating income after taxes..................................... $ 173.4 $ 104.5 $ 93.3 $ 98.7 $ 59.5
As a percent of average capital employed..................... 16.6% 10.5% 9.7% 10.3% 6.1%
Liquidity and Capital Resources
Working capital.................................................. $ 184.7 $ 125.5 $ 161.8 $ 169.8 $ 149.8
Current ratio.................................................... 2.0 1.6 2.1 2.3 2.1
Net cash provided by continuing operations....................... $ 267.4 $ 209.2 $ 194.1 $ 199.1 $ 184.9
As a percent of long-term obligations (year end)............. 296.1% 214.8% 190.2% 185.6% 166.4%
Ratio of earnings to fixed charges............................... 13.3 7.9 8.1 8.4 5.6
Total assets (year end).......................................... $1,215.8 $1,181.1 $1,078.6 $1,083.9 $1,073.1
Average capital employed:
Short-term debt.............................................. $ 45.6 $ 39.4 $ 25.2 $ 24.1 $ 72.7
Long-term obligations........................................ 93.3 99.1 105.6 108.2 66.5
Other noncurrent liabilities................................. 144.7 135.0 140.4 138.4 155.7
Shareholders' equity......................................... 758.6 719.6 691.7 686.5 682.7
Total.................................................... $1,042.2 $ 993.1 $ 962.9 $ 957.2 $ 977.6
Long-term obligations (year end)................................. $ 90.3 $ 97.4 $ 102.0 $ 107.3 $ 111.1
As a percent of long-term capital............................ 8.7% 10.0% 10.9% 11.3% 11.8%
Dividends declared and paid per common share..................... $ 1.46 $ 1.32 $ 1.26 $ 1.20 $ 1.20
Total common stock dividends..................................... $ 51.8 $ 48.1 $ 46.3 $ 45.1 $ 45.7
Common shares outstanding (year end)............................. 35.0 35.9 36.3 37.2 38.0
Segment Financial Data
Amounts in millions
Amount Percent of Company Total
1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
Net Sales
Construction Materials.............$ 884.7 $ 842.9 $ 756.7 $ 686.4 $ 648.1 61% 67% 67% 64% 64%
Chemicals.......................... 576.3 410.5 376.8 391.6 359.4 39 33 33 36 36
Total......................$1,461.0 $1,253.4 $1,133.5 $1,078.0 $1,007.5 100% 100% 100% 100% 100%
Earnings Before Interest
Expense and Income Taxes
Construction Materials.............$ 181.5 $ 162.5 $ 116.7 $ 88.3 $ 41.8 67% 104% 87% 63% 50%
Chemicals.......................... 87.8 (7.3) 17.4 51.3 42.6 33 (5) 13 36 50
Segment earnings................... 269.3 155.2 134.1 139.6 84.4 100 99 100 99 100
Interest income, etc............... 0.2 0.5 0.3 0.9 0.3 ----- 1 ----- 1 -----
Total......................$ 269.5 $ 155.7 $ 134.4 $ 140.5 $ 84.7 100% 100% 100% 100% 100%
Operating Income
After Taxes
Construction Materials.............$ 120.6 $ 108.8 $ 81.6 $ 65.3 $ 32.1 70% 104% 87% 66% 54%
Chemicals.......................... 52.7 (4.7) 11.5 32.7 27.3 30 (4) 12 33 46
Interest income, etc............... 0.1 0.4 0.2 0.7 0.1 ----- ----- 1 1 -----
Total......................$ 173.4 $ 104.5 $ 93.3 $ 98.7 $ 59.5 100% 100% 100% 100% 100%
Net Cash Provided by
Continuing Operations
Construction Materials.............$ 182.9 $ 182.5 $ 156.6 $ 141.9 $ 141.8 68% 87% 81% 71% 77%
Chemicals.......................... 90.8 31.5 41.1 63.8 50.0 34 15 21 32 27
Interest expense, interest
income, etc., net.............. (6.3) (4.8) (3.6) (6.6) (6.9) (2) (2) (2) (3) (4)
Total......................$ 267.4 $ 209.2 $ 194.1 $ 199.1 $ 184.9 100% 100% 100% 100% 100%
Property Additions
Construction Materials.............$ 94.4 $ 69.3 $ 59.3 $ 56.5 $ 60.8 75% 43% 59% 57% 71%
Chemicals.......................... 31.2 90.5 41.3 42.0 24.9 25 57 41 43 29
Total......................$ 125.6 $ 159.8 $ 100.6 $ 98.5 $ 85.7 100% 100% 100% 100% 100%
Depreciation, Depletion and
Amortization
Construction Materials.............$ 72.0 $ 72.8 $ 74.3 $ 75.5 $ 80.4 65% 68% 72% 73% 73%
Chemicals.......................... 38.7 33.9 28.5 27.8 29.3 35 32 28 27 27
Total......................$ 110.7 $ 106.7 $ 102.8 $ 103.3 $ 109.7 100% 100% 100% 100% 100%
Average Capital Employed
Construction Materials.............$ 681.5 $ 688.1 $ 707.4 $ 708.4 $ 748.4 65% 69% 73% 74% 77%
Chemicals.......................... 353.9 294.0 248.5 226.4 226.1 34 30 26 24 23
Cash items......................... 6.8 11.0 7.0 22.4 3.1 1 1 1 2 -----
Total......................$1,042.2 $ 993.1 $ 962.9 $ 957.2 $ 977.6 100% 100% 100% 100% 100%
Operating Income After
Taxes as a Percent of
Average Capital Employed
Construction Materials............. 17.7% 15.8% 11.5% 9.2% 4.3%
Chemicals.......................... 14.9 (1.6) 4.6 14.5 12.1
Interest income, etc. ............. 1.9 3.4 3.0 3.0 5.1
Total...................... 16.6% 10.5% 9.7% 10.3% 6.1%
<FN>
Definitions of certain financial terms used in this report
are provided on page 47.
COMMON STOCK MARKET PRICES AND DIVIDENDS
Range of Dividend Paid
Common Stock Market Prices Per Share
1995 1994
High Low High Low 1995 1994
Quarter Ended
March 31 $57-5/8 $48-1/8 $51-7/8 $45-1/2 $ .365 $ .33
June 30 58-3/4 54 48-1/2 44 .365 .33
September 30 60-3/8 51-3/4 54 44-7/8 .365 .33
December 31 58-7/8 52-1/2 56-1/2 46-1/2 .365 .33
$1.46 $1.32
The Company's common stock is traded on the New York Stock Exchange (ticker
symbol VMC). As of January 31, 1996, the number of shareholders of record
approximated 4,300.
Dividends paid in 1995 totaled $51,848,000 as compared with $48,109,000 paid
in 1994. On February 17, 1996, the Board of Directors authorized a quarterly
dividend of 42 cents per common share payable March 8, 1996. The new
quarterly dividend represents a 15.1% increase over quarterly dividends paid
in 1995.
During the last five years, the Company's dividend payout rate has averaged
32% of prior year free funds flow. The Company's policy is to pay out a
reasonable share of free funds as dividends consistent, on average, with the
payout record of past years, and consistent with the goal of maintaining debt
ratios within prudent and generally acceptable limits. Additionally,
management believes that purchases of the Company's stock frequently may
represent an attractive long-term investment. Management intends to continue
buying shares when appropriate based on prevailing market conditions and based
on the Company's cash position and long-term capital requirements.
MANAGEMENT DISCUSSION AND ANALYSIS
Of Results of Operations and Financial Condition
Vulcan is the largest producer of construction aggregates in the United States
and is recognized as one of the nation's leading producers of chemicals. The
following is a discussion and analysis of the results of operations and the
financial condition of the Company. The discussion and analysis should be
read in connection with the historical financial information included in the
Consolidated Financial Statements and their notes.
RESULTS OF OPERATIONS
Vulcan's 1995 sales, net earnings and earnings per share were at record
levels. Net earnings were $166.2 million, or $4.63 per share, as compared
with 1994 net earnings and earnings per share of $98.0 million and $2.67,
respectively. Sales in 1995 were $1.461 billion, up from the 1994 total of
$1.253 billion. Pretax earnings totaled $258.4 million, up 77% from last
year's amount of $145.9 million.
CONSTRUCTION MATERIALS
1995 vs. 1994
Construction Materials sales were at a record level of $884.7 million, up
5% from the 1994 result of $842.9 million. The 1995 result reflects a 3%
increase in shipments and a 5% rise in average unit selling prices of crushed
stone, the segment's principal product. Of the total increase in sales of
$41.8 million, $13.0 million was related to increased volume and $28.8 million
was due to higher prices.
Segment earnings of $181.5 million, which are before interest expense and
income taxes, also were at a record level and were up 12% from 1994's record
level of $162.5 million. This improvement reflects better operating results
as well as significant gains from assets sales, primarily surplus land. The
favorable effects of higher volume and prices were partially offset by higher
operating costs. The cost increases were due mainly to the development of
several new quarry sites and a significant project to redesign the segment's
procurement process. For the year, gains from land sales were $14.2
million as compared with 1994 gains of $4.3 million. The 1994 earnings
included a gain from the sale of the Company's industrial sand operation
in Brady, Texas, which had been operated jointly by the Construction
Materials and Chemicals segments. Accordingly, the gain resulting from
the sale of the business was shared equally by the two segments. The
Construction Materials segment's $2.1 million share of the pretax gain
was offset by provisions associated with the shutdown of an operating
facility.
Results from the Crescent Market Project (the Company's joint venture to
supply limestone from Mexico to the U.S. Gulf Coast market) improved again
in 1995. Since the vast majority of its revenues are U.S. dollar
denominated, and its functional currency is U.S. dollars, the Crescent Market
Project has not been adversely impacted by recent fluctuations in the value of
the Mexican peso.
1994 vs. 1993
Construction Materials sales in 1994 of $842.9 million were up 11% from the
1993 result of $756.7 million. This improvement reflected an 8% increase in
crushed stone shipments and a 5% rise in average unit selling prices. Of the
total increase of $86.2 million in sales, $58.8 million was related to
increased volume and $27.4 million was due to higher prices.
Construction Materials segment earnings of $162.5 million increased 39% from
1993's level of $116.7 million. The improvement reflected principally higher
volumes and prices, partially offset by higher operating costs. Earnings
also included the previously mentioned gains from the sale of surplus land and
from the sale of the industrial sand business. Results from joint ventures
also improved in 1994.
CHEMICALS
1995 vs. 1994
Record 1995 sales of $576.3 million were up 40% from the 1994 level of $410.5
million. The increase was due to the recovery in caustic soda prices, higher
prices for chlorinated organic products and the effects of acquisitions. The
$165.8 million increase in sales reflects $53.1 million due to the effect of
higher volume and $112.7 million due to higher prices. Excluding the effects
of the Callaway Chemical acquisition on August 1, 1994, and the Rio Linda
acquisition on June 1, 1995, sales increased 27%.
Segment earnings reached a record of $87.8 million in 1995 as compared to
last year's loss of $7.3 million. The increase reflects the effects of
higher selling prices for caustic soda and chlorinated organic products.
This was partially offset by higher raw material and maintenance costs. The
1995 results include a $7.1 million pretax charge referable to the Company's
suspended joint venture soda ash project at Owens Lake, California. Costs
incurred to date for engineering and in the pursuit of permitting were
expensed. Current year results also included a $3.5 million environmental
remediation provision. The loss in 1994 included that year's $7.0 million
charge for remediation and the Chemicals $2.1 million share of the gain on the
sale of the industrial sand business.
1994 vs. 1993
Chemicals 1994 sales of $410.5 million increased 9% from the 1993 level
of $376.8 million, due entirely to the effects of acquisitions. Excluding
acquisitions, sales decreased 4% due mainly to lower liquid caustic soda
prices in the first half of the year. Average prices also declined for
chlorinated organics as a group, but this decline was mitigated by improved
prices for chlorine. The increase in volume resulted in a $36.6 million
increase in sales, partially offset by a $2.9 million decrease from net
lower prices.
The Chemicals segment reported a loss for the year of $7.3 million as compared
with 1993 earnings of $17.4 million. Within the segment's Chloralkali
Business Unit, lower sales, higher raw materials prices, a $7.0 million
environmental remediation provision and costs related to production outages
at both major plants were the principal causes of the segment's earnings
decline.
ENVIRONMENTAL ISSUES
In 1991 the Environmental Protection Agency issued a unilateral
administrative order ("UAO") which directed the named respondents, including
the Company and other potentially responsible parties ("PRP"), to clean up a
now-closed third party waste disposal site to which the Chemicals segment
last shipped waste materials in 1970. During the years 1986 through 1989, the
Company recorded provisions totaling $28.8 million for environmental
remediation at this site. In 1995 and 1994, the Company recorded additional
provisions of $3.5 million and $7.0 million, respectively, for remedial
actions at this site, for total provisions of $39.3 million. During 1995, the
Company and the other participating PRPs completed active site remediation.
Site capping and certain other remaining work under the UAO is expected to be
completed in the second quarter of 1996. The Company believes that total
provisions now recorded are adequate to cover its share of the anticipated
remaining costs. Provisions for other environmental expenses for the last
three years have not been material.
In 1987 the Company discontinued its former Metals segment and recorded a loss
on disposal that reflected provisions for phaseout costs, including the
estimated cost of contractual liabilities associated with remediation of
environmental conditions at several Metals plants. An additional provision
for estimated remediation costs was recorded in 1989. The Company has made
significant progress in addressing these contractual liabilities by completing
several environmental remediation projects at certain of these Metals plants.
Expenditures for these projects were within recorded provisions. While the
Company believes its recorded provisions are adequate to address the remainder
of these contractual liabilities and other liabilities associated with these
operations, factors that might impact the adequacy of provisions include the
results of further environmental testing, engineering analyses and planning
and negotiations among interested parties.
SELLING, ADMINISTRATIVE AND GENERAL
Selling, administrative and general expenses of $159.8 million in 1995
increased 28% from the 1994 level of $125.0 million. This reflects
principally the effects of Chemicals acquisitions, and, to a lesser extent,
higher provisions for incentive plans and professional fees. In 1994 selling,
administrative and general expenses were up 13% from the 1993 level. This
increase reflects principally the effect of acquisitions by the Chemicals
segment and higher provisions for stock-based incentive plans.
NEW ACCOUNTING STANDARDS
In 1995 the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which will be effective for fiscal
years beginning after December 15, 1995. The new standard defines a fair
value method of accounting for stock-based compensation. Under the fair value
method, compensation is measured at the grant date based on the fair value of
the award and is recognized over the service period, which is usually the
vesting period.
Pursuant to the new standard, companies are encouraged, but are not required,
to adopt the fair value method of accounting for employee stock-based
transactions. Companies also are permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, but would be required to disclose in a note to the
financial statements pro forma net income and earnings per share as if the
company had applied the new method of accounting. The Company intends to
continue to account for employee stock-based compensation under Opinion
No. 25. Adoption of the new standard will have no effect on the Company's
cash flows.
The FASB recently issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, effective for
financial statements for fiscal years beginning after December 15, 1995. The
Company does not expect the adoption of the statement to have any initial
material impact upon results of operations.
INCOME TAXES
The Company's 1995 effective tax rate was 35.7%, up from the 1994 rate of
32.8%. The increase reflects principally the relatively greater impact of
higher Chemicals earnings which diluted the effect on the tax rate of
statutory depletion referable to construction aggregates production.
The effective tax rate increased in 1994 from the 1993 rate of 29.5%. The
increase reflects principally the absence in 1994 of adjustments comparable
to those made in 1993 to close out excess provisions referable to completed
tax audits.
OUTLOOK
For 1996 the Company is assuming that GDP growth in the U.S. economy will
continue throughout the year, but with notably weaker growth during the first
half and stronger growth in the second half. The market for construction
aggregates is expected to remain reasonably stable, overall, with demand for
the year as a whole continuing relatively unchanged or down very slightly.
The construction end-use outlook is mixed: demand should be strongest for
"other public works" and non-residential buildings, whereas residential
buildings may be the weakest sector. However, the outlook for residential
construction probably is the hardest to call. Highway construction and
maintenance should remain very close to 1995's level. Overall, for Vulcan's
Construction Materials segment, 1996 earnings are expected to decline modestly
from 1995's level as a result of slightly lower volume and lower gains from
surplus land sales.
Current market conditions for Chemicals' two business units - Chloralkali and
Performance Systems - are relatively stable. Notwithstanding some recent
softening in caustic prices, Chloralkali earnings should increase in 1996,
reflecting principally the absence of significant unusual charges recorded in
1995. Owing to business development activities, mainly at Callaway Chemical
Company, opportunities in each of the principal markets served by Performance
Systems - pulp and paper, textiles and water treatment - should remain
attractive in 1996. Performance Systems earnings should increase in 1996 for
several reasons. These include: the impact of a full year's results from the
1995 acquisition of Rio Linda Chemical Company, improved margins at Callaway
Chemical Company, and improved earnings resulting from the restructuring of
Vulcan Peroxidation Systems and the sale of its equipment business. In view
of all these prospects, the Chemicals segment is expected to achieve record
sales and earnings again in 1996.
For the Company as a whole, the current expectation is that 1996 earnings
and earnings per share should approximate, or possibly exceed, the record
1995 results.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by continuing operations amounted to $267.4 million in 1995,
up 28% from 1994's total of $209.2 million. Net cash provided by the
Chemicals segment increased by $59.3 million, principally as a result of
sharply higher earnings and lower spending on acquisitions. Net cash provided
by the Construction Materials segment of $182.9 million was virtually level
compared with the prior year. The Company's long-standing ability to generate
significant cash flows enabled it to fund capital requirements internally,
reduce long-term debt, and return $101.9 million to shareholders through
dividends and share purchases.
Net cash provided by operations for each segment in each of the last three
years, including the effect of working capital changes, is summarized below
(amounts in millions):
1995 1994 1993
Construction Materials $182.9 $182.5 $156.6
Chemicals 90.8 31.5 41.1
Interest expense, interest
income, etc., net (6.3) (4.8) (3.6)
Total $267.4 $209.2 $194.1
Net cash used for investing activities totaled $106.4 million in 1995, down
$68.0 million from the 1994 level. Cash expenditures for property, plant and
equipment, including acquisitions, were $136.3 million in 1995, down $51.3
million, while cash investments of $1.9 million in associated companies was
virtually the same as the prior year. Cash spending for acquisitions totaled
$27.2 million compared with $87.6 million in 1994.
Net cash used for financing activities amounted to $145.9 million in 1995, up
$105.7 million from the prior year's $40.2 million. Interest-bearing debt was
reduced $43.9 million in 1995 compared with a net increase of $36.6 million in
1994. No long-term debt was issued during 1995 or 1994. Purchases of the
Company's common stock totaled $50.1 million in 1995, up sharply from the 1994
level of $28.6 million.
The Company's policy is to pay out a reasonable share of free funds flow as
dividends consistent, on average, with the payout record of past years, and
consistent with the goal of maintaining debt ratios within prudent and
generally acceptable limits. Additionally, management believes that purchases
of the Company's stock frequently may represent an attractive long-term
investment. Management intends to continue buying shares when appropriate
based on prevailing market conditions and based on the Company's cash position
and long-term capital requirements.
Working Capital
Working capital, exclusive of debt and cash items (cash, cash equivalents and
short-term investments), totaled $174.8 million at December 31, 1995, up $8.2
million from the 1994 level. This increase compares with a working capital
increase of $15.7 million in 1994 and a decrease of $5.7 million in 1993.
The Company's overall current position is summarized below (dollar amounts in
millions and as of year end):
1995 1994 1993
Working capital, exclusive of
debt and cash items $174.8 $166.6 $150.9
Cash and cash equivalents 21.9 7.7 14.0
Short-term debt (10.6) (47.5) (1.7)
Accrued interest (1.4) (1.3) (1.4)
Total working capital
(including debt and
cash items) $184.7 $125.5 $161.8
Current ratio 2.0 1.6 2.1
Acid test ratio 1.1 .9 1.2
The increase in the current ratio from 1994 to 1995 is attributable to lower
current liabilities, i.e., short-term borrowing of $3.6 million at year end
1995 as compared with $42.8 million at December 31, 1994. The reduction in
the current ratio from 1993 to 1994 was due to higher current liabilities,
mainly short-term borrowing which amounted to $42.8 million at year end 1994
as compared with none at December 31, 1993.
PROPERTY ADDITIONS
Property additions, including acquisitions, totaled $125.6 million in 1995,
down 21% from the 1994 level of $159.8 million. The Company classifies its
property additions into three categories based upon the predominant purpose
of the project, as explained on page 47.
The table below summarizes property additions by each category (amounts
in millions):
Project Purpose 1995 1994 1993
Replacement $ 69.0 $ 53.0 $ 48.7
Environmental control 8.4 3.9 7.1
Subtotal 77.4 56.9 55.8
Profit adding:
Acquisitions 12.3 58.1 4.2
Other 35.9 44.8 40.6
Subtotal 48.2 102.9 44.8
Total $125.6 $159.8 $100.6
Total property additions were lower in 1995 due to less spending for
acquisitions by the Chemicals segment. The increase in property additions in
1994 reflects higher spending for acquisitions by the Chemicals segment.
Commitments for capital expenditures were $17.0 million at December 31, 1995.
This included $11.9 million referable to various Chemicals projects. Cash
flow for the next year is expected to be adequate to cover commitments.
SHORT-TERM BORROWINGS AND INVESTMENTS
During most of the years 1993 through 1995, the Company was in a net
short-term borrowing position. Short-term borrowings in 1995 reached a
maximum of $93.9 million, averaged $39.9 million and were $3.6 million at year
end. Comparable 1994 amounts were $91.7 million, $36.0 million and $42.8
million, respectively.
Details pertaining to short-term borrowings during the last three years
(dollar amounts in millions) are as follows:
1995 1994 1993
Year end $ 3.6 $42.8 $ -
Maximum outstanding $93.9 $91.7 $64.0
Average outstanding $39.9 $36.0 $25.5
Weighted average interest rate 6.4% 4.8% 3.2%
The above interest rate averages were computed using daily outstanding
principal amounts.
The Company's policy is to maintain unused bank lines of credit and/or
committed credit facilities at least equal to its outstanding commercial
paper. Unsecured bank lines of credit totaling $130.0 million were maintained
at the end of 1995. Standard & Poor's Corporation and Moody's Investors
Services, Inc. have assigned ratings of A-1+ and P-1, respectively, to the
Company's commercial paper.
The investment of excess cash during the last three years (dollar amounts
in millions) is shown below:
1995 1994 1993
Year end $16.0 $ - $ -
Maximum invested $45.0 $45.1 $26.2
Average invested $ 3.5 $ 7.7 $ 7.2
Taxable-equivalent yield 7.1% 4.7% 3.3%
LONG-TERM OBLIGATIONS
During 1995 the Company reduced its total long-term obligations by $7.1
million to $90.3 million as compared with a net decrease of $4.6 million in
1994. During the three-year period ended December 31, 1995, long-term
obligations decreased cumulatively by $17.0 million from the $107.3 million
outstanding at December 31, 1992.
During the same three year period, shareholders' equity, net of common stock
purchases of $118.7 million and dividends of $146.3 million, increased by
$96.5 million to $796.6 million. The Company's overall long-term capital
position is shown in the following table (dollar amounts in millions and as of
year end):
1995 1994 1993
Long-term debt $ 90.3 $ 97.4 $102.0
Other noncurrent liabilities 151.5 140.8 132.8
Shareholders' equity 796.6 731.6 703.0
Total long-term capital $1,038.4 $969.8 $937.8
Long-term debt
as a percent of:
Total long-term capital 8.7% 10.0% 10.9%
Shareholders' equity 11.3% 13.3% 14.5%
Net cash provided by
continuing operations
as a percent of
long-term debt 296% 215% 190%
Ratio of earnings to
fixed charges 13.3 7.9 8.1
Although the future ratio of long-term obligations to total long-term capital
will depend upon specific investment and financing decisions, management
believes the Company's cash-generating capability, along with its financial
strength and business diversification, can reasonably support a ratio of 25%
to 30%. The actual ratio at the end of 1995 was 8.7%. The Company has made
acquisitions from time to time and will continue actively to pursue
attractive investment opportunities. If financing is required for this
purpose, it may be accomplished temporarily on a short-term basis or by
incurring long-term debt.
Letters of intent to acquire Lion Industries and Mayo Chemical Company through
the Chemicals segment have been announced. Subject to normal due diligence
reviews and related negotiations, the Company plans to close these
transactions by the second quarter of 1996.
The Company's long-term borrowing requirements can be satisfied in either the
public debt or private placement markets. The Company's medium-term notes
issued in 1991 are rated AA- by Standard & Poor's and A1 by Moody's.
COMMON STOCK
During 1995 the Company purchased 947,908 shares of its common stock at a cost
of $50.1 million, equal to an average price of $52.90 per share. The acquired
shares are being held for general corporate purposes, including distributions
under management incentive plans. The Company's decisions to purchase shares
of common stock are made based upon the common stock's valuation and price,
the Company's liquidity, its actual and projected needs for cash for
investment projects and regular dividends, and the Company's debt level.
The number and cost of shares purchased during each of the last three years
is shown below:
1995 1994 1993
Shares purchased:
Number 947,908 603,700 895,015
Total cost (millions) $50.1 $28.6 $40.0
Average cost $52.90 $47.39 $44.68
Shares in treasury at year end:
Number 11,602,590 10,666,952 10,224,218
Average cost $37.34 $35.93 $35.03
The number of shares remaining under the current purchase authorization was
1,599,792 shares as of December 31, 1995.
CAPITAL EMPLOYED
During 1995 total average capital employed in continuing operations was
$1,042.2 million, up $49.1 million from the 1994 average of $993.1 million.
The latter figure reflects an increase of $30.2 million, or 3%, from the
$962.9 million employed on average in 1993. Average capital employed in the
Company's business segments is shown in the table below (amounts in
millions):
1995 1994 1993
Construction Materials $ 681.5 $688.1 $707.4
Chemicals 353.9 294.0 248.5
Cash items 6.8 11.0 7.0
Total $1,042.2 $993.1 $962.9
The sources and deployment of the year-to-year increases in total average
capital employed are shown below (amounts in millions; brackets indicate
a decrease):
1994-95 1993-94
Sources:
Short-term debt $ 6.2 $ 14.2
Long-term obligations (5.8) (6.5)
Other noncurrent liabilities 9.7 (5.4)
Shareholders' equity 39.0 27.9
Total $ 49.1 $ 30.2
Deployment:
Construction Materials $ (6.6) $(19.3)
Chemicals 59.9 45.5
Cash items (4.2) 4.0
Total $ 49.1 $ 30.2
During the period 1991 through 1995, total average capital employed in
continuing operations has grown at an average annual compound rate of 2.0%,
or by the cumulative amount of $127.3 million. During this period,
interest-bearing debt has increased by $29.6 million and, as a percent
of average capital employed, has increased from 12.0% to 13.3%.
The following summary indicates the sources and deployment of the increase in
average capital employed from 1991 to 1995 (amounts in millions):
Amount
of Increase % of
(Decrease) Total
Sources:
Short-term debt $(16.5) (13)%
Long-term obligations 46.1 36
Other noncurrent liabilities .6 1
Shareholders' equity 97.1 76
Total $127.3 100 %
Deployment:
Construction Materials $ 24.7 19 %
Chemicals 125.0 98
Cash items (22.4) (17)
Total $127.3 100 %
SUPPLEMENTARY INFORMATION - QUARTERLY FINANCIAL DATA
Amounts in millions, except per share data
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
1995
Net sales..............................................$294.4 $382.8 $422.0 $361.8 $1,461.0
Gross profit........................................... 58.8 113.2 133.8 110.5 416.3
Net earnings .......................................... 16.0 47.7 59.1 43.4 166.2
Primary and fully diluted earnings per share........... 0.44 1.32 1.64 1.23 4.63
1994
Net sales..............................................$216.9 $326.7 $360.4 $349.4 $1,253.4
Gross profit........................................... 21.0 77.4 90.4 79.4 268.2
Net earnings (loss).................................... (5.2) 33.7 37.6 31.9 98.0
Primary and fully diluted earnings (loss) per share.... (0.14) 0.92 1.02 0.87 2.67
1993
Net sales..............................................$214.1 $306.0 $331.4 $282.0 $1,133.5
Gross profit........................................... 29.7 74.0 85.1 57.9 246.7
Net earnings (loss).................................... (0.5) 31.6 36.6 20.5 88.2
Primary and fully diluted earnings (loss) per share.... (0.01) 0.84 0.99 0.57 2.39
Consolidated Statements of Earnings
Vulcan Materials Company and Subsidiary Companies
For the Years Ended December 31, 1995, 1994 and 1993
Amounts and shares in thousands, except per share data
1995 1994 1993
Net sales................................................$1,460,974 $1,253,360 $1,133,489
Cost of goods sold....................................... 1,044,710 985,198 886,764
Gross profit on sales.................................... 416,264 268,162 246,725
Selling, administrative and general expenses............. 159,829 125,036 111,085
Other operating costs.................................... 6,347 5,526 4,987
Other income, net
Interest income........................................ 1,099 1,224 1,013
Other, net............................................. 18,333 16,903 2,727
Total other income, net..................... 19,432 18,127 3,740
Earnings before interest expense and income taxes........ 269,520 155,727 134,393
Interest expense (Note 4)................................ 11,099 9,821 9,171
Earnings before income taxes............................. 258,421 145,906 125,222
Provision for income taxes (Note 7)
Current................................................ 86,437 41,339 37,460
Deferred............................................... 5,744 6,591 (467)
Total provision for income taxes............ 92,181 47,930 36,993
Net earnings.............................................$ 166,240 $ 97,976 $ 88,229
Primary and fully diluted net earnings per share......... $4.63 $2.67 $2.39
Dividends per share...................................... $1.46 $1.32 $1.26
Average common and common equivalent shares outstanding.. 35,933 36,683 36,975
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONSOLIDATED BALANCE SHEETS
Vulcan Materials Company and Subsidiary Companies
As of December 31, 1995, 1994 and 1993
Amounts in thousands
1995 1994 1993
Assets
Current assets
Cash and cash equivalents (Note 2)..............................$ 21,869 $ 7,717 $ 13,996
Accounts and notes receivable:
Customers, less allowance for doubtful accounts:
1995, $8,176; 1994, $8,244; 1993, $7,284.................. 178,966 179,315 141,606
Other......................................................... 2,094 2,813 8,798
Inventories (Note 3)........................................... 126,801 112,481 105,017
Deferred income taxes........................................... 26,555 29,074 26,898
Prepaid expenses................................................ 5,836 5,398 6,298
Total current assets................................. 362,121 336,798 302,613
Investments and long-term receivables............................. 56,272 58,138 56,505
Property, plant and equipment, net (Note 4)....................... 698,033 701,757 657,785
Deferred charges and other assets (Note 8)........................ 99,368 84,451 61,648
Total ...............................................$1,215,794 $1,181,144 $1,078,551
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt............................$ 7,070 4,687 $ 1,671
Notes payable (Note 2).......................................... 3,569 42,779 -
Trade payables and accruals..................................... 98,253 102,394 89,504
Accrued income taxes............................................ 22,262 19,423 14,450
Accrued salaries and wages...................................... 28,658 23,068 20,437
Accrued interest................................................ 1,300 1,415 1,356
Other accrued liabilities (Note 9).............................. 16,297 17,582 13,397
Total current liabilities............................ 177,409 211,348 140,815
Long-term debt (Note 5)........................................... 90,278 97,380 102,035
Deferred income taxes (Note 7).................................... 85,935 82,507 74,193
Deferred management incentive and other compensation (Note 8)..... 26,618 21,575 17,885
Other postretirement benefits (Note 8)............................ 32,717 29,835 27,377
Other noncurrent liabilities (Note 9)............................. 6,199 6,870 13,283
Other commitments and contingent liabilities (Note 9)
Shareholders' equity
Common stock, $1 par value...................................... 46,573 46,573 46,573
Capital in excess of par value.................................. 9,089 8,585 4,587
Retained earnings............................................... 1,174,171 1,059,779 1,009,912
Total................................................ 1,229,833 1,114,937 1,061,072
Less cost of stock in treasury.................................. 433,195 383,308 358,109
Total shareholders' equity........................... 796,638 731,629 702,963
Total................................................$1,215,794 $1,181,144 $1,078,551
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Vulcan Materials Company and Subsidiary Companies
For the Years Ended December 31, 1995, 1994 and 1993
Amounts in thousands
1995 1994 1993
OPERATIONS
Net earnings ....................................................$ 166,240 $ 97,976 $ 88,229
Adjustments to reconcile net earnings to net cash provided
by continuing operations:
Depreciation, depletion and amortization................... 110,677 106,695 102,780
(Increase) decrease in assets before effects
of business acquisitions:
Accounts and notes receivable...................... 3,634 (21,188) 991
Inventories....................................... (11,899) 965 3,199
Deferred income taxes............................. 2,519 (2,176) (2,294)
Prepaid expenses.................................. (362) 1,056 (1,085)
Increase (decrease ) in liabilities before effects
of business acquisitions:
Accrued interest and income taxes................. (355) (84) (27)
Trade payables, accrual, etc...................... (1,352) 16,457 5,906
Deferred income taxes............................ 3,428 8,314 1,810
Other noncurrent liabilities..................... 7,255 (266) (10,564)
Issuance of common stock in connection
with Performance Share Plan............................. 699 998 904
Other, net................................................. (13,126) 470 4,246
Net cash provided by continuing operations ............ 267,358 209,217 194,095
Net cash used for discontinued operations (Note 9)..... (902) (958) (1,077)
Net cash provided by operations........................ 266,456 208,259 193,018
INVESTING ACTIVITIES
Purchases of property plant and equipment........................ (109,174) (100,090) (95,977)
Payment for business acquisitions................................ (27,172) (87,540) (4,507)
Proceeds from sale of property, plant and equipment.............. 31,881 15,358 6,009
Net investment in nonconsolidated companies...................... (1,913) (2,112) (9,336)
Net cash used for investing activities................. (106,378) (174,384) (103,811)
FINANCING ACTIVITIES
Net borrowings (payments)
- commercial paper and bank lines of credit................ (39,211) 42,779 -
Payment of short-term debt....................................... (4,687) (1,809) (1,184)
Payment of long-term debt........................................ (32) (4,403) (3,414)
Purchases of common stock (Note 10).............................. (50,148) (28,612) (39,986)
Dividends paid................................................... (51,848) (48,109) (46,296)
Net cash used for financing activities................. (145,926) (40,154) (90,880)
Net decrease in cash and cash equivalents........................ 14,152 (6,279) (1,673)
Cash and cash equivalents at beginning of year................... 7,717 13,996 15,669
Cash and cash equivalents at end of year.........................$ 21,869 $ 7,717 $ 13,996
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Consolidated Statements of Shareholders' Equity
Vulcan Materials Company and Subsidiary Companies
For the Years Ended December 31, 1995, 1994 and 1993
Amounts and shares in thousands
1995 1994 1993
Shares Amount Shares Amount Shares Amount
Common stock, $1 par value
Authorized:160,000 shares
Issued (no changes in 1995, 1994
and 1993)....................... 46,573 $ 46,573 46,573 $ 46,573 46,573 $ 46,573
Capital in excess of par value
Balance at beginning of year....... 8,585 4,587 3,962
Shares issued in connection with
the acquisition of business .... - 3,490 -
Distributions under Performance
Share Plan....................... 414 514 604
Distributions under Stock Plan for
Non-employee Directors.......... 24 23 21
Other.............................. 66 (29) -
Balance at end of year............. 9,089 8,585 4,587
Retained earnings
Balance at beginning of year....... 1,059,779 1,009,912 967,979
Net earnings....................... 166,240 97,976 88,229
Cash dividends on common stock (51,848) (48,109) (46,296)
Balance at end of year............. 1,174,171 1,059,779 1,009,912
Common stock held in treasury
Balance at beginning of year....... (10,666) (383,308) (10,224) (358,109) (9,350) (318,402)
Shares issued in connection with
the acquisition of business .... - - 140 2,952 -
Purchase of common shares.......... (948) (50,148) (604) (28,612) (895) (39,985)
Distributions under Performance
Share Plan...................... 11 247 21 442 20 270
Distributions under Stock Plan for
Non-employee Directors.......... 1 14 1 19 1 8
Balance at end of year............. (11,602) (433,195) (10,666) (383,308) (10,224) (358,109)
Total....................... $ 796,638 $ 731,629 $ 702,963
<FN>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority or wholly-owned subsidiary companies. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Investments in joint ventures and the common stock of associated companies in
which the Company has ownership interests of 20% to 50% are accounted for by
the equity method. All other investments are carried at the lower of cost or
market, and income is recorded as dividends are received or interest is
earned.
CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid securities with
a maturity of three months or less at the time of purchase.
INVENTORIES
The Company uses the last-in, first-out (LIFO) method of valuation for most of
its inventories because it results in a better matching of costs with
revenues. Inventories, other than operating supplies, are stated at the lower
of cost, as determined by the LIFO method, or market. Such cost includes raw
materials, direct labor and production overhead. Substantially all operating
supplies are carried at average cost, which does not exceed market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less allowances for
accumulated depreciation, depletion and amortization. The cost of properties
held under capital leases is equal to the lower of the net present value of
the minimum lease payments or the fair value of the leased property at the
inception of the lease.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation is computed by the straight-line method at rates based upon the
estimated service lives of the various classes of assets, which include
machinery and equipment, buildings and land improvements. Amortization of
capitalized leases is included with depreciation expense.
Cost depletion on depletable quarry land is computed by the unit of production
method based upon estimated recoverable units.
Leaseholds are amortized over varying periods not in excess of applicable
lease terms.
OTHER COSTS
Income is charged as costs are incurred for start-up of new plants and for
normal recurring costs of mineral exploration, removal of overburden from
active mineral deposits, and research and development.
Repairs and maintenance are charged to costs and operating expenses. Renewals
and betterments which add materially to the utility or useful lives of
property, plant and equipment are capitalized.
Environmental expenditures that pertain to current operations or relate to
future revenues are expensed or capitalized consistent with the Company's
capitalization policy. Expenditures that relate to an existing condition
caused by past operations and do not contribute to future revenue are
expensed. Environmental compliance costs include maintenance and operating
costs with respect to pollution control facilities, the cost of ongoing
monitoring programs and similar costs. Costs are expensed and accrued as
liabilities when environmental assessments and/or remedial efforts are
probable, and the cost can be reasonably estimated. These amounts are accrued
no later than the feasibility study and/or when the Company commits to a
formal plan of action.
INCOME TAXES
Annual provisions for income taxes are based primarily on reported earnings
before income taxes and include appropriate provisions for deferred income
taxes resulting from the tax effect of the difference between the tax basis
of assets and liabilities and their carrying amounts for financial reporting
purposes. In addition, such provisions reflect adjustments for the
following items:
Permanent differences, principally the excess of percentage
depletion over the tax basis of depletable properties.
An estimate of additional cost that may be incurred,
including interest on deficiencies but excluding adjustments
representing temporary differences, upon final settlement of
returns after audit by various taxing authorities.
Balances or deficiencies in prior year provisions that become
appropriate as audits of those years progress.
EARNINGS PER SHARE
Primary and fully diluted earnings per share of common stock are computed
by dividing net earnings by the weighted average number of common shares and
common share equivalents outstanding during the year. Common share
equivalents represent the number of shares contingently issuable under
long-term performance share plans and the stock plan for non-employee
directors.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. CASH
Bank lines of credit amounted to $130,000,000 at year end 1995 and 1994, and
$70,000,000 at the end of 1993. At year end 1995 the Company did not have any
commercial paper outstanding, but did have $3,400,000 in bank borrowings
referable to a Canadian subsidiary. At the end of 1994, $35,000,000 was used
to back up commercial paper outstanding and $7,800,000 was drawn down as bank
borrowings. The lines were not in use at the end of 1993.
All of the lines of credit extended to the Company in 1995, 1994 and 1993 were
based on a commitment fee arrangement. The Company also maintained balances
or paid fees to compensate its banks for certain services. The Company was in
compliance with these informal compensation arrangements during all three
years. Because the arrangements are evaluated on a twelve-month average
basis, the Company does not consider any of its cash balances to be restricted
as of any specific date.
3. INVENTORIES
Inventories at December 31 are as follows (in thousands of dollars):
1995 1994 1993
Finished products $ 90,009 $ 77,721 $ 75,954
Raw materials 10,062 9,248 3,856
Products in process 979 622 965
Operating supplies and other 25,751 24,890 24,242
Total inventories $126,801 $112,481 $105,017
The above amounts include inventories valued under the last-in, first-out
(LIFO) method totaling $97,959,000, $79,909,000 and $80,614,000 at
December 31, 1995, 1994 and 1993, respectively. Estimated current cost
exceeded LIFO cost at December 31, 1995, 1994 and 1993 by $36,899,000,
$29,049,000 and $32,986,000, respectively. If all inventories valued at LIFO
cost had been valued under the methods (substantially average cost) used prior
to the adoption of the LIFO method, the approximate effect on net earnings
would have been an increase of $4,784,000 ($.13 per share effect) in 1995, a
decrease of $2,476,000 ($.07 per share effect) in 1994 and an increase of
$387,000 ($.01 per share effect) in 1993.
4. PROPERTY, PLANT AND EQUIPMENT
Balances of major classes of assets and allowances for depreciation, depletion
and amortization at December 31 are as follows (in thousands of dollars):
1995 1994 1993
Land and land
improvements $ 203,920 $ 206,457 $ 200,856
Buildings 77,732 76,629 62,995
Machinery and equipment 1,536,742 1,486,577 1,372,667
Leaseholds 6,483 6,471 5,575
Construction in progress 34,559 32,754 55,912
Total 1,859,436 1,808,888 1,698,005
Less allowances for
depreciation, depletion
and amortization 1,161,403 1,107,131 1,040,220
Property, plant and
equipment, net $ 698,033 $ 701,757 $ 657,785
The Company capitalized interest cost of $297,000 in 1995, $878,000 in 1994
and $1,016,000 in 1993 with respect to qualifying construction projects.
Total interest cost incurred before recognition of the capitalized amount was
$11,396,000 in 1995, $10,699,000 in 1994 and $10,187,000 in 1993.
5. DEBT
Long-term debt, exclusive of current maturities, at December 31 is summarized
as follows (in thousands of dollars):
1995 1994 1993
Medium-term notes $ 71,000 $76,000 $ 80,000
6 5/8% pollution control
revenue bonds 6,800 6,800 6,800
6 3/8% pollution control
revenue bonds 5,800 5,800 5,800
Variable rate pollution control
revenue bonds 1,200 3,000 3,350
Other notes 5,478 5,780 6,085
Total $ 90,278 $97,380 $102,035
Estimated fair value $101,782 $98,597 $114,372
In May 1991 the Company filed a shelf registration statement with the
Securities and Exchange Commission for the registration of $200,000,000
principal amount of debt securities. The issuances of these medium-term notes
in 1991 totaled $81,000,000. The dollar-weighted average maturity of the
notes, as calculated from the dates of issuance, approximated 13 years.
Maturities at the time of issuance ranged from three to thirty years with a
maximum of $10,000,000 due in any one year. At that time, the weighted
average interest rate on the notes was 8.53% with a range of 7.59% to 8.85%.
The $71,000,000 in notes outstanding as of December 31, 1995 have a weighted
average maturity of 10.0 years with a weighted average interest rate of
8.60%.
The 6 5/8% pollution control revenue bonds issued on behalf of the Company in
1978 are payable in installments of $1,000,000 in the years 1998 and 1999 and
installments of $1,200,000 in the years 2000-2003. The 7 7/8% and 8%
pollution control revenue bonds issued in 1980 were refunded effective
February 1, 1992, at an interest rate of 6 3/8%, and are now payable in 2012.
The variable rate pollution control revenue bonds issued in 1984 are due in
1999 ($1,200,000).
Other notes include $3,000,000 representing a fixed rate tax exempt industrial
development bond issue which matures in 2011 and notes issued for businesses
acquired.
The aggregate principal payments for the five years subsequent to December 31,
1995 are: 1996-$7,074,000; 1997-$5,400,000; 1998-$6,565,000; 1999-$6,565,000;
and 2000-$6,565,000.
The Company is not subject to any contractual restrictions on the aggregate
amount of its indebtedness or minimum working capital, or the amount it may
expend for cash dividends and purchases of its stock.
The estimated fair value amounts of long-term debt have been determined by
discounting expected future cash flows using interest rates on U.S. Treasury
bills, notes or bonds, as appropriate. For cash equivalents, accounts and
notes receivable, current portion of deferred income taxes, accounts payable,
accrued income taxes, accrued interest and other applicable accrued
liabilities, the carrying amounts are a reasonable estimate of fair value.
The fair value estimates presented are based on information available to
management as of December 31, 1995, 1994 and 1993. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued since
those dates.
6. OPERATING LEASES
Total rental expense of nonmineral leases, exclusive of rental payments made
under leases of one month or less, is summarized as follows (in thousands of
dollars):
1995 1994 1993
Minimum rentals $17,234 $16,138 $ 7,600
Contingent rentals (based
principally on usage) 11,205 11,212 10,021
Total $28,439 $27,350 $17,621
Future minimum operating lease payments under all leases with initial or
remaining noncancellable lease terms in excess of one year, exclusive of
mineral leases, at December 31, 1995 range from $2,045,000 to $9,826,000
annually through 2000 and aggregate $8,265,000 thereafter.
Lease agreements frequently include renewal options and require that the
Company pay for utilities, taxes, insurance and maintenance expense.
Options to purchase also are included in some lease agreements.
7. INCOME TAXES
The components of earnings before income taxes are as follows (in thousands
of dollars):
1995 1994 1993
Domestic $253,991 $143,502 $123,932
Foreign 4,430 2,404 1,290
Total $258,421 $145,906 $125,222
Provisions for income taxes consist of the following (in thousands
of dollars):
1995 1994 1993
Current:
Federal $72,332 $34,194 $33,179
State and local 14,087 7,135 4,277
Foreign 18 10 4
Total 86,437 41,339 37,460
Deferred:
Federal 4,861 5,953 (59)
State and local 883 578 (408)
Foreign - 60 -
Total 5,744 6,591 (467)
Total provision $92,181 $47,930 $36,993
The effective tax rate on income differs from the U.S. statutory rate due
to the following:
1995 1994 1993
Federal statutory tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax
rate resulting from:
Depletion (4.5) (7.2) (7.3)
State and local income taxes,
net of federal income
tax benefit 3.8 3.4 2.0
Adjustment to net deferred
income tax liability for
enacted federal tax rate
change - - 0.9
Miscellaneous items 1.4 1.6 (1.1)
Effective tax rate 35.7% 32.8% 29.5%
Deferred income taxes on the balance sheet result from temporary differences
between the amount of assets and liabilities recognized for financial
reporting and tax purposes. The components of the net deferred income tax
liability are as follows (in thousands of dollars):
1995 1994 1993
Deferred tax assets related to:
Accrual for postretirement
benefits $ 13,318 $12,123 $11,117
Accrual for environmental
reclamation 1,604 5,902 8,675
Accounts receivable,
principally allowance
for doubtful accounts 3,592 3,780 3,075
Inventory adjustments 7,278 7,079 7,231
Pensions, incentives and
deferred compensation 10,066 7,142 4,827
Other items 9,518 7,765 6,126
Total deferred tax assets 45,376 43,791 41,051
Deferred tax liabilities related to:
Fixed assets,
principally depreciation 98,821 92,120 83,175
Other items 5,935 5,259 5,171
Total deferred
tax liabilities 104,756 97,379 88,346
Net deferred tax liability $ 59,380 $53,588 $47,295
8. PENSION, OTHER POSTRETIREMENT BENEFITS AND INCENTIVE
COMPENSATION PLANS
PENSION PLANS
The Company sponsors three noncontributory, defined benefit pension plans.
These plans cover substantially all employees other than those covered by
union-administered plans. Normal retirement age is 65, but the plans contain
provisions for earlier retirement. Benefits for the Salaried Plan and the
Chemicals Hourly Plan are based on salaries or wages and years of service; the
Construction Materials Hourly Plan provides benefits equal to a flat dollar
amount for each year of service.
Charges to earnings referable to company-administered pension plans totaled
$1,187,000 in 1995, $3,088,000 in 1994 and $2,148,000 in 1993. Components of
the net periodic pension charges are as follows (in thousands of dollars):
1995 1994 1993
Service cost - benefits earned
during the period $ 8,665 $ 9,551 $ 8,286
Interest cost 18,019 17,167 16,195
Actual return on plan assets (51,744) (3,923) (32,280)
Net amortization and deferral 26,247 (19,707) 9,947
Net periodic pension charge $ 1,187 $ 3,088 $ 2,148
The Company's qualified pension plans have assets in excess of the accumulated
benefit obligation. Plan assets are composed primarily of marketable domestic
and international equity securities, corporate and government debt securities
and real estate. Unrecognized net plan assets at the implementation of SFAS
No. 87, Employers' Accounting for Pensions, in 1986 are being amortized over
the average of the covered employees' remaining service lives, which range
from 12 to 16 years. The following table reconciles the funded status of all
the Company's plans with the related amounts recognized in the Company's
consolidated balance sheets at December 31 (in thousands of dollars):
1995 1994 1993
Actuarial present value of
benefit obligations:
Based on employment
service to date and
current salary levels:
Vested $(174,436) $(134,409) $(139,958)
Nonvested (7,143) (4,792) (5,927)
Accumulated benefit
obligation (181,579) (139,201) (145,885)
Effect of projected future
salary increases (83,011) (68,107) (85,297)
Projected benefit
obligation (264,590) (207,308) (231,182)
Plan assets at fair market
value 305,398 264,174 271,821
Plan assets in excess of
projected benefit
obligation 40,808 56,866 40,639
Unamortized portion of
unrecognized net asset
at implementation of
SFAS No. 87 (13,225) (16,696) (20,167)
Unrecognized net gain (26,057) (38,748) (16,395)
Unrecognized prior
service cost 8,148 9,151 9,308
Net prepaid pension cost $ 9,674 $ 10,573 $ 13,385
Annual net periodic pension charges and credits are calculated using plan
assumptions as of the end of the prior year, whereas the funded status and
related pension obligations are determined using the assumptions as of the end
of the current year. Plan assumptions at December 31 were as follows:
1995 1994 1993
Discount rates used to determine
the pension obligations 7.00% 8.50% 7.25%
Discount rates used to determine
the net periodic cost and
other recognized gains
- First 18 years 8.50 7.25 8.00
- Thereafter 8.50 7.25 6.75
Rates of increase in
compensation levels
(for salary-related plans) 4.25 5.00 5.50
Expected long-term rates of
return on plan assets 8.25 8.25 8.25
The Company funds the pension trusts currently in amounts determined under
the individual entry age level premium method, including benefit increases
expected as a result of projected wage and salary increases occurring between
the date of valuation and the individual retirement dates.
Certain of the Company's hourly employees in unions are covered by
multi-employer defined benefit pension plans. Contributions to these plans
approximated $1,859,000 in 1995, $1,617,000 in 1994 and $1,637,000 in 1993.
The actuarial present value of accumulated plan benefits and net assets
available for benefits for employees in the union-administered plans are not
determinable from available information. Seventeen percent of the labor force
is covered by collective bargaining agreements and 7% are covered by labor
agreements that expire within one year.
POSTRETIREMENT PLANS
In addition to pension benefits, the Company provides certain health care
benefits and life insurance for some retired employees. Substantially all
of the Company's salaried employees and, where applicable, hourly employees
may become eligible for those benefits if they reach at least age 55 and meet
certain service requirements while working for the Company. Generally,
company-provided health care benefits terminate when covered individuals
become eligible for Medicare benefits or reach age 65, whichever
first occurs.
The components of net periodic postretirement benefit charges and credits are
as follows (in thousands of dollars):
1995 1994 1993
Service cost - benefits attributed
to service during the period $1,965 $1,742 $1,536
Interest cost 3,558 2,919 2,792
Actual return on assets (158) (150) (136)
Net amortization and deferral 209 329 178
Net periodic postretirement
benefit cost $5,574 $4,840 $4,370
The Company funds the postretirement benefits plan each year through
contributions to a trust fund for health care benefits and through payments of
premiums to providers of life insurance. All assets of the plan relate to the
life insurance and are composed of reserves held by the insurer. The
following table sets forth the combined funded status of the plan and its
reconciliation with the related amounts recognized in the Company's
consolidated balance sheets at December 31 (in thousands of dollars):
1995 1994 1993
Accumulated postretirement
benefit obligation:
Retirees $(11,355) $(10,570) $(11,471)
Fully eligible active
plan participants (13,658) (11,934) (11,982)
Other active plan participants (19,478) (18,439) (16,004)
Total accumulated
postretirement
benefit obligation (44,491) (40,943) (39,457)
Plan assets at fair market value 2,842 2,628 2,378
Accumulated postretirement benefit
obligation in excess of
plan assets (41,649) (38,315) (37,079)
Unrecognized prior service cost 6 6 7
Unrecognized net loss 7,726 7,274 8,495
Accrued postretirement
benefit cost $(33,917) $(31,035) $(28,577)
Annual net periodic postretirement benefit charges and credits are calculated
using plan assumptions as of the end of the prior year, whereas the funded
status and related benefit obligations are determined using the assumptions
as of the end of the current year. Plan assumptions at December 31 were
as follows:
1995 1994 1993
Discount rates 7.00% 8.50% 7.25%
Expected long-term rate of
return on plan assets 7.00 7.00 7.00
Rate of increase in per
capita claims cost
- First year 10.00 12.00 13.00
- Ultimate rate 5.00 6.00 6.00
If the health care cost trend rates were increased 1.0% each year, the
accumulated postretirement benefit obligation as of December 31, 1995 would
have increased by $4,582,000 (or 10.3%) and the aggregate of the service and
interest cost for 1995 would have increased by $580,000 (or 10.5%).
INCENTIVE COMPENSATION PLANS
The Company has incentive compensation plans under which awards are made to
officers and other key employees. Expense provisions referable to the plans
amounted to $13,374,000 in 1995, $7,494,000 in 1994 and $4,295,000 in 1993.
The expense provisions for these plans reflect the cost of distributions
payable currently as well as distributions that may be payable in future
periods if certain conditions are satisfied. Expense provisions for certain
of the plans also are affected by changes in the market value of the Company's
common stock.
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which will be effective for fiscal
years beginning after December 15, 1995. The new standard defines a fair
value method of accounting for stock-based compensation. Under the fair value
method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service period, which is usually
the vesting period.
Pursuant to the new standard, companies are encouraged, but are not required,
to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, but would be required to disclose in a note to the
financial statements pro forma net income and earnings per share as if the
company had applied the new method of accounting. The Company intends to
continue to account for stock-based compensation under Opinion No. 25.
Adoption of the new standard will have no effect on the Company's cash flows.
9. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
In 1987 the Company formed three jointly owned companies with Industrias ICA,
S.A. de C.V., ("Indica"), a principal member of Grupo ICA, one of Mexico's
leading diversified industrial entities, to develop and operate a limestone
quarry on Mexico's Yucatan Peninsula and to import Mexican crushed stone for
sale along the U.S. Gulf Coast (the "Crescent Market Project"). The
shareholder agreements for these three companies provide that each sponsor
will contribute its share of the equity required to fund the project. The
Company's share of $68,608,000 had been contributed as of December 31, 1995;
Indica contributed a substantially equal pro rata amount. Two of the jointly
owned companies have entered into term loan agreements which have current
balances totaling $47,801,000. The Company and Indica have agreed to
guarantee these loans on a several and pro rata basis equal to approximately
50% each. Certain of the loan guarantees will be terminated if and when the
project meets defined financial tests. In addition, the Company has
approximately $3,700,000 outstanding from the three companies at December 31,
1995 as its share of loans to the project. The carrying amount of net assets
of these entities located outside the United States was $42,959,000 as of
December 31, 1995.
Other commitments of the Company include the purchase of property, plant and
equipment approximating $17,044,000 at December 31, 1995.
The Company is a defendant in various lawsuits incident to the ordinary course
of business. It is not possible to determine with precision the probable
outcome or the amount of liability, if any, under these lawsuits; however, in
the opinion of the Company and its counsel, the disposition of these lawsuits
will not adversely affect the consolidated financial statements of the Company
to a material extent.
The Company received a letter from the United States Environmental Protection
Agency ("EPA") in May 1985 regarding remedial actions at a chemical waste site
in Ascension Parish, Louisiana (the "Reber Site"). Records indicate that the
Company generated a portion of the waste placed at the site, and the Company
therefore was deemed by the EPA to be a potentially responsible party ("PRP")
with respect to the site under the Comprehensive Environmental Response,
Compensation and Liability Act.
On February 5, 1991, the EPA issued a unilateral administrative order ("UAO")
which directed the named respondents, including the Company and other PRPs, to
clean up the site. During 1995, the Company and the other participating PRPs
completed active site remediation. Site capping and certain other remaining
work required under the UAO is expected to be completed in the second quarter
of 1996. The Company is continuing to make payments from its accrued reserve
to fund its allocated share under the Agreement of costs associated with
remediating the Reber site. The Company believes that total provisions now
recorded are adequate to cover its share of the anticipated remaining costs.
The Company's consolidated balance sheets as of December 31 include accrued
environmental cleanup costs for the Chemicals segment of $2,765,000 for 1995,
$12,867,000 for 1994 and $19,100,000 for 1993.
In 1987 the Company discontinued its former Metals segment and recorded a loss
on disposal that reflected provisions for phaseout costs, including the
estimated cost of contractual liabilities associated with remediation of
environmental conditions at several Metals plants. An additional provision
for estimated phaseout costs was recorded in 1989. The Company has made
significant progress in addressing these contractual liabilities by completing
several environmental remediation projects at certain of these Metals plants.
Expenditures for these projects were within recorded provisions. While the
Company believes its recorded provisions are adequate to address the remainder
of these contractual liabilities and other liabilities associated with these
operations, factors that might impact the adequacy of provisions include the
results of further environmental testing, engineering analyses and planning,
and negotiations among interested parties.
Current liabilities reported on the Company's consolidated balance sheets
include accrued provisions for discontinued operations in the following
amounts as of December 31: $1,805,000 in 1995, $2,649,000 in 1994 and
$1,583,000 in 1993. In addition, other noncurrent liabilities include
$493,000 each in 1995 and 1994 and $2,650,000 in 1993 referable to
discontinued operations.
10. COMMON STOCK
A total of 12,051,571 shares has been purchased at a cost of $442,671,000
pursuant to a common stock purchase plan initially authorized by the Board of
Directors in July 1985 and increased in subsequent years, and pursuant to a
tender offer during the period November 5, 1986 through December 4, 1986. The
number of shares remaining under purchase authorizations is 1,599,792 shares.
11. SEGMENT DATA
Operations in the Company's Construction Materials segment principally involve
the production and sale of crushed aggregates and related products and
services. Sales are in 14 states located in the southeast, midwest and
southwest regions of the United States. Customers primarily use crushed
aggregates in the construction and maintenance of highways, roads and streets
and in the construction of housing and nonresidential, commercial and
industrial facilities.
The Chemicals segment, through its Chloralkali Business Unit, produces and
sells basic industrial and specialty chemicals, including chlorine, caustic
soda and chlorinated organic chemicals. Principal markets for these chemicals
include pulp and paper, energy, food and pharmaceuticals, textiles, water
treatment, and chemical processing. The Performance Systems Business Unit
provides specialty process aids for the pulp and paper and textile industries
and furnishes the municipal, industrial and environmental water treatment
markets with chemicals and services. Products are principally marketed
throughout the United States, but are also exported to Mexico, the Far East
and Western Europe.
Segment data referable to net sales to unaffiliated customers, property
additions, and depreciation, depletion and amortization are provided in
Segment Financial Data on pages 56 and 57.
The Company's determination of segment earnings recognizes equity in the
income or losses of nonconsolidated affiliates as part of segment earnings and
also reflects allocations of general corporate expenses to the segments. SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise, does not
provide for the inclusion of these items in "operating profit or loss of
reportable segments." The net amounts of those items were expenses of
$22,533,000 in 1995, $14,110,000 in 1994 and $15,542,000 in 1993.
Segment earnings are reconciled with earnings before income taxes as follows
(in thousands of dollars):
1995 1994 1993
Segment Earnings:
Construction Materials $181,528 $162,505 $116,689
Chemicals 87,792 (7,349) 17,400
269,320 155,156 134,089
Interest income, etc. 200 571 304
Interest expense (11,099) (9,821) (9,171)
Earnings before income taxes $258,421 $145,906 $125,222
Identifiable assets by segment at December 31 are as follows (in thousands
of dollars):
1995 1994 1993
Construction Materials $ 690,044 $ 678,793 $ 670,079
Chemicals 395,487 389,491 288,720
Total identifiable assets 1,085,531 1,068,284 958,799
Investment in
nonconsolidated affiliates 50,780 53,902 51,054
General corporate assets 57,614 51,241 54,702
Cash items 21,869 7,717 13,996
Total assets $1,215,794 $1,181,144 $1,078,551
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to the Consolidated Statements of Cash
Flows is summarized below (amounts in thousands):
1995 1994 1993
Cash payments:
Interest (exclusive of
amount capitalized) $11,214 $ 9,762 $ 9,198
Income taxes 85,324 36,846 41,393
Noncash investing and
financing activities:
Amounts referable to
business acquisitions:
Liabilities assumed 1,382 12,198 -
Fair value of stock issued - 6,443 -
13. CALLAWAY CHEMICAL ACQUISITION
On August 1, 1994, the Company acquired the net assets and business of
Callaway Chemical Company from Exxon Chemical Company. In a related
transaction, the Company also acquired the net assets and business of Comcor
Chemicals Limited from Exxon Corporation's affiliated Canadian company,
Imperial Oil Limited. The Company paid cash for the assets acquired. The
purchase price paid for all assets, including net working capital, was
approximately $82,000,000. Funds for the purchase price were primarily
obtained by the Company through issuance and sale of short-term notes.
On a pro forma basis, as if the assets and businesses had been acquired at the
beginning of each fiscal year, consolidated revenues of the Company would have
increased by $51,800,000 in 1994 and $84,900,000 in 1993. On a pro forma
basis, net income and earnings per share would not differ materially with
amounts reflected in the Company's consolidated financial statements. Pro
forma results do not purport to be indicative of results of operations which
may be obtained in the future.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
AND INTERNAL CONTROL
The Shareholders of Vulcan Materials Company:
Vulcan's management acknowledges and accepts its responsibility for all the
information contained in the financial statements and other sections of this
report. The statements were prepared in conformity with generally accepted
accounting principles appropriate in the circumstances and we believe they
reflect fairly the Company's financial position, results of operations and
cash flows for the periods shown. The financial statements necessarily
reflect our informed judgments and estimates of the expected outcome of
numerous current events and transactions.
The Company maintains an internal control structure which we believe provides
reasonable assurance that the Company's financial statements, books and
records accurately reflect the Company's financial condition, results of
operations and cash flows and that the Company's assets are safeguarded from
loss or unauthorized use. This internal control structure includes
well-defined and communicated policies and procedures, organizational
structures that provide for appropriate separations of responsibilities, high
standards applied in the selection and training of management personnel, and
adequate procedures for properly assessing and applying accounting principles,
including careful consideration of the accuracy and appropriateness of all
significant accounting estimates. Vulcan also has an internal audit function
that continually reviews compliance with established policies and procedures.
The Company's independent auditors, Deloitte & Touche LLP, consider the
internal control structure as a part of their audits of the Company's
financial statements and provide an independent opinion as to the fairness of
the presentation of those statements. Their report is presented below.
The Board of Directors pursues its oversight role for the financial statements
and internal control structure in major part through the Audit Review
Committee, which is composed of five outside directors. In addition, the full
Board regularly reviews detailed management reports covering all aspects of
the Company's financial affairs. The Audit Review Committee meets
periodically with management, the independent auditors and the internal
auditors to review the work of each and to ensure that each is properly
discharging its responsibilities. To ensure independence, the Committee also
meets on these matters with the internal and independent auditors without the
presence of management representatives.
/s/ D. F. Sansone
D. F. Sansone
Vice President, Finance
/s/ E. A. Khan
E. A. Khan
Controller
February 2, 1996
INDEPENDENT AUDITORS' REPORT
The Shareholders of Vulcan Materials Company:
We have audited the accompanying consolidated balance sheets of Vulcan
Materials Company and its subsidiary companies as of December 31, 1995, 1994,
and 1993, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Vulcan Materials Company and its
subsidiary companies at December 31, 1995, 1994 and 1993, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Birmingham, Alabama
February 2, 1996
FINANCIAL TERMINOLOGY
Capital employed For the Company; the sum of interest-bearing debt,
other noncurrent liabilities and shareholders'
equity; for a segment: the net sum of the segment's
assets, current liabilities, and allocated corporate
assets and current liabilities, exclusive of cash
items and short-term debt
Cash items The sum of cash, cash equivalents and short-term
investments
Common shareholders' The sum of common stock (less the cost of common
equity stock in treasury), capital in excess of par value
and retained earnings, as reported in the balance
sheet
Long-term capital The sum of long-term debt, other noncurrent
liabilities and shareholders' equity
Operating income from For the Company: net earnings from continuing
continuing operations operations plus the after-tax cost of interest
after taxes expense; for a segment: segment earnings less the
segment's computed share of the consolidated
provision for income taxes
Property additions * Capitalized replacements of and additions to
property, plant and equipment (and such asses of
businesses acquired), including capitalized leases,
renewals and betterments; each segment's property
additions include allocated corporate amounts
Ratio of earnings to The sum of earnings from continuing operations
fixed charges before income taxes, amortization of capitalized
interest and fixed charges net of interest
capitalization credits, divided by fixed charges.
Fixed charges are the sum of interest expense before
capitalization credits, amortization of financing
costs and one-third of rental expense.
Segment earnings Earnings before interest expense and income taxes
and after allocation of corporate expenses and
income, other than "interest income, etc,"
(principally interest income earned on cash items
and gains or losses on corporate financing
transactions), and after assignment of equity income
to the segments with which it is related in terms of
products and services. Allocations are based
primarily on one or a combination of the following
factors: average gross investment, average equity
and sales.
Short-term debt The sum of current interest-bearing debt, including
current maturities of long-term debt and
interest-bearing notes payable
* The Company classifies its property additions into three categories based
upon the predominant purpose of the project expenditures. Thus, a project
is classified entirely as a replacement if that is the principal reason
for making the expenditure even though the project may involve some cost
saving and/or capacity improvement aspects. Likewise, a profit-adding
project is classified entirely as such if the principal reason for making
the expenditure is to add operating facilities at new locations (which
occasionally replace facilities at old locations), to add product lines,
to expand the capacity of existing facilities, to reduce costs, to
increase mineral reserves or to improve products, etc.
Property additions classified as environmental control expenditures do not
reflect those expenditures for environmental control activities, including
industrial health programs, which are expensed currently. Such
expenditures are made on a continuing basis and at significant levels
in each of the Company's segments. Frequently, profit-adding and major
replacement projects also include expenditures for environmental
control purposes.