VULCAN MATERIALS COMPANY
1996 ANNUAL REPORT
FINANCIAL REVIEW-SELECTED FINANCIAL DATA
Amounts and shares in millions, except per share data
1996 1995 1994 1993 1992
Operations
Net sales............................................ $1,568.9 $1,461.0 $1,253.4 $1,133.5 $1,078.0
Gross profit on sales................................ $ 453.5 $ 416.3 $ 268.2 $ 246.7 $ 249.1
As a percent of net sales.......................... 28.9% 28.5% 21.4% 21.8% 23.1%
Interest expense..................................... $ 8.6 $ 11.1 $ 9.8 $ 9.2 $ 9.8
Net earnings before cumulative effect of
accounting change.................................. $ 188.6 $ 166.2 $ 98.0 $ 88.2 $ 91.0
As a percent of average shareholders' equity..... 22.4% 21.9% 13.6% 12.8% 13.3%
Cumulative effect ofaccounting change................ $ - $ - $ - $ - $ 3.0
Net earnings......................................... $ 188.6 $ 166.2 $ 98.0 $ 88.2 $ 94.0
Primary and fully diluted earnings per common share:
Net earnings before cumulative effect of
accounting change................................ $ 5.36 $ 4.63 $ 2.67 $ 2.39 $ 2.41
Cumulative effect of accounting change............. $ - $ - $ - $ - $ .08
Net earnings....................................... $ 5.36 $ 4.63 $ 2.67 $ 2.39 $ 2.49
Effective tax rate................................... 34.0% 35.7% 32.8% 29.5% 30.4%
Operating income after taxes......................... $ 194.4 $ 173.4 $ 104.5 $ 93.3 $ 98.7
As a percent of average capital employed........... 17.8% 16.6% 10.5% 9.7% 10.3%
LIQUIDITY AND CAPITAL RESOURCES
Working capital...................................... $ 199.4 $ 184.7 $ 125.5 $ 161.8 $ 169.8
Current ratio........................................ 2.0 2.0 1.6 2.1 2.3
Net cash provided by continuing operations........... $ 346.4 $ 267.4 $ 209.2 $ 194.1 $ 199.1
As a percent of long-term obligations (year-end)... 405.1% 296.1% 214.8% 190.2% 185.6%
Ratio of earnings to fixed charges................... 16.0 13.3 7.9 8.1 8.4
Total assets (year-end).............................. $1,320.6 $1,215.8 $1,181.1 $1,078.6 $1,083.9
Average capital employed:
Short-term debt.................................... $ 14.1 $ 45.6 $ 39.4 $ 25.2 $ 24.1
Long-term obligations.............................. 86.9 93.3 99.1 105.6 108.2
Other noncurrent liabilities....................... 152.9 144.7 135.0 140.4 138.4
Shareholders' equity............................... 840.2 758.6 719.6 691.7 686.5
Total............................................ $1,094.1 $1,042.2 $ 993.1 $ 962.9 $ 957.2
Long-term obligations (year-end)..................... $ 85.5 $ 90.3 $ 97.4 $ 102.0 $ 107.3
As a percent of long-term capital................. 7.6% 8.7% 10.0% 10.9% 11.3%
Dividends declared and paid per common share......... $ 1.68 $ 1.46 $ 1.32 $ 1.26 $ 1.20
Total common stock dividends......................... $ 58.4 $ 51.8 $ 48.1 $ 46.3 $ 45.1
Common shares outstanding (year-end)................. 34.2 35.0 35.9 36.3 37.2
SEGMENT FINANCIAL DATA
Amount Percent of Company Total
Amounts in millions 1996 1995 1994 1993 1992 1996 1995 1994 1993 1992
NET SALES
Construction Materials............ $ 961.9 $ 884.7 $ 842.9 $ 756.7 $ 686.4 61% 61% 67% 67% 64%
Chemicals......................... 607.0 576.3 410.5 376.8 391.6 39 39 33 33 36
Total.......................... $1,568.9 $1,461.0 $1,253.4 $1,133.5 $1,078.0 100% 100% 100% 100% 100%
EARNINGS (LOSS) BEFORE INTEREST
EXPENSE AND INCOME TAXES
Construction Materials............ $ 197.3 $ 181.5 $ 162.5 $ 116.7 $ 88.3 67% 67% 104% 87% 63%
Chemicals......................... 94.7 87.8 (7.3) 17.4 51.3 32 33 (5) 13 36
Segment earnings.................. 292.0 269.3 155.2 134.1 139.6 99 100 99 100 99
Interest income, etc.............. 2.2 .2 .5 .3 .9 1 - 1 - 1
Total........................... $ 294.2 $ 269.5 $ 155.7 $ 134.4 $ 140.5 100% 100% 100% 100% 100%
OPERATING INCOME (LOSS)
AFTER TAXES
Construction Materials............ $ 134.9 $ 120.6 $ 108.8 $ 81.6 $ 65.3 69% 70% 104% 87% 66%
Chemicals......................... 58.0 52.7 (4.7) 11.5 32.7 30 30 (4) 12 33
Interest income, etc.............. 1.5 .1 .4 .2 .7 1 - - 1 1
Total........................... $ 194.4 $ 173.4 $ 104.5 $ 93.3 $ 98.7 100% 100% 100% 100% 100%
NET CASH PROVIDED BY
CONTINUING OPERATIONS
Construction Materials............ $ 219.8 $ 182.9 $ 182.5 $ 156.6 $ 141.9 64% 68% 87% 81% 71%
Chemicals......................... 128.8 90.8 31.5 41.1 63.8 37 34 15 21 32
Interest expense, interest
income, etc., net............... (2.2) (6.3) (4.8) (3.6) (6.6) (1) (2) (2) (2) (3)
Total......................... $ 346.4 $ 267.4 $ 209.2 $ 194.1 $ 199.1 100% 100% 100% 100% 100%
PROPERTY ADDITIONS
Construction Materials............ $ 124.1 $ 94.4 $ 69.3 $ 59.3 $ 56.5 66% 75% 43% 59% 57%
Chemicals......................... 63.1 31.2 90.5 41.3 42.0 34 25 57 41 43
Total........................... $ 187.2 $ 125.6 $ 159.8 $ 100.6 $ 98.5 100% 100% 100% 100% 100%
DEPRECIATION, DEPLETION AND
AMORTIZATION
Construction Materials............ $ 75.2 $ 72.0 $ 72.8 $ 74.3 $ 75.5 67% 65% 68% 72% 73%
Chemicals......................... 37.4 38.7 33.9 28.5 27.8 33 35 32 28 27
Total........................... $ 112.6 $ 110.7 $ 106.7 $ 102.8 $ 103.3 100% 100% 100% 100% 100%
AVERAGE CAPITAL EMPLOYED
Construction Materials............ $ 710.6 $ 681.5 $ 688.1 $ 707.4 $ 708.4 65% 65% 69% 73% 74%
Chemicals......................... 356.0 353.9 294.0 248.5 226.4 33 34 30 26 24
Cash items........................ 27.5 6.8 11.0 7.0 22.4 2 1 1 1 2
Total........................... $1,094.1 $1,042.2 $ 993.1 $ 962.9 $ 957.2 100% 100% 100% 100% 100%
OPERATING INCOME (LOSS)
AFTER TAXES AS A PERCENT
OF AVERAGE CAPITAL EMPLOYED
Construction Materials............ 19.0% 17.7% 15.8% 11.5% 9.2%
Chemicals......................... 16.3 14.9 (1.6) 4.6 14.5
Interest income, etc.............. 5.3 1.9 3.4 3.0 3.0
Total........................... 17.8% 16.6% 10.5% 9.7% 10.3%
<FN>
Definitions of certain financial terms used in this report are provided on page 40.
COMMON STOCK MARKET PRICES AND DIVIDENDS
Range of Common Stock Market Prices Dividend Paid Per Share
1996 1995
Quarter Ended High Low High Low 1996 1995
March 31............. $58 1/4 $53 1/8 $57 5/8 $48 1/8 $ .42 $ .365
June 30.............. 59 3/8 55 3/8 58 3/4 54 .42 .365
September 30......... 66 1/2 54 1/2 60 3/8 51 3/4 .42 .365
December 31.......... 65 59 1/2 58 7/8 52 1/2 .42 .365
$1.68 $1.46
The Company's common stock is traded on the New York Stock Exchange (ticker
symbol VMC). As of January 31, 1997, the number of shareholders of record
approximated 4,000.
Dividends paid in 1996 totaled $58,399,000 as compared with $51,848,000
paid in 1995. On February 14, 1997, the Board of Directors authorized a
quarterly dividend of 47 cents per common share payable March 10, 1997. The
new quarterly dividend represents a 12% increase over quarterly dividends paid
in 1996.
During the last five years, the Company's dividend payout rate has averaged
28% of prior year free funds flow. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Vulcan is the largest producer of construction aggregates in the United States
and is 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 1996 sales, net earnings and earnings per share were at record
levels. Net earnings were $188.6 million, or $5.36 per share, as compared
with 1995 net earnings and earnings per share of $166.2 million and $4.63,
respectively. Sales in 1996 were $1.569 billion, up from the 1995 total of
$1.461 billion. Pretax earnings totaled $285.6 million, up 11% from last
year's amount of $258.4 million.
CONSTRUCTION MATERIALS
1996 vs. 1995
For the fourth consecutive year, Construction Materials sales surpassed
previous records. Net sales for 1996 totaled $961.9 million, up 9% from the
1995 result of $884.7 million. The 1996 result reflects a 7% increase in
shipments and a 3% rise in the average unit selling price of crushed stone,
the segment's principal product. Of the total increase in sales of $77.2
million, $54.4 million was related to increased volume and $22.8 million was
due to higher prices.
Segment earnings of $197.3 million, which are before interest expense and
income taxes, also were at a record level and were up 9% from 1995's record
level of $181.5 million. Results for 1996 include pretax gains totaling
approximately $5.2 million from the sale of assets, primarily surplus land,
as compared to the 1995 total of $16.5 million. When gains referable to asset
sales are excluded from both years' results, 1996 earnings were 16% better
than 1995 due principally to higher crushed stone shipments and improved
prices. The favorable effects of higher volume and prices were partially
offset by higher operating costs due mainly to the full-year impact of new
operations.
1995 vs. 1994
Construction Materials sales in 1995 were at a record level of $884.7 million,
up 5% from the 1994 result of $842.9 million. The improvement reflected a 3%
increase in shipments and a 5% rise in the average unit selling price of
crushed stone. 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 also were at a record level and were up
12% from 1994's record level of $162.5 million. The improvement reflected
better operating results as well as significant gains from asset 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 the sale
of assets, primarily surplus land, were $16.5 million as compared with 1994
gains of $7.6 million. The 1994 amount 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.
CHEMICALS
1996 vs. 1995
Record 1996 sales of $607.0 million were up 5% from the 1995 level of $576.3
million. Excluding the effects of 1995 and 1996 acquisitions from both years'
results, 1996 sales were effectively even with the prior year. Sales for
Performance Systems increased due to the impact of recent acquisitions as well
as internal growth. Sales for the Chloralkali Business Unit were virtually
unchanged from 1995 as the effect of lower caustic soda prices was offset by
higher revenues from chlorinated organic products and other inorganic
products.
Segment earnings reached a record of $94.7 million in 1996 as compared to
$87.8 million in 1995. The increase reflects improved earnings in the
Performance Systems Business Unit. Earnings for the Chloralkali Business Unit
were even with results reported for 1995. Chloralkali results in 1995 included
a $7.1 million pretax charge referable to the Company's suspended joint
venture soda ash project, as well as a $3.5 million charge for environmental
remediation at the Cleve Reber Superfund site. Chloralkali operating earnings
declined in 1996 due to the decline in caustic soda prices, as well as higher
costs referable to energy and plant maintenance. These effects were partially
offset by higher earnings from chlorinated organic products.
In 1996, the Company's Chemicals segment completed several acquisitions
through its Performance Systems Business Unit, all with a focus on niche
markets in the water management, textile, industrial cleaning, food
processing, mining, and pulp and paper industries. The most significant of
these was the acquisition of Mayo Chemical Company during the second quarter.
These acquisitions contributed $22.0 million in sales during 1996.
1995 vs. 1994
In 1995, Chemicals sales of $576.3 million increased 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 reflected $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 were $87.8 million in 1995 as compared to a loss of $7.3
million in 1994. The increase reflected 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 included a $7.1
million pretax charge referable to the Company's suspended joint venture soda
ash project at Owens Lake, California and a $3.5 million environmental
remediation provision. The loss in 1994 included that year's $7.0 million
charge for environmental remediation and the Chemicals $2.1 million share of
the gain on the sale of the industrial sand business.
ENVIRONMENTAL ISSUES
In 1991 the Environmental Protection Agency ("EPA") issued a unilateral
administrative order which directed the named respondents, including the
Company and other potentially responsible parties ("PRPs"), 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 1996, the
Company and the other participating PRPs completed all activities relating to
site remediation, with the exception of ongoing operation and maintenance of
the remedy. The EPA anticipates conducting its five-year review of site
conditions mid-year 1998. If site conditions are satisfactory based on that
review, the site will be removed from the National Priority List of Superfund
sites. The Company believes that total provision
In 1987 the Company discontinued its 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 $175.1 million in 1996
increased 10% from the 1995 level of $159.8 million. This reflects principally
the impact of Chemicals acquisitions and expenses referable to a significant
project to redesign Construction Materials procurement process. In 1995
selling, administrative and general expenses were up 28% from the 1994 level.
This increase principally reflects the effects of acquisitions by the
Chemicals segment, and, to a lesser extent, higher provisions for incentive
plans and professional fees.
INCOME TAXES
The Company's 1996 effective tax rate was 34.0%, down from the 1995 rate of
35.7%. The decrease reflects principally adjustments to close out provisions
referable to completed tax audits for prior years, as well as the effect of
statutory depletion due to relatively higher Construction Materials earnings.
The effective tax rate increased in 1995 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.
1997 OUTLOOK
With regard to 1997, the Company's starting point is the assumption that
moderate growth in GDP and stable interest rates will continue to provide a
healthy economic environment for construction activity in the U.S. The market
for construction aggregates should remain strong, overall. Demand in all major
construction end-use markets should equal or exceed their 1996 levels, with
the exception of residential construction, which is expected to decline
modestly. Based on this outlook, 1997 earnings in the Construction Materials
segment should equal or exceed 1996's record result.
As for the Chemicals business, 1996 was another outstanding year, despite
the significant decrease in caustic soda prices during the second half of the
year. Progress continued in developing the Performance Systems Business Unit.
During 1996, the Performance Systems Business Unit contributed to the
improvement in earnings from 1995 and this trend is expected to continue in
1997, reflecting demand growth and further progress in integrating the Unit's
recent acquisitions. Current market conditions in the Chloralkali Business
Unit are mixed. The outlook for caustic soda prices remains uncertain and
comparisons to 1996 are likely to be significantly unfavorable, particularly
in the first half of 1997. Also, energy and maintenance costs are expected to
be higher. On the other hand, continuing strong demand for chlorinated organic
products should mitigate the adverse impact of these factors. Overall, for the
Chemicals segment as a whole, earnings are expected to be down from 1996's
record performance.
The Company's 1996 effective tax rate benefited from adjustments to close
out provisions referable to completed tax audits for prior years. Additional
tax audits are expected to be closed out in 1997 and the effective tax rate
currently is projected to be slightly lower than 1996's rate.
Taking all of the current expectations into account, there is a good chance
that the Company's 1997 net earnings and earnings per share will equal 1996's
record results. If the upper range of the Company's outlook prevails, 1997
earnings should be at a record level.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by continuing operations amounted to $346.4 million in 1996,
up 30% from 1995's total of $267.4 million. Net cash provided by the
Construction Materials segment increased 20% to $219.8 million, while net cash
provided by the Chemicals segment rose $38.0 million, or 42%, to $128.8
million. The Company's long-standing ability to generate significant cash
flows enabled it to fund capital requirements internally, reduce long-term
debt, and return $103.6 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):
1996 1995 1994
Construction Materials............. $219.8 $182.9 $182.5
Chemicals.......................... 128.8 90.8 31.5
Interest expense, interest
income, etc., net................ (2.2) (6.3) (4.8)
Total.......................... $346.4 $267.4 $209.2
Net cash used for investing activities totaled $205.8 million in 1996, up
$99.4 million from the 1995 level. Cash expenditures for property, plant and
equipment, including acquisitions, were $216.5 million in 1996, up $80.2
million. Cash spending for acquisitions totaled $64.8 million compared with
$27.2 million in 1995.
Net cash used for financing activities amounted to $110.8 million in 1996,
down $35.1 million from the prior year's $145.9 million. Interest-bearing debt
was reduced $7.2 million in 1996 compared with a net decrease of $43.9 million
in 1995. No long-term debt was issued during 1996 or 1995. Purchases of the
Company's common stock totaled $45.2 million in 1996, down $4.9 million from
the 1995 level of $50.1 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 $158.1 million at December 31, 1996, down
$16.7 million from the 1995 level. This decrease compares with increases of
$8.2 million and $15.7 million in 1995 and 1994, respectively.
The Company's overall position is summarized below (dollar amounts in
millions as of year-end):
1996 1995 1994
Working capital, exclusive of
debt and cash items.............. $158.1 $174.8 $166.6
Cash and cash equivalents.......... 50.8 21.9 7.7
Short-term debt (including
current maturities).............. (8.3) (10.6) (47.5)
Accrued interest................... (1.2) (1.4) (1.3)
Total working capital
(including debt and
cash items).................. $199.4 $184.7 $125.5
Current ratio...................... 2.0 2.0 1.6
Acid test ratio.................... 1.2 1.1 .9
The current ratio remained unchanged in 1996. The increase in the current
ratio from 1994 to 1995 is attributable to a reduced need for short-term
borrowing, $3.6 million at year end 1995 as compared with $42.8 million at
December 31, 1994.
PROPERTY ADDITIONS
Property additions, including acquisitions, totaled $187.2 million in 1996,
up 49% from the 1995 level of $125.6 million. As explained on page 40, the
Company classifies its property additions into three categories based upon the
predominant purpose of the project.
The table below summarizes property additions by each category (amounts
in millions):
Project Purpose 1996 1995 1994
Replacement....................... $ 84.5 $ 69.0 $ 53.0
Environmental control............. 9.9 8.4 3.9
Subtotal....................... 94.4 77.4 56.9
Profit adding:
Acquisitions................... 33.9 12.3 58.1
Other.......................... 58.9 35.9 44.8
Subtotal....................... 92.8 48.2 102.9
Total....................... $187.2 $125.6 $159.8
Total property additions were significantly higher in 1996 due primarily
to increased spending on profit-adding projects. This includes several
acquisitions by Chemicals Performance Systems Business Unit, the most
significant of which was the acquisition of Mayo Chemical Company during the
second quarter. The Construction Materials segment also completed several
acquisitions during the year. These included stone quarries in Alabama,
Arkansas and Texas, an aggregates distribution facility in northern Illinois,
and an aggregates distribution business in Louisana. Also, significant
spending occurred on a greenfield site in Alabama, a new lime production
facility in Illinois, a second stone distribution facility in northern
Illinois and plant rebuilds in Tennessee and North Carolina. The decrease
in property additions in 1995 reflects principally lower spending for
acquisitions.
Commitments for capital expenditures were $23.2 million at December 31,
1996. This included $9.8 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 1994 through 1996, the Company was in a net
short-term borrowing position. Short-term borrowings in 1996 reached a maximum
of $48.2 million, averaged $9.7 million and were $3.3 million at year end.
Comparable 1995 amounts were $93.9 million, $41.8 million and $3.6 million,
respectively.
Details pertaining to short-term borrowings during the last three years
(amounts in millions) are as follows:
1996 1995 1994
Year-end.......................... $ 3.3 $ 3.6 $42.8
Maximum outstanding............... $48.2 $93.9 $91.7
Average outstanding............... $ 9.7 $41.8 $36.0
Weighted average interest rate.... 5.4% 6.1% 4.8%
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 1996. 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 (amounts in
millions) is shown below:
1996 1995 1994
Year-end.......................... $43.6 $16.0 $ -
Maximum invested.................. $ 4.8 $45.0 $45.1
Average invested.................. $26.7 $ 3.5 $ 7.7
Taxable-equivalent yield.......... 5.8% 6.2% 4.0%
LONG-TERM OBLIGATIONS
During 1996 the Company reduced its total long-term obligations by $4.8
million to $85.5 million as compared with a net decrease of $7.1 million in
1995. During the three-year period ended December 31, 1996, long-term
obligations decreased cumulatively by $16.5 million from the $102.0 million
outstanding at December 31, 1993.
During the same three year period, shareholders' equity, net of common stock
purchases of $123.9 million and dividends of $158.4 million, increased by
$180.7 million to $883.7 million. The Company's overall long-term capital
position is shown in the following table (dollar amounts in millions as of
year-end):
1996 1995 1994
Long-term debt.................... $ 85.5 $ 90.3 $ 97.4
Other noncurrent liabilities...... 156.8 151.5 140.8
Shareholders' equity.............. 883.7 796.6 731.6
Total long-term capital......... $1,126.0 $1,038.4 $969.8
Long-term debt
as a percent of:
Total long-term capital....... 7.6% 8.7% 10.0%
Shareholders' equity.......... 9.7% 11.3% 13.3%
Net cash provided by
continuing operations as a
percent of long-term debt....... 405% 296% 215%
Ratio of earnings to
fixed charges................... 16.0 13.3 7.9
In the future, the ratio of long-term debt to total long-term capital will
depend upon specific investment and financing decisions. Nonetheless,
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 1996 was 7.6%. 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 either temporarily on a short-term basis or by
incurring long-term debt.
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 1996 the Company purchased 765,400 shares of its common stock at a cost
of $45.2 million, equal to an average price of $59.03 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:
1996 1995 1994
Shares purchased:
Number.......................... 765,400 947,908 603,700
Total cost (millions)........... $ 45.2 $ 50.1 $ 28.6
Average cost.................... $59.03 $52.90 $47.39
Shares in treasury at year-end:
Number........................ 12,332,047 11,602,590 10,666,952
Average cost.................. $38.73 $37.34 $35.93
The number of shares remaining under the current purchase authorization was
834,392 shares as of December 31, 1996. On February 14, 1997, the Company's
Board of Directors increased the authorization to 4,000,000 shares, which
represents 11.7% of shares outstanding as of year-end 1996.
CAPITAL EMPLOYED
During 1996 total average capital employed in continuing operations was
$1,094.1 million, up $51.9 million from the 1995 average of $1,042.2 million.
The latter figure reflects an increase of $49.1 million, or 5%, from the
$993.1 million employed on average in 1994. Average capital employed in the
Company's business segments is shown in the table below (amounts in
millions):
1996 1995 1994
Construction Materials............ $ 710.6 $ 681.5 $688.1
Chemicals......................... 356.0 353.9 294.0
Cash items........................ 27.5 6.8 11.0
Total........................... $1,094.1 $1,042.2 $993.1
The sources and deployment of the year-to-year increases in total average
capital employed are shown below (amounts in millions; parenthesis indicate
a decrease):
1995-96 1994-95
Sources:
Short-term debt................. $(31.5) $ 6.2
Long-term obligations........... (6.4) (5.8)
Other noncurrent liabilities.... 8.2 9.7
Shareholders' equity............ 81.6 39.0
Total......................... $ 51.9 $49.1
Deployment:
Construction Materials.......... $ 29.1 $(6.6)
Chemicals....................... 2.1 59.9
Cash items...................... 20.7 (4.2)
Total......................... $ 51.9 $49.1
During the period 1992 through 1996, total average capital employed in
continuing operations grew at an average annual compound rate of 2.5%, or by
the cumulative amount of $116.5 million. During this period, interest-bearing
debt decreased by $38.2 million and, as a percent of average capital employed,
decreased from 14.2% to 9.2%.
The following summary indicates the sources and deployment of the increase
in average capital employed from 1992 to 1996 (amounts in millions):
Amount
of Increase % of
(Decrease) Total
Sources:
Short-term debt................. $(58.6) (50)%
Long-term obligations........... 20.4 17
Other noncurrent liabilities.... (2.8) (2)
Shareholders' equity............ 157.5 135
Total......................... $116.5 100 %
Deployment:
Construction Materials.......... $(37.8) (32)%
Chemicals....................... 129.9 111
Cash items...................... 24.4 21
Total......................... $116.5 100 %
SUPPLEMENTARY INFORMATION-QUARTERLY FINANCIAL DATA
First Second Third Fourth Full
Amounts in millions, except per share data Quarter Quarter Quarter Quarter Year
1996
Net sales............................................. $308.5 $419.2 $443.6 $397.6 $1,568.9
Gross profit on sales................................. 70.1 129.3 139.6 114.5 453.5
Net earnings.......................................... 20.1 58.6 62.1 47.8 188.6
Primary and fully diluted earnings per share.......... .57 1.65 1.77 1.37 5.36
1995
Net sales............................................. $294.4 $382.8 $422.0 $361.8 $1,461.0
Gross profit on sales................................. 58.8 113.2 133.8 110.5 416.3
Net earnings.......................................... 6.0 47.7 59.1 43.4 166.2
Primary and fully diluted earnings per share.......... .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 on sales................................. 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... (.14) .92 1.02 .87 .67
CONSOLIDATED STATEMENTS OF EARNINGS Vulcan Materials Company and Subsidiary Companies
For the Years Ended December 31, 1996, 1995 and 1994
Amounts and shares in thousands, except per share data 1996 1995 1994
Net sales................................................ $1,568,945 $1,460,974 $1,253,360
Cost of goods sold....................................... 1,115,442 1,044,710 985,198
Gross profit on sales.................................... 453,503 416,264 268,162
Selling, administrative and general expenses............. 175,128 159,829 125,036
Other operating costs.................................... 3,887 6,347 5,526
Other income, net
Interest income........................................ 3,179 1,099 1,224
Other, net............................................. 16,549 18,333 16,903
Total other income, net.............................. 19,728 19,432 18,127
Earnings before interest expense and income taxes........ 294,216 269,520 155,727
Interest expense (Note 4)................................ 8,636 11,099 9,821
Earnings before income taxes............................. 285,580 258,421 145,906
Provision for income taxes (Note 7)
Current................................................ 95,443 86,437 41,339
Deferred............................................... 1,542 5,744 6,591
Total provision for income taxes..................... 96,985 92,181 47,930
Net earnings............................................. $ 188,595 $ 166,240 $ 97,976
Primary and fully diluted net earnings per share......... $5.36 $4.63 $2.67
Dividends per share...................................... $1.68 $1.46 $1.32
Average common and common equivalent
shares outstanding..................................... 35,173 35,933 36,683
<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, 1996, 1995 and 1994
Amounts in thousands, except per share data 1996 1995 1994
ASSETS
Current assets
Cash and cash equivalents (Note 2)..................... $ 50,816 $ 21,869 $ 7,717
Accounts and notes receivable:
Customers, less allowance for doubtful accounts:
1996, $8,106; 1995, $8,176; 1994, $8,244........... 176,864 170,757 170,954
Other................................................ 8,671 10,303 11,174
Inventories (Note 3)................................... 128,578 126,801 112,481
Deferred income taxes (Note 7)......................... 23,474 26,555 29,074
Prepaid expenses....................................... 5,642 5,836 5,398
Total current assets.............................. 394,045 362,121 336,798
Investments and long-term receivables.................... 61,274 56,272 58,138
Property, plant and equipment, net (Note 4).............. 764,490 698,033 701,757
Deferred charges and other assets (Note 8, 14)........... 100,836 99,368 84,451
Total............................................. $1,320,645 $1,215,794 $1,181,144
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt................... $ 5,021 $ 7,070 $ 4,687
Notes payable (Note 2)................................. 3,289 3,569 42,779
Trade payables and accruals............................ 98,528 98,253 102,394
Accrued income taxes................................... 29,606 22,262 19,423
Accrued salaries and wages............................. 38,253 28,658 23,068
Accrued interest....................................... 1,221 1,300 1,415
Other accrued liabilities (Note 9)..................... 18,736 16,297 17,582
Total current liabilities......................... 194,654 177,409 211,348
Long-term debt (Note 5).................................. 85,535 90,278 97,380
Deferred income taxes (Note 7)........................... 86,968 85,935 82,507
Deferred management incentive and
other compensation (Note 9)............................ 26,251 26,618 21,575
Other postretirement benefits (Note 8)................... 36,222 32,717 29,835
Other noncurrent liabilities (Note 10)................... 7,351 6,199 6,870
Other commitments and contingent liabilities (Note 10)...
Shareholders' equity.....................................
Common stock, $1 par value............................. 46,573 46,573 46,573
Capital in excess of par value......................... 10,344 9,089 8,585
Retained earnings...................................... 1,304,367 1,174,171 1,059,779
Total............................................. 1,361,284 1,229,833 1,114,937
Less cost of stock in treasury......................... 477,620 433,195 383,308
Total shareholders' equity........................ 883,664 796,638 731,629
Total............................................. $1,320,645 $1,215,794 $1,181,144
<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, 1996, 1995 and 1994
Amounts in thousands 1996 1995 1994
OPERATIONS
Net earnings............................................. $188,595 $166,240 $ 97,976
Adjustments to reconcile net earnings to
net cash provided by continuing operations:
Depreciation, depletion and amortization............. 112,600 110,677 106,695
(Increase) decrease in assets before
effects of business acquisitions:
Accounts and notes receivable..................... 1,381 3,634 (21,188)
Inventories....................................... 3,915 (11,899) 965
Deferred income taxes............................. 3,081 2,519 (2,176)
Prepaid expenses.................................. 194 (362) 1,056
Increase (decrease) in liabilities before
effects of business acquisitions:
Accrued interest and income taxes................. (105) (355) (84)
Trade payables, accruals, etc..................... 14,118 (1,352) 16,457
Deferred income taxes............................. 1,032 3,428 8,314
Other noncurrent liabilities...................... 4,290 7,255 (266)
Issuance of common stock in connection with
Performance Share Plan............................ 2,010 699 998
Other, net........................................... 15,333 (13,126) 470
Net cash provided by continuing operations........ 346,444 267,358 209,217
Net cash used for discontinued operations
(Note 10)....................................... (912) (902) (958)
Net cash provided by operations................... 345,532 266,456 208,259
INVESTING ACTIVITIES
Purchases of property, plant and equipment............... (151,767) (109,174) (100,090)
Payment for business acquisitions........................ (64,765) (27,172) (87,540)
Proceeds from sale of property, plant and equipment...... 11,952 31,881 15,358
Net investment in nonconsolidated companies.............. (1,233) (1,913) (2,112)
Net cash used for investing activities............ (205,813) (106,378) (174,384)
FINANCING ACTIVITIES
Net borrowings (payments) - commercial paper
and bank lines of credit............................... (280) (39,211) 42,779
Payment of short-term debt............................... (6,849) (4,687) (1,809)
Payment of long-term debt................................ (62) (32) (4,403)
Purchases of common stock (Note 11)...................... (45,182) (50,148) (28,612)
Dividends paid........................................... (58,399) (51,848) (48,109)
Net cash used for financing activities............ (110,772) (145,926) (40,154)
Net increase (decrease) in cash and cash equivalents..... 28,947 14,152 (6,279)
Cash and cash equivalents at beginning of year........... 21,869 7,717 13,996
Cash and cash equivalents at end of year................. $ 50,816 $ 21,869 $ 7,717
<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, 1996, 1995 and 1994
Amounts and shares in thousands, 1996 1995 1994
except per share data Shares Amount Shares Amount Shares Amount
Common stock, $1 par value
Authorized: 160,000 shares
Issued (no changes in 1996,
1995 and 1994)................................ 46,573 $ 46,573 46,573 $ 46,573 46,573 $ 46,573
Capital in excess of par value
Balance at beginning of year.................... 9,089 8,585 4,587
Shares issued in connection with
the acquisition of business................... - - 3,490
Distributions under Performance
Share Plan.................................... 1,253 414 514
Distributions under Stock Plan
for Nonemployee Directors..................... - 24 23
Other........................................... 2 66 (29)
Balance at end of year.......................... 10,344 9,089 8,585
Retained earnings
Balance at beginning of year.................... 1,174,171 1,059,779 1,009,912
Net earnings.................................... 188,595 166,240 97,976
Cash dividends on common stock.................. (58,399) (51,848) (48,109)
Balance at end of year.......................... 1,304,367 1,174,171 1,059,779
Common stock held in treasury
Balance at beginning of year (11,602) (433,195) (10,666) (383,308) (10,224) (358,109)
Shares issued in connection with
the acquisition of business................... - - - - 140 2,952
Purchase of common shares....................... (765) (45,182) (948) (50,148) (604) (28,612)
Distributions under Performance
Share Plan.................................... 35 757 11 247 21 442
Distributions under Stock Plan
for Nonemployee Directors..................... - - 1 14 1 19
Balance at end of year.......................... (12,332) (477,620) (11,602) (433,195) (10,666) (383,308)
Total...................................... $ 883,664 $ 796,638 $ 731,629
<FN>
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Vulcan Materials Company and Subsidiary Companies
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.
GOODWILL
Goodwill represents the excess of the cost of net assets acquired in business
combinations over their fair value. Goodwill is amortized on a straight-line
basis over periods ranging from fifteen to twenty years.
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
relate to stock options and shares contingently issuable under long-term
performance share plans.
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.
RECLASSIFICATIONS
Certain items previously reported in specific financial statement captions
have been reclassified to conform with the 1996 presentation.
2. CASH
Bank lines of credit amounted to $130,000,000 at year-end 1996, 1995 and 1994.
At year-end 1996 and 1995 the Company did not have any commercial paper
outstanding, but did have $3,100,000 and $3,400,000, respectively, 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.
All of the lines of credit extended to the Company in 1996, 1995 and 1994
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):
1996 1995 1994
Finished products................... $ 87,459 $ 90,009 $ 77,721
Raw materials....................... 10,115 10,062 9,248
Products in process................. 873 979 622
Operating supplies and other........ 30,131 25,751 24,890
Total inventories............... $128,578 $126,801 $112,481
The above amounts include inventories valued under the LIFO method totaling
$96,045,000, $97,959,000 and $79,909,000 at December 31, 1996, 1995 and 1994,
respectively. Estimated current cost exceeded LIFO cost at December 31, 1996,
1995 and 1994 by $35,747,000, $36,899,000 and $29,049,000, 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 a decrease of $702,000
($.02 per share effect) in 1996, an increase of $4,784,000 ($.13 per share
effect) in 1995, and a decrease of $2,476,000 ($.07 per share effect)
in 1994.
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):
1996 1995 1994
Land and land improvements.......... $ 222,546 $ 203,920 $ 206,457
Buildings........................... 82,049 77,732 76,629
Machinery and equipment............. 1,630,089 1,536,742 1,486,577
Leaseholds.......................... 7,118 6,483 6,471
Construction in progress............ 60,362 34,559 32,754
Total.......................... 2,002,164 1,859,436 1,808,888
Less allowances for depreciation,
depletion and amortization........ 1,237,674 1,161,403 1,107,131
Property, plant and equipment, net.. $ 764,490 $ 698,033 $ 701,757
The Company capitalized interest costs of $627,000 in 1996, $297,000
in 1995 and $878,000 in 1994 with respect to qualifying construction projects.
Total interest costs incurred before recognition of the capitalized amount
was $9,263,000 in 1996, $11,396,000 in 1995 and $10,699,000 in 1994.
5. DEBT
Long-term debt, exclusive of current maturities, at December 31 is summarized
as follows (in thousands of dollars):
1996 1995 1994
Medium-term notes................... $66,000 $ 71,000 $76,000
Variable rate pollution
control revenue bonds............. 8,200 1,200 3,000
6 5/8% pollution control
revenue bonds..................... - 6,800 6,800
6 3/8% pollution control
revenue bonds..................... 5,800 5,800 5,800
Other notes......................... 5,535 5,478 5,780
Total.......................... $85,535 $ 90,278 $97,380
Estimated fair value................ $93,507 $101,782 $98,597
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 the 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 $66,000,000 in
notes outstanding as of December 31, 1996 have a weighted average maturity of
9.5 years with a weighted average interest rate of 8.70%.
The 6 5/8% pollution control revenue bonds and the variable rate pollution
control revenue bonds were called and refunded in 1996. In connection with the
refunding, $8,200,000 of tax exempt bonds were issued and currently bear
interest at a variable rate which is reset weekly by the remarketing agent.
The interest rate on these bonds may be changed to another variable rate
option, or to a fixed rate, in accordance with the provisions of the trust
indenture. The 6 3/8% pollution control revenue bonds issued in 1992 mature
in 2012.
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, 1996 are: 1997-$5,021,000; 1998-$5,185,000; 1999-$5,184,000;
2000-$5,182,000 and 2001-$5,165,000.
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, 1996, 1995 and 1994. 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):
1996 1995 1994
Minimum rentals..................... $17,188 $14,260 $16,138
Contingent rentals (based
principally on usage)............. 10,677 11,205 11,212
Total............................ $27,865 $25,465 $27,350
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, 1996 range from $4,100,000 to $11,948,000
annually through 2001 and aggregate $13,502,000 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):
1996 1995 1994
Domestic............................ $279,801 $253,991 $143,502
Foreign............................. 5,779 4,430 2,404
Total............................ $285,580 $258,421 $145,906
Provisions for income taxes consist of the following (in thousands
of dollars):
1996 1995 1994
Current:
Federal........................... $80,704 $72,332 $34,194
State and local................... 14,595 14,087 7,135
Foreign........................... 144 18 10
Total.......................... 95,443 86,437 41,339
Deferred:
Federal........................... 1,446 4,861 5,953
State and local................... 96 883 578
Foreign........................... - - 60
Total.......................... 1,542 5,744 6,591
Total provision..................... $96,985 $92,181 $47,930
The effective tax rate varied from the federal statutory income tax rate
due to the following:
1996 1995 1994
Federal statutory tax rate.......... 35.0% 35.0% 35.0%
Increase (decrease) in tax
rate resulting from:
Depletion....................... (4.8) (4.5) (7.2)
State and local income
taxes, net of federal
income tax benefit............ 3.3 3.8 3.4
Miscellaneous items............. .5 1.4 1.6
Effective tax rate.................. 34.0% 35.7% 32.8%
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):
1996 1995 1994
Deferred tax assets related to:
Accrual for post-retirement
benefits......................... $ 14,149 $ 13,318 $12,123
Accrual for environmental
reclamation...................... 396 1,604 5,902
Accounts receivable,
principally allowance
for doubtful accounts............ 3,493 3,592 3,780
Inventory adjustments............. 6,101 7,278 7,079
Pensions, incentives and
deferred compensation............ 10,463 10,066 7,142
Other items....................... 10,339 9,518 7,765
Total deferred tax assets...... 44,941 45,376 43,791
Deferred tax liabilities
related to:
Fixed assets, principally
depreciation................... 101,316 98,821 92,120
Other items...................... 7,119 5,935 5,259
Total deferred tax
liabilities................. 108,435 104,756 97,379
Net deferred tax liability......... $ 63,494 $ 59,380 $53,588
8. PENSION AND POSTRETIREMENT BENEFIT 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
$5,185,000 in 1996, $1,187,000 in 1995 and $3,088,000 in 1994. Components of
the net periodic pension charges are as follows (in thousands of dollars):
1996 1995 1994
Service cost - benefits earned
during the period................. $11,631 $ 8,665 $ 9,551
Interest cost....................... 19,069 18,019 17,167
Actual return on plan assets........ (43,867) (51,744) (3,923)
Net amortization and deferral....... 18,352 26,247 (19,707)
Net periodic pension charge....... $ 5,185 $ 1,187 $ 3,088
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 and corporate and
government debt securities. 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):
1996 1995 1994
Actuarial present value
of benefit obligations:
Based on employment
service to date and
current salary levels:
Vested........................ $(173,166) $(174,436) $(134,409)
Nonvested..................... (8,693) (7,143) (4,792)
Accumulated benefit
obligation.................. (181,859) (181,579) (139,201)
Effect of projected
future salary increases........ (85,430) (83,011) (68,107)
Projected benefit obligation..... (267,289) (264,590) (207,308)
Plan assets at fair market value.... 337,326 305,398 264,174
Plan assets in excess of
projected benefit obligation...... 70,037 40,808 56,866
Unamortized portion of
unrecognized net asset at
implementation of SFAS No. 87..... (10,212) (13,225) (16,696)
Unrecognized net gain............... (68,163) (26,057) (38,748)
Unrecognized prior service cost..... 12,632 8,148 9,151
Net prepaid pension cost....... $ 4,294 $ 9,674 $ 10,573
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:
1996 1995 1994
Discount rates used to determine
the pension obligations........... 7.50% 7.00% 8.50%
Discount rates used to determine
the net periodic cost and
other recognized gains
- First 18 years................ 7.00 8.50 7.25
- Thereafter.................... 7.00 8.50 7.25
Rates of increase in
compensation levels
(for salary-related plans)........ 4.25 4.25 5.00
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 $2,090,000 in 1996, $1,859,000 in 1995 and $1,617,000 in 1994.
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 23% 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):
1996 1995 1994
Service cost - benefits attributed
to service during the period...... $2,045 $1,965 $1,742
Interest cost....................... 3,013 3,558 2,919
Actual return on assets............. (196) (158) (150)
Net amortization and deferral....... 88 209 329
Net periodic postretirement
benefit cost................... $4,950 $5,574 $4,840
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):
1996 1995 1994
Accumulated postretirement
benefit obligation:...............
Retirees.......................... $ (9,991) $(11,355) $(10,570)
Fully eligible active
plan participants............... (13,227) (13,658) (11,934)
Other active plan participants.... (20,415) (19,478) (18,439)
Total accumulated postretirement
benefit obligation.............. (43,633) (44,491) (40,943)
Plan assets at fair market value.... 3,119 2,842 2,628
Accumulated postretirement benefit
obligation in excess
of plan assets.................... (40,514) (41,649) (38,315)
Unrecognized prior service cost..... 5 6 6
Unrecognized net loss............... 4,287 7,726 7,274
Accrued postretirement
benefit cost.................... $(36,222) $(33,917) $(31,035)
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:
1996 1995 1994
Discount rates...................... 7.50% 7.00% 8.50%
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................... 9.00 10.00 12.00
- Ultimate rate................ 5.00 5.00 6.00
If the health care cost trend rates were increased 1.0% each year, the
accumulated postretirement benefit obligation as of December 31, 1996 would
have increased by $4,537,000 (or 10.9%) and the aggregate of the service and
interest cost for 1996 would have increased by $613,000 (or 12.1%).
9. INCENTIVE PLANS
STOCK-BASED COMPENSATION PLANS
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). This 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 also are permitted
to continue to account for such transactions under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), but are
required to disclose in a note to the financial statements pro forma
information as if the company had applied the new method of accounting. The
Company has elected to continue to follow APB 25, and the required pro forma
disclosures are presented below.
The Company's 1996 Long-Term Incentive Plan authorizes the granting of
stock-based awards to key salaried employees of the Company and its
affiliates. The Plan permits the granting of: stock options (including
incentive stock options), stock appreciation rights, restricted stock and
restricted stock units, performance share awards, dividend equivalents, and
other awards valued in whole or in part by reference to or otherwise based on
common stock of the Company. The number of shares available for awards is .95%
of the issued common shares of the Company (including treasury shares) as of
the first day of each calendar year plus the unused shares that are carried
over from prior years.
Stock options issued during 1996 were granted at the fair market value of
the stock on the date of the grant. They vest ratably over five years and
expire ten years subsequent to the grant.
Performance share awards were granted through 1995. These awards are based
on the achievement of established performance goals and the majority of the
awards vest over five years. Expense provisions referable to these plans
amounted to $4,373,000 in 1996, $6,742,000 in 1995 and $3,894,000 in 1994.
Expense provisions were also affected by changes in the market value of the
Company's common stock.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options and performance share awards under the fair
value method of that Statement. The fair value for options was estimated at
the date of the grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rate of 6.4%;
dividend yields of 2.9%; volatility factors of the expected market price of
the Company's common stock of 14.5% and a weighted-average expected life of
the option of five years. The fair value for performance share awards was
based on a discounted fair market value of the Company's stock at grant date.
For purposes of pro forma disclosures, the estimated fair value of the
options and performance share awards is amortized to expense over the options'
vesting period. The effects of applying SFAS 123 on a pro forma basis would
be immaterial to 1996 and 1995 net earnings and earnings per share. A summary
of the Company's stock option activity, related information as of December 31,
1996 and changes during the year is presented below:
Weighted Average
Shares Exercise Price
Outstanding at beginning of year.... - $ -
Granted........................... 429,800 $56.61
Forfeited......................... 850 $56.56
Outstanding at end of year.......... 428,950 $56.61
Options exercisable at year-end..... -
Weighted-average grant date
fair value of each option
granted during the year........... $10.35
Exercise prices for options outstanding at December 31, 1996 ranged from
$55.75 to $59.19. The weighted-average remaining contractual life of the
options is 9.38 years.
The number and weighted-average grant date fair value of performance share
awards is presented below:
1996 1995
Number of awards.................... - 126,760
Weighted-average grant date
fair value of each award
granted during the year........... - $39.35
CASH BASED COMPENSATION PLANS
The Company has a management incentive plan under which cash awards may be
made annually to officers and key employees. Expense provisions referable to
the plans amounted to $8,500,000 in 1996, $5,550,000 in 1995 and $3,600,000
in 1994.
10. 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
shareholder agreements for these three companies provide that each sponsor
will contribute its share of the equity required to fund the joint venture.
The Company's share of $71,903,000 had been contributed as of December 31,
1996; Indica contributed a substantially equal pro rata amount. The jointly
owned companies have entered into credit agreements which have loan balances
totaling $41,596,000. 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, 1996
as its share of loans to the joint venture. The carrying amount of net assets
of the entities located outside the United States was $49,723,000 as of
December 31, 1996.
Other commitments of the Company include the purchase of property,
plant and equipment approximating $23,221,000 at December 31, 1996.
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.
In 1991 the Environmental Protection Agency ("EPA") issued a unilateral
administrative order which directed the named respondents, including the
Company and other potentially responsible parties ("PRPs"), 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 1995, the
Company recorded provisions totaling $39,300,000 for environmental remediation
at this site. During 1996 the Company and the other participating PRPs
completed all activities relating to site remediation, with the exception of
ongoing operation and maintenance of the remedy. The EPA anticipates
conducting its five-year review of site conditions mid-year 1998. If site
conditions are satisfactory based on that review, the site will thereafter be
removed from the National Priority List of Superfund sites. 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.
The Company's consolidated balance sheets as of December 31 include
accrued environmental cleanup costs for the Chemicals segment of
$3,732,000 in 1996, $2,765,000 for 1995 and $12,867,000 for 1994.
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: $905,000 in 1996; $1,805,000 in 1995 and $2,649,000
in 1994. In addition, other noncurrent liabilities include $240,000 in 1996
and $493,000 each in 1995 and 1994 referable to discontinued operations.
11. COMMON STOCK
A total of 12,816,971 shares has been purchased at a cost of $487,852,000
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 the current purchase authorization was
834,392 shares as of December 31, 1996. On February 14, 1997, the Company's
Board of Directors increased the authorization to 4,000,000 shares.
12. SEGMENT DATA
Operations in the Company's Construction Materials segment principally
involve the production and sale of aggregates and related products and
services. Sales are in 17 states located in the southeast, midwest and
southwest regions of the United States. Customers primarily use
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 management, and chemical processing.
The Performance Systems Business Unit offers a unique blend of products,
services, technologies and manufacturing capabilities for a variety of
customer needs in the pulp and paper, textile, water management, and
food processing industries. 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 74 and 75.
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 $16,231,000 in 1996, $22,533,000 in 1995
and $14,110,000 in 1994.
Segment earnings are reconciled with earnings before income taxes as
follows (in thousands of dollars):
1996 1995 1994
Segment Earnings:
Construction Materials............ $197,315 $181,528 $162,505
Chemicals......................... 94,707 87,792 (7,349)
292,022 269,320 155,156
Interest income, etc................ 2,194 200 571
Interest expense.................... (8,636) (11,099) (9,821)
Earnings before income taxes........ $285,580 $258,421 $145,906
Identifiable assets by segment at December 31 are as follows (in thousands
of dollars):
1996 1995 1994
Construction Materials.............. $ 719,618 $ 690,044 $ 678,793
Chemicals........................... 441,088 395,487 389,491
Total identifiable assets........... 1,160,706 1,085,531 1,068,284
Investment in nonconsolidated
affiliates........................ 56,043 50,780 53,902
General corporate assets............ 53,080 57,614 51,241
Cash items.......................... 50,816 21,869 7,717
Total assets........................ $1,320,645 $1,215,794 $1,181,144
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to the Consolidated Statements of Cash
Flows is summarized below (in thousands of dollars):
1996 1995 1994
Cash payments:
Interest (exclusive of
amount capitalized)............. $ 8,715 $11,214 $ 9,762
Income taxes...................... 85,492 85,324 36,846
Noncash investing and
financing activities:
Amounts referable to
business acquisitions:
Liabilities assumed........... 5,051 1,382 12,198
Fair value of stock issued.... - - 6,443
14. ACQUISITIONS
At various dates during 1996 the Company acquired the net assets and
businesses of several companies. The combined purchase price was approximately
$64,000,000. Funds for the purchases were primarily provided by internally
generated cash flows. The amount by which the total cost of these acquisitions
exceeded the fair value of the assets acquired was recognized as goodwill and
will be amortized under the Company's normal amortization policy.
All of the 1996 acquisitions described above were accounted for as
purchases and accordingly, the results of operations of the acquired
businesses are included in the accompanying financial statements from their
respective dates of acquisition. On a pro forma basis, as if the assets and
business had been acquired at the beginning of fiscal 1995, revenue, net
income and earnings per share would not differ materially from the amounts
reflected in the accompanying consolidated financial statements for 1996
and 1995.
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.
Goodwill recorded on the Company's balance sheet as of December 31, 1996
amounted to $69,523,000.
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 7, 1997
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, 1996, 1995,
and 1994, 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, 1996, 1995 and 1994, 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 7, 1997
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' equity
The sum of common stock (less the cost of common 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 continuing operations after taxes
For the Company: net earnings from continuing operations plus the
after-tax cost of interest 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 assets of businesses acquired), including capitalized leases,
renewals and betterments; each segment's property additions include
allocated corporate amounts
Ratio of earnings to fixed charges
The sum of earnings from continuing operations 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.