1
EXHIBIT 13
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 on the following
page.
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.
P. J. Clemens, III
Executive Vice President, Finance & Administration and Treasurer
E. A. Khan
Controller
February 6, 1998
42
2
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, 1997, 1996 and 1995, 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, 1997, 1996 and 1995, 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 6, 1998
43
3
CONSOLIDATED STATEMENTS OF EARNINGS
Vulcan Materials Company and Subsidiary Companies
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995
Amounts in thousands, except per share data 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
Net sales .......................................... $1,678,581 $1,568,945 $1,460,974
Cost of goods sold ................................. 1,199,453 1,115,442 1,044,710
---------- --------------------------
Gross profit on sales .............................. 479,128 453,503 416,264
Selling, administrative and general expenses ....... 190,446 175,128 159,829
Other operating costs .............................. 5,112 3,887 6,347
Other income, net
Interest income .................................. 3,190 3,179 1,099
Other, net ....................................... 20,655 16,549 18,333
---------- --------------------------
Total other income, net ............... 23,845 19,728 19,432
---------- --------------------------
Earnings before interest expense and income taxes .. 307,415 294,216 269,520
Interest expense (Note 4) .......................... 6,914 8,636 11,099
---------- --------------------------
Earnings before income taxes ....................... 300,501 285,580 258,421
Provision for income taxes (Note 7)
Current .......................................... 84,806 95,443 86,437
Deferred ......................................... 6,550 1,542 5,744
---------- --------------------------
Total provision for income taxes ...... 91,356 96,985 92,181
---------- --------------------------
Net earnings ....................................... $ 209,145 $ 188,595 $ 166,240
========== ==========================
Basic net earnings per share ....................... $ 6.18 $ 5.43 $ 4.68
Diluted net earnings per share ..................... $ 6.10 $ 5.36 $ 4.63
Dividends per share ................................ $ 1.88 $ 1.68 $ 1.46
Average common shares outstanding .................. 33,828 34,758 35,544
Average common shares outstanding, assuming dilution 34,283 35,173 35,933
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
44
4
CONSOLIDATED BALANCE SHEETS
Vulcan Materials Company and Subsidiary Companies
- --------------------------------------------------------------------------------
As of December 31, 1997, 1996 and 1995
Amounts in thousands, except per share data 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents (Note 2) ........................ $ 128,566 $ 50,816 $ 21,869
Accounts and notes receivable:
Customers, less allowance for doubtful accounts:
1997, $7,548; 1996, $8,106; 1995, $8,176 ............ 189,389 176,864 170,757
Other ................................................... 10,361 8,671 10,303
Inventories (Note 3) ..................................... 132,359 128,578 126,801
Deferred income taxes (Note 7) ............................ 21,385 23,474 26,555
Prepaid expenses .......................................... 5,072 5,642 5,836
---------- --------------------------
Total current assets ........................... 487,132 394,045 362,121
Investments and long-term receivables ....................... 63,482 61,274 56,272
Property, plant and equipment, net (Note 4) ................. 808,419 764,490 698,033
Deferred charges and other assets (Notes 8, 14) ............. 90,213 100,836 99,368
---------- --------------------------
Total .......................................... $1,449,246 $1,320,645 $1,215,794
========== ==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt ...................... $ 5,408 $ 5,021 $ 7,070
Notes payable (Note 2) .................................... 3,654 3,289 3,569
Trade payables and accruals ............................... 112,548 98,528 98,253
Accrued income taxes ...................................... 21,749 29,606 22,262
Accrued salaries and wages ................................ 41,858 38,253 28,658
Accrued interest .......................................... 1,360 1,221 1,300
Other accrued liabilities (Note 9) ........................ 21,120 18,736 16,297
---------- --------------------------
Total current liabilities ...................... 207,697 194,654 177,409
Long-term debt (Note 5) ..................................... 81,931 85,535 90,278
Deferred income taxes (Note 7) .............................. 88,719 86,968 85,935
Deferred management incentive and other compensation
(Note 9)................................................... 33,849 26,251 26,618
Other postretirement benefits (Note 8) ...................... 37,924 36,222 32,717
Other noncurrent liabilities (Note 10) ...................... 7,629 7,351 6,199
---------- --------------------------
Total liabilities .............................. 457,749 436,981 419,156
---------- --------------------------
Other commitments and contingent liabilities (Note 10) ...... 0 0 0
Shareholders' equity
Common stock, $1 par value ................................ 46,573 46,573 46,573
Capital in excess of par value ............................ 14,047 10,344 9,089
Retained earnings ......................................... 1,449,890 1,304,367 1,174,171
---------- --------------------------
Total .......................................... 1,510,510 1,361,284 1,229,833
Less cost of stock in treasury ............................ 519,013 477,620 433,195
---------- --------------------------
Total shareholders' equity ..................... 991,497 883,664 796,638
---------- --------------------------
Total .......................................... $1,449,246 $1,320,645 $1,215,794
========== ==========================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
45
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Vulcan Materials Company and Subsidiary Companies
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995
Amounts in thousands 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings ............................................................... $ 209,145 $ 188,595 $ 166,240
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation, depletion and amortization ............................. 120,624 112,600 110,677
(Increase) decrease in assets before effects of business acquisitions:
Accounts and notes receivable ................................ (14,215) 1,381 3,634
Inventories ................................................. (3,751) 3,915 (11,899)
Deferred income taxes ....................................... 2,089 3,081 2,519
Prepaid expenses ............................................ 570 194 (362)
Increase (decrease) in liabilities before effects of business
acquisitions:
Accrued interest and income taxes ........................... 139 (105) (355)
Trade payables, accrual, etc ................................ (2,070) 14,118 (1,352)
Deferred income taxes ...................................... 1,752 1,032 3,428
Other noncurrent liabilities ............................... 9,578 4,290 7,255
Issuance of common stock in connection with stock-based
incentive plans ................................................. 5,451 2,010 699
Other, net ......................................................... 16,502 14,421 (14,028)
--------- --------- ---------
Net cash provided by operating activities ........................ 345,814 345,532 266,456
INVESTING ACTIVITIES
Purchases of property, plant and equipment ................................. (161,238) (151,767) (109,174)
Payment for business acquisitions .......................................... (12,086) (64,765) (27,172)
Proceeds from sale of property, plant and equipment ........................ 16,446 11,952 31,881
Net investment in nonconsolidated companies ................................ 150 (1,233) (1,913)
--------- -------------------------
Net cash used for investing activities ........................... (156,728) (205,813) (106,378)
--------- -------------------------
FINANCING ACTIVITIES
Net borrowings (payments) - commercial paper and bank lines of credit ...... 365 (280) (39,211)
Payment of short-term debt ................................................. (5,000) (6,849) (4,687)
Payment of long-term debt .................................................. (19) (62) (32)
Purchases of common stock (Note 11) ........................................ (43,060) (45,182) (50,148)
Dividends paid ............................................................. (63,622) (58,399) (51,848)
--------- -------------------------
Net cash used for financing activities ........................... (111,336) (110,772) (145,926)
--------- -------------------------
Net increase in cash and cash equivalents .................................. 77,750 28,947 14,152
Cash and cash equivalents at beginning of year ............................. 50,816 21,869 7,717
--------- -------------------------
Cash and cash equivalents at end of year ................................... $ 128,566 $ 50,816 $ 21,869
========= =========================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
46
6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Vulcan Materials Company and Subsidiary Companies
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995
Amounts in thousands, except per share data
1997 1996 1995
SHARES AMOUNT Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------
Common stock, $1 par value
Authorized: 160,000 shares
Issued (no changes in 1997, 1996
and 1995) ................... 46,573 $ 46,573 46,573 $ 46,573 46,573 $ 46,573
------- ---------- ------- ---------- ------- ----------
Capital in excess of par value
Balance at beginning of year .. 10,344 9,089 8,585
Distributions under stock-based
incentive plans .......... 3,784 1,253 438
Other ......................... (81) 2 66
---------- ---------- ----------
Balance at end of year ........ 14,047 10,344 9,089
---------- ---------- ----------
Retained earnings
Balance at beginning of year .. 1,304,367 1,174,171 1,059,779
Net earnings .................. 209,145 188,595 166,240
Cash dividends on common stock. (63,622) (58,399) (51,848)
---------- ---------- ----------
Balance at end of year ........ 1,449,890 1,304,367 1,174,171
---------- ---------- ----------
Common stock held in treasury
Balance at beginning of year .. (12,332) (477,620) (11,602) (433,195) (10,666) (383,308)
Purchase of common shares ..... (631) (43,060) (765) (45,182) (948) (50,148)
Distributions under stock-based
incentive plans .......... 78 1,667 35 757 12 261
------- ---------- ------- ---------- ------- ----------
Balance at end of year ........ (12,885) (519,013) (12,332) (477,620) (11,602) (433,195)
------- ---------- ------- ---------- ------- ----------
Total ................ $ 991,497 $ 883,664 $ 796,638
========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
47
7
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 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 1997 sales, net earnings and earnings per share were at record levels.
Net earnings and diluted earnings per share were $209.1 million and $6.10,
respectively. The comparable 1996 net earnings and diluted earnings per share
were $188.6 million and $5.36, respectively. Sales in 1997 were $1.679 billion,
up from the 1996 total of $1.569 billion. Pretax earnings totaled $300.5
million, up 5% from last year's amount of $285.6 million.
CONSTRUCTION MATERIALS
1997 VS. 1996 For the fifth consecutive year, Construction Materials sales
surpassed previous records. Net sales for 1997 totaled $1.051 billion, up 9%
from the 1996 result of $961.9 million. The 1997 result reflects a 6% 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 $89.1
million, $63.3 million was related to increased volume and $25.8 million was due
to higher prices.
Segment earnings of $229.3 million, which are before interest expense
and income taxes, also were at a record level and were up 16% from 1996's record
level of $197.3 million. The favorable effects of higher crushed stone shipments
and prices as well as lower production costs were partially offset by higher
overhead costs due mainly to increased provisions associated with stock-based
incentive plans.
1996 VS. 1995 Net sales for 1996 totaled $961.9 million, up 9% from the 1995
result of $884.7 million. The 1996 result reflected a 7% increase in shipments
and a 3% rise in the average unit selling price of crushed stone. 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 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.
48
8
CHEMICALS
1997 VS. 1996 Record 1997 sales of $627.6 million were up 3% from the record
1996 level of $607 million. The growth came primarily from increased Performance
Systems sales. Chloralkali sales were essentially unchanged from 1996 as the
effect of lower caustic soda prices was nearly offset by higher revenues from
chlorine and chlorine derivative products.
Segment earnings of $75.8 million in 1997 were down 20% from the record
1996 level of $94.7 million. The decrease primarily reflects a 34% decline in
caustic soda prices and higher raw material costs. This was partially offset by
higher pricing for chlorine and derivative products, as well as improved
earnings from Performance Systems.
1996 VS. 1995 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 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 of $94.7 million in 1996 were up 8% from the 1995
level of $87.8 million. The increase reflected 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 million in sales during 1996.
AVERAGE OPERATING INCOME AFTER TAXES
CAPITAL EMPLOYED AS A PERCENT OF AVERAGE
(in millions of dollars) CAPITAL EMPLOYED
(percent)
[GRAPH] [GRAPH]
9
SELLING, ADMINISTRATIVE AND GENERAL
Selling, administrative and general expenses of $190.4 million in 1997
increased 9% from the 1996 level of $175.1 million. This reflects principally
the effect that the 68% appreciation in the Company's share price during 1997
had on stock-based incentive compensation costs. In 1996, selling,
administrative and general expenses were up 10% from the 1995 level. This
reflects principally the impact of Chemicals acquisitions and expenses referable
to a significant project to redesign the Construction Materials' procurement
process.
INCOME TAXES
The Company's 1997 effective tax rate was 30.4%, down from the 1996
rate of 34.0%. The decrease reflects principally adjustments referable to tax
audits for prior years. The effective tax rate decreased in 1996 as well, from
the 1995 rate of 35.7%. This decrease also reflected principally adjustments
referable to tax audits for prior years, as well as the effect of statutory
depletion due to relatively higher Construction Materials earnings.
OUTLOOK
With regard to 1998, 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 1997 levels, with the
exception of residential construction, which is predicted to decline modestly.
Based on this outlook, 1998 earnings in the Construction Materials segment
should equal or exceed 1997's record result.
In 1998, the Chemicals segment should benefit from a continued recovery
in caustic soda pricing. Although caustic soda pricing in the fourth quarter of
1997 was 10% below the level realized in the fourth quarter of 1996, it was 27%
higher than the average for the first nine months of 1997. In addition to the
continued recovery in caustic soda pricing, earnings should be helped by the
effects of increased sales of chlorinated organics and higher Performance
Systems sales. Overall, Chemicals segment earnings are expected to exceed 1997's
level. Taking all of the current expectations into account, it is anticipated
that the Company's 1998 net earnings and earnings per share should exceed 1997's
record results.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS Net cash provided by operating activities amounted to $345.8 million
in 1997, virtually equal to 1996's total of $345.5 million. Net cash provided by
the Construction Materials segment increased 16% to $255.9 million, while net
cash provided by the Chemicals segment decreased $42.5 million, or 33%, to $86.3
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 $106.7 million to shareholders through dividends and share purchases.
10
Cash expenditures for property, plant and equipment, including
acquisitions, were $173.3 million in 1997, down $43.3 million. Cash spending for
acquisitions totaled $12.1 million compared with $64.8 million in 1996.
The Company's policy is to pay out a reasonable share of net cash
provided by operating activities 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.
NET CASH PROVIDED BY
OPERATING ACTIVITIES
(in millions of dollars)
[GRAPH]
WORKING CAPITAL Working capital, exclusive of debt and cash items (cash, cash
equivalents and short-term investments), totaled $161.3 million at December 31,
1997, up $3.2 million from the 1996 level. This compares with a decrease of
$16.7 million and an increase of $8.2 million in 1996 and 1995, respectively.
The current ratio increased 15% in 1997, primarily due to a higher cash
balance. The current ratio in 1996 remained unchanged from 1995, as higher cash
balances were offset by increased payables.
11
PROPERTY ADDITIONS Property additions, including acquisitions, totaled $182.0
million in 1997, down marginally from the 1996 level of $187.2 million. As
explained on page 79, the Company classifies its property additions into three
categories based upon the predominant purpose of the project.
Profit-adding projects continued to bolster spending in both segments.
Within the Construction Materials segment, this included the acquisition of
stone quarries in Arkansas, Georgia and Texas; the opening of a greenfield
quarry in Alabama; and the purchase of a sand and gravel operation in Illinois.
Within the Chemicals segment, this included projects to expand chloromethanes
production capacity and to produce a new generation of chlorinated feedstocks.
Commitments for capital expenditures were $33.1 million at December 31, 1997.
Internally generated cash flow for the next year is expected to be adequate to
cover commitments.
PROPERTY ADDITIONS
(in millions of dollars)
[GRAPH]
SHORT-TERM BORROWINGS AND INVESTMENTS The Company was a net short-term investor
during 1997 as marketable securities reached a peak of $131.1 million, and
amounted to $111.3 million at year-end. During most of the years 1995 and 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.
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 million were maintained at the end
of 1997. 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.
12
LONG-TERM OBLIGATIONS During 1997 the Company reduced its total long-term
obligations by $3.6 million to $81.9 million as compared with a net decrease of
$4.8 million in 1996. During the three-year period ended December 31, 1997,
long-term obligations decreased cumulatively by $15.5 million from the $97.4
million outstanding at December 31, 1994.
During the same three-year period, shareholders' equity, net of common
stock purchases of $138.4 million and dividends of $173.8 million, increased by
$259.9 million to $991.5 million. 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 1997
was 6.6%. 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 commercial paper rating is
A-1+ by Standard & Poor's and P-1 by Moody's.
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.
LONG-TERM OBLIGATIONS AS
A PERCENT OF LONG-TERM CAPITAL
(percent)
[GRAPH]
COMMON STOCK During 1997 the Company purchased 630,856 shares of its common
stock at a cost of $43.1 million, equal to an average price of $68.26 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.
13
The number and cost of shares purchased during each of the last three
years is shown below:
1997 1996 1995
----------- ----------- -----------
Shares purchased:
Number .............. 630,856 765,400 947,908
Total cost
(millions)........... $ 43.1 $ 45.2 $ 50.1
Average cost ........ $ 68.26 $ 59.03 $ 52.90
Shares in treasury at
year-end:
Number .............. 12,885,004 12,332,047 11,602,590
Average cost ........ $ 39.48 $ 38.73 $ 37.34
The number of shares remaining under the current purchase authorization
of the Board was 3,547,496 shares as of December 31, 1997.
NEW ACCOUNTING STANDARDS
In June 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. These pronouncements must be adopted for
years beginning after December 15, 1997. The impact of SFAS Nos. 130 and 131 on
the Company's financial reporting is not expected to be material.
YEAR 2000 ISSUE
The "Year 2000" issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations.
The Company has conducted a risk assessment of its major business processes to
identify the systems that could be affected by the Year 2000 issue and is in the
process of developing an implementation plan to address the issue. The Company
presently believes that with planned modifications to existing software and
conversions to new software, the Year 2000 issue will not pose significant
operational problems. However, there can be no guarantee that the systems of
other Companies and government agencies on which the Company relies will be
converted in a timely manner. Although at this time it is not possible to
reasonably estimate the cost of compliance, based on the risk assessment, the
Company believes that the cost to resolve this issue will not have a material
impact on earnings.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain matters discussed in this report contain forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. These include general business conditions,
competitive factors, pricing, energy costs and other risks and uncertainties
detailed in the Company's periodic reports.
14
SEGMENT FINANCIAL DATA
Vulcan Materials Company and Subsidiary Companies
- --------------------------------------------------------------------------------
Amounts in millions 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
NET SALES
Construction Materials .................. $1,051.0 $ 961.9 $ 884.7 $ 842.9 $ 756.7 $ 686.4
Chemicals ............................... 627.6 607.0 576.3 410.5 376.8 391.6
--------------------------------------------------------------------
Total ................................. $1,678.6 $1,568.9 $1,461.0 $1,253.4 $1,133.5 $1,078.0
====================================================================
EARNINGS (LOSS) BEFORE INTEREST
EXPENSE AND INCOME TAXES
Construction Materials .................. $ 229.3 $ 197.3 $ 181.5 $ 162.5 $ 116.7 $ 88.3
Chemicals ............................... 75.8 94.7 87.8 (7.3) 17.4 51.3
--------------------------------------------------------------------
Segment earnings ........................ 305.1 292.0 269.3 155.2 134.1 139.6
Interest income, etc .................... 2.3 2.2 0.2 0.5 0.3 0.9
--------------------------------------------------------------------
Total ................................. $ 307.4 $ 294.2 $ 269.5 $ 155.7 $ 134.4 $ 140.5
====================================================================
OPERATING INCOME (LOSS) AFTER TAXES
Construction Materials .................. $ 160.2 $ 134.9 $ 120.6 $ 108.8 $ 81.6 $ 65.3
Chemicals ............................... 51.4 58.0 52.7 (4.7) 11.5 32.7
Interest income, etc .................... 1.8 1.5 0.1 0.4 0.2 0.7
--------------------------------------------------------------------
Total ................................. $ 213.4 $ 194.4 $ 173.4 $ 104.5 $ 93.3 $ 98.7
====================================================================
NET CASH PROVIDED BY
OPERATING ACTIVITIES
Construction Materials .................. $ 255.9 $ 219.8 $ 182.9 $ 182.5 $ 156.6 $ 141.9
Chemicals ............................... 86.3 128.8 90.8 31.5 41.1 63.8
Net interest, other, net ................ 3.6 (3.1) (7.2) (5.7) (4.7) (4.6)
--------------------------------------------------------------------
Total ................................. $ 345.8 $ 345.5 $ 266.5 $ 208.3 $ 193.0 $ 201.1
====================================================================
AVERAGE CAPITAL EMPLOYED
Construction Materials .................. $ 737.5 $ 710.6 $ 681.5 $ 688.1 $ 707.4 $ 708.4
Chemicals ............................... 373.1 356.0 353.9 294.0 248.5 226.4
Cash items and other .................... 62.5 27.5 6.8 11.0 7.0 22.4
--------------------------------------------------------------------
Total ................................. $1,173.1 $1,094.1 $1,042.2 $ 993.1 $ 962.9 $ 957.2
====================================================================
DEPRECIATION, DEPLETION AND AMORTIZATION
Construction Materials .................. $ 81.2 $ 75.2 $ 72.0 $ 72.8 $ 74.3 $ 75.5
Chemicals ............................... 39.5 37.4 38.7 33.9 28.5 27.8
--------------------------------------------------------------------
Total ................................. $ 120.7 $ 112.6 $ 110.7 $ 106.7 $ 102.8 $ 103.3
====================================================================
PROPERTY ADDITIONS*
Construction Materials
Replacement ............................ $ 65.8 $ 63.0 $ 53.2 $ 42.3 $ 39.4 $ 17.9
Environmental control .................. 2.5 2.5 3.5 2.2 1.7 1.6
Profit adding .......................... 57.2 58.6 37.7 24.8 18.2 37.0
--------------------------------------------------------------------
Total ................................. $ 125.5 $ 124.1 $ 94.4 $ 69.3 $ 59.3 $ 56.5
====================================================================
Chemicals
Replacement ............................ $ 26.2 $ 21.5 $ 15.8 $ 10.7 $ 9.3 $ 11.3
Environmental control .................. 2.4 7.4 4.9 1.7 5.4 10.1
Profit adding .......................... 27.9 34.2 10.5 78.1 26.6 20.6
--------------------------------------------------------------------
Total ................................. $ 56.5 $ 63.1 $ 31.2 $ 90.5 $ 41.3 $ 42.0
====================================================================
Total Company
Replacement ............................ $ 92.0 $ 84.5 $ 69.0 $ 53.0 $ 48.7 $ 29.2
Environmental control .................. 4.9 9.9 8.4 3.9 7.1 11.7
Profit adding .......................... 85.1 92.8 48.2 102.9 44.8 57.6
--------------------------------------------------------------------
Total ................................. $ 182.0 $ 187.2 $ 125.6 $ 159.8 $ 100.6 $ 98.5
====================================================================
INCREASE (DECREASE) IN WORKING CAPITAL **
Construction Materials .................. $ (8.7) $ (3.2) $ (9.9) $ 3.9 $ 2.6 $ 14.1
Chemicals ............................... 11.9 (13.5) 18.1 11.8 (8.3) (3.2)
--------------------------------------------------------------------
Total ................................. $ 3.2 $ (16.7) $ 8.2 $ 15.7 $ (5.7) $ 10.9
====================================================================
15
Amounts in millions 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------
NET SALES
Construction Materials .................. $ 648.1 $ 696.1 $ 645.7 $ 670.6 $ 625.5
Chemicals ............................... 359.4 409.2 430.5 382.6 297.8
--------------------------------------------------------
Total ................................. $1,007.5 $1,105.3 $1,076.2 $1,053.2 $ 923.3
========================================================
EARNINGS (LOSS) BEFORE INTEREST
EXPENSE AND INCOME TAXES
Construction Materials .................. $ 41.8 $ 112.0 $ 115.3 $ 141.5 $ 149.6
Chemicals ............................... 42.6 72.4 86.4 66.2 32.7
--------------------------------------------------------
Segment earnings ........................ 84.4 184.4 201.7 207.7 182.3
Interest income, etc .................... 0.3 2.6 5.8 5.2 4.8
--------------------------------------------------------
Total ................................. $ 84.7 $ 187.0 $ 207.5 $ 212.9 $ 187.1
========================================================
OPERATING INCOME (LOSS) AFTER TAXES
Construction Materials .................. $ 32.1 $ 77.3 $ 78.4 $ 94.7 $ 95.9
Chemicals ............................... 27.3 46.0 54.5 41.7 19.4
Interest income, etc .................... 0.1 1.8 4.3 3.8 3.4
--------------------------------------------------------
Total ................................. $ 59.5 $ 125.1 $ 137.2 $ 140.2 $ 118.7
========================================================
NET CASH PROVIDED BY
OPERATING ACTIVITIES
Construction Materials .................. $ 141.8 $ 130.2 $ 159.4 $ 115.3 $ 162.0
Chemicals ............................... 50.0 76.4 93.6 62.4 57.1
Net interest, other, net ................ (8.5) (6.5) (2.8) (2.4) (5.7)
--------------------------------------------------------
Total ................................. $ 183.3 $ 200.1 $ 250.2 $ 175.3 $ 213.4
========================================================
AVERAGE CAPITAL EMPLOYED
Construction Materials .................. $ 748.4 $ 656.8 $ 550.6 $ 485.2 $ 380.9
Chemicals ............................... 226.1 228.9 227.8 230.5 244.0
Cash items and other .................... 3.1 29.2 73.7 73.0 122.1
--------------------------------------------------------
Total ................................. $ 977.6 $ 914.9 $ 852.1 $ 788.7 $ 747.0
========================================================
DEPRECIATION, DEPLETION AND AMORTIZATION
Construction Materials .................. $ 80.4 $ 71.7 $ 63.6 $ 57.9 $ 48.8
Chemicals ............................... 29.3 28.5 27.3 28.0 28.9
--------------------------------------------------------
Total ................................. $ 109.7 $ 100.2 $ 90.9 $ 85.9 $ 77.7
========================================================
PROPERTY ADDITIONS*
Construction Materials
Replacement ............................ $ 26.9 $ 63.9 $ 62.8 $ 61.0 $ 41.3
Environmental control .................. 1.7 2.5 1.7 0.9 0.5
Profit adding .......................... 32.2 120.9 63.2 36.5 99.0
--------------------------------------------------------
Total ................................. $ 60.8 $ 187.3 $ 127.7 $ 98.4 $ 140.8
========================================================
Chemicals
Replacement ............................ $ 9.2 $ 13.0 $ 7.3 $ 9.0 $ 6.9
Environmental control .................. 1.6 3.6 3.4 2.0 3.0
Profit adding .......................... 14.1 18.6 8.3 6.3 2.0
--------------------------------------------------------
Total ................................. $ 24.9 $ 35.2 $ 19.0 $ 17.3 $ 11.9
========================================================
Total Company
Replacement ............................ $ 36.1 $ 76.9 $ 70.1 $ 70.0 $ 48.2
Environmental control .................. 3.3 6.1 5.1 2.9 3.5
Profit adding .......................... 46.3 139.5 71.5 42.8 101.0
--------------------------------------------------------
Total ................................. $ 85.7 $ 222.5 $ 146.7 $ 115.7 $ 152.7
========================================================
INCREASE (DECREASE) IN WORKING CAPITAL **
Construction Materials .................. $ (10.8) $ 37.0 $ (20.2) $ 47.0 $ (0.7)
Chemicals ............................... (0.5) (0.7) (8.2) 24.1 (5.0)
--------------------------------------------------------
Total ................................. $ (11.3) $ 36.3 $ (28.4) $ 71.1 $ (5.7)
========================================================
* Refer to page 79 for a discussion of the three categories used by the
company to classify property additions.
** Exclusive of debt and cash items.
16
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
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.
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 thirty 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.
17
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 In March 1997, the Financial Accounting Standards Board
("FASB") released Statement of Financial Accounting Standard ("SFAS") No. 128,
Earnings Per Share, which is effective for fiscal years ending after December
15, 1997. In accordance with this standard, the Company is now required to
report two separate earnings per share numbers, basic and diluted. Both are
computed by dividing net earnings by the average common shares outstanding
(basic EPS) or average common shares outstanding assuming dilution (diluted EPS)
as detailed below (in thousands of shares):
1997 1996 1995
------ ------ ------
Average common shares
outstanding ............... 33,828 34,758 35,544
Dilutive effect of:
Stock options ............. 176 6 --
Performance shares ........ 279 409 389
------ ------ ------
Average common shares
outstanding assuming
dilution .................. 34,283 35,173 35,933
====== ====== ======
Diluted earnings per share is the same number as the Company has previously been
reporting as earnings per share and includes the dilutive impact of options and
shares contingently issuable under long-term performance share plans.
18
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 1997 presentation.
2. CASH
Bank lines of credit amounted to $130,000,000 at year-end 1997, 1996 and 1995.
At year-end 1997, 1996 and 1995, the Company did not have any commercial paper
outstanding but did have $2,900,000, $3,100,000 and $3,400,000, respectively, in
bank borrowings referable to a Canadian subsidiary.
All of the lines of credit extended to the Company in 1997, 1996 and 1995
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):
1997 1996 1995
-------- -------- --------
Finished products .... $ 90,118 $ 87,459 $ 90,009
Raw materials ........ 10,865 10,115 10,062
Products in process .. 617 873 979
Operating supplies
and other ......... 30,759 30,131 25,751
-------- -------- --------
Total inventories $132,359 $128,578 $126,801
======== ======== ========
The above amounts include inventories valued under the LIFO method totaling
$99,321,000, $96,045,000 and $97,959,000 at December 31, 1997, 1996 and 1995,
respectively. Estimated current cost exceeded LIFO cost at December 31, 1997,
1996 and 1995 by $37,344,000, $35,747,000 and $36,899,000, 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 $973,000 ($0.03 per share
effect) in 1997, a decrease of $702,000 ($0.02 per share effect) in 1996 and an
increase of $4,784,000 ($0.13 per share effect) in 1995.
19
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):
1997 1996 1995
---------- ---------- ----------
Land and land
improvements ......... $ 211,058 $ 222,546 $ 203,920
Buildings ............... 81,805 82,049 77,732
Machinery and
equipment ............ 1,753,683 1,630,089 1,536,742
Leaseholds .............. 7,107 7,118 6,483
Construction in
progress ............. 66,547 60,362 34,559
---------- ---------- ----------
Total .............. 2,120,200 2,002,164 1,859,436
Less allowances for
depreciation,
depletion and
amortization ......... 1,311,781 1,237,674 1,161,403
---------- ---------- ----------
Property, plant and
equipment, net ....... $ 808,419 $ 764,490 $ 698,033
========== ========== ==========
The Company capitalized interest costs of $1,160,000 in 1997, $627,000 in
1996 and $297,000 in 1995 with respect to qualifying construction projects.
Total interest costs incurred before recognition of the capitalized amount was
$8,074,000 in 1997, $9,263,000 in 1996 and $11,396,000 in 1995.
5. DEBT
Long-term debt, exclusive of current maturities, at December 31 is summarized as
follows (in thousands of dollars):
1997 1996 1995
------- ------- --------
Medium-term notes ...... $61,000 $66,000 $ 71,000
Variable rate pollution
control revenue bonds 8,200 8,200 1,200
6 5/8% pollution control
revenue bonds ....... -- -- 6,800
6 3/8% pollution control
revenue bonds ....... 5,800 5,800 5,800
Other notes ............ 6,931 5,535 5,478
------- ------- --------
Total ............. $81,931 $85,535 $ 90,278
======= ======= ========
Estimated fair value ... $93,142 $93,507 $101,782
======= ======= ========
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
20
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 $61,000,000 in
notes outstanding as of December 31, 1997 have a weighted average maturity of
9.3 years with a weighted average interest rate of 8.69%.
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, 1997 are: 1998-$5,388,000; 1999-$5,412,000; 2000-$5,226,000;
2001-$5,208,000; and 2002-$5,491,000.
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, accounts payable, 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, 1997, 1996 and 1995. 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):
1997 1996 1995
------- ------- -------
Minimum rentals .............. $17,894 $17,188 $14,260
Contingent rentals (based
principally on usage) ..... 11,840 10,677 11,205
------- ------- -------
Total ............... $29,734 $27,865 $25,465
======= ======= =======
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, 1997 range from $6,523,000 to $10,476,000 annually
through 2002 and aggregate $46,587,000 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.
21
7. INCOME TAXES
The components of earnings before income taxes are as follows (in thousands of
dollars):
1997 1996 1995
-------- -------- --------
Domestic ........... $294,904 $279,801 $253,991
Foreign ............ 5,597 5,779 4,430
-------- -------- --------
Total ........... $300,501 $285,580 $258,421
======== ======== ========
Provisions for income taxes consist of the following (in thousands of
dollars):
1997 1996 1995
-------- ------- -------
Current:
Federal .............. $ 73,767 $80,704 $72,332
State and local ...... 10,907 14,595 14,087
Foreign .............. 132 144 18
-------- ------- -------
Total ............. 84,806 95,443 86,437
-------- ------- -------
Deferred:
Federal .............. 5,231 1,446 4,861
State and local ...... 1,321 96 883
Foreign .............. (2) -- --
-------- ------- -------
Total ............. 6,550 1,542 5,744
-------- ------- -------
Total provision ......... $ 91,356 $96,985 $92,181
======== ======= =======
The effective tax rate varied from the federal statutory income tax
rate due to the following:
1997 1996 1995
------ ------ ------
Federal statutory tax rate ........ 35.0% 35.0% 35.0%
Increase (decrease) in tax
rate resulting from:
Depletion ...................... (5.0) (4.8) (4.5)
State and local income
taxes, net of federal
income tax benefit ........... 2.6 3.3 3.8
Miscellaneous items ............ (2.2) .5 1.4
------ ------ ------
Effective tax rate ................ 30.4% 34.0% 35.7%
====== ====== ======
22
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):
1997 1996 1995
-------- -------- --------
Deferred tax assets related to:
Accrual for post-
retirement benefits ............. $ 15,283 $ 14,149 $ 13,318
Accrual for environmental
reclamation ..................... 554 396 1,604
Accounts receivable,
principally allowance
for doubtful accounts ........... 3,248 3,493 3,592
Inventory adjustments ............. 5,748 6,101 7,278
Pensions, incentives and
deferred compensation ........... 11,844 10,463 10,066
Other items ....................... 10,714 10,339 9,518
-------- -------- --------
Total deferred
tax assets .................. 47,391 44,941 45,376
-------- -------- --------
Deferred tax liabilities
related to:
Fixed assets, principally
depreciation .................. 107,170 101,316 98,821
Other items ..................... 7,555 7,119 5,935
-------- -------- --------
Total deferred tax
liabilities ................ 114,725 108,435 104,756
-------- -------- --------
Net deferred tax liability ........... $ 67,334 $ 63,494 $ 59,380
======== ======== ========
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.
23
Charges to earnings referable to Company-administered pension plans
totaled $4,695,000 in 1997, $5,185,000 in 1996 and $1,187,000 in 1995.
Components of the net periodic pension charges are as follows (in thousands of
dollars):
1997 1996 1995
-------- -------- --------
Service cost - benefits
earned during the period ........ $ 11,228 $ 11,631 $ 8,665
Interest cost ...................... 20,987 19,069 18,019
Actual return on plan assets ....... (72,874) (43,867) (51,744)
Net amortization
and deferral .................... 45,354 18,352 26,247
-------- -------- --------
Net periodic pension
charge ........................ $ 4,695 $ 5,185 $ 1,187
======== ======== ========
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):
1997 1996 1995
--------- --------- ---------
Actuarial present value
of benefit obligations:
Based on employment
service to date and
current salary levels:
Vested ...................... $(205,369) $(173,166) $(174,436)
Nonvested ................... (10,466) (8,693) (7,143)
--------- --------- ---------
Accumulated benefit
obligation ................ (215,835) (181,859) (181,579)
Effect of projected
future salary increases ....... (90,681) (85,430) (83,011)
--------- --------- ---------
Projected benefit
obligation .................... (306,516) (267,289) (264,590)
Plan assets at fair market
value ........................... 395,245 337,326 305,398
--------- --------- ---------
Plan assets in excess of
projected benefit
obligation ...................... 88,729 70,037 40,808
Unamortized portion of
unrecognized net asset
at implementation of
SFAS No. 87 ..................... (7,486) (10,212) (13,225)
Unrecognized net gain .............. (85,526) (68,163) (26,057)
Unrecognized prior
service cost .................... 10,722 12,632 8,148
--------- --------- ---------
Net prepaid pension cost ........ $ 6,439 $ 4,294 $ 9,674
========= ========= =========
24
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:
1997 1996 1995
------- ------- -------
Discount rates used to
determine the
pension obligations .............. 7.00% 7.50% 7.00%
Discount rates used
to determine the net
periodic cost .................... 7.50 7.00 8.50
Rates of increase in
compensation levels
(for salary-related plans) ....... 4.25 4.25 4.25
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 $2,115,000 in 1997, $2,090,000 in 1996 and $1,859,000 in 1995. 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.
25
The components of net periodic postretirement benefit costs are as follows (in
thousands of dollars):
1997 1996 1995
------- ------- -------
Service cost - benefits
attributed to service
during the period ......... $ 2,036 $ 2,045 $ 1,965
Interest cost ................ 3,464 3,013 3,558
Actual return on assets ...... (203) (196) (158)
Net amortization
and deferral .............. 124 88 209
------- ------- -------
Net periodic
postretirement
benefit cost .............. $ 5,421 $ 4,950 $ 5,574
======= ======= =======
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):
1997 1996 1995
-------- -------- --------
Accumulated
postretirement benefit
obligation:
Retirees ...................... $(13,044) $ (9,991) $(11,355)
Fully eligible active
plan participants ........... (15,968) (13,227) (13,658)
Other active plan
participants ................ (19,701) (20,415) (19,478)
-------- -------- --------
Total accumulated
postretirement
benefit obligation ........ (48,713) (43,633) (44,491)
Plan assets at fair
market value .................. 3,323 3,119 2,842
-------- -------- --------
Accumulated
postretirement benefit
obligation in excess of
plan assets ................... (45,390) (40,514) (41,649)
Unrecognized prior
service cost .................. 5 5 6
Unrecognized net loss ............ 6,261 4,287 7,726
-------- -------- --------
Accrued postretirement
benefit cost ................ $(39,124) $(36,222) $(33,917)
======== ======== ========
26
Annual net periodic postretirement benefit costs 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:
1997 1996 1995
------- ------- -------
Discount rates ................................. 7.00% 7.50% 7.00%
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 ............................... 8.00 9.00 10.00
Ultimate rate ............................ 5.00 5.00 5.00
If the health care cost trend rates were increased 1.0% each year, the
accumulated postretirement benefit obligation as of December 31, 1997 would have
increased by $5,065,000 (or 10.4%) and the aggregate of the service and interest
cost for 1997 would have increased by $758,000 (or 13.4%).
9. INCENTIVE PLANS
STOCK-BASED COMPENSATION PLANS 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 1997 and 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. In 1995, 126,760 shares were awarded with a
weighted average grant date fair value of $39.35. Expense provisions referable
to these plans amounted to $11,671,000 in 1997, $4,373,000 in 1996 and
$6,742,000 in 1995. Expense provisions are affected by changes in the market
value of the Company's common stock.
27
The Company applies Accounting Principle Board Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for its stock-based
compensation. Pro forma information regarding net earnings and earnings per
share is required by SFAS No. 123, Accounting for Stock-Based Compensation
("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 6.0%; dividend yields
of 2.9%; volatility factors of the expected market price of the Company's common
stock of 14.4%; 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 have
increased net earnings by approximately $4,234,000, $83,000 and $271,000 in
1997, 1996 and 1995, respectively. The impact on basic and diluted earnings per
share in 1997 would have been a $0.13 and $0.12 increase, respectively. There
would have been no change in 1996 earnings per share, but a $0.01 increase for
both basic and diluted earnings per share in 1995.
A summary of the Company's stock option activity, related information
as of December 31, 1997 and 1996, and changes during each year is presented
below:
1997 1996
-------------------------- --------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------- ---------------- ------- ----------------
Outstanding at
beginning of year ......... 428,950 $56.61 -- $ --
Granted ................. 408,050 $63.96 429,800 $56.61
Exercised ............... 6,940 $57.57 -- $ --
Forfeited ............... 20,825 $57.47 850 $56.56
------- -------
Outstanding at end of year ... 809,235 $60.28 428,950 $56.61
======= =======
Options exercisable
at year-end ............... 159,765 $58.05 -- $ --
Weighted-average grant date
fair value of each option
granted during the year . $11.14 $10.35
Exercise prices for substantially all options outstanding at December
31, 1997 ranged from $55.75 to $63.94. The weighted-average remaining
contractual life of the options is 8.75 years.
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 $7,198,000 in 1997,
$8,500,000 in 1996 and $5,550,000 in 1995.
28
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, 1997; Indica contributed a substantially equal
pro rata amount. The jointly owned companies have entered into credit agreements
which have loan balances totaling $23,890,000. 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 $2,205,000 outstanding from the three companies at December 31,
1997 as its share of loans to the joint venture. The carrying amount of net
assets of the entities located outside the United States was $55,034,000 as of
December 31, 1997.
Other commitments of the Company include the purchase of property, plant
and equipment approximating $33,137,000 at December 31, 1997.
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, with respect to 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's consolidated balance sheets as of December 31 include accrued
environmental cleanup costs for the Chemicals segment of $4,285,000 in 1997,
$3,732,000 in 1996 and $2,765,000 in 1995.
Current liabilities reported on the Company's consolidated balance sheets
include accrued provisions for discontinued operations in the following amounts
as of December 31: $508,000 in 1997, $905,000 in 1996 and $1,805,000 in 1995. In
addition, other noncurrent liabilities include $144,000 in 1997, $240,000 in
1996 and $493,000 in 1995 referable to discontinued operations.
29
11. COMMON STOCK
A total of 13,447,827 shares has been purchased at a cost of $530,912,000
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
3,547,496 shares as of December 31, 1997.
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 18 states located in the southeast, midwest and southwest regions of the
United States and the District of Columbia. 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 and Performance Systems
operations, produces and sells chlorine, caustic soda, chlorinated organic
chemicals and other industrial chemicals principally to the chemical, pulp and
paper, energy, water management, food processing, pharmaceuticals and textile
industries.
Segment data referable to net sales to unaffiliated customers, property
additions, and depreciation, depletion and amortization are provided in Segment
Financial Data on pages 55.
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
$17,336,000 in 1997, $16,231,000 in 1996 and $22,533,000 in 1995.
Segment earnings are reconciled with earnings before income taxes as
follows (in thousands of dollars):
1997 1996 1995
--------- --------- ---------
Segment Earnings:
Construction Materials ...... $ 229,275 $ 197,315 $ 181,528
Chemicals ................... 75,787 94,707 87,792
--------- --------- ---------
305,062 292,022 269,320
Interest income, etc ........... 2,353 2,194 200
Interest expense ............... (6,914) (8,636) (11,099)
--------- --------- ---------
Earnings before
income taxes ................ $ 300,501 $ 285,580 $ 258,421
========= ========= =========
30
Identifiable assets by segment at December 31 are as follows (in thousands of
dollars):
1997 1996 1995
---------- ---------- ----------
Construction Materials ............. $ 751,191 $ 719,618 $ 690,044
Chemicals .......................... 459,051 441,088 395,487
---------- ---------- ----------
Total identifiable assets .......... 1,210,242 1,160,706 1,085,531
Investment in
nonconsolidated affiliates ..... 61,036 56,043 50,780
General corporate assets ........... 49,402 53,080 57,614
Cash items ......................... 128,566 50,816 21,869
---------- ---------- ----------
Total assets ....................... $1,449,246 $1,320,645 $1,215,794
========== ========== ==========
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to the Consolidated Statements of Cash Flows
is summarized below (amounts in thousands of dollars):
1997 1996 1995
------- ------- -------
Cash payments:
Interest (exclusive of
amount capitalized) .............................. $ 6,774 $ 8,715 $11,214
Income taxes ....................................... 92,315 85,492 85,324
Noncash investing and financing activities:
Amounts referable to business acquisitions:
Liabilities assumed .......................... 1,441 5,051 1,382
14. ACQUISITIONS
At various dates during 1997 and 1996 the Company acquired the net assets and
businesses of several companies. The combined purchase price was approximately
$12,000,000 and $64,000,000, respectively. 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 net assets
acquired was recognized as goodwill and will be amortized under the Company's
normal amortization policy.
All of the 1997 and 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 net assets and businesses
had been acquired at the beginning of fiscal 1996 and 1995, respectively,
revenue, net income and earnings per share would not differ materially from the
amounts reflected in the accompanying consolidated financial statements for
1997, 1996 and 1995.
Goodwill recorded on the Company's balance sheet as of December 31, 1997
amounted to $59,345,000.
31
NET SALES, NET EARNINGS AND EARNINGS PER SHARE
Vulcan Materials Company and Subsidiary Companies
- --------------------------------------------------------------------------------
Amounts in millions,
except per share data 1997 1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
NET SALES
First quarter ......... $ 341.4 $ 308.5 $ 294.4 $ 216.9 $ 214.1 $ 210.6 $ 197.0
Second quarter ........ 445.1 419.2 382.8 326.7 306.0 284.2 266.4
Third quarter ......... 477.9 443.6 422.0 360.4 331.4 312.3 289.3
Fourth quarter ........ 414.2 397.6 361.8 349.4 282.0 270.9 254.8
----------------------------------------------------------------------------------
Total ............. $1,678.6 $1,568.9 $1,461.0 $1,253.4 $1,133.5 $1,078.0 $1,007.5
==================================================================================
GROSS PROFIT ON SALES
First quarter ......... $ 76.1 $ 70.1 $ 58.8 $ 21.0 $ 29.7 $ 35.6 $ 27.6
Second quarter ........ 136.5 129.3 113.2 77.4 74.0 74.5 66.7
Third quarter ......... 147.0 139.6 133.8 90.4 85.1 80.8 71.3
Fourth quarter ........ 119.5 114.5 110.5 79.4 57.9 58.2 46.5
----------------------------------------------------------------------------------
Total ............. $ 479.1 $ 453.5 $ 416.3 $ 268.2 $ 246.7 $ 249.1 $ 212.1
==================================================================================
NET EARNINGS (LOSS)
First quarter ......... $ 21.9 $ 20.1 $ 16.0 $ (5.2) $ (0.5) $ 7.6 $ (2.2)
Second quarter ........ 62.8 58.6 47.7 33.7 31.6 30.2 25.9
Third quarter ......... 73.3 62.1 59.1 37.6 36.6 35.8 30.2
Fourth quarter ........ 51.1 47.8 43.4 31.9 20.5 20.4 (1.3)
----------------------------------------------------------------------------------
Total ............. $ 209.1 $ 188.6 $ 166.2 $ 98.0 $ 88.2 $ 94.0 $ 52.6
==================================================================================
BASIC EARNINGS (LOSS)
PER SHARE
First quarter ......... $ 0.64 $ 0.58 $ 0.44 $ (0.14) $ (0.01) $ 0.20 $ (0.06)
Second quarter ........ 1.86 1.67 1.34 0.92 0.85 0.80 0.68
Third quarter ......... 2.16 1.79 1.66 1.03 0.99 0.95 0.80
Fourth quarter ........ 1.52 1.39 1.24 0.88 0.57 0.55 (0.04)
----------------------------------------------------------------------------------
Total ............. $ 6.18 $ 5.43 $ 4.68 $ 2.69 $ 2.40 $ 2.50 $ 1.38
==================================================================================
DILUTED EARNINGS (LOSS)
PER SHARE
First quarter ......... $ 0.64 $ 0.57 $ 0.44 $ (0.14) $ (0.01) $ 0.20 $ (0.06)
Second quarter ........ 1.83 1.65 1.32 0.92 0.84 0.80 0.68
Third quarter ......... 2.14 1.77 1.64 1.02 0.99 0.94 0.79
Fourth quarter ........ 1.49 1.37 1.23 0.87 0.57 0.55 $ (0.03)
----------------------------------------------------------------------------------
Total ............. $ 6.10 $ 5.36 $ 4.63 $ 2.67 $ 2.39 $ 2.49 $ 1.38
==================================================================================
Amounts in millions,
except per share data 1990 1989 1988 1987
- ------------------------------------------------------------------------
NET SALES
First quarter ......... $ 232.0 $ 217.5 $ 202.7 $ 168.9
Second quarter ........ 295.7 293.7 284.5 237.9
Third quarter ......... 306.6 307.3 298.5 270.1
Fourth quarter ........ 271.0 257.7 267.5 246.4
---------------------------------------------
Total ............. $1,105.3 $1,076.2 $1,053.2 $ 923.3
=============================================
GROSS PROFIT ON SALES
First quarter ......... $ 52.3 $ 47.4 $ 46.8 $ 36.4
Second quarter ........ 88.6 90.5 93.9 79.5
Third quarter ......... 90.0 103.2 98.8 91.6
Fourth quarter ........ 60.5 58.9 64.5 64.6
---------------------------------------------
Total ............. $ 291.4 $ 300.0 $ 304.0 $ 272.1
=============================================
NET EARNINGS (LOSS)
First quarter ......... $ 18.7 $ 17.2 $ 15.6 $ 11.4
Second quarter ........ 39.6 43.5 46.0 38.7
Third quarter ......... 42.2 50.5 49.3 38.7
Fourth quarter ........ 19.8 19.7 25.1 27.4
---------------------------------------------
Total ............. $ 120.3 $ 130.9 $ 136.0 $ 116.2
=============================================
BASIC EARNINGS (LOSS)
PER SHARE
First quarter ......... $ 0.48 $ 0.42 $ 0.38 $ 0.27
Second quarter ........ 1.01 1.08 1.12 0.91
Third quarter ......... 1.10 1.25 1.20 0.92
Fourth quarter ........ 0.52 0.50 0.61 0.65
---------------------------------------------
Total ............. $ 3.11 $ 3.25 $ 3.31 $ 2.75
=============================================
DILUTED EARNINGS (LOSS)
PER SHARE
First quarter ......... $ 0.47 $ 0.42 $ 0.38 $ 0.27
Second quarter ........ 1.02 1.07 1.11 0.91
Third quarter ......... 1.08 1.25 1.19 0.91
Fourth quarter ........ 0.53 0.50 0.62 0.64
---------------------------------------------
Total ............. $ 3.10 $ 3.24 $ 3.30 $ 2.73
=============================================
77
32
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 AFTER TAXES
For the Company: net earnings from 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.
79