1
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
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 our 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.
Our Company maintains an internal control structure which we believe provides
reasonable assurance that our Company's financial statements, books and records
accurately reflect our Company's financial condition, results of operations and
cash flows, and that our 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.
Our Company's independent auditors, Deloitte & Touche LLP, consider the
internal control structure as a part of their audits of our Company's financial
statements and provide an independent opinion as to the fairness of the
presentation of those statements. Their report is presented below.
Your 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/ Peter J. Clemens, III /s/ E. A. Khan
- ------------------------- -------------------------------
P.J. Clemens, III E. A. Khan
Executive Vice President, Controller
Finance & Administration
and Treasurer
February 5, 1999
- ---------------------------------------------------------------------------
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, 1998, 1997 and 1996, 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, 1998, 1997 and 1996, 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
Birmingham, Alabama
February 5, 1999
(March 10, 1999 as to Note 15B)
36
2
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31
Amounts and shares in thousands, except per share data 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Net sales .......................................................... $1,776,434 $1,678,581 $1,568,945
Cost of goods sold ................................................. 1,226,764 1,199,453 1,115,442
---------- ---------- ----------
Gross profit on sales .............................................. 549,670 479,128 453,503
Selling, administrative and general expenses ....................... 198,956 190,446 175,128
Other operating costs .............................................. 7,851 5,112 3,887
Other income, net
Interest income .................................................. 6,654 3,190 3,179
Other, net ....................................................... 32,109 20,655 16,549
---------- ---------- ----------
Total other income, net ........................................ 38,763 23,845 19,728
---------- ---------- ----------
Earnings before interest expense and income taxes .................. 381,626 307,415 294,216
Interest expense (Note 4) .......................................... 6,782 6,914 8,636
---------- ---------- ----------
Earnings before income taxes ....................................... 374,844 300,501 285,580
Provision for income taxes (Note 7)
Current .......................................................... 113,096 84,806 95,443
Deferred ......................................................... 5,840 6,550 1,542
---------- ---------- ----------
Total provision for income taxes ............................... 118,936 91,356 96,985
---------- ---------- ----------
Net earnings ....................................................... $ 255,908 $ 209,145 $ 188,595
========== ========== ==========
Basic net earnings per share (Note 11) ............................. $ 2.54 $ 2.06 $ 1.81
Diluted net earnings per share ..................................... $ 2.50 $ 2.03 $ 1.79
Dividends per share (Note 11) ...................................... $ 0.69 $ 0.63 $ 0.56
Average common shares outstanding (Note 11) ........................ 100,854 101,483 104,274
Average common shares outstanding,
assuming dilution ................................................ 102,177 102,850 105,518
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
All share and per share data have been restated to reflect the three-for-one
split of the Company's common stock, approved by the Board of Directors on
February 12, 1999 and effective March 10, 1999.
37
3
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
As of December 31
Amounts in thousands, except per share data 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents (Note 2) ...................................... $ 180,568 $ 128,566 $ 50,816
Accounts and notes receivable:
Customers, less allowance for doubtful accounts:
1998, $7,391; 1997, $7,548; 1996, $8,106 ............................ 210,690 189,389 176,864
Other ................................................................. 10,571 10,361 8,671
Inventories (Note 3) .................................................... 143,680 132,359 128,578
Deferred income taxes (Note 7) .......................................... 24,923 21,385 23,474
Prepaid expenses ........................................................ 5,949 5,072 5,642
---------- ---------- ----------
Total current assets ............................................... 576,381 487,132 394,045
Investments and long-term receivables ..................................... 71,034 63,482 61,274
Property, plant and equipment, net (Note 4) ............................... 895,785 808,419 764,490
Deferred charges and other assets (Notes 8, 14) ........................... 115,411 90,213 100,836
---------- ---------- ----------
Total .............................................................. $1,658,611 $1,449,246 $1,320,645
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt .................................... $ 5,432 $ 5,408 $ 5,021
Notes payable (Note 2) .................................................. 2,353 3,654 3,289
Trade payables and accruals ............................................. 107,382 112,548 98,528
Accrued income taxes .................................................... 21,470 21,749 29,606
Accrued salaries and wages .............................................. 45,665 41,858 38,253
Accrued interest ........................................................ 892 1,360 1,221
Other accrued liabilities (Note 9) ...................................... 28,268 21,120 18,736
---------- ---------- ----------
Total current liabilities .......................................... 211,462 207,697 194,654
Long-term debt (Note 5) ................................................... 76,533 81,931 85,535
Deferred income taxes (Note 7) ............................................ 98,472 88,719 86,968
Deferred management incentive
and other compensation (Note 9) ......................................... 37,572 33,849 26,251
Other postretirement benefits (Note 8) .................................... 41,998 37,924 36,222
Other noncurrent liabilities (Note 10) .................................... 38,874 7,629 7,351
---------- ---------- ----------
Total liabilities .................................................. 504,911 457,749 436,981
---------- ---------- ----------
Other commitments and contingent liabilities (Note 10) .................... 0 0 0
Shareholders' equity
Common stock, $1 par value .............................................. 139,705 46,573 46,573
Capital in excess of par value .......................................... 0 14,090 10,306
Retained earnings ....................................................... 1,588,145 1,449,847 1,304,405
---------- ---------- ----------
Total .............................................................. 1,727,850 1,510,510 1,361,284
Less cost of stock in treasury .......................................... 574,150 519,013 477,620
---------- ---------- ----------
Total shareholders' equity ......................................... 1,153,700 991,497 883,664
---------- ---------- ----------
Total .............................................................. $1,658,611 $1,449,246 $1,320,645
========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
38
4
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
Amounts in thousands 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings ...................................................... $ 255,908 $ 209,145 $ 188,595
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization ...................... 137,792 129,217 121,257
Compensation expense incurred in connection
with stock-based incentive plans ............................ 6,847 5,451 2,010
(Increase) decrease in assets before effects of
business acquisitions:
Accounts and notes receivable .............................. (20,415) (14,215) 1,381
Inventories ................................................ (8,794) (3,751) 3,915
Deferred income taxes ...................................... (3,538) 2,089 3,081
Prepaid expenses ........................................... (877) 570 194
Increase (decrease) in liabilities before effects of
business acquisitions:
Accrued interest and income taxes .......................... (513) 139 (105)
Trade payables, accruals, etc .............................. (4,362) (2,070) 14,118
Deferred income taxes ...................................... 9,753 1,752 1,032
Other noncurrent liabilities ............................... 7,127 9,578 4,290
Other, net .................................................... (16,332) 7,909 5,764
--------- --------- ---------
Net cash provided by operating activities ................... 362,596 345,814 345,532
--------- --------- ---------
INVESTING ACTIVITIES
Purchases of property, plant and equipment ........................ (203,258) (161,238) (151,767)
Payment for business acquisitions,
net of cash acquired ............................................ (24,874) (12,086) (64,765)
Proceeds from sale of property, plant and equipment ............... 27,054 16,446 11,952
Net investment in nonconsolidated companies ....................... 307 150 (1,233)
--------- --------- ---------
Net cash used for investing activities ...................... (200,771) (156,728) (205,813)
--------- --------- ---------
FINANCING ACTIVITIES
Net borrowings (payments)--commercial paper
and bank lines of credit ........................................ (1,301) 365 (280)
Payment of short-term debt ........................................ (5,193) (5,000) (6,849)
Payment of long-term debt ......................................... (225) (19) (62)
Purchases of common stock (Note 11) ............................... (65,003) (43,060) (45,182)
Dividends paid .................................................... (70,015) (63,622) (58,399)
Contribution from minority interest of
consolidated subsidiary ......................................... 31,914 0 0
--------- --------- ---------
Net cash used for financing activities ...................... (109,823) (111,336) (110,772)
--------- --------- ---------
Net increase in cash and cash equivalents ......................... 52,002 77,750 28,947
Cash and cash equivalents at beginning of year .................... 128,566 50,816 21,869
--------- --------- ---------
Cash and cash equivalents at end of year .......................... $ 180,568 $ 128,566 $ 50,816
========= ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
39
5
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31 1998 1997 1996
Amounts and shares in thousands, except per share data Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock, $1 par value
Authorized: 1998,480,000 shares (Note 15B);
1997 and 1996, 160,000 shares
Issued at beginning of year ........................ 46,573 $ 46,573 46,573 $ 46,573 46,573 $ 46,573
Retired shares of predecessor companies (Note 11) .. (5) (5) 0 0 0 0
Three-for-one common stock split (Note 15B) ........ 93,137 93,137 0 0 0 0
------- ---------- ------ --------- ------ ----------
Issued at end of year .............................. 139,705 139,705 46,573 46,573 46,573 46,573
======= ---------- ====== --------- ====== ----------
Capital in excess of par value
Balance at beginning of year ....................... 14,090 10,306 9,053
Activity prior to stock split
Distributions under stock-based incentive plans .. 5,167 3,784 1,253
Treasury stock issued for acquisition ............ 26,383 0 0
Three-for-one common stock split (Note 15B) ........ (45,640) 0 0
---------- --------- ----------
Balance at end of year ............................. 0 14,090 10,306
---------- --------- ----------
Retained earnings
Balance at beginning of year ....................... 1,449,847 1,304,405 1,174,207
Net earnings ....................................... 255,908 209,145 188,595
Cash dividends on common stock ..................... (70,015) (63,622) (58,399)
Three-for-one common stock split (Note 15B) ........ (47,497) 0 0
Other .............................................. (98) (81) 2
---------- --------- ----------
Balance at end of year ............................. 1,588,145 1,449,847 1,304,405
---------- --------- ----------
Common stock held in treasury
Balance at beginning of year ....................... (12,885) (519,013) (12,332) (477,620) (11,602) (433,195)
Activity prior to stock split
Purchase of common shares ........................ (611) (65,003) (631) (43,060) (765) (45,182)
Treasury stock issued for acquisition ............ 384 8,187 0 0 0 0
Distributions under stock-based incentive plans .. 75 1,679 78 1,667 35 757
Three-for-one common stock split (Note 15B) ........ (26,072) 0 0 0 0 0
------- ---------- ------ ------ ------ ----------
Balance at end of year ............................. (39,109) (574,150) (12,885) (519,013) (12,332) (477,620)
======= ------- ====== ------ ====== ----------
Total .......................................... $1,153,700 $ 991,497 $ 883,664
========== ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
40
6
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Vulcan is the nation's foremost producer of construction aggregates, a major
producer of other construction materials and a leading chemicals manufacturer,
supplying chloralkali and other industrial chemicals. The following is a
discussion and analysis of the results of operations and the financial condition
of the Company. This discussion and analysis should be read in connection with
the historical financial information included in the consolidated financial
statements and their notes.
The information presented in this report reflects the three-for-one split of
the common stock approved by the Board of Directors on February 12, 1999. The
stock split was effective as of March 10, 1999.
RESULTS OF OPERATIONS
Vulcan's 1998 sales, net earnings and earnings per share were at record levels.
Net earnings and diluted earnings per share were $255.9 million and $2.50,
respectively. The comparable 1997 net earnings and diluted earnings per share
were $209.1 million and $2.03, respectively. Sales in 1998 were $1.776 billion,
up from the 1997 total of $1.679 billion. Pretax earnings totaled $374.8
million, up 25% from last year's amount of $300.5 million.
CONSTRUCTION MATERIALS
1998 VS. 1997 For the sixth consecutive year, Construction Materials sales
surpassed previous records. Net sales for 1998 totaled $1.159 billion, up 10%
from the 1997 result of $1.051 billion. The 1998 results reflect an 8% increase
in shipments and a 4% rise in the average unit selling price of crushed stone,
the segment's principal product. Of the total increase in sales of $107.6
million, $70.0 million was related to increased volume and $37.6 million was due
to higher prices.
Segment earnings of $307.4 million, which are before interest expense and
income taxes, also were at a record level and were up 34% from 1997's record
level of $229.3 million. This increase reflects the favorable effects of higher
crushed stone shipments and prices, as well as increased earnings from other
products. This information is summarized below (in millions of dollars):
CONSTRUCTION MATERIALS 1998 VS. 1997
1997 earnings ................................. $ 229
-----
Higher volume/prices--crushed stone ........... 58
Higher earnings--other products ............... 14
Gains on asset sales .......................... 11
All other ..................................... (5)
-----
1998 earnings ................................. $ 307
=====
1997 VS. 1996 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. This information is summarized below (in millions of dollars):
CONSTRUCTION MATERIALS 1997 VS. 1996
1996 earnings ................................ $ 197
-----
Higher earnings--crushed stone ............... 45
All other .................................... (13)
-----
1997 earnings ................................ $ 229
=====
CHEMICALS
1998 VS. 1997 1998 sales of $617.8 million were down 2% from the record 1997
level of $627.6 million. Higher prices for caustic soda were more than offset by
lower volumes and prices for chlorine and some chlorine derivatives.
Segment earnings of $69.2 million in 1998 were down 9% from the 1997 level of
$75.8 million. Excluding the impact of asset sales and environmental provisions,
earnings for the year were 2% above 1997 levels. Higher caustic soda prices and
lower raw material costs offset lower volumes and
NET EARNINGS
(in millions of dollars)
[GRAPH]
41
7
prices for chlorine and some derivative products, and lower earnings from
Performance Systems. This information is summarized below (in millions of
dollars):
CHEMICALS 1998 VS.1997
1997 earnings ....................................... $ 76
----
Chloralkali sales prices/raw materials .............. 27
Chloralkali sales volumes ........................... (13)
Asset sales/environmental provisions ................ (8)
All other ........................................... (13)
----
1998 earnings ....................................... $ 69
====
1997 VS. 1996 Sales of $627.6 million were up 3% from the record 1996 level of
$607.0 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 reflected a 34% decline in
caustic soda prices and higher raw materials costs. This was partially offset by
higher pricing for chlorine and derivative products, as well as improved
earnings from Performance Systems. This information is summarized below (in
millions of dollars):
CHEMICALS 1997 VS. 1996
1996 earnings ................................ $ 95
----
Chloralkali sales prices/raw materials ....... (16)
All other .................................... (3)
----
1997 earnings ................................ $ 76
====
NET CASH PROVIDED BY
OPERATING ACTIVITIES
(in millions of dollars)
[GRAPH]
SELLING, ADMINISTRATIVE AND GENERAL
Selling, administrative and general expenses of $199.0 million in 1998 increased
4% from the 1997 level of $190.4 million. In addition to normal salary
increases, this reflects expenditures associated with several projects designed
to enhance operations and reduce future costs throughout the organization. In
1997, selling, administrative and general expenses were up 9% from the 1996
level. This reflects principally the effect that the 68% appreciation in the
Company's share price during 1997 had on stock-based incentive compensation
costs.
OTHER INCOME
Other income, net of other charges, was $32.1 million as compared with the 1997
amount of $20.7 million. The increase principally reflects gains on sales of
assets and higher earnings from the Company's joint venture to supply limestone
from Mexico to the U.S. Gulf Coast market. The increase in 1997 versus 1996 was
due to the same factors.
INCOME TAXES
The Company's 1998 effective tax rate was 31.7%, up from the 1997 rate of 30.4%.
The increase reflects principally a lesser impact of adjustments referable to
tax audits for prior years. The effective tax rate decreased in 1997, from the
1996 rate of 34.0%. This decrease reflected principally adjustments referable to
tax audits for prior years.
1999 OUTLOOK
With regard to 1999, the Company's starting point is the assumption that
moderate growth in GDP and the favorable impact of TEA-21 will continue to
provide a healthy economic environment for construction activity in the United
States. The market for construction aggregates should remain strong overall.
Demand in all major construction end-use markets should equal or exceed 1998
levels, with the exception of residential construction, which may decline
modestly. Based on this outlook, 1999 earnings in the Construction Materials
segment, before the inclusion of CalMat, are expected to exceed 1998's record
result. CalMat will significantly increase segment earnings, but this will be
offset by higher interest expense referable to the acquisition.
In 1999, the Chemicals segment will face a challenging year. Uncertainties
regarding the Asian economies and related effects on the global economy,
combined with the expected advent of additional chloralkali capacity, continue
to cloud the outlook. Both caustic and chlorine prices may be lower than in
1998. Based on its current view, the Company expects Chemicals' earnings to fall
significantly below 1998's performance.
42
8
All in all, Vulcan has a high level of confidence in the outlook for
Construction Materials. However, the volatile outlook for Chemicals makes it
difficult to project 1999 results for Chemicals and the Company. If Chemicals'
markets stabilize, Vulcan's net earnings and earnings per share could
approximate 1998's record results. On the other hand, a continued deterioration
in Chemicals' markets would likely lead to a slight decline in Vulcan's
earnings.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS Net cash provided by operating activities reached a fourth
consecutive record high a mounting to $362.6 million in 1998, as compared to
1997's total of $345.8 million. Net cash provided by the Construction Materials
segment increased 6% to $270.4 million, while net cash provided by the Chemicals
segment was relatively flat at $86.4 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 $135.0 million to
shareholders through dividends and share purchases.
Cash expenditures for property, plant and equipment, excluding acquisitions,
were $203.3 million in 1998, up $42.1 million. Cash spending for acquisitions,
including amounts referable to working capital and other balance sheet items,
totaled $24.9 million compared with $12.1 million in 1997.
The Company's policy is to pay out a reasonable share of net cash provided by
operating activities as dividends, consistent with the payout record of past
years on average, 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 and an attractive means of returning cash to shareholders.
Management intends to continue buying shares when appropriate based on
prevailing market conditions, 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 $193.0 million at December 31,
1998, up $31.7 million from the 1997 level. This compares with an increase of
$3.2 million and a decrease of $16.7 million in 1997 and 1996, respectively.
The current ratio increased to 2.7 in 1998, primarily due to a higher cash
balance. The current ratio in 1997 was 2.3, higher than the 2.0 in 1996.
PROPERTY ADDITIONS Property additions, including acquisitions, totaled $230.3
million in 1998, up 26.5% from the 1997 level of $182.0 million. Property
additions included $18.6 million related to acquisitions and $8.4 million of
accruals referable to property. As explained on page 65, Vulcan classifies its
property additions into three categories based on the predominant purpose of the
project.
Profit-adding projects continued to bolster spending in both segments. Within
the Construction Materials segment, these included the acquisition of six stone
quarries in Georgia, Illinois and Tennessee, and the beginning of production at
greenfield aggregates operations in Alabama, Georgia and Indiana. Property
additions within the Chemicals segment included initial spending for a joint
venture with Mitsui & Co. announced in June. In addition to contributing its
existing EDC plant, Vulcan will invest a total of approximately $90.0 million in
this project, with the majority of this funding to be provided in 1999.
Commitments for capital expenditures were $32.4 million at December 31, 1998,
excluding expenditures for CalMat and Mitsui. As a result of the acquisition of
CalMat in January 1999, the Company will use a combination of short-term and
long-term borrowing in addition to internally generated cash flows to cover the
aforementioned commitments.
SHORT-TERM BORROWINGS AND INVESTMENTS The Company was a net short-term investor
during 1998 as marketable securities reached a peak of $219.8 million, and
amounted to $166.8 million at year end. The Company was also a net short-term
investor in 1997 when marketable securities peaked at $131.1 million and ended
at $111.3 million. During 1996, however, the Company was a net short-term
borrower
PROPERTY ADDITIONS
(in millions of dollars)
[GRAPH]
43
9
as borrowings reached a maximum of $48.2 million and equaled $3.3 million at
year end.
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 $225.0 million were maintained at the
end of 1998. In connection with its acquisition of CalMat, the Company entered
into a syndicated credit facility in the amount of $550.0 million effective in
January 1999, which resulted in total domestic lines of credit being increased
to $775.0 million. Concurrent with the closing of the aforementioned
acquisition, Standard & Poor's Ratings Group lowered the Company's commercial
paper rating from A-1+ to A-1, while Moody's Investors Service, Inc., maintained
its rating at the P-1 level.
LONG-TERM OBLIGATIONS During 1998, the Company reduced its total long-term
obligations by $5.4 million to $76.5 million, compared with a net decrease of
$3.6 million in 1997. During the three-year period ended December 31, 1998,
long-term obligations decreased cumulatively by $13.8 million from the $90.3
million outstanding at December 31, 1995.
During the same three-year period, shareholders' equity, net of common stock
purchases of $153.3 million and dividends of $192.0 million, increased by $357.1
million to $1,153.7 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 30% to
35%. The actual ratio at the end of 1998 was 5.3%. Vulcan has made acquisitions
from time to time and will continue to actively pursue attractive investment
opportunities. If financing is required for this purpose, it may be accomplished
temporarily on a short-term basis or by incurring long-term debt.
LONG-TERM OBLIGATIONS
AS A PERCENT OF
LONG-TERM CAPITAL
[GRAPH]
In acquiring CalMat in January 1999, the Company liquidated all of its
marketable securities and issued commercial paper to purchase the CalMat common
stock tendered. In due course, the Company anticipates issuing long-term debt to
fund the acquisition.
Effective with the closing of the CalMat acquisition, Standard & Poor's
Ratings Group lowered the Company's long-term debt rating to A+ from AA-, while
Moody's Investors Service, Inc., maintained its rating at the A1 level.
COMMON STOCK During 1998, the Company purchased 1,832,100 shares of its common
stock at a cost of $65.0 million, equal to an average price of $35.48 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 on 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:
1998 1997 1996
----------------------------------------
Shares purchased:
Number ...................... 1,832,100 1,892,568 2,296,200
Total cost (millions) ....... $ 65.0 $ 43.1 $ 45.2
Average cost ................ $ 35.48 $ 22.75 $ 19.68
Shares in treasury at year end:
Number ...................... 39,108,657 38,655,012 36,996,141
Average cost ................ $ 14.68 $ 13.16 $ 12.91
The number of shares remaining under the current purchase authorization of the
Board was 8,810,388 shares as of December 31, 1998.
MARKET RISK
The Company is exposed to certain market risks a rising from transactions that
are entered into in the normal course of business. In order to manage or reduce
this market risk, the Company occasionally utilizes derivative financial
instruments.
44
10
To date, the Company has used commodity swap and option contracts to reduce its
exposure to fluctuations in prices for natural gas. The fair value of these
contracts as of December 31, 1998 and 1997 was not material. As a result of a
10% reduction in the price of natural gas, the Company would experience a
potential loss in the fair value of the underlying commodity swap and option
contracts for the year ended December 31, 1998 of approximately $160 thousand.
Year 2000 Issue
Vulcan recognizes the importance of Year 2000 issues and has made resolution of
these problems a priority by creating a Year 2000 Project Management Office with
the appropriate authority and resources. The Company's Year 2000 Plan includes
five stages--pre-project, planning, preparation, implementation and transition,
which will overlap to a significant degree. The Year 2000 Project Management
Office has organized teams at each major location to research Year 2000
compliance status, implement appropriate solutions, and conduct testing of
computer hardware and net work equipment, computer software, production
equipment and instrumentation. It will also assist in identifying key customers
and key suppliers. Vulcan is currently in the preparation and implementation
stages, coordinating the necessary internal and external changes. The Company
has received information concerning the Year 2000 status of significant
suppliers and selected customers, and believes plans are in place to
appropriately remedy these issues in a timely manner. The Company plans to have
implemented corrections to internal systems that are critical to its operations
no later than the end of the third quarter of 1999. While some noncritical
systems may not be addressed until after December 1999, Vulcan believes such
systems will not disrupt operations in a material manner.
The Company currently estimates that the total cost of implementing its Year
2000 Plan will not exceed $5.0 million. This estimate is based on presently
available information and will be updated as the Company finalizes its
assessment and continues with implementation. In particular, the estimate may
need to be increased once the Company has formulated its contingency plan. We
expect our business partner readiness assessment to be completed in April 1999.
Management believes that the Company's Year 2000 Plan will resolve the issue
in a timely manner. Nevertheless, since it is not possible to anticipate all
possible future outcomes, especially when third parties are involved, there
could be circumstances in which the Company would be unable to take customer
orders, manufacture and ship products, invoice customers or collect payments. In
particular, if third-party providers, due to the Year 2000 issue, fail to
provide Vulcan with components or materials that are necessary to manufacture
its products, with sufficient electrical power and other utilities to sustain
its manufacturing process, or with adequate, reliable means of transporting its
products to its customers, then any such failure could have a material adverse
effect on the business operations and financial performance of the Company. The
amount of potential liability and lost revenue has not been estimated.
Contingency plans will be finalized in the second quarter of 1999.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is required to be adopted for years
beginning after June 15, 1999. The Company is currently evaluating SFAS 133 and
has not yet determined its impact on the Company's consolidated financial
statements.
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.
AVERAGE CAPITAL
EMPLOYED
(in millions of dollars)
[GRAPH]
45
11
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 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 on 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 15 to 30 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 a 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 (EPS) In accordance with the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 128, Earnings Per Share,
the Company reports two separate earnings per share numbers, basic and
46
12
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):
1998 1997 1996
------- ------- -------
Average common shares outstanding ..................... 100,854 101,483 104,274
Dilutive effect of:
Stock options ....................................... 720 528 18
Performance shares and other ........................ 603 839 1,226
------- ------- -------
Average common shares outstanding,
assuming dilution ................................... 102,177 102,850 105,518
======= ======= =======
All common stock equivalents are reflected in the Company's earnings per
share calculations; the Company had no anti-dilutive common stock equivalent
shares in 1998, 1997 and 1996. All earnings per share amounts have been
retroactively restated to reflect the three-for-one split of the common stock
approved by the Board of Directors on February 12, 1999 (see Note 15B).
RECENT ACCOUNTING PRONOUNCEMENTS In June 1997 the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130 (SFAS 130),
Reporting Comprehensive Income. This statement is now effective, but has no
impact on the Company. In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities. SFAS 133 is
required to be adopted for years beginning after June 15, 1999. The Company is
currently evaluating SFAS 133 and has not yet determined its impact on the
Company's consolidated financial statements.
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 1998 presentation.
2. CASH
At year-end 1998, 1997 and 1996, the Company did not have any commercial paper
outstanding but did have $2,400,000, $2,900,000 and $3,100,000, respectively, in
bank borrowings.
All of the lines of credit extended to the Company in 1998, 1997 and 1996
were based solely on a commitment fee basis, and thus no compensating balances
were required. In the normal course of business, the Company maintains balances
for which it is credited with earnings allowances. To the extent the earnings
allowances are not sufficient to fully compensate banks for the services the
provide, the Company pays the fee equivalent for the differences. The Company
was in compliance with these informal compensation arrangements during all three
years. Because the arrangements are evaluated on a 12-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):
1998 1997 1996
-------- -------- -------
Finished products ..................................... $99,814 $90,118 $ 87,459
Raw materials ......................................... 10,466 10,865 10,115
Products in process ................................... 1,183 617 873
Operating supplies and other .......................... 32,217 30,759 30,131
-------- -------- --------
Total inventories ................................... $143,680 $132,359 $128,578
======== ======== ========
The above amounts include inventories valued under the LIFO method totaling
$107,178,000, $99,321,000 and $96,045,000 at December 31, 1998, 1997 and 1996,
respectively. Estimated current cost exceeded LIFO cost at December 31, 1998,
1997 and 1996 by $34,671,000, $37,344,000 and $35,747,000, 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 $1,633,000 ($0.02 per share
effect) in 1998, an increase of $973,000 ($0.01 per share effect) in 1997 and a
decrease of $702,000 ($0.01 per share effect) in 1996.
47
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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):
1998 1997 1996
---------- ---------- ----------
Land and land improvements ............................ $ 210,601 $ 211,058 $ 222,546
Buildings ............................................. 83,609 81,805 82,049
Machinery and equipment ............................... 1,874,012 1,753,683 1,630,089
Leaseholds ............................................ 7,039 7,107 7,118
Construction in progress .............................. 105,495 66,547 60,362
---------- ---------- ----------
Total ............................................. 2,280,756 2,120,200 2,002,164
Less allowances for depreciation,
depletion and amortization .......................... 1,384,971 1,311,781 1,237,674
---------- ---------- ----------
Property, plant and
equipment, net ...................................... 895,785 $ 808,419 $ 764,490
========== ========== ==========
The Company capitalized interest costs of $443,000 in 1998,$1,160,000 in 1997
and $627,000 in 1996 with respect to qualifying construction projects. Total
interest costs incurred before recognition of the capitalized amount were
$7,225,000 in 1998, $8,074,000 in 1997 and $9,263,000 in 1996.
5. DEBT
Long-term debt, exclusive of current maturities, at December 31 is summarized as
follows (in thousands of dollars):
1998 1997 1996
------- ------- -------
Medium-term notes ..................................... $56,000 $61,000 $66,000
Variable rate pollution control
revenue bonds ....................................... 8,200 8,200 8,200
63/8% pollution control
revenue bonds ....................................... 5,800 5,800 5,800
Other notes ........................................... 6,533 6,931 5,535
------- ------- -------
Total ............................................. $76,533 $81,931 $85,535
======= ======= =======
Estimated fair value .................................. $87,091 $93,142 $93,507
======= ======= =======
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 3 to 30 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 $56,000,000 in notes outstanding as of
December 31, 1998 have a weighted average maturity of 8 years with a weighted
average interest rate of 8.72%.
Certain fixed and 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 that 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, 1998 are: 1999-$5,432,000; 2000-$5,240,000;
2001-$5,211,000; 2002-$5,491,000; and 2003-$5,217,000.
The Company is not subject to any contractual restrictions with regard to
working capital, or the amount it may expend for cash dividends and purchases of
its stock. Pursuant to a provision in the Company's bank credit facility
agreements, the percentage of consolidated debt to total capitalization must be
less than 60%.
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 long-term debt, accounts payable, accrued
interest and other applicable accrued liabilities, the carrying amounts are a
reasonable estimate of fair value primarily due to their short-term nature. The
fair value estimates presented are based on information available to management
as of December 31, 1998, 1997 and 1996. 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.
48
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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):
1998 1997 1996
------- ------- -------
Minimum rentals ....................................... $18,725 $17,894 $17,188
Contingent rentals (based
principally on usage) ............................... 15,410 11,840 10,677
------- ------- -------
Total ............................................. $34,135 $29,734 $27,865
======= ======= =======
Future minimum operating lease payments under all leases with initial or
remaining noncancelable lease terms in excess of one year, exclusive of mineral
leases, at December 31, 1998 range from $8,445,000 to $14,457,000 annually
through 2003 and aggregate $49,171,000 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):
1998 1997 1996
-------- -------- --------
Domestic .................................... $365,706 $294,834 $279,678
Foreign ..................................... 9,138 5,667 5,902
-------- -------- --------
Total ..................................... $374,844 $300,501 $285,580
======== ======== ========
Provisions for income taxes consist of the following (in thousands of dollars):
1998 1997 1996
--------- --------- --------
Current:
Federal ............................................. $ 96,311 $ 73,767 $ 80,704
State and local ..................................... 16,544 10,907 14,595
Foreign ............................................. 241 132 144
--------- --------- --------
Total ............................................. 113,096 84,806 95,443
--------- --------- --------
Deferred:
Federal ............................................. 4,679 5,231 1,446
State and local ..................................... 1,181 1,321 96
Foreign ............................................. (20) (2) --
--------- --------- --------
Total ............................................. 5,840 6,550 1,542
--------- --------- --------
Total provision ....................................... $ 118,936 $ 91,356 $ 96,985
========= ========= ========
The effective tax rate varied from the federal statutory income tax rate due
to the following:
1998 1997 1996
------ ----- -----
Federal statutory tax rate ............................ 35.0% 35.0% 35.0%
Increase (decrease) in tax rate
resulting from:
Depletion ......................................... (4.5) (5.0) (4.8)
State and local income taxes,
net of federal income
tax benefit ..................................... 3.0 2.6 3.3
Miscellaneous items ............................... (1.8) (2.2) 0.5
----- ---- ----
Effective tax rate .................................... 31.7% 30.4% 34.0%
===== ==== ====
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):
1998 1997 1996
------ ------ ------
Deferred tax assets related to:
Accrual for post retirement
benefits .......................................... $ 16,804 $ 15,283 $ 14,149
Accrual for environmental
reclamation ....................................... 371 554 396
Accounts receivable,
principally allowance
for doubtful accounts ............................. 2,918 3,248 3,493
Inventory adjustments ............................... 6,309 5,748 6,101
Pensions, incentives and
deferred compensation ............................. 17,477 11,844 10,463
Other items ......................................... 9,596 10,714 10,339
-------- -------- --------
Total deferred tax assets ....................... 53,475 47,391 44,941
-------- -------- --------
Deferred tax liabilities related to:
Fixed assets, principally
depreciation ...................................... 117,658 107,170 101,316
Other items ......................................... 9,366 7,555 7,119
-------- -------- --------
Total deferred tax liabilities .................. 127,024 114,725 108,435
-------- -------- --------
Net deferred tax liability .......................... $ 73,549 $ 67,334 $ 63,494
======== ======== ========
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8. PENSION AND POST RETIREMENT BENEFIT PLANS
The Company has adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions and Other
Post retirement Benefits.
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 two out of
four union groups in the Chemicals Hourly Plan are based on salaries or wages
and years of service; the Construction Materials Hourly Plan and two union
groups in the Chemicals Hourly Plan provide benefits equal to a flat dollar
amount for each year of service.
The following tables set forth the combined funded status of the plans and
their reconciliation with the related amounts recognized in the Company's
consolidated financial statements at December 31 (in thousands of dollars):
1998 1997 1996
--------- --------- ---------
Change in benefit obligation:
Benefit obligation at
beginning of year ............................. $ 306,516 $ 267,289 $ 264,590
Service cost .................................... 12,886 11,228 11,631
Interest cost ................................... 19,499 20,987 19,069
Amendments ...................................... 5,479 (1,014) 6,770
Actuarial (gain) loss ........................... 14,667 23,647 (22,316)
Benefits paid ................................... (14,289) (15,621) (12,455)
--------- --------- ---------
Benefit obligation at end of year ................ $ 344,758 $ 306,516 $ 267,289
========= ========= =========
Change in plan assets:
Fair value assets at
beginning of year ............................... $ 395,245 $ 337,325 $ 305,398
Actual return on plan assets .................. 63,827 72,875 43,867
Employer contribution ......................... 770 666 515
Benefits paid ................................. (14,289) (15,621) (12,455)
--------- --------- ---------
Fair value of assets
at end of year .............................. $ 445,553 $ 395,245 $ 337,325
========= ========= =========
Funded status ..................................... $ 100,795 $ 88,729 $ 70,037
Unrecognized net transition (asset) ............... (5,060) (7,486) (10,212)
Unrecognized net actuarial (gain) ................. (111,024) (91,536) (68,163)
Unrecognized prior service cost ................... 14,670 10,722 12,632
--------- --------- ---------
Net amount recognized ............................. $ (619) $ 429 $ 4,294
========= ========= =========
Amounts recognized in the statement of
financial position consists of:
Prepaid benefit cost .......................... $ 35,500 $ 32,959 $ 24,326
Accrued benefit liability ..................... (36,492) (33,402) (20,032)
Intangible assets ............................. 373 872 0
--------- --------- ---------
Net amount recognized ......................... $ (619) $ 429 $ 4,294
========= ========= =========
Components of net periodic benefit cost:
Service cost ..................................... $ 12,886 $ 11,228 $ 11,631
Interest cost .................................... 19,499 20,987 19,069
Expected return on plan assets ................... (28,643) (25,622) (23,651)
Amortization of transition (asset) ............... (2,425) (2,730) (3,013)
Amortization of prior service cost ............... 1,531 1,588 1,104
Recognized actuarial (gain) loss ................. (1,145) (756) 45
--------- --------- ---------
Net periodic benefit cost ........................ $ 1,703 $ 4,695 $ 5,185
========= ========= =========
Weighted-average assumptions
as of December 31:
Discount rate ................................. 6.75% 7.00% 7.50%
Expected return on assets ..................... 8.25% 8.25% 8.25%
Rate of compensation increase
(for salary-related plans) .................. 4.25% 4.25% 4.25%
Plan assets are composed primarily of marketable domestic and international
equity securities and corporate and government debt securities. Vulcan sponsors
an unfunded nonqualified pension plan. The projected benefit obligation,
accumulated benefit obligation and fair value of assets for this plan were
$16,943,860, $11,169,918 and $0 as of December 31, 1998; $15,331,632,
$10,573,132 and $0 as of December 31, 1997; and $10,764,273, $7,863,951 and $0
as of December 31, 1996.
Certain of the Company's hourly employees in unions are covered by
multi-employer defined benefit pension plans. Contributions to these plans
approximated $2,159,000 in 1998, $2,115,000 in 1997 and $2,090,000 in 1996. 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. Fifteen percent of the labor force are covered by
collective bargaining agreements and 6% are covered by labor agreements that
expire within one year.
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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 following tables set forth the combined funded status of the plan and
its reconciliation with the related amounts recognized in the Company's
consolidated financial statements at December 31 (in thousands of dollars):
1998 1997 1996
--------- --------- ---------
Change in benefit obligation:
Benefit obligation at
beginning of year ............................. $ 48,713 $ 43,633 $ 44,491
Service cost .................................... 2,134 2,036 2,045
Interest cost ................................... 3,367 3,464 3,013
Amendments ...................................... (146) 0 0
Actuarial (gain) loss ........................... (623) 2,099 (3,103)
Benefits paid ................................... (2,513) (2,519) (2,813)
--------- --------- ---------
Benefit obligation at end of year ............... $ 50,932 $ 48,713 $ 43,633
========= ========= =========
Change in plan assets:
Fair value of assets at
beginning of year ............................. $ 3,323 $ 3,119 $ 2,842
Actual return on plan assets .................... 167 203 197
Employer contribution ........................... 45 111 168
Benefits paid ................................... (51) (110) (88)
--------- --------- ---------
Fair value of assets
at end of year ................................ $ 3,484 $ 3,323 $ 3,119
========= ========= =========
Funded status ..................................... $ (47,448) $ (45,390) $ (40,514)
Unrecognized net loss ............................. 5,612 6,261 4,287
Unrecognized prior service cost ................... (162) 5 5
--------- --------- ---------
Net amount recognized.............................. $ (41,998) $ (39,124) $ (36,222)
========= ========= =========
Amounts recognized in the statement of financial
position consist of:
Accrued benefit liability ..................... $ (41,998) $ (39,124) $ (36,222)
========== ========= =========
Components of net periodic benefit cost:
Service cost ..................................... $ 2,134 $ 2,036 $ 2,045
Interest cost ................................... 3,367 3,464 3,013
Expected return on plan assets .................. (218) (218) (204)
Amortization of prior service cost .............. 21 1 1
Recognized actuarial loss ....................... 84 138 95
--------- --------- ---------
Net periodic benefit cost ....................... $ 5,388 $ 5,421 $ 4,950
========== ========= =========
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 weighted-average discount rates used as of December 31, 1998, 1997 and
1996 were 6.75%, 7.00% and 7.50%, respectively. For measurement purposes, a 7%
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 1999. The rate was assumed to decrease 1% each year to 5% for
2001 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. If the healthcare cost trend rates
were increased 1% each year, the accumulated postretirement benefit obligation
as of December 31, 1998 would have increased by $6,145,000, and the aggregate of
the service and interest cost for 1998 would have increased by $797,000.
Similarly, if the health care cost trend rates were decreased 1% each year, the
accumulated postretirement benefit obligation as of December 31, 1998 would have
decreased by $4,463,000, and the aggregate of the service and interest cost for
1998 would have decreased by $621,000.
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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 1998, 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 10 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 $10,698,000 in 1998, $11,671,000 in 1997 and $4,373,000 in 1996.
Expense provisions are affected by changes in the market value of the Company's
common stock and performance versus a preselected peer group.
The Company applies Accounting Principles 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 5.6%; dividend yields of 2.1%;
volatility factors of the expected market price of the Company's common stock of
17.9%; 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 $3,626,000, $4,386,000 and $83,000 in
1998, 1997 and 1996, respectively. The impact on basic and diluted earnings per
share in 1998 would have been a $0.03 and $0.04 increase, respectively.
Similarly, the impact in 1997 would have been a $0.04 and $0.05 increase,
respectively, and there would have been no change in 1996 earnings per share.
A summary of the Company's stock option activity, related information as of
December 31, 1998, 1997 and 1996, and changes during each year is presented
below:
1998 1997 1996
---------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------------------------------------------------------------------
Outstanding at beginning of year .................. 2,427,705 $ 20.09 1,286,850 $ 18.87 -- $ --
Granted at fair value ........................... 1,021,950 $ 33.13 1,224,150 $ 21.32 1,289,400 $ 18.87
Exercised ....................................... 95,010 $ 19.79 20,820 $ 19.19 -- $ --
Forfeited ....................................... 106,005 $ 25.12 62,475 $ 19.16 2,550 $ 18.85
---------- --------- ---------
Outstanding at year end ........................... 3,248,640 $ 24.04 2,427,705 $ 20.09 1,286,850 $ 18.87
========== ========= =========
Options exercisable at year end ................... 840,960 $ 19.73 479,295 $ 19.35 -- $ --
Weighted-average grant date
fair value of each option
granted during the year ......................... $ 4.80 3.71 $ 3.45
52
18
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OF SHARES LIFE (YEARS) PRICE OF SHARES PRICE
- ---------------- ---------- ----------- --------- --------- --------
$18.58-$19.73 1,128,855 7.38 $18.87 542,955 $18.86
21.31 1,136,985 8.12 $21.31 297,825 $21.31
$29.20-$32.95 965,700 9.12 $32.94 180 $29.20
$ 43.76 17,100 9.94 $43.76 NA NA
---------- -------
Total 3,248,640 8.17 $24.04 840,960 $19.73
========== ==== ====== ======= ======
CASH-BASED COMPENSATION PLAN 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 plan amounted to $10,250,000 in 1998, $7,198,000 in
1997 and $8,500,000 in 1996.
10. OTHER COMMITMENTS AND CONTINGENT LIABILITIES
In 1998, the Company formed a joint venture with Mitsui & Co. to construct and
operate a new chloralkali plant and to expand ethylene dichloride (EDC)
capacity. Through the contribution of its existing EDC plant and a total of
approximately $90,000,000, the Company will own 51% of the joint venture and
manage the operation of the new facilities. The majority of the spending will
occur in 1999, and the joint venture is expected to begin production in early
2000.
Other commitments of the Company include the purchase of property, plant and
equipment approximating $32,441,000 at December 31, 1998, excluding the
expenditures for the CalMat acquisition (see Note 15A) and the Mitsui joint
venture.
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.
11. SHAREHOLDERS' EQUITY
A total of 42,175,581 shares has been purchased at a cost of $595,915,000
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
8,810,388 shares as of December 31, 1998.
During 1998, 5,272 shares that had been held by predecessor companies were
identified and retired. There was no cash flow or earnings impact associated
with this change.
In October 1998, the Company adopted a Stockholder Rights Plan and pursuant
to the plan declared a dividend on its common stock of one right (a "Right") for
each share of common stock then outstanding and for each share of common stock
issued thereafter and prior to the time the Rights expire or become exercisable.
Each Right entitles holders to purchase one one-hundredth of a share of Series A
Participating Preference Stock at a price of $400. The Rights will become
exercisable 10 days after a public announcement that a person or group has
acquired 15% or more of the Company's common stock or intends to make a tender
or exchange offer which would result in such person or group acquiring 15% or
more of the Company's common stock. Under certain circumstances, the Rights will
entitle the holder to purchase Company common stock or the common stock of an
acquiring company having a market value of two times the exercise price of each
Right. The Rights expire on December 31, 2008 and, prior to the occurrence of
certain events, maybe redeemed at a price of $0.01 per Right.
12. SEGMENT DATA
On December 31, 1998, the Company adopted SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information (SFAS 131). SFAS 131
established standards for reporting information about segments in annual
financial statements and requires selected information about segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services, and geographic areas. Segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to
53
19
allocate resources and in assessing performance. Under this new standard, the
Company's reportable segments are organized around products and services and
continue to be Construction Materials and Chemicals. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. The Company's determination of segment earnings (a)
recognizes equity in the income or losses of nonconsolidated affiliates as part
of segment earnings; (b) rejects allocations of general corporate expenses to
the segments; (c) does not reflect interest revenue or expense; and (d) is
before income taxes.
Operations in the Company's Construction Materials segment principally
involve the production and sale of aggregates and related products and services
provided by seven regional divisions. These divisions have been aggregated for
reporting purposes. At year end, sales are in 17 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, pharmaceuticals and textile industries. These
business units have been aggregated for reporting purposes.
Because the majority of the Company's activities are domestic, sales and
assets outside the United States are not material.
SEGMENT FINANCIAL DISCLOSURE
Amounts in millions 1998 1997 1996
---------- ---------- --------
NET SALES
Construction Materials ................... $ 1,158.6 $ 1,051.0 $ 961.9
Chemicals ................................ 617.8 627.6 607.0
---------- ---------- --------
Total ................................ $ 1,776.4 $ 1,678.6 $1,568.9
========== ========== ========
EARNINGS (LOSS) BEFORE
INTEREST EXPENSE AND
INCOME TAXES
Construction Materials ................... $ 307.4 $ 229.3 $ 197.3
Chemicals ................................ 69.2 75.8 94.7
---------- ---------- --------
Segment earnings ......................... 376.6 305.1 292.0
Interest income, etc ..................... 5.0 2.3 2.2
---------- ---------- --------
Total ................................ $ 381.6 $ 307.4 $ 294.2
========== ========== ========
IDENTIFIABLE ASSETS
Construction Materials ................... $ 894.6 $ 751.2 $ 719.6
Chemicals ................................ 452.7 459.0 441.1
---------- ---------- --------
Identifiable assets .................. 1,347.3 1,210.2 1,160.7
Investment in
nonconsolidated affiliates ............. 70.3 61.0 56.0
General corporate assets ................. 60.4 49.4 53.1
Cash items ............................... 180.6 128.6 50.8
---------- ---------- --------
Total ................................ $ 1,658.6 $ 1,449.2 $1,320.6
========== ========== ========
DEPRECIATION, DEPLETION
AND AMORTIZATION
Construction Materials ................... $ 90.8 $ 84.5 $ 80.0
Chemicals ................................ 47.0 44.7 41.3
---------- ---------- --------
Total ................................ $ 137.8 $ 129.2 $ 121.3
========== ========== ========
PROPERTY ADDITIONS
Construction Materials ................... $ 176.0 $ 125.5 $ 124.1
Chemicals ................................ 54.3 56.5 63.1
---------- ---------- --------
Total ................................ $ 230.3 $ 182.0 $ 187.2
========== ========== ========
SALES BY PRODUCT
Construction Materials
Aggregates:
Stone ................................ $ 928.8 $ 833.2 $ 760.3
Sand and gravel ...................... 27.5 27.7 25.4
Other aggregates ..................... 22.3 20.0 21.0
Other products and services:
Asphaltic products and
placement .......................... 76.9 72.9 63.7
Ready-mixed concrete ................. 19.7 17.5 16.3
Other ................................ 83.4 79.7 75.2
---------- ---------- --------
Total ............................ $ 1,158.6 $ 1,051.0 $ 961.9
========== ========== ========
Chemicals
Chloralkali-Inorganic. ................. $ 205.4 $ 181.7 $ 208.1
Chloralkali-Organic .................... 220.9 256.6 234.2
Performance Systems .................... 191.5 189.3 164.7
---------- ---------- --------
Total ............................ $ 617.8 $ 627.6 $ 607.0
========== ========== ========
54
20
13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information referable to the
Consolidated Statements of Cash Flows is summarized below (in thousands of
dollars):
1998 1997 1996
----------------------------------
Cash payments:
Interest (exclusive of
amount capitalized) ...................... $ 7,250 $ 6,774 $ 8,715
Income taxes ............................... 112,995 92,315 85,492
Noncash investing and
financing activities:
Amounts referable to business acquisitions:
Liabilities assumed .................... 1,497 1,441 5,051
Fair value of stock issued ............. 34,568 -- --
14. ACQUISITIONS
At various dates during 1998, 1997 and 1996, the Company acquired the net assets
and businesses of several companies. The combined purchase prices were
approximately $59,000,000, $12,000,000 and $64,000,000, respectively. Funds for
the purchases were primarily provided by internally generated cash flows or
stock issuance. 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 1998, 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 1997, 1996 and 1995,
respectively, revenue, net income and earnings per share would not differ
materially from the amounts rejected in the accompanying consolidated financial
statements for 1998, 1997 and 1996.
Goodwill recorded on the Company's balance sheet as of December 31, 1998,
1997 and 1996 amounted to $94,008,000, $59,345,000 and $69,523,000.
15. SUBSEQUENT EVENTS
A. CALMAT ACQUISITION In January 1999, the Company completed its $31.00 per
share tender offer for all of the outstanding shares of common stock of CalMat
Co. for a value of $740,000,000. The acquisition was funded by cash and
approximately $590,000,000 of commercial paper. It will be accounted for under
purchase accounting, with the purchase price allocated to the acquired assets
and assumed liabilities based on fair market value.
As of the acquisition, CalMat had fixed term debt of $118,000,000 and
$90,000,000 of bank borrowings. The aggregate principal payments for the fixed
term debt for the five years subsequent to December 31, 1998 are: 1999-$294,000;
2000-$303,000; 2001-$314,000; 2002-$2,355,000; and 2003-$35,161,000. In
addition, CalMat's operating lease obligations with initial or remaining
noncancelable lease terms in excess of one year, exclusive of mineral leases, at
December 31, 1998 range from $371,000 to $910,000 annually through 2003 and
aggregate $829,000 thereafter.
CalMat is a party to 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.
B. STOCK SPLIT On February 12, 1999, the Board of Directors approved an increase
in the authorized common stock from 160,000,000 shares to 480,000,000 shares and
a three-for-one split of the common stock. Par value of the common stock will
remain $1 per share. The stock split was effective March 10, 1999.
The effect of the stock split has been recognized retroactively in the
shareholders' equity accounts on the balance sheets as of December 31, 1998, and
in all share and per share data in the accompanying consolidated financial
statements, Notes to Financial Statements and supplemental financial data.
Shareholders' equity accounts have been restated to reflect the reclassification
of an amount equal to the par value of the increase in issued common shares from
the capital in excess of par value and retained earnings accounts to the common
stock account.
55
21
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Segment Financial Data
Amounts in millions 1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- --------
NET SALES
Construction Materials $1,158.6 $1,051.0 $ 961.9 $ 884.7 $ 842.9 $ 756.7
Chemicals 617.8 627.6 607.0 576.3 410.5 376.8
-------- -------- -------- -------- -------- --------
Total $1,776.4 $1,678.6 $1,568.9 $1,461.0 $1,253.4 $1,133.5
======== ======== ======== ======== ======== ========
EARNINGS (LOSS) BEFORE
INTEREST EXPENSE AND
INCOME TAXES
Construction Materials $ 307.4 $ 229.3 $ 197.3 $ 181.5 $ 162.5 $ 116.7
Chemicals 69.2 75.8 94.7 87.8 (7.3) 17.4
-------- -------- -------- -------- -------- --------
Segment earnings 376.6 305.1 292.0 269.3 155.2 134.1
Interest income, etc. 5.0 2.3 2.2 0.2 0.5 0.3
-------- -------- -------- -------- -------- --------
Total $ 381.6 $ 307.4 $ 294.2 $ 269.5 $ 155.7 $ 134.4
======== ======== ======== ======== ======== ========
NET CASH PROVIDED BY
OPERATING ACTIVITIES
Construction Materials $ 270.4 $ 255.9 $ 219.8 $ 182.9 $ 182.5 $ 156.6
Chemicals 86.4 86.3 128.8 90.8 31.5 41.1
Net interest, other, net 5.8 3.6 (3.1) (7.2) (5.7) (4.7)
-------- -------- -------- -------- -------- --------
Total $ 362.6 $ 345.8 $ 345.5 $ 266.5 $ 208.3 $ 193.0
======== ======== ======== ======== ======== ========
IDENTIFIABLE ASSETS
Construction Materials $ 894.6 $ 751.2 $ 719.6 $ 690.0 $ 678.8 $ 670.1
Chemicals 452.7 459.0 441.1 395.5 389.5 288.7
-------- -------- -------- -------- -------- --------
Identifiable assets 1,347.3 1,210.2 1,160.7 1,085.5 1,068.3 958.8
Investment in
nonconsolidated affiliates 70.3 61.0 56.0 50.8 53.9 51.1
General corporate assets 60.4 49.4 53.1 57.6 51.2 54.7
Cash items 180.6 128.6 50.8 21.9 7.7 14.0
-------- -------- -------- -------- -------- --------
Total $1,658.6 $1,449.2 $1,320.6 $1,215.8 $1,181.1 $1,078.6
======== ======== ======== ======== ======== ========
AVERAGE CAPITAL EMPLOYED
Construction Materials $ 827.8 $ 737.5 $ 710.6 $ 681.5 $ 688.1 $ 707.4
Chemicals 389.0 373.1 356.0 353.9 294.0 248.5
Cash items 122.0 62.5 27.5 6.8 11.0 7.0
-------- -------- -------- -------- -------- --------
Total $1,338.8 $1,173.1 $1,094.1 $1,042.2 $ 993.1 $ 962.9
======== ======== ======== ======== ======== ========
DEPRECIATION, DEPLETION
AND AMORTIZATION
Construction Materials $ 90.8 $ 84.5 $ 80.0 $ 75.3 $ 77.0 $ 78.4
Chemicals 47.0 44.7 41.3 41.7 35.7 29.0
-------- -------- -------- -------- -------- --------
Total $ 137.8 $ 129.2 $ 121.3 $ 117.0 $ 112.7 $ 107.4
======== ======== ======== ======== ======== ========
PROPERTY ADDITIONS(*)
Construction Materials
Replacement $ 83.4 $ 65.8 $ 63.0 $ 53.2 $ 42.3 $ 39.4
Environmental control 4.3 2.5 2.5 3.5 2.2 1.7
Profit adding 88.3 57.2 58.6 37.7 24.8 18.2
-------- -------- -------- -------- -------- --------
Total $ 176.0 $ 125.5 $ 124.1 $ 94.4 $ 69.3 $ 59.3
======== ======== ======== ======== ======== ========
Chemicals
Replacement $ 20.2 $ 26.2 $ 21.5 $ 15.8 $ 10.7 $ 9.3
Environmental control 0.7 2.4 7.4 4.9 1.7 5.4
Profit adding 33.4 27.9 34.2 10.5 78.1 26.6
-------- -------- -------- -------- -------- --------
Total $ 54.3 $ 56.5 $ 63.1 $ 31.2 $ 90.5 $ 41.3
======== ======== ======== ======== ======== ========
Total Company
Replacement $ 103.6 $ 92.0 $ 84.5 $ 69.0 $ 53.0 $ 48.7
Environmental control 5.0 4.9 9.9 8.4 3.9 7.1
Profit adding 121.7 85.1 92.8 48.2 102.9 44.8
-------- -------- -------- -------- -------- --------
Total $ 230.3 $ 182.0 $ 187.2 $ 125.6 $ 159.8 $ 100.6
======== ======== ======== ======== ======== ========
INCREASE (DECREASE) IN
WORKING CAPITAL(**)
Construction Materials $ 19.5 $ (8.7) $ (3.2) $ (9.9) $ 3.9 $ 2.6
Chemicals 12.2 11.9 (13.5) 18.1 11.8 (8.3)
-------- -------- -------- -------- -------- --------
Total $ 31.7 $ 3.2 $ (16.7) $ 8.2 $ 15.7 $ (5.7)
======== ======== ======== ======== ======== ========
Amounts in millions 1992 1991 1990 1989 1988
-------- - ------- -------- -------- --------
NET SALES
Construction Materials $ 686.4 $ 648.1 $ 696.1 $ 645.7 $ 670.6
Chemicals 391.6 359.4 409.2 430.5 382.6
-------- -------- -------- -------- --------
Total $1,078.0 $1,007.5 $1,105.3 $1,076.2 $1,053.2
======== ======== ======== ======== ========
EARNINGS (LOSS) BEFORE
INTEREST EXPENSE AND
INCOME TAXES
Construction Materials $ 88.3 $ 41.8 $ 112.0 $ 115.3 $ 141.5
Chemicals 51.3 42.6 72.4 86.4 66.2
-------- -------- -------- -------- --------
Segment earnings 139.6 84.4 184.4 201.7 207.7
Interest income, etc. 0.9 0.3 2.6 5.8 5.2
-------- -------- -------- -------- --------
Total $ 140.5 $ 84.7 $ 187.0 $ 207.5 $ 212.9
======== ======== ======== ======== ========
NET CASH PROVIDED BY
OPERATING ACTIVITIES
Construction Materials $ 141.9 $ 141.8 $ 130.2 $ 159.4 $ 115.3
Chemicals 63.8 50.0 76.4 93.6 62.4
Net interest, other, net (4.6 (8.5 (6.5 (2.8 (2.4)
-------- -------- -------- -------- --------
Total $ 201.1 $ 183.3 $ 200.1 $ 250.2 $ 175.3
======== ======== ======== ======== ========
IDENTIFIABLE ASSETS
Construction Materials $ 688.9 $ 710.1 $ 764.4 $ 592.4 $ 539.9
Chemicals 285.2 267.6 270.3 270.6 283.4
-------- -------- -------- -------- --------
Identifiable assets 974.1 977.7 1,034.7 863.0 823.3
Investment in
nonconsolidated affiliates 43.4 39.1 32.6 21.6 15.4
General corporate assets 50.8 37.4 32.1 33.7 29.5
Cash items 15.6 18.9 18.6 84.2 89.4
-------- -------- -------- -------- --------
Total $1,083.9 $1,073.1 $1,118.0 $1,002.5 $ 957.6
======== ======== ======== ======== ========
AVERAGE CAPITAL EMPLOYED
Construction Materials $ 708.4 $ 748.4 $ 656.8 $ 550.6 $ 485.2
Chemicals 226.4 226.1 228.9 227.8 230.5
Cash items 22.4 3.1 29.2 73.7 73.0
-------- -------- -------- -------- --------
Total $ 957.2 $ 977.6 $ 914.9 $ 852.1 $ 788.7
======== ======== ======== ======== ========
DEPRECIATION, DEPLETION
AND AMORTIZATION
Construction Materials $ 80.2 $ 84.9 $ 83.2 $ 73.0 $ 64.6
Chemicals 31.5 31.4 29.7 28.7 27.4
-------- -------- -------- -------- --------
Total $ 111.7 $ 116.3 $ 112.9 $ 101.7 $ 92.0
======== ======== ======== ======== ========
PROPERTY ADDITIONS(*)
Construction Materials
Replacement $ 17.9 $ 26.9 $ 63.9 $ 62.8 $ 61.0
Environmental control 1.6 1.7 2.5 1.7 0.9
Profit adding 37.0 32.2 120.9 63.2 36.5
-------- -------- -------- -------- --------
Total $ 56.5 $ 60.8 $ 187.3 $ 127.7 $ 98.4
======== ======== ======== ======== ========
Chemicals
Replacement $ 11.3 $ 9.2 $ 13.0 $ 7.3 $ 9.0
Environmental control 10.1 1.6 3.6 3.4 2.0
Profit adding 20.6 14.1 18.6 8.3 6.3
-------- -------- -------- -------- --------
Total $ 42.0 $ 24.9 $ 35.2 $ 19.0 $ 17.3
======== ======== ======== ======== ========
Total Company
Replacement $ 29.2 $ 36.1 $ 76.9 $ 70.1 $ 70.0
Environmental control 11.7 3.3 6.1 5.1 2.9
Profit adding 57.6 46.3 139.5 71.5 42.8
-------- -------- -------- -------- --------
Total $ 98.5 $ 85.7 $ 222.5 $ 146.7 $ 115.7
======== ======== ======== ======== ========
INCREASE (DECREASE) IN
WORKING CAPITAL(**)
Construction Materials $ 14.1 $ (10.8) $ 37.0 $ (20.2) $ 47.0
Chemicals (3.2 (0.5) (0.7) (8.2) 24.1
-------- -------- -------- -------- --------
Total $ 10.9 $ (11.3) $ 36.3 $ (28.4) $ 71.1
======== ======== ======== ======== ========
* Refer to page 65 for a discussion of the three categories used by the Company
to classify property additions.
** Exclusive of debt and cash items.
56
22
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Segment Information--Construction Materials
1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------
SALES UNITS (in millions)
Aggregates:
Customer stone--tons 157.2 146.0 138.4 129.0 125.4 116.6
Customer sand and
gravel--tons 5.7 6.1 6.1 5.6 5.9 6.4
Customer other
aggregates--tons 2.5 3.1 2.2 1.8 2.1 1.7
--------------------------------------------------------
Total customer
sales--tons 165.4 155.2 146.7 136.4 133.4 124.7
JV and internal
sales--tons(*) 14.2 12.2 11.3 11.9 11.7 10.5
--------------------------------------------------------
Total aggregates--
tons 179.6 167.4 158.0 148.3 145.1 135.2
========================================================
Other construction materials:
Asphalt-mix
concrete--tons 1.9 1.8 1.7 1.7 1.5 1.6
Ready-mixed concrete--
cubic yards 0.4 0.4 0.3 0.4 0.3 0.3
SALES AMOUNTS (in millions)
Aggregates:
Stone $ 928.8 $ 833.2 $ 760.3 $679.9 $630.4 $557.1
Sand and gravel 27.5 27.7 25.4 23.1 24.4 24.8
Other aggregates 22.3 20.0 21.0 20.1 21.7 19.5
Other products and services:
Asphaltic products and
placement 76.9 72.9 63.7 69.2 65.0 64.3
Ready-mixed concrete 19.7 17.5 16.3 16.4 14.5 12.3
Other 83.4 79.7 75.2 76.0 86.9 78.7
--------------------------------------------------------
Total $1,158.6 $1,051.0 $ 961.9 $884.7 $842.9 $756.7
========================================================
1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------
SALES UNITS (in millions)
Aggregates:
Customer stone--tons 109.4 102.9 111.0 103.4 106.7
Customer sand and
gravel--tons 6.0 5.2 5.1 5.4 5.7
Customer other
aggregates--tons 1.9 1.6 1.8 2.0 2.1
-----------------------------------------
Total customer
sales--tons 117.3 109.7 117.9 110.8 114.5
JV and internal
sales--tons(*) 9.0 5.6 4.2 3.2 2.9
-----------------------------------------
Total aggregates--
tons 126.3 115.3 122.1 114.0 117.4
=========================================
Other construction materials:
Asphalt-mix
concrete--tons 1.5 1.2 1.7 1.4 1.6
Ready-mixed concrete--
cubic yards 0.3 0.3 0.3 0.3 0.3
SALES AMOUNTS (in millions)
Aggregates:
Stone $506.9 $483.2 $532.8 $498.9 $516.3
Sand and gravel 23.2 19.5 20.7 20.7 21.6
Other aggregates 20.4 21.2 21.3 22.8 23.5
Other products and services:
Asphaltic products and
placement 47.7 45.5 51.1 41.8 49.0
Ready-mixed concrete 12.4 12.1 10.7 11.9 9.2
Other 75.8 66.6 59.5 49.6 51.0
-----------------------------------------
Total $686.4 $648.1 $696.1 $645.7 $670.6
=========================================
* Represents tons shipped by nonconsolidated businesses as well as tons sold to
the Company's nonaggregates operations.
Ten-year Growth Five-year Growth
1988-1998 1993-1998
Units Amount Units Amount
- --------------------------------------------------------------------------------
AVERAGE ANNUAL
COMPOUND GROWTH RATES
Stone 4.2% 6.5% 5.9% 10.5%
Sand and gravel 1.1% 3.1% -0.8% 2.9%
Other aggregates 1.4% -2.1% 3.2% -2.6%
Sales by End Use
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------------
SALES OF AGGREGATES (estimated)
Highway, road, street and
airport construction 34% 36% 36% 37% 39% 40% 40% 38% 37% 37%
Nonresidential, commercial
and industrial facilities 35 33 35 35 31 32 28 29 31 31
Residential buildings 19 18 17 15 16 15 15 16 18 20
Other public works--
dams, sewers and
water supply systems
(excluding buildings) 7 8 7 8 8 7 11 10 8 6
Railroad ballast 2 2 2 2 3 3 3 3 3 3
Nonconstruction use--
agricultural, chemical
and industrial 3 3 3 3 3 3 3 4 3 3
----------------------------------------------------------------------------------------------
100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
==============================================================================================
57
23
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Segment Information--Chemicals
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
SALES AMOUNTS(in millions)
Chloralkali--Inorganic $205.4 $181.7 $208.1 $221.8 $154.7 $158.4 $214.5 $215.6 $221.3 $205.9 $171.2
Chloralkali--Organic 220.9 256.6 234.2 223.3 193.3 207.2 170.9 143.8 187.9 224.6 211.4
Performance Systems 191.5 189.3 164.7 131.2 62.5 11.2 6.2 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------------------------
Total $617.8 $627.6 $607.0 $576.3 $410.5 $376.8 $391.6 $359.4 $409.2 $430.5 $382.6
================================================================================================
Ten-year Growth Five-year Growth
1988-1998 1993-1998
Amount Amount
- ---------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL
COMPOUND GROWTH RATES
Chloralkali--Inorganic 2.0% 1.6%
Chloralkali--Organic 2.1% 5.1%
Performance Systems NA 83.0%
Sales by End Use
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------
SALES OF CHEMICALS (estimated)
Process and intermediate
chemicals 58% 56% 58% 58% 58% 56% 54% 56% 53% 54%
Industrial durables and
nondurables 21 23 21 22 24 26 29 23 27 26
Consumer nondurables 21 21 21 20 18 18 17 21 20 20
-------------------------------------------------------------------------------------
100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
=====================================================================================
58
24
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Earnings and Supplementary Data
Amounts in millions,
except per share data 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
Net sales $1,776.4 $1,678.6 $1,568.9 $1,461.0 $1,253.4 $1,133.5
Cost of goods sold 1,226.8 1,199.5 1,115.4 1,044.7 985.2 886.8
------------------------------------------------------------------------------
Gross profit on sales 549.6 479.1 453.5 416.3 268.2 246.7
Selling, administrative
and general expenses 199.0 190.4 175.1 159.8 125.0 111.1
Other operating costs 7.9 5.1 3.9 6.3 5.5 5.0
Other income (charges),
net 38.9 23.8 19.7 19.3 18.0 3.8
------------------------------------------------------------------------------
Earnings before
interest expense
and income taxes 381.6 307.4 294.2 269.5 155.7 134.4
Interest expense 6.8 6.9 8.6 11.1 9.8 9.2
------------------------------------------------------------------------------
Earnings before
income taxes 374.8 300.5 285.6 258.4 145.9 125.2
Provision for income taxes 118.9 91.4 97.0 92.2 47.9 37.0
------------------------------------------------------------------------------
Net earnings before
cumulative effect of
accounting changes 255.9 209.1 188.6 166.2 98.0 88.2
Cumulative effect of
accounting changes 0.0 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------
Net earnings $ 255.9 $ 209.1 $ 188.6 $ 166.2 $ 98.0 $ 88.2
==============================================================================
Diluted earnings per share:
Net earnings before
cumulative effect of
accounting changes $ 2.50 $ 2.03 $ 1.79 $ 1.54 $ 0.89 $ 0.80
Cumulative effect of
accounting changes 0.00 0.00 0.00 0.00 0.00 0.00
------------------------------------------------------------------------------
Net earnings $ 2.50 $ 2.03 $ 1.79 $ 1.54 $ 0.89 $ 0.80
==============================================================================
Operating income
after taxes $ 260.1 $ 213.4 $ 194.4 $ 173.4 $ 104.5 $ 93.3
As a percent of average
capital employed 19.4% 18.2% 17.8% 16.6% 10.5% 9.7
Gross profit on sales as
a percent of net sales 30.9% 28.5% 28.9% 28.5% 21.4% 21.8
Net earnings:
As a percent of
net sales 14.4% 12.5% 12.0% 11.4% 7.8% 7.8
As a percent of average
shareholders'
equity 24.0% 22.7% 22.4% 21.9% 13.6% 12.8
Effective tax rate 31.7% 30.4% 34.0% 35.7% 32.8% 29.5
SUPPLEMENTARY COST DATA
Energy $ 133.5 $ 137.7 $ 135.4 $ 122.4 $ 122.0 $ 124.7
Repairs and maintenance 159.2 161.1 151.8 141.1 128.6 120.0
Depreciation, depletion
and amortization 137.8 129.2 121.3 117.0 112.7 107.4
Taxes other than income:
Payroll 25.3 24.6 22.1 21.4 20.1 19.5
Property, franchise, etc. 20.6 17.6 20.3 19.6 19.8 18.0
Rentals 40.6 34.8 34.0 28.6 31.1 22.1
Royalties 21.9 21.4 20.3 17.8 17.3 15.8
Research and
development 9.6 10.8 9.0 10.3 8.3 6.1
Advertising 1.0 0.9 0.9 0.6 0.5 0.5
Amounts in millions,
except per share data 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------
Net sales $1,078.0 $1,007.5 $1,105.3 $1,076.2 $1,053.2
Cost of goods sold 828.9 795.4 813.9 776.2 749.2
-----------------------------------------------------------------
Gross profit on sales 249.1 212.1 291.4 300.0 304.0
Selling, administrative
and general expenses 105.7 98.9 101.3 94.1 95.6
Other operating costs 5.3 28.2 6.2 4.9 3.3
Other income (charges),
net 2.4 (0.3) 3.1 2.5 7.8
-----------------------------------------------------------------
Earnings before
interest expense
and income taxes 140.5 84.7 187.0 203.5 212.9
Interest expense 9.8 11.3 7.8 6.1 6.7
-----------------------------------------------------------------
Earnings before
income taxes 130.7 73.4 179.2 197.4 206.2
Provision for income taxes 39.7 20.8 58.9 68.0 70.2
-----------------------------------------------------------------
Net earnings before
cumulative effect of
accounting changes 91.0 52.6 120.3 129.4 136.0
Cumulative effect of
accounting changes 3.0 0.0 0.0 1.5 0.0
-----------------------------------------------------------------
Net earnings $ 94.0 $ 52.6 $ 120.3 $ 130.9 $ 136.0
=================================================================
Diluted earnings per share:
Net earnings before
cumulative effect of
accounting changes $ 0.80 $ 0.46 $ 1.03 $ 1.07 $ 1.10
Cumulative effect of
accounting changes 0.03 0.00 0.00 0.01 0.00
-----------------------------------------------------------------
Net earnings $ 0.83 $ 0.46 $ 1.03 $ 1.08 $ 1.10
=================================================================
Operating income
after taxes $ 98.7 $ 59.5 $ 125.1 $ 137.2 $ 140.2
As a percent of average
capital employed 10.3% 6.1% 13.7% 16.1% 17.9%
Gross profit on sales as
a percent of net sales 23.1% 21.1% 26.4% 27.9% 28.9%
Net earnings:
As a percent of
net sales 8.4% 5.2% 10.9% 12.4% 12.9%
As a percent of average
shareholders'
equity 13.3% 7.7% 18.2% 20.5% 22.9%
Effective tax rate 30.4% 28.4% 32.9% 33.7% 34.0%
SUPPLEMENTARY COST DATA
Energy $ 119.8 $ 115.5 $ 118.3 $ 107.9 $ 110.7
Repairs and maintenance 115.7 111.4 109.4 108.1 108.0
Depreciation, depletion
and amortization 111.7 116.3 112.9 101.7 92.0
Taxes other than income:
Payroll 18.0 17.1 16.9 15.8 15.5
Property, franchise, etc. 17.9 17.3 15.8 14.1 13.4
Rentals 21.6 14.4 17.0 11.9 9.9
Royalties 14.3 13.8 16.0 15.2 14.8
Research and
development 5.4 5.4 6.1 5.1 4.6
Advertising 0.5 0.5 0.7 0.6 0.7
All share and per share data have been restated to reflect the three-for-one
split of the Company's common stock, approved by the Board of Directors on
February 12, 1999 and effective March 10, 1999.
59
25
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets and Other Financial Data
As of December 31
Dollar amounts in millions 1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 180.6 $ 128.6 $ 50.8 $ 21.9 $ 7.7 $ 14.0
Short-term investments 0.0 0.0 0.0 0.0 0.0 0.0
Accounts and
notes receivable 221.3 199.8 185.5 181.1 182.1 150.4
Inventories 143.7 132.4 128.6 126.8 112.5 105.0
Deferred income taxes 24.9 21.4 23.5 26.5 29.1 26.9
Prepaid expenses 5.9 4.9 5.6 5.8 5.4 6.3
-------------------------------------------------------------------------
Total current assets 576.4 487.1 394.0 362.1 336.8 302.6
Investments and long-term
receivables 71.0 63.5 61.3 56.3 58.1 56.5
Property, plant and
equipment, net 895.8 808.4 764.5 698.0 701.8 657.8
Deferred charges and
other assets 115.4 90.2 100.8 99.4 84.4 61.7
-------------------------------------------------------------------------
Total $1,658.6 $1,449.2 $1,320.6 $1,215.8 $1,181.1 $1,078.6
=========================================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities(*) $ 211.5 $ 207.7 $ 194.6 $ 177.4 $ 211.3 $ 140.8
Long-term obligations(*) 76.5 81.9 85.5 90.3 97.4 102.0
Other noncurrent
liabilities 216.9 168.1 156.8 151.5 140.8 132.8
Shareholders' equity 1,153.7 991.5 883.7 796.6 731.6 703.0
-------------------------------------------------------------------------
Total $1,658.6 $1,449.2 $1,320.6 $1,215.8 $1,181.1 $1,078.6
=========================================================================
OTHER FINANCIAL DATA
Average capital employed:
Short-term debt(*) $ 8.0 $ 8.6 $ 14.1 $ 45.6 $ 39.4 $ 25.2
Long-term obligations(*) 78.5 82.6 86.9 93.3 99.1 105.6
Other noncurrent
liabilities 186.7 162.0 152.9 144.7 135.0 140.4
Shareholders' equity 1,065.6 919.9 840.2 758.6 719.6 691.7
-------------------------------------------------------------------------
Total $1,338.8 $1,173.1 $1,094.1 $1,042.2 $ 993.1 $ 962.9
=========================================================================
Working capital exclusive
of debt and cash items $ 193.0 $ 161.3 $ 158.1 $ 174.8 $ 166.6 $ 150.9
Current ratio 2.7 2.3 2.0 2.0 1.6 2.1
Average obligations(*)
as a percent of average
capital employed 6.5% 7.8% 9.2% 13.3% 13.9% 13.6
Long-term obligations(*)
as a percent of long-term
capital (year-end) 5.3% 6.6% 7.6% 8.7% 10.0% 10.9%
Ratio of earnings to fixed
charges--consolidated 18.9 17.8 16.0 13.3 7.9 8.1%
Average number
of employees 6,971 7,180 6,926 6,918 6,753 6,320
As of December 31
Dollar amounts in millions 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 15.7 $ 19.0 $ 18.6 $ 84.3 $ 68.1
Short-term investments 0.0 0.0 0.0 0.0 21.3
Accounts and
notes receivable 151.4 138.1 152.9 136.9 149.3
Inventories 107.9 112.6 113.0 96.9 93.6
Deferred income taxes 24.6 11.9 7.0 11.6 15.5
Prepaid expenses 5.2 3.5 3.8 3.6 3.1
------------------------------------------------------------
Total current assets 304.8 285.1 295.3 333.3 350.9
Investments and long-term
receivables 50.0 40.7 33.8 22.9 17.1
Property, plant and
equipment, net 663.7 675.4 720.7 602.5 549.9
Deferred charges and
other assets 65.4 71.9 68.2 43.8 39.7
------------------------------------------------------------
Total $1,083.9 $1,073.1 $1,118.0 $1,002.5 $ 957.6
============================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities(*) $ 135.0 $ 135.4 $ 233.8 $ 140.9 $ 118.0
Long-term obligations(*) 107.3 111.1 44.7 55.2 62.0
Other noncurrent
liabilities 141.5 143.7 159.3 142.9 143.3
Shareholders' equity 700.1 682.9 680.2 663.5 634.3
------------------------------------------------------------
Total $1,083.9 $1,073.1 $1,118.0 $1,002.5 $ 957.6
============================================================
OTHER FINANCIAL DATA
Average capital employed:
Short-term debt(*) $ 24.1 $ 72.7 $ 62.1 $ 8.3 $ 4.0
Long-term obligations(*) 108.2 66.5 47.2 57.4 63.7
Other noncurrent
liabilities 138.4 155.7 144.1 135.0 127.4
Shareholders' equity 686.5 682.7 661.5 651.4 593.6
------------------------------------------------------------
Total $ 957.2 $ 977.6 $ 914.9 $ 852.1 $ 788.7
============================================================
Working capital exclusive
of debt and cash items $ 156.6 $ 145.7 $ 157.0 $ 120.8 $ 149.2
Current ratio 2.3 2.1 1.3 2.4 3.0
Average obligations(*)
as a percent of average
capital employed 13.8% 14.2% 12.0% 7.7% 8.6%
Long-term obligations(*)
as a percent of long-term
capital (year-end) 11.3% 11.8% 5.1% 6.4% 7.4%
Ratio of earnings to fixed
charges--consolidated 8.4 5.6 12.8 19.5 19.8
Average number
of employees 6,273 6,404 6,628 6,276 6,185
* Includes capitalized lease obligations.
60
26
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
Amounts in millions 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings before cumulative
effect of accounting changes $ 255.9 $ 209.1 $ 188.6 $ 166.2 $ 98.0 $ 88.2
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation, depletion
and amortization 137.8 129.2 121.3 117.0 112.7 107.4
Compensation expense incurred
in connection with stock-
based incentive plans 6.8 5.5 2.0 0.7 1.0 0.9
Provision for impairment
and liquidation of assets 0.0 0.0 0.0 0.0 0.0 0.0
(Increase) decrease in
assets before effects of
business acquisitions (33.6) (15.3) 8.6 (6.1) (21.3) 0.8
Increase (decrease) in
liabilities before effects of
business acquisitions 12.0 9.4 19.3 9.0 24.4 (2.9)
Amortization of block
power purchase 0.0 0.0 0.0 0.0 0.0 0.0
Cumulative effect of
accounting changes 0.0 0.0 0.0 0.0 0.0 0.0
Other, net (16.3) 7.9 5.7 (20.3) (6.5) (1.4)
-------------------------------------------------------------------
Net cash provided by
operating activities 362.6 345.8 345.5 266.5 208.3 193.0
-------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property,
plant and equipment (203.3) (161.2) (151.8) (109.2) (100.1) (96.0)
Payment for business
acquisitions (24.9) (12.1) (64.8) (27.2) (87.6) (4.5)
Proceeds from sale of property,
plant and equipment 27.1 16.4 12.0 31.9 15.4 6.0
Proceeds from sale of segments 0.0 0.0 0.0 0.0 0.0 0.0
Investment in nonconsolidated
companies 0.0 0.0 (1.2) (1.9) (2.1) (9.6)
Withdrawal of earnings from
nonconsolidated companies 0.3 0.2 0.0 0.0 0.0 0.3
Cash provided by (used for)
short-term investments 0.0 0.0 0.0 0.0 0.0 0.0
-------------------------------------------------------------------
Net cash used for
investing activities (200.8) (156.7) (205.8) (106.4) (174.4) (103.8)
-------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 0.0 0.0 0.0 0.0 0.0 0.0
Net borrowings (payments)--
commercial paper and
bank lines of credit (1.3) 0.4 (0.3) (39.3) 42.8 0.0
Payment of short-term debt (5.2) (5.0) (6.8) (4.7) (1.9) (1.2)
Payment of long-term debt (0.2) 0.0 (0.1) 0.0 (4.4) (3.4)
Purchases of common stock (65.0) (43.1) (45.2) (50.1) (28.6) (40.0)
Dividends paid (70.0) (63.6) (58.4) (51.8) (48.1) (46.3)
Contribution from minority
interest of consolidated
subsidiaries 31.9 0 0 0 0 0
-------------------------------------------------------------------
Net cash used for
financing activities (109.8) (111.3) (110.8) (145.9) (40.2) (90.9)
-------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 52.0 77.8 28.9 14.2 (6.3) (1.7)
Cash and cash equivalents at
beginning of year 128.6 50.8 21.9 7.7 14.0 15.7
-------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 180.6 $ 128.6 $ 50.8 $ 21.9 $ 7.7 $ 14.0
===================================================================
Amounts in millions 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings before cumulative
effect of accounting changes $ 91.0 $ 52.6 $ 120.3 $ 133.4 $ 136.0
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation, depletion
and amortization 111.7 116.3 112.9 101.7 92.0
Compensation expense incurred
in connection with stock-
based incentive plans 0.7 1.0 1.6 1.8 1.4
Provision for impairment
and liquidation of assets 0.0 21.1 0.0 0.0 0.0
(Increase) decrease in
assets before effects of
business acquisitions (18.6) 13.5 (5.5) 15.6 (31.1)
Increase (decrease) in
liabilities before effects of
business acquisitions 10.3 (14.6) (13.8) 16.1 (16.5)
Amortization of block
power purchase 0.0 0.0 2.5 3.2 3.2
Cumulative effect of
accounting changes 3.0 0.0 0.0 1.5 0.0
Other, net 3.0 (6.6) (17.9) (23.1) (9.7)
-------------------------------------------------------
Net cash provided by
operating activities 201.1 183.3 200.1 250.2 175.3
-------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property,
plant and equipment (75.2) (63.6) (119.9) (102.9) (100.4)
Payment for business
acquisitions (33.2) (24.7) (117.9) (34.3) (20.1)
Proceeds from sale of property,
plant and equipment 8.9 2.6 4.3 4.2 6.1
Proceeds from sale of segments 0.0 0.0 0.0 0.0 25.9
Investment in nonconsolidated
companies (11.6) (13.0) (18.8) (9.0) (11.7)
Withdrawal of earnings from
nonconsolidated companies 0.4 0.0 2.7 0.3 0.5
Cash provided by (used for)
short-term investments 0.0 0.0 0.0 21.3 (2.5)
-------------------------------------------------------
Net cash used for
investing activities (110.7) (98.7) (249.6) (120.4) (102.2)
-------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 0.0 81.0 0.0 0.0 0.0
Net borrowings (payments)--
commercial paper and
bank lines of credit (9.8) (97.4) 107.1 0.0 0.0
Payment of short-term debt (3.8) (4.6) (11.7) (4.1) (30.1)
Payment of long-term debt (2.6) (12.3) (6.0) (6.0) (6.0)
Purchases of common stock (32.4) (5.2) (59.2) (58.4) (34.9)
Dividends paid (45.1) (45.7) (46.4) (45.1) (40.2)
Contribution from minority
interest of consolidated
subsidiaries 0 0 0 0 0
-------------------------------------------------------
Net cash used for
financing activities (93.7) (84.2) (16.2) (113.6) (111.2)
-------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents (3.3) 0.4 (65.7) 16.2 (38.1)
Cash and cash equivalents at
beginning of year 19.0 18.6 84.3 68.1 106.2
-------------------------------------------------------
Cash and cash equivalents at
end of year $ 15.7 $ 19.0 $ 18.6 $ 84.3 $ 68.1
=======================================================
61
27
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Average Annual Compound Growth Rates(*)
Ten-year Growth Five-year Growth
1988-1998 1993-1998
OPERATING DATA Net sales:
Construction Materials 6.1% 8.6%
Chemicals 5.7% 11.5%
-----------------------
Total 5.9% 9.6%
-----------------------
Earnings before interest expense and income taxes:
Construction Materials 11.4% 18.6%
Chemicals NA NA
-----------------------
Segment earnings 8.0% 23.1%
Net earnings 8.3% 24.7%
SHARE DATA Per common share:
Basic net earnings 10.4% 27.2%
Diluted net earnings 10.3% 27.0%
Dividends paid 6.9% 11.1%
Book value at year end 7.4% 12.5%
FINANCIAL POSITION Working capital at year end 6.9% 20.6%
Property, plant and equipment--gross, at year end 5.9% 6.0%
Property, plant and equipment--net, at year end 3.6% 6.1%
Average capital employed:
Construction Materials 3.6% 3.0%
Chemicals 6.6% 8.8%
Average shareholders' equity 4.9% 8.9%
OTHER DATA Depreciation, depletion and amortization:
Construction Materials 2.9% 4.0%
Chemicals 5.3% 8.7%
-----------------------
Total 3.6% 5.4%
-----------------------
Net cash provided by operating activities 6.7% 15.0%
Property additions 4.7% 15.1%
SELECTED NATIONAL Consumer price index for all urban consumers 3.2% 2.5%
PRICE INDICES Gross domestic product implicit price deflator 2.8% 2.0%
Producer price index for industrial commodities 1.7% 1.2%
* The compound growth rates shown on this page and elsewhere herein were
computed by linear regression analysis of the logarithms of the annual data
values.
62
28
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Net Sales, Net Earnings and Earnings Per Share
Amounts in millions,
except per share data 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
NET SALES
First quarter $ 359.0 $ 341.4 $ 308.5 $ 294.4 $ 216.9 $ 214.1
Second quarter 465.8 445.1 419.2 382.8 326.7 306.0
Third quarter 509.5 477.9 443.6 422.0 360.4 331.4
Fourth quarter 442.1 414.2 397.6 361.8 349.4 282.0
-------------------------------------------------------------------------------
Total $1,776.4 $1,678.6 $1,568.9 $1,461.0 $1,253.4 $1,133.5
===============================================================================
GROSS PROFIT ON SALES
First quarter $ 89.5 $ 76.1 $ 70.1 $ 58.8 $ 21.0 $ 29.7
Second quarter 146.9 136.5 129.3 113.2 77.4 74.0
Third quarter 175.3 147.0 139.6 133.8 90.4 85.1
Fourth quarter 137.9 119.5 114.5 110.5 79.4 57.9
-------------------------------------------------------------------------------
Total $ 549.6 $ 479.1 $ 453.5 $ 416.3 $ 268.2 $ 246.7
===============================================================================
NET EARNINGS (LOSS)
First quarter $ 36.5 $ 21.9 $ 20.1 $ 16.0 $ (5.2) $ (0.5)
Second quarter 70.0 62.8 58.6 47.7 33.7 31.6
Third quarter 89.9 73.3 62.1 59.1 37.6 36.6
Fourth quarter 59.5 51.1 47.8 43.4 31.9 20.5
-------------------------------------------------------------------------------
Total $ 255.9 $ 209.1 $ 188.6 $ 166.2 $ 98.0 $ 88.2
===============================================================================
BASIC EARNINGS (LOSS)
PER SHARE
First quarter $ 0.36 $ 0.21 $ 0.19 $ 0.15 $ (0.05) $ 0.00
Second quarter 0.69 0.62 0.56 0.45 0.31 0.28
Third quarter 0.89 0.72 0.60 0.55 0.34 0.33
Fourth quarter 0.60 0.51 0.46 0.41 0.30 0.19
-------------------------------------------------------------------------------
Total $ 2.54 $ 2.06 $ 1.81 $ 1.56 $ 0.90 $ 0.80
===============================================================================
DILUTED EARNINGS (LOSS)
PER SHARE
First quarter $ 0.36 $ 0.21 $ 0.19 $ 0.15 $ (0.05) $ 0.00
Second quarter 0.68 0.61 0.55 0.44 0.31 0.28
Third quarter 0.88 0.71 0.59 0.55 0.34 0.33
Fourth quarter 0.58 0.50 0.46 0.40 0.29 0.19
-------------------------------------------------------------------------------
Total $ 2.50 $ 2.03 $ 1.79 $ 1.54 $ 0.89 $ 0.80
===============================================================================
Amounts in millions,
except per share data 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------
NET SALES
First quarter $ 210.6 $ 197.0 $ 232.0 $ 217.5 $ 202.7
Second quarter 284.2 266.4 295.7 293.7 284.5
Third quarter 312.3 289.3 306.6 307.3 298.5
Fourth quarter 270.9 254.8 271.0 257.7 267.5
-----------------------------------------------------------------
Total $1,078.0 $1,007.5 $1,105.3 $1,076.2 $1,053.2
=================================================================
GROSS PROFIT ON SALES
First quarter $ 35.6 $ 27.6 $ 52.3 $ 47.4 $ 46.8
Second quarter 74.5 66.7 88.6 90.5 93.9
Third quarter 80.8 71.3 90.0 103.2 98.8
Fourth quarter 58.2 46.5 60.5 58.9 64.5
-----------------------------------------------------------------
Total $ 249.1 $ 212.1 $ 291.4 $ 300.0 $ 304.0
=================================================================
NET EARNINGS (LOSS)
First quarter $ 7.6 $ (2.2) $ 18.7 $ 17.2 $ 15.6
Second quarter 30.2 25.9 39.6 43.5 46.0
Third quarter 35.8 30.2 42.2 50.5 49.3
Fourth quarter 20.4 (1.3) 19.8 19.7 25.1
-----------------------------------------------------------------
Total $ 94.0 $ 52.6 $ 120.3 $ 130.9 $ 136.0
=================================================================
BASIC EARNINGS (LOSS)
PER SHARE
First quarter $ 0.07 $ (0.02) $ 0.16 $ 0.14 $ 0.13
Second quarter 0.27 0.23 0.34 0.36 0.37
Third quarter 0.32 0.27 0.37 0.42 0.40
Fourth quarter 0.17 (0.02) 0.17 0.16 0.20
-----------------------------------------------------------------
Total $ 0.83 $ 0.46 $ 1.04 $ 1.08 $ 1.10
=================================================================
DILUTED EARNINGS (LOSS)
PER SHARE
First quarter $ 0.07 $ (0.02) $ 0.16 $ 0.14 $ 0.13
Second quarter 0.27 0.23 0.34 0.36 0.37
Third quarter 0.31 0.26 0.36 0.42 0.40
Fourth quarter 0.18 (0.01) 0.17 0.16 0.20
-----------------------------------------------------------------
Total $ 0.83 $ 0.46 $ 1.03 $ 1.08 $ 1.10
=================================================================
All share and per share data have been restated to reflect the three-for-one
split of the Company's common stock, approved by the Board of Directors on
February 12, 1999 and effective March 10, 1999.
63
29
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Common Stock Prices, Dividends and Related Data
1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
COMMON STOCK PRICES (NYSE)
First quarter High $37.83 $22.17 $19.42 $19.21 $17.29 $18.71
Low 31.50 18.42 17.71 16.04 15.17 15.67
Close 36.50 21.63 18.88 19.17 16.17 17.25
Second quarter High 39.90 26.88 19.79 19.58 16.17 17.33
Low 34.83 20.42 18.46 18.00 14.67 13.42
Close 35.56 26.17 19.79 18.17 15.29 15.42
Third quarter High 40.75 30.15 22.17 20.13 18.00 16.58
Low 33.63 26.13 18.17 17.25 14.96 14.58
Close 33.73 29.00 20.00 17.67 17.96 16.13
Fourth quarter High 44.67 34.65 21.67 19.63 18.83 16.92
Low 31.33 28.15 19.83 17.50 15.50 14.50
Close 43.85 34.04 20.29 19.21 16.88 15.63
Year High 44.67 34.65 22.17 20.13 18.83 18.71
Low 31.33 18.42 17.71 16.04 14.67 13.42
Close 43.85 34.04 20.29 19.21 16.88 15.63
DIVIDENDS PAID PER SHARE
OF COMMON STOCK
First quarter $0.173 $0.157 $0.140 $0.122 $0.110 $0.105
Second quarter 0.173 0.157 0.140 0.122 0.110 0.105
Third quarter 0.173 0.157 0.140 0.122 0.110 0.105
Fourth quarter 0.173 0.157 0.140 0.122 0.110 0.105
-----------------------------------------------------------------------------
Total $0.693 $0.627 $0.560 $0.487 $0.440 $0.420
=============================================================================
OTHER DATA
Price earnings ratio (annual)
High 17.8 17.0 12.4 13.0 21.2 23.5
Low 12.5 9.1 9.9 10.4 16.5 16.8
Close 17.5 16.7 11.4 12.4 19.0 19.6
Dividends paid as a percent
of earnings per share 27.8% 30.8% 31.3% 31.5% 49.4% 52.7%
Shareholders' equity
per common share $11.29 $ 9.64 $ 8.37 $ 7.39 $ 6.65 $ 6.34
Ratio of stock price to
shareholders' equity per
common share at year end 3.8 3.5 2.4 2.5 2.5 2.4
Common shares outstanding
at year end (in millions) 100.6 101.1 102.7 104.9 107.7 109.0
Average common shares
outstanding (in millions) 100.9 101.5 104.3 106.6 109.3 110.3
Average common shares
outstanding, assuming
dilution (in millions) 102.2 102.8 105.5 107.8 110.0 110.9
1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------
COMMON STOCK PRICES (NYSE)
First quarter High $13.42 $12.58 $15.54 $14.67 $12.75
Low 12.00 10.13 13.75 13.50 10.33
Close 13.08 11.42 15.13 14.25 12.50
Second quarter High 15.58 13.33 15.58 16.17 13.04
Low 12.54 11.29 14.42 14.17 12.17
Close 15.50 12.58 14.54 14.42 12.75
Third quarter High 15.50 13.08 15.13 16.00 13.17
Low 13.25 11.33 11.67 14.29 12.08
Close 13.58 12.96 12.25 15.54 12.79
Fourth quarter High 16.54 13.25 12.50 15.83 13.83
Low 13.17 11.21 9.79 14.21 12.50
Close 16.08 12.00 11.33 14.83 13.83
Year High 16.54 13.33 15.58 16.17 13.83
Low 12.00 10.13 9.79 13.50 10.33
Close 16.08 12.00 11.33 14.83 13.83
DIVIDENDS PAID PER SHARE
OF COMMON STOCK
First quarter $0.100 $0.100 $0.100 $0.093 $0.082
Second quarter 0.100 0.100 0.100 0.093 0.082
Third quarter 0.100 0.100 0.100 0.093 0.082
Fourth quarter 0.100 0.100 0.100 0.093 0.082
---------------------------------------------------------------
Total $0.400 $0.400 $0.400 $0.373 $0.327
===============================================================
OTHER DATA
Price earnings ratio (annual)
High 19.9 29.0 15.1 15.0 12.6
Low 14.5 22.0 9.5 12.5 9.4
Close 19.4 26.1 11.0 13.7 12.6
Dividends paid as a percent
of earnings per share 48.2% 87.0% 38.7% 34.6% 29.7%
Shareholders' equity
per common share $ 6.18 $ 5.96 $ 5.84 $ 5.48 $ 5.13
Ratio of stock price to
shareholders' equity per
common share at year end 2.6 2.0 1.9 2.6 2.7
Common shares outstanding
at year end (in millions) 111.7 114.0 114.3 118.5 122.3
Average common shares
outstanding (in millions) 112.8 114.2 116.0 120.7 123.2
Average common shares
outstanding, assuming
dilution (in millions) 113.3 114.6 116.5 121.2 123.7
The Company's common stock is traded on the New York Stock Exchange (ticker
symbol VMC). As of January 29, 1999, the number of shareholders of record
approximated 3,611.
Dividends paid in 1998 totaled $70,015,000 as compared with $63,622,000 paid in
1997. On February 12, 1999, the Board of Directors authorized a quarterly
dividend of 19.5 cents per common share payable March 10, 1999. The new
quarterly dividend represents a 12.5% increase over quarterly dividends paid in
1998.
All share and per share data have been restated to reflect the three-for-one
split of the Company's common stock, approved by the Board of Directors on
February 12, 1999 and effective March 10, 1999.
64
30
VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES
Financial Terminology
Capital Employed
For our 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 our 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.
Our 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 our Company's
segments. Frequently, profit-adding and major replacement projects also include
expenditures for environmental control purposes.
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.
65