Vulcan Announces Record Third Quarter Earnings from Continuing Operations

Vulcan Materials Company (NYSE: VMC) today announced record third quarter earnings from continuing operations of $144 million, or $1.47 per diluted share. Earnings from continuing operations in the third quarter of 2007 include expenses of $3 million, or $0.02 per diluted share, related to the pending acquisition of Florida Rock Industries. Earnings from continuing operations in the third quarter of 2006 were $1.44 per diluted share and included a gain of $0.03 per share resulting from an increase in the carrying value of the ECU earn-out. Net earnings, including a $0.09 per diluted share loss referable to discontinued operations, were $1.38 per diluted share compared to $1.39 per diluted share in the prior year’s third quarter. Don James, Vulcan’s Chairman and Chief Executive Officer, stated, "Our aggregates-focused business demonstrated remarkable resiliency in the face of a sharp downturn in residential construction. We achieved record earnings from continuing operations for the third quarter and for the year-to-date, and we are on track to report record earnings for the full year 2007. Our cash generation continues to be strong with record cash flows from operations up 16 percent year-to-date. "The attractive long-term attributes of the aggregates business have added value for our shareholders through different economic cycles. Our strategic geographic footprint and diverse end-use markets, in conjunction with the recognition of the increasing value of permitted reserves in fast-growing metropolitan markets, have enabled us to grow earnings even as aggregates volumes have declined due to reduced levels of residential construction activity.” Operating Results – Third Quarter Gross profit and operating earnings increased from the prior year due to higher earnings from aggregates and asphalt. Gross profit as a percentage of net sales increased to 33 percent from 32 percent in the prior year despite lower shipments and production levels in all major product lines. Third quarter net sales approximated the prior year’s third quarter net sales as higher aggregates and asphalt sales were offset by lower concrete sales. Aggregates revenues and earnings increased from the prior year’s levels due to higher pricing. Aggregates prices increased 12 percent from the prior year’s third quarter, more than offsetting the earnings effects of an 8 percent decline in aggregates shipments. In response to lower demand, inventory levels in the third quarter were reduced from the previous quarter by lowering production levels. Costs of sales during the quarter were higher due mostly to the effects of lower production levels and increased costs for energy, parts and supplies. Asphalt earnings increased significantly from the prior year. Third quarter asphalt earnings benefited from higher selling prices, which increased 8 percent from the prior year’s third quarter levels, as well as lower unit costs for liquid asphalt. Asphalt shipments in the third quarter of 2007 declined 5 percent from last year’s third quarter level. Third quarter 2007 concrete earnings declined from the prior year as a 4 percent increase in concrete prices was more than offset by the earnings effect of a 37 percent decrease in concrete shipments. The quarter’s results include approximately $0.03 per diluted share in charges associated with the closure of two former production sites and provisions for outstanding legal matters at two facilities. As previously mentioned, the quarter’s results also include approximately $0.02 per diluted share referable to the pending Florida Rock acquisition. Discontinued operations posted a loss of $9 million, or $0.09 per diluted share in the third quarter, related to the settlement of claims against the Company’s former chloralkali chemicals business unit which was divested in June 2005. Discontinued operations in the prior year’s third quarter recorded a loss of $5 million, or $0.05 per diluted share. During the third quarter of 2007, the Company received the final payment under the ECU earn-out of $22 million, bringing the cumulative cash receipts to the $150 million cap. Net cash provided by operating activities increased $58 million to $421 million during the nine months ended September 30, 2007. All results are unaudited. Outlook Commenting on the outlook for the remainder of 2007, Mr. James stated, "We now expect to close the pending merger with Florida Rock Industries during the fourth quarter of 2007. With respect to Vulcan’s legacy business, pricing for our products remains strong. We expect aggregates prices will increase 12 to 13 percent for the full year. Spending for private nonresidential and public infrastructure construction continues to grow, somewhat mitigating the steep decline in residential construction. Predicting the timing of a stable level for residential construction activity continues to be a challenge. We believe aggregates volumes in the fourth quarter of 2007 will continue to be hampered by weak residential construction activity resulting in a full year decline of approximately 9 to 10 percent as compared with shipments in 2006. "Our projected record earnings from continuing operations in 2007 will cap a remarkable year for Vulcan and our shareholders, and the pending acquisition of Florida Rock Industries makes us even more optimistic about the future of our business. Although the weakness in residential construction will continue to affect shipments into that end use market, we believe that price trends in aggregates will continue to be favorable. Moreover, the broad use of aggregates throughout the nation’s economy should continue to contribute to relatively stable growth in demand over the long term. "We expect our fourth quarter financial results to include Florida Rock for the post-closing portion of the quarter. However, to date, access to Florida Rock’s financial and operational information has been limited and we are unable to project the financial results from Florida Rock for this stub period. Accordingly, we are not issuing specific earnings guidance for the remainder of the year. We expect to provide annual earnings guidance for 2008 for Vulcan, including Florida Rock, when we issue fourth quarter 2007 earnings in February 2008.” Conference Call Vulcan will host a conference call at 10:00 a.m. CDT on October 30, 2007. Investors and other interested parties in the U.S. may access the teleconference live by calling (800) 435-1398 approximately 10 minutes before the scheduled start. International participants can dial (617) 614-4078. The access code is 64084983. A live webcast will be available via the Internet through Vulcan's home page at vulcanmaterials.com. The conference call will be recorded and available for replay approximately two hours after the call through November 6, 2007. Vulcan Materials Company, a member of the S&P 500 index, is the nation's largest producer of construction aggregates and a major producer of asphalt and concrete. Certain matters discussed in this release, including expectations regarding future performance, contain forward-looking statements that are subject to assumptions, risks and uncertainties that could cause actual results to differ materially from those projected. These assumptions, risks and uncertainties include, but are not limited to, those associated with general economic and business conditions; changes in interest rates; the timing and amount of federal, state and local funding for infrastructure; changes in the level of spending for residential and private nonresidential construction; the highly competitive nature of the construction materials industry; pricing; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; increasing healthcare costs; the timing and amount of any future payments to be received under the 5CP earn-out contained in the agreement for the divestiture of the Company's Chemicals business; the Company’s ability to manage and successfully integrate acquisitions; risks and uncertainties related to the proposed transaction with Florida Rock Industries, Inc. including the ability to close the transaction, successfully integrate the operations of Florida Rock and to achieve the anticipated cost savings and operational synergies following the closing of the proposed transaction with Florida Rock; and other assumptions, risks and uncertainties detailed from time to time in the Company’s SEC reports, including the report on Form 10-K for the year. Forward-looking statements speak only as of the date hereof, and Vulcan assumes no obligation to publicly update such statements.           Table A Vulcan Materials Company and Subsidiary Companies     (Amounts and shares in thousands, except per share data)   Three Months Ended Nine Months Ended Consolidated Statements of Earnings September 30 September 30 (Condensed and unaudited)   2007   2006   2007   2006   Net sales $ 844,938 $ 848,296 $ 2,282,943 $ 2,298,349 Delivery revenues   59,928     81,025     187,954     227,822   Total revenues 904,866 929,321 2,470,897 2,526,171   Cost of goods sold 567,546 575,404 1,553,123 1,603,681 Delivery costs   59,928     81,025     187,954     227,822   Cost of revenues   627,474     656,429     1,741,077     1,831,503     Gross profit 277,392 272,892 729,820 694,668 Selling, administrative and general expenses 66,398 67,824 212,108 197,986 Gain on sale of property, plant and equipment, net 5,543 1,610 56,782 3,671 Other operating expense (income), net   2,236     326     5,814     (23,137 ) Operating earnings 214,301 206,352 568,680 523,490   Other (expense) income, net (1,590 ) 4,810 (502 ) 27,659 Interest income 645 914 3,084 5,034 Interest expense   6,499     7,713     21,224     19,689   Earnings from continuing operations before income taxes 206,857 204,363 550,038 536,494 Provision for income taxes   62,929     63,433     173,091     171,311   Earnings from continuing operations 143,928 140,930 376,947 365,183 Loss on discontinued operations, net of tax   (8,515 )   (5,243 )   (10,650 )   (8,777 ) Net earnings   $ 135,413     $ 135,687     $ 366,297     $ 356,406   Basic earnings (loss) per share: Earnings from continuing operations $ 1.50 $ 1.47 $ 3.95 $ 3.71 Discontinued operations   (0.09 )   (0.05 )   (0.11 )   (0.09 ) Net earnings per share $ 1.41 $ 1.42 $ 3.84 $ 3.62   Diluted earnings (loss) per share: Earnings from continuing operations $ 1.47 $ 1.44 $ 3.85 $ 3.63 Discontinued operations   (0.09 )   (0.05 )   (0.11 )   (0.09 ) Net earnings per share $ 1.38 $ 1.39 $ 3.74 $ 3.54                   Weighted-average common shares outstanding:   Basic 95,763 95,708 95,507 98,546 Assuming dilution 97,888 97,679 97,988 100,671 Cash dividends declared per share of common stock $ 0.46 $ 0.37 $ 1.38 $ 1.11 Depreciation, depletion, accretion and amortization from continuing operations $ 66,366 $ 58,026 $ 191,071 $ 166,869 Effective tax rate from continuing operations     30.4 %     31.0 %     31.5 %     31.9 %       Table B Vulcan Materials Company and Subsidiary Companies     (Amounts in thousands) Consolidated Balance Sheets September 30 December 31 September 30 (Condensed and unaudited)   2007   2006   2006   Assets Cash and cash equivalents $ 31,079 $ 55,230 $ 68,651 Accounts and notes receivable: Accounts and notes receivable, gross 457,325 394,815 483,356 Less: Allowance for doubtful accounts   (3,302 )   (3,355 )   (4,572 ) Accounts and notes receivable, net 454,023 391,460 478,784 Inventories: Finished products 232,250 214,508 209,216 Raw materials 10,835 9,967 10,300 Products in process 1,747 1,619 1,876 Operating supplies and other   21,690     17,443     16,705   Inventories 266,522 243,537 238,097 Deferred income taxes 30,402 25,579 18,562 Prepaid expenses   39,364     15,388     27,070   Total current assets 821,390 731,194 831,164 Investments and long-term receivables 5,069 6,664 6,985 Property, plant and equipment: Property, plant and equipment, cost 4,203,952 3,897,618 3,758,480 Less: Reserve for depr., depl., & amort   (2,151,182 )   (2,028,504 )   (1,992,564 ) Property, plant and equipment, net 2,052,770 1,869,114 1,765,916 Goodwill 650,205 620,189 625,076 Other assets   205,074     200,673     185,122   Total assets $ 3,734,508   $ 3,427,834   $ 3,414,263         Liabilities and Shareholders' Equity Current maturities of long-term debt $ 562 $ 630 $ 32,547 Short-term borrowings 147,775 198,900 236,750 Trade payables and accruals 161,385 154,215 174,510 Other current liabilities   145,850     133,763     125,259   Total current liabilities 455,572 487,508 569,066 Long-term debt 321,227 322,064 322,267 Deferred income taxes 299,611 287,905 297,191 Other noncurrent liabilities   358,430     319,458     302,801   Total liabilities   1,434,840     1,416,935     1,491,325   Shareholders' equity: Common stock, $1 par value 139,705 139,705 139,705 Capital in excess of par value 254,271 191,695 181,002 Retained earnings 3,215,846 2,982,526 2,903,698 Accumulated other comprehensive loss (17,995 ) (4,953 ) (2,233 ) Treasury stock at cost   (1,292,159 )   (1,298,074 )   (1,299,234 ) Shareholders' equity   2,299,668     2,010,899     1,922,938   Total liabilities and shareholders' equity   $ 3,734,508     $ 3,427,834     $ 3,414,263       Table C Vulcan Materials Company   and Subsidiary Companies     (Amounts in thousands) Nine Months Ended Consolidated Statements of Cash Flows September 30 (Condensed and unaudited)   2007   2006   Operating Activities Net earnings $ 366,297 $ 356,406 Adjustments to reconcile net earnings to net cash provided by operating activities:   Depreciation, depletion, accretion and amortization 191,071 166,888 Net gain on sale of property, plant and equipment (56,782 ) (3,672 ) Net gain on sale of contractual rights - (24,850 ) Contributions to pension plans (1,262 ) (1,112 ) Share-based compensation 12,595 11,249 Increase in assets before initial effects of business acquisitions and dispositions (154,195 ) (159,236 ) Increase in liabilities before initial effects of business acquisitions and dispositions 48,663 15,060 Change in asset retirement obligations due to settlements 7,259 1,526 Other, net   7,667     1,359   Net cash provided by operating activities   421,313     363,618       Investing Activities Purchases of property, plant and equipment (351,486 ) (299,147 ) Proceeds from sale of property, plant and equipment 61,114 5,909 Proceeds from sale of contractual rights, net of cash transaction fees - 24,850 Proceeds from sale of Chemicals business 30,560 141,916 Payment for businesses acquired, net of acquired cash (58,861 ) (20,498 ) Proceeds from sales and maturities of medium-term investments - 175,140 Decrease in investments and long-term receivables 1,595 172 Other, net   1,706     (13 ) Net cash (used for) provided by investing activities   (315,372 )   28,329     Financing Activities Net short-term borrowings (payments) (51,125 ) 236,750 Payment of short-term debt and current maturities (552 ) (240,470 ) Purchases of common stock (4,800 ) (521,632 ) Dividends paid (131,559 ) (109,109 ) Proceeds from exercise of stock options 33,804 23,036 Excess tax benefits from exercise of stock options   24,140     12,991   Net cash used for financing activities   (130,092 )   (598,434 )   Net decrease in cash and cash equivalents (24,151 ) (206,487 ) Cash and cash equivalents at beginning of period   55,230     275,138   Cash and cash equivalents at end of period   $ 31,079     $ 68,651         Table D   1. Supplemental Cash Flow Information   Supplemental information referable to the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30 is summarized below (amounts in thousands):       2007   2006   Supplemental Disclosure of Cash Flow Information Cash paid during the period for: Interest, net of amount capitalized $ 15,664 $ 19,678 Income taxes 145,013 172,126   Supplemental Schedule of Noncash Investing and Financing Activities Accrued liabilities for purchases of property, plant and equipment 26,340 16,540 Debt issued for purchases of property, plant and equipment 15 - Proceeds receivable from exercise of stock options 16 676 Accrued liabilities for purchases of treasury stock - 310           2. Net Sales and Unit Shipments   (Amounts in thousands)   Three Months Ended Six Months Ended September 30 September 30 Net Sales by Product - Customer 2007   2006 2007   2006   Aggregates $ 608,890 $ 580,861 $ 1,653,768 $ 1,610,439 Asphalt mix 161,369 155,448 384,230 366,760 Concrete 45,879 69,700 149,475 206,784 Other products   28,800   42,287   95,470   114,366   Total net sales $ 844,938 $ 848,296 $ 2,282,943 $ 2,298,349   Unit Shipments   Aggregates Customer tons 60,330 65,272 166,358 185,187 Internal tons (a)   3,173   3,601   8,291   9,960 Aggregates - tons   63,503   68,873   174,649   195,147 Asphalt mix - tons 3,247 3,427 7,892 8,732 Concrete - cubic yards 475 752 1,565 2,319   (a) Represents tons shipped primarily to our other operations (e.g., asphalt mix and concrete). Revenue from internal shipments is not included in net sales as presented in the accompanying Condensed Consolidated Statements of Earnings.     Average Unit Sales Price (including internal sales)   Aggregates (freight adjusted) (b) $ 9.43 $ 8.42 $ 9.34 $ 8.19   (b) Freight adjusted sales price is calculated as total sales dollars less freight to remote distribution sites divided by sales units.           Table E   Reconciliation of Non-GAAP Performance Measures   (Amounts in thousands, except per share data)   Three Months Ended Six Months Ended September 30 September 30 2007   2006 2007   2006   GAAP Earnings from continuing operations before income taxes $ 206,857 $ 204,363 $ 550,038 $ 536,494 Gain on sale of contractual rights (1) - (1 ) - (24,850 ) Gain on sale of California real estate, net (2) 943 - (40,966 ) - Gain from adjustment in the carrying value of the ECU earn-out (3) - (4,734 ) (1,929 ) (27,720 ) Retrospective adjustment related to a change in accounting principle (4)   -   366     -     (71 ) Earnings from continuing operations before income taxes, as adjusted (5) $ 207,800 $ 199,994   $ 507,143   $ 483,853       GAAP Diluted earnings per share from continuing operations $ 1.47 $ 1.44 $ 3.85 $ 3.63 After-tax gain per diluted share resulting from the sale of contractual rights (1) - - - (0.15 ) After-tax gain per diluted share resulting from sale of California real estate, net (2) 0.01 - (0.25 ) - After-tax gain per diluted share resulting from the adjustment in the carrying value of the ECU earn-out (3) - (0.03 ) (0.01 ) (0.17 ) After-tax gain per diluted share resulting from the retrospective adjustment related to a change in accounting principle (4)   -   0.01     -     (0.03 ) Earnings per share from continuing operations, net of tax, as adjusted (5) $ 1.48 $ 1.42   $ 3.59   $ 3.28       (1) During the second quarter of 2006, the Company recognized a $25 million pretax gain from the sale of its contractual rights to mine the Bellwood quarry in Atlanta, Georgia. The City of Atlanta plans to convert the property into a city park and greenspace as part of a larger economic growth and development project around the city's perimeter. The Company worked with city and county officials to achieve this mutually beneficial transaction. The Company will continue operating the site for approximately two years subsequent to the sale as it transitions customers to its existing 12 quarries in the greater Atlanta area and to a new, zoned site purchased in 2004 in anticipation of the Bellwood sale.   (2) In January 2007, the Company sold approximately 125 acres of vacant land located in San Bernardino County, California resulting in a pretax gain of $43.8 million. The amounts shown above are net of the related incentives ratably applied in accordance with U.S. Generally Accepted Accounting Principles (GAAP).   (3) In June 2005, the Company sold substantially all the assets of its Chemicals business, known as Vulcan Chemicals, to a subsidiary of Occidental Chemical Corporation, Basic Chemicals. Subject to certain conditions as defined in a separate earn-out agreement, Basic Chemicals was required to make payments based on ECU and natural gas prices during the five-year period beginning July 1, 2005. In September 2007, the company received the final payment under the ECU earn-out of $22.1 million, bringing cumulative cash receipts to the $150 million cap. The ECU earn-out was accounted for as a derivative instrument; accordingly, it was reported at fair value. Changes to the fair value of the ECU derivative were recorded within continuing operations pursuant to SAB Topic 5:Z:5.   (4) On January 1, 2007 the Company adopted FSP AUG AIR-1 "Accounting for Planned Major Maintenance Activities" and retrospectively adjusted prior year financial statements as required under the FSP. One result of the retrospective application of this change in accounting principle was an increase in the cumulative undistributed earnings at a certain wholly owned foreign subsidiary, and an increase in the associated deferred tax liability. During the second quarter of 2006, we determined that the cumulative undistributed earnings at this foreign subsidiary would be indefinitely reinvested offshore, and accordingly reversed the associated deferred tax liability pursuant to Accounting Principles Board Opinion No. 23, "Accounting for Income Taxes - Special Areas." Consistent with our prior determination that the cumulative undistributed earnings would be indefinitely reinvested offshore, the deferred tax liability arising from the retrospective adjustments was reversed, resulting in a favorable adjustment to the provision for income taxes during the second quarter of 2006.   (5) The Company prepares and reports its financial statements in accordance with GAAP. Internally, management monitors the operating performance of its Construction Materials business using non-GAAP metrics similar to those above. These non-GAAP measures exclude the effects of the items described more fully above.   In Management's opinion, these non-GAAP measures are important indicators of the ongoing operations of our Construction Materials business and provide better comparability between reporting periods because they exclude items that may not be indicative of or are unrelated to our core business and provide a better baseline for analyzing trends in our core operations. The Company does not, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company believes the disclosure of the effects of these items increases the reader's understanding of the underlying performance of the business and that such non-GAAP financial measures provide investors with an additional tool to evaluate our financial results and assess our prospects for future performance.