01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
Vulcan Materials Company (Birmingham, Alabama) filed its annual report on Form 10-K for the fiscal year ended December 31, 2007.
The defining event of the year was the November 16, 2007 acquisition of Florida Rock Industries, Inc., paid in cash and stock for approximately $4.68 billiona in total consideration (including $1,436.5 million in stock and $3,212.6 million in cash). Consolidated net sales rose 2% to a record $3.09 billion, and operating earnings increased 2.8% to $714.4 million, supported by aggregates pricing gains even as shipments declined. Net earnings were $450.9 million, or $4.54 per diluted share, compared with $470.2 million, or $4.71, in 2006.
The balance sheet changed substantially. Total assets grew to $8.94 billionb from $3.43 billion, goodwill rose to $3.79 billion, and long-term debt increased to $1.53 billion. Short-term borrowings reached $2.09 billion at year end, and total debt as a percentage of total capital rose to 49.3% from 20.6%.
Management said it expects to reduce that ratio to a 35% to 40% target range within three years. The company also reported that it expects to divest nine sites required by the Department of Justice, and it gave 2008 guidance of $4.75 to $5.15c per diluted share in continuing operations earnings. Investors should weigh the higher leverage and integration risk against the company's stated 2008 outlook.
The filing notes that residential construction remains weak, with management expecting double-digit declines in that sector, while public infrastructure and nonresidential demand are expected to support volumes. Ongoing litigation includes the Modesto matter, which Vulcan settled for $20 milliond, and a pending Eleventh Circuit appeal over Miami quarry mining restrictions.
02—Key points
Key Highlights
- Acquired Florida Rock Industries on November 16, 2007, for total cash and stock consideration of approximately $4,678.4 million, including 12.6 million Vulcan shares valued at $1,436.5 million.
- Net sales increased 2% to a record $3,090.1 million; operating earnings rose 2.8% to $714.4 million.
- Diluted earnings per share from continuing operations were $4.66, versus $4.81 in 2006; net earnings were $450.9 million, or $4.54 per diluted share.
- Total assets increased to $8,936.4 million from $3,427.8 million, with goodwill of $3,789.1 million after the acquisition.
- Total debt as a percentage of total capital rose to 49.3%, from 20.6% in 2006, with a target range of 35% to 40% within three years of the acquisition.
- 2008 outlook calls for consolidated earnings from continuing operations of $4.75 to $5.15 per diluted share and aggregates price improvement of 8% to 10%.
- The company is the nation's largest producer of construction aggregates, with 12.7 billion tons of zoned and permitted reserves and an estimated 43-year reserve life.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Vulcan Materials kept $0.14.
- Revenue$3.33B100.0%
- Cost of revenue−$2.38B71.4%
- Gross profit$950.9M28.6%
- Operating costs−$236.5M7.1%
- Operating income$714.4M21.5%
- Interest, other & tax−$263.5M7.9%
- Net income$450.9M13.5%
04—Financials
Financial Highlights
Figures from 10-KFY2007filed February 29, 2008Financial Statements
| Revenue | $3.33B |
| Cost of Revenue | $2.38B |
| Gross Profit | $950.90M |
| SG&A Expenses | $289.60M |
| Operating Income | $714.42M |
| Interest Expense | $48.22M |
| Net Income | $450.91M |
| EPS (Basic) | $4.65 |
| EPS (Diluted) | $4.54 |
| Shares Outstanding (Basic) | 97.04M |
| Shares Outstanding (Diluted) | 99.40M |
05—Questions
Frequently Asked Questions
Why did total assets and debt increase so much in 2007?
The increase reflects the November 16, 2007 Florida Rock acquisition. Vulcan borrowed $3.35 billion under new credit facilities to fund the cash portion of the deal, and short-term borrowings reached $2,091.5 million at year end. Long-term debt rose to $1,529.8 million after issuing $1,223.6 million in notes in December 2007.
How did the Florida Rock acquisition affect 2007 earnings?
The filing attributes a $32 million reduction in pretax earnings to the Florida Rock acquisition. Diluted EPS included about $0.13 per share of one-time transaction items, $0.12 per share of higher interest expense, and $0.07 per share from additional shares issued, offset by Florida Rock's operating contribution.
What is management's outlook for 2008?
Management expects another record year of net sales and projects 2008 aggregates shipments for legacy Vulcan operations to be flat to down 2%. Including a full year of Florida Rock, shipments are expected to rise 9% to 12%. Residential construction is expected to decline again by double digits, while public infrastructure and nonresidential demand are expected to grow.
What legal and regulatory matters could affect investors?
Vulcan agreed to pay $20 million to settle the City of Modesto's claims, which was paid in the fourth quarter of 2007 and is being pursued from insurers. A pending appeal to the Eleventh Circuit concerns a court order that required the company to cease most mining excavation at its Miami quarry. The company must also divest nine sites required by the Department of Justice.
06—Continue