01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
Vulcan Materials Company reported a sharp downturn in 2009 for the fiscal year ended December 31, 2009.
Net sales were $2,543.7 milliona versus $3,453.1 million in 2008, and net earnings were $30.3 million, or $0.25 per diluted share, compared with $0.9 million in 2008. Earnings from continuing operations were $18.6 million. The company describes the company as the nation's largest producer of construction aggregates, and attributes the decline mainly to lower aggregates shipments, which the filing says declined 26% in 2009, partly offset by a 3% increase in aggregates pricing.
Management highlights aggressive cost control: selling, administrative and general expenses fell to $321.6 millionb from $342.6 million, and employment was reduced about 12% year over year. Cash generation and balance sheet repair were the central themes of 2009. Net cash provided by operating activities was $453.0 million, and capital spending was cut to $109.7 million from $353.2 million, producing free cash flow of $343.3 million.
Vulcan raised $394.6 millionc of net proceeds from a private placement of debt and $520.0 million from a June public equity offering, and used these funds to reduce total debt by $809.8 million. Total debt as a percentage of total capital fell to 40.3% from 50.0%. The quarterly dividend was reduced from $0.49 to $0.25 beginning in the third quarter of 2009.
Key risks flagged in the filing include the weak U.S. economy and construction markets, uncertainty over federal highway funding after the SAFETEA-LU bill expired on September 30, 2009, and a $252.7 milliond goodwill impairment charge recorded in 2008 for the Florida cement reporting unit. The filing also discloses ongoing perchloroethylene litigation tied to the former Chemicals business and a Lake Belt permitting dispute in Florida. Goodwill of $3.09 billion represents 36% of total assets.
02—Key points
Key Highlights
- Net sales fell to $2,543.7 million in 2009 from $3,453.1 million in 2008, and net earnings were $30.3 million, or $0.25 per diluted share, versus $0.9 million in 2008.
- Aggregates shipments declined 26% in 2009, reducing earnings by $333.7 million, while aggregates pricing rose 3%, adding $48.3 million to earnings.
- Net cash provided by operating activities was $453.0 million, and free cash flow increased to $343.3 million from $82.0 million in 2008.
- Total debt was reduced by $809.8 million, supported by $520.0 million of net proceeds from a June 2009 public equity offering and $394.6 million of net proceeds from a private placement of debt.
- Total debt as a percentage of total capital declined to 40.3% at year-end 2009 from 50.0% in 2008, against a stated target range of 35% to 40%.
- The quarterly dividend was cut from $0.49 to $0.25 starting in the third quarter of 2009, the first reduction in the company's history according to the filing; dividends declared totaled $1.48 per share for 2009.
- Goodwill of $3,093,979 thousand, or 36% of total assets, remained after a $252.7 million 2008 impairment of Florida Cement goodwill; no goodwill impairment was recorded in 2009.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Vulcan Materials kept $0.01.
- Revenue$2.69B100.0%
- Cost of revenue−$2.24B83.4%
- Gross profit$446.0M16.6%
- Operating costs−$297.5M11.1%
- Operating income$148.5M5.5%
- Interest, other & tax−$118.1M4.4%
- Net income$30.3M1.1%
Where FY2009 revenue went
$2.69B- Cost of revenue: $2.24B, 83% of revenue
- Net income: $30.3M, 1.1% of revenue
- R&D: $1.5M, 0.1% of revenue
- SG&A: $321.6M, 12% of revenue
- Interest, other & tax: $118.1M, 4.4% of revenue
Kept 1.1% as net incomeNet income $30.3M · 1.1%R&D $1.5M · 0.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $2.69B$3.65B | −26.3% |
| Cost of Revenue | $2.24B$2.90B | −22.6% |
| Gross Profit | $445.96M$749.71M | −40.5% |
| R&D Expenses | $1.54M$1.55M | −0.3% |
| SG&A Expenses | $321.61M$342.58M | −6.1% |
| Operating Income | $148.45M$249.10M | −40.4% |
| Interest Expense | $175.26M$172.81M | +1.4% |
| Net Income | $30.31M$918K | +3202.2% |
| EPS (Basic) | $0.25$0.01 | +2400.0% |
| EPS (Diluted) | $0.25$0.01 | +2400.0% |
| Shares Outstanding (Basic) | 118.89M109.77M | +8.3% |
| Shares Outstanding (Diluted) | 119.43M110.95M | +7.6% |
05—Questions
Frequently Asked Questions
Why did Vulcan's earnings fall so sharply in 2009?
The filing attributes the decline primarily to lower aggregates volumes. Aggregates shipments fell 26% as private construction, particularly residential and nonresidential building, weakened sharply, and public highway funding was uncertain after SAFETEA-LU expired on September 30, 2009. Earnings from continuing operations before income taxes were a loss of $19.2 million in 2009 compared with earnings of $75.1 million in 2008, which included the $252.7 million goodwill impairment.
How strong is Vulcan's liquidity and cash generation?
Operating cash flow was $453.0 million in 2009, up from $435.2 million in 2008, even as net earnings were small. Capital expenditures were reduced to $109.7 million from $353.2 million, generating free cash flow of $343.3 million. The company says its primary liquidity source is operating cash flow, supplemented by a $1.5 billion bank credit facility expiring November 16, 2012, of which $1,204.3 million was available at year-end after commercial paper and letters of credit.
What did Vulcan do to strengthen its balance sheet?
In February 2009 Vulcan issued $400 million of long-term notes, and in June 2009 it completed a public equity offering of 13.2 million shares that netted $520.0 million. Proceeds were used to reduce short-term borrowings and debt, and total debt fell from $3,547.8 million to $2,738.0 million. Short-term borrowings fell to $236.5 million from $1,082.5 million.
What are the main risks to the dividend and credit ratings?
The filing says dividend payments are at the discretion of the Board and depend on profitability, capital requirements and debt reduction. Credit ratings are BBB/stable from Standard and Poor's and Baa2/negative from Moody's, with Moody's outlook flagged as negative. The company states that weak construction demand and possible delays in federal highway funding could further depress earnings and cash flows.
What legal and environmental matters could affect investors?
The filing discloses several perchloroethylene cases tied to the former Chemicals business, including a class action in West Virginia and cases involving water contamination in California and the U.S. Virgin Islands; the company says it cannot estimate a loss range for these. It also describes a Florida Lake Belt permitting dispute that halted mining in parts of the region, with new permits expected after a January 29, 2010 Record of Decision, and an Illinois Department of Transportation suit over damage to a road bisecting the McCook quarry, which is set for trial on April 26, 2010 and where a loss is described as reasonably possible.
06—Continue