01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
Vulcan Materials Company, the nation's largest producer of construction aggregates, reported a 2011 net loss of $70.8 milliona, or $0.55 per diluted share, versus a net loss of $96.5 million, or $0.75 per share, in 2010.
Net sales were $2,406.9 millionb, roughly flat with $2,405.9 million in 2010, and EBITDA rose to $425.2 million from $370.6 million, helped by gains of $86.1 million from a business sale and a legal settlement. Gross profit per ton of aggregates was $2.14 versus $2.17 in 2010, and the company cut Selling, Administrative and General expenses by $37.5 million. Cash flow weakened, with net cash provided by operating activities of $169.0 million versus $202.7 million, and free cash flow of $70.1 million versus $116.4 million.
The filing is dominated by Martin Marietta Materials' unsolicited exchange offer of 0.50 Martin Marietta shares per Vulcan share, which the board unanimously determined to be inadequate. Vulcan has incurred legal and professional costs, is litigating in Delaware, New Jersey and Alabama, and faces shareholder class actions. Total debt was $2,815.5 millionc, equal to 42.6% of total capital, and Moody's rated the company Ba2/negative.
Management announced a Profit Enhancement Plan targeting $100 milliond of earnings and planned asset sales with net after-tax proceeds of about $500 million over 12 to 18 months, to reduce debt. The company's goodwill of $3,086.7 million represents 38% of total assets. Management noted that one aggregates reporting unit with $1,815.1 million of goodwill had a fair value only 8% above its carrying value, so a sustained construction recovery is needed to avoid a potential impairment.
02—Key points
Key Highlights
- Net loss narrowed to $70.8 million ($0.55 per diluted share) from $96.5 million ($0.75 per share) in 2010, with net sales of $2,406.9 million.
- EBITDA increased to $425.2 million from $370.6 million, including $86.1 million of gains from a business sale and legal settlement and $15.2 million of restructuring and exchange-offer charges.
- Martin Marietta's unsolicited exchange offer (0.50 Martin Marietta shares per Vulcan share) was rejected by the board as inadequate; litigation is ongoing in Delaware, New Jersey and Alabama.
- Free cash flow fell to $70.1 million from $116.4 million, as operating cash flow dropped to $169.0 million and capital spending rose to $98.9 million.
- Total debt was $2,815.5 million, or 42.6% of total capital, versus 40.7% a year earlier; Moody's rated the company Ba2/negative and S&P rated it BB/watch positive.
- Planned Profit Enhancement Plan targets $100 million of earnings over 18 months, and planned asset sales are expected to yield about $500 million of net after-tax proceeds over 12 to 18 months.
- Goodwill of $3,086.7 million (38% of total assets) includes one aggregates reporting unit with $1,815.1 million of goodwill whose fair value exceeded carrying value by only 8%.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2011, Vulcan Materials lost $0.03.
- Revenue$2.56B100.0%
- Cost of revenue−$2.28B88.9%
- Gross profit$283.9M11.1%
- Operating costs−$220.4M8.6%
- Operating income$63.4M2.5%
- Interest, other & tax−$134.2M5.2%
- Net income−$70.8M2.8%
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $2.56B$2.56B | +0.2% |
| Cost of Revenue | $2.28B$2.26B | +1.0% |
| Gross Profit | $283.87M$300.73M | −5.6% |
| R&D Expenses | $1.11M$1.58M | −29.9% |
| SG&A Expenses | $289.99M$327.54M | −11.5% |
| Operating Income | $63.44M-$14.54M | +536.3% |
| Interest Expense | $220.63M$181.60M | +21.5% |
| Net Income | -$70.78M-$96.49M | +26.6% |
| EPS (Basic) | $-0.55$-0.75 | +26.7% |
| EPS (Diluted) | $-0.55$-0.75 | +26.7% |
| Shares Outstanding (Basic) | 129.38M128.05M | +1.0% |
| Shares Outstanding (Diluted) | 129.38M128.05M | +1.0% |
05—Questions
Frequently Asked Questions
Why did Vulcan's net loss narrow in 2011?
Net loss was $70.8 million versus $96.5 million in 2010. The filing points to a $46.4 million recovery from insurer arbitration awards on the IDOT lawsuit, $37.5 million lower SAG expenses, and a $47.8 million gain on sale of property and businesses, partly offset by higher interest expense of $220.6 million versus $181.6 million.
What is the status of Martin Marietta's unsolicited exchange offer?
Martin Marietta commenced an exchange offer in December 2011 at 0.50 of its shares per Vulcan share and plans to nominate five directors. Vulcan's board unanimously determined the offer is inadequate and not in shareholders' best interests. Both companies have filed suits in Delaware, New Jersey and Alabama, a Delaware trial was scheduled for late February 2012, and four shareholder class actions have been filed against Vulcan and its directors.
How much debt does Vulcan carry and what are its credit ratings?
Total debt was $2,815.5 million at December 31, 2011, or 42.6% of total capital, under a 65% covenant limit. Moody's rated long-term debt Ba2/negative after a downgrade from Ba1, and S&P rated it BB/watch positive. The company replaced its $1.5 billion bank line with a $600.0 million facility expiring December 2016, which was undrawn at year-end.
What are management's plans to improve earnings and the balance sheet?
In February 2012 the board approved a Profit Enhancement Plan with $100 million of cost reductions and other earnings enhancements expected within 18 months, and planned sales of non-core assets with net after-tax proceeds of about $500 million over 12 to 18 months. Management said the proceeds, together with the earnings increase, will be used to reduce debt and strengthen the balance sheet.
What risks does the filing highlight for goodwill and future results?
Goodwill totaled $3,086.7 million, 38% of total assets. One aggregates reporting unit carrying $1,815.1 million of goodwill had fair value only 8% above carrying value at the November 1, 2011 test, and delays in a sustained Gulf Coast recovery could trigger impairment. The filing also cites slow construction recovery, the lapse of the multi-year federal highway bill (current extension expires March 31, 2012), and weather as ongoing risks.
06—Continue