01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Vulcan Materials Company (NYSE: VMC), the nation's largest producer of construction aggregates, reported a 2012 net loss of $52.6 milliona, or $0.41 per diluted share, compared with a net loss of $70.8 million, or $0.55 per share, in 2011.
Net sales were $2.41 billionb, essentially flat with 2011's $2.41 billion, while gross profit rose to $334.0 million from $283.9 million. Management attributes the improvement to lower unit costs, higher selling prices and streamlined overhead, with selling, administrative and general expenses falling to $259.1 million from $290.0 million. Operating cash flow was $238.5 million and free cash flow was $145.1 million, and total debt was $2.68 billion, or 41.6% of total capital.
The filing also highlights several one-time items that affected results, including a $65.1 millionc pretax gain on sale of real estate and businesses, a $43.4 million charge for costs tied to Martin Marietta's unsolicited exchange offer, which was withdrawn after a court ruling, and $9.6 million in restructuring charges. Management expects a Profit Enhancement Plan to lift pretax earnings by $130 million in 2013 and $155 million in 2014 versus 2011 levels, and targets about $500 million in net proceeds from planned asset sales through July 2013, with $168.6 million achieved through 2012. Credit ratings remain below investment grade, with Moody's at Ba3/negative and S&P at BB/stable.
The company reports 15.0 billion tons of permitted proven and probable aggregates reserves and says its markets are concentrated in high-growth states, with publicly funded construction at about 54% of aggregates shipments and privately funded construction at about 46%. Management points to the 2012 federal highway bill (MAP-21) and recovering residential housing starts as demand tailwinds, though it notes the timing of a sustained recovery remains uncertain and that goodwill of $3.09 billiond, about 38% of total assets, could be impaired if the recovery is delayed.
02—Key points
Key Highlights
- Net loss narrowed to $52.6 million ($0.41 per diluted share) in 2012 from $70.8 million ($0.55 per share) in 2011.
- Net sales of $2.41 billion were essentially flat versus 2011, while gross profit increased to $334.0 million from $283.9 million, and gross margin rose to 13.9% from 11.8%.
- Selling, administrative and general expenses fell to $259.1 million from $290.0 million, reflecting consolidation of eight divisions into four regions and ERP and Shared Services platforms.
- Operating cash flow was $238.5 million, aided by a $73.6 million net proceeds from a volumetric production payment; free cash flow was $145.1 million.
- Total debt was $2.68 billion, or 41.6% of total capital, with $134.8 million of scheduled debt retired in 2012 and a $600.0 million bank line of credit undrawn at year end.
- Management's Profit Enhancement Plan targets pretax earnings increases of $130 million in 2013 and $155 million in 2014 versus 2011 levels, and planned asset sales target about $500 million in net proceeds through July 2013.
- Long-term debt ratings are Ba3/negative at Moody's and BB/stable at S&P, and the company cites a below investment grade rating as a factor in its cost of capital.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2012, Vulcan Materials lost $0.02.
- Revenue$2.57B100.0%
- Cost of revenue−$2.23B87.0%
- Gross profit$334.0M13.0%
- Operating costs−$249.2M9.7%
- Operating income$84.8M3.3%
- Interest, other & tax−$137.4M5.4%
- Net income−$52.6M2.0%
Where FY2012 revenue went
$2.57B- Cost of revenue: $2.23B, 87% of revenue
- Operating income: $84.8M, 3.3% of revenue
- SG&A: $259.1M, 10% of revenue
Kept 3.3% as operating incomeOperating income $84.8M · 3.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $2.57B$2.56B | +0.1% |
| Cost of Revenue | $2.23B$2.28B | −2.1% |
| Gross Profit | $334.03M$283.87M | +17.7% |
| R&D Expenses | $0$1.11M | −100.0% |
| SG&A Expenses | $259.14M$289.99M | −10.6% |
| Operating Income | $84.78M$63.44M | +33.6% |
| Interest Expense | $213.07M$220.63M | −3.4% |
| Net Income | -$52.59M-$70.78M | +25.7% |
| EPS (Basic) | $-0.41$-0.55 | +25.5% |
| EPS (Diluted) | $-0.41$-0.55 | +25.5% |
| Shares Outstanding (Basic) | 129.75M129.38M | +0.3% |
| Shares Outstanding (Diluted) | 129.75M129.38M | +0.3% |
05—Questions
Frequently Asked Questions
Why did Vulcan's net loss narrow in 2012?
Gross profit rose $50.2 million on flat net sales, driven by lower unit cost of sales and higher pricing, with aggregates segment gross profit margin improving 2.7 percentage points. Selling, administrative and general expenses also fell $30.9 million, and the company recorded a $65.1 million pretax gain on sale of real estate and businesses. These gains were partly offset by a $43.4 million charge for exchange offer costs and $9.6 million of restructuring charges.
What was the effect of the Martin Marietta exchange offer on Vulcan?
Martin Marietta commenced an unsolicited exchange offer in December 2011 at 0.50 of its shares for each Vulcan share. After a May 2012 Delaware court ruling that Martin Marietta had breached two confidentiality agreements, it withdrew the offer and its board nominees. Vulcan incurred legal, professional and other costs of $43.4 million in 2012 and $2.2 million in 2011.
How is Vulcan's debt position and liquidity?
Total debt was $2.68 billion at December 31, 2012, down from $2.82 billion a year earlier, and represented 41.6% of total capital. About 99.5% of debt was fixed-rate. The $600.0 million bank line of credit had no borrowings outstanding, with $57.3 million used for standby letters of credit. Cash and cash equivalents were $275.5 million at year end.
What drives demand for Vulcan's aggregates, and what did the filing say about 2013?
The filing says demand is driven by population, jobs and household growth, and that about 75% of U.S. population growth through 2020 is projected in Vulcan-served states. Publicly funded construction accounted for approximately 54% of aggregates shipments and privately funded construction about 46% in 2012. The company cites MAP-21 highway funding and recovering housing starts as positives, but says the timing of a sustained recovery is difficult to predict.
What goodwill and impairment risks does the filing identify?
Goodwill totaled $3.09 billion, representing 38% of total assets at December 31, 2012. Annual impairment tests as of November 1, 2012 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values. The filing warns that a slow construction recovery could lead to a material noncash write-down, and it identifies the Gulf Coast markets as a reporting unit where delays in recovery could cause impairment.
06—Continue