渥肯建材 (VMC) 2002 Q1 法說會逐字稿

Good morning. My name is Tina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Vulcan Materials first quarter conference call. All lines have been placed on mute to prevent any background noise. After [_____] remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press the * then the number 1 on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, press * then the number 2 on your telephone keypad. Thank you. I would now like to introduce your host for today's conference call Mr. Donald M. James. Sir you may begin your conference.

Good morning. Thank you for joining our conference call to discuss Vulcan's record first quarter results. I am Don James, Chairman and Chief Executive Officer of Vulcan Materials Company. With me today are Mark Tomkins, our Senor Vice president and Chief Financial Officer, John L. Holland President of our performance of chemical's business units, [Mike Badget], senior Vice President in our construction materials group, and Brad Rosenwald, President of our Chloralkali business unit. After I make a few brief comments, we would like to spend most of our time today responding to your questions. We hope this dialogue will be helpful to you and others who choose listen to this call through our web broadcast. I will begin today by summarizing the results of our earnings release issued late yesterday. We are extremely pleased with our record construction materials results, which led to higher company earnings. Overall demand in our market remained strong particularly in California, Texas, and the Gulf Coast markets. We continued to achieve cost improvements as we enhanced operating efficiencies at the form of Calimat and Tarmac operations as well as in our legacy operations. As expected, chemical earnings were hurt by difficult market conditions. Net earnings were $12 million or $0.11 per diluted share as compared to net earnings of $6 million or $0.6 per share in the first quarter of 2001. Results in the quarter included a $5 million aftertax benefit from the elimination of goodwill amortization required by FAS-142. Net sales for construction materials were a record $401 million, slightly higher than last year. Construction materials reported record earnings of $44 million, an increase of $20 million or 83% as compared to the prior year. Excluding the positive effect of adopting the new accounting standard on goodwill amortization, the construction material segment would have reported earnings of $39 million that is $15 million or 62% higher than the prior year. This strong performance was led by pricing improvements and [_____] aggregate and continuing improvements in operating cost especially of performance at Tarmac operation. Excluding the impact of freight to remote sales charge, aggregate pricing increased more than 2%. In general, market demand remained strong, but shipments in the Midwest and the Mid-Atlantic States were impacted by wet weather during March, which is the key month in the first quarter. Overall aggregate shipments declined by about $1 million tons or 3% from the same period a year earlier. As I have commented in the past, volumes in the first quarter can vary significantly and are rarely indicative of full year volume because of weather and other factors. For example, the 1 million ton drop in shipments in the first quarter is only about 1-1/2 of 1% of our total aggregate shipments for the year. More importantly, I think in the first quarter, we are achieving what we have set out to do and that is to improve significantly the cost performance of our recent acquisitions, particularly Tarmac, where the variable production cost improved more than $0.90 a ton from prior year's first quarter, which was the first full quarter in which we had those operations. The chemical segment posted first quarter sale of $134 million as compared to the $170 million in the first quarter of last year. Earnings decline from loss of $2 million in the first quarter to a loss of nearly $15 million this year. The decline in sales and earnings resulted from continuing weak demand in overall manufacturing sector of the economy. Favorable year-over-year comparisons in natural gas cost were more than offset by lower pricing for key Chloralkali products. In comparison with the first quarter of 2001, the Chloralkali industry experienced 50% decline in ECU prices. ECU pricing has the combination of chlorine and caustic soda and represents an industry standard metric of value in Chloralkali products. Industry operating rates declined to 84% versus 88% a year ago. Chemicals results include our share of Chloralkali joint ventures earnings. During the quarter, the joint venture reported earnings of $3 million, compared to a loss of approximately $10 million a year ago. This year's results were favorably impacted by the full implementation of the EDC marketing agreement with Matsui, and lower energy and raw materials cost. Our chemical share, obviously a year-over-year $13 million improvement amounted to about $7 million. As we recently announced construction of our 240-FA plant was completed in March and this facility is now operational. This facility manufactures a new non-emissive feedstock developed by our chemicals R&D group. The end product for this feedstock is primarily used in foam-blowing applications. We will sell our product under long-term supply agreements to Honeywell. Commercial sales to Honeywell will begin in the third quarter this year and ramp up over the next 18 to 24 months. With regard to the outlook for the remainder of the year, we remain comfortable with our prior guidance of $2.40 to $2.60 per diluted share for the full year. In construction material, we expect highway spending to be up 4% to 5%, other public works of 3%, and commercial construction for the year down 4% to 5%. Based on our very strong first quarter results, strength in public sector spending and continuing operating cost improvements were increasing the full year's earnings projection for our construction materials segments to be in the range of $445 million to $465 million. With respect to chemicals, while there are some indications of improving market conditions, the outlook for pricing for key Chloralkali products remained weak. Price increases of $50 per ton for chlorine went into effect April the 1st. Industry forecasters believe caustic soda prices will continue to decline during the near-term as chlorine output increases. Historically, chlorine prices have been the leading indicator of recovery in the Chloralkali cycle. Unless chemical market conditions improve significantly in the second half of the year, we expect this segment to report a loss of approximately $40 million for the year. Given our near-term expectations for improving the results in construction materials and our revised outlook for chemicals, we expect second quarter earnings in the range of $0.70 to $0.80 per diluted share. Before we begin with your questions and in order to conform to SEC's guidelines for forward-looking statements, let me remind you that certain matters discussed in this release contain forward-looking statements that are subject to risks, assumptions, and uncertainties that could cause actual results to differ materially from those projected. These risks, assumptions, and uncertainties include but are not limited to those associated with general business conditions including the timing or extent of any recovery of the economy, a highly competitive nature of the industries in which the company operates, pricing, weather, and other natural phenomenon, energy costs, cost of hydrocarbon-based raw materials, the timing and the amount of federal, state, and local funding for infrastructure, and other risks, assumptions, and uncertainties entailed from time-to-time in the company's SEC reports including the report on Form 10 K for the year. Now, we would be very happy to respond to your questions.

At this time, I would like to remind everyone, in order to ask a question please press the * 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before asking your question. Please hold for your first question. Your first question comes from [John Lynch] of Lynch Research.

JOHN LYNCH]: Don, I am watching with some interest, the rumbling in the house of representatives trying to save the highway build from cuts proposed by the administration. Do you have any reading on what's going to happen in terms of cuts for next year or what is likely and what we are going to see in the way of a long-term bill?

John, the status in Washington is, we understand is that there is majority of members in the house of representatives and a majority of the member of the senate who are sponsoring the bill to restore the fiscal 2003 level of spending back to the authorized level of $27.7 billion. We are very comfortable at this point that that will occur. I think the real issue is whether there will be enough political support to get above that level for 2003. We have indications from the administration that they will go along with congress on restoring that level back to the authorized $27.7 billion. We are not concerned at this point about fiscal 2003. I think, with respect to the next six-year highway bill following T-21, the industry has focused it's effort on fiscal 2003 and I think it is too early to make a call for the levels in the next six-year highway bill, which will begin a course in fiscal 2004. The data that is out there continues to indicate the need for increased levels of infrastructure spending and that data is really based on the intensity of traffic on the US highway system, the number of vehicle miles driven, the number of vehicles continued to increase substantially, while the number of lane miles available for those vehicles to travel continues to remain relatively flat. Recent surveys of quality of highways on a state by state basis, which has been published, indicate that in a number of our states particularly California, there is a huge need for upgraded infrastructure i.e. the existing highway surfaces continued to decline in quality while the traffic count continues to increase. We think politically, the demand for highways is strong. Highway programs are popular with congressmen and senators. We believe the public demand for highways is strong as indicated by the recent victory in California of the proposition that would require the sales tax on gasoline to be taken from the general fund and put back into the highway fund in California, you know, that passed by a 69% majority and we believe the funding source is in place that is as long as we continue to get the fuel packs committed to highways, we do have a funding source. So, we are very comfortable about the future highway spending, notwithstanding the, I guess, recent short live noise coming out of the budget process that highway funding would be reduced for 2003.

JOHN LYNCH]: Don, certainly that was staggering. In these spaces we are having in some cases some difficulties with their projections of future revenues for matching purposes and the assumptions I have done into were, that they would go ahead and make sure that there was enough money to get matching fund and they might cut back on fund to market roads and things of that nature ... do you see anything like that happening?

John] as you know every state is different. Those that commit their fuel tax to highways tend to have enough money. Those that tend to fund it out of the general fund, are obviously more impacted by the plans and other revenues coming in like corporate income tax, which has been down substantially throughout the country. I agree with you that we do not expect any state to miss federal money because of lack of matching funds, and it may be that in order to do that any reduction would be in funding for non-federally subsidized projects. On balance you are, you know while some states look stronger than others as we go forward in highway funding, you know, we believe for example Illinois, Florida, New Mexico, North Carolina, and Georgia we don't see increases in the state programs. We might see some cut back's in South Carolina, Virginia, Alabama perhaps in terms of the percentage increase compared to the increases in the federal funding level, but overall we are comfortable with the state's spending level for highways as we look forward.

JOHN LYNCH]: Thanks Don.

Your next question comes from the line of Trip Rodgers of UBS Warburg.

Thank you, good morning.

Good morning Trip. How are you?

Good. Congratulations on ... it looks like some of the cost cutting you have been able to do at both CalMat and Tarmac ...

If I haven't found it excited about that, I am not so ...

Yeah, absolutely I think you are very committed to your numbers. Can you talk about that Tarmac and those deluded last year? Do you think it was accretive or not in the first quarter and you know was it at expectation or above expectations at this point?

Tarmac was not accretive in the first quarter. The first quarter is always going to be the deluded particularly if volumes are below. Tarmac is at this point, as I said, we are about $0.90 a ton in that range with year-over-year improvement in our variable operating costs, its about $2.4 million better on the EBIT line than it was a year ago. Tarmac could be neutral to EPS this year. It could be slightly deluded, but it will be ... we will get better and better as the year moves on and we are probably $0.2 a share better in the first quarter than we were last year in that range. We believe we have turned the corner from an operating cost standpoint, which is our plan, and we think Tarmac is going to be a great edition of our company.

Good. Jumping over subjects. You talked about ... with the benefit you have got as far field in the quarter can you quantify that?

Yeah, last year's first quarter average base of fuel priced low about $0.97 a gallon, this year's first quarter it was about $0.64 ... that's a year-over-year change of about $4 million pretax. So, we did have diesel fuel price improvement. If you look at operating costs over across our seven divisions, six of our seven divisions had improvements in operating costs. Some of that of course is coming from the improved diesel fuel pricing, but certainly that's not anything like all of it. The big changes in the operating costs came from the two divisions where the Tarmac operations were located.

And I assume that $0.54 was an average, so you would be paying higher than that today?

That's first quarter.

Right, the current price you are seeing?

I don't know the answer to that right now, I expect it has gone up a few places from that ...

Okay, and just ...

Mark Tomkins has some information on that.

We have forecasted the rest of the year at about $0.85.

Okay, great. And if you can remind me just to what degree you are hedged as far as fuel costs and natural gas?

On natural gas, we are about 80% hedged in the second quarter at about $3.80 and we are about 75% hedged in Q3 and Q4 at about $3.65.

Anything for next year?

Slight about 30% at about $3.60.

Okay. Thanks a lot.

Your next question comes from [Barry Vogel] of [Barry Vogel] & Associates.

BARRY VOGEL]: Good morning gentlemen.

Hi [Barry] how are you?

BARRY VOGEL]: Good, good. First question is CalMat Don, you had told us in yearend conference call that CalMat was about $0.16 a share accretive last year and I was wondering could you give us some idea what incrementally it might be accretive versus last year?

For the full year?

BARRY VOGEL]: Yeah some estimates, some guidance.

CalMat had a huge first quarter, a remarkable first quarter. Volumes in California were up, prices were up, and it had a major impact on our first quarter earnings. I have Mark working vigorously here to try to give you what our projection for accretion dilution in would be in CalMat for the full year of 2002, but certainly we expect the accretion to continue.

BARRY VOGEL]: While he does that can you give us an idea Don if you had any land sales at CalMat in the quarter and what you are projecting as an estimate of land sales proceeds for 2002?

We had no significant land sales in the quarter. If we had any at all they were very small and I don't even think we had any at all. Barry], we expect CalMat will be an additional $0.14 or $0.15 accretive over a year ago. So you know last year it was substantially accretive. It would be much more accretive this year by $0.14 or $0.15.

BARRY VOGEL]: Okay, and ...

We don't believe there will be any EBIT impact on land sales in California in 2002. That projecting land sales is dicey and we really don't have any built into our forecast. By way of summary, we have sold about $164 million of the originally projected $150 million to $170 million at the time we bought CalMat we have now identified about $75 million in additional properties to be sold, which are in various stages, but we don't have anything in our projection for gain or land sale in 2002.

BARRY VOGEL]: Thanks. Could you Don give us a feeling for the climate for further acquisitions by your construction materials business and did you have any acquisitions in the first quarter?

Barry] we did not have any acquisitions in the first quarter. We are, as always, looking at a number of properties and we continue to do that. There are some things in the pipeline, obviously, I can't give you any specifics about what those are or what the sizes are, but we believe there are some value-creating opportunities out there and we are actively working on them.

BARRY VOGEL]: Now, how would you characterize the market? Is it is a buyers market or a sellers market or neutral, right now?

I would call it neutral. I don't think prices are overheated as perhaps they have been in the past, but we are certainly not seeing any bargains and I think as we have said before the only bargain is something we can buy and improve substantially and that's what we look for.

BARRY VOGEL]: Are there any large properties that might be either for sale now or might be for sale in the next 12 months in your opinion?

I think so.

BARRY VOGEL]: Okay. And Mark can you give us some idea of what your current estimate for depreciation and amortization is for the full year and what your capital expenditures might be without any acquisitions?

Sure [Barry]. Depreciation and amortization should be about $275 million as compared to the $278 in 2001, and the difference is that amortization is no longer in 2002. Capital expenditures should come out about $300 million.

BARRY VOGEL]: That is excluding acquisitions?

Excluding acquisitions.

BARRY VOGEL]: You only had about $63 million in D&A in the first quarter, which would be a run rate of 250.

Right, we will have some additional, as we spend more on capital, we will have additional depreciation coming online from that.

BARRY VOGEL]: Thank you very much.

Your next question comes from Jack Kasprzak of BB&T capital markets.

Thanks, good morning.

Good morning Jack.

Don, I was wondering with regard to the residential sector, the home builders continued to post record results, are we seeing any move towards or increased move towards new development that might spur increased aggregates intensivity recently ... is that a potential for upside as we go forward?

We see, you know, we see a strong housing market as you do. We don't believe there's going to be any jump start in subdivision development, but obviously subdivision development has got to move along with the housing starts and so as housing starts go, we see certainly increased infrastructure installation in, but I don't see any big jump in that. I would expect just steady, you know, basically it's going to track housing starts.

Housing has been surprising part for everyone. Have you noticed at least with regards to aggregate usage, a bit of a slowdown in the past 12 months or so because there has been less development or is that not something necessary that you guys have observed?

I don't think we have seen any significant change, up or down in the infrastructure that is streets and utilities for housing subdivisions. I think that's been surprisingly strong, but we haven't seen and we do not expect to see I guess, a sudden surge as, you know, we have sometimes seen in the past, sudden surge in subdivision development. I don't know that we have good statistics on remaining available lots, which are really the statistics we need to look at to see whether there is shrinkage in buildable lots, or if we start seeing that then I think we can expect some upgrade in the infrastructure spending, but I don't have that statistics right now.

Okay, fair enough. I was also wondering, what would you consider your maintenance level of capex to be, if you had to lower it, sort of, bare bones minimum for a couple of year two or three?

Jack, in total its probably about $180 million including the chemical business.

Okay.

And that's really more than the maintenance that, you know, plant rebuilds and so forth that need to take place.

You know we can take it down lower than that if we needed to for some period of time. We are in much better shape today than we have been in a very long time in terms of our ability to cut back on capital spending. Our mobile fleets are in better shape than it has been in a long time and our plant equipment in the construction materials group is in better shape than it has been in a long time and, so we have a lot of flexibility there. You know one of the problems with bouncing your capital spending around from year-to-year is that, it's not a great way to do things from an operating standpoint. We have five-year capital plans and so we try to manage our capital not on a short-term basis necessarily, but on a long-term basis, but we clearly have the ability to do it on a short-term basis.

Okay. Thanks and congratulations on another nice quarter.

Thank you.

Your next question comes from Stephen Kim of Salomon Smith Barney.

Hi, [Ken] how are you?

KEN BOSCH]: Very good sir.

KEN BOSCH]: I have two questions, the first relates to your operating cost improvements, which you indicated was $0.90 year-over-year. Could you give us a feel for what that may look like in Tarmac and CalMat specifically?

The $0.90 is in Tarmac ...

KEN BOSCH]: All in tarmac?

Yeah, if we cut our costs in our total variable production cost in all of our divisions by $0.90, so we would have had a substantially better quarter and I say that would put a smile on our face. The big improvement was in Tarmac. As I said, we did achieve cost improvement in six of our seven construction materials divisions. We did it. We did improve in the CalMat operations, but it was nothing like as substantial as we have achieved in the Tarmac operation.

KEN BOSCH]: Okay and ...

But we are continuing ... in the Tarmac location we have really got a lot of opportunities going forward for additional cost improvement. It is slower in California because of the permitting requirement. It takes a very long time to get the permits necessary to make the plant changes, to take costs out, and that process is just slower and is frustrating as it for us. We just have to live with the regulatory regime that exists in California. We can get these changes a lot faster in most of our other markets.

KEN BOSCH]: Okay, thank you and as a follow up, can you give us a little more color on the impact of weather on your operations? I understand you had some wet weather in some locations?

You know, we had a balance average weather in the first quarter. We had very good weather in many markets in January and February. Throughout the second half of March, as I said in the Midwest and North Carolina, and Virginia we had a lot of weather, which certainly impacted our shipments there, I wouldn't say this was a weather quarter, one way or the other.

_____]: I guess, Don, this is [_____] I guess. One thing that I was sort of thinking about was the fact that in many regions of the country you had exceptionally mild winter weather, and I thought perhaps that might have given you an opportunity to jump start the year a little earlier, and I was kind of curious ...

Well, I think in California, for example Southern California, we had a very dry first quarter, which obviously helps a great deal in construction. But as you look at the total quarter and the total geographic footprint we are in, I don't, this just is not in the weather quarter, we did, I guess the reason that we did have to mention, is that the only significantly bad weather we got hit us in March which is the month that, you know, makes the first quarter. So you can have rotten weather in January and February and great weather in March and you know it really makes a huge difference. So I would not again ... I would not say that weather impacted our quarter either positively or negatively on balance. We did get a good start. One reason, our Calmat operation was so strong in the first quarter, had to do with good weather. I think that's clear, but then in our Midwest and what we call our Mideast division, which is the lower Atlantic states, you know, we lost a couple for pre-weeks which are really good ... normally good construction activity because of rain. So, we even met snow in Chicago, during that time period.

KEN BOSCH]: Okay, thank you very much.

Your next question comes from the line of [Armando Lopez] of Morgan Stanley.

ARMANDO LOPEZ]: Hi, good morning.

Good morning [Armando].

ARMANDO LOPEZ]: A quick question in terms of the full year guidance, it sounds like you are keeping full year guidance the same and in construction materials it sounds like you are going up about $10 million in the range, while chemicals could be down substantially from what the initial thoughts were. Am I reading that right?

Yeah, that's correct. We now believe construction materials will be stronger than we earlier projected. That is based largely on cost improvement. Certainly, our volume projections remained unchanged i.e. about 1% to 2%. Our volume projections remained unchanged, about 2% to 3% ... price improvement. So, the issue is improving costs. Chemicals, you know, the big upside for us as we look out toward the end of 2002, perhaps more likely in 2003, is in our chemical segment, but right now as we have said in our earlier comments, chlorine pricing is improving. When chlorine prices improve, chlorine output goes up and caustic soda output goes up and caustic soda price are impacted negatively, you know, in most Chloralkali cycles, chlorines leads by about six months before caustic demands start picking up, and so we see what we hope is a classic Chloralkali cycle, but whether we enjoy the benefit of that in the second half of the year, whether that is pushed out of 2003 is hard to change. We have also had as a result of the stronger construction materials earnings and weaker chemicals earning, we have a projected slight improvement in our tax rate. As you know, we get more depletion benefit as construction materials earnings increase and chemicals decrease and so our tax rate we now project will be in the 30.1% range for the full year and that has a positive impact as well.

ARMANDO LOPEZ]: Okay, and then one other quick question. In terms of the construction material segment, it sounds like commercial construction was weak in the quarter. I guess what ... could you just comment a little bit on may be where you saw some weakness and what you are expecting, I guess, what you are looking forward to see for an improvement here?

Armando], what we said in our comments was that, for the full year we expect commercial construction to be down 4% to 5% from last year. I think that's largely based on a macro economic view. It is not based on what we are seeing in our operating divisions in the first quarter. So, I noted some, I guess in your write up, you were saying that commercial construction was down in the first quarter about 17% or 19%, I don't remember the precise number, we really haven't seen that kind of drop off. So we are still, you know, we are comfortable for the full year ... about a 4% to 5% drop is where we are. We will continue to monitor that, but I think you have to perhaps adjust those national numbers for Vulcan's footprint and we are in markets where there is probably a little more demand for commercial construction maybe then than the nation as a whole.

ARMANDO LOPEZ]: Okay, all right.

Your next question comes from the line of David Weaver of Legg Mason.

Good morning. Could you discuss the new highway contract towards in the market that you serve in terms of first quarter and maybe any states where you have seen exceptional strength or weakness?

David, I don't have that data in front of me right now. So I really can't comment on that. We have, what I can give you, and this is not in response to your question, but it certainly gives you some indication. In the first quarter our shipments were in California. California was up about 13%, Texas was up about 13%, and our Gulf Coast markets were up about 8%. Flip side of that our North Carolina was down about 12%, Pennsylvania and Kentucky down about 11%, Northern Illinois was down almost 18%, but that's really weather because any shipments in the first quarter in the Northern Illinois are going to be in March, late March and that's when the bad weather hit there. Georgia's shipments were down about 10% to 11%. So it's, you know, it is very spotty around the country, and I expect there is some weather here for the first quarter. I expect there is some highway activity, as you know Georgia is behind on it's highway work because of the environmental litigation that has now been resolved and so we expect some improvement in Georgia going forward in highway work, but that is some sense as to how market wary, but you shouldn't put any great significance on this because it is the first quarter and so much of this is weather related as a variation from market to market.

Okay, could you also comment on your chemical segment ... you had a re-organization late last year, could you comment on what you have seen as a result of that and how that is progressing?

David, it has certainly given us the focus on the places that we think we can make money and create value; you know it is. There is not, as a result of the changes that we made last year, not going to be any dramatic change in our chemical results. It will come with focus in overtime but we are, you know, we do expect to make progress in that area. A lot of that is market-driven. We are doing what we can do internally, which is costs and focus, but we really have to wait on the industrial sector of the markets to recover before we are going to see a serious recovery in our chemicals earnings.

Okay. Thank you very much.

At this time, I would like to remind everyone, in order to ask a question, please press *1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before asking your question. One moment for your question. Your question comes from Jonathan Norman of Hillard Lines.

Good morning gentlemen. Again, thank you for your good report. I have been following Vulcan since 1964. That is 38 years and it has been my impression that for at least about 80% of the time, the chemical division is a drag on the rest of the company. It does not live up to expectations...maybe it has a little less control over it's own destiny than the construction material business, but I just wonder in the long run, what sort of assumptions you have about what can be generated in the way of return on investment and the important goals for the chemical division, and is there a way that it could be rationalized in the role it should be, which perhaps someday be no more chemicals in Vulcan's operations. Would you give that a little response, please?

Jonathan, one of the key strategic issues for Vulcan over the last few years and certainly as we move forward is the relationship of chemicals and construction materials and that is, does it make sense to have these two businesses in the same organization or would our shareholders be better of if they were separated. The issue of whether they should be separated and how they should be separated and when they should be separated if they should be, continues to get a great deal of attention from our organization, our corporate office, as well as our chemicals group. Historically, that the chemicals business has earned above cost of capital returns over the chemical cycle. Obviously, the fault of this cycle has been long and we are not earning cost of capital returns and have not for the last couple of years. We continue to look at the strategic alternatives for the business. We will certainly keep the investor community updated if we intend to make a strategic move there, and as I have said, we continue to focus on that and our real objective is shareholder value and that will drive the decision. Vulcan has in the past exited oil and gas. We have exited metals because those businesses were not and from my projection standpoint, we did not expect them to ever achieve cost of capital returns. We are a financially focussed and driven company and that is really the test for us. We will continue to evaluate our alternatives and look at that issue. You have raised a very good issue, which as I have indicated is of strategic importance to our company.

When do think that perhaps that the current environment will lead towards the possible aggressive consolidation within the industry and there will be some survivors and some non-survivors and if it would be give a opportunity to you to perhaps bail out at a decent price.

Jon. There is a situation that the vast majority of the specialty chemical companies in the US that focus on pulp, paper, and water treatment have all been bought in recent times, I mean the vast majority of those. There is a lot that has gone already. Both Malco and the Bets Bearburn piece of Hercules have changed hands recently some more than once, and there are certainly a lot of activity that is occurring in the specialty side of pulp and paper and water treatment ... less activity certainly on Chloralkali side. I think as we look forward, we certainly expect strongly improving earnings in our chemical segment and our view, I think, is that the value of that business is probably greatest when it is coming out of the downturn and the visibility of the strong future earnings growth is there and I do not think we are very far from that point in this business. It may be in the beginning of 2003 and we will continue to look for the best strategic option for our shareholders.

All right. Thank you.

Your next question comes from the line of Jack Kelly of Goldman Sachs.

Good morning, Don. Just a couple of questions. In terms of the minority interest line, there was a pretty positive swing there, year on year. Maybe, Mark could give us some color there. Secondly with regard to caustic soda, which you referred to, can you give us a sense of where we are on a per ton basis selling price, let us say first quarter over first quarter and what might be a good estimate to be using, let us say 2002 over 2001?

Jack, as I mentioned, on the minority interest line that is basically the Matsui joint venture. The physical plant operations ramped up and got to full operating rates in 2001. The commercial side of that joint venture did not get to full implementation until the beginning of 2002. That was per the plan ... per the joint venture agreement. So year over year, the joint venture results improved from a $10 million loss in the first quarter to a $3 million profit in the first quarter of 2002. As a result, that is of course a $13 million swing. Our portion of that is roughly 7 million Matsui portion is a shade under that. So I guess you see the minority elimination going up to Matsui, which is with a couple of percentage points difference, the same amount coming back to us in our chemical segment earnings. The Chloralkali joint venture is performing as projected. One of the reasons we did that strategically was that it gave us an opportunity to reduce the cyclicality of chemical's earnings. So in a downturn, the joint venture will earn good money as it is doing now on plan. At the top of the caustic cycle, it won't earn as much if we owned it 100%, but it does what we want it to do and it is performing according to plan and that is the reason the minority interest line has changed. With respect to caustic soda pricing, caustic soda prices are down first quarter 2001 to first quarter 2002 by something over $100 a tonne, probably 100-110 a tonne, and that obviously, a number ... a rule of thumb is that for every $10 dollars that is about $6 million of pretax for us. So you are talking about that change being $60 million of pretax. Yet, the industry number or the costing in the first quarter was about $145. If you are looking for a full year number for 2002, if I can pick this up off hand ... I have it per quarter, $120. That is going to be affected dramatically by upturn in industrial output, and when we start seeing an increase in industrial demand, pulp and paper, aluminium or caustic, that would certainly firm up the pricing. We have also got to wait the period for chlorine to run its cycle and operating rates to move up to a higher rate than they are now which will be driven by chlorine demand, but once we start getting back into the operating rates of 90+%, then we will start seeing caustic moving. So, that is sort of our analysis of the prospects of caustic soda.

Good thanks Don.

Your next question comes from the line of [Peter Suite] of City Group Asset Management.

PETER SUITE]: My question is what was your full comps for ECU prices, I guess, the finished prices ...

Okay, ECU values on an industry basis in the first quarter were about $194 a ton. That is down from $374 in last years first quarter. Fourth quarter 2002 projection is about 273 and that breaks out in about 125 for caustic and 135 for chlorine.

PETER SUITE]: You mentioned the Honeywell plants starting up in 3Q this year, do you have any in your numbers related to projected loss this year of 40 million ... do you have a forecast for startup contribution or startup losses for this plant?

It is relatively small. As I indicated in my comments, the plant was finished ahead of schedule. The initial operations have been very good. We have had very few problems. We have made inspect product that is now available for delivery. We will continue to do some startup exercises with the plant; commercial deliveries to Honeywell should begin in Q3. Relatively low volume perhaps for full year 2002 and then ramping up nicely in 2003 and probably 2004 ... full production hopefully by the end of 2003 and moving into 2004. But for this year, any EBIT impact will be negative.

PETER SUITE]: Thank you.

Time has expired for questions. Do you have any closing remarks?

We certainly appreciate your interest in Vulcan. Let me reiterate that we are very, very pleased with the first quarter. Even though volumes were down about 3% as I have indicated, we don't think that really is indicative of anything in the first quarter other than it was the first quarter. The key to the first quarter for us is operating cost improvement particularly in the Tarmac locations. We believe those will be continuing and we will see substantially construction materials earnings for the year as we have given you in our projection. Chemicals, in summary, was impacted by the continuing weakness in the US industrial sector and as that industry sector demand improves, we are hopeful that our chemicals results will improve later in the year and certainly going into 2003. We look forward to talking to you at the end of the second quarter and we appreciate your interest in Vulcan. Good day.

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