渥肯建材 (VMC) 2002 Q2 法說會逐字稿

Good morning, My name is Adrian and I will be your call facilitator today. At this time, I would like to welcome everyone to the Vulcan Materials second quarter conference call. All lines have been placed on mute to prevent any background noise. After Mr. James' remarks there will be a question and answer period. If you would like to ask a question during this time simply press the star 1 on the telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to your host for today's conference call Mr. Don James. Sir, you may begin your conference.

Good morning, we thank you for joining our conference call to discuss Vulcan second quarter results. I am Don James, the Chairman and Chief Executive Officer of Vulcan. With me today are Mark Tomkins, our Senior Vice President and Chief Financial Officer, Brad Rosenwald, President of our Chloralkali Business Unit, and John Holland, President of our Performance Chemicals Business Unit.

As I make a few brief comments, we would certainly like to spend most of our time today responding to your questions. We hope this dialogue will be helpful to you and others who are listening to this call through our web broadcast. I will begin by summarizing the results of our earnings release, which we issued late yesterday. Net earnings for the second quarter amounted to 65 million dollars or 64 cents per share compared to 80 million or 78 cents per share last year. On segment earnings for construction materials of a 130 million approximated last year, chemicals posted a loss of 25 million as compared to earnings of 3 million a year ago. For the quarter, the company's net sales were 681 million dollars about 10 percent below the same period last year.

Faced with difficult economic conditions in the second quarter particularly in our chemicals segment, we continue to focus on implementing operating improvements that position our businesses for and improvingly. In construction materials, we realized pricing and cost improvements in our aggregate business despite softer volume. During the quarter, our chemical segment results were negatively impacted by significantly lower prices for chloralkali products and our decision to accelerate our planned maintenance adages that our chemical plants into the second quarter when demand was softer. We had implemented price increases for major chloralkali products, which had begun to take effect, the first of this month i.e. July 1. The year net earnings of 57 million or 55 cents per share reflect a pre-tax goodwill write down of 30 million or 20 cents per share aftertax as prescribed by the new accounting standard SFAS 142.

This non-cash writedown has been recorded as the cumulative effect of an accounting change and represents the full impairment of Performance Chemicals goodwill. No impairment is necessary in any of our construction materials goodwill or in the Chloralkali business unit where we have very little goodwill on our bills. Under SFAS 142 the goodwill writedown is not considered a second quarter event and reflects only if it is year-to-date results. Excluding the effects of this writedown year-to-date, earnings were 77 million dollars or 75 cents per share as compared 85 million or 83 cents per share in the same period in the prior year. We continue our strong focus on operating our business to optimize cash flows. For the first six months of 2002 the company has generated operating cash flow over 167 million dollars and free cash flow of 33 million. Both amounts are well ahead of last year's pace when the company generated free cash flow of 223 million for the full year. As of June, total debt has been reduced by 22 million from the beginning of the year and a 192 million over the past 12 months. In construction materials net sales for the second quarter was 546 million, a decrease of 7 percent of 190 million reported a year earlier. Excluding the impact of freight to remote sales yards, aggregate pricing increased about 3.5 percent. This increase partially offset the 7 percent decline in aggregate volume attributable to little lower private nonresidential construction and the highway spending in the quarter.

Residential and public works construction remain solid. As in previous periods aggregate demand varied by market, during the quarter we realized volumes increases in South Carolina, Texas and along our Gold coast market. However, we experienced weaker demand across our other markets. Second quarter earnings for the construction materials segment of a 130 million as I said approximated to 131 million reported last year. Pricing and substantial cost improvements and aggregates and the elimination of goodwill amortization in 2002 largely offset the volume short fall.

For the year construction materials earnings were 174 million as compared to 155 million during the first six months of 2001. Exculding the positive impact of the elimination of the good will amortization, construction materials year-to-date earnings were higher by 7 million dollars despite lower volumes in the period. This net increase in earnings resulted from pricing and cost improvements that we have achieved in our aggreggate operations through the past 6 month's of the year or for the first, for the second quarter. In particular we continue to be pleased with the execution of our cost improvement strategy, at the former Tarmac operations. For the quarter we reduced variable production costs by more than 70 cents per ton and for the first half of 2002 variable production costs at these Tarmac facilities were 81 cents per ton less than last year, in that remarkable progress. Excluding the impact, goodwill amortization EBIT margin is a 160 basis points higher than the same period last year. Obviously if we included the impact of the change in goodwill amortization the EBIT margin will be much higher than the 160 basis points. During the second quarter we acquired 2 quarry of sales yards and ready-mix concrete plants formally owned by US aggregates. These assets have been integerated into our operations and we expect this acquisition to be sightly acreity to earnings for the year.

Turning to chemicals this segment reported a second quarter sales of a 135 million compared to 171 million in the second quarter of 2001. The lower sales were primarily attributable to lower year-over-year pricing for caustic soda. In comparision with the second quarter of 2001, industry pricing for caustic soda fell more than 200 dollars per ton as the most of you know we sell all of our caustic soda in the merchant market. As a result the sharp reduction in pricing had a significant impact on the segment sales. For the quarter the segment lost nearly 25 million compared to earnings to 3 million last year. These results do not include the effects of the previously mentioned performance chemicals, gooldwill. Earnings were negatively impacted by the lower caustic soda prices and our decision to accelerate our planned maintenance adages end of the second quarter. The acceleration of these maintenance adages should result in higher production and sales volumes and in lower cost in the second half of the year as we operate our plants at higher rates. As we recently announced construction of our 240 F8 plant is complete and the facility is operational. This plant manufactures a new non in mixed feedstock developed by our chemicals R&D group. The end product of this feedstock is used primarily in foam bowling applications and we are selling our product currently under a long term contract to Honeywell. We maintain our earlier earnings guidance for the year of two dollars and 20 cents to two dollars and 40 cents per share excluding the effect of the goodwill write-down related to Performance Chemicals. We expect third quarter earnings in the range of 80 to 90 cents per share. In our chemical segment, there are indications that the Chloralkali industry may have passed through the sickle in demand and pricing. As a result, chemicals should have a much stronger second half and is expected to report a full year loss of 40 to 45 million. For construction materials softness and aggregate shipments reflect recent highway construction put-in-place data from the commerce department showing noticeably weaker highway spending in the second quarter of 2002 compared to 2001.

Our outlook assumes that the recently reported increases in highway contract awards on a year-over-year basis will lead to an increase in highway spending later in the year. In the second half of 2002, we expect continuing improvements in aggregate cost and pricing to more than offset the impact of slightly lower aggregate volumes. Accordingly, for the year, this segment is expected to achieve earnings in the range of 425 to 445 million. In closing, Vulcan has a longstanding culture of prudent and ethical financial and business practices. As we review the corporate reformed proposals of the New York stock exchange and other groups, it becomes clear that the vast majority of these corporate governance proposals had been in place at Vulcan for a number of years. Our conservative management philosophy and culture has served this company and its shareholders well over many years and as a management team, we are committed to preserving this culture as we go forward. We have established and maintain a sound system of internal accounting controls over the company's assets and financial system. As evidenced by the stock of financial filings, we have routinely provided an abundance of financial and other information to our investors and our continuing efforts to make our businesses as transparent as possible. We have a longstanding business conduct policy in place and routinely monitor officer, director, and employee compliance with the provisions of this policy. We have strengthened the company through disciplined growth and a commitment operational excellence especially in the areas of continuous cost improvement. We will continue to operate our businesses with the highest level of integrity. Before we begin with your questions and in order to confirm to the ACC guidelines for forward looking statements. Let me remind you that certain matters discussed in this release contains forward-looking statements that are subject to risk assumptions and uncertainties that could 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 and the extent of any recovery of the economy , the timing and amount of the federal state local funding for infrastructure, with press demand for the company's chemical products be highly competitive nature of the industries in which the company operates. Pricing whether in other national phenomenon, energy costs, cost of hydro-carbon based raw materials and other task assumptions and uncertainties change from time to time in the company's SEC reports including a report on Form 10-K for the year. Now, we would be happy to respond to your questions . We'll receive them now.

At this time, I would like to remind everyone, in order to ask a question, please press the star 1 on your telephone key pad . If you are using a speaker phone, please pick the handset before asking your question. One moment for the first question. Your first question comes from the line of Jack Kasprzak of BB&T Capital Markets

Good Morning everyone

Good Morning Jack

Don, you in your clarification , in your prepared remarks , you mentioned a couple of markets that were strong in aggregates or at least up year-over-year of Texus, the gold coast area and were those the only ones?

South Carolina

And South Carolina

Yes.

How was activity in California in the quarter?

It was weaker than prior year in all product lines and aggregates , as far generating it.

Anything that you could attribute that to in particular or was it public-works related ?

Probably more private non-residential . We had a really strong quarter in California a year ago. So, we had a tough comparison.

Okay.

But there is nothing there that is a typical of any of our other markets that you will see.

Okay. And I wonder...

Obviously the one exception to that is obviously in the bay area , that impact of non-residential construction is as about as profound as it is anywhere in the country because for the whole San Jose, San Francisco office building that's really the not, but that's really not the major portion of our business in California as you know. We are much more heavily up focused in LA and San Diego.

In the third quarter in construction materials, I wondered if you would or could give some EBIT guidance for that segment?

We haven't broken it up as segment for the third quarter, as we have indicated, we think our EPS will be in the range of 80 to 90. We expect chemicals to be substantially improved, but we haven't broken our guidance up by segment by quarter.

Okay fair enough and lastly, in the press release you do say your position in the business for an improving economy is that an improving economy hopefully one day or is there any indication that it is improving yet anywhere?

Well, it differs Jack from segment to segment, certainly in chemicals we think the improvement in the and pricing for our chemical products is improving as we speak. We have announced cost price increases for both caustic soda and chlorine. Those are sticking and we although, since we sell most of our product by contract it takes time for the full affect of that to roll through, but we are looking for significant recovery in industrial sector as it relates to demand for chemical products in the second half with respect to construction materials we had a, and I know you saying the, in fact you are thank you have written an article or report on the commerce data and I guess the private data on contract awards and we and you have both seen a sharp, sharp decline in highway construction put in place in the second quarter, one that is sort of remarkable and we don't believe indicative of the rest of the year. It just happens to be a tough quarter at least in our markets and it appears nation wide based on the commerce data. As we look at the highway awards, they are up year-over-year probably 10 to 12 percent generally in our markets so we believe that there is a fair amount of highway that will be done during the second half of the year. We also note with some pleasure that our customer's backlogs are pretty good and certainly we are to benefit from that, but the economy as it relates to construction material was remarkably solved in the second quarter much softer than we anticipated. And as we look at the Macroeconomics data we now understand and we believe that saying macro economic data is indicative of stronger results in the second half compared to the second quarter.

Did those pay backs backlog is trending up again, hopefully that goes well.

I think you noted that their backlog is the highest they have had in the history.

Thanks a lot.

Your next question comes from the line of Robert Marshall of Wachovai Securities.

Yeah, I have just got a quick question on the chemicals unit. The price sides still being supported primarily by supply concerns or are you actually starting see some in customer problem with this point.

Well about things the probably at this point there is more support from the supply sides. In that there is a lot of capacity that has gone out permanantly and there is more large chance of capacity that are going to go out later this year. Based on announcements from some of the other chloralkali producers. So that is certainly been a significant factor in the firming up of prices as the you know, the economic data is indicating a firming up in the industrial sector and unless we believe the economic data is wrong we think industrial demand for our products will improve as we go into the second half. Whether we are seeing I think at first stage we are not seeing huge increases in demand for our products today but in chlorine for example there is a very strong market demand that is supporting the 125 dollar turn price increase that we have put in. So generally as you look at the chloralkali cycles you see the first product which has a strong demand pool being chlorine then the other demand for being chlorine and then the other chloralkali products generally fall of that so we are at a point now which looks like a classic for alkali demand recovery. Obviously we are being cautiously optimistic about the impact of that on our chemicals earnings but that is the way the macro of that appears to us at this point.

Okay. Second question, how big a problem are the range down at taxes in early July for you?

Well they were a big problem. We have two quarries that are still flooded. We think in terms of demand, we will recover lost shipments before the quarter is over. There obviously are some cost impacts to be out of production and pumping quarries but you know we do not think it will have any significanct effect on our earnings earnings in the third quarter. We are shifting out of our stock piles in the quarries of where we are unable to produce today to keep our customers supplied and we did not expect to lose shipments.

Okay.

way over the quarter though we did get you know just we got the 500 year reign in South Texas in July.

Okay thank you very much.

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

Good morning. If you were building on what Jack was talking about earlier in California and spending there. Could you give us any indication on what you are seeing in terms of contract awards, I know California has had pretty rough go that would packed collections and may be under a little more pressure than some other areas. Do you see that flow through in the awards side of the business?

Well, actually I am looking at the, at the award data in the 12 months ended June 30th of this year compared to the 12 months ended June 30th last year. That is a 12 month, you know you cannot look at contracts on a month to month or even quarter to quarter basis because they do not all flow out at the same rate but if we look at contract awards through the last 12 months compared to the prior 12 months in California the combination of contracts award funded by state and Federal together are up 24 percent and that is pretty strong. If you look at where the money is coming from, based on the data we have, you see at that, that the federal outlays in California in this contract awards over the past 12 months it's a 35 percent increase in the state funding in these contracts is a negative 11 percent with net 24 percent increase. So I think we are seeing, we are seeing that the, perhaps the backlog of federally funded projects sitting in California are beginning to rollout in the contract awards even though the state may not be putting as much money into, in the infrastructure projects as they did a year ago. Does that make any sense the way I explained it ?

Yes that was, that was just what I was looking for.

Okay, so we, you know California contracts awards are, are really in very good shape, not withstanding the financial difficulties the state is experiencing and I think this would indicate to me that there would be some catch up on the backlog of federally financed projects that has been held up for environmental permitting reasons and difficulties with getting engineering work done in California. So we are very, we are very comfortable with our, with how our work in California is going forward.

Okay, on residential marketing no material goods for the actual development process. Talking to a lot of builders they, they slowed down the development process quite a bit last year, I guess mid 2001 but talking about having increased debt significantly recently. Are you seen that flow through to your business.

Yes, we, you know, it is. We cannot track precisely the, in the market for all of our products, although, we tried to do that as carefully as we can on a sort of a truckload, by truckload basis. But, we think that the residential demand, which includes, as you pointed out, the majority that being site development, streets and utilities and that sort of thing. We think that the demand is remarkably strong in that area. Obviously, interest rates, I guess we are, I guess are solved in the last day or two, the interest rates remain at a 30 or 35 year low and fortunately, that segment of our demand seems to be doing well.

One more thing, could you give me your pricing assumptions for phosphate and chlorine for the rest of the year and that is all I have? Thanks.

As I said dated, we have announced a 50-dollar of turn price increase essentially affected July 1. The full impact of that should be in place by the end of the year. Probably a good way to think about that all and this is a generalization, but probably about a 10-dollar per turn price increase per month as we go forward, jumping along those lines as it rolls through our contracts. Hopefully, there will be an opportunity later in the year to review caustic pricing again if we get some demand pull and there might be opportunities to continue to get price improvements in caustic soda. But, we will watch the market very carefully.

Right thank you.

Certainly that the chlorine price increase is essentially all in. It is in effect as of July 1.

Right. Thank you very much.

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

Thanks very much. I lost my question, and answers. But if I could followup a little bit on this question. You indicated that that you got recently the demand for unused demand for your products from the home builders strong, but, I guess, in particular, did you see weakness in the back half of last year and the very begining of this year, and, are we are seeing a recovery there or has it been strong consistently?

As I held in Stephen, has been stronger consistently than we project, you know, we have been very pleased with that, as I indicated it is hard for us to track precisely, you know where our material goes, but based on, you know, based on our best analysis that single family and the infrastructure related to single family is not necessarily in a recovery phase, its been strong throughout the period you ask.

Okay great and then the second question I had related to Tarmac you had given us some us data, Is it 70 cents in the second quarter,

Fine.

Variable costs down, first half 80 cents I guess,

81, 81

81 cents okay. Follow-up questions there are, number one, what is your outlook you know for what is back half of the year and if you can be a little more granular on sort of where you are getting those variable cost improvements?

The cost improvements are coming from a broad range of changes. In some cases they are plant improvements not necessarily plant major capital projects, but just plant flow improvements, in other cases they relate to efficiency of work force measured by tons per man hour. There is a whole host of small changes which come together to result in these improvements. We certainly expect to continue to make cost improvements at Tarmac. We will not see, I think it is unreasonable to expect we will see cost improvements of the kind of magnitude we have had in the first quarter, if we could continue to make up improvements like that we would soon be producing at zero cost.

All right.

We are, you know the big chunk is, has probably occurred. We will likely see continuous improvement in the Tarmac plants over the next year or two at a minimum, but it won't be of the magnitude we have seen in the first 6 months. The first half of your question was what?

I think you have already answered that was sort of were are the efficiencies coming from?

Okay.

At this point, Tarmac how would you say the margins of Tarmac currently if you could maintain the variable cost that you have seen thus far, and don't assume significant more in the future. What kind of a differential do you think you have between the overall margin of the company versus the margin of Tarmac?

Let me start by saying ultimately we don't think we will have any margin differential between the Tarmac operations, the 11 Tarmac operations in our legacy operations, we are not there today, but we will get there largely through cost continuous cost reduction and I would expect hopefully within 2 years that the margins at the 11 Tarmac operation will be right on, what we are doing in our legacy operations but as I said we are not there yet but we are closing it quickly.

Okay great and lastly can you talk about fuel cost, what do you think you saw in terms of fuel cost changes on a per ton basis?

Our average diesel fuel cost in the second quarter was about 70 cents a gallon compared to year ago quarter it was about 97 cents a gallon. So, significant improvement in the range of probably 3.5, 4 million dollars pretax.

And what was it in the beginning of the year?

First quarter this year we were at about 97 cents, I m sorry 64 cents; so we are up a little second quarter over first up about 6 cents a gallon.

Okay, thank you very much.

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

Hi Don

Hi Trip, how are you?

Good, looks like you know, so hectic in the pricing games, volumes decline is pretty large at 7 percent, is it possible that you could be loosing market share in consumer market place as you try to maintain the strong pricing?

Well that's a question we ask ourselves every month and every quarter and every year and we look very hard at our markets as you know our strategy is to stop price leaders in our markets to try to serve the premium end of the customer based to align our sales with the best and most efficient customers and sometimes you give up volume that has low margin but we don't think we have lost any market share in our markets. We reviewed that carefully last week with all of our division Presidents. You know, that's not our intention to lose market share, so we don't, we are not concerned at this we are concerned about it, we don't believe that's a factor. We will continue to monitor that. Certainly we want to be, we want to provide value to our customers in a way that makes them very competitive with their competitors and there are lot of different aspects of that prices, certainly one of them, but quality, service, delivery, reliability, location all of those things plays huge factors and we are watching that very carefully.

To follow up from Steve's question on Tarmac accounts, can you tell about what is the contribution on EBIT line was year-over-year, I mean what benefit you got year-over-year?

Yeah, I can, I think year-to-date our EBIT was up, is up about a million dollars in Tarmac's operations. I am sorry, it was about, okay about three million dollars. I am sorry, I m looking at the wrong line here. Yes, second quarter was up about million eight over last year and then so year-to-date it is up to about 2.8 or 3 million. So, we are, you know, the cost improvements at Tarmac are certainly flowing towards to the bottom line.

Last quarter you said you expect that to be kind of to be modestly accredited for the year. Is that looking pretty conservative at this time?

We are getting better than anticipated cost improvements, volume will be the determining factor and at this point it is going to be, you know, probably close to being neutral. It may be slightly accretive, it may be slightly dilutive, but it is going to be close and that's all going to tied to what volume do in the second half.

You mentioned?

That's of course after interest charge uses for the full investment including all other subsequent investment we put in it.

Right. You mentioned that some of your work is not yet reaching the strongest talk about where you are seeing the weakest performance or weakest demand?

Weakest demand in the second quarter by area, probably in the portions of the mid west along the river systems, Arizona, New Mexico, those tended to be the weaker markets in the quarter.

Okay. I guess probably one more question. Can you tell me how much your plant maintainance outage on the chemical side cost you in the quarter?

Probably a good estimate might be five to six million. We had, there are several pieces to that, you know, we had a maintenance outage, you know, a large maintenance outage scheduled for the third quarter. We decided to go ahead and do the work in the second quarter and that has two impacts. It has a spending impact because you are spending the money earlier and it also has a production impact and so all of your cost absorption plus your production and all that is reduced. So, you get a compound effect on the negative side in the second quarter. On the flip side you get a compound effect on the positive side. Also, on our joint venture plan, that plan finished. It's basically its first full year of operation in the second quarter and as of the process of bringing that plant up and operating it, we took an extended outage in the second quarter of the EDC reactor in order to understand and evaluate how it had performed and that is probably, that was scheduled at the time of the original plant start up and we are hopeful that, that would not be an annual event. That is just an inspection as part of the basic start up of the process. So, we had both of those events in the second quarter and depending upon what you add, what all you add, probably we shifted 5 or 6 million of combination cost and lost revenue from the third quarter to the second.

Great. Thanks a lot.

The next question comes from the line of of Berry & Associates

Good morning gentlemen.

Hi Barry. How are you?

Good. I have a question for Mark. Can you give us your estimate today of actual capital expenditures for 2002? The depreciation and the amortization that you expect for 2002. Your estimate of proceeds from CalMat land sales in 2002 and your rough estimate of dollar spent on acquisition in 2002. That's my first question.

Barry, the...

Let me say before Mark answers that I can actually answer those questions. ( I just want you know about, but I am not answering.

DB&A should be about 265 million per year, capital spending probably going to be in the 275 in the 300 range, probably closer to 275. As to the land sales associated with Kelmac, year-to-date were about 165 million, we have got another 70 million or so to go and it's really difficult to estimate what that numbers going to be. We are on negotiations on several pieces of property but I do not want to throw out a number because as you know whether there is those closed this year or next year is subject to a lot of negotitations. On the acquisition side, through the first 6 months we spent about 25 million dollars and I would hesitate to give you an estimate on the second half because while as usual we are looking at different opportunities. Again that is all subject to what's avaiable and how things pan out.

you did say down according to your comments, 22 million in debt in the first half of the year. Do you expect to continue paying down debt this year if you have excess cash iteration in the second half?

We should be on a net debt-to-cap basis. We should be at about between 34 and 35 percent. As you know, we have got a lot of our debt tied up in long term obligations at a very favourable interest rate 6.3 percent. We are completely at this moment out of the commercial paper market and sitting in a cash positive position so, there is not a lot of debt that we are going to take out between now and year end, even with the cash generation.

And is that 22 million dollars might be it for the year?

There are few things we can still do on from smaller obligations but it will not be a significant number.

But in terms of net debt if you take into account cash will be lower.

Yeah 34-35 percent.

Will be back to our target to our target by the end of the year.

I have a question to Don. What's the prices in the industry on average in the second quarter and falling prices on average in the second quarter and ECU crisis on average in the second quarter?

Caustic about 80 dollars, Chlorine about 120 and ECU about 209, that is second quarter.

Okay so you said in your commentary that prices to caustic were down 200 dollars from last year's second quarter.

Yes.

Does that apply with to earnings last year second quarter?

Well actually it was a little higher than that. Probably the publish number was about 315.

315?

Right. With chlorine at about 70 for an ECU of 420, so the ECU value is about half of what it was a year ago.

That is quite another move down, I believe.

It was you know with its it is among the ECU values in the second quarter were about as low as they have been ever historically in the last 20 years or so. There have been one quarter about two years ago, two and a half years ago that was a little lower.

Now in the quarter in the first half according to my numbers, you had lost about 40 million oh let us see about 25,35 about 40 million dollars in operating losses in chemicals and you said publically you think your loss will be 40-45 million for the year.

Right.

That employs only about a 5 million dollar loss in the second half.

Yes.

At worse?

Yes.

And yet you only got a 50 dollar return price increase of the absolute lows of the second quarter and that is going to face in by your words by 10 dollars a month.

Right.

How are going to have such a big improvement from a 40 million dollar loss in the first half?

Well a substantial portion is in the....on the operating side of the business where we will be out of the business, where we will be operating essentially at full rates for the second half of the year where we were operating at reduced rates. In the first half both as a result of market conditions and banking and cost depreciation not operate April rates and secondly the decision to go ahead and do all of our large portion of our maintenance work earlier in the year when prices were lower and demand was weaker so we could pack our plans down and have them in good shape for the second half so that is another piece of it. Organically...

You are telling your average operating rate for chemicals operations were in the first half?

Average operating rate for our chemical plants in the first half, Brad Rosenwald is saying approximately 92 percent. The other factor that will work through in the second half is that organic, Chlorinated organic prices will move up and that is a function both of, the pass through of the higher Chlorine prices in the market and our formula pricing was many of our customers as well as improving demand for those products. The weaker dollar should also help our chemical business. A part of the issue that we have seen has been the, the, the shift in the Chloup chemicals export versus import and we expect the weaker dollar will have a fair amount of, fair amount of opportunities there, will generate a fair amount of, of earning opportunities for us in the second half.

Thank you very much gentleman.

Let me clarify the operating percentage that I quoted earlier, that was excluding the maintenance strategies. We were actually operating some of our facilities that we do straight while we were operating and that was where same as about the 90- 92 percent that we did have the large strategies that would give us.

Can you give us a number inclusive of every thing?

I would be pretty well taking a stab at it saying that it would probably be in the low 80 percent.

Okay, and and for the second half you expect like 96 or 100 percent?

I would expect 95 - 96 percent, yes.

Okay, thank you very much.

Your next question comes from the line of Amando Lopez of Morgan Stanley

Yeah, Good morning. Most of my questions have been answered. Just a real quick one the aggregates side. With the cost saving thing you guys are realizing, now at Tarmac , running pretty well, what is your view in terms of like a normalized operating margin in the aggregates business. I mean obviously volumes are so much depressed now , but if you are running at like normal rate , what would you expect normalize operating margins?

In Tarmac or overall Amando?

In both . Overall and with Tarmac

EBIT margins are probably 21 , 22 percent, that's total .Yeah, total construction material, the aggregates would be of course higher than that. As I said earlier you know, today Tarmac is not at that level ,but it is closing the gap quickly as we have gotten the costs down.

Right and just another follow-up, in terms of the chemicals operations. A lot of the , lot of the sales are in contracts. How long does it typically take to through for the pricing to flow through the contracts?

Every contract generally is different , somehow quarterly price adjustment mechanisms . Some take a little longer than quarterly. Some are quicker than that. So, its, I would say , quarter is a fair average , that is with the July 1 price increase , you know, as I said earlier , the full effect of the caustic price increase should in place by the end of the year, by the end of the third quarter, probably half or 60 percent of that will likely be in place.

Okay. alright. Great , thank you.

At this time, I would like to remind everyone, in order to ask a question , please press the star 1 on your telephone key pad. If you have a speaker phone, please pick up the handset before asking your question. One moment for your next question.Your next question comes from the line of Jonathan Norman of .

Good morning, gentlemen.

Good Morning

I like, most of my questions have been answered. But just to get straight exactly where are with chlorine, caustic with the price increases that you have now, what is the total price per ton of chlorine and per ton of caustic that you will be getting is you get through it?

Well, lot of practices is to give industry pricing averages , you know the cost of our geographical locations and contracts arranged , but it is a lot of particular price will vary, somewhat but the change , it will typic the change on our price and the change in industry will typically be consistent. As, we are looking at , I said second quarter we, we saw average price for caustic at about 80 and chlorine at about 120 as we look into third quarter, we think the average price for caustic would be more like a 100 dollars a ton and chlorine 220 a ton, for an ECU value of 330 dollars a ton that compared with about 209 dollars a ton in the second quarter, so something over a 50 percent increase in the ECU values or prices quarter over that is third quarter over second quarter.

I see, then back on the in the aggregates market were you had the weakness in California and wherever else, is this, I mean, this I think it is not because of any weakness in the availability of the TEA funds but is it state legislatures that are not following through.

As we look at the funding levels as they relate to this calendar year, we don't believe there is any weakness in Federal funding. There is some weakness in State funding but our current view is that the second quarter was abnormally low simply because there was not a high level of construction activity or construction put in place based on the commerce data that occurred in the second quarter, we think that the number is, will not be anything like that low in the third and fourth quarter basis on a seasonally adjusted basis.

And that isn't that been in 2003 that you go into another long cycle of what the TEA fund level will reauthorized?

Reauthorization, the current six year bill expires on September 30th of 2003, the next six year bill which we have been working on with the congress is up for renewal effective on October 1, 2003 and, you know, that is, that is working its way through congress now, as we pointed out in the 2003 fiscal year which is September begins October 1 of this year of 2002, there will be a reduction in Federal spending for highways probably from the 31 billion dollar level down to about 27 to 28 billion dollars, but that

that gets spread over an extended period of time, that really should not have any impact in the second half of this year because those contracts will be coming out in 2003 and will roll out over the next 4 or 5 years. The real issue is going to be the level of, in the next 6-year bill. We are optimistic, you know, there is a lot of discussion in congress in the 40 billion dollar a year range, which can be funded out of current tax levels and tax received without any improvement. Although, then perhaps in getting the ethanol, the alcohol tax rate equalized with the other motor fuel and that will add probably a one to one-half billion to the highway trust line. We are, you know, we are cautiously optimistic about the next 6 year bill. We believe it will be at higher levels. We believe this will continue to be self-funding. I think the states are detaining upon how the states fund. How are we spending those that do it have dedicated fuel taxes all are in relatively good shape, those that have the ability to borrow there highway funds for general fund purposes, maybe tempted to borrow from the highway funds in the near term, but that is largely a timing question. But as we indicated the contract, the actual contract awards in our markets had been very strong year-over-year, you know, 10 to 12 percent in most of our states on average in our states, it is much more than that sum in lower in others, but we believe highway funding will continue to be a very strong source of demand for us.

Okay thank you very much.

Your next question comes from the line of Mike of Dresner Bank.

Good morning gentlemen. It is Dresner Bank. Really, I am just following on from the last question. somebody to help me understand what happened in the second quarter with the highway production and spending? Was that due to or was it due to non ? A sort of mistake on .

It is the combination of the two, I don't know that we have a breakdown from the commerce department on the source of the funding for the construction put in place as between state and federal, but the reality is that, well, this data didn't come out until about, well, I guess, late last week or early this week. For the second quarter, it is certainly consistent with what we saw in aggregate demand in the second quarter and it does not appear at this that they likely to repeat itself in the third to fourth quarter. We think, based on the contract awards and the money in the pipeline that highway spending should be much firmer in the second and third quarter based on that macro .

Okay and also you don't want to give some, you couldn't find the pricing in volume forecast for the year for aggregates, could you do that for 2002.

Yeah, we think price will be in the, probably in the 2 to 3 percent range price increase over all product lines over all markets for aggregate. In volume for the full year, probably down 3 to 4 percent same quarry basis compared to last year which means, you know we will have a relatively stronger second half and these would be the first thing.

Thank you very much.

At this time there are no further questions. Do you have any closing remarks?

We thank you for your interest in Vulcan. Obviously this is a time in which investors are trying to decide which companies are reliable and which are not and we certainly thank Vulcan as a great track record there. We are confident that we have good businesses and a great corporate culture and that we will see our way through this current downturn in the market. We are looking forward to continuing to make improvements in our businesses and continuing to earn the confidence of our shareholders. We thank you very much.

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