渥肯建材 (VMC) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen. My name is Paul and I will be your conference facilitator today. At this time, I would like to welcome everyone to Vulcan's fourth quarter conference call. All lines have been placed on mute to prevent any background noise. After Mr. James's remarks, there will be a question and answer period. If you would like to ask a question during this time, press the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. If anyone should require assistance during the conference, please press '*' zero. I would now like to introduce your host for today's conference call, Mr. Don James. You may begin, sir.

Good morning. Thank you for joining the Vulcan Materials conference call to discuss our fourth quarter and full year 2002 results as well as our current outlook for 2003. I'm Don James, chairman and chief executive officer of Vulcan. With me today are mark Tompkins,, and Brad Rosenwald.

Before I begin, let me remind you that certain matters discussed in this conference call will contain forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These are included in form 10-K for the year. After I make a few brief comments, we'd like to spend most of our time responding to questions from those of you who dialed in to this call. We hope this dialog will be helpful for you and others who choose to listen through this call through our web broadcast. Let me remind you that a replay will be available approximately two hours after this call at our website.

Let's begin by discussing the results for the fourth quarter and the full year. Net sales in the fourth quarter were approximately 615 million, down 7% from last year's 660 million. Net earnings were 36.6 million or 36 cents per share compared to 45.1 million or 44 cents per share achieved in the fourth quarter of 2001. For the full year, net sales were approximately 2.5 billion compared to the 2.8 billion reported last year. Excluding the previously recorded accounting change, net earnings were 190.4 million or 1.86 per diluted share. Including this non-cash charge, earnings were 169.9 million. Strong free cash flows which for us means cash provided by operating activities less purchases of property, plant and equipment of 205 million for the year allowed us to reduce debt by 31 million, pay dividends of 95 million by increasing our cash balance by 70 million.

Our debt to total cap ratio decreased 200 basis points from 37.6% in the prior year to 35.6% at the end of 2002. Factoring in our cash balance increase, net debt to total debt to total cap decreased from 35.1% to 31.1%. For the year, selling, administrative and general expenses decreased by 9 million. This favorable variance was due primarily to chemicals overhead reductions completed during the year and lower bad debt charges. Other operating costs decreased 22 million due to the elimination of goodwill amortization which amounted to 27 million in the prior year. Partially offsetting the absence of goodwill amortization was an increase in charges for write-downs for chemical plant facilities including those for our product phased out by the Montreal Protocol.

Other income increased 12 million due primarily to prior-year charges in performance chemicals. The company's effective tax rate was 26.1% for the year, down from 31.3% in 2001. The lower rate results from the relative mix of construction materials and chemical segment earnings, as well as the impact of the elimination of goodwill amortization.

Turning to our segments, for the quarter, our construction materials segment reported net sales of 467 million compared with 520 million reported in 2001. This segment earned approximately 78 million compared to 101 million in the prior year. In the fourth quarter, aggregate volumes declined 12% and pricing improved 1%. Weak private nonresidential construction and cautious state highway spending impacted sales volumes across most of our markets. The volume decline was particularly severe in the southeastern states, where unusually wet weather occurred at several key markets, including Washington, D.C., Atlanta, Charlotte, Norfolk and Greenville Spartanburg. However, aggregate shipments in western and southwestern states including Texas and California showed relative resilience. Diesel fuel prices were 20% higher, and liquid asphalt prices 22% higher than the prior year fourth quarter.

The effect of lower aggregate volume and higher cost for certain materials was partially offset by pricing improvement, operating cost improve improvement and the elimination of goodwill amortization. For the full year, construction material sales declined 6% to approximately 2 billion, while segment earnings declined 4% to 383 million. Operating margins remained steady as pricing improvements and cost control offset the effects of lower volume. Also aggregate volumes declined 8% due mainly to significant weaknesses in nonresidential construction. Excluding the impact of freight to remote sales yards, pricing for aggregates increased 2.5%. The company continued to achieve operating cost reductions at both the former tarmac and Cal Matt operations. In both cases, the volume declines were more than offset by variable production cost .

Our ability to hold margins on 8% lower volume have a credit to both our sales and our operating people across our seven construction materials divisions. They have worked closely with our customers, as well as each other to anticipate and plan for managing through this period of lower market demand. Fine le, we completed five acquisitions during the year. These included aggregate operations in Alabama, Tennessee and Illinois. Our construction materials segment continued to be at virtually -- I'm sorry, our chemical segment continued to be adversely impacted by weak market conditions in the industrial sector of the economy.

For the quarter, net sales in our chemical segment approximated the third quarter at 148 million, up 6% from the prior year due predominantly to higher sales in the Mitsui sector. This favorable variance in earnings is attributable to prior year pre-tax charges of 15 million, related to under-performing operations and marketing arrangements in performance chemicals. Excluding these charges, the shortfall is due predominantly to weak demand for chlorinated organic products, particularly fluoro (ph) chemical feed stocks and higher spending for plant reliability, efficiency and maintenance projects.

In line with earlier projections, the chemical segment reported a loss of 74 million for the year, compared with a 20 million loss in the prior year. Pricing for caustic soda was down approximately 50% compared to the prior year. Continued softness in the industrial sector of the economy resulted in lower pricing and volumes for most chlorinated or organic products. The results include approximately 16 million in higher plant cost, primarily due to increased spending for plant reliability, efficiency and maintenance projects. The results also include approximately 8 million for writedowns for underutilized plant facilities including those for a product phased out by the Montreal protocol.

Additionally, the company commenced commercial operation of a new plant to produce the feed stock for a non-ozone-depleting agent that replaces a product phased out by the Montreal protocol. The outlook for 2003 remains uncertain regarding the timing and strength of economic recovery. Our earnings outlook is predicated on a modest recovery beginning in the second half of 2003. We expect year over year volume related to highway spending to be flat due to issues related to timing of contracts. Congress has yet to pass a final budget for fiscal year 2003, but through the conference committee that is currently in session, Congress appears to be moving toward the senate's approved level of 31.8 billion for FY 03. This amount approximates FY 02's level, and should remove some of the current uncertainty at the state DOT level and released projects for construction during the second half of the year.

Looking forward, the next six-year reauthorization bill will begin in FY 04, which begins, of course, October 1, 03. We fully support house transportation committee chairman Don Toung's position seeking an authorization level averaging 60 billion annually. Furthermore, we believe the additional highway user fees required to support this level of spending are appropriate and should be dedicated for highway infrastructure projects. Without additional user fees other than the 2.5 cents per gallon gasohol tax which is currently going into the general fund but which the administration and the Congress supports going into the highway fund, a reauthorization level in the range of 35 to 40 billion per year is possible. Based on current estimates.

Still, a favorable outcome is a positive step toward improving our existing highways and addressing the increasing road congestion throughout the country, particularly in many of our key markets. Yesterday as you probably noted, the administration released its FY 04 budget proposal of 29.3 billion for highways. Wee believe this sets a floor from which Congress will eventually set its 04 appropriation and the next six-year highway bill. Private nonresidential construction is assumed to remain at current low levels while residential construction remains flat.

For construction materials, our full-year outlook assumes an aggregate volume decline of 1 to 2% with prices increasing modestly. 20% increases for liquid asphalt and diesel have been assumed in our 03 outlook. However, due to the instability in the world's political environment, particularly in Iraq and Venezuela, the timing and amount is difficult to predict and could result in more volatile comparisons of quarters. In light of these assumptions, construction materials is expected to achieve full-year earnings in the range of 350 to $380 million. With respect to chemicals, pricing for caustic soda should be relatively flat in the first quarter compared to both last year's first quarter as well as last year's fourth quarter. Caustic soda pricing should be up approximately $30 for the full year. On the other hand, we expect chlorine pricing to be up approximately $140 quarter to quarter, and approximately $80 for the full year. Of course approximately 75% of our chlorine is used in our downstream products, and we are much less sensitive to changes in chlorine pricing than we are to changes in caustic soda pricing.

In 2003, we will continue to address plant efficiencies as well as manufacturing and overhead costs. As a result, additional planned plant spending will continue at a higher than normal level to upgrade existing facilities to reduce our operating costs. Furthermore, our outlook assumes somewhat higher energy and raw material costs reflective of current pricing trends in natural gas and oil-related raw materials. As compared to the prior year's loss of 74 million, we are projecting a loss in the range of 20 to 40 million for the year. For the company, we expect strong free cash flow performance again in 2003, as disciplined capital spending and vigorous pursuit of cost control continue. Pension and health care costs are forecast to increase approximately 20 million pre-tax, or 13 cents per share.

During the first quarter of 2003, the company will adopt the new accounting statement SFAS 143 which requires recording the estimated fair value of asset retirement obligations when incurred. The initial implementation of this statement will be reported as a cumulative effect of accounting change. The estimated non-cash impact on earnings will be approximately 23 cents per share. For 2003, the estimated impact will be approximately 3 cents per share. It should be noted that all charges associated with SFAS 143 are non-cash. Both the projected cumulative effect of accounting change and the projected full-year earnings per share impact are preliminary estimates. We are presently finalizing the numerous operating and discount rate assumptions necessary to complete the calculations. As such, both are excluded from our earnings guidance for the company for 2003.

Based on our current economic outlook, we expect our earnings to range between $1.85 to $2.15 per share. In the first quarter, we expect construction materials earnings to be down significantly from the record first quarter results we had in 2002. Prior-year results benefited from relatively strong construction activity and very favorable weather conditions . In contrast, our current year first quarter outlook assumes continued weakness in construction activity, and normal weather conditions for the first quarter. Chemicals first quarter results should be slightly favorable to those in last year's first quarter. As a result, we expect to earn between 5 cents per share to a loss of 10 cents per share in the first quarter. As a result of both the economic uncertainty in 2003 and the sensitivity of our construction materials business to variations in weather within a given quarter, it is difficult to predict earnings with a high degree of certainty.

Each quarter in our press release, we will continue to give you quarterly and annual earnings guidance on both a segment and an earnings per share basis. In the future, we will issue press releases to revise earnings guidance if new information indicates earnings per share on either a quarterly basis or an annual basis are likely to be outside the last company-issued range. We believe this will be a more efficient process than commenting on analyst consensus estimates. Now we would be happy to respond to your questions.

At that time, I would like to remind participants if you would like to ask a question, press '*1' on your telephone keypad. One moment, please, for your first question. Your first question is from Rob Stelman.

Jeff couldn't make it this morning, he's on another call, but I wanted to ask a couple quick questions. Is the 12% year over year aggregate volume decline the low point or do you expect continued negative comparisons over 2003?

Rob, the year over year at 8%, not 12%. 12% was fourth quarter over fourth quarter, and certainly that fourth quarter decline was more severe than the year because the weather in the fourth quarter was terrible in many of our markets as we indicated. We are currently projecting a reduction of 1 to 2% in aggregate volumes in full-year 03 overseer owe two. , which would imply that we believe we are near the bottom in terms of aggregate volume.

Ok. And with regards to the 12% -- when I said year over year, I meant for the fourth quarter compared to fourth quarter of 01.

I'm sorry.

Would that be the worst comparison implying first quarter of 03 versus first quarter of 02?

Yes. We don't see another 12% decline, you know, unless we have some dramatic event like terrible weather in March.

Right.

We had terrible weather in October of 02, you know, December was much -- you know, was much stronger than October on a relative basis. So there's such a weather impact in the first and fourth quarters, and then in each of those two quarters, October and March really make the quarter. So it's really a function of weather in those two months.

In chemicals, what was the realized [inaudible] ECU for the fourth quarter of 02 compared to the third quarter, and then what do you expect for the first quarter?

Well, the change -- are you asking about caustic soda?

Right. If you reported -- if you'd like to break it out, chlorine and caustic, that would be great.

Well, I think it is more relevant to talk about caustic. The change from fourth quarter to third quarter for us was about $25 a ton. Chlorine was also d $25 a ton up. Chlorine was also up, or basically flat, but that -- we use about 75% of our chlorine in our downstream products. So there's relatively little that flows through there.

Sure. What do you expect the increase in the first quarter based upon contract rollovers, et cetera? First quarter compared to fourth quarter?

Correct.

Or first quarter compared to first quarter?

Sequentially. Sequentially, we would expect it to be -- on caustic, we would expect it to be relatively flat, and probably $35 a ton improvement in chlorine.

Ok. Thanks. I'll get in queue for another one.

Ok. Thanks, Rob.

Your next question is from Armando Lopez with Morgan Stanley.

Good morning, everyone. Just a couple quick questions. I guess first, on the tax rate for the quarter, it was lower than we were looking for, could you just talk a little bit about what happened there?

Sure. The two simple explanations are we have a lower tax rate in construction materials than we do in chemicals because of the effect of depletion and as the relative earnings of construction material are higher than chemicals, our tax rate will fall. The other piece working through there is that without goodwill amortization, which is the nontax item, without having the goodwill amortization, it reduces our effective tax rate.

Ok. And then looking forward to like 2003 time frame, what would you expect the effective tax rate to run at for 03?

I'll get Mark Tompkins to address that.

We're forecasting about a 28% tax rate.

Ok. And the guidance that you guys provided in terms of the 185 to 215, with respect to FAS 143, that did or did not include an impact from 143?

It did not include an impact from FAS 143.

Ok.

That has, in our view, nothing to do with our operations, and it's all a projection of closure costs that are, you know, 30 years down the road for us. So it's funny money.

Ok. And then one last one. In terms of the maintenance, it sounds like that's going on at the chemicals operation, could you just talk a little bit more or expand a little bit on, like, what projects are, you know, future projects you're working on? That would be it.

Ok. Armando, I think one point is that we do not have any capital projects in our strategic plan for chemicals in the foreseeable future. We brought on the 5CP plant which will -- is on stream now and will be a factor in replacing the product that was phased out on the Montreal protocol. That was the last of our significant capital projects in chemicals on the horizon. The incremental expenditures that we incurred intentionally in 2002 and will continue in 2003 and actually into 2004 before we finish the program are designed to allow us to operate at higher on-stream times, improve our environmental performance, and allow us to take cost out of our production so that we can improve the profitability of our chemicals operations. And that's a process that we cannot complete overnight, but we intend and we're working very hard to focus on chemicals profitability, and this is a big factor in that process, and we've got to spend money to take cost out. It is not generally capital, although there is some capital, but it is primarily upgrading our plants to achieve the ability to run at higher on-stream rates.

And what do you think like the spending level will be for 03 and 04 on that?

We spend about $16 million more in 02 than 01. Above a steady run rate, we will probably spend 4 million more in 03 than 02, and about 20 million more than in 03 than our standard run rate will be when we complete these projects.

Ok. Great. Thanks a lot.

Your next question is from Jack Casper with DBT Capital Markets.

I was wondering if you could talk about what's going on -- what you're seeing, rather, in California, obviously a lot of discussion with the budget problem that that state has and the impact it might have particularly on highway funding. Is it too early to tell how 2003 could be shaping up? What's sort of your expectation for California for this year?

Well, we certainly understand and are sensitive to and are monitoring what's going on as to Cal tran's line and state spending generally, but our business in California remains relatively good. California seems to be stronger than most of our eastern and southeastern markets. If you look at a couple of statistics, we're projecting, for example, in California that new highway put in place tons will be only down very, very slightly from 2002's level, maybe only like 1%, which is about what we projected for the full U.S. Actually, if you look at California's year-over-year highway awards, that is, 02 highway awards compared to 01, it's up 19%. If you take out the big new bay bridge, it's down 9%. So in terms of actual 03 highway spending, all of the things we're reading in the papers at this point don't appear to have nearly as profound effect as one might conclude from simply reading about the budget deficits in California. But it is a situation that obviously we've got to monitor carefully, but at this point, we think our California business will be fine in 2003.

Ok. And you commented in your remarks that you thought the bush proposal, for I guess fiscal 04 would be a floor for highway funding?

Yeah, and the basis for that statement is, you remember in the 03 budget, the administration came out with about a 23 or $24 billion proposal for highways. That obviously tended to be a non-starter in the Congress, and the senate passed an appropriation of 31.8 billion, the house passed an appropriation of 27.7 billion, and our best information is that the conference committee, which is meeting now, is going to come out at a number that's going to be very close to the 31.8 billion. So there's tremendous support for highways in Congress. Obviously the administration is trying to deal with the large deficits in its budget, but we believe one place that spending will go up based on the indications we get from both the senate and the house will be in highway spending, and we do think that's going to be a floor. I think Mary Peters in the Federal Highway Administration made some comments yesterday. She says the transportation department plans to spend 247 billion on highway construction transit and road safety during the next six years, up 13% from the 218 billion in the last six years. Again, that's Mary Peters, the administrator of the Federal Highway Administration. An she says the increase will be funded through an additional 1 billion per year from the highway trust fund reserves, which is something we've been advocating for some time, and by using the additional 2.5 cents per gallon gasohol tax for highways rather than having it go into the general fund as it has done in the past. So I think the administration is also hearing the position of the highway user industry and the highway construction industry that highway spending is a great economic stimulus, particularly resurfacing work generates jobs and money into the economy very quickly, and using the surplus in the highway trust fund as well as dedicating the gas tax to highways are very good things to do in the near term as well as for the longer term. So we've got a lot of work to do, but we're going to be -- we are very active along with a lot of other groups interested in highway construction. We've got great support in Congress and, you know, we've got our work cut out, but we're cautiously optimistic about highway spending both for 03 as well as for the six years following that.

Ok. Thanks a lot, Don. Appreciate it.

Your next question is from Tripp (ph) Rogers (ph) with UBS Warburg.

Good morning. Don, your price increase this quarter of 1% is slightly down from what you've seen in prior quarters. Is that more of a mix issue, or are you seeing it tough inventory raise prices as volumes are coming down?

Well, you know, you always have mix issues in pricing, but what we're projecting for 03 is below the normal rate of price increases we've gotten historically over the last decade. I think that is an indication of sensitivity to our customers' needs, to demand. We have been very fortunate in being able to manage our cost very effectively. I've been very pleased with that on lower volumes, and we believe 2003 is a time in which we do not project getting the same level of price increases we have historically. With a little uptick in volume, we certainly think we'll be entitled to price increases higher than what we have in our projection, but as you know, we're projecting volumes at 1 to 2% so we think it's appropriate to be a little more conservative on our projections for price increases.

Jumping over to chemicals, can you tell me what you're assuming there, what kind of increase you saw with the January 1 price increase for caustic and what you're assuming for caustic prices for the rest of the year?

The $70 per ton price increase that was announced for January 1 has had great difficulty. Some of the large producers, large relative to us, have not enforced that increase, and as a result, we're seeing a relatively small portion of that $70 increase actually flow through. Now, Tripp, what was your question again on --

Are you assuming there are no further price increases or that the prices come down any further?

We're looking at price -- first quarter price compared to fourth quarter price being relatively flat. We think caustic will strengthen throughout the year, and we have built in about $30 a ton in our projection. CMAI say it's going to be $60 a ton. We're trying to be cautious in our outlook there for our projections, but as we stand today, we built $30 into our projection in the current CMAI projection, it's $60 for the full year.

And Mark, can you tell us where you stand certainly on hedging in natural gas?

First quarter, 407, and about 20 to 25% hedged for the rest of the year at about 410.

Thanks. And just one final thing. Just to clarify, did you say 3 cents a share from FAS 143 this year?

Yes. That's a current preliminary look. But it shouldn't be much different than that one way or the other.

Ok. Great. Thanks a lot.

Your next question is from Stephen Kim with Salomon Smith Barney.

Morning, Steven.

Good morning, Don. Thanks very much. First question I had relates to your chemicals, what I guess I would call the discretionary maintenance charges that you've taken in these expenditures. You said you expected about 20 million in 03 versus the 16 million in 02. Is that right?

That is correct.

And you said that was 20 million above sort of the normal run rate, but correct me if I'm wrong, I mean, obviously you're going to be getting some savings from these initiatives which should also be ongoing, so I guess I'm just trying to understand sort of what kind of light at the end of the tunnel we can look forward to in 04. How much savings do you believe that this $36 million of spend is going to get you in 04 and beyond?

Well, it is tied, Stephen, to the on-stream time of the plants, and there is a 1% change in on-stream time in our chlor alkali (ph) ability has a significant impact. You know, at this point, on-stream time is a function of both market demand and the reliability of our plants. We are looking for better markets going forward than we have had certainly in 02, and we want to be able to respond to those markets by higher on-stream time. Not all of that spending will result in cost reduction. There is some environmental aspect there, and there's some improvement in our -- just the general maintenance standards in some of our plants, but, you know, our approach is to reduce production cost through efficiency projects and improve our on-stream time. We will see if market conditions permit, we will see some impact of that improvement in 03. I cannot quantify it for you at this point because it's hard to do with the market aspect coming in, and we believe we will get incremental improvement in 04 overseer owe three, and we will update you on that for a quarterly basis. But we believe this is the way we've got to get back to a level of acceptable profitability in our chemicals business. The market is what it is, but we have got to improve our cost position at our plants, and this level of spending is what it's is going to take us there.

Ok. Sort of staying on the chemicals business if I could a little longer, obviously I don't need to tell you that this has obviously been a business which has been difficult for quite a long time, and I guess my question here is that given the fact that you've sort of mentioned repeatedly that, you know, the construction materials and chemicals business don't exactly have a lot in common and a lot of synergy going on there, so when does your patience run out? What is your timeline for achieving what you would call an acceptable level of profitability? You know, is it a couple of years more or -- however you choose to sort of characterize it?

Well, Stephen, we are certainly aware of the profitability problems in our chemicals business. We continue to consider a number of options with respect to the chemicals business and portions of the chemicals business. That is something that we will report to you on periodically. As we go, whatever we do, it is important that we be very efficient in our chemical plants, whoever owns them in the future, it's important that we improve the profitability and improve the value of that business, and that's what this incremental spending is designed to do. So it is a major issue for us. Our chemicals business has reduced its overhead cost. It will continue to reduce its overhead cost. We have a plan in place for that. Our plan is to improve our operating cost and plant efficiencies. We are dedicated to achieving that, and simultaneously with that, we are looking at what the other options we have with respect to our various chemicals businesses are. So it is not something that we are content with. The chemicals management is in full agreement with the corporate management about the process for improvement, and the strategic options that we're looking at.

Ok. And then lastly, on the construction materials business, again, and it hasn't just been you obviously but there's been some sort of lingering weakness in the aggregate shipments. Obviously this quarter it was really bad. I guess my question relates to I would assume the company has been adjusting to these many consecutive quarters here of sort of lackluster heritage shipments, and has been perhaps reducing your overall -- your capital allocation to that business. Would that be a correct assumption? And I guess the follow-on to that is, if, perchance, heritage shipments were to benefit from a much better environment, how quickly and how dramatically could we see heritage shipments improve, therefore? I mean, have you reduced staffing levels? Would it be hard for you -- how flexible would it be -- would you be able to be in sort of ramping back up the production?

Our plant and equipment in construction materials is in better condition than it has been at any time in the decade that I've been here. One of the things we've certainly done in the current environment is to reduce overtime at many of our plants that were running at very high overtime rates. We've also decreased operating hours in some plants below a standard workweek in order to achieve the kind of cost performance that we've achieved with these lower volumes. I think the simple answer to your question is, we have the ability -- we have great leverage in our construction materials business with rising volumes. The sensitivity of our business because of our cost structure and our capacities and our ability to ramp up quickly, we will not lose a ton of sales because of our inability to produce it even if it ramps up very quickly. So that's easy for us in our construction materials business to take full advantage of any improvement in demand. As I said in my prepared comments, our operating divisions have done a superb job in anticipating the decline and in managing their cost structure accordingly. Our capital spending was reduced in 02. It will -- the thing that we will likely spend the capital on in 03 will be some plants in California. That spending won't all occur in 03, but plants in California that have been in our strategic plan from the time we built our model to buy Calmatt and we have just now gotten to the point of having the permitting and the engineering and geological work all completed so we can pull the trigger on those plants. We have rebuilt some, we're currently rebuilding some, but that's where our capital is going to go, and we will see significant -- we expect significant cost improvement in the relatively recent acquisitions. If you look at Cal Matt improved its variable cost in 02 by about 12 cents a ton, which is huge, as you know. The tarmac plants in 02 improved their variable costs by about 47 cents a ton. So we're going to continue to spend capital in those new acquisitions to take costs down, and that's one reason our cost performance is as good as it is. You know, we're not going to be in this construction materials cost very long, and we're going to continue to upgrade the plants that have big opportunities in order to be ready to go when the economy begins to recover.

Great. Thanks a lot, Don.

Your next question is from Barry Vogel with Barry Vogel and Associates.

Good morning, gentlemen. Hello?

Yes. Hey, Barry, how are you?

Few questions for you, Mark. First of all, can you tell us what dollar amount of Calmat land sales you had last year, what would you expect, you know, conservatively this year, and what do you have left now to sell? That's the first question.

We have about 110 million left to sell. We sold about 13 million in 2002, and we're projecting to sell about 30 to 40 million in 2003.

Ok. And what is your best guess for capital expenditures for 2003 as well as depreciation and amortization?

On the capital spending, because of Don's -- what Don talked about in California, probably somewhere around 275 is our best guess at this point, and DD and A should be about 280 million.

Don, I have a question for you about acquisitions.

Ok.

Based on your cash flow statement, you spent about $43 million of net on both arms last year.

Yes.

What is your current attitude for acquisitions considering the fact that you've slowly but surely been deleveraging your pal balance sheet so that you're certainly not an overleveraged company at this point, what is your current attitude today going into calendar 03 with these current market conditions?

If an acquisition makes sense for us and by making sense, if it is strategic and the projected returns are accretive to shareholder value, we will do it. We're not backing off of acquisitions. You know, there are not many things perking out there. There are some, but I think the sellers, I think, anticipate that the value of their quarries will likely improve as the economy improves, but our strategic view on acquisitions has not changed. This is a long-term business, and we continue to view it that way, and if there's a strategic acquisition for us that makes sense with current projected volumes and costs, then we will be aggressive in pursuing it.

Now, you mentioned improvement in variable costs for Calmet and for tarmac. can you tell us, did you lose money in tarmac last year on an operating basis, and approximately how much? That's one question for those two items.

Ok. On an EBIT basis, we made a little over $2 million from the tarmac operations. If you charge interest on the purchase price, that is, on an EPS dilution basis, tarmac was diluted. The volumes in tarmac were down as all of our volume was down in the south Atlantic states where the tarmac operations are located. So there is a volume impact at tarmac which is very separable to the volume impact in our heritage operations in those markets. The cost improvement was obviously exceptionally good. I guess with respect to one of the earlier questions by Stephen Kim, tarmac is a place where when volumes begin to recover, we will start seeing very strong incremental profit improvement.

Now in tarmac on an EBIT basis I believe you lost some money in 2001; is that correct?

I think it was slightly positive on an EBIT basis.

So it was sort of break-even.

Yes.

So despite falling volumes and bad weather, you were able to be in the black on an EBIT basis.

Yes. Yes.

Ok. Now, as far as Cal matt, I know you were doing extremely well through 2001 on that acquisition.

Absolutely.

Can you give us an idea how much the EBIT went up from the year before?

About $23 million.

23 million in EBIT?

Yes, on reduced volumes.

That's if he no, ma'am phenomenal.

It is phenomenal. And we're not anywhere near done yet on the cost side of Calmat.

Now if you look at these two acquisitions here, let's look at Calmat first, are you happy with the results so far, and if you had a chance, would you do it over again?

I'm elated with the results, and if I could do five Cal dmat transaction, I would do them today.

Okay that's great. Thanks very much.

Your next question is from Clyde Lewis with HSBC.

Good morning, gentlemen. Three questions if I may. Firstly, on the volume guidance you've given for the construction materials business for 03, does it differ dramatically between the sort of east-southeast and sort of central and sort of western areas in terms of your expectations?

Regionally for 03, I think our projection for -- let's say for highways put in place tons is one portion of that. We certainly expect to see some uptick in Georgia, North Carolina, Texas. A lot of our states, we are projecting to be flat. We're looking at Virginia probably as being down a fair amount, maybe Tennessee being down a fair amount. We think our shipments in the midwest will probably improve some over this year. We had some tough market conditions and tough weather conditions in our midwestern markets. But there is not any huge disparate disparity from region to region in our volume outlook for 03 overseer owe two. There's some small relative strengths and relative weaknesses as I pointed out, but overall, there's no great difference. Now, the difference we saw in the fourth quarter, we believe was largely weather. Shipments were good in Texas, they were good in Arizona, in New Mexico, and they were, on a relative basis, good in California. They were terrible in -- you know, from Louisiana to Virginia in the southeast almost uniformly with the possible exception of South Carolina, where shipments were a little better than the other southeastern states, but October -- we had rain days in October that were probably on average twice of normal in most of those southeastern markets, and when it rains, we don't sell rock, so that's the reality. But regionally, we do not see any great economic differences, regionally we will continue to be affected by differing weather patterns.

Ok. Thank you. The second one I had was on asphalt prices. I mean, given the high costs, are you going to hope to do better than sort of marginal price increases in 2003 or do you thick think it's going to be too difficult to claw back those extra costs?

Well, we are concerned about liquid asphalt prices. We have hopefully built in enough in our forecast to deal with what we currently see. A large part of liquid asphalt begins from crude oil production in Venezuela, and as you know, that's a mess. But we have been -- we are certainly cognizant of that. We have built that into our forecast. If it gets worse and we cannot pass it through to our customers, then that will be somewhat of a drag on our earnings and our asphalt states which are primarily in the west and including Texas. Certainly everyone in the asphalt business is going to be impacted by the same event, so I would expect the producers should be able to pass along increases in liquid asphalt in asphalt mix prices, but that's certainly not guaranteed.

The third one I had was on your comments about the nonresidential and the residential markets, your expectations for them being broadly stable. If you have to choose one of those two, which one are --

I didn't say nonresidential would be broadly stable. We think non-res is still George going to be down some from a very low -- you know, it fell sharply in 2002, and we see more downside in non-res, nothing like zero two but still falling in 03. But as the economy -- the impact of the economy on occupancy rates flows through, with respect to residential, we're looking at sort of flat year over year volumes. You know, that's our best estimate. That number for us is not nearly as important as highways or non-res, but our current outlook is flat residential and slightly down non-res.

Ok. Thank you very much.

Thank you.

Your next question is from John Houghton.

Good morning. It's Tom in for John Houghton.

Morning.

On your free cash flow guidance for 2003, looks to me roughly like you should come in around 200 million plus or minus. What are you planning to do with that free cash flow?

We have about 250 million of debt coming due in the first part of 04. We would like to be -- that's fixed rate long term debt. We would like to pay that off, and if we need incremental cash, we would then be in a position to go to the commercial paper market, which we expect will still be favorable a year from now. We certainly, as I indicated earlier, will -- we will not be shy about spending capital in our construction materials business where it will have a strongly positive impact on cost and get high returns. You know, so debt reduction, capital spending, certainly we will consider our dividend position at our up coming board meeting, and we'll take into account the prospect for any favorable treatment of dividend, and once we get to a position where we are comfortable with our balance sheet and the rating agencies are comfortable with our balance sheet, and if stock prices stay where they are, we would look strongly at repurchasing shares.

Ok. But in terms of your ratings at A1, A-plus, you don't want to jeopardize those at this point?

No, we do not.

That's all I have. Thank you.

Your next question is from Fritz Von Karp with Sage Asset Management.

Good afternoon, gentlemen. Could you just give me some more color on the pricing you're seeing currently, and I mean in the fourth quarter and/or, you know, so far in the first quarter by region And I guess in particular, I'm interested in the pricing -- aggregates pricing you're seeing in the old Calmat territories where you guys have been such constructive price leaders.

Fritz, I don't think there is enough variation in our price projections for 03 from region to region to make any comment on.

For fourth quarter? Not the projection necessarily?

For either quarter or the full year projection, we look at prices on a product-by-product, market-by-market, customer-by-customer basis, and that's what drives pricing. Certainly in the west, reserves are substantially scarcer than in the east, and the cost to replace those reserves in the west will be substantially higher. Under those conditions, you would expect on average over time higher price increases in the west than the east, but in terms of what we're looking for first quarter or even next year, we don't see any materially -- any great differences regionally in prices.

Ok. If you could just remind me, am I mistaken, wasn't it the case for some time that you were getting kind of quite good pricing in the west?

Yes. One of our strategies in acquiring Cal Calmat, we believe they had the market position and the reserve position to being be a price leader. In the west, prices had been flat for years and years and years, and with strongly diminishing reserves, and we believe that there were opportunities for price improvement in California, and we have been very successful in getting those. It's largely because as reserves deplete, the cost of replacing them are going to be substantially higher. We do not believe in selling scarce reserves at low prices. They're worth more to us in the ground for future sale than they are by selling them cheaply currently.

Ok. Thank you very much, gentlemen.

At this time, there are no further questions. Mr. James, would you like to make a closing statement?

Thank you very much for joining us today. We certainly appreciate your interest. We look forward to talking to you again after the end of the first quarter. We are watching and working very closely with what's going on in Washington, with the highway bill, particularly the current-year appropriation. We are obviously watching the economy. We are a company that is focused on the long term, and we are very optimistic and confident in the long term performance of this company, and we hope you share that view. Thank you very much.

This concludes the Vulcan Materials fourth quarter conference call. You may now disconnect.