渥肯建材 (VMC) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vulcan Materials Fourth Quarter 2007 Earnings Conference Call. My name is Frances and I will be your coordinator for today.

At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Don James, Chairman and Chief Executive Officer. Please proceed.

Good morning. Thank you for joining this conference call to discuss our 2007 results and our outlook for 2008. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials Company. We appreciate your interest in Vulcan. We hope our remarks and dialogue will be helpful to you. The replay of this conference call will be available later today at our web site.

Joining me today is Dan Sansone, our Senior Vice President and Chief Financial Officer.

Before I begin let me remind you that certain matters discussed in this conference call contain forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Descriptions of these risks and uncertainties are detailed in the Company's SEC reports, including our most recent form report on Form 10-K. Forward-looking statements speak only as of the day hereof and the Company assumes no obligation to update such statements.

Vulcan achieved record results in a challenging economic environment. These record results included net sales of more than $3 billion; operating cash flows of approximately $700 million; operating earnings of $714 million; and EBITDA of $982 million. Despite weaker demand for our products, principally from residential construction, these results underscore the fundamental strength and resiliency of our businesses.

To put this in perspective, a historic look back five years ago may be informative. The comparison to 2002 results is worth voting for two reasons. First, higher earnings on solar levels of aggregate shipments and, more importantly, what our current profitability could mean to margin improvement when volumes begin to recover.

In 2007 the absolute level of aggregate shipments were similar to 2002's level. Construction activity in 2002 was hampered by an economic slowdown caused by the tech bubble and the 2001-2002 timeframe, and as a result our aggregate shipments in 2002 had declined 8% from the prior year. Aggregate shipments in 2007, excluding the Florida Rock acquisition, were down 11% versus the prior year due to weakness in residential construction and were slightly more than the shipment levels we had in 2002.

However, if we look at financial results over this same time period, net sales increased 56% but, more importantly, earnings per share from continuing operations more than doubled and operating earnings as a percent of sales increased 410 basis points. I believe this ability to achieve good results during weak demand and better results as demand improves is rooted in the fundamental strengths of our aggregates' focused business.

And even though we expect 2008 to be another year of challenging market conditions, we believe record results are achievable and we will continue to position our business for additional phrase growth when volumes begin to recover.

Another 2007 highlight is the acquisition of Florida Rock Industries which we closed on November 16th, 2007. This acquisition, which included significant aggregate reserves and attractive markets continues our long-term strategy to position our Company in markets where reserves are limited and where demand for aggregates is expected to grow at above average rates.

Diluted earnings per share from continuing operations were $4.66 in 2007, reflecting an estimated $0.32 per-share reduction referable to the Florida Rock acquisition. Earnings from continuing operations in 2006 were $4.81 per diluted share and included a gain of $0.17 resulting from an increase in the carrying value of the ECU earnout we received as part of the disposition of our Chemicals business.

The current year's corresponding gain was $0.01 per-share. Exclusive of Florida Rock and the ECU turnout, 2007 earnings per-share increased approximately 7% from the 2006 level of $4.97 dollars, or [two -- 2 $4.97].

Vulcan's legacy businesses performed well in 2007, despite lower volumes in all major product lines. Higher earnings and aggregates and asphalt more than offset lower concrete earnings. Net sales decreased approximately 1%. In legacy Vulcan operations aggregate pricing in 2007 increased approximately 13% with all major markets, realizing double-digit price increases above the 2006 levels. Aggregate shipments declined 9% from the prior year. Vulcan served markets in Texas, the Midwest and along the Gulf Coast, saw volume declines in the low single digits. Other markets such as California, Florida, Washington D.C. and Phoenix were more negatively affected by weakness in residential construction.

Unit production costs for aggregates increased from the prior year due mostly to higher depreciation expense and the impact of lower production levels. Steps taken during the year to mitigate the cost increases associated with lower production levels and higher energy prices helped improve our second half earnings.

Depreciation increased from the prior year due to higher capital spending to improve production efficiency and increased production and distribution capacity in key markets. These projects have good returns and will benefit our aggregates business as volumes begin to recover.

Asphalt earnings increased significantly, more than offsetting lower concrete earnings from Vulcan's legacy concrete operations. Asphalt prices increased 12% from the prior year more than offsetting the earnings effect of a 9% decline in volumes and higher costs for the aggregates that we supplied internally. Concrete prices increased approximately 6% from the prior year, despite a 30% decline in shipments from 2006 levels.

The earnings effect from lower bottoms and higher costs for key raw materials such as cement and internally supplied aggregates more than offset the price increase. While the lower earnings are disappointing, the continued resiliency in Ready Mix Concrete prices is encouraging in the context of weaker demand from residential construction.

Selling, administrative and general expenses were $290 million in 2007 compared to $264 million in the prior year. The Florida Rock acquisition accounted for approximately $12 million of this year-over-year increase.

As I indicated earlier we closed the Florida Rock transaction on November the 16th. Historical comparisons for the Florida Rock business are difficult because we have rapidly integrated the businesses and our results include Florida Rock only for a six-week year-end [stub] period in the fourth quarter.

Generally this period of the year is characterized by seasonally low sales levels. In contrast, depreciation, interest and overhead expense are essentially the same as in other calendar periods of comparable length, thus the earnings per share impact for such a short period can be distorted.

The 2007 earnings impact of Florida Rock includes operating results for the stub period that Vulcan owned the business; interest expense associated with the financing of the transaction; additional shares issued as part of the transaction; one-time expenses associated with executing the transaction and integrating the businesses; and depreciation associated with the write-up of assets to fair market value due to purchase accounting. Specifically, 2007 results include approximately $0.13 per-share due to one-time transaction-related items; $0.12 per-share related higher interest expense attributable to the additional debt incurred to fund the transaction; and $0.07 per-share due to the effect of additional shares issued in conjunction with the transaction.

Of the $0.32 per-share dilution for the full year, approximately $0.28 was incurred in the fourth quarter. In the fourth quarter legacy Vulcan operating earnings [excluding] Florida Rock decreased from the prior year's fourth quarter, due to slightly lower results for aggregates and asphalt and sharply lower concrete results. Pricing in all three product lines increased despite lower volumes. Higher prices for aggregate, asphalt and concrete were mostly offset by lower production levels and a sharp increase in energy costs. Aggregate shipments in the fourth quarter decreased 12% from last year's fourth quarter. However some of our markets were relatively stable, experiencing flat or slightly better shipping levels when compared with the prior year's fourth quarter. This relatively greater volume occurred in lower-priced markets of the Midwest, Texas, and the central Gulf Coast and dampened the year-over-year price increase as a result of a shift in geographical mix.

For legacy Vulcan, the average price for aggregates, excluding freight to remote distribution sites, increased 9% from the prior year's fourth quarter. Aggregates unit cost of sales were higher than in the fourth quarter of 2006 due mostly to higher depreciation expense; lower production volumes, as well as increased costs for energy. Compared to other industries with large continuous process plants, aggregates facilities have the flexibility to increase or decrease production relatively efficiently.

In response to lower demand, we reduced aggregates production levels 10% compared to the second half of 2006. While this action negatively impacted third and fourth quarter unit cost, it reduced our year-end inventory levels and provided us greater flexibility to respond effectively to changes in demand as we move forward.

Unit cost for diesel fuel in the fourth quarter increased 41% from the prior year's fourth quarter, lowering pretax earnings approximately $10 million.

Fourth quarter asphalt earnings declined slightly from the prior year. Higher prices offset most of the earnings effect from lower volumes, higher unit cost for liquid asphalt, and higher transfer prices for internally supplied aggregates.

Legacy Vulcan concrete earnings in 2007's fourth quarter declined sharply from the 2006 fourth quarter level, due mostly to lower sales volumes. Concrete prices increased slightly. Higher pricing was more than offset by the lower volumes as well as higher costs for cement and for aggregates supplied internally from our quarries.

Before we discuss the details of our 2008 outlook, let me first say that we will now report financial results in three segments based on the product lines of aggregates, asphalt and concrete, and cement.

Turning to our outlook for 2008, while market conditions remain uncertain particularly for residential construction, we expect another year of record results for Vulcan Materials. Leading indicators such as contract awards for new projects show public and private nonresidential construction in Vulcan-served markets continued to grow and to lead other U.S. markets.

Highway awards in Vulcan-served markets had increased approximately 15% annually for the last two years in nominal terms. This growth rate compares favorably with other U.S. markets where awards have increased approximately 6% annually. Some of this increased spending for highways is being offset by higher costs for construction inputs including steel and energy-related costs, such as liquid asphalt and diesel fuels.

Contract awards for other public and private infrastructure projects, such as sewers, waste waters, power and utility projects across the U.S. increased in 2006 and again in 2007. Non-residential building construction awards in Vulcan-served markets also outperformed other U.S. markets, led by office buildings and manufacturing plants. While some private nonresidential categories that are more closely linked to residential activity, such as stores, saw contract awards decline in 2007, Vulcan-served markets held up better than other U.S. markets.

Obviously, the greatest uncertainty remains in the residential construction sector where 2008 likely will be another year of double-digit declines in activity. However, this year-over-year decline will be from a much lower level of construction activity given the historic drop-off already realized.

As a result, our shipments will be less sensitive to further weakness in residential construction in 2008. Let me illustrate this point, using our 2007 legacy shipments as the starting point.

In 2006, our aggregate shipments to residential construction were about 64 million tons or 25% of our total shipments. In 2007, we estimate that our aggregate shipments into residential construction dropped to about 19% of our total shipments or 43 million tons, a decline of 21 million tons out of the total 27 million ton reduction we saw in 2007.

If aggregates demand in the residential construction in our markets were to decline another 15% in 2008, our aggregate shipments would decline 6.6 million tons, far less than the 21 million ton decline from 2006 to 2007.

Overall we expect aggregates demand in our markets for infrastructure projects and for nonresidential buildings to increase slightly in 2008. The broad use of aggregates in construction and the multi-year nature of highway and infrastructure projects should help to offset continued weakness in residential construction as well as some softening in certain categories of private nonresidential construction.

Overall, we expect 2008 aggregate shipments from legacy operations to be flat to down 2% versus the prior year, including the Florida Rock operations for full year should result in an increase in aggregate shipments of 9 to 12%.

A market environment that recognizes the high cost of replacing reserves has been instrumental in price improvement, despite lower volumes. The pricing momentum of 2005 and 2006 continued in 2007. In 2008, we believe this momentum will continue, resulting in price improvement of 8 to 10%. Earnings for the asphalt and concrete segment should be higher in 2008 due to the Florida Rock acquisition.

In legacy operations, the average unit price for asphalt and concrete should increase and partially offset cost increases due to lower sales volume and higher prices for key raw materials including liquid asphalt, cement and internally supplied aggregates. Asphalt margins should approximate the prior year while legacy concrete margins should be slightly lower. Vulcan's 2008 legacy concrete and asphalt operations should approximate 2007 legacy unit volumes.

Total concrete volumes for the combined company in 2008 should be in the range of 7 to 7.3 million cubic yards. As a result, we expect consolidated EBITDA for 2008 to be in the range of $1.375 billion to $1.425 billion.

Consolidated earnings from continuing operations should be in the range of $4.75 to $5.15 per diluted share.

Quantifying the earnings per share impact on our 2008 guidance from the Florida Rock acquisition is difficult. As I mentioned earlier as the integration of both Florida Rock and legacy Vulcan operations into one effective organization continues, the bright lines between the two organizations will become further blurred, making year-over-year comparisons difficult as the year progresses.

As a result, our ability to estimate and update this guidance will be limited. However at this point, we estimate the Florida Rock acquisition Florida Rock acquisition could reduce earnings per share from 3 to 4% in 2008. This is included in our guidance of $4.75 to $5.15 per share. We will be working hard to offset this earnings impact through additional opportunities and synergies we are currently pursuing. This strong earnings and cash generation forecast should allow us to reduce overall debt level, invest in internal projects with good returns and return cash to shareholders. Debt repayment will be a priority use of cash flows in 2008.

In 2007, we completed an expansion of our production and shipping capacity at our CALICA Quarry on the Yucatan Peninsula of Mexico adding about 3 million tons of capacity which is now on stream. We rebuilt our Kennesaw plant in Atlanta. We built a multi-million tons reduction planted in Corona, California, and completed a new underground mine in the western suburbs of Chicago.

We also made other important aggregate-related projects that will imprint our abilities to serve our markets and will lower our costs. Additionally we expect the cement plant expansion underway at our Newberry plant in Florida to be completed by the end of the year.

As a result, we believe our capital spending in 2008 will approximate 2007 levels of about $483 to $485 million and subsequently will trend down to more normalized levels as these large projects are completed.

In February of this year, our Board of Directors increased quarterly dividend 6.5% to $0.49 per share. This marks the 16th consecutive year our dividend has increased.

All of our products are produced and consumed outdoors and therefore are subject to seasonal weather and construction patterns. This seasonality makes predicting the timing of sales and earnings performance from one quarter to the next a challenge. As a result, our 2007 guidance is for our full year and not by quarter. This change is consistent with our management practices and running our businesses. During the year, we will continue to provide quarterly commentary regarding sales and earnings drivers for our business.

During the first quarter of 2008, we expect to complete the divestiture required by the Department of Justice of nine sites in a series of transactions. We currently expect these divestitures to be a combination of cash sales and asset swaps. Our 2008 earnings outlook includes $85 to $90 million of EBITDA and $0.47 to $0.50 per share of diluted earnings referable to these assets that are subject to the swaps. The expected EBITDA in per share earnings incorporate gains related to the two divestiture properties owned by legacy Vulcan; earnings from the divestiture of properties prior to their sale; post-divestiture earnings from swap properties we will receive in exchange for some of the divested properties; and lower interest expense arising from the use of cash proceeds to reduce debt.

In closing I would like to reiterate our confidence in future sales and earnings growth for Vulcan. Our construction materials businesses have generated good results during times of weaker demand for our products and better results as demand has improved. The foundation of our confidence is the strategy we have employed to establish an aggregates-focused business that has the great advantage of strategic locations in major U.S. markets expected to experience above-average growth in aggregates demand for many years into the future.

Our 1999 CalMat acquisition was a continuation of that long-term strategy. Pretax earnings from that business have increased over fivefold during our ownerships, beginning in 1999. The Florida Rock acquisition is also a continuation of the that strategy. We believe it will create long-term value for our shareholders by extending our geographic reach and adding increasingly scarce permitted aggregate reserves in fast-growing markets.

We look forward to the long-term value this merger will provide our shareholders. We remain focused on successfully and effectively integrating the two companies while continuing to deliver solid return.

Summarizing the key attributes of our aggregates-focused business and how this strategy benefits Vulcan and its shareholders, our 2008 results should benefit from the following attributes -- a more diversified regional exposure; the increasing value of permitted reserves in fast-growing metropolitan markets; and the broad use of aggregates in downstream products and diverse end markets including relatively stable demand from public funding for multi-year construction contracts are typical.

During 2008, we remain optimistic about state leadership to fund transportation and infrastructure construction. As an example, California's need for additional spending on infrastructure is well-documented; and the governor and state legislature put in place a ten-year strategic growth plan which contemplates over $200 billion for infrastructure construction.

States such as Virginia have also approved additional funding for highway and infrastructure projects. We believe other states will take a closer look at additional funding sources.

We thank you for your interest in Vulcan. Now if our operator will give you the required instructions, we will be happy to respond to your questions.

(OPERATOR INSTRUCTIONS). Ajay Kejriwal of Goldman Sachs.

On your pricing guidance of 8 to 10%, I guess that includes Florida Rock, but -- .

Yes it does.

So wondering if you could help us with what you expect for Florida Rock versus legacy Vulcan just so we can make apples to apples comparisons?

The rate of increase in aggregates prices will be higher in Florida than in other markets in 2008. That's already in place as you know. I don't have a breakdown between -- as you know, Florida was also part of the legacy Vulcan business. And so it's depending upon where we source the material that goes to Florida. It could be counted as part of the Florida Rock or part of legacy Vulcan.

So that's one of those distinctions that get increasingly difficult to make. But our 8 to 10% does include additional volumes in Florida whether sourced from Florida Rock, legacy quarries or Vulcan legacy quarries.

So I guess if you could help us understand what are you looking for in Florida? So legacy Vulcan plus Florida Rock volumes, if you combine that together what would be pricing just in Florida?

It is substantially above the 8 to 10%. But as you know I guess last year, Cemex announced the $5 per ton price increase for aggregates and their facilities in Florida. I believe that increase has taken effect and, certainly, that's depending upon which market you are in Florida. And because of the difference between the pricing of imported aggregates and domestically produced aggregates, that rate of increase is different from market to market. But overall, it is substantially above the 8 to 10% overall price increase. I can't give you a breakdown of exactly how much that is.

The Cemex number we all heard was about $5 last year, so is $2 to $3 a fair number to use for all of your operations? Because the $5.00 apparently was just in the Miami portion.

I don't think that's correct. I think that would apply to Tampa and Jacksonville and Orlando as well. The, our -- again -- we -- trying to draw distinctions between whether the price increase is coming from a Florida Rock legacy quarry or a Vulcan legacy quarry is just not something -- I mean we can guess, but as the year progresses those things are going to move around a great deal.

Suffice it to say that Florida will have a significantly higher rate of price increase than other markets in the U.S., largely based on the shrinking reserve base there.

Got it. Moving to volume, residential also volume of 43 million. Could you provide similar numbers for nonresidential and infrastructure pieces please?

Well we publish the percentage that -- or we will publish it as soon as we put out our 10-K, but I will give you those numbers.

In '07 we estimate -- and I emphasize we estimate because when a truckload of rock leaves our gate we cannot be certain where it ends up -- but we estimate that 47% of our shipments went to publicly funded infrastructure projects. About 19% into residential, both single-family, multi-family; 31% in the private non-res; and then, about 3% into other which would include railroad ballast and agricultural and chemical uses.

It sounds like you're assuming 15% decline in residential and low single digit increases in non-res and infrastructure buckets?

Correct.

Lastly, on your guidance which includes $0.47 to $0.50 from the divestitures of those nine assets -- .

It includes more than that. It includes earnings from sites to be divested until they are in fact divested. It includes the earnings from properties we will get in the swaps. It includes interest savings that we project from being able to pay down debt with cash proceeds. And it includes gain on the two properties that are legacy Vulcan.

As you know, we will not record a gain on the Florida Rock legacy assets to be sold because we will first write them up to fair market value which by definition will be the amount we sell them for. So the -- how all that breaks out is still uncertain. We are moving along with the buyers and people who will be swapping for those properties. But we do not have firm contracts yet.

And so that is just an estimate and I don't think we are prepared to try to be any more precise about how much of that is coming from earnings and how much is coming from interest savings and how much is coming from gain. We will give you that information once these transactions are firm and final, but at this point there's a lot of moving parts in that number.

Garik Shmois with Longbow Research.

Good morning. Just wondering if you could talk a little bit more about infrastructure volumes for '08 and just maybe break it out between some of the states that you are more confident in and some of the states that you are seeing a little bit more weakness? And also if you could discuss some of the concerns out there with respect to states discussing budgeting problems and if you think that could be a risk to your infrastructure outlook?

By far, the most significant state for public infrastructure as we look at '08 is California. You, I'm sure, are aware of the bond funding for infrastructure that has been approved. You are aware of the program there that I referenced in my remarks.

One of the bright spots of state infrastructure funding is that as we understand it at this point, even though California is projecting a significant budget deficit overall, it will have very little if any impact on this infrastructure program. We expect to see some benefit in shipments resulting from that program, certainly by the second half of '08. But that program has got a lot of momentum. It will have a very significant impact on shipments of construction materials in California for years and years into the future. And as I said, it appears at this point that it is not tied to the overall 10% reduction that Governor Schwarzenegger has asked for from the various departments in California state government.

Virginia, as you probably know, has substantially increased its commitment to public highway funding. There is some more sensitivity in Virginia, I think, to the state budget than in California. But that program is still going forward with substantially increased commitment to public infrastructure spending.

On the flip side, the state of Tennessee remains weak in its commitment to highways. Most states, if you look at the combination of highways and public infrastructure, are in the low single digit increase in demand over '07.

Thank you for that. Can you talk about your aggregates pricing expectations in California? I know you've been able to achieve some very significant increases there over the years with volumes off. In residential it sounds like infrastructure is still holding in there. Are you expecting another significant perhaps double-digit price increase in some of your larger California markets?

That is -- the rate of increase in California is probably going to be less than it has been historically until the public infrastructure projects pick up. As you know, Southern California has been one of the markets that has been affected most by the decline in residential construction.

We have added new production capacity at Corona, California which can serve both the L.A. Basin and San Diego. That plant is now fully onstream and we have additional capacity to serve the market. Once the infrastructure programs start consuming construction materials in California, we expect the price momentum to resume, but at this point with the slowdown in housing it is less than it has been historically.

And just lastly, if you can discuss this expectations for synergies from Florida Rock. A year ago, when you announced the acquisition for 2008, you were looking at a figure about $43 million. Would you be able to guide us in some direction of what you are expecting for '08?

Sure. I think at this point we are right on the projections we gave earlier. We think by the end of '08, we will have in place all of the synergy that would yield annual savings of about $50 million a year. We have achieved or by the end of this month we will achieve the full $80 million of one-time cash synergies that we projected. That's come along very nicely.

I think there -- we are working very hard to identify and achieve additional synergies. They will come largely through operating improvements in both concrete and aggregates as we collect the best skill and knowledge in both companies and put our heads together on ways to work together. There are some additional opportunities that the combined company can pursue in '08 that neither company alone could effectively pursue. And we are working hard to get to those.

We will give you additional guidance as we can identify and quantify additional synergies. But at this point, we are right on track with the $50 million we initially projected.

Dan Oppenheim with Banc of America Securities.

This is [Mike Woods]. Can you talk about the price increase that you've [got at] toward '08? Whether or not that includes any additional increases beyond what you have already announced to declines generally out there?

I'm not sure I follow your question.

I'm curious if, in that expectation, there is additional price increases that you are planning to put through midyear or if it's just what you've already announced in January that you expect to take effect over the next few months?

There will be contributions from both. As we, I think, have tried to explain before, we don't have a Companywide pricing strategy. We do have a Companywide pricing strategy, we do not have Companywide price increases that go into effect at certain times of the year. This is a market by market, product by product, customer by customer pricing strategy. And we will have price increases in various markets for various products throughout the year.

But in answer I think, if I understand your question, the 8 to 10% in price improvement we expect in '08 some of that is already in place through announced price increases and some of it will be the result of price increases that occur at different times of the year in different markets.

And can you just provide more color on what your thoughts are with converting some of the short-term debt that you took on as a result of Florida Rock? What we should think about modeling in for interest costs associated with that debt in '08?

Let me let Dan Sansone respond to that.

I can answer that question a couple of ways. At this point in time you probably are aware that we issued about $1.2 billion of debt in December of 2007. That still leaves us today with a considerable amount of short-term debt.

Our current plan is that we will term out somewhere in the neighborhood of $600 million to $700 million of additional long-term debt during the course of 2008. The exact timing of that is going to be really driven more by market conditions than it is anything else.

We -- in terms of guidance, what I would offer is that we are looking at -- what's embedded in the earnings guidance we just provided is about $178 million of net interest expense for 2008. And the key assumption there is that we term the $600 million of additional long-term debt in the middle of the second quarter. To the extent that we deviate from that timing, there will be a modest effect on the interest cost. But that's our current modeling assumption and planning.

If you -- if we do term out $600 million in the middle of the second quarter and if rates stay where they are today, we would then be looking at a kind of an all-in run rate of about 5.6% for all of our incremental financing, referable to the Florida Rock transaction. That would be the combination of the long-term debt and the portion that would stay short and it's based on current rates.

Timna Tanners with UBS.

I wanted to ask on the volume side for a little better color. I'm just trying to understand the macro assumptions that you might be making to get to a 0 to 2% decline. Given that some of the highway budgets that you had planned to the public spending tend to be fairly fixed in nature in terms of the budgets and given an assumed 8 to 10% increase, how is it possible that there could be enough, I guess, availability to spend another 10% increase, given the rest of the costs that are rising?

So are you assuming a pickup in demand in the second half of the year like [Martin] plan out?

In public infrastructure or overall? I'm not --

Yes I was pointing out public infrastructure where I think budget might be tighter, but if you could comment on the different segments particularly non-res and public infrastructures.

If you break out public infrastructure into highways and other, we think the other is probably going to be stronger than highways. We think buildings, whether they are public or private, will increase slightly in '08 over in '07 and I am talking about in tonnage, tons. More so in dollars than in tons. Because as you point out the cost of all building materials, including steel and liquid asphalt and other things, are moving up.

Residential, we think, will be down probably another 15%. One of the things that you should factor in of course is that we have added 3 million tons of production and shipping capacity at our CALICA quarry and that whole thing is basically sold out for 2008. So we will pick up some volume from that. Our Corona quarry in Los Angeles now has -- will give us additional capacity. We will pick up some volume from that.

I think if you look at, as we've tried to point out, the Vulcan-served states on both public infrastructure and private non-res based on contract awards in '06 and '07 are stronger than the rest of the country. So when we say flat to down 2%, we take into account the relatively stronger contract awards in our markets. We take into account the additional capacity we now have and we factor in highways being flat to down 1%; other public infrastructure being up 3%; public and private buildings being up 1%; and residential being down about 15%.

That's the basis of our volume outlook.

That's helpful. Can you remind us of your exposure to [Lake Belt] and give us an update on how that discussions are going there?

Our exposure to the Lake Belt is a single quarry in Miami that has about 4 to 5 million tons of production capacity. I think it has never shipped more than about 4. It is now continuing to ship from either material that was mined prior to the last court ruling or from material that's mined in a portions of the quarry that are still available for mining.

We do not have any update. The case was argued in the United States Court of Appeal for the Eleventh Circuit in Atlanta back in November. There will be some ruling at some point. Then after the court ruling presumably the Corps of Engineers will then have -- will exercise its jurisdiction over the permitting and issue, whatever permits it deems appropriate.

But at this point we don't have any prediction for that outcome.

Jack Kasprzak. BB&T Capital Markets.

On the question of synergies that you addressed a little earlier, I just wanted to ask, is that contribution assumed in the '08 guidance?

Some portion of it. We -- I want to be clear. We are saying by the end of '08 we will have the entire $50 million run rate in place. I think the impact on '08 is less than that because all of that is not in place on January 1. A substantial portion of it is, but not all of it.

And then with regard to the $0.47 to $0.50 a share that's included in '08 guidance referable to the various transactions you mentioned. Is it the case that there will be some portion of that -- although we don't know how much -- that will go away as part of the ongoing Vulcan operations due to the divestiture process? Unless you could swap 100% (multiple speakers) lose some earnings?

Let me -- there is -- assume for a moment a closing at the end of the first quarter. There will be some earnings contribution from the divested assets during the first quarter that's included; that will not continue for the rest of the year because those assets will be, divestitures, and we'll get some assets in exchange. So we will have nine months of earnings from those assets.

Then there will be some cash which we will use as debt reduction so our interest charges will be reduced for the last nine months of the year and there will likely be some accounting gain on the legacy Vulcan assets that will be sold, even though as you know in the miracles of purchase accounting you can sell one quarry and have no gain if it was legacy Florida Rock and you can sell another quarry that's just like it that was legacy Vulcan and you will have a gain.

So there will likely be a significant gain from the Vulcan assets that are in the exchange and no gain from the Florida Rock assets that are in the transaction.

So I wouldn't, you shouldn't -- we are saying that's the full year impact of all of this stuff working together. So we believe the $0.47 to $0.50 per share is part of our full year '08 earnings. Some portion of that will be continuing and some portion won't and we will at this point we've got to get deals closed before we can't do those calculations. But we will give you some additional guidance on that.

But I wouldn't -- I don't think it is correct to say some portion of that goes away after the transaction. That's the full year impact to us from all of these -- from the impact of all of these transactions plus the purchase accounting.

That's very helpful. Thank you. With regard to concrete in Florida, how are prices of Ready Mix Concrete in Florida? I think the last public release by Florida Rock before you closed the deal, they seemed to be holding up fairly well in the face of the severe residential decline. Can you characterize it for us now?

I think pricing for concrete in Florida is going to be a challenge. We certainly don't -- our philosophy is, there will not be a single additional house built in Florida if concrete prices are $20 per yard lower than they are today. That is not going to move demand. There are so many other, much more significant factors in the determination of whether to build a house than what the concrete prices are, but we have to be competitive.

But, at this point, as I said in my remarks we are pleased with the resiliency of concrete prices in the face of substantially lower demand. I think we realize that demand is not going to be created by lower prices.

Trey Grooms with Stephens, Inc.

You touched on after Jack's question the pricing environment in Florida and then you've also talked about pricing with aggregate. Could you talk a little bit about the demand environment in Florida for aggregates, concrete and then also cement which, in the quarter, if you also can touch on the -- a little bit of detail on what was going on there? It seemed like it came in a little bit weaker than what we would have expected it to come in.

With respect to aggregate demand in Florida, obviously aggregate demand in Florida is off significantly from the past few, years. But what is also off significantly is a supply of aggregates in Florida, which is the reason that you are seeing above average price improvement for aggregates in Florida. Housing is obviously very weak. Public infrastructure is pretty good in Florida.

It's very difficult for us at this point to have any visibility into when the market, when the housing market stabilizes and begin to recover. Different economists have different views on that and our views would not be any better than the views of others in that regard.

With respect to overall demand for aggregates, the fourth quarter is, as you know, the first quarter has so many factors that effect aggregate demand, principally weather and the impact of people either deciding to try to get projects finished or to carry them over. Fourth quarter shipments were lower than we thought they would be, that is overall, but not of any great concern to us at this point because of the seasonality of our business.

And you are talking about aggregates there?

Yes.

Could you touch more specifically on maybe the non-res? What's going on in Florida there with non-res? I know you touched on housing and infrastructure a bit.

I don't have any specific -- Well, let's see, I've got my little sheet here. Let me take a look at that. On non-res and that -- our view is that in North Florida, buildings will be up about 2% and in South Florida they will be flat. Infrastructure, which includes both public and private in North Florida, we believe it will be up about 4% and in South Florida up about 1%.

Now these are aggregate tons, not dollars of spending. Of course, the dollars of spending would have to be higher on a percentage basis because the price of aggregates has moved up in those markets. But -- and these are our internal demand projections for aggregates by region. As I said these are our best estimates but they could vary obviously from these views.

That's very helpful. Then just on the cement in the quarter. I know it was a stub period and you have holidays and so forth going on, but still the revenue seemed I guess fairly low, coming out of the cement operations and volumes seemed lower. Is there something in particular going on there beside weak demand or is there something else that happened in the quarter?

Yes we had our cement plant outage that was scheduled in the fourth quarter and we went ahead and took it.

And that was after closing.

That was in the stub period and you know that's -- I don't -- you didn't follow us back when we were in the chemicals business, but once or twice a year when we took our chemical plants down for annual maintenance outages, you saw a significant impact on earnings in whatever quarter that occurred and you will continue to see that with the cement plant. But the stub period in the fourth quarter was significantly impacted by the annual maintenance outage, which occurred in the last six weeks of the year in cement.

So that accounts for what you see as revenues.

Is there any way you could maybe quantify that a little bit?

I don't have the data in front me to do that, but (multiple speakers)

Fair enough and then the other question is you kind of touched on your thoughts that energy would be -- in asphalt costs would be trending up. Could you give us anymore color on your expectations and kind of what is baked into guidance as far as your outlook for energy and liquid asphalt for the year?

Yes, just a second. I think the -- as we said, the fourth quarter cost of diesel fuel was up about 41% from the fourth quarter of '06. We expect that level to continue -- at least that's what we built into our '08 projection -- that the fourth quarter diesel, fourth quarter '07 diesel fuel pricing will continue throughout '08. To the extent we get some price relief that will improve our earnings. To the extent diesel fuel gets higher than it was in the fourth quarter, it will have some negative earnings impact. And predicting diesel fuel pricing with this market has a lot of peril, but that's what's built into our projection is diesel fuel pricing in '08 equals to the fourth quarter '07 level.

Chris Manuel. Keybanc Capital Mortgage.

Couple of questions for you. First, Dan, just a couple housekeeping items. Can you tell us what the CapEx and the DD&A and interest rate assumptions are for '08?

Yes for CapEx I would use $485 million. For DD&A we see that settling in at right about $400 million for the combined company and that includes our best estimates as of today anyway with respect to the purchase accounting step-up in the Florida Rock assets.

What was the third variable --? Interest rates. Yes.

Tax rate.

Tax rate. I'm sorry. What I would use for 2008 is 32%. We will be in that neighborhood plus or minus rounding.

Thank you. Don, one of the pieces that -- and you've given us the synergy and you've given us an update on the synergy target that that appears reasonable. Another piece of guidance at the time of transaction that you gave us was to anticipate, I believe it was over the '08 to 2010 timeframe of average EBITDA in the $2 billion range per year over that timeframe.

Clearly the markets have turned a bit worse with respect to Florida and housing. At this point it maybe appears -- at least by my math -- that maybe you can get to a $2-ish billion range by the end of 2010.

Can you give us a comment or thought as to how you think about the combined entity over the long period at this point?

We don't have a projection of a combined company at this point for the period beyond '08. I think it's a fair statement that our EBITDA projection for '08 today is lower than it was a year ago. That's a result of not only the Florida Rock business, but the Vulcan legacy business.

We are -- we believe the combined company will be a strong cash generating organization. But we certainly can't affirm the three years of average $2 billion EBITDA because our '08 number is lower than what we had in that roll up. As we indicated at the time that was an average over three years and it was projected to increase.

Certainly we think there's a lot of upside both the legacy Vulcan business and the legacy Florida Rock business; but more importantly there's even more upside to the synergies in the combination but that is -- when we get to that number is going to be largely dependent upon what the markets do. And the wild card there is when residential markets began to stabilize and recover, we will have a new President within the year.

There is a great deal of discussion already about the underfunding of public infrastructure in the U.S. I think that will -- we will see that increasingly as a subject of discussion. There's a lot of stuff going on in Washington about public infrastructure. You are aware of the Commission Report. The Commission that was established as a result of the last highway bill to talk about funding.

We are not sure what the outcome is going to be, but we expect there will be a great deal of dialogue and possibly a very significant change in the way public infrastructure is funded and the levels in which it is funded and that will have a very significant impact on us going forward. We don't know what the outcome is going to be, but we are certainly going to be engaged in the dialogue.

That's fair. And with respect to -- I would like to follow up on Jack's question earlier from the $0.47 to $0.50. I appreciate that your -- it's difficult to ferret out each of the individual pieces, but is it safe to assume that a sizable portion of that or would it be a sizable portion or a smaller portion that would be represented from the gain on the sale of assets? (multiple speakers) effectively what we are trying to get at is what would be a recurring piece?

I think there will be a significant gain. At least if we close the transactions that we are contemplating at this point. There will be a significant accounting gain on the portion of the divested assets (technical difficulties) legacy bulk.

But that's not all of it. There is continuing earnings from the swap properties. There's reduced interest costs from the utilization of cash and -- but as I said earlier there are a lot of moving in there and until we get these deals closed we can't tell you (multiple speakers) .

My understanding is -- and I realize there's a lot of moving parts, but directionally would you characterize the gain as greater or less than, say, half of that amount?

I think it would be more than half.

Mike Betts. JPMorgan.

I have two or three questions I guess all related to Florida Rock. First one is just to clarify because the $0.32 that you indicated in the fourth quarter earnings or for the year rather, they were all kind of financial license or stuff like that. Was there no operating contribution in the six weeks?

Yes, there was. It was not huge, but it was -- there was an operating contribution. There was also an offsetting purchase accounting additional depreciation on all of the Florida Rock assets over and above what would have been had they remained within Florida Rock. As I mentioned we had our annual cement plant outage that we took in that stub period.

So, yes, there were some contributions to earnings from the operations in that period but they were not significant in light of the whole $0.32.

And my second question relating to Florida Rock was you've talked about the synergies. But -- and maybe this is just my view, the management had been somewhat slow last year to just cut costs to reflect the declining volumes because you know they were seeing 30 to 50% volume decline. So even if they hadn't done a transaction with you, you would have expected fairly significant cut backs.

I guess you've been implementing that cost-cutting in the last six weeks and you've got more to go. Are you able to sort of indicate over and above synergies what cost-cutting you've done within that business to reflect the worsening outlook there?

Well certainly, certainly there have been cost reductions. I do not have a quantification of that that I can give you, my colleagues. The one metric and I can't break it down between synergies and cost reduction, but both legacy Vulcan and legacy Florida Rock headcounts are down. Florida Rock, I think, there are about 350 people both hourly and salaried that are no longer in the combined organization.

Some of that is included in the synergies and some is operating business, as a result of issues with demand.

And do you know what percentage that was of the workforce?

11 or 12%.

11 or 12%.

Final question because we've talked a bit or you mentioned earlier the Ready Mix Concrete price issue. Have you announced price increases? What is happening I guess is my question in sort of Q1 in Florida? I mean we would begin to see some pressure on Ready Mix Concrete prices there and I guess more generally in the U.S.

Have you seen any change in trend in that in the first quarter or is there still some downward pressure on Ready Mix prices?

I don't think there is a lot of downward pressure that we have been able to see. I think it is likely that by the end of the year '08 compared to '07, because of the contracts with pricing rolling off and new contracts going out that there may be some discernible change there, but I can't tell you at this point what that is likely to be.

John Fox with Fenimore Asset.

Believe it or not, I have a few questions left. First I just want to confirm on all the discussions about tons, in terms of guidance of legacy and the percentage of shipments, that's total tons both internal and external?

Yes.

Great. Then maybe if you tell us a little bit more about the cement business. You gave some guidance on concrete shipments combined for '08. Do you have any thoughts on cement shipments, No. 1? And No. 2, can you tell us what the CapEx is this year for Newberry?

Cement shipments from legacy Florida Rock, there are two sources of SONET shipments. One is the Newberry plant. The other were imports. I think the tonnage from imports will be significantly reduced. The tonnage from the Newberry plant will be largely the same. The second line of the Newberry plant will come onstream probably by the end of the year. So I don't think we've built in any incremental volume from that second line in our '08 outlook, but it will be available in '09.

Certainly the volume reduction is in imports. And I think that's been the view all along, that the domestic cement capacity in Florida would displace imports because it is lower-cost than any imports.

On CapEx in '08, we are projecting plus or minus $50 million at the Newberry cement plant to get that second line up and running and then the regular CapEx that would be necessary. As you know it is a brand-new plant so there's not a whole lot of other CapEx that would have to the spent there.

And so presumably that would go away in '09?

Correct.

And then for Dan, you said 178 of net interest expense -- is that net of interest income?

Yes sir.

And you mentioned $80 million in one-time cash synergies. I think it occurred in January.

They've been occurring since closing, but we think by the end of the first quarter virtually all of the items that we identified will have been put in place.

Okay. So I can't add $80 million to the year-end cash balance? That's been coming in the last year and this year?

That's correct. We have not received all of the -- for example there's one item that's $33 million that we will receive at the end of February just as a point of illustration.

John, that's a net number. There's cash out and there's cash in. That is a net number.

Right. I am just trying to get cash collections and ability to delever and that type of thing. So some of that is -- can come in in '08?

Yes.

We are reasonably comparable that we are going to be able to take debt down probably $300 million in '08.

By the end of '08?

Yes.

Yes.

And that includes the effects of divestitures, etc.?

Yes. That's everything all worked in together. Operating cash flow, net cash, synergies we just discussed. (multiple speakers) expectations.

Those cash synergies for the rest of '08, is there any GAAP accounting gain? Or is that included in EBITDA or -- ?

Any impact of that is included in our guidance, but most of it is not going to have a big GAAP accounting impact.

So there would not be a significant earnings impact from those cash synergies? Is that fair?

That's correct. That's correct. There would not be.

I don't remember whether you were with us in the years following the CalMat acquisition, but we had the same thing. We were generating a lot of cash that was not showing up as accounting earnings, and then at some point it started becoming accounting earnings as well as cash as the fair market values of the properties started exceeding the purchase accounting write-up.

So we will see that here as well, but for the initial year or two you'll see cash but not much GAAP accounting earnings.

There are no other questions in queue at this time. I would like to turn the call back over to Mr. Don James for a closing remark.

Thank you very much for your interest in Vulcan today. We've got a lot of work to do in 2008, but we are excited about the prospects of the continued opportunities of bringing these two businesses together. We look forward to talking with you again at the end of the first quarter. Thank you very much and have a good day.

Thank you all for your participation in today's conference. This includes the presentation. You may now disconnect and have a great day.