渥肯建材 (VMC) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the fourth quarter 2008 Vulcan Materials earnings conference call. My name is Dan, 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 call over to your host for today's call, Mr. Don James, Chairman and CEO. Please proceed, sir.

Good morning. Thanks for joining this conference call to discuss our fourth quarter results and our outlook for 2009. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials. We appreciate your interest in Vulcan, and we hope our remarks and dialogue today will be helpful to you.

A replay of this conference call will be available later today on our website. Joining me today is Dan Sansone, our Senior Vice President and Chief Financial Officer, and Mac Badgett and Danny Shepherd, two of our Senior Vice Presidents in Construction Materials.

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. 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.

The fourth quarter brings to a close a very challenging year. Economic uncertainty, turmoil in the financial markets, and tighter credit standards weakened construction activity further in 2008. Our employees continued to respond aggressively to weakness and demand for our products by making tough decisions regarding reducing operating hours, rationalizing our production facilities, and reducing manning levels.

To underscore this point, a ton of aggregates in 2008 in our Legacy business generated more cash earnings than it did last year in 2007, and over 50% more cash earnings than it did at the peak of the demand cycle in 2005. This fact highlights the sound fundamentals of Vulcan's Aggregates business, the capabilities of our organization, and the attractiveness of the markets we serve.

Fourth quarter earnings in our Aggregate segment were lower compared to last year. Sharply lower volumes more than offset the earnings effect on price improvement and prudent cost control. The current downturn in demand for aggregates began in the second quarter of 2006. We have since recorded 11 consecutive quarters of lower shipments on a same quarter basis.

Aggregate shipments declined 23%, versus last year's fourth quarter. Full year aggregate shipments were 204 million tons, a 12% decline from 2007. In the fourth quarter, the average freight adjusted unit sales price for aggregates increased approximately 6% from the prior year's fourth quarter. For the full year, we achieved a 7% increase over 2007.

During the fourth quarter, we continued to adjust production levels to match the lower level of demand. Key operating parameters that measure labor efficiency at our production sites showed that our plant managers, through their actions, mitigated a lot of cost is pressures caused by significantly lower volumes. For the full year 2008, the average unit cost for diesel fuel increased 36% from the prior year and lowered operating earnings approximately $37 million.

Excluding energy-related costs, such as diesel fuel and electricity, unit variable production costs in Legacy Vulcan Aggregates Operations for full year 2008 increased modestly from the 2007 level. Additionally, cash period costs at Legacy Vulcan Aggregates Operations were approximately 13% lower than last year. These cost control measures demonstrate the greater production flexibility of an aggregates plant, versus continuous process manufacturing facilities used in many other industries.

Earnings for our Asphalt and Concrete segment were lower than the prior year's due mostly to lower sales volume. Asphalt volumes declined 23% from the prior year's fourth quarter, and asphalt mixed prices increased 27% from the prior year. The average unit price we paid for liquid asphalt in the fourth quarter was 68% higher than the average unit price in the prior year. The average price of liquid asphalt peaked in September of 2008 and declined each subsequent month, with the December price 33% below the September level. The rapid escalation in liquid asphalt prices during the second and third quarters made it difficult for us to increase our selling prices for asphalt mix fast enough to cover these costs.

Fourth quarter pricing actions began to offset some of the margin erosion experienced earlier in the year, as higher priced projects replaced lower-priced projects. As a result, fourth quarter unit material margin improved from the prior year's levels. Concrete sales volumes increased 39% from the the prior year's fourth quarter, due to the addition of the Florida Rock operations. Sales volumes in our Legacy concrete business declined 18% from the prior year.

Selling, administrative, & general expenses in the fourth quarter of 2008 increased $11 million from the prior year. Lower performance-based compensation was more than offset by the inclusion of the Legacy Florida Rock businesses by $5 million of expenses for the fair market value of donated property and the project costs related to the replacement of our Legacy IT systems, and the related consolidation of certain administrative support functions. Excluding these items from both periods, S.A.G. expenses declined 8% from the prior year's fourth quarter.

Before I move into comments regarding 2009, let me say in summary that our management teams are running their businesses well in an extremely tough economic environment. Throughout 2008, we remain focused on aggressively controlling costs, while realizing higher pricing for our product to reflect their value in the attractive markets we serve. These actions help preserve profitability for each ton of aggregate sold in 2008.

Turning now to our outlook, cash generation through cost control and pricing discipline, and utilizing our cash for debt reduction remain priorities in 2009. Broad based economic weakness and extremely tight credit markets continue to hamper construction activity and foster greater than usual uncertainty in projecting demand for our products.

The construction industry has been hard hit by above-average unemployment and weak demand. Reduced levels of contract awards in Vulcan served markets point toward lower residential, private non-residential, and highway construction activity in 2009, excluding the impact of the economic stimulus plan now pending in Washington. The economic stimulus plan being voted on today in the Senate includes much-needed funding for transportation and other infrastructure-related projects that will benefit the construction industry.

We have ample production capacity located in attractive markets, and we have strong unit cash margins. Any increase in demand for our products due to the stimulus bill can be met quickly, efficiently, and profitably. Key Vulcan served states, such at California, Florida, and Texas should receive the largest percentage of highway funding under the stimulus plan, and are likely target for above average funding for other stimulus spending for infrastructure, because of their large population base. Vulcan sales in these three states should benefit from our aggregate-focused strategy that is complemented by our asphalt and concrete operations in these states.

Because the passage of an economic stimulus plan should have broad-reaching effect on the demand for our products, forecasting 2009 sales volumes in aggregate asphalt and concrete, including the effect of the stimulus plan, at this point, is both challenging and premature. Therefore my outlook comments on end-market demand exclude any impact from the economic stimulus plan. My comments also exclude any impact from the ruling two weeks ago in the Lake Belt Litigation, which I'll comment on briefly in the future.

With respect to Vulcan served market, we expect aggregates demand in all non-housing related end markets to be down in the mid single digit range, and residential demand to decline as much as 20% in 2009. As a result, full year aggregate shipments for Vulcan are expected to decline 5% to 10% from 2008 levels, exclusive of the economic stimulus plan. We expect selling prices for aggregates to rise 6% to 8% in 2009, and to help offset the earnings effects of lower volumes.

We expect earnings from our Asphalt and Concrete segment to increase in 2009, due primarily to a recovery in material margins in our asphalt businesses, where higher selling prices reflect the past year's increases in cost for key raw materials. Asphalt and concrete sales volumes in 2009 are expected to be slightly lower than 2008 levels. Segment earnings in cement will be lower in 2009, due to higher costs and weak demand. Our outlook assumes that diesel fuel prices increased modestly from the unit price level at end of 2008.

If prices remain at that level, our average cost of diesel fuel will be approximately $1.40 per gallon lower than the 2008 average unit price. Our sensitivity to changes in diesel fuel prices has diminished some, given the current weakness in demand. At the peak of demand, we purchased about 65 million gallons of diesel. In 2009, we expect to purchase and about $45 million gallons of diesel fuel. As a result, every $0.10 per gallon change in the price affects pretax earnings approximately $4.5 million at current demand levels.

We expect SAG expense to be slightly lower in 2009, as increased costs related to the replacement of Legacy IT systems and the related consolidation of administrative support functions are offset by the effects of cost reduction programs. Interest expense in 2009 is expected to be approximately $200 million, based on the current level of short-term interest rates for the short-term portion of our debt.

As I mentioned earlier, the timing and level of investment for infrastructure that will be contained in the final economic stimulus plan, are unknown at this point. Based on our preliminary analysis, we believe Vulcan served states will receive the majority of the spending.

For planning purposes, we have begun to analyze the potential volume impact of Vulcan by making high-level, broad-based assumptions about the volume intensity of the various infrastructure-related projects contemplated in the stimulus plan. We have identified three broad categories of infrastructure in the current stimulus plan which could contain our products. Those categories would include transportation, including highways, transit, and airports, water and environmental infrastructure, and building infrastructure, which would include schools, military buildings, and medical and other facilities.

For example, transportation infrastructure is the most aggregates-intensive construction project type. For every billion dollars spent on highways, approximately 14 million tons of aggregate are consumed, assuming a normal mix of highway projects. This factor could increase if ready-to-go projects are more heavily weighted toward resurfacing and lane additions, rather than historical spending patterns, which include large multi-year right-of-way acquisitions and earth moving, which have no aggregate content.

For Vulcan our sizeable Asphalt and Concrete businesses provide additional earnings potential from highway projects. That same billion dollars spent on highways could also lead to four to five million tons of asphalt mix, and 150,000 cubic yards of concrete.

Water and environmental-related infrastructure, including clean water projects and other water resource projects, can also consume large quantities of aggregates. For every billion dollars spent on water and environmental infrastructure, we estimate five to six million tons of aggregates could be consumed along with 300,000 tons of asphalt mix ,and 200,000 cubic yards of concrete.

Every billion dollars spent on building infrastructure could result in consumption of two to three million tons of aggregates, 200,000 tons of asphalt mix, and 700,000 cubic yards of concrete. However, until such time as the stimulus plan is signed by the President, and specific project lists are available from the respective contracting agencies, it will be difficult to estimate the timing and magnitude of incremental sales volume and potential earnings impact for Vulcan.

Another development I want to touch on briefly is the status of the Lake Belt Litigation in south Florida. On January 30, 2009, the US District Court for the Southern District of Florida issued a ruling invalidating all permits approved in 2002 for limestone mining in the Lake Belt area of Miami-Dade, after being reversed on appeal previously. The ruling pertains to U.S. Army Corp. of Engineers-issued permits to several companies, including the permit issued to Vulcan's Miami Quarry. The companies in the Lake Belt region affected by the ruling are preparing to appeal as soon as possible.

The Lake Belt region historically has supplied as much as 50 million to 55 million tons of aggregates to Florida markets, including Miami, Jacksonville, Orlando, and Tampa. As I mentioned, Vulcan has one quarry affected by the latest ruling. In 2008, Vulcan's Miami Quarry sold approximately 1.5 million tons.

The limestone reserves in this region also serve as an important source of feedstock for the cement plants in Miami. Vulcan's cement plant in Florida is not in the Lake Belt, and is not affected by this ruling.

Our businesses has generated significant amounts of of cash throughout different economic cycles. In 2008, we generated $624 million of cash earnings, despite continued weakness in demand. We reinvested $415 million in our plants and equipment, returned $215 million to our shareholders in the form of dividends, and reduced total debt $109 million.

As we look forward to 2009, we expect another year of solid cash earnings, even without the benefit of the economic stimulus plan. Our plants and equipment are in very good condition. Reinvestment in these assets over the last few years has increased production efficiency and capacity, and reduced the average age of our rolling equipment. As a result, we expect capital spending in 2009 to be approximately $200 million, down sharply from the $415 million in 2008.

Last week we issued $400 million of long-term debt to provide additional liquidity to supplement our bank facilities. Berkshire Hathaway was the sole investor in the transaction, and we appreciate their confidence in our business. We expect to reduce total debt by $200 million during 2009.

In closing, I would like to reiterate our confidence in future sales and earnings growth for Vulcan. The confidence comes from our successful strategy to establish an aggregates-focused business, that has the compelling advantage of great locations in major U.S. markets that are expected to experience above-average growth in aggregates demand for many years into the future. The current economy is weak, but economic stimulus plan moving through Congress will provide much-needed support for creating jobs and getting our economy back on track.

For Vulcan, a daily discipline, focused on cost control, margin improvement, and cash generation, along with maintaining our long-term focus on serving our customers, building our business, and creating value for our shareholders, will lead us through these challenging economic times. Our organization is meeting the challenge and preserving the profitability of our business. Vulcan remains in the top quartile for total shareholder returns among all S&P 500 Companies for 2008, as well as for the three-year and five-year periods ending in 2008.

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

(Operator Instruction) Your first question comes from the line of Garik Shmois from Longbow Research.

Hi, good morning. Just first, on your pricing, guidance, 6% to 8%, pretty impressive for 2009 considering you're looking at probably your fourth straight year of volume declines. Wondering if you could talk about, your obviously confident of that number, but what markets are giving you pretty fair confidence that you will be able to achieve that?

I think overall we are seeing the opportunities for price improvement. Some markets are weaker than others, but it's not focused on any one market. I would say it is generally overall.

Okay. And just to be clear, your pricing guidance does not include the Lake Belt.

It does not include any effect from the Lake Belt.

Just a follow-up on that point. Are you seeing any weakness in pricing in any of your markets?

Well, yes. I think California has been weaker than normal. Other than that, I think there are some parts of Florida that have weakened, but overall our price increases have been good across the country.

Okay, and just lastly, you mentioned in prepared remarks you expect kind of a mid single digit volume decline on the combined non-housing end markets. Can you just talk a little bit more about what you're seeing both on the non-res side and the public works side?

Well on non-res, the buildings part of non-res was down about 8% in 2008, and I think we expect it to be down another 7% in 2009. You know, that includes office buildings and retail hotels. There's not a great deal of strength in that end market.

Other infrastructure construction volume was down about 11% in 2008. We see that being down about 6% in 2009. The strong point there, as we, I think, have said publicly, is in large industrial and energy projects along the Gulf Coast, which have been the bright spot for us over the last year and should continue to be, and are continuing to be, bright spots for us in 2009.

Housing was extremely weak in 2008, which should come as no surprise. It was down about 37%, and I think we believe it's going to be down about 19% or 20% more 2009; down 37% in 2008.

Highways were down about 9% in 2008. We expect that to be down maybe 6%. There are several things working there. Obviously the stimulus being one them, and the California infrastructure program being another one. Hopefully, California legislature will vote on its budget this week.

Right now those projects are stalled because of the budget issues in California, but with the passage of a budget, which would free up the bond money, hopefully those projects can restart. And as I said, all of these are without regard to the effect of whatever stimulus package gets passed in Washington in the next couple of weeks.

Okay, thanks for the detail, Don. Just one quick follow-up on the large industry projects that you talk about in the Gulf Coast; I know they've been a source of stability for you. Are you seeing them continue in '09, or you seeing actually maybe an influx of new projects that are going to be coming up on the books?

I think it's the continuation of multi-year projects rather than starting of new projects. You could say Thyssen Krupp plant is just starting in '09, but it's really underway and has been underway in '08, so those are large multi-year projects. There's a large rail, multi-modal facility that starting construction south of Chicago, and that should continue for throughout 2009. Those are two examples.

Great, thank you very much.

Your next question comes from the line of Chris Manuel from KeyBanc Capital Markets. Please proceed.

Good morning, gentlemen.

Hey, Chris.

A couple of questions for you. Whenever we think about your debt that you've got sitting there today, what is the maturity schedule over the next six to 12 months that you're looking at?

We have $250 million of bonds that we'll pay off in April, and then we don't have a significant bond repayment until the end of 2010, and it's in the $300 million range. There are small amounts of maturities coming due along the way, but nothing large other than the weak maturities.

Are there any specific - - what are the covenants within there that are most restrictive to you? Are there any balance sheet-related covenants for shareholder's equity or things of that nature?

Chris, not in the bond transactions, no. In our bank lines, the credit we have a single covenant that's debt to total capital, not to exceed 65%. Our current level is about 48% so there's plenty of head room there. The bond deals do have Change of Control provisions which are customary, but there's no other financial covenants in those bond deals, as well as there's no coupon step ups in the current outstanding bonds either.

Okay, last question I had on the finance side was related to your dividend. I think you highlighted that it was about a $215 or so million use of cash this past year. In light of - - well I guess we work for banks, so its en vogue to cut dividends, but when you think about uses of cash here the next 12 months, is it more important to you to continue to work down debt, or how do you think about that dividend?

Well our Board will consider our dividend, quarterly dividend at our Board meeting end of this week. Certainly a factor we look at in addition to GAAP earnings or cash earnings. We had about $624 million of cash earnings in 2008 to support the $215 million dividend, so our Board will make that decision, but we continue to believe that reducing debt is important, but we also believe returning cash to shareholders, when we have cash, is an appropriate use of cash. So we will try to balance those priorities.

Last question I had was in your volume outlook of down 5% to 10% for the full year, from a momentum standpoint coming out of the fourth quarter down I think 23 or so percent, do you think it's - - you had some tougher comps in the first half versus back half, or how would you help us think about the momentum of that working through the year?

Well, as we've said, I think many times before, Chris, you really can't draw momentum conclusions much from the fourth quarter or the first quarter, because weather tends to be a big factor in those quarters. Clearly demand is slowing, but as you point out, we do have more favorable comps in the second half of '09 compared with the second half of '08.

We do our forecast on both a macro basis and a bottom-up basis, and they both come in within this range. So we believe that while demand will continue to be weak in '09, that volumes should come in within that range again, "x" the impact of an economic stimulus package, and without taking into account whether the Lake Belt rulings will increase or decrease our volumes in Florida.

Okay, thank you very much gentlemen.

Your next question comes from the line of Jack Kasprzak from BB&T Capital Markets. Please proceed.

Thanks, good morning, Don.

Good morning, Jack.

I wanted to ask first what sort of tax rate assumptions you would be using for 2009?

Our tax rate we think will be about 27%.

And I was going to ask about volumes as well. I guess a follow-up to the last question, I'll ask it a little differently. The guidance is down 5% to 10%, but it looks to me like there's no reason to think the first half of '09 would be any better than the second half of '08, when the volumes are down a little more than 20% on a same-on-same basis, looking at things like housing permits are down as much as 50% right now when you look at the seasonally-adjusted rate, and if that's the case, if the first half of '09 is down again 20% just to get to down to 10 for the year, you'd have to be about flat in the back half. In the macro picture, am I missing something? How would that square with the way you guys see the world?

I'm not sure I followed your math there, but housing is a dramatically smaller portion of our business going into '09 than it was going into '08 and going into '07. So a large decline in housing has less impact on us now than it did then. Public infrastructure is a larger piece of our business going into '09 than it was going into '08 or '07, and that piece is holding up better than most end markets. Certainly, and as I said, we did not include any impact of the potential stimulus package, but that package will certainly increase the percentage of our shipments that go into publicly-funded infrastructure projects, which is the strongest demand segment, even without the infrastructure package as we move into 2009.

Okay. That's helpful, thank you. With regard to pricing, your guidance of up 6% to 8%, would that be on a same-product basis, or would there be some mix effect, some mixed shift that might be favorable in 2009?

Well that's the total weighted - - total average of our pricing over all products, so the mix shift, any mix shift both in terms of products and geographies is included in that guidance. I would say that we would expect to see greater shipments into public infrastructure projects, and lower shipments into housing. There's always some geographic shift and product mix shift that goes on from year to year, but the 6% to 8% includes all of that, but I don't think there's any material change that would move that significantly one way or the other in geographic mix or product mix.

Okay. Great. Thanks for the clarification.

Your next question comes from the line of Kathryn Thompson from Avondale Partners. Please proceed.

Hi, thank you. First a question regarding pricing. I know you gave your full year guidance, but in looking how pricing has trended on just a dollars basis, it's trended down for pretty much of the the last four quarters, and looking into '09, assuming that you see a similar trend going to Q1, it would apply fairly significant upside into the back half of the year in pricing. Are we thinking about that correctly, or is there another way you would guide us to think - - ?

I'm not sure I understand the predicate of your question. Pricing has continued to increase.

I was saying dollars basis, so - -

Yeah, pricing in dollars is higher in '08 than it was in '07 by 7%.

Sure.

Now the momentum - -

That's what I'm talking about - -

Has been reduced.

Yes.

But we think that as we look at '09, the opportunities for pricing will not be the same in every market for every product, but overall as we roll it up, we think the rate of price increase in '09 should be comparable to that we achieved in '08.

What I'm asking is do you expect the momentum improves in the back half the year, as opposed to having equal momentum throughout the year? That's really - -

I don't have that much insight. I think it can vary from quarter to quarter, but we don't really look at it on that basis.

Okay.

Full year pricing is a much more reliable indicator to us than trying to talk about it quarter by quarter.

Sure. Absolutely, and really we're just looking for trends. I know that you had announced a price increase, and just wondering any color about how these are sticking?

Are you talking about aggregates or - - ?

Aggregates.

We believe that we will get price increases, again they're going to come at different times in different markets for different products and different end uses. We have not had pricing, downward pricing pressure, except with respect to southwest Florida. That's been the one place where there's been some significant pricing pressure. In California, with all of the new work that's been rolling out, there's certainly been an eagerness on our part and everybody's part to build backlogs, which we've done, but we expect that, if that infrastructure program in California moves forward, that the trends in California will probably resume.

Okay. I guess just to clarify, have you had any price increases announced for aggregates specifically?

Yes.

Okay.

I'm sorry. I didn't understand that. Yes, absolutely.

All right. Sorry about the confusion there. Regarding volumes, could you just give a little bit of color about trends since the end of the quarter, and your perspective on, assuming a stimulus package would be passed by the first of March, your perspective on the flow of dollars in '09 into 2010?

If the first part of your question is asking what we're seeing about volumes so far in '09, we don't disclose that until the end of the quarter, and we're not a retail store that discloses weekly or monthly sales. I'm not trying to be difficult. That's just never been our practice, because there's so much seasonality in our business, particularly in the fourth and first quarters, it's more misleading than it is helpful, depending on how weather has been. With respect to the second part of your question, Kathryn, was, could you repeat that?

Really, once again, most of the all of our questions are based on trends, [and it leaves] your outlook for the economic stimulus package - - ?

Okay, sure. So much of the reason, I think it's reasonably clear, when you study the Senate bill that will be voted on shortly, in a matter of hours now, and the House bill, you can come up with plus or minus about $60 billion of projects that will use aggregate asphalt and concrete. We have, as I gave you in my remarks, we have metrics that have been developed over time over how much aggregate content per billion dollars of spending, and how much asphalt content, and how concrete content.

What we will need to do to give more specific guidance on that is to look at what the projects are, where they are, and what the timing is. It's harder for us to say how much of it is going to occur in the second half of '09 versus '10, than it is to say there's going to be "x" million tons of aggregate asphalt and yards of concrete. So right now, assuming the bills pass and are signed by the President, in something that is close to the Senate version or the House version, $60 billion of projects that use our material is a fair number.

The harder thing is when that spending occurs, spread over second half of '09, '10 and perhaps into '11. We'll continue to work on that once we're able to get the list of projects and the timing of those projects, but that's one reason why forecasting in the near term of the impact of that on our business is very difficult at this point.

Of course, I understand difficulty, as you know we've been doing a lot of of work on it and it's liking this to catching Jell-O. It's very difficult. But really it was just more color on, once again, trends and flow, and not specifics, because we're definitely not trying to manage quarter to quarter, just - -

Right. Clearly, I think one trend we will see is that public infrastructure spending as a percentage of our total, or public infrastructure demand as a percent of our total demand, is going to continue to increase, which is a good thing for us. Housing will continue to decrease, and the private buildings piece will probably also continue to decrease, and large privately-funded infrastructure projects hopefully will have some stability for us in 2009, and hopefully going on into 2010.

Okay. My final question really relates more to aggregate margins specifically. There was a fairly wide swing in the quarter just reported, and just to give a sense and how we model for the out year, and granted it's very difficult to give specific EPS guiding given current market, but at least conceptually, is it fair to think that roughly flat margins on the aggregate gross margins is appropriate for fiscal '09, or any other qualitative color related that would be very helpful? Thank you.

As I indicated in our remarks, our cash margin per ton has continued to improve. The issue for us is the allocation of DD&A over a smaller number of tons. Our DD&A for 2008 was $389.1 million. We project it will be about $402.5 million in 2009.

If our volumes are in fact down 5% to 10% and we have to spread that slightly higher DD&A over larger tonnage, it will impact our GAAP margins, but our cash margins, we think, still have some opportunity to improve. Hopefully you'll see improvement in cash margins, but you may see the impact of DD&A on smaller production levels having a negative impact on the GAAP margins. If that helps any.

Yes, it does. It's just we don't want to be completely skewed, and it helps with some sense of direction. That's all I have for right now. Thank you very much. Thank you, Kathryn.

Your next question comes from the line of Timna Tanners from UBS. Please proceed.

Hi, good morning, Don, Dan.

Hello, Timna.

Hope had a hopefully few quick ones left. On the price side, not to harp on it, but in the past you have talked about January price increases, and then sometimes the mid-year price increases. Can you give any sense from the 6% to to 8%, how much of that is already known to you from January price increases, and how much might be remain to be seen later in the year?

I don't have that kind of data. We have some price increases that are in effect in January. We'll have some more that will come along in the spring. Perhaps some more in the summer, but somebody always asks me that question, and we've never been clever enough to figure out how to answer it it.

You wouldn't give us an average of the January price increases or any sense there?

No, because it's all over the the board.

Got you. Okay, and then, you did give great detail but we used to have forecast for EPS, and I'm wondering why you might have excluded that for the upcoming quarter and for the full year?

There are a couple of reasons. One is, trying to predict the timing of the effect of the stimulus package is very difficult for us. The other is the economy, absent the stimulus package is very difficult for us to predict, and we decided that it would be better for us to give you price, volume, and elements of cost, to let you do your own work than for us to try to predict EPS, certainly for a quarter, but even for the full year.

As the year progresses, if the stimulus plan passes, and if we get to a point where we have some level of confidence that is not, or lack of confidence that is not reflected in the analyst estimates, we will consider guidance, but at this point ,as you know, we were wrong throughout much of 2008, and we need to get to a point where there's some predictability and stability in the economy and demand, in order to have confidence in giving you EPS guidance.

That's fair, and I don't mean to be picky about this, but could you give us a level of confidence in your volume and price forecast as well? Does that go to the same argument you just said, that at this point and time is your best estimates, but things are in flux?

Yes, I think that's a fair statement.

Okay, great. And then, final question from us, on the goodwill side it declined about $600 million quarter to quarter. Did we miss something there that you explained?

What that was Timna is a reclassification of dollars from goodwill at end of last year, into other intangibles. At year-end last year, we had just closed the Florida Rock transaction and had very limited time to fully evaluate the whole array of intangibles that were acquired with that business. And as you know, the accounting rules require you to, in a very detailed fashion, try to identify all intangibles by item, and so what you're seeing is a shift of dollars out of goodwill, which was kind of a holding account if you will at last year end, into an array of other intangibles. For the most part, those other intangibles have to do with the value, the estimated value, of the zoning and permitting that's in place at the aggregate production facilities, and most of that shift from goodwill into other intangibles will become amortizable to the P&L over time, whereas the amounts that remain in goodwill will not.

Okay. And then along those lines, do you have any comments that you can make regarding the potential or the reasons why or why not you would have to consider any write-down related to Florida Rock?

At this point in time, we've completed our year-end goodwill impairment testing and have not taken an impairment charge, so it's judgment of management that these assets are not impaired, but under the accounting rules, that test occurs annually at the minimum. So we'll continue to look at it, but right now, we've satisfied ourselves that we do not believe there's been an impairment.

Okay, great. Thanks very much.

Your next question comes from the line of Trey Grooms from Stephens, Incorporated. Please proceed.

Good morning.

Hey, Trey.

Just a couple of quick questions. Don, one is related to competition, with the pullback in diesel that we've seen since summertime, do you have any market where you're seeing an increase in competition, as we've got lower diesel prices, and folks are eager to go further to find volume?

Well, that's certainly a possibility. And that is something we will have to look at, that works both ways. Our shipping radius certainly improves some, as do our competitors', so that's just one of the things that our guys have to take into account everyday, every week, when they are bidding jobs and quoting prices.

And I didn't know if, when you are looking at your markets, you've got several where you've got great market share, and I didn't know if there was just some in particular that you could point to and say, yes, these are the ones that we're worried about where there are some guys on the edges that are nipping on the edges, if you will, and as diesel comes down, you could see this increase?

Not - - I don't think there's any particular markets where that's a bigger factor than in others. That's been part of this industry and part of this business forever, is the delivered cost of material, and that's just a factor that we take into account in our whole pricing and competitive structure. We have competition in every market and it will ebb and flow for a lot of reasons, including the price of diesel fuel.

Okay, that's helpful. And I know that this next question, it gets more difficult as time goes on as you've indicated before, but could you give us an idea of what Legacy volume was in aggregates in the quarter, as far as how much it was down?

Yeah, I do have that, Legacy volume was down in the fourth quarter about 26%.

Okay. That's helpful. And then, you laid out some detail on what's going on with GAAP margins, and it sounds like it's mostly a function of volume there with the DD&A, can you also give us an idea just kind of how the fixed versus variable structure shakes out right now?

Go ahead, Dan.

Of the cost of producing a ton of aggregates today, approximately 30% to 35% of that would be considered a fixed cost, with a half to two thirds of that fixed cost probably skewed more towards the two thirds at the moment, being depreciation, depletion, and and amortization, the rest being cash fixed costs associated with supervision and basic services at the manufacturing facilities.

Okay. That's helpful, and then Don, you gave us some metrics related to demand versus - - or I guess that would be generated from different amounts spent, and that was very helpful, but like for example, the number that you gave for highway for every billion dollar spent equals 14 million tons. Is that at current price for aggregates?

Yes.

Okay. And I guess my last question would be on the asphalt side.

You know, that number can move, I mean that's a number that's based on a lot of highway projects over a lot of years, adjusted for sort of year-end '08 aggregate price.

Okay.

If that answers your question.

Absolutely.

You know how much of that we ultimately get at Vulcan depends on where it is, and whether we get the work, whether we don't, but we'll have a lot better calibration of that as we move down the time line of when those projects get approved by Congress, and when they're put out to bid by the contracting agencies.

Sure, one other question on CapEx, you kind of reiterated the $200 million for 2009. How close are we getting, at that $200 million level, how close are we getting to a bare bones maintenance CapEx for you guys?

Well, our five-year average replacement CapEx has been about $160 million, a year. Now that's on Legacy Vulcan. Of course we now have the Florida Rock assets as well, but I think $200 million a year is ample for replacement CapEx.

Obviously other things that will come along to be profit improvement projects or volume improvement projects would not be necessarily included in that number, but we think we're fine, given our current state of our plant and equipment, to be able to maintain that effectively at $200 million a year. (inaudible - multiple speakers)

Okay, and then I just have two other quick questions. One is on price of aggregates. You mentioned you expect greater shipments in the infrastructure projects, and less into housing in 2009, is there much of a price difference as far as on aggregates that go into the different end markets?

I don't believe we would change our pricing guidance based on whether the stimulus bill passes or does not pass. It really - - there's a volume impact, but we don't believe there will be a price impact coming from the stimulus package.

Okay, so I guess if you're looking at it as, with the demand being higher for infrastructure project "x" stimulus, just in general terms, is aggregates that go into infrastructure projects typically higher or lower, or about the same price, as something going into some type of a building or some type of residential construction?

Pricing would generally be higher, because specifications are tighter, and often times we have a better competitive advantage on tight specification projects like federal highways and airports. Housing, on the other end, typically would not have as high a specification. So there is a pricing benefit to public infrastructure, but it also costs us more to produce some of that high specification material. So there's not a dramatic margin differential between different end markets, although pricing can be higher. It can push our costs up.

Okay, and then my last question is, just to make sure I understand or understood one of your comments earlier, on the 6% to 8%, and you had mentioned that you have price increases out now, but did I hear you correctly that you have price increases now and also expect to have also a mid-year price increase as well?

I know people can't get their head around this one, but we price material every day, every week, and we don't put out a general overall U.S. price increase to all customers for all products on January 1 and another one on July 1. That's not the way we price products. So, the answer to your question is, we are getting price increases every week somewhere.

We generally put out some price increases at the beginning of the year, and some at the beginning of the construction season in some markets, and some in mid-year, but you shouldn't try to force-fit our pricing strategy into a, we put out a 8% price increase on January 1 and we were able to get 4% of that. That's just not the way this business works.

Okay, understood. Thanks, guys.

Your next question comes from the line of John Fox from Fenimore Asset. Please proceed.

Good morning, everyone.

Hey, John.

Believe it or not, I have a couple of questions left.

Good.

Could we get the actual dollar amount for liquid asphalt for fourth quarter of '08 and fourth quarter of '07, please?

Yeah, I'll get that for you in just a second.

Okay, the second, while you're working on that, I guess maybe for Dan, do you anticipate, and if so how much, a contribution for your pension plan in 2009.

There will be no mandatory contribution for the pension plan in 2009.

Okay, and Dan what is the nature of the medium term investments on the balance sheet?

Those were some investments that we had made back in 2008 in the reserve money market funds, and when they broke the buck, they slowed down their pace of redemption, and that's what that money is. We're continuing to receive distribution, but because it's unpredictable as to when we'll get the money, we've reclassified that our of cash and cash equivalents.

Okay, do you believe you'll get it all?

We have is a little bit reserved for loss. Right now we believe we'll get everything that we have on the books.

Okay, great.

And by the way John, we received some $23 million or $24 million of distributions since the end the year, so we're beginning to see that fund loosen up.

Okay. Great.

John, we buy liquid asphalt in four different state, so I'm going to give you the average price for '07 and '08. And you recognize we probably didn't buy a single ton of liquid asphalt at this price anywhere, but this is the roll up of a lot of different transactions in a lot of different locations. Our average price for liquid in 2007 was $321.00, and in 2008 it was $541.00. That price differential impacted our material margins in asphalt, which is the margin we make above the material cost.

As I said in my remarks, we have now been able to get our pricing for asphalt mix up to reflect that higher cost of liquid asphalt, and our material margins are improving. We expect that to continue into 2009.

Okay, I'm sorry, was that the fourth quarter price, or the average for those two years?

That was for the year. Do you want the fourth quarter?

If you have it.

In the fourth quarter 2007, it was $342.00 a ton, and for '08 it was $574.00 a ton.

Okay. Thank you very much.

Your next question comes from the line of Todd Vencil from Davenport & Company. Please proceed.

Thanks, guys. Most of my questions have been answered, but just to hit on a couple of things. To clarify and make sure I'm not jumping to conclusions, when you refer to price weakness in southwest Florida and in California, is that to say that your prices have actually fallen in those markets?

More in southwest Florida I think. California, on a product by product basis, we're still getting some price increases. Our mix has shifted somewhat in California, and that's changed the overall pricing, but California is okay and will be okay, and Florida is going to be interesting, with respect to the newest Lake Belt ruling, what happens there.

Don, I appreciate that, because you just segued right into my next question, which is, has anybody announced a price increase related to that recent ruling down in the Lake Belt?

Not that I'm aware of. I think everybody in the Lake Belt is shut down. Nobody is operating. There are a few pockets, some of the quarries that are not covered by the Lake Belt permit, including a little bit in our Miami quarry.

I think most producers have stockpiled raw materials, which they've mined already, and are in the [muck] pile, that can be processed, and there's probably a fair amount of inventory. I think everybody in that area is probably having to look at their hand to see what happens; demand for cement feedstock by the two large cement producers in the Lake Belt will be an issue. But as it sits today, I don't think we know of any price announcement that we're aware of by any of the producers yet, but it's only been, as I've said, about two weeks, and it's in a period of low demand, both from the economy, as well as the time of the year. I think that will play out over the the next few months.

Okay, I realize it's a relatively small issue for you guys, but any thoughts on how long whatever stockpile you guys have down there would last you to sell?

Well we have several months of inventory on the ground. As you may know, we did not run that Quarry for a good portion of 2008 because of the prior ruling. And then once that was reversed, we could resume production, which we did.

We also have the distribution and transportation and production capacity to continue to move material into Florida from Mexico, from Alabama, and from Georgia, as need be, by ship and by rail. So I think there will be a lot of adjusting by the producers in Florida, depending on the ultimate outcome of this. The Corp of Engineer's permitting process, which is ongoing, I think will also have a significant impact on the future of supply in Florida, and that, of course, is not yet known where the Corp is going to come out on all of this.

Got it. On the liquid asphalt, you mentioned that you've got older contracts rolling off and newer ones coming on. Given that liquid prices have come down, are you now seeing the prices on your newest quoted contracts for asphalt mix also coming under pressure? Are they coming down a little bit? Sort of follow the liquid price down?

Well, as we said in 2008, our pricing for asphalt mix, or in the fourth quarter, certainly was up. I think that's every projects bid, and it's hard to say at this point what the relationship between liquid asphalt price and asphalt mix price will be. There's a lot of different dynamics, in terms of location and jobs, and there's certainly not a direct correlation. Typically we do worse on margins in periods of rising liquid asphalt cost, and better on margins in period of declining liquid asphalt cost.

The way I would think about it is you have, as the cost of liquid asphalt stabilizes, many of the markets are just returning to what I would describe as historical levels of margin, not distorted by the pace of the change in that input cost.

Got it. Final question, one for Dan, on that debt to cap covenant, two questions. Is that a net debt covenant or total debt, and how is the goodwill treated under that?

It's total debt to cap, and goodwill's in the - - well I mean, it's debt and capital. I mean it's debt and equity. So it's in there.

So understanding that you guys have already tested it it for this year, but if you did take a write down, that would effect your debt to cap ratio?

Yes, it would.

Alright, thanks a lot.

Your next question comes from the line of Aynsley Lammin from Citigroup. Please proceed.

Hi, good morning. Another one, unfortunately, but in aggregate, if you just could give us a feel for how much inflation is already in the system, and [generally], the year-end aggregate's price was higher than average for 2008? And then just secondly, on the non-res, I think I heard you right, you kind of expected non-res work, for demand in that area, to be down around 7% in 2009. That's quite surprising, given how much we have seen the kind of lead indicators, and other companies just talk about how quickly non-res has fallen away, if you could give some kind of background for that expectation, it would be great.

With respect to, if I understood your first question,has to do with how much of our projected 6% to 8% price increase is already in place, let me say for about the fourth time, I don't know. That's not the way we price our products. So I can't answer that question as asked, and it's just because we don't have metrics on pricing that's once a year, or twice a year, or three times a year.

With respect to projections for non-residential buildings, we saw some decline in that in 2008. We see some more decline in 2009, but these are our markets, the counties that we serve, not the total U.S., so there may be some differential there.

And within non-residential buildings, there is probably some some overlap between what I'll call private infrastructure, and the non-residential buildings category includes public buildings as well, so if you've driven through a college campus lately, you know there's a tremendous amount of construction generally going on there, and then there are state and local facilities, as well as federal facilities, including the big BRAC programs, base realignment and closure programs, which are very significant in many of our markets, where the military are building new facilities as they close bases and move things to other bases. So all of that rolled up together is in the non-res building category, which is both public and private, and that may be the place that you're seeing the disconnect, if you're not putting the public piece into that category.

Okay. Great. Just on the price, and I wasn't trying to throw off the question of how much has already been posted; it was more just if you had a feel for how much was rolling over from 2008, or is that, again, you just wouldn't have the dates [run]?

Well some of it clearly is rolling over, meaning it's already in place. I can't quantify what that is.

Okay. Thank you very much.

Your next question comes from the line of Brent Thielman from D.A. Davidson. Please proceed.

Good morning, and thanks for taking my questions. Just on the pricing guidance, obviously thanks very much for the forecast there in terms of aggregates and asphalt, and it looks like Q4 pricing for concrete looked a little bit better. Do have you any sense, or can you give any direction where you see pricing going for that business or that product going forward?

Concrete, you know, there's been a large reduction in concrete volume throughout the U.S., first from housing, now from at least the privately-funded portion of non-residential buildings. We expect concrete pricing to be relatively stable in '09, not any significant opportunities for increases, nor any pressure for erosion. Volumes are down, and until housing begins to recover, the concrete volumes are likely to stall relatively flat.

Okay, great. Thank you, and then I guess just a broader question. Were there any particular states I guess that surprised you at a positive or negative, in terms of reported volumes in the quarter?

Well, the strongest markets we've had for 2008 as a whole, and to try to do it on a quarterly basis would be distorted, but the entire Gulf Coast has been our strongest market, from Texas, Louisiana, Mississippi, and Alabama. That's where, those have been our best markets. And that surprises a lot of people, but that's the reality of where our demand has been strongest.

Okay. Great, thanks, guys

Your next question comes from the line of Mike Betts from J.P. Morgan. Please proceed.

Yes, good morning.

Hey, Mike.

Hi Mike.

I had three questions if I could. You be relieved, none of them to do with pricing. The first one is, Don, can I just ask you in terms of cost, we've obviously talked about asphalt and diesel, are there any other pressures on the costs this year, I mean [people] costs, are likely to be fairly flat, or general inflation of 2% or 3%? Could you give me some guidance of what sort of cost increases you're likely to see on the other stuff?

We'll see some price, I mean wage increases for our hourly work force. We expect to more than make it up with productivity and efficiency. Steel components were a factor in 2007 and 2008, not so much a factor in 2009. So, you know, an hour, so I think the things that will move the needle in 2009 will be diesel fuel and liquid asphalt, and electricity may have an impact, although at lower production levels, we hope to manage our demand charges efficiently to try to limit the rate of increase and electricity costs. Those would be the major categories.

My second question to you, Don. In the statement, and you mentioned it when you spoke, you were talking about the Legacy business's shipments '05 to '08 were down 30%. That was Legacy. Do you have any idea how much Florida Rock's volumes have declined during that period?

Well, I have, for the period we've owned Florida Rock, which would be basically full year '08, shipments in aggregates were down about 34%.

Okay, thank you for that.

And the vast majority of that would be in Florida. Our other quarries in Georgia, Virginia, and Maryland, and Alabama, that came as part of the Florida Rock acquisition, track largely our performance in those markets from our Legacy operations.

Okay, thank you for that. My final question is probably for you, Dan. How much of your debt is now floating rate based on LIBOR? And then I've got a follow-up question once I get that answered, please.

I've got that here. Just let me look it up, Mike. Let me come at it this way. About at this point and time, just under a billion dollars of our debt would be floating rate, and the remainder of it is going to be fixed rate. And so we have a total of about $3.6 billion. Yes. It's around 60/40 at the moment. 56/40 floating.

Right, I guess what I was coming to, Dan, obviously you've got the debt that you've just fixed, which adds probably $30 million to the interest charge, but I would have thought on the floating there was quite a big benefit from the decline in LIBOR, U.S. LIBOR or LIBOR rates? Am I missing something there? Do you have any hedges or anything else, or am I just wrong on that? Is it more of a comparison, in terms of, yes, the rates declined for LIBOR in the last three months, but it's partly a function of what it did it before that?

Well, you're right, LIBOR rates have declined considerably, and the recent transaction we did obviously moved $400 million out of floating rate short-term debt into fixed rate and long-term debt. That transaction was done principally to ensure adequate liquidity to meet the refunding or the repayment obligations we have in 2009, without putting too much strain on our bank lines, to give us adequate operating flexibility.

Okay, but on your LIBOR floating data, it just moves with LIBOR, there's no kind of hedging that you've done at all on that?

That's correct. Our LIBOR-based bank borrowing is just that. It's LIBOR plus a spread.

Right. That's great. Thank you very much.

This concludes our question-and-answer session for today's call. I would now like to turn the call back over to Mr. Don James for closing remarks.

Well thank you for being with us today. We appreciation your interest and your questions. I think at this point I would urge you to not only pay attention to what's happening in the overall economy, but also focus on what will happen in Washington with the stimulus plan, and ultimately pay attention to what happens with the Lake Belt ruling in Florida.

Those are probably the things that will have the greatest impact on Vulcan's 2009, although until we have better visibility in those factors, predicting what that impact will be or quantifying what that impact will be and quantifying the timing of that impact remains a challenge for us. But those are all significant events for us.

We look forward to talking with you again after the first quarter, and hopefully we'll be able to give you some more information on each of those items at that point. Thank you so much. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.