Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Vulcan Materials Company Earnings Conference Call. My name is Marissa, and I'll be your coordinator for today. [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, the Chairman and Chief Executive Officer. Please go ahead.

Good morning. Thank you for joining our conference call to discuss Vulcan's second quarter results. I'm Don James, Chairman and Chief Executive Officer of Vulcan. Joining me today is Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, our Executive Vice President, Construction Materials. Before we begin, let me remind you that certain matters discussed in this conference call will contain forward-looking statements which are subject to risks and uncertainties. Descriptions of these risks and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K. Let me open my remarks with some comments about our second quarter operating results. We are encouraged by the broad-based improvement in pricing versus the prior year's second quarter. The average unit sales price increased in all major product lines and across many of our markets. Freight-adjusted aggregate prices increased 2.5%. Asphalt and ready-mixed concrete prices each increased 8% and cement prices increased 2%. In the second quarter, we achieved improved aggregate prices across a number of our markets. There was also less regional variation around the 2.5% change in the company's average sales price, suggesting more stability going forward. Our Asphalt mix segment realized price improvements that more than offset the increased cost of liquid asphalt, thus achieving an 11% increase in the margin per ton of asphalt mix sold. Our Concrete segment realized higher prices across most of our geographic footprint. Collectively for the quarter, the high pricing across all major product lines mostly offset the earnings effect of lower volumes. Our ongoing efforts to run our plants as efficiently as possible and to reduce our SAG expenses offset some of the impact of higher diesel fuel cost and lowered our SAG expenses 9% versus the prior year. Second quarter segment earnings in…

[Operator Instructions] You do have your first question from the line of Jack Kasprzak from BB&T.

I wanted to ask just first as a point of clarification in the -- you made a comment about $10 million of additional savings. Were you referring to SG&A, because I just didn't get all that comment, sorry.

Yes, it's SG&A. It's $10 million to $15 million. We're taking some steps now to take another $10 million or $15 million of SG&A savings out of our current run rate. We won't show up probably in '11 because we will have some cost associated with achieving that run rate savings, but it should show up beginning in 2012.

So it wouldn't be unrealistic to think, in terms of SG&A dollars, we could be looking for another reduction in 2012 versus 2011?

Correct, and for years after.

Yes, okay. And in the quarter, volume's down 9%. Is it possible to try to bracket how much of that was due to the bad weather that we had?

Well, I think one indication of that, as you know, the tornadoes came ripping through the Southeast throughout the entire month of April and we had hugely wet weather in the same periods in our Midwestern markets. April volumes were down about 20%, then May and June volumes were down only about 3%, 3%, 3.5%. So while we can't -- we really can only estimate the impact of the bad weather, it's certainly -- the volume drop was heavily focused in April. The other factor was all of that rainfall in the Midwest came in the Southeast came roaring down the river system and we basically couldn't ship material on the river for the entire quarter. Hopefully, that has now returned to normal. I was looking at our shipments in July and it looks like the river system has returned to normal but shipments on the river. But the combination of those two things certainly accounted for a significant portion of the 9% decline in shipments. That's not to say that the private sector continued to be weak as well. So it's a combination, the 9% is a combination of bad weather and weak private sector markets, and I can't give you a precise tonnage breakdown between the 2.

That's fair. No, that's helpful, thanks. With regard to California, where you saw some nice pickup in volume and you mentioned some large projects, I mean is that what you sort have been talking about, i.e. the big lag spending stimulus dollars? Are we seeing some of that spending now and do you expect, given that the large projects, I mean do we expect the sort of good volume gains to continue there through the balance of the year?

In fact, really, the second half is going to be more impacted by the large project work than the second quarter was, but as you saw, our California shipments were up I think 24% in the second quarter. The vast majority of that was in public infrastructure projects, and those public infrastructure projects are also a piece of the large project work that we have that forms the basis of our view that our volumes will be up 2% to 6% I guess in the second half. So it is large project work, primarily [ph] highways, in California. When you get back to the East, there is -- there are highway projects, and in addition, there are some large significant Department of Defense projects at -- in Georgia, in Maryland, in D.C., including the Coast Guard headquarters, so there's a lot of defense projects in these numbers as well for the second half.

Your next question comes from the line of Garik Shmois from Longbow Research.

This is Josh Borstein in for Garik. Two questions for you. You mentioned in the press release that most of the 4 million tons of aggregate volumes shortfall in 2Q wouldn't be recovered in the second half. Should we expect to model that returning in 2012 or is that just volumes that you don't expect to return at all?

The volume will ultimately get shipped, and it's -- clearly, the $4 million that we missed in the second quarter is likely to be shipped in the second half. It just won't be incremental to the second half, and some of that, when we tried to explain that there's probably some weakness in the private sector that will not occur -- I mean the shipments into the private sector will be weaker in the second half than we originally thought, and there'll probably be some weakness in highway spending, weaker highway spending than we had earlier thought, but -- so the volume will flow through. It's just being offset by some additional weakness in the second half, if that makes sense. I mean, the 4 million tons that were not shipped are not gone forever. It's just the whole flow of that material will occur, but it'll -- so the second half will be impacted by a carryover of some of the second quarter material, but then some of the other projects that we were looking at for the second half will be pushed off into 2012. I rambled on that, and I'm sorry, but it isn't 4 million discrete tons that are gone forever, it's a flow-through of that material through the remainder of the year, along with the normal projects that we had projected for the second half.

Okay. No, that's helpful. And then just one follow-up question, California. I realized it's one of your biggest states in terms of revenue. Volumes were awfully good and look to continue. Do you think that volumes in that state have recovered enough to support some price increases either this year or early next year?

Certainly, we believe that we'll -- I think the missing piece in California right now is the private sector. The public sector, the big projects tend to be competitive, obviously, and I think in order to start regaining significant price growth in California, we're going to need some help from the private sector as well.

And your next question comes from the line of Kathryn Thompson from Thompson Research Group.

This is Jamie Baskin on the line for Kathryn. With the $25 million reduction in CapEx, are you scrapping the larger projects, cutting back across the board? What's really going on here?

Well, CapEx, as we've said a number of times, is really just a function of the tons of rock that run through our mobile equipment and our crushing plants, and as we have reprojected our needs based on volume, we think we don't need to spend $125 million, all the $125 million. It's not in any particular large project per se, it's just a realization that we don't need to spend the money this year given the condition of our plant and equipment and the volumes were running through it. For example, we produced about 2.5 million tons less in the second quarter than we did last year, and you just don't wear out your plant when you produce less.

Okay, that makes sense. My next question, can you talk about maybe your internal contingency plans around maybe more cost cutting if the economy slips back into a recession?

Well, certainly. I mean, we will take serious looks at which plants we run and how long we run them and what parts of the year. We'll continue to take hard looks at overhead cost. We've continued to look hard at CapEx because if there is a double-dip recession, private sector spending is at such low levels. It's hard to imagine it can get any lower, but it certainly can, I'm sure, but we're down 75% in sort of contract awards in spending in both residential and private non-res and we're at levels that are 40% or 45% lower than we've ever seen in the last 40 years. So, that being said, is there more downside? Certainly there could be, but we do have a number of options that we can execute that will further shrink our cost base to better align it with market demand.

And your next question comes from the line of Todd Vencil from Davenport & Company.

Don, can you tell me -- housekeeping issue. Can you tell me the average diesel price in the quarter and how many gallons you went through?

Well, the average diesel price in the quarter was about $3.46 a gallon, and one of my colleagues will flip over...

We went through about 10.8 million gallons in the quarter.

Okay, and Donald, was that -- I'm sorry, was that $3.42?

$3.46.

$3.46.

And that's up from $2.43, which yields the 43% increase in the unit cost of diesel fuel. Fortunately, as we went through the quarter, it dropped from April to May and May to June, so there's a good trend. And I guess oil prices are down, were down yesterday I guess with the whole stock market and all the other fear and trembling in the financial markets, but we're looking for a full year number that's probably slightly less than the second quarter but sort of in the same range.

Got it. That's helpful. I appreciate the comments on what's going on with the question on reauthorization, and I think you said that you think we're going to get a continuing resolution here at the end of September.

Well, I just don't think there's a reasonable likelihood that a formal bill is going to get passed either on a 2-year basis or a 6-year basis by September 30, so the first step's going to be some sort of extension, whether it's a continuing resolution or formal extension, will get worked out shortly, but -- and then there'll be some discussion as last indicated in our comments, we and everybody else in this large coalition of people who have an interest in highways, very much prefer the Senate 2-year bill. It would be a formal 2-year bill or a formal 2-year extended [ph] funding. The issue there is, to achieve that, they're -- they need to find a $12 billion offset for some other -- from some other spending cuts to support the Highway Program. Fortunately, the chair of the Senate Finance Committee, Max Baucus, is a member of the Senate EPW Committee, and in a public hearing a couple of weeks ago, he said they are reasonably certain they'll find it, and they found some of it, and they are working on it. And so that is the process I think that will need to occur is that the Senate Finance Committee will find an offset. That offset will be used to support the Senate formal 2-year extension of the highway bill at current levels plus inflation. It's bipartisan, hopefully, it will pass the Senate on a bipartisan basis, then it will go to the House. As you know, the House number is a very different-looking bill. It's 6-year based on the level of spending that the current gasoline tax would support. As I indicated, when you show the number to individual Senators and Congressmen and say "Is your DOT and your governor prepared to accept this kind of cut in its federal support for infrastructure," there are very few people who will say yes to that. So it's going to be an interesting time, but I think step 1 is a short-term extension at what levels we'll have to see. But there's plenty of money in the Highway Trust Fund to extend it at current levels for the next 12 to 18 months.

Your next caution comes from the line of Scott Levine from JPMorgan. .

I think you mentioned in your press release here that weakness in both residential and non-residential, lingering softness I think you say, is a factor and not expecting to recoup some of the volumes you initially expected this year. Is there market weakness in one area versus another? Is one relatively strong versus another? How would you compare recent trends or trends really since you initially provided guidance for 2011 on both the resi side versus the non-resi side and how they each played out relative to your initial expectations?

Well, as we look for the full year, we actually expect res to be up sort of mid-single digits, and that's all driven by multi-family construction, apartment construction, not single-family housing. Non-res for the rest of the year, we expect to be down mid to high single digits, but I think the -- I think what we're seeing, and there are 2 different metrics here: one is the shipments we see going into those end markets for the remainder of 2011, which in both cases, or at least in the case of non-res, we think will be down from last year; in the case of res, up from last year, both coming off very low levels. But I think the more important statistic is when you look at contract awards, and as I tried to say in my prepared remarks, we've seen contract awards going into construction for manufacturing facilities. It's been up and up sharply for, at least on a trailing 12-month basis, for the last 6 or 9 months. For the first time, we're seeing contract awards for both stores and office buildings. While we saw both of those up on a trailing 3-month basis in the first quarter, we were saying, "Well, you can't really peg a trend based on a 3-month -- trailing 3-month." We can now say that on a trailing 12-month basis, contract awards for both office buildings and retail structures are up on a full trailing 12-month basis, and again, that's the first time we've seen that since first half of 2008 3 years ago. So I think there are some positive trends. They are coming off very low numbers, so percentage increases of low numbers don't move a lot of volume. But I think that shores up our view that we will see the bottom in shipments in the private non-res this year, and hopefully beginning to turn up toward the end of the year and into 2012. Single-family housing is very difficult for us to see much light at the end of the tunnel, but there's a significant increase in multi-family construction as people who previously would have bought houses or have lived in houses are now looking to move into apartments, and apartments' vacancy rates across many of our markets are small. There is a significant difference in the multi-family construction in the Vulcan-served markets versus the rest of the country. We're seeing much more robust contract awards in our markets than in the rest of the country, which we believe is driven by the favorable demographics in our markets rather than any kind of economic factor other than the fact that the foreclosure right for single-family houses in our markets has been substantially higher than in the rest of the country as well.

Got it. So maybe to summarize your -- correct me if I'm wrong here, it sounds like the recent news [ph] on contract awards, maybe non-res is a little bit more encouraging than what you see on the res side relative to your initial expectations, or would that be pushing it?

Yes. I mean, if you put single-family -- I mean multi-family housing, it's really in the same pattern as private non-res or -- and single-family is very -- coming off very low base and is probably -- we don't expect to see a lot of activity there certainly for the remainder of this year.

Understood. One follow-up then on -- we got the comments regarding your recent recap on refinancing. Do you have any other thoughts -- I think you indicated you had some small maturities left in '12 and '13. Any other plans on the refinancing front to note for the next few quarters here?

Well, we're in the process of moving forward with our bank group on renewal of our multiyear credit line facility, and that'll roll out over the next 2 or 3 months. And we'll report on that, I'm assuming as it gets finalized, but that's -- the existing $1.5 billion line of credit we have expires in November 2012. It's certainly our intention to have that renewed no later than November of '11 and hopefully a couple of months in advance of that.

And your next question comes from the line of Adam Rudiger from Wells Fargo Securities.

I wanted to just go back to one of the previous questions about CapEx and how it relates to dividends. If I look at your CapEx, even just for the full year 2009, 2010 and as I measure it as a percentage of, say, sales or depreciation, it really looks like you've been under-spending relative to historical averages, even going back to, I think 2002 or '03 when you saw your last little dip in sales. So I was wondering if you could tell me why I'm wrong if I'm thinking that you're really under-spending and that might catch up with you in the future? And then secondly, I want to just -- you talked about how you weigh CapEx versus the dividend cut, and I know that's a board decision. I'm curious, Don, what your personal opinion is on that?

Yes. If you look at our CapEx over the last decade, you see huge increases in CapEx in what, 2004, '05, '06, '07, '08, and as a result of that, our plant and equipment, given the current level of production, is in good condition. We just don't need to spend the CapEx now. At some point, when volume starts coming up or with the passage of time, we will need to move back to higher levels of CapEx spending but we just simply do not need that today either for -- we certainly don't need to spend anything to increase our production capacity. We simply need to replace what needs to be replacing from an efficiency standpoint. The other thing that's running through our depreciation that you're seeing is the effects of purchase accounting, and so instead of assets being depreciated on a historical basis, with purchase accounting you write everything up at fair market value and you start all over again, and acquisitions are the basis of that. So we're not intentionally cutting CapEx. We're just trying to spend the money prudently as needed to keep our plant and equipment running efficiently. Now the -- and we certainly will never cut CapEx to pay a dividend. The -- our whole strategy on dividends, as I've said before when what our board looks at, is look at our cash earnings, look at our needs for CapEx and look what is left over, and we believe returning cash to shareholders is appropriate along with a projection of being able to get our debt paid down over time. The real issue for us is volume. When we get any kind of volume recovery, our ability to generate cash to reduce debt will be very substantial. So our -- the way we analyze it is cash earnings, CapEx, look at what's left over and see what is appropriate to return to shareholders. We really at this point, because of the refinancing, don't have any debt to repay other than a little bit in the revolving credit agreement, which is just a sort of a seasonality of working capital requirements that's covered by that. I hope I've addressed your question.

Yes. So just on the debt though, given the refinancing, should we assume that this -- your interest now is about -- is guiding to $51 million-or-so a quarter for the last 2 quarters this year. If that's going to maintain that level, I would think you'd want to. I mean that's going to next year offset any kind of SG&A savings you're going to get, so would you, will you still have a strong preference for paying that debt down, getting the interest cost down and so...?

Well, one of the problems, as you saw with the second quarter, when we go out and pay debt early, we have to pay a premium for it. We've paid a large premium to buy those bonds back in those '12 and '13, 2012, 2013 maturities, so it -- in theory, we'd love to pay debt down. The reality is we really don't have any debt to pay down now except either doing a very high-priced tender offer for some of our outstanding debt or paying down our revolver, and as you see, we've got, I guess in June 30, we have something like over $100 million of cash on the balance sheet. The practical answer is, that's not prudent for us to do at this point.

And your next question comes from the line of Mike Betts from Jefferies. .

I had 3 questions, if I could. The first one, just to explain maybe the tax judge then, it was a quite a high rate in Q2. The second one, Don, maybe you could explain what happened or give us some more details on Florida both in terms of the volume trend in Q2 and also on pricing. And then my third question, obviously very good price movements Q2-on-Q2 but on aggregates, but when I look sequentially, I think if my calculations are right or I've got the right numbers, it was only up about $0.03. Is that due to the timing of the price increases this year, because I think the first one was in January, and can I lead from that into -- because I think you've put a midyear price increase. At what sort of success you've had with that and what the expectation might be in the second half where in reality we're mainly looking for the impact of that in 2012?

Mike, I say this completely tongue-in-cheek, if you don't understand the tax rate, we don't have time to explain it to you. But I'm being facetious. I'll ask Dan -- because it is confusing a lot of people, but Dan...?

Actually, Mike, I was hoping you would have asked that question to Don. But here -- let me try to give you a summary of the tax rate machinations, and then if the summary isn't adequate, we can go into a bit more detail. First of all, I would encourage you to think -- look at the tax rate on a year-to-date basis, not from a quarterly basis, because the process that companies have to go through in booking their tax rate is to begin by looking at the best estimate of the full year rate and the corresponding dollars of tax provision, and ensure that through the year-to-date results, in this case the first 6 months, that you have brought the accrual in line with your estimated full year rate. So what happened to us in the second quarter is there was some true-up adjustment necessary to get the first 6-month rate essentially in line with where we needed it to be. What may be more helpful than going into all those machinations, I would start by maybe encouraging you to look at it on a full year basis, and let me try to walk you through what I think would be the best way to think about the tax rate on a full year basis and almost take it on faith that what's booked in the first quarter and the second quarter is just bringing our year-to-date results in line with our thinking about the full year rate. And what I'd encourage you to do is go through your earnings models and come up with your best guess of our full year pretax earnings. The first step is I would apply a statutory rate of 35% to that earnings or loss, and if it's a loss, make the…

I will add this, Mike. We didn't invent the system for calculating tax rates. This is one of the benefits of the clarity that GAAP accounting brings to our financial statements, so we just do it the way the rules tell us to do it, and that's the way it shows up.

And Mike, if that discussion wasn't helpful, I can either try again here or we can follow up off-line and go into the quarterly stuff in more detail.

No, that's helpful, Dan. I think that gives me what I need.

On the other 2 questions, Mike, if -- I will -- if you try to do quarter-to-quarter sequential pricing from a cold weather quarter to a warm weather quarter, you will be overwhelmed with complications. The reality is that the geographic mix shifts greatly from Q1 to Q2. The product mix shifts greatly from Q1 to Q2. For example, there are very few places in the country where people are actually doing asphalt paving in the first quarter and there are not many places in the country where large quantities of concrete are poured in the first quarter relative to the second quarter, so you get a distortion that is not helpful. I mean, you just can't understand -- there are too many changes in the product mix and the geographic mix to look at things on a sequential basis in this business because we're so seasonally affected. You asked about Florida. Demand remains weak in Florida, but pricing is improving. Our -- as we indicated, our concrete prices in the whole company are up, and Florida's certainly up as well. Our aggregate prices on a product-adjusted basis are up, really higher than the total company is up, so we think Florida, while demand is weak, we think pricing has certainly stabilized and is moving in the right direction in both concrete and aggregates. The thing that is going to be necessary for Florida demand to recover will be some recovery in housing and related recovery in private non-res construction. As we've said before, Florida has a fair amount of stimulus money yet to spend on its highway program, but there's just a huge -- still a housing problem in Florida. You may have seen the article in the Wall Street Journal about all of the cash purchases of new high-rise condos in Miami. I think those are the kinds of things that will ultimately bring Florida back, but it's going to take a while.

And Don, just a follow-up final question. The midyear price increase, Don, was at midyear or is it more September, or does it vary by state? Is it significant, and how's it holding?

Well, I'll say what I've said many, many times before. Our price increases are a moving job-by-job, product-by-product, market-by-market movement. There's not a set price increase across the board on all products and all markets at a single time frame. That's just not the way pricing in our business, or certainly in our company works. There are price increases, they are flowing through. I think one of the caveats I'll tell you is there is a lag effect between the volume in a quarter and the pricing in a quarter. There's relatively little material that's shipped in the quarter that's priced in that quarter. So as you see volumes moving and you asked about what's the effect on pricing, the effect on pricing is oftentimes delayed by a quarter or more in terms of when the actual shipments go out the gate from when the material is actually quoted and the order is booked.

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

Yes, just -- and maybe as a follow-up to the last, Don, I guess I'm just trying to get clarification but you did mention sort of broader-based regional improvement in pricing for aggregates. Are there still markets for you, maybe ones that are a little bit more material to you, whether it's that top 5 or top 10 where you're still seeing maybe significant downward pressure in pricing or even if those stabilized?

There would be individual markets, and by a market, I'm talking about a piece of a metropolitan area somewhere where there may be pricing pressure and/or because of large project work, and certainly the competitive environment in which we operate, that we and others are -- bid large projects aggressively, and when those projects ship, it will have an impact on our rate-adjusted selling prices in that market. That said, I think there is a lot more stability in pricing than there was a year ago and certainly 2 years ago. When this recession started in a big way and the stimulus work came out, there was a lot of aggressive pricing in order to book the stimulus work because that was about all that was on the horizon and then you were seeing shipments into private non-res and residential construction dropping 20%, 25% per year. You're not seeing that now. There's much more stability in the level of demand at low levels, but there is stability. And I think anybody who's been in this business for any significant period of time understands that in an individual market, there's very little price elasticity to the demand for aggregates, and in an individual market, nothing -- you're not going to change the overall demand for aggregates by raising or lowering prices. It's just the shipping radius is too small because of all the factors you're aware of, and as a result of that, there's competition in every market for every job, but you really don't see the kind of price swings you would see in global commodities where material can move all over the world. You don't see the upside of pricing, you don't see the downside. So one of the factors in this quarter that we tried to highlight is that, while our freight-adjusted prices increased about 2.5%, the variation around that number across the company is less than it's been in some prior quarters, and we think that's because the -- there's much more stability and visibility in the end markets today than there were over the last couple of years when nobody could see the bottom.

Okay, thanks for that. And then as a follow-up, it looks like a nice progression in pricing on the Asphalt mix business, and I'm just curious, is there anything mix-related there that would impact that number? And then also, can you kind of talk about how that pricing progressed through the quarter sort of April through June?

The asphalt mix is largely going to large infrastructure projects, highway projects. We have asphalt in California, Arizona, New Mexico and Texas, and it's heavily public sector infrastructure. And asphalt mix pricing is sensitive to asphalt oil cost but with a lag. So as liquid asphalt prices go, or liquid asphalt cost go up, it typically allows us to increase our asphalt mix prices, but typically with a lag. We are buying some amount of our asphalt oil on a spot basis, and we're contracting with our customers over longer-term periods for projects. Sometimes we pass the oil cost through, sometimes we don't, but generally, I think the higher the liquid asphalt cost, the larger the price increase for asphalt mix that you'll see flowing through our system, and if we do it right, we're able to expand our material margin, and therefore, our margin [indiscernible] business as we raise our prices in response to liquid asphalt cost.

And have you seen some stabilization in liquid asphalt costs at this point?

Not really. I would say that...

Continuing to creep.

Yes, it's up I think in the 560 range in the second quarter compared to about 477 a year ago, and we think that we're [ph] probably going to stay in about that range. So -- but that's an estimate on our part, and that's a lot of different markets, a lot of different suppliers, so that's the average that we have, and I'm not -- there's not a monthly trend that -- it's still trending up somewhat whereas diesel fuel is trending down, so I think that's -- they don't move in lockstep.

Your next question comes from the line of Bob Wetenhall from RBC Capital Markets.

This is actually Tom Austin on for Bob Wetenhall. I just wanted to kind of clarify some of your comments about your expectations for the federal transportation spending and kind of just close the loop on what you think that means for next year. If you guys think that, maybe baseline expectations, are that we're going to do a continuing resolution through next year that keeps funding at steady levels, and then maybe you have some stimulus funds that are coming off but maybe some states that are stepping up to kind of fill the gap, do you think that would, all equal, if we get a continuing resolution with equal funding, do you think that would lead to flat volumes next year, maybe slightly increased, maybe slightly down? I don't know if you guys have any kind of expectations for that.

Well, I won't answer it in terms of what our expectations for our volumes would be next year because that's something we'll do some -- a lot more work on before we try to give an outlook on that. But with respect to funding next year, on the federal side, I think the range of possibilities would be funding at current levels, that is $41 billion, $42 billion plus, maybe an inflation adjustment. As in the Senate EPW outline, probably the low end would be the number that's in the House T&I outline. As I said, there is enough money in the Highway Trust Fund to stay at current levels through FY '12 and probably halfway through FY '13, so in a continuing resolution or short-term extension scenario, the money is there. There's probably going to be -- probably some likelihood that that would provide for continuing funding at current levels. Stimulus will, of course, continue to wind down as we move into 2012. There's probably going to be still some stimulus money to be spent, but it will certainly be less. What we're seeing is that the states' ramp-down regular funding, state and federal funding on projects as stimulus ramped up, that was not supposed to happen, but it did. A couple of reasons for that I'm sure is one, the states only had a finite number of projects to bid during the time period of the stimulus, and they took everything they had and bid it with stimulus money, and so the regular programs tailed down. As the stimulus money is tailing off, we're seeing the regular highway contract awards, the regular state and federal-supported state contract award moving up, and I think there's a graph in our investor materials that shows that. So as we look forward, we don't think there is a downdraft from the wind-down of stimulus spending that is going to result in a significant drop in state -- I mean the total highway spending because the regular programs are moving back up to offset that. The wildcard, of course, is what happens after September 30 and what the amount will be on a continuing resolution or short-term extension, and certainly, as I've said, we are working hard along with a lot of other people, both industry and labor and organizations that represent people like the truckers and the American Automotive Build Association. There's a large coalition that says don't cut highway spending because you're going to cripple jobs, you're going to cripple consumer transportation, you're going to cripple commercial transportation, and it makes no economic sense to do that, but we'll have to see how it works out.

Your next question comes from the line of Ted Grace from Susquehanna.

I had a quick question on pricing. Is there any way you could potentially decompose pricing in the second quarter, help us understand what the benefits or headwinds would've been on geographic mix, product mix versus underlying pricing?

Well, the only thing I can, I think help you with there, Ted, is that the spread between the highest and lowest change in pricing has narrowed, which says to me that across the country, across markets, there is more stability in pricing and there's less aberrational activity. In terms of product mix, we probably have more asphalt stone and concrete stone in the second quarter as a percent of the product mix than in the first quarter because of the weather and the ability to do paving work and pour concrete as the weather warms, but that's no different than the second quarter last year. So that's just a sequential quarter issue in terms of last year's second quarter versus this one. I know of no huge geographic mix shift or product mix shift that is worthy of mentioning. If we have, we would've mentioned it.

Okay, that's helpful. And then secondly, in terms of just how we think about the pricing expectations implied in the back half of this year, is there any kind of assumption built in that you'll get, for example, a lot more maintenance work that would imply more clean washed stone, which has better pricing and hence would be a tailwind, all else equal?

We hadn't changed our outlook for full year pricing. We've said 1 to 3, we got 2.5 in the second quarter, a little less than that year-to-date. But generally, as we move through the year, the price increases that we've been able to put into effect start materializing in actual shipments and then showing up in our reported pricing. So I think we're comfortable with our price forecast for the full year. It is, as I've said many times before, it's a lot clearer after the quarter's over, and we look back and calculate our pricing than it is at the beginning of the quarter looking forward as exactly how it's going to play out because there are literally thousands and thousands of individual pricing decisions that roll through to get to that result, and what goes out the gate in the quarter is what's counted, not what what's been booked in that quarter. So we believe we're -- that pricing has stabilized. There's opportunity going forward for price growth and we're certainly working hard to get that in all of our product lines, and we're pleased, very pleased with the success of that effort in the second quarter.

Perfect, that's very helpful. And then the second question I was hoping to ask you is, in terms of thinking about your margins in the aggregate segment in the back half of this year and to whatever degree you're comfortable talking longer-term, can we just walk through the puts and takes of the cost structure, the big bucket cost, labor, R&M, supplies, energy, and how we might, if at all, tweak our expectations on incrementals given a lot of companies, this quarter in particular, have had a tough time on the price cost balance? So if you could just help us maybe recalibrate our expectations on incrementals or cost pressures, that would be great.

I'm going to get Dan and he'll [ph] run through that with you in some detail, but for us, the big variable in the Aggregates business is diesel fuel cost. That's what moves around. And on the GAAP side, not the cash side, but on the GAAP side, it's absorption of DD&A with production volumes. But I'll let Dan cover that with more sophistication than I can.

Ted, if you look at our cost per ton of aggregates in the first half of this year compared to the first half of last year, I think the basic relationships that we have cited previously have remained substantially the same, and I'm talking now about total costs. Our labor in fringes this year for aggregates have averaged around 25%, 26% of our total spend for producing a ton of aggregate. On a per-unit basis this year, that's a little bit higher than it was last year, and I think part of it is what Don just referred to being a function of lower volume. There's some of that labor cost is somewhat fixed, but additionally, we have had some higher repair and maintenance spending this year as compared to last year, and that number is going to move around a little bit, and frankly, will drift a little bit higher before it comes down because in part of the curtailed capital spending. So while we're not pushing the equipment nearly as hard as we did a couple of years ago, we're not replacing as much, so on the margin, we're encountering some more repair and maintenance expense. At a practical standpoint, you can think about it this way: You've got 2 pieces of equipment. You need to run only one. You run the one, it breaks. You park it. You run the second one. If something breaks, you have to fix it. So you can have a little bit of that and you do incur some wages and labor to repair that equipment, and we did see a corresponding increase in the first half of this year in our -- excuse me, in our cost of parts and supplies. Again, it crept up a little higher on a per-unit basis or on a -- as a percentage of the total. But if you step back from that and you look at the basic cost structure of the business, it isn't changing a whole lot on the variable side. It's not changing dramatically. And as we get into recovery and begin to see meaningful volume increase, we still expect to see very, very powerful contribution margins as the variable cost of producing a ton of this stuff is a heck of a lot lower than the selling price. So I think we would still stick with the view that through the early years of meaningful recovery, a 60% contribution margin on incremental aggregates revenues is still not unrealistic to achieve.

Okay, great. That's helpful because that's the net of the question. And then the last thing I was hoping to ask is, I think Don cited $4.9 billion of remaining stimulus funds in Vulcan states. Is there any way you can catch that just so we understand what that spend would look like in 2010? Do you have a sense for what that spend looked like in the first half of this year and what your expectations are for the back half, and then if you assume the balance gets captured in 2012 or if it's a longer tail than that? And I'll get back in the queue.

One of my colleagues has that data. He's bringing it to me now so I don't bring it from the...

If it's sensitivity, other people have questions, I can talk to Mark about it off-line if that's easier for you, Don.

Okay, why don't you do that, because we've got all the -- we've got it by state. It's all -- it's not our estimates. It's federal government numbers, and it is, I think accurate and [indiscernible] those numbers to you.

And your next question comes from the line of Carly Mattson from Goldman Sachs.

I just wanted to touch back on the revolving renewal. Would Vulcan consider offering security in turn for lower rates, or what other factors are being considered in the revolver renewal?

Well, I think it's too early to answer that question definitively. We're in the midst of our discussions with the banks. We've not yet launched a deal. We're still reviewing proposals, and obviously, given our credit rating and our leverage, the discussion of security is ongoing and we're trying to evaluate and measure the trade-offs between security and the lack of security as it relates both to pricing and the corresponding, both covenants and negative covenants. It is our strong desire to continue to pursue an unsecured revolver, but I must qualify that by saying until we complete this review and actually launch a deal and see how receptive the market is, I don't want to predict with where it'll end up, but we're pushing hard towards an unsecured transaction.

I'd now like to turn the presentation over to Mr. James for closing remarks.

Great. Thank you very much for calling in today. We appreciate your interest. Thank you for your questions. We look forward to talking to you again at the end of the third quarter and look forward to meeting with many of you in investor meetings later on in the year. Thank you very much.

Ladies and gentlemen, that concludes today's presentation. We thank you for your participation, you may now disconnect. Have a great day.