Vulcan Materials Company (VMC) Q3 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the 2011 Third Quarter Vulcan Materials Company Earnings Conference Call. My name is Jennifer, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now like to turn the presentation over to your host for today's conference, Mr. Don James, CEO and Chairman of the Board for Vulcan Materials Company. Please proceed, sir.

Good morning. Thank you for joining this conference call to discuss our third quarter results. I'm Don James, Chairman and Chief Executive Officer of Vulcan. I apologize for starting a couple of minutes late, but we had a large queue of people trying to get into the call, and we delayed the start by a couple of minutes. Joining me today is Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, our Executive Vice President for Construction Materials. Before we begin, let me remind you that certain matters discussed in this conference call contain forward-looking statements, which are subject to risk and uncertainties. Descriptions of these risk 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 third quarter operating results. EBITDA on the third quarter was $194 million, and earnings per share were $0.17. Included in these amounts was approximately $63 million in EBITDA and $0.30 per share related to the sale of nonstrategic aggregate facilities and the recovery from an insurer of costs for a lawsuit settled in the second quarter of last year. We were encouraged by the continued improvement in pricing of aggregates, concrete and asphalt. The collective earnings benefit from pricing actions in these product lines offset most of the $21 million earnings impact of elevated unit cost for diesel fuel and liquid asphalt compared to last year's third quarter. In aggregates, the average freight-adjusted selling price increased 1% in the third quarter, consistent with the price increases we've realized year-to-date. We saw relative stability across our markets in the rate of year-over-year price changes from down 3.5% to up 7%. We are encouraged that pricing in Florida was up 2% for the quarter. In Asphalt prices, our asphalt prices increased 10% in the quarter, and our ready-mixed prices were up 6% compared to last year's third quarter. Prices in all of our asphalt markets improved compared to last year and prices in almost all of our concrete markets also improved. Our ongoing efforts to reduce overhead lowered our SAG expenses 13% compared to last year's third quarter, increasing our earnings by about $10 million. Third quarter segment earnings in aggregates were $113 million versus $125 million last year. The year-over-year decline in segment earnings was due principally to higher unit costs from diesel fuel and to lower shipments, which reduced earnings about $5 million. The 2% decline in the third quarter aggregate shipments was due primarily to weaker demand resulting from continued economic uncertainty. Aggregate shipments increased compared to last year's third quarter in California, North Carolina, Maryland and Alabama due primarily to stronger demand from public infrastructure projects. In particular, shipments in California were up 26% versus last year's third quarter, and we expect this strong shipping trend in California to continue in the fourth quarter. In addition, aggregate shipments in Virginia and Georgia were negatively impacted by 2 tropical storms that moved up the East Coast, which resulted in delays in shipments on both large projects, as well as for routine projects due to extended wet working conditions in those markets. We expect some of this volume for large projects to be recovered in the fourth quarter and the remainder to roll forward to 2012. Higher pricing and improved production efficiency helped offset some of the earnings effect of a 40% increase in diesel fuel cost per gallon, which accounted for most of the year-over-year decline in segment earnings. Earnings in our Asphalt segment were $12 million versus $13 million last year. Asphalt mix sales prices were higher in the third quarter, both sequentially and year-over-year. The year-over-year 10% increase in sales price has offset the earnings impact of a 20% increase in the unit cost for liquid asphalt in the third quarter. Asphalt volumes in the third quarter approximated the prior year, as increased shipments in California offset lower shipments in Arizona and Texas. Year-to-date, Asphalt mix pricing has offset the $22 million earnings effect of higher liquid asphalt cost. We expect this trend in price and cost to continue in the fourth quarter. Our Concrete segment recorded a loss of $9 million versus a loss of $10 million last year. Improved pricing led to higher unit margins -- higher unit material margin, and the earnings effect of this pricing more than offset the impact of the 8% decline in volume and the increase in the per gallon cost of diesel fuel. Concrete shipments in California and in the mid-Atlantic states improved slightly versus the prior year. Our shipments in Florida were lower than last year's third quarter. SAG expenses in the third quarter were $68 million versus $78 million last year. The $10 million reduction reflects the benefit of cost savings initiatives and lower legal expenses. In September and early October, we completed 2 small acquisitions and divestiture transactions. They yield approximately $57 million of cash, improved our aggregates reserves position and should increase our future EBITDA by over $1 million per year. Specifically, we divested 4 sand and gravel operations, 3 limestone quarries, 2 concrete plants and 1 asphalt plant in markets that are not strategic to our long-term growth objectives. We acquired 3 aggregates operations and 1 rail distribution site in the Southeast. You may recall that in May of last year, we reached a final settlement in a lawsuit filed in 2001 against Vulcan by the Illinois Department of Transportation. As a result of this settlement, a $41 million pretax charge or $0.21 per diluted share was recorded in the second quarter of 2010. Subsequent to this announcement last year, we've began to pursue recovery of the amount paid in settlement, as well as our defense costs from our insurer. In the first quarter of this year, we recovered approximately $26 million in arbitration with 2 of our insurers. In the third quarter, we again prevailed in arbitration and recovered approximately $24 million from another insurer. Of this amount, approximately $3 million was recorded as recovery of legal fees and as interest income. At September 30, we had no short-term borrowings and had $152 million of cash. Another $20 million of cash will be received in the fourth quarter from the various transactions I described earlier. Turning to our outlook. We expect future demand for our products to be supported by growth in contract awards for public spending on highway projects, specifically road-related construction, and a modest improvement in private nonresidential building construction. Through the end of last year, total contract awards for highways in the U.S. were up 3% from the prior year due to the continuation of stimulus-related funding and some recovery in regular highway funding. During the first 9 months of this year, contract awards for regular non-stimulus highway programs continued to increase. As anticipated, contract awards for stimulus-related highway projects slowed. As a result, trailing 12-month contract awards for highways across the entire U.S. were down 8% from the prior year. However, if we look specifically at Vulcan-served states, the comparisons are more favorable due in part to contract awards for more aggregates-intensive road-related projects. On a trailing 12-month basis, contract awards in Vulcan-served states are up 6% for road projects over the prior 12-month period, while contract awards for bridges are down 19%. We believe this favorable comparison to other states is due in part to the timing and types of projects funded with stimulus dollars in key Vulcan-served states, as well as the pickup of spending for regular funding programs by departments of transportation, which, in the absence of a new multiyear federal highway bill, are currently more focused on maintaining the existing capacity than in undertaking large multiyear projects. The aggregates intensity of road projects versus bridges and the relative stability of contract awards in Vulcan-served states are both positive for demand for our products going forward. Several developments in Congress offer encouragement that federal highway funding is also moving in a positive direction. The current 6-month funding extension, which passed on September 16 of this year, includes annualized budget authority of approximately $40 million -- $40 billion, essentially in line with the 2011 funding levels. The extension passed by wide margins in both houses of Congress, as did the continuing resolution that appropriated funds at essentially current levels at the beginning of the new fiscal year on October 1. It is notable that leaders in Congress from both parties have been working to maintain highway funding at or very near current levels at a time of dramatic proposed cuts in many other areas of the federal budget. With respect to the reauthorization of multiyear surface transportation bill, Senate environmental and public works committee bipartisan leadership announced on October 21 plans to mark up its proposed 2-year surface transportation reauthorization bill next week on November 9. This bill is intended to maintain fiscal year 2011 highway funding levels plus inflation for fiscal years 2012 and '13, providing further stability to the federal surface transportation program. And in a shift from its previous position, House leadership is now promoting transportation infrastructure legislation as a way to create jobs, and has authorized the House transportation and infrastructure committee to find significant new sources of revenue for the Highway Trust Fund. The validation of the need for increased spending on highways, and more broadly speaking, infrastructure, continues. The latest example comes from the President's Council on Jobs and Competitiveness. In October, the council issued an interim report, which included a series of practical proposals that could meaningfully accelerate job creation over the next 5 years as part of the nation's overall jobs agenda. Recommendations were grouped into 5 initiatives with investment in infrastructure listed as the first priority already. The report called infrastructure investment a classic two-fer. It creates jobs in the near term and promotes long-term competitiveness. The report goes on to cite a $1 trillion investment shortfall for our nation's infrastructure, of which $550 billion is needed for roads and bridges. Vulcan, along with other industry participants and organizations, are cautiously optimistic that Congress will take action on a new highway bill next year. Additionally, key states, such as California, are taking initiatives to create jobs to bolster economic recovery and fund major infrastructure projects. In late October, Governor Brown announced that California had sold $1.8 billion in general obligation bonds, of which a portion related to the state's Department of Transportation and funding hundreds of ongoing projects, as well as 26 new multiyear projects with a total construction cost of $1.2 billion. Private construction has remained at low levels, with some indications of improvement in certain categories. And residential construction single-family housing starts remained at historically low levels. After some modest growth in the second half of 2010, starts have again turned down. Multifamily starts on the other hand have increased sharply since late last year, and Vulcan-served states' trailing 12-month multifamily housing starts have increased 21%, the fourth consecutive quarter of double-digit increases, providing evidence that favorable demographics can support construction activity even with weak economic conditions. Private nonresidential construction also remains at low levels. However, trailing 12-month contract awards are up across the U.S. for the third quarter in a row. While the growth in contract awards in the manufacturing sector has remained strong since late last year, awards for new projects in the categories of retail and office buildings have increased modestly for the second consecutive quarter. While the recent growth in contract awards is encouraging, we believe employment growth, as well as an increase in business investment and lending activity, are needed to sustain a recovery in nonresidential construction activity. Our selling, administrative and general expenses in 2011 are expected to be 25% lower -- $25 million, I'm sorry, lower than last year. Net interest expense for the full year is expected to be approximately $203 million of which, about $17 million is noncash amortization of previously paid financing costs and about $20 million is for the premium pay to repurchase some of our outstanding bonds in June. Next year, total interest expense is expected to be approximately $210 million, including $6 million in net noncash amortization. Because of the mechanical nature of the aggregates production process, capital spending levels can be adjusted to match demand in production levels. Additionally, our plans for mobile equipment were in relatively good shape going into the cyclical downturn. As a result, we have been able to hold capital spending to maintenance-type levels. Planned capital spending remains at $100 million for 2011, up modestly from $86 million in 2010. In closing, we are encouraged by the recent developments in Washington regarding federal highway funding, as well as the modest improvement in a variety of private nonresidential building categories, albeit from a very small base. Vulcan has a tremendously valuable asset base, which we believe is well positioned to deliver strong earnings leverage as the economy recovers. We continue to evaluate opportunities to adjust our portfolio of businesses and products, and our operating footprint to improve our initial results and enhance our opportunity for future earnings growth. Those opportunities can come in the form of divestitures, acquisitions, asset swaps and capital spending and cost saving initiatives, and we will continue our diligent efforts to make the best decisions for our shareholders. Now, our operator will give the required instructions. We'll be happy to respond to your questions.

[Operator Instructions] Your first question comes from the line of Garik Shmois with Longbow Research.

My first question with respect to your asset portfolio. You've engaged in some asset swaps here recently and some divestitures in particular. Don, I was wondering if you could talk a little bit more about how you view your portfolio right now. Maybe if you've identified a dollar amount of non-core assets perhaps that you've identified for divestiture going forward that you could share with us, that will be helpful.

Garik, we are looking -- we look across all our portfolio. As you know from following us over the years, our strategy is to build our presence in larger, faster growing metropolitan areas. We think that's where we have the greatest opportunity, and where we have assets that are not strategic to us, and are more valuable to a potential buyer than they are to us, then we'll continue to look for opportunities to sell or swap those assets. At this point, we don't have a set of assets that we would look to divest. It is really a question of looking for opportunities, and we will do that vigorously over the next 12 to 18 months as we typically have done in the past. We're looking for ways to improve our results, and realigning our portfolio is one way of achieving that.

Okay. And just looking at your SG&A, I know that you haven't provided guidance for 2012. But just given the reductions that you saw this quarter, is maybe kind of a high $60 million, low $70 million quarterly run rate a good way to start thinking about 2012?

Well, I think we have given some guidance for 2012. And I think we've said we expect SAG to fall another $10 million to $15 million in 2012. There's a lot of noise, there's a huge lot of noise in our SAG. A lot of it is legal fees that have resulted from the things we've talked about, the recovery against our insurers for the settlement with IDOT last year. The effects of our new ERP system as we roll that system up, and now we are looking forward to getting the benefits of that. So there's just a lot of noise in our SAG, and we'll be happy when we get settled down to some sort of normalized run rate, which we haven't seen in the last 3 or 4 years. But our guidance at this point for next year would be a further decline of $10 million to $15 million, and we'll be looking for other ways to try to do better than that.

Okay. And just my last question is, just given some of the movement in Congress regarding the 2-year highway loan and the recent continuing resolution at stable levels through March, and some of the language under the House that you talked about regarding finding new revenue sources, are you hearing anything new out of your contacts either in D.C. or state DOT book offices, with respect to maybe increased visibility or increased confidence that the states will start spending some of the money that they have budgeted, that perhaps has been delayed because of the increased uncertainty in the macro environment? Can we see some of this money start to flow through in calendar year 2012, especially recognizing a number of state DOT budgets have increased looking out for fiscal '12? If you could provide some color there, that will be great.

Yes, I think the key on the federal aid programs will be the passage of some bill in 2012. Most likely, at this point, the 2-year Senate bill, which maintains funding levels, in fact, increases them slightly from FY '12 to FY '13, as I said in my remarks that the committee's meeting, we understand next way to mark up the bill and to move it forward. We also understand this is the Republican response to the President's infrastructure jobs proposal is to move a highway bill, which we agree with. We think that's a lot more practical way to create jobs than to do something that's totally new and different. On the House side, we are encouraged by what we believe or understand to be a shift in the view of House leadership, and they have, at least -- some key committee chairs have said the Republican's extension of the highway bill as being their jobs package. All of that, I think, bodes well. There's a lot of politics, of course, being played. But we are, I think, much more cautiously optimistic today about the prospects of a highway bill in 2012 than we were probably 6 months ago. On the state side, a lot of states, as you point out, have substantial highway reserves that they haven't yet spent or are not spending, and probably awaiting the federal aid program as the stimulus is working its way through and states are finishing up stimulus jobs. They are looking for that roughly 80-20 match to move forward with the normal Federal Highway Program and are saving their money to participate in that. So I think if we do get a 2-year bill, the Senate bill passed or if we are able to get something longer than that, I think there will be a substantial increase in contract awards as states move to repair and replace a lot of aging infrastructure.

Okay. So if I hear you correctly, the biggest challenge remains the lack of a multiyear highway bill?

Absolutely. And states are moving with individual state projects, but the big numbers will come when there's the federal aid to the state programs.

Your next question comes from the line of Kathryn Thompson with Thompson Research Group.

This is Jamie Baskin on the line for Kathryn. Can you expand upon your in-market assumptions going into your flat Q4 2011 aggregate volume guidance?

Well, if we look at contract awards, which is the best, and I'm talking about macro contract awards in Vulcan-served states, as I said, the contract awards trailing 12 months for highways are up about 6%, while bridges are down 19%. So overall, the highway contract awards are down 3%, but when you look behind that number, roads are up 6%, bridges down 19%. So we think the highway piece will provide us some support, not only for the fourth quarter, but for 2012. Infrastructure is up sharply, up 18%. The vast majority of that is in private utility construction, some nuclear plants, a lot of gas plants. And depending upon the outcome of the emissions rules at the EPA, there could be a lot more private utility construction if a lot of the old coal plants will have to be phased out. Housing is down about 4%. But within that, and these are in our states, multifamily is up 21%; single family, down 10%; private non-res, up marginally 1%, which, as I've said in my remarks is encouraging. We're seeing strength. We're seeing modest increases in private non-res contract awards. Public buildings are down sharply in contract awards, 23%, which is probably the impact of the ramp-up in stimulus spending in that category all along ramp down. So on balance: roads, up; infrastructure, up; single-family housing, up; multifamily, down; bridges, down; private non-res, up marginally; public buildings, down substantially. That's how we see it. Whether it goes up in the fourth quarter of 2012 is a guess on the weather.

That's helpful. Also, have you seen a continued narrowing of just aggregates pricing just across your markets? Are there any markets that are outperforming or underperforming others?

We've seen a narrowing in the sense that the levels of price change has come back in. We don't see big negative swings or obviously huge positive swings. As I said in my remarks, it range from a negative 3.5% to a positive 7% market [indiscernible] across our footprint. Within that, there are some product mix issues. But I think, we're encouraged that there is increasing price stability and modest price momentum for our products.

Okay. And then, finally, what kind of visibility do you have in California? I know that you said you should see kind of continued growth through Q4, but do you have much visibility into 2012 in that market?

The thing that's driving demand in California, and that's been our most robust market in the recent quarter, is highway construction. And we have a number of projects that we expect will continue into the fourth quarter and into next year. Again, the timing of those projects has a lot to do with the weather conditions. But we have good visibility on the highway work at least through sort of midyear 2012. And then, a lot depends on what happens with the federal highway bill in Washington and certainly what happens with the state Caltrans in California. But at this point, we're very pleased with the highway work in California.

Your next question comes from the line of Scott Levine with JPMorgan. Scott J Levine - JP Morgan Chase & Co, Research Division: Just a question, I guess, you highlighted the impact of weather on the eastern seaboard into the Southeast. If you were to normalize for that, at least in your mind, would you still suggest that the underlying volume trends ex weather in that part of the country are a relative weak spot within your footprint? Or just in general, how would you characterize the Southeast market relative to the rest of your national footprint in terms of private sector activity?

Well, I think private sector activity is weak throughout our footprint. Weather is a factor, but it is -- it comes and goes, but there continues to be weakness in the private sector. As I pointed out, the places of strength in the private sector right now is really -- substantial strength is really limited to multifamily housing. But we believe private non-res in the categories of manufacturing, retail and office buildings seem to have bottomed. Manufacturing has been up, I think, on a trailing 12-month basis for each of the last 4 quarters, and now we're seeing retail and office buildings being up for the last 2 quarters on a trailing 12-month basis. That's encouraging to us that we've seen the bottom, and we're moving forward there. The strength today is in the public sector and within the public sector, it's highways. If we happen to be in a market where a large private utility construction is going on, that's great. Those are projects that aren't -- there's not a -- those are single large projects, and if you're in a market where you can participate, it's wonderful. If you aren't, you can't get there. But that's obviously very strong and is likely continue to be very strong as the utility sector is adjusting to new environmental regulations. Scott J Levine - JP Morgan Chase & Co, Research Division: Right. And can you give us a sense of the relative importance of multifamily versus single family within the residential business in general? Is that possible?

Single family has historically been a dramatically larger piece of housing than multifamily. That's changing. Multifamily is becoming a larger piece of total housing demand in this current climate. It continues to move every quarter, but the single family is flat to down, and multifamily is up sharply. But in the grand scheme of things, single family is a much larger sector of housing or historically has been than multi. Scott J Levine - JP Morgan Chase & Co, Research Division: Got it. And then you mentioned on some of these asset swaps, divestitures, what have you. Maybe a little bit more color on the thought process in which markets where you target swaps. Then also, if there are areas, maybe within the business that you might look to add capabilities as part of swaps going forward, a little bit more color there.

I think you can look around the industry and see that we are not the only one to be attempting to realign its portfolio with its geographic mix. We are all looking for ways to improve our results. And this is certainly an opportunity. In good times, we all fall in love with our assets, we don't want to part with any of them. I think the current economic climate has changed that. So there are opportunities now for divestitures, acquisitions that may not have been available in peaks, in periods of stronger demand. We certainly want to continue to build our reserve base and our presence in significant growing metropolitan areas. That's been our strategy for a long time. One of the opportunities we had late last year was to acquire a quarry in San Diego, which we did. And you can certainly -- that's one of the reasons why our shipments in California are up substantially. Also, in large metropolitan areas, the reserve base is essentially finite. And so any time we can do transactions and improve our reserve base of urban markets. Typically, in rural markets, the barriers to entry are lower, and you can just look at the economic changes in the United States over longer periods of time, and a larger percentage of the population are living in urban areas, a larger percentage of the jobs are in the urban areas, and we think our business mix and business model needs to follow that. So that's our strategy.

Your next question comes from the line of Tong Tong Xu from Goldman Sachs.

Can you talk about how October is shaping up in terms of pricing and downstream products and also activity levels and pricing in aggregates?

Downstream product pricing has been strong. As I said, asphalt mix pricing is up about 10%. That's being driven, of course, by a 20% increase in liquid asphalt cost. And then, concrete, we're very happy that we got a 6% increase in the quarter, and those price increases, as I indicated, in asphalt mix are in every one of our asphalt markets. And in concrete, they are in the vast majority of our markets. So I think, I think, pricing in the downstream products has actually been significantly stronger than in the aggregates market. We expect to be up about 2% in price in aggregates for the full year '11. And while those aren't robust price increases, and there's a tremendous amount of competition in all of our markets across all of our product lines, I think there are still opportunities to achieve modest price growth in aggregates.

Okay. And then in terms of your near term trends in October, could you give us some more color on how that's trended month to date?

I will, in February.

And just lastly on the aggregates point, is there any shift that you're seeing in the quoting activity?

I'm not sure I follow your question. You mean competitive pricing in bids or quotes?

Just in aggregates levels?

I think, while there remains very strong competition in all of our markets for aggregates, we are not seeing people do irrational things with pricing. I mean, every job is priced competitively. We win some, we lose some, but there's not huge price cutting taking place. In some markets, yes, but not overall.

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

I just wanted to, say, touch fast. In the absence of a major -- the passage of a major transportation bill in 2012, do you think you can still get price increases in the aggregates business next year?

That question depends upon if there is -- unless the Federal Highway Program ends, which we don't have any expectation that it will, there will be some continuing Federal Highway Program in the absence of passage of a multiyear bill. That will impact probably more of the type of projects that the state DOTs will let then it will be the amount of projects. A lot depends on what happens through 2012, in the private sector. That's the place there've been greatest volume drops. So if there is, in fact, some recovery in private non-res, that could certainly be beneficial to volume and price in 2012. But we're-- even if there is not a 2-year or 6-year or multiyear bill passed in Congress but a series of continuing resolutions, there still will be federal, state and local work. It'll be largely maintenance work and resurfacing works, as opposed to large bridge projects or large new capacity construction. But that still provides support for both volume and price.

That's really helpful. And if you guys could touch -- and maybe this is a question for Dan. You obviously took some liquidity management steps, cut the dividend and pushed out the maturity of the revolver. Can you just share with us your current thinking on balance sheet management as we head into next year? And should we be thinking about any additional steps that you might implement to manage your liquidity position?

Well, Bob, I think you hit the 2 most important things. First is you know we did a $1.1 billion bond transaction in June, which substantially reduced our maturity profile for the next 5 years. The dividend reduction that was announced in October frees up an additional $125 million of free cash flow to service debt and/or support the operations. We are in the final stages of completing negotiations on our new revolving credit facility, and that's going very well. We announced some details on that in October, concurrent with the dividend adjustment. But that facility is on track for a closing in November as well. We sit today at -- we sat at September 30 with $152 million of cash on the balance sheet, which more than satisfies the 2012 maturities. As we go into the fourth quarter, we generally generate free cash flow. As Don noted in his comments, we have approximately $20 million of cash that actually came in, in the fourth quarter already, referable to the various transactions and unusual events he described. If you put on top of that the normal cash from operations that we generate in the fourth quarter, I'm expecting that we'll end the year somewhere in the neighborhood of $190 million to $200 million of cash on the balance sheet. So right now, I think our liquidity is pretty stable and secure and adequate.

Got it. So we should expect, just moving forward, a more defensive posture and a conservative approach to liquidity management. Is that fair?

That's fair.

Your next question comes from the line of Keith Hughes with SunTrust.

Most of my questions have been answered , but just conceptually, you'd refer to reviewing the portfolio at the beginning of the call. Given where the balance sheet stands, would you expand that beyond individual locations, such as the aggregate facility that you sold in the quarter. Looking at some of the non-aggregate stuff, is that something you need to be in long term?

Absolutely. That's a part of our review. We have acquired a fair amount of downstream products in various acquisitions over the years, and we continue to look at whether there are better owners for those downstream assets. In some markets we enter, that, hopefully, is yes. And in other markets, it's probably going to be no. But the downstream products, particularly concrete, has been hit very hard in this downturn. Concrete is a wonderful product, if you're in the cement business end market. It's not such a great product, if you aren't. So we do pull the aggregates through our concrete plants and our asphalt plants in virtually all of our operations. But if we can find ways to continue to supply aggregates to our downstream products and have someone else own them and run them, who has synergies that we may not have, then that would be a win-win kind of transaction, and we continue to look for opportunities to do those.

Is it possible to sell those as whole product -- I'll just pick one, concrete, for example. Is it possible to sell that in a group? Or are these kind of transactions going to be city-by-city, state-by-state kind of things?

It all depends on -- it takes 2 people to do a deal. And so you have to find a buyer. Whatever the buyer's interest and strategy are -- has an impact on -- really you would not -- you would sell batches of assets.

Your next question comes from the line of Seth Yeager with Jefferies & Company. Seth Yeager - Jeffries & Company: So you guys contributed quite a bit of cash in equity last year to your pension funds. And just based on performance year-to-date, I think previously you had said, you wouldn't need to contribute through 2012. Just where you sit now, is that still the expectation?

Yes, that's still the expectation. We are -- I think, we are in good shape there. Seth Yeager - Jeffries & Company: Okay, great. And then as far as just from a bigger picture standpoint, I think by my math, through October, roughly 85% or so of the ARRA funds have been spent with $5 billion or so this year. It sounds as if there's maybe some pent-up demand from a state standpoint. Assuming flat funding next year, do you feel as if that sort of pent-up amount would more than offset or sort of partially offset the falloff of some of the ARRA stuff this year?

Yes, if you -- there are 2 points on the stimulus spending. We agree with you that there's about 15% of the money yet to be spent. But when you look at it state-by-state, a very substantial portion of that yet-to-be spent money are in Vulcan-served states, California, Florida, Virginia in particular. So we are positioned, I think, to get a little higher portion of the remaining spend than we got in the 85% that's already been spent. The second point, is, and I think when you look at the Congressional Budget Office numbers, this really jumps out at you, and that is as the stimulus spending ramped up, the state -- the regular state and federal programs ramped down. Of course, many critics of stimulus spending say it didn't create jobs. One reason is the stimulus programs had short views on them, had to be let, had to be built, and the ability of state DOTs to manage projects and get projects out and get them built caused the states to back off their regular contract lettings. Now as we're seeing stimulus spending turning down, we're seeing the regular programs, particularly the state level, which includes the federal regular Highway Trust Fund money, ramping right back up. So I think there is a substantially offsetting amount in the regular programs, as the stimulus spending is coming down. As we said overall, in our states, if you look at trailing 12-month contract awards, they're down 3%. That is probably the excess of the decline in stimulus spending over the ramp-up in regular spending. But if you just look at the road part, which is the part that's most valuable to us per dollar of spending, they're up 6%. And bridges are down 19%, which says, the remaining stimulus dollars plus the regular state federal programs are much more focused on roads than on large projects like bridges. So we think on balance, we're cautiously optimistic about the road sector in 2012. Seth Yeager - Jeffries & Company: Okay, great. And then if I could ask a quick follow-up. You've sort of addressed it already, but following the dividend reduction, priorities for free cash flow. Have you guys started to put a budget together for next year for CapEx? And is it safe to assume that the balance sheet would be a higher priority than expansion?

Yes. As Dan Sansone mentioned earlier, certainly, we want to reduce our debt, and we will have probably a modest increase in CapEx next year. CapEx for us is really a function of throughput of aggregates more than anything else. And as aggregate volumes begin to recover, our CapEx will go up of necessity. So we are -- the reason, in a nutshell, for the dividend change was to give us more financial flexibility during a period of tremendous uncertainty about what's going on in the Eurozone, and what impact that's going to have on the economy in the U.S. and to hopefully get some stability in the Federal Highway Program through action by Congress, hopefully, early part of next year.

And your next question comes from the line of John Baugh with Stifel Nicolaus. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: I was wondering if you could touch on multifamily. It's running around 200,000 on starts annually. And give us kind of feel for, say, if that number doubled to 400,000 over the next few years. What does that mean to Vulcan assuming that double happens obviously in the states where you're doing business?

Well, multifamily is more like private non-res construction. And in the non-res, most multifamily has a heavy part of concrete and masonry construction, as opposed to stick-built like a lot of single-family housing. Also, if you look at the multifamily starts in Vulcan-served states versus the rest of the country, our states are dramatically outperforming the rest of the country in multifamily starts, which is a function of the continuing geographic trends. Our states are still growing substantially in population, and people have to have a place to live. Flip side of that is our states have been hit harder on single-family housing and probably the foreclosure problems and the overhang in single family are higher in California and Florida than they are certainly in the rest of the country. All of that being said, I can't quantify, as I sit here today. My colleagues can't. If multifamily construction doubles in our markets over the next 12 months, what that implies for aggregate demand, obviously, it would imply an increase. But whether that increase is 1% or 2%, I can't tell you as I sit here. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Well, is there -- maybe a different way to come at it. Take housing as a percentage of your total business today and then any kind of guess how that might breakout between multifamily and single family?

Well, total housing today, and this is a moving target, but because other things move around too, but housing is 13%, 14% of our total demand. An increasing portion of that is multifamily contrasted with single family. Historically, multi is 20% of total housing. But what we're seeing is that, that percentage is growing. So you can do the math as well as I can based on those numbers. But we'll get you a better sensitivity if multifamily were to double, what that would mean for aggregate demand. It also mean, if it's in markets where we are in the Concrete business, it will also improve demand for concrete and asphalt for asphalt parking lots.

Your next question comes from the line of Mike Betts with Jefferies. Michael Betts - Jefferies & Company, Inc., Research Division: Two questions for me, one probably for you and one for Dan. Sequentially, the average aggregate selling price, I think, dropped from $10.36 to $10.24. You're probably going to tell me that, that was just sort of mix, maybe reaching you by product. If that was the case, could you kind of give some indication view? I think in some markets, you did try and implement to midyear price increase. I mean, is it just too early to expect any sign of that? What's happened to that? That generally would be my question. And then one for Dan, on the credit agreement, I think you said the new covenants are asset-based. Are you in any position to give a more detail at this stage? Or do we have to wait for the final funding for that?

Mike, on your pricing question, the difference between Q2 average freight-adjusted selling price and Q3 is just noise -- there's not -- there are modest price increases in place across many markets. The realization of that is, and one that we're talking about, sort of 2% price increase, price growth over the year. There are lots of ups and downs in that, and that's all you're seeing, I think, between Q2 and Q3. And as we've said, this is not a business where our pricing strategy is one big midyear price increase. It comes every market, every job, every day. And the 2% full year price growth is a function of thousands and thousands of pricing actions. I can't think about it as a first of the year or midyear pricing. I'll refer your question to Dan.

Mike, the work on the new revolver is very far along. It is going to be an asset-based lending facility, which will be secured by our accounts receivable and inventory balances. The advanced rates against those 2 assets are consistent with other transactions of similar type of facilities. The collateral or security consist solely of receivables and inventory. There's no further pledging of plant, property and equipment or real estate or anything else. The facility or the assets that are supporting the facility do not count against the secured debt limitation that's contained in our various bond indentures. So through the eyes of those agreements, we still don't have any secured debt. So we're not at risk of bumping up to the 15% threshold that exists in the bond indentures. There are no financial covenants in the facility, so long as we do not borrow more than 90% of the capacity of the facilities. So if you -- we expect a minimum of the $500 million facility, possibly higher. So put differently, there are no financial covenants as long as our borrowing against that facility is less than $450 million. If we go over $450 million on a $500 million facility, there would be a single financial covenant, which would be a fixed charge coverage ratio. The deal is fully underwritten, as we mentioned in our press release, by 2 banks, Suntrust Robinson Humphrey and Wells Fargo. They are currently in the process of syndicating those positions. Both of those banks will still hold major positions in the syndicated facility. Final commitments are due this Friday, but we already have in hand $690 million of commitments. Even after assuming that those banks that provided the underwritten facility at $500 million would reduce some of their hold positions. We expect closing in November. The only negotiations that are still underway is really in the legal documents. All of the commercial terms are settled. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And just a follow-up, Dan, impact on interest cost next year?

Well, right now, we have no borrowing on our existing revolving credit facility, and we have, as I mentioned earlier, $150 million to $200 million of cash on the balance sheet. So when this facility goes in place, we would not expect any immediate borrowing on it. So it probably has very little effect on 2012 interest expense. The borrowing rates on this facility are not too severe. There's a staggered pricing grid, but the initial borrowings on this facility will be about 175 basis points over LIBOR. So it's not overly expensive. So if we do have to draw on it, it's very reasonably priced money. Michael Betts - Jefferies & Company, Inc., Research Division: And is there a commitment fee, last question?

Pardon me. Michael Betts - Jefferies & Company, Inc., Research Division: Do you have -- is there any kind of commitment fees that you have to pay to have this available?

Yes. The commitment fee is, I believe, around 37.5 basis points for the undrawn. And as the borrowing on the facility increases, the commitment fee decreases that you have to pay. But yes, and that is considerably higher than what we're paying as a commitment fee on our existing facility.

Your next question comes from the line of Colin Murphy [ph] with Longacre.

Do you guys expect further cash inflows related to the recovery of legal settlements going forward? Or is the $21 million inflow that we saw in Q3 it?

That is -- yes, that covers the remainder of our costs associated with the prior settlement. So any further recoveries would be related to other items that would be relatively small.

Your next question comes from the line of Brent Tillman with D. A. Davidson. Brent Thielman - D.A. Davidson & Co., Research Division: Don, just on the ready-mix business, are you finding yourself turning away more work to get price? And is that more important to you right now than volumes to get profitability back to breakeven or profitable levels?

We're not terribly anxious to sell concrete at a loss. So the answer to that is yes. Brent Thielman - D.A. Davidson & Co., Research Division: Okay, fair enough. And Dan, I appreciate all the detail on the covenants. I guess just a point of clarification for me. With the new credit facility, does you debt to total capitalization covenants still exist?

Not in that facility, no, sir. Obviously, it will continue to exist in our bond indentures at 65%.

Your next question comes from the line of Keith Johnson with Morgan Keegan. J. Keith Johnson - Morgan Keegan & Company, Inc., Research Division: Just a couple of quick questions. First off, if you take a look at the aggregates business in the second half of 2011, it's kind of shaping up relative to kind of where you were expecting back in the summer, which I think was for volumes to be up between 2% and 6% in the second half of the year. Are there geographies that particularly stand out as falling under that expectation and kind of the weather effect that you've mentioned on the East Coast?

The guidance we gave, I guess, in the end of Q2 for the second half of the year was largely based on large project work. The regular underlying demand has turned out to be, at least in Q3, a little weaker than we thought. The large project work in California that we identified previously has moved forward, is moving forward. The volumes are flowing through there. The large project work in Virginia and Georgia that we identified has moved forward more slowly than -- we said second half and not third quarter. So some of that will continue into the fourth quarter depending on the weather. But some of that was delayed as a result of the very wet working conditions. The speed with which contractors resume work after wet working conditions is somewhat diminished when the overall demand and their backlog is lower. So you don't see the pickup coming quite as quickly, and contractors will look at their backlog of business. They'll look at their relative cost of working in wet weather or cold weather. They'll look at their contractual obligations in terms of when the projects have to be completed. And so, that's behind the shift of demand from one quarter to another quarter. But the projects that we had identified are still there. We will still ship the material, it's just a question of whether some of it goes in the fourth quarter or some of it rolls over into 2012. J. Keith Johnson - Morgan Keegan & Company, Inc., Research Division: Okay. That was helpful. How shall we think about or is there a way to think about the difference maybe between what we see as kind of the average price per ton for aggregates, I guess around $10.24 in the third quarter, relative to maybe what new business would be showing up since the $10.24 kind of a way devolve the contracts in various price points? Really trying to get an idea of price momentum as we go into 2012.

Well, this is terribly simplistic. But if we will report a 2% increase in average freight-adjusted selling price in 2011 compared to 2010, you will see modest increases. It's not going to be quarter-to-quarter, because there's so much variation in geographic mix and product mix. But I think that momentum is in. It's modest. The momentum is very modest, certainly compared to periods in which volume was growing, where we were getting substantially price increases. We are enjoying and experiencing and working very hard to get the sort of 2% kind of annual price growth we are seeing in 2011. J. Keith Johnson - Morgan Keegan & Company, Inc., Research Division: Okay. Just one quick question on just for clarification on the maintenance said earlier. When you talk about your guidance for the SAG expenses being down about $25 million year-over-year, that's compared to the $326 million that happened in 2010, just on a reported basis?

That's correct. And as I've said before, there's so much noise in those SAG numbers in 2010 and 2011. I will be very happy when we get back to more steady sort of overhead levels, overhead expense levels. But where we're not -- we don't have big legal fees and recoveries coming in and out and big expenses owned. Our systems were coming in and then the results of that coming out, we'll get to steady state, hopefully, in 2012. J. Keith Johnson - Morgan Keegan & Company, Inc., Research Division: Okay. So that would, I guess, require a little bit of a sequential increase in SAG falls in the fourth quarter this year?

No. It will actually probably be down. J. Keith Johnson - Morgan Keegan & Company, Inc., Research Division: Sequentially?

Yes. J. Keith Johnson - Morgan Keegan & Company, Inc., Research Division: Versus the $67 million in the third quarter?

There's still a lot of noise in there. But as we look to full year '12 versus full year '11, we're still in the $10 million to $15 million range for production. And the fourth quarter depends -- at this point, we don't have a great estimate for that.

At this time, I would now like to turn the call over to Mr. James for closing remarks.

Well, thank you for your interest. We are working hard to improve our results. We recognize that we have to adjust the way we are running the business and the way we are managing our portfolio of businesses to current demand levels. We're working very hard to do what we can within the period of weak demand, but I think more importantly, to position our company and our business portfolio and our geography to be extremely well positioned when there is some recovery in the private sector and hopefully, some stability in the public sector going forward. So we look forward to talking with you again after the end of the calendar year, and have a very good day. Thank you.

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