Vulcan Materials Company (VMC) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Quarter 2 2012 Vulcan Materials Company Earnings Conference Call. My name is Ian and I will be your operator for today. [Operator Instructions] As a reminder, the call is being recorded for replay purposes. And I would now like to turn the call over to Mr. Don James, Chairman and Chief Executive Officer. Please proceed, sir.

Good morning, and thank you for joining us to discuss our results for the second quarter of 2012. I'm Don James, Chairman and Chief Executive Officer of Vulcan Materials Company. Joining me today on the call are Dan Sansone, our Executive Vice President and Chief Financial Officer; and Danny Shepherd, our Executive Vice President for Construction Materials. We have posted a short slide presentation to our website that we will reference during this call. These slides are also available to those of you on the webcast. Looking at Slide 2 and 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. In addition, during this call, management will refer to certain non-GAAP financial measures, including EBITDA, adjusted EBITDA and adjusted diluted EPS for continuing operations. These measures are not prepared in accordance with U.S. Generally Accepted Accounting Principles. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures and other related information in Vulcan's second quarter 2012 earnings release and in the Investor Relations section of Vulcan's website. Turning now to Slide 3. Before we walk through the quarterly result, I wanted to briefly discuss a few highlights from the quarter. We remain keenly focused on reducing overhead cost and maximizing operation efficiency across the organization. These efforts have enabled us to continue to increase profitability, while sales remained essentially flat. Adjusted EBITDA was $127 million in the second quarter of this year, an increase of $10 million or 8% over last year's second quarter. We achieved higher EBITDA despite a slight decline in net sales. This decline is due in part to demand weakness in certain of our markets to the pull-forward effect of seasonably favorable weather conditions during the first quarter and unusually severe weather from tropical storm Debby in Florida in June. These negative influences were offset by encouraging growth in a number of our other key markets. Despite weaker volumes in several of our most profitable markets, Aggregates segment gross profit margin increased 220 basis points, and cash earnings per ton of aggregates improved to $4.57. Both of these improvements demonstrate our cost-reduction efforts, and earnings potential of our Aggregates business, particularly as volumes across our geographic markets recover. SAG expenses were reduced during the quarter by approximately 16%, reflecting our organizational restructuring and our cost reduction initiatives. As we look ahead, activity in both private and public sector construction markets continues to improve. We are encouraged by the passage of a new multi-year highway bill, signed into law in early July, which should provide State Department of Transportation with a funding certainty that they need to move forward on infrastructure programs. I will discuss some of the details regarding the highway bill a bit later in the call. We've also made important progress on our initiatives to enable Vulcan to continue to generate higher levels of earnings in cash flow, further improve our operating leverage, reduce overhead cost and strengthen our credit profile. Turning now to Slide 4. As I noted, net sales for the quarter were approximately $649 million, which is a 1% decrease from the second quarter of 2011. For the first 6 months of 2012, net sales were approximately $1.1 billion, 3% higher than the same period last year. Adjusted EBITDA was $127 million in the second quarter of 2012, which is an increase of $10 million or 8% over the second quarter in the prior year. When making year-over-year comparisons of earnings and EBITDA, I want to highlight 3 items that are better excluded from the adjusted EBITDA. The second quarter results include $32 million of cost related to the unsolicited exchange offer by Martin Marietta. They also include $4.5 million of charges associated with the implementation of our Profit Enhancement Plan. And finally, we recorded a $12 million gain on the sale of mitigation credits in California during the quarter. For the first half of 2012, EBITDA increased $52 million or 42% from the first half of 2011. I also want to point out, again, our continued success in reducing overhead cost. SAG expenses were 16% lower in both the second quarter and the first half. These decreases are the direct result of restructuring initiatives we undertook during 2011 and the first quarter of 2012, as well as the early benefits of the Profit Enhancement Plan we announced in February. We will provide an update on the Profit Enhancement Plan shortly. I'll now turn the call over to Danny Shepherd, who will walk you through our segment results for the quarter and an update on our Profit Enhancement Plan and Planned Asset Sales.

Thank you, Don. Turning to segment results on Slide 5. Aggregates segment results revenues were pressured by sluggish demand in certain markets and relatively weaker volumes in several of our most profitable markets. Aggregates volumes declined by double-digit percentages in Georgia, North Carolina and South Carolina. All of these states are relatively high margin states for Vulcan, so the volume decreases in those states had a larger impact on bottom-line result. On the positive side, we achieved double-digit growth in shipments in a number of key states, including Alabama, Florida, Illinois, and Texas, while shipments in Virginia and California continued to show improvement compared to the prior year. These year-over-year increases in Aggregates shipments were due mainly to large infrastructure project work, primarily highways, and increased private construction activity in these states. I should also note that while volume growth was strong in Florida, as Don mentioned, the severe wet weather in June from tropical storm Debby impeded the level of shipments in Florida in June, reducing the quarterly gains. The average freight adjusted selling price increased slightly in the quarter due primarily to some price improvement in private construction work and offset mostly by the negative impact of geographic and product mix. Overall, we believe our pricing in our markets remained solid with additional improvement expected in the second half of the year. While the top line was sluggish, we continued to drive stronger profitability. On a $7 million decline in revenues, our Aggregates gross profit increased by approximately $9 million, reflecting lower unit cost of sales. As a percentage of segment revenues, Aggregates gross profit increased by 220 basis points for the quarter. Cash earnings per ton of Aggregates increased to $4.57 per ton. All key labor productivity and energy efficiency metrics improved from last year. The unit cost for diesel fuel decreased 4%, accounting for $1 million of the increase in gross profit. Moving to Asphalt. For our Asphalt Mix segment, gross profit in the second quarter was $5 million compared with $8 million in the year-ago period. The unit cost for liquid Asphalt increased 7%, which contributed to the decline in segment earnings. The average sales price for Asphalt Mix increased slightly from the prior year, offsetting some of the earnings effect of an 8% decline in volumes. Concrete gross profit was a loss of $9 million, which is in line with the prior-year period. Ready-mixed concrete volumes increased 6% from the prior year. The earnings effect of higher volumes was offset by the unfavorable geographic mix. Finally, Cement. Cement segment gross profit with a loss of $2 million compared to a loss of $1 million in the prior year. A planned maintenance outage at the company's cement plant in Florida, as well as cost related to production disruption from heavy rain and power outages from tropical storm Debby negatively affected segment earnings in the second quarter. In total, gross profit for our non-aggregates segment decreased by $4 million. Turning to Slide 6. Now, I'd like to highlight the steady progress we are making as a part of the Profit Enhancement Plan announced in February. As you may recall from the call, the Profit Enhancement Plan includes cost reductions and other profit enhancement initiatives intended to improve our run rate profitability as measured by EBITDA, and we would expect to improve $100 million annually at current volumes. The Profit Enhancement Plan is focused on 3 major areas: We have a $55 million target in sourcing. We have $25 million target in G&A and another $20 million target for transportation and logistics. As previously announced, we expect to achieve at least $25 million of the Profit Enhancement Plan in 2012 and the remainder in 2013. Employees throughout the organization are implementing actions to improve our profitability across all business segments. And thanks to their continuing efforts, we remain very confident that we will achieve our Profit Enhancement goal. Through the first half of 2012, we've reduced total company controllable cost by $55 million from the prior year. This includes the benefit of previously announced restructuring, as well as the initial results of our Profit Enhancement Plan. The latest portion of restructuring and implementation cost for the Profit Enhancement Plan, approximately $4.5 million, was incurred in the second quarter. The company expects to incur an additional $3 million in restructuring and implementation cost as work is completed in the second half of 2012. There are over 200 specific Profit Enhancement initiatives underway across Vulcan's regions and functions. Our entire team, in particular, the managers and staff closest to our operations and customers, has risen to the challenges presented by today's difficult market conditions. The actions being taken will positively impact our already impressive cash margins per ton, further improving our leverage as demand recovers. To give some examples, in the area of G&A, we worked on further consolidating back office transactional activities into shared services and rightsizing shared services staffing. Types of actions we've taken in sourcing include renegotiating several large supply contracts at reduced rates, implementing enhanced bidding requirements for certain third-party services and implementing a new TNE [ph] cost policy. A specific example of an action we've taken in transportation is optimizing fuel efficiency of Vulcan's ships. We remain very committed to our Profit Enhancement Plan, and execution of these initiatives will remain a top priority for corporate and region management. Now for a brief update on Planned Asset Sales. It won't take a minute to give this update. As you may recall, we are planning to sell non-core assets in a disciplined and strategic manner. These are good assets, many of which we -- which will have a significant value to a number of potential purchasers. Our objective is to generate net after-tax proceeds of approximately $500 million by mid-2013, helping to strengthen our balance sheet, unlock capital for more productive uses and create value for our shareholders. We've been pleased with the level of interest in activity surrounding this process thus far. During the last several months, we have maintained active discussions and engaged in negotiations with multiple potential purchasers. These discussions include potential sales and other transactions involving a portfolio of assets that are not central to the company's strategy. We look forward to updating you on our progress in the coming months, and I'll now turn the call back over to Don.

Thanks, Danny. We're becoming more confident as we move to Slide 7, that the worst of this economic downturn in construction is behind us. This view is supported by increased contract awards for new construction projects, particularly in private construction, which bodes well for continued demand recovery in our markets. Multi-family housing starts have been growing now for 20 consecutive months. The trailing 12-month single-family housing starts turned positive in the first quarter of 2012 on the back of higher starts reported in recent months. The trailing 12-month contract awards for private nonresidential construction have been growing for the last 16 months. This trend is driven by growth in the boards for commercial and retail buildings. Additionally, trailing 12-month awards for Vulcan-served states and this private non-res category are up 7% versus 2% for other states. This is another positive indicator for continued demand recovery in our high-growth markets. Turning now to Slide 8. We continue to be optimistic about the trends in the private and public sector construction. We are encouraged about the passage of the new multi-year highway bill by Congress in late June. There was overwhelming bipartisan support for this legislation in both the House and the Senate, and it was signed into law by the President on July 6. This bill, called MAP-21, is designed to provide State Departments of Transportation with funding certainty in order to allow them to move forward on infrastructure programs. It will help rebuild America's aging infrastructure by modernizing and reforming our current transportation system, while also protecting millions of jobs. The bill maintains essentially level funding for the next 2 fiscal years with over $105 billion for total funding through fiscal year 2014. It extends the Highway Trust Fund and tax collections through fiscal year 2016, which is 2 years beyond the reauthorization period and adds additional stability that we have not had for the last several years. The bill's substantial highway provisions are more reform-focused than previous bills, with a strong emphasis on improving project delivery and eliminating red tape that has slowed the construction of highway projects. Funding directly for highways provides a floor of $82 billion for fiscal years '13 and '14. On top of this, there's a very significant increase in the TIFIA program, which stands for Transportation Infrastructure Finance and Innovation Act. Funding for this program will increase to $1.75 billion over the next 2-year period from only $122 million per year under SAFETEA-LU. According to the Federal Highway Administration, TIFIA funding is typically leveraged by a factor of 10, so that there is a potential for a $17.5 billion in additional major project funding for fiscal years '13 and '14 over and above the $82 billion in the regular highway program. TIFIA is a highly popular program that stimulates private capital investments for projects of national or regional significance in key growth areas throughout the United States, including large portions of our footprint. The program provides credit assistance in the form of secured loans, loan guarantees and lines of credit to major transportation infrastructure projects. Eligible sponsors for TIFIA projects include states and local governments, private firms, special authorities and transportation improvement districts. Eligible projects include highways and bridges, large multimodal projects, as well as freight transfer and transit facilities. Some of the existing TIFIA projects that those of you around the country may be familiar with would include the Capital Beltway HOT lanes in Virginia, the I-595 corridor improvements in Florida, and the Presidio Parkway in California, as well as the Central Texas Turnpike in Texas. Overall, MAP-21 creates a positive framework for future authorization through its significant reforms, consolidating and simplifying Federal Highway Programs, accelerating the project delivery process, expanding project financing and promoting public-private partnership opportunities. And needless to say, the fact that Congress was able to pass the bill in the current political climate, maintaining funding levels while also adding an additional year of program funding beyond what all the pundits expected, has its own significance, and makes us even more optimistic about the bill to have Congress to continue to work towards long-term solutions to rebuild America's infrastructure. Vulcan played a very active role in support of this legislation, communicating with Congress about the critical need for infrastructure investment. We have worked on this critical issue and will continue to do so, both as Vulcan and as part of broad coalition of key stakeholders including business, labor, industry association and state and local governments. Turning now to our outlook on Slide 9. Through the first half of 2012, Vulcan's adjusted EBITDA was $175 million, up from $123 million in the prior year. During the second half of 2012, Vulcan expects adjusted EBITDA of approximately $325 million, a $102 million increase from the second half of 2011. Included in this second half improvement is approximately $23 million from gains from the routine sale of real estate that is not part of the Planned Asset Sales and savings from the restructuring initiative announced last year and completed during the first quarter of 2012. For the balance of the year, we expect the year-over-year EBITDA improvement to be realized from cost reduction initiatives underway across the organization, including additional savings from the Profit Enhancement Plan, as well as the year-over-year improvement in second-half segment earnings in Aggregates, Concrete and Asphalt. We anticipate the controllable cost in the second half of 2012 will decrease by approximately $50 million from the prior year, which gives us $105 million in savings for the full year. Full year SAG costs are now expected to be approximately $260 million. For 2012, we expect earnings in each segment to improve from the prior year. We now expect the total aggregate freight adjusted selling prices to increase 1% to 3%. Aggregates demand should benefit from recovery in private construction activity and from the new Federal Highway Bill I mentioned earlier. As a result, total company's same-store shipments are now expected to be up 1% to 3%, with the total shipments, that is adjusting for divestitures of Indiana operations last year, should be flat to 2% higher. The uneven pace of growth in shipments through the first half of 2012 across our key markets makes forecasting overall volume growth more challenging. The full year outlook assumes a more normal geographic mix of shipments in the second half of 2012. Our non-aggregates segment earnings are expected to increase approximately $25 million compared to last year due mostly to improved earnings in Asphalt and Concrete. Asphalt earnings are expected to increase due to second half growth in shipments as a result of the timing of certain large projects in California. For the Concrete segment, volume should continue to benefit from growth in private construction activity in the second half of the year. Cement earnings are expected to approach breakeven for the full year. Unit cost for diesel fuel are expected to increase modestly from the second half 2011 levels, resulting in a full year increase of 1% to 5% from last year. Based on all of these assumptions, we expect 2012 EBITDA will be approximately $500 million, which excludes the results from the Planned Asset Sales and the cost associated with the unsolicited offer. We expect capital spending in 2012 to be approximately $100 million. In summary, we are encouraged by our second quarter results. Our cost-reduction initiatives are gaining traction and positioning us well for solid earnings growth in 2012. More importantly, these initiatives will improve the underlying cost structure of our organization and allow us to fully leverage the earning potential of a sustained recovery and demand. Now I'll turn the call over to our operator to begin Q&A. Dan Sansone, Danny Shepherd and I will be happy to respond to your questions. Thank you.

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

My first question is, I'm just wondering if we could dive in a little bit more on the weakness that you saw in North Carolina, South Carolina and Georgia in the quarter. I think it was a bit surprising the level of volume declines there. I'm just wondering, was it all weather driven, the pull forward into the first quarter, the rain in the second quarter, is there some market share loss going on there? I'm just wondering, a little bit more color will be helpful.

Gary, this is Danny Shepherd. I'll answer your call. The first question you asked about demand in North Carolina and Georgia, North Carolina has remained weak for some time. As you know, we have a significant presence in the great -- presence in the greater Charlotte area, and that area of North Carolina has been weak now for some time. We do not have a major presence in eastern North Carolina, and large highway projects for the most part have been occurring in that part of the state. Switching to Georgia, Georgia has also been weak for some time now. Georgia had a hugely overbuilt residential sector. That sector is slowly improving. What remains hopefully a bright spot for us as we move through the year is in the highway sector. We have a reasonably good backlog in highway work as we travel through the summer. So hopefully, we will be somewhat stronger in Georgia in the second half.

Okay. I guess, just looking at your volume guidance that's been reduced this morning, you had about 3% volume growth in the first half of the year. And I guess, the new full year volume guidance implies something like a plus 1% to down 3% volume performance in the second half? I was just wondering if you can reconcile, given that in the prepared remarks, you're starting to see some improved trends in private and public demand. I'm just wondering where the disconnect is and why you're anticipating modest volume declines, broadly speaking, in the back half of the year?

I believe our volume guidance for the second half of the year would be essentially flat, not down, and certain maybe up slightly on a same-store basis. The issue, of course, Garik, is timing of projects. We think there's a substantial amount of work in the pipeline coming from improvement in the private sector. We were surprised by both the large declines in the 3 states Danny mentioned but also by very large gains in many of our other markets. So there's a disparity in growth rates across markets, which we think will level out some in the second half, at least, our outlook is based on that. But we are -- we think contract awards for highways are down for the year about 5% to 7% largely because of the lack of any of the stimulus contract awards are no longer going out. But with the passage of the new highway bill, we think the significant new contract awards in the second half, whether they shift in the second half of 2011 or the first half of '13 is difficult for us to predict at this point. But we're not -- I don't think we see a disconnect in our macro outlook in our Aggregate volumes forecast.

Okay. And then just my last question is, on the $50 million reduction that you're looking for in controllable costs, just wondering how that relates to Profit Enhancement Program. And it seems like in the presentation, that it would be separate, and you would need this $50 million in the lower cost to help hit your guidance for EBITDA for the full year. But if you can provide some more color how -- whether or not there are some more costs that are being pulled forward from the Profit Enhancement Program into the back half of the year or just where this $50 million are coming from, that will be helpful.

Well, in the first half, we got $55 million of controllable cost reduction. About $25 million of that was SAG and about $30 million was in cost of goods sold. Of the $50 million in the second half, again, about $25 million will come from SAG and about $25 million from cost of goods sold. A portion of that savings is coming from the form of Profit Enhancement Plan, but it's also coming from a very broad-based plant level and regional level initiatives that are helping us with our overall cost reduction effort. So it's a combination of the Profit Enhancement Plan plus the last year's restructuring and last year's SAG reduction efforts, as well as the ongoing Profit Enhancement Plan benefits.

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

Realistically, in Q2, how much does volume shortfall with a pull forward in demand versus the Florida storm?

Certainly, there was a pull forward in demand from the very favorable weather in the first quarter. It's really hard for us to quantify that, but we know it exists. The issue in Florida from tropical storm Debby, I think, there were like 22 inches of rain that soaked the state, certainly, portions of the state. We don't have a number associated with that. Our volumes, as a Danny Shepherd said, in Florida, we're up double digit in the quarter. Clearly, they would have been up some more if it hadn't been for the impact of tropical storm Debby, but we really can't quantify that in any way that we think would be accurate.

I think it will be safe to say that the pull-forward demand probably had a greater impact though?

Yes, yes. Relatively I'm certain. I misunderstood that part of your question.

And you said in your prepared comments, you expect additional pricing improvement in the second half. But our industry contacts are telling us that's increasingly more challenging to get pricing in a market. What are you seeing that maybe is a little bit different or is there maybe just degrees in terms of what type of pricing you feel you'd be able to get in the market?

Well, as you know, in this industry, every market is different. It's a matter of what's going on in individual markets. Clearly, it is challenging in this market to get price improvement. We had very, very modest price improvement in the first half but some -- there is a geographic mix to pricing and we had a negative geographic mix for pricing in the second quarter. We think that will modify in the second half and we will get some benefit from a more normal geographic mix as it would flow through into pricing. Put another way, we have very good pricing in North Carolina, South Carolina and Georgia, and some of the states where we have the highest volume gains don't have a stronger pricing as some of those other markets. So that geographic impact to pricing is significant.

Okay. Now I know that kind of topic du jour is fiscal cliff and elections coming up. What are you doing -- a twofold question related to, these are facing the U.S. and us overall. Do you feel better or worse about demand given the hurdles that we face in the back half of the year? And are you doing anything differently to manage your business around those events?

I'll go to the first question -- the second part of the question first. Clearly, we are very focused on controlling our cost. And without regard to what's happening with volume, we are committed to achieve the $50 million in additional controllable cost in the second half, totaling $105 million for the year. And then as we move forward into '13, the continuation of the benefit from our Profit Enhancement Plan. So we're doing that independent of political issues or demand issues. Actually, I think we -- with the passage of the federal highway bill, the certainty that gives to DOT's and the substantial increase in the TIFIA program, I think politically, we think we're more optimistic than we've been in several years in terms of the impact on our demand. We obviously are all affected by what is happening and may happen in Europe. But in terms of public infrastructure spending and what we're seeing in the housing markets, both multi-family and single-family housing, and increases in contract awards for private non-res, I think we are probably more optimistic today about the future than we've been in a long time.

Our next question comes from the line of Rodny Nacier of Keybanc Capital Markets.

Don, you commented on your expectation implied in your guidance that volumes are going to be flat in the second half. So I'm just trying to understand, it's going to be on a relatively tougher comp than the 2Q and with residential activity pretty evident in the first half and not too much volume growth and comps getting tougher in the back half. I mean, is it really a combination of residential private construction continuing to be strong and maybe some regional mixed dynamics going away?

Well, full year, we think residential -- the demand from residential end markets will be up plus or minus 10%. Non-res up plus or minus 6%. Those are the areas that are positive. Highways, at least in terms of contract awards, will probably be down some, maybe plus or minus 6%. And so you balance all that out, infrastructure may be flat to down 1% or 2%. So when you run all that through our model, the improvement is coming from the private sector with some near-term weakness. Last year's third quarter was weak. We saw strength coming back in the fourth quarter, so that's -- as we're looking at comps from last year, we had a relatively weak third quarter and a relatively strong fourth quarter.

Okay. And with the bill -- I missed if you had said that changed your guidance for this year at all would be a transport bill being signed on the public side?

No, that did not change our guidance. I think it gives us a lot of encouragement about the future, but we didn't change our volume guidance based on the passage of the highway bill.

Okay. That's helpful. And my second question is on the asset sale program that you have. Did you extend the timeline for the completion of the program for the $500 million. The tone in the release seems to be more cautious around the deadline. And secondly, do you have any assets that are classified as held for sale on your balance sheet as of now?

Rodny, Danny Shepherd here. we have not extended the deadline that we had previously communicated, and we're working very aggressively to actually accomplish some things in the Planned Asset Sale category certainly this year. But no, the answer is no, we have not extended out our deadline.

For the second part, we don't have assets held for sale on our balance sheet. There are rules for when you do that, and basically, the impact is you stop depreciating them so we don't have any on the balance sheet held for sale at this point.

Our next question comes from the line of Brent Thielman of D.A. Davidson. Brent Thielman - D.A. Davidson & Co., Research Division: I was curious -- in terms of getting that sort of rough $25 million improvement in the non-aggregates piece, does that also assume the sale of any businesses or is that purely a function of better market and better operating performance with what you have?

That does not include sale of any assets. That's operating for -- it's primarily -- it's not in the Cement segment, it's in the Asphalt and Ready Mix segment. The Asphalt Segment is -- will benefit from some projects that will begin in the second half. And the Concrete segment, we believe will benefit from the improvement in private sector demand, both residential and private non-res. Brent Thielman - D.A. Davidson & Co., Research Division: Got you. Okay. And then, and just on the residential side, maybe more broadly speaking, just curious what you're seeing in terms of sort of community development, flat development and things like that?

Well, it was a very market specific. I think there is probably less infrastructure development per housing start today than there was at the last time we saw housing starts pick up, but that will catch up. But there's obviously some of that, but that's not a huge factor right now, but it will obviously come back as some of the already developed lots get consumed.

Our next question comes from the line of [indiscernible] of RBC Capital Markets.

I'm mostly focused on maybe you can give us an idea of what you think incremental margins are in the aggregate segment given that you're taking out so much cost during the remainder of the year?

Incremental margin in the Aggregates business, you're looking for a full year number?

Yes. How would you [indiscernible]?

Yes. The guidance we have given has been about 60% in the Aggregates business. We're doing better than that year-to-date. And there's a lot of reasons for that, but I would go back to what Danny Shepherd said about the broad-based work our people across our regions are doing at the plant level. So 60% over some period of time is still a good number even though we're beating that year-to-date.

Our next question comes from the line of Mike Betts of Jefferies. Michael Betts - Jefferies & Company, Inc., Research Division: I wanted to return, please, to the non-aggregates businesses. I mean I think, Don, you were talking about $25 million improvement. It was only up, I think, 2 in the first half. So there's a lot of progress needed here. My specific questions are really, I guess 2 or 3. Firstly, were there any other problem in projects or work contracts that you had in over the Asphalt business or the ready mixed that particularly have held it back in the first half and you won't have in the second half? And are you expecting significant price increases as well in ready mix or Asphalt that helps with that? And then the third question, really just look at the quantification, if you could, of the one-off cost that impacted the Cement business in the first half or in the second quarter.

Mike, in the Asphalt business, the issue was the higher cost of liquid asphalt and the lag in getting that higher cost of liquid asphalt pushed through into our pricing. But in terms of an -- the problem with an individual project, we didn't have any of those. It's really the liquid asphalt impact. The liquid asphalt prices were up about 10% in the first half, which had a significant impact on the profitability. And we're looking for stronger volumes in both Asphalt and Concrete in the second half. I mentioned earlier in Asphalt, it's because of the timing of some larger highway projects particularly in California. And in Concrete, it's driven by the improvement in residential and private non-res construction, which is the larger user of concrete. We expect improved material margins in both Asphalt and Concrete. And the combination of volume growth and improved margins is the basis for our improved guidance in the second half. With respect to the cement plant, 2 things happened in the second quarter. One, we had a planned outage, which always impacts results in a quarter in which you have an outage because you don't have production for a period of time and you have increased R&M costs. And secondly, at the cement plant, we had a -- because of the storm, we had -- we lost power to the cement plant and that clearly disrupts production not just for the time that the power is out but then the time to get the plant back up following that. Danny, do you have any other...

Well, I would add, Mike, early in the quarter, you know what it takes when -- you know what the time line looks like when you take a cement kiln down. So one way to look at it is we lost 10 days, roughly early in the quarter and we lost roughly 10 days late in the quarter because of the weather events. So hopefully, these are non-recurring. There are no planned outages, kiln outages at the cement plant in the near future. Michael Betts - Jefferies & Company, Inc., Research Division: Do you have a quantification of the cost of those 2 events, was it like $1 million or $2 million?

Yes, roughly $1 million, we believe. Michael Betts - Jefferies & Company, Inc., Research Division: Okay. And then, Don, if I could just return to the Asphalt question, 2 parts to it and my final question here, 2 parts to it. One, is the lag under the indexation roughly about 3 months or is it significantly different? And how do you locked in the liquid bitumin-- liquid asphalt cost for the rest of the year or you're still at vaguaries of what that price does?

We have some portion of our liquid asphalt needs committed pricewise. And in some portion, we'll have to continue to buy on the spot market. The lag in pricing, many of these projects are priced much further out than 3 months from the shipping date. Michael Betts - Jefferies & Company, Inc., Research Division: But the indexation, does that work on a 3-month basis or is it the indexation of the point?

I'm sorry, I didn't hear the question, Mike. Michael Betts - Jefferies & Company, Inc., Research Division: Yes. I mean, is the price recovery a question of waiting for the indexation to deliver the cost of increased asphalt, or is it you win and you work higher prices?

No, the answer is no. We're expecting a significant improvement in California as Don talked about in his remarks. The work that -- a large percentage of the work that we expect to ship in the second half is indexed work in California, and that is -- that is something that's manageable.

I would now like to turn the call over to Mr. Don James for closing remarks.

Thank you very much for joining us for our second quarter conference call. We look forward to having you again after the third quarter. Thank you for your interest in our company and have a good day.

Thank you for your participation in today's conference. Ladies and gentlemen, this concludes your presentation. You may now disconnect. Good day.