Feb 10, 2009
Executives
Donald M. James - Chairman and Chief Executive Officer Daniel F.
Sansone - Senior Vice President and Chief Financial Officer
Analysts
Garik Shmois - Longbow Research Christopher Manuel - KeyBanc Capital Markets Jack Kasprzak - BB&T Capital Markets Kathryn Thompson - Avondale Partners Timna Tanners - UBS Trey Grooms - Stevens Incorporated John Fox - Fenimore Asset Management Todd Vencil - Davenport & Co. Aynsley Lammin - Citigroup Brent Thielman - D.A.
Davidson Michael Betts - JPMorgan
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2008 Vulcan Materials' Earnings Conference Call. My name is Dan and I will be your coordinator for today.
At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.
(Operator Instructions). As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the call over to your host for today's call, Mr. Don James, Chairman and CEO.
Please proceed sir.
Donald M. James
Good morning. Thank you for joining this conference call to discuss our fourth quarter results and our outlook for 2009.
I am Don James, Chairman and Chief Executive Officer of Vulcan Materials. We appreciate your interest in Vulcan and we hope our remarks and dialog today will be helpful to you.
A replay of this conference call will be available later today on our website. Joining me today is Dan Sansone, our Senior Vice President and Chief Financial Officer; and Mac Badgett and Danny Shepherd, two of our Senior Vice Presidents in Construction Materials.
Before I begin, let me remind you that certain matters discussed in this conference call contain forward-looking statements, which are subject to risks and uncertainties. Descriptions to these risks and uncertainties are detailed in the company's SEC reports, including our most recent report on Form 10-K.
The fourth quarter brings to a close a very challenging year. The economic uncertainty, turmoil in the financial markets and tighter credit standards weakened the construction activity further in 2008.
Our employees continue to respond aggressively to weakness in demand for our products by making tough decisions regarding reducing operating hours, rationalizing our production facilities and reducing manning levels. To underscore this point, a turn of aggregates in 2008 in our legacy business generated more cash earnings than it did last year in 2007, and over 50% more cash earnings than it be at the peak of the demand cycle in 2005.
This fact highlights the sound fundamentals of Vulcan's aggregates business, the capabilities of our organization and the attractiveness of the markets we serve. Fourth quarter earnings in our aggregates segment were lower compared to last year.
Sharply lower volumes more than offset the earnings effect on price improvement and prudent cost control. The current downturn in demand for aggregates began in the second quarter of 2006.
We have since recorded 11 consecutive quarters of lower shipments on a same-quarter basis. Aggregate shipments declined 23% versus last year's fourth quarter.
Full year aggregate shipments were 204 million tons, a 12% decline from 2007. In the fourth quarter, the average freight adjusted unit sales price for aggregates increased approximately 6% from the prior year's fourth quarter.
For the full year, we achieved a 7% increase over 2007. During the fourth quarter, we continued to adjust production levels to match the lower level of demand.
Key operating parameters that measure labor efficiency at our production sites show that our plant managers through actions mitigated a lot of the cost pressures caused by a significantly lower volumes. For the full year 2008, the average unit cost for diesel fuel increased 36% from the prior year and lowered operating earnings approximately $37 million.
Excluding energy-related costs, such as diesel fuel and electricity, unit variable production cost in legacy Vulcan aggregates operations for full year 2008 increased modestly from the 2007 levels. Additionally, cash period cost at legacy Vulcan aggregates operations were approximately 13% lower than last year.
These cost control measures demonstrate the greater production flexibility for an aggregates plant versus continuous process manufacturing facilities used in many other industries. Earnings for our asphalt and concrete segment were lower than the prior year's fourth quarter, due mostly to lower sales volume.
Asphalt volumes declined 23% from the prior year's fourth quarter and asphalt mixed prices increased 27% from the prior year. The average unit price we paid for liquid asphalt in the fourth quarter was 68% higher than the average unit pricing in the prior year.
The average price of liquid asphalt peaked in September of 2008 and declined to each subsequent month with the December price 33% below the September level. The rapid escalation in liquid asphalt prices during the second and third quarters made it difficult for us to increase our selling prices for asphalt mix fast enough to cover these costs.
Fourth quarter pricing actions began to offset some of the margin erosion experienced early in the year, as higher priced projects replaced lower priced projects. As a result fourth quarter unit material margin improved from the prior year's level.
Concrete sales volumes increased 39% from the prior year's fourth quarter due to the addition of Florida Rock operations. Sales volumes in our legacy concrete business declined 18% from the prior year.
Selling administrative and general expenses on the fourth quarter of 2008 increased $11 million from the prior year. Lower performance-based compensation was more than offset by the inclusion of legacy Florida Rock businesses by $5 million of expenses for the fair market value donated property and the project cost related to the replacement of our legacy IT systems and the related consolidation of certain administrative support functions.
Excluding these items from both periods, SAG expenses declined 8% from the prior year's fourth quarter. Before I move into comments regarding 2009, let me say in summary that our management teams are running their businesses well in an extremely tough economic environment.
Throughout 2008, we remain focused on aggressively controlling cost while realizing higher pricing for our products to reflect their value in the attractive markets we serve. These actions help preserve profitability reached on the aggregates sold in 2008.
Turning now to our outlook; cash generation through cost control and pricing discipline and utilizing our cash for debt reduction remain priorities in 2009. Broad based economic weakness and extremely tight credit markets continue to hamper construction activity, and foster greater than usual uncertainty in projecting demand for our products.
The construction industry has been hard hit by above-average unemployment and weak demand. Reduced levels of contract awards in Vulcan-served markets point toward a lower residential, private non-residential and highway construction activity in 2009, excluding the impact of the Economic Stimulus Plan now pending in Washington.
The Economic Stimulus Plan being voted on today in the Senate includes much needed funding for transportation and other infrastructure-related projects that will benefit the construction industry. We have ample production capacity located in attractive markets and we have strong unit cash margins.
Any increase in demand for our products due to the Stimulus Bill can be met quickly, efficiently and profitably. Key Vulcan-served states such as California, Florida and Texas should receive the largest percentage of highway funding out of the Stimulus Plan and are likely targets for above-average funding for other stimulus spending for infrastructure across their large population base.
Vulcan sales in these three states should benefit from our aggregate-focused strategy that is complemented by our asphalt and concrete operations in these states. Because the passage of an economic stimulus plan should have broad reaching effect on the demand for our products forecast in 2009, sales volumes in aggregate asphalt and concrete including the effect of the stimulus plan, at this point is both challenging and premature.
Therefore, my outlook comments on end market demand excludes any impact from the Economic Stimulus Plan. My comments also exclude any impact from the ruling two weeks ago in the Lake Belt litigation which I'll comment on briefly in the future.
With respect to Vulcan-served markets, we expect aggregates demand in all non-housing related end markets to be down in the mid-single digit range and residential demand to decline as much as 20% in 2009. As a result, full year aggregate shipments for Vulcan are expected to decline 5% to 10% from 2008 levels, exclusive of the Economic Stimulus Plan.
We expect selling prices for aggregates to rise 6 to 8% in 2009 and to help offset the earnings effects of lower volumes. We expect earnings from our asphalt and concrete segment to increase in 2009 due primarily to a recovery in material margins in our asphalt businesses, where higher selling prices reflect the past year's increases in costs for key raw materials.
Asphalt and concrete sales volumes in 2009 are expected to be slightly lower than 2008 levels. Segment earnings in cement will be lower in 2009, due to higher cost and weak demand.
Our outlook assumes that diesel fuel prices increase modestly from the unit price level at the end of 2008. If prices remain at that level, our average cost of diesel fuel will be approximately $1.40 per gallon, lower than the 2008 average unit price.
Our sensitivity to changes in diesel fuel prices has diminished some given the current weakness in demand. At the peak of demand, we purchased about 65 million gallons of diesel.
In 2009, we expect to purchase about 45 million gallons of diesel fuel. As a result every $0.10 per gallon change in the price effects pre-tax earnings approximately $4.5 million at current demand levels.
We expect SAG expense to be slightly lower in 2009 that has increased costs related to the replacement of legacy IT systems and the related consolidation administrative support functions are offset by the effects of cost reduction programs. Interest expense in 2009 is expected to be approximately $200 million, based on the current level of short-term interest rates for the short-term portion of our debt.
As I mentioned earlier, the timing and level of investment for infrastructure that will be contained in the final Economic Stimulus Plan are unknown at this point. Based on our preliminary analysis, we believe Vulcan-served states will receive the majority of the spending.
For planning purposes, we have begun to analyze the potential volume impact of Vulcan by making high-level broad based assumptions about the volume intensity of the various infrastructure-related projects contemplated in the stimulus plan. We have identified three broad categories of infrastructure in the current stimulus plan which could contain our products.
Those categories would include transportation, including highways, transit and airports; water and environmental infrastructure; and building infrastructure which would includes schools, military buildings and medical and other facilities. For example, transportation infrastructure is the most aggregates-intensive construction project type.
For every billion dollars spent on highways, approximately 14 million tons of aggregate are consumed, assuming a normal mix of highway projects. This factor could increase if ready-to-go projects or more heavily toward resurfacing and lane additions, rather than historical spending patterns which include large multiyear write-away acquisitions and earth moving, which have no aggregate content.
For Vulcan, our sizeable asphalt and concrete businesses provide additional earnings potential from highway projects. That same billion dollar spend on highways could also lead to four to five million tons of asphalt mix and 150,000 cubic yards of concrete.
Water and environmental-related infrastructure including clean water projects and other water resource projects can also consume large quantities of aggregates. For every billion spent on water and environmental infrastructure, we estimate 5 to 6 million tons of aggregates could be consumed along with 300,000 tons of asphalt mix and 200,000 cubic yards of concrete.
Every billion dollar spent on building infrastructure could result in consumption of 2 to 3 million tons of aggregates, 200,000 tons of asphalt mix and 700,000 cubic yards of concrete. However, until such time as the stimulus plan assigned by the President and specific project lifts are available from the respective contracting agencies, it will be difficult to estimate the timing and magnitude of the incremental sales volumes and potential earning impact for Vulcan.
Another development I want to touch on briefly is the status of the Lake Belt Litigation in South Florida. On January 30th, of 2009 the US District Court for the Southern District of Florida issued a ruling invalidating all permits approved in 2002 for limestone mining in the Lake Belt area of Miami-Dade, after being reversed on appeal previously.
The ruling pertains The US Army Corps of Engineers issued permits to several companies including the permit issued to Vulcan's Miami quarry. The companies in the Lake Belt region affected by the ruling are preparing to appeal as soon as possible.
The Lake Belt region historically has supplied as much as 50 to 55 million tons of aggregates to Florida markets, including Miami Jacksonville, Orlando and Tampa. As I mentioned, Vulcan has one quarry affected by the latest ruling.
In 2008, Vulcan's Miami quarry sold approximately 1.5 million tons. The limestone reserves in this region also served as an important source of feedstock for the cement plants in Miami.
Vulcan's cement plant in Florida is not in the Lake Belt and is not affected by this ruling. Our business has generated significant amounts of cash throughout different economic cycles.
In 2008, we generated $624 million of cash earnings despite continued weakness in demand. We reinvested $415 million in our plants and equipment, returned $215 million to our shareholders in the form of dividends and reduced total debt of $109 million.
As we look forward to 2009, we expect another year of solid cash earnings, even without the benefit of the Economic Stimulus Plans. Our plants and equipment are in very good condition.
Reinvestment in these assets over the last few years has increased production efficiency and capacity and reduced the average age of our rolling equipment. As a result, we expect capital spending in 2009 to be approximately $200 million, down sharply from the 415 in 2008.
Last week, we issued $400 million of long-term debt to provide additional liquidity to supplement our bank facilities. Berkshire Hathaway was the sole investor in the transaction and we appreciate their confidence in our business.
We expect to reduce total debt by $200 million during 2009. In closing, I would like to reiterate our confidence in future sales and earnings growth for Vulcan.
The confidence comes from our successful strategy to establish an aggregates-focused business that has the compelling advantage of great locations in major U.S markets that are expected to experience above-the-average growth in aggregates demand for many years into the future. The current economy is weak, but the Economic Stimulus Plan moving through Congress will provide much needed support for creating jobs and getting our economy back on track.
For Vulcan, our daily discipline focused on cost control, margin improvement and cash generation, along with maintaining our long-term focus on serving our customers, building our business and creating value for our shareholders will lead us through these challenging economic times. Our organization is meeting the challenge in preserving the profitability of our business.
Vulcan remains in the top quartile for total shareholder returns among all S&P 500 companies for 2008, as well as for the three-year and five-year periods ending in 2008. We thank you for your interest in Vulcan.
Now, if our operator will give the required instructions, we'll be happy to respond to your questions.
Operator
(Operator Instructions). Your first question comes from the line of Garik Shmois from Longbow Research.
Please proceed.
Garik Shmois - Longbow Research
Hi good morning. Just first off on your pricing guidance; 60%, pretty impressive for 2009 considering looking at probably for straight year volume declines.
Just wondering, if you could talk about, you're obviously confident of that number but what markets are giving you particular confidence and will you be able to achieve that?
Donald James
I think, overall we are seeing the opportunities for price improvement. Some markets are weaker than others, but its' not focused on any one market.
I would say it is generally overall.
Garik Shmois - Longbow Research
Okay. And just to be clear, your pricing guidance does not include the Lake Belt.
Donald James
It does not include any effect from the Lake Belt.
Garik Shmois - Longbow Research
Okay, and just a follow-up on that point; are you seeing any weakness in the pricing in any of your markets?
Donald James
Well, yes. I think California has been weaker than normal.
Other than that, I think there are some parts of Florida that have weakened, but overall our price increases have been good across the country.
Garik Shmois - Longbow Research
Okay, I just lastly, you mentioned in the prepared remarks, you expect have a mid-single digit volume decline on the combined non-housing end markets. Can you just talk a little bit more about what you are seeing both on the non-res side and on the public works side?
Donald James
Well non-res, the buildings part of non-res was down about 8% in 2008, and I think we expect it to be down another 7% in 2009. That includes office buildings and retail hotels.
There is not a great deal of strength in that end market. Other infrastructures, construction volume was down about 11% in 2008.
We see that being down about 6% in 2009. The strong point there is we I think have said publicly is in large industrial and energy projects along the Gulf Coast which have been the bright spot for us over the last year and should continue to be and are continuing to be bright spot for us in 2009.
Housing was extremely weak in 2008, which should come as no surprise. It was down about 37% and I think we believe it's going to be down about 19 or 20% more in 2009, down 37% in 2008.
Highways were down about 9% in 2008. We expect that to be down may be 6%.
There are several things working there. Obviously, the stimulus being one of them and the California infrastructure program being another one.
Hopefully, California Legislature will vote on its budget this week. Right now those projects are stalled because of the budget issues in California.
But with the passage of a budget which would free up the bond money, hopefully those projects can restart. But and as I said, all of these are without regard to the effect of whatever stimulus package gets passed in Washington in the next couple of weeks.
Garik Shmois - Longbow Research
Okay, thanks for the detail Don. Just one quick follow-up on the large energy projects that you talked about in Gulf Coast.
I know they've been source of stability for you. Are you seeing them continue in '09 or are you seeing actually maybe an influx of new projects that are going to be coming up on the books?
Donald James
I think it's the continuation of multiyear projects rather than starting of new project. You could say this Winston crop (ph) plant is just starting in '09 but it's really underway and has been underway in '08.
So that will be... those are large multiyear projects.
There is a large rail multi-model facility that's starting construction south of Chicago and that should continue for throughout 2009. Those are the two examples.
Garik Shmois - Longbow Research
Great. Thank you very much.
Operator
Your next question comes from the line of Chris Manuel from KeyBanc Capital Markets, please proceed.
Christopher Manuel - KeyBanc Capital Markets
Good morning, gentlemen.
Donald James
Hi Chris.
Christopher Manuel - KeyBanc Capital Markets
A couple of questions for you. Whenever we think about your debt that you have got sitting here today, what's the maturity schedule over the next six to twelve months that you are looking at?
Donald James
We have 250 million of bonds that we will pay off in April and then we don't have a significant bond repayment until the end of 2010 and it's in the $300 million range. There are small amounts of maturities coming due along the way but nothing large other than the weak maturities.
Christopher Manuel - KeyBanc Capital Markets
Okay are there any specific... what are the covenants within there that are most restricted to you?
Are there any balance sheet-related covenants for shareholder equities and things ...
Donald James
Chris not in the bond transactions. No, in our bank lines of credit, we have a single covenant that debt-to-total capital and not to exceed 65%.
Our current level is about 48%, so there is plenty of headroom there. The bond deals due have change to control provisions which are customary.
But there is no other financial covenants in those bond deals as well as there is no coupon step-ups in the current outstanding bonds either.
Christopher Manuel - KeyBanc Capital Markets
Okay, last question I had on the finance side is related to your dividend. I think you highlighted that it was about $215 or so million users of cash this past year.
In light of... well, I guess we work for banks, so it's invoked the cut dividends.
But when you think about usage of cash for the next twelve months, is it more important to you to continue to work down debt or how do you think about that dividend?
Donald James
Well, our Board will consider our dividend, quarterly dividend our board meeting end of this week. Certainly a factor we look at in addition to GAAP earnings or cash earnings, we had about $624 million of cash earnings in 2008 to support the $215 million dividend.
So our Board will make that decision. But we continue to believe that reducing debt is important, but we also believe returning cash to shareholders when we have cash is an appropriate use of cash.
So we will try to balance those priorities.
Christopher Manuel - KeyBanc Capital Markets
And last question I had was, in your volume outlook of down 5 to 10% for the full year, from a momentum standpoint coming out of the fourth quarter down I think 23% or so, do you think it's... you have some tougher comps in the first half versus back half or, how would you help us think about the momentum of that working through the year?
Donald James
Well, as we've said I think many times before Chris, you really can't draw momentum conclusions much from the fourth quarter or the first quarter, because weather tends to be a big factor in those quarters. Clearly demand is slowing, but as you point out, we will have more favorable comps in the second half of '09 compared to the second half of '08.
We do our forecast on both a macro basis and a bottom-up basis and they both come in within this range. So we believe that while demand will continue to be weak in '09 that volumes should come in within that range, again ex the impact of an economic stimulus package and without taking into account whether the Lake Belt ruling will increase or decrease our volumes in Florida.
Christopher Manuel - KeyBanc Capital Markets
Okay. Thank you very much gentlemen.
Operator
Your next question comes from the line of Jack Kasprzak from BB&T Capital Markets. Please proceed.
Jack Kasprzak - BB&T Capital Markets
Thanks. Good morning, Don.
Donald James
Good morning, Jack.
Jack Kasprzak - BB&T Capital Markets
I wanted to ask first, what sort of tax rate assumptions should we be using for 2009?
Donald James
Our tax rate we think will be about 27%.
Jack Kasprzak - BB&T Capital Markets
And I was going to ask about volumes as well. I guess a follow-up to the last question, ask a little differently.
The guidance is down 5 to 10%, but it looks to me like there's no reason to think the first half of '09 would be any better than the second half of '08 when the volumes are down a little more than 20% on a same-on-same basis. Looking at things like housing permits are down as much as 50% right now, when you look at the seasonally adjusted rate.
And if that's the case, the first half of '09 is down again 20% just to get to a down 10 for the year, you have to be about flat in the back half. I mean am I...
the macro picture, am I missing something or how would that square with the way you guys see the world?
Donald James
Well I am not sure I followed your math there. But housing is a dramatically smaller portion of our business going into '09 than it was going into '08 and going into '07.
So a large decline in housing has less impact on us now that it has been. Public infrastructure is a larger piece of our business going into '09 than it was going into '08 or '07.
And that piece is holding up; holding up as better than most end markets. Certainly, and as I said, we did not include any impact of the potential stimulus package but that package will certainly increase the percentage of our shipments that go into publicly-funded infrastructure projects, which is the strongest demand segment, even without the infrastructure package as we move into 2009.
Jack Kasprzak - BB&T Capital Markets
Okay that's helpful thank you. With regard to your pricing, your guidance above 6 to 8%.
Would that be on a same product basis or would there be some mix effect, some mix shift that might be favorable in 2009?
Donald James
Well that's the total weighted, total average of our pricing over all products. So the mix shift, any mix shift both in terms of products and geographies is included in that guidance.
I would say that we would expect to see greater shipments into public infrastructure projects and lower shipments into housing. There is always some geographic shift and product mix shift that goes on from year-to-year.
But the 6 to 8% includes all of that. But I don't think there is any material change that would move that significantly one way or the other in geographic mix or product mix.
Jack Kasprzak - BB&T Capital Markets
Okay, great. Thanks for the clarification.
Operator
Your next question comes from line of Kathryn Thompson, of Avondale Partners. Please proceed.
Kathryn Thompson - Avondale Partners
Hi, thank you.
Donald James
Hey Kathryn.
Kathryn Thompson - Avondale Partners
Just a question regarding pricing. I know you gave your full year guidance, but in looking how pricing has trended on to $20 basis it's tended down pretty much of the last four quarters and then looking into '09, assume that there you see a similar trend going to Q1.
It would imply fairly significant upside into the back half of the year in pricing. Are we thinking about that correctly or is there another way that you would guide us to think for '09?
Donald James
I'm not sure I understand the predicate of your question, pricing has continued to increase.
Kathryn Thompson - Avondale Partners
Don, I was just saying on a dollars basis, so on an unit basis
Donald James
Yes. Pricing in dollars is higher in '08 than it was in '07 by 7%.
Kathryn Thompson - Avondale Partners
Sure.
Donald James
Now the momentum --
Kathryn Thompson - Avondale Partners
That's what I'm taking about
Donald James
Has been reduced. But we think ...we think that as we look at '09, the opportunities for pricing will not be the same in every market for every product.
But overall, as we roll it up we think the write-up price increase in '09 should be comfortable to that we achieved in '08.
Kathryn Thompson - Avondale Partners
What I'm asking is do you expect the momentum improve in the back half of the year as opposed to having equal momentum throughout the year. That's really what I was asking?
Donald James
I don't have that much insight. I think it can vary from quarter-to-quarter.
But we don't really look at it on that basis.
Kathryn Thompson - Avondale Partners
Okay. What is --
Donald James
Full year pricing is a much more reliable indicator to us than trying to talk about it quarter by quarter.
Kathryn Thompson - Avondale Partners
Sure. Absolutely, and really we're just looking for trends.
I know that you'd announced a price increase and just wondering any color about how these are sticking?
Donald James
Are you talking about aggregates or --?
Kathryn Thompson - Avondale Partners
Aggregates.
Donald James
We believe that we will get price increases again, they don't come at different times in different markets for different products and different end users. We have not had pricing...
downward pricing pressure except with respect to Southwest Florida. That's been the one place where there's been some significant pricing pressure.
In California with all the new work that's been rolling out, there's certainly been an eagerness on our part and everybody's part to build backlogs, which we've done. But we expect if that infrastructure program in California moves forward that the trends in California probably will resume.
Kathryn Thompson - Avondale Partners
Okay. I guess, just to clarify have you had any price increases announced for aggregates, specifically?
Donald James
Yes.
Kathryn Thompson - Avondale Partners
Yes. Okay, that's I...
Donald James
I'm sorry I didn't understand that. Yes, absolutely.
Kathryn Thompson - Avondale Partners
Alright. Sorry about the confusion there.
Regarding volumes, could you just give a little bit of color about trends at the end of the quarter and your perspective on assuming a stimulus package would be passed by the 1st of March, your perspective on the flow of dollars into '09 and to 2010?
Donald James
If the first part of your question is asking what we are seeing about volume so far in '09, we don't disclose that until the end of the quarter and we're not a retail store that discloses weekly or monthly sales, I'm not trying to be difficult as just never been our practice, because there's so much seasonality from in our business particularly in the fourth and first quarters it's more misleading than it is helpful depending on how weather has been. With respect to second part of your question, Kathryn was, could you repeat that?
Kathryn Thompson - Avondale Partners
Really, once again, most of my questions are based on trends and what's your outlook for the economic stimulus package?
Donald James
Okay sure. So much of...
the reason, I think it's reasonably clear when you study the Senate Bill that will be voted on shortly and in a matter of hours now. In the house built, you can come up with plus or minus about $60 billion of projects that will used aggregate asphalt and concrete.
We have... as I gave you in my remarks, we have metrics that have been developed over a time over how much aggregate content per billion dollars of spending and how much asphalt content and how much concrete content.
What we will need to do to give more specific guidance on that is to look at what the projects are, where they are and what the timing is. It is harder for us to say how much of this is going to occur in the second half of '09 versus '10 than it is to say there is going to be X million tons of aggregate asphalt and yards of concrete.
So right now assuming the bills pass and are signed by the President and something that is close to the Senate version or the House version, 60 billion of projects that use our material is a fair number. The harder thing is when that spending occurs spread over second half of '09, '10 and perhaps into '11.
We'll continue to work on that once we are able to get the list of projects and the timing of those projects. But that's one reason why forecasting in the near term of the impact of that on our business is very difficult at this point.
Kathryn Thompson - Avondale Partners
Of course I understand difficulty. As you know we've been doing a lot of work on it, and it's liking us to say catching jell, it's very difficult.
But really just little color on once again trends and flow and not specifics, because we're definitely not trying to manage quarter-to-quarter, just...
Donald James
Right, right. Well, just clearly I think I will...
one trend we will see is that public infrastructure spending as a percentage of our total or public infrastructure demand as a percentage of total demand is going to continue to increase, which is a good thing for us. Housing will continue to decrease and the private buildings piece will probably also continue to decrease and large privately-funded infrastructure projects hopefully will have some stability for us in 2009, and hopefully, going on into 2010.
Kathryn Thompson - Avondale Partners
Okay. My final question really relates more to aggregate margins specifically.
And the fairly wide swing in the quarter just reported and just to get a sense and how we model for the out year and it seems difficult to guess specific EPS guidance given current market. But at least conceptually, is it fair to think that roughly flat margins on the aggregate gross margins, is appropriate for fiscal '09 or any other qualitative color related to that would be very helpful?
Thank you.
Donald James
As I indicated in our remarks, our cash margin per ton has continued to improve. The issue for us is the allocation of DD&A over a smaller number of tons, our DD&A for 2008 was $389.1 million.
We project it will be about $402,5 million in 2009. If our volumes are in fact down 5 to 10% and we have to spread that slightly higher DD&A over larger tonnage, it will impact our GAAP margins.
But our cash margins we think still have some opportunity to improve. Hopefully, you'll see improvement in cash margins but you may see the impact of DD&A on smaller production levels having a negative impact on the GAAP margins.
If that helps any.
Kathryn Thompson - Avondale Partners
Yes, it does. We want to be completely secured and one has to...
it gives us some sense of direction. That's all I have for right now.
Thank you very much.
Donald James
Thank you, Kathryn.
Operator
Your next question comes from the line of Timna Tanners from UBS. Please proceed.
Timna Tanners - UBS
Hi, good morning Don, Dan.
Donald James
Hello Timna.
Timna Tanners - UBS
Just got a few hopefully quick ones, let's on the price side, and I have to follow-up on that. But in the past you have talked a little about January price increases and then sometimes you may deal price increases.
Can you give any sense from the 68% how much of that is already known to you from January price increases and how much might be... remain to be seen later in the year?
Donald James
I don't have that king of data. I mean we have some price increases that are in effect in January.
We'll have some more that will along in the spring, perhaps some more in the summer. But that somebody always ask me that question and we've never been clever enough to figure out how to answer it.
Timna Tanners - UBS
Okay, you wouldn't give a second average of the January price increases are any sense there.
Donald James
No because it's all over the board.
Timna Tanners - UBS
Got you, okay. And then on you did give a great detail but we use to have forecast for EPS and I am wondering if you could tell us why you might have excluded that for the upcoming quarter and for the full year.
Donald James
Well, there are couple of reasons one is trying to predict the timing of the effect of the stimulus package is very difficult for us. The other is the economy absent to stimulus package is very difficult for us to predict and we decided that it would be better for us to give you price, volume and elements of cost to let you do your own work than for us to try to predict EPS certainly for a quarter but even for the full year.
As the year progresses, if the stimulus plan passes and if we get to a point where we have some level of confidence that is not or lack of confidence that is not reflected in the analyst estimates, we will consider guidance. But at this point, as you know we were wrong throughout much of 2008.
And we need to get to a point where there is some predictability and stability in the economy and demand in order to have confidence in giving you EPS guidance.
Timna Tanners - UBS
That's fair. And I don't mean to be picky about this but could you give us a level of confidence in your volume and price forecast.
As well can... that is sort of the same argument, you just said that at this point in time that to your best estimates of the things the influx?
Donald James
Yes, I think that's a fair statement.
Timna Tanners - UBS
Okay, great. And final question from us, on the goodwill side that declined about $600 million quarter-to-quarter.
Do we miss something there that you explained?
Donald James
What that was Kim is a reclassification of dollars from goodwill end of last year into other intangibles. At year end last year, we were...
we had just close the Florida Rock transaction and had very limited time to fully evaluate the whole array of intangibles that were acquired with that business. And as you know, the accounting rules require you to, in a very detailed fashion try to identify all intangibles by items.
And so what you're seeing is a shift of dollars out of goodwill which was kind of a holding account, if you will at last year end into an array of other intangibles. For the most part those other intangibles have to do with the value...
the estimated value of the zoning and permitting that's in place at the aggregate production facilities. And that most of that shift from goodwill into other intangible will be become amortizable through the P&L over time, where as the amount that we made in goodwill will not.
Timna Tanners - UBS
Okay. And then along those lines do you have any comments that you can regarding the potential or the reasons why or why not you'd have to consider any write-down related to Florida Rock.
Donald James
At this point in time we've completed our year-end goodwill impairment testing and have not taken an impairment charge. So it's judgment of management that these assets are not impaired.
But under the accounting rules that test occurs annually, right at the minimum. So we'll continue to look at it and so right now we've satisfied ourselves that we do not believe there has been an impairment.
Timna Tanners - UBS
Okay great, thank very much.
Operator
Your next question comes from line of Trey Grooms from Stevens Incorporated. Please proceed.
Trey Grooms - Stevens Incorporated
Good morning.
Donald James
Hey Trey.
Trey Grooms - Stevens Incorporated
Hey. Just a couple of quick questions.
Don one is related to competition; with pull back in diesel that we have seen since summer time, do you have any markets where you are seeing an increase in competition as we have got lower diesel prices and folks are eager to go further to find volume?
Donald James
Well that's certainly a possibility and that is some thing we will have to look at. That works both ways.
Our shipping radius certainly improves some as do our competitors. So that's just one of the things that our guys have to take into account, every day, every week when they are bidding jobs and quoting prices.
Trey Grooms - Stevens Incorporated
And I didn't know, when you are looking at your markets, you have got several way you have got great market share and I didn't know if there was just some in particular that you could point to and say yeah, these are the ones that we are worried about where there are some guys on the edges that are I guess kind of neck-neck to edges if you will and as diesel comes down, you can see this increase?
Donald James
Not. I don't think there is any particular markets where that's a bigger factor than in others.
That's been part of this industry and part of this business for ever is the delivered cost of material and that's just the factor that we take into account in our whole pricing and competitive structure. We have competition in every market and it will then flow for a lot of reasons, including the price of diesel fuel.
Trey Grooms - Stevens Incorporated
Okay, that's helpful. And I know that this next question it gets more difficult as time goes on as you've indicated before, but could you give us an idea what legacy volume was in aggregates in the quarter as far as, how much it was down?
Donald James
Yeah, I do have that. Legacy volume was down in the fourth quarter about 26%.
Trey Grooms - Stevens Incorporated
Okay, that's helpful. And then you laid out some detail on kind of what's going on with GAAP margins and it sounds like its mostly a function of the volume there with the DD&A.
Can you also give us an idea just where... kind of how the fixed versus variable structure kind of shakes out right now?
Donald James
Go ahead Dan.
Daniel Sansone
Of the cost of producing a ton of aggregates today, approximately 30 to 35% of that would be considered a fixed cost with a half to two-thirds of that fixed cost probably skewed more towards the two-thirds at the moment being depreciation, depletion and amortization. The rest being cash fixed costs associated with supervision and basic services at the manufacturing facilities.
Trey Grooms - Stevens Incorporated
Okay, that's helpful. And then Don, you gave us some metrics related to demand versus, I guess that would be generated from different amount spent and that was very helpful.
But like for example the number that you gave for highway for every billion dollars spent, it was 14 million tons, is that a current prices for aggregates?
Donald James
Yes.
Trey Grooms - Stevens Incorporated
Okay and I guess my last question would be on the asphalt side?
Donald James
That number can move. I mean that's a number that's based on a lot of highway projects over a lot of years adjusted for throughout the year end '08 aggregate price.
Trey Grooms - Stevens Incorporated
Okay.
Donald James
Did that answer your question?
Trey Grooms - Stevens Incorporated
Yes absolutely.
Donald James
How much of that we ultimately get at Vulcan depends on where it is. Whether we gets the work whether we don't, but we'll have a lot better calibration of that if we move down the timeline of when those projects get approved by Congress and when they're put out to bid by the contracting agencies.
Trey Grooms - Stevens Incorporated
Sure. One other question on CapEx, you'd kind of reiterated the $200 million for 2009.
How close are we getting at that $200 million level. How close are we getting to kind of have bear bounds kind of maintenance CapEx for you guys?
Donald James
Well our five-year average replacement CapEx has been about $160 million about year and that's on legacy Vulcan. Of course we now have the Florida Rock assets as well.
But, I think $200 million a year is ample for replacement CapEx. Obviously, other things that will come along to be profit improvement projects or volume improvement projects would not be necessarily included in that number.
But, we think we're fine given our current state of our plant and equipment, to be able to maintain that effectively at 200 million a year.
Trey Grooms - Stevens Incorporated
Okay. And then I've just have two other quick questions.
One is on price of aggregates. You've mentioned, you expect greater shipment in the infrastructure projects and less in the housing in 2009.
Is there a much of a price difference as far on aggregates that going into those different end markets?
Donald James
I don't believe we would change our pricing guidance based on whether the stimulus bill passes or does not pass. It really, there is a volume impact but we don't believe there will be a price impact coming from the stimulus package.
Trey Grooms - Stevens Incorporated
Okay. But, so if, I guess if you are looking at it, with the demand being higher for infrastructure projects ex-stimulus, would just in general terms is infrastructure...
aggregates that go into the infrastructure projects typically higher or lower or about the same price as something going into some top of the building or some top of residential construction?
Donald James
Pricing would generally be higher, because specifications are tighter. And often times we have a better competitive advantage on tight specification projects like federal highways and airports.
Housing on the other end just typically would not have as high a specification. So there is a pricing benefit to public infrastructure, but it also cost us more to produce some of that high specification material.
So there is not a dramatic margin differential between different end markets although pricing can be higher, it can push our cost.
Trey Grooms - Stevens Incorporated
Okay. And then my last question is just to make sure I understand, I understood one of your comments earlier on the 6 to 8% you'd mentioned that you have price increases out now.
But did I hear you correctly that you have price increases now and also expect to have like a mid-year price increase as well?
Donald James
I know people can't get their head around this one, but we price material every day, every week and we don't put out a general overall U.S. price increase to all customers for all products on January 1, and another one on July 1.
That's just not the way we price products. So, the answer to your question is, we are getting price increases every week somewhere.
We generally put out some price increases at the beginning of the year and some at the beginning of the construction season in some markets and some in mid year. But you shouldn't try to force fit our pricing strategy into...
we put out a 8% price increase on January 1 and we are able to get 4% of that, that's just not the way this business works.
Trey Grooms - Stevens Incorporated
Okay understood. Thanks guys.
Operator
Your next question comes from the line of John Fox from Fenimore Asset. Please proceed.
John Fox - Fenimore Asset Management
Hi good mornings everyone.
Donald James
Hi John.
John Fox - Fenimore Asset Management
Believe it or not, I have a couple of questions left.
Donald James
Good.
John Fox - Fenimore Asset Management
Could we get the actual dollar amount for liquid asphalt fourth quarter of '08, and fourth quarter of '07, please?
Donald James
Yes, I will get that for you in just a SEC.
John Fox - Fenimore Asset Management
Okay, and the second, while you are working on that I guess maybe for Dan. Do you anticipate and if so how much your contribution for your pension plan in 2009?
Daniel Sansone
There will no mandatory contribution for the pension plan in 2009.
John Fox - Fenimore Asset Management
Okay. Dan what's the nature of medium-term investments on the balance sheet?
Daniel Sansone
Those were some investments that we had back... had made back in 2008 in the reserve money market funds.
And when they broke the buck, they slowed down their pace of redemption and that's what that money is. We have...
we are continuing to receive distribution and but because it's unpredictable as to when we'll get the money, we have reclassified that out of cash and cash equivalents.
John Fox - Fenimore Asset Management
Okay. Do you believe that you will get it all?
Daniel Sansone
Okay great.
Daniel Sansone
Don... and by the way John, we received some $23 million or $24 million of distribution since the end of the year.
So we are beginning to see that fund loosen up.
John Fox - Fenimore Asset Management
Okay. Alright great.
Donald James
John we buy liquid asphalt in four different states. So I won't give you the average price for'07 and '08.
John Fox - Fenimore Asset Management
That would be fine.
Donald James
And you recognize we probably didn't buy single ton of liquid asphalt at this price anywhere, but this is the rollup of a lot of different transactions in lot of different locations. Our average price for liquid in 2007 was $321 and in 2008 it was $541.
That price differential impacted our material margins in asphalt, which is the margin we make above the material cost. As I've said in my remarks, we have now been able to get our pricing for asphalt mix up to reflect that higher cost of liquid asphalt and our material margins are improving.
We expect that to continue into 2009.
John Fox - Fenimore Asset Management
Okay. So, was that the fourth quarter price or the average for those two years?
Donald James
Averaged for the year. You want fourth quarter?
John Fox - Fenimore Asset Management
If you have it.
Donald James
In the fourth quarter 2007, it was $342 a ton and for '08 it was $574 a ton.
John Fox - Fenimore Asset Management
Okay. Thank you very much.
Operator
Your next question comes from the line of Todd Vencil from Davenport & Company. Please proceed.
Todd Vencil - Davenport & Co.
Thanks guys. Most of my questions have been answered, but just to kind of hit on a couple of things to clarify and make sure I'm not jumping to conclusions.
When you refer to price weakness in Southwest Florida and in California, is that to say that prices have... your prices have actually fallen in those markets?
Donald James
More than Southwest Florida, I think California it's on a product-by-product basis, we're still getting some price increases. Our mix has shifted somewhat in California and that's changed the overall pricing.
But California is okay and will be okay and Florida is going to be interesting with respect to the New Year's Lake Belt ruling what happens later?
Todd Vencil - Davenport & Co.
Well, Don I appreciate that. Could you just saying right into my next question which is, has anybody announced a price increase related to that recent ruling down in Lake belt?
Donald James
Not that I am aware of. I think everybody in the Lake Belt has shut down.
Nobody is operating, there are a few packets. Some of the quarries that are not covered by the Lake Belt permit including a little bit in our Miami quarry.
I think most producers have stockpiled raw materials, which they have mined already in the month pile that can be processed and there is probably a fair amount of inventory. I think everybody in that area is probably having to look at their hand to see what happens demand for cement, feedstock by the two large cement producers in the Lake Belt, will be an issue.
But as it sits today, I don't think we know we have any price announcement that we are aware of by any of the producers yet. But it's only been as said about two weeks and it's in a period of low demand about from the economy as well as the time of the year.
So I think that will play out over the next few months.
Todd Vencil - Davenport & Co.
Okay and do you... any I realize that it's a relatively small issue for you guys.
But any thoughts on how long as whatever stockpile you guys have done there will ask to you sell.
Donald James
Well we have got... we have several months of inventory on the ground.
As you may know we did not run that quarry for a good portion of 2008, because of the prior ruling and then once that was reversed, we could resume production which we did. We also have the distribution and transportation and production capacity to continue to move material into Florida from Mexico, from Alabama and from Georgia as need be by ship and by rail.
So I think there will be a lot of adjusting by the producers in Florida depending on Vulcan outcome of this. The Corps of Engineers permitting process which is ongoing, I think will also have a significant impact on the future of supply in Florida and that of course is not yet known where The Corp is going to come out on all this.
Todd Vencil - Davenport & Co.
Got it. On the liquid asphalt you mentioned that you got all the contracts rolling off and new is coming on.
Given that liquid prices have come down, are you now seeing the prices on your sort of newest quoted contracts for asphalt mix also coming under pressure, are they're coming down a little bit sort of follow on liquid price down?
Donald James
Well as we've said in 2008, our pricing for asphalt mix or the fourth quarter certainly was up. I think that's every project bid and it's hard to say at this point whether what the relationship between liquid asphalt price and asphalt mix price will be.
There's a lot of different dynamics in terms of location and jobs and there is certainly not a direct correlation. Typically we do worse on margins in periods of rising liquid asphalt cost and better on margins in period of declining liquid asphalt cost.
Daniel Sansone
The way I would think about it is you have as the cost of liquid asphalt stabilizes, many of the market are just returning to what I would describe as historical levels of margins, not distorted by the pace of the change in that input costs?
Todd Vencil - Davenport & Co.
Got it. And final question, one for Dan.
On debt-to-cash covenant; two questions. Is that a net debt covenant or a total debt and how is the goodwill treated under that?
Daniel Sansone
Total debt to cap, and goodwill is in the well I mean, yeah I mean its debt in capital, I mean it's debt and equity, so it's in there.
Todd Vencil - Davenport & Co.
So, if you had... so I understand that you guys have already tested for this year.
But if you did take a write-down that would affect your debt-to-cap ratio.
Daniel Sansone
Yes, yes it would.
Todd Vencil - Davenport & Co.
Okay. Alright.
Thanks a lot.
Operator
Your next question comes from the line of Aynsley Lammin from Citigroup. Please proceed.
Aynsley Lammin - Citigroup
Hi, good morning. Just another one, fortunately.
But in aggregate, if you could just give us a feel for how much inflation is already in the system and I presume that the year end aggregates price was higher than the average for 2008. And then just secondly on the non-res I think, I heard you right.
Kind of expected non-res work for demand in the areas to be down around 7% in 2009, that's been quite surprising given how much restrained the kind of lead indicators and other companies just talk about. How quickly non-res has pulled away.
If you could just give us some kind of background for that, expectations will be great?
Donald James
With respect to... if I understood your first question has to do with how much of our projected 6 to 8% price increases already in place.
Let me say for about the fourth time, I don't know. That's not the way we price our products.
So I can't answer that question as I ask. And it's not...
it's just because we don't do, we don't have metrics on pricing that's once a year or twice a year or three times a year. With respect to the projection for non-residential buildings, we saw some decline in that in 2008.
We see some more decline in 2009, but these are our markets, the counties that we serve not the total U.S. so there may be some differential there.
And with in non-residential building there are probably some overlap between what I'll call private infrastructure. And the non-residential buildings category includes public building as well.
So if you've driven through a college campus lately you know there is a tremendous amount of construction generally going on there and than they are state and local facilities as well as federal facilities including the big barrack programs, base realignment and closure programs which are very significant in many of our markets where the military are building new facilities, as they close bases and move things to other bases. So all of that rolled up together is in the non-res building category which is both public and private that may be the place that you are seeing disconnected, if you are not putting the public piece in that category.
Aynsley Lammin - Citigroup
Okay, just on the price, I was trying to ask the question of how much do already been kind of price. Just if you have a feel for, how much rolling over was from 2008, or was that probably you are going to --
Donald James
Well, some of it clearly is rolling over, meaning is already in place. I can't quantify what that is
Aynsley Lammin - Citigroup
Okay, thank you very much.
Operator
Your next question comes from the line of Brent Thielman from D.A. Davidson.
Please proceed.
Brent Thielman - D.A. Davidson
Good morning. Thanks for taking my questions
Donald James
Good morning
Brent Thielman - D.A. Davidson
Just on the pricing guidance. Obviously, thanks every much for the forecast there in terms of aggregate and asphalt.
And it looks like Q4 price for concrete looks a little bit better. Do you have any sense or can you give any direction where you see pricing go into that business or for that product going forward?
Donald James
Well, concrete... there has been a large reduction in concrete volume throughout the U.S, first from housing now from at least a privately-funded portion non residential buildings.
We expect concrete pricing to be relatively stable in '09. Not any significant opportunity for increases or any pressure for erosion volumes are down there.
And until housing begins to recover that's concrete volumes are likely to stay relatively flat.
Brent Thielman - D.A. Davidson
Okay great. Thank you.
And then I guess just a broader question in terms of I mean were there any particular states I guess that surprised you had a positive or negative in terms of recorded volumes in the quarter?
Donald James
Well the strongest markets we have had for 2008 as a whole and to try to do it on quarterly basis would be distorted, but the entire Gulf Coast has been our strongest market, from Texas to Louisiana, Mississippi and Alabama. That's where those have been our best markets.
And that surprises a lot of people but that's the reality of where our demand has been strongest.
Brent Thielman - D.A. Davidson
Okay great. Thanks guys.
Operator
Your next question comes from the line of Mike Betts from JPMorgan. Please proceed.
Michael Betts - JPMorgan
Yes. Good morning.
Donald James
Hey Mike.
Daniel Sansone
Hi Mike.
Michael Betts - JPMorgan
Hi. I had three questions if I could.
You will be relieved none of them to do with pricing. The first one is Don, can I just ask you in terms of cost; you have obviously talked about asphalt and diesel.
Are there any other pressure on the this year, I mean people across I mean they like it to be fairly flat or general inflation of 2 or 3%. Could you give me some kind of guidance on what sort of cost increases you like to see on the other stuff?
Donald James
You know, we'll see some price I mean wage increases for our hourly workforce. We expect to more than make it up with productivity and efficiency.
Steel components were a factor in 2007-2008, not so much a factor are in 2009. So, when our...
so, I think the things that will move the needle in 2009 will be diesel fuel and liquid asphalt and electricity may have an impact although at lower production levels we hope income manage our demand charges efficiently to try to limit the rate of increase in electricity cost.
Michael Betts - JPMorgan
Okay.
Donald James
So those will be the major categories.
Michael Betts - JPMorgan
My second question to you Don, in the statement and you mentioned when you spoke, you were talking about the legacy businesses' shipments '05 to '08 were down about 30% that was legacy. Do you have any idea how much Florida Rock's volumes have declined during that period?
Donald James
I have for the period we've owned Florida Rock which would be basically full year '08 shipments and aggregates were down about 34%
Michael Betts - JPMorgan
Okay, thank for that.
Donald James
And the vast majority of that would be in Florida. Our other quarries in Georgia, Virginia and Maryland and Alabama that came with part of the Florida Rock acquisition, track of largely our performance in those markets from our legacy operations.
Michael Betts - JPMorgan
Okay. Thank you for that.
My final question is probably for you Dan. How much of your debt is now floating rate based on LIBOR and I'm not going to follow-up question once I get that answer from you.
Daniel Sansone
I've got that here, just let me look at up Mike. We come out of this way about at this point in time, just under $1 billion of our debt would be floating rate and the remainder of it is going to be fixed rate.
We have a total about $3.6 billion. Yes, it's around 60:40 at the moment.
60 fixed, 40 floating.
Michael Betts - JPMorgan
Right. I guess what I was coming to Dan is I'm a bit...
I mean obviously you've got the debt that you've just fixed, which adds probably $30 million to the interest charge. But I would have thought on the floating there was quite a big benefit from the decline in LIBOR, U.S.
LIBOR or LIBOR rates. Am I missing something that you have any hedges or anything else, or I might just wrong on that?
Is it more a comparison in terms of yester rates declined for LIBOR in the last three months, but it's probably a function of what it did before that?
Daniel Sansone
Well, you're right. LIBOR rates have declined considerably and the recent transaction we did obviously moved $400 million out of floating rate short-term debt into fixed rate and long-term debt.
That transaction was done principally to ensure adequate liquidity to meet the refunding, the repayment obligation as we have in 2009 without putting too much strain on our bank lines to give us adequate operating flexibility.
Michael Betts - JPMorgan
Okay. But there's no...
on you're LIBOR floating debt, it just moves with LIBOR. There's no kind of a hedging that you've done at all on that?
Daniel Sansone
That's correct. Our LIBOR-based bank borrowing is just that, it's LIBOR plus a spread.
Michael Betts - JPMorgan
Right. That's great.
Thank you very much.
Operator
This concludes our question-and-answer session for today's call. I would now like to turn the call back over to Mr.
Don James for closing remarks.
Donald James
Well thank you for being with us today. We appreciate your interest and your questions.
I think, at this point I would urge you to not only pay attention to what's happening in the overall economy but also focus on what will happen in Washington with the stimulus plan and ultimately, pay attention to what happens with the Lake Belt ruling in Florida. Those are probably the things that will have the greatest impact on Vulcan's 2009.
Although until we have better visibility in those factors, predicting what that impact will be or quantifying what that impact would be in quantifying the timing of that impact, remains a challenge for us. But those are all significant events for us.
We look forward to talking with you again after the first quarter to be and hopefully will be able to give you some more information on each of those items at that point. Thank you so much.
Have a good day.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect good day.