Good day ladies and gentlemen and welcome to the Second Quarter 2009 Vulcan Materials Earnings Conference Call. My name is Janaida, and I will be your operator for today. At this time all participants are on listen-only mode. We will conduct the 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 Mr. Don James, Chairman and CEO. Please proceed, sir.

Good morning and thank you for joining this conference call to discuss our second quarter results and our outlook for the remainder of 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 will be helpful to you. A replay of this conference call will be available later today at our website. Joining me today is Dan Sansone, our Senior Vice President and Chief Financial Officer. Before I begin let me remind you that certain matters discussed in this conference call contains forward-looking statements which are subject to risk and uncertainties. Descriptions of these risks and uncertainties are detailed in the company's SEC reports including our most recent report on Form 10-K. Let me begin my prepared remarks by saying I believe our management teams are running their businesses well in an extremely tough economic environment. The challenges presented by the extraordinary weakness in the economy generally and in the private construction sector specifically have provided opportunities for us to position the company well for the eventual economic recovery. The difficult, but necessary cost management actions we have taken to date along with our disciplined approach to pricing will enable us to generate solid cash flows in 2009 and participate fully in the overall economic recovery. For the first six months of 2009, our operating cash flows were 169 million, up from 134 million in the prior year. In addition, our completed equity offering and the related dividend reduction have strengthened our balance sheet, realigned our capital structure and improved our financial flexibility. Our second quarter net earnings were 22 million or $0.20 per diluted share including earnings from continuing operations of $0.14 per diluted share. Aggregate shipments declined 31% compared with the prior…

Thank you. (Operator Instructions). Your first question comes from the line of Chris Manuel with KeyBanc. Please proceed.

Good morning this is Jason Brown on for Chris.

Hey Jason.

My question is on the non-residential decline that you are seeing now and how that progressed through second quarter. In your volume shift, did you see a hard stop or was it a steady decline through the quarter. And then on a sequential basis how much deterioration do you see going into the second half of the year?

Well, the data I gave had to do with macro contract awards and they started dropping sharply in May and June compared to a year ago. So the impact of that will be felt in the second half and then well in 2010. As that is concentrated in stores and office buildings, from our sales organization, there are a lot more projects out there that are being financed and I think there are two things working here; one is there's clearly a reduction in demand for stores and office buildings but even where there is an apparent demand, getting financing for those projects in the current climate is extraordinarily difficult. And the combination of those two things, I think has caused the sharp drop in contract awards which will be felt for at least the next 12 months or so. Until that rolls over, private non-risk is going to be the last of our demand segments to recover. Highways and public infrastructure will be doing very well, there's even a glimmer in housing, but private non-res is the area that's gotten weakest most recently and will probably remain the weakest longest.

Okay and then to kind of further break that down, I know at least in the census numbers, it shows that the manufacturing part of that non-residential piece has stayed up more than I would have thought so far. Can you give a little color as to what's driving that and if there is any risk of seeing that market fall?

Well if you look at construction put in place numbers you see that institutional buildings and manufacturing have remained relatively strong when you look at the contract awards, you see that buildings and stores have dropped from 50% of the total a year ago to 33%, which means manufacturing and institutional buildings are relatively stronger. The manufacturing tends to be long -- long lay up the contracts for example the ThyssenKrupp steel plant in Mobile, the Volkswagen plant in Chattanooga are facilities that are continuing with construction, the question becomes how many other significant manufacturing projects are behind them. The data we gave on contract awards of course includes all forms of private non-res and private infrastructure construction which would include those. So I don't think you should double count the downturn there, but there is significant weakness.

Okay that's helpful. Thank you.

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

Hi good morning gentlemen.

Good morning.

Just first off, could you breakout your volume guidance that you've updated this morning by end market, meaning what you're expecting now for 2009 for housing, non-res and infrastructure demand?

Yes. Let me get my colleagues to give me the specific data on that and I will give that to you, for the second half specifically about the end market guidance. Okay, they aim to do a little calculation here, that second half but I'll have it for you in a second.

Okay. Let me move on to my another question then.

Okay.

Just on the stimulus projects that you're seeing come through, can you talk a little bit about the pricing on aggregates that you're seeing, I understand that's early on but just the pricing in terms on the stimulus projects up for bid?

Yeah. I think there is a great deal of confusion I think about aggregates pricing on stimulus projects given the total bids compared to the estimates that are coming in and let me give you some examples. If you look at the California stimulus projects that were bid as of mid-July of this year, there have been 54 projects awarded and on an average there have been 24% below engineering estimates. In Tennessee there have been six project recently awarded, they came in 23% below engineering estimates. Various other states have been anywhere from the teens up to almost 50% below engineering estimates. But what's going on is if you look at the percentage change in prices for construction materials and services, diesel fuel is down 55%, steel is down over 40%, liquid asphalt is down 16.5%, aggregates are up 5%. So aggregates are not where -- are not the basis of the significant drop in actual bids over engineering estimates. It's in diesel fuel as liquid asphalts and steel primarily. And I think that says that aggregate prices going into the Stimulus projects are bearing sort of the same level of price increase in the 3 to 4% range that we and others in the industry are reporting. Let me go back to your first question, for 2009, in our markets aggregate demand for highways, we expect to be down 3% or infrastructure both public and private down about 10%. For single family housing down 41%, for multi family down 35%, for offices and hotels down 36%, stores and warehouses down 40%, manufacturing down 14, other private buildings down 15, public buildings down 4. So those are the end markets for '09 in Vulcan served and this is a roll up of all of the Counties we served State by State, that's the basic projection for 2009 aggregates volumes.

Great. Thank you for detail there. Just real quick switching gears a little bit on your cost structure. Just wondering how much incremental demand when market conditions turn around and can you absorb before having to increase the cost structure of the company?

We on a pro forma basis combine Vulcan and Florida Rock. We were producing almost 300 million tones of aggregates in the 2006, 2005-2006 era. We can go back to that level of production, in fact we can go higher than that level of production without adding any capacity. We will obliviously as we grow volume, will tend to spend more on capital than we're currently spending, but not add capacity but simply to maintain the efficiency in plants. So the bottom line is that we can add tremendous incremental volume in the range of 40 to 45%, yes that's the drop, so going the other way it's probably 19% of volume increase without adding capacity. So we have a lot of upside on our earnings and cash flow from incremental volume.

And we have indicated previously that incremental tonnage added to the existing base of business should probably generate 60% incremental contribution margins dropping to the bottom line. And I think that's an illustration of the underlying attractiveness and profitability of the industry and the business as it stands today. And embedded in that we would certainly add back some of the cash fixed costs that have come out of the cost structure during this down turn as we've mothballed plants and cut back operating rates and reduced shifts, so there will be some fixed cost add back but it will be insignificant relative to the variable contribution margin of the additional tonnage.

Okay. We've seen about 13 quarters of declining volume, our projection through year end will probably take it to about 15 quarters. We, as I've said in my prepared remarks have done a lot of really good things on our cost structure and certainly we believe we're well poised to see substantial up in earnings with a little bit of recovery and volume and hopefully we will see that beginning in 2010. If you analyze our second half projections, we actually have the possibility based on our current outlook of exceeding last year's second half earnings in 2009, which would be a welcome change from the trend over the last three years or so.

Certainly, and just last question Dan, in the guidance for the year the EPS guidance, just to be clear what tax rate are you assuming, is it the effect of tax that you've outlined.

Yes that's correct

So 6.4%.

6.4% that's right

Okay thanks. That's all I have.

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

Hi, thank you very much.

Good morning, Kathryn.

Good morning how you are doing? First question was on, just on pricing side from mid-volume, are you still seeing negative price trends in California and Florida and to that end how much has product mix played in pricing differences by region?

We are seeing price pressure in California and Florida. Those as I've said before are two of our highest priced markets and two markets that have seen well above average price appreciation during the up portion of the cycle. So, some of that is certainly being moderated. I don't see that trend in California and Florida continuing beyond 2010. I think some stability in demand coming from the stimulus money given the terrific shortage of reserves in both of those states ought to stabilize pricing. But at this point certainly in the second quarter, we saw pricing down in those markets and there is a geographic shift in demand that has a significant impact on our overall announced price increases, I think ours were about -- we announced 3% in the press release; they're about 3.3% overall. Some markets got substantially greater price increases obviously if we offset the about 5% decline in the two states of California and Florida. There is more geographic mix shift in the second quarter than product mix shift in the metrics I had given you the thing that we are looking forward to Kathryn is the demand in those two states in the second half of '09 and end of 2010, is going to come from highways and other public infrastructure, which are to be beneficial to pricing private non-res and housing of course are as weak in those two states as they are anywhere else are weaker than as they're anywhere else in the country other than maybe some of the industrial States in the upper mid-west. But we -- a little bit of recovery in demand in Florida and California will have a significant effect on pricing in those two states as well as the average reported prices that we will have we believe in going forward certainly beginning in 2010.

Okay. Great, moving to guidance could you give additional color on how much stimulus dollars play into your fiscal '09 guidance? And in your opinion, what percentage of the Stimulus dollars for infrastructure related projects will flow in 2009 versus 2010?

Okay. We have tried to be cautious in projecting much of the stimulus effect in 2009 because so much of it has to do with the timing of when our customers mobilize and then certainly as we go into the latter part of the third quarter and the fourth quarter what happens to weather. Our projection was that the Stimulus dollars would result in about 35 to 45 million tons of aggregates for Vulcan. We have about 10% of that built into our '09 projection and the large portion would be in 2010 and 2011, with some carry over into 2012. That's on the highway piece. On the other stimulus construction which would be largely water sewer projects. Those are going to come along slower, more slowly and probably that's a '010 and '011 continuing in the '012 phenomenon probably with maybe a six to nine month lag on the roll out of the highway work just simply because the contracting agencies aren't as well-developed and efficient as the State DOT's are.

Okay. Great that's very helpful. And finally just looking at your guidance from June 10, and the guidance you gave today. What in the market caused you to lower your volume and price expectations and given if we're heading into the back half for the year, you think that this is sufficient for the year and you are -- look I know you've commented some on 2010, but you can provide additional color into 2010 about your overall volume and pricing trends? Thank you.

Well, the principle thing Kathryn that has changed our volume outlook for full year '09 including the second half of '09 is the macro contract award data for stores and office buildings and private infrastructure. Those as I have indicated in my prepared remarks, the contract awards for those that came in for the months of May and June were sharply lower than we had projected part of that in hind site is that some of the projects that were in the pipeline didn't get financed and as a result no contracts were awarded. That's part of the issue, another part of the issue on the private infrastructure side which I have said in my prepared remarks has to do a lot with utility projects with the uncertainty in Washington on the energy bill about what form of the energy projects are going to be viable going forward. Private utility companies are certainly not building any coal plants, they are certainly not adding to their coal plants and there is uncertainty about natural gas. So, I think what we're seeing is a end demand from -- commercial and industrial demand for electricity is certainly down across the country, so there's not a whole lot of current need to add capacity. But once I think that energy bill gets settled and there is some need to add capacity to replace our coal plants that may not be viable going forward because of environmental reasons, we will see that return to normalized levels, energy demand in the US is not going to go down as we go forward. The capacity additions and replacements will have to be put in place. What we're seeing I believe there's a temporary height that's waiting on the out come of carbon tax and whatever else might be in the final energy bill.

Okay and final just a housekeeping question. Could you remind me what your percentage of fixed versus variable cost is for the company as a whole?

For aggregate Kathryn and that's always the best way to think about it.

Sure.

Deprecation is running somewhere around the high teens as a percentage of the total cost of producing a ton of aggregates and our cash fixed costs are probably another 10 percentage points on top of that.

As volume recovers, that split shifts a bit. Fixed as a percent of the total drops and variable goes up. So we're absorbing all of our deprecation charge which we do on a period basis on a much lower volume. So as that volume recovers, the fixed cost piece gets spread

Okay great, that's very helpful. Thank you very much.

Thank you.

Your next question comes from the line of Trey Grooms with Stephens Inc. Please proceed.

Good morning

Hey Craig

Couple of quick questions. One, with the price pressure you've seen in California and Florida, 5% year-over-year so, is most of this pressure coming from kind of smaller independents or is it the larger players in the market, or is it widespread. Could you give us a little detail on that?

I think it is more from smaller producers or let me say, privately owned producers. There are a lot of different items running through that, but by and large there is price pressure coming from some public companies that apparently need cash flow -- current cash flow. So there's little bit of pressure there and there is probably smaller privately owned operators who decide it’s better to get a little volume and not worry about the price is also a source of price pressure.

Okay. And then do you think in these couple of markets here I know you said you don't expect it to go to 2010 the price pressure -- to go through 2010 with the hopeful uptick in volume and so forth. But do you think that we could see additional pressure as '09 progresses, I mean so could down 5% turn into down 10% in these markets or do you think that we've kind of hit up a spot where we could continue to stay for the remainder of the year?

Well. It's hard to predict what others are going to do about pricing in fact its impossible to predict

Sure.

I think what we see happening though is that as the demand driver in these markets is coming from Federal Highway Projects, the ability of small independent producers to produce DOT spec material in quantities is limited. And as demand is focused on federal projects, our ability to serve those markets at higher prices or at recovering prices I should say ought to be better, because our relative competitive advantage in being able to serve those projects with large quantities of in spec material on a timely basis, that's our real strength. And so the upcoming demand in Florida and California plays to our strength, whereas in housing, in contrast that is where our relative strength is because producing aggregates that goes into housing construction is not nearly as difficult with tough specifications as several highway projects. So I think we're seeing Vulcan's sweet spot among the various demand sectors is our weak spot has been in the past. And as we look forward, we think that will help not only with our volume but also with our pricing in those two markets.

Okay and we spend some time on the call talking about these California and Florida weakness, but there's obviously markets that are out performing the average. Can you talk a little bit about those with this in regards to price?

Well the Gulf Coast has been an area of strength for us. The Mid Atlantic states have been an area of relative strength for us. And even the Middle America has been an area of relative price strength. The markets that have been the hottest in the past with the largest percentage price increases i.e., California Florida have been ones that have adjusted the most. Other markets that were more stable in their growth trends have certainly remained more stable in their pricing trends.

Okay. And just one final question. You guys – hit kind of high level I guess on 2010, but you haven't really come out specifically and reiterated I guess the guidance that you guys gave or kind of expectation for volume being up about 15% and pricing up about 6 to 7%, is that still kind of what you guys are expecting and kind of how we should be thinking about 2010 at least from where we look at it today?

Trey, our current view is that we need better visibility and more information about 2010 price and volume, before we either reiterate our prior guidance or give new guidance. We're going to be looking at that and we'll give our OTN updated guidance probably in our fourth quarter conference call as we have done historically. There are a lot of moving parts here, the timing of the stimulus spending. The depth of the private non-res and probably the level of recovery in housing that many are predicting for 2010, but at this point, we are going to reserve our specific 2010 guidance to probably early 2010.

Okay Don, that's all I have. Thank you.

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

Hi actually this is Paul Betz for Jack. Is the Florida and California market still about 40% of your business?

Probably in revenue 36 to 37, 38% something like that. That includes all product lines it's less than that for aggregates.

Okay. And I am sorry I can't find my notes. An update on the Lake Belt ruling, was that resolved and I know you said you were still shipping some product there, are you guys still doing that?

We're shipping, we're not mining, we are processing and shipping some material from our quarry in Miami. Nobody is mining any of the Lake Belt quarries at this point. The issue is on appeal to the United States court of appeals for the 11th circuit in Atlanta. I think it is scheduled for argument in October of this year. Also of relevance is the core of engineers permitting process which is probably not going to be concluded until sometime after the 11th circuit case is argued. Whether the core releases its new permit situation before or after the ruling by the 11th circuit is certainly unknown at this point. So, in summary, there has been no change in the last month or so in the status of the Lake Belt. But most producers had stock piles of either finished product or raw material on the ground at the time of the last injunction of mining. Those stock piles are being depleted, they're certainly not yet depleted, but at some point, there will be a resolution to this, I can't tell you when it will be. Certainly we are focused on moving material into Florida from Mexico and from our quarries in Georgia and Alabama by rail. In addition to looking forward to hopefully with some recovery in demand in Florida in the near term increasing our output from our Florida aggregate operations.

Okay. Do you have a guesstimate of when your stock piles could be depleted?

Every producer is in a little different situation. Some are probably very close to depletion, others have several months of supply on the ground, we're somewhere in the middle.

And the added complexity is that several of the producers also have modest quantities of reserves that are zoned and permitted pursuant to a different permitting regime that is not subject to the Lake Belt restrictions. Not large quantities but that's going to allow various producers Vulcan included to continue to mine at a modest levels for some period of time upon the exhaustion of the existing stock piles.

Right that's a good point. When I said all the producers in the Lake Belt were shutdown I meant all producers who operated pursuant to the Lake Belt permit. And as Dan correctly stated we have some reserves in Miami outside of that and of course our reserves over in Fort Meyers are in a different permit.

Okay. Great, thank you.

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

Hey guys most of my questions have been answered. One question though, when you're facing this price competition in certain Florida and Western markets, I mean how are you guys responding? What's sort of the arithmetic and the tax course bonds (ph) that you guys have decided to take?

Well our strategy Todd, is if we have to respond to price pressure in order to keep our customers competitive in the market, then we will do that. We are not believers in cutting price to chase volume or cutting price to go after other customers that don't make economic sense for us to be serving. So when we say, we try to exercise price discipline it is first and foremost to keep our customers competitive. But also to realize that particularly in Florida and California everybody has got very limited reserves and so to cut price, let’s say for the second half of '09 when we know that there's a lot of work coming, a lot of work is being bid, a lot of work has been bid and chewing up very limited reserves at low prices when we can sell those same reserves at higher prices in the next couple of three years just doesn't make a lot of sense from a long-term standpoint. So that's where we come from. And at the end of the day if we cut price, our competitors are going to cut price and by the time the sun sets, everybody's price has gone down and everybody's volume will go back to being the same percentage and so we're not into that except as we have to be to meet competition of which there is plenty.

Understood. Okay, thanks.

Your next question comes from line of Mike Betts with JPMorgan. Please proceed.

Yes, good morning.

Hi.

Hi.

Hi guys. I got two to three questions may be I could just start with the financial one to Dan. I think you said that the interest cost was expected to be 575 million this year that's kind of about double what it was in the first half. But obviously you've had the 520 million raise. Can you just explain what's happened there? Is it -- you've taken out more longer term debt or what's behind that please?

As we -- what we've done with the proceeds from the equity offering, Mike the 520 million went through reduced short term borrowing which was a combination to bank debt and commercial paper. All of that borrowing was costing us something in the neighborhood of 75 basis points to 80 basis points. So, that's really the magnitude of the interest reductions that we would see in the second half of the year. I haven't actually parsed the data first half versus second half. We kind of rolled the -- we rolled up to get to that 175 million by looking at the full year numbers and I will back into that and try to give you a better answer for the second half, but I think the real point is the while the equity offering did a lot to reduce the total debt, because the -- on the margin the debt that was retired through the equity offering was very, very inexpensive debt, you are not seeing a dramatic movement in the total interest expense

Okay. Understood. My second question sorry, another financial one. I am just trying to understand this tax situation a little bit better and I guess I mean two ways to look at it, but what I'm trying to find out is what sort of level of profitability you need to get back up to before you are likely to paying sort of a more normal tax rate again. I mean I guess I'm not totally understanding why it's dropped much between Q1 and Q2 in terms of the expectation. Is it always declining in operating profits, or is something else happened here?

There is lot of moving parts to tax equation, Mike but I'm going to focus on the one that is the most significant and influences these kind of strange movements the greatest. And that's the effect of statutory depletion which is a unique feature to the US tax code that applies to mining operations and it allows you to take a tax deduction based on a percentage of the revenues for activities that are tied to mining. So our aggregates operations generate a depletion deduction. Every time you sell rock in overly simplified terms, 5% of the average selling price of that rock subject to a few adjustments, generates a depletion deduction which then reduces the amount of tax liabilities. As our earnings have declined, our earnings in product lines that do not generate statutory depletion have declined more dramatically than have our aggregates earnings. Specifically, the earnings from our concrete operations, ready-mix concrete and our cement have dropped more than our aggregates earnings have dropped. So we're still generating a fairly hefty amount of statutory depletion that lowers your tax liability and lowers your effective tax rate. So that's really the working dynamic and so we're sitting here today with looking at a full year rate of 6.4% and embedded in that is over $20 million of deduction for statutory depletion. That's really what tend to influence our rate movements more than almost anything else and what will happen as we come out of this downturn as we generate more earnings from ready mix concrete and asphalt and cement, and I have to really qualify cement a little bit because you do get depletion on the input for your cement plans but its relatively small compared to our total. But as earnings recover in concrete for example, that will be packed essentially at a full rate without any depletion benefit. Thus when that happens, you will see our average effective tax rate for the company begin to rise again.

And Mike, one of the things that is happening here is of course under the accounting rules as I relate to taxes including FIN-48, every quarter we have to adjust our effective tax rate to get it to what the projected rate is for the full year, there is no smoothing there. I guess the accounting profession believes that helps shareholders and analyst understand our business better. But the reality is the second quarter and the third quarter of every year, tax rates are going to bounce around like ping pong balls unless there is absolutely no variability in earnings projections from the beginning of the year to the end of the year which is not reality in this market. So how do you go from a 38% tax rate in the second quarter to 6.4% in the third and fourth quarter is a product of modern accounting. It has nothing to do with the way taxes are actually obligated, I think to the government, but anyway.

Mike let me come back to your interest question. My quick calculations were our interest expense in the second half is projected to be down about a million dollars from what it was in the first half. If you do a quick calculation of the interest savings referable to the reduction in long-term debt, excuse me short-term debt by the equity offering that's under 2 million bucks, I'd say basically it's just within the, the areas of the estimates.

Okay that's fine. Just before we move off the tax can you give us any guidance on what we should assume for 2010 as the tax rate?

No. If you know, tell me. I mean that's going to be a by product of so many other inputs Mike it would be almost a steal (ph) to try to guess that until we've all the other product line projections firmed up.

We'll certainly give that to you after the fourth quarter but it will be wrong.

And then a final question if I could which is more sort of business related and it relates to Florida, we were at a presentation here in Europe last week with one of the central European companies. He was talking about aggregate projects in Florida, that it doubled after the first Lake Belt closure and then he was talking about and having dropped by a third. I mean are those kind of numbers that you recognize at all? They don't seem to tally with the sort of price declines that you're talking about. And then also in Florida, Don maybe you could talk a little bit about the 50% decline in cement. Is that because you've consciously given up some market share on pricing, I mean I only see the state wide numbers, but they didn't see be quite that bad but obviously you are in kind of any one location so maybe a little bit color on that if you could please?

Well on aggregate pricing I don't have access to the presentation that you saw or heard. But pricing in South Florida has been far more volatile than in the rest of the State. And we are relatively stronger outside of South East Florida than we're in South East Florida. So we are immunized to some extent from the wide swings in pricing for aggregates that you may have heard about in South Florida. We're stronger in the Jacksonville, Tampa, Orlando and the pan handle of Florida than we are certainly in South East Florida. Although, we are relatively strong in South West Florida as well. But that I think it’s Southern Florida where the impact of pricing has been significant and I think the flip side is hopefully, likely to happen is depending on how the Lake Belt comes out and once people start on a clear path of who has what reserves available over what time period and what projects are out there and when there is likely to be some stability in housing in Florida, there is likely to be a lot of price movement in Florida, significant volatility till the supply demand equation becomes clear than it is today.

Okay. That makes sense. And then just on cement Don?

Cement, our plan is up in North Florida, we are moving some cement out of State. North obviously; but the cement situation in Florida is that the capacity within the State in now sufficient or more than sufficient to meet the current level of demand which is extraordinarily weak. We aren't chasing volume with low price and cement anymore than we do it in aggregates. We are trying to be responsible and to be in a position when there is some recovery in demand, not have to make up large price erosion and it doesn't at the end of the day make a lot of sense to try to move cement huge distances so that you're basically not operating in any positive cash margin. So we look at that very carefully. But obviously the key to cement in Florida is going to be some recovery in demand in Florida.

Okay. Thank you.

Also the Energy bill is likely to accelerate the closure of old cement plants not only in Florida but elsewhere as it already has in Europe as you know, because cement plants do have CO2 emissions both from fuel and from driving CO2 out of those limestone in the cement making process so there I think we will see accelerated obsolescence of older cement plants throughout the US including some in Florida.

Okay that's great. Thank you for your answers.

Your next question comes from the line of Clyde Lewis with Citigroup. Please proceed.

Thank you. Morning Don, morning Dan.

Good morning.

Two questions if I may. One on industry capacity and aggregates, it’s pretty a particular quarry is being closed before the rock runs out. But I mean what's your best feeling for the amount of sort of labor that's been taken out on a sort of effectively taking out capacity from the quarries of your competitors. Have you got any feeling for what's going on in our major markets on that front?

I don't think there have been any permanent closures of aggregate facilities that are significant producers that I am aware off. They have been a number of in fact everybody and this is one of the attributes of aggregates industry is that everybody just reduces operating hours and reduces production in order to meet sort of existing levels of demand and that's done largely through operating hours as opposed to closing facilities. The reason for that of course is transportation cost are a huge component of the delivered cost of aggregates to a job site. So unlike other industry where transportation cost is not a big such a large piece of the delivered cost, it doesn't make sense to close a large number of production facilities in order to ramp up a production capacity of those remaining. We're very different in that regard for example, from an automobile plant. So I think what you see the pattern in aggregates industry is most plans continue to operate but at a reduced number of hours per week or month. Reserves are sufficiently limited and our urban markets, nobody is going to walk away and permanently close plants that have remaining available reserves in our view. So, we don't see a reduction in the number of queries because you just can't replace them. If you've got permitted reserves in a metro area in the U.S. you certainly can't replace them and so you are not going to walk away from them either and we certainly haven’t seen that.

Okay. Thank you. Good going back on Mike's question on tax. I must have been, I was busy scratching my head turning on work out?

You're going to blow up, yeah

I mean --maybe in other way I could ask last question, is there thanks to the current prices? Is there a volume point of sort of aggregate operations whereby you would be back to a normal tax rate, is that a good way to think about it?

Yes. I think the way to think about it is, as we see recovery in volumes for asphalt and concrete, particularly concrete because our earnings in asphalt are still pretty good on low volumes, but we get -- if we get recovery in asphalt volumes, recovery in Cement volumes, in particular our tax rate will move up and as we recover in aggregate volumes, our tax rate will move up as well. So, there's a tremendous -- if you want to understand the second quarter, it is volume, volume and volume. And it has to do with both taxes as well as earnings from operations.

Okay thank you. And then the last one I had was on some of the safety lid (ph) replacement plans. I mean appreciate still early days in this draft and probably not may come through for another 18 months. But can you say a little bit about what the discussions on how to fund sort of the increases that you have mentioned and also whether the next 18 months is likely to be a smooth pattern of funding coming through or again is that likely to be maybe a little bit lumpier?

Well if the Senate environmental and public orders committee and the administration move forward with their 18 month extension proposal, we don't think it will be lumpy at all. The Senator Boxer who has Chaired that committee and Senator Emhoff (ph) who is the ranking republican on the committee, both are very committed to stability and predictability and funding for the federal highway program. We have been specifically asked the question, do you prefer a series of short term extensions or a longer term extension and our answer and I think the industry's answer including the state DOTs is, if we have to have an extension make it a longer one, rather than a series of shorter ones so we don't have the stop-start issue with the state DOTs and there is good visibility at least 18 months as to the ability of the States to get reimbursed for the projects that they are constructing. Now with respect to funding, there is certainly no appetite anywhere in the administration of the Senate for increasing fuel taxes in the current economy. I think it's important to note that the 9 billion that was put into the highway trust fund to shore it up for FY08 and the 7 billion that has caught just in the last week to shore up the highway trust fund for fiscal year '09 are both transfers from the general fund. To get to the 450 billion or 500 billion that the house has proposed, it will probably take a combination of special general fund appropriations to fund the high speed rail piece of that, which would be based on what the administration has said something that they would be prepared to do, to get the 450 billion level of sort of normalized projects. Obviously, it will take either substantial additional general fund sources or an increase in the fuel tax or more likely some combination of the above. I think it's instructive that both the US Chamber of Commerce and the US Trucking Association is saying now probably for the first time, we will pay our fuel taxes if you will commit on to congestion relief in urban areas because that is costing us tremendous amounts of money with the congestion, of trying to get trucks through metropolitan areas on the existing interstate systems. So there is a lot of moving parts here. Unfortunately, our current view is that there will likely be extension, but as I said in my prepared remark, it will take $41 billion annual extension and overlay $27 -- 28 billion of Stimulus money over the next three years or so and on top of that we will have the most robust federal highway spending program that we've ever seen. And so that gives us a lot optimism for on the either scenario for certainly the next few years on the federal highway program in US.

Okay. Thanks and I'll stop.

Your next question comes from the line of Brent Thielman with DA Davidson. Please proceed.

Hi good morning.

Good morning, Brent.

Just thinking about your guidance for the second half, you still expect to see this normal seasonality of I guess sort of the heavier weighted Q3 versus Q4. Could you guys see a situation where we start to see more of a sequential ramp in volumes in Q4 in some of those estimates that you've had to work around some?

Well, the reason for that is weather and if we have a -- I think if we can assume there is going to be anything different about the weather patterns what is could will be different is that the construction award -- I mean the highway construction awards that came out in May and June and those that we'll proceed with heavy bid lettings in July and August. If we have decent weather in the fourth quarter and there's a lot of work on the table for our customers, we can certainly see a disproportionately high number of shipments in the fourth quarter, from that timing of that Stimulus work, but, it always takes good weather in order to do much past October in highway construction. We are in on average climates than many others companies in our industry. So, from that standpoint, in Texas, Florida, California, Arizona and even in like Georgia and Alabama, we could see a longer construction season, if it’s based on temperature but, then we also start getting rainfall in the fourth quarter and it takes it longer to dry out. So, there is a chance that we could see higher than normal distribution of aggregate demand in the fourth quarter, but in order to predict that you got to know what the weather is going to be and stay keen.

Sure. Understood. And then secondarily, I guess you know you guys are obviously taking down debt levels. Are you opening up more to acquisitions at this stage?

Well. We strategically we want to be in a position to opportunistically make bolt-on acquisitions, if they make strategic sense for the long term and financial sense for both the short term and the long term. So that was one of the things that we wanted to do with our equity offering, was to give us more financial flexibility but that will be more on an opportunistic basis than on any kind of desire to go out and genre (ph) up an aggressive acquisition at this point.

Okay, sure and then I guess second to that, are you seeing any more sellers out there just given the severity of the environment.

Well there are some and they are probably been a number of things put on the market that haven't sold because the buyers expectations and the sellers desires haven't lined up. But there is a fair amount available. I think but again they aren't too many desperate sellers and so we’ll continue to look at things that make sense for us and if we can make a deal at a reasonable number for a strategically important bolt-on acquisition, we will certainly continue to look at those, we're not out of the market.

Okay thanks guys.

That concludes the Q&A portion I would now like to turn the call back over to Don James for any closing remarks.

Thank you very much for joining us. We are looking forward to the second half of 2009 and we're really looking forward to 2010, 2011. We hope to be able to achieve our expectation of some of our earnings in second half of 2009 compared to 2008. We believe the Stimulus money is going to be significant we also recognize that private non-res construction is going to be much weaker going forward than it has been in the past. But the combination of how we have positioned our businesses, how we have managed our cost structure and the opportunity for getting into the sweet spot of our demand sectors that is publicly funded highways and infrastructure give us some optimism. So we hope that pans out in the near term as well as the long term, but we look forward to reporting to you at the end of the third quarter. Thank you very much.

Thank you of our participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.