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Vulcan Materials CO - Quarter Report: 2023 September (Form 10-Q)

vmc-20230930x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended September 30, 2023


OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from                 to


Commission File Number 001-33841


VULCAN MATERIALS COMPANY
(Exact name of registrant as specified in its charter)


 New Jersey 
(State or other jurisdiction of incorporation)


20-8579133
(I.R.S. Employer Identification No.)


1200 Urban Center Drive, Birmingham, Alabama
(Address of principal executive offices)  


35242
(zip code)


(205) 298-3000
(Registrant's telephone number including area code)


Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class


Trading Symbol

Name of each exchange on
which registered

 Common Stock, $1 par value 

VMC

 New York Stock Exchange 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ


Accelerated filer o


Smaller reporting company o


Non-accelerated filer o


Emerging growth company o


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:


                    Class                    

Shares outstanding
      at October 17, 2023      

Common Stock, $1 Par Value

132,873,387

 


VULCAN MATERIALS COMPANY

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2023

Contents

Page

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Cash Flows

Notes to Condensed Consolidated Financial Statements

 2

 3

 4

 5

Item 2.

Management’s Discussion and Analysis of Financial

   Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4.

Controls and Procedures

49

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

50

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 4.

Mine Safety Disclosures

50

Item 5.

Other Information

50

Item 6.

Exhibits

51

Signatures

52

Unless otherwise stated or the context otherwise requires, references in this report to “Vulcan,” the “Company,” “we,” “our,” or “us” refer to Vulcan Materials Company and its consolidated subsidiaries.

 

 


1


part I financial information

  ITEM 1

FINANCIAL STATEMENTS

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

September 30

December 31

September 30

in millions

2023

2022

2022

Assets

Cash and cash equivalents

$         340.0 

$         161.4 

$         122.4 

Restricted cash

5.0 

0.1 

24.5 

Accounts and notes receivable

Accounts and notes receivable, gross

1,199.2 

1,056.2 

1,223.6 

Allowance for credit losses

(14.7)

(10.9)

(11.0)

Accounts and notes receivable, net

1,184.5 

1,045.3 

1,212.6 

Inventories

Finished products

448.1 

439.3 

403.3 

Raw materials

50.5 

63.4 

64.9 

Products in process

8.6 

6.0 

5.6 

Operating supplies and other

63.4 

70.6 

68.2 

Inventories

570.6 

579.3 

542.0 

Other current assets

106.0 

115.9 

140.8 

Assets held for sale

495.1 

0.0 

291.1 

Total current assets

2,701.2 

1,902.0 

2,333.4 

Investments and long-term receivables

31.2 

31.8 

33.1 

Property, plant & equipment

Property, plant & equipment, cost

11,610.4 

11,306.4 

11,133.6 

Allowances for depreciation, depletion & amortization

(5,498.4)

(5,255.1)

(5,148.3)

Property, plant & equipment, net

6,112.0 

6,051.3 

5,985.3 

Operating lease right-of-use assets, net

521.5 

572.6 

574.2 

Goodwill

3,531.7 

3,689.6 

3,704.5 

Other intangible assets, net

1,471.8 

1,702.1 

1,708.3 

Other noncurrent assets

251.1 

285.2 

277.0 

Total assets

$    14,620.5 

$    14,234.6 

$    14,615.8 

Liabilities

Current maturities of long-term debt

0.5 

0.5 

0.5 

Short-term debt

0.0 

100.0 

312.0 

Trade payables and accruals

412.8 

454.5 

484.2 

Other current liabilities

440.8 

401.6 

454.7 

Liabilities held for sale

10.1 

0.0 

111.1 

Total current liabilities

864.2 

956.6 

1,362.5 

Long-term debt

3,874.3 

3,875.2 

3,874.2 

Deferred income taxes, net

1,068.3 

1,072.8 

1,073.0 

Deferred revenue

147.4 

159.8 

161.7 

Noncurrent operating lease liabilities

516.0 

548.4 

549.8 

Other noncurrent liabilities

685.1 

669.6 

715.7 

Total liabilities

$      7,155.3 

$      7,282.4 

$      7,736.9 

Other commitments and contingencies (Note 8)

 

 

 

Equity

Common stock, $1 par value, Authorized 480.0 shares,

Outstanding 132.9, 132.9 and 132.9 shares, respectively

132.9 

132.9 

132.9 

Capital in excess of par value

2,862.4 

2,839.0 

2,826.9 

Retained earnings

4,595.0 

4,111.4 

4,045.3 

Accumulated other comprehensive loss

(149.7)

(154.7)

(149.4)

Total shareholders' equity

7,440.6 

6,928.6 

6,855.7 

Noncontrolling interest

24.6 

23.6 

23.2 

Total equity

$      7,465.2 

$      6,952.2 

$      6,878.9 

Total liabilities and equity

$    14,620.5 

$    14,234.6 

$    14,615.8 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.


2


VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME

Three Months Ended

Nine Months Ended

Unaudited

September 30

September 30

in millions, except per share data

2023

2022

2023

2022

Total revenues

$      2,185.8 

$      2,088.3 

$      5,947.6 

$      5,583.3 

Cost of revenues

(1,594.8)

(1,595.4)

(4,471.3)

(4,375.5)

Gross profit

591.0 

492.9 

1,476.3 

1,207.8 

Selling, administrative and general expenses

(143.9)

(135.3)

(400.4)

(388.7)

Gain on sale of property, plant & equipment

and businesses

4.3 

23.8 

22.8 

28.4 

Loss on impairments

(28.3)

(67.8)

(28.3)

(67.8)

Other operating expense, net

(4.2)

(8.2)

(13.1)

(19.8)

Operating earnings

418.9 

305.4 

1,057.3 

759.9 

Other nonoperating income (expense), net

(6.4)

1.3 

(5.3)

(1.7)

Interest expense, net

(46.6)

(46.1)

(142.2)

(120.8)

Earnings from continuing operations

before income taxes

365.9 

260.6 

909.8 

637.4 

Income tax expense

(85.8)

(82.3)

(194.4)

(164.6)

Earnings from continuing operations

280.1 

178.3 

715.4 

472.8 

Loss on discontinued operations, net of tax

(2.8)

(1.2)

(8.6)

(16.1)

Net earnings

277.3 

177.1 

706.8 

456.7 

Earnings attributable to noncontrolling interest

(0.8)

0.0 

(1.0)

(0.5)

Net earnings attributable to Vulcan

$         276.5 

$         177.1 

$         705.8 

$         456.2 

Other comprehensive income, net of tax

Amortization of prior cash flow hedge loss

0.4 

0.4 

1.2 

1.1 

Amortization of actuarial loss and prior service

cost for benefit plans

1.3 

0.7 

3.8 

2.2 

Other comprehensive income

1.7 

1.1 

5.0 

3.3 

Comprehensive income

279.0 

178.2 

711.8 

460.0 

Comprehensive earnings attributable to

noncontrolling interest

(0.8)

0.0 

(1.0)

(0.5)

Comprehensive income attributable to Vulcan

$         278.2 

$         178.2 

$         710.8 

$         459.5 

Basic earnings (loss) per share attributable to Vulcan

Continuing operations

$           2.10 

$           1.34 

$           5.37 

$           3.55 

Discontinued operations

(0.02)

(0.01)

(0.07)

(0.12)

Net earnings

$           2.08 

$           1.33 

$           5.30 

$           3.43 

Diluted earnings (loss) per share attributable to Vulcan

Continuing operations

$           2.09 

$           1.33 

$           5.34 

$           3.54 

Discontinued operations

(0.02)

0.00 

(0.06)

(0.12)

Net earnings

$           2.07 

$           1.33 

$           5.28 

$           3.42 

Weighted-average common shares outstanding

Basic

133.0 

133.0 

133.1 

133.0 

Assuming dilution

133.7 

133.6 

133.7 

133.6 

Effective tax rate from continuing operations

23.4%

31.6%

21.4%

25.8%

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.


3


VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Unaudited

September 30

in millions

2023

2022

Operating Activities

Net earnings

$         706.8 

$         456.7 

Adjustments to reconcile net earnings to net cash provided by operating activities

Depreciation, depletion, accretion and amortization

464.4 

435.0 

Loss on impairments

28.3 

67.8 

Noncash operating lease expense

40.7 

46.6 

Net gain on sale of property, plant & equipment and businesses

(22.8)

(28.4)

Contributions to pension plans

(5.6)

(5.8)

Share-based compensation expense

43.5 

27.9 

Deferred tax provision (benefit)

(6.0)

35.4 

Changes in assets and liabilities before initial

effects of business acquisitions and dispositions

(206.0)

(295.5)

Other, net

11.9 

8.6 

Net cash provided by operating activities

$      1,055.2 

$         748.3 

Investing Activities

Purchases of property, plant & equipment

(666.3)

(450.4)

Proceeds from sale of property, plant & equipment

26.2 

37.8 

Proceeds from sale of businesses

130.0 

0.0 

Payment for businesses acquired, net of acquired cash and adjustments

0.9 

(528.0)

Other, net

0.0 

(0.1)

Net cash used for investing activities

$      (509.2)

$      (940.7)

Financing Activities

Proceeds from short-term debt

166.1 

1,288.2 

Payment of short-term debt

(266.1)

(976.2)

Payment of current maturities and long-term debt

(550.5)

(557.6)

Proceeds from issuance of long-term debt

550.0 

550.0 

Debt issuance and exchange costs

(3.4)

(2.9)

Payment of finance leases

(17.2)

(27.0)

Purchases of common stock

(49.9)

0.0 

Dividends paid

(171.6)

(159.5)

Share-based compensation, shares withheld for taxes

(19.9)

(17.4)

Other, net

0.0 

0.2 

Net cash provided by (used for) financing activities

$      (362.5)

$           97.8 

Net increase (decrease) in cash and cash equivalents and restricted cash

183.5 

(94.6)

Cash and cash equivalents and restricted cash at beginning of year

161.5 

241.5 

Cash and cash equivalents and restricted cash at end of period

$         345.0 

$         146.9 

The accompanying Notes to the Condensed Consolidated Financial Statements are an integral part of the statements.

4


notes to condensed consolidated financial statements

Note 1: summary of significant accounting policies

NATURE OF OPERATIONS

Vulcan Materials Company (the “Company,” “Vulcan,” “we,” “our”), a New Jersey corporation, is the nation’s largest supplier of construction aggregates (primarily crushed stone, sand and gravel), a major producer of asphalt mix and ready-mixed concrete, and a supplier of construction paving services.

We operate primarily in the United States, and our principal product — aggregates — is used in virtually all types of public and private construction projects and in the production of asphalt mix and ready-mixed concrete. We serve aggregates markets in twenty-two states, the U.S. Virgin Islands, Washington D.C., and the local markets surrounding our operations in Freeport, Bahamas; British Columbia, Canada; Puerto Cortés, Honduras; and Quintana Roo, Mexico (see Note 8, NAFTA Arbitration). Our primary focus is serving metropolitan markets in the United States that are expected to experience the most significant growth in population, households and employment. These three demographic factors are significant drivers of demand for aggregates. While aggregates are our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our Alabama, Arizona, California, Maryland, New Mexico, Oklahoma, Tennessee, Texas, Virginia, U.S. Virgin Islands and Washington D.C. markets.

BASIS OF PRESENTATION

Our accompanying unaudited condensed consolidated financial statements were prepared in compliance with the instructions to Form 10-Q and Article 10 of Regulation S-X and thus do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. We prepared the accompanying condensed consolidated financial statements on the same basis as our annual financial statements, except for the adoption of new accounting standards, if any, as described in Note 17. Our Condensed Consolidated Balance Sheet as of December 31, 2022 was derived from the audited financial statement, but it does not include all disclosures required by GAAP. In the opinion of our management, the statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the results of the reported interim periods. For further information, refer to the consolidated financial statements and footnotes included in our most recent Annual Report on Form 10-K.

Operating results for the three and nine month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. Construction activity continues to be impacted by cost inflation and capacity constraints (including supply chain bottlenecks, labor shortages and transportation availability).

Our condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates and assumptions included in the preparation of these financial statements are related to goodwill and long-lived asset impairments, business combinations and purchase price allocation, pension and other postretirement benefits, environmental compliance, claims and litigation including self-insurance, and income taxes. Events that relate to conditions arising after September 30, 2023 will be reflected in management’s estimates for future periods.

NONCONTROLLING INTEREST

In connection with our acquisition of U.S. Concrete in 2021, we obtained an 88% controlling interest in the Orca Sand and Gravel Limited Partnership (Orca) which was formed to develop the Orca quarry in British Columbia, Canada. The remaining 12% noncontrolling interest is held by the Namgis First Nation (Namgis). This noncontrolling interest consists of the Namgis’ share of the fair value equity in the partnership. Our condensed consolidated financial statements recognize the full fair value of all of the subsidiary’s assets and liabilities offset by the noncontrolling interest in total equity.

5


RESTRICTED CASH

Restricted cash primarily consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements. The escrow accounts are administered by an intermediary. Cash restricted pursuant to like-kind exchange agreements remains restricted for a maximum of 180 days from the date of the property sale pending the acquisition of replacement property. Restricted cash may also include cash reserved by other contractual agreements (such as asset purchase agreements) for a specified purpose and therefore is not available for use for other purposes. Restricted cash is included with cash and cash equivalents in the accompanying Condensed Consolidated Statements of Cash Flows.

DISCONTINUED OPERATIONS

In 2005, we sold substantially all the assets of our Chemicals business to Basic Chemicals, a subsidiary of Occidental Chemical Corporation. The financial results of the Chemicals business are classified as discontinued operations in the accompanying Condensed Consolidated Statements of Comprehensive Income for all periods presented. Results from discontinued operations are as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Discontinued Operations

Pretax loss

$        (3.8)

$        (1.6)

$      (11.7)

$      (21.7)

Income tax benefit

1.0 

0.4 

3.1 

5.6 

Loss on discontinued operations,

net of tax

$        (2.8)

$        (1.2)

$        (8.6)

$      (16.1)

Our discontinued operations include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business (including certain matters as discussed in Note 8). There were no revenues from discontinued operations for the periods presented.

EARNINGS PER SHARE (EPS)

Earnings per share are computed by dividing net earnings by the weighted-average common shares outstanding (basic EPS) or weighted-average common shares outstanding assuming dilution (diluted EPS), as set forth below:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Weighted-average common shares

outstanding

133.0 

133.0 

133.1 

133.0 

Dilutive effect of

Stock-Only Stock Appreciation Rights

0.2 

0.2 

0.2 

0.2 

Other stock compensation awards

0.5 

0.4 

0.4 

0.4 

Weighted-average common shares

outstanding, assuming dilution

133.7 

133.6 

133.7 

133.6 

All dilutive common stock equivalents are reflected in our earnings per share calculations. In periods of loss, shares that otherwise would have been included in our diluted weighted-average common shares outstanding computation would be excluded.

6


Antidilutive common stock equivalents are not included in our earnings per share calculations. The number of antidilutive common stock equivalents for which the exercise price exceeds the weighted-average market price is as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Antidilutive common stock equivalents

0.0 

0.1 

0.1 

0.1 

 

 

 

Note 2: Leases

Our portfolio of nonmineral leases is composed of leases for real estate (including office buildings, aggregates sales yards and terminals, and concrete and asphalt sites) and equipment (including railcars and rail track, barges, and office, plant and mobile equipment). Additionally, we entered into an agreement to lease a terminal in California. We expect to have all permits in place associated with all lease commencement options by early 2024.

Lease right-of-use (ROU) assets and liabilities and the weighted-average lease terms and discount rates are as follows:

September 30

December 31

September 30

dollars in millions

Classification on the Balance Sheet

2023

2022

2022

Assets 1

Operating lease ROU assets

$        644.8 

$        665.4 

$        778.8 

Accumulated amortization

(113.4)

(92.8)

(89.6)

Operating leases, net

Operating lease right-of-use assets, net

531.4 

572.6 

689.2 

Finance lease ROU assets

85.8 

93.2 

111.2 

Accumulated depreciation

(22.1)

(14.9)

(12.6)

Finance leases, net

Property, plant & equipment, net

63.7 

78.3 

98.6 

Total lease assets

$        595.1 

$        650.9 

$        787.8 

Liabilities 1

Current

Operating

Other current liabilities

$          48.2 

$          48.1 

$          51.9 

Finance

Other current liabilities

18.4 

22.3 

27.7 

Noncurrent

Operating

Noncurrent operating lease liabilities

525.4 

548.4 

643.3 

Finance

Other noncurrent liabilities

22.7 

34.8 

45.9 

Total lease liabilities

$        614.7 

$        653.6 

$        768.8 

Lease Term and Discount Rate

Weighted-average remaining lease term (years)

Operating leases

19.4 

19.7 

20.1 

Finance leases

2.5 

3.0 

3.1 

Weighted-average discount rate

Operating leases

4.3%

3.9%

3.7%

Finance leases

2.0%

1.8%

1.6%

 

1

Balances at September 30, 2023 and September 30, 2022 include lease assets and liabilities classified as held for sale as detailed in Note 16. 

The decreases from September 30, 2022 in total lease assets and liabilities presented above primarily relate to the 2022 sale of concrete operations in New Jersey, New York and Pennsylvania (see Note 16 for additional information). Our lease agreements do not contain material residual value guarantees, restrictive covenants or early termination options.

7


The components of lease expense are as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Lease Cost

Finance lease cost

Depreciation of right-of-use assets

$            3.3 

$            4.2 

$          10.1 

$          12.9 

Interest on lease liabilities

0.2 

0.2 

0.7 

0.9 

Operating lease cost

19.1 

21.7 

58.3 

65.6 

Short-term lease cost 1

14.8 

12.3 

38.5 

32.8 

Variable lease cost

4.9 

4.7 

15.0 

8.9 

Sublease income

(0.8)

(0.6)

(2.7)

(2.2)

Total lease cost

$          41.5 

$          42.5 

$        119.9 

$        118.9 

1

Our short-term lease cost includes the cost of leases with an initial term of one year or less (including those with terms of one month or less). 

Cash paid for operating leases was $55.0 million and $60.0 million for the nine months ended September 30, 2023 and 2022, respectively. Cash paid for finance leases (principal and interest) was $17.9 million and $28.0 million for the nine months ended September 30, 2023 and 2022, respectively.

  

 

Note 3: Income Taxes

Our estimated annual effective tax rate (EAETR) is based on full-year expectations of pretax earnings, statutory tax rates and permanent differences between book and tax accounting such as percentage depletion. For interim financial reporting, we calculate our quarterly income tax provision in accordance with the EAETR. Each quarter, we update our EAETR based on our revised full-year expectation of pretax earnings and calculate the income tax provision so that the year-to-date income tax provision reflects the EAETR. Significant judgment is required in determining our EAETR.

In the third quarter of 2023, we recorded income tax expense from continuing operations of $85.8 million compared to $82.3 million in the third quarter of 2022. The increase in tax expense was due to higher pretax earnings partially offset by a tax benefit related to a reserve recorded on the assets held for sale in the third quarter of 2023 (see Note 16) and a smaller valuation allowance recorded on Mexico losses when compared to the third quarter of 2022.

For the first nine months of 2023, we recorded income tax expense from continuing operations of $194.4 million compared to $164.6 million for the first nine months of 2022. The increase in tax expense was due to higher pretax earnings partially offset by tax benefits from a prior year business disposition recorded in the first quarter of 2023 and the reserve recorded on the assets held for sale as noted above.

In August 2022, the Inflation Reduction Act (IRA) was signed into law. The IRA introduces a corporate alternative minimum tax (CAMT) of 15% applicable to corporations with adjusted financial statement income in excess of $1 billion, as well as certain climate-related tax provisions. The CAMT provision is effective for tax years beginning on or after January 1, 2023. We do not anticipate being subject to CAMT in 2023.

We recognize deferred tax assets and liabilities (which reflect our best assessment of the future taxes we will pay) based on the differences between the book basis and tax basis of assets and liabilities. Deferred tax assets represent items to be used as a tax deduction or credit in future tax returns while deferred tax liabilities represent items that will result in additional tax in future tax returns. A summary of our deferred tax assets and liabilities is included in Note 9 “Income Taxes” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Each quarter, we analyze the likelihood that our deferred tax assets will be realized. Realization of the deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period. A valuation allowance is recorded if, based on the weight of all available positive and negative evidence, it is more likely than not (a likelihood of more than 50%) that some portion, or all, of a deferred tax asset will not be realized.

8


As discussed in Note 8, in May 2022, Mexican government officials unexpectedly and arbitrarily shut down our Calica operations in Mexico. As a result, in 2022, Calica generated a net operating loss (NOL) deferred tax asset of $14.5 million. Based on the weight of all available positive and negative evidence, we concluded that it is more likely than not that Calica will be unable to realize the NOL deferred tax asset during the ten-year carryforward period resulting in a valuation allowance of $14.5 million in 2022 ($9.6 million of which was recorded as of September 30, 2022). In 2023, we project a $16.6 million increase in deferred tax assets against which a valuation allowance was recorded as a component of the EAETR in the first nine months of 2023. Should the Mexican government lift the shutdown and/or if we are successful in our North American Free Trade Agreement (NAFTA) claim, we will reevaluate the need for a valuation allowance against the deferred tax assets.

We project Alabama NOL carryforward deferred tax assets at December 31, 2023 of $74.7 million, against which we have a valuation allowance of $54.3 million as of September 30, 2023. Almost all of the Alabama NOL carryforward would expire between 2023 and 2029 if not utilized.

We recognize a tax benefit associated with a tax position when we judge it is more likely than not that the position will be sustained based upon the technical merits of the position. For a tax position that meets the more likely than not recognition threshold, we measure the income tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized. A liability is established for the unrecognized portion of any tax position. Our liability for unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new legislation. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is appropriate.

 

 

9


Note 4: revenueS

Revenues are measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales taxes and other taxes we collect are recorded as liabilities until remitted and thus are excluded from revenues. Costs to obtain and fulfill contracts (primarily asphalt construction paving contracts) are immaterial and are expensed as incurred when the expected amortization period is one year or less.

Our segment total revenues by geographic market for the three and nine month periods ended September 30, 2023 and 2022 are disaggregated as follows (the decrease in East market concrete revenues is primarily attributable to the sale of concrete operations in New Jersey, New York and Pennsylvania in November 2022; see Note 16 for additional information):

Three Months Ended September 30, 2023

in millions

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$       464.8 

$         64.5 

$         95.4 

$           0.0 

$       624.7 

Gulf Coast

898.1 

71.4 

168.7 

2.3 

1,140.5 

West

263.2 

211.3 

100.5 

0.0 

575.0 

Segment sales

$    1,626.1 

$       347.2 

$       364.6 

$           2.3 

$    2,340.2 

Intersegment sales

(154.4)

0.0 

0.0 

0.0 

(154.4)

Total revenues

$    1,471.7 

$       347.2 

$       364.6 

$           2.3 

$    2,185.8 

Three Months Ended September 30, 2022

in millions

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$       455.0 

$         61.4 

$       206.9 

$           0.0 

$       723.3 

Gulf Coast

801.8 

64.1 

146.7 

2.1 

1,014.7 

West

233.7 

184.7 

96.9 

0.0 

515.3 

Segment sales

$    1,490.5 

$       310.2 

$       450.5 

$           2.1 

$    2,253.3 

Intersegment sales

(165.0)

0.0 

0.0 

0.0 

(165.0)

Total revenues

$    1,325.5 

$       310.2 

$       450.5 

$           2.1 

$    2,088.3 

Nine Months Ended September 30, 2023

in millions

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$    1,259.7 

$       147.1 

$       278.7 

$           0.0 

$    1,685.5 

Gulf Coast

2,561.7 

182.0 

457.6 

7.0 

3,208.3 

West

677.5 

525.2 

257.0 

0.0 

1,459.7 

Segment sales

$    4,498.9 

$       854.3 

$       993.3 

$           7.0 

$    6,353.5 

Intersegment sales

(405.9)

0.0 

0.0 

0.0 

(405.9)

Total revenues

$    4,093.0 

$       854.3 

$       993.3 

$           7.0 

$    5,947.6 

Nine Months Ended September 30, 2022

in millions

Aggregates

Asphalt

Concrete

Calcium

Total

Total Revenues by Geographic Market 1

East

$    1,137.5 

$       132.0 

$       544.4 

$           0.0 

$    1,813.9 

Gulf Coast

2,247.3 

166.7 

427.8 

5.4 

2,847.2 

West

628.7 

453.4 

261.2 

0.0 

1,343.3 

Segment sales

$    4,013.5 

$       752.1 

$    1,233.4 

$           5.4 

$    6,004.4 

Intersegment sales

(421.1)

0.0 

0.0 

0.0 

(421.1)

Total revenues

$    3,592.4 

$       752.1 

$    1,233.4 

$           5.4 

$    5,583.3 

1

The geographic markets are defined by states/countries as follows:

East market - Arkansas, Delaware, Illinois, Kentucky, Maryland, New Jersey, New York, North Carolina, Pennsylvania,
Tennessee, Virginia and Washington D.C.

Gulf Coast market - Alabama, Florida, Georgia, Louisiana, Mississippi, Oklahoma, South Carolina, Texas, U.S. Virgin
Islands, Freeport (Bahamas), Puerto Cortés (Honduras) and Quintana Roo (Mexico)

West market - Arizona, California, Hawaii, New Mexico and British Columbia (Canada)

10


Total revenues are primarily derived from our product sales of aggregates (crushed stone, sand and gravel, sand and other aggregates), asphalt mix and ready-mixed concrete, and include freight & delivery costs that we pass along to our customers to deliver these products. We also generate service revenues from our asphalt construction paving business and service revenues related to our aggregates business, such as landfill tipping fees. Our total service revenues were $76.7 million (3.5% of total revenues) and $71.1 million (3.4% of total revenues) for the three months ended September 30, 2023 and 2022, respectively, and $181.5 million (3.1% of total revenues) and $178.0 million (3.2% of total revenues) for the nine months ended September 30, 2023 and 2022, respectively.

Our products typically are sold to private industry and not directly to governmental entities. Although approximately 40% to 55% of our aggregates shipments have historically been used in publicly funded construction (such as highways, airports and government buildings), relatively insignificant sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly funded construction, the vast majority of our aggregates business is not directly subject to renegotiation of profits or termination of contracts with state or federal governments.

PRODUCT REVENUES

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally, this occurs at a point in time when our aggregates, asphalt mix and ready-mixed concrete are shipped/delivered and control passes to the customer. Revenue for our products is recorded at the fixed invoice amount, and payment is due by the 15th day of the following monthwe do not offer discounts for early payment.

Freight & delivery generally represents pass-through transportation costs we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers and are accounted for as a fulfillment activity. Likewise, the costs related to freight & delivery are included in cost of revenues.

Freight & delivery revenues are as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Freight & Delivery Revenues

Total revenues

$    2,185.8 

$    2,088.3 

$    5,947.6 

$    5,583.3 

Freight & delivery revenues 1

(276.5)

(261.8)

(766.9)

(727.4)

Total revenues excluding freight & delivery

$    1,909.3 

$    1,826.5 

$    5,180.7 

$    4,855.9 

1

Includes freight & delivery to remote distribution sites.

CONSTRUCTION PAVING SERVICE REVENUES

Revenue from our asphalt construction paving business is recognized over time using the percentage-of-completion method under the cost approach. The percentage of completion is determined by costs incurred to date as a percentage of total costs estimated for the project. Under this approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Future revenues from unsatisfied performance obligations (including contracts with an expected duration of 1 year or less) at September 30, 2023 and 2022 were $116.3 million and $143.2 million, respectively. The remaining period to complete the obligations at September 30, 2023 ranged from 1 month to 47 months.

Our construction contracts are unit priced, and an account receivable is recorded for amounts invoiced based on actual units produced. Contract assets for estimated earnings in excess of billings, contract assets related to retainage provisions and contract liabilities for billings in excess of costs are immaterial. Variable consideration in our construction paving contracts is immaterial and consists of incentives and penalties based on the quality of work performed. Our construction paving contracts may contain warranty provisions covering defects in equipment, materials, design or workmanship that generally run from nine months to one year after project completion. Due to the nature of our construction paving projects, including contract owner inspections of the work during construction and prior to acceptance, we have not experienced material warranty costs for these short-term warranties.

11


VOLUMETRIC PRODUCTION PAYMENT DEFERRED REVENUES

In 2013 and 2012, we sold a percentage interest in certain future aggregates production for net cash proceeds of $226.9 million. These transactions, structured as volumetric production payments (VPPs):

relate to eight quarries in Georgia and South Carolina

provide the purchaser solely with a nonoperating percentage interest in the subject quarries’ future aggregates production

contain no minimum annual or cumulative guarantees by us for production or sales volume, nor minimum sales price

are both volume and time limited (we expect the transactions will last approximately 20 years, limited by volume rather than time)

We are the exclusive sales agent for, and transmit quarterly to the purchaser the proceeds from the sale of, the purchaser’s share of aggregates production. Our consolidated total revenues exclude the revenue from the sale of the purchaser’s share of aggregates.

The proceeds we received from the sale of the percentage interest were recorded as deferred revenue on the balance sheet. We recognize revenue on a unit-of-sales basis (as we sell the purchaser’s share of production) relative to the volume limitations of the transactions. Given the nature of the risks and potential rewards assumed by the buyer, the transactions do not reflect financing activities.

Changes in the VPP deferred revenue balances (current and noncurrent) are as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Deferred Revenue

Balance at beginning of period

$       157.4 

$       165.9 

$       161.8 

$       170.1 

Revenue recognized from deferred revenue

(2.5)

(2.2)

(6.9)

(6.4)

Balance at end of period

$       154.9 

$       163.7 

$       154.9 

$       163.7 

Based on expected sales from the specified quarries, we expect to recognize $7.5 million of VPP deferred revenue as income during the twelve-month period ending September 30, 2024 (reflected in other current liabilities in our September 30, 2023 Condensed Consolidated Balance Sheet).

 

 

12


Note 5: Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as described below:

Level 1: Quoted prices in active markets for identical assets or liabilities

Level 2: Inputs that are derived principally from or corroborated by observable market data

Level 3: Inputs that are unobservable and significant to the overall fair value measurement

Our assets subject to fair value measurement on a recurring basis are summarized below:

Level 1 Fair Value

September 30

December 31

September 30

in millions

2023

2022

2022

Fair Value Recurring

Rabbi Trust

Mutual funds

$          28.7 

$          28.6 

$          24.9 

Total

$          28.7 

$          28.6 

$          24.9 

Level 2 Fair Value

September 30

December 31

September 30

in millions

2023

2022

2022

Fair Value Recurring

Interest rate swaps

$          (2.1)

$           0.0 

$           0.0 

Rabbi Trust

Money market mutual fund

0.7 

1.5 

1.6 

Total

$          (1.4)

$           1.5 

$           1.6 

We have two Rabbi Trusts for the purpose of providing a level of security for the employee nonqualified retirement and deferred compensation plans and for the directors' nonqualified deferred compensation plans. The fair values of these investments are estimated using a market approach. The Level 1 investments include mutual funds for which quoted prices in active markets are available. Level 2 investments are stated at estimated fair value based on the underlying investments in the fund (high-quality, short-term, U.S. dollar-denominated money market instruments).

Net gains (losses) of the Rabbi Trusts’ investments were $0.5 million and $(8.1) million for the nine months ended September 30, 2023 and 2022, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at September 30, 2023 and 2022 were $0.6 million and $(8.3) million, respectively.

Interest rate swaps are measured at fair value using quoted market prices or pricing models that use prevailing market interest rates as of the measurement date. These interest rate swaps are more fully described in Note 6.

The carrying values of our cash equivalents, restricted cash, accounts and notes receivable, short-term debt, trade payables and accruals, and all other current liabilities approximate their fair values because of the short-term nature of these instruments. Additional disclosures for derivative instruments and interest-bearing debt are presented in Notes 6 and 7, respectively.

During the third quarter of 2023, net assets held for sale with a carrying value of $513.3 million were written down to their estimated fair value less cost to sell of $485.0 million, resulting in an impairment loss of $28.3 million. In addition, during the third quarter of 2022, net assets held for sale with a carrying value of $196.9 million were written down to their estimated fair value less cost to sell of $180.0 million, resulting in an impairment loss of $16.9 million. In both quarters, the estimated fair values (Level 1 fair value measurements) were determined based on the expected proceeds from the probable sales of the disposal groups. Refer to Note 16 for the major categories of assets and liabilities classified as held for sale and Note 15 for a related goodwill impairment charge in 2022.

 

 

13


Note 6: Derivative Instruments

During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, we use derivative instruments to balance the cost and risk of such exposures. We do not use derivative instruments for trading or other speculative purposes.

In March 2023, we issued $550.0 million of 5.80% fixed-rate debt maturing in March 2026. Concurrently, we entered into fixed-to-floating interest rate swap agreements designated as fair value hedges in the amount of $550.0 million. Under these swap agreements, we receive a fixed interest rate of 5.80% (matches the fixed rate we pay on the $550.0 million of debt) and pay daily compound Secured Overnight Financing Rate (SOFR) plus 0.241%.

The changes in the fair value of these swaps designated as fair value hedges are recorded in interest expense and are perfectly offset by changes in the fair value of the related debt also recorded in interest expense. These swaps are recognized at fair value in the accompanying Condensed Consolidated Balance Sheets as follows:

Fair Value 1

September 30

December 31

September 30

in thousands

Balance Sheet Location

2023

2022

2022

Fair Value Hedges

Interest rate swaps

Other current assets

$            0.1 

$            0.0 

$            0.0 

Interest rate swaps

Other noncurrent liabilities

(2.2)

0.0 

0.0 

Interest rate swaps net liability

$           (2.1)

$            0.0 

$            0.0 

1

See Note 5 for further discussion of fair value determination. 

In 2007, 2018 and 2020, we entered into interest rate locks of future debt issuances to hedge the risk of higher interest rates. These interest rate locks were designated as cash flow hedges. The gain/loss upon settlement of these cash flow hedges is deferred (recorded in accumulated other comprehensive income (AOCI)) and amortized to interest expense over the term of the related debt.

This amortization was reflected in the accompanying Condensed Consolidated Statements of Comprehensive Income as follows:

Three Months Ended

Nine Months Ended

Income Statement

September 30

September 30

in millions

Location

2023

2022

2023

2022

Cash Flow Hedges

Loss reclassified from AOCI

Interest expense

$          (0.5)

$          (0.5)

$          (1.6)

$          (1.5)

For the twelve-month period ending September 30, 2024, we estimate that $2.2 million of the $19.8 million net of tax loss in AOCI will be reclassified to interest expense.

 

 

14


Note 7: Debt

Debt is detailed as follows:

Effective

September 30

December 31

September 30

in millions

Interest Rates

2023

2022

2022

Short-term Debt

Bank line of credit expires 2027 1

$             0.0 

$        100.0 

$        312.0 

Commercial paper expires 2027 1

0.0 

0.0 

0.0 

Total short-term debt

$             0.0 

$        100.0 

$        312.0 

Long-term Debt

Bank line of credit expires 2027 1

$             0.0 

$            0.0 

$            0.0 

Commercial paper expires 2027 1

550.0 

550.0 

550.0 

Delayed draw term loan due 2026

0.0 

550.0 

550.0 

4.50% notes due 2025

4.65%

400.0 

400.0 

400.0 

5.80% notes due 2026 2

6.02%

550.0 

0.0 

0.0 

3.90% notes due 2027

4.00%

400.0 

400.0 

400.0 

3.50% notes due 2030

3.94%

750.0 

750.0 

750.0 

7.15% notes due 2037

8.05%

129.2 

129.2 

129.2 

4.50% notes due 2047

4.59%

700.0 

700.0 

700.0 

4.70% notes due 2048

5.42%

460.9 

460.9 

460.9 

Other notes

0.39%

1.5 

1.8 

1.8 

Total long-term debt - face value

$      3,941.6 

$     3,941.9 

$     3,941.9 

Unamortized discounts and debt issuance costs

(64.7)

(66.2)

(67.2)

Fair value adjustments 3

(2.1)

0.0 

0.0 

Total long-term debt - book value

$      3,874.8 

$     3,875.7 

$     3,874.7 

Less current maturities

(0.5)

(0.5)

(0.5)

Total long-term debt - reported value

$      3,874.3 

$     3,875.2 

$     3,874.2 

Estimated fair value of long-term debt

$      3,597.6 

$     3,671.9 

$     3,620.1 

1

Borrowings on the bank line of credit and commercial paper are classified as short-term if we intend to repay within twelve months and as long-term if we have the intent and ability to extend payment beyond twelve months.

2

The effective interest rate excludes the impact of the interest rate swap described in Note 6.

3

See Note 6 for additional information on our fair value hedging strategy.

Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $5.0 million and $5.0 million of net interest expense for these items for the nine months ended September 30, 2023 and 2022, respectively.

DELAYED DRAW TERM LOAN, LINE OF CREDIT AND COMMERCIAL PAPER PROGRAM

In June 2021, we entered into a $1,600.0 million unsecured delayed draw term loan which was fully drawn in August 2021 upon the acquisition of U.S. Concrete. The delayed draw term loan was paid down to $1,100.0 million in September 2021 with cash on hand, paid down to $550.0 million in August 2022 using the proceeds from the issuance of commercial paper as described below and fully repaid in March 2023 using proceeds from the issuance of 5.80% senior notes as described below.

Our unsecured line of credit was amended in August 2022 to increase the borrowing capacity from $1,000.0 million to $1,600.0 million and extend the maturity date from September 2026 to August 2027. Our line of credit contains covenants customary for an unsecured investment-grade facility. As of September 30, 2023, we were in compliance with the covenants.

15


Borrowings on the line of credit bear interest, at our option, at either SOFR plus a margin ranging from 1.000% to 1.625% or Truist Bank’s base rate (generally, its prime rate) plus a margin ranging from 0.000% to 0.625%. The margins are determined by our credit ratings. Standby letters of credit, which are issued under the line of credit and reduce availability, are charged a fee equal to the margin for SOFR borrowings plus 0.175%. We also pay a commitment fee on the daily average unused amount of the line of credit that ranges from 0.090% to 0.225% determined by our credit ratings. As of September 30, 2023, the margin for SOFR borrowings was 1.125%, the margin for base rate borrowings was 0.125% and the commitment fee for the unused amount was 0.100%.

In August 2022, we established a $1,600.0 million commercial paper program through which we borrowed $550.0 million that was used to partially repay the delayed draw term loan. Commercial paper borrowings bear interest at rates determined at the time of borrowing and as agreed between us and the commercial paper investors.

As of September 30, 2023, our available borrowing capacity under the line of credit was $1,516.8 million. Utilization of the borrowing capacity was as follows:

None was borrowed

$83.2 million was used to support standby letters of credit

TERM DEBT

All of our $3,941.6 million (face value) of term debt (which includes the $550.0 million commercial paper) is unsecured. All of the covenants in the debt agreements are customary for investment-grade facilities. As of September 30, 2023, we were in compliance with all term debt covenants.

In March 2023, we issued $550.0 million of 5.80% senior notes due 2026. Total proceeds of $546.6 million (net of discounts and transaction costs), together with cash on hand, were used to repay the $550.0 million delayed draw term loan.

STANDBY LETTERS OF CREDIT

We provide, in the normal course of business, certain third-party beneficiaries with standby letters of credit to support our obligations to pay or perform according to the requirements of an underlying agreement. Such letters of credit typically have an initial term of one year, renew automatically and can only be modified or canceled with the approval of the beneficiary. Our standby letters of credit are issued by banks that participate in our $1,600.0 million line of credit and reduce the borrowing capacity thereunder. Our standby letters of credit as of September 30, 2023 are summarized by purpose in the table below:

in millions

Standby Letters of Credit

Risk management insurance

$          74.5 

Reclamation/restoration requirements

8.7 

Total

$          83.2 

 

 

16


Note 8: Commitments and Contingencies

Certain of our aggregates reserves are burdened by volumetric production payments (nonoperating interest) as described in Note 4. As the holder of the working interest, we have responsibility to bear the cost of mining and producing the reserves attributable to this nonoperating interest.

As stated in Note 2, our lease liabilities totaled $614.7 million as of September 30, 2023 (including liabilities classified as held for sale – see Note 16).

As summarized by purpose in Note 7, our standby letters of credit totaled $83.2 million as of September 30, 2023.

As described in Note 9, our asset retirement obligations totaled $315.5 million as of September 30, 2023.

LITIGATION AND ENVIRONMENTAL MATTERS

We are subject to occasional governmental proceedings and orders pertaining to occupational safety and health or to protection of the environment, such as proceedings or orders relating to noise abatement, air emissions or water discharges. As part of our continuing program of stewardship in safety, health and environmental matters, we have been able to resolve such proceedings and to comply with such orders without any material adverse effects on our business.

We have received notices from the United States Environmental Protection Agency (EPA) or similar state or local agencies that we are considered a potentially responsible party (PRP) at a limited number of sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA or Superfund) or similar state and local environmental laws. Generally, we share the cost of remediation at these sites with other PRPs or alleged PRPs in accordance with negotiated or prescribed allocations. There is inherent uncertainty in determining the potential cost of remediating a given site and in determining any individual party's share in that cost. As a result, estimates can change substantially as additional information becomes available regarding the nature or extent of site contamination, remediation methods, other PRPs and their probable level of involvement, and actions by or against governmental agencies or private parties.

We have reviewed the nature and extent of our involvement at each Superfund site, as well as potential obligations arising under other federal, state and local environmental laws. While ultimate resolution and financial liability is uncertain at a number of the sites, in our opinion, based on information currently available, the ultimate resolution of claims and assessments related to these sites will not have a material effect on our consolidated results of operations, financial position or cash flows, although amounts recorded in a given period could be material to our results of operations or cash flows for that period. Amounts accrued for environmental matters (measured on an undiscounted basis) are presented below:

September 30

December 31

September 30

in millions

2023

2022

2022

Accrued Environmental Remediation Costs

Continuing operations

$          32.7 

$          28.6 

$          27.3 

Retained from former Chemicals business

8.3 

8.3 

8.2 

Total

$          41.0 

$          36.9 

$          35.5 

We are a defendant in various lawsuits in the ordinary course of business. It is not possible to determine with precision the outcome, or the amount of liability, if any, under these lawsuits, especially where the cases involve possible jury trials with as yet undetermined jury panels.

In addition to these lawsuits in which we are involved in the ordinary course of business, certain other material legal proceedings are more specifically described below:

Lower Passaic River Study Area (DISCONTINUED OPERATIONS and superfund site) — The Lower Passaic River Study Area is part of the Diamond Shamrock Superfund Site in New Jersey. Vulcan and approximately 70 other companies are parties (collectively the Cooperating Parties Group, CPG) to a May 2007 Administrative Order on Consent (AOC) with the EPA to perform a Remedial Investigation/Feasibility Study (draft RI/FS) of the lower 17 miles of the Passaic River (River). The draft RI/FS was submitted recommending a targeted hot spot remedy; however, the EPA issued a record of decision (ROD) in March 2016 that calls for a bank-to-bank dredging remedy for the lower 8 miles of the River. The EPA estimates that the cost of implementing this proposal is $1.38 billion. In September 2016, the EPA entered into an Administrative Settlement Agreement and Order on Consent with Occidental Chemical Corporation (Occidental) in which Occidental agreed to undertake the remedial design for this bank-to-bank dredging remedy and to reimburse the United States for certain response costs.

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Efforts to investigate and remediate the River have been underway for many years and have involved hundreds of entities that have had operations on or near the River at some point during the past several decades. We formerly owned a chemicals operation near the mouth of the River, which was sold in 1974. The major risk drivers in the River have been identified to include dioxins, PCBs, DDx and mercury. We did not manufacture any of these risk drivers and have no evidence that any of these were discharged into the River by Vulcan.

In August 2017, the EPA informed certain members of the CPG, including Vulcan and others, that it planned to use the services of a third-party allocator with the expectation of offering cash-out settlements to some parties in connection with the bank-to-bank remedy identified in the ROD. This voluntary allocation process established an impartial third-party expert recommendation for use by the government and the participants as the basis of possible settlements, including settlements related to future remediation actions. The final allocation recommendations, which are subject to confidentiality provisions, were submitted to the EPA for its review and consideration in late December 2020. Certain PRPs, including Vulcan, thereafter received a joint confidential settlement demand from the EPA/Department of Justice (DOJ). Vulcan and certain of the other PRPs that received the joint confidential settlement demand (the Settling Defendants) reached an agreement to settle with the EPA/DOJ and negotiated a Consent Decree. The Consent Decree has been lodged with the court. Vulcan’s portion of the settlement is within the immaterial loss recorded for this matter in 2015.

In July 2018, Vulcan, along with more than 100 other defendants, was sued by Occidental in United States District Court for the District of New Jersey, Newark Vicinage. Occidental is seeking cost recovery and contribution under CERCLA for costs related to the River. This lawsuit is currently stayed pending adjudication of the Consent Decree. In another related proceeding, Occidental filed a lawsuit in March 2023 against Vulcan and 39 other defendants in United States District Court for the District of New Jersey, Newark Vicinage seeking cost recovery and contribution under CERCLA for costs related to the upper 9 miles of the River. It is unknown at this time how the settlement and approval of the Consent Decree with the EPA/DOJ would affect the Occidental lawsuits.

TEXAS BRINE MATTER (DISCONTINUED OPERATIONS) — During operation of its former Chemicals Division, Vulcan leased the right to mine salt out of an underground salt dome formation in Assumption Parish, Louisiana from 1976 - 2005. Throughout that period, Texas Brine Company (Texas Brine) was the operator contracted by Vulcan to mine and deliver the salt as brine. We sold our Chemicals Division in 2005 and transferred our rights and interests related to the salt and mining operations to the purchaser, a subsidiary of Occidental Chemical Company (Occidental), and we have had no association with the leased premises or Texas Brine since that time. In August 2012, a sinkhole developed in the vicinity of the Texas Brine mining operations. Numerous lawsuits were filed thereafter in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were filed in the United States District Court for the Eastern District of Louisiana in New Orleans.

In these lawsuits, the main plaintiffs sued numerous defendants, including Texas Brine, Occidental and Vulcan, alleging various damages including, but not limited to, property damages; a claim by the State of Louisiana for response costs and civil penalties; physical damages to oil and gas pipelines and storage facilities (pipelines); and business interruption losses. All such claims have been settled except for the claims by the State of Louisiana. Our insurers to date have funded these settlements in excess of our self-insured retention amount.

Additionally, Texas Brine, Occidental and Vulcan sued each other in various state and federal court forums. Vulcan and Occidental have since dismissed all of their claims against one another; Texas Brine’s and Occidental’s claims against each other are pending in arbitration; and Texas Brine’s and Vulcan’s claims against each other are pending in state and federal court. In general, Texas Brine alleges that the sinkhole was caused, in whole or in part, by our negligent or fraudulent actions or failure to act; that we breached the salt lease with Occidental, as well as an operating agreement and related contracts with Texas Brine; that we were strictly liable for certain property damages in our capacity as a former lessee of the salt lease; and that we violated the agreement under which we sold our Chemicals Division to Occidental. Texas Brine’s claims against Vulcan include claims for past and future response costs, lost profits and investment costs, indemnity payments, attorneys’ fees, other litigation costs, and judicial interests. Texas Brine also recently filed a lawsuit against Vulcan seeking indemnity for potential exposure Texas Brine may have to Occidental in the related arbitration, the State of Louisiana, and for ongoing and future Louisiana regulatory matters. In August 2022, we removed the lawsuit to federal court.

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The state court held a joint bench trial (judge only) in 2017 in three cases brought by pipeline companies claiming damages to their facilities as a result of the sinkhole. This “Phase 1” trial was limited in scope to comparative fault and liability for causing the sinkhole. In December 2017, the trial court issued a ruling allocating fault as follows: Occidental 50%, Texas Brine (and its wholly-owned subsidiary) 35% and Vulcan 15%. In December 2020, the Louisiana Court of Appeal, First Circuit reversed the judgment in part in one of the three jointly tried cases, allocating 55% of the fault to Texas Brine (and its wholly-owned subsidiary); 30% to Occidental; and affirming the 15% fault allocation to Vulcan. In May 2021 and April 2022, the Court of Appeal issued judgments in the other two pipeline cases, adopting the same fault allocation. The Louisiana Supreme Court has declined to review the judgments, resulting in final judgments regarding fault allocations in those matters.

In the second quarter of 2022, we recorded an immaterial loss related to the claims brought by Texas Brine. In August 2022, Vulcan and Texas Brine commenced a joint “Phase 2” bench trial in the same three pipeline cases where fault was allocated. Prior to trial, the trial court granted various motions by Vulcan seeking dismissal of Texas Brine’s contract-based claims and hundreds of millions of dollars in alleged damages. Thus, the Phase 2 trial addressed the claims that remained pending between Texas Brine and Vulcan after that motion practice. During the Phase 2 trial, Texas Brine and Vulcan reached a negotiated joint stipulation as to the amount of Texas Brine’s damages for its surviving tort claims at issue in the trial. After applying Vulcan’s 15% fault allocation, Vulcan’s stipulated financial responsibility for the damages at issue in the trial is within the immaterial loss recorded during the second quarter of 2022. In December 2022, the trial court entered a judgment in the pipeline cases reflecting this stipulation. Texas Brine has moved to assess trial costs against Vulcan.

The December 2022 Phase 2 judgment did not address numerous of Texas Brine’s claims seeking hundreds of millions of dollars in damages that were dismissed prior to trial. Texas Brine has appealed or is in the process of appealing each of those judgments. We cannot at this time reasonably estimate the range of liability, if any, that could result if an appellate court reverses any of the trial court’s decisions. At this time, we also cannot reasonably estimate a range of liability pertaining to the claims brought by the State of Louisiana.

NEW YORK WATER DISTRICT CASES AND NEW JERSEY NATURAL RESOURCE DAMAGES CASE (DISCONTINUED OPERATIONS) — During the operation of our former Chemicals Division, which was divested to Occidental in 2005, Vulcan manufactured a chlorinated solvent known as 1,1,1-trichloroethane (TCA). We are a defendant in 29 cases allegedly involving TCA. We are a defendant in 28 cases brought by New York water providers, and in one case brought by the State of New Jersey, all involving TCA stabilized with 1,4-dioxane. The cases in New York are filed in the United States District Court for the Eastern District of New York. According to the various complaints, the plaintiff-water providers serve customers in a number of New York counties (Nassau, Suffolk, Orange, Putnam, Sullivan, Ulster, Washington and Westchester) and seek unspecified compensatory damages associated with the remediation of water wells allegedly contaminated with 1,4-dioxane. They are also seeking punitive damages. The New Jersey case, filed in state court in Mercer County (Trenton) in March 2023, seeks recovery for the entire State of New Jersey based on alleged damages to surface water, ground water and other natural resources. In the New Jersey case, the plaintiff seeks unspecified compensatory damages to restore the allegedly contaminated natural resources to a condition with zero 1,4-dioxane. The plaintiff also seeks disgorgement of profits from the sale of TCA in New Jersey, as well as penalties and attorneys’ fees under various New Jersey statutes. We will vigorously defend these cases on substantive and procedural grounds. At this time, we cannot determine the likelihood of loss, or reasonably estimate a range of loss, if any, pertaining to the above-referenced cases.

HEWITT LANDFILL MATTER (SUPERFUND SITE) — In September 2015, the Los Angeles Regional Water Quality Control Board (RWQCB) issued a Cleanup and Abatement Order directing Vulcan to assess, monitor, cleanup and abate wastes that have been discharged to soil, soil vapor, and/or groundwater at the former Hewitt Landfill in Los Angeles.

Following an onsite and offsite investigation and pilot scale testing, the RWQCB approved a corrective action that includes leachate recovery, storm water capture and conveyance improvements, and a groundwater pump, treat and reinjection system. Certain on-site source control measures have been implemented, and the new treatment system is fully operational. Currently-anticipated costs of these on-site source control activities have been fully accrued.

We are also engaged in an ongoing dialogue with the EPA, Honeywell, and the Los Angeles Department of Water and Power (LADWP) regarding the potential contribution of the Hewitt Landfill to groundwater contamination in the North Hollywood Operable Unit (NHOU) of the San Fernando Valley Superfund Site.

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The EPA and Vulcan entered into an AOC and Statement of Work having an effective date of September 2017 for the design of two extraction wells south of the Hewitt Landfill to protect the North Hollywood West (NHW) well field located within the NHOU. In November 2017, we submitted a Pre-Design Investigation (PDI) Work Plan to the EPA, which sets forth the activities and schedule for collection of data in support of our evaluation of the need for an offsite remedy. In addition, this evaluation was expanded as part of the PDI to include the evaluation of a remedy in light of LADWP’s Rinaldi-Toluca (RT) wellfield project. PDI investigative activities were completed between the first and third quarters of 2018, and in December 2018 we submitted a Draft PDI Evaluation Report to the EPA. The PDI Evaluation Report summarizes data collection activities conducted pursuant to the Draft PDI Work Plan and provides model updates and evaluation of remediation alternatives for offsite areas. The EPA provided an initial set of comments on the Draft PDI Evaluation Report in May 2019 and a final set of comments in October 2020. The final set of comments included a request for Vulcan to revise and develop a final PDI Evaluation Report. The final comments further provided, if Vulcan agrees, a proposal for an alternative approach for offsite remediation (as opposed to installation of offsite extraction wells) and development of a Supplemental PDI Evaluation Report (Supplemental Report) that would require the EPA to modify the remedy in the 2009 ROD as it relates to the Hewitt Landfill. In December 2020, Vulcan submitted the Final PDI Evaluation Report, which included edits to the Draft PDI Evaluation Report and responses to the EPA’s comments.

In February 2023, the EPA requested that Vulcan provide the Supplemental Report and an Alternative Design Work Plan (ADWP). Vulcan submitted the Supplemental Report in March 2023 and submitted the ADWP in May 2023. Similar to the PDI Evaluation Report, the Supplemental Report and ADWP identified expansion of the onsite Hewitt remedy in conjunction with the offsite treatment being performed by LADWP as the preferred options for addressing contamination in offsite areas, instead of the two wells proposed by the EPA. During the second quarter of 2023, we accrued an immaterial amount based on an engineer’s estimate of the cost associated with the expansion of the onsite system. The EPA provided initial comments on the Supplemental Report on August 1, 2023, and our response to their comments was provided on August 31, 2023. The EPA is currently reviewing the response to comments and has requested meetings with stakeholders including LADWP to determine a path forward.

In December 2019, Honeywell agreed with LADWP to build a water treatment system (often referred to as the Cooperative Containment Concept or CCC or the second interim remedy) that will provide treated groundwater in the NHOU to LADWP for public water supply purposes. Honeywell contends that some of the contamination to be remediated by the treatment system it will build originated from the Hewitt Landfill and that Vulcan should fund some portion of the costs that Honeywell has incurred and will incur in developing and implementing the second interim remedy. During the fourth quarter of 2021, Vulcan completed a partial settlement with Honeywell related to certain of the costs that Honeywell has incurred for an immaterial amount. In March 2023, Honeywell filed a lawsuit against CalMat Co., a Vulcan subsidiary, and a third party alleging that Honeywell has incurred more than $11 million in costs to resolve its liability to the EPA and that it estimates that it will spend in excess of $100 million to construct and operate its water treatment system. Honeywell seeks an "equitable share of necessary response costs" from the defendants. Discussions are ongoing with Honeywell regarding the reasonable costs Honeywell has incurred. We are also gathering and analyzing data and developing technical information to determine the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area. Based on this technical information, we have accrued an immaterial amount for our contribution of costs anticipated to be incurred by Honeywell. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area.

Further, LADWP has announced plans to install new treatment capabilities at two city wellfields located near the Hewitt Landfillthe NHW wellfield and the RT wellfield. LADWP has alleged that the Hewitt Landfill is one of the primary PRPs responsible for the contamination at the NHW wellfield and is one of many PRPs responsible for the contamination at the RT wellfield. We are gathering and analyzing records and data and developing technical information to assess the reasonableness of LADWP’s remediation efforts and the extent of possible contribution by the Hewitt Landfill to the groundwater contamination in the area, consistent with the parallel request by the EPA. This work is intended to assess Vulcan’s anticipated equitable contribution to LADWP’s remediation efforts. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area of the NHW and RT wellfields. At this time, we cannot reasonably estimate a range of a loss to Vulcan pertaining to LADWP’s potential contribution claim.

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NAFTA ARBITRATION — In September 2018, our subsidiary Legacy Vulcan, LLC (Legacy Vulcan), on its own behalf, and on behalf of our Mexican subsidiary Calizas Industriales del Carmen, S.A. de C.V. (Calica), served the United Mexican States (Mexico) a Notice of Intent to Submit a Claim to Arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA). This NAFTA claim relates to the treatment of a portion of our quarrying operations in Quintana Roo, Mexico arising from, among other measures, Mexico’s failure to comply with a legally binding zoning agreement and relates to other unfair, arbitrary and capricious actions by Mexico’s environmental enforcement agency. We assert that these actions are in breach of Mexico’s international obligations under NAFTA and international law.

As required by Article 1118 of NAFTA, we sought to settle this dispute with Mexico through consultations. Notwithstanding our good faith efforts to resolve the dispute amicably, we were unable to do so and filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID) in December 2018. In January 2019, ICSID registered our Request for Arbitration.

A hearing on the merits took place in July 2021. While we awaited the final resolution from the tribunal, we continued to engage with government officials to pursue an amicable resolution of the dispute. On May 5, 2022, Mexican government officials unexpectedly and arbitrarily shut down Calica’s remaining operations in Mexico. On May 8, 2022, Legacy Vulcan filed an application in the NAFTA arbitration seeking provisional measures and leave to file an ancillary claim in connection with this latest shutdown (see Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Known Trends or Uncertainties). In July 2022, the NAFTA arbitration tribunal granted Legacy Vulcan’s application and ordered Mexico not to take any action that might further aggravate the dispute between the parties or render the resolution of the dispute potentially more difficult. A hearing on the merits of the ancillary claim took place in August 2023. We expect that the NAFTA arbitration tribunal will issue a decision on the claim and ancillary claim during the first half of 2024.

At this time, there can be no assurance whether we will be successful in our NAFTA claim and ancillary claim, and we cannot quantify the amount we may recover, if any, under this arbitration proceeding if we are successful.

It is not possible to predict the ultimate outcome of these and other legal proceedings in which we are involved, and a number of factors, including developments in ongoing discovery or adverse rulings, or the verdict of a particular jury, could cause actual losses to differ materially from accrued costs. No liability was recorded for claims and litigation for which a loss was determined to be only reasonably possible or for which a loss could not be reasonably estimated. Legal costs incurred in defense of lawsuits are expensed as incurred. In addition, losses on certain claims and litigation described above may be subject to limitations on a per occurrence basis by excess insurance, as described in our most recent Annual Report on Form 10-K.

 

 

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Note 9: Asset Retirement Obligations

Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use of the underlying assets, including legal obligations for land reclamation. Recognition of a liability for an ARO is required in the period in which it is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges to operating expenses. If the ARO is settled for a value other than the carrying amount of the liability, we recognize a gain or loss on settlement.

ARO operating costs related to accretion of the liabilities and depreciation of the assets are as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

ARO Operating Costs

Accretion

$          3.5 

$          3.6 

$        10.3 

$        10.7 

Depreciation

2.2 

2.4 

6.6 

7.2 

Total

$          5.7 

$          6.0 

$        16.9 

$        17.9 

ARO operating costs are reported in cost of revenues. AROs are reported within other noncurrent liabilities in our accompanying Condensed Consolidated Balance Sheets.

Reconciliations of the carrying amounts of our AROs are as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Asset Retirement Obligations

Balance at beginning of period

$       311.6 

$       321.1 

$       311.3 

$       315.2 

Liabilities incurred

0.0 

19.2 

0.0 

21.5 

Liabilities settled

(1.9)

(2.3)

(8.4)

(5.6)

Accretion expense

3.5 

3.6 

10.3 

10.7 

Revisions, net

2.3 

(1.6)

2.3 

(1.8)

Balance at end of period

$       315.5 

$       340.0 

$       315.5 

$       340.0 

ARO liabilities incurred as of September 30, 2022 primarily related to acquisitions completed in 2022 (see Note 16).

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Note 10: Benefit Plans

PENSION PLANS

We sponsor two qualified, noncontributory defined benefit pension plans, the Vulcan Materials Company Pension Plan (VMC Pension Plan) and the CMG Hourly Pension Plan (CMG Pension Plan). The VMC Pension Plan has been closed to new entrants since 2007, and benefit accruals ceased in 2005 for hourly participants and 2013 for salaried participants. The CMG Pension Plan is closed to new entrants other than through one small union, and benefits continue to accrue equal to a flat dollar amount for each year of service. In addition to these qualified plans, we sponsor three unfunded, nonqualified pension plans.

The following table sets forth the components of net periodic pension benefit cost:

PENSION BENEFITS

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Components of Net Periodic Benefit Cost

Service cost

$          0.6 

$          1.0 

$          1.9 

$          3.0 

Interest cost

8.5 

5.3 

25.4 

15.8 

Expected return on plan assets

(6.9)

(7.5)

(20.7)

(22.6)

Amortization of prior service cost

0.4 

0.4 

1.1 

1.1 

Amortization of actuarial loss

1.4 

1.1 

4.2 

3.2 

Net periodic pension benefit cost

$          4.0 

$          0.3 

$        11.9 

$          0.5 

Pretax reclassifications from AOCI included in

net periodic pension benefit cost

$          1.8 

$          1.5 

$          5.3 

$          4.3 

The contributions to pension plans for the nine months ended September 30, 2023 and 2022, as reflected on the Condensed Consolidated Statements of Cash Flows, pertain to benefit payments under nonqualified plans for both periods.

POSTRETIREMENT PLANS

In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2021, we amended our postretirement healthcare plan to increase our employer contribution rate from the previously capped level to a higher level effective 2022. This served as a cost reduction for retirees in 2022 and beyond as we use this new benchmark for future employer contributions. Substantially all our salaried employees and, where applicable, certain of our hourly employees may become eligible for these benefits if they reach a qualifying age and meet certain service requirements. Generally, Company-provided healthcare benefits end when covered individuals become eligible for Medicare benefits, become eligible for other group insurance coverage or reach age 65, whichever occurs first.

The following table sets forth the components of net periodic other postretirement benefit cost:

OTHER POSTRETIREMENT BENEFITS

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Components of Net Periodic Benefit Cost

Service cost

$          0.5 

$          0.6 

$          1.5 

$          1.7 

Interest cost

0.5 

0.3 

1.5 

0.7 

Amortization of prior service cost (credit)

0.4 

0.0 

1.1 

(0.2)

Amortization of actuarial gain

(0.4)

(0.3)

(1.2)

(1.0)

Net periodic postretirement benefit cost

$          1.0 

$          0.6 

$          2.9 

$          1.2 

Pretax reclassifications from AOCI included in

net periodic postretirement benefit cost

$          0.0 

$        (0.3)

$        (0.1)

$        (1.2)

DEFINED CONTRIBUTION PLANS

In addition to our pension and postretirement plans, we sponsor five defined contribution plans. Substantially all salaried and nonunion hourly employees are eligible to be covered by one of these plans. Under these plans, we match employees’ eligible contributions at established rates. Expense recognized in connection with these matching obligations totaled $58.6 million and $49.1 million for the nine months ended September 30, 2023 and 2022, respectively.

 

 

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Note 11: other Comprehensive Income

Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). The components of OCI are presented in the accompanying Condensed Consolidated Statements of Comprehensive Income, net of applicable taxes.

Amounts in accumulated other comprehensive income (loss) (AOCI), net of tax, are as follows:

September 30

December 31

September 30

in millions

2023

2022

2022

AOCI

Cash flow hedges

$         (19.8)

$         (21.0)

$         (21.4)

Pension and postretirement plans

(129.9)

(133.7)

(128.0)

Total

$       (149.7)

$       (154.7)

$       (149.4)

Changes in AOCI, net of tax, for the nine months ended September 30, 2023 are as follows:

Pension and

Cash Flow

Postretirement

in millions

Hedges

Benefit Plans

Total

AOCI

Balances as of December 31, 2022

$         (21.0)

$       (133.7)

$       (154.7)

Amounts reclassified from AOCI

1.2 

3.8 

5.0 

Net current period OCI changes

1.2 

3.8 

5.0 

Balances as of September 30, 2023

$         (19.8)

$       (129.9)

$       (149.7)

Amounts reclassified from AOCI to earnings are as follows:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Amortization of Cash Flow Hedge Losses

Interest expense

$            0.5 

$            0.5 

$            1.6 

$             1.5 

Benefit from income taxes

(0.1)

(0.1)

(0.4)

(0.4)

Total

$            0.4 

$            0.4 

$            1.2 

$             1.1 

Amortization of Pension and Postretirement

Plan Actuarial Loss and Prior Service Cost

Other nonoperating expense

$            1.8 

$            1.0 

$            5.2 

$             3.0 

Benefit from income taxes

(0.5)

(0.3)

(1.4)

(0.8)

Total

$            1.3 

$            0.7 

$            3.8 

$             2.2 

Total reclassifications from AOCI to earnings

$            1.7 

$            1.1 

$            5.0 

$             3.3 

 

 

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Note 12: Equity

Our capital stock consists solely of common stock, par value $1.00 per share, of which 480,000,000 shares may be issued. Holders of our common stock are entitled to one vote per share. We may also issue 5,000,000 shares of preferred stock, but no shares have been issued. The terms and provisions of such shares will be determined by our Board of Directors upon any issuance of preferred shares in accordance with our Certificate of Incorporation.

There were no shares held in treasury as of September 30, 2023, December 31, 2022 and September 30, 2022.

Our common stock purchases (all of which were open market purchases) and subsequent retirements for the year-to-date periods ended are as follows:

September 30

December 31

September 30

in millions, except average cost

2023

2022

2022

Shares Purchased and Retired

Number

0.2 

0.0 

0.0 

Total purchase price 1

$          49.9 

$            0.0 

$            0.0 

Average cost per share

$      206.82 

$          0.00 

$          0.00 

 

1

The amount paid to purchase shares in excess of the par value is recorded in retained earnings. 

  

As of September 30, 2023, 7,823,488 shares may be purchased under the current authorization of our Board of Directors.

Changes in total equity are summarized below:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions, except per share data

2023

2022

2023

2022

Total Shareholders' Equity

Balance at beginning of period

$      7,202.6 

$      6,721.1 

$      6,928.6 

$      6,545.0 

Net earnings attributable to Vulcan

276.5 

177.1 

705.8 

456.2 

Common stock issued

Share-based compensation plans, net of shares

withheld for taxes

(2.2)

(0.1)

(20.8)

(17.2)

Purchase and retirement of common stock

0.0 

0.0 

(49.9)

0.0 

Share-based compensation expense

19.2 

9.7 

43.5 

27.9 

Cash dividends on common stock

($0.43/$0.40/$1.29/$1.20 per share, respectively)

(57.2)

(53.2)

(171.6)

(159.5)

Other comprehensive income

1.7 

1.1 

5.0 

3.3 

Balance at end of period

$      7,440.6 

$      6,855.7 

$      7,440.6 

$      6,855.7 

Noncontrolling Interest

Balance at beginning of period

$           23.8 

$           23.1 

$           23.6 

$           22.7 

Earnings attributable to noncontrolling interest

0.8 

0.1 

1.0 

0.5 

Balance at end of period

$           24.6 

$           23.2 

$           24.6 

$           23.2 

Total Equity

Balance at end of period

$      7,465.2 

$      6,878.9 

$      7,465.2 

$      6,878.9 

 

 

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Note 13: Segment Reporting

We have four operating (and reportable) segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Our Asphalt and Concrete segments are primarily supplied with their aggregates requirements from our Aggregates segment. These intersegment sales are made at local market prices for the particular grade and quality of product used in the production of asphalt mix and ready-mixed concrete and are excluded from total revenues. Management reviews earnings from these reporting segments principally at the gross profit level.

segment financial disclosure

Three Months Ended

Nine Months Ended

September 30

September 30

in millions

2023

2022

2023

2022

Total Revenues

Aggregates 1

$       1,626.1 

$       1,490.5 

$       4,498.9 

$       4,013.5 

Asphalt 2

347.2 

310.2 

854.3 

752.1 

Concrete

364.6 

450.5 

993.3 

1,233.4 

Calcium

2.3 

2.1 

7.0 

5.4 

Segment sales

$       2,340.2 

$       2,253.3 

$       6,353.5 

$       6,004.4 

Aggregates intersegment sales

(154.4)

(165.0)

(405.9)

(421.1)

Total revenues

$       2,185.8 

$       2,088.3 

$       5,947.6 

$       5,583.3 

Gross Profit

Aggregates

$          508.4 

$          436.1 

$       1,309.8 

$       1,081.3 

Asphalt

55.9 

29.5 

113.3 

40.2 

Concrete

26.0 

26.5 

50.7 

84.7 

Calcium

0.7 

0.8 

2.5 

1.6 

Total

$          591.0 

$          492.9 

$       1,476.3 

$       1,207.8 

Depreciation, Depletion, Accretion

and Amortization (DDA&A)

Aggregates

$          125.6 

$          113.5 

$          357.4 

$          324.4 

Asphalt

8.8 

8.9 

26.7 

26.0 

Concrete

20.5 

21.7 

60.4 

63.5 

Calcium

0.0 

0.0 

0.1 

0.1 

Other

6.2 

6.9 

19.8 

21.0 

Total

$          161.1 

$          151.0 

$          464.4 

$          435.0 

Identifiable Assets 3, 4

Aggregates

$     11,821.9 

$     11,713.5 

Asphalt

648.6 

671.3 

Concrete 5

1,512.4 

1,773.8 

Calcium

3.8 

4.2 

Total identifiable assets

$     13,986.7 

$     14,162.8 

General corporate assets

288.8 

306.1 

Cash and cash equivalents and restricted cash

345.0 

146.9 

Total assets

$     14,620.5 

$     14,615.8 

1

Includes product sales (crushed stone, sand and gravel, sand, and other aggregates), as well as freight & delivery costs that we pass along to our customers, and service revenues (see Note 4) related to aggregates

2

Includes product sales, as well as service revenues (see Note 4) from our asphalt construction paving business

3

Certain temporarily idled assets are included within a segment's Identifiable Assets but the associated DDA&A is shown within Other in the DDA&A section above as the related DDA&A is excluded from segment gross profit

4

The increase in Aggregates is primarily due to 2022 acquisitions, and the decrease in Concrete is primarily due to the divestiture of concrete operations in New Jersey, New York and Pennsylvania in November 2022 (see Note 16)

5

Includes assets classified as held for sale (see Note 16)

  

  

26


Note 14: Supplemental Cash Flow Information

Supplemental information referable to our Condensed Consolidated Statements of Cash Flows is summarized below:

Nine Months Ended

September 30

in thousands

2023

2022

Cash Payments

Interest (exclusive of amount capitalized)

$       118.4 

$         96.6 

Income taxes

168.3 

133.7 

Noncash Investing and Financing Activities

Accruals for purchases of property, plant & equipment

$         28.2 

$         37.5 

Recognition of new and revised lease obligations for

Operating lease right-of-use assets

1.5 

35.5 

Finance lease right-of-use assets

1.3 

3.5 

Consideration payable to seller in business acquisitions

0.0 

65.4 

 

 

Note 15: Goodwill

Goodwill is recognized when the consideration paid for a business exceeds the fair value of the tangible and identifiable intangible assets acquired. Goodwill is allocated to reporting units for purposes of testing goodwill for impairment. We test goodwill for impairment on an annual basis or more frequently if events or circumstances change in a manner that would more likely than not reduce the fair value of a reporting unit below its carrying value.

During the third quarter of 2022, we recorded an interim goodwill impairment loss of $50.9 million related to the fourth quarter sale of a reporting unit comprised of concrete operations in New Jersey, New York and Pennsylvania (see Note 16). There were no charges for goodwill impairment in the nine-month period ended September 30, 2023. Accumulated goodwill impairment losses amount to $303.6 million ($252.7 million in our former Cement segment and $50.9 in our Concrete segment).

Changes in the carrying amount of goodwill by reportable segment from December 31, 2022 to September 30, 2023 are shown below:

in millions

Aggregates

Asphalt

Concrete

Calcium

Total

Goodwill

Totals at December 31, 2022

$    3,330.3 

$         91.6 

$       267.7 

$           0.0 

$    3,689.6 

Goodwill of acquired businesses 1

(0.1)

0.0 

0.0 

0.0 

(0.1)

Totals at September 30, 2023 2

$    3,330.2 

$         91.6 

$       267.7 

$           0.0 

$    3,689.5 

1

See Note 16 for acquisitions. The current year includes a purchase price allocation adjustment from a prior year acquisition.

2

The Concrete segment balance at September 30, 2023 includes goodwill classified as held for sale as detailed in Note 16.

  

  

27


Note 16: Acquisitions and Divestitures

BUSINESS ACQUISITIONS

2023 BUSINESS ACQUISITIONS — Through the nine months ended September 30, 2023, we completed no business acquisitions.

2022 BUSINESS ACQUISITIONSThrough the nine months ended September 30, 2022, we acquired operations in California, Texas, Virginia and Honduras for total consideration of $593.4 million ($528.0 million cash and $65.4 million noncash). For the full year 2022, including adjustments made in the current year, we purchased the following operations for total consideration of $593.7 million ($528.3 million cash and $65.4 million noncash):

California — eight aggregates, four asphalt mix and seven ready-mixed concrete operations

Texas — five aggregates operations

Virginia — four ready-mixed concrete operations and two idle ready-mixed concrete sites

Honduras — an aggregates operation serving limited markets along the Gulf Coast

The fair value of consideration transferred for these 2022 acquisitions and the amounts of assets acquired and liabilities assumed as of September 30, 2023 are summarized below:

in millions

Fair Value of Purchase Consideration

Cash

$        528.3 

Payable to seller

65.4 

Total fair value of purchase consideration

$        593.7 

Identifiable Assets Acquired and Liabilities Assumed

Accounts and notes receivable, net

$          30.5 

Inventories

15.3 

Other current assets

2.1 

Property, plant & equipment

504.5 

Intangible assets

Contractual rights in place

61.4 

Deferred income taxes, net

(12.4)

Other liabilities assumed

(20.1)

Net identifiable assets acquired

$        581.3 

Goodwill

$          12.4 

As a result of the 2022 acquisitions, we recognized $61.4 million of amortizable intangible assets and $12.4 million of goodwill. The amortizable intangible assets will be amortized against earnings over a weighted-average of 15 years and will be deductible for income tax purposes over 15 years. The $12.4 million of goodwill recognized represents deferred tax liabilities generated from carrying over the seller’s tax basis in the assets acquired. None of the goodwill recognized will be deductible for income tax purposes.

28


DIVESTITURES AND PENDING DIVESTITURES

In 2023, we sold:

Second quarter – real estate associated with a former recycled concrete facility in Illinois resulting in a pretax gain of $15.2 million

In 2022, we sold:

Fourth quarter – concrete operations in New Jersey, New York and Pennsylvania resulting in a third quarter impairment charge of $67.8 million and a fourth quarter loss on sale of $17.4 million (the assets were written down to fair value less cost to sell in the third quarter)

Third quarter – excess real estate in Southern California resulting in a pretax gain of $23.5 million

The probable divestiture of our concrete operations in Texas is presented as assets held for sale in the accompanying Condensed Consolidated Balance Sheet at September 30, 2023. In addition, the divestiture of our concrete operations in New Jersey, New York and Pennsylvania in November 2022 was presented as assets held for sale in the accompanying Condensed Consolidated Balance Sheet at September 30, 2022. The major classes of assets and liabilities classified as held for sale as of September 30 are as follows:

September 30

December 31

September 30

in millions

2023

2022

2022

Held for Sale (Concrete Segment)

Inventory

$         18.6 

$           0.0 

$           6.1 

Land and land improvements, net

39.7 

0.0 

21.7 

Buildings, machinery and equipment, net

114.6 

0.0 

81.3 

Operating leases, net

9.9 

0.0 

115.0 

Finance leases, net

18.1 

0.0 

17.2 

Amortizable intangible assets, net

164.7 

0.0 

66.7 

Goodwill

157.8 

Less: reserve for assets held for sale

(28.3)

0.0 

(16.9)

Total assets held for sale

$       495.1 

$           0.0 

$       291.1 

Current operating lease liabilities

$         (0.7)

$           0.0 

$         (5.6)

Current finance lease liabilities

0.0 

0.0 

(4.6)

Noncurrent operating lease liabilities

(9.4)

0.0 

(93.4)

Noncurrent finance lease liabilities

0.0 

0.0 

(7.5)

Total liabilities held for sale

$       (10.1)

$           0.0 

$     (111.1)

No material assets met the criteria for held for sale at December 31, 2022.

 

 

Note 17: New Accounting Standards

ACCOUNTING STANDARDS RECENTLY ADOPTED

None

ACCOUNTING STANDARDS PENDING ADOPTION

None

  

  

29


ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL COMMENTS

Overview

We provide the basic materials for the infrastructure needed to maintain and expand the U.S. economy. We operate primarily in the U.S. and are the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel), a major producer of asphalt mix and ready-mixed concrete, and a supplier of asphalt construction paving services. Our strategy and competitive advantage are based on our strength in aggregates which are used in most types of construction and in the production of asphalt mix and ready-mixed concrete.

Demand for our products is dependent on construction activity and correlates positively with changes in population growth, household formation and employment. End uses include public construction (e.g., highways, bridges, buildings, airports, schools, prisons, sewer and waste disposal systems, water supply systems, dams, reservoirs and other public construction projects), private nonresidential construction (e.g., manufacturing, retail, offices, industrial and institutional) and private residential construction (e.g., single-family houses, duplexes, apartment buildings and condominiums).

Aggregates have a very high weight-to-value ratio and, in most cases, must be produced near where they are used; if not, transportation can cost more than the materials, rendering them uncompetitive compared to locally produced materials. Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available, high-quality aggregates. We serve these markets from quarries that have access to cost-effective long-haul transportation — shipping by barge and rail — and from our quarries in Quintana Roo, Mexico (see Note 8, NAFTA Arbitration) and Puerto Cortés, Honduras (acquired in 2022) with our fleet of Panamax-class, self-unloading ships. Additionally, as a result of our 2021 acquisition of U.S. Concrete, we serve markets in California and Hawaii from our quarry in British Columbia, Canada by means of a long-term marine shipping agreement with CSL Americas.

There are limited substitutes for quality aggregates. Due to zoning and permitting regulation and high transportation costs relative to the value of the product, the location of reserves is a critical factor to our long-term success.

No material part of our business depends upon any single customer whose loss would have a significant adverse effect on our business. In 2022, our five largest customers accounted for 7% of our total revenues, and no single customer accounted for more than 2% of our total revenues. Although approximately 40% to 55% of our aggregates shipments have historically been used in publicly-funded construction, such as highways, airports and government buildings, a relatively small portion of our sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly-funded construction, the vast majority of our business is not directly subject to renegotiation of profits or termination of contracts with local, state or federal governments. In addition, our sales to government entities span several hundred entities coast-to-coast, ensuring that negative changes to various government budgets would have a muted impact across such a diversified set of government customers.

While aggregates is our focus and primary business, we believe vertical integration between aggregates and downstream products, such as asphalt mix and ready-mixed concrete, can be managed effectively in certain markets to generate attractive financial returns and enhance financial returns in our core Aggregates segment. We produce and sell asphalt mix and/or ready-mixed concrete primarily in our Alabama, Arizona, California, Maryland, New Mexico, Oklahoma, Tennessee, Texas, Virginia, the U.S. Virgin Islands and Washington D.C. markets. Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. In both of these downstream businesses, aggregates are primarily supplied from our operations.

Seasonality and cyclical nature of our business

Almost all of our products are produced and consumed outdoors. Seasonal changes and other weather-related conditions can affect the production and sales volume of our products. Therefore, the financial results for any quarter do not necessarily indicate the results expected for the year. Normally, the highest sales and earnings are in the third quarter, and the lowest are in the first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local economic conditions, demographic and population fluctuations, and particularly to cyclical swings in construction spending, primarily in the private sector.

 

 

30


EXECUTIVE SUMMARY

Financial highlights for THIRD Quarter 2023

Compared to third quarter of 2022:

Total revenues increased $97.5 million, or 5%, to $2,185.8 million

Gross profit increased $98.1 million, or 20%, to $591.0 million

Aggregates segment sales increased $135.6 million, or 9%, to $1,626.1 million

Aggregates segment freight-adjusted revenues increased $136.3 million, or 12%, to $1,233.5 million

Shipments decreased 2%, or 1.4 million tons, to 63.9 million tons

Freight-adjusted sales price increased 14.9%, or $2.50 per ton to $19.29

Aggregates segment gross profit increased $72.3 million, or 17%, to $508.4 million

Unit profitability (as measured by gross profit per ton) increased 19% to $7.95 per ton

Asphalt, Concrete and Calcium segment gross profit increased $25.8 million, or 45%, to $82.6 million, collectively

Selling, administrative and general (SAG) expenses increased $8.6 million (10 basis points as a percentage of total revenues)

Operating earnings increased $113.5 million, or 37%, to $418.9 million

Earnings attributable to Vulcan from continuing operations were $2.09 per diluted share compared to $1.33 per diluted share

Adjusted earnings attributable to Vulcan from continuing operations were $2.29 per diluted share compared to $1.78 per diluted share

Net earnings attributable to Vulcan increased $99.4 million, or 55%, to $276.5 million

Adjusted EBITDA increased $95.2 million, or 19%, to $602.2 million

Returned capital to shareholders via dividends of $57.2 million at $0.43 per share versus $53.2 million at $0.40 per share

Through the first nine months of 2023, net earnings attributable to Vulcan increased 55%, Adjusted EBITDA increased 23% and margin expanded 340 basis points. Aggregates gross profit per ton has increased 23% to $7.32, and cash gross profit per ton has improved 21% to $9.31. These strong results demonstrate the compounding benefits of our strategic disciplines and the durability of our aggregates-led business. We remain focused on finishing the year strong and carrying solid momentum into next year. As a result, we now expect our full-year Adjusted EBITDA to be $1,950 million to $2,000 million for 2023.

Capital expenditures in the third quarter were $140.9 million, including $60.5 million for growth projects (year-to-date $411.1 million and $138.4 million, respectively). We expect to spend $600 million to $650 million for maintenance and growth projects in 2023. Additionally, as planned, we began deploying capital for opportunistic land purchases of strategic reserves in California, North Carolina and Texas during the third quarter; expenditures in the quarter were $172.9 million.

We returned $57.2 million to shareholders through dividends, a 7% increase versus the prior year’s third quarter.

As of September 30, 2023, the ratio of total debt to trailing-twelve months Adjusted EBITDA was 2.0 times (1.8 times on a net debt basis). We remain committed to our stated long-term target leverage range of 2.0 to 2.5 times total debt to trailing-twelve months Adjusted EBITDA.

Interest expense, net of interest income, was $46.6 million in the third quarter compared with $46.1 million in the prior year.

On a trailing-twelve months basis, return on invested capital was 15.4%, a 180 basis points improvement from the comparable prior year period.

31


OUTLOOK

We continue to execute at a high level and successfully navigate the twists and turns of the broader macro economy. Regardless of the macro environment, aggregates can be a price-cost winner in all parts of the cycle. Our year-to-date unit profitability growth of more than 20% demonstrates the durability of our business. Aggregates shipments continue to trend towards the upper end of full-year expectations, supported by industrial-related nonresidential projects in key markets and IIJA-related construction activity. As a result, we expect full-year Adjusted EBITDA of $1,950 million to $2,000 million, a 21% improvement at the mid-point.

We expect 2024 to be another year of earnings growth and strong cash generation. Geographic footprint is important, from both a diversification and growth standpoint, and ours is unmatched. Leading indicators remain supportive of continued growth in public construction activity, and we are well positioned in high growth markets where the need is greatest. On the private side, recovery in single-family construction activity and healthy shipment levels to large industrial-related projects, particularly manufacturing, will help partially offset continued softness in multi-family construction as well as other categories of nonresidential. The overall pricing environment remains positive, and we carry good momentum into 2024.

We have a durable business model with strong fundamentals through economic cycles. We are positioned in geographic markets that will continue to outperform other parts of the country, and our continued execution on our operating and commercial disciplines will lead to another year of earnings growth in 2024.

32


RESULTS OF OPERATIONS

Total revenues are primarily derived from our product sales of aggregates, asphalt mix and ready-mixed concrete, and include freight & delivery costs that we pass along to our customers to deliver these products. We also generate service revenues from our asphalt construction paving business and services related to our aggregates business. We present separately our discontinued operations, which consist of our former Chemicals business.

The following table highlights significant components of our consolidated operating results including EBITDA and Adjusted EBITDA.

consolidated operating ResultS highlights

Three Months Ended

Nine Months Ended

September 30

September 30

in millions, except per share and per unit data

2023

2022

2023

2022

Total revenues

$      2,185.8 

$      2,088.3 

$      5,947.6 

$      5,583.3 

Cost of revenues

(1,594.8)

(1,595.4)

(4,471.3)

(4,375.5)

Gross profit

591.0 

492.9 

1,476.3 

1,207.8 

Gross profit margin

27.0%

23.6%

24.8%

21.6%

Selling, administrative and general (SAG)

(143.9)

(135.3)

(400.4)

(388.7)

SAG as a percentage of total revenues

6.6%

6.5%

6.7%

7.0%

Gain on sale of property, plant &

equipment and businesses

4.3 

23.8 

22.8 

28.4 

Loss on impairments

(28.3)

(67.8)

(28.3)

(67.8)

Operating earnings

418.9 

305.4 

1,057.3 

759.9 

Interest expense, net

(46.6)

(46.1)

(142.2)

(120.8)

Earnings from continuing operations

before income taxes

365.9 

260.6 

909.8 

637.4 

Income tax expense

(85.8)

(82.3)

(194.4)

(164.6)

Effective tax rate from continuing operations

23.4%

31.6%

21.4%

25.8%

Earnings from continuing operations

280.1 

178.3 

715.4 

472.8 

Loss on discontinued operations,

net of income taxes

(2.8)

(1.2)

(8.6)

(16.1)

Earnings attributable to noncontrolling interest

(0.8)

0.0 

(1.0)

(0.5)

Net earnings attributable to Vulcan

$         276.5 

$         177.1 

$         705.8 

$         456.2 

Diluted earnings (loss) per share attributable to Vulcan

Continuing operations

$           2.09 

$           1.33 

$           5.34 

$           3.54 

Discontinued operations

(0.02)

0.00 

(0.06)

(0.12)

Diluted net earnings per share attributable to Vulcan

$           2.07 

$           1.33 

$           5.28 

$           3.42 

EBITDA 1

$         569.0 

$         456.0 

$      1,503.8 

$      1,171.0 

Adjusted EBITDA 1

$         602.2 

$         507.0 

$      1,535.1 

$      1,251.0 

Average Sales Price and Unit Shipments

Aggregates

Tons

63.9 

65.4 

179.0 

182.2 

Freight-adjusted sales price

$         19.29 

$         16.79 

$         18.90 

$         16.23 

Asphalt Mix

Tons

4.0 

3.6 

10.1 

9.4 

Average sales price

$         76.22 

$         74.80 

$         75.37 

$         70.17 

Ready-mixed concrete

Cubic yards

2.1 

2.9 

6.0 

8.3 

Average sales price

$       169.98 

$       153.54 

$       165.27 

$       148.95 

1

Non-GAAP measures are defined and reconciled within this Item 2 under the caption Reconciliation of Non-GAAP Financial Measures.

 

 

33


THIRD quarter 2023 Compared to THIRD Quarter 2022

Third quarter 2023 total revenues were $2,185.8 million, up 5% from the third quarter of 2022. Shipments decreased in aggregates (-2%) and ready-mixed concrete (-27%) and increased in asphalt mix (+11%). Gross profit increased in the Aggregates (+$72.3 million or 17%) and Asphalt (+$26.3 million or 89%) segments. Conversely, gross profit decreased in the Concrete segment (-$0.4 million or 2%) as a result of the divestiture of our operations in New Jersey, New York and Pennsylvania in November 2022 (see Note 16).

Net earnings attributable to Vulcan for the third quarter of 2023 were $276.5 million, or $2.07 per diluted share, compared to $177.1 million, or $1.33 per diluted share in the third quarter of 2022. Each period’s results were impacted by discrete items, as follows:

Net earnings attributable to Vulcan for the third quarter of 2023 include:

pretax charges of $28.3 million associated with long-lived asset impairments

pretax charges of $1.2 million associated with non-routine acquisitions

pretax loss on discontinued operations of $3.8 million

$5.0 million of tax charges related to a Calica NOL carryforward valuation allowance

Net earnings attributable to Vulcan for the third quarter of 2022 include:

pretax net gain of $23.5 million related to the sale of excess real estate in Southern California

pretax charges of $67.8 million associated with goodwill and long-lived asset impairments

pretax charges of $0.4 million associated with divested operations

pretax charges of $4.7 million associated with non-routine acquisitions

pretax loss on discontinued operations of $1.6 million

$9.6 million of tax charges related to a Calica NOL carryforward valuation allowance

Adjusted for these discrete items, earnings attributable to Vulcan from continuing operations (Adjusted Diluted EPS) was $2.29 per diluted share for the third quarter of 2023 compared to $1.78 per diluted share for the third quarter of 2022.

Continuing Operations — Changes in earnings from continuing operations before income taxes for the third quarter of 2023 versus the third quarter of 2022 are summarized below:

earnings from continuing operations before income taxes

in millions

Third quarter 2022

$     260.6 

Higher aggregates gross profit

72.3 

Higher asphalt gross profit

26.3 

Lower concrete gross profit

(0.4)

Lower calcium gross profit

(0.1)

Higher selling, administrative and general expenses

(8.6)

Lower gain on sale of property, plant & equipment and businesses

(19.5)

Lower impairment charges

39.5 

Higher interest expense, net

(0.5)

All other

(3.7)

Third quarter 2023

$     365.9 

Third quarter Aggregates segment gross profit increased 17% to $508.4 million ($7.95 per ton), and gross profit margin expanded 200 basis points. Cash gross profit per ton improved 18% to $9.92 per ton. These improvements resulted from continued pricing momentum and solid operational execution.

Aggregates shipments decreased 2% as compared to the prior year’s third quarter. Shipment growth in certain Southeastern markets continued to benefit from healthy industrial project activity which dampened the impact of weakness in residential demand.

Price growth in the third quarter was consistently strong with all markets realizing year-over-year improvement. Freight-adjusted pricing increased 14.9%, or $2.50 per ton, as compared to the prior year, more than offsetting a 12% increase in freight-adjusted unit cash cost of sales. On a sequential basis, freight-adjusted selling prices continued to improve, reflecting momentum from mid-year price increases, price growth realized on backlogged projects and the added benefit of positive geographic mix (approximately 200 basis points).

34


Overall, non-aggregates segments gross profit of $82.6 million was $25.8 million higher than the prior year’s third quarter.

Asphalt segment gross profit of $55.9 million was up $26.3 million from the prior year’s third quarter, and gross profit margin expanded 660 basis points. Cash gross profit was $64.7 million compared to $38.4 million in the prior year. Asphalt mix shipments increased 11% with growth widespread across our footprint. Modest price growth and lower liquid asphalt costs also contributed to the year-over-year improvement in earnings.

Concrete segment gross profit was $26.0 million for the third quarter, and gross profit margin expanded 120 basis points. Cash gross profit was $46.5 million compared to $48.2 million in the prior year which included earnings from our divested operations in New Jersey, New York and Pennsylvania. Unit gross profit improved 34%, or $3.11 per cubic yard, despite lower shipments. Shipments in the third quarter were impacted by the divestiture and the timing of large projects in the prior year. Pricing increased 10.7%.

Calcium segment gross profit was $0.7 million compared to $0.8 million in the prior year’s third quarter.

SAG expense in the quarter was $143.9 million, or 6.6% of total revenues. Trailing-twelve months SAG expense was 6.9% of total revenues, 20 basis points lower than the prior year.

We are currently finalizing an agreement for the disposition of our concrete assets in Texas, subject to obtaining regulatory approvals and the satisfaction of other customary closing conditions. As a result, these assets were classified as held for sale during the quarter and resulted in a pretax long-lived asset impairment charge of $28.3 million ($21.1 million after tax). During the third quarter of 2022, we recognized a goodwill impairment charge of $50.9 million and a long-lived asset impairment charge of $16.9 million related to the divestiture of concrete operations in New Jersey, New York and Pennsylvania which closed in the fourth quarter of 2022.

Other operating income (expense), which is composed primarily of idle facilities expense, environmental remediation costs, gain (loss) on settlement of AROs, finance charges collected and net rental income (expense), was $4.2 million of expense for the third quarter of 2023 compared to $8.2 million of expense in the third quarter of 2022.

Other nonoperating income (expense), net was $6.4 million of expense for the third quarter of 2023 compared to $1.3 million of income in the third quarter of 2022.

Net interest expense was $46.6 million in the third quarter of 2023 compared to $46.1 million in the third quarter of 2022.

Income tax expense from continuing operations was $85.8 million in the third quarter of 2023 compared to $82.3 million in the third quarter of 2022. The increase in tax expense was due to higher pretax earnings partially offset by a tax benefit related to a reserve recorded on the assets held for sale in the third quarter of 2023 (see Note 16) and a smaller valuation allowance recorded on Mexico losses when compared to the third quarter of 2022.

Earnings attributable to Vulcan from continuing operations were $2.09 per diluted share in the third quarter of 2023 compared to $1.33 per diluted share in the third quarter of 2022.

Discontinued Operations — Third quarter pretax loss from discontinued operations was $3.8 million in 2023 compared with a pretax loss of $1.6 million in 2022. Both periods include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations.

 

 

35


YEAR-TO-DATE SEPTEMBER 30, 2023 Compared to year-to-date SEPTEMBER 30, 2022

Total revenues for the first nine months of 2023 were $5,947.6 million, up 7% from the first nine months of 2022. Shipments decreased in aggregates (-2%) and ready-mixed concrete (-27%) and increased in asphalt mix (+7%). Gross profit increased in the Aggregates (+$228.4 million or 21%) and Asphalt (+$73.1 million or 182%) segments. Conversely, gross profit decreased in the Concrete segment (-$34.0 million or 40%) as a result of the divestiture of our operations in New Jersey, New York and Pennsylvania in November 2022 (see Note 16).

Net earnings attributable to Vulcan for the first nine months of 2023 were $705.8 million, or $5.28 per diluted share, compared to $456.2 million, or $3.42 per diluted share, in the first nine months of 2022. Each period’s results were impacted by discrete items, as follows:

Net earnings attributable to Vulcan for the first nine months of 2023 include:

pretax net gain of $15.2 million related to the sale of real estate in Illinois

pretax charges of $28.3 million associated with long-lived asset impairments

pretax charges of $4.7 million associated with divested operations

pretax charges of $2.0 million associated with non-routine acquisitions

pretax loss on discontinued operations of $11.7 million

$11.2 million of tax charges related to a Calica NOL carryforward valuation allowance

Net earnings attributable to Vulcan for the first nine months of 2022 include:

pretax net gain of $23.5 million related to the sale of excess real estate in Southern California

pretax charges of $67.8 million associated with goodwill and long-lived asset impairments

pretax charges of $1.0 million associated with divested operations

pretax charges of $13.0 million associated with non-routine acquisitions

pretax loss on discontinued operations of $21.7 million

$9.6 million of tax charges related to a Calica NOL carryforward valuation allowance

Adjusted for these discrete items, earnings attributable to Vulcan from continuing operations (Adjusted Diluted EPS) was $5.54 per diluted share for the first nine months of 2023 compared to $4.03 per diluted share for the first nine months of 2022.

Continuing Operations — Changes in earnings from continuing operations before income taxes for year-to-date September 30, 2023 versus year-to-date September 30, 2022 are summarized below:

earnings from continuing operations before income taxes

in millions

Year-to-date September 30, 2022

$     637.4 

Higher aggregates gross profit

228.4 

Higher asphalt gross profit

73.1 

Lower concrete gross profit

(34.0)

Higher calcium gross profit

0.9 

Higher selling, administrative and general expenses

(11.7)

Lower gain on sale of property, plant & equipment and businesses

(5.6)

Lower impairment charges

39.5 

Higher interest expense, net

(21.4)

All other

3.2 

Year-to-date September 30, 2023

$     909.8 

Aggregates segment sales for the first nine months of 2023 were $4,498.9 million (up 12%) while aggregates shipments decreased 2%, or 3.1 million tons, compared to the prior year. Year-to-date freight-adjusted average sales price increased 16.5%.

36


Aggregates segment gross profit was $1,309.8 million ($7.32 per ton) versus $1,081.3 million ($5.94 per ton) in the first nine months of 2022. Freight-adjusted unit cost of sales for the first nine months of 2023 increased 13%, or $1.29 per ton, versus the prior year. The favorable pricing environment coupled with strong operational execution has led to consistent improvement in unit profitability through the first nine months. On a year-to-date basis, gross profit per ton improved 23% to $7.32 per ton, and cash gross profit per ton improved 21% to $9.31 per ton. Gross profit margin has expanded year-over-year in each quarter and has improved 220 basis points year-to-date.

Asphalt segment gross profit of $113.3 million was up $73.1 million from the first nine months of 2022. Asphalt mix shipments increased 7% while average unit selling prices increased 7.4%, or $5.20 per ton. Year-to-date gross profit margin expanded 800 basis points to 13%, resulting from solid volume and price growth and the benefit of lower liquid asphalt costs.

Concrete segment gross profit was $50.7 million for the first nine months of 2023, a decrease of $34.0 million from the prior year period which included earnings from our divested operations in New Jersey, New York and Pennsylvania. Ready-mixed concrete shipments decreased 27% while the average sales price increased 11.0% and unit material margins increased 9%.

Calcium segment gross profit of $2.5 million was up $0.9 million compared to the first nine months of 2022.

SAG expenses were $400.4 million (6.7% of total revenues) versus $388.7 million (7.0% of total revenues) in the prior year’s first nine months reflecting a 30 basis points improvement from the prior year. We remain focused on further leveraging our overhead cost structure.

Gain on sale of property, plant & equipment and businesses was $22.8 million in the first nine months of 2023 versus $28.4 million in the first nine months of 2022. The 2023 amount includes a net pretax gain of $15.2 million from the sale of real estate associated with a former recycled concrete facility in Illinois while the 2022 amount includes a net pretax gain of $23.5 million from the sale of excess real estate in Southern California.

For the nine months ended September 30, 2023, we recognized a long-lived asset impairment charge of $28.3 million related to the probable divestiture of concrete operations in Texas. For the nine months ended September 30, 2022, we recognized a goodwill impairment charge of $50.9 million and a long-lived asset impairment charge of $16.9 million related to the divestiture of concrete operations in New Jersey, New York and Pennsylvania which closed in the fourth quarter of 2022.

Other operating income (expense), which is composed primarily of idle facilities expense, environmental remediation costs, gain (loss) on settlement of AROs, finance charges collected and net rental income (expense), was $13.1 million of expense for the first nine months of 2023 compared to $19.8 million of expense in the first nine months of 2022.

Other nonoperating income (expense), net was $5.3 million of expense for the first nine months of 2023 compared to $1.7 million of expense in the first nine months of 2022.

Net interest expense was $142.2 million in the first nine months of 2023 compared to $120.8 million in the first nine months of 2022.

Income tax expense from continuing operations was $194.4 million in the first nine months of 2023 compared to $164.6 million in the first nine months of 2022. The increase in tax expense was due to higher pretax earnings reduced by tax benefits from a prior year business disposition recorded in the first quarter of 2023 and the reserve recorded on the assets held for sale.

Earnings attributable to Vulcan from continuing operations were $5.34 per diluted share in the first nine months of 2023 compared to $3.54 per diluted share in the first nine months of 2022.

Discontinued Operations — First nine months pretax loss from discontinued operations was $11.7 million in 2023 compared with a pretax loss of $21.7 million in 2022. Both periods include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business while 2022 includes a $15.3 million charge for a litigation matter. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations.

 

 

37


KNOWN TRENDS OR UNCERTAINTIES

Inflationary pressures and labor constraints are trends continuing to impact our operations in 2023. Although inflationary pressures can create short- to medium-term headwinds, the combination of inflation and improving visibility of demand has created and may continue to create a favorable environment for price increases. Additionally, labor constraints (especially truck drivers) have caused delays and inefficiencies in our operations as well as those of our customers. If labor constraints continue and demand remains strong, our operations may proceed at a slower pace, which may effectively extend the recovery while allowing us the opportunity to compound price, control costs and grow earnings.

Further, the Mexican government has taken actions adverse to our property and operations in Mexico. On May 5, 2022, Mexican government officials presented employees at our Calica operations in Quintana Roo, Mexico with arbitrary shutdown orders to immediately cease underwater quarrying and extraction operations. On May 13, 2022, the Mexican government suspended the three-year customs permit granted in March 2022 to Calica and began a proceeding that could result in the revocation of that permit. We strongly believe that the actions taken by Mexico are arbitrary and illegal, and we intend to vigorously pursue all lawful avenues available to us in order to protect our rights, under both Mexican and international law. For additional information regarding our Calica operations, see Note 8, NAFTA Arbitration.

 

 

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Aggregates segment FREIGHT-ADJUSTED REVENUES

Aggregates segment freight-adjusted revenues is not a Generally Accepted Accounting Principle (GAAP) measure and should not be considered as an alternative to metrics defined by GAAP. We present this measure as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities. It also excludes other revenues related to services, such as landfill tipping fees, that are derived from our aggregates business. Additionally, we use this metric as the basis for calculating the average sales price of our aggregates products. Reconciliation of this metric to its nearest GAAP measure is presented below:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions, except per ton data

2023

2022

2023

2022

Aggregates segment

Segment sales

$      1,626.1 

$      1,490.5 

$      4,498.9 

$      4,013.5 

Less

Freight & delivery revenues 1

366.3 

364.6 

1,040.8 

972.9 

Other revenues

26.3 

28.7 

74.3 

84.1 

Freight-adjusted revenues

$      1,233.5 

$      1,097.2 

$      3,383.8 

$      2,956.5 

Unit shipments - tons

63.9 

65.4 

179.0 

182.2 

Freight-adjusted sales price

$         19.29 

$         16.79 

$         18.90 

$         16.23 

1

At the segment level, freight & delivery revenues include intersegment freight & delivery (which are eliminated at the consolidated level) and freight to remote distribution sites.

38


cash gross profit

GAAP does not define “cash gross profit,” and it should not be considered as an alternative to earnings measures defined by GAAP. We and the investment community use this metric to assess the operating performance of our business. Additionally, we present this metric as we believe that it closely correlates to long-term shareholder value. We do not use this metric as a measure to allocate resources. Cash gross profit adds back noncash charges for depreciation, depletion, accretion and amortization to gross profit. Segment cash gross profit per unit is computed by dividing segment cash gross profit by units shipped. Segment cash cost of sales per unit is computed by subtracting segment cash gross profit per unit from segment freight-adjusted sales price. Segment freight-adjusted sales price is calculated by dividing revenues generated from the shipment of product (excluding service revenues generated by the segments) by the total units of the product shipped. Reconciliation of these metrics to their nearest GAAP measures are presented below:

Three Months Ended

Nine Months Ended

September 30

September 30

in millions, except per ton data

2023

2022

2023

2022

Aggregates segment

Gross profit

$        508.4 

$        436.1 

$     1,309.8 

$     1,081.3 

Depreciation, depletion, accretion and amortization

125.6 

113.5 

357.4 

324.4 

Aggregates segment cash gross profit

$        634.0 

$        549.6 

$     1,667.2 

$     1,405.7 

Unit shipments - tons

63.9 

65.4 

179.0 

182.2 

Aggregates segment gross profit per ton

$          7.95 

$          6.67 

$          7.32 

$          5.94 

Aggregates segment cash gross profit per ton

$          9.92 

$          8.41 

$          9.31 

$          7.72 

Aggregates segment freight-adjusted sales price

$        19.29 

$        16.79 

$        18.90 

$        16.23 

Aggregates segment freight-adjusted cash cost of

sales per ton

$          9.37 

$          8.38 

$          9.59 

$          8.51 

Asphalt segment

Gross profit

$          55.9 

$          29.5 

$        113.3 

$          40.2 

Depreciation, depletion, accretion and amortization

8.8 

8.9 

26.7 

26.0 

Asphalt segment cash gross profit

$          64.7 

$          38.4 

$        140.0 

$          66.2 

Unit shipments - tons

4.0 

3.6 

10.1 

9.4 

Asphalt segment gross profit per ton

$        13.92 

$          8.14 

$        11.26 

$          4.29 

Asphalt segment cash gross profit per ton

$        16.11 

$        10.58 

$        13.90 

$          7.06 

Asphalt segment average sales price

$        76.22 

$        74.80 

$        75.37 

$        70.17 

Asphalt segment cash cost of sales per ton

$        60.11 

$        64.22 

$        61.47 

$        63.11 

Concrete segment

Gross profit

$          26.0 

$          26.5 

$          50.7 

$          84.7 

Depreciation, depletion, accretion and amortization

20.5 

21.7 

60.4 

63.5 

Concrete segment cash gross profit

$          46.5 

$          48.2 

$        111.1 

$        148.2 

Unit shipments - cubic yards

2.1 

2.9 

6.0 

8.3 

Concrete segment gross profit per cubic yard

$        12.16 

$          9.05 

$          8.46 

$        10.26 

Concrete segment cash gross profit per cubic yard

$        21.74 

$        16.48 

$        18.54 

$        17.95 

Concrete segment average sales price

$      169.98 

$      153.54 

$      165.27 

$      148.95 

Concrete segment cash cost of sales per cubic yard

$      148.24 

$      137.06 

$      146.73 

$      131.00 

Calcium segment

Gross profit

$            0.7 

$            0.8 

$            2.5 

$            1.6 

Depreciation, depletion, accretion and amortization

0.0 

0.0 

0.1 

0.1 

Calcium segment cash gross profit

$            0.7 

$            0.8 

$            2.6 

$            1.7 

39


EBITDA and adjusted ebitda

GAAP does not define “Earnings Before Interest, Taxes, Depreciation and Amortization” (EBITDA), and it should not be considered as an alternative to earnings measures defined by GAAP. We use this metric to assess the operating performance of our business and as a basis for strategic planning and forecasting as we believe that it closely correlates to long-term shareholder value. We do not use this metric as a measure to allocate resources. We adjust EBITDA for certain items to provide a more consistent comparison of earnings performance from period to period. Reconciliation of this metric to its nearest GAAP measure is presented below (numbers may not foot due to rounding):

Three Months Ended

Nine Months Ended

Trailing-Twelve Months

September 30

September 30

September 30

in millions

2023

2022

2023

2022

2023

2022

Net earnings attributable to Vulcan

$       276.5 

$       177.1 

$       705.8 

$       456.2 

$       825.1 

$       594.2 

Income tax expense, including discontinued operations

84.8 

81.8 

191.3 

159.0 

218.8 

189.3 

Interest expense, net of interest income

46.6 

46.1 

142.2 

120.8 

189.8 

156.9 

Depreciation, depletion, accretion and amortization

161.1 

151.0 

464.4 

435.0 

616.9 

577.0 

EBITDA

$       569.0 

$       456.0 

$    1,503.8 

$    1,171.0 

$    1,850.7 

$    1,517.3 

Loss on discontinued operations

$           3.8 

$           1.6 

$         11.7 

$         21.7 

$         15.1 

$         22.5 

(Gain) loss on sale of real estate and businesses, net

0.0 

(23.5)

(15.2)

(23.5)

2.2 

(23.5)

Loss on impairments

28.3 

67.8 

28.3 

67.8 

28.3 

67.8 

Charges associated with divested operations

0.0 

0.4 

4.7 

1.0 

7.4 

1.5 

Acquisition related charges 1

1.2 

4.7 

2.0 

13.0 

6.1 

32.9 

COVID-19 direct incremental costs

0.0 

0.0 

0.0 

0.0 

0.0 

3.7 

Pension settlement charge

0.0 

0.0 

0.0 

0.0 

0.0 

12.1 

Adjusted EBITDA

$       602.2 

$       507.0 

$    1,535.1 

$    1,251.0 

$    1,909.8 

$    1,634.3 

1

Represents charges associated with acquisitions requiring clearance under federal antitrust laws. Costs for trailing-twelve months ended September 30, 2022 include U.S. Concrete acquisition related expenses of $0.5 million, the cost impact of purchase accounting inventory valuations of $11.8 million and change in control severance and retention charges of $13.5 million (see Note 16 for additional information).

Adjusted Diluted EPS attributable to vulcan from continuing Operations

Similar to our presentation of Adjusted EBITDA, we present Adjusted diluted earnings per share (EPS) attributable to Vulcan from continuing operations to provide a more consistent comparison of earnings performance from period to period. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below:

Three Months Ended

Nine Months Ended

September 30

September 30

2023

2022

2023

2022

Diluted Earnings Per Share

Net earnings attributable to Vulcan

$          2.07 

$          1.33 

$          5.28 

$          3.42 

Items included in Adjusted EBITDA above, net of tax

0.18 

$          0.38 

0.17 

$          0.54 

NOL carryforward valuation allowance

0.04 

0.07 

0.09 

0.07 

Adjusted diluted EPS attributable to Vulcan from

continuing operations

$          2.29 

$          1.78 

$          5.54 

$          4.03 

40


NET DEBT TO ADJUSTED EBITDA

Net debt to Adjusted EBITDA is not a GAAP measure and should not be considered as an alternative to metrics defined by GAAP. We, the investment community and credit rating agencies use this metric to assess our leverage. Net debt subtracts cash and cash equivalents and restricted cash from total debt. Reconciliation of this metric to its nearest GAAP measure is presented below:

September 30

in millions

2023

2022

Debt

Current maturities of long-term debt

$            0.5 

$            0.5 

Short-term debt

0.0 

312.0 

Long-term debt

3,874.3 

3,874.2 

Total debt

$     3,874.8 

$     4,186.7 

Less: Cash and cash equivalents and restricted cash

345.0 

146.9 

Net debt

$     3,529.8 

$     4,039.8 

Trailing-Twelve Months (TTM) Adjusted EBITDA

$     1,909.8 

$     1,634.3 

Total debt to TTM Adjusted EBITDA

2.0x

2.6x

Net debt to TTM Adjusted EBITDA

1.8x

2.5x

RETURN ON INVESTED CAPITAL

We define “Return on Invested Capital” (ROIC) as Adjusted EBITDA for the trailing-twelve months divided by average invested capital (as illustrated below) during the trailing-five quarters. Our calculation of ROIC is considered a non-GAAP financial measure because we calculate ROIC using the non-GAAP metric EBITDA. We believe that our ROIC metric is meaningful because it helps investors assess how effectively we are deploying our assets. Although ROIC is a standard financial metric, numerous methods exist for calculating a company’s ROIC. As a result, the method we use to calculate our ROIC may differ from the methods used by other companies. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below (numbers may not foot due to rounding):

Trailing-Twelve Months

September 30

September 30

dollars in millions

2023

2022

Adjusted EBITDA

$      1,909.8 

$      1,634.3 

Average invested capital

Property, plant & equipment, net

$      6,059.8 

$      5,716.4 

Goodwill

3,661.0 

3,705.5 

Other intangible assets

1,642.9 

1,761.0 

Fixed and intangible assets

$    11,363.7 

$    11,182.9 

Current assets

$      2,154.6 

$      1,855.3 

Less: Cash and cash equivalents

192.3 

156.3 

Less: Current tax

41.7 

49.3 

Adjusted current assets

1,920.6 

1,649.7 

Current liabilities

946.7 

945.7 

Less: Current maturities of long-term debt

0.5 

4.5 

Less: Short-term debt

82.4 

117.6 

Adjusted current liabilities

863.8 

823.6 

Adjusted net working capital

$      1,056.8 

$         826.1 

Average invested capital

$    12,420.5 

$    12,009.0 

Return on invested capital

15.4%

13.6%

41


2023 projected ADJUSTED ebitda

Projected Adjusted EBITDA is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below:

2023 Projected

in millions

Mid-point

Net earnings attributable to Vulcan

$           890 

Income tax expense, including discontinued operations

250 

Interest expense, net of interest income

195 

Depreciation, depletion, accretion and amortization

610 

Projected EBITDA

$        1,945 

Items included in Adjusted Diluted EPS above

30 

Projected Adjusted EBITDA

$        1,975 

Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, we have not provided reconciliations for forward-looking non-GAAP measures, other than the reconciliation of Projected Adjusted EBITDA as noted above. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.

 

 

LIQUIDITY AND FINANCIAL RESOURCES

Our primary sources of liquidity are cash provided by our operating activities, a substantial, committed bank line of credit and our commercial paper program. Additional sources of capital include access to the capital markets, the sale of surplus real estate and dispositions of nonstrategic operating assets. We believe these financial resources are sufficient to fund our business requirements for 2023 including:

contractual obligations

capital expenditures

debt service obligations

dividend payments

potential acquisitions

potential share repurchases

Our balanced approach to capital deployment remains unchanged. We intend to balance reinvestment in our business, growth through acquisitions and return of capital to shareholders, while sustaining financial strength and flexibility.

We actively manage our capital structure and resources in order to balance the cost of capital and the risk of financial stress. We seek to meet these objectives by adhering to the following principles:

maintain substantial bank line of credit borrowing capacity

proactively manage our debt maturity schedule such that repayment/refinancing risk in any single year is low

maintain an appropriate balance of fixed-rate and floating-rate debt

minimize financial and other covenants that limit our operating and financial flexibility

42


Cash

Included in our September 30, 2023 cash and cash equivalents and restricted cash balances of $345.0 million is $5.0 million of restricted cash as described in Note 1 under the caption Restricted Cash.

cash from operating activities

Nine Months Ended

September 30

in millions

2023

2022

Net earnings

$          706.8 

$          456.7 

Depreciation, depletion, accretion and amortization (DDA&A)

464.4 

435.0 

Loss on impairments

28.3 

67.8 

Noncash operating lease expense

40.7 

46.6 

Net gain on sale of property, plant & equipment and businesses

(22.8)

(28.4)

Deferred tax provision (benefit)

(6.0)

35.4 

Other operating cash flows, net 1

(156.2)

(264.8)

Net cash provided by operating activities

$       1,055.2 

$          748.3 

1

Primarily reflects changes to working capital balances.

Net cash provided by operating activities was $1,055.2 million during the nine months ended September 30, 2023, a $306.9 million increase compared to the same period of 2022. The increase was primarily attributable to a $250.1 million increase in net earnings and changes in working capital balances.

Days sales outstanding, a measurement of the time it takes to collect receivables, were 45.3 days at September 30, 2023 compared to 47.6 days at September 30, 2022. Additionally, our over 90 day receivables balance was $28.1 million at September 30, 2023, a decrease of $18.3 million from the $46.4 million balance at September 30, 2022. All customer accounts are actively managed, and no losses in excess of amounts reserved are currently expected.

cash from investing activities

Net cash used for investing activities was $509.2 million during the first nine months of 2023, a $431.5 million decrease compared to cash used of $940.7 million in the same period of 2022. This decrease was primarily attributable to a $528.9 million decrease in payments for businesses acquired in the current period compared to the prior period. During the first nine months of 2022, we acquired businesses for $528.0 million (see Note 16 to the condensed consolidated financial statements). Additionally, during the first nine months of 2023, we received $130.0 million in proceeds from the collection of a note receivable related to the sale of concrete operations in New Jersey, New York and Pennsylvania in November 2022. Furthermore, during the first nine months of 2023, we invested $666.3 million in our existing operations (includes changes in accruals for property, plant & equipment) compared to $450.4 million in the prior year period. Of this $666.3 million, $138.4 million was invested in internal growth projects to enhance our distribution capabilities, develop new production sites and enhance existing production facilities. An additional $172.9 million was invested in opportunistic land purchases of strategic reserves.

cash from financing activities

Net cash used for financing activities in the first nine months of 2023 was $362.5 million, compared to cash provided of $97.8 million in the same period of 2022. The current year includes a $100.0 million net payment on our line of credit, whereas the prior year includes a $312.0 million net draw on our line of credit. Additionally, we increased the capital returned to our shareholders by $62.0 million via higher dividends of $12.1 million ($1.29 per share compared to $1.20 per share) and higher share repurchases of $49.9 million (241,363 shares repurchased at $206.82 average price per share compared to none in the first nine months of 2022).

 

 

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debt

Certain debt measures are presented below:

September 30

December 31

September 30

dollars in millions

2023

2022

2022

Debt

Current maturities of long-term debt

$            0.5 

$            0.5 

$            0.5 

Short-term debt

0.0 

100.0 

312.0 

Long-term debt

3,874.3 

3,875.2 

3,874.2 

Total debt

$     3,874.8 

$     3,975.7 

$     4,186.7 

Capital

Total debt

$     3,874.8 

$     3,975.7 

$     4,186.7 

Total equity

7,465.2 

6,952.2 

6,878.9 

Total capital

$   11,340.0 

$   10,927.9 

$   11,065.6 

Total Debt as a Percentage of Total Capital

34.2%

36.4%

37.8%

Weighted-average Effective Interest Rates

Line of credit 1

1.13%

1.13%

1.13%

Commercial paper

5.58%

4.79%

3.04%

Term debt

4.82%

4.75%

4.55%

Fixed versus Floating Interest Rate Debt

Fixed-rate debt

72.1%

70.3%

66.8%

Floating-rate debt

27.9%

29.7%

33.2%

1

Reflects the margin above SOFR for SOFR-based borrowings; we also paid upfront fees that are amortized to interest expense and pay fees for unused borrowing capacity and standby letters of credit.

At September 30, 2023, total debt to trailing-twelve months Adjusted EBITDA was 2.0 times (1.8 times on a net debt basis reflecting $345.0 million of cash on hand). Our weighted-average debt maturity was 10.2 years.

delayed draw term loan, line of credit AND COMMERICAL PAPER PROGRAM

In June 2021, we entered into a $1,600.0 million unsecured delayed draw term loan which was fully drawn in August 2021 upon the acquisition of U.S. Concrete. The delayed draw term loan was paid down to $1,100.0 million in September 2021 with cash on hand, paid down to $550.0 million in August 2022 using the proceeds from the issuance of commercial paper as described below and fully repaid in March 2023 using proceeds from the issuance of 5.80% senior notes as described below.

Our unsecured line of credit was amended in August 2022 to increase the borrowing capacity from $1,000.0 million to $1,600.0 million and extend the maturity date from September 2026 to August 2027. Our line of credit contains covenants customary for an unsecured investment-grade facility. Covenants, borrowings, cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. As of September 30, 2023, we were in compliance with the covenants, the margin for SOFR borrowings was 1.125%, the margin for base rate borrowings was 0.125% and the commitment fee for the unused amount was 0.100%.

In August 2022, we established a $1,600.0 million commercial paper program through which we borrowed $550.0 million that was used to partially repay the delayed draw term loan. Commercial paper borrowings bear interest at rates determined at the time of borrowing and as agreed between us and the commercial paper investors.

As of September 30, 2023, our available borrowing capacity under the line of credit was $1,516.8 million. Utilization of the borrowing capacity was as follows:

None was borrowed

$83.2 million was used to support standby letters of credit

TERM DEBT

All of our $3,941.6 million (face value) of term debt (which includes the $550.0 million commercial paper) is unsecured. All of the covenants in the debt agreements are customary for investment-grade facilities. As of September 30, 2023, we were in compliance with all term debt covenants.

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In March 2023, we issued $550.0 million of 5.80% senior notes due 2026. Total proceeds of $546.6 million (net of discounts and transaction costs), together with cash on hand, were used to repay the $550.0 million delayed draw term loan.

CURRENT MATURITIES of long-term debt

The $0.5 million of current maturities of long-term debt as of September 30, 2023 is due as follows:

Current

in millions

Maturities

Fourth quarter 2023

$0.0

First quarter 2024

0.5

Second quarter 2024

0.0

Third quarter 2024

0.0

debt ratings

Our debt ratings and outlooks as of September 30, 2023 are as follows:

Short-term

Long-term

Outlook

Fitch

F2

BBB

Stable

Moody's

P-2

Baa2

Stable

Standard & Poor's

A-2

BBB+

Stable

 

 

Equity

The number of our common stock issuances and purchases for the year-to-date periods ended are as follows:

September 30

December 31

September 30

in millions

2023

2022

2022

Common stock shares at January 1,

issued and outstanding

132.9 

132.7 

132.7 

Common Stock Issuances

Share-based compensation plans

0.2 

0.2 

0.2 

Common Stock Purchases

Purchased and retired

(0.2)

0.0 

0.0 

Common stock shares at end of period,

issued and outstanding

132.9 

132.9 

132.9 

As of September 30, 2023, there were 7,823,488 shares remaining under the February 2017 share purchase authorization by our Board of Directors. Depending upon market, business, legal and other conditions, we may purchase shares from time to time through the open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares and may be suspended or discontinued at any time.

The detail of our common stock purchases (all of which were open market purchases) for the year-to-date periods ended are as follows:

September 30

December 31

September 30

in millions, except average cost

2023

2022

2022

Shares Purchased and Retired

Number

0.2 

0.0 

0.0 

Total purchase price

$          49.9 

$            0.0 

$            0.0 

Average cost per share

$      206.82 

$          0.00 

$          0.00 

There were no shares held in treasury as of September 30, 2023, December 31, 2022 and September 30, 2022.

 

 

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off-balance sheet arrangements

We have no off-balance sheet arrangements such as financing or unconsolidated variable interest entities.

Standby Letters of Credit

For a discussion of our standby letters of credit, see Note 7 to the condensed consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

We follow certain significant accounting policies when preparing our consolidated financial statements. A summary of these policies is included in our Annual Report on Form 10-K for the year ended December 31, 2022 (Form 10-K).

We prepare these financial statements to conform with accounting principles generally accepted in the United States of America. These principles require us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and contingent liabilities at the date of the financial statements. We base our estimates on historical experience, current conditions and various other assumptions we believe reasonable under existing circumstances and evaluate these estimates and judgments on an ongoing basis. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.

We believe that the accounting policies described in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K require the most significant judgments and estimates used in the preparation of our consolidated financial statements, so we consider these to be our critical accounting policies. There have been no changes to our critical accounting policies during the nine months ended September 30, 2023.

new Accounting standards

For a discussion of the accounting standards recently adopted or pending adoption and the effect such accounting changes will have on our results of operations, financial position or liquidity, see Note 17 to the condensed consolidated financial statements.

In May 2023, the SEC adopted the final rule under SEC Release No. 34-97424, “Share Repurchase Disclosure Modernization,” which requires disclosures related to issuers’ daily share repurchases to provide investors with more detailed information to assess the purposes and effects of the repurchases. The rule is effective for the first full fiscal quarter beginning on or after October 1, 2023. We do not expect this rule to have a material impact on our consolidated financial statements.

In July 2023, the SEC adopted the final rule under SEC Release No. 33-11216, “Cybersecurity Risk Management, Strategy, Governance and Incident Disclosure,” which requires disclosure of material cybersecurity incidents on Form 8-K beginning on December 18, 2023. The rule also requires disclosure of our cybersecurity risk management, strategy and governance in the annual report on Form 10-K effective for fiscal years ending after December 15, 2023. We do not expect this rule to have a material impact on our consolidated financial statements.

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FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, including expectations regarding future performance, contain forward-looking statements that are subject to assumptions, risks and uncertainties that could cause actual results to differ materially from those projected. These assumptions, risks and uncertainties include, but are not limited to:

general economic and business conditions

a pandemic, epidemic or other public health emergency, such as the COVID-19 outbreak

our dependence on the construction industry, which is subject to economic cycles

the timing and amount of federal, state and local funding for infrastructure

changes in the level of spending for private residential and private nonresidential construction

changes in our effective tax rate

domestic and global political, economic or diplomatic developments

the increasing reliance on information technology infrastructure, including the risks that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber-attacks

the impact of the state of the global economy on our businesses and financial condition and access to capital markets

international business operations and relationships, including recent actions taken by the Mexican government with respect to our property and operations in that country

the highly competitive nature of the construction industry

the impact of future regulatory or legislative actions, including those relating to climate change, biodiversity, land use, wetlands, greenhouse gas emissions, the definition of minerals, tax policy and domestic and international trade

the outcome of pending legal proceedings

pricing of our products

weather and other natural phenomena, including the impact of climate change and availability of water

availability and cost of trucks, railcars, barges and ships, as well as their licensed operators, for transport of our materials

energy costs

costs of hydrocarbon-based raw materials

healthcare costs

labor relations, shortages and constraints

the amount of long-term debt and interest expense we incur

changes in interest rates

volatility in pension plan asset values and liabilities, which may require cash contributions to the pension plans

the impact of environmental cleanup costs and other liabilities relating to existing and/or divested businesses

our ability to secure and permit aggregates reserves in strategically located areas

our ability to manage and successfully integrate acquisitions

the effect of changes in tax laws, guidance and interpretations

significant downturn in the construction industry may result in the impairment of goodwill or long-lived assets

changes in technologies, which could disrupt the way we do business and how our products are distributed

the risks of open pit and underground mining

expectations relating to environmental, social and governance considerations

claims that our products do not meet regulatory requirements or contractual specifications

other assumptions, risks and uncertainties detailed from time to time in our periodic reports filed with the SEC

All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission (SEC) and our press releases with regard to our business and consolidated financial position, results of operations and cash flows.

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INVESTOR information

We make available on our website, www.vulcanmaterials.com, free of charge, copies of our:

Annual Report on Form 10-K

Quarterly Reports on Form 10-Q

Current Reports on Form 8-K

Our website also includes amendments to those reports filed with or furnished to the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database (www.sec.gov).

In addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K, including financial statements, by writing to Denson N. Franklin III, Senior Vice President, General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.

We have a:

Business Conduct Policy applicable to all employees and directors

Code of Ethics for the CEO and Senior Financial Officers

Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the “Investor Relations” tab (“Governance” section). If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC.

Our Board of Directors has also adopted:

Corporate Governance Guidelines

Charters for its Audit, Compensation, Executive, Finance, Governance and Safety, Health & Environmental Affairs Committees

These documents meet all applicable SEC and New York Stock Exchange regulatory requirements.

The Charters of the Audit, Compensation and Governance Committees are available on our website under the “Investor Relations” tab (“Governance – Committee Composition” section) or you may request a copy of any of these documents by writing to Denson N. Franklin III, Senior Vice President, General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242.

Information included on our website is not incorporated into, or otherwise made a part of, this report.

 

 


48


 

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. To manage these market risks, we may use derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes.

As discussed in the Liquidity and Financial Resources section of Part I, Item 2, we actively manage our capital structure and resources to balance the cost of capital and risk of financial stress. Such activity includes balancing the cost and risk of interest expense. In addition to floating-rate borrowings, we at times use interest rate swaps to manage the mix of fixed-rate and floating-rate debt.

In March 2023, we issued $550.0 million of 5.80% fixed-rate debt maturing in March 2026. Concurrently, we entered into fixed-to-floating interest rate swap agreements designated as fair value hedges in the amount of $550.0 million. Under these swap agreements, we receive a fixed interest rate of 5.80% (matches the fixed rate we pay on the $550.0 million of debt) and pay daily compound SOFR plus 0.241%. The changes in the fair value of these swaps designated as fair value hedges are recorded in interest expense consistent with the change in fair value of the hedged fixed-rate debt. At September 30, 2023, we recognized a net liability of $2.1 million equal to the fair value of this swap and a corresponding decrease in the fair value of the hedged fixed-rate debt.

At September 30, 2023, the estimated fair value of our long-term debt including current maturities was $3,598.1 million compared to a face value of $3,941.6 million. The estimated fair value was determined by averaging several asking price quotes for the publicly traded notes and assuming par value for the remainder of the debt. The fair value estimate is based on information available as of the balance sheet date. The effect of a decline in interest rates of one percentage point would increase the fair value of our debt by approximately $0.2 million.

We are exposed to certain economic risks related to the costs of our pension and other postretirement benefit plans. These economic risks include changes in the discount rate for high-quality bonds and the expected return on plan assets. The impact of a change in these assumptions on our annual pension and other postretirement benefits costs is discussed in our most recent Annual Report on Form 10-K.

 

 

ITEM 4

controls and procedures

disclosure controls and procedures

We maintain a system of controls and procedures designed to ensure that information required to be disclosed in reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. These disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a - 15(e) or 15d - 15(e)), include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer, with the participation of other management officials, evaluated the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

We are in the process of replacing our legacy quote to cash software system for our ready-mixed concrete operations. We expect the full implementation of this system to be completed by the fourth quarter of 2023.

No other changes were made during the third quarter of 2023 to our internal controls over financial reporting, nor have there been other factors that materially affect these controls.

 

 

49


part Ii other information

ITEM 1

legal proceedings

Certain legal proceedings in which we are involved are discussed in Note 12 to the consolidated financial statements and Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2022 and in Note 8 to the condensed consolidated financial statements and Part II. Item 1 of our Quarterly Report on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023. See Note 8 to the condensed consolidated financial statements of this Form 10-Q for a discussion of certain recent developments concerning our legal proceedings.

ITEM 1A

risk factors

There were no material changes to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of our equity securities during the quarter ended September 30, 2023 are summarized below.

Total Number of

Maximum Number

Total

Shares Purchased

of Shares That May

Number of

Average

As Part of Publicly

Yet Be Purchased

Shares

Price Paid

Announced Plans

Under the Plans

Period

Purchased

Per Share

or Programs

or Programs

2023

July 1 - July 31

$          0.00 

7,823,488 

Aug 1 - Aug 31

$          0.00 

7,823,488 

Sep 1 - Sep 30

$          0.00 

7,823,488 

Total

$          0.00 

1

In February 2017, our Board of Directors authorized us to purchase up to 10,000,000 shares of our common stock. As of September 30, 2023, there were 7,823,488 shares remaining under this authorization. Depending upon market, business, legal and other conditions, we may purchase shares from time to time through the open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares and may be suspended or discontinued at any time.

We did not have any unregistered sales of equity securities during the third quarter of 2023.

ITEM 4

MINE SAfETY DISCLOSURES

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 of this report.

ITEM 5

OTHER INFORMATION

SECURITIES TRADING PLANS of SeCTION 16 OFFICERS AND DIRECTORS

During the three months ended September 30, 2023, none of our Section 16 officers or directors adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement as defined in Item 408(a) of Regulation S-K.

50


ITEM 6

exhibits

Exhibit 31(a)

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31(b)

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32(a)

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32(b)

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 95

MSHA Citations and Litigation

Exhibit 101

The following unaudited financial information from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements.

Exhibit 104

Cover Page Interactive Data File – the cover page from this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 is formatted in iXBRL (contained in Exhibit 101).

Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-33841.

 

 


51


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

VULCAN MATERIALS COMPANY

 

 

 

Date       October 27, 2023

/s/ Randy L. Pigg

Randy L. Pigg

Vice President, Controller

(Principal Accounting Officer)

 

 

 

Date       October 27, 2023

/s/ Mary Andrews Carlisle

Mary Andrews Carlisle

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

 

 

52