Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Management’s discussion and analysis is intended to help investors understand our operations and current business environment. The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this Annual Report. The following generally includes a comparison of our results of operations and liquidity and capital resources for 2020 and 2019. For the discussion of changes from 2018 to 2019 and other financial information related to 2018, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on February 26, 2020.

EXECUTIVE SUMMARY

FINANCIAL SUMMARY FOR 2020 (compared to 2019)

Total revenues decreased $72.3 million, or 1.5%, to $4,856.8 million

Gross profit increased $25.6 million, or 2%, to $1,281.5 million

Aggregates segment sales decreased $46.0 million, or 1%, to $3,944.3 million

Aggregates segment freight-adjusted revenues decreased $6.5 million, or less than 1%, to $3,007.6 million

Shipments decreased 3%, or 7.2 million tons, to 208.3 million tons

Freight-adjusted sales price increased 3.2%, or $0.45 per ton to $14.44

Segment gross profit increased $12.5 million, or 1%, to $1,159.2 million

Asphalt, Concrete and Calcium segment gross profit increased $13.1 million, or 12%, to $122.3 million, collectively

Selling, administrative and general (SAG) expenses decreased 3% to $359.8 million and decreased 0.1 percentage points (10 basis points) as a percentage of total revenues

Operating earnings increased $18.3 million, or 2%, to $895.7 million

Earnings from continuing operations before income taxes were $743.8 million compared to $757.7 million

Earnings from continuing operations were $588.0 million, or $4.41 per diluted share, compared to $622.5 million, or $4.67 per diluted share

Discrete items in 2020 include:

pretax charges of $6.9 million for divested operations

pretax charges of $7.3 million associated with non-routine business development

pretax charges of $10.2 million for COVID-19 pandemic direct incremental costs

pretax charges of $22.7 million for pension settlement

pretax charges of $1.3 million for restructuring

Discrete items in 2019 include:

pretax gains of $13.4 million for the sale of businesses and property donation

pretax charges of $10.8 million for property donation

pretax charges of $3.0 million for divested operations

pretax charges of $1.7 million associated with non-routine business development

pretax charges of $6.5 million for restructuring

Adjusted (for the discrete pretax items noted above) earnings from continuing operations were $4.68 per diluted share, compared to $4.70 per diluted share

Net earnings were $584.5 million, a decrease of $33.2 million, or 5%

Adjusted EBITDA was $1,323.5 million, an increase of $53.5 million, or 4%

Returned capital to shareholders via dividends ($180.2 million versus $164.0 million) and share repurchases ($26.1 million versus $2.6 million)

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Our best-in-class aggregates business, along with the efforts and dedication of our employees, allowed us to overcome COVID-19 related disruptions in 2020. As we saw in 2020, demand for our products can be subject to market fluctuations outside of our control. We remain focused on the factors within our control, including our pricing and cost actions, both of which contributed to further improvement in our industry-leading unit margins in 2020. Most impressive, we delivered year-over-year gains in aggregates unit profitability throughout each quarter in 2020. Our ability to leverage our four strategic disciplines — Commercial and Operational Excellence, Logistics Innovation and Strategic Sourcing — enabled us to expand unit margins, deliver improved cash flows, and increase returns on invested capital. Our team’s hard work along with our leading market positions and strong financial foundation will enable us to capitalize on an improving demand outlook in 2021.

Our operating plans are underpinned by our aforementioned four strategic disciplines, a healthy balance sheet, strong liquidity, and the engagement of our people. 2020 revenues were $4,856.8 million, 1% lower than the prior year, while gross profit margins expanded across each segment. Effective cost management throughout the organization and aggregates price growth helped drive margin expansion. Net earnings were $584.5 million and Adjusted EBITDA was a record $1,323.5 million.

At year end, total debt to 2020 Adjusted EBITDA was 2.5 times or 1.6 times on a net debt basis reflecting $1,198.0 million of cash on hand — approximately $500.0 million will be used to pay off certain debt maturities due in March 2021. Our weighted-average debt maturity was 13 years, and the effective weighted-average interest rate was 4.1%.

Return on invested capital increased 0.4 percentage points (40 basis points) from the prior year to 14.3%. Operating cash flows were $1,070.4 million, up 9% versus the previous year. Solid operating earnings growth coupled with disciplined capital management led to these results.

CAPITAL ALLOCATION

Our balanced approach to capital allocation remains unchanged. Through economic cycles we intend to balance reinvestment in our business, growth through acquisitions, and return of capital to shareholders while maintaining financial strength and flexibility evidenced by our strong balance sheet and investment-grade credit ratings. Our capital allocation priorities are, as follows:

1.Operating Capital (maintain and grow the value of our franchise)

2.Growth Capital (including greenfields and acquisitions)

3.Dividend Growth (with a keen focus on sustainability)

4.Return Excess Cash to Shareholders (primarily via share repurchases)

Our first priority is to maintain and protect our valuable franchise by keeping our operations in good working order to ensure the production of high quality materials and timely delivery of goods and services to our customers. This capital requirement expands and contracts as production and shipment levels change. During 2020, we invested $239.3 million to replace or improve existing property, plant & equipment.

Our second priority is to grow our franchise through internal growth projects and business acquisitions. Internal growth projects have generally been among our highest returning projects. During 2020, we invested $122.9 million in internal growth projects to secure new aggregates reserves, develop new production and/or distribution sites, enhance our distribution capabilities and support the targeted growth of our asphalt and concrete operations. During the fourth quarter of 2020, we restarted planned growth projects that were put on hold in March 2020 as a result of the pandemic. For business acquisitions, we tend to look for bolt-on acquisitions which are easy to integrate and will pursue large business combinations that are the right fit and the right price. We use strategic and returns-based criteria to price potential acquisitions and are disciplined in our approach. We look at a lot of potential acquisitions and only make offers on a few. We closed two business acquisitions during 2020 for total consideration of $73.4 million.

Our third priority is growing the dividend with a keen focus on sustainability through the economic cycle. During 2020, we paid a dividend per share of $1.36 and paid total dividends of $180.2 million.

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And finally, if there is excess cash after fulfilling the prior capital allocation priorities, we will consider returning cash to shareholders via share repurchases. During 2020, we returned $26.1 million to our shareholders through share repurchases.

For a detailed discussion of our acquisitions and divestitures, see Note 19 “Acquisitions and Divestitures” in Item 8 “Financial Statements and Supplementary Data.”

MARKET DEVELOPMENTS AND OUTLOOK

Construction employment gains in key markets are a positive signal that activity levels are recovering across our footprint, as compelling fundamentals in residential construction support growing demand in 2021. Shipments into private nonresidential continue to benefit from growth in heavy industrial projects such as data centers and warehouses, while construction starts in other categories remain below the prior year. Recent improvements in highway lettings and contract awards indicate growing confidence and visibility fueling advancement of planned projects, particularly in the second half of 2021.

The pricing environment remains positive and we continue to execute at a high level — positioning us well for 2021. We are encouraged by the continued strength in residential construction activity, particularly single-family housing. Our expectation is also supported by the recent improvement in highway awards and construction employment trends in key markets. Data centers, distribution centers, and warehouses, which now comprise the largest share of new private nonresidential project awards, will continue to underpin demand in this end market. We believe these leading indicators, along with sustaining a positive pricing environment, can be a catalyst for further recovery in construction activity during 2021.

Management expectations for 2021 include:

Aggregates shipments down 2% to up 2% versus 2020

Aggregates freight-adjusted price increase of 2% to 4% from 2020

Collective Asphalt, Concrete and Calcium segment gross profit up mid-to high single digits

SAG expenses of $365 million to $375 million

Interest expense of approximately $130 million

Depreciation, depletion, accretion and amortization expense of approximately $400 million

An effective tax rate of approximately 21%

Earnings from continuing operations of $4.80 to $5.40 per diluted share

Net earnings of $640 million to $720 million

Adjusted EBITDA of $1.340 billion to $1.440 billion

No major changes in COVID shelter-in-place restrictions

Additionally, we expect to spend between $450 million and $475 million on capital expenditures, including growth projects. We will continue to review our plans and will adjust as needed, while being thoughtful about preserving liquidity.

For support functions, we previously implemented remote work arrangements and restricted business travel effective mid-March 2020. To date, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures.

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COMPETITIVE ADVANTAGES

AGGREGATES FOOTPRINT

Over time, we have strategically and systematically built one of the most valuable aggregates franchises in the U.S., with a footprint that is impossible to replicate. Zoning and permitting regulations have made it increasingly difficult to expand existing quarries or to develop new quarries. Such regulations, while curtailing expansion, also increase the value of our reserves that were zoned and permitted decades ago.

Demand for aggregates correlates positively with changes in population growth, household formation and employment. We have a coast-to-coast footprint that serves 19 of the top 25 highest-growth metropolitan statistical areas (MSAs) and states where 73% of U.S. population growth from 2020 to 2030 is projected to occur. As state and federal spending increases, Vulcan is poised to benefit greatly from growing private and public demand for aggregates, thereby delivering significant long-term value for our shareholders.

Source: Woods & Poole CEDDS 2020

Based on people added from 2020 to 2030

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COMPOUNDING IMPROVEMENT IN PROFITABILITY

We have continued to deliver strong financial performance over time and through business cycles. Through our aggregates-led strategy and focus on our four strategic disciplines — operational excellence, strategic sourcing, commercial excellence and logistics innovation (as outlined in Item 1 “Business” under the “Business Strategy” heading) — we have created one of the most profitable public companies in our industry as measured by aggregates gross profit per ton.

We are currently operating considerably below full capacity making us extremely well positioned to further benefit from economies of scale as markets recover from the COVID-19 pandemic.

SAFETY, HEALTH AND ENVIRONMENTAL PERFORMANCE

A strategy for sustainable, long-term value creation must include doing right by your employees, your neighbors and the environment in which you operate. Over our more than six decades as a public company, we have built a strong, resilient and vital business on this foundation of doing things the right way.

We are a leader in our industry in safety, health and environmental performance, with a safety record substantially better than the industry average. We apply the shared experiences, expertise and resources at each of our locally led sites, with an emphasis on taking care of one another. The result is a record of safety excellence consistently outperforming the industry.

Source: Mine Safety and Health Administration (MSHA) records and Internal Vulcan Data.

***	The aggregates industry MSHA injury rate for 2020 was not available as of the filing of this report.

We focus on our environmental stewardship programs with the same intensity that we bring to our health and safety initiatives resulting in 98.6% citation-free inspections out of all 2020 federal and state environmental inspections.

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We lead community relations programs that serve our neighbors while ensuring that we grow and thrive in the communities where we operate. During 2020, we operated 37 certified wildlife habitat sites, the fourth largest number of sites in the nation, as certified by the Wildlife Habitat Council. We provided over 160 scholarships to students nationwide and emphasized COVID-19 support as well as diversity and inclusion in our community outreach and contributions.

We recognize that the aggregates mining in which we engage is an interim use of the approximately 240,000 acres of land in our portfolio. Our land and water assets will be converted to other valuable uses at the end of mining. Effective management throughout the life cycle of our land — from pre-mining utilization as agriculture and timber development, to post-mining development as water reservoirs or residential and commercial development — not only generates significant additional value for our shareholders but greatly benefits the communities in which we operate.

CUSTOMER SERVICE

More than an aggregates supplier, we are a business dedicated to customer service and finding creative solutions to meet our customers’ needs. Being a valued partner and trusted supplier means that we are providing the right product, with the right specifications, that is the right quality, delivered the right way — on time and safely. Our One-Vulcan, Locally Led approach, in which our employees work together to leverage the size and strengths of Vulcan as a whole, while running their operations with a strong entrepreneurial spirit and sense of ownership, allows us to deliver market-leading services to our customers.

Transportation costs are passed along to our customers, and because aggregates have a very high weight-to-value ratio, those costs can add up quickly when transporting aggregates long distances. Having the most extensive distribution network of any aggregates producer sets us apart. Combining our trucking, rail, barge and ocean vessel shipping logistics capabilities allows us to provide better customer solutions and create a seamless customer experience at a competitive price.

As an approximation, a truck has a capacity of 20-25 tons of aggregates; a railcar has a capacity of 4-5 truckloads; a barge has a capacity of 65 truckloads and our ocean vessels have the capacity of 2,500 truckloads.

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STRONG FINANCIAL FOUNDATION

Our financial position is strong as evidenced by our investment-grade credit ratings (Fitch BBB-/Moody’s Baa2/Standard & Poor’s BBB+). At December 31, 2020, our available liquidity was $2,141.0 million, including $1,198.0 million of cash on hand, substantially higher than our liquidity needs. Our leverage ratio, as measured by total debt to Adjusted EBITDA, has improved from 6.5x at December 31, 2012 to 2.5x at December 31, 2020 (and our net debt to Adjusted EBITDA at December 31, 2020 is 1.6x), within our stated leverage target of 2.0 to 2.5x. Over that same period, we also improved the structure of our debt (average maturity from 7 years to 13 years) and reduced the cost of the debt (weighted average interest rate from 7.55% to 4.10%).

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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 consists 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

For the years ended December 31			2020			2019			2018
in millions, except unit and per share data
Total revenues			$ 4,856.8			$ 4,929.1			$ 4,382.9
Cost of revenues			3,575.3			3,673.2			3,282.0
Gross profit			$ 1,281.5			$ 1,255.9			$ 1,100.9
Gross profit margin			26.4%			25.5%			25.1%
Selling, administrative and general expenses (SAG)			$ 359.8			$ 370.5			$ 333.4
SAG as a percentage of total revenues			7.4%			7.5%			7.6%
Operating earnings			$ 895.7			$ 877.5			$ 747.7
Interest expense			$ 136.0			$ 130.2			$ 138.0
Earnings from continuing operations
before income taxes			$ 743.8			$ 757.7			$ 623.3
Income tax expense			$ 155.8			$ 135.2			$ 105.4
Effective tax rate from continuing operations			20.9%			17.8%			16.9%
Earnings from continuing operations			$ 588.0			$ 622.5			$ 517.8
Loss on discontinued operations, net of income taxes			(3.5)			(4.8)			(2.0)
Net earnings			$ 584.5			$ 617.7			$ 515.8
Diluted earnings (loss) per share
Continuing operations			$ 4.41			$ 4.67			$ 3.87
Discontinued operations			(0.02)			(0.04)			(0.02)
Diluted net earnings per share			$ 4.39			$ 4.63			$ 3.85
EBITDA 1			$ 1,275.0			$ 1,261.3			$ 1,107.0
Adjusted EBITDA 1			$ 1,323.5			$ 1,270.0			$ 1,131.7
Average Sales Price and Unit Shipments
Aggregates
Tons (thousands)			208,295			215,465			201,375
Freight-adjusted sales price			$ 14.44			$ 13.99			$ 13.25
Asphalt Mix
Tons (thousands)			11,835			12,665			11,318
Average sales price			$ 57.97			$ 57.79			$ 55.13
Ready-mixed concrete
Cubic yards (thousands)			2,951			3,104			3,223
Average sales price			$ 128.93			$ 126.38			$ 123.35
Calcium
Tons (thousands)			282			294			285
Average sales price			$ 27.32			$ 27.85			$ 28.44

1	Non-GAAP measures are defined and reconciled within this Item 7 under the caption Reconciliation of Non-GAAP Financial Measures.

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Net earnings for 2020 were $584.5 million ($4.39 per diluted share) compared to $617.7 million ($4.63 per diluted share) in 2019 and $515.8 million ($3.85 per diluted share) in 2018. Each year's results were impacted by discrete items, as follows:

Net earnings for 2020 include:

pretax charges of $6.9 million associated with divested operations

pretax charges of $7.3 million associated with non-routine business development

pretax charges of $10.2 million for COVID-19 pandemic direct incremental costs

pretax charges of $22.7 million for pension settlement (see Note 10 “Benefit Plans” in Item 8 “Financial Statements and Supplementary Data”)

pretax charges of $1.3 million for restructuring

Net earnings for 2019 include:

pretax gains of $13.4 million related to the sale of businesses and property donation

pretax charges of $10.8 million for property donation

pretax charges of $3.0 million associated with divested operations

pretax charges of $1.7 million associated with non-routine business development

pretax charges of $6.5 million for restructuring

Adjusted for these discrete items, earnings from continuing operations (Adjusted Diluted EPS) was $4.68 per diluted share for 2020 compared to $4.70 per diluted share for 2019. In comparison, the 2019 Adjusted Diluted EPS benefited from a lower tax rate due to certain tax benefits and credits that were higher than in 2020. The effect of the resulting higher tax rate in 2020 was $0.18 per diluted share.

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Year-over-year changes in earnings from continuing operations before income taxes are summarized below:

in millions
	2018	$ 623.3			2019	$ 757.7
Higher aggregates gross profit		154.8				12.5
Higher asphalt gross profit		6.5				12.2
Higher (lower) concrete gross profit		(6.7)				1.0
Higher (lower) calcium gross profit		0.4				(0.2)
Lower (higher) selling, administrative and general expenses		(37.2)				10.8
Higher (lower) gain on sale of property, plant & equipment and businesses		8.8				(19.8)
Lower (higher) interest expense		7.8				(5.8)
Pension settlement charge		0.0				(22.7)
All other		0.0				(1.9)
	2019	$ 757.7			2020	$ 743.8

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OPERATING RESULTS BY SEGMENT

We present our results of operations by segment at the gross profit level. We have four operating (and reportable) segments organized around our principal product lines: (1) Aggregates, (2) Asphalt, (3) Concrete and (4) Calcium. Management reviews earnings for our reporting segments principally at the gross profit level.

1. AGGREGATES

Our year-over-year aggregates shipments:

decreased 3% in 2020

increased 7% in 2019

increased 10% in 2018 1

1	Of the 10% increase in 2018 shipments, 3% was attributable to the fourth quarter 2017 acquisition of Aggregates USA.

Aggregates shipments declined 3% (3% same-store) primarily as a result of COVID-19 disruptions with wide variances in the amount of disruption across our markets. However, previously-noted recent improvements in highway lettings and contract awards indicate growing confidence and visibility which should fuel the advancement of planned projects, particularly in the second half of 2021. We intend to capitalize on this improving demand outlook in 2021 utilizing teamwork, our leading market positions and strong financial position.

Our year-over-year freight-adjusted selling price1 for aggregates:

increased 3.2% in 2020

increased 5.6% in 2019

increased 1.5% in 2018

1

We routinely arrange the delivery of our aggregates to the customer. Additionally, we incur freight costs to move aggregates from the production site to remote distribution sites. These costs are passed on to our customers in the aggregates price. We remove these pass-through freight & delivery revenues (and any other aggregates-derived revenues, such as landfill tipping fees) from the freight-adjusted selling price for aggregates. See the Reconciliation of Non-GAAP Financial Measures within this Item 7 for a reconciliation of freight-adjusted revenues.

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Despite the 3% decline in shipments, aggregates freight-adjusted pricing increased 3.2%, or $0.45 per ton, with a positive pricing environment across our footprint. On a mix-adjusted basis, pricing increased 3.1% and all of our markets reported price growth.

AGGREGATES SEGMENT SALES AND‎FREIGHT-ADJUSTED REVENUES	AGGREGATES GROSS PROFIT AND‎CASH GROSS PROFIT
in millions	in millions

AGGREGATES UNIT SHIPMENTS		AGGREGATES SELLING PRICE AND‎CASH GROSS PROFIT PER TON
tons, in millions		Freight-adjusted average sales price per ton 1
		1	Freight-adjusted sales price is calculated as freight-adjusted revenues divided by aggregates unit shipments

Freight-adjusted unit cost of sales increased 2% (1% on a cash basis). Flexible operating plans, disciplined cost control and lower diesel fuel costs mitigated the impact of operational disruptions caused by the COVID-19 pandemic. The Aggregates segment earnings impact from lower diesel fuel cost was $34.0 million.

Aggregates segment gross profit increased $12.5 million, or 1%, to $1,159.2 million due to growth in pricing and effective price control and despite the 3% decline in shipments. Unit profitability (as measured by gross profit per ton) grew by 5% to $5.57 per ton. Our focus on compounding unit margins allowed us to deliver year-over-year gains in aggregates unit profitability throughout each quarter of 2020.

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2. ASPHALT

Our year-over-year asphalt mix shipments:

decreased 7% in 2020

increased 12% in 2019

increased 4% in 2018 1

1	The 4% increase in asphalt mix shipments in 2018 was attributable to first and second quarter 2018 acquisitions of asphalt mix operations and construction paving businesses in Alabama and Texas, coupled with the fourth quarter 2017 swap of our concrete operations for asphalt operations in Arizona. Same-store declined 2%.

Asphalt segment gross profit of $75.2 million was $12.2 million or 19% higher than 2019. Asphalt mix shipments decreased 7% while material margins (sales price less unit cost of raw materials) increased 13%, or $2.30 per ton. Segment earnings benefited from price discipline and effective cost containment, including lower liquid asphalt costs. The average unit cost for liquid asphalt was 15% lower than 2019, positively affecting costs by $37.2 million.

ASPHALT SEGMENT SALES	ASPHALT GROSS PROFIT AND‎CASH GROSS PROFIT
in millions	in millions

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3. CONCRETE

Our year-over-year ready-mixed concrete shipments:

decreased 5% in 2020

decreased 4% in 2019

decreased 10% in 2018 1

1	The 10% decrease in ready-mixed concrete shipments in 2018 was attributable to the March 2018 disposition of ready-mixed concrete facilities in Georgia, and the fourth quarter 2017 swap of our concrete operations for asphalt operations in Arizona.

Concrete segment gross profit was $44.2 million, up 2% from 2019 despite a 5% decline in shipments (-9% same-store). Improved material margins per cubic yard of 3% (2% same-store) and unit profitability (as measured by gross profit per cubic yard) of 8% (10% same-store) offset the shipment decline. Shipments for the year were negatively impacted by both wildfires and cement supply shortages in Northern California resulting from pandemic disruptions.

CONCRETE SEGMENT SALES	CONCRETE GROSS PROFIT AND‎CASH GROSS PROFIT
in millions	in millions

4. CALCIUM

Calcium segment gross profit decreased 5% from 2019 to $2.9 million.

CALCIUM SEGMENT SALES	CALCIUM GROSS PROFIT AND‎CASH GROSS PROFIT
in millions	in millions

In total, the 2020 gross profit contribution from our three non-aggregates (Asphalt, Concrete and Calcium) segments was $122.3 million, a $13.1 million or 12% increase from 2019. Each segment reported unit margin expansion on lower segment sales.

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SELLING, ADMINISTRATIVE AND GENERAL (SAG) EXPENSES

in millions

As a percentage of total revenues, SAG expense was:

7.4% in 2020 — decreased 0.10 percentage points (10 basis points)

7.5% in 2019 — decreased 0.10 percentage points (10 basis points)

7.6% in 2018 — decreased 0.75 percentage points (75 basis points)

Our comparative total company employment levels at year end:

decreased 2% in 2020

increased 6% in 2019

increased 6% in 2018

Prior increases in our employment levels were partially driven by our acquisitions (see Note 19 “Acquisitions and Divestitures” in Item 8 “Financial Statements and Supplementary Data”). As noted above, 2020 SAG expenses were $359.8 million or 7.4% as a percentage of total revenues, down from 7.5% in 2019. We remain focused on further leveraging our overhead cost structure.

GAIN ON SALE OF PROPERTY, PLANT & EQUIPMENT AND BUSINESSES

in millions

The 2020 gain on sale of property, plant & equipment and businesses of $4.0 million includes a net immaterial pretax loss from ready-mix concrete divestitures. The 2019 gain on sale of property, plant & equipment and businesses of $23.8 million includes: (1) $4.1 million of pretax gain from the sale of two aggregates operations in Georgia, (2) the reversal of a contingent payable related to the 2017 Department of Justice required divestiture of former Aggregates USA operations and (3) $9.3 million of pretax gain related to property donations. See Note 19 “Acquisitions and Divestitures” in Item 8 “Financial Statements and Supplementary Data.”

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OTHER OPERATING EXPENSE, NET

Other operating expense, which has an approximate run-rate of $12.0 million a year (exclusive of discrete items), is composed primarily of idle facilities expense, environmental remediation costs, property abandonments and gain (loss) on settlement of AROs. Total other operating expense and significant discrete items included in the total were:

$30.0 million in 2020 — includes discrete items as follows:

$6.9 million of charges associated with divested operations, composed entirely of environmental liability accruals associated with previously divested properties

$10.2 million of charges related to COVID-19 pandemic direct incremental costs

$1.3 million of managerial restructuring charges

$31.6 million in 2019 — includes discrete items as follows:

$10.8 million of charges related to property donations

$3.0 million of charges associated with divested operations, composed entirely of environmental liability accruals associated with previously divested properties

$6.5 million of managerial restructuring charges

OTHER NONOPERATING INCOME (EXPENSE), NET

Other nonoperating income (expense) (2020 — $(17.5) million, 2019 — $9.2 million and 2018 — $13.0 million) is composed primarily of pension and postretirement benefit costs (excluding service costs), foreign currency transaction gains/losses, Rabbi Trust gains/losses and net earnings/losses of nonconsolidated equity method investments. Additionally, during 2020, we incurred a $22.7 million non-cash pension settlement charge — this partial settlement will benefit future expense and funding requirements (see Note 10 “Benefit Plans” in Item 8 “Financial Statements and Supplementary Data”).

INTEREST EXPENSE

in millions

Interest expense was $136.0 million in 2020 compared to $130.2 million in 2019 and $138.0 million in 2018. See Note 6 “Debt” in Item 8 “Financial Statements and Supplementary Data” for additional discussion.

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INCOME TAXES

Our income tax expense from continuing operations for the years ended December 31 is shown below:

dollars in millions			2020			2019			2018
Earnings from continuing operations
before income taxes			$ 743.8			$ 757.7			$ 623.3
Income tax expense			$ 155.8			$ 135.2			$ 105.4
Effective tax rate			20.9%			17.8%			16.9%

The $20.6 million increase in our 2020 income tax expense was primarily related to a decrease in excess tax benefits from share-based compensation and a smaller research & development tax credit. The $29.8 million increase in our 2019 income tax expense was primarily related to an increase in earnings.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act provides numerous tax relief provisions and stimulus measures. A temporary favorable change to the prior year and current year limitations on interest deductions and a temporary suspension of certain payment requirements for the employer portion of Social Security taxes are the relief provisions that are expected to provide us the greatest benefit. In the first quarter of 2020, an expected cash tax benefit of $13.3 million was recorded to account for the favorable change to the prior year limitation on interest deductions.

See Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data.”

DISCONTINUED OPERATIONS

Pretax earnings (loss) from discontinued operations were:

$(4.7) million in 2020

$(6.5) million in 2019

$(2.7) million in 2018

Pretax earnings (loss) from discontinued operations for 2020, 2019 and 2018, resulted primarily from general and product liability costs, including legal defense costs and environmental remediation costs associated with our former Chemicals business. For additional information about discontinued operations, see Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data” under the caption Discontinued Operations.

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

SAME-STORE

We have provided certain information on a same-store basis. When discussing our financial results in comparison to prior periods, we may exclude the operating results of recently acquired/divested businesses that do not have comparable results in the periods being discussed. These recently acquired/divested businesses are disclosed in Note 19 “Acquisitions and Divestitures” in Item 8 “Financial Statements and Supplementary Data.” This approach allows us to evaluate the performance of our operations on a comparable basis. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our operations are performing period over period without the effects of acquisition and divestiture activity. Our same-store information may not be comparable to similar measures used by other companies.

AGGREGATES SEGMENT FREIGHT-ADJUSTED REVENUES

Aggregates segment freight-adjusted revenues is not a Generally Accepted Accounting Principle (GAAP) measure. 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 immaterial 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:

in millions, except per ton data			2020			2019			2018
Aggregates segment
Segment sales			$ 3,944.3			$ 3,990.3			$ 3,513.6
Less
Freight & delivery revenues 1			877.0			921.1			796.9
Other revenues			59.7			55.0			49.4
Freight-adjusted revenues			$ 3,007.6			$ 3,014.2			$ 2,667.3
Unit shipments - tons			208.3			215.5			201.4
Freight-adjusted sales price			$ 14.44			$ 13.99			$ 13.25

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.

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AGGREGATES SEGMENT INCREMENTAL GROSS PROFIT

Aggregates segment incremental gross profit flow-through rate is not a GAAP measure and represents the year-over-year change in gross profit divided by the year-over-year change in segment sales excluding freight & delivery (revenues and costs). We present this metric 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. Reconciliation of this metric to its nearest GAAP measure is presented below:

MARGIN IN ACCORDANCE WITH GAAP

dollars in millions			2020			2019			2018
Aggregates segment
Gross profit			$ 1,159.2			$ 1,146.6			$ 991.9
Segment sales			$ 3,944.3			$ 3,990.3			$ 3,513.6
Gross profit margin			29.4%			28.7%			28.2%
Incremental gross profit margin 1			N/A			32.5%

FLOW-THROUGH RATE (NON-GAAP)

dollars in millions			2020			2019
Aggregates segment
Gross profit			$ 1,159.2			$ 1,146.6
Less: Contribution from acquisitions (same-store)			0.8			0.2
Same-store gross profit			$ 1,158.4			$ 1,146.4
Segment sales			$ 3,944.3			$ 3,990.3
Less: Freight & delivery revenues 2			877.0			921.1
Segment sales excluding freight & delivery			$ 3,067.3			$ 3,069.2
Less: Contribution from acquisitions (same-store)			2.6			1.0
Same-store segment sales excluding freight & delivery			$ 3,064.7			$ 3,068.2
Gross profit margin excluding freight & delivery			37.8%			37.4%
Same-store gross profit margin excluding freight & delivery			37.8%			37.4%
Incremental gross profit flow-through rate 1			N/A
Same-store incremental gross profit flow-through rate 1			N/A

1	Not applicable due to the decrease in segment sales.
2	At the segment level, freight & delivery revenues include intersegment freight & delivery (which are eliminated at the consolidated level) and freight to remote distribution sites.

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Part II	49

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. Aggregates segment cash gross profit per ton is computed by dividing Aggregates segment cash gross profit by tons shipped. Reconciliation of this metric to its nearest GAAP measure is presented below:

in millions, except per ton data			2020			2019			2018
Aggregates segment
Gross profit			$ 1,159.2			$ 1,146.6			$ 991.9
Depreciation, depletion, accretion and amortization			321.1			305.1			281.6
Aggregates segment cash gross profit			$ 1,480.3			$ 1,451.7			$ 1,273.5
Unit shipments - tons			208.3			215.5			201.4
Aggregates segment gross profit per ton			$ 5.57			$ 5.32			$ 4.93
Aggregates segment cash gross profit per ton			$ 7.11			$ 6.74			$ 6.32
Asphalt segment
Gross profit			$ 75.2			$ 63.0			$ 56.5
Depreciation, depletion, accretion and amortization			35.0			35.2			31.3
Asphalt segment cash gross profit			$ 110.2			$ 98.2			$ 87.8
Concrete segment
Gross profit			$ 44.2			$ 43.2			$ 49.9
Depreciation, depletion, accretion and amortization			16.0			13.6			12.5
Concrete segment cash gross profit			$ 60.2			$ 56.8			$ 62.4
Calcium segment
Gross profit			$ 2.9			$ 3.1			$ 2.7
Depreciation, depletion, accretion and amortization			0.2			0.2			0.3
Calcium segment cash gross profit			$ 3.1			$ 3.3			$ 3.0

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:

in millions						2020			2019
Debt
Current maturities of long-term debt						$ 515.4			$ 0.0
Long-term debt						2,772.3			2,784.3
Total debt						$ 3,287.7			$ 2,784.3
Less: Cash and cash equivalents and restricted cash						1,198.0			274.5
Net debt						$ 2,089.7			$ 2,509.8
Adjusted EBITDA						$ 1,323.5			$ 1,270.0
Total debt to Adjusted EBITDA						2.5x			2.2x
Net debt to Adjusted EBITDA						1.6x			2.0x

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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):

in millions			2020			2019			2018
Net earnings			$ 584.5			$ 617.7			$ 515.8
Income tax expense			155.8			135.2			105.4
Interest expense, net of interest income			134.4			129.0			137.6
Loss on discontinued operations, net of tax			3.5			4.8			2.0
EBIT			878.2			886.7			760.8
Depreciation, depletion, accretion and amortization			396.8			374.6			346.2
EBITDA			$ 1,275.0			$ 1,261.3			$ 1,107.0
Gain on sale of businesses 1			$ 0.0			$ (13.4)			$ (2.9)
Property donation			0.0			10.8			0.0
Business interruption claims recovery			0.0			0.0			(2.3)
Charges associated with divested operations			6.9			3.0			18.5
Business development 2			7.3			1.7			5.2
COVID-19 direct incremental costs			10.2			0.0			0.0
Pension settlement charge			22.7			0.0			0.0
Restructuring charges			1.3			6.5			6.2
Adjusted EBITDA			$ 1,323.5			$ 1,270.0			$ 1,131.7
Depreciation, depletion, accretion and amortization			396.8			374.6			346.2
Adjusted EBIT			$ 926.7			$ 895.4			$ 785.5

1	Includes $9.2 million of gains associated with property donations in 2019. The net effect of the 2019 property donation was a loss of $1.6 million.
2	Represents non-routine charges or gains associated with acquisitions including the cost impact of purchase accounting inventory valuations.

ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS

Similar to our presentation of Adjusted EBITDA, we present Adjusted diluted earnings per share (EPS) 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:

			2020			2019			2018
Diluted Earnings Per Share
Net earnings			$ 4.39			$ 4.63			$ 3.85
Less: Discontinued operations loss			(0.02)			(0.04)			(0.02)
Diluted EPS from continuing operations			$ 4.41			$ 4.67			$ 3.87
Items included in Adjusted EBITDA above			0.27			0.03			0.14
Debt refinancing costs			0.00			0.00			0.04
Adjusted diluted EPS - continuing operations			$ 4.68			$ 4.70			$ 4.05

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2021 PROJECTED EBITDA

The following reconciliation to the mid-point of the range of 2021 Projected EBITDA excludes adjustments (as noted in Adjusted EBITDA above) as they are difficult to forecast (timing or amount). Due to the difficulty of forecasting such adjustments, we are unable to estimate their significance. 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:

			2021 Projected 1
in millions			Mid-point
Net earnings			$ 680
Income tax expense			180
Interest expense, net of interest income			130
Discontinued operations, net of tax			0
Depreciation, depletion, accretion and amortization			400
Projected EBITDA			$ 1,390

1	See the Market Developments and Outlook section (earlier within this Item 7) for the assumptions used to build this projection.

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 5-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:

dollars in millions			2020			2019			2018
Adjusted EDITDA			$ 1,323.5			$ 1,270.0			$ 1,131.7
Average invested capital 1
Property, plant & equipment			$ 4,374.0			$ 4,281.3			$ 4,095.4
Goodwill			3,170.1			3,165.7			3,150.3
Other intangible assets			1,104.0			1,084.1			1,095.2
Fixed and intangible assets			$ 8,648.1			$ 8,531.1			$ 8,340.9
Current assets			$ 1,845.7			$ 1,224.3			$ 1,125.9
Less: Cash and cash equivalents			698.9			93.5			68.3
Less: Current tax			18.5			12.6			0.0
Adjusted current assets			1,128.3			1,118.2			1,057.6
Current liabilities			833.6			599.3			626.2
Less: Current maturities of long-term debt			305.0			0.0			8.3
Less: Short-term debt			0.0			89.7			178.6
Adjusted current liabilities			528.6			509.6			439.3
Adjusted net working capital			$ 599.7			$ 608.6			$ 618.3
Average invested capital			$ 9,247.8			$ 9,139.7			$ 8,959.2
Return on invested capital			14.3%			13.9%			12.6%

1	Average invested capital is based on a trailing 5-quarters.

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LIQUIDITY AND FINANCIAL RESOURCES

Our primary sources of liquidity are cash provided by our operating activities and a substantial, committed bank line of credit. 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 2021, 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

In an effort to strengthen our liquidity position while navigating the COVID-19 pandemic, we took a number of proactive steps during 2020. In April 2020, we executed a $750.0 million one-year delayed draw term loan. In May 2020, we issued $750.0 million of 3.50% senior notes due 2030 to prefund: a) the $250.0 million due June 2020, and b) the $500.0 million due March 2021. In September 2020, we executed a new five-year unsecured bank line of credit of $1,000.0 million and terminated our April 2020 $750.0 million delayed draw term loan. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity sources and needs and take appropriate actions.

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CASH

Included in our December 31, 2020 cash and cash equivalents and restricted cash balances of $1,198.0 million is $0.9 million of restricted cash (see Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data” under the caption Restricted Cash).

CASH FROM OPERATING ACTIVITIES

in millions

Net cash provided by operating activities is derived primarily from net earnings before noncash deductions for depreciation, depletion, accretion and amortization.

in millions			2020			2019			2018
Net earnings			$ 584.5			$ 617.7			$ 515.8
Depreciation, depletion, accretion
and amortization (DDA&A)			396.8			374.6			346.2
Noncash operating lease expense			38.3			35.3			0.0
Contributions to pension plans			(8.8)			(8.9)			(109.6)
Deferred tax expense			62.0			76.0			64.6
Cost of debt purchase			0.0			0.0			6.9
Other operating cash flows, net 1			(2.4)			(110.6)			8.9
Net cash provided by operating activities			$ 1,070.4			$ 984.1			$ 832.8

1	Primarily reflects changes to working capital balances.

2020 versus 2019 — Net cash provided by operating activities was $1,070.4 million during 2020, an $86.3 million increase compared to 2019. This increase primarily resulted from favorable changes in working capital balances compared to the prior year period.

Days sales outstanding, a measurement of the time it takes to collect receivables, were 44.9 days at December 31, 2020 compared to 48.5 days at December 31, 2019. Additionally, our over 90 day balance of $15.5 million at December 31, 2020 was down 55% from $34.1 million at December 31, 2019. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected; attention is being paid to the potential negative impact of the COVID-19 pandemic on our customers’ ability to pay their amounts owed to us.

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CASH FROM INVESTING ACTIVITIES

in millions

2020 versus 2019 — Net cash used for investing activities was $381.5 million during 2020, a $34.3 million decrease compared to 2019. We invested $362.2 million in our existing operations in 2020, a $21.9 million decrease compared to 2019. Of this $362.2 million, $122.9 million was invested in internal growth projects to enhance our distribution capabilities, develop new production sites and enhance existing production facilities. Additionally, during 2020 we acquired businesses for $43.2 million of cash consideration as compared to $44.2 million of cash consideration for businesses in 2019 (see Note 19 “Acquisitions and Divestitures” in Item 8 “Financial Statements and Supplementary Data”).

CASH FROM FINANCING ACTIVITIES

in millions

2020 VERSUS 2019 — Net cash provided by financing activities in 2020 was $234.7 million, compared to $338.2 million of net cash used for financing activities in 2019. The 2020 activity includes: a) net cash proceeds of $734.6 million for the issuance of new debt, b) cash paid to retire the $250.0 million floating rate notes due 2020 and c) $19.9 million of cash paid to settle interest rate derivatives. The 2019 results include a net $133.0 million payment on our bank line of credit.

Additionally, capital returned to our shareholders increased by $39.8 million via higher dividends of $16.2 million ($1.36 per share compared to $1.24 per share) and higher share repurchases of $23.5 million (214,338 shares @ $121.92 per share compared to 18,600 shares @ $139.90 per share).

Part II	55

DEBT

Certain debt measures as of December 31 are outlined below:

dollars in millions						2020			2019
Debt
Current maturities of long-term debt						$ 515.4			$ 0.0
Short-term debt						0.0			0.0
Long-term debt						2,772.3			2,784.3
Total debt						$ 3,287.7			$ 2,784.3
Capital
Total debt						$ 3,287.7			$ 2,784.3
Equity						6,027.3			5,621.9
Total capital						$ 9,315.0			$ 8,406.2
Total Debt as a Percentage of Total Capital						35.3%			33.1%
Weighted-average Effective Interest Rates
Line of credit 1						1.25%			1.25%
Term debt						4.10%			4.36%
Fixed versus Floating Interest Rate Debt
Fixed-rate debt						85.1%			73.7%
Floating-rate debt						14.9%			26.3%

1	Reflects the margin above LIBOR for LIBOR-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.

L****INE OF CREDIT

In September 2020, we executed a new five-year unsecured line of credit of $1,000.0 million, incurring $4.6 million of transaction costs. Covenants, borrowing options, cost ranges and other details are described in Note 6 “Debt” in Item 8 “Financial Statements and Supplementary Data.” As of December 31, 2020, we were in compliance with the line of credit covenants and the credit margin for LIBOR borrowings was 1.25%, the credit margin for base rate borrowings was 0.25%, and the commitment fee for the unused portion was 0.15%.

In September 2020, we terminated our $750.0 million 364-day delayed draw term loan executed in April 2020. During the second quarter, we had borrowed and repaid $250.0 million leaving $500.0 million available for future borrowings prior to its termination.

As of December 31, 2020, our available borrowing capacity under the line of credit was $943.9 million. Utilization of the borrowing capacity was as follows:

none was borrowed

$56.1 million was used to provide support for outstanding standby letters of credit

TERM DEBT

All of our $3,357.9 million (face value) of term debt is unsecured. $3,346.2 million of such debt is governed by three essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in all three indentures limits the amount of secured debt we may incur without ratably securing such debt. As of December 31, 2020, we were in compliance with all term debt covenants.

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In May 2020, we issued $750.0 million of 3.50% senior notes due 2030 for total proceeds of $741.4 million (net of discounts and transaction costs). $250.0 million of the proceeds were used to retire the $250.0 million floating rate notes due in June 2020, and the remainder of the proceeds, together with cash on hand, will be used to retire the $500.0 million floating rate notes due in March 2021.

For additional information regarding term debt, see Note 6 “Debt” in Item 8 “Financial Statements and Supplementary Data.”

DEBT PAYMENTS AND MATURITIES

Scheduled debt payments during 2020 were $250.0 million in June — refinanced in May by issuing $750.0 million of 3.50% senior notes due 2030. There were no significant scheduled debt payments during 2019.

As of December 31, 2020, maturities for the next four quarters and for the next five years are as follows (excluding any borrowings on the line of credit):

	2021				Debt
in millions	Debt Maturities			in millions	Maturities
First quarter	$ 500.4			2021	$ 515.4
Second quarter	0.0			2022	0.5
Third quarter	9.0			2023	0.5
Fourth quarter	6.0			2024	0.5
				2025	400.5

For additional information regarding debt payments and maturities, see Note 6 “Debt” in Item 8 “Financial Statements and Supplementary Data.”

DEBT RATINGS

Our debt ratings and outlooks as of December 31, 2020 are as follows:

				Rating/Outlook		Date			Description
Senior Unsecured Term Debt
Fitch 1				BBB-/stable		5/7/2020			outlook revised
Moody's				Baa2/stable		11/9/2020			rating revised
Standard & Poor's				BBB+/stable		2/28/2020			rating revised

1	On February 22, 2021, Fitch upgraded our rating to BBB/stable.

LIBOR TRANSITION

The London Interbank Offered Rate (LIBOR) is an indicative measure of the average rate at which major global banks could borrow from one another and is used extensively globally as a reference rate for financial contracts (e.g., corporate bonds and loans) and commercial contracts (e.g., real estate leases). The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced in July 2017 that it intends to cease requiring banks to submit LIBOR rates after 2021.

The expected discontinuation of LIBOR has led to the formation of working groups in the U.S. and elsewhere to recommend alternative reference rates. The U.S. working group is the Alternative Reference Rates Committee (ARRC) convened by the Federal Reserve Board and the Federal Reserve Bank of New York. The ARRC has selected the Secured Overnight Financing Rate (SOFR) as the preferred alternative to LIBOR.

As of December 31, 2020, we had two material debt instruments with LIBOR as a reference rate: 1) $500.0 million floating-rate notes due March 2021, and 2) $1,000.0 million line of credit (none outstanding at December 31, 2020) due September 2025. At this time, we cannot predict the future impact of a departure from LIBOR as a reference rate; however, if future rates based upon the successor reference rate (or a new method of calculating LIBOR) are higher than LIBOR rates as currently determined, our interest expense would increase.

Part II	57

EQUITY

The number of our common stock issuances and purchases are as follows:

in thousands			2020			2019			2018
Common stock shares at January 1,
issued and outstanding			132,371			131,762			132,324
Common Stock Issuances
Share-based compensation plans			359			628			630
Common Stock Purchases
Purchased and retired			(214)			(19)			(1,192)
Common stock shares at December 31,
issued and outstanding			132,516			132,371			131,762

As of December 31, 2020, there were 8,064,851 shares remaining under the February 2017 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) are as follows:

in thousands, except average cost			2020			2019			2018
Shares Purchased and Retired
Number			214			19			1,192
Total purchase price			$ 26,132			$ 2,602			$ 133,983
Average cost per share			$ 121.92			$ 139.90			$ 112.41

There were no shares held in treasury as of December 31, 2020, 2019 and 2018.

OFF-BALANCE SHEET ARRANGEMENTS

We have no material 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 6 “Debt” in Item 8 “Financial Statements and Supplementary Data.”

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CONTRACTUAL OBLIGATIONS

We expect core capital spending (excluding growth capital) of $325 million during 2021. Excluding future cash requirements for capital expenditures and immaterial or contingent contracts, our obligations to make future contractual payments as of December 31, 2020 are summarized in the table below:

			Note		Payments Due by Year
in millions			Reference		2021		2022-2023		2024-2025		Thereafter		Total
Contractual Obligations
Bank line of credit
Principal payments			Note 6		$ 0.0		$ 0.0		$ 0.0		$ 0.0		$ 0.0
Interest payments and fees 1			Note 6		2.3		4.5		4.3		0.0		11.1
Term debt
Principal payments			Note 6		515.4		1.0		400.9		2,440.6		3,357.9
Interest payments			Note 6		123.9		244.5		235.5		1,417.1		2,021.0
Operating leases 2			Note 7		44.2		61.2		42.0		169.4		316.8
Finance leases 2			Note 7		2.0		2.9		1.0		0.0		5.9
Mineral royalties			Note 12		27.2		43.5		27.7		167.2		265.6
Unconditional purchase obligations
Capital			Note 12		6.9		0.0		0.0		0.0		6.9
Noncapital 3			Note 12		16.0		15.1		4.1		11.0		46.2
Benefit plans 4			Note 10		8.1		30.4		51.1		71.6		161.2
Total contractual obligations 5, 6					$ 746.0		$ 403.1		$ 766.6		$ 4,276.9		$ 6,192.6

1	Includes fees for unused borrowing capacity and fees for standby letters of credit. The figures for all years assume that the amount of unused borrowing capacity and the amount of standby letters of credit do not change from December 31, 2020, and borrowing costs reflect a rising LIBOR.
2	The above table excludes lease renewal options which are included in the table labeled Maturity of Lease Liabilities in Note 7 “Leases” in Item 8 “Financial Statements and Supplementary Data.”
3	Noncapital unconditional purchase obligations relate primarily to transportation and electr**icity contracts.
4	Payments in “Thereafter” column for benefit plans are for the years 2026-2030. The future contributions are based on current economic conditions and may vary based on future interest rates, asset performance, participant longevity and other plan experience.
5	*The above table excludes discounted asset retirement obligations in the amount of $*283.2 million at December 31, 2020, the majority of which have an estimated settlement date beyond 2025 (see Note 17 “Asset Retirement Obligations” in Item 8 “Financial Statements and Supplementary Data”).
6	The above table excludes liabilities for *unrecognized tax benefits in the amount of $*6.8 million at December 31, 2020, as we cannot make a reasonably reliable estimate of the amount and period of related future payment of these uncertain tax positions (for more details, see Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data”).

Part II	59

CRITICAL ACCOUNTING POLICIES

We follow certain significant accounting policies when preparing our consolidated financial statements. A summary of these policies is included in Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data.”

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 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 the following critical accounting policies require the most significant judgments and estimates used in the preparation of our consolidated financial statements:

1.Goodwill impairment

2.Impairment of long-lived assets excluding goodwill

3.Business combinations and purchase price allocation

4.Pension and other postretirement benefits

5.Environmental compliance costs

6.Claims and litigation including self-insurance

7.Income taxes

1. GOODWILL IMPAIRMENT

Goodwill represents the excess of the cost of net assets acquired in business combinations over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill impairment exists when the fair value of a reporting unit is less than its carrying amount. Goodwill is tested for impairment on an annual basis or more frequently whenever events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment evaluation is a critical accounting policy because goodwill is material to our total assets (as of December 31, 2020, goodwill represents 27% of total assets) and the evaluation involves the use of significant estimates, assumptions and judgment.

HOW WE TEST GOODWILL FOR IMPAIRMENT

Goodwill is tested for impairment at the reporting unit level, one level below our operating segments. We have identified 17 reporting units (of which 9 carry goodwill) based primarily on geographic location. We have the option of either assessing qualitative factors to determine whether it is more likely than not that the carrying value of our reporting units exceeds their respective fair value or proceeding directly to a quantitative test. We elected to perform the quantitative impairment test for all years presented.

The quantitative impairment test compares the fair value of a reporting unit to its carrying value, including goodwill. If the fair value exceeds its carrying value, the goodwill of the reporting unit is not considered impaired. However, if the carrying value of a reporting unit exceeds its fair value, we recognize an impairment loss equal to that excess.

HOW WE DETERMINE CARRYING VALUE AND FAIR VALUE

We determine the carrying value of each reporting unit by assigning assets and liabilities, including goodwill, to those units as of the measurement date. We estimate the fair values of the reporting units using both an income approach (which involves discounting estimated future cash flows) and a market approach (which involves the application of revenue and EBITDA multiples of comparable companies). We consider market factors when determining the assumptions and estimates used in our valuation models. Finally, to assess the reasonableness of the reporting unit fair values, we compare the total of the reporting unit fair values to our market capitalization.

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OUR FAIR VALUE ASSUMPTIONS

We base our fair value estimates on market participant assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty and actual results may differ. Changes in key assumptions or management judgment with respect to a reporting unit or its prospects may result from a change in market conditions, market trends, interest rates or other factors outside of our control, or underperformance relative to historical or projected operating results. These conditions could result in a significantly different estimate of the fair value of our reporting units, which could result in an impairment charge in the future.

The significant assumptions in our discounted cash flow models include our estimate of future profitability, capital requirements and the discount rate. The profitability estimates used in the models were derived from internal operating budgets and forecasts for long-term demand and pricing in our industry. Estimated capital requirements reflect replacement capital estimated on a per ton basis and if applicable, acquisition capital necessary to support growth estimated in the models. The discount rate was derived using a capital asset pricing model.

RESULTS OF OUR IMPAIRMENT TESTS

The results of our annual impairment tests for 2018 through 2020 indicated that the fair values of all reporting units with goodwill substantially exceeded (in excess of 100%) their carrying values.

For additional information about goodwill, see Note 18 “Goodwill and Intangible Assets” in Item 8 “Financial Statements and Supplementary Data.”

2. IMPAIRMENT OF LONG-LIVED ASSETS EXCLUDING GOODWILL

We evaluate the carrying value of long-lived assets, including intangible assets subject to amortization, when events and circumstances indicate that the carrying value may not be recoverable. The impairment evaluation is a critical accounting policy because long-lived assets are material to our total assets (as of December 31, 2020, net property, plant & equipment represents 38% of total assets, while net other intangible assets represents 10% of total assets) and the evaluation involves the use of significant estimates, assumptions and judgment. The carrying value of long-lived assets is considered impaired when the estimated undiscounted cash flows from such assets are less than their carrying value. In that event, we recognize a loss equal to the amount by which the carrying value exceeds the fair value.

Fair value is estimated primarily by using a discounted cash flow methodology that requires considerable judgment and assumptions. Our estimate of net future cash flows is based on historical experience and assumptions of future trends, which may be different from actual results. We periodically review the appropriateness of the estimated useful lives of our long-lived assets.

We test long-lived assets for impairment at the a significantly lower level than the level at which we test goodwill for impairment. In markets where we do not produce downstream products (e.g., asphalt mix and ready-mixed concrete), the lowest level of largely independent identifiable cash flows is at the individual aggregates operation or a group of aggregates operations collectively serving a local market. Conversely, in vertically integrated markets, the cash flows of our downstream and upstream businesses are not largely independently identifiable as the selling price of the upstream products (aggregates) impacts the profitability of the downstream business.

During 2020, 2019 and 2018, we recorded no material losses on impairment of long-lived assets.

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We maintain certain long-lived assets that are not currently being used in our operations. These assets totaled $467.1 million at December 31, 2020, representing a 12% increase from December 31, 2019. Of the total $467.1 million, approximately 40% relates to real estate held for future development and expansion of our operations. In addition, approximately 20% is comprised of real estate (principally former mining sites) pending development as commercial or residential real estate, reservoirs or landfills. The remaining 40% is composed of aggregates, asphalt and concrete operating assets idled temporarily. We evaluate the useful lives and the recoverability of these assets whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.

For additional information about long-lived assets and intangible assets, see Note 4 “Property, Plant & Equipment” and Note 18 “Goodwill and Intangible Assets” in Item 8 “Financial Statements and Supplementary Data.”

3. BUSINESS COMBINATIONS AND PURCHASE PRICE ALLOCATION

Our strategic long-term plans include potential investments in value-added acquisitions of related or similar businesses. When an acquisition is completed, our consolidated statements of comprehensive income includes the operating results of the acquired business starting from the date of acquisition, which is the date that control is obtained.

HOW WE DETERMINE AND ALLOCATE THE PURCHASE PRICE

The purchase price is determined based on the fair value of consideration transferred to and liabilities assumed from the seller as of the date of acquisition. We allocate the purchase price to the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed as of the date of acquisition. Goodwill is recorded for the excess of the purchase price over the net fair value of the identifiable assets acquired and liabilities assumed. The purchase price allocation is a critical accounting policy because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions. Additionally, the amounts assigned to depreciable and amortizable assets compared to amounts assigned to goodwill, which is not amortized, can significantly affect our results of operations.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and therefore represents an exit price. A fair value measurement assumes the highest and best use of the asset by market participants. 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

Level 1 fair values are used to value investments in publicly-traded entities and assumed obligations for publicly-traded long-term debt.

Level 2 fair values are typically used to value acquired machinery and equipment, land, buildings, and assumed liabilities for asset retirement obligations, environmental remediation and compliance obligations. Additionally, Level 2 fair values are typically used to value assumed contracts at other-than-market rates.

Level 3 fair values are used to value acquired mineral reserves as well as leased mineral interests (referred to in our financial statements as contractual rights in place) and other identifiable intangible assets. We determine the fair values of owned mineral reserves and leased mineral interests using a lost profits approach and/or an excess earnings approach. These valuation techniques require management to estimate future cash flows. The estimate of future cash flows is based on available historical information and future expectations and assumptions determined by management, but is inherently uncertain. Key assumptions in estimating future cash flows include sales price, shipment volumes, production costs and capital needs. The present value of the projected net cash flows represents the fair value assigned to mineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model and is based on the required rate of return that a hypothetical market participant would assume if purchasing the acquired business, with an adjustment for the risk of these assets not generating the projected cash flows.

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Other identifiable intangible assets may include, but are not limited to, noncompetition agreements. The fair values of these assets are typically determined by an excess earnings method, a replacement cost method or a market approach.

MEASUREMENT PERIOD ADJUSTMENTS

We may adjust the amounts recognized in an acquisition during a measurement period after the acquisition date. Any such adjustments are the result of subsequently obtaining additional information that existed at the acquisition date regarding the assets acquired or the liabilities assumed. Measurement period adjustments are generally recorded as increases or decreases to goodwill, if any, recognized in the transaction. The cumulative impact of measurement period adjustments on depreciation, amortization and other income statement items are recognized in the period the adjustment is determined. The measurement period ends once we have obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of acquisition. Any adjustments to assets acquired or liabilities assumed beyond the measurement period are recorded through earnings.

4. PENSION AND OTHER POSTRETIREMENT BENEFITS

Accounting for pension and other postretirement benefits requires that we use assumptions for the valuation of projected benefit obligations (PBO) and the performance of plan assets. Each year, we review our assumptions for discount rates (used for PBO, service cost, and interest cost calculations) and the expected return on plan assets. Due to plan changes made in 2012 and 2013, annual pay increases and the per capita cost of healthcare benefits do not materially impact plan obligations.

DISCOUNT RATES — We use a high-quality bond full yield curve approach (specific spot rates for each annual expected cash flow) to establish the discount rates at each measurement date. See Note 10 “Benefit Plans” in Item 8 “Financial Statements and Supplementary Data” for the discount rates used for PBO, service cost, and interest cost calculations.

EXPECTED RETURN ON PLAN ASSETS — Our expected return on plan assets is: (1) a long-term view based on our current asset allocation, and (2) a judgment informed by consultation with our retirement plans’ consultant and our pension plans’ actuary. For the year ended December 31, 2020, the expected return on plan assets was 5.75% for the period January 1, 2020 – November 30, 2020 and 5.25% for the period December 1, 2020 – December 31, 2020 (5.75% for 2019). The plans were remeasured at November 30, 2020 to reflect settlement accounting for the CMG Hourly Pension Plan and the Vulcan Materials Company (VMC) Pension Plan (the Chemicals and Salaried Pension Plans were merged to form the VMC Pension Plan effective November 30, 2020).

Changes to the assumptions listed above would have an impact on the PBO and the annual net benefit cost. The following table reflects the favorable and unfavorable outcomes associated with a change in certain assumptions:

	(Favorable) Unfavorable
	0.5 Percentage Point Increase						0.5 Percentage Point Decrease
	Inc (Dec) in			Inc (Dec) in			Inc (Dec) in			Inc (Dec) in
in millions	Benefit Obligation			Annual Benefit Cost			Benefit Obligation			Annual Benefit Cost
Actuarial Assumptions
Discount rates
Pension	$ (58.8)			$ (0.9)			$ 64.8			$ 0.8
Other postretirement benefits	(1.2)			(0.0)			1.3			0.1
Expected return on plan assets	not applicable			(4.5)			not applicable			4.5

As of the December 31, 2020 measurement date, the fair value of our pension plan assets decreased from $949.0 million for the prior year-end to $944.3 million due to voluntary lump sum settlement distributions to certain fully vested plan participants partially offset by investment returns. Our postretirement plans are unfunded.

The discount rate is the weighted-average of the spot rates for each cash flow on the yield curve for high-quality bonds as of the measurement date. As of the December 31, 2020 measurement date, the PBO of our pension plans decreased from $1,090.9 million to $1,059.5 million. This decrease was primarily due to the large amount of benefit distributions made from the plans as a result of the lump sum settlements offered to certain fully vested plan participants. The PBO of our postretirement plans decreased from $41.2 million to $33.9 million. This decrease was primarily due to demographic assumption changes.

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During 2021, we expect to recognize net pension income of $10.8 million and net postretirement income of $1.9 million compared to expense of $21.6 million (which reflects a settlement charge of $22.7 million) and income of $2.2 million, respectively, in 2020. The decrease in pension expense (excluding the settlement charge) is mainly due to greater than expected asset returns.

We do not anticipate that contributions to the funded pension plans will be required during 2021, and we do not anticipate making a discretionary contribution. We currently do not anticipate that the funded status of any of our plans will fall below statutory thresholds requiring accelerated funding or constraints on benefit levels or plan administration.

For additional information about pension and other postretirement benefits, see Note 10 “Benefit Plans” in Item 8 “Financial Statements and Supplementary Data.”

5. ENVIRONMENTAL COMPLIANCE COSTS

Our environmental compliance costs include the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. Our accounting policy for environmental compliance costs is a critical accounting policy because it involves the use of significant estimates and assumptions and requires considerable management judgment.

HOW WE ACCOUNT FOR ENVIRONMENTAL COSTS

To account for environmental costs, we:

expense or capitalize environmental costs consistent with our capitalization policy

expense costs for an existing condition caused by past operations that do not contribute to future revenues

accrue costs for environmental assessment and remediation efforts when we determine that a liability is probable and we can reasonably estimate the cost

At the early stages of a remediation effort, environmental remediation liabilities are not easily quantified due to the uncertainties of various factors. The range of an estimated remediation liability is defined and redefined as events in the remediation effort occur, but generally liabilities are recognized no later than completion of the remedial feasibility study. When we can estimate a range of probable loss, we accrue the most likely amount. If no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. As of December 31, 2020, the difference between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $5.9 million — this amount does not represent our maximum exposure to loss for all environmental remediation obligations as it excludes those sites for which a range of loss cannot be reasonably estimated at this time. Our environmental remediation obligations are recorded on an undiscounted basis.

Accrual amounts may be based on technical cost estimations or the professional judgment of experienced environmental managers. Our Safety, Health and Environmental Affairs Management Committee routinely reviews cost estimates and key assumptions in response to new information, such as the kinds and quantities of hazardous substances, available technologies and changes to the parties participating in the remediation efforts. However, a number of factors, including adverse agency rulings and unanticipated conditions as remediation efforts progress, may cause actual results to differ materially from accrued costs.

For additional information about environmental compliance costs, see Note 8 “Accrued Environmental Remediation Costs” in Item 8 “Financial Statements and Supplementary Data.”

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6. CLAIMS AND LITIGATION INCLUDING SELF-INSURANCE

We are involved with claims and litigation, including items covered under our self-insurance program. We are self-insured for losses related to workers' compensation up to $2.0 million per occurrence and automotive and general/product liability up to $10.0 million per occurrence. We have excess coverage on a per occurrence basis beyond these retention levels.

Under our self-insurance program, we aggregate certain claims and litigation costs that are reasonably predictable based on our historical loss experience and accrue losses, including future legal defense costs, based on actuarial studies. Certain claims and litigation costs, due to their unique nature, are not included in our actuarial studies. For matters not included in our actuarial studies, legal defense costs are accrued when incurred.

Our accounting policy for claims and litigation including self-insurance is a critical accounting policy because it involves the use of significant estimates and assumptions and requires considerable management judgment.

HOW WE ASSESS THE PROBABILITY OF LOSS

We use both internal and outside legal counsel to assess the probability of loss, and establish an accrual when the claims and litigation represent a probable loss and the cost can be reasonably estimated. Significant judgment is used in determining the timing and amount of the accruals for probable losses, and the actual liability could differ materially from the accrued amounts.

For additional information about claims and litigation including self-insurance, see Note 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data” under the caption Claims and Litigation Including Self-insurance.

7. INCOME TAXES

VALUATION OF OUR DEFERRED TAX ASSETS

We file federal, state and foreign income tax returns and account for the current and deferred tax effects of such returns using the asset and liability method. 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.

Significant judgments and estimates are required in determining our deferred tax assets and liabilities. These estimates are updated throughout the year to consider income tax return filings, our geographic mix of earnings, legislative changes and other relevant items. We are required to account for the effects of changes in income tax rates on deferred tax balances in the period in which the legislation is enacted.

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. A summary of our deferred tax assets is included in Note 9 “Income Taxes” in Item 8 “Financial Statements and Supplementary Data.”

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LIABILITY FOR UNRECOGNIZED TAX BENEFITS

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 or emerging legislation.

Generally, we are not subject to significant changes in income taxes by any taxing jurisdiction for the years before 2017. 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.

We consider a tax position to be resolved at the earlier of the issue being “effectively settled,” settlement of an examination, or the expiration of the statute of limitations. Upon resolution of a tax position, any liability for unrecognized tax benefits will be released.

Our liability for unrecognized tax benefits is generally presented as noncurrent. However, if we anticipate paying cash within one year to settle an uncertain tax position, the liability is presented as current. We classify interest and penalties associated with our liability for unrecognized tax benefits as income tax expense.

NEW ACCOUNTING STANDARDS

For a discussion of 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 1 “Summary of Significant Accounting Policies” in Item 8 “Financial Statements and Supplementary Data” under the caption New Accounting Standards.

FORWARD-LOOKING STATEMENTS

The foregoing discussion and analysis, as well as certain information contained elsewhere in this Annual Report, contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor created thereby. See the discussion in Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 in Part I, above.

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