Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Vulcan Materials Company:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Vulcan Materials Company and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.



Part II	68

Hewitt Landfill Environmental Matter – Refer to Note 12 to the consolidated financial statements

Critical Audit Matter Description

The Company is subject to governmental proceedings and orders pertaining to the protection of the environment. Specific to the Hewitt Landfill Environmental Matter, management is engaged in groundwater testing, certain remedial procedures and ongoing dialogue with federal and local agencies such as the Environmental Protection Agency (EPA), Los Angeles Regional Water Quality Control Board (RWQCB) and the Los Angeles Department of Water and Power (LADWP) as well as other interested parties. The testing and dialogue is related to the Company’s potential contribution to soil, soil vapor and/or groundwater contamination in the former Hewitt Landfill in Los Angeles and the potential contribution of the Hewitt Landfill to groundwater contamination in the North Hollywood Operable Unit (NHOU) of the San Fernando Valley Superfund Site.

The groundwater treatment system for the Hewitt Landfill on-site remediation reached mechanical completion during 2020. The incurred and anticipated costs have been fully accrued for based on facts and circumstances known to the Company at this time. The Company has disclosed facts and circumstances that led to the accrual and the inherent uncertainty that exists in the timing and recognition of potential incremental responsibility or share of costs for the Hewitt Landfill on-site remediation or the NHOU. Due to these uncertainties, future amounts recorded related to the ultimate resolution of claims and assessments could be material in a given period to the Company’s results of operations or cash flows.Evaluating the estimate of the liability and the extent and sufficiency of related disclosures is subjective in nature and as such requires significant audit effort, involves especially subjective auditing judgements, and requires the use of our environmental specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty in the timing, recognition and disclosure of the Company’s responsibility and potential share of remediation costs, specifically as they relate to the Hewitt Landfill and NHOU (collectively the Hewitt Landfill Environmental Matter) include the following, among others:

We tested the effectiveness of controls over the identification and evaluation of information available to assess potential responsibility or share of remediation costs for the Hewitt Landfill Environmental Matter, as well as controls over the adequacy of the related financial statement footnote disclosures.

With the assistance of our environmental specialists, we evaluated the accuracy and completeness of management’s recorded liabilities for the Hewitt Landfill Environmental Matter by:

Obtaining letters from internal and external counsel as to the matter’s status, probability of an unfavorable outcome, and the amount or range of potential loss should the outcome be unfavorable.

Independently obtaining and reading correspondence from the EPA, RWQCB and LADWP regarding the Hewitt Landfill Environmental Matter.

Obtaining an understanding of the change in estimate of remediation costs, as applicable, and performing procedures to evaluate the appropriateness and sufficiency of the estimate at year-end.

We read and compared the Company’s footnote disclosure to evidential matter obtained during our audit.

/s/ DELOITTE & TOUCHE LLP

Birmingham, Alabama

February 25, 2021

We have served as the Company’s auditor since 1956.



Part II	69

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	2020	2019	2018
For the years ended December 31
in thousands, except per share data
Total revenues	$ 4,856,826	$ 4,929,103	$ 4,382,869
Cost of revenues	3,575,345	3,673,202	3,281,924
Gross profit	1,281,481	1,255,901	1,100,945
Selling, administrative and general expenses	359,772	370,548	333,371
Gain on sale of property, plant & equipment and businesses	3,997	23,752	14,944
Other operating expense, net	(29,975)	(31,647)	(34,805)
Operating earnings	895,731	877,458	747,713
Other nonoperating income (expense), net	(17,540)	9,243	13,000
Interest income	1,567	1,155	554
Interest expense	135,960	130,155	137,977
Earnings from continuing operations before income taxes	743,798	757,701	623,290
Income tax expense
Current	93,948	58,941	40,516
Deferred	61,855	76,257	64,933
Total income tax expense	155,803	135,198	105,449
Earnings from continuing operations	587,995	622,503	517,841
Loss on discontinued operations, net of tax	(3,515)	(4,841)	(2,036)
Net earnings	$ 584,480	$ 617,662	$ 515,805
Other comprehensive income (loss), net of tax
Deferred gain (loss) on interest rate derivative	(14,679)	0	2,496
Amortization of prior interest rate derivative loss	1,689	227	226
Adjustment for funded status of benefit plans	6,366	(26,892)	(207)
Amortization of actuarial loss and prior service cost for benefit plans	23,057	1,142	4,365
Other comprehensive income (loss)	16,433	(25,523)	6,880
Comprehensive income	$ 600,913	$ 592,139	$ 522,685
Basic earnings (loss) per share
Continuing operations	$ 4.44	$ 4.71	$ 3.91
Discontinued operations	(0.03)	(0.04)	(0.01)
Net earnings	$ 4.41	$ 4.67	$ 3.90
Diluted earnings (loss) per share
Continuing operations	$ 4.41	$ 4.67	$ 3.87
Discontinued operations	(0.02)	(0.04)	(0.02)
Net earnings	$ 4.39	$ 4.63	$ 3.85
Weighted-average common shares outstanding
Basic	132,578	132,300	132,393
Assuming dilution	133,245	133,385	133,926
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



Part II	70

V****ULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS



	2020	2019
As of December 31
in thousands
Assets
Cash and cash equivalents	$ 1,197,068	$ 271,589
Restricted cash	945	2,917
Accounts and notes receivable
Customers, less allowance for doubtful accounts
2020 — $2,551; 2019 — $3,125	512,945	532,012
Other	43,352	38,104
Inventories	448,585	458,308
Other current assets	74,270	76,396
Total current assets	2,277,165	1,379,326
Investments and long-term receivables	34,301	60,709
Property, plant & equipment, net	4,425,999	4,316,038
Operating lease right-of-use assets, net	423,128	408,189
Goodwill	3,172,112	3,167,061
Other intangible assets, net	1,123,544	1,091,475
Other noncurrent assets	230,656	225,995
Total assets	$ 11,686,905	$ 10,648,793
Liabilities
Current maturities of long-term debt	515,435	25
Trade payables and accruals	273,080	265,159
Accrued salaries, wages and management incentives	91,646	97,228
Accrued interest	19,943	19,167
Other current liabilities	147,779	153,984
Total current liabilities	1,047,883	535,563
Long-term debt	2,772,240	2,784,315
Deferred income taxes, net	706,050	633,039
Deferred management incentive and other compensation	26,787	22,856
Pension benefits	107,195	142,363
Other postretirement benefits	29,412	35,848
Asset retirement obligations	283,163	210,323
Deferred revenue	174,045	179,880
Operating lease liabilities	399,582	388,042
Other noncurrent liabilities	113,218	94,707
Total liabilities	$ 5,659,575	$ 5,026,936
Other commitments and contingencies (Note 12)
Equity
Common stock, $1 par value, Authorized 480,000 shares,
Outstanding 132,516 and 132,371 shares, respectively	132,516	132,371
Capital in excess of par value	2,802,012	2,791,353
Retained earnings	3,274,107	2,895,871
Accumulated other comprehensive loss	(181,305)	(197,738)
Total equity	6,027,330	5,621,857
Total liabilities and equity	$ 11,686,905	$ 10,648,793
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



Part II	71

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



	2020	2019	2018
For the years ended December 31
in thousands
Operating Activities
Net earnings	$ 584,480	$ 617,662	$ 515,805
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, depletion, accretion and amortization	396,806	374,596	346,246
Noncash operating lease expense	38,272	35,344	0
Net gain on sale of property, plant & equipment and businesses	(3,997)	(23,752)	(14,944)
Contributions to pension plans	(8,819)	(8,882)	(109,631)
Share-based compensation expense	32,991	31,843	25,215
Deferred tax expense	62,018	76,011	64,639
Cost of debt purchase	0	0	6,922
(Increase) decrease in assets excluding the initial effects of business
acquisitions and dispositions
Accounts and notes receivable	13,413	(29,734)	63,230
Inventories	9,801	(28,273)	(34,976)
Prepaid expenses	2,585	5,990	(2,167)
Other assets	(14,430)	(61,195)	(58,489)
Increase (decrease) in liabilities excluding the initial effects of business
acquisitions and dispositions
Accrued interest and income taxes	775	(4,644)	12,148
Trade payables and other accruals	(6,942)	21,788	40,181
Other noncurrent liabilities	(44,912)	(51,150)	(26,901)
Other, net	8,318	28,518	5,499
Net cash provided by operating activities	$ 1,070,359	$ 984,122	$ 832,777
Investing Activities
Purchases of property, plant & equipment	(362,194)	(384,094)	(469,088)
Proceeds from sale of property, plant & equipment	11,461	22,661	22,210
Proceeds from sale of businesses	968	1,744	11,256
Payment for businesses acquired, net of acquired cash	(43,223)	(44,151)	(221,419)
Other, net	11,474	(11,997)	(12,850)
Net cash used for investing activities	$ (381,514)	$ (415,837)	$ (669,891)
Financing Activities
Proceeds from short-term debt	0	366,900	739,900
Payment of short-term debt	0	(499,900)	(606,900)
Payment of current maturities and long-term debt	(250,025)	(23)	(892,055)
Proceeds from issuance of long-term debt	750,000	0	850,000
Debt issuance and exchange costs	(15,394)	0	(45,513)
Settlements of interest rate derivatives	(19,863)	0	3,378
Purchases of common stock	(26,132)	(2,602)	(133,983)
Dividends paid	(180,216)	(163,973)	(148,109)
Share-based compensation, shares withheld for taxes	(22,144)	(38,522)	(31,846)
Other, net	(1,564)	(63)	0
Net cash provided by (used for) financing activities	$ 234,662	$ (338,183)	$ (265,128)
Net increase (decrease) in cash and cash equivalents and restricted cash	923,507	230,102	(102,242)
Cash and cash equivalents and restricted cash at beginning of year	274,506	44,404	146,646
Cash and cash equivalents and restricted cash at end of year	$ 1,198,013	$ 274,506	$ 44,404
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



Part II	72

VULCAN MATERIALS COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF EQUITY



					Accumulated
			Capital in		Other
	Common Stock		Excess of	Retained	Comprehensive
in thousands	Shares	Amount	Par Value	Earnings	Income (Loss)	Total
Balances at December 31, 2017	132,324	$ 132,324	$ 2,805,587	$ 2,180,448	$ (149,466)	$ 4,968,893
Released stranded tax effects
ASU 2018-02	0	0	0	29,629	(29,629)	0
Balances at January 1, 2018, due to
reclassification	132,324	$ 132,324	$ 2,805,587	$ 2,210,077	$ (179,095)	$ 4,968,893
Net earnings	0	0	0	515,805	0	515,805
Share-based compensation plans,
net of shares withheld for taxes	630	630	(32,428)	0	0	(31,798)
Purchase and retirement of
common stock	(1,192)	(1,192)	0	(132,791)	0	(133,983)
Share-based compensation expense	0	0	25,215	0	0	25,215
Cash dividends on common stock	0	0	0	(148,109)	0	(148,109)
Other comprehensive income	0	0	0	0	6,880	6,880
Other	0	0	112	(112)	0	0
Balances at December 31, 2018	131,762	$ 131,762	$ 2,798,486	$ 2,444,870	$ (172,215)	$ 5,202,903
Net earnings	0	0	0	617,662	0	617,662
Share-based compensation plans,
net of shares withheld for taxes	628	628	(39,080)	0	0	(38,452)
Purchase and retirement of
common stock	(19)	(19)	0	(2,583)	0	(2,602)
Share-based compensation expense	0	0	31,843	0	0	31,843
Cash dividends on common stock	0	0	0	(163,973)	0	(163,973)
Other comprehensive loss	0	0	0	0	(25,523)	(25,523)
Other	0	0	104	(105)	0	(1)
Balances at December 31, 2019	132,371	$ 132,371	$ 2,791,353	$ 2,895,871	$ (197,738)	$ 5,621,857
Net earnings	0	0	0	584,480	0	584,480
Share-based compensation plans,
net of shares withheld for taxes	359	359	(22,442)	0	0	(22,083)
Purchase and retirement of
common stock	(214)	(214)	0	(25,918)	0	(26,132)
Share-based compensation expense	0	0	32,991	0	0	32,991
Cash dividends on common stock	0	0	0	(180,216)	0	(180,216)
Other comprehensive income	0	0	0	0	16,433	16,433
Other	0	0	110	(110)	0	0
Balances at December 31, 2020	132,516	$ 132,516	$ 2,802,012	$ 3,274,107	$ (181,305)	$ 6,027,330
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



Part II	73

NOTES TO 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) and a major producer of asphalt mix and ready-mixed concrete.

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 markets in twenty states, Washington D.C., and the local markets surrounding our operations in Mexico. 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 is our focus and primary business, we produce and sell asphalt mix and/or ready-mixed concrete in our Alabama, Arizona, California, Maryland, New Mexico, Tennessee, Texas, Virginia and Washington D.C. markets.

While we continue to operate as an essential business, the COVID-19 pandemic has impacted our industry and the economy, and it may have far-reaching impacts on many aspects of our operations, directly and indirectly, including with respect to its impacts on customer behaviors, business and manufacturing operations, our employees, and the market generally.

Due to the 2005 sale of our Chemicals business as described below, the results of the Chemicals business are presented as discontinued operations in the accompanying Consolidated Statements of Comprehensive Income.

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 Consolidated Statements of Comprehensive Income for all periods presented. Results from discontinued operations are as follows:



in thousands	2020	2019	2018
Discontinued Operations
Pretax loss	$ (4,752)	$ (6,541)	$ (2,748)
Income tax benefit	1,237	1,700	712
Loss on discontinued operations,
net of tax	$ (3,515)	$ (4,841)	$ (2,036)

Our discontinued operations include charges/credits 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 12). There were no revenues from discontinued operations for the years presented.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Vulcan Materials Company and all our majority or ‎wholly-owned subsidiary companies. Partially-owned affiliates are either consolidated or accounted for at cost or as equity investments depending on the level of ownership interest or our ability to exercise control over the affiliates’ operations. All intercompany transactions and accounts have been eliminated in consolidation.



Part II	74

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of these financial statements in conformity with accounting principles generally accepted (GAAP) in the United States of America requires 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 evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. 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. Actual results may differ materially from these estimates. The most significant estimates 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 and changes in circumstances arising after December 31, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

BUSINESS COMBINATIONS

We account for business combinations under the acquisition method of accounting. The purchase price of an acquisition is allocated to the underlying identifiable assets acquired and liabilities assumed based on their respective fair values. 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.

Determining the fair values of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions. 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.

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.

FOREIGN CURRENCY TRANSACTIONS

The U.S. dollar is the functional currency for all of our operations. For our non-U.S. subsidiaries, local currency inventories and long-term assets such as property, plant & equipment and intangibles are remeasured into U.S. dollars at approximate rates prevailing when acquired; all other assets and liabilities are remeasured at year-end exchange rates. Inventories charged to cost of sales and depreciation are remeasured at historical rates; all other income and expense items are remeasured at average exchange rates prevailing during the year. Gains and losses which result from remeasurement are included in other nonoperating income/expense in the accompanying Consolidated Statements of Comprehensive Income and are not material for the years presented.

CASH EQUIVALENTS

We classify as cash equivalents all highly liquid securities with a maturity of three months or less at the time of purchase. The carrying amount of these securities approximates fair value due to their short-term maturities.

RESTRICTED CASH

Restricted cash generally consists of cash proceeds from the sale of property held in escrow for the acquisition of replacement property under like-kind exchange agreements and cash reserved by other contractual agreements (such as asset purchase agreements) for a specified purpose and therefore not available for use for other purposes. 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 is included with cash and cash equivalents in the accompanying Consolidated Statements of Cash Flows.



Part II	75

ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable from customers result from our extending credit to trade customers for the purchase of our products. The terms generally provide for payment within 15 days of the month following invoice. On occasion, when necessary to conform to regional industry practices, we sell product under extended payment terms, which may result in either secured or unsecured short-term notes; or, on occasion, notes with durations of less than one year are taken in settlement of existing accounts receivable. Other accounts and notes receivable result from short-term transactions (less than one year) other than the sale of our products, such as interest receivable, insurance claims, freight claims, bid deposits or rents receivable.

Allowance for doubtful accounts is based on our assessment of the collectability of customer accounts. We regularly review the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. Bad debt expense for the years ended December 31 was as follows: 2020 — $1,091,000, 2019 — $1,426,000 and 2018 — $251,000. Write-offs of accounts receivables for the years ended December 31 were as follows: 2020 — $2,046,000, 2019 — $809,000 and 2018 — $1,291,000.

INVENTORIES

Inventories and supplies are stated at the lower of cost or net realizable value. We use the last-in, first-out (LIFO) method of valuation for most of our inventories because it results in a better matching of costs with revenues. Such costs include fuel, parts and supplies, raw materials, direct labor and production overhead. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on our estimates of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation. Substantially all operating supplies inventory is carried at average cost.

For additional information about inventories see Note 3.

PROPERTY, PLANT & EQUIPMENT

Property, plant & equipment (including finance leases) are carried at cost less accumulated depreciation, depletion and amortization.

Capitalized software costs of $2,110,000 and $2,976,000 are reflected in net property, plant & equipment as of December 31, 2020 and 2019, respectively. We capitalized software costs for the years ended December 31 as follows: 2020 — $1,116,000, 2019 — $1,506,000 and 2018 — $2,213,000.

For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed, and any related gain or loss is reflected in income.

For additional information about our property, plant & equipment see Note 4.

REPAIR AND MAINTENANCE

Repair and maintenance costs generally are charged to operating expense as incurred. Renewals and betterments that add materially to the utility or useful lives of property, plant & equipment are capitalized and subsequently depreciated. Actual costs for planned major maintenance activities, related primarily to periodic overhauls on our oceangoing vessels, are capitalized and amortized to the next overhaul.

LEASES

Our nonmineral leases with initial terms in excess of one year are recognized on the balance sheet as right-of-use (ROU) assets and lease liabilities. Mineral leases are exempt from balance sheet recognition.

ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The lease term only includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. ROU assets are adjusted for any prepaid lease payments and lease incentives. Except for equipment with monthly monitoring service where the service component accounts for a majority of the lease cost, the non-lease components of our lease agreements are not separated from the lease components.



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For additional information about leases see Note 7.

DEPRECIATION, DEPLETION, ACCRETION AND AMORTIZATION

Depreciation is generally computed by the straight-line method at rates based on the estimated service lives of the various classes of assets, which include machinery and equipment (3 to 35 years), buildings (7 to 20 years) and land improvements (3 to 20 years). Finance leases are amortized over varying periods not in excess of applicable lease terms or estimated useful lives. Capitalized software costs are included in machinery and equipment and are depreciated on a straight-line basis beginning when the software project is substantially complete.

Cost depletion on depletable land is computed by the unit-of-sales method based on estimated recoverable units.

Accretion reflects the period-to-period increase in the carrying amount of the liability for asset retirement obligations. It is computed using the same credit-adjusted, risk-free rate used to initially measure the liability at fair value.

Leaseholds are amortized over varying periods not in excess of applicable lease terms or estimated useful lives.

Amortization of intangible assets subject to amortization is computed based on the estimated life of the intangible assets. ‎A significant portion of our intangible assets is contractual rights in place associated with zoning, permitting and other rights to access and extract aggregates reserves. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-sales method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method.

Depreciation, depletion, accretion and amortization expense for the years ended December 31 is outlined below:



in thousands	2020	2019	2018
Depreciation, Depletion, Accretion and Amortization
Depreciation	$ 315,136	$ 300,613	$ 276,814
Depletion	21,011	22,421	23,260
Accretion	12,432	10,992	10,776
Amortization of finance leases	1,616	29	472
Amortization of intangibles	46,611	40,541	34,924
Total	$ 396,806	$ 374,596	$ 346,246

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, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such expenses. We do not use derivative instruments for trading or other speculative purposes.

The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. Changes in the fair value of interest rate swap cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. We may also enter into contracts that qualify for the normal purchases and normal sales (NPNS) exception. When a contract meets the criteria to qualify as NPNS, we apply such exception. Income recognition and realization related to NPNS contracts generally coincide with the physical delivery of the commodity. For contracts qualifying for the NPNS exception, no recognition of the contract’s fair value in the consolidated financial statements is required until settlement of the contract as long as the transaction remains probable of occurring.

For additional information about derivative instruments see Note 5.



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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 at December 31 subject to fair value measurement on a recurring basis are summarized below:



	Level 1 Fair Value
in thousands	2020	2019
Fair Value Recurring
Rabbi Trust
Mutual funds	$ 28,058	$ 22,883
Total	$ 28,058	$ 22,883



	Level 2 Fair Value
in thousands	2020	2019
Fair Value Recurring
Rabbi Trust
Money market mutual fund	$ 837	$ 1,340
Total	$ 837	$ 1,340

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 (short-term, highly liquid assets in commercial paper, short-term bonds and certificates of deposit).

Net gains (losses) of the Rabbi Trusts’ investments were $4,469,000, $3,993,000 and $(2,741,000) for the years ended December 31, 2020, 2019 and 2018, respectively. The portions of the net gains (losses) related to investments still held by the Rabbi Trusts at December 31, 2020, 2019 and 2018 were $4,140,000, $3,729,000 and $(4,386,000), respectively.

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 5 and 6, respectively.



Part II	78

GOO****DWILL 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. As of December 31, 2020, goodwill totaled $3,172,112,000 as compared to $3,167,061,000 at December 31, 2019. Goodwill represents 27% of total assets at December 31, 2020 compared to 30% at December 31, 2019.

Goodwill is tested for impairment annually, as of November 1, 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. Goodwill is tested for impairment at the reporting unit level, one level below our operating segments. We have four operating segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. Within these four 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.

The results of the annual impairment tests performed as of November 1, 2020, 2019 and 2018 indicated that the fair values of all reporting units with goodwill substantially exceeded their carrying values. Accordingly, there were no charges for goodwill impairment in the years ended December 31, 2020, 2019 or 2018.

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). Determining the fair value of our reporting units involves the use of significant estimates and assumptions and considerable management judgment. We base our fair value estimates on 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, which 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, 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.

For additional information about goodwill see Note 18.

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 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 determined 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) determines the profitability of the downstream business.

As of December 31, 2020, net property, plant & equipment represents 38% of total assets, while net other intangible assets represents 10% of total assets. During 2020, 2019 and 2018, we recorded no material losses on impairment of long-lived assets.

For additional information about long-lived assets and intangible assets see Notes 4 and 18, respectively.



Part II	79

REVENUES AND REVENUE RECOGNITION

Total revenues include sales of product and services to customers, net of any discounts and taxes, and freight and delivery revenues billed to customers. Freight and delivery generally represent pass-through transportation we incur (including our administrative costs) and pay to third-party carriers to deliver our products to customers. The cost related to freight and delivery is included in cost of revenues.

Revenues for product sales are recognized when control passes to the customer (typically occurs when finished products are shipped/delivered). Construction paving revenues are recognized using the percentage-of-completion method.

For additional information regarding revenues and revenue recognition see Note 2.

STRIPPING COSTS

In the mining industry, the costs of removing overburden and waste materials to access mineral deposits are referred to as stripping costs.

Stripping costs incurred during the production phase are considered costs of extracted minerals under our inventory costing system, inventoried, and recognized in cost of sales in the same period as the revenue from the sale of the inventory. The production stage is deemed to begin when the activities, including removal of overburden and waste material that may contain incidental saleable material, required to access the saleable product are complete. Stripping costs considered as production costs and included in the costs of inventory produced were $90,432,000 in 2020, $86,090,000 in 2019 and $78,911,000 in 2018.

Conversely, stripping costs incurred during the development stage of a mine (pre-production stripping) are excluded from our inventory cost. Pre-production stripping costs are capitalized and reported within other noncurrent assets in our accompanying Consolidated Balance Sheets. Capitalized pre-production stripping costs are expensed over the productive life of the mine using the unit-of-sales method. Pre-production stripping costs included in other noncurrent assets were $92,880,000 as of December 31, 2020 and $92,759,000 as of December 31, 2019.

RECLAMATION COSTS

Reclamation costs resulting from normal use of long-lived assets are recognized over the period the asset is in use when there is a legal obligation to incur these costs upon retirement of the assets. Additionally, reclamation costs resulting from normal use under a mineral lease are recognized over the lease term when there is a legal obligation to incur these costs upon expiration of the lease. The obligation, which cannot be reduced by estimated offsetting cash flows, is recorded at fair value as a liability at the obligating event date and is accreted through charges to operating expenses. This fair value is also capitalized as part of the carrying amount of the underlying asset and depreciated over the estimated useful life of the asset. If the obligation is settled for other than the carrying amount of the liability, a gain or loss is recognized on settlement.

To determine the fair value of the obligation, we estimate the cost (including a reasonable profit margin) for a third party to perform the legally required reclamation tasks. This cost is then increased for both future estimated inflation and an estimated market risk premium related to the estimated years to settlement. Once calculated, this cost is discounted to fair value using present value techniques with a credit-adjusted, risk-free rate commensurate with the estimated years to settlement.

In estimating the settlement date, we evaluate the current facts and conditions to determine the most likely settlement date. If this evaluation identifies alternative estimated settlement dates, we use a weighted-average settlement date considering the probabilities of each alternative.

We review reclamation obligations at least annually for a revision to the cost or a change in the estimated settlement date. Additionally, reclamation obligations are reviewed in the period that a triggering event occurs that would result in either a revision to the cost or a change in the estimated settlement date. Examples of events that would trigger a change in the cost include a new reclamation law or amendment of an existing mineral lease. Examples of events that would trigger a change in the estimated settlement date include the acquisition of additional reserves or the closure of a facility.

The carrying value of these obligations was $283,163,000 as of December 31, 2020 and $210,323,000 as of December 31, 2019. For additional information about reclamation obligations (referred to in our financial statements as asset retirement obligations) see Note 17.



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ENVIRONMENTAL COMPLIANCE

Our environmental compliance costs are undiscounted and include the cost of ongoing monitoring programs, the cost of remediation efforts and other similar costs. We 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 the 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 spread between the amount accrued and the maximum loss in the range for all sites for which a range can be reasonably estimated was $5,905,000 — 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. 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 encountering 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.

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 $2,000,000 per occurrence and automotive and general/product liability up to $10,000,000 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. 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. For matters not included in our actuarial studies, legal defense costs are accrued when incurred. The following table outlines our self-insurance program at December 31:



dollars in thousands	2020	2019
Self-insurance Program
Self-insured liabilities (undiscounted)	$ 75,570	$ 69,069
Insured liabilities (undiscounted)	3,661	6,431
Discount rate	0.30%	1.63%
Amounts Recognized in Consolidated
Balance Sheets
Other accounts and notes receivable	$ 595	$ 0
Investments and long-term receivables	3,585	5,931
Other current liabilities	(20,707)	(19,830)
Other noncurrent liabilities	(57,608)	(51,360)
Net liabilities (discounted)	$ (74,135)	$ (65,259)



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Estimated payments (undiscounted and excluding the impact of related receivables) under our self-insurance program for the five years subsequent to December 31, 2020 are as follows:



in thousands
Estimated Payments under Self-insurance Program
2021	$ 22,436
2022	16,453
2023	11,492
2024	6,857
2025	3,751

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, see Note 12 under the caption Litigation and Environmental Matters.

SHARE-BASED COMPENSATION

All of our share-based compensation awards are classified as equity awards. We measure share-based compensation awards using fair-value-based measurement methods. This results in the recognition of compensation expense for all share-based compensation awards based on their fair value as of the grant date. Compensation cost is recognized over the requisite service period. Forfeitures are recognized as they occur.

A summary of the estimated future compensation cost (unrecognized compensation expense) as of December 31, 2020 related to share-based awards granted to employees under our long-term incentive plans is presented below:



	Unrecognized	Expected
	Compensation	Weighted-average
dollars in thousands	Expense	Recognition (Years)
Share-based Compensation
SOSARs 1	$ 1,605	1.3
Performance shares	10,622	1.7
Restricted shares	8,362	1.7
Total/weighted-average	$ 20,589	1.7


1	Stock-Only Stock Appreciation Rights (SOSARs)

Pretax compensation expense related to our employee share-based compensation awards and related income tax benefits for the years ended December 31 are summarized below:



in thousands	2020	2019	2018
Employee Share-based Compensation Awards
Pretax compensation expense	$ 31,419	$ 30,067	$ 23,250
Income tax benefits	4,954	7,682	5,940

We receive an income tax deduction for share-based compensation equal to the excess of the market value of our common stock on the date of exercise or issuance over the exercise price. Tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are reflected as discrete income tax benefits in the period of exercise or issuance. Net excess tax benefits were recorded as reductions to our income tax expense and reflected as operating cash flows, as follows (combined federal and state): 2020 — $8,368,000; 2019 — $21,020,000 and 2018 — $20,137,000.

For additional information about share-based compensation, see Note 11 under the caption Share-based Compensation Plans.



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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 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 (due to a voluntary lump-sum settlement offer to certain fully vested plan participants) 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).

Accounting standards provide for the delayed recognition of differences between actual results and expected or estimated results. This delayed recognition of actual results allows for a smoothed recognition in earnings of changes in benefit obligations and asset performance. The differences between actual results and expected or estimated results are recognized in full in other comprehensive income. Amounts recognized in other comprehensive income are reclassified to earnings in a systematic manner over the average remaining service period of participants for our active plans or the average remaining lifetime of participants for our inactive plans.

We present the service cost component of net periodic benefit cost in cost of revenues and selling, administrative and general expense consistent with employee compensation costs. The other components of net periodic benefit cost are reported within other nonoperating income in our accompanying Condensed Consolidated Statements of Comprehensive Income.

For additional information about pension and other postretirement benefits see Note 10.

INCOME TAXES

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 $13,301,000 was recorded to account for the favorable change to the prior year limitation on interest deductions.

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.



Part II	83

We recognize a tax benefit associated with a tax position when, in our judgment, 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.

Our largest permanent item in computing both our taxable income and effective tax rate is the deduction allowed for statutory depletion. The impact of statutory depletion on the effective tax rate is presented in Note 9. The deduction for statutory depletion does not necessarily change proportionately to changes in pretax earnings.

COMPREHENSIVE INCOME

We report comprehensive income in our Consolidated Statements of Comprehensive Income and Consolidated Statements of Equity. Comprehensive income comprises two subsets: net earnings and other comprehensive income (OCI). OCI includes adjustments to cash flow hedges, as well as actuarial gains or losses and prior service costs related to pension and postretirement benefit plans.

For additional information about comprehensive income see Note 14.

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:



in thousands	2020	2019	2018
Weighted-average common shares outstanding	132,578	132,300	132,393
Dilutive effect of
SOSARs	307	611	963
Other stock compensation plans	360	474	570
Weighted-average common shares outstanding,
assuming dilution	133,245	133,385	133,926

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.

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 for the years ended December 31 is as follows:



in thousands	2020	2019	2018
Antidilutive common stock equivalents	101	105	162

RECLASSIFICATIONS

Certain items previously reported in specific financial statement captions have been reclassified to conform to the 2020 presentation.



Part II	84

NEW ACCOUNTING STANDARDS

ACCOUNTING STANDARDS RECENTLY ADOPTED

DEFINED BENEFIT PLANS During the fourth quarter of 2020, we adopted Accounting Standards Update (ASU) 2018-14, “Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU added, removed and clarified the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. As a result of this update, we modified our annual disclosure regarding our benefit plans as reflected in Note 10.

CREDIT LOSSES During the first quarter of 2020, we adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” on a retrospective basis. This ASU amended prior guidance on the impairment of financial instruments. The new guidance estimates credit losses based on expected losses, modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration. The adoption of this standard did not materially impact our consolidated financial statements.

LIBOR TRANSITION In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provided optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued. The ASU was effective immediately for all entities and applies through December 31, 2022. For additional information, see our LIBOR transition disclosure in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under "Liquidity and Financial Resources - Debt." We continue to evaluate the effect that discontinuance of LIBOR will have on our contracts.

ACCOUNTING STANDARDS PENDING ADOPTION

CONVERTIBLE INSTRUMENTS In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which reduces the number of models used to account for convertible instruments and modifies the diluted earnings per share calculations for convertible instruments. This ASU also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives The new standard is effective as of January 1, 2022 with early adoption permitted, but no earlier than January 1, 2021. We plan to early adopt this standard as of January 1, 2021. We do not currently have any instruments or contracts that will be impacted by the new standard.

INCOME TAXES In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which adds new guidance to simplify the accounting for income taxes and changes the accounting for certain income tax transactions. The new standard is effective as of January 1, 2021. We do not expect this standard to have a material impact on our consolidated financial statements.

NOTE 2: REVENUES

Revenues are measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect 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.

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 as follows: 2020 — $214,343,000, 2019 — $234,099,000 and 2018 — $198,897,000.



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Our products typically are sold to private industry and not directly to governmental entities. Although approximately 45% 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.

Our segment total revenues by geographic market for the years ended December 31, 2020, 2019 and 2018 are disaggregated as follows:



	For the Year Ended December 31, 2020
in thousands	Aggregates	Asphalt	Concrete	Calcium	Total
Total Revenues by Geographic Market 1
East	$ 1,198,169	$ 142,184	$ 263,661	$ 0	$ 1,604,014
Gulf Coast	2,165,155	178,501	71,149	7,720	2,422,525
West	580,962	471,920	48,807	0	1,101,689
Segment sales	$ 3,944,286	$ 792,605	$ 383,617	$ 7,720	$ 5,128,228
Intersegment sales	(271,402)	0	0	0	(271,402)
Total revenues	$ 3,672,884	$ 792,605	$ 383,617	$ 7,720	$ 4,856,826



	For the Year Ended December 31, 2019
in thousands	Aggregates	Asphalt	Concrete	Calcium	Total
Total Revenues by Geographic Market 1
East	$ 1,254,748	$ 166,552	$ 261,249	$ 0	$ 1,682,549
Gulf Coast	2,117,526	194,367	66,628	8,191	2,386,712
West	618,001	494,902	67,750	0	1,180,653
Segment sales	$ 3,990,275	$ 855,821	$ 395,627	$ 8,191	$ 5,249,914
Intersegment sales	(320,811)	0	0	0	(320,811)
Total revenues	$ 3,669,464	$ 855,821	$ 395,627	$ 8,191	$ 4,929,103



	For the Year Ended December 31, 2018
in thousands	Aggregates	Asphalt	Concrete	Calcium	Total
Total Revenues by Geographic Market 1
East	$ 1,109,489	$ 156,591	$ 257,250	$ 0	$ 1,523,330
Gulf Coast	1,821,853	131,745	71,739	8,110	2,033,447
West	582,307	444,846	73,010	0	1,100,163
Segment sales	$ 3,513,649	$ 733,182	$ 401,999	$ 8,110	$ 4,656,940
Intersegment sales	(274,071)	0	0	0	(274,071)
Total revenues	$ 3,239,578	$ 733,182	$ 401,999	$ 8,110	$ 4,382,869


1	The geographic markets are defined by states as follows:
		East market — Arkansas, Delaware, Illinois, Kentucky, Maryland, North Carolina, Pennsylvania, Tennessee, Virginia, and Washington D.C. Gulf Coast market — Alabama, Florida, Georgia, Louisiana, Mexico, Mississippi, Oklahoma, South Carolina and Texas West market — Arizona, California and New Mexico



Part II	86

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 month — we do not offer discounts for early payment.

Freight & delivery generally represents pass-through transportation 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 cost related to freight & delivery are included in cost of revenues.

Freight & delivery revenues are as follows:



in thousands	2020	2019	2018
Freight & Delivery Revenues
Total revenues	$ 4,856,826	$ 4,929,103	$ 4,382,869
Freight & delivery revenues 1	(738,482)	(747,862)	(641,815)
Total revenues excluding freight & delivery	$ 4,118,344	$ 4,181,241	$ 3,741,054


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. 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.

VOLUMETRIC PRODUCTION PAYMENT DEFERRED REVENUES

In 2013 and 2012, we sold a percentage interest in certain future aggregates production for net cash proceeds of $226,926,000. 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 25 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.



Part II	87

Reconciliation of the VPP deferred revenue balances (current and noncurrent) is as follows:



in thousands	2020	2019	2018
Deferred Revenue
Balance at beginning of year	$ 185,339	$ 192,783	$ 199,556
Revenue recognized from deferred revenue	(7,377)	(7,444)	(6,773)
Balance at end of year	$ 177,962	$ 185,339	$ 192,783

Based on expected sales from the specified quarries, we expect to recognize $7,500,000 of VPP deferred revenue as income in 2021 (reflected in other current liabilities in our December 31, 2020 Consolidated Balance Sheet).

NOTE 3: INVENTORIES

Inventories at December 31 are as follows:



in thousands	2020	2019
Inventories
Finished products 1	$ 378,389	$ 391,666
Raw materials	33,780	31,318
Products in process	4,555	5,604
Operating supplies and other	31,861	29,720
Total	$ 448,585	$ 458,308


1	Includes inventories encumbered by volumetric production payments (see Note 2), as follows: December 31, 2020 — $2,416 thousand and December 31, 2019 — $2,861 thousand.

In addition to the inventory balances presented above, as of December 31, 2020 and December 31, 2019, we have $10,978,000 and $7,557,000, respectively, of inventory classified as long-term assets (other noncurrent assets) as we do not expect to sell the inventory within one year of their respective balance sheet dates.

We use the LIFO method of valuation for most of our inventories as it results in a better matching of costs with revenues. Inventories valued under the LIFO method total $307,656,000 at December 31, 2020 and $309,429,000 at December 31, 2019. During 2020, 2019 and 2018, inventory reductions resulted in liquidations of LIFO inventory layers carried at costs prevailing in prior years as compared to current-year costs. The effect of the LIFO liquidation on 2020 results was to decrease cost of revenues by $867,000 and increase net earnings by $646,000. The effect of the LIFO liquidation on 2019 results was to decrease cost of revenues by $1,147,000 and increase net earnings by $854,000. The effect of the LIFO liquidation on 2018 results was to increase cost of revenues by $132,000 and decrease net earnings by $99,000.

Estimated current cost exceeded LIFO cost at December 31, 2020 and 2019 by $192,974,000 and $183,181,000, respectively. In periods of increasing costs, LIFO generally results in higher cost of revenues than under FIFO. In periods of decreasing costs, the results are generally the opposite. We provide supplemental income disclosures to facilitate comparisons with companies not on LIFO. The supplemental income calculation is derived by tax-affecting the change in the LIFO reserve for the periods presented. If all inventories valued at LIFO cost had been valued under first-in, first-out (FIFO) method, the approximate effect on net earnings would have been an increase of $7,292,000 in 2020, an increase of $5,462,000 in 2019 and an increase of $5,223,000 in 2018.



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NOTE 4: PROPERTY, PLANT & EQUIPMENT

Balances of major classes of assets and allowances for depreciation, depletion and amortization at December 31 are as follows:



in thousands	2020	2019
Property, Plant & Equipment
Land and land improvements 1	$ 3,013,327	$ 2,920,963
Buildings	145,418	141,898
Machinery and equipment	5,517,897	5,362,279
Finance leases (see Note 7)	7,796	1,677
Deferred asset retirement costs (see Note 17)	240,743	167,484
Construction in progress	176,905	154,917
Total, gross	$ 9,102,086	$ 8,749,218
Less allowances for depreciation, depletion
and amortization	4,676,087	4,433,180
Total, net	$ 4,425,999	$ 4,316,038


1	Includes depletable land as follows: December 31, 2020 — $1,712,059 thousand and December 31, 2019 — $1,667,642 thousand.

Capitalized interest costs with respect to qualifying construction projects and total interest costs incurred before recognition of the capitalized amount for the years ended December 31 are as follows:



in thousands	2020	2019	2018
Capitalized interest cost	$ 3,487	$ 3,896	$ 3,674
Total interest cost incurred before recognition
of the capitalized amount	139,447	134,051	141,651

NOTE 5: DERIVATIVE INSTRUMENTS

In February 2020, we entered into interest rate locks of a future debt issuance to hedge the risk of higher interest rates. These interest rate locks were designated as cash flow hedges. Consistent with their terms, we settled the interest rate locks in March 2020 for a cash payment of $19,863,000. Given that the related debt issuance at the end of the first quarter: a) was not executed, b) remained probable in the near term and c) had uncertain timing, 1/20th of the hedge was deemed ineffective and $993,000 of the settlement was recorded to interest expense in the first quarter. The remainder of the settlement was deferred and recorded in AOCI. In May 2020, we issued the related debt in the form of $750,000,000 of 3.50% 10-year notes. The deferred hedge settlement amount in AOCI is amortized to interest expense over the term of the related debt.

In 2007 and 2018, 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 interest rate hedges is deferred (recorded in AOCI) and amortized to interest expense over the term of the related debt.



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This amortization was reflected in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31 as follows:



in thousands	Location on Statement	2020	2019	2018
Interest Rate Hedges
Loss reclassified from AOCI
(effective portion)	Interest expense	$ (2,286)	$ (307)	$ (306)

For the 12-month period ending December 31, 2021, we estimate that $1,959,000 of the $23,943,000 net of tax loss in AOCI will be reclassified to interest expense.

NOTE 6: DEBT

Debt at December 31 is detailed as follows:



	Effective
in thousands	Interest Rates	2020	2019
Short-term Debt
Bank line of credit expires 2025 1		$ 0	$ 0
Total short-term debt		$ 0	$ 0
Long-term Debt
Bank line of credit expires 2025 1		$ 0	$ 0
Floating-rate notes due 2020		0	250,000
Floating-rate notes due 2021	1.11%	500,000	500,000
8.85% notes due 2021	8.88%	6,000	6,000
4.50% notes due 2025	4.65%	400,000	400,000
3.90% notes due 2027	4.00%	400,000	400,000
3.50% notes due 2030	3.94%	750,000	0
7.15% notes due 2037	8.05%	129,239	129,239
4.50% notes due 2047	4.59%	700,000	700,000
4.70% notes due 2048	5.42%	460,949	460,949
Other notes	0.77%	11,711	185
Total long-term debt - face value		$ 3,357,899	$ 2,846,373
Unamortized discounts and debt issuance costs		(70,224)	(62,033)
Total long-term debt - book value		$ 3,287,675	$ 2,784,340
Less current maturities		515,435	25
Total long-term debt - reported value		$ 2,772,240	$ 2,784,315
Estimated fair value of long-term debt		$ 3,443,225	$ 3,073,693


1	Borrowings on the bank line of credit 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.

Discounts and debt issuance costs are amortized using the effective interest method over the terms of the respective notes resulting in $7,203,000 and $4,983,000, respectively, of net interest expense for these items for 2020 and 2019.



Part II	90

LINE OF CREDIT

In September 2020, we executed a new five-year unsecured line of credit of $1,000,000,000, incurring $4,632,000 of transaction costs. The line of credit contains affirmative, negative and financial covenants customary for an unsecured investment-grade facility. There are two primary negative covenants: 1) a limit on our ability to incur secured debt, and 2) a maximum ratio of debt to EBITDA of 3.50:1 (upon certain acquisitions, the maximum ratio can be 3.75:1 for four quarters). As of December 31, 2020, we were in compliance with the line of credit covenants.

Borrowings on our line of credit 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 repayment beyond twelve months. Borrowings bear interest, at our option, at either LIBOR plus a credit margin ranging from 1.125% to 1.875%, or Truist Bank’s base rate (generally, its prime rate) plus a credit margin ranging from 0.125% to 0.875%. The credit margin for both LIBOR and base rate borrowings is 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 credit margin for LIBOR borrowings plus 0.175%. We also pay a commitment fee on the daily average unused amount of the line of credit that ranges from 0.125% to 0.275% determined by our credit ratings. As of December 31, 2020, the credit margin for LIBOR borrowings was 1.250%, the credit margin for base rate borrowings was 0.250%, and the commitment fee for the unused amount was 0.150%.

In September 2020, we terminated our $750,000,000 364-day delayed draw term loan executed in April 2020. During the second quarter, we had borrowed and repaid $250,000,000 on this delayed draw term loan leaving $500,000,000 available for future borrowings prior to its termination.

As of December 31, 2020, our available borrowing capacity under the line of credit was $943,920,000. Utilization of the borrowing capacity was as follows:

none was borrowed

$56,080,000 was used to provide support for outstanding standby letters of credit

TERM DEBT

All of our $3,357,899,000 (face value) of term debt is unsecured. $3,346,188,000 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.

In May 2020, we issued $750,000,000 of 3.50% senior notes due 2030. Total proceeds were $741,417,000 (net of discounts and transaction costs). $250,000,000 of the proceeds were used to retire the $250,000,000 floating rate notes due June 2020, and the remainder of the proceeds, together with cash on hand, will be used to retire the $500,000,000 floating rate notes due March 2021.

In 2018, we completed a number of financing activities resulting in gross proceeds of $850,000,000 and payments of $892,055,000. As a result of these activities, we recognized premiums of $5,608,000, transaction costs of $1,314,000 and noncash expense (acceleration of unamortized deferred transaction costs) of $466,000. The combined charge of $7,388,000 was a component of interest expense for the year ended December 31, 2018.



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The total scheduled (principal and interest) debt payments, excluding the line of credit, for the five years subsequent to December 31, 2020 are as follows:



in thousands	Total	Principal	Interest
Scheduled Debt Payments (excluding the line of credit)
2021	$ 639,303	$ 515,435	$ 123,868
2022	122,720	457	122,263
2023	122,720	459	122,261
2024	122,720	461	122,259
2025	513,720	400,463	113,257

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, typically renew automatically, and can only be modified or canceled with the approval of the beneficiary. All of our standby letters of credit are issued by banks that participate in our $1,000,000,000 line of credit and reduce the borrowing capacity thereunder. Our standby letters of credit as of December 31, 2020 are summarized by purpose in the table below:



in thousands
Standby Letters of Credit
Risk management insurance				$ 48,982
Reclamation/restoration requirements				7,098
Total				$ 56,080



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NOTE 7: LEASES

Our portfolio of nonmineral leases is composed of leases for real estate (including office buildings, aggregates sales yards, and concrete and asphalt sites) and equipment (including railcars and rail track, barges, office equipment and plant equipment).

Lease right-of-use (ROU) assets and liabilities reflected on our December 31 balance sheets and the weighted-average lease term and discount rate are as follows:



in thousands	Classification on the Balance Sheet	2020	2019
Assets
Operating lease ROU assets	Operating lease right-of-use assets, net	$ 482,513	$ 441,656
Accumulated amortization		(59,385)	(33,467)
Finance lease assets	Property, plant & equipment, net	7,796	1,226
Accumulated amortization		(1,640)	(65)
Total lease assets		$ 429,284	$ 409,350
Liabilities
Current
Operating	Other current liabilities	$ 36,969	$ 29,971
Finance	Other current liabilities	2,047	430
Noncurrent
Operating	Operating lease liabilities	399,582	388,042
Finance	Other noncurrent liabilities	4,139	733
Total lease liabilities		$ 442,737	$ 419,176
Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases		9.5	9.9
Finance leases		4.2	2.8
Weighted-average discount rate
Operating leases		3.6%	4.3%
Finance leases		1.4%	3.0%

Our building leases have remaining noncancelable periods of 0 - 7 years and lease terms (including options to extend) of 0 - 26 years. Key factors in determining the certainty of lease renewals include the location of the building, the value of leasehold improvements and the cost to relocate. Rental payments for certain of our building leases are periodically adjusted for inflation, and this variable component is recognized as expense when incurred. Many of our building leases contain common area maintenance charges which we include in the calculation of our lease liability (the lease consideration is not allocated between the lease and non-lease components).

Our aggregates sales yard leases have remaining noncancelable periods of 0 - 28 years and lease terms of 0 - 78 years. The key factor in determining the certainty of lease renewals is the financial impact of extending the lease, including the reserve life of the sourcing aggregates quarry. Certain aggregates sales yard lease agreements include rental payments based on a percentage of sales over contractual levels or the number of shipments received into the sales yard. Variable payments for these sales yards comprise a majority of the overall variable lease cost presented in the table below.

Our concrete and asphalt site leases have remaining noncancelable periods of 0 - 19 years and lease terms of 1 - 78 years. The key factor in determining the certainty of lease renewals is the financial impact of extending the lease, including the reserve life of the sourcing aggregates quarry. Rental payments are generally fixed for our concrete and asphalt sites.

Our rail (car and track) leases have remaining noncancelable periods of 0 - 4 years and lease terms of 2 - 64 years. Key factors in determining the certainty of lease renewals include the market rental rate for comparable assets and, in some cases, the cost incurred to restore the asset. Rental payments are fixed for our rail leases. The majority of our rail leases contain substitution rights that allow the supplier to replace damaged equipment. Because these rights are generally limited to either replacing railcars or moving our placement on rail track for purposes of repair or maintenance, we do not consider these substitution rights to be substantive and have recorded a lease liability and ROU asset for all leased rail.



Part II	93

Our barge leases have remaining noncancelable periods of 0 - 1 years and lease terms of 0 - 14 years. Key factors in determining the certainty of lease renewals include the market rental rate for comparable assets and, in some cases, the cost incurred to restore the asset. Rental payments are fixed. Like our rail leases, our barge leases contain non-substantive substitution rights that are limited to replacing barges in need of repair or maintenance.

Office and plant equipment leases have remaining noncancelable periods of 0 - 5 years and lease terms of 0 - 5 years. The key factor in determining the certainty of lease renewals is the market rental rate for comparable assets. Rental payments are generally fixed for our equipment leases with terms greater than 1 year. The significant majority of our short-term lease cost presented in the table below is derived from office and plant equipment leases with terms of 1 year or less.

Our lease agreements do not contain residual value guarantees, restrictive covenants or early termination options that we deem material. We have not sought or been granted any material lease concessions as a result of the COVID-19 pandemic.

The components of lease expense for the years ended December 31, 2020 and 2019 are as follows:



in thousands	2020	2019
Lease Cost
Finance lease cost
Amortization of right-of-use assets	$ 1,616	$ 64
Interest on lease liabilities	(102)	(4)
Operating lease cost	58,489	56,546
Short-term lease cost 1	30,508	35,427
Variable lease cost	12,885	13,739
Sublease income	(2,682)	(3,108)
Total lease cost	$ 100,714	$ 102,664


1	Our short-term leases cost includes the cost of leases with an initial term of one month or less.

Total lease expense for the year ended December 31, 2018 was $131,015,000.

Cash paid for operating leases was $54,871,000 for 2020 and $52,660,000 for 2019. Cash paid for finance leases was $102,000 for 2020 and $4,000 for 2019.

Maturity analysis on an undiscounted basis of our lease liabilities (see Note 12 for mineral lease payments) as of December 31, 2020 is as follows:



	Operating	Finance
in thousands	Leases	Leases
Maturity of Lease Liabilities
2021	$ 54,733	$ 2,134
2022	48,225	1,986
2023	41,206	1,058
2024	36,141	779
2025	36,375	349
Thereafter	565,042	50
Total minimum lease payments	$ 781,722	$ 6,356
Less: Lease payments representing interest	345,171	170
Present value of future minimum lease payments	$ 436,551	$ 6,186
Less: Current obligations under leases	36,969	2,047
Long-term lease obligations	$ 399,582	$ 4,139



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NOTE 8: ACCRUED ENVIRONMENTAL REMEDIATION COSTS

Our Consolidated Balance Sheets as of December 31 include accrued environmental remediation costs (measured on an undiscounted basis) as follows:



in thousands	2020	2019
Accrued Environmental Remediation Costs
Continuing operations	$ 25,544	$ 30,429
Retained from former Chemicals business	10,971	10,972
Total	$ 36,515	$ 41,401

The long-term portion of the accruals noted above is included in other noncurrent liabilities in the accompanying Consolidated Balance Sheets and amounted to $12,943,000 at December 31, 2020 and $13,567,000 at December 31, 2019. The short-term portion of these accruals is included in other current liabilities in the accompanying Consolidated Balance Sheets.

The accrued environmental remediation costs in continuing operations relate primarily to the former Florida Rock, Tarmac, and CalMat facilities acquired in 2007, 2000 and 1999, respectively. The balances noted above for the former Chemicals business relate to retained environmental remediation costs from the 2003 sale of the Performance Chemicals business and the 2005 sale of the Chloralkali business. Refer to Note 12 for additional discussion of contingent environmental matters.

NOTE 9: INCOME TAXES

The components of earnings from continuing operations before income taxes are as follows:



in thousands	2020	2019	2018
Earnings from Continuing Operations
before Income Taxes
Domestic	$ 732,971	$ 734,025	$ 593,446
Foreign	10,827	23,676	29,844
Total	$ 743,798	$ 757,701	$ 623,290

Income tax expense (benefit) from continuing operations consists of the following:



in thousands	2020	2019	2018
Income Tax Expense (Benefit) from
Continuing Operations
Current
Federal	$ 69,180	$ 31,234	$ 21,111
State and local	23,826	24,403	15,127
Foreign	942	3,304	4,278
Total	$ 93,948	$ 58,941	$ 40,516
Deferred
Federal	$ 50,890	$ 67,810	$ 59,216
State and local	10,798	8,660	8,369
Foreign	167	(213)	(2,652)
Total	$ 61,855	$ 76,257	$ 64,933
Total expense	$ 155,803	$ 135,198	$ 105,449



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Income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate to earnings from continuing operations before income taxes. The sources and tax effects of the differences are as follows:



dollars in thousands	2020		2019		2018
Income tax expense at the federal
statutory tax rate	$ 156,198	21.0%	$ 159,117	21.0%	$ 130,891	21.0%
Expense (Benefit) from
Income Tax Differences
Statutory depletion	(24,728)	-3.3%	(23,006)	-3.0%	(21,733)	-3.5%
State and local income taxes, net of federal
income tax benefit	27,352	3.7%	26,119	3.4%	18,562	3.0%
Share-based compensation	(6,877)	-0.9%	(17,277)	-2.3%	(16,551)	-2.7%
Uncertain tax positions	1,380	0.2%	1,822	0.2%	(6,402)	-1.0%
Transition tax	0	0.0%	0	0.0%	595	0.1%
Research and development credit	(2,650)	-0.4%	(9,490)	-1.3%	0	0.0%
Other, net	5,128	0.6%	(2,087)	-0.2%	87	0.0%
Total income tax expense/
Effective tax rate	$ 155,803	20.9%	$ 135,198	17.8%	$ 105,449	16.9%

Deferred taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability at December 31 are as follows:



in thousands	2020	2019
Deferred Tax Assets Related to
Employee benefits	$ 21,874	$ 29,996
Incentive compensation	58,194	66,488
Asset retirement obligations & other reserves	58,327	55,033
State net operating losses	67,756	67,354
Other	25,362	44,169
Total gross deferred tax assets	$ 231,513	$ 263,040
Valuation allowance	(32,512)	(29,650)
Total net deferred tax asset	$ 199,001	$ 233,390
Deferred Tax Liabilities Related to
Property, plant & equipment	$ 622,897	$ 590,075
Goodwill/other intangible assets	252,209	238,712
Other	29,945	37,642
Total deferred tax liabilities	$ 905,051	$ 866,429
Net deferred tax liability	$ 706,050	$ 633,039

Each quarter we analyze the likelihood that our deferred tax assets will be realized. 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. At December 31, 2020, we have Alabama state net operating loss (NOL) carryforward deferred tax assets of $64,307,000, against which we have a valuation allowance of $29,236,000. Almost all of the Alabama NOL carryforward would expire between 2023 and 2029 if not utilized.

In February 2021, the Alabama Business Competitiveness Act (the Act) was signed into law. This Act contained a provision that requires most taxpayers to change from a three-factor, double-weighted sales method to a single-sales factor method to apportion income to Alabama. This provision was effective as of January 1, 2021 and likely will result in a substantial reduction in our apportionment of income to Alabama; thereby, further inhibiting our ability to utilize our Alabama NOL carryforward. In the first quarter of 2021, we will assess the impact of the Act to our Alabama NOL carryforward and adjust our valuation allowance accordingly.



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Changes in our liability for unrecognized tax benefits for the years ended December 31 are as follows:



in thousands	2020	2019	2018
Unrecognized tax benefits as of January 1	$ 5,442	$ 3,661	$ 11,643
Increases for tax positions related to
Prior years	353	273	0
Current year	1,884	3,224	698
Decreases for tax positions related to
Prior years	0	0	(655)
Expiration of applicable statute of limitations	(862)	(1,716)	(8,025)
Unrecognized tax benefits as of December 31	$ 6,817	$ 5,442	$ 3,661

We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Interest and penalties recognized as income tax expense (benefit) were $36,000 in 2020, $(11,000) in 2019 and $(1,477,000) in 2018. The balance of accrued interest and penalties included in our liability for unrecognized tax benefits as of December 31 was $336,000 in 2020, $301,000 in 2019 and $312,000 in 2018. Our liability for unrecognized tax benefits at December 31 in the table above includes $6,641,000 in 2020, $5,292,000 in 2019 and $3,481,000 in 2018 that would affect the effective tax rate if recognized. We anticipate no single tax position generating a significant increase in our liability for unrecognized tax benefits within 12 months of this reporting date.

As of December 31, 2020, income tax receivables of $5,314,000 and $938,000 are included in other accounts and notes receivable and other current assets, respectively, in the accompanying Consolidated Balance Sheet. There were similar receivables of $299,000 recorded in other current assets as of December 31, 2019.



Part II	97

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, based on salaries or wages and years of service, 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 projected benefit obligation presented in the table below includes $67,241,000 and $70,298,000 related to these unfunded, nonqualified pension plans for 2020 and 2019, respectively.

At November 30, 2020, the plans were remeasured to reflect settlement accounting for the CMG Pension Plan and the VMC Pension Plan as a result of voluntary lump sum distributions to certain fully vested plan participants.

The following table sets forth the combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31:



in thousands	2020	2019
Change in Benefit Obligation
Projected benefit obligation at beginning of year	$ 1,090,893	$ 958,936
Service cost	4,899	4,995
Interest cost	29,335	37,640
Actuarial loss	89,109	141,922
Benefits paid	(154,691)	(52,600)
Projected benefit obligation at end of year	$ 1,059,545	$ 1,090,893
Change in Fair Value of Plan Assets
Fair value of assets at beginning of year	$ 949,007	$ 836,770
Actual return on plan assets	141,155	155,955
Employer contribution	8,819	8,882
Benefits paid	(154,691)	(52,600)
Fair value of assets at end of year	$ 944,290	$ 949,007
Funded status	(115,255)	(141,886)
Net amount recognized	$ (115,255)	$ (141,886)
Amounts Recognized in the Consolidated
Balance Sheets
Noncurrent assets	$ 0	$ 9,056
Current liabilities	(8,060)	(8,579)
Noncurrent liabilities	(107,195)	(142,363)
Net amount recognized	$ (115,255)	$ (141,886)
Amounts Recognized in Accumulated
Other Comprehensive Income
Net actuarial loss	$ 230,452	$ 268,483
Prior service cost	5,148	6,488
Total amount recognized	$ 235,600	$ 274,971



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The following table sets forth the pension plans for which their accumulated benefit obligation (ABO) or projected benefit obligation (PBO) exceeds the fair value of their respective plan assets at December 31:



in thousands	2020	2019
Pension plans with ABO in excess of plan assets
Accumulated benefit obligation	$ 1,058,645	$ 1,009,224
Fair value of assets	944,290	858,936
Pension plans with PBO in excess of plan assets
Projected benefit obligation	$ 1,059,545	$ 1,009,877
Fair value of assets	944,290	858,936

The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income and weighted-average assumptions of the plans at December 31:



dollars in thousands	2020	2019	2018
Components of Net Periodic Pension
Benefit Cost
Service cost	$ 4,899	$ 4,995	$ 5,716
Interest cost	29,335	37,640	35,503
Expected return on plan assets	(48,599)	(47,751)	(59,188)
Settlement charge	22,740	0	0
Amortization of prior service cost	1,340	1,340	1,340
Amortization of actuarial loss	11,845	5,433	9,826
Net periodic pension benefit cost (credit)	$ 21,560	$ 1,657	$ (6,803)
Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income
Net actuarial loss (gain)	$ (3,446)	$ 33,717	$ (555)
Prior service cost	0	0	0
Reclassification of prior service cost	(1,340)	(1,340)	(1,340)
Reclassification of actuarial loss	(34,585)	(5,433)	(9,826)
Amount recognized in other comprehensive
income	$ (39,371)	$ 26,944	$ (11,721)
Amount recognized in net periodic pension
benefit cost and other comprehensive
income	$ (17,811)	$ 28,601	$ (18,524)
Assumptions
Weighted-average assumptions used to
determine net periodic benefit cost for
years ended December 31
Discount rate — PBO	3.22%	4.39%	3.72%
Discount rate — service cost (12/31/19 / 11/30/20)	3.49% / 2.89%	4.59%	3.90%
Discount rate — interest cost	2.78%	4.02%	3.35%
Expected return on plan assets (12/31/19 / 11/30/20)	5.75% / 5.25%	5.75%	7.00%
Weighted-average assumptions used to
determine benefit obligation at
December 31
Discount rate	2.57%	3.28%	4.39%



Part II	99

Plan assets are invested according to an investment policy that allocates investments to return seeking assets and liability hedging assets based on the plans’ funded ratio (fair value of assets/PBO). At December 31, 2020 and 2019, the total pension asset allocation was approximately 50% return seeking and 50% liability hedging. Return seeking assets include index and actively managed mutual funds and collective investment trusts that hold public equity securities (less than 1% of the plans’ assets are in private equity and debt securities via private partnerships). Liability hedging assets include money market securities, inflation linked debt securities, public corporate debt securities, and government debt securities that are actively managed to match the duration of the plans’ liabilities.

At each measurement date, we estimate the net asset values and fair values of our pension assets using various valuation techniques. For certain investments, we use the net asset value (NAV) as a practical expedient to estimating fair value. 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. 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

The fair values and net asset values of our pension plan assets at December 31, 2020 and 2019 are in the tables below. The assets in the common/collective trusts and in the private partnerships consist of both return seeking and liability hedging investments.

Fair Value Measurements at December 31, 2020



in thousands	Level 1	Level 2	Level 3	Total
Asset Category
Debt funds	$ 0	$ 456,238	$ 0	$ 456,238
Equity funds	16	115,779	0	115,795
Investments in the fair value hierarchy	$ 16	$ 572,017	$ 0	$ 572,033
Interest in common/collective trusts (at NAV)				367,105
Private partnerships (at NAV)				5,152
Total pension plan assets				$ 944,290

Fair Value Measurements at December 31, 2019



in thousands	Level 1	Level 2	Level 3	Total
Asset Category
Debt funds	$ 0	$ 435,692	$ 0	$ 435,692
Equity funds	549	120,253	0	120,802
Investments in the fair value hierarchy	$ 549	$ 555,945	$ 0	$ 556,494
Interest in common/collective trusts (at NAV)				387,785
Private partnerships (at NAV)				4,728
Total pension plan assets				$ 949,007



Part II	100

The following describes the types of investments included in each asset category listed in the tables above and the valuation techniques we used to determine the fair values or net asset values as of December 31, 2020 and 2019.

The debt funds category consists of U.S. federal, state and local government debt securities, corporate debt securities, foreign government debt securities, and asset-backed securities. The fair values of U.S. government and corporate debt securities are based on current market rates and credit spreads for debt securities with similar maturities. The fair values of debt securities issued by foreign governments are based on prices obtained from broker/dealers and international indices. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market.

The equity funds category consists of a mutual fund investing in domestic equities. For investment funds publicly traded on a national securities exchange, the fair value is based on quoted market prices. For investment funds not traded on an exchange, the total fair value of the underlying securities is used to determine the net asset value for each unit of the fund held by the pension fund. The estimated fair values of the underlying securities are generally valued based on quoted market prices. For securities without quoted market prices, other observable market inputs are used to determine the fair value.

Common/collective trust fund investments consist of index funds for domestic equities, an actively managed fund for international equities, and a short-term investment fund for highly liquid, short-term debt securities. Investments are valued at the net asset value (NAV) of units of a bank collective trust. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV.

The private partnerships category consists of various venture capital funds, mezzanine debt funds and leveraged buyout funds. The NAV of these investments has been estimated based on methods employed by the general partners, including reference to third-party transactions and valuations of comparable companies.

Total employer contributions to the pension plans are presented below:



in thousands			Pension
Employer Contributions
2018			$ 109,631
2019			8,882
2020			8,819
2021 (estimated)			8,060

For our qualified pension plans, we made discretionary contributions of $100,000,000 during 2018, and made no contributions during 2020 and 2019. We do not anticipate making contributions to our qualified pension plans in 2021. For our nonqualified pension plans, we contributed $8,819,000, $8,882,000 and $9,631,000 during 2020, 2019 and 2018, respectively, and expect to contribute $8,060,000 during 2021.



Part II	101

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



in thousands			Pension
Estimated Future Benefit Payments
2021			$ 55,333
2022			56,968
2023			57,558
2024			58,019
2025			56,217
2026-2030			279,537

We contribute to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements for union-represented employees. The risks of participating in multiemployer plans differ from single employer plans as follows:

assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers

if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers

if we cease to have an obligation to contribute to one or more of the multiemployer plans to which we contribute, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability

None of the multiemployer pension plans that we participate in are individually significant. Our contributions to individual multiemployer pension plans did not exceed 5% of the plans’ total contributions in the three years ended December 31, 2020, 2019 and 2018. Total contributions to multiemployer pension plans were $10,277,000 in 2020, $10,385,000 in 2019 and $10,081,000 in 2018.

As of December 31, 2020, a total of 8.2% of our domestic hourly labor force was covered by collective-bargaining agreements. Of such employees covered by collective-bargaining agreements, 14.0% were covered by agreements that expire in 2021. We also employed 339 union employees in Mexico who are covered by a collective-bargaining agreement that will expire in 2021. None of our union employees in Mexico participate in multiemployer pension plans.

In addition to the pension plans noted above, we had one unfunded supplemental retirement plan as of December 31, 2020 and 2019. The accrued costs for the supplemental retirement plan were $2,525,000 at December 31, 2020 and $1,069,000 at December 31, 2019.



Part II	102

POSTRETIREMENT PLANS

In addition to pension benefits, we provide certain healthcare and life insurance benefits for some retired employees. In 2012, we amended our postretirement healthcare plan to cap our portion of the medical coverage cost at the 2015 level (as a result, the accumulated benefit obligation equals the projected benefit obligation). 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 combined funded status of the plans and their reconciliation with the related amounts recognized in our consolidated financial statements at December 31:



in thousands	2020	2019
Change in Benefit Obligation
Projected benefit obligation at beginning of year	$ 41,187	$ 40,834
Service cost	1,520	1,317
Interest cost	969	1,388
Actuarial (gain) loss	(5,111)	2,677
Benefits paid	(4,682)	(5,029)
Projected benefit obligation at end of year	$ 33,883	$ 41,187
Change in Fair Value of Plan Assets
Fair value of assets at beginning of year	$ 0	$ 0
Actual return on plan assets	0	0
Fair value of assets at end of year	$ 0	$ 0
Funded status	$ (33,883)	$ (41,187)
Net amount recognized	$ (33,883)	$ (41,187)
Amounts Recognized in the Consolidated
Balance Sheets
Current liabilities	$ (4,471)	$ (5,339)
Noncurrent liabilities	(29,412)	(35,848)
Net amount recognized	$ (33,883)	$ (41,187)
Amounts Recognized in Accumulated
Other Comprehensive Income
Net actuarial gain	$ (19,003)	$ (14,642)
Prior service credit	(3,656)	(7,575)
Total amount recognized	$ (22,659)	$ (22,217)



Part II	103

The following table sets forth the components of net periodic benefit cost, amounts recognized in other comprehensive income, weighted-average assumptions and assumed trend rates of the plans at December 31:



dollars in thousands	2020	2019	2018
Components of Net Periodic Postretirement
Benefit Cost
Service cost	$ 1,521	$ 1,317	$ 1,358
Interest cost	969	1,388	1,240
Amortization of prior service credit	(3,919)	(3,919)	(3,962)
Amortization of actuarial gain	(806)	(1,309)	(1,298)
Net periodic postretirement benefit credit	$ (2,235)	$ (2,523)	$ (2,662)
Changes in Plan Assets and Benefit
Obligations Recognized in Other
Comprehensive Income
Net actuarial (gain) loss	$ (5,168)	$ 2,673	$ 835
Reclassification of prior service credit	3,919	3,919	3,962
Reclassification of actuarial gain	806	1,309	1,298
Amount recognized in other comprehensive
income	$ (443)	$ 7,901	$ 6,095
Amount recognized in net periodic
postretirement benefit cost and other
comprehensive income	$ (2,678)	$ 5,378	$ 3,433
Assumptions
Weighted-average assumptions used to
determine net periodic benefit cost for
years ended December 31
Discount rate — PBO	2.84%	4.01%	3.34%
Discount rate — service cost	3.09%	4.23%	3.56%
Discount rate — interest cost	2.42%	3.63%	2.90%
Weighted-average assumptions used to
determine benefit obligation at
December 31
Discount rate	2.09%	2.84%	4.01%

Total employer contributions to the postretirement plans are presented below:



in thousands			Postretirement
Employer Contributions
2018			$ 6,099
2019			5,029
2020			4,682
2021 (estimated)			4,471

The employer contributions shown above are equal to the cost of benefits during the year. The plans are not funded and are not subject to any regulatory funding requirements.



Part II	104

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



in thousands			Postretirement
Estimated Future Benefit Payments
2021			$ 4,471
2022			3,951
2023			3,688
2024			3,358
2025			3,054
2026–2030			11,023

Contributions by participants to the postretirement benefit plans for the years ended December 31 are as follows:



in thousands			Postretirement
Participants Contributions
2018			$ 1,984
2019			2,239
2020			2,553

PENSION AND OTHER POSTRETIREMENT BENEFITS ASSUMPTIONS

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.

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. At December 31, 2020, the discount rates used were as follows:

PBO for various plans – ranged from 1.55% to 2.72% (December 31, 2019 ranged from 2.67% to 3.37%)

Service cost – weighted average of 2.92% and 3.09%, respectively, for our pension plans and our other postretirement plans (2019 figures were 4.59% and 4.23%, respectively)

Interest cost – weighted average of 2.78% and 2.42%, respectively, for our pension plans and our other postretirement plans (2019 figures were 4.02% and 3.63%, respectively)

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. The expected return on plan assets used to measure plan benefit costs 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% in 2019). For 2021, we set the expected return on plan assets to 5.25%.

DE****FINED CONTRIBUTION PLANS

In addition to our pension and postretirement plans, we sponsor two 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 $50,772,000 in 2020, $53,853,000 in 2019 and $40,718,000 in 2018.



Part II	105

NOTE 11: INCENTIVE PLANS

SHARE-BASED COMPENSATION PLANS

Our 2016 Omnibus Long-term Incentive Plan (Plan) authorizes the granting of performance shares, restricted shares, Stock-Only Stock Appreciation Rights (SOSARs) and other types of share-based awards to key salaried employees and nonemployee directors. The maximum number of shares that may be issued under the Plan is 8,000,000, of which 6,331,687 shares remain under this authorization.

PERFORMANCE SHARES — Each performance share unit is equal to and paid in one share of our common stock, but carries no voting or dividend rights. The number of units ultimately paid for performance share awards may range from 0% to 200% of the number of units awarded on the date of grant. Payment is based upon the outcome of performance and/or market conditions. Awards vest on December 31 of the third year after date of grant. Vesting is accelerated upon death, disability, or change of control and the awards become non-forfeitable upon reaching retirement age — all as defined in the award agreement. Nonvested units are forfeited upon termination for any other reason. Expense provisions referable to performance share awards amounted to $17,798,000 in 2020, $18,236,000 in 2019 and $13,656,000 in 2018.

The fair value of performance shares is estimated as of the date of grant using a Monte Carlo simulation model. The following table summarizes the activity for nonvested performance share units during the year ended December 31, 2020:



	Target	Weighted-average
	Number	Grant Date
	of Shares	Fair Value
Performance Shares
Nonvested at January 1, 2020	244,904	$ 113.55
Granted	117,740	133.95
Vested	(112,302)	117.19
Canceled/forfeited	(6,483)	120.66
Nonvested at December 31, 2020	243,859	$ 121.53

During 2019 and 2018, the weighted-average grant date fair value of performance shares granted was $110.39 and $117.20, respectively.

The aggregate values for distributed performance share awards are based on the closing price of our common stock as of the distribution date. The aggregate values of distributed performance shares for the years ended December 31 are as follows:



in thousands	2020	2019	2018
Aggregate value of distributed
performance shares	$ 38,841	$ 33,169	$ 53,721

‎



Part II	106

RESTRICTED SHARES — Each restricted share unit is equal to and paid in one share of our common stock, but carries no voting or dividend rights. Awards vest on the third anniversary of the grant date. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested units are forfeited upon termination for any other reason. Expense provisions referable to restricted share awards amounted to $9,766,000 in 2020, $7,789,000 in 2019 and $4,831,000 in 2018.

The fair value of restricted shares is estimated as of the date of grant based on the stock price adjusted for dividends foregone. The following table summarizes the activity for nonvested restricted share units during the year ended December 31, 2020:



		Weighted-average
	Number	Grant Date
	of Shares	Fair Value
Restricted Stock Units
Nonvested at January 1, 2020	211,930	$ 108.34
Granted	82,271	133.95
Vested	(86,302)	102.12
Canceled/forfeited	(7,746)	119.63
Nonvested at December 31, 2020	200,153	$ 121.11

During 2019 and 2018, the weighted-average grant date fair value of restricted shares granted was $110.39 and $117.20, respectively.

The aggregate values for distributed restricted share awards are based on the closing price of our common stock as of the distribution date. The aggregate values of distributed restricted shares for the years ended December 31 are as follows:



in thousands	2020	2019	2018
Aggregate value of distributed
restricted shares	$ 12,210	$ 2,417	$ 1,345

STOCK-ONLY STOCK APPRECIATION RIGHTS (SOSARs) — SOSARs granted have an exercise price equal to the market value of our underlying common stock on the date of grant. The SOSARs vest ratably over 3 years and expire 10 years subsequent to the date of grant. Vesting is accelerated upon reaching retirement age, death, disability, or change of control, all as defined in the award agreement. Nonvested awards are forfeited upon termination for any other reason.

The fair value of SOSARs is estimated as of the date of grant using the Black-Scholes option pricing model. Compensation cost for SOSARs is based on this grant date fair value and is recognized for awards that ultimately vest. The following table presents the weighted-average fair value and the weighted-average assumptions used in estimating the fair value of grants during the years ended December 31:



	2020	2019	2018
SOSARs
Fair value	$ 40.91	$ 38.90	$ 43.72
Risk-free interest rate	1.50%	2.62%	2.90%
Dividend yield	0.71%	0.87%	1.39%
Volatility	25.74%	27.23%	31.49%
Expected term (years)	9.00	9.00	9.00

The risk-free interest rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period approximating the SOSARs expected term. The dividend yield assumption is based on our historical dividend payouts adjusted for current expectations of future payouts. The volatility assumption is based on the historical volatility and expectations about future volatility of our common stock over a period equal to the SOSARs expected term. The expected term is based on historical experience and expectations about future exercises and represents the period of time that SOSARs granted are expected to be outstanding.

‎



Part II	107

A summary of our SOSAR activity as of December 31, 2020 and changes during the year are presented below:



			Weighted-average
			Remaining	Aggregate
	Number	Weighted-average	Contractual	Intrinsic Value
	of Shares	Exercise Price	Life (Years)	(in thousands)
SOSARs
Outstanding at January 1, 2020	944,599	$ 76.84
Granted	75,300	133.95
Exercised	(229,993)	48.16
Forfeited or expired	(1,470)	43.05
Outstanding at December 31, 2020	788,436	$ 90.72	5.03	$ 44,106
Exercisable at December 31, 2020	641,613	$ 82.84	4.23	$ 40,949

The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between our stock price on the last trading day of 2020 and the exercise price, multiplied by the number of in-the-money SOSARs) that would have been received by the option holders had all SOSARs been exercised on December 31, 2020. These values change based on the fair market value of our common stock. The aggregate intrinsic values of SOSARs exercised for the years ended December 31 are as follows:



in thousands	2020	2019	2018
Aggregate intrinsic value of SOSARs exercised	$ 22,273	$ 74,838	$ 49,248

The following table presents cash and stock consideration received and tax benefit realized from SOSAR exercises and compensation cost recorded referable to SOSARs for the years ended December 31:



in thousands	2020	2019	2018
SOSARs
Cash and stock consideration received
from exercises	$ 0	$ 0	$ 0
Tax benefit from exercises	5,693	29,000	19,083
Compensation cost	3,855	4,042	4,763

NONEMPLOYEE DIRECTOR AWARDS — In addition to the share-based compensation plans for employees discussed above, we issue a limited number of stock units to our nonemployee directors annually. Expense provisions referable to nonemployee director stock units amounted to $1,572,000 in 2020, $1,776,000 in 2019 and $1,965,000 in 2018.

CASH-BASED COMPENSATION PLANS

We have incentive plans under which cash awards may be made annually. Expense provisions under these plans referable to awards to officers and certain employees amounted to $42,138,000 in 2020, $40,847,000 in 2019 and $36,969,000 in 2018.



Part II	108

NOTE 12: COMMITMENTS AND CONTINGENCIES

We have commitments in the form of unconditional purchase obligations as of December 31, 2020. These include commitments for the purchase of property, plant & equipment of $6,947,000 and commitments for noncapital purchases of $46,165,000. These commitments are due as follows:



	Unconditional
	Purchase
in thousands	Obligations
Property, Plant & Equipment
2021	$ 6,947
Thereafter	0
Total	$ 6,947
Noncapital (primarily transportation and electricity contracts)
2021	$ 16,005
2022–2023	15,106
2024–2025	4,054
Thereafter	11,000
Total	$ 46,165

Expenditures for noncapital purchases totaled $87,438,000 in 2020, $87,044,000 in 2019 and $56,674,000 in 2018.

We have commitments in the form of minimum royalties under mineral leases as of December 31, 2020 in the amount of $265,560,000, due as follows:



	Mineral
in thousands	Leases
Minimum Royalties
2021	$ 27,210
2022–2023	43,491
2024–2025	27,712
Thereafter	167,147
Total	$ 265,560

Expenditures for royalties under mineral leases totaled $81,549,000 in 2020, $84,782,000 in 2019 and $76,761,000 in 2018.

As of December 31, 2020, we were contingently liable for $835,819,000 within 522 surety bonds underwritten by various surety companies. These bonds guarantee our performance and are required primarily by states and municipalities and their related agencies. The top five in amount totaled $206,015,000 (25%) and were for certain construction contracts and reclamation obligations. We have agreed to indemnify the underwriting companies against any exposure under the surety bonds. No material claims have been made against our surety bonds.

Certain of our aggregates reserves are burdened by volumetric production payments (nonoperating interest) as described in Note 2. 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 described in Note 1 under the caption Claims and Litigation Including Self-Insurance, our net liabilities for our self-insurance program totaled $74,135,000 as of December 31, 2020.

As summarized by purpose in Note 6, our standby letters of credit totaled $56,080,000 as of December 31, 2020.

As outlined in Note 7, our present value of future minimum (nonmineral) lease payments totaled $442,737,000 as of December 31, 2020.

As described in Note 9, our liability for unrecognized tax benefits is $6,817,000 as of December 31, 2020.

As described in Note 17, our asset retirement obligations totaled $283,163,000 as of December 31, 2020.



Part II	109

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 are presented in Note 8.

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 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.

In August 2017, the EPA informed certain members of the CPG, including Vulcan, 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. This voluntary allocation process is intended to establish an impartial third-party expert recommendation that may be considered by the government and the participants as the basis of possible settlements. The final allocation recommendations, which are subject to confidentiality provisions, were submitted to the EPA for its review and consideration in late December 2020. It is unknown when the EPA might respond or whether it will seek further information. The allocator’s recommendation with respect to Vulcan, if ultimately adopted, would be within the immaterial loss recorded for this matter in 2015.

In July 2018, Vulcan, along with more than one hundred 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. It is unknown at this time whether the filing of the Occidental lawsuit will impact the EPA allocation process.

In October 2018, the EPA ordered the CPG to prepare a streamlined feasibility study specifically for the upper 9 miles of the River. This directive is focused on dioxin and covers the remaining portion of the River not included in the EPA’s March 2016 ROD.



Part II	110

Efforts to 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 as 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.

The AOC does not obligate us to fund or perform the remedial action contemplated by either the draft RI/FS or the ROD. Furthermore, the parties who will participate in funding the remediation and their respective allocations have not been determined. We do not agree that a bank-to-bank remedy is warranted, and we are not obligated to fund any of the remedial action at this time; nevertheless, we previously estimated the cost to be incurred by us as a potential participant in a bank-to-bank dredging remedy and recorded an immaterial loss for this matter in 2015.

■ TEXAS BRINE MATTER (DISCONTINUED OPERATIONS) — During the operation of its former Chemicals Division, Vulcan secured the right to mine salt out of an underground salt dome formation in Assumption Parish, Louisiana from 1976 - 2005. Throughout that period and for all times thereafter, the Texas Brine Company (Texas Brine) was the operator contracted by Vulcan (and later Occidental) to mine and deliver the salt. We sold our Chemicals Division in 2005 and transferred our rights and interest related to the salt and mining operations to the purchaser, a subsidiary of 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, and numerous lawsuits were filed in state court in Assumption Parish, Louisiana. Other lawsuits, including class action litigation, were also filed in federal court before the Eastern District of Louisiana in New Orleans.

There are numerous defendants, including Texas Brine and Occidental, to the litigation in state and federal court. Vulcan was first brought into the litigation as a third-party defendant in August 2013 by Texas Brine. We have since been added as a direct and third-party defendant by other parties, including a direct claim by the state of Louisiana. Damage categories encompassed within the litigation include individual plaintiffs’ claims for property damage, a claim by the state of Louisiana for response costs and civil penalties, claims by Texas Brine for response costs and lost profits, claims for physical damages to nearby oil and gas pipelines and storage facilities (pipelines), and business interruption claims.

In addition to the plaintiffs’ claims, we were also sued for contractual indemnity and comparative fault by both Texas Brine and Occidental. It is alleged that the sinkhole was caused, in whole or in part, by our negligent actions or failure to act. It is also alleged 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 certain covenants and conditions in the agreement under which we sold our Chemicals Division to Occidental. We likewise made claims for contractual indemnity and on a basis of comparative fault against Texas Brine and Occidental. Vulcan and Occidental have since dismissed all of their claims against one another. Texas Brine has claims that remain pending against Vulcan and against Occidental.

A bench trial (judge only) began in September 2017 and ended in October 2017 in the pipeline cases. The trial was limited in scope to the allocation of comparative fault or liability for causing the sinkhole, with a damages phase of the trial to be held at a later date. In December 2017, the judge issued a ruling on the allocation of fault among the three defendants as follows: Occidental 50%, Texas Brine 35% and Vulcan 15%. This ruling was appealed by the parties. In December 2020, the Louisiana Court of Appeal, First Circuit issued its Notice of Judgement and Disposition in one of the pipeline cases reversing in part and amending the trial court judgment to reallocate 20% of the fault from Occidental to Texas Brine, with the result that 30% of the fault is now allocated to Occidental and 55% of the fault is now allocated to Texas Brine. The Court of Appeal affirmed the 15% fault allocation to Vulcan. The Court of Appeal made various other findings, including findings related to the arbitrability of certain claims between Occidental and Texas Brine. In January 2021, Texas Brine applied to the Court of Appeal for a rehearing regarding whether Occidental waived arbitration rights. Vulcan anticipates that one or more of the parties will seek review of the Court of Appeal’s decision by the Louisiana Supreme Court following disposition of Texas Brine’s rehearing application.

We have settled all except two outstanding cases, and our insurers to date have funded these settlements in excess of our self-insured retention amount. The remaining cases involve Texas Brine and the State of Louisiana. Discovery remains ongoing, and we cannot reasonably estimate a range of liability pertaining to these open cases at this time.



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■ NEW YORK WATER DISTRICT CASES (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. We are a defendant in 27 cases allegedly involving 1,1,1-trichloroethane. All of the cases are filed in the United States District Court for the Eastern District of New York. According to the various complaints, the plaintiffs are public drinking water providers who serve customers in seven New York counties (Nassau, Orange, Putnam, Sullivan, Ulster, Washington and Westchester). It is alleged that our 1,1,1-trichloroethane was stabilized with 1,4-dioxane and that various water wells of the plaintiffs are contaminated with 1,4-dioxane. The plaintiffs are seeking unspecified compensatory and punitive damages. We will vigorously defend the cases. At this time we cannot determine the likelihood or reasonably estimate a range of loss, if any, pertaining to the 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. The groundwater treatment system reached mechanical completion in late 2020 and is currently in a shakedown testing period. Operation testing is expected to be completed in early 2021 and will be followed by full system operation. 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.

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 a new project by LADWP at the Rinaldi-Toluca (RT) wellfield. 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. 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 includes a request for Vulcan to revise and develop a Final PDI Evaluation Report. The final comments further provide, 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 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 includes edits to the Draft PDI Evaluation Report and responses to EPA’s comments. Until the EPA’s review and approval of the Final PDI Evaluation Report and any Supplemental PDI Evaluation Report on remedial alternative(s) is complete and an effective remedy has been agreed upon, we cannot identify an appropriate remedial action that will be required under the AOC. Given the various stakeholders involved and the uncertainties relating to remediation alternatives, we cannot reasonably estimate a loss pertaining to Vulcan’s responsibility for future remedial action required by the EPA.

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 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 the second interim remedy. During the third quarter 2020, Vulcan recorded an immaterial accrual related to Honeywell’s contribution claim for certain types of cost 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. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area. At this time, we cannot reasonably estimate a range of an additional loss to Vulcan pertaining to this contribution claim.



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Further, LADWP has announced plans to install new treatment capabilities at two City wellfields located near the Hewitt Landfill — the NHW wellfield and the RT wellfield. LADWP has alleged that the Hewitt Landfill is one of the primary PRPs for the contamination at the NHW wellfield and is one of many PRPs for the contamination at the RT wellfield. We are 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, consistent with the parallel request by the EPA. This work is also intended to assist in identification of other PRPs that may have contributed to groundwater contamination in the area. Vulcan is also seeking access to LADWP’s list of PRPs. At this time, we cannot reasonably estimate a range of a loss to Vulcan pertaining to this contribution claim.

■ 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). Our NAFTA claim relates to the treatment of a portion of our quarrying operations in Playa del Carmen (Cancun), 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, which we filed with the International Centre for Settlement of Investment Disputes (ICSID) in December 2018. In January 2019, ICSID registered our Request for Arbitration.

We expect that the NAFTA arbitration will take at least two years to be concluded. At this time, there can be no assurance whether we will be successful in our NAFTA claim, and we cannot quantify the amount we may recover, if any, under this arbitration proceeding if we were successful.

Item 103 of Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings, or such proceedings are known to be contemplated, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $300,000 (which threshold was $100,000 prior to November 9, 2020). We previously disclosed that, in June 2019, we received a draft administrative order from the EPA to settle alleged violations of the Clean Water Act at one of our aggregates sites. In November 2020, we reached a settlement with the EPA regarding this matter, under which we paid a civil penalty of $68,000.

It is not possible to predict with certainty 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 Note 1 under the caption Claims and Litigation Including Self-insurance.



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NOTE 13: 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 December 31, 2020, 2019 and 2018.

Our common stock purchases (all of which were open market purchases) and subsequent retirements for the years ended December 31 are summarized below:



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

As of December 31, 2020, 8,064,851 shares may be purchased under the current authorization of our Board of Directors.

Dividends for the years ended December 31 were as follows:



in thousands, except per share data	2020	2019	2018
Dividends
Cash dividends	$ 180,216	$ 163,973	$ 148,109
Cash dividends per share	$ 1.36	$ 1.24	$ 1.12



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NOTE 14: OTHER COMPREHENSIVE INCOME

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

Amounts in accumulated other comprehensive income (AOCI), net of tax, at December 31, are as follows:



in thousands	2020	2019	2018
AOCI
Interest rate hedges	$ (23,943)	$ (10,953)	$ (11,180)
Pension and postretirement plans	(157,362)	(186,785)	(161,035)
Total	$ (181,305)	$ (197,738)	$ (172,215)

Changes in AOCI, net of tax, for the three years ended December 31, 2020 are as follows:



		Pension and
	Interest Rate	Postretirement
in thousands	Hedges	Benefit Plans	Total
AOCI
Balances at December 31, 2017	$ (11,438)	$ (138,028)	$ (149,466)
Released stranded tax effects ASU 2018-02	(2,464)	(27,165)	(29,629)
Balances at January 1, 2018, due to reclassification	$ (13,902)	$ (165,193)	$ (179,095)
Other comprehensive income (loss)
before reclassifications	2,496	(207)	2,289
Amounts reclassified from AOCI	226	4,365	4,591
Net OCI changes	2,722	4,158	6,880
Balances at December 31, 2018	$ (11,180)	$ (161,035)	$ (172,215)
Other comprehensive income (loss)
before reclassifications	0	(26,892)	(26,892)
Amounts reclassified from AOCI	227	1,142	1,369
Net OCI changes	227	(25,750)	(25,523)
Balances at December 31, 2019	$ (10,953)	$ (186,785)	$ (197,738)
Other comprehensive income (loss)
before reclassifications	(14,679)	6,366	(8,313)
Amounts reclassified from AOCI	1,689	23,057	24,746
Net OCI changes	(12,990)	29,423	16,433
Balances at December 31, 2020	$ (23,943)	$ (157,362)	$ (181,305)

Amounts reclassified from AOCI to earnings, are as follows:



in thousands	2020	2019	2018
Amortization of Interest Rate Hedge Losses
Interest expense	$ 2,286	$ 307	$ 306
Benefit from income taxes	(597)	(80)	(80)
Total	$ 1,689	$ 227	$ 226
Amortization of Pension and Postretirement Plan
Actuarial Loss and Prior Service Cost
Other nonoperating expense	$ 31,200	$ 1,545	$ 5,906
Benefit from income taxes	(8,143)	(403)	(1,541)
Total	$ 23,057	$ 1,142	$ 4,365
Total reclassifications from AOCI to earnings	$ 24,746	$ 1,369	$ 4,591



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NOTE 15: SEGMENT REPORTING

We have four operating (and reportable) segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. Management reviews earnings from these reporting segments principally at the gross profit level.

The Aggregates segment produces and sells aggregates (crushed stone, sand and gravel, sand, and other aggregates) and related products and services. During 2020, the Aggregates segment principally served markets in twenty states, Washington D.C. and Mexico with a full line of aggregates, and thirteen additional states with railroad ballast. Customers use aggregates primarily in the construction and maintenance of highways, streets and other public works and in the construction of housing and commercial, industrial and other nonresidential facilities. Customers are served by truck, rail and water distribution networks from our production facilities and sales yards. Due to the high weight-to-value ratio of aggregates, markets generally are local in nature. Quarries located on waterways and rail lines allow us to serve remote markets where local aggregates reserves may not be available.

The Asphalt segment produces and sells asphalt mix in six states: Alabama, Arizona, California, New Mexico, Tennessee and Texas, and includes asphalt construction paving in three states: Alabama, Tennessee and Texas. We entered the Alabama asphalt market in 2018 through an acquisition (see Note 19).

The Concrete segment produces and sells ready-mixed concrete in four states: California, Maryland, Texas and Virginia, in addition to Washington D.C. In 2020 and 2018, we exited the New Mexico and Georgia ready-mixed concrete markets, respectively, through divestitures (see Note 19).

The Calcium segment consists of a Florida facility that mines, produces and sells calcium products.

Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. 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. Customers for our Asphalt and Concrete segments are generally served locally at our production facilities or by truck. Because asphalt mix and ready-mixed concrete harden rapidly, delivery is time constrained and generally confined to a radius of approximately 20 to 25 miles from the producing facility.

The vast majority of our activities are domestic. We sell a relatively small amount of construction aggregates outside the United States. Total domestic revenues were $4,845,863,000 in 2020, $4,912,972,000 in 2019 and $4,365,309,000 in 2018. Nondomestic Aggregates segment revenues were $10,963,000 in 2020, $16,131,000 in 2019 and $17,560,000 in 2018; there were no significant nondomestic revenues in our Asphalt, Concrete or Calcium segments. Long-lived assets outside the United States, which consist primarily of property, plant & equipment, were $261,574,000 in 2020, $274,439,000 in 2019 and $278,520,000 in 2018. Equity method investments of $26,524,000 in 2020, $50,587,000 in 2019 and $39,395,000 in 2018 are included below in the identifiable assets for the Aggregates segment and in investments and long-term receivables on the accompanying Consolidated Balance Sheets.



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SEGMENT FINANCIAL DISCLOSURE



in thousands	2020	2019	2018
Total Revenues
Aggregates 1	$ 3,944,286	$ 3,990,275	$ 3,513,649
Asphalt 2	792,605	855,821	733,182
Concrete	383,617	395,627	401,999
Calcium	7,720	8,191	8,110
Segment sales	$ 5,128,228	$ 5,249,914	$ 4,656,940
Aggregates intersegment sales	(271,402)	(320,811)	(274,071)
Total revenues	$ 4,856,826	$ 4,929,103	$ 4,382,869
Gross Profit
Aggregates	$ 1,159,178	$ 1,146,649	$ 991,858
Asphalt	75,233	63,023	56,480
Concrete	44,159	43,151	49,893
Calcium	2,911	3,078	2,714
Total	$ 1,281,481	$ 1,255,901	$ 1,100,945
Depreciation, Depletion, Accretion & Amortization (DDA&A)
Aggregates	$ 321,127	$ 305,046	$ 281,641
Asphalt	34,956	35,199	31,290
Concrete	16,010	13,620	12,539
Calcium	189	232	272
Other	24,524	20,499	20,504
Total	$ 396,806	$ 374,596	$ 346,246
Capital Expenditures 3
Aggregates	$ 331,893	$ 383,406	$ 422,175
Asphalt	19,803	9,095	38,154
Concrete	11,664	11,641	12,291
Calcium	0	31	22
Corporate	0	175	2,587
Total	$ 363,360	$ 404,348	$ 475,229
Identifiable Assets 4
Aggregates	$ 9,459,185	$ 9,334,218	$ 8,887,749
Asphalt	573,059	558,386	527,226
Concrete	305,523	325,102	266,581
Calcium	3,345	3,653	3,942
Total identifiable assets	$ 10,341,112	$ 10,221,359	$ 9,685,498
General corporate assets	147,780	152,928	102,228
Cash and cash equivalents and restricted cash	1,198,013	274,506	44,404
Total assets	$ 11,686,905	$ 10,648,793	$ 9,832,130


1	Includes product sales, as well as freight & delivery costs that we pass along to our customers, and service revenues (see Note 2) related to aggregates.
2	Includes product sales, as well as service revenues (see Note 2) from our asphalt construction paving business.
3	Capital expenditures include capitalized replacements of and additions to property, plant & equipment, including renewals and betterments. Capital expenditures exclude property, plant & equipment obtained by business acquisitions.
4	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.



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NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION

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



in thousands	2020	2019	2018
Cash Payments (Refunds)
Interest (exclusive of amount capitalized)	$ 129,182	$ 129,224	$ 128,217
Income taxes	95,934	56,812	(65,968)
Noncash Investing and Financing Activities
Accrued liabilities for purchases of property,
plant & equipment	$ 55,904	$ 57,309	$ 37,116
Recognition of new asset retirement obligations	353	263	20
Right-of-use assets obtained in exchange for new
Operating lease liabilities 1	49,586	444,547	0
Finance lease liabilities 1	6,631	1,227	0
Amounts referable to business acquisitions
Liabilities assumed	5,879	4,373	5,405
Consideration payable to seller	8,980	0	4,500
Fair value of noncash assets and liabilities exchanged	21,213	0	0
Debt issued for purchases of property, plant & equipment	2,571	0	0


1	The 2019 amount includes the initial right-of-use assets resulting from our adoption of ASU 2016-02, “Leases.”

NOTE 17: 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. 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 an amount other than the carrying amount of the liability, we recognize a gain or loss on settlement.

We record all AROs for which we have legal obligations for land reclamation at estimated fair value. These AROs relate to our underlying land parcels, including both owned properties and mineral leases. For the years ended December 31, we recognized ARO operating costs related to accretion of the liabilities and depreciation of the assets as follows:



in thousands	2020	2019	2018
ARO Operating Costs
Accretion	$ 12,432	$ 10,992	$ 10,776
Depreciation	8,592	7,075	6,034
Total	$ 21,024	$ 18,067	$ 16,810

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

Reconciliations of the carrying amounts of our AROs for the years ended December 31 are as follows:



in thousands	2020	2019
Asset Retirement Obligations
Balance at beginning of year	$ 210,323	$ 225,726
Liabilities incurred	353	263
Liabilities settled	(12,820)	(12,457)
Accretion expense	12,432	10,992
Revisions, net	72,875	(14,201)
Balance at end of year	$ 283,163	$ 210,323



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ARO liabilities settled during 2020 and 2019 include $2,563,000 and $3,354,000, respectively, of reclamation activities required under a development agreement and conditional use permits at two adjacent aggregates sites on owned property in Southern California. The reclamation required under the development agreement will result in the restoration of 90 acres of previously mined property to conditions suitable for commercial and retail development.

ARO revisions during 2020 primarily include increases in estimated costs at two aggregates locations, including reclamation activities required under a development agreement at an aggregates site on owned property in Southern California. The reclamation required under the development agreement will result in the restoration of previously mined property to conditions suitable for retail and commercial development.

NOTE 18: GOODWILL AND INTANGIBLE ASSETS

Acquired identifiable intangible assets are classified into three categories: (1) goodwill, (2) intangible assets with finite lives subject to amortization and (3) intangible assets with indefinite lives. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually.

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. There were no charges for goodwill impairment in the years ended December 31, 2020, 2019 and 2018. Accumulated goodwill impairment losses amount to $252,664,000 in the Calcium segment.

We have four reportable segments organized around our principal product lines: Aggregates, Asphalt, Concrete and Calcium. Changes in the carrying amount of goodwill by reportable segment for the three years ended December 31, 2020 are shown below:



in thousands	Aggregates	Asphalt	Concrete	Calcium	Total
Goodwill
Totals at December 31, 2018	$ 3,073,763	$ 91,633	$ 0	$ 0	$ 3,165,396
Goodwill of acquired businesses 1	1,665	0	0	0	1,665
Totals at December 31, 2019	$ 3,075,428	$ 91,633	$ 0	$ 0	$ 3,167,061
Goodwill of acquired businesses 1	5,051	0	0	0	5,051
Totals at December 31, 2020	$ 3,080,479	$ 91,633	$ 0	$ 0	$ 3,172,112


1	See Note 19 for a summary of recent acquisitions.

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. A decrease in the estimated fair value of one or more of our reporting units could result in the recognition of a material, noncash write-down of goodwill.



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INTANGIBLE ASSETS

Intangible assets consist of contractual rights in place (primarily permitting and zoning rights), noncompetition agreements, customer relationships and trade names and trademarks. Intangible assets acquired in business combinations are stated at their fair value determined as of the date of acquisition. Intangible assets acquired individually or otherwise obtained outside a business combination consist primarily of permitting, permitting compliance and zoning rights and are stated at their historical cost less accumulated amortization. Costs incurred to renew or extend the life of existing intangible assets are capitalized. These capitalized renewal/extension costs were immaterial for the years presented.

See Note 19 for the details of the intangible assets acquired in business acquisitions during 2020, 2019 and 2018. Amortization of finite-lived intangible assets is computed based on the estimated life of the intangible assets. Contractual rights in place associated with aggregates reserves are amortized using the unit-of-sales method based on estimated recoverable units. Other intangible assets are amortized principally by the straight-line method. Intangible assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. There were no material charges for impairment of intangible assets in 2020, 2019 and 2018.

The gross carrying amount and accumulated amortization by major intangible asset class for the years ended December 31 are summarized below:



in thousands	2020	2019
Gross Carrying Amount
Contractual rights in place	$ 1,158,966	$ 1,132,958
Noncompetition agreements	5,667	7,667
Permitting, permitting compliance and zoning rights	138,958	136,646
Other 1	51,927	11,951
Total gross carrying amount	$ 1,355,518	$ 1,289,222
Accumulated Amortization
Contractual rights in place	$ (188,953)	$ (155,555)
Noncompetition agreements	(5,167)	(6,126)
Permitting, permitting compliance and zoning rights	(30,180)	(30,545)
Other 1	(7,674)	(5,521)
Total accumulated amortization	$ (231,974)	$ (197,747)
Total Intangible Assets Subject to Amortization, net	$ 1,123,544	$ 1,091,475
Intangible Assets with Indefinite Lives	0	0
Total Intangible Assets, net	$ 1,123,544	$ 1,091,475
Amortization Expense for the Year	$ 46,611	$ 40,541


1	Includes patents, customer relationships, tradenames and trademarks.

Estimated amortization expense for the five years subsequent to December 31, 2020 is as follows:



in thousands
Estimated Amortization Expense for Five Subsequent Years
2021	$ 40,975
2022	38,200
2023	37,103
2024	35,429
2025	35,041



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NOTE 19: ACQUISITIONS AND DIVESTITURES

BUSINESS ACQUISITIONS

2020 business acquisitions — During 2020, we purchased the following operations for total consideration of $73,416,000 ($43,223,000 cash and $30,193,000 noncash):

business to support our aggregates operations across most of our footprint

Texas — asphalt mix and recycle operations

The 2020 acquisitions listed above are reported in our consolidated financial statements as of their respective acquisition dates. None of these acquisitions are material to our results of operations or financial position either individually or collectively.

As a result of the 2020 acquisitions, we recognized $65,545,000 of amortizable intangible assets and $5,051,000 of goodwill. The amortizable intangible assets will be amortized against earnings ($25,712,000 - straight-line basis over a weighted-average 20.0 years) and $25,712,000 will be deductible for income tax purposes over 15 years. The goodwill represents the balance of deferred tax liabilities generated from carrying over the seller’s tax basis in the assets acquired and is not deductible for income tax purposes.

2019 business acquisitions — During 2019, we purchased the following operations, none of which were material to our results of operations or financial position either individually or collectively, for total cash consideration of $45,273,000 (additionally, immaterial adjustments were made to prior year acquisitions):

Tennessee — aggregates operations

Virginia — ready-mixed concrete operations

The 2019 acquisitions listed above are reported in our consolidated financial statements as of their respective acquisition dates.

As a result of the 2019 acquisitions, we recognized $25,443,000 of amortizable intangible assets (contractual rights in place). The contractual rights in place will be amortized against earnings on a straight-line basis over a weighted-average 19.5 years and will be deductible for income tax purposes over 15 years.

2018 business acquisitions — During 2018, we purchased the following operations, none of which were material to our results of operations or financial position either individually or collectively, for total consideration of $219,863,000 ($215,363,000 cash and $4,500,000 payable):

Alabama — aggregates, asphalt mix and construction paving operations

California — aggregates and asphalt mix operations

Texas — aggregates rail yards, asphalt mix and construction paving operations

The 2018 acquisitions listed above are reported in our consolidated financial statements as of their respective acquisition dates. Immaterial adjustments were recorded in 2019 including a working capital adjustment in which we received $1,122,000 and an increase to goodwill of $1,665,000.

As a result of the 2018 acquisitions, we recognized $44,163,000 of amortizable intangible assets (contractual rights in place). The contractual rights in place will be amortized against earnings ($43,072,000 - straight-line over a weighted-average 19.9 years and $1,080,000 - units of sales in excess of 30.0 years) and $7,385,000 will be deductible for income tax purposes over 15 years. Of the $43,990,000 of goodwill recognized, $4,863,000 will be deductible for income tax purposes over 15 years, and $31,721,000 represents the balance of deferred tax liabilities generated from carrying over the seller’s tax basis in the assets acquired.



Part II	121

DIVESTITURES AND PENDING DIVESTITURES

In 2020, we sold:

Fourth quarter — a Virginia ready-mix concrete business, resulting in an immaterial loss. We retained all real property which is being leased to the buyer and obtained a 20-year aggregates supply agreement

Second quarter — our New Mexico ready-mix concrete business, resulting in an immaterial gain. We retained the concrete plants and mobile fleet and are leasing those assets to the buyer. Additionally, we obtained a 20-year aggregates supply agreement

In 2019, we sold:

First quarter — two aggregates operations in Georgia and reversed a contingent payable related to the fourth quarter 2017 Department of Justice required divestiture of former Aggregates USA operations, resulting in a pretax gain of $4,064,000

In 2018, we sold:

First quarter — ready-mixed concrete operations in Georgia resulting in a pretax gain of $2,929,000 (we retained all real property which is leased to the buyer, and obtained a long-term aggregates supply agreement)

No assets met the criteria for held for sale at December 31, 2020, 2019 or 2018.

NOTE 20: UNAUDITED SUPPLEMENTARY DATA

The following is a summary of selected quarterly financial information (unaudited) for each of the years ended December 31, 2020 and 2019:



	2020
	Three Months Ended
in thousands, except per share data	March 31	June 30	Sept 30	Dec 31
Total revenues	$ 1,049,242	$ 1,322,575	$ 1,309,890	$ 1,175,119
Gross profit	201,723	396,519	380,498	302,741
Operating earnings	112,301	298,896	288,104	196,430
Earnings from continuing operations	59,998	210,957	201,125	115,915
Net earnings	60,258	209,916	199,788	114,518
Basic earnings per share from continuing operations	$ 0.45	$ 1.59	$ 1.52	$ 0.87
Diluted earnings per share from continuing operations	$ 0.45	$ 1.58	$ 1.51	$ 0.87
Basic net earnings per share	$ 0.45	$ 1.58	$ 1.51	$ 0.86
Diluted net earnings per share	$ 0.45	$ 1.58	$ 1.50	$ 0.86



	2019
	Three Months Ended
in thousands, except per share data	March 31	June 30	Sept 30	Dec 31
Total revenues	$ 996,511	$ 1,327,682	$ 1,418,758	$ 1,186,152
Gross profit	191,675	370,502	400,643	293,081
Operating earnings	104,433	276,074	303,376	193,575
Earnings from continuing operations	63,935	197,907	218,066	142,595
Net earnings	63,299	197,558	215,713	141,092
Basic earnings per share from continuing operations	$ 0.48	$ 1.50	$ 1.65	$ 1.08
Diluted earnings per share from continuing operations	$ 0.48	$ 1.48	$ 1.63	$ 1.07
Basic net earnings per share	$ 0.48	$ 1.49	$ 1.63	$ 1.07
Diluted net earnings per share	$ 0.48	$ 1.48	$ 1.62	$ 1.06



Part II	122

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