Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

GENERAL COMMENTS

Overview

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

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

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

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

No material part of our business depends upon any single customer whose loss would have a significant adverse effect on our business. In 2021, our five largest customers accounted for 8% of our total revenues, and no single customer accounted for more than 2% of our total revenues. Although approximately 45% to 55% of our aggregates shipments have historically been used in publicly-funded construction, such as highways, airports and government buildings, a relatively small portion of our sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly-funded construction, the vast majority of our business is not directly subject to renegotiation of profits or termination of contracts with local, state or federal governments. In addition, our sales to government entities span several hundred entities coast-to-coast, ensuring that negative changes to various government budgets would have a muted impact across such a diversified set of government customers.

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

Seasonality and cyclical nature of our business

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

‎

EXECUTIVE SUMMARY

Financial highlights for FIRST Quarter 2022

Compared to first quarter of 2021: ‎

Total revenues increased $472.4 million, or 44%, to $1,540.7 million

Gross profit increased $39.5 million, or 17.2%, to $268.8 million

Aggregates segment sales increased $226.3 million, or 25%, to $1,121.2 million

Aggregates segment freight-adjusted revenues increased $141.5 million, or 21%, to $822.7 million

Shipments increased 14%, or 6.6 million tons, to 53.0 million tons

Same-store shipments increased 7%, or 3.4 million tons, to 49.9 million tons

Freight-adjusted sales price increased 5.8%, or $0.85 per ton to $15.52

Same-store freight-adjusted sales price increased 6.3%, or $0.93 per ton to $15.60

Aggregates segment gross profit increased $19.2 million, or 9%, to $242.8 million

Unit profitability (as measured by gross profit per ton) decreased 5.0% to $4.58 per ton

Same-store unit profitability (as measured by gross profit per ton) increased 3.5% to $4.99 per ton.

Asphalt, Concrete and Calcium segment gross profit increased $20.3 million, or 356%, to $26.0 million, collectively

Selling, administrative and general (SAG) expenses increased $30.4 million but decreased 0.6 percentage points (60 basis points) as a percentage of total revenues

Operating earnings decreased $102.5 million, or 41%, to $147.0 million

Gain on sale of property, plant & equipment and businesses was down $114.6 million to $2.6 million

Earnings attributable to Vulcan from continuing operations were $0.70 per diluted share compared to $1.21 per diluted share

Adjusted earnings attributable to Vulcan from continuing operations were $0.73 per diluted share, compared to $0.69 per diluted share

Net earnings attributable to Vulcan were $91.8 million, a decrease of $68.8 million, or 43%

Adjusted EBITDA was $293.9 million, an increase of $49.6 million, or 20%

Returned capital to shareholders via dividends ($53.2 million @ $0.40 per share versus $49.1 million @ $0.37 per share)

Consistent with our expectations, we delivered strong year-over-year earnings growth in the first quarter. Our teams executed well, despite macro environment challenges that included accelerating inflation, volatility in the energy markets, and ongoing disruptions in supply chains. We remain focused on executing our four strategic disciplines (operational excellence, commercial excellence, logistics innovation and strategic sourcing) to control what we can control and to dampen the headwinds of things outside of our control.

We remain confident in our full-year outlook and our ability to deliver strong earnings growth in 2022. Through robust growth in aggregates pricing and a relentless focus on operational excellence, we can continue to expand unit profitability, despite the macro challenges. In our asphalt business, pricing efforts mitigated higher liquid asphalt costs in the first quarter and we remain focused on expanding our gross profit margins. In concrete, improvement in private nonresidential construction activity and a favorable pricing environment support earnings growth in 2022. We remain confident in our prospects for the year, particularly with respect to demand visibility, pricing opportunities, and cost reduction initiatives.

Capital expenditures in the first quarter were $122.7 million, including $34.4 million for growth projects. In 2022, we expect to spend $600 million to $650 million on capital expenditures. Full year capital expenditures include spending for U.S. Concrete operations (acquired in August 2021) as well as spending for projects put on hold in 2020 due to the pandemic. We will continue to review our plans and will adjust as needed, while being thoughtful about preserving liquidity. During the quarter, we completed acquisitions of aggregates businesses in Texas.

As of March 31, 2022, the ratio of total debt to trailing-twelve months Adjusted EBITDA was 2.7 times (2.6 times on a net debt basis). We remain committed to our stated long-term target leverage range of 2.0 to 2.5 times total debt to trailing-twelve months Adjusted EBITDA.

Interest expense, net of interest income, was $35.9 million in the first quarter compared with $33.1 million in the prior year.

On a trailing-twelve months basis, return on invested capital was 14.0%. We are focused on driving further improvement through solid operating earnings growth coupled with disciplined capital management.

OUTLOOK

We reiterate our full-year Adjusted EBITDA range of $1.72 to $1.82 billion. In the first quarter, we capitalized on the considerable momentum in our business, growing Adjusted EBITDA by 20%, and we are on our way to delivering double-digit earnings growth again in 2022. Our markets are positioned to continue to outperform other parts of the country, and our industry-leading aggregates focus will continue to drive substantial value. Growing our aggregates unit profitability consistently during the last two years of pandemic-related disruptions demonstrates the resiliency of our business and our ability to capitalize on any changes in the macro environment. We expect the favorable pricing dynamics and strong execution to lead to attractive growth in aggregates unit profitability in 2022 and beyond.

RESULTS OF OPERATIONS

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

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

consolidated operating ResultS highlights

	Three Months Ended
	March 31
in millions, except unit and per unit data	2022			2021
Total revenues	$ 1,540.7			$ 1,068.3
Cost of revenues	1,271.9			839.0
Gross profit	$ 268.8			$ 229.3
Gross profit margin	17.4%			21.5%
Selling, administrative and general (SAG)	$ 119.0			$ 88.6
SAG as a percentage of total revenues	7.7%			8.3%
Gain on sale of property, plant &
equipment and businesses	$ 2.6			$ 117.2
Operating earnings	$ 147.0			$ 249.5
Interest expense, net	$ 35.9			$ 33.1
Earnings from continuing operations
before income taxes	$ 112.6			$ 222.3
Income tax expense	$ 18.7			$ 60.6
Effective tax rate from continuing operations	16.6%			27.3%
Earnings from continuing operations	$ 93.9			$ 161.7
Loss on discontinued operations,
net of income taxes	(1.8)			(1.1)
(Earnings) loss attributable to noncontrolling interest	(0.3)			0.0
Net earnings attributable to Vulcan	$ 91.8			$ 160.6
Diluted earnings (loss) per share attributable
to Vulcan
Continuing operations	$ 0.70			$ 1.21
Discontinued operations	(0.01)			(0.01)
Diluted net earnings per share attributable to Vulcan	$ 0.69			$ 1.20
EBITDA 1	$ 289.3			$ 355.8
Adjusted EBITDA 1	$ 293.9			$ 244.3
Average Sales Price and Unit Shipments
Aggregates
Tons (thousands)	53,020			46,437
Freight-adjusted sales price	$ 15.52			$ 14.67
Asphalt Mix
Tons (thousands)	2,322			2,217
Average sales price	$ 64.06			$ 56.78
Ready-mixed concrete
Cubic yards (thousands)	2,500			613
Average sales price	$ 143.81			$ 131.52
Calcium
Tons (thousands)	54			75
Average sales price	$ 34.67			$ 27.64

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

FIRST quarter 2022 Compared to FIRST Quarter 2021

First quarter 2022 total revenues were $1,540.7 million, up 44% from the first quarter of 2021. Shipments increased in aggregates (+14%), asphalt mix (+5%) and ready-mixed concrete (+308%). Likewise, gross profit increased in the Aggregates (+$19.2 million or 9%) and Concrete (+$20.4 million or +264%) segments but remained essentially flat in the Asphalt segment. A 62% increase in the unit cost of diesel fuel increased costs by $20.8 million from the prior year’s first quarter with most ($16.7 million) of this cost increase reflected in the Aggregates segment.

Net earnings attributable to Vulcan for the first quarter of 2022 were $91.8 million, or $0.69 per diluted share, compared to $160.6 million, or $1.20 per diluted share, in the first quarter of 2021. Each period’s results were impacted by discrete items, as follows:

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

pretax charges of $0.3 million associated with divested operations

pretax charges of $2.5 million associated with non-routine business development

pretax charges of $1.8 million for managerial restructuring (related to U.S. Concrete)

Net earnings attributable to Vulcan for the first quarter of 2021 include:

$13.7 million of tax charges related to an increase in the Alabama NOL carryforward valuation allowance

pretax net gain of $114.7 million related to the sale of a reclaimed quarry in Southern California

pretax charges of $0.3 million associated with divested operations

pretax charges of $0.4 million associated with non-routine business development

pretax charges of $2.5 million for COVID-19 pandemic direct incremental costs

Adjusted for these discrete items, earnings attributable to Vulcan from continuing operations (Adjusted Diluted EPS) was $0.73 per diluted share for the first quarter of 2022 compared to $0.69 per diluted share in the first quarter of 2021.

Continuing Operations — Changes in earnings from continuing operations before income taxes for the first quarter of 2022 versus the first quarter of 2021 are summarized below:

earnings from continuing operations before income taxes

in millions
First quarter 2021	$ 222.3
Higher aggregates gross profit	19.2
Higher asphalt gross profit	0.1
Higher concrete gross profit	20.4
Lower calcium gross profit	(0.2)
Higher selling, administrative and general expenses	(30.4)
Lower gain on sale of property, plant & equipment and businesses	(114.6)
Higher interest expense, net	(2.8)
All other	(1.4)
First quarter 2022	$ 112.6

First quarter Aggregates segment sales increased 25%, while gross profit increased $19.2 million, or 9%, to $242.8 million ($4.58 per ton). These first quarter results included a $2.4 million unfavorable impact from selling acquired inventory after its markup to fair value and a $16.7 million unfavorable impact from significantly higher (62%) diesel fuel costs. Cash gross profit per ton was $6.53 in the quarter. Excluding the impact of higher diesel fuel costs and the impact of selling acquired inventory after its markup to fair value, cash gross profit per ton increased 5% to $6.90 per ton.

Total aggregates shipments were 53.0 million tons versus 46.4 million in last year’s first quarter, an increase of 14%. Same-store aggregates shipments increased 7%. The increased volume reflected construction activity consistent with our expectations as well as the benefit of more typical weather in certain markets. Shipments in the prior year’s first quarter were impacted by severe winter weather conditions in February. As a result, daily shipping rates in February of the current year were sharply higher while daily shipping rates in March (the start of construction activity in many of our markets) were consistent with the full-year expectations.

Growth in average selling prices continues to accelerate as a result of improvement in demand visibility and increasing inflationary pressures. In the first quarter, freight-adjusted pricing increased 5.8% over the prior year, or $0.85 per ton (mix adjusted pricing increased 6.9%). The growth was widespread across geographies.

Solid operational execution helped mitigate higher year-over-year costs for diesel fuel and for certain parts and supplies. Freight-adjusted unit cash cost of sales increased 11%, or $0.88 per ton, as compared to the prior year’s first quarter. Excluding the impact of higher diesel fuel costs and the impact of selling acquired inventory after its markup to fair value, cash costs of sales increased 6%, or $0.51 per ton. On a trailing-twelve months basis, freight-adjusted cash costs per ton were 5% higher versus the comparable twelve months period.

Overall, non-aggregates segments gross profit of $26.0 million was $20.3 million higher than the prior year’s first quarter.

Asphalt segment gross profit was a loss of $2.9 million. Despite higher costs for liquid asphalt and natural gas in the first quarter of 2022, results were in line with the prior year. The average cost of liquid asphalt was 33% higher ($14.2 million) than the prior year’s first quarter when liquid prices were favorable to segment gross profit. Average selling prices for asphalt mix increased 12.8%, or $7.28 per ton, versus the prior year’s first quarter as pricing actions initiated in the second half of last year continued to gain traction. Strong price growth helped maintain material margins (selling price less cost of raw materials) despite the significant year-over-year increase in liquid asphalt. Asphalt volumes increased 5% overall driven by growth in Arizona, California and Tennessee.

Concrete segment gross profit was $28.2 million for the first quarter compared to $7.8 million in the prior year. Segment results benefited mostly from the contribution of the U.S. Concrete operations but also from growth in shipments and price in our legacy operations. Material margins improved as higher selling prices helped offset higher raw materials costs, including aggregates supplied by us. Segment results were negatively impacted by higher diesel prices and the availability of truck drivers in certain markets.

Calcium segment gross profit of $0.7 million was $0.2 million lower than the prior year quarter.

SAG expenses were $119.0 million in the quarter, or 7.7% of total revenues, and included overhead expenses associated with U.S. Concrete that were not in the prior year’s quarter. Additionally, increased routine business development activities and more normalized travel expenses, due in part to integration activities, contributed to the year-over-year increase. Trailing-twelve months SAG expenses were 7.4% of total revenues, in line with the prior year.

The prior year’s first quarter included the sale of a reclaimed quarry in Southern California. The transaction resulted in a pretax gain on sale of property, plant & equipment and businesses of $114.7 million, or $0.64 per diluted share. We remain focused on efforts to maximize the value of our portfolio of quarry operations as it moves through the land management life cycle.

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

$5.4 million in first quarter 2022 — includes discrete items as follows:

$0.3 million of charges associated with divested operations

$0.1 million of non-routine business development charges (excludes items included in cost of goods sold)

$1.8 million for managerial restructuring (related to U. S. Concrete)

$8.4 million in first quarter 2021 — includes discrete items as follows:

$0.3 million of charges associated with divested operations

$0.4 million of non-routine business development charges

$2.5 million for COVID-19 pandemic direct incremental costs

Other nonoperating income, net was a net income of $1.5 million for the first quarter of 2022 and was unfavorable by $4.4 million from the first quarter of 2021.

Net interest expense was $35.9 million in the first quarter of 2022 compared to $33.1 million in the first quarter of 2021.

Income tax expense from continuing operations was $18.7 million in the first quarter of 2022 compared to $60.6 million in the first quarter of 2021. The decrease in tax expense was primarily related to a decrease in pretax earnings in 2022 and an increase in the valuation allowance against the Alabama net operating loss in 2021.

Earnings attributable to Vulcan from continuing operations were $0.70 per diluted share in the first quarter of 2022 compared to $1.21 per diluted share in the first quarter of 2021.

Discontinued Operations — First quarter pretax loss from discontinued operations was $2.4 million in 2022 compared with a pretax loss of $1.4 million in 2021. Both periods include charges/credits related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

SAME-STORE

We have provided certain information on a same-store basis. When discussing our financial results in comparison to prior periods, we may exclude the operating results of recently acquired/divested businesses that do not have comparable results in the periods being discussed. These recently acquired/divested businesses are disclosed in Note 16 “Acquisitions and Divestitures.” This approach allows us to evaluate the performance of our operations on a comparable basis. We believe that measuring performance on a same-store basis is useful to investors because it enables evaluation of how our operations are performing period over period without the effects of acquisition and divestiture activity. Our same-store information may not be comparable to similar measures used by other companies.

AGGREGATES SEGMENT FREIGHT-ADJUSTED REVENUES

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

	Three Months Ended
	March 31
in millions, except per ton data	2022			2021
Aggregates segment
Segment sales	$ 1,121.2			$ 894.9
Less
Freight & delivery revenues 1	272.4			197.2
Other revenues	26.1			16.5
Freight-adjusted revenues	$ 822.7			$ 681.2
Unit shipments - tons	53.0			46.4
Freight-adjusted sales price	$ 15.52			$ 14.67

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

Aggregates segment incremental gross profit

Aggregates segment incremental gross profit flow-through rate is not a GAAP measure and represents the year-over-year change in gross profit divided by the year-over-year change in segment sales excluding freight & delivery (revenues and costs). This metric should not be considered as an alternative to metrics defined by GAAP. We evaluate this metric on a trailing-twelve months basis as quarterly gross profit flow-through rates can vary widely from quarter to quarter. We present this metric as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities. Reconciliation of this metric to its nearest GAAP measure is presented below:

margin in accordance with gaap

	Three Months Ended						Trailing-Twelve Months
	March 31						March 31
dollars in millions	2022			2021			2022			2021
Aggregates segment
Gross profit	$ 242.8			$ 223.6			$ 1,314.8			$ 1,188.7
Segment sales	$ 1,121.2			$ 894.9			$ 4,571.3			$ 3,971.0
Gross profit margin	21.7%			25.0%			28.8%			29.9%
Incremental gross profit margin	8.5%						21.0%

FLOW-THROUGH RATE (non-gaap)

	Three Months Ended						Trailing-Twelve Months
	March 31						March 31
dollars in millions	2022			2021			2022			2021
Aggregates segment
Gross profit	$ 242.8			$ 223.6			$ 1,314.8			$ 1,188.7
Less: Contribution from acquisitions (same-store)	(6.0)			0.0			(13.0)			0.0
Same-store gross profit	$ 248.8			$ 223.6			$ 1,327.8			$ 1,188.7
Segment sales	$ 1,121.2			$ 894.9			$ 4,571.3			$ 3,971.0
Less: Freight & delivery revenues 1	272.4			197.2			1,027.2			868.6
Segment sales excluding freight & delivery	$ 848.8			$ 697.7			$ 3,544.1			$ 3,102.4
Less: Contribution from acquisitions (same-store)	55.1			0.0			133.2			0.0
Same-store segment sales excluding freight & delivery	$ 793.7			$ 697.7			$ 3,410.9			$ 3,102.4
Gross profit margin excluding freight & delivery	28.6%			32.1%			37.1%			38.3%
Same-store gross profit margin excluding
freight & delivery	31.3%			32.1%			38.9%			38.3%
Incremental gross profit flow-through rate	12.7%						28.6%
Same-store incremental gross profit flow-through rate	26.2%						45.1%

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

cash gross profit

GAAP does not define “cash gross profit,” and it should not be considered as an alternative to earnings measures defined by GAAP. We and the investment community use this metric to assess the operating performance of our business. Additionally, we present this metric as we believe that it closely correlates to long-term shareholder value. We do not use this metric as a measure to allocate resources. Cash gross profit adds back noncash charges for depreciation, depletion, accretion and amortization to gross profit. Aggregates segment cash gross profit per ton is computed by dividing Aggregates segment cash gross profit by tons shipped. Reconciliation of this metric to its nearest GAAP measure is presented below:

	Three Months Ended
	March 31
in millions, except per ton data	2022			2021
Aggregates segment
Gross profit	$ 242.8			$ 223.6
Depreciation, depletion, accretion and amortization	103.6			80.8
Aggregates segment cash gross profit	$ 346.4			$ 304.4
Unit shipments - tons	53.0			46.4
Aggregates segment gross profit per ton	$ 4.58			$ 4.82
Aggregates segment cash gross profit per ton	$ 6.53			$ 6.56
Aggregates segment (same-store)
Gross profit	$ 248.8
Depreciation, depletion, accretion and amortization	84.3
Aggregates segment (same-store) cash gross profit	$ 333.1
Unit shipments (same-store) - tons	49.9
Aggregates segment (same-store) gross profit per ton	$ 4.99
Aggregates segment (same-store) cash gross profit per ton	$ 6.68
Asphalt segment
Gross profit	$ (2.9)			$ (3.0)
Depreciation, depletion, accretion and amortization	8.6			9.1
Asphalt segment cash gross profit	$ 5.7			$ 6.1
Concrete segment
Gross profit	$ 28.2			$ 7.8
Depreciation, depletion, accretion and amortization	21.1			4.0
Concrete segment cash gross profit	$ 49.3			$ 11.8
Calcium segment
Gross profit	$ 0.7			$ 0.9
Depreciation, depletion, accretion and amortization	0.0			0.0
Calcium segment cash gross profit	$ 0.7			$ 0.9

EBITDA and adjusted ebitda

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

	Three Months Ended						Trailing-Twelve Months
	March 31						March 31
in millions	2022			2021			2022			2021
Net earnings attributable to Vulcan	$ 91.8			$ 160.6			$ 602.0			$ 684.8
Income tax expense	18.7			60.6			158.2			204.3
Interest expense, net of interest income	35.9			33.1			150.5			136.7
Loss on discontinued operations, net of tax	1.8			1.1			4.0			4.8
Depreciation, depletion, accretion and amortization	141.0			100.4			503.6			401.7
EBITDA	$ 289.3			$ 355.8			$ 1,418.5			$ 1,432.3
Gain on sale of real estate and businesses, net	$ 0.0			$ (114.7)			$ 0.0			$ (114.7)
Charges associated with divested operations	0.3			0.3			1.5			7.3
Business development 1	2.5			0.4			41.1			6.7
COVID-19 direct incremental costs	0.0			2.5			10.9			12.0
Pension settlement charge	0.0			0.0			12.1			22.7
Restructuring charges	1.8			0.0			16.8			0.5
Adjusted EBITDA	$ 293.9			$ 244.3			$ 1,501.0			$ 1,366.8

1	Represents non-routine charges or gains associated with acquisitions and dispositions.

NET DEBT TO ADJUSTED EBITDA

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

							March 31
in millions							2022			2021
Debt
Current maturities of long-term debt							$ 3.9			$ 15.4
Short-term debt							100.0			0.0
Long-term debt							3,874.5			2,772.9
Total debt							$ 3,978.4			$ 2,788.3
Less: Cash and cash equivalents and restricted cash							133.0			890.9
Net debt							$ 3,845.4			$ 1,897.4
Trailing-Twelve Months (TTM) Adjusted EBITDA							$ 1,501.0			$ 1,366.8
Total debt to TTM Adjusted EBITDA							2.7x			2.0x
Net debt to TTM Adjusted EBITDA							2.6x			1.4x

Adjusted Diluted EPS attributable to vulcan from continuing Operations

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

	Three Months Ended
	March 31
	2022			2021
Diluted Earnings Per Share
Net earnings attributable to Vulcan	$ 0.69			$ 1.20
Less: Discontinued operations	(0.01)			(0.01)
Diluted EPS attributable to Vulcan from continuing
operations	$ 0.70			$ 1.21
Items included in Adjusted EBITDA above	$ 0.03			$ (0.62)
AL NOL carryforward valuation allowance	0.00			0.10
Adjusted diluted EPS attributable to Vulcan from
continuing operations	$ 0.73			$ 0.69

RETURN ON INVESTED CAPITAL

We define “Return on Invested Capital” (ROIC) as Adjusted EBITDA for the trailing-twelve months divided by average invested capital (as illustrated below) during the trailing 5-quarters. Our calculation of ROIC is considered a non-GAAP financial measure because we calculate ROIC using the non-GAAP metric EBITDA. We believe that our ROIC metric is meaningful because it helps investors assess how effectively we are deploying our assets. Although ROIC is a standard financial metric, numerous methods exist for calculating a company’s ROIC. As a result, the method we use to calculate our ROIC may differ from the methods used by other companies. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below (numbers may not foot due to rounding):

							Trailing-Twelve Months
							March 31
dollars in millions							2022			2021
Adjusted EBITDA							$ 1,501.0			$ 1,366.8
Average invested capital
Property, plant & equipment, net							$ 5,109.6			$ 4,383.4
Goodwill							3,485.0			3,171.1
Other intangible assets							1,507.7			1,108.7
Fixed and intangible assets							$ 10,102.3			$ 8,663.2
Current assets							$ 1,854.2			$ 1,968.5
Less: Cash and cash equivalents							474.0			822.2
Less: Current tax							32.3			17.1
Adjusted current assets							1,347.9			1,129.1
Current liabilities							740.8			839.6
Less: Current maturities of long-term debt							10.5			308.1
Less: Short-term debt							20.0			0.0
Adjusted current liabilities							710.3			531.5
Adjusted net working capital							$ 637.6			$ 597.6
Average invested capital							$ 10,739.9			$ 9,260.8
Return on invested capital							14.0%			14.8%

2022 projected ebitda

The following reconciliation to the mid-point of the range of 2022 Projected EBITDA excludes adjustments (as noted in Adjusted EBITDA above) as they are difficult to forecast (timing or amount). Due to the difficulty in forecasting such adjustments, we are unable to estimate their significance. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below:

	0
			2022 Projected
in millions			Mid-point
Net earnings attributable to Vulcan				$ 845
Income tax expense				235
Interest expense, net of interest income				150
Depreciation, depletion, accretion and amortization				540
Projected EBITDA				$ 1,770

LIQUIDITY AND FINANCIAL RESOURCES

Our primary sources of liquidity are cash provided by our operating activities and a substantial, committed bank line of credit. Additional sources of capital include access to the capital markets, the sale of surplus real estate, and dispositions of nonstrategic operating assets. We believe these financial resources are sufficient to fund our business requirements for 2022, including:

contractual obligations

capital expenditures

debt service obligations

dividend payments

potential acquisitions

potential share repurchases

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

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

maintain substantial bank line of credit borrowing capacity

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

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

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

Cash

Included in our March 31, 2022 cash and cash equivalents and restricted cash balances of $133.0 million is $9.9 million of restricted cash as described in Note 1 under the caption Restricted Cash.

cash from operating activities

	Three Months Ended
	March 31
in millions	2022			2021
Net earnings	$ 92.1			$ 160.6
Depreciation, depletion, accretion and amortization (DDA&A)	141.0			100.4
Noncash operating lease expense	16.4			10.5
Net gain on sale of property, plant & equipment and businesses	(2.6)			(117.2)
Contributions to pension plans	(2.0)			(2.1)
Deferred tax expense	1.1			26.9
Other operating cash flows, net 1	(70.4)			(9.8)
Net cash provided by operating activities	$ 175.6			$ 169.3

1	Primarily reflects changes to working capital balances.

Net cash provided by operating activities was $175.6 million during the three months ended March 31, 2022, a $6.3 million increase compared to the same period of 2021.

Days sales outstanding, a measurement of the time it takes to collect receivables, were 44.8 days at March 31, 2022 compared to 40.1 days at March 31, 2021. Additionally, our over 90 day balance of $43.4 million at March 31, 2022 was up significantly from the $13.9 million at March 31, 2021. All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected.

cash from investing activities

Net cash used for investing activities was $302.5 million during the first three months of 2022, a $388.3 million increase in cash used compared to cash provided of $85.8 million in the same period of 2021. During the first three months of 2022, we invested $160.4 million in our existing operations (includes changes in accruals for property, plant & equipment) compared to $100.7 million in the prior year period. Of this $160.4 million, $34.4 million was invested in internal growth projects to enhance our distribution capabilities, develop new production sites and enhance existing production facilities and other growth opportunities. In the first three months of 2022, proceeds from the sale of property, plant & equipment were down $180.3 million from the first three months of 2021. In 2021, we sold reclaimed real estate in Southern California for net cash proceeds of $182.3 million (see Note 16 to the condensed consolidated financial statements).

cash from financing activities

Net cash provided by financing activities in the first three months of 2022 was $18.4 million, compared to cash used of $562.2 million in the same period of 2021. The current year includes a $100.0 million net draw on our line of credit. The prior year includes cash paid to retire the $500.0 million floating rate notes due March 2021.

Additionally, capital returned to our shareholders increased by $4.1 million as a result of higher dividends ($0.40 per share compared to $0.37 per share).

debt

Certain debt measures are presented below:

			March 31			December 31			March 31
dollars in millions			2022			2021			2021
Debt
Current maturities of long-term debt			$ 3.9			$ 5.2			$ 15.4
Short-term debt			100.0			0.0			0.0
Long-term debt			3,874.5			3,874.8			2,772.9
Total debt			$ 3,978.4			$ 3,880.0			$ 2,788.3
Capital
Total debt			$ 3,978.4			$ 3,880.0			$ 2,788.3
Total equity			6,598.3			6,567.7			6,136.3
Total capital			$ 10,576.7			$ 10,447.7			$ 8,924.6
Total Debt as a Percentage of Total Capital			37.6%			37.1%			31.2%
Weighted-average Effective Interest Rates
Line of credit 1			1.125%			1.125%			1.25%
Term debt			3.72%			3.68%			4.63%
Fixed versus Floating Interest Rate Debt
Fixed-rate debt			70.4%			72.1%			100.0%
Floating-rate debt			29.6%			27.9%			0.0%

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

At March 31, 2022, total debt to trailing-twelve months Adjusted EBITDA was 2.7 times or 2.6 times on a net debt basis reflecting $133.0 million of cash on hand. Our weighted-average debt maturity was 11.6 years.

bridge facility, delayed draw term loan and line of credit

In June 2021, concurrent with the announcement of the pending acquisition of U.S. Concrete (see Note 16 for additional information), we obtained a $2,200.0 million bridge facility commitment from Truist Bank. Later, in June 2021, we entered into a $1,600.0 million unsecured delayed draw term loan with a subset of the banks that provide our line of credit and terminated the bridge facility commitment. The delayed draw term loan was drawn in August 2021 for $1,600.0 million upon the acquisition of U.S. Concrete and was paid down to $1,100.0 million in September 2021 (amounts repaid are no longer available for borrowing). In March 2022, the delayed draw term loan was amended to extend the maturity date from August 2024 to August 2026. The delayed draw term loan contains covenants customary for an unsecured investment-grade facility and mirror those in our line of credit. As of March 31, 2022, we were in compliance with the delayed draw term loan covenants. Borrowings, cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. Financing costs for the bridge facility commitment and the delayed draw term loan facility totaled $13.3 million, $9.4 million of which was recognized as interest expense in the second quarter of 2021.

Our unsecured $1,000.0 million line of credit was amended in March 2022 to extend the maturity date from September 2025 to September 2026. Our line of credit contains covenants customary for an unsecured investment-grade facility. Covenants, borrowings, cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. As of March 31, 2022, we were in compliance with the line of credit covenants, the margin for the Secured Overnight Financing Rate (SOFR) borrowings was 1.125%, the margin for base rate borrowings was 0.125%, and the commitment fee for the unused amount was 0.100%.

As of March 31, 2022, our available borrowing capacity under the line of credit was $830.4 million. Utilization of the borrowing capacity was as follows:

$100.0 million was borrowed

$69.6 million was used to provide support for outstanding standby letters of credit

TERM DEBT

Essentially all of our $3,947.2 million (face value) of term debt (which includes the $1,100.0 million delayed draw term loan) is unsecured. $2,840.2 million of such debt is governed by two essentially identical indentures that contain customary investment-grade type covenants. As of March 31, 2022, we were in compliance with all term debt covenants.

In August 2021, we assumed $434.5 million (fair value) of senior notes due 2029 in connection with the acquisition of U.S. Concrete and retired these notes in September 2021.

CURRENT MATURITIES of long-term debt

The $3.9 million of current maturities of long-term debt as of March 31, 2022 is due as follows:

	Current
in millions	Maturities
Second quarter 2022	$1.2
Third quarter 2022	1.2
Fourth quarter 2022	0.6
First quarter 2023	0.9

debt ratings

Our debt ratings and outlooks as of March 31, 2022 are as follows:

			Rating/Outlook		Date			Description
Senior Unsecured Term Debt
Fitch			BBB/stable		2/22/2021			rating revised
Moody's			Baa2/stable		11/9/2020			rating revised
Standard & Poor's			BBB+/stable		2/28/2020			rating revised

Equity

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

	March 31			December 31			March 31
in millions	2022			2021			2021
Common stock shares at January 1,
issued and outstanding	132.7			132.5			132.5
Common Stock Issuances
Share-based compensation plans	0.2			0.2			0.2
Common Stock Purchases
Purchased and retired	0.0			0.0			0.0
Common stock shares at end of period,
issued and outstanding	132.9			132.7			132.7

As of March 31, 2022, there were 8,064,851 shares remaining under the February 2017 Board of Directors’ share purchase authorization. Depending upon market, business, legal and other conditions, we may purchase shares from time to time through the open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares, and may be suspended or discontinued at any time.

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

	March 31			December 31			March 31
in millions, except average cost	2022			2021			2021
Shares Purchased and Retired
Number	0.0			0.0			0.0
Total purchase price	$ 0.0			$ 0.0			$ 0.0
Average cost per share	$ 0.00			$ 0.00			$ 0.00

There were no shares held in treasury as of March 31, 2022, December 31, 2021 and March 31, 2021.

off-balance sheet arrangements

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

Standby Letters of Credit

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

CRITICAL ACCOUNTING POLICIES

We follow certain significant accounting policies when preparing our consolidated financial statements. A summary of these policies is included in our Annual Report on Form 10-K for the year ended December 31, 2021 (Form 10-K).

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

We believe that the accounting policies described in the “Management's Discussion and Analysis of Financial Condition and Results of Operations” section of our Form 10-K require the most significant judgments and estimates used in the preparation of our consolidated financial statements, so we consider these to be our critical accounting policies. There have been no changes to our critical accounting policies during the three months ended March 31, 2022.

new Accounting standards

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

FORWARD-LOOKING STATEMENTS

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

general economic and business conditions

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

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

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

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

changes in our effective tax rate

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

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

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

the highly competitive nature of the construction industry

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

the outcome of pending legal proceedings

pricing of our products

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

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

energy costs

costs of hydrocarbon-based raw materials

healthcare costs

labor shortages and constraints

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

changes in interest rates

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

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

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

our ability to manage and successfully integrate acquisitions

the effect of changes in tax laws, guidance and interpretations

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

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

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

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

INVESTOR information

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

Annual Report on Form 10-K

Quarterly Reports on Form 10-Q

Current Reports on Form 8-K

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

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

We have a:

Business Conduct Policy applicable to all employees and directors

Code of Ethics for the CEO and Senior Financial Officers

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

Our Board of Directors has also adopted:

Corporate Governance Guidelines

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

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

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

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

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