Vulcan Materials CO 10-Q

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. To manage these market risks, we may use derivative financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes. As discussed in the Liquidity and Financial Resources section of Part I, Item 2, we actively manage our capital structure and resources to balance the cost of capital an d r isk of financial stress . Such activity includes balancing the cost and risk of interest expense. In addition to floating-rate borrowings, we at times use interest rate swaps to manage the mix of fixed- rate and floating-rate debt. In March 2023, we issued $550.0 million of 5.80% fixed-rate debt maturing in March 2026. Concurrently, we entered into fixed-to-floating interest rate swap agreements designated as fair value hedges in the amount of $550.0 million. Under these swap agreements, we receive a fixed interest rate of 5.80% (matches the fixed rate we pay on the $550.0 million of debt) and pay daily compound SOFR plus 0.241%. The changes in the fair value of these swaps designated as fair value hedges are recorded in interest expense consistent with the change in fair value of the hedged fixed-rate debt. At March 31, 2023, we recognized a net asset of $3.0 million equal to the fair value of this swap and a corresponding increase in the fair value of the hedged fixed-rate debt. At March 31, 2023, the estimated fair value of our long-term debt including current maturities was $3,770.7 million compared to a face value of $3,941.6 million. The estimated fair value was determined by averaging several asking price quotes for the publicly traded notes and assuming par value for the remainder of the debt. The fair value estimate is based on information available as of the balance sheet date. The effect of a decline in interest rates of one percentage point would increase the fair value of our debt by approximately $0.3 million. We are exposed to certain economic risks related to the costs of our pension and other postretirement benefit plans. These economic risks include changes in the discount rate for high-quality bonds and the expected return on plan assets. The impact of a change in these assumptions on our annual pension and other postretirement benefits costs is discussed in our most recent Annual Report on Form 10-K.