Vulcan Materials CO 10-Q

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL COMMENTS OVERVIEW We provide the basic materials for the infrastructure needed to maintain and expand the U.S. economy. We operate primarily in the U.S. and are the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of aggregates-intensive downstream products such as asphalt mix and ready-mixed concrete. 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, employment and household formations. 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 and warehouses) and private residential construction (e.g., single-family houses, duplexes, apartment buildings and condominiums). Aggregates have a very high weight-to-price ratio and, in most cases, must be produced near where they are used; if not, transportation can cost more than the materials, rendering them uncompetitive compared to locally produced materials. Exceptions to this typical market structure include areas along the U.S. Gulf Coast and the Eastern Seaboard where there are limited supplies of locally available, high-quality aggregates. We serve these markets from quarries that have access to cost-effective long-haul transportation — shipping by barge and rail — and from our quarries in Quintana Roo, Mexico (see the NAFTA Arbitration section in Note 8 to the condensed consolidated financial statements) and Puerto Cortés, Honduras with our fleet of Panamax-class, self-unloading ships. Additionally, 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 regulations 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 2023, our five largest customers accounted for less than 8% of our total revenues, and no single customer accounted for more than 3% of our total revenues. Although approximately 40% to 55% of our aggregates shipments have historically been used in publicly-funded construction, such as highways, airports and government buildings, a relatively small portion of our sales are made directly to federal, state, county or municipal governments/agencies. Therefore, although reductions in state and federal funding can curtail publicly-funded construction, the vast majority of our business is not directly subject to renegotiation of profits or termination of contracts with local, state or federal governments. In addition, our sales to government entities span several hundred entities coast-to-coast, ensuring that negative changes to various government budgets would have a muted impact across such a diversified set of government customers. While aggregates is our focus and primary business, we believe vertical integration between aggregates and downstream products, such as asphalt mix and ready-mixed concrete, can be managed effectively in certain markets to generate attractive financial returns and enhance financial returns in our core Aggregates segment. We produce and sell aggregates-intensive asphalt mix and/or ready-mixed concrete products in our Alabama, Arizona, California, Maryland, New Mexico, Tennessee, Texas, Virginia, U.S. Virgin Islands and Washington D.C. markets. Aggregates comprise approximately 95% of asphalt mix by weight and 80% of ready-mixed concrete by weight. In both of these downstream businesses, aggregates are primarily supplied from our operations. SEASONALITY AND CYCLICAL NATURE OF OUR BUSINESS Almost all of our products are produced and consumed outdoors. Seasonal changes and other weather-related conditions can affect the production and sales volume of our products. Therefore, the financial results for any quarter do not necessarily indicate the results expected for the year. Normally, the highest sales and earnings are in the third quarter, and the lowest are in the first quarter. Furthermore, our sales and earnings are sensitive to national, regional and local economic conditions, demographic and population fluctuations, and particularly to cyclical swings in construction spending, primarily in the private sector. 26 EXECUTIVE SUMMARY FINANCIAL HIGHLIGHTS FOR FIRST QUARTER 2024 Compared to first quarter of 2023: ▪ Total revenues decreased $103.3 million, or 6%, to $1,545.7 million ▪ Gross profit increased $2.9 million, or 1%, to $304.9 million ▪ Aggregates segment sales decreased $5.3 million to $1,291.3 million ▪ Aggregates segment freight-adjusted revenues increased $23.3 million, or 2%, to $991.4 million ▪ Shipments decreased 7%, or 3.7 million tons, to 48.1 million tons ▪ Freight-adjusted sales price increased 10.2%, or $1.90 per ton to $20.59 ▪ Aggregates segment gross profit decreased slightly by $0.3 million to $303.3 million ▪ Unit profitability (as measured by gross profit per ton) increased 8% to $6.30 per ton ▪ Asphalt and Concrete segment gross profit increased $3.2 million to $1.6 million, collectively ▪ Selling, administrative and general (SAG) expenses increased $12.4 million (130 basis points as a percentage of total revenues) ▪ Operating earnings decreased $14.3 million, or 8%, to $172.9 million ▪ Earnings attributable to Vulcan from continuing operations were $0.78 per diluted share compared to $0.92 per diluted share ▪ Adjusted earnings attributable to Vulcan from continuing operations were $0.80 per diluted share compared to $0.95 per diluted share ▪ Net earnings attributable to Vulcan were $102.7 million, a decrease of $18.0 million, or 15% ▪ Adjusted EBITDA was $323.5 million, a decrease of $14.2 million, or 4% ▪ Returned capital to shareholders via dividends of $62.0 million at $0.46 per share versus $57.2 million at $0.43 per share ▪ Returned capital to shareholders via share repurchases of $18.8 million at $265.44 average price per share compared to none in the prior year Our teams' solid execution helped us overcome challenging weather conditions throughout much of the first quarter. Margins expanded despite lower aggregates shipments, demonstrating the durability of our aggregates business and its attractive compounding growth characteristics. Aggregates gross profit per ton increased 8% in the first quarter, and cash gross profit per ton increased 10%, with improvements widespread across our footprint. A consistent focus on our strategic disciplines coupled with continued pricing momentum reinforces our confidence in our full year outlook and our ability to deliver another year of double-digit earnings growth and strong cash generation. Capital expenditures, including maintenance and growth projects, were $103.1 million in the first quarter. During 2024, we expect to spend between $625 million and $675 million on maintenance and growth projects. During the quarter, we returned $80.8 million to shareholders through $18.8 million of common stock repurchases and $62.0 million of dividends. We used $550 million of cash on hand to redeem our 2026 notes, resulting in a ratio of total debt to trailing-twelve months Adjusted EBITDA of 1.7 times (or 1.5 times on a net debt basis reflecting $300.1 million of cash on hand). Our stated long-term target leverage range is 2.0 to 2.5 times total debt to trailing-twelve months Adjusted EBITDA. A strong liquidity and balance sheet profile positions us well for continued growth. Our weighted-average debt maturity was 10.9 years, and our weighted-average effective interest rate was 4.78%. Interest expense, net of interest income, was $39.1 million in the first quarter compared with $49.0 million in the prior year. The decrease in interest expense reflects the first quarter 2024 redemption of $550.0 million senior notes due 2026. On a trailing-twelve months basis, return on average invested capital was 16.3%, a 260 basis points improvement over the prior year. OUTLOOK Our operating performance in the first quarter was solid and in line with our expectations. We remain on track to deliver $2,150 to $2,300 million of Adjusted EBITDA, marking the fourth consecutive year of double-digit growth. The pricing environment remains positive, and our focus remains on compounding unit margins through all parts of the cycle, creating value for our shareholders through improving returns on capital. 27 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 per share and per unit data 2024 2023 Total revenues $ 1,545.7 $ 1,649.0 Cost of revenues (1,240.8) (1,347.0) Gross profit 304.9 302.0 Gross profit margin 19.7 % 18.3 % Selling, administrative and general expenses (129.7) (117.3) SAG as a percentage of total revenues 8.4 % 7.1 % Gain on sale of property, plant & equipment and businesses 0.6 1.7 Operating earnings 172.9 187.2 Interest expense, net (39.1) (49.0) Earnings from continuing operations before income taxes 133.5 139.6 Income tax expense (28.9) (16.6) Effective tax rate from continuing operations 21.6 % 11.9 % Earnings from continuing operations 104.6 123.0 Loss on discontinued operations, net of tax (1.7) (2.1) Earnings attributable to noncontrolling interest (0.2) (0.2) Net earnings attributable to Vulcan $ 102.7 $ 120.7 Diluted earnings (loss) per share attributable to Vulcan Continuing operations $ 0.78 $ 0.92 Discontinued operations (0.01) (0.02) Net earnings $ 0.77 $ 0.90 EBITDA 1 $ 321.0 $ 333.8 Adjusted EBITDA 1 $ 323.5 $ 337.7 Average Sales Price and Unit Shipments Aggregates Tons 48.1 51.8 Freight-adjusted sales price $ 20.59 $ 18.69 Asphalt Mix Tons 2.1 2.1 Average sales price $ 77.83 $ 73.44 Ready-mixed concrete Cubic yards 0.8 1.8 Average sales price $ 182.73 $ 161.25 1 Non-GAAP measures are defined and reconciled within this Item 2 under the caption Reconciliation of Non-GAAP Financial Measures. 28 FIRST QUARTER 2024 COMPARED TO FIRST QUARTER 2023 First quarter 2024 total revenues were $1,545.7 million, down 6% from the first quarter of 2023. Shipments decreased in aggregates (-7%), decreased in ready-mixed concrete (-54%) and increased in asphalt mix (+3%). Gross profit decreased slightly in the Aggregates segment (-$0.3 million) and increased in the Asphalt segment (+$3.9 million or 460%). Concrete segment gross profit decreased by $0.7 million (-28%) as a result of the divestiture of our operations in Texas in November 2023 (see Note 16 to the condensed consolidated financial statements). Net earnings attributable to Vulcan for the first quarter of 2024 were $102.7 million, or $0.77 per diluted share, compared to $120.7 million, or $0.90 per diluted share in the first quarter of 2023. Each period’s results were impacted by discrete items, as follows: Net earnings attributable to Vulcan for the first quarter of 2024 include: ▪ pretax charges of $0.1 million associated with non-routine acquisitions ▪ pretax loss on discontinued operations of $2.3 million ▪ $1.6 million of tax charges related to a valuation allowance against Calica deferred tax assets, including NOL carryforwards Net earnings attributable to Vulcan for the first quarter of 2023 include: ▪ pretax charges of $0.5 million associated with non-routine acquisitions ▪ pretax charges of $0.4 million associated with divested operations ▪ pretax loss on discontinued operations of $2.9 million ▪ $3.6 million of tax charges related to a Calica NOL carryforward valuation allowance Adjusted for these discrete items, earnings attributable to Vulcan from continuing operations (Adjusted Diluted EPS) was $0.80 per diluted share for the first quarter of 2024 compared to $0.95 per diluted share for the first quarter of 2023. CONTINUING OPERATIONS — Changes in earnings from continuing operations before income taxes for the first quarter of 2024 versus the first quarter of 2023 are summarized below: in millions First quarter 2023 $ 139.6 Lower aggregates gross profit (0.3) Higher asphalt gross profit 3.9 Lower concrete gross profit (0.7) Higher selling, administrative and general expenses (12.4) Lower gain on sale of property, plant & equipment and businesses (1.1) Lower interest expense, net 9.9 All other (5.4) First quarter 2024 $ 133.5 First quarter Aggregates segment gross profit decreased slightly to $303.3 million (increased 8% to $6.30 on a per ton basis). Cash gross profit per ton improved 10% to $8.86 per ton, despite lower shipments due to unfavorable weather conditions throughout most of the quarter. Improvements in unit profitability were widespread across our footprint and resulted from continued pricing momentum and solid operational execution. Price increases effective at the beginning of the year resulted in another quarter of attractive growth. Freight-adjusted selling prices increased 10.2%, or $1.90 per ton, as compared to the prior year to $20.59, with all markets realizing year-over-year improvement. Freight-adjusted unit cash cost of sales increased 10%, primarily driven by a 7% decline in aggregates shipments due to unfavorable weather. On a trailing-twelve months basis, unit cash costs increased 9%, marking the fourth consecutive quarter of unit cost deceleration. Overall, non-aggregates segments gross profit of $1.6 million was $3.2 million higher than the prior year’s first quarter. Asphalt segment gross profit of $4.7 million was up $3.9 million from the prior year’s first quarter, and cash gross profit of $13.6 million was up $3.8 million compared to the prior year. Asphalt mix shipments increased 3%, and pricing increased 6.0%. Strong shipments in Arizona and California, our largest asphalt markets, were partially offset by lower shipments in Texas due to weather impacts. Concrete segment gross profit was a loss of $3.1 million for the first quarter. Cash gross profit was $9.2 million compared to $18.0 million in the prior year which included earnings from our divested operations in Texas. While unit gross profit declined compared to the prior year's first quarter, unit cash gross profit improved 10% despite lower volumes. SAG expense of $129.7 million was in line with our expectations for the first quarter. On a trailing-twelve months basis, SAG expense was $555.1 million, or 7.2% of total revenues. Other operating income (expense), which is composed primarily of idle facilities expense, environmental remediation costs, gain (loss) on settlement of AROs, finance charges collected and net rental income (expense), was $2.9 million of expense for the first quarter of 2024 compared to $0.8 million of income in the first quarter of 2023. 29 Other nonoperating income (expense), net was $0.3 million of expense for the first quarter of 2024 compared to $1.4 million of income in the first quarter of 2023. Net interest expense was $39.1 million in the first quarter of 2024 compared to $49.0 million in the first quarter of 2023. The decrease in interest expense reflects the first quarter 2024 redemption of $550.0 million senior notes due 2026. Income tax expense from continuing operations was $28.9 million in the first quarter of 2024 compared to $16.6 million in the first quarter of 2023. The increase in tax expense was primarily due to a discrete tax benefit recognized in the first quarter of 2023 related to a 2022 business disposition. Earnings attributable to Vulcan from continuing operations were $0.78 per diluted share in the first quarter of 2024 compared to $0.92 per diluted share in the first quarter of 2023. DISCONTINUED OPERATIONS — First quarter pretax loss from discontinued operations was $2.3 million in 2024 compared with a pretax loss of $2.9 million in 2023. Both periods include charges related to general and product liability costs, including legal defense costs, and environmental remediation costs associated with our former Chemicals business. For additional details, see Note 1 to the condensed consolidated financial statements under the caption Discontinued Operations. KNOWN TRENDS OR UNCERTAINTIES Inflationary pressures and labor constraints are factors that impact our operations. Although inflationary pressures can create short-term to medium-term headwinds, the combination of inflation and visibility of demand has created, and may continue to create, a favorable environment for price increases. Additionally, labor constraints have caused delays and inefficiencies in our operations as well as those of our customers. If labor constraints continue and demand remains positive, our operations may proceed at a slower pace, which may effectively extend the recovery while allowing us the opportunity to compound price, control costs and grow earnings. Further, the Mexican government has taken actions adverse to our property and operations in Mexico. On May 5, 2022, Mexican government officials presented employees at our Calica operations in Quintana Roo, Mexico with arbitrary shutdown orders to immediately cease underwater quarrying and extraction operations. On May 13, 2022, the Mexican government suspended the three-year customs permit granted in March 2022 to Calica and began a proceeding that could result in the revocation of that permit. We strongly believe that the actions taken by Mexico are arbitrary and illegal, and we intend to vigorously pursue all lawful avenues available to us in order to protect our rights, under both Mexican and international law. For additional information regarding our Calica operations, see the NAFTA Arbitration section in Note 8 to the condensed consolidated financial statements. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AGGREGATES SEGMENT FREIGHT-ADJUSTED REVENUES Aggregates segment freight-adjusted revenues is not a Generally Accepted Accounting Principle (GAAP) measure and should not be considered as an alternative to metrics defined by GAAP. We present this measure as it is consistent with the basis by which we review our operating results. We believe that this presentation is consistent with our competitors and meaningful to our investors as it excludes revenues associated with freight & delivery, which are pass-through activities. It also excludes other revenues related to services, such as landfill tipping fees, that are derived from our aggregates business. Additionally, we use this metric as the basis for calculating the average sales price of our aggregates products. Reconciliation of this metric to its nearest GAAP measure is presented below: Three Months Ended March 31 in millions, except per ton data 2024 2023 Aggregates segment Segment sales $ 1,291.3 $ 1,296.6 Freight & delivery revenues 1 (277.4) (309.8) Other revenues (22.5) (18.7) Freight-adjusted revenues $ 991.4 $ 968.1 Unit shipments - tons 48.1 51.8 Freight-adjusted sales price $ 20.59 $ 18.69 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. 30 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. Cash gross profit adds back noncash charges for depreciation, depletion, accretion and amortization to gross profit. Segment cash gross profit per unit is computed by dividing segment cash gross profit by units shipped. Segment cash cost of sales per unit is computed by subtracting segment cash gross profit per unit from segment freight-adjusted sales price. Segment freight-adjusted sales price is calculated by dividing revenues generated from the shipment of product (excluding service revenues generated by the segments) by the total units of the product shipped. Reconciliation of these metrics to their nearest GAAP measures are presented below: Three Months Ended March 31 in millions, except per ton data 2024 2023 Aggregates segment Gross profit $ 303.3 $ 303.6 Depreciation, depletion, accretion and amortization $ 123.5 $ 112.3 Aggregates segment cash gross profit $ 426.8 $ 415.9 Unit shipments - tons 48.1 51.8 Aggregates segment gross profit per ton $ 6.30 $ 5.86 Aggregates segment freight-adjusted sales price $ 20.59 $ 18.69 Aggregates segment cash gross profit per ton $ 8.86 $ 8.03 Aggregates segment freight-adjusted cash cost of sales per ton $ 11.73 $ 10.66 Asphalt segment Gross profit $ 4.7 $ 0.8 Depreciation, depletion, accretion and amortization $ 8.9 $ 9.0 Asphalt segment cash gross profit $ 13.6 $ 9.8 Unit shipments - tons 2.1 2.1 Asphalt segment gross profit per ton $ 2.20 $ 0.41 Asphalt segment average sales price $ 77.83 $ 73.44 Asphalt segment cash gross profit per ton $ 6.31 $ 4.70 Asphalt segment cash cost of sales per ton $ 71.52 $ 68.74 Concrete segment Gross profit $ (3.1) $ (2.4) Depreciation, depletion, accretion and amortization $ 12.3 $ 20.4 Concrete segment cash gross profit $ 9.2 $ 18.0 Unit shipments - cubic yards 0.8 1.8 Concrete segment gross profit per cubic yard $ (3.77) $ (1.36) Concrete segment average sales price $ 182.73 $ 161.25 Concrete segment cash gross profit per cubic yard $ 11.30 $ 10.24 Concrete segment cash cost of sales per cubic yard $ 171.43 $ 151.01 31 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 March 31 Trailing-Twelve Months March 31 in millions 2024 2023 2024 2023 Net earnings attributable to Vulcan $ 102.7 $ 120.7 $ 915.2 $ 604.4 Income tax expense, including discontinued operations 28.3 15.8 308.1 184.2 Interest expense, net of interest income 39.1 49.0 169.8 181.4 Depreciation, depletion, accretion and amortization 150.9 148.4 619.5 594.9 EBITDA $ 321.0 $ 333.8 $ 2,012.6 $ 1,564.9 Loss on discontinued operations $ 2.3 $ 2.9 $ 14.1 $ 25.7 (Gain) loss on sale of real estate and businesses, net 0.0 0.0 (67.1) (6.1) Loss on impairments 0.0 0.0 28.3 67.8 Charges associated with divested operations 0.0 0.4 7.6 3.8 Acquisition related charges 1 0.1 0.5 1.7 13.3 Adjusted EBITDA $ 323.5 $ 337.7 $ 1,997.1 $ 1,669.4 1 Represents charges associated with acquisitions requiring clearance under federal antitrust laws. 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 2024 2023 Diluted Earnings Per Share Net earnings attributable to Vulcan $ 0.77 $ 0.90 Items included in Adjusted EBITDA above, net of tax 0.02 0.03 NOL carryforward valuation allowance 0.01 0.02 Adjusted diluted EPS attributable to Vulcan from continuing operations $ 0.80 $ 0.95 32 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 2024 2023 Current maturities of long-term debt $ 0.5 $ 0.5 Long-term debt 3,330.7 3,876.9 Total debt $ 3,331.2 $ 3,877.4 Cash and cash equivalents and restricted cash (300.1) (140.0) Net debt $ 3,031.1 $ 3,737.4 Trailing-Twelve Months (TTM) Adjusted EBITDA $ 1,997.1 $ 1,669.4 Total debt to TTM Adjusted EBITDA 1.7x 2.3x Net debt to TTM Adjusted EBITDA 1.5x 2.2x RETURN ON INVESTED CAPITAL We define “Return on Invested Capital” (ROIC) as Adjusted EBITDA for the trailing-twelve months divided by average invested capital (as illustrated below) during the trailing-five quarters. Our calculation of ROIC is considered a non-GAAP financial measure because we calculate ROIC using the non-GAAP metric EBITDA. We believe that our ROIC metric is meaningful because it helps investors assess how effectively we are deploying our assets. Although ROIC is a standard financial metric, numerous methods exist for calculating a company’s ROIC. As a result, the method we use to calculate our ROIC may differ from the methods used by other companies. This metric is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below (numbers may not foot due to rounding): Trailing-Twelve Months in millions March 31 2024 March 31 2023 Adjusted EBITDA $ 1,997.1 $ 1,669.4 Average invested capital Property, plant & equipment, net $ 6,137.9 $ 5,910.0 Goodwill 3,594.9 3,707.1 Other intangible assets 1,542.1 1,723.5 Fixed and intangible assets $ 11,274.9 $ 11,340.6 Current assets $ 2,194.0 $ 1,918.0 Cash and cash equivalents (380.5) (141.0) Current tax (24.3) (45.6) Adjusted current assets 1,789.2 1,731.4 Current liabilities (781.6) (999.6) Current maturities of long-term debt 0.5 1.2 Short-term debt 0.0 137.6 Adjusted current liabilities (781.1) (860.8) Adjusted net working capital $ 1,008.1 $ 870.6 Average invested capital $ 12,283.0 $ 12,211.2 Return on invested capital 16.3 % 13.7 % 33 2024 PROJECTED ADJUSTED EBITDA Projected Adjusted EBITDA is not defined by GAAP and should not be considered as an alternative to earnings measures defined by GAAP. Reconciliation of this metric to its nearest GAAP measure is presented below: in millions 2024 Projected Mid-point Net earnings attributable to Vulcan $ 1,130 Income tax expense, including discontinued operations 330 Interest expense, net of interest income 155 Depreciation, depletion, accretion and amortization 610 Projected EBITDA $ 2,225 Items included in Adjusted EBITDA above 0 Projected Adjusted EBITDA $ 2,225 Because GAAP financial measures on a forward-looking basis are not accessible, and reconciling information is not available without unreasonable effort, we have not provided reconciliations for forward-looking non-GAAP measures, other than the reconciliation of Projected Adjusted EBITDA as noted above. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results. LIQUIDITY AND FINANCIAL RESOURCES Our primary sources of liquidity are cash provided by our operating activities, a substantial, committed bank line of credit and our commercial paper program. Additional sources of capital include access to the capital markets, the sale of surplus real estate and dispositions of nonstrategic operating assets. We believe these financial resources are sufficient to fund our business requirements for 2024 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 34 CASH Included in our March 31, 2024 cash and cash equivalents and restricted cash balances of $300.1 million is $7.7 million of restricted cash as described in Note 1 to the condensed consolidated financial statements under the section Restricted Cash. CASH FROM OPERATING ACTIVITIES Three Months Ended March 31 in millions 2024 2023 Net earnings $ 102.9 $ 120.9 Depreciation, depletion, accretion and amortization (DDA&A) 150.9 148.4 Noncash operating lease expense 12.9 13.6 Net gain on sale of property, plant & equipment and businesses (0.6) (1.7) Deferred income taxes, net (2.1) (13.3) Other operating cash flows, net 1 (90.6) (46.6) Net cash provided by operating activities $ 173.4 $ 221.3 1 Primarily reflects changes to working capital balances. Net cash provided by operating activities was $173.4 million during the three months ended March 31, 2024, a $47.9 million decrease compared to the same period of 2023. The decrease was primarily attributable to a $18.0 million decrease in net earnings and changes in working capital balances. Days sales outstanding, a measurement of the time it takes to collect receivables, were 43.0 days at March 31, 2024 compared to 44.1 days at March 31, 2023. Additionally, our over 90 day receivables balance was $22.7 million at March 31, 2024, a decrease of $26.5 million from the $49.2 million balance at March 31, 2023. 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 $163.8 million during the first three months of 2024, a $102.1 million increase compared to cash used of $61.7 million in the same period of 2023. This increase was primarily attributable to a $130.0 million note receivable collected in 2023 related to the 2022 sale of concrete operations in New Jersey, New York and Pennsylvania. During the first three months of 2024, we acquired businesses for $12.3 million (see Note 16 to the condensed consolidated financial statements) whereas there were no business acquisitions in 2023. Additionally, during the first three months of 2024, we invested $152.8 million in our existing operations (includes changes in accruals for property, plant & equipment) compared to $193.6 million in the prior year period. This $152.8 million investment includes both maintenance and internal growth projects to enhance our distribution capabilities, develop new production sites and improve existing production facilities. CASH FROM FINANCING ACTIVITIES Net cash used for financing activities was $658.7 million during the first three months of 2024, a $477.6 million increase compared to cash used of $181.1 million in the same period of 2023. The current year includes cash paid to redeem the $550.0 million senior notes due 2026 whereas the prior year includes a $100.0 million net payment on our line of credit. Additionally, we returned $80.8 million to shareholders through $62.0 million of dividends ($0.46 per share compared to $0.43 per share) and $18.8 million of common stock repurchases of (70,932 shares repurchased at $265.44 average price per share compared to none in the first three months of 2023). 35 DEBT Certain debt measures are presented below: in millions March 31 2024 December 31 2023 March 31 2023 Debt Current maturities of long-term debt $ 0.5 $ 0.5 $ 0.5 Long-term debt 3,330.7 3,877.3 3,876.9 Total debt $ 3,331.2 $ 3,877.8 $ 3,877.4 Capital Total debt $ 3,331.2 $ 3,877.8 $ 3,877.4 Total equity 7,516.6 7,507.9 7,010.7 Total capital $ 10,847.8 $ 11,385.7 $ 10,888.1 Total Debt as a Percentage of Total Capital 30.7 % 34.1 % 35.6 % Weighted-Average Effective Interest Rates Line of credit 1 1.13 % 1.13 % 1.13 % Commercial paper 5.55 % 5.64 % 5.23 % Term debt 4.63 % 4.82 % 4.73 % Fixed versus Floating Interest Rate Debt Fixed-rate debt 83.8 % 72.1 % 72.1 % Floating-rate debt 16.2 % 27.9 % 27.9 % 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, 2024, total debt to trailing-twelve months Adjusted EBITDA was 1.7 times (1.5 times on a net debt basis reflecting $300.1 million of cash on hand). Our weighted-average debt maturity was 10.9 years, and our total weighted-average effective interest rate was 4.78%. DELAYED DRAW TERM LOAN, LINE OF CREDIT AND COMMERCIAL PAPER PROGRAM In June 2021, we entered into a $1,600.0 million unsecured delayed draw term loan which was fully drawn in August 2021 upon the acquisition of U.S. Concrete. The delayed draw term loan was paid down to $1,100.0 million in September 2021 with cash on hand, paid down to $550.0 million in August 2022 using the proceeds from the issuance of commercial paper as described below and fully repaid in March 2023 using proceeds from the issuance of 5.80% senior notes as described below. In 2022, we established a $1,600.0 million commercial paper program through which we borrowed $550.0 million that was used to partially repay the delayed draw term loan. Commercial paper borrowings bear interest at rates determined at the time of borrowing and as agreed between us and the commercial paper investors. Our $1,600.0 million unsecured line of credit matures in August 2027 and 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, 2024, we were in compliance with the covenants, the margin for SOFR borrowings was 1.125%, the margin for base rate borrowings was 0.125% and the commitment fee for the unused amount was 0.100%. As of March 31, 2024, our available borrowing capacity under the line of credit was $1,510.8 million. Utilization of the borrowing capacity was as follows: ▪ None was borrowed ▪ $89.2 million was used to support standby letters of credit TERM DEBT All of our $3,391.1 million (face value) of term debt (which includes the $550.0 million commercial paper) is unsecured. All of the covenants in the debt agreements are customary for investment-grade facilities. As of March 31, 2024, we were in compliance with all term debt covenants. In March 2023, we issued $550.0 million of 5.80% senior notes due 2026. Total proceeds of $546.6 million (net of discounts and transaction costs), together with cash on hand, were used to repay the $550.0 million delayed draw term loan. We redeemed these notes at par in March 2024 using cash on hand and recognized noncash expense of $2.3 million with the acceleration of unamortized deferred debt issuance costs. 36 CURRENT MATURITIES OF LONG-TERM DEBT The $0.5 million of current maturities of long-term debt as of March 31, 2024 is due as follows: in millions Current Maturities Second quarter 2024 $ 0.0 Third quarter 2024 0.0 Fourth quarter 2024 0.0 First quarter 2025 0.5 DEBT RATINGS Our debt ratings and outlooks as of March 31, 2024 are as follows: Short-term Long-term Outlook Fitch F2 BBB Stable Moody's P-2 Baa2 Stable Standard & Poor's A-2 BBB+ Stable EQUITY The number of our common stock issuances and purchases for the year-to-date periods ended are as follows: in millions March 31 2024 December 31 2023 March 31 2023 Common stock shares at January 1, issued and outstanding 132.1 132.9 132.9 Common Stock Issuances Share-based compensation plans 0.3 0.2 0.2 Common Stock Purchases Purchased and retired (0.1) (1.0) 0.0 Common stock shares at end of period, issued and outstanding 132.3 132.1 133.1 As of March 31, 2024, there were 7,016,328 shares remaining under the February 2017 share purchase authorization by our Board of Directors. Depending upon market, business, legal and other conditions, we may purchase shares from time to time through the open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares and may be suspended or discontinued at any time. The detail of our common stock purchases (all of which were open market purchases) for the year-to-date periods ended are as follows: in millions, except average cost March 31 2024 December 31 2023 March 31 2023 Number of shares purchased and retired 0.1 1.0 0.0 Total purchase price $ 18.8 $ 200.0 $ 0.0 Average cost per share $ 265.44 $ 204.52 $ 0.00 There were no shares held in treasury as of March 31, 2024, December 31, 2023 and March 31, 2023. 37 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, 2023 (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, 2024. 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. 38 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 ▪ our dependence on the construction industry, which is subject to economic cycles ▪ the timing and amount of federal, state and local funding for infrastructure ▪ changes in the level of spending for private residential and private nonresidential construction ▪ changes in our effective tax rate ▪ domestic and global political, economic or diplomatic developments ▪ the increasing reliance on information technology infrastructure, including the risks that the infrastructure does not work as intended, experiences technical difficulties or is subjected to cyber-attacks ▪ the impact of the state of the global economy on our businesses and financial condition and access to capital markets ▪ international business operations and relationships, including recent actions taken by the Mexican government with respect to our property and operations in that country ▪ the highly competitive nature of the construction industry ▪ a pandemic, epidemic or other public health emergency ▪ the impact of future regulatory or legislative actions, including those relating to climate change, biodiversity, land use, wetlands, greenhouse gas emissions, the definition of minerals, tax policy and domestic and international trade ▪ the outcome of pending legal proceedings ▪ pricing of our products ▪ weather and other natural phenomena, including the impact of climate change and availability of water ▪ availability and cost of trucks, railcars, barges and ships, as well as their licensed operators, for transport of our materials ▪ energy costs ▪ costs of hydrocarbon-based raw materials ▪ healthcare costs ▪ labor relations, shortages and constraints ▪ the amount of long-term debt and interest expense we incur ▪ changes in interest rates ▪ volatility in pension plan asset values and liabilities, which may require cash contributions to the pension plans ▪ the impact of environmental cleanup costs and other liabilities relating to existing and/or divested businesses ▪ our ability to secure and permit aggregates reserves in strategically located areas ▪ our ability to manage and successfully integrate acquisitions ▪ the effect of changes in tax laws, guidance and interpretations ▪ significant downturn in the construction industry may result in the impairment of goodwill or long-lived assets ▪ changes in technologies, which could disrupt the way we do business and how our products are distributed ▪ the risks of open pit and underground mining ▪ expectations relating to environmental, social and governance considerations ▪ claims that our products do not meet regulatory requirements or contractual specifications ▪ other assumptions, risks and uncertainties detailed from time to time in our periodic reports filed with the SEC All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. Investors are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented in our filings, and are advised to consult any of our future disclosures in filings made with the Securities and Exchange Commission and our press releases with regard to our business and consolidated financial position, results of operations and cash flows. 39 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 SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as all Forms 3, 4 and 5 filed with the SEC by our executive officers and directors, as soon as the filings are made publicly available by the SEC on its EDGAR database ( www.sec.gov ). In addition to accessing copies of our reports online, you may request a copy of our Annual Report on Form 10-K, including financial statements, by writing to Denson N. Franklin III, Senior Vice President, General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242. We have a: ▪ Business Conduct Policy applicable to all employees and directors ▪ Code of Ethics for the CEO and Senior Financial Officers Copies of the Business Conduct Policy and the Code of Ethics are available on our website under the “Investor Relations” tab (“Governance” section). If we make any amendment to, or waiver of, any provision of the Code of Ethics, we will disclose such information on our website as well as through filings with the SEC. Our Board of Directors has also adopted: ▪ Corporate Governance Guidelines ▪ Charters for our Audit, Compensation, Executive, Finance, Governance and Safety, Health & Environmental Affairs Committees These documents meet all applicable SEC and New York Stock Exchange regulatory requirements. The Charters of the Audit, Compensation and Governance Committees are available on our website under the “Investor Relations” tab (“Governance – Committee Composition” section) or you may request a copy of any of these documents by writing to Denson N. Franklin III, Senior Vice President, General Counsel and Secretary, Vulcan Materials Company, 1200 Urban Center Drive, Birmingham, Alabama 35242. Information included on our website is not incorporated into, or otherwise made a part of, this report. 40