Vulcan(VMC) - 2022 Q4 - Annual Report

Part I Item 1. Business Vulcan Materials Company is the largest U.S. supplier of construction aggregates and a major producer of asphalt and ready-mixed concrete, focusing on its core aggregates business and disciplined growth in high-potential U.S. metropolitan areas Business Overview Vulcan Materials is the leading U.S. supplier of construction aggregates, asphalt, and concrete, operating hundreds of facilities nationwide - Vulcan Materials is the largest U.S. supplier of construction aggregates, including crushed stone, sand, and gravel, and a major producer of asphalt mix and ready-mixed concrete[21] Facility Count as of December 31, 2022 | Facility Type | Count | | :--- | :--- | | Active Aggregates Facilities | 404 | | Asphalt Facilities | 71 | | Concrete Facilities | 142 | Business Strategy The company's strategy emphasizes aggregates, disciplined growth in high-potential U.S. markets, and sustainable practices, supported by vast reserves - The company's long-term value creation strategy is built on five key pillars: - An aggregates-focused business model - Disciplined growth management and capital allocation - Continuous improvement in profitability - A holistic approach to land management - Commitment to safety, health, and the environment[23] - Vulcan holds 15.6 billion tons of proven and probable aggregates reserves, strategically located to serve high-growth areas in the United States[28] - The company focuses on U.S. metropolitan areas with high growth potential. Projections indicate that 75% of U.S. population growth, 74% of household formation, and 73% of new jobs between 2022 and 2032 will occur in Vulcan-served states[29] Top Ten Revenue Producing States in 2022 | Rank | State | | :--- | :--- | | 1 | Texas | | 2 | California | | 3 | Georgia | | 4 | Tennessee | | 5 | Virginia | | 6 | Florida | | 7 | Alabama | | 8 | Arizona | | 9 | South Carolina | | 10 | North Carolina | Product Lines and Segments Vulcan operates through four segments, with Aggregates as its core business, vertically integrating with Asphalt and Concrete, and a specialized Calcium segment - The company operates through four reportable segments: Aggregates, Asphalt, Concrete, and Calcium. As of year-end 2022, it had 404 active aggregates facilities, 71 asphalt facilities, and 142 concrete facilities[49] - The Aggregates segment is the core of the business, supplying materials for public infrastructure and private construction. The industry is characterized by localized markets due to high transportation costs, limited product substitutes, and high barriers to entry[50][51][53] - The Asphalt and Concrete segments are vertically integrated with the Aggregates segment. Aggregates comprise approximately 95% of asphalt mix and 80% of ready-mixed concrete by weight, with most of the supply sourced internally[69][70][72] - The Calcium segment consists of a single operation in Brooksville, Florida, producing calcium products for animal feed, plastics, and water treatment industries[76] Other Business-Related Items The business experiences seasonality, operates in a fragmented industry with consolidation opportunities, and is committed to environmental stewardship and workforce diversity - The business is seasonal, with the highest sales and earnings typically in the third quarter and the lowest in the first quarter, due to weather conditions affecting outdoor construction[77] - The U.S. aggregates industry is highly fragmented, with the ten largest producers accounting for only 33% of total production in 2022, providing opportunities for consolidation[78] - The company is committed to environmental stewardship and climate change mitigation, voluntarily reporting GHG emissions and setting interim goals for Scope 1 and 2 emissions reduction[82][83] - As of January 1, 2023, Vulcan employed 11,397 people in the United States, with 1,252 represented by labor unions. The company emphasizes diversity, equity, and inclusion, with a 42% diverse Board of Directors[92][96] Item 1A. Risk Factors The company faces a range of risks categorized as economic/political, operational, financial, legal/regulatory, personnel, and general, including dependence on the cyclical construction industry and international business challenges - Economic/Political Risks: Business is highly dependent on the U.S. construction industry, which is subject to economic cycles. It also relies on the timing and amount of federal, state, and local infrastructure funding[110][112] - International Risks: The company is exposed to risks from international operations, highlighted by recent adverse actions from the Mexican government, including arbitrary shutdown orders of its operations in that country[113] - Operational Risks: The industry is highly competitive and fragmented. Long-term success depends on securing and permitting strategically located aggregates reserves, which is increasingly difficult in urban areas[115][117] - Financial/Accounting Risks: The business is capital-intensive with significant fixed costs, making earnings sensitive to shipment volumes. A deterioration in credit ratings could negatively impact financing[120][121] - Legal/Regulatory & General Risks: Operations are subject to extensive environmental, zoning, and land use laws. Climate change legislation, ESG expectations, weather events, and dependence on IT systems also pose significant risks[127][128][135] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved written comments from the Securities and Exchange Commission staff regarding its periodic or current reports - As of the report date, there are no unresolved written comments from the SEC staff[138] Item 2. Properties As the largest U.S. aggregates supplier, Vulcan operates extensive mining properties across the U.S. and internationally, holding 15.6 billion tons of proven and probable aggregates reserves and numerous asphalt and concrete facilities Aggregates Resources by Division (as of Dec 31, 2022) | Division | Measured (M tons) | Indicated (M tons) | Total (M+I) (M tons) | Inferred (M tons) | | :--- | :--- | :--- | :--- | :--- | | Central | 581.3 | 1,167.5 | 1,748.8 | 529.5 | | East | 2,685.7 | 757.9 | 3,443.6 | 295.3 | | International | 0.0 | 61.1 | 61.1 | 0.0 | | Mountain West | 31.5 | 0.4 | 31.9 | 26.7 | | Northeast | 947.4 | 16.0 | 963.4 | 19.2 | | South | 581.0 | 578.7 | 1,159.7 | 382.8 | | Southern Gulf Coast | 690.0 | 108.3 | 798.3 | 218.4 | | Southwest | 568.1 | 97.3 | 665.4 | 500.0 | | Western | 521.6 | 1,751.9 | 2,273.5 | 666.6 | | Total | 6,606.6 | 4,539.1 | 11,145.7 | 2,638.5 | Total Proven & Probable Aggregates Reserves by Division (as of Dec 31, 2022) | Division | Total Proven & Probable (M tons) | 2022 Production (M tons) | | :--- | :--- | :--- | | Central | 3,033.3 | 34.0 | | East | 3,786.9 | 47.5 | | International | 476.8 | 5.0 | | Mountain West | 323.8 | 8.6 | | Northeast | 1,819.5 | 26.3 | | South | 1,435.6 | 27.3 | | Southern Gulf Coast | 1,751.9 | 27.6 | | Southwest | 1,453.7 | 32.4 | | Western | 1,527.1 | 26.3 | | Total | 15,608.6 | 235.0 | - The total estimate of 15.6 billion tons of proven and probable aggregates reserves is unchanged from the prior year. Of this total, 85% is on production-stage properties and 15% is on development-stage properties[158][159] - The company operates 71 asphalt facilities and 142 concrete facilities across several divisions, primarily in the Central, Mountain West, Northeast, Southwest, and Western regions[163] Item 3. Legal Proceedings The company is subject to various lawsuits and governmental proceedings in the ordinary course of business, with material legal proceedings detailed in Note 12 of the financial statements - Vulcan is a defendant in various lawsuits in the ordinary course of business and is subject to occasional governmental proceedings related to occupational safety, health, and the environment[169][170] - A detailed discussion of material legal proceedings is provided in Note 12, "Commitments and Contingencies"[171] Item 4. Mine Safety Disclosures Information regarding mine safety violations and other regulatory matters as required by the Dodd-Frank Act is included as an exhibit to the 10-K report - Information concerning mine safety violations required by Section 1503(a) of the Dodd-Frank Act is included in Exhibit 95 of this report[172] Information about our Executive Officers This section lists the names, positions, ages, and brief biographies of the company's executive officers as of February 20, 2023, including Chairman, President and CEO J. Thomas Hill and CFO Mary Andrews Carlisle - J. Thomas Hill serves as Chairman, President and Chief Executive Officer[173] - Mary Andrews Carlisle was appointed Chief Financial Officer effective September 1, 2022[174] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Vulcan's common stock trades on the New York Stock Exchange under the ticker symbol VMC, with no equity repurchases in Q4 2022, and over 8 million shares remaining authorized for repurchase - The company's common stock is traded on the NYSE under the ticker VMC[185] - No shares of the company's equity securities were repurchased during the quarter ended December 31, 2022[186] - As of December 31, 2022, 8,064,851 shares remained authorized for repurchase under a 10,000,000 share program approved in February 2017[186] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Vulcan achieved a 32% increase in total revenues to $7.3 billion and a 12% increase in Adjusted EBITDA to $1.6 billion, driven by strong pricing and aggregates shipments, while projecting continued earnings growth for 2023 Executive Summary and Financial Highlights Vulcan's 2022 performance saw significant revenue and Adjusted EBITDA growth, driven by aggregates pricing, while maintaining a healthy debt-to-EBITDA ratio 2022 Financial Summary (vs. 2021) | Metric | 2022 | Change vs. 2021 | | :--- | :--- | :--- | | Total Revenues | $7,315.2 million | +32% | | Gross Profit | $1,557.7 million | +13% | | Net Earnings Attributable to Vulcan | $575.6 million | -14% | | Adjusted EBITDA | $1,625.6 million | +12% | | Diluted EPS from Continuing Ops | $4.45 | -11.9% | | Adjusted Diluted EPS from Cont. Ops | $5.11 | +1.4% | | Aggregates Shipments | 236.3 million tons | +6% | | Aggregates Freight-Adjusted Price | $16.40/ton | +10.3% | - The company's aggregates-led business executed well, with nimble pricing actions overcoming inflationary pressures to drive a 12% increase in full-year Adjusted EBITDA[191] - At year-end 2022, the total debt to Adjusted EBITDA ratio was 2.4x, within the company's target range of 2.0x to 2.5x[192] Market Developments and 2023 Outlook Vulcan anticipates continued earnings growth in 2023, driven by strong pricing and public construction, despite expected residential declines and ongoing issues with Mexican operations - The company carries strong pricing momentum into 2023, supported by healthy leading indicators for public construction activity, particularly highways. This is expected to be partially offset by a decline in residential construction[198] 2023 Full-Year Expectations | Metric | 2023 Projection | | :--- | :--- | | Net Earnings Attributable to Vulcan | $715 million - $835 million | | Adjusted EBITDA | $1,725 million - $1,875 million | | Total Aggregates Shipments | Down 2% to 6% | | Aggregates Freight-Adjusted Price | Up 11% to 13% | | Capital Expenditures | $600 million - $650 million | - The company's Calica operations in Mexico were arbitrarily shut down by the Mexican government in May 2022. Vulcan is pursuing a NAFTA arbitration claim, with a decision not expected before 2024[200] Results of Operations by Segment All segments reported increased gross profit in 2022, driven by strong pricing and shipment growth, despite cost headwinds and acquisition impacts - Aggregates: Total shipments increased 6% in 2022. Freight-adjusted selling price rose 10.3%. Segment gross profit increased 9% to $1,408.5 million, or $5.96 per ton, despite significant diesel fuel cost headwinds[229][232][234][235] - Asphalt: Shipments increased 7%. Segment gross profit rose to $57.3 million from $21.2 million in 2021, driven by a 21% increase in pricing that offset a 36% rise in liquid asphalt unit costs[237] - Concrete: Shipments increased 88%, primarily due to acquisitions, while same-store shipments were flat. Segment gross profit increased to $89.3 million from $54.3 million, with an 11% price increase partially offsetting higher input costs[240] Liquidity and Financial Resources The company maintains strong liquidity through operating cash flow and credit facilities, with increased operating cash flow and reduced investing cash flow in 2022, while managing debt within target ranges - Primary liquidity sources are cash from operations, a committed bank line of credit, and a commercial paper program. Available liquidity was $1,582.8 million at year-end 2022[273][211] - Net cash provided by operating activities increased by $136.3 million to $1,148.2 million in 2022, primarily due to higher net earnings before noncash charges[284] - Net cash used for investing activities was $1,053.0 million, a decrease from $1,874.1 million in 2021, mainly due to lower acquisition spending ($529.2 million in 2022 vs. $1,639.4 million in 2021)[287] Debt Summary (as of Dec 31) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Debt | $3,975.7 million | $3,880.0 million | | Total Debt as % of Total Capital | 36.4% | 37.1% | | Weighted-average Debt Maturity | 11.0 years | N/A | | Total Debt to Adjusted EBITDA | 2.4x | 2.7x | Critical Accounting Policies The company's critical accounting policies involve significant judgment, particularly in areas like goodwill impairment, which is tested annually at the reporting unit level - The company identifies several critical accounting policies that require significant judgment and estimates, including: - Goodwill Impairment - Impairment of Long-Lived Assets - Business Combinations and Purchase Price Allocation - Pension and Other Postretirement Benefits - Environmental Compliance Costs - Claims and Litigation - Income Taxes[310] - Goodwill is tested for impairment annually at the reporting unit level. The 2022 test indicated that the fair values of all reporting units with goodwill exceeded their carrying values by approximately 10% to over 100%. An interim goodwill impairment loss of $50.9 million was recognized in Q3 2022 for a reporting unit that was subsequently sold[313][314] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily interest rate risk on its debt and economic risks related to its pension and postretirement benefit plans, with a 1% decline in interest rates increasing long-term debt fair value by $232.4 million - The company is exposed to market risks from transactions in the normal course of business, primarily related to interest rates[350] - As of December 31, 2022, the estimated fair value of long-term debt was $3,672.3 million. A 1% decline in interest rates would increase this fair value by approximately $232.4 million[352] - Economic risks related to pension and postretirement benefit plans include changes in the discount rate and the expected return on plan assets[353] Item 8. Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2022, including the Report of Independent Registered Public Accounting Firm, Consolidated Statements of Comprehensive Income, Balance Sheets, Cash Flows, and Equity, and the accompanying Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on the financial statements, highlighting critical audit matters related to goodwill valuation and the Hewitt Landfill environmental liability - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations of Vulcan Materials Company[354] - The audit identified two critical audit matters: (1) the valuation of goodwill for certain concrete reporting units due to significant management estimates in determining fair value, and (2) the estimation and disclosure of the liability for the Hewitt Landfill environmental matter due to its subjective nature[361][363] Consolidated Financial Statements This section presents the company's key consolidated financial statements, including comprehensive income, balance sheets, and cash flows, for the fiscal years presented Consolidated Statements of Comprehensive Income Highlights (in millions) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenues | $7,315.2 | $5,552.2 | $4,856.8 | | Gross profit | $1,557.7 | $1,373.4 | $1,281.5 | | Operating earnings | $951.4 | $1,010.8 | $895.7 | | Net earnings attributable to Vulcan | $575.6 | $670.8 | $584.5 | | Diluted net earnings per share | $4.31 | $5.02 | $4.39 | Consolidated Balance Sheets Highlights (in millions) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,902.0 | $1,696.6 | | Property, plant & equipment, net | $6,051.3 | $5,546.8 | | Goodwill | $3,689.6 | $3,696.7 | | Total assets | $14,234.6 | $13,682.6 | | Total current liabilities | $956.6 | $769.3 | | Long-term debt | $3,875.2 | $3,874.8 | | Total liabilities | $7,282.4 | $7,114.9 | | Total equity | $6,952.2 | $6,567.7 | Consolidated Statements of Cash Flows Highlights (in millions) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $1,148.2 | $1,011.9 | $1,070.4 | | Net cash used for investing activities | $(1,053.0) | $(1,874.1) | $(381.5) | | Net cash provided by (used for) financing activities | $(175.2) | $(94.3) | $234.6 | Notes to Consolidated Financial Statements Key notes detail the company's debt structure, significant commitments and contingencies including the NAFTA arbitration, and recent acquisition and divestiture activities - Note 6 (Debt): As of Dec 31, 2022, total debt was $3.98 billion, consisting of $100 million in short-term debt and $3.88 billion in long-term debt. The company has a $1.6 billion line of credit expiring in 2027 and a $1.6 billion commercial paper program[482][487][489] - Note 12 (Commitments and Contingencies): The company is involved in a NAFTA arbitration claim against Mexico regarding the shutdown of its Calica quarrying operations. A decision is not expected before 2024. The company is also a party in litigation related to the Lower Passaic River Superfund Site and the Texas Brine sinkhole matter, both associated with its discontinued Chemicals business[566][569][581] - Note 19 (Acquisitions and Divestitures): In 2022, Vulcan acquired several operations in California, Texas, Virginia, and Honduras for total consideration of $594.6 million. In 2021, the company completed the major acquisition of U.S. Concrete for $1.63 billion. In 2022, it divested its concrete operations in New Jersey, New York, and Pennsylvania[614][616][624] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None reported[625] Item 9A. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2022, a conclusion supported by an unqualified auditor opinion on internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[625] - Management's report on internal control over financial reporting concluded that the system was effective as of December 31, 2022. This assessment was based on the COSO framework[629] - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[630][632] Item 9B. Other Information The company reports no other information for this item - None[639] Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable[641] Part III Items 10-14 Information required for Items 10 through 14, covering directors, executive officers, corporate governance, executive compensation, security ownership, and principal accounting fees, is incorporated by reference from the company's definitive proxy statement - Information for the following items is incorporated by reference from the registrant's 2023 Proxy Statement: - Item 10: Directors, Executive Officers and Corporate Governance - Item 11: Executive Compensation - Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters - Item 13: Certain Relationships and Related Transactions, and Director Independence - Item 14: Principal Accounting Fees and Services[644][645][646][648][649] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements included in the report and provides a comprehensive list of exhibits filed, including corporate governance documents, debt agreements, compensation plans, and required certifications - This section lists the financial statements included in the Form 10-K[652] - A detailed list of exhibits is provided, including the Certificate of Incorporation, By-Laws, various debt indentures, credit agreements, compensation plans, and certifications by the CEO and CFO[654][655][657] Item 16. Form 10-K Summary The company has elected not to include an optional summary of the information required by the Form 10-K - The company has chosen not to include an optional Form 10-K summary[660]