VULCAN MATERIALS COMPANY GENERAL COMMENTS
Overview
We provide the basic materials for the infrastructure needed to maintain and expand theU.S. economy. We operate primarily in theU.S. and are the nation's largest supplier of construction aggregates (primarily crushed stone, sand and gravel) and a major producer of asphalt mix and ready-mixed concrete. 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 theU.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 onMexico's Yucatan Peninsula with our fleet of Panamax-class, self-unloading ships.
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 2019, our five largest customers accounted for 7.7% of our total revenues (excluding internal sales), and no single customer accounted for more than 1.9% 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 ourAlabama ,Arizona ,California, Maryland ,New Mexico ,Tennessee ,Texas ,Virginia andWashington 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.
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EXECUTIVE SUMMARY
Financial highlights for Third Quarter 2020
Compared to third quarter of 2019: ?
?Total revenues decreased
?Gross profit decreased
?Aggregates segment sales decreased
?Aggregates segment freight-adjusted revenues decreased
?Shipments declined 8%, or 5.0 million tons, to 55.9 million tons
?Freight-adjusted sales price increased 2.4%, or
?Segment gross profit declined
?Asphalt, Concrete and Calcium segment gross profit declined
?Selling, administrative and general (SAG) expenses decreased
?Operating earnings declined
?Earnings from continuing operations were
?Adjusted earnings from continuing operations were
?Net earnings were
?Adjusted EBITDA was
?Returned capital to shareholders via dividends (
Net earnings were$199.8 million compared to$215.7 million in the prior year's comparable quarter. Third quarter Adjusted EBITDA was$403.5 million versus$406.8 million in the prior year. Adjusted EBITDA margins expanded by 2.1 percentage points (210 basis points) despite an 8% decline in total revenues. This margin expansion was driven by effective cost control throughout the organization and price growth in each major product line. Building on strong performance from the first half of the year, our operational execution produced another quarter of unit margin expansion in the third quarter. Unit profitability gains were widespread across our footprint, and our team remained focused on driving those improvements. The continued impact of the COVID-19 pandemic on construction activity, along with severe wet weather, led to lower shipment levels in the quarter. However, our resilient and best-in-class aggregates business overcame these disruptive conditions, which enabled us to expand cash gross profit per ton, drive higher cash flows, and improve returns on invested capital. Year-to-date, our aggregates gross profit per ton has increased by 6% (cash gross profit per ton increased 7%) despite a 4% decline in shipments. The flexibility of our operating plans and our aggregates-focused business model have enabled us to continue to perform at a high level while also positioning us for earnings growth in the future as demand recovers. The pricing environment remains supportive, and we are encouraged by the sequential improvement in demand visibility. Residential construction has rebounded quickly which should bode well for private nonresidential construction as it has been the weakest end market since the pandemic began. State transportation revenues continue to recover to pre-pandemic levels, and the one-year extension of federal highway funding will support future highway construction. Continued recovery in these fundamentals would point to construction activity stabilizing over the course of 2021. Capital expenditures in the third quarter were$52.0 million ($228.9 million year-to-date). We expect to spend between$300 million and$350 million on capital this year, most of which is for core operating and maintenance projects. We will continue to review our plans and will adjust as needed, while being thoughtful about preserving liquidity.
Year-to-date
At quarter-end, total debt to trailing-twelve month Adjusted EBITDA was 2.5 times or 1.7 times on a net debt basis reflecting$1.1 billion of cash on hand - of which approximately$500 million will be used to pay off maturities dueMarch 2021 . Our weighted-average debt maturity was 14 years, and the effective weighted-average interest rate was 4.1%. 29
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OuTLOOK
Going into 2020, we expected shipment growth; however, in March, that trajectory was disrupted by COVID-19 and the resulting shelter-in-place ordinances. Since then, the economic uncertainty and evolving nature of the pandemic have continued to weigh on construction activity. We are encouraged by the recent sequential improvement in leading indicators that foreshadow future construction activity, and now believe that we have sufficient near-term visibility to provide full-year guidance. We expect full-year 2020 Adjusted EBITDA of$1.285 billion to$1.315 billion . This full-year outlook reflects year-over-year earnings growth despite lower shipments. It assumes no major changes in COVID shelter-in-place restrictions and also assumes a normal weather pattern for the balance of the year. As we look ahead to 2021, the pricing environment remains positive and we continue to work hard to add value for our customers. We expect to provide full-year guidance when we report fourth quarter earnings in February. While demand is subject to market fluctuations outside of our control, we remain focused on the factors we can control, such as our pricing and cost actions, both of which help to compound our unit margins. Our year-to-date results demonstrate our capabilities to drive continued improvement in challenging circumstances. Actions taken across our more than 360 locations have ensured an effective response to the economic disruption resulting from COVID-19. Our operating plans are underpinned by our four strategic disciplines (Commercial and Operational Excellence, Logistics Innovation and Strategic Sourcing), a healthy balance sheet, strong liquidity, and the engagement of our people. Additionally, we currently do not anticipate any material impairment charges, increases in allowances for credit losses, increases in deferred tax asset valuation allowances, restructuring charges or other expenses, violations of debt covenants, or changes in accounting judgments that are reasonably likely to have a material impact on our financial statements. For support functions, we previously implemented remote work arrangements and restricted business travel effective mid-March. To date, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures. 30
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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 Nine Months Ended
September 30 September 30
in millions, except unit and per
unit data 2020 2019 2020 2019
Total revenues $ 1,309.9 $ 1,418.8 $ 3,681.7 $ 3,743.0
Cost of revenues 929.4 1,018.2 2,703.0 2,780.2
Gross profit $ 380.5 $ 400.6 $ 978.7 $ 962.8
Gross profit margin 29.0% 28.2% 26.6% 25.7%
Selling, administrative and
general (SAG) $ 83.5 $ 88.8 $ 261.1 $ 274.7
SAG as a percentage of total
revenues 6.4% 6.3% 7.1% 7.3%
Operating earnings $ 288.1 $ 303.4 $ 699.3 $ 683.9
Interest expense, net $ 35.8 $ 32.2 $ 100.5 $ 98.2
Earnings from continuing
operations
before income taxes $ 258.1 $ 271.5 $ 602.6 $ 591.7
Income tax expense $ 57.0 $ 53.5 $ 130.5 $ 111.8
Effective tax rate from
continuing operations 22.1% 19.7% 21.7% 18.9%
Earnings from continuing
operations $ 201.1 $ 218.1 $ 472.1 $ 479.9
Loss on discontinued operations,
net of income taxes (1.3) (2.4) (2.1) (3.3)
Net earnings $ 199.8 $ 215.7 $ 470.0 $ 476.6
Diluted earnings (loss) per
share
Continuing operations $ 1.51 $ 1.63 $ 3.54 $ 3.60
Discontinued operations (0.01) (0.01) (0.01) (0.02)
Diluted net earnings per share
3.53$ 3.58 EBITDA 1$ 394.9 $ 400.0 $ 999.0 $ 968.8 Adjusted EBITDA 1$ 403.5 $ 406.8 $ 1,012.3 $ 971.6 Average Sales Price and Unit Shipments Aggregates Tons (thousands) 55,920 60,898 157,163 163,845 Freight-adjusted sales price$ 14.44 $ 14.10 $ 14.45 $ 14.00 Asphalt Mix Tons (thousands) 3,493 4,007 8,953 9,624 Average sales price$ 58.36 $ 58.20 $ 58.05 $ 57.76 Ready-mixed concrete Cubic yards (thousands) 775 875 2,295 2,359 Average sales price$ 131.51 $ 127.99 $ 128.93 $ 126.19 Calcium Tons (thousands) 49 75 193 216 Average sales price$ 27.51 $ 28.33 $ 27.18 $ 28.04
1 Non-GAAP measures are defined and reconciled within this Item 2 under the
caption Reconciliation of Non-GAAP Measures.
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THIRD quarter 2020 Compared to THIRD Quarter 2019
Third quarter 2020 total revenues were$1,309.9 million , down 8% from the third quarter of 2019. Shipments declined in all major products: aggregates (-8%), asphalt mix (-13%) and ready-mixed concrete (-11%). Gross profit declined in the Aggregates (-$19.3 million or -5%) and Concrete (-$2.9 million or -19%) segments while increasing in the Asphalt (+$2.6 million or +9%) segment due primarily to favorable liquid asphalt costs. A 31% decline in the unit cost of diesel fuel decreased costs by$10.2 million from the prior year's third quarter with most ($8.7 million ) of this cost decline reflected in the Aggregates segment. Net earnings for the third quarter of 2020 were$199.8 million , or$1.50 per diluted share, compared to$215.7 million , or$1.62 per diluted share, in the third quarter of 2019. Each period's results were impacted by discrete items, as follows:
Net earnings for the third quarter of 2020 include:
?pretax charges of
?pretax charges of
?pretax charges of
Net earnings for the third quarter of 2019 include:
?pretax charges of
?pretax charges of
Adjusted for these discrete items, earnings from continuing operations (Adjusted Diluted EPS) was$1.56 per diluted share for the third quarter of 2020 compared to$1.68 per diluted share in the third quarter of 2019. Continuing Operations - Changes in earnings from continuing operations before income taxes for the third quarter of 2020 versus the third quarter of 2019 are summarized below:
earnings from continuing operations before income taxes
in millions Third quarter 2019$ 271.5 Lower aggregates gross profit (19.3) Higher asphalt gross profit 2.6 Lower concrete gross profit (2.9) Lower calcium gross profit (0.5) Lower selling, administrative and general expenses 5.3
Higher gain on sale of property, plant & equipment and businesses 1.3 Higher interest expense, net
(3.6)
Lower foreign currency translation losses 1.3 All other 2.4 Third quarter 2020$ 258.1 Third quarter Aggregates segment gross profit margin expanded 0.7 percentage points (70 basis points) despite a 7% decrease in segment sales. Gross profit was$337.9 million compared to$357.2 million in the prior year. Unit profitability increased 3% to$6.04 per ton due to widespread growth in pricing and effective cost control. Third quarter aggregates shipments were 8% lower than the prior year's third quarter due to economic uncertainty caused by the pandemic, severe wet weather and wildfires in key markets. Last year's third quarter included very few severe weather events, helping drive strong volume growth. Despite lower shipments in most markets, virtually all of our markets improved their respective unit profitability compared to the prior year's third quarter. Shipments declined in most of our markets reflecting weaker demand resulting from the pandemic. Shipments along theAtlantic Coast , in the Southeast andTexas were impacted by severe weather. Shipments inCalifornia were impacted by wildfires and resulting power outages which interrupted the supply of cement for ready-mix concrete production and limited construction activity.
On a mix-adjusted basis, most of our markets reported year-over-year price growth. For the quarter, mix-adjusted average sales price increased 2.9% (reported freight-adjusted sales price increased 2.4%).
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Freight-adjusted unit cost of sales increased 2%, and cash costs were up
slightly versus the prior year's third quarter. Effective operating efficiencies
and lower diesel fuel costs helped mitigate the cost impact of lower sales
volumes. The Aggregates segment earnings impact from lower diesel fuel was $8.7
million in the quarter.
Asphalt segment gross profit was $30.2 million for the third quarter, an
increase of $2.6 million from the prior year. The year-over-year improvement was
driven by higher material margins (sales price less unit cost of raw materials).
Compared to the prior year's third quarter, the average unit cost for liquid
asphalt was 20% lower and asphalt mix unit material margins increased 13%.
Although asphalt volumes in the third quarter declined 13% compared to the prior
year, results benefited from slightly higher prices and effective cost
containment, including lower liquid asphalt costs. Shipments in the current
year's quarter were impacted by wildfires in California , our largest asphalt
market, and the completion of certain large projects last year in the Tennessee
market.
Concrete segment gross profit was $12.2 million , 19% lower than the prior year's
third quarter. Ready-mixed concrete shipments of 0.8 million cubic yards
decreased 11%. The average sales price increased 3% while ready-mixed concrete
unit material margins increased 1%. Third quarter shipments were impacted by wet
weather in Virginia , our largest concrete market, and wildfires in Northern
California .
Calcium segment gross profit was
SAG expenses declined 6% to$83.5 million in the quarter due mostly to continued execution of cost reduction initiatives and general cost control. However, due to the 8% drop in total revenues, this decline in SAG expense resulted in a 0.1 percentage point (10 basis points) increase as a percentage of total revenues to 6.4%. We remain focused on further leveraging our overhead cost structure. Gain on sale of property, plant & equipment and businesses was$1.6 million in the third quarter of 2020 versus a gain of$0.2 million in the third quarter of 2019. Other operating expense, which has an approximate run-rate of$12 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:
?
?
?
?
?
?
?
Other nonoperating income of$5.8 million for the third quarter of 2020 was favorable by$5.4 million from the third quarter of 2019. This favorable variance resulted primarily from two items: 1)$0.7 million of foreign currency translation gain resulting from a partial recovery of the first quarter 2020's rapid devaluation of the Mexican peso versus a$0.6 million loss in the prior year's quarter, and 2) the mark-to-market gain on our Rabbi Trust investments of$2.4 million due to a recovery in equity market values from the first quarter declines versus no gain in the prior year's quarter.
Net interest expense was
Income tax expense from continuing operations was
Earnings from continuing operations were
Discontinued Operations - Third quarter pretax loss from discontinued operations was$1.8 million in 2020 compared with a loss of$3.2 million in 2019. 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. 33
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year-to-date
Total revenues for the first nine months of 2020 were$3,681.7 million , down 2% from the first nine months of 2019. Shipments declined in all major products: aggregates (-4%), asphalt mix (-7%) and ready-mixed concrete (-3%). Gross profit increased in the Aggregates (+$11.1 million or +1%) and Asphalt (+$6.3 million or +12%) segments while it decreased in the Concrete (-$0.9 million or -2%) segment. A 30% decline in the unit cost of diesel fuel decreased costs by$29.2 million from the first nine months of 2019 with most ($25.7 million ) of this cost decline reflected in the Aggregates segment. Net earnings for the first nine months of 2020 were$470.0 million , or$3.53 per diluted share, compared to$476.6 million , or$3.58 per diluted share, in the first nine months of 2019. Each period's results were impacted by discrete items, as follows:
Net earnings for the first nine months of 2020 include:
?pretax charges of
?pretax gains of
?pretax charges of
?pretax charges of
Net earnings for the first nine months of 2019 include:
?pretax gains of
?pretax charges of
?pretax charges of
Adjusted for these discrete items, earnings from continuing operations (Adjusted
Diluted EPS) was
Continuing Operations - Changes in earnings from continuing operations before income taxes for year-to-dateSeptember 30, 2020 versus year-to-dateSeptember 30, 2019 are summarized below:
earnings from continuing operations before income taxes
in millions Year-to-date September 30, 2019$ 591.7 Higher aggregates gross profit 11.1 Higher asphalt gross profit 6.3 Lower concrete gross profit (0.9) Lower calcium gross profit (0.5) Lower selling, administrative and general expenses 13.6
Lower gain on sale of property, plant & equipment and businesses (8.7) Higher interest expense, net
(2.3)
Higher foreign currency translation losses (4.9)
All other (2.8)
Year-to-date September 30, 2020 $ 602.6
Aggregates segment sales for the first nine months of 2020 were $2,987.8 million
(down 1%) while aggregates shipments declined 4%, or 6.7 million tons, compared
to the prior year. Freight-adjusted average sales price for aggregates increased
3.2%, or $0.45 per ton, versus the first nine months of 2019. Excluding mix
impact, aggregates price increased 3.5%.
Aggregates segment gross profit was $883.2 million ($5.62 per ton) versus $872.1
million ($5.32 per ton) in the first nine months of 2019. As a percentage of
segment sales excluding freight & delivery, gross profit margin increased 0.7
percentage points (70 basis points). First nine months 2020 freight-adjusted
unit cost of sales increased 2%, or $0.15 per ton, versus the prior year. Cash
gross profit per ton increased 7% from the prior year's first nine months to
$7.15 per ton. The average unit cost of diesel fuel decreased 30% versus the
first nine months of 2019, increasing Aggregates segment gross profit by $25.7
million or $0.16 per ton.
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-------------------------------------------------------------------------------- Asphalt segment gross profit of$58.2 million was up$6.3 million from the first nine months of 2019. Asphalt mix shipments declined 7% while selling prices increased less than 1%, or$0.29 per ton. Compared to the prior year's first nine months, the average unit cost for liquid asphalt was down 16% - a significant factor in the 12% increase in our asphalt mix unit material margins. Concrete segment gross profit was$35.6 million for the first nine months of 2020, a decrease of$0.9 million from the prior year period. Ready-mixed concrete shipments declined 3% and average sales price increased 2% resulting in a 3% increase in unit material margins.
Our Calcium segment's gross profit of
SAG expenses were$261.1 million versus$274.7 million in the prior year's first nine months reflecting a 0.2 percentage point (20 basis point) decrease as a percentage of total revenues. On a trailing-twelve month basis, SAG expenses as a percentage of total revenues stands at 7.3%, or a 0.1 percentage point (10 basis points) decrease as a percentage of total revenues. Gain on sale of property, plant & equipment and businesses was$2.3 million in the first nine months of 2020 versus$11.0 million in the first nine months of 2019. The 2019 amount includes the aforementioned pretax gains of$4.1 million related to the sale of businesses. Other operating expense, which has an approximate run-rate of$12 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:
?
?
?
?
?
?
?
?
Other nonoperating income of$3.8 million for the first nine months of 2020 was unfavorable by$2.1 million from the first nine months of 2019. This unfavorable variance included the following two items: 1)$5.2 million of foreign currency translation losses resulting from the rapid devaluation of the Mexican peso in the current year versus a$0.2 million loss in the prior year's first nine months, and 2)$1.4 million of mark-to-market gain on our Rabbi Trust investments versus a gain of$2.8 million in the prior year's first nine months (see Note 5 to the condensed consolidated financial statements). Net interest expense was$100.5 million in the first nine months of 2020 compared to$98.2 million in the first nine months of 2019. The current year's interest expense includes$1.0 million related to the ineffective portion of a cash flow hedge loss. Income tax expense from continuing operations was$130.5 million in the first nine months of 2020 compared to$111.8 million in the first nine months of 2019. The increase in tax expense was primarily related to a decrease in share-based compensation excess tax benefits as compared to the same period in 2019. Earnings from continuing operations were$3.54 per diluted share in the first nine months of 2020 compared to$3.60 per diluted share in the first nine months of 2019. Discontinued Operations - Year-to-date September pretax loss from discontinued operations was$2.9 million in 2020 compared with a pretax loss of$4.5 million in 2019. 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. 35
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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. 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 immaterial 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 Nine Months Ended
September 30 September 30
in millions, except per ton data 2020 2019 2020 2019
Aggregates segment
Segment sales $ 1,049.0 $ 1,133.1 $ 2,987.8 $ 3,030.1
Less
Freight & delivery revenues 1 225.4 259.4 672.0 695.9
Other revenues 16.0 15.2 45.5 40.6
Freight-adjusted revenues $ 807.6 $ 858.5 $ 2,270.3 $ 2,293.6
Unit shipments - tons 55.9 60.9 157.2 163.8
Freight-adjusted sales price $ 14.44 $ 14.10 $ 14.45 $ 14.00
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.
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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). We evaluate this metric on a trailing-twelve month 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
September 30 September 30
dollars in millions 2020 2019 2020 2019
Aggregates segment
Gross profit $ 337.9 $ 357.2 $ 1,157.7 $ 1,128.5
Segment sales $ 1,049.0 $ 1,133.1 $ 3,947.9 $ 3,904.1
Gross profit margin 32.2% 31.5% 29.3% 28.9%
Incremental gross profit margin N/A 66.6%
FLOW-THROUGH RATE (non-gaap)
Three Months Ended Trailing-Twelve Months
September 30 September 30
dollars in millions 2020 2019 2020 2019
Aggregates segment
Gross profit $ 337.9 $ 357.2 $ 1,157.7 $ 1,128.5
Less: Contribution from acquisitions
(same-store) 0.0 0.0 0.5 0.3
Same-store gross profit $ 337.9 $ 357.2 $ 1,157.2 $ 1,128.2
Segment sales $ 1,049.0 $ 1,133.1 $ 3,947.9 $ 3,904.1
Less: Freight & delivery revenues 1 225.4 259.4 897.1 899.4
Segment sales excluding freight &
delivery $ 823.6 $ 873.7 $ 3,050.8 $ 3,004.7
Less: Contribution from acquisitions
(same-store) 0.4 0.0 7.9 1.2
Same-store segment sales excluding
freight & delivery $ 823.2 $ 873.7 $ 3,042.9 $ 3,003.5
Gross profit margin excluding freight
& delivery 41.0% 40.9% 37.9% 37.6%
Same-store gross profit margin
excluding
freight & delivery 41.0% 40.9% 38.0% 37.6%
Incremental gross profit flow-through
rate N/A 63.2%
Same-store incremental gross profit
flow-through rate N/A 73.7%
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.
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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 Nine Months Ended
September 30 September 30
in millions, except per ton data 2020 2019 2020 2019
Aggregates segment
Gross profit $ 337.9 $ 357.2 $ 883.2 $ 872.1
Depreciation, depletion, accretion and
amortization 82.5 79.0 240.4 227.3
Aggregates segment cash gross profit
55.9 60.9 157.2 163.8
Aggregates segment gross profit per
ton $ 6.04 $ 5.87 $ 5.62 $ 5.32
Aggregates segment cash gross profit
per ton $ 7.52 $ 7.16 $ 7.15 $ 6.71
Asphalt segment
Gross profit $ 30.2 $ 27.6 $ 58.2 $ 52.0
Depreciation, depletion, accretion and
amortization 8.6 8.9 26.0 26.3
Asphalt segment cash gross profit
84.2 $ 78.3
Concrete segment
Gross profit $ 12.2 $ 15.0 $ 35.6 $ 36.5
Depreciation, depletion, accretion and
amortization 4.0 3.4 12.1 9.7
Concrete segment cash gross profit
47.7 $ 46.2
Calcium segment
Gross profit $ 0.2 $ 0.8 $ 1.7 $ 2.3
Depreciation, depletion, accretion and
amortization 0.0 0.1 0.1 0.2
Calcium segment cash gross profit
1.8 $ 2.5
?
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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 Nine Months Ended
September 30 September 30
in millions 2020 2019 2020 2019
Net earnings $ 199.8 $ 215.7 $ 470.0 $ 476.6
Income tax expense 57.0 53.5 130.5 111.8
Interest expense, net of interest
income 35.8 32.2 100.5 98.2
Loss on discontinued operations, net
of tax 1.3 2.4 2.1 3.3
EBIT 293.9 303.7 703.1 689.8
Depreciation, depletion, accretion and
amortization 101.0 96.2 295.9 278.9
EBITDA $ 394.9 $ 400.0 $ 999.0 $ 968.8
Gain on sale of businesses $ 0.0 $ 0.0 $ 0.0 $ (4.0)
Charges associated with divested
operations 5.9 0.0 6.7 0.0
Business development 1 0.3 0.4 (2.1) 0.4
COVID-19 direct incremental costs 2.4 0.0 7.4 0.0
Restructuring charges 0.0 6.5 1.3 6.5
Adjusted EBITDA $ 403.5 $ 406.8 $ 1,012.3 $ 971.6
Depreciation, depletion, accretion and
amortization (101.0) (96.2) (295.9) (278.9)
Adjusted EBIT $ 302.5 $ 310.6 $ 716.4 $ 692.6
1 Represents non-routine charges or gains associated with acquisitions
including the cost impact of purchase accounting inventory valuations.
Adjusted Diluted EPS from continuing Operations
Similar to our presentation of Adjusted EBITDA, we present Adjusted diluted
earnings per share (EPS) 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 Nine Months Ended
September 30 September 30
2020 2019 2020 2019
Diluted Earnings Per Share
Net earnings $ 1.50 $ 1.62 $ 3.53 $ 3.58
Less: Discontinued operations loss (0.01) (0.01) (0.01) (0.02)
Diluted EPS from continuing operations $ 1.51 $ 1.63 $ 3.54 $ 3.60
Items included in Adjusted EBITDA
above $ 0.05 $ 0.05 $ 0.08 $ 0.02
Adjusted diluted EPS from continuing
operations $ 1.56 $ 1.68 $ 3.62 $ 3.62
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2020 projected ebitda
The following reconciliation to the mid-point of the range of 2020 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:
2020 Projected
in millions Mid-point
Net earnings $ 607
Income tax expense 168
Interest expense, net 135
Discontinued operations, net of tax 0
Depreciation, depletion, accretion and amortization 390
Projected EBITDA $ 1,300 LIQUIDITY AND FINANCIAL RESOURCES
Our primary sources of liquidity are cash provided by our operating activities and a substantial, committed bank line of credit. InMay 2020 , we issued$750.0 million of 3.50% senior notes due 2030 to prefund: a) the$250.0 million dueJune 2020 and b) the$500.0 million dueMarch 2021 . InSeptember 2020 , we executed a new five-year unsecured bank line of credit of$1,000.0 million and terminated ourApril 2020 $750.0 million delayed draw term loan. 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 2020, including: ?contractual obligations ?capital expenditures ?debt service obligations ?dividend payments ?potential share repurchases ?potential acquisitions
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
In an effort to strengthen our liquidity position while navigating the COVID-19
pandemic, we have taken a number of proactive steps since the first quarter as
noted above. As the impact of the COVID-19 pandemic on the economy and our
operations evolves, we will continue to assess our liquidity sources and needs
and take appropriate actions.
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Cash
Included in ourSeptember 30, 2020 cash and cash equivalents and restricted cash balances of$1,084.7 million is$0.6 million of restricted cash as described in Note 1 under the caption Restricted Cash.
cash from operating activities
Nine Months Ended
September 30
in millions 2020 2019
Net earnings $ 470.0 $ 476.6
Depreciation, depletion, accretion and amortization (DDA&A) 295.9 278.9
Noncash operating lease expense 27.8
26.3
Contributions to pension plans (6.5)
(6.8)
Other operating cash flows, net 1 (9.3)
(128.9)
Net cash provided by operating activities$ 777.9
1 Primarily reflects changes to working capital balances.
Net cash provided by operating activities was$777.9 million during the nine months endedSeptember 30, 2020 , a$131.8 million increase compared to the same period of 2019. This increase primarily resulted from favorable changes in working capital balances. Days sales outstanding, a measurement of the time it takes to collect receivables, were 43.5 days atSeptember 30, 2020 compared to 45.3 days atSeptember 30, 2019 . Additionally, our over 90 day balance of$18.1 million atSeptember 30, 2020 was down 22% from$23.1 million atSeptember 30, 2019 . All customer accounts are actively managed and no losses in excess of amounts reserved are currently expected; attention is being paid to the potential negative impact of the COVID-19 pandemic on our customers' ability to pay their amounts owed to us.
cash from investing activities
Net cash used for investing activities was$253.7 million during the first nine months of 2020, a$49.5 million decrease compared to the same period of 2019. During the first nine months of 2020, we invested$269.0 million in our existing operations compared to$306.9 million in the prior year period. Of this$269.0 million ,$72.3 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.
cash from financing activities
Net cash provided by financing activities in the first nine months of 2020 was$286.0 million , compared to the use of cash of$296.2 million in the same period of 2019. The current year includes: a) net cash proceeds of$734.6 million from the issuance of new debt, b) cash paid to retire the$250.0 million floating rate notes due 2020 and c)$19.9 million of cash paid to settle interest rate derivatives. The prior year includes a net$133.0 million payment on our bank line of credit. Additionally, we increased the capital returned to our shareholders by$35.7 million via higher dividends of$12.2 million ($1.02 per share compared to$0.93 per share) and higher share repurchases of$23.5 million (214,338 shares repurchased @$121.92 average price per share compared to 18,600 shares repurchased @$139.90 average price per share). 41
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debt
Certain debt measures are presented below:
September 30 December 31 September 30
dollars in millions 2020 2019 2019
Debt
Current maturities of long-term debt$ 509.4 $ 0.0 $ 0.0 Short-term debt 0.0 0.0 0.0 Long-term debt 2,777.1 2,784.3 2,783.1 Total debt$ 3,286.5 $ 2,784.3 $ 2,783.1 Capital Total debt$ 3,286.5 $ 2,784.3 $ 2,783.1 Equity 5,928.4 5,621.9 5,542.2 Total capital$ 9,214.9 $ 8,406.2 $ 8,325.3 Total Debt as a Percentage of Total Capital 35.7% 33.1% 33.4% Weighted-average Effective Interest Rates Line of credit 1 1.38% 1.25% 1.25% Term debt 4.10% 4.36% 4.40% Fixed versus Floating Interest Rate Debt Fixed-rate debt 85.1% 73.7% 73.7% Floating-rate debt 14.9% 26.3% 26.3%
1 Reflects the margin above LIBOR for LIBOR-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.
line of credit
InSeptember 2020 , we executed a new five-year unsecured line of credit of$1,000.0 million , incurring$4.6 million of transaction costs. Covenants, borrowings, cost ranges and other details are described in Note 7 to the condensed consolidated financial statements. As ofSeptember 30, 2020 , we were in compliance with the line of credit covenants, the credit margin for LIBOR borrowings was 1.375%, the credit margin for base rate borrowings was 0.375%, and the commitment fee for the unused amount was 0.175%. In conjunction with theSeptember 2020 line of credit execution, we terminated our$750.0 million 364-day delayed draw term loan executed inApril 2020 . During the second quarter, we had borrowed and repaid$250.0 million leaving$500.0 million available for future borrowings prior to its termination.
As of
?none was borrowed
?
TERM DEBT All of our$3,357.9 million (face value) of term debt is unsecured.$3,346.2 million of such debt is governed by three essentially identical indentures that contain customary investment-grade type covenants. The primary covenant in all three indentures limits the amount of secured debt we may incur without ratably securing such debt. As ofSeptember 30, 2020 , we were in compliance with all term debt covenants. InMay 2020 , we issued$750.0 million of 3.50% senior notes due 2030 for total proceeds of$741.4 million (net of discounts and transaction costs).$250.0 million of the proceeds were used to retire the$250.0 million floating rate notes dueJune 2020 , and the remainder of the proceeds, together with cash on hand, will be used to retire the$500.0 million floating rate notes dueMarch 2021 . 42
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CURRENT MATURITIES of long-term debt
The$509.4 million of current maturities of long-term debt as ofSeptember 30, 2020 includes all long-term debt that we intend to pay within twelve months, and is due as follows: Current in millions Maturities Fourth quarter 2020$0.0 First quarter 2021 500.4 Second quarter 2021 0.0 Third quarter 2021 9.0 debt ratings
Our debt ratings and outlooks as of
Rating/Outlook Date Description
Senior Unsecured Term Debt
Fitch BBB-/stable 5/7/2020 outlook revised
Moody's Baa3/stable 4/23/2020 outlook revised
Standard & Poor's BBB+/stable 2/28/2020 rating revised
LIBOR TRANSITION
The London Interbank Offered Rate (LIBOR) is an indicative measure of the
average rate at which major global banks could borrow from one another and is
used extensively globally as a reference rate for financial contracts (e.g.,
corporate bonds and loans) and commercial contracts (e.g., real estate leases).
The United Kingdom's Financial Conduct Authority , which regulates LIBOR,
announced in July 2017 that it intends to cease requiring banks to submit LIBOR
rates after 2021.
The expected discontinuation of LIBOR has led to the formation of working groups
in the U.S. and elsewhere to recommend alternative reference rates. The U.S.
working group is the Alternative Reference Rates Committee (ARRC) convened by
the Federal Reserve Board and the Federal Reserve Bank of New York . The ARRC has
selected the Secured Overnight Financing Rate (SOFR) as the preferred
alternative to LIBOR.
As of September 30, 2020 , we had two material debt instruments with LIBOR as a
reference rate: 1) $500.0 million floating-rate notes due March 2021 , and 2)
$1,000.0 million line of credit (none outstanding at September 30, 2020 ) due
September 2025 . At this time, we cannot predict the future impact of a departure
from LIBOR as a reference rate; however, if future rates based upon the
successor reference rate (or a new method of calculating LIBOR) are higher than
LIBOR rates as currently determined, our interest expense would increase.
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Equity
The number of our common stock issuances and purchases for the year-to-date periods ended are as follows:
September 30 December 31 September 30
in thousands 2020 2019 2019
Common stock shares at January 1 ,
issued and outstanding 132,371 131,762 131,762
Common Stock Issuances Share-based compensation plans 297 628
607
Common Stock Purchases Purchased and retired (214) (19)
(19)
Common stock shares at end of period, issued and outstanding 132,454 132,371
132,350
As ofSeptember 30, 2020 , there were 8,064,851 shares remaining under the Board of Directors' share purchase authorization. Depending upon market, business, legal and other conditions, we may purchase shares from time to time through open market (including plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934) and/or privately negotiated transactions. The authorization has no time limit, does not obligate us to purchase any specific number of shares, and may be suspended or discontinued at any time.
The detail of our common stock purchases (all of which were open market purchases) for the year-to-date periods ended are as follows:
September 30 December 31 September 30
in thousands, except average cost 2020 2019 2019 Shares Purchased and Retired Number 214 19 19 Total purchase price$ 26,132 $ 2,602 $ 2,602 Average cost per share$ 121.92 $ 139.90 $ 139.90
There were no shares held in treasury as of
off-balance sheet arrangements
We have no off-balance sheet arrangements, such as financing or unconsolidated variable interest entities, that either have or are reasonably likely to have a current or future material effect on our:
?results of operations and financial position
?capital expenditures
?liquidity and capital resources
Standby Letters of Credit
For a discussion of our standby letters of credit, see Note 7 to the condensed consolidated financial statements.
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Cash Contractual Obligations
Our obligation to make future payments under contracts is presented in our most recent Annual Report on Form 10-K. Changes resulting from our second quarter 2020 debt issuances as described in Note 7 to the condensed consolidated financial statements are outlined in our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2020 .
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
We prepare these financial statements to conform with accounting principles generally accepted inthe 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 endedSeptember 30, 2020 .
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.
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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 recent outbreak of COVID-19
?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
?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
?energy costs
?costs of hydrocarbon-based raw materials
?healthcare costs
?the amount of long-term debt and interest expense we incur
?changes in interest rates
?the impact of a discontinuation of the London Interbank Offered Rate (LIBOR)
?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
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 theSecurities and Exchange Commission (SEC) and our press releases with regard to our business and consolidated financial position, results of operations and cash flows. 46
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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 theSecurities 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 theSEC by our executive officers and directors, as soon as the filings are made publicly available by theSEC 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 theSEC .
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
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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ITEM 3
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