4Q 2017 Supplemental Information for February 16, 2018 Aggregates Essential Material Valuable Asset
I M P O R TA N T D I S C L O S U R E S F o r w a r d L o o k i n g S t a t e m e n t s This document contains forward-looking statements. Statements that are not historical fact, including statements about Vulcan's beliefs and expectations, are forward-looking statements. Generally, these statements relate to future financial performance, results of operations, business plans or strategies, projected or anticipated revenues, expenses, earnings (including EBITDA and other measures), dividend policy, shipment volumes, pricing, levels of capital expenditures, intended cost reductions and cost savings, anticipated profit improvements and/or planned divestitures and asset sales. These forwardlooking statements are sometimes identified by the use of terms and phrases such as "believe," "should," "would," "expect," "project," "estimate," "anticipate," "intend," "plan," "will," "can," "may" or similar expressions elsewhere in this document. These statements are subject to numerous risks, uncertainties, and assumptions, including but not limited to general business conditions, competitive factors, pricing, energy costs, and other risks and uncertainties discussed in the reports Vulcan periodically files with the SEC. Forward-looking statements are not guarantees of future performance and actual results, developments, and business decisions may vary significantly from those expressed in or implied by the forward-looking statements. The following risks related to Vulcan's business, among others, could cause actual results to differ materially from those described in the forwardlooking statements: those associated with general economic and business conditions; the timing and amount of federal, state and local funding for infrastructure; changes in Vulcan s effective tax rate; the increasing reliance on information technology infrastructure for Vulcan s ticketing, procurement, financial statements and other processes could adversely affect operations in the event that the infrastructure does not work as intended or experiences technical difficulties or is subjected to cyber attacks; the impact of the state of the global economy on Vulcan s businesses and financial condition and access to capital markets; changes in the level of spending for private residential and private nonresidential construction; the highly competitive nature of the construction materials 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 Vulcan's products; weather and other natural phenomena; energy costs; costs of hydrocarbon-based raw materials; healthcare costs; the amount of long-term debt and interest expense incurred by Vulcan; 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 clean-up costs and other liabilities relating to existing and/or divested businesses; Vulcan's ability to secure and permit aggregates reserves in strategically located areas; the effect of changes in tax laws, guidance and interpretations, including those related to the Tax Cuts and Jobs Act that was enacted on December 22, 2017; Vulcan's ability to manage and successfully integrate acquisitions; the potential of goodwill or long-lived asset impairment; changing technologies could disrupt the way we do business and how our products are distributed; and other assumptions, risks and uncertainties detailed from time to time in the reports filed by Vulcan with the SEC. All forward-looking statements in this communication are qualified in their entirety by this cautionary statement. Vulcan disclaims and does not undertake any obligation to update or revise any forward-looking statement in this document except as required by law. 2
S A F E T Y: L E S S T H A N 1 I N J U R Y P E R 2 0 0, 0 0 0 H O U R S W O R K E D R e c o r d r e s u l t r e f l e c t s s t r e n g t h o f c o r e o p e r a t i n g d i s c i p l i n e s Number of MSHA/OSHA Injuries per 200,000 Hours Worked 1.49 1.36 0.97 2015 2016 2017 3
F O U R T H Q U A R T E R H I G H L I G H T S R e t u r n t o s o l i d s h i p m e n t g r o w t h ; m a r g i n h e a d w i n d s p e r s i s t e d Overall Results Earnings from Continuing Operations: Reported EPS of $2.43 per diluted share Adjusted EPS of $0.74 per diluted share, +7% versus 2016 Adjusted EBITDA: $233 million Transitory margin headwinds in aggregates segment not adjusted out Underlying Drivers and Comments Aggregates Segment Gross Profit: $208 million Shipments grew 7%, 5% same-store Freight-adjusted sales price grew 1%, 2% if adjusted for negative mix Negative pricing mix, higher diesel prices, higher distribution costs, and costs at acquired operations hurt gross profit by approximately $20 million Sales slightly exceeded production Total Non-Aggregates Gross Profit: $35 million Gross profit +15%, in line with volume growth Continued strong management of asphalt and concrete materials margins SAG: $86 million YOY increase due to severance, bad debt accruals, and tax planning actions Restructuring action in January Interest expense: $137 million as reported, $35 million as adjusted Retired $565 million of 2021 notes One-time charges to interest expense of $102 million See Appendix for reconciliation of non-gaap measures. Taxes: $314 million credit as reported, $17 million expense as adjusted $268 million net tax reform savings, including reval of deferred tax liabilities $28 million release of valuation allowance for state-level NOLs 4
D O U B L E D I G I T G R O W T H I N N O V E M B E R A N D D E C E M B E R F i r m i n g p u b l i c d e m a n d a n d c a t c h u p o n d e f e r r e d w o r k : w i t h g o o d w e a t h e r c a m e g o o d s h i p m e n t s % Change in Year-over-Year 4Q Aggregates Daily Total Shipments 13% 10% 4Q Average* +7% -1% October November December * Same-store volume growth was 5% in Q4. 5
D A I LY S H I P M E N T R AT E S R E T U R N E D T O G R O W T H I N 2 ND H A L F P u b l i c d e m a n d a n d p r o j e c t s t a r t s g r a d u a l l y i m p r o v i n g l a t e r i n t h e y e a r Year over Year Change in Daily Shipping Rates 16% 15% 7% 7% 6% 10% 12% 13% 9% 10% 8% 7% 2% 3% 3% -4% -4% -2% -2% -2% Coincides with decline in public construction start activity 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2013 2014 2015 2016 2017 Total shipments as reported, not same-store. 6
H I G H W AY A W A R D S I N V M C S TAT E S R E T U R N E D T O G R O W T H D O T s a n d p r o j e c t s t a r t s g r a d u a l l y c a t c h i n g u p t o n e w f u n d i n g l e v e l s Trailing Twelve Month Highway Awards Dollars for Vulcan Served Markets 25% Supported improved shipping momentum in 2 nd half of 2017 and projected into 2018 20% 15% Weakness in starts that held back shipments in 2 nd half of 2016 and 2017 10% 5% 0% -5% -10% -15% -20% DEC '15 MAR '16 JUN '16 SEP '16 DEC '16 MAR '17 JUN '17 SEP '17 DEC '17 Source: Dodge Analytics 7
S TAT E I N I T I AT I V E S + F A S T A C T S U P P O R T S U S TA I N E D R E C O V E R Y C A, T N a n d S C j o i n e d o t h e r V u l c a n s t a t e s i n r a i s i n g l o n g - t e r m h i g h w a y f u n d i n g Estimated Increase in State Construction Funding Levels TX 130% CA 140% % of Vulcan Revenue VA GA 18% 79% ~75% FL TN NC 33% 37% 41% SC 75% MD 38% Source: State DOTs and Company estimates 8
Millions of employees C O N S T R U C T I O N E M P L O Y M E N T I N V M C S TAT E S C O N T I N U E S T O G R O W H i r i n g r e f l e c t s c u s t o m e r c o n f i d e n c e, p a r t i c u l a r l y i n s u s t a i n e d p r i v a t e r e c o v e r y 4.3 Vulcan States Construction Employment Growth 4.2 4.1 4.0 Construction employment continued to expand in Vulcan states, despite volume headwinds 3.9 DEC '15 MAR '16 JUN '16 SEP '16 DEC '16 MAR '17 JUN '17 SEP '17 DEC '17 Source: Bureau of Labor and Statistics 9
4 6 % S A M E - S T O R E S H I P M E N T G R O W T H P R O J E C T E D F O R 2 0 1 8 P r i v a t e r e c o v e r y c o n t i n u e s, p u b l i c d e m a n d r e t u r n s t o g r o w t h a n d r a m p s i n 2 0 1 9 Vulcanserved markets +4-6% shipment growth Private Mid-single digit growth Public Low-single digit growth Continued residential recovery, supported by rising employment and household formation Nonresidential backlogs strong, third party leading indicators point to continued growth, particularly in Vulcan markets Growth widespread across portfolio, particular strength in TX, GA, VA, NC and FL Construction start activity returning to growth State DOTs adjusting to new and higher levels of funding, pushing to get work out Seeing increased spending on government buildings Recent federal budget and disaster relief actions further support recovery Source: Company estimates. 10
A G G R E G AT E S U S A A S S E T S C O M P L I M E N T V M C N E T W O R K T r a n s a c t i o n o f f e r s a t t r a c t i v e p r o d u c t i o n, l o g i s t i c s, a n d c o m m e r c i a l s y n e r g i e s Acquisition of Aggregates USA- Closed late December 2017: 3 quarries (CSX and NS served) 16 distribution yards Over 650 new customers 2018 Contribution ~7 million tons ~$50 million of EBITDA Rail Network Production Quarry Distribution Sites Barge Network Production Quarry Distribution Sites Ship Network Calica Quarry Delivery Ports Aggregates USA Acquisition Rail Quarries Distribution Sites Truck served Quarry 11
2 0 1 8 E A R N I N G S O U T L O O K A g g r e g a t e s m a r g i n s i m p r o v i n g Overall Guidance Earnings from Continuing Operations: $535-$635 million $4.00-$4.65 per diluted share +30-50% vs. 2017 Adjusted EPS EBITDA: $1,150 - $1,250 million +17-27% vs. 2017 Adjusted EBITDA Includes $50 million contribution from Aggregates USA Underlying Expectations and Assumptions Aggregates Segment (same-store): Shipments +4-6%: continued private recovery, public inflection Average freight-adjusted sales price +3-5%: positive climate, building through year Flow-through on incremental revenue >60%: cost improvement vs. 2017 Gross profit +15-25%: improving unit margins in line with prior trend Asphalt, Concrete and Calcium Segments: Solid, stabilizing unit margins Gross profit up high single-digits, roughly in line with volume growth SAG: $335 million Includes amounts added from 2017 acquisitions Continuing to decline as a percent of revenues Interest Expense: ~$125 million, excluding refinancing charges Total debt of approximately $2.85 billion Weighted-average interest rate of approximately 4.2% Effective Tax Rate: 20% Approximately 800 basis point decline in book rate as result of tax reform Cash tax rate benefits further from immediate expensing of qualified capital investments See Appendix for reconciliation of non-gaap measures. 12
2 0 1 8 C A S H F L O W O U T L O O K S t r o n g f r e e c a s h f l o w g e n e r a t i o n, s t r o n g r e i n v e s t m e n t EBITDA (midpoint) $ 1,200 Working capital increase (50) Operating and maintenance capex (250) Slightly lower than recent trend FCF before interest, taxes, dividend $ 900 Interest expense (125) Cash taxes before credits, repayments (80) Approximately $100 million lower than pre-tax reform Dividends (150) Assumes $0.28/quarter per recent Board declaration FCF before growth, other $ 545 Internal growth capex (350) Includes new quarry development in CA and TX Tax credits, repayments 173 Refunds of over payments; use of AMT and foreign tax credits Pension contribution (100) Linked to overall tax planning; effectively a reduction of debt M&A, divestitures, share repurchase, incremental financing, other TBD Maintain commitment to investment grade credit; retain flexibility for long-term growth 13
R E C O N C I L I AT I O N O F N O N - G A A P M E A S U R E S EBITDA EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization and excludes discontinued operations. GAAP does not define EBITDA and it should not be considered as an alternative to earnings measures defined by GAAP. We adjust EBITDA for certain items to provide a more consistent comparison of earnings performance from period to period. We use this metric to assess the operating performance of our business and for a basis of strategic planning and forecasting as we believe it closely correlates to long-term shareholder value. EBITDA and Adjusted EBITDA Q4 Q4 YTD YTD (in millions) 2017 2016 2017 2016 Net earnings $327.5 $112.6 $601.2 $419.5 Income tax expense (benefit) (313.6) 33.3 (232.1) 124.9 Interest expense, net 136.5 33.1 291.1 133.3 (Earnings) Loss on discontinued operations, net of tax 0.4 (4.5) (7.8) 2.9 EBIT $150.9 $174.4 $652.4 $680.5 Depreciation, depletion, accretion and amortization 78.0 71.6 306.0 284.9 EBITDA $228.8 $246.0 $958.4 $965.5 Property donation $4.3 $0.0 $4.3 $0.0 Gain on sale of real estate and businesses (10.5) (16.2) (10.5) (16.2) Business interruption claims recovery - 0.2 - (11.0) Charges associated with divested operations 1.5 0.2 18.1 17.0 Business development, net of termination fee 2.3-3.1 - One time employee bonus 6.7-6.7 - Asset impairment - - - 10.5 Restructuring charges - - 1.9 0.3 Adjusted EBITDA $233.2 $230.2 $981.9 $966.0 Depreciation, depletion, accretion and amortization (78.0) (71.6) (306.0) (284.9) Adjusted EBIT $155.2 $158.6 $676.0 $681.1 Projected EBITDA The following reconciliation to the mid-point of the range of 2018 Projected EBITDA excludes adjustments for the future outcome of legal proceedings, charges associated with divested operations, asset impairments and other unusual gains and losses due to the uncertainty in predicting these items. 2018 Projected EBITDA 2018 (in millions) Mid-point Net earnings $585 Income tax expense 150 Interest expense, net 125 Loss on discontinued operations, net of tax - Depreciation, depletion, accretion and amortization 340 EBITDA $1,200 Adjusted Diluted Earnings Per Share (Adjusted Diluted EPS) We present EPS adjusted for discrete items that occurred during the quarter to provide a more consistent comparison of performance from period to period. Q4 Q4 YTD YTD Adjusted Diluted EPS 2017 2016 2017 2016 Diluted EPS from continuing operations $2.43 $0.80 $4.40 $3.11 Items included in Adjusted EBITDA above 0.02 (0.08) 0.11 - Interest Charges associated with debt purchase 0.49-0.73 - Tax refrom income tax savings (1.99) - (1.99) - Alabama NOL carryforward valuation allowance (0.21) - (0.21) - Foreign tax credit carryforward utilization - (0.03) - (0.08) Adjusted diluted EPS from continuing operations $0.74 $0.69 $3.04 $3.03 14