SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-12744
MARTIN MARIETTA MATERIALS, INC.
(Exact name of registrant as specified in its charter)
North Carolina | 56-1848578 | |||
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |||
2710 Wycliff Road, Raleigh, NC |
27607-3033 | |||
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code 919-781-4550
Former name: |
None | |
Former name, former address and former fiscal year, if changes since last report. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer ¨ | |||||
Non-accelerated filer ¨ | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuers classes of Common Stock, as of the latest practicable date.
Class |
Outstanding as of July 24, 2013 | |
Common Stock, $0.01 par value |
46,240,582 |
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
Page 2 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2013 |
December 31, 2012 |
June 30, 2012 |
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(Unaudited) | (Audited) | (Unaudited) | ||||||||||
(Dollars in Thousands, Except Per Share Data) | ||||||||||||
ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | 43,712 | $ | 25,394 | $ | 41,393 | ||||||
Accounts receivable, net |
287,521 | 224,050 | 275,416 | |||||||||
Inventories, net |
348,873 | 332,311 | 331,984 | |||||||||
Current deferred income tax benefits |
79,104 | 77,716 | 75,000 | |||||||||
Other current assets |
47,275 | 40,930 | 36,538 | |||||||||
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Total Current Assets |
806,485 | 700,401 | 760,331 | |||||||||
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Property, plant and equipment |
3,843,806 | 3,812,587 | 3,739,475 | |||||||||
Allowances for depreciation, depletion and amortization |
(2,126,420) | (2,059,346) | (1,985,697) | |||||||||
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Net property, plant and equipment |
1,717,386 | 1,753,241 | 1,753,778 | |||||||||
Goodwill |
616,303 | 616,204 | 618,874 | |||||||||
Other intangibles, net |
48,668 | 50,433 | 52,213 | |||||||||
Other noncurrent assets |
42,277 | 40,647 | 41,337 | |||||||||
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Total Assets |
$ | 3,231,119 | $ | 3,160,926 | $ | 3,226,533 | ||||||
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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Bank overdraft |
$ | - | $ | - | $ | 3,352 | ||||||
Accounts payable |
99,960 | 83,537 | 113,308 | |||||||||
Accrued salaries, benefits and payroll taxes |
16,259 | 19,461 | 15,586 | |||||||||
Pension and postretirement benefits |
4,616 | 6,851 | 5,746 | |||||||||
Accrued insurance and other taxes |
30,679 | 28,682 | 29,616 | |||||||||
Current maturities of long-term debt and short-term facilities |
6,169 | 5,676 | 7,171 | |||||||||
Accrued interest |
7,709 | 7,490 | 7,516 | |||||||||
Other current liabilities |
27,141 | 21,638 | 16,771 | |||||||||
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Total Current Liabilities |
192,533 | 173,335 | 199,066 | |||||||||
Long-term debt |
1,087,150 | 1,042,183 | 1,137,076 | |||||||||
Pension, postretirement and postemployment benefits |
184,849 | 183,122 | 153,240 | |||||||||
Noncurrent deferred income taxes |
235,505 | 225,592 | 229,972 | |||||||||
Other noncurrent liabilities |
90,415 | 86,395 | 90,375 | |||||||||
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Total Liabilities |
1,790,452 | 1,710,627 | 1,809,729 | |||||||||
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Equity: |
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Common stock, par value $0.01 per share |
461 | 459 | 457 | |||||||||
Preferred stock, par value $0.01 per share |
- | - | - | |||||||||
Additional paid-in capital |
429,936 | 414,657 | 404,074 | |||||||||
Accumulated other comprehensive loss |
(106,257) | (106,169) | (80,640) | |||||||||
Retained earnings |
1,077,998 | 1,101,598 | 1,054,048 | |||||||||
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Total Shareholders Equity |
1,402,138 | 1,410,545 | 1,377,939 | |||||||||
Noncontrolling interests |
38,529 | 39,754 | 38,865 | |||||||||
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Total Equity |
1,440,667 | 1,450,299 | 1,416,804 | |||||||||
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Total Liabilities and Equity |
$ | 3,231,119 | $ | 3,160,926 | $ | 3,226,533 | ||||||
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See accompanying notes to consolidated financial statements.
Page 3 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
Three Months Ended June 30, |
Six Months Ended June 30, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
(In Thousands, Except Per Share Data) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Net Sales |
$ | 508,688 | $ | 491,191 | $ | 853,837 | $ | 841,723 | ||||||||
Freight and delivery revenues |
53,994 | 54,497 | 93,844 | 97,938 | ||||||||||||
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Total revenues |
562,682 | 545,688 | 947,681 | 939,661 | ||||||||||||
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Cost of sales |
401,912 | 389,125 | 734,474 | 715,831 | ||||||||||||
Freight and delivery costs |
53,994 | 54,497 | 93,844 | 97,938 | ||||||||||||
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Total cost of revenues |
455,906 | 443,622 | 828,318 | 813,769 | ||||||||||||
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Gross Profit |
106,776 | 102,066 | 119,363 | 125,892 | ||||||||||||
Selling, general & administrative expenses |
37,843 | 35,275 | 75,492 | 68,303 | ||||||||||||
Business development costs |
275 | 9,240 | 582 | 35,140 | ||||||||||||
Other operating (income) and expenses, net |
(756) | (1,690) | (2,567) | (1,465) | ||||||||||||
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Earnings from Operations |
69,414 | 59,241 | 45,856 | 23,914 | ||||||||||||
Interest expense |
13,619 | 13,256 | 27,115 | 26,743 | ||||||||||||
Other nonoperating (income) and expenses, net |
(544) | (42) | 78 | (1,897) | ||||||||||||
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Earnings (Loss) from continuing operations before taxes on income |
56,339 | 46,027 | 18,663 | (932) | ||||||||||||
Income tax expense (benefit) |
15,026 | 8,553 | 6,579 | (1,323) | ||||||||||||
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Earnings from Continuing Operations |
41,313 | 37,474 | 12,084 | 391 | ||||||||||||
Gain (Loss) on discontinued operations, net of related tax expense (benefit) of $83, $30, $56 and ($70), respectively |
254 | 334 | 154 | (257) | ||||||||||||
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Consolidated net earnings |
41,567 | 37,808 | 12,238 | 134 | ||||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests |
259 | 1,057 | (1,230) | 116 | ||||||||||||
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Net Earnings Attributable to Martin Marietta Materials, Inc. |
$ | 41,308 | $ | 36,751 | $ | 13,468 | $ | 18 | ||||||||
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Net Earnings Attributable to Martin Marietta Materials, Inc. |
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Earnings from continuing operations |
$ | 41,054 | $ | 36,417 | $ | 13,314 | $ | 275 | ||||||||
Earnings (Loss) from discontinued operations |
254 | 334 | 154 | (257) | ||||||||||||
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$ | 41,308 | $ | 36,751 | $ | 13,468 | $ | 18 | |||||||||
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Consolidated Comprehensive Earnings (See Note 1) |
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Earnings attributable to Martin Marietta Materials, Inc. |
$ | 39,999 | $ | 38,102 | $ | 13,380 | $ | 3,268 | ||||||||
Earnings (Loss) attributable to noncontrolling interests |
262 | 1,060 | (1,225) | 122 | ||||||||||||
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$ | 40,261 | $ | 39,162 | $ | 12,155 | $ | 3,390 | |||||||||
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Net Earnings (Loss) Attributable to Martin Marietta Materials, Inc. |
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Per Common Share |
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Basic from continuing operations attributable to common shareholders |
$ | 0.88 | $ | 0.79 | $ | 0.29 | $ | 0.01 | ||||||||
Discontinued operations attributable to common shareholders |
0.01 | 0.01 | - | (0.01) | ||||||||||||
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$ | 0.89 | $ | 0.80 | $ | 0.29 | $ | - | |||||||||
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Diluted from continuing operations attributable to common shareholders |
$ | 0.88 | $ | 0.79 | $ | 0.29 | $ | 0.01 | ||||||||
Discontinued operations attributable to common shareholders |
0.01 | 0.01 | - | (0.01) | ||||||||||||
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$ | 0.89 | $ | 0.80 | $ | 0.29 | $ | - | |||||||||
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Weighted-Average Common Shares Outstanding |
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Basic |
46,129 | 45,781 | 46,079 | 45,757 | ||||||||||||
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Diluted |
46,260 | 45,905 | 46,217 | 45,757 | ||||||||||||
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Cash Dividends Per Common Share |
$ | 0.40 | $ | 0.40 | $ | 0.80 | $ | 0.80 | ||||||||
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See accompanying notes to consolidated financial statements.
Page 4 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, |
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2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
(Unaudited) | ||||||||
Cash Flows from Operating Activities: |
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Consolidated net earnings |
$ | 12,238 | $ | 134 | ||||
Adjustments to reconcile consolidated net earnings to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
85,992 | 88,735 | ||||||
Stock-based compensation expense |
3,981 | 4,577 | ||||||
Gains on divestitures and sales of assets |
(422) | (839) | ||||||
Deferred income taxes |
9,282 | 6,777 | ||||||
Excess tax benefits from stock-based compensation transactions |
(2,253) | - | ||||||
Other items, net |
204 | 1,322 | ||||||
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: |
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Accounts receivable, net |
(65,165) | (71,668) | ||||||
Inventories, net |
(15,838) | (9,378) | ||||||
Accounts payable |
16,423 | 21,045 | ||||||
Other assets and liabilities, net |
4,030 | (13,036) | ||||||
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Net Cash Provided by Operating Activities |
48,472 | 27,669 | ||||||
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Cash Flows from Investing Activities: |
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Additions to property, plant and equipment |
(50,002) | (66,251) | ||||||
Acquisitions, net |
(3,246) | (87) | ||||||
Proceeds from divestitures and sales of assets |
1,874 | 3,947 | ||||||
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Net Cash Used for Investing Activities |
(51,374) | (62,391) | ||||||
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Cash Flows from Financing Activities: |
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Borrowings of long-term debt |
295,500 | 171,000 | ||||||
Repayments of long-term debt |
(250,167) | (87,134) | ||||||
Debt issuance costs |
(510) | (300) | ||||||
Change in bank overdraft |
- | 3,352 | ||||||
Dividends paid |
(37,068) | (36,861) | ||||||
Distributions to owners of noncontrolling interests |
- | (800) | ||||||
Issuances of common stock |
11,212 | 836 | ||||||
Excess tax benefits from stock-based compensation transactions |
2,253 | - | ||||||
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Net Cash Provided by Financing Activities |
21,220 | 50,093 | ||||||
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Net Increase in Cash and Cash Equivalents |
18,318 | 15,371 | ||||||
Cash and Cash Equivalents, beginning of period |
25,394 | 26,022 | ||||||
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Cash and Cash Equivalents, end of period |
$ | 43,712 | $ | 41,393 | ||||
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid for interest |
$ | 25,868 | $ | 26,537 | ||||
Cash refunds for income taxes |
$ | 6,103 | $ | 4,309 |
See accompanying notes to consolidated financial statements.
Page 5 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF TOTAL EQUITY
(Unaudited)
(in thousands) |
Shares of Common Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total Shareholders Equity |
Noncontrolling Interests |
Total Equity |
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Balance at December 31, 2012 |
46,002 | $ | 459 | $ | 414,657 | $ | (106,169) | $ | 1,101,598 | $ | 1,410,545 | $ | 39,754 | $ | 1,450,299 | |||||||||||||||||
Consolidated net earnings |
- | - | - | - | 13,468 | 13,468 | (1,230) | 12,238 | ||||||||||||||||||||||||
Other comprehensive (loss) earnings |
- | - | - | (88) | - | (88) | 5 | (83) | ||||||||||||||||||||||||
Dividends declared |
- | - | - | - | (37,068) | (37,068) | - | (37,068) | ||||||||||||||||||||||||
Issuances of common stock for stock award plans |
230 | 2 | 11,298 | - | - | 11,300 | - | 11,300 | ||||||||||||||||||||||||
Stock-based compensation expense |
- | - | 3,981 | - | - | 3,981 | - | 3,981 | ||||||||||||||||||||||||
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Balance at June 30, 2013 |
46,232 | $ | 461 | $ | 429,936 | $ | (106,257) | $ | 1,077,998 | $ | 1,402,138 | $ | 38,529 | $ | 1,440,667 | |||||||||||||||||
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See accompanying notes to consolidated financial statements.
Page 6 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | Significant Accounting Policies |
Organization
Martin Marietta Materials, Inc., (the Corporation) is engaged principally in the construction aggregates business. The Corporations aggregates product line, which accounted for 71% of consolidated 2012 net sales, includes crushed stone, sand and gravel, and is used primarily for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates products are also used in the railroad, environmental, utility and agricultural industries. These aggregates products, along with the asphalt products, ready mixed concrete and road paving construction services of the Corporations vertically-integrated operations (which accounted for 18% of consolidated 2012 net sales), are sold and shipped from a network of 301 quarries, distribution facilities and plants to customers in 33 states, Canada, the Bahamas and the Caribbean Islands.
Effective January 1, 2013, the Corporation reorganized the operations and management reporting structure of its Aggregates business, resulting in a change to its reportable segments. The Corporation currently conducts its aggregates and vertically-integrated operations through three reportable segments as follows:
AGGREGATES BUSINESS | ||||||
Reportable Segments |
Mid-America Group | Southeast Group | West Group | |||
Operating Locations |
Indiana, Iowa, Maryland, Minnesota, eastern Nebraska, North Dakota, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia |
Alabama, Florida, Georgia, Mississippi, Tennessee, Nova Scotia and the Bahamas |
Arkansas, Colorado, Kansas, Louisiana, Missouri, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming |
In addition to the Aggregates business, the Corporation has a Specialty Products segment, accounting for 11% of consolidated 2012 net sales, which produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.
Page 7 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. | Significant Accounting Policies (continued) |
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and in Article 10 of Regulation S-X. The Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporations Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on February 22, 2013. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the three and six months ended June 30, 2013 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporations Annual Report on Form 10-K for the year ended December 31, 2012.
Reclassifications
Prior-year segment information for the Aggregates business presented in Note 9 has been reclassified to conform to the presentation of the Corporations current reportable segments.
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss
Consolidated comprehensive earnings/loss for the Corporation consist of consolidated net earnings or loss; adjustments for the funded status of pension and postretirement benefit plans; foreign currency translation adjustments; and the amortization of the value of terminated forward starting interest rate swap agreements into interest expense.
Page 8 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. | Significant Accounting Policies (continued) |
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)
Comprehensive earnings attributable to Martin Marietta Materials, Inc. are as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net earnings attributable to Martin Marietta Materials, Inc. |
$ | 41,308 | $ | 36,751 | $ | 13,468 | $ | 18 | ||||||||
Other comprehensive (loss) earnings, net of tax |
(1,309) | 1,351 | (88) | 3,250 | ||||||||||||
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Comprehensive earnings attributable to Martin Marietta Materials, Inc. |
$ | 39,999 | $ | 38,102 | $ | 13,380 | $ | 3,268 | ||||||||
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Comprehensive earnings (loss) attributable to noncontrolling interests, consisting of net earnings or loss and adjustments for the funded status of pension and postretirement benefit plans, are as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net earnings (loss) attributable to noncontrolling interests |
$ | 259 | $ | 1,057 | $ | (1,230) | $ | 116 | ||||||||
Other comprehensive earnings, net of tax |
3 | 3 | 5 | 6 | ||||||||||||
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Comprehensive earnings (loss) attributable to noncontrolling interests |
$ | 262 | $ | 1,060 | $ | (1,225) | $ | 122 | ||||||||
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Page 9 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. | Significant Accounting Policies (continued) |
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)
Changes in accumulated other comprehensive earnings, net of tax, are as follows:
(Dollars in Thousands) | ||||||||||||||||
Pension and Postretirement Benefit Plans |
Foreign Currency | Unamortized Value of Terminated Forward Starting Interest Rate Swap |
Accumulated Other Comprehensive Loss |
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Three Months Ended June 30, 2013 | ||||||||||||||||
Balance at beginning of period |
$ | (106,296) | $ | 5,323 | $ | (3,975) | $ | (104,948) | ||||||||
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Other comprehensive loss before reclassifications, net of tax |
(2,278) | (1,169) | - | (3,447) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax |
1,971 | - | 167 | 2,138 | ||||||||||||
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Other comprehensive earnings, net of tax |
(307) | (1,169) | 167 | (1,309) | ||||||||||||
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|
|
|
|
|
|||||||||
Balance at end of period |
$ | (106,603) | $ | 4,154 | $ | (3,808) | $ | (106,257) | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2012 | ||||||||||||||||
Balance at beginning of period |
$ | (82,656) | $ | 5,275 | $ | (4,610) | $ | (81,991) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive earnings before reclassifications, net of tax |
(401) | (53) | - | (454) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax |
1,650 | - | 155 | 1,805 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive earnings, net of tax |
1,249 | (53) | 155 | 1,351 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | (81,407) | $ | 5,222 | $ | (4,455) | $ | (80,640) | ||||||||
|
|
|
|
|
|
|
|
The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $1,490,000 and $260,000 for the three months ended June 30, 2013 and 2012, respectively.
Page 10 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. | Significant Accounting Policies (continued) |
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)
(Dollars in Thousands) | ||||||||||||||||
Pension and Postretirement Benefit Plans |
Foreign Currency | Unamortized Value of Terminated Forward Starting Interest Rate Swap |
Accumulated Other Comprehensive Loss |
|||||||||||||
|
|
|||||||||||||||
Six Months Ended June 30, 2013 | ||||||||||||||||
Balance at beginning of period |
$ | (108,189) | $ | 6,157 | $ | (4,137) | $ | (106,169) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive loss before reclassifications, net of tax |
(2,312) | (2,003) | - | (4,315) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax |
3,898 | - | 329 | 4,227 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive earnings, net of tax |
1,586 | (2,003) | 329 | (88) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | (106,603) | $ | 4,154 | $ | (3,808) | $ | (106,257) | ||||||||
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2012 | ||||||||||||||||
Balance at beginning of period |
$ | (84,204) | $ | 5,076 | $ | (4,762) | $ | (83,890) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive (loss) earnings before reclassifications, net of tax |
(465) | 146 | - | (319) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss, net of tax |
3,262 | - | 307 | 3,569 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive earnings, net of tax |
2,797 | 146 | 307 | 3,250 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | (81,407) | $ | 5,222 | $ | (4,455) | $ | (80,640) | ||||||||
|
|
|
|
|
|
|
|
The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $1,512,000 and $302,000 for the six months ended June 30, 2013 and 2012, respectively.
Page 11 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. | Significant Accounting Policies (continued) |
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)
Changes in net noncurrent deferred tax assets recorded in accumulated other comprehensive loss are as follows:
(Dollars in Thousands) | ||||||||||||
|
|
|||||||||||
Pension and Postretirement Benefit Plans |
Unamortized Value of Terminated Forward Starting Interest Rate Swap |
Net Noncurrent Deferred Tax Assets |
||||||||||
|
|
|||||||||||
Three Months Ended June 30, 2013 | ||||||||||||
Balance at beginning of period |
$ | 69,641 | $ | 2,600 | $ | 72,241 | ||||||
Tax effect of other comprehensive earnings |
201 | (108 | ) | 93 | ||||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 69,842 | $ | 2,492 | $ | 72,334 | ||||||
|
|
|
|
|
|
|||||||
Three Months Ended June 30, 2012 | ||||||||||||
Balance at beginning of period |
$ | 54,148 | $ | 3,017 | $ | 57,165 | ||||||
Tax effect of other comprehensive earnings |
(820 | ) | (102 | ) | (922 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 53,328 | $ | 2,915 | $ | 56,243 | ||||||
|
|
|
|
|
|
|||||||
Six Months Ended June 30, 2013 | ||||||||||||
Balance at beginning of period |
$ | 70,881 | $ | 2,707 | $ | 73,588 | ||||||
Tax effect of other comprehensive earnings |
(1,039 | ) | (215 | ) | (1,254 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 69,842 | $ | 2,492 | $ | 72,334 | ||||||
|
|
|
|
|
|
|||||||
Six Months Ended June 30, 2012 | ||||||||||||
Balance at beginning of period |
$ | 55,161 | $ | 3,116 | $ | 58,277 | ||||||
Tax effect of other comprehensive earnings |
(1,833 | ) | (201 | ) | (2,034 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of period |
$ | 53,328 | $ | 2,915 | $ | 56,243 | ||||||
|
|
|
|
|
|
Page 12 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. | Significant Accounting Policies (continued) |
Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)
Reclassifications out of accumulated other comprehensive loss are as follows:
Three Months Ended June 30, |
Six Months Ended June 30, |
Affected line items in
the | ||||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||
Pension and postretirement benefit plans |
||||||||||||||||||
Settlement charge |
$ | -- | $ | 524 | $ | -- | $ | 524 | ||||||||||
Amortization of: |
||||||||||||||||||
Prior service credit |
(695 | ) | (736 | ) | (1,403 | ) | (1,388 | ) | ||||||||||
Actuarial loss |
3,955 | 2,942 | 7,852 | 6,261 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
3,260 | 2,730 | 6,449 | 5,397 | Cost of sales; Selling, general & administrative expenses | ||||||||||||||
Tax effect |
(1,289 | ) | (1,080 | ) | (2,551 | ) | (2,135 | ) | Deferred income taxes | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | 1,971 | $ | 1,650 | $ | 3,898 | $ | 3,262 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Unamortized value of terminated forward starting interest rate swap |
||||||||||||||||||
Additional interest expense |
$ | 275 | $ | 257 | $ | 544 | $ | 508 | Interest expense | |||||||||
Tax effect |
(108 | ) | (102 | ) | (215 | ) | (201 | ) | Deferred income taxes | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
$ | 167 | $ | 155 | $ | 329 | $ | 307 | |||||||||||
|
|
|
|
|
|
|
|
Page 13 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. | Significant Accounting Policies (continued) |
Earnings (Loss) per Common Share
The numerator for basic and diluted earnings (loss) per common share is net earnings attributable to Martin Marietta Materials, Inc., reduced by dividends and undistributed earnings attributable to the Corporations unvested restricted stock awards and incentive stock awards. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Corporations Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three months ended June 30, 2013 and 2012 and the six months ended June 30, 2013, the diluted per-share computations reflect a change in the number of common shares outstanding to include the number of additional shares that would have been outstanding if the potentially dilutive common shares had been issued. For the six months ended June 30, 2012, all such awards were antidilutive given the net loss available to common shareholders attributable to Martin Marietta Materials Inc.
The following table reconciles the numerator and denominator for basic and diluted earnings (loss) per common share:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(In Thousands) | ||||||||||||||||
Net earnings from continuing operations attributable to Martin Marietta Materials, Inc. |
$ | 41,054 | $ | 36,417 | $ | 13,314 | $ | 275 | ||||||||
Less: Distributed and undistributed earnings attributable to unvested awards |
197 | 232 | 182 | 242 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic and diluted net earnings available to common shareholders from continuing operations attributable to Martin Marietta Materials, Inc. |
40,857 | 36,185 | 13,132 | 33 | ||||||||||||
Basic and diluted net earnings (loss) available to common shareholders from discontinued operations |
254 | 334 | 154 | (257) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic and diluted net earnings (loss) available to common shareholders attributable to Martin Marietta Materials, Inc. |
$ | 41,111 | $ | 36,519 | $ | 13,286 | $ | (224) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic weighted-average common shares outstanding |
46,129 | 45,781 | 46,079 | 45,757 | ||||||||||||
Effect of dilutive employee and director awards |
131 | 124 | 138 | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted weighted-average common shares outstanding |
46,260 | 45,905 | 46,217 | 45,757 | ||||||||||||
|
|
|
|
|
|
|
|
Page 14 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. | Discontinued Operations |
Divestitures and Permanent Closures
Operations that are disposed of or permanently shut down represent discontinued operations, and, therefore, the results of their operations through the dates of disposal and any gain or loss on disposals are included in discontinued operations in the consolidated statements of earnings and comprehensive earnings. The results of operations for divestitures do not include Corporate overhead that was allocated during the periods the Corporation owned these operations.
All discontinued operations relate to the Aggregates business. Discontinued operations consist of the following:
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Pretax gain on operations |
$ | 337 | $ | 364 | $ | 210 | $ | 27 | ||||||||
Pretax loss on disposals |
-- | -- | -- | (354) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Pretax gain (loss) |
337 | 364 | 210 | (327) | ||||||||||||
Income tax expense (benefit) |
83 | 30 | 56 | (70) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings (loss) |
$ | 254 | $ | 334 | $ | 154 | $ | (257) | ||||||||
|
|
|
|
|
|
|
|
3. | Inventories, Net |
June 30, 2013 |
December 31, 2012 |
June 30, 2012 |
||||||||||
(Dollars in Thousands) | ||||||||||||
Finished products |
$ | 366,320 | $ | 355,881 | $ | 355,455 | ||||||
Products in process and raw materials |
18,701 | 16,442 | 18,714 | |||||||||
Supplies and expendable parts |
59,437 | 56,805 | 55,201 | |||||||||
|
|
|
|
|
|
|||||||
444,458 | 429,128 | 429,370 | ||||||||||
Less allowances |
(95,585) | (96,817) | (97,386) | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 348,873 | $ | 332,311 | $ | 331,984 | ||||||
|
|
|
|
|
|
Page 15 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. | Long-Term Debt |
June 30, 2013 |
December 31, 2012 |
June 30, 2012 |
||||||||||
(Dollars in Thousands) | ||||||||||||
6.6% Senior Notes, due 2018 |
$ | 298,783 | $ | 298,677 | $ | 298,575 | ||||||
7% Debentures, due 2025 |
124,457 | 124,443 | 124,430 | |||||||||
6.25% Senior Notes, due 2037 |
228,130 | 228,114 | 228,097 | |||||||||
Term Loan Facility, due 2015, interest rate of 2.20% at June 30, 2013; 2.21% at December 31, 2012; and 1.87% at June 30, 2012 |
240,000 | 245,000 | 245,000 | |||||||||
Revolving Facility, interest rate of 1.89% at June 30, 2013; 1.91% at December 31, 2012; and 1.62% at June 30, 2012 |
50,000 | 50,000 | 145,000 | |||||||||
Trade Receivable Facility, interest rate of 0.79% at June 30, 2013 |
150,000 | -- | -- | |||||||||
AR Credit Facility, interest rate of 1.00% at December 31, 2012 and June 30, 2012 |
-- | 100,000 | 100,000 | |||||||||
Other notes |
1,949 | 1,625 | 3,145 | |||||||||
|
|
|
|
|
|
|||||||
Total debt |
1,093,319 | 1,047,859 | 1,144,247 | |||||||||
Less current maturities |
(6,169) | (5,676) | (7,171) | |||||||||
|
|
|
|
|
|
|||||||
Long-term debt |
$ | 1,087,150 | $ | 1,042,183 | $ | 1,137,076 | ||||||
|
|
|
|
|
|
The Corporations $100,000,000 secured accounts receivable credit facility (the AR Credit Facility) expired by its own terms on April 20, 2013. On April 19, 2013, the Corporation, through a wholly-owned consolidated special purpose subsidiary, established a $150,000,000 trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the facility from time to time (the Trade Receivable Facility). Borrowings under the Trade Receivable Facility bear interest at a rate equal to the one-month LIBOR plus 0.6% and are backed by trade receivables originated by the Corporation ($274,818,000 at June 30, 2013), which the Corporation then sells to the wholly-owned consolidated special purpose subsidiary. Availability under the Trade Receivable Facility is limited to the lesser of the facility limit or 82% of eligible receivables, as defined. The Corporation continues to be responsible for the servicing and administration of the receivables purchased. The Corporation has the option to request an increase in the commitment amount by up to an additional $100,000,000, in increments of no less than $25,000,000, subject to receipt of lender commitments for the increased amount. The Trade Receivable Facility matures on April 19, 2014. At June 30, 2013, outstanding borrowings under the Trade Receivable Facility were classified as long-term on the consolidated balance sheet as the Corporation has the ability and intent to refinance or renew amounts outstanding. The Trade Receivable Facility contains a cross-default provision to the Corporations other debt agreements.
Page 16 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. | Long-Term Debt (continued) |
The Corporations Credit Agreement, consisting of a $250,000,000 senior unsecured term loan (the Term Loan Facility) and a $350,000,000 senior unsecured revolving facility (the Revolving Facility), requires the Corporations ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation maintains specified ratings on its long-term unsecured debt and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if no amounts are outstanding under the Revolving Facility, consolidated debt, including debt guaranteed by the Corporation, may be reduced by the Corporations unrestricted cash and cash equivalents in excess of $50,000,000, such reduction not to exceed $200,000,000, for purposes of the covenant calculation.
The Corporation amended the Credit Agreement Ratio in 2012. The amendment temporarily increased the maximum Ratio to 3.75x at June 30, 2013. The Ratio returns to the pre-amendment maximum of 3.50x for the September 30, 2013 calculation date. The Corporation was in compliance with this Ratio at June 30, 2013.
Available borrowings under the Revolving Facility are reduced by any outstanding letters of credit issued by the Corporation under the Revolving Facility. At June 30, 2013, the Corporation had $2,507,000 of outstanding letters of credit issued under the Revolving Facility.
Accumulated other comprehensive loss includes the unamortized value of terminated forward starting interest rate swap agreements. For the three and six months ended June 30, 2013, the Corporation recognized $275,000 and $544,000, respectively, as additional interest expense. For the three and six months ended June 30, 2012, the Corporation recognized $257,000 and $508,000, respectively, as additional interest expense. The ongoing amortization of the terminated value of the forward starting interest rate swap agreements will increase annual interest expense by approximately $1,000,000 until the maturity of the 6.6% Senior Notes in 2018.
5. | Financial Instruments |
The Corporations financial instruments include temporary cash investments, accounts receivable, notes receivable, bank overdraft, accounts payable, publicly-registered long-term notes, debentures and other long-term debt.
Page 17 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. | Financial Instruments (continued) |
Temporary cash investments are placed primarily in money market funds, money market demand deposit accounts and Eurodollar time deposits with the following financial institutions: Bank of America, N.A., Branch Banking and Trust Company, JPMorgan Chase Bank, N.A., Regions Bank, Fifth Third Bank, and Wells Fargo Bank, N.A. The Corporations cash equivalents have maturities of less than three months. Due to the short maturity of these investments, they are carried on the consolidated balance sheets at cost, which approximates fair value.
Customer receivables are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, customer receivables are more heavily concentrated in certain states (namely, Texas, North Carolina, Iowa, Colorado and Georgia). The estimated fair values of customer receivables approximate their carrying amounts due to the short-term nature of the receivables.
Notes receivable are primarily promissory notes with customers and are not publicly traded. Management estimates that the fair value of notes receivable approximates the carrying amount.
The bank overdraft represents the float of outstanding checks. The estimated fair value of the bank overdraft approximates its carrying value.
Accounts payable represent amounts owed to suppliers and vendors. The estimated fair value of accounts payable approximates its carrying amounts due to the short-term nature of the payables.
The carrying values and fair values of the Corporations long-term debt were $1,093,319,000 and $1,141,592,000, respectively, at June 30, 2013; $1,047,859,000 and $1,105,650,000, respectively, at December 31, 2012; and $1,144,247,000 and $1,204,965,000, respectively, at June 30, 2012. The estimated fair value of the Corporations publicly-registered long-term notes was estimated based on level 1 of the fair value hierarchy using quoted market prices. The estimated fair value of other borrowings, which primarily represents variable-rate debt, approximates its carrying amount as the interest rates reset periodically.
6. | Income Taxes |
Six Months Ended June 30, | ||||||||
2013 | 2012 | |||||||
Estimated effective income tax rate: |
||||||||
Continuing operations |
35.3% | 142.0% | ||||||
|
|
|
|
|||||
Discontinued operations |
26.7% | 21.4% | ||||||
|
|
|
|
|||||
Consolidated overall |
35.2% | 110.6% | ||||||
|
|
|
|
Page 18 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. | Income Taxes (continued) |
The Corporations effective income tax rate reflects the effect of federal and state income taxes and the impact of differences in book and tax accounting arising from the net permanent benefits associated with the statutory depletion deduction for mineral reserves, the impact of foreign losses for which no tax benefit was realized and the domestic production deduction. The effective income tax rates for discontinued operations reflect the tax effects of individual operations transactions and are not indicative of the Corporations overall effective income tax rate.
The Corporations unrecognized tax benefits, excluding interest, correlative effects and indirect benefits, are as follows:
Six Months Ended June 30, 2013 |
||||
(Dollars in Thousands) | ||||
Unrecognized tax benefits at beginning of period |
$ 15,380 | |||
Gross increases tax positions in prior years |
4,508 | |||
Gross decreases tax positions in prior years |
(2,412) | |||
Gross increases tax positions in current year |
777 | |||
|
|
|||
Unrecognized tax benefits at end of period |
$ 18,253 | |||
|
|
The Corporation anticipates that it is reasonably possible that unrecognized tax benefits may decrease up to $10,290,000 during the twelve months ending June 30, 2014 as a result of resolution through payments to taxing authorities and the expiration of the statute of limitations for the 2009 tax year. The majority of the decrease relates to the expected settlement of the Advance Pricing Agreement (APA) the Corporation has with Canada that increased the sales price charged for intercompany shipments from Canada to the United States during the years 2005 through 2011. Upon final settlement with the Canadian taxing authority, the Corporation will be allowed a corresponding refund of tax in the United States for the years 2005 through 2011 pursuant to an APA with the United States, the impact of which is not included in the table of unrecognized tax benefits at June 30, 2013.
At June 30, 2013, unrecognized tax benefits of $15,035,000 related to permanent income tax differences, net of federal tax expense, would have favorably affected the Corporations effective income tax rate if recognized. However, the unrecognized tax benefits, if recognized, would be offset by the corresponding $8,367,000 expense in the United States related to the APA settlement.
The consolidated overall estimated effective income tax rate for the six months ended June 30, 2012 included a refund of federal tax and interest of $1,626,000 related to the 2006 tax year. This discrete event drove an increase in the consolidated overall estimated effective income tax rate for the six months ended June 30, 2012.
Page 19 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. | Pension and Postretirement Benefits |
The estimated components of the recorded net periodic benefit cost (credit) for pension and postretirement benefits are as follows:
Three Months Ended June 30, | ||||||||||||||||
Pension | Postretirement Benefits | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Service cost |
$ | 4,060 | $ | 3,174 | $ | 56 | $ | 59 | ||||||||
Interest cost |
5,799 | 5,743 | 251 | 322 | ||||||||||||
Expected return on assets |
(6,717 | ) | (5,802 | ) | -- | -- | ||||||||||
Amortization of: |
||||||||||||||||
Prior service cost (credit) |
113 | 113 | (808 | ) | (849 | ) | ||||||||||
Actuarial loss (gain) |
3,949 | 3,016 | 6 | (74 | ) | |||||||||||
Settlement charge |
-- | 524 | -- | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost (credit) |
$ | 7,204 | $ | 6,768 | $ | (495 | ) | $ | (542 | ) | ||||||
|
|
|
|
|
|
|
|
Six Months Ended June 30, | ||||||||||||||||
Pension | Postretirement Benefits | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Service cost |
$ | 8,060 | $ | 6,740 | $ | 113 | $ | 114 | ||||||||
Interest cost |
11,512 | 12,193 | 506 | 617 | ||||||||||||
Expected return on assets |
(13,335 | ) | (12,318 | ) | -- | -- | ||||||||||
Amortization of: |
||||||||||||||||
Prior service cost (credit) |
224 | 240 | (1,627 | ) | (1,628 | ) | ||||||||||
Actuarial loss (gain) |
7,840 | 6,403 | 12 | (142 | ) | |||||||||||
Settlement charge |
-- | 524 | -- | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net periodic benefit cost (credit) |
$ | 14,301 | $ | 13,782 | $ | (996 | ) | $ | (1,039 | ) | ||||||
|
|
|
|
|
|
|
|
8. | Commitments and Contingencies |
Legal and Administrative Proceedings
The Corporation is engaged in certain legal and administrative proceedings incidental to its normal business activities. In the opinion of management and counsel, based upon currently-available facts, it is remote that the ultimate outcome of any litigation and other proceedings, including those pertaining to environmental matters, relating to the Corporation and its subsidiaries, will have a material adverse effect on the overall results of the Corporations operations, its cash flows or its financial position.
Page 20 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. | Commitments and Contingencies (continued) |
Environmental and Governmental Regulations
The United States Environmental Protection Agency (USEPA) includes the lime industry as a national enforcement priority under the federal Clean Air Act (CAA). As part of the industry wide effort, the USEPA issued Notices of Violation/Findings of Violation (NOVs) to the Corporation in 2010 and 2011 regarding the Corporations compliance with the CAA New Source Review (NSR) program at its Specialty Products dolomitic lime manufacturing plant in Woodville, Ohio. The Corporation has been providing information to the USEPA in response to these NOVs and has had several meetings with the USEPA. The Corporation believes it is in substantial compliance with the NSR program. Because the enforcement proceeding is in its initial stage, at this time the Corporation cannot reasonably estimate what likely penalties or upgrades to equipment might ultimately be required. The Corporation believes that any costs related to any upgrades will be spread over time and will not have a material adverse effect on the Corporations operations or its financial condition, but can give no assurance that the ultimate resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Specialty Products segment of the business.
Guarantee of Affiliate
The Corporation has a guaranty agreement with Bank of America, N.A., to guarantee a $6,200,000 amortizing loan due April 2015. The Corporation also had an unconditional guaranty of payment agreement with Fifth Third Bank (Fifth Third) to guarantee the repayment of amounts borrowed by an affiliate under a $24,000,000 revolving line of credit provided by Fifth Third. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from these agreements. The Corporation holds a subordinate lien on certain of the affiliates assets as collateral for potential payments under the agreements.
Page 21 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. | Business Segments |
The Corporation conducts its aggregates and vertically-integrated operations through three reportable business segments: Mid-America Group, Southeast Group and West Group. The Corporation also has a Specialty Products segment that includes magnesia-based chemicals products and dolomitic lime.
The following tables display selected financial data for continuing operations for the Corporations reportable business segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for corporate administrative functions, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments. Prior-year segment information has been reclassified to conform to the presentation of the Corporations current reportable segments.
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Total revenues: |
||||||||||||||||
Mid-America Group |
$ | 203,532 | $ | 201,785 | $ | 318,127 | $ | 326,716 | ||||||||
Southeast Group |
60,442 | 63,027 | 116,184 | 123,080 | ||||||||||||
West Group |
237,364 | 225,627 | 391,796 | 378,314 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Aggregates Business |
501,338 | 490,439 | 826,107 | 828,110 | ||||||||||||
Specialty Products |
61,344 | 55,249 | 121,574 | 111,551 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 562,682 | $ | 545,688 | $ | 947,681 | $ | 939,661 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net sales: |
||||||||||||||||
Mid-America Group |
$ | 186,405 | $ | 184,712 | $ | 292,637 | $ | 299,326 | ||||||||
Southeast Group |
55,261 | 58,848 | 106,584 | 114,006 | ||||||||||||
West Group |
210,390 | 197,169 | 342,815 | 326,213 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Aggregates Business |
452,056 | 440,729 | 742,036 | 739,545 | ||||||||||||
Specialty Products |
56,632 | 50,462 | 111,801 | 102,178 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 508,688 | $ | 491,191 | $ | 853,837 | $ | 841,723 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings (Loss) from operations: |
||||||||||||||||
Mid-America Group |
$ | 46,951 | $ | 43,827 | $ | 35,923 | $ | 38,603 | ||||||||
Southeast Group |
(5,176) | (5,623) | (13,563) | (11,528) | ||||||||||||
West Group |
16,940 | 17,346 | 5,642 | 5,019 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Aggregates Business |
58,715 | 55,550 | 28,002 | 32,094 | ||||||||||||
Specialty Products |
18,726 | 17,451 | 35,804 | 35,672 | ||||||||||||
Corporate |
(8,027) | (13,760) | (17,950) | (43,852) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 69,414 | $ | 59,241 | $ | 45,856 | $ | 23,914 | ||||||||
|
|
|
|
|
|
|
|
Page 22 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. | Business Segments (continued) |
Assets employed for the Mid-America and West Groups changed since prior year as a result of the Corporations reorganization of the operations of its Aggregates business (see Note 1).
June 30, 2013 |
December 31, 2012 |
June 30, 2012 |
||||||||||
(Dollars in Thousands) | ||||||||||||
Assets employed: |
||||||||||||
Mid-America Group |
$ | 1,079,198 | $ | 1,036,155 | $ | 1,070,907 | ||||||
Southeast Group |
588,098 | 607,705 | 615,742 | |||||||||
West Group |
1,184,065 | 1,147,879 | 1,182,720 | |||||||||
|
|
|
|
|
|
|||||||
Total Aggregates Business |
2,851,361 | 2,791,739 | 2,869,369 | |||||||||
Specialty Products |
153,542 | 157,673 | 142,597 | |||||||||
Corporate |
226,216 | 211,514 | 214,567 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 3,231,119 | $ | 3,160,926 | $ | 3,226,533 | ||||||
|
|
|
|
|
|
The Aggregates business includes the aggregates product line, along with the asphalt, ready mixed concrete and road paving product lines of its vertically-integrated operations. All vertically-integrated operations reside in the West Group. The following tables provide net sales and gross profit by product line for the Aggregates business and are reconciled to consolidated net sales and gross profit.
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Aggregates |
$ | 357,240 | $ | 356,820 | $ | 605,031 | $ | 614,165 | ||||||||
Asphalt |
18,811 | 20,235 | 28,444 | 32,774 | ||||||||||||
Ready Mixed Concrete |
36,662 | 29,246 | 64,030 | 49,501 | ||||||||||||
Road Paving |
39,343 | 34,428 | 44,531 | 43,105 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Aggregates Business |
452,056 | 440,729 | 742,036 | 739,545 | ||||||||||||
Specialty Products |
56,632 | 50,462 | 111,801 | 102,178 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 508,688 | $ | 491,191 | $ | 853,837 | $ | 841,723 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit (loss): |
||||||||||||||||
Aggregates |
$ | 78,942 | $ | 76,928 | $ | 81,003 | $ | 88,343 | ||||||||
Asphalt |
4,903 | 3,441 | 2,448 | 2,706 | ||||||||||||
Ready Mixed Concrete |
1,649 | 679 | 1,334 | (550) | ||||||||||||
Road Paving |
(284) | 787 | (4,571) | (2,068) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Aggregates Business |
85,210 | 81,835 | 80,214 | 88,431 | ||||||||||||
Specialty Products |
21,284 | 19,923 | 40,866 | 39,313 | ||||||||||||
Corporate |
282 | 308 | (1,717) | (1,852) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 106,776 | $ | 102,066 | $ | 119,363 | $ | 125,892 | ||||||||
|
|
|
|
|
|
|
|
Page 23 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. | Supplemental Cash Flow Information |
The components of the change in other assets and liabilities, net, are as follows:
Six Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Other current and noncurrent assets |
$ | (4,463) | $ | (9,482) | ||||
Accrued salaries, benefits and payroll taxes |
(5,366) | (2,962) | ||||||
Accrued insurance and other taxes |
1,996 | 3,208 | ||||||
Accrued income taxes |
(430) | (5,675) | ||||||
Accrued pension, postretirement and postemployment benefits |
2,122 | (252) | ||||||
Other current and noncurrent liabilities |
10,171 | 2,127 | ||||||
|
|
|
|
|||||
$ | 4,030 | $ | (13,036) | |||||
|
|
|
|
The change in other current and noncurrent liabilities is driven by unrecognized tax benefits related to the estimated settlement of the APA described in Note 6.
11. | Subsequent Events |
On July 1, 2013, the Corporation acquired three aggregates quarries in the greater Atlanta, Georgia area for $62,000,000. The operating results of the acquired locations will be reported through the Corporations Southeast Group in the financial statements starting from the date of acquisition. This transaction provides over 800 million tons of aggregates reserves and enhances the Corporations existing long-term position in this market.
Page 24 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW Martin Marietta Materials, Inc. (the Corporation), is the nations second largest producer of construction aggregates. The Corporations annual net sales and earnings are predominately derived from its Aggregates business, which processes and sells granite, limestone, and other aggregates products, including asphalt, ready mixed concrete and road paving construction services, from a network of 301 quarries, distribution facilities and plants to customers in 33 states, Canada, the Bahamas and the Caribbean Islands. The Aggregates business products are used primarily by commercial customers principally in domestic construction of highways and other infrastructure projects and for nonresidential and residential building development. Aggregates products are also used in the railroad, environmental, utility and agricultural industries.
Effective January 1, 2013, the Corporation reorganized the groups within its Aggregates business. The Corporation currently conducts its aggregates and vertically-integrated operations through three reportable business segments: Mid-America Group, Southeast Group and West Group. The Mid-America Group continues to include operations formerly reported in the Mideast Group, along with operations in Iowa, Minnesota, eastern Nebraska, North Dakota, and Washington (which were formerly reported in the West Group). The Southeast Group remains unchanged. With the exception of operations now reported in the Mid-America Group, there were no other changes to the West Group.
AGGREGATES BUSINESS | ||||||
Reportable Segments | Mid-America Group | Southeast Group | West Group | |||
Operating Locations | Indiana, Iowa, Kentucky, Maryland, Minnesota, eastern Nebraska, North Dakota, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia |
Alabama, Florida, Georgia, Mississippi, Tennessee, Nova Scotia and the Bahamas |
Arkansas, Colorado, Kansas, Louisiana, Missouri, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming | |||
Primary Product Lines | Aggregates (stone, sand and gravel) |
Aggregates (stone, sand and gravel) |
Aggregates (stone, sand and gravel), asphalt, ready mixed concrete and road paving | |||
Primary Types of Aggregates Locations |
Quarries | Quarries and Distribution Yards |
Quarries and Distribution Yards | |||
Primary Modes of Transportation for Aggregates Product Line |
Truck, Limited Rail and Water |
Truck, Rail and Water |
Truck and Rail |
Page 25 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporation also has a Specialty Products segment that produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.
CRITICAL ACCOUNTING POLICIES The Corporation outlined its critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (SEC) on February 22, 2013. There were no changes to the Corporations critical accounting policies during the six months ended June 30, 2013.
RESULTS OF OPERATIONS
Except as indicated, the following comparative analysis in the Results of Operations section of this Managements Discussion and Analysis of Financial Condition and Results of Operations reflects results from continuing operations and is based on net sales and cost of sales. However, gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with the basis by which management reviews the Corporations operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporations operating results given that freight and delivery revenues and costs represent pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted accounting principles (GAAP). The following tables present the calculations of gross margin and operating margin for the three and six months ended June 30, 2013 and 2012 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales:
Gross Margin in Accordance with GAAP
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Gross profit |
$ | 106,776 | $ | 102,066 | $ | 119,363 | $ | 125,892 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 562,682 | $ | 545,688 | $ | 947,681 | $ | 939,661 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
19.0% | 18.7% | 12.6% | 13.4% | ||||||||||||
|
|
|
|
|
|
|
|
Page 26 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Gross Margin Excluding Freight and Delivery Revenues
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Gross profit |
$ | 106,776 | $ | 102,066 | $ | 119,363 | $ | 125,892 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 562,682 | $ | 545,688 | $ | 947,681 | $ | 939,661 | ||||||||
Less: Freight and delivery revenues |
(53,994) | (54,497) | (93,844) | (97,938) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net sales |
$ | 508,688 | $ | 491,191 | $ | 853,837 | $ | 841,723 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin excluding freight and delivery revenues |
21.0% | 20.8% | 14.0% | 15.0% | ||||||||||||
|
|
|
|
|
|
|
|
Operating Margin in Accordance with GAAP
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Earnings from operations |
$ | 69,414 | $ | 59,241 | $ | 45,856 | $ | 23,914 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 562,682 | $ | 545,688 | $ | 947,681 | $ | 939,661 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating margin |
12.3% | 10.9% | 4.8% | 2.5% | ||||||||||||
|
|
|
|
|
|
|
|
Page 27 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Operating Margin Excluding Freight and Delivery Revenues
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Earnings from operations |
$ | 69,414 | $ | 59,241 | $ | 45,856 | $ | 23,914 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
$ | 562,682 | $ | 545,688 | $ | 947,681 | $ | 939,661 | ||||||||
Less: Freight and delivery revenues |
(53,994) | (54,497) | (93,844) | (97,938) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net sales |
$ | 508,688 | $ | 491,191 | $ | 853,837 | $ | 841,723 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating margin excluding freight and delivery revenues |
13.6% | 12.1% | 5.4% | 2.8% | ||||||||||||
|
|
|
|
|
|
|
|
Quarter Ended June 30
Significant items for the quarter ended June 30, 2013 (unless noted, all comparisons are versus the prior-year quarter):
| Earnings per diluted share of $0.89 compared with $0.80 (prior-year quarter includes $0.12 per diluted share charge for business development costs) |
| Consolidated net sales of $508.7 million, up 3.6%, compared with $491.2 million |
| Aggregates product line pricing up 1.7%; aggregates product line volume down 1.6% |
| Consolidated gross margin (excluding freight and delivery revenues) of $106.8 million, up $4.7 million |
| Record Specialty Products net sales of $56.6 million |
| Consolidated selling, general and administrative expenses (SG&A) up 20 basis points as a percentage of net sales |
| Consolidated earnings from operations of $69.4 million compared with $59.2 million (prior-year quarter includes $9.2 million of business development costs) |
The following table presents net sales, gross profit, selling, general and administrative expenses and earnings from operations data for the Corporation and its reportable segments for the three months ended June 30, 2013 and 2012. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.
Page 28 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Three Months Ended June 30, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
Amount | % of Net Sales |
Amount | % of Net Sales |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Mid-America Group |
$ | 186,405 | $ | 184,712 | ||||||||||||
Southeast Group |
55,261 | 58,848 | ||||||||||||||
West Group |
210,390 | 197,169 | ||||||||||||||
|
|
|
|
|||||||||||||
Total Aggregates Business |
452,056 | 100.0 | 440,729 | 100.0 | ||||||||||||
Specialty Products |
56,632 | 100.0 | 50,462 | 100.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 508,688 | 100.0 | $ | 491,191 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit (loss): |
||||||||||||||||
Mid-America Group |
$ | 59,607 | 32.0 | $ | 56,255 | 30.5 | ||||||||||
Southeast Group |
(551) | (1.0) | (896) | (1.5) | ||||||||||||
West Group |
26,154 | 12.4 | 26,476 | 13.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Aggregates Business |
85,210 | 18.8 | 81,835 | 18.6 | ||||||||||||
Specialty Products |
21,284 | 37.6 | 19,923 | 39.5 | ||||||||||||
Corporate |
282 | -- | 308 | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 106,776 | 21.0 | $ | 102,066 | 20.8 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Selling, general & administrative expenses: |
||||||||||||||||
Mid-America Group |
$ | 12,705 | $ | 13,810 | ||||||||||||
Southeast Group |
4,491 | 4,520 | ||||||||||||||
West Group |
11,186 | 10,988 | ||||||||||||||
|
|
|
|
|||||||||||||
Total Aggregates Business |
28,382 | 6.3 | 29,318 | 6.7 | ||||||||||||
Specialty Products |
2,529 | 4.5 | 2,196 | 4.4 | ||||||||||||
Corporate |
6,932 | -- | 3,761 | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 37,843 | 7.4 | $ | 35,275 | 7.2 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings (Loss) from operations: |
||||||||||||||||
Mid-America Group |
$ | 46,951 | $ | 43,827 | ||||||||||||
Southeast Group |
(5,176) | (5,623) | ||||||||||||||
West Group |
16,940 | 17,346 | ||||||||||||||
|
|
|
|
|||||||||||||
Total Aggregates Business |
58,715 | 13.0 | 55,550 | 12.6 | ||||||||||||
Specialty Products |
18,726 | 33.1 | 17,451 | 34.6 | ||||||||||||
Corporate |
(8,027) | -- | (13,760) | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 69,414 | 13.6 | $ | 59,241 | 12.1 | ||||||||||
|
|
|
|
|
|
|
|
Page 29 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporation reported higher second-quarter net sales and gross margin (excluding freight and delivery revenues) compared with the prior-year quarter, which was particularly noteworthy in light of excessive rainfall in most of the Corporations key markets. Consolidated net sales increased 3.6%, driven by pricing growth in all Aggregates business product lines and a new quarterly net sales record achieved by the Specialty Products business. Net earnings increased 12.4% despite being constrained by the impact of wet weather, particularly in the midwestern and southeastern United States. For example, the state of Iowa had the wettest second quarter in over a century, and, many Georgia markets had rainfall during the quarter more than double the average levels, including Augusta which reported its wettest month in weather history in June. While difficult to isolate all of the quarters weather impact, the Corporation knows its effect was at least three-fold. First, with respect to potential lost sales, the Corporation estimates that precipitation reduced shipment volumes between 1.5 million and 1.7 million tons. Second, though more difficult to estimate than the sales component, throughput challenges created by wet weather significantly reduced operational productivity. Finally, lower production volumes led to an underabsorption of fixed costs. Despite these challenging conditions, the Corporation continues to see positive indicators of construction activity, including double-digit growth on a year-to-date basis in the private-sector construction market. Historically, increases in private construction have led to growth in public-sector construction. Management anticipates this trend continuing and the Corporation remains well-positioned to serve these opportunities.
During the quarter, pricing momentum in the aggregates product line continued with each of the Aggregates business reportable groups achieving increases. The West Group reported a 2.8% improvement, reflecting price increases implemented over the past year. The Mid-America and Southeast Groups reported average selling price increases of 1.9% and 0.4%, respectively, in the aggregates product line. Recently implemented mid-year pricing increases provide further support for continued pricing momentum. The Corporations vertically-integrated businesses also achieved pricing growth, with the ready mixed concrete and asphalt product lines reporting increases of 8.3% and 4.3%, respectively.
Through the first half of the year, growth in construction activity has been concentrated in the private sector which, on a year-to-date basis through May, reported a 12% increase in construction put-in-place. Consistent with this trend, the Corporations private-sector markets reported volume growth over the prior-year quarter. The nonresidential market, which represented approximately 30% of second-quarter aggregates shipments, increased 7%. This growth was attributable to commercial construction, namely office and retail, and was partially offset by a decline in shipments to the energy sector due to a modest slowdown in shale oil field activity. The residential construction market continues to recover; housing starts are up more than 10% over the prior year and housing completions are up over 20%. Shipments to the residential market increased 4% and accounted for 13% of second-quarter aggregates shipments, representing a more normalized and balanced percentage of overall product sales. Management expects further increases in residential volumes as the housing market continues to move toward a more sustainable equilibrium. Finally, the ChemRock/Rail end-use market, approximately 10% of second-quarter aggregates shipments, increased 2%.
Page 30 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The infrastructure market comprised the remaining 47% of second-quarter aggregates shipments. Lower government spending and wet weather contributed to an 8% decline in quarterly volumes to this end-use market and a 1.6% overall shipment decline for the Aggregates business. However, given the ongoing recovery of the U.S. economy, reflected by employment growth, management remains optimistic for increased future public-sector construction activity. Similar to the pattern experienced in Texas over the last few years, growth in the residential sector within the Corporations geographic areas is expected to stimulate growth in the nonresidential and infrastructure markets to serve an expanding economy and increased population. The Corporation sees early signs of this cycle developing in both Colorado and Georgia.
Management is also encouraged by states recent initiatives to address long-neglected infrastructure needs. For example, the South Carolina Department of Transportation recently increased its budget by $500 million for repairs of existing roads and the Indiana Department of Transportation approved up to an additional $415 million annually for construction of new roads and expansion of major highways. Additionally, Texas is expected to initiate work on several large highway projects in the second half of the year in connection with its increased state Department of Transportation budget. Texas is also one of the most proactive states in applications for funding under the Transportation Infrastructure Finance and Innovation Act, or TIFIA, a program with the ability to leverage up to $50 billion in financing for transportation projects of either national or regional significance. A number of TIFIA awards are currently expected to be announced later this year. Consistent with managements previous viewpoint, given the timing of the initial awards, any meaningful impact of TIFIA is not expected prior to 2014.
Net sales by product line for the Aggregates business are as follows:
Three Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Net sales1: |
||||||||
Aggregates |
$ | 357,240 | $ | 356,820 | ||||
Asphalt |
18,811 | 20,235 | ||||||
Ready Mixed Concrete |
36,662 | 29,246 | ||||||
Road Paving |
39,343 | 34,428 | ||||||
|
|
|
|
|||||
Total Aggregates Business |
$ | 452,056 | $ | 440,729 | ||||
|
|
|
|
1Net | sales by product line reflect the elimination of inter-product line sales. |
Page 31 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The following tables present volume and pricing data and shipments data for the aggregates product line.
Three Months Ended June 30, 2013 |
||||||||
Volume/Pricing Variance (1) | Volume | Pricing | ||||||
Heritage Aggregates Product Line (2): |
||||||||
Mid-America Group |
(1.2%) | 1.9% | ||||||
Southeast Group |
(6.7%) | 0.4% | ||||||
West Group |
(0.5%) | 2.8% | ||||||
Heritage Aggregates Operations(2) |
(1.6%) | 1.8% | ||||||
Aggregates Product Line (3) |
(1.6%) | 1.7% |
Three Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(tons in thousands) | ||||||||
Shipments |
||||||||
Heritage Aggregates Product Line (2): |
||||||||
Mid-America Group |
16,573 | 16,774 | ||||||
Southeast Group |
4,273 | 4,579 | ||||||
West Group |
13,703 | 13,767 | ||||||
|
|
|
|
|||||
Heritage Aggregates Operations(2) |
34,549 | 35,120 | ||||||
Acquisitions |
24 | -- | ||||||
Divestitures (4) |
1 | 10 | ||||||
|
|
|
|
|||||
Aggregates Product Line (3) |
34,574 | 35,130 | ||||||
|
|
|
|
Three Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(tons in thousands) | ||||||||
Shipments |
||||||||
Aggregates Product Line (3): |
||||||||
Tons to external customers |
33,286 | 33,906 | ||||||
Internal tons used in other product lines |
1,288 | 1,224 | ||||||
|
|
|
|
|||||
Total aggregates tons |
34,574 | 35,130 | ||||||
|
|
|
|
(1) | Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year. |
(2) | Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included in prior-year operations for the comparable period and exclude divestitures. |
(3) | Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal. |
(4) | Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture. |
Page 32 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The per-ton average selling price for the aggregates product line was $10.48 and $10.31 for the three months ended June 30, 2013 and 2012, respectively.
The Corporations vertically-integrated operations include asphalt, ready mixed concrete and road paving businesses in Arkansas, Colorado and Texas. Average selling prices by product line for the Corporations vertically-integrated operations are as follows:
Three Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
Asphalt |
$ | 42.55/ton | $ | 40.80/ton | ||||
Ready Mixed Concrete |
$ | 82.29/yd3 | $ | 76.01/yd3 |
Unit shipments by product line for the Corporations vertically-integrated operations are as follows:
Three Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(in thousands) | ||||||||
Asphalt Product Line: |
||||||||
Tons to external customers |
382 | 468 | ||||||
Internal tons used in road paving business |
461 | 399 | ||||||
|
|
|
|
|||||
Total asphalt tons |
843 | 867 | ||||||
|
|
|
|
|||||
Ready Mixed Concrete cubic yards |
436 | 377 | ||||||
|
|
|
|
The Aggregates business is significantly affected by erratic weather patterns, seasonal changes and other weather-related conditions. Aggregates production and shipment levels correlate with general construction activity levels, most of which occurs in the spring, summer and fall. Thus, production and shipment levels vary by quarter. Operations concentrated in the northern and midwestern United States generally experience more severe winter weather conditions than operations in the Southeast and Southwest. Excessive rainfall, and conversely excessive drought, can also jeopardize shipments, production and profitability in all markets served by the Corporation. Because of the significant impact of weather on the Corporations operations, second-quarter results are not indicative of expected performance for other interim periods or the full year.
Page 33 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Specialty Products business continued its strong performance and generated second-quarter net sales of $56.6 million, reflecting growth in both the dolomitic lime and chemicals product lines. Sales of dolomitic lime include the contribution from the Woodville kiln that became operational during the fourth quarter of 2012, partially offset by the impact of a 4% decrease in steel production compared with the prior-year quarter. Earnings from operations of $18.7 million were up 7% over the prior-year quarter, but were negatively affected by higher natural gas costs which reduced earnings from operations by $0.8 million.
Operations personnel continued their focus on cost control, as evidenced by a 20-basis-point expansion of consolidated gross margin (excluding freight and delivery revenues), despite weather constraints that resulted in shipment and production reductions. The Mid-America Group, led by the performance of the Mid-Atlantic Division, which includes Virginia, North Carolina, and South Carolina, achieved a 150-basis-point improvement in gross margin (excluding freight and delivery revenues). The Mid-Atlantic Division leveraged a 10% increase in aggregates product line shipments into an incremental gross margin (excluding freight and delivery revenues) exceeding the Corporations publicly-stated expectations.
Quarterly gross profit for the Southeast Group in 2013 was negatively impacted by $1.1 million in unplanned repairs for a shiploader/reclaimer.
The following presents a rollforward of the Corporations gross profit (dollars in thousands):
Consolidated gross profit, quarter ended June 30, 2012 |
$ | 102,066 | ||
|
|
|||
Aggregates product line: |
||||
Pricing strength |
6,305 | |||
Volume weakness |
(5,885) | |||
Cost decreases, net |
1,594 | |||
|
|
|||
Increase in aggregates product line gross profit |
2,014 | |||
Vertically-integrated operations |
1,361 | |||
Specialty Products |
1,361 | |||
Corporate |
(26) | |||
|
|
|||
Increase in consolidated gross profit |
4,710 | |||
|
|
|||
Consolidated gross profit, quarter ended June 30, 2013 |
$ | 106,776 | ||
|
|
Page 34 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Gross profit (loss) by business is as follows:
Three Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Gross profit (loss): |
||||||||
Aggregates |
$ | 78,942 | $ | 76,928 | ||||
Asphalt |
4,903 | 3,441 | ||||||
Ready Mixed Concrete |
1,649 | 679 | ||||||
Road Paving |
(284) | 787 | ||||||
|
|
|
|
|||||
Total Aggregates Business |
85,210 | 81,835 | ||||||
Specialty Products |
21,284 | 19,923 | ||||||
Corporate |
282 | 308 | ||||||
|
|
|
|
|||||
Total |
$ | 106,776 | $ | 102,066 | ||||
|
|
|
|
Consolidated SG&A expenses were 7.4% of net sales, up 20 basis points compared with the prior-year quarter. On an absolute basis, SG&A increased $2.6 million, largely related to incremental costs for an information systems upgrade expected to be completed by the fall of 2013.
During the second quarter of 2012, the Corporation incurred $9.2 million of business development costs related to a proposed significant business combination that was not consummated.
Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; gains and losses related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations; and research and development costs. For the second quarter, consolidated other operating income and expenses, net, was income of $0.8 million in 2013 compared with income of $1.7 million in 2012, primarily as a result of higher gains on the sale of assets in 2012.
Page 35 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Six Months Ended June 30
Significant items for the six months ended June 30, 2013 (unless noted, all comparisons are versus the prior-year period):
| Earnings per diluted share of $0.29 compared with breakeven earnings per diluted share (prior-year period includes $0.46 per diluted share charge for business development costs) |
| Consolidated net sales of $853.8 million, up 1.4%, compared with $841.7 million |
| Aggregates product line pricing up 3.3%; aggregates product line volume down 4.6%; production cost per ton up 2.9% |
| Specialty Products net sales of $111.8 million and earnings from operations of $35.8 million |
| Consolidated SG&A up 70 basis points as a percentage of net sales |
| Consolidated earnings from operations of $45.9 million compared with $23.9 million (prior-year period includes $35.1 million of business development costs) |
Page 36 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The following table presents net sales, gross profit, selling, general and administrative expenses and earnings from operations data for the Corporation and its reportable segments for the six months ended June 30, 2013 and 2012. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.
Six Months Ended June 30, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
Amount | % of Net Sales |
Amount | % of Net Sales |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Mid-America Group |
$ | 292,637 | $ | 299,326 | ||||||||||||
Southeast Group |
106,584 | 114,006 | ||||||||||||||
West Group |
342,815 | 326,213 | ||||||||||||||
|
|
|
|
|||||||||||||
Total Aggregates Business |
742,036 | 100.0 | 739,545 | 100.0 | ||||||||||||
Specialty Products |
111,801 | 100.0 | 102,178 | 100.0 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 853,837 | 100.0 | $ | 841,723 | 100.0 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit (loss): |
||||||||||||||||
Mid-America Group |
$ | 59,514 | 20.3 | $ | 63,222 | 21.1 | ||||||||||
Southeast Group |
(5,456) | (5.1) | (721) | (0.6) | ||||||||||||
West Group |
26,156 | 7.6 | 25,930 | 7.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Aggregates Business |
80,214 | 10.8 | 88,431 | 12.0 | ||||||||||||
Specialty Products |
40,866 | 36.6 | 39,313 | 38.5 | ||||||||||||
Corporate |
(1,717) | -- | (1,852) | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 119,363 | 14.0 | $ | 125,892 | 15.0 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Selling, general & administrative expenses: |
||||||||||||||||
Mid-America Group |
$ | 24,944 | $ | 27,021 | ||||||||||||
Southeast Group |
8,970 | 9,411 | ||||||||||||||
West Group |
22,928 | 22,207 | ||||||||||||||
|
|
|
|
|||||||||||||
Total Aggregates Business |
56,842 | 7.7 | 58,639 | 7.9 | ||||||||||||
Specialty Products |
5,020 | 4.5 | 4,725 | 4.6 | ||||||||||||
Corporate |
13,630 | -- | 4,939 | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 75,492 | 8.8 | $ | 68,303 | 8.1 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings (Loss) from operations: |
||||||||||||||||
Mid-America Group |
$ | 35,923 | $ | 38,603 | ||||||||||||
Southeast Group |
(13,563) | (11,528) | ||||||||||||||
West Group |
5,642 | 5,019 | ||||||||||||||
|
|
|
|
|||||||||||||
Total Aggregates Business |
28,002 | 3.8 | 32,094 | 4.3 | ||||||||||||
Specialty Products |
35,804 | 32.0 | 35,672 | 34.9 | ||||||||||||
Corporate |
(17,950) | -- | (43,852) | -- | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 45,856 | 5.4 | $ | 23,914 | 2.8 | ||||||||||
|
|
|
|
|
|
|
|
Page 37 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
For the first six months of 2013, consolidated net sales increased 1.4%, driven by pricing and volume improvements for the ready mixed concrete product line and record net sales achieved by the Specialty Products business.
Pricing momentum in the aggregates product line continued with each of our reportable groups achieving pricing growth. The West Group reported a 5.3% improvement, primarily due to price increases implemented over the past year. The Mid-America and Southeast Groups reported average selling price increases of 2.5% and 3.0%, respectively, in the aggregates product line. The Corporations vertically-integrated businesses also achieved pricing growth, with the ready mixed concrete and asphalt product lines reporting increases of 8.5% and 4.8%, respectively.
Excessive rainfall and lower government spending contributed to a 4.6% decline in aggregates product line shipments during the six months ended June 30, 2013.
Net sales by product line for the Aggregates business are as follows:
Six Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Net sales1: |
||||||||
Aggregates |
$ | 605,031 | $ | 614,165 | ||||
Asphalt |
28,444 | 32,774 | ||||||
Ready Mixed Concrete |
64,030 | 49,501 | ||||||
Road Paving |
44,531 | 43,105 | ||||||
|
|
|
|
|||||
Total Aggregates Business |
$ | 742,036 | $ | 739,545 | ||||
|
|
|
|
1 | Net sales by product line reflect the elimination of inter-product line sales. |
The following tables present volume and pricing data and shipments data for the aggregates product line.
Six Months Ended June 30, 2013 |
||||||||
Volume/Pricing Variance (1) | Volume | Pricing | ||||||
Heritage Aggregates Product Line (2): |
||||||||
Mid-America Group |
(4.8%) | 2.5% | ||||||
Southeast Group |
(9.4%) | 3.0% | ||||||
West Group |
(2.6%) | 5.3% | ||||||
Heritage Aggregates Operations(2) |
(4.6%) | 3.2% | ||||||
Aggregates Product Line (3) |
(4.6%) | 3.3% |
Page 38 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Six Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(tons in thousands) | ||||||||
Shipments |
||||||||
Heritage Aggregates Product Line (2): |
||||||||
Mid-America Group |
25,215 | 26,474 | ||||||
Southeast Group |
8,093 | 8,935 | ||||||
West Group |
24,020 | 24,654 | ||||||
|
|
|
|
|||||
Heritage Aggregates Operations (2) |
57,328 | 60,063 | ||||||
Acquisitions |
24 | -- | ||||||
Divestitures (4) |
2 | 33 | ||||||
|
|
|
|
|||||
Aggregates Product Line (3) |
57,354 | 60,096 | ||||||
|
|
|
|
Six Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(tons in thousands) | ||||||||
Shipments |
||||||||
Aggregates Product Line (3): |
||||||||
Tons to external customers |
55,407 | 58,125 | ||||||
Internal tons used in other product lines |
1,947 | 1,971 | ||||||
|
|
|
|
|||||
Total aggregates tons |
57,354 | 60,096 | ||||||
|
|
|
|
(1) | Volume/pricing variances reflect the percentage increase / (decrease) from the comparable period in the prior year. |
(2) | Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included in prior-year operations for the comparable period and exclude divestitures. |
(3) | Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal. |
(4) | Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture. |
The per-ton average selling price for the aggregates product line was $10.67 and $10.34 for the six months ended June 30, 2013 and 2012, respectively.
Average selling prices by product line for the Corporations vertically-integrated operations are as follows:
Six Months Ended June 30, | ||||||||||
2013 | 2012 | |||||||||
Asphalt |
$ | 42.51/ton | $ | 40.58/ton | ||||||
Ready Mixed Concrete |
$ | 82.04/yd | 3 | $ | 75.62/yd | 3 |
Page 39 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Unit shipments by product line for the Corporations vertically-integrated operations are as follows:
Six Months Ended June 30, |
||||||||
2013 | 2012 | |||||||
(in thousands) | ||||||||
Asphalt Product Line: |
||||||||
Tons to external customers |
608 | 791 | ||||||
Internal tons used in road paving business |
496 | 486 | ||||||
|
|
|
|
|||||
Total asphalt tons |
1,104 | 1,277 | ||||||
|
|
|
|
|||||
Ready Mixed Concrete cubic yards |
765 | 644 | ||||||
|
|
|
|
For 2013, Specialty Products net sales of $111.8 million increased $9.6 million, or 9.4%, over the prior-year period. Sales growth for the dolomitic lime product line reflects shipments from the new lime kiln which became operational in November 2012, partially offset by the loss of higher-margin sales from a customer that filed for bankruptcy. Earnings from operations were $35.8 million compared with $35.7 million.
Consolidated gross margin (excluding freight and delivery revenues) was 14.0% for 2013 versus 15.0% for 2012. The reduction reflects lower aggregates product line shipments, which reduced the operating leverage of the Aggregates business. Furthermore, gross profit for the Southeast Group in 2013 was negatively impacted by $1.7 million in unplanned repairs for a shiploader/reclaimer.
The following presents a rollforward of the Corporations gross profit (dollars in thousands):
Consolidated gross profit, six months ended June 30, 2012 |
$ | 125,892 | ||
|
|
|||
Aggregates product line: |
||||
Pricing strength |
19,149 | |||
Volume weakness |
(28,283) | |||
Cost decreases, net |
1,794 | |||
|
|
|||
Decrease in aggregates product line gross profit |
(7,340) | |||
Vertically-integrated operations |
(877) | |||
Specialty Products |
1,553 | |||
Corporate |
135 | |||
|
|
|||
Decrease in consolidated gross profit |
(6,529) | |||
|
|
|||
Consolidated gross profit, six months ended June 30, 2013 |
$ | 119,363 | ||
|
|
Page 40 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
Gross profit (loss) by business is as follows:
Six Months Ended | ||||||||
June 30, | ||||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Gross profit (loss): |
||||||||
Aggregates |
$ | 81,003 | $ | 88,343 | ||||
Asphalt |
2,448 | 2,706 | ||||||
Ready Mixed Concrete |
1,334 | (550) | ||||||
Road Paving |
(4,571) | (2,068) | ||||||
|
|
|
|
|||||
Total Aggregates Business |
80,214 | 88,431 | ||||||
Specialty Products |
40,866 | 39,313 | ||||||
Corporate |
(1,717) | (1,852) | ||||||
|
|
|
|
|||||
Total |
$ | 119,363 | $ | 125,892 | ||||
|
|
|
|
Consolidated SG&A expenses were 8.8% of net sales, up 70 basis points compared with the prior-year period. On an absolute basis, SG&A increased $7.2 million, largely related to incremental costs for an information systems upgrade.
During the six months ended June 30, 2012, the Corporation incurred $35.1 million of business development costs related to a proposed significant business combination that was not consummated.
For the first six months, consolidated other operating income and expenses, net, was income of $2.6 million in 2013 compared with income of $1.5 million in 2012, due in part to higher gains on the sale of assets in 2013.
In addition to other offsetting amounts, other nonoperating income and expenses, net, are comprised generally of interest income and net equity earnings from nonconsolidated investments. Consolidated other nonoperating income and expenses, net, for the six months ended June 30 was an expense of $0.1 million in 2013 compared with income of $1.9 million in 2012, with the change resulting from a gain on debt repurchased at a discount in 2012 and a gain on foreign currency transactions in 2012.
Page 41 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the six months ended June 30, 2013 was $48.5 million compared with $27.7 million for the same period in 2012. The improvement is attributable to the absence of significant business development costs incurred in 2012. Operating cash flow is primarily derived from consolidated net earnings or loss, before deducting depreciation, depletion and amortization, and offset by working capital requirements. Depreciation, depletion and amortization were as follows:
Six Months Ended | ||||||||
June 30, | ||||||||
2013 | 2012 | |||||||
(Dollars in Thousands) | ||||||||
Depreciation |
$ | 81,096 | $ | 84,056 | ||||
Depletion |
2,284 | 1,903 | ||||||
Amortization |
2,612 | 2,776 | ||||||
|
|
|
|
|||||
$ | 85,992 | $ | 88,735 | |||||
|
|
|
|
The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when compared with the full year. Full-year 2012 net cash provided by operating activities was $222.7 million compared with $27.7 million for the first six months of 2012.
During the six months ended June 30, 2013, the Corporation invested $50.0 million of capital into its business. Full-year capital spending, exclusive of acquisitions, if any, is expected to be approximately $155.0 million in 2013. Comparable full-year capital expenditures were $151.0 million in 2012.
On April 19, 2013, the Corporation, through a wholly-owned consolidated special purpose subsidiary, established a $150 million trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the facility from time to time (the Trade Receivable Facility). Borrowings under the Trade Receivable Facility are limited based on the balance of the Corporations accounts receivable and bear interest at a rate equal to the one-month LIBOR plus 0.6%. The Corporation has the option to request an increase in the commitment amount by up to an additional $100 million in increments of no less than $25 million, subject to receipt of lender commitments for the increased amount. The Trade Receivable Facility matures on April 19, 2014.
On July 1, 2013, the Corporation acquired three aggregates quarries in Atlanta, Georgia, for $62.0 million.
Page 42 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
The Corporation can repurchase its common stock through open-market purchases pursuant to authority granted by its Board of Directors. The Corporation did not repurchase any shares of common stock during the six months ended June 30, 2013 and 2012. Management currently has no intent to repurchase any shares of the Corporations common stock. At June 30, 2013, 5,042,000 shares of common stock were remaining under the Corporations repurchase authorization.
The Credit Agreement (which consists of a $250 million Term Loan Facility and a $350 million Revolving Facility) requires the Corporations ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its ratings on long-term unsecured debt fall below BBB by Standard & Poors or Baa2 by Moodys and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility, consolidated debt, including debt guaranteed by the Corporation, will be reduced for purposes of the covenant calculation by the Corporations unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million.
The Corporation amended the Credit Agreement Ratio in 2012. The amendment temporarily increased the maximum Ratio to 3.75x at June 30, 2013. The Ratio returns to the pre-amendment maximum of 3.50x for the September 30, 2013 calculation date.
The Ratio is calculated as debt, including debt guaranteed by the Corporation, divided by consolidated EBITDA, as defined, for the trailing twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation, depletion and amortization expense for continuing operations. Additionally, stock-based compensation expense is added back and interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring noncash items, if they occur, can affect the calculation of consolidated EBITDA.
Page 43 of 55
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Second Quarter Ended June 30, 2013
(Continued)
At June 30, 2013, the Corporations ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing twelve months EBITDA was 3.17 times and was calculated as follows:
Twelve Month Period July 1, 2012 to June 30, 2013 |
||||
(Dollars in thousands) | ||||
Earnings from continuing operations attributable to Martin Marietta Materials, Inc. |
$ | 97,949 | ||
Add back: |
||||
Interest expense |
53,711 | |||
Income tax expense |
24,656 | |||
Depreciation, depletion and amortization expense |
169,965 | |||
Stock-based compensation expense |
7,185 | |||
Deduct: |
||||
Interest income |
(294) | |||
|
|
|||
Consolidated EBITDA, as defined |
$ | 353,172 | ||
|
|
|||
Consolidated debt, including debt guaranteed by the Corporation, at June 30, 2013 |
$ | 1,117,807 | ||
Deduct: |
||||
Unrestricted cash and cash equivalents in excess of $50,000 at June 30, 2013 |
-- | |||
|
|
|||
Consolidated net debt, as defined, at June 30, 2013 |
$ | 1,117,807 | ||
|
|
|||
Consolidated debt to consolidated EBITDA, as defined, at June 30, 2013 for the trailing twelve months EBITDA |