Form 10-Q
Table of Contents

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)

Registrant’s 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 issuer’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

 

     Page  

Part I. Financial Information:

  

Item 1. Financial Statements.

  

Consolidated Balance Sheets – June 30, 2013, December 31, 2012 and June 30, 2012

     3   

Consolidated Statements of Earnings and Comprehensive Earnings - Three and Six Months Ended June  30, 2013 and 2012

     4   

Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012

     5   

Consolidated Statement of Total Equity - Six Months Ended June 30, 2013

     6   

Notes to Consolidated Financial Statements

     7   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     25   

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     50   

Item 4. Controls and Procedures.

     51   

Part II. Other Information:

  

Item 1. Legal Proceedings.

     52   

Item 1A. Risk Factors.

     52   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     52   

Item 4. Mine Safety Disclosures.

     52   

Item 6. Exhibits.

     53   

Signatures

     54   

Exhibit Index

     55   

 

Page 2 of 55


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     June 30,
2013
     December 31,
2012
     June 30,
2012
 
     (Unaudited)      (Audited)      (Unaudited)  
     (Dollars in Thousands, Except Per Share Data)  

ASSETS

        

Current Assets:

        

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    
  

 

 

    

 

 

    

 

 

 

Total Current Assets

     806,485          700,401          760,331    
  

 

 

    

 

 

    

 

 

 

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)   
  

 

 

    

 

 

    

 

 

 

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    
  

 

 

    

 

 

    

 

 

 

Total Assets

     $ 3,231,119          $ 3,160,926          $ 3,226,533    
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

        

Current Liabilities:

        

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    
  

 

 

    

 

 

    

 

 

 

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    
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     1,790,452          1,710,627          1,809,729    
  

 

 

    

 

 

    

 

 

 

Equity:

        

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    
  

 

 

    

 

 

    

 

 

 

Total Shareholders’ Equity

     1,402,138          1,410,545          1,377,939    

Noncontrolling interests

     38,529          39,754          38,865    
  

 

 

    

 

 

    

 

 

 

Total Equity

     1,440,667          1,450,299          1,416,804    
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

   $ 3,231,119        $ 3,160,926        $ 3,226,533    
  

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 3 of 55


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
             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    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

         562,682          545,688          947,681          939,661    
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of sales

     401,912          389,125          734,474          715,831    

Freight and delivery costs

     53,994          54,497          93,844          97,938    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenues

     455,906          443,622          828,318          813,769    
  

 

 

    

 

 

    

 

 

    

 

 

 

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)   
  

 

 

    

 

 

    

 

 

    

 

 

 

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)   
  

 

 

    

 

 

    

 

 

    

 

 

 

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)   
  

 

 

    

 

 

    

 

 

    

 

 

 

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)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated net earnings

     41,567          37,808          12,238          134    

Less: Net earnings (loss) attributable to noncontrolling interests

     259          1,057          (1,230)         116    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

   $ 41,308        $ 36,751        $ 13,468        $ 18    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

           

Earnings from continuing operations

   $ 41,054        $ 36,417        $ 13,314        $ 275    

Earnings (Loss) from discontinued operations

     254          334          154          (257)   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 41,308        $ 36,751        $ 13,468        $ 18    
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Comprehensive Earnings (See Note 1)

           

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    
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 40,261        $ 39,162        $ 12,155        $ 3,390    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Earnings (Loss) Attributable to Martin Marietta Materials, Inc.

           

Per Common Share

           

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)   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 0.89        $ 0.80        $ 0.29        $   
  

 

 

    

 

 

    

 

 

    

 

 

 

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)   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 0.89        $ 0.80        $ 0.29        $   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-Average Common Shares Outstanding

           

Basic

     46,129          45,781          46,079          45,757    
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     46,260          45,905          46,217          45,757    
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash Dividends Per Common Share

   $ 0.40        $ 0.40        $ 0.80        $ 0.80    
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

 

Page 4 of 55


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Six Months Ended
June 30,
 
     2013      2012  
     (Dollars in Thousands)  
     (Unaudited)  

Cash Flows from Operating Activities:

     

Consolidated net earnings

   $ 12,238        $ 134    

Adjustments to reconcile consolidated net earnings to net cash provided by operating activities:

     

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:

     

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)   
  

 

 

    

 

 

 

Net Cash Provided by Operating Activities

     48,472          27,669    
  

 

 

    

 

 

 

Cash Flows from Investing Activities:

     

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    
  

 

 

    

 

 

 

Net Cash Used for Investing Activities

     (51,374)         (62,391)   
  

 

 

    

 

 

 

Cash Flows from Financing Activities:

     

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            
  

 

 

    

 

 

 

Net Cash Provided by Financing Activities

     21,220          50,093    
  

 

 

    

 

 

 

Net Increase in Cash and Cash Equivalents

     18,318          15,371    

Cash and Cash Equivalents, beginning of period

     25,394          26,022    
  

 

 

    

 

 

 

Cash and Cash Equivalents, end of period

   $ 43,712        $ 41,393    
  

 

 

    

 

 

 

Supplemental Disclosures of Cash Flow Information:

     

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


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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
 

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)                 (83)   

Dividends declared

     -             -             -             -             (37,068)         (37,068)         -             (37,068)   

Issuances of common stock for stock award plans

     230                  11,298          -             -             11,300          -             11,300    

Stock-based compensation expense

     -             -             3,981          -             -             3,981          -             3,981    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at June 30, 2013

             46,232        $     461        $ 429,936        $     (106,257)       $     1,077,998        $     1,402,138          $     38,529         $     1,440,667    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 6 of 55


Table of Contents

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 Corporation’s 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 Corporation’s 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,
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

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


Table of Contents

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 Corporation’s 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 Corporation’s 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 Corporation’s 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.

 

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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,
 
     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    
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive earnings attributable to Martin Marietta Materials, Inc.

   $ 39,999        $ 38,102        $ 13,380        $     3,268    
  

 

 

    

 

 

    

 

 

    

 

 

 

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,
 
     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

                               
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive earnings (loss) attributable to noncontrolling interests

   $ 262        $ 1,060        $ (1,225)       $ 122    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 9 of 55


Table of Contents

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
 
  

 

 

 
     Three Months Ended June 30, 2013   

Balance at beginning of period

       $ (106,296)                 $ 5,323           $ (3,975)           $ (104,948)         
  

 

 

    

 

 

    

 

 

    

 

 

 

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         
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings, net of tax

     (307)             (1,169)         167          (1,309)         
  

 

 

    

 

 

    

 

 

    

 

 

 

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


Table of Contents

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


Table of Contents

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


Table of Contents

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
consolidated financial statements

     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


Table of Contents

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 Corporation’s 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 Corporation’s 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


Table of Contents

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


Table of Contents

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 Corporation’s $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 Corporation’s other debt agreements.

 

Page 16 of 55


Table of Contents

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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s 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


Table of Contents

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 Corporation’s 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 Corporation’s 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 Corporation’s 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


Table of Contents

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 Corporation’s 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 Corporation’s overall effective income tax rate.

The Corporation’s 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 Corporation’s 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.

 

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Table of Contents

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 Corporation’s operations, its cash flows or its financial position.

 

Page 20 of 55


Table of Contents

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 Corporation’s 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 Corporation’s 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 affiliate’s assets as collateral for potential payments under the agreements.

 

Page 21 of 55


Table of Contents

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 Corporation’s 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 Corporation’s 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


Table of Contents

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 Corporation’s 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      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

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 Corporation’s 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 Corporation’s existing long-term position in this market.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2013

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW    Martin Marietta Materials, Inc. (the “Corporation”), is the nation’s second largest producer of construction aggregates. The Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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 Management’s 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 Corporation’s operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporation’s 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%       
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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%       
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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 quarter’s 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 Corporation’s 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 Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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 management’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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 Corporation’s 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 Corporation’s 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 Corporation’s operations, second-quarter results are not indicative of expected performance for other interim periods or the full year.

 

Page 33 of 55


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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 Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2013

(Continued)

 

Unit shipments by product line for the Corporation’s 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 Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S 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 Corporation’s common stock. At June 30, 2013, 5,042,000 shares of common stock were remaining under the Corporation’s repurchase authorization.

The Credit Agreement (which consists of a $250 million Term Loan Facility and a $350 million Revolving Facility) requires the Corporation’s 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 & Poor’s or Baa2 by Moody’s 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 Corporation’s 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


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2013

(Continued)

 

At June 30, 2013, the Corporation’s 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