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 September 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 October 30, 2013

Common Stock, $0.01 par value

   46,248,559


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

 

     Page  

Part I. Financial Information:

  

Item 1. Financial Statements.

  

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

     3   

Consolidated Statements of Earnings and Comprehensive Earnings - Three and Nine Months Ended September  30, 2013 and 2012

     4   

Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2013 and 2012

     5   

Consolidated Statement of Total Equity - Nine Months Ended September 30, 2013

     6   

Notes to Consolidated Financial Statements

     7   

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

     26   

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     51   

Item 4. Controls and Procedures.

     52   

Part II. Other Information:

  

Item 1. Legal Proceedings.

     53   

Item 1A. Risk Factors.

     53   

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

     53   

Item 4. Mine Safety Disclosures.

     53   

Item 6. Exhibits.

     54   

Signatures

     55   

Exhibit Index

     56   

 

Page 2 of 56


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

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

ASSETS

        

Current Assets:

     

Cash and cash equivalents

     $ 57,241          $ 25,394          $ 35,421    

Accounts receivable, net

     331,030          224,050          296,947    

Inventories, net

     350,438          332,311          335,092    

Current deferred income taxes

     77,005          77,716          79,758    

Other current assets

     29,955          40,930          37,889    
  

 

 

    

 

 

    

 

 

 

Total Current Assets

     845,669          700,401          785,107    
  

 

 

    

 

 

    

 

 

 

Property, plant and equipment

     3,942,138          3,812,587          3,775,320    

Allowances for depreciation, depletion and amortization

     (2,159,520)         (2,059,346)         (2,024,379)    
  

 

 

    

 

 

    

 

 

 

Net property, plant and equipment

     1,782,618          1,753,241          1,750,941    

Goodwill

     616,634          616,204          615,986    

Other intangibles, net

     49,035          50,433          51,330    

Other noncurrent assets

     43,149          40,647          39,840    
  

 

 

    

 

 

    

 

 

 

Total Assets

     $ 3,337,105          $ 3,160,926          $ 3,243,204    
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND EQUITY

        

Current Liabilities:

        

Bank overdraft

     $ 10,437          $         $ 102    

Accounts payable

     111,266          83,537          99,628    

Accrued salaries, benefits and payroll taxes

     20,655          19,461          17,436    

Pension and postretirement benefits

     1,992          6,851          6,442    

Accrued insurance and other taxes

     34,444          28,682          34,175    

Income taxes

     1,720          287          13,291    

Current maturities of long-term debt and short-term facilities

     6,169          5,676          6,671    

Accrued interest

     18,158          7,490          18,209    

Other current liabilities

     21,591          21,351          21,155    
  

 

 

    

 

 

    

 

 

 

Total Current Liabilities

     226,432          173,335          217,109    

Long-term debt

     1,107,192          1,042,183          1,092,117    

Pension, postretirement and postemployment benefits

     171,695          183,122          135,761    

Noncurrent deferred income taxes

     243,858          225,592          243,759    

Other noncurrent liabilities

     89,045          86,395          84,437    
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     1,838,222          1,710,627          1,773,183    
  

 

 

    

 

 

    

 

 

 

Equity:

        

Common stock, par value $0.01 per share

     461          459          458    

Preferred stock, par value $0.01 per share

                       

Additional paid-in capital

     431,122          414,657          408,898    

Accumulated other comprehensive loss

     (102,710)         (106,169)         (77,480)   

Retained earnings

     1,131,276          1,101,598          1,098,529    
  

 

 

    

 

 

    

 

 

 

Total Shareholders’ Equity

     1,460,149          1,410,545          1,430,405    

Noncontrolling interests

     38,734          39,754          39,616    
  

 

 

    

 

 

    

 

 

 

Total Equity

     1,498,883          1,450,299          1,470,021    
  

 

 

    

 

 

    

 

 

 

Total Liabilities and Equity

     $ 3,337,105          $ 3,160,926          $ 3,243,204    
  

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 3 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
             2013                               2012                       2013                               2012           
     (In Thousands, Except Per Share Data)  
     (Unaudited)  

Net Sales

     $ 600,457          $     537,507          $     1,451,848          $     1,376,944    

Freight and delivery revenues

     64,863          54,761          158,707          152,699    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

         665,320          592,268          1,610,555          1,529,643    
  

 

 

    

 

 

    

 

 

    

 

 

 

Cost of sales

     457,349          413,485          1,188,923          1,126,532    

Freight and delivery costs

     64,863          54,761          158,707          152,699    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenues

     522,212          468,246          1,347,630          1,279,231    
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

     143,108          124,022          262,925          250,412    

Selling, general & administrative expenses

     37,140          32,095          112,632          100,398    

Business development costs

     89                  671          35,140    

Other operating (income) and expenses, net

     (2,964)         394          (5,535)         (1,070)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings from Operations

     108,843          91,533          155,157          115,944    

Interest expense

     13,518          13,224          40,633          39,967    

Other nonoperating expenses and (income), net

     101          620          179          (1,277)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings from continuing operations before taxes on income

     95,224          77,689          114,345          77,254    

Income tax expense

     22,915          13,701          29,615          12,484    
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings from Continuing Operations

     72,309          63,988          84,730          64,770    

Loss on discontinued operations, net of related tax benefit of $185, $371, $250 and $547, respectively

     (271)         (319)         (454)         (967)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated net earnings

     72,038          63,669          84,276          63,803    

Less: Net earnings (loss) attributable to noncontrolling interests

     202          747          (1,028)         863    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

     $ 71,836          $ 62,922          $ 85,304          $ 62,940    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

           

Earnings from continuing operations

     $ 72,107          $ 63,241          $ 85,758          $ 63,907    

Loss from discontinued operations

     (271)         (319)         (454)         (967)   
  

 

 

    

 

 

    

 

 

    

 

 

 
     $ 71,836          $ 62,922          $ 85,304          $ 62,940    
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Comprehensive Earnings (See Note 1)

           

Earnings attributable to Martin Marietta Materials, Inc.

     $ 75,384          $ 66,082          $ 88,763          $ 69,350    

Earnings (Loss) attributable to noncontrolling interests

     205          750          (1,020)         873    
  

 

 

    

 

 

    

 

 

    

 

 

 
     $ 75,589          $ 66,832          $ 87,743          $ 70,223    
  

 

 

    

 

 

    

 

 

    

 

 

 

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

           

Per Common Share

           

Basic from continuing operations attributable to common shareholders

     $ 1.56          $ 1.37          $ 1.85          $ 1.39    

Discontinued operations attributable to common shareholders

     (0.01)         (0.01)         (0.01)         (0.02)   
  

 

 

    

 

 

    

 

 

    

 

 

 
     $ 1.55          $ 1.36          $ 1.84          $ 1.37    
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted from continuing operations attributable to common shareholders

     $ 1.55          $ 1.37          $ 1.85          $ 1.38    

Discontinued operations attributable to common shareholders

     (0.01)         (0.01)         (0.01)         (0.02)   
  

 

 

    

 

 

    

 

 

    

 

 

 
     $ 1.54          $ 1.36          $ 1.84          $ 1.36    
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-Average Common Shares Outstanding

           

Basic

     46,244          45,860          46,134          45,792    
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

     46,349          45,992          46,261          45,929    
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash Dividends Per Common Share

     $ 0.40          $ 0.40          $ 1.20          $ 1.20    
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 4 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (Dollars in Thousands)  
     (Unaudited)  

Cash Flows from Operating Activities:

     

Consolidated net earnings

   $ 84,276        $ 63,803    

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

     

Depreciation, depletion and amortization

     130,097          132,985    

Stock-based compensation expense

     5,408          5,947    

Gains on divestitures and sales of assets

     (1,003)         (858)   

Deferred income taxes

     19,194          11,577    

Excess tax benefits from stock-based compensation transactions

     (1,990)           

Other items, net

     (739)         2,314    

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

  

Accounts receivable, net

     (108,134)         (93,198)   

Inventories, net

     (14,771)         (12,486)   

Accounts payable

     27,729          7,077    

Other assets and liabilities, net

     25,578          4,883    
  

 

 

    

 

 

 

Net Cash Provided by Operating Activities

     165,645          122,044    
  

 

 

    

 

 

 

Cash Flows from Investing Activities:

  

Additions to property, plant and equipment

     (102,342)         (105,941)   

Acquisitions, net

     (64,432)         (132)   

Proceeds from divestitures and sales of assets

     3,208          7,871    

Loan to affiliate

     (3,402)           
  

 

 

    

 

 

 

Net Cash Used for Investing Activities

     (166,968)         (98,202)   
  

 

 

    

 

 

 

Cash Flows from Financing Activities:

  

Borrowings of long-term debt

     355,500          181,000    

Repayments of long-term debt

     (290,192)         (142,651)   

Debt issuance costs

     (510)         (300)   

Change in bank overdraft

     10,437          102    

Dividends paid

     (55,626)         (55,302)   

Distributions to owners of noncontrolling interests

             (800)   

Issuances of common stock

     11,571          3,508    

Excess tax benefits from stock-based compensation transactions

     1,990            
  

 

 

    

 

 

 

Net Cash Provided by (Used for) Financing Activities

     33,170          (14,443)   
  

 

 

    

 

 

 

Net Increase in Cash and Cash Equivalents

     31,847          9,399    

Cash and Cash Equivalents, beginning of period

     25,394          26,022    
  

 

 

    

 

 

 

Cash and Cash Equivalents, end of period

   $ 57,241        $ 35,421    
  

 

 

    

 

 

 

Supplemental Disclosures of Cash Flow Information:

  

Cash paid for interest

   $ 28,621        $ 29,255    

Cash refunds for income taxes

   $ 1,432        $ 3,170    

See accompanying notes to consolidated financial statements.

 

Page 5 of 56


Table of Contents

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

     -             -             -             -             85,304          85,304          (1,028)         84,276    

Other comprehensive earnings

     -             -             -             3,459          -             3,459                  3,467    

Dividends declared

     -             -             -             -             (55,626)         (55,626)         -             (55,626)   

Issuances of common stock for stock award plans

     246                  11,057          -             -             11,059          -             11,059    

Stock-based compensation expense

     -             -             5,408          -             -             5,408          -             5,408    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance at September 30, 2013

             46,248        $     461        $ 431,122        $     (102,710)       $     1,131,276        $     1,460,149          $     38,734         $     1,498,883    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 6 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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 303 quarries, distribution facilities and plants to customers in 33 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and vertically-integrated operations are reported collectively as the Corporation’s “Aggregates business”.

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 business 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.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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 nine months ended September 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.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

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.

Comprehensive earnings attributable to Martin Marietta Materials, Inc. are as follows:

 

     Three Months Ended
September  30,
     Nine Months Ended
September  30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)   

Net earnings attributable to Martin Marietta Materials, Inc.

   $   71,836        $   62,922        $   85,304        $   62,940    

Other comprehensive earnings, net of tax

     3,548          3,160          3,459          6,410    
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive earnings attributable to Martin Marietta Materials, Inc.

   $ 75,384        $ 66,082        $ 88,763        $ 69,350    
  

 

 

    

 

 

    

 

 

    

 

 

 

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
September  30,
     Nine Months Ended
September  30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)   

Net earnings (loss) attributable to noncontrolling interests

   $       202        $     747        $ (1,028)       $   863    

Other comprehensive earnings, net of tax

                             10    
  

 

 

    

 

 

    

 

 

    

 

 

 

Comprehensive earnings (loss) attributable to noncontrolling interests

   $ 205        $ 750        $ (1,020)       $ 873    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 9 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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 September 30, 2013   

Balance at beginning of period

     $ (106,603)         $ 4,153          $ (3,808)         $ (106,258)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings before reclassifications, net of tax

     --          993          --          993    

Amounts reclassified from accumulated other comprehensive loss, net of tax

     2,387          --          168          2,555    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings, net of tax

     2,387          993          168          3,548    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $   (104,216)         $   5,146          $   (3,640)         $ (102,710)   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                               
     Three Months Ended September 30, 2012  

Balance at beginning of period

     $ (81,407)         $ 5,222          $ (4,455)         $ (80,640)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings before reclassifications, net of tax

     117          1,435          --          1,552    

Amounts reclassified from accumulated other comprehensive loss, net of tax

     1,451          --          157          1,608    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings, net of tax

     1,568          1,435          157          3,160    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $   (79,839)         $   6,657          $   (4,298)          $   (77,480)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $0 and $77,000 for the three months ended September 30, 2013 and 2012, respectively.

 

Page 10 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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
 
  

 

 

 
     Nine Months Ended September 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)         (1,011)         --          (3,323)   

Amounts reclassified from accumulated other comprehensive loss, net of tax

     6,285          --          497          6,782    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings (loss), net of tax

     3,973          (1,011)         497          3,459    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $   (104,216)         $   5,146          $   (3,640)         $   (102,710)   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                               
     Nine Months Ended September 30, 2012  

Balance at beginning of period

     $ (84,204)         $ 5,076            $ (4,762)           $ (83,890)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive (loss) earnings before reclassifications, net of tax

     (349)         1,581          --          1,232    

Amounts reclassified from accumulated other comprehensive loss, net of tax

     4,714          --           464          5,178    
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive earnings, net of tax

     4,365          1,581          464          6,410    
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at end of period

     $   (79,839)         $   6,657            $   (4,298)           $   (77,480)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $1,514,000 and $225,000 for the nine months ended September 30, 2013 and 2012, respectively.

 

Page 11 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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 September 30, 2013   

Balance at beginning of period

   $ 69,842      $ 2,492      $ 72,334   

Tax effect of other comprehensive earnings

     (1,566     (111     (1,677
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 68,276      $ 2,381      $ 70,657   
  

 

 

   

 

 

   

 

 

 
     Three Months Ended September 30, 2012   

Balance at beginning of period

   $ 53,328      $ 2,915      $ 56,243   

Tax effect of other comprehensive earnings

     (1,026     (103     (1,129
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 52,302      $ 2,812      $ 55,114   
  

 

 

   

 

 

   

 

 

 
     Nine Months Ended September 30, 2013   

Balance at beginning of period

   $ 70,881      $ 2,707      $ 73,588   

Tax effect of other comprehensive earnings

     (2,605     (326     (2,931
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 68,276      $ 2,381      $ 70,657   
  

 

 

   

 

 

   

 

 

 
     Nine Months Ended September 30, 2012   

Balance at beginning of period

   $ 55,161      $ 3,116      $ 58,277   

Tax effect of other comprehensive earnings

     (2,859     (304     (3,163
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 52,302      $ 2,812      $ 55,114   
  

 

 

   

 

 

   

 

 

 

 

Page 12 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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
September  30,
    Nine Months Ended
September  30,
   

Affected line items in the

consolidated financial statements

     2013     2012     2013     2012    
     (Dollars in Thousands)     

Pension and postretirement benefit plans

          

Settlement charge

   $ 729      $ 255      $ 729      $ 779     

Amortization of:

          

Prior service credit

     (702     (704     (2,104     (2,092  

Actuarial loss

     3,926        2,849        11,779        9,111     
  

 

 

   

 

 

   

 

 

   

 

 

   
     3,953        2,400        10,404        7,798     

Cost of sales;

Selling, general & administrative expenses

Tax effect

     (1,566     (949     (4,119     (3,084   Deferred income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 2,387      $ 1,451      $ 6,285      $ 4,714     
  

 

 

   

 

 

   

 

 

   

 

 

   

Unamortized value of terminated forward starting interest rate swap

          

Additional interest expense

   $ 279      $ 260      $ 823      $ 768      Interest expense

Tax effect

     (111     (103     (326     (304   Deferred income taxes
  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 168      $ 157      $ 497      $ 464     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

Page 13 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

Earnings per Common Share

The numerator for basic and diluted earnings 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.

The following table reconciles the numerator and denominator for basic and diluted earnings per common share:

 

     Three Months Ended
September  30,
     Nine Months Ended
September  30,
 
     2013      2012      2013      2012  
     (In Thousands)   

Net earnings from continuing operations attributable to Martin Marietta Materials, Inc.

       $   72,107                 $   63,241                 $   85,758                 $   63,907         

Less: Distributed and undistributed earnings attributable to unvested awards

     265               336               374               386         
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted net earnings available to common shareholders from continuing operations attributable to Martin Marietta Materials, Inc.

     71,842               62,905               85,384               63,521         

Basic and diluted net loss available to common shareholders from discontinued operations

     (271)               (319)               (454)               (967)         
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted net earnings available to common shareholders attributable to Martin Marietta Materials, Inc.

       $   71,571                 $   62,586                 $   84,930                 $   62,554         
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic weighted-average common shares outstanding

     46,244               45,860               46,134               45,792         

Effect of dilutive employee and director awards

     105               132               127               137         
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted weighted-average common shares outstanding

     46,349               45,992               46,261               45,929         
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 14 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Business Combinations and Discontinued Operations

Business Combinations

On July 1, 2013, the Corporation acquired three aggregates quarries in the greater Atlanta, Georgia area. This transaction provides over 800 million tons of aggregates reserves and enhances the Corporation’s existing long-term position in this market. The operating results of the acquired locations are reported through the Corporation’s Southeast Group in the financial statements starting from the date of acquisition and the measurement period remains open.

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.

 

3. Inventories, Net

 

     September 30,
2013
     December 31,
2012
     September 30,
2012
 
     (Dollars in Thousands)   

Finished products

       $     366,558              $     355,881              $     356,849      

Products in process and raw materials

     19,924            16,442            18,918      

Supplies and expendable parts

     61,441            56,805            56,420      
  

 

 

    

 

 

    

 

 

 
     447,923            429,128            432,187      

Less allowances

     (97,485)            (96,817)            (97,095)      
  

 

 

    

 

 

    

 

 

 

Total

       $ 350,438              $ 332,311               $ 335,092      
  

 

 

    

 

 

    

 

 

 

 

Page 15 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4. Long-Term Debt

 

     September 30,
2013
     December 31,
2012
     September 30,
2012
 
     (Dollars in Thousands)   

6.6% Senior Notes, due 2018

     $   298,837            $   298,677              $   298,626      

7% Debentures, due 2025

     124,464            124,443            124,437      

6.25% Senior Notes, due 2037

     228,139            228,114            228,105      

Term Loan Facility, due 2015, interest rate of 2.18% at September 30, 2013; 2.21% at December 31, 2012; and 1.87% at September 30, 2012

     240,000            245,000            245,000      

Revolving Facility, interest rate of 1.88% at September 30, 2013; 1.91% at December 31, 2012; and 1.62% at September 30, 2012

     70,000            50,000            100,000      

Trade Receivable Facility, interest rate of 0.78% at September 30, 2013

     150,000            --            --      

AR Credit Facility, interest rate of 1.00% at December 31, 2012 and September 30, 2012

     --            100,000            100,000      

Other notes

     1,921            1,625            2,620      
  

 

 

    

 

 

    

 

 

 

Total debt

     1,113,361            1,047,859            1,098,788      

Less current maturities

     (6,169)            (5,676)            (6,671)      
  

 

 

    

 

 

    

 

 

 

Long-term debt

     $   1,107,192            $   1,042,183            $   1,092,117      
  

 

 

    

 

 

    

 

 

 

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”). The Trade Receivable Facility is backed by trade receivables originated by the Corporation, which the Corporation then sells to the wholly-owned consolidated special purpose subsidiary - the balance of which was $314,998,000 at September 30, 2013. Borrowings under the Trade Receivable Facility bear interest at a rate equal to one-month LIBOR plus 0.6% and are limited to the lesser of the facility limit or of “eligible” receivables, as defined. The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned consolidated special purpose subsidiary. 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 September 30, 2013, outstanding borrowings under the Trade Receivable Facility were classified as long-term on the consolidated balance sheet as the Corporation has the intent and ability to refinance amounts outstanding. The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements.

 

Page 16 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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 210 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 for which the Corporation is a co-borrower, 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 was in compliance with this Ratio at September 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 September 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 nine months ended September 30, 2013, the Corporation recognized $279,000 and $823,000, respectively, as additional interest expense. For the three and nine months ended September 30, 2012, the Corporation recognized $260,000 and $768,000, 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.

 

Page 17 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

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.

Temporary cash investments are placed primarily in money market funds, money market demand deposit accounts and Eurodollar time deposits with the following financial institutions: Branch Banking and Trust Company, Comerica Bank, Fifth Third Bank, JPMorgan Chase Bank, N.A., Regions 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 amounts to be funded to financial institutions for checks that have cleared the bank. 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 $1,113,361,000 and $1,152,906,000, respectively, at September 30, 2013; $1,047,859,000 and $1,105,650,000, respectively, at December 31, 2012; and $1,098,788,000 and $1,156,820,000, respectively, at September 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.

 

Page 18 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6. Income Taxes

 

     Nine Months Ended September 30,  
     2013      2012  

Estimated effective income tax rate:

     

Continuing operations

     25.9%         16.2%   
  

 

 

    

 

 

 

Discontinued operations

     35.5%         36.1%   
  

 

 

    

 

 

 

Consolidated overall

     25.8%         15.8%   
  

 

 

    

 

 

 

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.

On September 13, 2013, the U.S. Treasury Department and Internal Revenue Service issued final regulations addressing costs incurred in acquiring, producing or improving tangible property (the “tangible property regulations”). The tangible property regulations are generally effective for tax years beginning on or after January 1, 2014, and may be adopted in earlier years. The Corporation intends to early adopt the tax treatment of expenditures to improve tangible property and the capitalization of inherently facilitative costs to acquire tangible property as of January 1, 2013. The estimated tax impact of these accounting method changes reduces noncurrent deferred tax assets in the amount of $2,100,000, with a corresponding reduction in current taxes payable, and has been reflected in the consolidated balance sheet as of September 30, 2013. The tangible property regulations will require the Corporation to make additional tax accounting method changes as of January 1, 2014; however, management does not anticipate the impact of these changes to be material to the Corporation’s consolidated financial position and/or results of operations.

The Corporation’s unrecognized tax benefits, excluding interest, correlative effects and indirect benefits, are as follows:

 

     Nine Months Ended
September 30, 2013
 
     (Dollars in Thousands)   

Unrecognized tax benefits at beginning of period

     $        15,380               

Gross increases – tax positions in prior years

     4,520               

Gross decreases – tax positions in prior years

     (4,336)               

Gross increases – tax positions in current year

     1,176               

Settlements with taxing authorities

     (8,599)               

Lapse of statute of limitations

     (1,691)               
  

 

 

 

Unrecognized tax benefits at end of period

     $          6,450               
  

 

 

 

 

Page 19 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6. Income Taxes (continued)

 

In August 2013, the Corporation filed the required amended returns and paid the tax due to settle the Advance Pricing Agreement (“APA”) it has with Canada that increased the sales price charged for intercompany shipments from Canada to the United States during the years 2005 through 2011. The Corporation also filed amended returns in the United States for the years 2005 through 2011 to request the compensating refunds allowed pursuant to the corresponding APA with the United States.

The Corporation anticipates that it is reasonably possible that unrecognized tax benefits may decrease up to $1,828,000 during the twelve months ending September 30, 2014 as a result of the expiration of the statute of limitations for the 2010 tax year.

At September 30, 2013, unrecognized tax benefits of $5,736,000 related to permanent income tax differences, net of federal tax expense, would have favorably affected the Corporation’s effective income tax rate if recognized.

The consolidated overall estimated effective income tax rate for the nine months ended September 30, 2012 included the estimated effects of the APA and a refund of federal tax and interest of $1,626,000 related to the 2006 tax year.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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 September 30,  
     Pension     Postretirement Benefits  
     2013     2012     2013     2012  
     (Dollars in Thousands)   

Service cost

   $ 4,030      $ 3,074      $ 57      $ 57   

Interest cost

     5,756        5,561        253        309   

Expected return on assets

     (6,668     (5,617     --          --     

Amortization of:

        

Prior service cost (credit)

     112        110        (814     (814

Actuarial loss (gain)

     3,920        2,920        6        (71

Settlement charge

     729        255        --          --     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

   $ 7,879      $ 6,303      $ (498   $ (519
  

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                   
     Nine Months Ended September 30,  
     Pension     Postretirement Benefits  
     2013     2012     2013     2012  
     (Dollars in Thousands)   

Service cost

   $ 12,091      $ 9,813      $ 170      $ 171   

Interest cost

     17,268        17,754        760        926   

Expected return on assets

     (20,003     (17,935     --          --     

Amortization of:

        

Prior service cost (credit)

     337        350        (2,441     (2,442

Actuarial loss (gain)

     11,760        9,323        19        (212

Settlement charge

     729        779        --          --     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

   $ 22,182      $ 20,084      $ (1,492   $ (1,557
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 21 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

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.

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 to capital equipment 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.

Co-Borrower Agreement with an Unconsolidated Affiliate

The Corporation had an unconditional guaranty of payment agreement with Fifth Third Bank (“Fifth Third”) to guarantee the repayment of amounts borrowed by an unconsolidated affiliate under a $24,000,000 revolving line of credit provided by Fifth Third that was replaced in August 2013 by a new $24,000,000 revolving line of credit agreement in which the Corporation became a co-borrower with the affiliate. This new line of credit expires in August 2015. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from this agreement. The Corporation holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving line of credit.

Additionally, in September 2013, the Corporation loaned $3,402,000 to this affiliate to repay in full the outstanding balance of its loan with Bank of America, N.A. and entered into a loan agreement with the affiliate for monthly repayment of principal and interest of that loan amount through May 2016. The Corporation holds a lien on the affiliate’s property as collateral for payment under the loan and security agreement.

 

Page 22 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)   

Total revenues:

  

Mid-America Group

       $ 237,696              $ 212,164              $ 555,823              $ 538,881      

Southeast Group

     69,491            61,369            185,676            184,448      

West Group

     297,517            264,662            686,867            640,689      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     604,704            538,195            1,428,366            1,364,018      

Specialty Products

     60,616            54,073            182,189            165,625      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 665,320              $ 592,268              $ 1,610,555              $ 1,529,643      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales:

           

Mid-America Group

       $ 216,361              $ 194,128              $ 508,999              $ 493,453      

Southeast Group

     64,871            57,021            171,456            171,027      

West Group

     263,431            236,911            603,798            560,838      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     544,663            488,060            1,284,253            1,225,318      

Specialty Products

     55,794            49,447            167,595            151,626      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 600,457              $ 537,507              $ 1,451,848              $ 1,376,944      
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (Loss) from operations:

           

Mid-America Group

       $ 66,419              $ 56,357              $ 102,342              $ 94,959      

Southeast Group

     (1,386)           (3,452)           (14,949)           (14,980)     

West Group

     32,302            23,666            38,402            29,183      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     97,335            76,571            125,795            109,162      

Specialty Products

     17,267            17,034            53,071            52,706     

Corporate

     (5,759)           (2,072)           (23,709)           (45,924)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 108,843              $ 91,533              $ 155,157              $ 115,944      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 23 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9. Business Segments (continued)

 

Assets employed for the Mid-America and West Groups have been recast since prior year as a result of the Corporation’s reorganization of the operations of its Aggregates business (see Note 1).

 

     September 30,
2013
     December 31,
2012
     September 30,
2012
 
     (Dollars in Thousands)   

Assets employed:

        

Mid-America Group

       $ 1,161,756              $ 1,036,155              $ 1,074,451      

Southeast Group

     628,673            607,705            614,214      

West Group

     1,172,289            1,147,879            1,188,373      
  

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     2,962,718            2,791,739            2,877,038      

Specialty Products

     153,334            157,673            154,155      

Corporate

     221,053            211,514            212,011      
  

 

 

    

 

 

    

 

 

 

Total

       $ 3,337,105              $ 3,160,926              $ 3,243,204      
  

 

 

    

 

 

    

 

 

 

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
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)   

Net sales:

     

Aggregates

       $ 411,206              $ 371,398              $ 1,016,238              $ 985,563      

Asphalt

     23,787            28,881            52,231            61,655      

Ready Mixed Concrete

     41,765            31,531            103,347            78,746      

Road Paving

     67,905            56,250            112,437            99,354      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     544,663            488,060            1,284,253            1,225,318      

Specialty Products

     55,794            49,447            167,595            151,626      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 600,457              $ 537,507              $ 1,451,848              $ 1,376,944      
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit (loss):

     

Aggregates

       $ 108,166              $ 94,541              $ 189,171              $ 182,883      

Asphalt

     7,322            6,359            9,770            9,065      

Ready Mixed Concrete

     3,124            472            4,911            421      

Road Paving

     4,286            2,276            (285)           208      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     122,898            103,648            203,567            192,577      

Specialty Products

     19,919            19,744            60,784            59,057      

Corporate

     291            630            (1,426)           (1,222)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 143,108              $ 124,022              $ 262,925              $ 250,412      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 24 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 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:

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (Dollars in Thousands)  

Other current and noncurrent assets

       $ (42)             $ (9,694)     

Accrued salaries, benefits and payroll taxes

         (1,307)           (1,270)     

Accrued insurance and other taxes

     5,761            7,767      

Accrued income taxes

     18,369            7,817      

Accrued pension, postretirement and postemployment benefits

     (10,431)           (14,693)     

Other current and noncurrent liabilities

     13,228            14,956      
  

 

 

    

 

 

 
       $ 25,578              $ 4,883      
  

 

 

    

 

 

 

The change in other current and noncurrent assets from 2012 to 2013 is driven by unrecognized tax benefits related to the settlement of the APA described in Note 6 and an increase in sales tax refunds in 2012.

The change in accrued income taxes is driven by an increase in the estimated current tax liability for 2013.

 

Page 25 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 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 303 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 and
Distribution Yards
   Quarries and
Distribution Yards
   Quarries and

Distribution Yards

Primary Modes of
Transportation for
Aggregates Product Line
   Truck, Rail and
Water
   Truck, Rail and
Water
   Truck and Rail

 

Page 26 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 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 nine months ended September 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 nine months ended September 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
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)  

Gross profit

       $ 143,108               $ 124,022               $ 262,925           $ 250,412       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

       $   665,320               $   592,268               $     1,610,555           $   1,529,643       
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross margin

     21.5%             20.9%             16.3%             16.4%       
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 27 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

Gross Margin Excluding Freight and Delivery Revenues

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)  

Gross profit

       $   143,108                $ 124,022                $ 262,925                $ 250,412        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

       $ 665,320                $ 592,268                $   1,610,555                $ 1,529,643        

Less: Freight and delivery revenues

     (64,863)             (54,761)             (158,707)             (152,699)       
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales

       $ 600,457                $   537,507                $ 1,451,848                $   1,376,944        
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross margin excluding freight and delivery revenues

     23.8%             23.1%             18.1%             18.2%       
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Margin in Accordance with GAAP

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)  

Earnings from operations

       $ 108,843               $ 91,533               $ 155,157               $ 115,944       
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

       $   665,320               $   592,268               $   1,610,555               $   1,529,643       
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating margin

     16.4%             15.5%             9.6%             7.6%       
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Margin Excluding Freight and Delivery Revenues

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2012      2013      2012  
     (Dollars in Thousands)  

Earnings from operations

       $ 108,843                $ 91,533                $ 155,157                $ 115,944        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

       $ 665,320                $ 592,268                $ 1,610,555                $ 1,529,643        

Less: Freight and delivery revenues

     (64,863)             (54,761)             (158,707)             (152,699)       
  

 

 

    

 

 

    

 

 

    

 

 

 

Net sales

       $   600,457                $   537,507                $   1,451,848                $   1,376,944        
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating margin excluding freight and delivery revenues

     18.1%             17.0%         10.7%         8.4%   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 28 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

Quarter Ended September 30

Significant items for the quarter ended September 30, 2013 (unless noted, all comparisons are versus the prior-year third quarter):

 

   

Earnings per diluted share of $1.54 compared with $1.36

   

Record consolidated net sales of $600.5 million, up 11.7%, compared with $537.5 million

   

Aggregates product line

— Volume up 8.1%

— Pricing up 2.3%

— Production cost per ton up 2.6%

 

   

Consolidated gross profit of $143.1 million

— Gross margin (excluding freight and delivery revenues) expansion of 70 basis points

 

   

Specialty Products record third-quarter

— Net sales of $55.8 million

— Earnings from operations of $17.3 million

 

   

Consolidated selling, general and administrative expenses (“SG&A”) of 6.2%, up 20 basis points as a percentage of net sales

   

Consolidated earnings from operations of $108.8 million compared with $91.5 million

   

Acquisition and successful integration of three aggregates quarries in the Atlanta, Georgia area

The following table presents net sales, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for the Corporation and its reportable segments for the three months ended September 30, 2013 and 2012. In each case, the data is stated as a percentage of net sales of the Corporation or the relevant segment, as the case may be.

 

Page 29 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

     Three Months Ended September 30,  
     2013      2012  
     Amount      % of
Net Sales
     Amount      % of
Net Sales
 
     (Dollars in Thousands)  

Net sales:

           

Mid-America Group

       $ 216,361                 $ 194,128         

Southeast Group

     64,871               57,021         

West Group

     263,431               236,911         
  

 

 

       

 

 

    

Total Aggregates Business

     544,663            100.0            488,060            100.0      

Specialty Products

     55,794            100.0            49,447            100.0      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 600,457            100.0              $ 537,507            100.0      
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit (loss):

           

Mid-America Group

       $ 77,030            35.6              $ 68,460            35.3      

Southeast Group

     2,545            3.9            1,070            1.9      

West Group

     43,323            16.4            34,118            14.4      
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     122,898            22.6            103,648            21.2      

Specialty Products

     19,919            35.7            19,744            39.9      

Corporate

     291            --              630            --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 143,108            23.8              $   124,022            23.1      
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general & administrative expenses:

           

Mid-America Group

       $ 12,488                 $ 12,906         

Southeast Group

     4,406               4,279         

West Group

     11,553               11,257         
  

 

 

       

 

 

    

Total Aggregates Business

     28,447            5.2            28,442            5.8      

Specialty Products

     2,582            4.6            2,175            4.4      

Corporate

     6,111            --              1,478            --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 37,140            6.2              $ 32,095            6.0      
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (Loss) from operations:

           

Mid-America Group

       $ 66,419                 $ 56,357         

Southeast Group

     (1,386)              (3,452)        

West Group

     32,302               23,666         
  

 

 

       

 

 

    

Total Aggregates Business

     97,335            17.9            76,571            15.7      

Specialty Products

     17,267            30.9            17,034            34.4      

Corporate

     (5,759)           --              (2,072)           --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $   108,843            18.1              $ 91,533            17.0      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 30 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The Corporation reported double-digit increases in both revenues and earnings in the third quarter of 2013. The Corporation’s performance was driven largely by the ongoing recovery in private sector construction activity, as well as diligent cost management. The combination of a 12% increase in consolidated net sales over the prior-year quarter and ongoing focus on controlling costs resulted in a 13% increase in earnings per diluted share. These results reflect both new third-quarter records for net sales and earnings from operations in the Specialty Products business, as well as volume and pricing growth in the aggregates product line.

Each of the reportable segments in the Aggregates business posted aggregates product line volume growth, led by an 8.1% increase in the Mid-America Group. Consistent with trends noted earlier in the year, private-sector construction generated this growth. The nonresidential market, which comprised 30% of third-quarter aggregates shipments, increased 19% and growth was notable in both commercial construction and the energy sector. The residential market achieved volume growth of 15% and accounted for 13% of quarterly shipments. Housing permits and starts, key indicators for residential construction activity, continued to have strong year-over-year improvement, which should help sustain the recovery in this market. The ChemRock/Rail market, 11% of aggregates volumes, reported higher ballast shipments and increased 13% over the prior-year quarter.

Management is encouraged by significant improvements in the Aggregates business’ markets and believes, as do most third-party forecasters, that significant upside potential remains in both the residential and nonresidential construction segments. Additionally, the Corporation’s Aggregates business will benefit from the current boom in shale gas production as well as planned follow-on development. Management is confident that these trends bode especially well for the business.

Shipments to the infrastructure end-use market, which represented the remaining 46% of the aggregates product line business, were essentially flat with the prior-year quarter. Federal budget and deficit disputes and the uncertainty over future highway funding levels beyond the September 2014 expiration of the Moving Ahead for Progress in the 21st Century Act, or MAP-21, have contributed to the reluctance of many states and municipalities to commit to large scale projects. Additionally, while awards under the Transportation Infrastructure Finance and Innovation Act (TIFIA) component of MAP-21 have the ability to leverage up to $50 billion in financing for transportation projects of either national or regional significance, they continue to move at a slower pace versus earlier expectations with only two projects being awarded. While management still expects TIFIA to benefit several of the Aggregates business’ major markets - namely Texas, North Carolina and Florida - it does not expect any meaningful impact before the second half of 2014, and more notably in 2015.

 

Page 31 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

Despite federal-level funding delays and concerns, management is encouraged by states’ recognition of the importance of sustained infrastructure investment. The Aggregates business has seen year-over-year growth in highway contract awards and construction employment in several of its key states, including Texas, Georgia, Colorado and Virginia. In Georgia, three regions in the southern part of the state began collecting a special-purpose local option sales tax on January 1, 2013. These monies are earmarked for transportation improvements, and management expects the pace of projects funded by this tax to accelerate as it moves into 2014. Additionally, management anticipates a significant reconstruction effort in Colorado as a result of the recent flooding. The Aggregates business is well-positioned to work with the local Colorado communities to repair and/or replace hundreds of miles of washed-out roads and the significant number of destroyed homes, businesses and bridges.

Pricing momentum in the Aggregates business continued with each of its product lines reporting growth. Importantly, for the third quarter in a row, each reportable segment achieved pricing improvement in the aggregates product line, resulting in an overall increase of 2.3%. The Corporation’s vertically-integrated businesses also achieved pricing growth, with the ready mixed concrete and asphalt product lines reporting increases of 7.0% and 1.6%, respectively.

Net sales by product line for the Aggregates business are as follows:

 

     Three Months Ended
September 30,
 
     2013      2012  
     (Dollars in Thousands)  

Net sales1:

     

Aggregates

       $   411,206             $   371,398     

Asphalt

         23,787           28,881     

Ready Mixed Concrete

         41,765           31,531     

Road Paving

         67,905           56,250     
  

 

 

    

 

 

 

Total Aggregates Business

       $ 544,663             $ 488,060     
  

 

 

    

 

 

 

 

1Net

sales by product line reflect the elimination of inter-product line sales.

 

Page 32 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The following tables present volume and pricing data and shipments data for the aggregates product line.

 

     Three Months Ended
September 30, 2013
 
Volume/Pricing Variance (1)    Volume      Pricing  

Heritage Aggregates Product Line (2):

     

Mid-America Group

          8.1%                 2.8%      

Southeast Group

          4.8%                 1.3%      

West Group

          6.5%                 1.7%      

Heritage Aggregates Operations(2)

          7.0%                 2.2%      

Aggregates Product Line (3)

          8.1%                 2.3%      

 

     Three Months Ended
September 30,
 
     2013      2012  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Mid-America Group

         19,172               17,742     

Southeast Group

         4,612               4,399     

West Group

         15,468               14,528     
  

 

 

    

 

 

 

Heritage Aggregates Operations(2)

         39,252               36,669     

Acquisitions

         379               --     

Divestitures (4)

         --           5     
  

 

 

    

 

 

 

Aggregates Product Line (3)

         39,631               36,674     
  

 

 

    

 

 

 

 

     Three Months Ended
September 30,
 
     2013      2012  
     (tons in thousands)  

Shipments

     

Aggregates Product Line (3):

     

Tons to external customers

         38,109               35,254     

Internal tons used in other product lines

         1,522               1,420     
  

 

 

    

 

 

 

Total aggregates tons

         39,631               36,674     
  

 

 

    

 

 

 

 

(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.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The average per-ton selling price for the aggregates product line was $10.55 and $10.32 for the three months ended September 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
September 30,
 
     2013      2012  

Asphalt

   $ 41.76/ton        $ 41.11/ton    

Ready Mixed Concrete

   $ 83.44/yd3       $ 77.99/yd3   

Unit shipments by product line for the Corporation’s vertically-integrated operations are as follows:

 

     Three Months Ended
September 30,
 
     2013      2012  
     (in thousands)  

Asphalt Product Line:

     

Tons to external customers

     464           538     

Internal tons used in road paving business

     761           717     
  

 

 

    

 

 

 

Total asphalt tons

     1,225           1,255     
  

 

 

    

 

 

 

Ready Mixed Concrete – cubic yards

             496                   418     
  

 

 

    

 

 

 

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 potentially significant impact of weather on the Corporation’s operations, third-quarter results are not indicative of expected performance for other interim periods or the full year.

 

Page 34 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The Specialty Products business continued its strong performance, setting third-quarter records for both net sales and earnings from operations. Net sales of $55.8 million increased 12.8%, from growth in the dolomitic lime product line, including the contribution from the Woodville kiln that became operational during the fourth quarter of 2012. While margins (excluding freight and delivery revenues) were negatively affected by higher coal costs and a planned kiln outage for maintenance, the business generated third-quarter record earnings from operations of $17.3 million.

The Corporation leveraged its sales growth into a 70-basis-point expansion of consolidated gross margin (excluding freight and delivery revenues). In fact, each of the Aggregates business’ three reportable segments achieved gross margin improvement, with the Southeast and West Groups each reporting a 200-basis-point expansion. Growth in the Mid-America Group was led by the Mid-Atlantic Division, which once again leveraged an increase in aggregates shipments into an incremental gross margin (excluding freight and delivery revenues) exceeding management’s publicly-stated expectations.

The following presents a reconciliation of consolidated gross profit (dollars in thousands):

 

  Consolidated gross profit, quarter ended September 30, 2012

       $ 124,022        
  

 

 

 

  Aggregates product line:

  

Volume strength

     26,645        

Pricing strength

     13,163        

Cost increases, net

     (26,183)       
  

 

 

 

  Increase in aggregates product line gross profit

     13,625        

  Vertically-integrated operations

     5,625        

  Specialty Products

     175        

  Corporate

     (339)       
  

 

 

 

  Increase in consolidated gross profit

     19,086        
  

 

 

 

  Consolidated gross profit, quarter ended September 30, 2013

       $ 143,108        
  

 

 

 

Cost increases, net, for the aggregates product line reflect incremental production costs for the recently-acquired quarries in Georgia, higher repair costs, increased workers compensation costs for claims incurred during the quarter, costs related to the September flooding in Denver, Colorado, as well as increased production volume.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

Gross profit by business is as follows:

 

     Three Months Ended
September 30,
 
     2013      2012  
     (Dollars in Thousands)  

Gross profit:

     

Aggregates

       $ 108,166              $ 94,541      

Asphalt

         7,322                6,359      

Ready Mixed Concrete

         3,124                472      

Road Paving

         4,286                2,276      
  

 

 

    

 

 

 

Total Aggregates Business

         122,898                103,648      

Specialty Products

         19,919                19,744      

Corporate

         291                630      
  

 

 

    

 

 

 

Total

       $ 143,108              $ 124,022      
  

 

 

    

 

 

 

Consolidated SG&A expenses were 6.2% of net sales, up 20 basis points compared with the prior-year quarter. On an absolute basis, SG&A increased $5.0 million, resulting from higher pension expense, incentive compensation and costs for professional services. The Corporation’s information systems upgrade was successfully completed in October 2013.

Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; recoveries and writeoffs 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 third quarter, consolidated other operating income and expenses, net, was income of $3.0 million in 2013 compared with expense of $0.4 million in 2012. Third quarter 2013 included higher gains on the sale of assets and bad debt recoveries compared with 2012 and a $1.8 million gain for the revision of cost estimates for asset retirement obligations.

 

Page 36 of 56


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

Nine Months Ended September 30

Significant items for the nine months ended September 30, 2013 (unless noted, all comparisons are versus the prior-year nine-month period):

 

   

Earnings per diluted share of $1.84 compared with $1.36 (prior-year period includes $0.46 per diluted share charge for business development costs)

   

Consolidated net sales of $1.452 billion, up 5.4%, compared with $1.377 million

   

Aggregates product line

— Pricing up 2.9%;

— Volume up 0.2%

— Production cost per ton up 2.6%

 

   

Specialty Products net sales of $167.6 million and earnings from operations of $53.1 million

   

Consolidated SG&A up 50 basis points as a percentage of net sales

   

Consolidated earnings from operations of $155.2 million compared with $115.9 million (prior-year period includes $35.1 million of business development costs)

   

Successful integration of three aggregates quarries acquired in the Atlanta, Georgia area

The following table presents net sales, gross profit (loss), selling, general and administrative expenses and earnings (loss) from operations data for the Corporation and its reportable segments for the nine months ended September 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 September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

     Nine Months Ended September 30,  
     2013      2012  
     Amount      % of
Net Sales
     Amount      % of
Net Sales
 
     (Dollars in Thousands)  

Net sales:

           

Mid-America Group

       $   508,999                 $   493,453         

Southeast Group

     171,456               171,027         

West Group

     603,798               560,838         
  

 

 

       

 

 

    

Total Aggregates Business

     1,284,253            100.0            1,225,318            100.0        

Specialty Products

     167,595            100.0            151,626            100.0        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 1,451,848            100.0              $ 1,376,944            100.0        
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit (loss):

           

Mid-America Group

       $ 136,544            26.8              $ 131,682            26.7        

Southeast Group

     (2,911)           (1.7)           348            0.2        

West Group

     69,934            11.6            60,547            10.8        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     203,567            15.9            192,577            15.7        

Specialty Products

     60,784            36.3            59,057            38.9        

Corporate

     (1,426)           --            (1,222)           --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 262,925            18.1              $ 250,412            18.2        
  

 

 

    

 

 

    

 

 

    

 

 

 

Selling, general & administrative expenses:

           

Mid-America Group

       $ 37,433                 $ 39,927         

Southeast Group

     13,375               13,690         

West Group

     34,481               33,464         
  

 

 

       

 

 

    

Total Aggregates Business

     85,289            6.6            87,081            7.1        

Specialty Products

     7,602            4.5            6,900            4.6        

Corporate

     19,741            --            6,417            --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 112,632            7.8              $ 100,398            7.3        
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings (Loss) from operations:

           

Mid-America Group

       $ 102,342                 $ 94,959         

Southeast Group

     (14,949)              (14,980)         

West Group

     38,402               29,183         
  

 

 

       

 

 

    

Total Aggregates Business

     125,795            9.8            109,162            8.9        

Specialty Products

     53,071            31.7            52,706            34.8        

Corporate

     (23,709)           --            (45,924)           --        
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

       $ 155,157            10.7              $ 115,944            8.4        
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

Consolidated net sales increased 5.4% over the comparable 2012 period, driven primarily by pricing improvements for all reportable groups and product lines of the Aggregates business, as well as record net sales achieved by the Specialty Products business.

Pricing momentum in the aggregates product line continued with each reportable group achieving pricing growth. The West Group reported a 3.9% improvement, primarily due to price increases implemented over the past year. The Mid-America and Southeast Groups reported average selling price increases of 2.6% and 2.4%, respectively, for 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 7.9% and 3.1%, respectively.

The aggregates product line experienced year-to-date volume growth of 0.2% driven by positive trends in private-sector construction and related employment. Aggregates shipments to all of the Corporation’s end-use markets increased, with the exception of infrastructure. Infrastructure shipments declined 6.0% resulting from the effects of weather-delayed shipments in the first half of 2013 and lackluster public-sector demand.

Net sales by product line for the Aggregates business are as follows:

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (Dollars in Thousands)  

Net sales1:

     

Aggregates

       $   1,016,238             $   985,563     

Asphalt

     52,231           61,655     

Ready Mixed Concrete

     103,347           78,746     

Road Paving

     112,437           99,354     
  

 

 

    

 

 

 

Total Aggregates Business

       $ 1,284,253             $ 1,225,318     
  

 

 

    

 

 

 

 

1 

Net sales by product line reflect the elimination of inter-product line sales.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The following tables present volume and pricing data and shipments data for the aggregates product line.

 

     Nine Months Ended
September 30, 2013
 
Volume/Pricing Variance (1)    Volume      Pricing  

Heritage Aggregates Product Line (2):

     

Mid-America Group

         0.4%               2.6%     

Southeast Group

         (4.7%)               2.4%     

West Group

         0.8%               3.9%     

Heritage Aggregates Operations(2)

         (0.2%)               2.8%     

Aggregates Product Line (3)

         0.2%               2.9%     

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Mid-America Group

         44,387               44,216     

Southeast Group

         12,705               13,334     

West Group

         39,489               39,183     
  

 

 

    

 

 

 

Heritage Aggregates Operations(2)

         96,581               96,733     

Acquisitions

         402               --     

Divestitures (4)

         3           36     
  

 

 

    

 

 

 

Aggregates Product Line (3)

         96,986               96,769     
  

 

 

    

 

 

 

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (tons in thousands)  

Shipments

     

Aggregates Product Line (3):

  

Tons to external customers

         93,516               93,380     

Internal tons used in other product lines

         3,470               3,389     
  

 

 

    

 

 

 

Total aggregates tons

         96,986               96,769     
  

 

 

    

 

 

 

 

(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.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The per-ton average selling price for the aggregates product line was $10.62 and $10.33 for the nine months ended September 30, 2013 and 2012, respectively.

Average selling prices by product line for the Corporation’s vertically-integrated operations are as follows:

 

     Nine Months Ended
September 30,
 
     2013     2012  

Asphalt

   $ 42.11/ton       $ 40.84/ton    

Ready Mixed Concrete

   $ 82.59/yd 3    $ 76.55/yd 3 

Unit shipments by product line for the Corporation’s vertically-integrated operations are as follows:

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (in thousands)  

Asphalt Product Line:

     

Tons to external customers

     1,072           1,329     

Internal tons used in road paving business

     1,257           1,203     
  

 

 

    

 

 

 

Total asphalt tons

     2,329           2,532     
  

 

 

    

 

 

 

Ready Mixed Concrete – cubic yards

             1,261                   1,062     
  

 

 

    

 

 

 

For 2013, Specialty Products’ net sales of $167.6 million increased $16.0 million, or 10.5%, over the prior-year period. Sales growth reflects dolomitic lime 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. While margins (excluding freight and delivery revenues) were negatively affected by higher coal costs and a planned kiln outage for maintenance, the business generated earnings from operations of $53.1 million in 2013. Earnings from operations of $52.7 million in 2012 included a $1.2 million favorable litigation settlement.

Consolidated gross margin (excluding freight and delivery revenues) was 18.1% for 2013 versus 18.2% for 2012 and was negatively impacted by higher repair costs, including $1.7 million in costs associated with unplanned repairs for a shiploader/reclaimer for the Southeast Group, incremental production costs for the recently-acquired quarries in Georgia, increased workers compensation costs for incurred claims and costs related to the September flooding in Denver, Colorado.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The following presents a reconciliation of consolidated gross profit (dollars in thousands):

 

  Consolidated gross profit, nine months ended September 30, 2012

       $ 250,412        
  

 

 

 

  Aggregates product line:

  

Pricing strength

     28,370        

Volume strength

     2,305        

Cost increases, net

     (24,387)       
  

 

 

 

  Increase in aggregates product line gross profit

     6,288        

  Vertically-integrated operations

     4,702        

  Specialty Products

     1,727        

  Corporate

     (204)       
  

 

 

 

  Increase in consolidated gross profit

     12,513        
  

 

 

 

  Consolidated gross profit, nine months ended September 30, 2013

       $ 262,925        
  

 

 

 

Gross profit (loss) by business is as follows:

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (Dollars in Thousands)  

Gross profit (loss):

     

Aggregates

       $ 189,171              $ 182,883      

Asphalt

         9,770                9,065      

Ready Mixed Concrete

         4,911                421      

Road Paving

         (285)               208      
  

 

 

    

 

 

 

Total Aggregates Business

         203,567                192,577      

Specialty Products

         60,784                59,057      

Corporate

         (1,426)               (1,222)     
  

 

 

    

 

 

 

Total

       $ 262,925              $ 250,412      
  

 

 

    

 

 

 

Consolidated SG&A expenses were 7.8% of net sales, up 50 basis points compared with the prior-year period. On an absolute basis, SG&A increased $12.2 million, due to incremental costs for the Corporation’s information systems upgrade that was successfully completed in October 2013 and increased professional services.

During the nine months ended September 30, 2012, the Corporation incurred $35.1 million of business development costs related to a proposed significant business combination that was not consummated.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

For the first nine months, consolidated other operating income and expenses, net, was income of $5.5 million in 2013 compared with income of $1.1 million in 2012, due in part to higher bad debt recoveries in 2013 and a $1.8 million gain for the revision of cost estimates for asset retirement obligations 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 nine months ended September 30 was an expense of $0.2 million in 2013 compared with income of $1.3 million in 2012. Nonoperating income for 2012 included a gain on debt repurchased at a discount and a gain on foreign currency transactions (compared with a loss in 2013), which were partially offset by lower earnings on nonconsolidated equity investments.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the nine months ended September 30, 2013 was $165.6 million compared with $122.0 million for the same period in 2012. The improvement is attributable to the absence of significant business development costs incurred in 2012 and a larger increase in payables. Operating cash flow is primarily derived from consolidated net earnings, before deducting depreciation, depletion and amortization, and offset by working capital requirements. Depreciation, depletion and amortization were as follows:

 

     Nine Months Ended
September 30,
 
     2013      2012  
     (Dollars in Thousands)  

Depreciation

       $   122,129             $   125,534     

Depletion

         3,920               3,446     

Amortization

         4,048               4,005     
  

 

 

    

 

 

 
       $   130,097             $   132,985     
  

 

 

    

 

 

 

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 $122.0 million for the first nine months of 2012.

During the nine months ended September 30, 2013, the Corporation invested $102.3 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.

During the third quarter of 2013, the Corporation acquired three aggregates quarries in Atlanta, Georgia.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

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 Corporation has the intent and ability to refinance amounts outstanding when the Trade Receivable Facility matures on April 19, 2014.

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 nine months ended September 30, 2013 and 2012. Management currently has no intent to repurchase any shares of the Corporation’s common stock. At September 30, 2013, 5,042,000 shares of common stock were remaining under the Corporation’s repurchase authorization.

The Credit Agreement (which consisted of a $250 million Term Loan Facility and a $350 million Revolving Facility at September 30, 2013) 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 210 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 for which the Corporation is a co-borrower, 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 Ratio is calculated as debt, including debt for which the Corporation is a co-borrower, 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.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

At September 30, 2013, the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing twelve months EBITDA was 3.06 times and was calculated as follows:

 

     Twelve Month Period
October 1, 2012 to
September 30, 2013
 
     (Dollars in thousands)  

Earnings from continuing operations attributable to Martin Marietta Materials, Inc.

               $ 106,761      

Add back:

  

Interest expense

     54,005      

Income tax expense

     33,949      

Depreciation, depletion and amortization expense

     169,579      

Stock-based compensation expense

     7,242      

Deduct:

  

Interest income

     (301)     
  

 

 

 

Consolidated EBITDA, as defined

               $ 371,235      
  

 

 

 

Consolidated debt, including debt for which the Corporation is a co-borrower, at September 30, 2013

               $ 1,135,327      

Deduct:

  

Unrestricted cash and cash equivalents in excess of $50,000 at September 30, 2013

     --      
  

 

 

 

Consolidated net debt, as defined, at September 30, 2013

               $ 1,135,327      
  

 

 

 

Consolidated debt to consolidated EBITDA, as defined, at September 30, 2013 for the trailing twelve months EBITDA

     3.06X      
  

 

 

 

The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements. In the event of a default on the Ratio, the lenders can terminate the Credit Agreement and Trade Receivable Facility and declare any outstanding balances as immediately due.

Cash on hand, along with the Corporation’s projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise and allow for payment of dividends for the foreseeable future. At September 30, 2013, the Corporation had $277 million of unused borrowing capacity under its Revolving Facility, subject to complying with the related leverage covenant.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

The Corporation may be required to obtain financing to fund certain strategic acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic acquisition of size for cash would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating. Furthermore, the Corporation is exposed to the credit markets, through the interest cost related to its variable-rate debt, which included borrowings under its Revolving Facility, Term Loan Facility and Trade Receivable Facility at September 30, 2013. The Corporation is currently rated by three credit rating agencies; two of those agencies’ credit ratings are investment-grade level and the third agency’s credit rating is one level below investment grade. The Corporation’s composite credit rating remains at investment-grade level, which facilitates obtaining financing at lower rates than noninvestment-grade ratings. While management believes its composite credit ratings will remain at an investment-grade level, no assurance can be given that these ratings will remain at current levels, particularly if any opportunities arise to consummate strategic acquisitions.

TRENDS AND RISKS     The Corporation outlined the risks associated with its business in its Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on February 22, 2013. Management continues to evaluate its exposure to all operating risks on an ongoing basis.

OUTLOOK

As noted above, management is encouraged by various positive trends in the Corporation’s business and markets – especially in private-sector employment and construction. Management anticipates volumes in the nonresidential end-use market to increase in the mid-single digits given that the Architecture Billings Index, or ABI, a leading economic indicator for nonresidential construction spending activity, remains at a strong level and has shown consistent growth over the last year. Residential construction is experiencing a level of growth not seen since late 2005 with seasonally-adjusted starts ahead of any period since 2008. Management believes this trend in housing starts will continue and the residential end-use market will experience high single-digit volume growth. By contrast, the weather-related slowdown in aggregates shipments experienced in the first half of the year, coupled with the hesitancy created by the uncertainty of future federal highway funding levels, leads management to expect aggregates shipments to the infrastructure end-use market to be down in the mid-single digits for the full year. The ChemRock/Rail end-use market is expected to be flat compared with 2012. 

Cumulatively, dependent on fourth-quarter weather, management anticipates full-year aggregates product line shipments will be flat to slightly up as compared with 2012 levels. Management currently expects aggregates product line pricing to increase 2% to 4% for the full year. A variety of factors beyond the Corporation’s direct control may continue to exert pressure on volumes, and forecasted pricing increase will not be uniform across the company.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2013

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2013

(Continued)

 

Management expects the vertically-integrated businesses to generate between $335 million and $355 million of net sales and $18 million to $20 million of gross profit.

Aggregates product line direct production costs per ton should be up slightly compared with 2012. SG&A expenses, excluding costs in 2013 and 2012 related to the information systems upgrade, as a percentage of net sales are expected to remain relatively flat.

Net sales for the Specialty Products segment are expected to be between $220 million and $230 million, generating $81 million to $85 million of gross profit. Steel utilization and natural gas prices are two key factors for this segment.

Interest expense is expected to remain relatively flat compared with 2012. The Corporation’s effective tax rate is expected to approximate 26%, excluding discrete events. Capital expenditures are forecast at $155 million.

Management has started framing a preliminary 2014 outlook for the Aggregates business’ end-use markets and, while the current environment in Washington, DC reduces clarity, it has formed an initial view based on internal observations in conjunction with McGraw Hill Construction’s recent economic forecast. Management currently expects shipments to the infrastructure end-use market to increase slightly. Management anticipates the nonresidential end-use market to increase in the mid-to-high single digits, led by strength in the commercial component and energy sector. Management believes the recent positive trend in housing starts will continue and the residential end-use market will experience double-digit volume growth. Finally, management expects the ChemRock/Rail end-use market to be up low single digits compared with 2013.

The full-year 2013 and preliminary 2014 outlook include management’s assessment of the likelihood of certain risk factors that will affect performance. The most significant risk to the Corporation’s performance will be the United States economy and its impact on construction activity. While transportation investment is mostly exempt from spending cuts, the impact of sequester may may increase in future periods. While both MAP-21 and TIFIA credit assistance are excluded from the federal budget sequester and the U.S. debt ceiling limit, the ultimate resolution of these issues may have a significant impact on the economy and, consequently, construction activity. In addition, the recent government shutdown may further erode consumer confidence, which may negatively impact investment in construction projects. Other risks related to the Corporation’s future performance include, but are not limited to, both price and volume and include a recurrence of widespread decline in aggregates volume negatively affecting aggregates price; the termination, capping and/or reduction of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; a significant change in the funding patterns for traditional federal, state and/or local infrastructure projects; a reduction in defense spending, and the s