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) |
Registrants telephone number, including area code 919-781-4550
Former name: |
None | |
Former name, former address and former fiscal year, if changes since last report. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer ¨ | |||||
Non-accelerated filer ¨ | Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuers classes of Common Stock, as of the latest practicable date.
Class |
Outstanding as of October 30, 2013 | |
Common Stock, $0.01 par value |
46,248,559 |
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
For the Quarter Ended September 30, 2013
Page 2 of 56
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 |
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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 | |||||||||
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Total Current Assets |
845,669 | 700,401 | 785,107 | |||||||||
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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) | |||||||||
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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 | |||||||||
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Total Assets |
$ | 3,337,105 | $ | 3,160,926 | $ | 3,243,204 | ||||||
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LIABILITIES AND EQUITY |
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Current Liabilities: |
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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 | |||||||||
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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 | |||||||||
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Total Liabilities |
1,838,222 | 1,710,627 | 1,773,183 | |||||||||
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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 | |||||||||
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Total Shareholders Equity |
1,460,149 | 1,410,545 | 1,430,405 | |||||||||
Noncontrolling interests |
38,734 | 39,754 | 39,616 | |||||||||
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Total Equity |
1,498,883 | 1,450,299 | 1,470,021 | |||||||||
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Total Liabilities and Equity |
$ | 3,337,105 | $ | 3,160,926 | $ | 3,243,204 | ||||||
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See accompanying notes to consolidated financial statements.
Page 3 of 56
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 | ||||||||||||
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Total revenues |
665,320 | 592,268 | 1,610,555 | 1,529,643 | ||||||||||||
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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 | ||||||||||||
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Total cost of revenues |
522,212 | 468,246 | 1,347,630 | 1,279,231 | ||||||||||||
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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) | ||||||||||||
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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) | ||||||||||||
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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 | ||||||||||||
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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) | ||||||||||||
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Consolidated net earnings |
72,038 | 63,669 | 84,276 | 63,803 | ||||||||||||
Less: Net earnings (loss) attributable to noncontrolling interests |
202 | 747 | (1,028) | 863 | ||||||||||||
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Net Earnings Attributable to Martin Marietta Materials, Inc. |
$ | 71,836 | $ | 62,922 | $ | 85,304 | $ | 62,940 | ||||||||
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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) | ||||||||||||
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$ | 71,836 | $ | 62,922 | $ | 85,304 | $ | 62,940 | |||||||||
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Consolidated Comprehensive Earnings (See Note 1) |
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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 | ||||||||||||
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$ | 75,589 | $ | 66,832 | $ | 87,743 | $ | 70,223 | |||||||||
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Net Earnings (Loss) Attributable to Martin Marietta Materials, Inc. |
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Per Common Share |
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Basic from continuing operations attributable to common shareholders |
$ | 1.56 | $ | 1.37 | $ | 1.85 | $ | 1.39 | ||||||||
Discontinued operations attributable to common shareholders |
(0.01) | (0.01) | (0.01) | (0.02) | ||||||||||||
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$ | 1.55 | $ | 1.36 | $ | 1.84 | $ | 1.37 | |||||||||
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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) | ||||||||||||
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$ | 1.54 | $ | 1.36 | $ | 1.84 | $ | 1.36 | |||||||||
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Weighted-Average Common Shares Outstanding |
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Basic |
46,244 | 45,860 | 46,134 | 45,792 | ||||||||||||
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Diluted |
46,349 | 45,992 | 46,261 | 45,929 | ||||||||||||
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Cash Dividends Per Common Share |
$ | 0.40 | $ | 0.40 | $ | 1.20 | $ | 1.20 | ||||||||
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See accompanying notes to consolidated financial statements.
Page 4 of 56
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: |
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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 | ||||||
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Net Cash Provided by Operating Activities |
165,645 | 122,044 | ||||||
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Cash Flows from Investing Activities: |
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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) | - | ||||||
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Net Cash Used for Investing Activities |
(166,968) | (98,202) | ||||||
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Cash Flows from Financing Activities: |
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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 | - | ||||||
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Net Cash Provided by (Used for) Financing Activities |
33,170 | (14,443) | ||||||
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Net Increase in Cash and Cash Equivalents |
31,847 | 9,399 | ||||||
Cash and Cash Equivalents, beginning of period |
25,394 | 26,022 | ||||||
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Cash and Cash Equivalents, end of period |
$ | 57,241 | $ | 35,421 | ||||
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Supplemental Disclosures of Cash Flow Information: |
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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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF TOTAL EQUITY
(Unaudited)
(in thousands) |
Shares of Common Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total Shareholders Equity |
Noncontrolling Interests |
Total Equity |
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Balance at December 31, 2012 |
46,002 | $ | 459 | $ | 414,657 | $ | (106,169) | $ | 1,101,598 | $ | 1,410,545 | $ | 39,754 | $ | 1,450,299 | |||||||||||||||||
Consolidated net earnings |
- | - | - | - | 85,304 | 85,304 | (1,028) | 84,276 | ||||||||||||||||||||||||
Other comprehensive earnings |
- | - | - | 3,459 | - | 3,459 | 8 | 3,467 | ||||||||||||||||||||||||
Dividends declared |
- | - | - | - | (55,626) | (55,626) | - | (55,626) | ||||||||||||||||||||||||
Issuances of common stock for stock award plans |
246 | 2 | 11,057 | - | - | 11,059 | - | 11,059 | ||||||||||||||||||||||||
Stock-based compensation expense |
- | - | 5,408 | - | - | 5,408 | - | 5,408 | ||||||||||||||||||||||||
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Balance at September 30, 2013 |
46,248 | $ | 461 | $ | 431,122 | $ | (102,710) | $ | 1,131,276 | $ | 1,460,149 | $ | 38,734 | $ | 1,498,883 | |||||||||||||||||
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See accompanying notes to consolidated financial statements.
Page 6 of 56
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 Corporations aggregates product line, which accounted for 71% of consolidated 2012 net sales, includes crushed stone, sand and gravel, and is used primarily for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates products are also used in the railroad, environmental, utility and agricultural industries. These aggregates products, along with the asphalt products, ready mixed concrete and road paving construction services of the Corporations vertically-integrated operations (which accounted for 18% of consolidated 2012 net sales), are sold and shipped from a network of 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 Corporations 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, West Virginia |
Alabama, Florida, Georgia, Mississippi, Tennessee, Nova Scotia and the Bahamas |
Arkansas, Colorado, Kansas, Louisiana, Missouri, western Nebraska, Nevada, Oklahoma, Texas, Utah and Wyoming |
In addition to the Aggregates business, the Corporation has a Specialty Products segment, accounting for 11% of consolidated 2012 net sales, which produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.
Page 7 of 56
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 Corporations Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on February 22, 2013. In the opinion of management, the interim consolidated financial information provided herein reflects all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations, financial position and cash flows for the interim periods. The consolidated results of operations for the three and 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 Corporations Annual Report on Form 10-K for the year ended December 31, 2012.
Reclassifications
Prior-year segment information for the Aggregates business presented in Note 9 has been reclassified to conform to the presentation of the Corporations current reportable segments.
Page 8 of 56
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 | ||||||||||||
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Comprehensive earnings attributable to Martin Marietta Materials, Inc. |
$ | 75,384 | $ | 66,082 | $ | 88,763 | $ | 69,350 | ||||||||
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Comprehensive earnings (loss) attributable to noncontrolling interests, consisting of net earnings or loss and adjustments for the funded status of pension and postretirement benefit plans, are as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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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 |
3 | 3 | 8 | 10 | ||||||||||||
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Comprehensive earnings (loss) attributable to noncontrolling interests |
$ | 205 | $ | 750 | $ | (1,020) | $ | 873 | ||||||||
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Page 9 of 56
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 |
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Three Months Ended September 30, 2013 | ||||||||||||||||
Balance at beginning of period |
$ | (106,603) | $ | 4,153 | $ | (3,808) | $ | (106,258) | ||||||||
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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 | ||||||||||||
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|
|||||||||
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
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
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
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
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 Corporations unvested restricted stock awards and incentive stock awards. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Corporations Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive.
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
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 Corporations existing long-term position in this market. The operating results of the acquired locations are reported through the Corporations 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
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 Corporations $100,000,000 secured accounts receivable credit facility (the AR Credit Facility) expired by its own terms on April 20, 2013.
On April 19, 2013, the Corporation, through a wholly-owned consolidated special purpose subsidiary, established a $150,000,000 trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the facility from time to time (the Trade Receivable Facility). 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 Corporations other debt agreements.
Page 16 of 56
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 Corporations Credit Agreement, consisting of a $250,000,000 senior unsecured term loan (the Term Loan Facility) and a $350,000,000 senior unsecured revolving facility (the Revolving Facility), requires the Corporations ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 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 Corporations unrestricted cash and cash equivalents in excess of $50,000,000, such reduction not to exceed $200,000,000, for purposes of the covenant calculation. The Corporation 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
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 Corporations financial instruments include temporary cash investments, accounts receivable, notes receivable, bank overdraft, accounts payable, publicly-registered long-term notes, debentures and other long-term debt.
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 Corporations cash equivalents have maturities of less than three months. Due to the short maturity of these investments, they are carried on the consolidated balance sheets at cost, which approximates fair value.
Customer receivables are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, customer receivables are more heavily concentrated in certain states (namely, Texas, North Carolina, Iowa, Colorado and Georgia). The estimated fair values of customer receivables approximate their carrying amounts due to the short-term nature of the receivables.
Notes receivable are primarily promissory notes with customers and are not publicly traded. Management estimates that the fair value of notes receivable approximates the carrying amount.
The bank overdraft represents 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 Corporations 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 Corporations publicly-registered long-term notes was estimated based on level 1 of the fair value hierarchy using quoted market prices. The estimated fair value of other borrowings, which primarily represents variable-rate debt, approximates its carrying amount as the interest rates reset periodically.
Page 18 of 56
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 Corporations effective income tax rate reflects the effect of federal and state income taxes and the impact of differences in book and tax accounting arising from the net permanent benefits associated with the statutory depletion deduction for mineral reserves, the impact of foreign losses for which no tax benefit was realized and the domestic production deduction. The effective income tax rates for discontinued operations reflect the tax effects of individual operations transactions and are not indicative of the Corporations overall effective income tax rate.
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 Corporations consolidated financial position and/or results of operations.
The Corporations 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
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 Corporations 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.
Page 20 of 56
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
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 Corporations 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 Corporations compliance with the CAA New Source Review (NSR) program at its Specialty Products dolomitic lime manufacturing plant in Woodville, Ohio. The Corporation has been providing information to the USEPA in response to these NOVs and has had several meetings with the USEPA. The Corporation believes it is in substantial compliance with the NSR program. Because the enforcement proceeding is in its initial stage, at this time the Corporation cannot reasonably estimate what likely penalties or upgrades to equipment might ultimately be required. The Corporation believes that any costs related to any upgrades to capital equipment will be spread over time and will not have a material adverse effect on the Corporations operations or its financial condition, but can give no assurance that the ultimate resolution of this matter will not have a material adverse effect on the financial condition or results of operations of the Specialty Products segment of the business.
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 affiliates 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 affiliates property as collateral for payment under the loan and security agreement.
Page 22 of 56
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 Corporations reportable business segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for corporate administrative functions, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments. Prior-year segment information has been reclassified to conform to the presentation of the Corporations current reportable segments.
Three Months Ended 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
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 Corporations 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
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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW Martin Marietta Materials, Inc., (the Corporation) is the nations second largest producer of construction aggregates. The Corporations annual net sales and earnings are predominately derived from its Aggregates business, which processes and sells granite, limestone, and other aggregates products, including asphalt, ready mixed concrete and road paving construction services, from a network of 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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 Managements Discussion and Analysis of Financial Condition and Results of Operations reflects results from continuing operations and is based on net sales and cost of sales. However, gross margin as a percentage of net sales and operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with the basis by which management reviews the Corporations operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporations operating results given that freight and delivery revenues and costs represent pass-throughs and have no profit mark-up. Gross margin and operating margin calculated as percentages of total revenues represent the most directly comparable financial measures calculated in accordance with generally accepted accounting principles (GAAP). The following tables present the calculations of gross margin and operating margin for the three and 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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 Corporations 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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. |
Page 33 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations vertically-integrated operations include asphalt, ready mixed concrete and road paving businesses in Arkansas, Colorado and Texas. Average selling prices by product line for the Corporations vertically-integrated operations are as follows:
Three Months Ended 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 Corporations 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 Corporations operations, third-quarter results are not indicative of expected performance for other interim periods or the full year.
Page 34 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 managements 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.
Page 35 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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.
Page 37 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 | ||||||||||
|
|
|
|
|
|
|
|
Page 38 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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 Corporations 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. |
Page 39 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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. |
Page 40 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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 Corporations 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.
Page 41 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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.
Page 42 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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.
Page 43 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations accounts receivable and bear interest at a rate equal to the one-month LIBOR plus 0.6%. The Corporation has the option to request an increase in the commitment amount by up to an additional $100 million in increments of no less than $25 million, subject to receipt of lender commitments for the increased amount. The 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 Corporations common stock. At September 30, 2013, 5,042,000 shares of common stock were remaining under the Corporations 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 Corporations ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve month period (the Ratio) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 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 & Poors or Baa2 by Moodys and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility, consolidated debt, including debt for which the Corporation is a co-borrower, will be reduced for purposes of the covenant calculation by the Corporations unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million.
The 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.
Page 44 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Third Quarter Ended September 30, 2013
(Continued)
At September 30, 2013, the Corporations 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 Corporations 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 Corporations 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.
Page 45 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 agencys credit rating is one level below investment grade. The Corporations 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 Corporations 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 Corporations direct control may continue to exert pressure on volumes, and forecasted pricing increase will not be uniform across the company.
Page 46 of 56
MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended September 30, 2013
MANAGEMENTS 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 Corporations 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 Constructions 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 managements assessment of the likelihood of certain risk factors that will affect performance. The most significant risk to the Corporations 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 Corporations 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