10-Q
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-12744

 

 

MARTIN MARIETTA MATERIALS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

North Carolina   56-1848578

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

2710 Wycliff Road, Raleigh, NC   27607-3033
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code 919-781-4550

 

Former name:   None
 

Former name, former address and former fiscal year,

if changes since last report.

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    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  x    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   x    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   x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

 

Class

  

Outstanding as of October 28, 2014

Common Stock, $0.01 par value

   67,270,055

 

 

 


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

 

     Page  

Part I. Financial Information:

  

Item 1. Financial Statements.

  

Consolidated Balance Sheets –
September 30, 2014, December 31, 2013 and September 30, 2013

     3   

Consolidated Statements of Earnings and Comprehensive Earnings -
Three and Nine Months Ended September 30, 2014 and 2013

     4   

Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2014 and 2013

     5   

Consolidated Statement of Total Equity -
Nine Months Ended September 30, 2014

     6   

Notes to Consolidated Financial Statements

     7   

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

     34   

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     73   

Item 4. Controls and Procedures.

     74   

Part II. Other Information:

  

Item 1. Legal Proceedings.

     75   

Item 1A. Risk Factors.

     75   

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

     75   

Item 4. Mine Safety Disclosures.

     75   

Item 6. Exhibits.

     76   

Signatures

     77   

Exhibit Index

     78   

 

Page 2 of 78


Table of Contents

PART I. FINANCIAL INFORMATION

Item  1. Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     September 30,     December 31,     September 30,  
     2014     2013     2013  
     (Unaudited)     (Audited)     (Unaudited)  
     (Dollars in Thousands, Except Per Share Data)  

ASSETS

      

Current Assets:

      

Cash and cash equivalents

   $ 73,597      $ 42,437      $ 57,241   

Accounts receivable, net

     523,928        245,421        331,030   

Inventories, net

     475,293        347,307        350,438   

Current deferred income tax benefits

     90,136        74,821        77,005   

Other current assets

     49,844        45,380        29,955   
  

 

 

   

 

 

   

 

 

 

Total Current Assets

     1,212,798        755,366        845,669   
  

 

 

   

 

 

   

 

 

 

Property, plant and equipment

     5,624,761        3,976,884        3,942,138   

Allowances for depreciation, depletion and amortization

     (2,246,810     (2,177,643     (2,159,520
  

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     3,377,951        1,799,241        1,782,618   

Goodwill

     2,043,320        616,621        616,634   

Operating permits, net

     501,734        17,041        17,199   

Other intangibles, net

     97,488        31,550        31,836   

Real estate and other investments

     63,766        9,785        10,094   

Other noncurrent assets

     41,801        30,222        33,055   
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 7,338,858      $ 3,259,826      $ 3,337,105   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

      

Current Liabilities:

      

Bank overdraft

   $ —        $ 2,556      $ 10,437   

Accounts payable

     230,206        103,600        111,266   

Accrued salaries, benefits and payroll taxes

     54,062        18,114        20,655   

Pension and postretirement benefits

     7,351        2,026        1,992   

Accrued insurance and other taxes

     70,653        29,103        34,444   

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

     14,331        12,403        6,169   

Other current liabilities

     60,395        42,747        41,469   
  

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     436,998        210,549        226,432   

Long-term debt

     1,603,944        1,018,518        1,107,192   

Pension, postretirement and postemployment benefits

     144,077        78,489        171,695   

Noncurrent deferred income taxes

     633,951        279,999        243,858   

Other noncurrent liabilities

     144,275        97,352        89,045   
  

 

 

   

 

 

   

 

 

 

Total Liabilities

     2,963,245        1,684,907        1,838,222   
  

 

 

   

 

 

   

 

 

 

Equity:

    

Common stock, par value $0.01 per share

     671        461        461   

Preferred stock, par value $0.01 per share

     —          —          —     

Additional paid-in capital

     3,239,709        432,792        431,122   

Accumulated other comprehensive loss

     (43,281     (44,114     (102,710

Retained earnings

     1,176,121        1,148,738        1,131,276   
  

 

 

   

 

 

   

 

 

 

Total Shareholders’ Equity

     4,373,220        1,537,877        1,460,149   

Noncontrolling interests

     2,393        37,042        38,734   
  

 

 

   

 

 

   

 

 

 

Total Equity

     4,375,613        1,574,919        1,498,883   
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 7,338,858      $ 3,259,826      $ 3,337,105   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

 

Page 3 of 78


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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2014     2013     2014     2013  
    

(In Thousands, Except Per Share Data)

(Unaudited)

 

Net Sales

   $ 917,942      $ 600,457      $ 1,899,557      $ 1,451,848   

Freight and delivery revenues

     85,781        64,863        202,021        158,707   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     1,003,723        665,320        2,101,578        1,610,555   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

     722,349        457,349        1,542,527        1,188,923   

Freight and delivery costs

     85,781        64,863        202,021        158,707   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     808,130        522,212        1,744,548        1,347,630   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     195,593        143,108        357,030        262,925   

Selling, general & administrative expenses

     48,427        37,140        119,239        112,632   

Acquisition-related expenses, net

     26,118        89        41,178        671   

Other operating expenses (income), net

     5,092        (2,964     313        (5,535
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Operations

     115,956        108,843        196,300        155,157   

Interest expense

     19,805        13,518        44,954        40,633   

Other nonoperating (income) and expenses, net

     (1,841     101        1,330        179   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from continuing operations before taxes on income

     97,992        95,224        150,016        114,345   

Income tax expense

     44,089        22,915        59,571        29,615   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     53,903        72,309        90,445        84,730   

Loss on discontinued operations, net of related tax benefit of $28, $185, $53 and $250, respectively

     (69     (271     (140     (454
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net earnings

     53,834        72,038        90,305        84,276   

Less: Net earnings (loss) attributable to noncontrolling interests

     91        202        (1,341     (1,028
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

   $ 53,743      $ 71,836      $ 91,646      $ 85,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.:

        

Earnings from continuing operations

   $ 53,812      $ 72,107      $ 91,786      $ 85,758   

Loss from discontinued operations

     (69     (271     (140     (454
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 53,743      $ 71,836      $ 91,646      $ 85,304   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Comprehensive Earnings: (See Note 1)

        

Earnings attributable to Martin Marietta Materials, Inc.

   $ 52,603      $ 75,384      $ 92,479      $ 88,763   

Earnings (Loss) attributable to noncontrolling interests

     93        205        (1,337     (1,020
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 52,696      $ 75,589      $ 91,142      $ 87,743   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

        

Per Common Share:

        

Basic from continuing operations attributable to common shareholders

   $ 0.80      $ 1.56      $ 1.71      $ 1.85   

Discontinued operations attributable to common shareholders

     —          (0.01     —          (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 0.80      $ 1.55      $ 1.71      $ 1.84   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted from continuing operations attributable to common shareholders

   $ 0.79      $ 1.55      $ 1.70      $ 1.85   

Discontinued operations attributable to common shareholders

     —          (0.01     —          (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 0.79      $ 1.54      $ 1.70      $ 1.84   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-Average Common Shares Outstanding:

        

Basic

     67,086        46,244        53,342        46,134   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     67,495        46,349        53,559        46,261   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Dividends Per Common Share

   $ 0.40      $ 0.40      $ 1.20      $ 1.20   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Nine Months Ended  
     September 30,  
     2014     2013  
    

(Dollars in Thousands)

(Unaudited)

 

Cash Flows from Operating Activities:

    

Consolidated net earnings

   $ 90,305      $ 84,276   

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

    

Depreciation, depletion and amortization

     154,079        130,097   

Stock-based compensation expense

     6,381        5,408   

Gains on divestitures and sales of assets

     (47,815     (1,003

Deferred income taxes

     44,970        19,194   

Excess tax benefits from stock-based compensation transactions

     (2,354     (1,990

Other items, net

     1,766        (739

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

    

Accounts receivable, net

     (120,139     (108,134

Inventories, net

     1,283        (14,771

Accounts payable

     26,515        27,729   

Other assets and liabilities, net

     46,637        25,578   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     201,628        165,645   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Additions to property, plant and equipment

     (138,570     (102,342

Acquisitions, net

     (174     (64,432

Cash received in acquisition

     59,887        —     

Proceeds from divestitures and sales of assets

     113,158        3,208   

Repayments from (Loan to) affiliate

     850        (3,402

Payment of railcar construction advances

     (14,513     —     

Reimbursement of railcar construction advances

     14,513        —     
  

 

 

   

 

 

 

Net Cash Provided by (Used for) Investing Activities

     35,151        (166,968
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Borrowings of long-term debt

     868,762        355,500   

Repayments of long-term debt

     (1,024,052     (290,192

Payments on capital lease obligations

     (2,177     —     

Debt issuance costs

     (2,402     (510

Change in bank overdraft

     (2,556     10,437   

Dividends paid

     (64,263     (55,626

Purchase of remaining interest in existing subsidiaries

     (19,480     —     

Issuances of common stock

     38,195        11,571   

Excess tax benefits from stock-based compensation transactions

     2,354        1,990   
  

 

 

   

 

 

 

Net Cash (Used for) Provided by Financing Activities

     (205,619     33,170   
  

 

 

   

 

 

 

Net Increase in Cash and Cash Equivalents

     31,160        31,847   

Cash and Cash Equivalents, beginning of period

     42,437        25,394   
  

 

 

   

 

 

 

Cash and Cash Equivalents, end of period

   $ 73,597      $ 57,241   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information:

    

Cash paid for interest

   $ 56,162      $ 28,621   

Cash paid for income taxes

   $ 6,011      $ 1,432   

See accompanying notes to consolidated financial statements.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENT OF TOTAL EQUITY

(Unaudited)

 

    Shares of                             Total              
    Common     Common     Additional     Accumulated Other     Retained     Shareholders’     Noncontrolling     Total  

(in thousands)

  Stock     Stock     Paid-in Capital     Comprehensive Loss     Earnings     Equity     Interests     Equity  

Balance at December 31, 2013

    46,261      $ 461      $ 432,792      $ (44,114   $ 1,148,738      $ 1,537,877      $ 37,042      $ 1,574,919   

Consolidated net earnings

    —          —          —          —          91,646        91,646        (1,341     90,305   

Other comprehensive earnings

    —          —          —          833        —          833        4        837   

Dividends declared

    —          —          —          —          (64,263     (64,263     —          (64,263

Issuances of common stock, stock options and stock appreciation rights for TXI acquisition

    20,309        203        2,751,670        —          —          2,751,873        —          2,751,873   

Issuances of common stock for stock award plans

    688        7        40,467        —          —          40,474        —          40,474   

Stock-based compensation expense

    —          —          6,381        —          —          6,381        —          6,381   

Purchase of remaining interest in existing subsidiaries

    —          —          8,399        —          —          8,399        (33,312     (24,913
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

    67,258      $ 671      $ 3,239,709      $ (43,281   $ 1,176,121      $ 4,373,220      $ 2,393      $ 4,375,613   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Significant Accounting Policies

Organization

Martin Marietta (the “Corporation”) is engaged principally in the construction aggregates business. The Corporation’s aggregates product line includes crushed stone, sand and gravel, and is used for construction of highways and other infrastructure projects, and in the nonresidential and residential construction industries. Aggregates products are also used in the railroad, agricultural, utility and environmental industries. These aggregates products, along with the Corporation’s aggregates-related downstream product lines, which include asphalt products, ready mixed concrete and road paving construction services, are sold and shipped from a network of approximately 420 quarries, distribution facilities and plants to customers in 30 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and aggregates-related downstream product lines are reported collectively as the “Aggregates business”.

Effective January 1, 2014, the Corporation made minor changes to the operations and management reporting structure of its Aggregates business, resulting in an immaterial change to its reportable segments. The Corporation currently conducts the Aggregates business through three reportable segments: the Mid-America Group, the Southeast Group and the West Group.

AGGREGATES BUSINESS

 

Reportable Segments

  

Mid-America Group

  

Southeast Group

  

West Group

Operating Locations   

Indiana, Iowa,

northern Kansas,

Kentucky,

Maryland,

Minnesota,

Missouri,

eastern Nebraska,

North Carolina,

Ohio, South Carolina,

Virginia,

Washington and

West Virginia

  

Alabama, Florida,

Georgia,

Mississippi,

Tennessee, Nova

Scotia and the

Bahamas

  

Arkansas,

Colorado,

southern Kansas,

Louisiana,

western Nebraska,

Nevada,

Oklahoma, Texas,

Utah and

Wyoming

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

The Corporation has a Cement segment, which is comprised of cement operations acquired from Texas Industries, Inc. (“TXI”) with production facilities located in Midlothian, Texas, south of Dallas/Fort Worth; Hunter Texas, south of San Antonio; and Oro Grande, near Los Angeles, California. See Note 2 for additional information on the acquisition. The cement business produces Portland and specialty cements, such as masonry and oil well cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. The limestone reserves used as a raw material are located on owned property adjacent to each of the plants. The Corporation also operates cement terminals, a packaging facility at the Crestmore plant near Riverside, California, and its Portland cement grinding facility on an as needed basis.

The Corporation has a Specialty Products segment with manufacturing facilities in Manistee, Michigan and Woodville, Ohio. The Specialty Products segment produces magnesia-based chemicals products used in industrial, agricultural and environmental applications and dolomitic lime sold primarily to customers in the steel industry.

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. Other than the adoption of a new accounting standard (see page 9), the Corporation has continued to follow the accounting policies set forth in the audited consolidated financial statements and related notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 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, 2014 are not indicative of the results expected for other interim periods or the full year. The consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

Early Adoption of New Accounting Standard

Effective January 1, 2014, the Corporation early adopted the Financial Accounting Standard Board’s (the “FASB”) final guidance on reporting discontinued operations. The guidance is to be applied prospectively and redefines discontinued operations to be either 1) a component of an entity or group of components that has been disposed of or is classified as held for sale that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or 2) a business that, upon acquisition, meets the criteria to be classified as held for sale. The adoption of the accounting standard did not have any effect on the Corporation’s financial position or results of operations.

Revenue Recognition Standard

The FASB issued an accounting standard update that amends the accounting guidance on revenue recognition. The new standard intends to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The new standard is effective for interim and annual reporting periods beginning after December 15, 2016 and can be applied on a full retrospective or modified retrospective approach. The Corporation is currently evaluating the impact of the provisions of the new standard, and at this time does not expect the impact to be material to its results of operations.

Reclassifications

Prior-year segment information for the Aggregates business presented in Note 10 has been reclassified to conform to the presentation of the Corporation’s current reportable segments. In addition, certain other reclassifications have been made to prior year amounts to conform to the current year presentation.

 

Page 9 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

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, and are presented in the Corporation’s consolidated statements of earnings and comprehensive earnings.

Comprehensive earnings attributable to Martin Marietta is as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014     2013      2014      2013  
     (Dollars in Thousands)  

Net earnings attributable to Martin Marietta

   $ 53,743      $ 71,836       $ 91,646       $ 85,304   

Other comprehensive (loss) earnings, net of tax

     (1,140     3,548         833         3,459   
  

 

 

   

 

 

    

 

 

    

 

 

 

Comprehensive earnings attributable to Martin Marietta

   $ 52,603      $ 75,384       $ 92,479       $ 88,763   
  

 

 

   

 

 

    

 

 

    

 

 

 

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, is as follows:

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2014      2013      2014     2013  
     (Dollars in Thousands)  

Net earnings (loss) attributable to noncontrolling interests

   $ 91       $ 202       $ (1,341   $ (1,028

Other comprehensive earnings, net of tax

     2         3         4        8   
  

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive earnings (loss) attributable to noncontrolling interests

   $ 93       $ 205       $ (1,337   $ (1,020
  

 

 

    

 

 

    

 

 

   

 

 

 

 

Page 10 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

Consolidated Comprehensive Earnings/Loss and Accumulated Other Comprehensive Loss (continued)

 

Accumulated other comprehensive loss consists of unrealized gains and losses related to the funded status of pension and postretirement benefit plans; foreign currency translation; and the unamortized value of terminated forward starting interest rate swap agreements, and is presented on the Corporation’s consolidated balance sheets. Changes in accumulated other comprehensive loss, net of tax, are as follows:

 

     (Dollars in Thousands)  
     Pension and
Postretirement
Benefit Plans
    Foreign
Currency
    Unamortized
Value of
Terminated
Forward
Starting
Interest Rate
Swap
    Accumulated
Other
Comprehensive
Loss
 
     Three Months Ended September 30, 2014  

Balance at beginning of period

   $ (44,685   $ 5,658      $ (3,114   $ (42,141
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss before reclassifications, net of tax

     —          (1,466     —          (1,466

Amounts reclassified from accumulated other comprehensive loss, net of tax

     146        —          180        326   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings (loss), net of tax

     146        (1,466     180        (1,140
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ (44,539   $ 4,192      $ (2,934   $ (43,281
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended September 30, 2013  

Balance at beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings before reclassifications, net of tax

     —          993        —          993   

Amounts reclassified from accumulated other comprehensive loss, net of tax

     2,387        —          168        2,555   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings, net of tax

     2,387        993        168        3,548   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 11 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

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, 2014  

Balance at beginning of period

   $ (44,549   $ 3,902      $ (3,467   $ (44,114
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     (431     290        —          (141

Amounts reclassified from accumulated other comprehensive loss, net of tax

     441        —          533        974   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings, net of tax

     10        290        533        833   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ (44,539   $ 4,192      $ (2,934   $ (43,281
  

 

 

   

 

 

   

 

 

   

 

 

 
     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
  

 

 

   

 

 

   

 

 

   

 

 

 

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $280,000 and $1,514,000 for the nine months ended September 30, 2014 and 2013, respectively.

 

Page 12 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

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, 2014  

Balance at beginning of period

   $ 29,287      $ 2,039      $ 31,326   

Tax effect of other comprehensive earnings

     (96     (120     (216
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 29,191      $ 1,919      $ 31,110   
  

 

 

   

 

 

   

 

 

 
     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   
  

 

 

   

 

 

   

 

 

 
     Nine Months Ended September 30, 2014  

Balance at beginning of period

   $ 29,198      $ 2,269      $ 31,467   

Tax effect of other comprehensive earnings

     (7     (350     (357
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 29,191      $ 1,919      $ 31,110   
  

 

 

   

 

 

   

 

 

 
     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   
  

 

 

   

 

 

   

 

 

 

 

Page 13 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

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
     2014     2013     2014     2013    

the consolidated
financial statements

     (Dollars in Thousands)      

Pension and postretirement benefit plans

          

Settlement expense

   $ —        $ 729      $ —        $ 729     

Amortization of:

          

Prior service credit

     (703     (702     (2,107     (2,104  

Actuarial loss

     945        3,926        2,835        11,779     
  

 

 

   

 

 

   

 

 

   

 

 

   
     242        3,953        728        10,404     

Cost of sales;

Selling, general & administrative expenses

Tax effect

     (96     (1,566     (287     (4,119  

Deferred income taxes

  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 146      $ 2,387      $ 441      $ 6,285     
  

 

 

   

 

 

   

 

 

   

 

 

   

Unamortized value of terminated forward starting interest rate swap

          

Additional interest expense

   $ 300      $ 279      $ 883      $ 823     

Interest expense

Tax effect

     (120     (111     (350     (326  

Deferred income taxes

  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 180      $ 168      $ 533      $ 497     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

Page 14 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

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/loss attributable to Martin Marietta reduced by dividends and undistributed earnings attributable to the Corporation’s unvested restricted stock awards and incentive stock awards. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Corporation’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three and nine months ended September 30, 2014 and 2013, the diluted per-share computations reflect a change in the number of common shares outstanding to include the number of additional shares that would have been outstanding if the potentially dilutive common shares had been issued.

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,
 
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Net earnings from continuing operations attributable to Martin Marietta

   $ 53,812      $ 72,107      $ 91,786      $ 85,758   

Less: Distributed and undistributed earnings attributable to unvested awards

     213        265        372        374   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net earnings available to common shareholders from continuing operations attributable to Martin Marietta

     53,599        71,842        91,414        85,384   

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

     (69     (271     (140     (454
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net earnings available to common shareholders attributable to Martin Marietta

   $ 53,530      $ 71,571      $ 91,274      $ 84,930   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic weighted-average common shares outstanding

     67,086        46,244        53,342        46,134   

Effect of dilutive employee and director awards

     409        105        217        127   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted weighted-average common shares outstanding

     67,495        46,349        53,559        46,261   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 15 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Business Combinations and Divestitures

TXI Business Combination

On July 1, 2014, pursuant to the merger agreement (the “Merger Agreement”) dated as of January 27, 2014 by and among the Corporation, Project Holdings, Inc., a wholly-owned subsidiary of the Corporation (“Merger Sub”), and TXI, Merger Sub merged with and into TXI, with TXI surviving as a wholly-owned subsidiary of the Corporation (the “Merger”). As a result of the Merger, each outstanding share of TXI common stock (other than shares owned by TXI, the Corporation or Merger Sub, which were cancelled) was converted into 0.70 shares of the Corporation’s common stock, with cash paid in lieu of fractional shares. The Corporation issued 20,309,000 shares of its common stock to former TXI stockholders in connection with the Merger. Based on the Corporation’s closing stock price on July 1, 2014 of $132.00, the aggregate value of the Corporation’s common stock delivered to former TXI stockholders was $2,680,788,000. Additionally, the fair value of outstanding TXI stock options and stock appreciation rights that were converted into Martin Marietta stock awards at the acquisition date of $71,085,000 and shares withheld for income tax obligations were components of the total consideration, which was $2,756,934,000.

TXI was the largest producer of cement in Texas and a major cement producer in California. TXI was also a major supplier of construction aggregate, ready mixed concrete and concrete products. The combination expands the Corporation’s geographic footprint and positions the Corporation to benefit from the strength of the combined aggregates platform.

 

Page 16 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Business Combinations and Divestitures (continued)

 

The Corporation has determined preliminary fair values of the assets acquired and liabilities assumed. Although initial accounting for the business combination has been recorded, these amounts are subject to change based on the final valuation report and additional reviews performed, such as asset verification. Specific accounts subject to ongoing purchase accounting adjustments include but are not limited to inventory; property, plant and equipment; other assets; goodwill; accounts payable and accrued expenses and deferred taxes. Therefore, the measurement period remains open as of September 30, 2014. The following is a summary of the estimated fair values of the assets acquired and the liabilities assumed (dollars in thousands).

 

Assets:

  

Cash and cash equivalents

   $ 59,887   

Receivables

     161,437   

Inventory

     132,972   

Other current assets

     56,246   

Property, plant and equipment

     1,608,305   

Real estate and other investments

     59,584   

Intangible assets, other than goodwill

     559,327   

Other noncurrent assets

     5,367   

Goodwill

     1,457,043   
  

 

 

 

Total assets

     4,100,168   
  

 

 

 

Liabilities:

  

Accounts payable and accrued expenses

     259,723   

Notes and contracts payable and capital leases

     745,217   

Deferred income tax liabilities

     338,294   
  

 

 

 

Total liabilities

     1,343,234   
  

 

 

 

Total consideration

   $ 2,756,934   
  

 

 

 

Real estate and other investments include property held for resale and a noncontrolling interest in a joint venture.

Goodwill represents the excess purchase price over the fair values of assets acquired and liabilities assumed. The goodwill was generated by the synergies the transaction provides, including overhead savings, purchasing leverage generated by a larger company, benefits of the existing long-haul transportation system, and cost savings achieved through increased vertical integration of the business. None of the goodwill generated by the transaction will be deductible for income tax purposes.

 

Page 17 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Business Combinations and Divestitures (continued)

 

Total revenues and earnings from operations included in the consolidated earnings statements attributable to TXI operations as of September 30, 2014 are $287,587,000 and $18,755,000, respectively.

Business development and acquisition integration expenses related to the TXI acquisition were $73,968,000 and $88,959,000 for the three and nine months ended September 30, 2014, respectively.

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Corporation and TXI as though the companies were combined as of January 1, 2013. Transactions between Martin Marietta and TXI during the periods presented in the pro forma financial statements have been eliminated as if Martin Marietta and TXI were consolidated affiliates during the periods. Financial information for periods prior to the July 1, 2014 acquisition date included in the pro forma earnings does not reflect any cost savings or associated costs to achieve such savings from operating efficiencies, synergies, debt refinancing, utilization of TXI net operating loss carryforwards or other restructuring that result from the combination. The pro forma financial information for the nine months ended September 30, 2014 reflects the elimination of business development and acquisition integration expenses and the gain on the required divestiture of assets.

The unaudited pro forma financial information for the nine months ended September 30, 2014 includes TXI’s historical operating results for the six months ended May 31, 2014 (due to a difference in TXI’s historical reporting periods) and the results of operations for the TXI locations from July 1, 2014, the acquisition date, to September 30, 2014. The unaudited pro forma financial information for the three and nine months ended September 30, 2013 includes the historical results of TXI for the three and nine months ended August 31, 2013 (due to a difference in TXI’s historical reporting periods).

The pro forma financial statements do not purport to project the future financial position or operating results of the combined company. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal year 2013.

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2013      2014      2013  
     (Dollars in Thousands)  

Net sales

   $ 802,575       $ 2,309,104       $ 1,962,216   

Earnings from continuing operations attributable to controlling interest

   $ 67,930       $ 106,928       $ 83,661   

 

Page 18 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Business Combinations and Divestitures (continued)

 

Divestiture of Assets

In accordance with an agreement between the Corporation and the U.S. Department of Justice (“DOJ”) as part of its review of the business combination with TXI, the Corporation agreed to divest a Corporate owned aggregates quarry in Oklahoma and two Corporate owned rail yards in Texas. On August 15, 2014, the Corporation divested of the properties in exchange for cash and real property and recognized a pretax gain of $47,904,000, which is included in acquisition-related expenses, net, in the consolidated statements of earnings and comprehensive earnings.

Purchase of Remaining Interest in Existing Subsidiaries

During 2014, the Corporation acquired the remaining interest in two joint ventures in separate transactions. Net cash paid for both transactions was $19,480,000.

 

3. Goodwill and Intangible Assets

The following table shows the changes in goodwill by reportable segment and in total:

 

     Mid-America
Group
     Southeast
Group
     West
Group
    Cement      Total  

(Dollars in Thousands)

   Nine Months Ended September 30, 2014  

Balance at January 1, 2014

   $ 263,967       $ 50,346       $ 302,308      $ —         $ 616,621   

Organizational changes

     18,150            (18,150        —     

Acquisitions

     —           —           614,224        842,819         1,457,043   

Amounts allocated to divestitures

     —           —           (30,344     —           (30,344
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balance at September 30, 2014

   $ 282,117       $ 50,346       $ 868,038      $ 842,819       $ 2,043,320   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     Year Ended December 31, 2013  

Balance at January 1, 2013

   $ 263,868       $ 50,001       $ 302,335      $ —         $ 616,204   

Acquisitions

     99         345           —           444   

Adjustments to purchase price allocations

     —           —           (27     —           (27
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Balance at December 31, 2013

   $ 263,967       $ 50,346       $ 302,308      $ —         $ 616,621   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

Page 19 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

3. Goodwill and Intangible Assets (continued)

 

Intangible assets subject to amortization consist of the following:

 

     Gross
Amount
     Accumulated
Amortization
    Net
Balance
 

(Dollars in Thousands)

   September 30, 2014  

Noncompetition agreements

   $ 6,274       $ (5,874   $ 400   

Customer relationships

     36,610         (6,824     29,786   

Operating permits

     498,685         (3,551     495,134   

Use rights and other

     15,386         (6,669     8,717   

Trade name

     12,800         (572     12,228   
  

 

 

    

 

 

   

 

 

 

Total

   $ 569,755       $ (23,490   $ 546,265   
  

 

 

    

 

 

   

 

 

 
     December 31, 2013  

Noncompetition agreements

   $ 6,274       $ (5,583   $ 691   

Customer relationships

     20,660         (6,160     14,500   

Operating permits

     6,800         (1,394     5,406   

Use rights and other

     10,115         (6,156     3,959   
  

 

 

    

 

 

   

 

 

 

Total

   $ 43,849       $ (19,293   $ 24,556   
  

 

 

    

 

 

   

 

 

 

Intangible assets deemed to have an indefinite life and not being amortized consist of the following:

 

     Aggregates
Business
     Cement      Specialty
Products
     Total  

(Dollars in Thousands)

   September 30, 2014  

Operating permits

   $ 6,600       $ —         $ —         $ 6,600   

Use rights

     9,385         20,027         —           29,412   

Trade name

     80         14,300         2,565         16,945   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 16,065       $ 34,327       $ 2,565       $ 52,957   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2013  

Operating permits

   $ 11,635       $ —         $ —         $ 11,635   

Use rights

     9,835         —           —           9,835   

Trade name

     —           —           2,565         2,565   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,470       $ —         $ 2,565       $ 24,035   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Page 20 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

3. Goodwill and Intangible Assets (continued)

 

The Corporation acquired $559,327,000 of intangibles from the TXI acquisition, which consists of the following:

 

(Dollars in Thousands)

   Amount      Weighted-average
amortization period

Subject to amortization:

     

Customer relationships

   $ 20,150       12.0 years

Operating permits

     487,150       87.3 years

Use rights and other

     4,820       8.2 years

Trade name

     12,800       6.0 years
  

 

 

    

 

   $ 524,920       81.7 years
  

 

 

    

 

Not subject to amortization:

     

Use rights

   $ 20,027       N/A

Trade name

     14,380      
  

 

 

    
     34,407      
  

 

 

    

Total

   $ 559,327      
  

 

 

    

Use rights include, but are not limited to, water rights, subleases and proprietary information.

Total amortization expense for intangible assets for the nine months ended September 30, 2014 and 2013 was $5,516,000 and $2,692,000, respectively.

The estimated amortization expense for intangible assets for the three months ending December 31, 2014 and for each of the next five years and thereafter is as follows:

 

(Dollars in Thousands)

      

Remainder of 2014

   $ 3,773   

2015

     14,453   

2016

     14,149   

2017

     14,009   

2018

     13,118   

2019

     12,192   

Thereafter

     474,571   
  

 

 

 

Total

   $ 546,265   
  

 

 

 

 

Page 21 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4. Inventories, Net

 

     September 30,
2014
    December 31,
2013
    September 30,
2013
 
     (Dollars in Thousands)  

Finished products

   $ 397,684      $ 368,334      $ 366,558   

Products in process and raw materials

     58,678        16,077        19,924   

Supplies and expendable parts

     127,319        61,922        61,441   
  

 

 

   

 

 

   

 

 

 
     583,681        446,333        447,923   

Less: Allowances

     (108,388     (99,026     (97,485
  

 

 

   

 

 

   

 

 

 

Total

   $ 475,293      $ 347,307      $ 350,438   
  

 

 

   

 

 

   

 

 

 

 

5. Long-Term Debt

 

     September 30,
2014
    December 31,
2013
    September 30,
2013
 
     (Dollars in Thousands)  

6.6% Senior Notes, due 2018

   $ 299,063      $ 298,893      $ 298,837   

7% Debentures, due 2025

     124,493        124,471        124,464   

6.25% Senior Notes, due 2037

     228,175        228,148        228,139   

4.25% Senior Notes, due 2024

     395,211        —          —     

Floating Rate Notes, due 2017, interest rate of 1.34% at September 30, 2014

     298,760        —          —     

Term Loan Facility, due 2018, interest rate of 1.65% at September 30, 2014; 1.67% at December 31, 2013; and 2.20% at September 30, 2013

     239,304        248,441        240,000   

Revolving Facility, interest rate of 1.89% at September 30, 2013

     —          —          70,000   

Trade Receivable Facility, interest rate of 0.76% at September 30, 2014; 0.77% at December 31, 2013; and 0.79% at September 30, 2013

     30,000        130,000        150,000   

Other notes

     3,269        968        1,921   
  

 

 

   

 

 

   

 

 

 

Total debt

     1,618,275        1,030,921        1,113,361   

Less: Current maturities

     (14,331     (12,403     (6,169
  

 

 

   

 

 

   

 

 

 

Long-term debt

   $ 1,603,944      $ 1,018,518      $ 1,107,192   
  

 

 

   

 

 

   

 

 

 

 

Page 22 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

5. Long-Term Debt (continued)

 

On June 23, 2014, the Corporation priced its offering of $300,000,000 aggregate principal amount of its Floating Rate Senior Notes due 2017 (the “Floating Rate Notes”) and $400,000,000 of its 4.25% Senior Notes due 2024 (the “4.25% Senior Notes” and together with the Floating Rate Notes, the “Notes”). The bond transaction closed and settlement occurred on July 2, 2014. In connection with the issuance of the Notes, the Corporation entered into an indenture, dated as of July 2, 2014, between the Corporation and Regions Bank, as trustee, and a Registration Rights Agreement, dated as of July 2, 2014, with respect to the Notes, among the Corporation, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, as representatives of the several initial purchasers named in Schedule I to the purchase agreement entered into on June 23, 2014 with respect to the Notes. The Floating Rate Notes bear interest at a rate equal to the three-month LIBOR plus 1.10% and may not be redeemed prior to maturity. The 4.25% Senior Notes may be redeemed in whole or in part prior to their maturity at a make-whole redemption price.

On July 1, 2014, the Corporation, through a wholly-owned special purpose subsidiary, amended its trade receivable securitization facility (the “Trade Receivable Facility”) to increase the borrowing capacity from $150,000,000 to $250,000,000. On September 30, 2014, the Corporation extended the maturity of its Trade Receivable Facility to September 30, 2016. The Trade Receivable Facility, with Regions Bank and PNC Bank, National Association and certain other lenders that may become a party to the facility from time to time, is backed by eligible trade receivables, as defined, of $482,371,000, $234,101,000 and $314,998,000 at September 30, 2014, December 31, 2013 and September 30, 2013, respectively. These receivables are originated by the Corporation and then sold to the wholly-owned special purpose subsidiary by the Corporation. The Corporation continues to be responsible for the servicing and administration of the receivables purchased by the wholly-owned special purpose subsidiary. The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements.

The Corporation’s Credit Agreement, which provides a $250,000,000 senior unsecured term loan (the “Term Loan Facility”) and a $350,000,000 five-year senior unsecured revolving facility (the “Revolving Facility”), requires the Corporation’s ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve months (the “Ratio”) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its rating on long-term unsecured debt fall below BBB by Standard & Poor’s or Baa2 by Moody’s and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if no amounts are outstanding under both the Revolving Facility and the Trade Receivable Facility, consolidated debt, including debt for which the Corporation is a co-borrower, may be reduced by the Corporation’s unrestricted cash and cash equivalents in excess of $50,000,000, such reduction not to exceed $200,000,000, for purposes of the covenant calculation.

 

Page 23 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

5. Long-Term Debt (continued)

 

Effective June 23, 2014, the Corporation amended the Credit Agreement to ensure the impact of the business combination with TXI does not impair liquidity available under the Term Loan Facility and the Revolving Facility. The amendment adjusts consolidated EBITDA to add back fees, costs or expenses relating to the TXI business combination incurred on or prior to the closing of the combination not to exceed $95,000,000; any integration or similar costs or expenses related to the TXI business combination incurred in any period prior to the second anniversary of the closing of the TXI business combination not to exceed $70,000,000; and any make-whole fees incurred in connection with the redemption of TXI’s 9.25% senior notes due 2020. The amendment also temporarily increases the maximum Ratio to 3.75x at September 30, 2014. The Corporation was in compliance with this Ratio at September 30, 2014. The Ratio returns to the pre-amendment maximum of 3.50x for the December 31, 2014 calculation date.

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, 2014, 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, 2014, the Corporation recognized $300,000 and $883,000, respectively, as additional interest expense. For the three and nine months ended September 30, 2013, the Corporation recognized $279,000 and $823,000, 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 $1,200,000 until the maturity of the 6.6% Senior Notes in 2018.

 

6. Financial Instruments

The Corporation’s financial instruments include cash equivalents, accounts receivable, notes receivable, bank overdraft, accounts payable, publicly-registered long-term notes, debentures and other long-term debt.

Cash equivalents are placed primarily in money market funds, money market demand deposit accounts and Eurodollar time deposits. The Corporation’s cash equivalents have maturities of less than three months. Due to the short maturity of these investments, they are carried on the consolidated balance sheets at cost, which approximates fair value.

 

Page 24 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6. Financial Instruments (continued)

 

Accounts receivables are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, accounts receivables are more heavily concentrated in certain states (namely, Texas, North Carolina, Colorado, Iowa and Georgia). The estimated fair values of customer receivables approximate their carrying amounts due to the short-term nature of the receivables.

Notes receivable are primarily promissory notes with customers and are not publicly traded. Management estimates that the fair value of notes receivable approximates the carrying amount.

The bank overdraft represents amounts to be funded to financial institutions for checks that have cleared the bank. The estimated fair value of the bank overdraft approximates its carrying value.

Accounts payable represent amounts owed to suppliers and vendors. The estimated fair value of accounts payable approximates its carrying amounts due to the short-term nature of the payables.

The carrying values and fair values of the Corporation’s long-term debt were $1,618,275,000 and $1,707,920,000, respectively, at September 30, 2014; $1,030,921,000 and $1,068,324,000, respectively, at December 31, 2013; and $1,113,361,000 and $1,152,906,000, respectively, at September 30, 2013. The estimated fair value of the publicly-registered long-term notes was estimated based on Level 1 of the fair value hierarchy using quoted market prices. The fair value of the Notes was based on Level 2 of the fair value hierarchy using quoted market prices for similar debt instruments. The estimated fair value of other borrowings, which primarily represents variable-rate debt, approximates its carrying amount as the interest rates reset periodically.

 

7. Income Taxes

 

    Nine Months Ended September 30,  
    2014     2013  

Estimated effective income tax rate:

   

Continuing operations

    39.7     25.9
 

 

 

   

 

 

 

Discontinued operations

    27.6     35.6
 

 

 

   

 

 

 

Consolidated overall

    39.7     25.8
 

 

 

   

 

 

 

The Corporation’s effective income tax rate reflects the effect of federal and state income taxes and the impact of differences in book and tax accounting arising from the net permanent benefits associated with the statutory depletion deduction for mineral reserves, the impact of foreign losses for which no tax benefit was realized and the domestic production deduction. The effective income tax rates for discontinued operations reflect the tax effects of individual operations’ transactions and are not indicative of the Corporation’s overall effective income tax rate.

 

Page 25 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

7. Income Taxes (continued)

 

The increase in the effective income tax rate in 2014 reflects the impact of goodwill written off as part of a divestiture that is not deductible for income tax purposes. Additionally, certain business development and acquisition integration expenses are only partially deductible for income tax purposes.

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 required the Corporation to make additional tax accounting method changes as of January 1, 2014. As of December 31, 2013, the Corporation estimated the tax impact of the regulatory change and recorded an increase in noncurrent deferred tax liabilities in the amount of $1,334,000, with a corresponding reduction in current taxes payable.

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

 

     Nine Months Ended
September 30, 2014
 
     (Dollars in Thousands)  

Unrecognized tax benefits at beginning of period

   $ 11,826   

Gross increases – tax positions in prior years

     1,898   

Gross decreases – tax positions in prior years

     (204

Gross increases – tax positions in current year

     1,418   

Gross increases as a result of lapse of statute of limitations

     4,442   

Gross decreases as a result of lapse of statute of limitations

     (6,314

Increases – uncertain tax positions assumed in connection with an acquisition

     5,963   
  

 

 

 

Unrecognized tax benefits at end of period

   $ 19,029   
  

 

 

 

In accordance with Accounting Standard Codification 740, Income Taxes, $5,300,000 of the $5,963,000 of uncertain tax positions assumed in connection with an acquisition is recorded as a reduction of the deferred tax asset for net operating losses.

The Corporation records interest accrued in relation to unrecognized tax benefits as income tax expense. Penalties, if incurred, are recorded as operating expenses in the consolidated statements of earnings and comprehensive earnings.

The Corporation anticipates that it is reasonably possible that unrecognized tax benefits may decrease up to $8,530,000, excluding indirect benefits, during the twelve months ending September 30, 2015 as a result of expected settlements with taxing authorities and the expiration of the foreign and domestic statute of limitations for the 2010 and 2011 tax years.

 

Page 26 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

7. Income Taxes (continued)

 

At September 30, 2014, unrecognized tax benefits of $9,083,000 related to interest accruals and permanent income tax differences, net of federal tax benefits, would have favorably affected the Corporation’s effective income tax rate if recognized.

The Corporation’s open tax years subject to federal, foreign or state examinations are 2009 through 2013.

 

8. Pension and Postretirement Benefits

As part of the TXI acquisition, the Corporation assumed three defined benefit plans, including two pension plans and one postretirement plan. Inclusive of the TXI plans, the Corporation estimates that calendar-year 2014 contributions to the pension plans will be approximately $25,500,000, of which $1,380,000 will be contributed in the quarter ending December 31, 2014. The expense for the three and nine months ended September 30, 2014 includes the cost for TXI employees from the acquisition date, July 1, 2014, to September 30, 2014. The termination benefit cost represents certain change-in-control provisions that provide enhanced benefits related to former TXI executives. 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  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Service cost

   $ 4,996      $ 4,030      $ 57      $ 57   

Interest cost

     7,979        5,756        302        253   

Expected return on assets

     (8,627     (6,668     —          —     

Amortization of:

        

Prior service cost (credit)

     111        112        (814     (814

Actuarial loss (gain)

     1,011        3,920        (66     6   

Settlement charge

     —          729        —          —     

Termination benefit cost

     13,680        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

   $ 19,150      $ 7,879      $ (521   $ (498
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 27 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8. Pension and Postretirement Benefits (continued)

 

     Nine Months Ended September 30,  
     Pension     Postretirement Benefits  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Service cost

   $ 12,129      $ 12,091      $ 150      $ 170   

Interest cost

     20,952        17,268        861        760   

Expected return on assets

     (24,030     (20,003     —          —     

Amortization of:

        

Prior service cost (credit)

     334        337        (2,441     (2,441

Actuarial loss (gain)

     3,034        11,760        (199     19   

Settlement charge

     —          729        —          —     

Termination benefit cost

     13,680        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

   $ 26,099      $ 22,182      $ (1,629   $ (1,492
  

 

 

   

 

 

   

 

 

   

 

 

 

 

9. Commitments and Contingencies

Legal and Administrative Proceedings

The Corporation is engaged in certain legal and administrative proceedings incidental to its normal business activities. In the opinion of management and counsel, based upon currently-available facts, it is remote that the ultimate outcome of any litigation and other proceedings, including those pertaining to environmental matters, relating to the Corporation and its subsidiaries, will have a material adverse effect on the overall results of the Corporation’s operations, its cash flows or its financial position.

Environmental and Governmental Regulations

The United States Environmental Protection Agency (“EPA”) includes the lime industry as a national enforcement priority under the federal Clean Air Act (“CAA”). As part of the industry wide effort, the EPA issued Notices of Violation/Findings of Violation (“NOVs”) to the Corporation in 2010 and 2011 regarding the Corporation’s compliance with the CAA New Source Review (“NSR”) program at its Specialty Products dolomitic lime manufacturing plant in Woodville, Ohio. The Corporation has been providing information to the EPA in response to these NOVs and has had several meetings with the EPA. The Corporation believes it is in substantial compliance with the NSR program. At this time, the Corporation cannot reasonably estimate what likely penalties or upgrades to equipment might ultimately be required. The Corporation believes that any costs related to any upgrades to capital equipment will be spread over time and will not have a material adverse effect on the Corporation’s results of 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.

 

Page 28 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9. Commitments and Contingencies (continued)

 

Borrowing Arrangements with Affiliate

The Corporation is a co-borrower with an unconsolidated affiliate for a $24,000,000 revolving line of credit agreement with Fifth Third Bank. The affiliate has agreed to reimburse and indemnify the Corporation for any payments and expenses the Corporation may incur from this agreement. The Corporation holds a lien on the affiliate’s membership interest in a joint venture as collateral for payment under the revolving line of credit.

In September 2013, the Corporation loaned $3,402,000 to this unconsolidated affiliate to repay in full the outstanding balance of the affiliate’s loan with Bank of America, N.A. and entered into a loan agreement with the affiliate for monthly repayment of principal and interest of that loan amount through May 2016. The Corporation holds a lien on the affiliate’s property as collateral for payment under the loan and security agreement. As of September 30, 2014 and December 31, 2013, the amount due from the affiliate related to this loan was $1,605,000 and $2,984,000, respectively.

In addition, the Corporation has a $6,000,000 outstanding loan due from this unconsolidated affiliate as of September 30, 2014 and December 31, 2013.

 

10. Business Segments

The Aggregates business contains three reportable business segments: Mid-America Group, Southeast Group and West Group. The Corporation also has Cement and Specialty Products segments.

The following tables display selected financial data for continuing operations for the Corporation’s reportable business segments. Corporate loss from operations primarily includes depreciation on capitalized interest, expenses for corporate administrative functions, business development and integration expenses, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments. Intersegment sales represent net sales from one segment to another segment. Total revenues and net sales in the table below, as well as the consolidated statements of earnings and comprehensive earnings, do not include intersegment sales as these sales are eliminated.

 

Page 29 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10. Business Segments (continued)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Total revenues:

  

Mid-America Group

   $ 271,096      $ 255,737      $ 627,331      $ 592,794   

Southeast Group

     73,217        69,490        208,205        185,676   

West Group

     479,323        279,477        956,921        649,896   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     823,636        604,704        1,792,457        1,428,366   

Cement

     115,743        —          115,743        —     

Specialty Products

     64,344        60,616        193,378        182,189   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,003,723      $ 665,320      $ 2,101,578      $ 1,610,555   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales:

        

Mid-America Group

   $ 244,309      $ 231,807      $ 569,545      $ 540,209   

Southeast Group

     68,042        64,871        194,148        171,456   

West Group

     437,398        247,985        848,402        572,588   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     749,749        544,663        1,612,095        1,284,253   

Cement

     109,521        —          109,521        —     

Specialty Products

     58,672        55,794        177,941        167,595   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 917,942      $ 600,457      $ 1,899,557      $ 1,451,848   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (Loss) from operations:

        

Mid-America Group

   $ 71,185      $ 67,162      $ 116,703      $ 100,915   

Southeast Group

     329        (1,386     (7,084     (14,949

West Group

     92,115        31,559        125,069        39,829   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     163,629        97,335        234,688        125,795   

Cement

     18,278        —          18,278        —     

Specialty Products

     17,697        17,267        54,976        53,071   

Corporate

     (83,648     (5,759     (111,642     (23,709
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 115,956      $ 108,843      $ 196,300      $ 155,157   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 30 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10. Business Segments (continued)

 

Cement intersegment sales, which are to the ready mixed concrete product line in the West Group, was $22,061,000 for the three and nine months ended September 30, 2014.

 

     September 30,      December 31,      September 30,  
     2014      2013      2013  
     (Dollars in Thousands)  

Assets employed:

        

Mid-America Group

   $ 1,313,472       $ 1,242,394       $ 1,270,025   

Southeast Group

     604,261         611,906         628,805   

West Group

     1,897,626         1,030,599         1,062,186   
  

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     3,815,359         2,884,899         2,961,016   

Cement

     3,038,802         —           —     

Specialty Products

     150,068         154,024         153,334   

Corporate

     334,629         220,903         222,755   
  

 

 

    

 

 

    

 

 

 

Total

   $ 7,338,858       $ 3,259,826       $ 3,337,105   
  

 

 

    

 

 

    

 

 

 

 

Page 31 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10. Business Segments (continued)

 

The Aggregates business includes the aggregates product line and aggregates-related downstream product lines, which include asphalt, ready mixed concrete and road paving product lines. All aggregates-related downstream product lines reside in the West Group. The following tables provide net sales and gross profit by product line for the Aggregates business, which are reconciled to consolidated amounts, as follows:

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2014     2013      2014     2013  
     (Dollars in Thousands)  

Net sales:

    

Aggregates

   $ 478,834      $ 411,206       $ 1,164,692      $ 1,016,238   

Asphalt

     26,873        23,787         59,998        52,231   

Ready Mixed Concrete

     183,715        41,765         274,103        103,347   

Road Paving

     60,327        67,905         113,302        112,437   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Aggregates Business

     749,749        544,663         1,612,095        1,284,253   

Cement

     109,521        —           109,521        —     

Specialty Products

     58,672        55,794         177,941        167,595   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 917,942      $ 600,457       $ 1,899,557      $ 1,451,848   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit (loss):

    

Aggregates

   $ 119,277      $ 108,166       $ 229,471      $ 189,171   

Asphalt

     7,356        7,322         10,799        9,770   

Ready Mixed Concrete

     18,628        3,124         28,554        4,911   

Road Paving

     6,897        4,286         2,665        (285
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Aggregates Business

     152,158        122,898         271,489        203,567   

Cement

     24,194        —           24,194        —     

Specialty Products

     20,043        19,919         62,192        60,784   

Corporate

     (802     291         (845     (1,426
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 195,593      $ 143,108       $ 357,030      $ 262,925   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

Page 32 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11. Supplemental Cash Flow Information

The components of the change in other assets and liabilities, net, are as follows:

 

     Nine Months Ended
September 30,
 
     2014     2013  
     (Dollars in Thousands)  

Other current and noncurrent assets

   $ 3,998      $ (42

Accrued salaries, benefits and payroll taxes

     27,911        (1,307

Accrued insurance and other taxes

     10,510        5,761   

Accrued income taxes

     7,096        18,369   

Accrued pension, postretirement and postemployment benefits

     (2,136     (10,431

Other current and noncurrent liabilities

     (742     13,228   
  

 

 

   

 

 

 
   $ 46,637      $ 25,578   
  

 

 

   

 

 

 

The increase in accrued salaries, benefits and payroll taxes is primarily attributable to the accrual for certain unpaid severance arrangements.

Noncash investing and financing activities are as follows:

 

     Nine Months Ended
September 30,
 
     2014      2013  
     (Dollars in Thousands)  

Noncash investing and financing activities:

     

Acquisition of assets through capital lease

   $ 7,788       $ —     

Acquisition of land through seller financing

     1,500         —     

Acquisition of land through asset swap

     2,091         —     

Acquisition of TXI assets and liabilities assumed through issuances of common stock and options (See Note 2)

     2,691,986           —     

 

Page 33 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

 

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

OVERVIEW Martin Marietta (the “Corporation”) is a leading supplier of aggregates products (crushed stone, sand and gravel) and heavy building materials for the construction industry, including infrastructure, nonresidential, residential, railroad, ballast, agricultural and chemical grade stone used in environmental applications. The Corporation’s annual consolidated net sales and operating earnings are predominately derived from its Aggregates business, which mines, processes and sells granite, limestone, sand, gravel and other aggregates-related downstream business, including asphalt, ready mixed concrete and road paving construction services for use in all sectors of the public infrastructure, environmental industries, nonresidential and residential construction industries, as well as agriculture, railroad ballast, chemical, utility and other uses. The Aggregates business shipped and delivered aggregates, asphalt products and ready mixed concrete from a network of approximately 420 quarries, underground mines, distribution facilities and plants to customers in 30 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, agricultural, utility and environmental industries.

The Corporation currently conducts its Aggregates business through three reportable business segments: Mid-America Group, Southeast Group and West Group.

AGGREGATES BUSINESS

 

Reportable Segments

  

Mid-America Group

   Southeast Group    West Group

Operating Locations

  

Indiana, Iowa, northern Kansas, Kentucky,

Maryland, Minnesota, Missouri, eastern

Nebraska, North Carolina, Ohio, South Carolina, Virginia, Washington and West Virginia

   Alabama, Florida,

Georgia, Mississippi,
Tennessee, Nova

Scotia and the Bahamas

   Arkansas, Colorado,
southern Kansas, Louisiana,
western Nebraska, Nevada,
Oklahoma, Texas, Utah

and Wyoming

Primary Product Lines

   Aggregates (crushed stone, sand and gravel)    Aggregates (crushed

stone, sand and gravel)

   Aggregates (crushed stone,
sand and gravel),

asphalt, ready mixed

concrete and road paving

Primary Types of

Aggregates Locations

  

Quarries and

Distribution Facilities

   Quarries and

Distribution Facilities

   Quarries, Plants and

Distribution Facilities

Primary Modes of

Transportation for

Aggregates Product Line

   Truck and Rail    Truck, Rail and Water    Truck and Rail

 

Page 34 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

The Cement business produces Portland and specialty cements, such as masonry and oil well cements. Similar to the Aggregates business, cement is used in infrastructure projects, nonresidential and residential construction, and the railroad, agricultural, utility and environmental industries. The production facilities are located in Midlothian, Texas, south of Dallas/Fort Worth; Hunter, Texas, between Austin and San Antonio; and Oro Grande, California, near Los Angeles. The limestone reserves used as a raw material are located on property, owned by the Corporation, adjacent to each of the plants. The Corporation also operates a cement terminal and packaging facility at the Crestmore plant near Riverside, California, and operates its Portland cement grinding facility on an as needed basis. The cement facilities have total annual capacity of 6.6 million tons. In addition to the manufacturing and packaging facilities, the Corporation operates eight cement distribution terminals.

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, 2013. During 2014, the purchase price allocation for acquisitions was added as a critical accounting policy.

The Corporation’s Board of Directors and management regularly review strategic long-term plans, including potential investments in value-added acquisitions of related or similar businesses, which would increase the Corporation’s market share and/or are related to the Corporation’s existing markets. When an acquisition is completed, the Corporation’s consolidated statement of earnings includes the operating results of the acquired business starting from the date of acquisition, which is the date that control is obtained. The purchase price is determined based on the fair value of assets and equity interests given to the seller as of the date of acquisition. Additionally, the conversion of the seller’s equity awards can affect the purchase price. The Corporation allocates the purchase price to the fair values of the tangible and intangible assets acquired and liabilities assumed as valued at the date of acquisition. Goodwill is recorded for the excess of the purchase price over the net of the fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation is a critical accounting policy because the estimation of fair values of acquired assets and assumed liabilities is judgmental and requires various assumptions. Further, the amounts and useful lives assigned to depreciable and amortizable assets versus amounts assigned to goodwill and indefinite lived intangible assets, which are not amortized, can significantly affect the results of operations in the period of and in periods subsequent to a business combination.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, and, therefore, represents an exit price. A fair value measurement assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible, and financially feasible at the measurement date. The Corporation assigns the highest level of fair value available to assets acquired and liabilities assumed based on the following options:

 

    Level 1 – Quoted prices in active markets for identical assets and liabilities

 

Page 35 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

    Level 2 – Observable inputs, other than quoted prices, for similar assets or liabilities in active markets

 

    Level 3 – Unobservable inputs are used to value the asset or liability. This includes the use of valuation models

Level 1 fair values are used to value investments in publicly-traded entities and assumed obligations for publicly-traded long-term debt.

Level 2 fair values are typically used to value acquired receivables, inventories, machinery and equipment, land, buildings, deferred taxes, and accruals for payables, asset retirement obligations, environmental remediation and compliance obligations, and contingencies. Additionally, Level 2 fair values are typically used to value assumed contracts that are not at market rates.

Level 3 fair values are used to value acquired mineral reserves and mineral interests produced and sold as final products, and separately-identifiable intangible assets. The fair values of mineral reserves and mineral interests produced and sold as final products are determined using an excess earnings approach, which requires management to estimate future cash flows, net of capital investments in the specific operation and contributory asset charges. The estimate of future cash flows is based on available historical information and on future expectations and assumptions determined by management, but is inherently uncertain. Key assumptions in estimating future cash flows include sales price, shipment volumes, production costs and capital needs. The present value of the projected net cash flows represents the fair value assigned to mineral reserves and mineral interests. The discount rate is a significant assumption used in the valuation model. The rate is based on the required rate of return that a hypothetical market participant would require if purchasing the acquired business combination, with an adjustment for the risk of these assets generating the projected cash flows.

The Corporation values separately-identifiable acquired intangible assets which may include, but are not limited to, permits, customer relationships, water rights and noncompetition agreements. The fair values of these assets are typically determined by an excess earnings method, a replacement cost method or, in the case of water rights, a market approach.

The useful lives of amortizable intangible assets and the remaining useful lives for acquired machinery and equipment has a significant impact on earnings. The selected lives are based on the periods that the assets provide value to the Corporation subsequent to the business combination.

 

Page 36 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

The Corporation may adjust the amounts recognized for a business combination during a measurement period after the acquisition date. Any such adjustments are based on the Corporation obtaining additional information that existed at the acquisition date regarding the assets acquired or the liabilities assumed. Measurement period adjustments are generally recorded as increases or decreases to the goodwill recognized in the transaction. These adjustments are applied retroactively to the date of acquisition and reported retrospectively. These adjustments could have a material impact on the Corporation’s financial position and results of operations. The measurement period ends once the Corporation has obtained all necessary information that existed as of the acquisition date, but does not extend beyond one year from the date of acquisition. Any adjustments to assets acquired or liabilities assumed beyond the measurement period are recorded in earnings.

STRATEGIC INITIATIVES

On July 1, 2014, the Corporation completed the acquisition of Texas Industries, Inc. (“TXI”), pursuant to which TXI became a wholly-owned subsidiary of the Corporation.

TXI was the largest supplier of construction aggregates, ready mixed concrete and concrete products in Texas as well as the largest producer of cement in Texas and a major cement producer in California. The combination expands the Corporation’s geographic footprint and positions the Corporation to benefit from the strength of the combined aggregates platform.

The Corporation acquired three cement production facilities, eight cement distribution terminals, and one cement packaging facility. For additional information on the cement business, refer to the Overview section of Management’s Discussion and Analysis section on page 35. In addition to the cement plants, the Corporation acquired approximately 120 ready mixed concrete plants, situated primarily in three areas in Texas (the Dallas/Fort Worth/Denton area of north Texas; the Austin area of central Texas; and from Beaumont to Texarkana in east Texas), in north and central Louisiana, and in southwestern Arkansas. The Corporation also acquired nine quarries and six aggregates distribution terminals located in Texas, Louisiana and Oklahoma. The aggregates and ready mixed concrete operations are reported in the Corporation’s West Group.

RESULTS OF OPERATIONS

Except as indicated, the comparative analysis in this Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects results from continuing operations and is based on net sales and cost of sales. 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”). However, gross margin as a percentage of net sales and

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

operating margin as a percentage of net sales represent non-GAAP measures. The Corporation presents these ratios calculated based on net sales, as it is consistent with the basis by which management reviews the Corporation’s operating results. Further, management believes it is consistent with the basis by which investors analyze the Corporation’s operating results given that freight and delivery revenues and costs represent pass-throughs and have no profit mark-up. The following tables present the calculations of gross margin and operating margin for the three and nine months ended September 30, 2014 and 2013 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     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Gross profit

   $ 195,593      $ 143,108      $ 357,030      $ 262,925   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 1,003,723      $ 665,320      $ 2,101,578      $ 1,610,555   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     19.5     21.5     17.0     16.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Margin Excluding Freight and Delivery Revenues

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Gross profit

   $ 195,593      $ 143,108      $ 357,030      $ 262,925   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 1,003,723      $ 665,320      $ 2,101,578      $ 1,610,555   

Less: Freight and delivery revenues

     (85,781     (64,863     (202,021     (158,707
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   $ 917,942      $ 600,457      $ 1,899,557      $ 1,451,848   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin excluding freight and delivery revenues

     21.3     23.8     18.8     18.1
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Operating Margin in Accordance with GAAP

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Earnings from operations

   $ 115,956      $ 108,843      $ 196,300      $ 155,157   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 1,003,723      $ 665,320      $ 2,101,578      $ 1,610,555   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

     11.6     16.4     9.3     9.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Margin Excluding Freight and Delivery Revenues

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Earnings from operations

   $ 115,956      $ 108,843      $ 196,300      $ 155,157   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 1,003,723      $ 665,320      $ 2,101,578      $ 1,610,555   

Less: Freight and delivery revenues

     (85,781     (64,863     (202,021     (158,707
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   $ 917,942      $ 600,457      $ 1,899,557      $ 1,451,848   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin excluding freight and delivery revenues

     12.6     18.1     10.3     10.7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 39 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Impact of Acquisition-Related Expenses, Net

Adjusted consolidated earnings from operations and adjusted earnings per diluted share for the three and nine months ended September 30, 2014, exclude the impact of business development and acquisition integration expenses related to the TXI acquisition and the nonrecurring gain on divestitures required by the Department of Justice as a result of the TXI acquisition (“acquisition-related expenses, net, related to the TXI acquisition”), and represent non-GAAP financial measures. Management presents these measures for investors and analysts to evaluate and forecast the Corporation’s financial results, as acquisition-related expenses, net, related to the TXI acquisition are nonrecurring.

The following calculation provides the per diluted share impact of acquisition-related expenses, net, related to the TXI acquisition for the three and nine months ended September 30, 2014 (in thousands, except per share data):

 

     Three Months
Ended
    Nine Months
Ended
 

Acquisition-related expenses, net, related to the TXI acquisition

   $ 26,064      $ 41,055   

Net income tax expense

     11,539        7,462   
  

 

 

   

 

 

 

After tax impact of acquisition-related expenses, net, related to the TXI acquisition

   $ 37,603      $ 48,517   
  

 

 

   

 

 

 

Diluted average number of common shares outstanding

     67,495        53,559   
  

 

 

   

 

 

 

Per diluted share impact of acquisition-related expenses, net, related to the TXI acquisition

   $ (0.56   $ (0.91
  

 

 

   

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

The following shows the calculation of the earnings per diluted share impact of selling acquired inventory due to the markup to fair value as part of accounting for the TXI acquisition for the three and nine months ended September 30, 2014 (in thousands, except per share data):

 

     Three Months
Ended
    Nine Months
Ended
 

Earnings impact of selling acquired inventory due to markup to fair value as part of accounting for the TXI acquisition

   $ (10,873   $ (10,873

Income tax benefit

     4,018        4,018   
  

 

 

   

 

 

 

After-tax impact of selling acquired inventory due to markup to fair value as part of accounting for the TXI acquisition

   $ (6,855   $ (6,855
  

 

 

   

 

 

 

Diluted average number of common shares outstanding

     67,495        53,559   
  

 

 

   

 

 

 

Per diluted share impact of selling acquired inventory due to markup to fair value as part of accounting for the TXI acquisition

   $ (0.10   $ (0.13
  

 

 

   

 

 

 

The following reconciles consolidated earnings from operations in accordance with generally accepted accounting principles for the three and nine months ended September 30, 2014, to adjusted consolidated earnings from operations, which excludes the impact of acquisition-related expenses, net, related to the TXI acquisition and impact of selling acquired inventory due to the markup to fair value as part of accounting for the TXI acquisition (in thousands):

 

     Three Months
Ended
     Nine Months
Ended
 

Consolidated earnings from operations in accordance with generally accepted accounting principles

   $ 115,956       $ 196,300   

Add back: acquisition-related expenses, net, related to the TXI acquisition

     26,064         41,055   

impact of selling acquired inventory due to markup to fair value as part of accounting for the TXI acquisition

     10,873         10,873   
  

 

 

    

 

 

 

Adjusted consolidated earnings from operations

   $ 152,893       $ 248,228   
  

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

The following reconciles the earnings per diluted share in accordance with generally accepted accounting principles for the three and nine months ended September 30, 2014, to adjusted earnings per diluted share, which excludes the impact of acquisition related expenses, net, related to the TXI acquisition and the impact of selling acquired inventory due to the markup to fair value as part of accounting for the TXI acquisition:

 

     Three Months
Ended
     Nine Months
Ended
 

Earnings per diluted share in accordance with generally accepted accounting principles

   $ 0.79       $ 1.70   

Add back: per diluted share impact of acquisition related expenses, net, related to the TXI acquisition

     0.56         0.91   

per diluted share impact of selling acquired inventory due to the markup to fair value as part

of the business combination with TXI

     0.10         0.13   
  

 

 

    

 

 

 

Adjusted earnings per diluted share

   $ 1.45       $ 2.74   
  

 

 

    

 

 

 

Adjusted gross profit for the three months ended September 30, 2014, excludes the impact of selling acquired inventory due to the markup to fair value as part of accounting for the TXI acquisition and is a non-GAAP measure. Management presents this measure for investors and analysts to evaluate and forecast the Corporation’s financial results, as the impact of selling acquired inventory due to the markup to fair value is nonrecurring.

The following reconciles gross margin to adjusted gross margin for the three months ended September 30, 2014:

 

     Cement
Business
     Acquired
Operations
 

Gross margin in accordance with generally accepted accounting principles

   $ 24,194       $ 33,623   

Add back: Impact of selling acquired inventory due to the markup to fair value as part of business

combination with TXI

     3,725         10,873   
  

 

 

    

 

 

 

Adjusted gross margin

   $ 27,919       $ 44,496   
  

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Significant items for the quarter ended September 30, 2014 (unless noted, all comparisons are versus the prior-year quarter):

 

    Adjusted earnings per diluted share of $1.45:

 

Reported earnings per diluted share

   $ 0.79   

Add back:

  

Acquisition-related expenses, net, related to the TXI acquisition

     0.56   

One-time increase in cost of sales for acquired inventory

     0.10   
  

 

 

 

Adjusted earnings per diluted share

   $ 1.45   
  

 

 

 

Prior-year quarter earnings per diluted share of $1.54

  

 

    Consolidated net sales of $917.9 million ($644.4 million from heritage operations) compared with $600.5 million

 

    Heritage aggregates product line pricing increase of 5.1%; heritage aggregates product line volume increase of 2.7%

 

    Specialty Products net sales of $58.7 million and earnings from operations of $17.7 million

 

    Heritage consolidated gross margin (excluding freight and delivery revenues) of 25.1%, up 130 basis points

 

    Consolidated selling, general and administrative expenses (SG&A) of $48.4 million, or 5.3% of net sales, a reduction of 90 basis points

 

    Adjusted consolidated earnings from operations of $153.0 million:

 

     (in millions)  

Reported consolidated earnings from operations

   $ 116.0   

Add back:

  

Acquisition-related expenses, net, related to the TXI acquisition

     26.1   

One-time increase in cost of sales for acquired inventory

     10.9   
  

 

 

 

Adjusted consolidated earnings from operations

   $ 153.0   
  

 

 

 

Prior year consolidated earnings from operations of $108.8 million

  

 

Page 43 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

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, 2014 and 2013. 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.

 

     Three Months Ended September 30,  
     2014      2013  
     Amount     % of
Net Sales
     Amount      % of
Net Sales
 
     (Dollars in Thousands)  

Net sales:

          

Heritage:

          

Mid-America Group

   $ 244,309         $ 231,807      

Southeast Group

     68,042           64,871      

West Group

     273,346           247,985      
  

 

 

      

 

 

    

Total Heritage Aggregates Business

     585,697        100.0         544,663         100.0   

Specialty Products

     58,672        100.0         55,794         100.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total Heritage Consolidated

     644,369        100.0         600,457         100.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Acquisitions:

          

Aggregates Business – West Group

     164,052           —        

Cement

     109,521           —        
  

 

 

      

 

 

    

Total Acquisitions

     273,573        100.0         —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 917,942        100.0       $ 600,457         100.0   
  

 

 

   

 

 

    

 

 

    

 

 

 

Gross profit (loss):

          

Heritage:

          

Mid-America Group

   $ 82,929        33.9       $ 78,842         34.0   

Southeast Group

     4,650        6.8         2,545         3.9   

West Group

     54,596        20.0         41,511         16.7   
  

 

 

   

 

 

    

 

 

    

 

 

 

Total Heritage Aggregates Business

     142,175        24.3         122,898         22.6   

Specialty Products

     20,043        34.2         19,919         35.7   

Corporate

     (248     —           291         —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Total Heritage Consolidated

     161,970        25.1         143,108         23.8   
  

 

 

   

 

 

    

 

 

    

 

 

 

Acquisitions:

          

Aggregates Business – West Group

     9,983        6.1         —           —     

Cement

     24,194        22.1         —           —     

Corporate

     (554     —           —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Total Acquisitions

     33,623        12.3         —           —     
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 195,593        21.3       $ 143,108         23.8   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

     Three Months Ended September 30,  
     2014      2013  
     Amount     % of
Net Sales
     Amount     % of
Net Sales
 
     (Dollars in Thousands)  

Selling, general & administrative expenses:

         

Heritage:

         

Mid-America Group

   $ 12,943         $ 13,621     

Southeast Group

     4,436           4,405     

West Group

     10,814           10,421     
  

 

 

      

 

 

   

Total Heritage Aggregates Business

     28,193        4.8         28,447        5.2   

Specialty Products

     2,379        4.1         2,582        4.6   

Corporate

     2,041        —           6,111        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Heritage Consolidated

     32,613        5.1         37,140        6.2   
  

 

 

   

 

 

    

 

 

   

 

 

 

Acquisitions(1):

         

Aggregates Business – West Group

     3,403        2.1         —          —     

Cement

     6,292        5.7         —          —     

Corporate

     6,119        —           —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Acquisitions

     15,814        5.8         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 48,427        5.3       $ 37,140        6.2   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (Loss) from operations(2):

         

Heritage:

         

Mid-America Group

   $ 71,185         $ 67,162     

Southeast Group

     329           (1,386  

West Group

     85,206           31,559     
  

 

 

      

 

 

   

Total Heritage Aggregates Business

     156,720        26.8         97,335        17.9   

Specialty Products

     17,697        30.2         17,267        30.9   

Corporate

     (63,536     —           (5,759     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Heritage Consolidated

     110,881        17.2         108,843        18.1   
  

 

 

   

 

 

    

 

 

   

 

 

 

Acquisitions:

         

Aggregates Business – West Group

     6,909        4.2         —          —     

Cement

     18,278        16.7         —          —     

Corporate

     (20,112     —           —       
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Acquisitions

     5,075        1.9         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 115,956        12.6       $ 108,843        18.1   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) SG&A for acquisitions includes $4.6 million of allocated Corporate overhead.
(2) Heritage Corporate loss from operations reflects $74.0 million of business development, transaction costs and acquisition integration expenses related to TXI.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Aggregates Business

Net sales by product line for the Aggregates business, which reflect the elimination of inter-product line sales, are as follows:

 

     Three Months Ended
September 30,
 
     2014      2013  
     (Dollars in Thousands)  

Net sales:

     

Heritage:

     

Aggregates

   $ 442,021       $ 411,206   

Asphalt

     26,873         23,787   

Ready Mixed Concrete

     56,476         41,765   

Road Paving

     60,327         67,905   
  

 

 

    

 

 

 

Total Aggregates Business

   $ 585,697       $ 544,663   
  

 

 

    

 

 

 
     Three Months Ended
September 30,
 
     2014      2013  
     (Dollars in Thousands)  

Net sales:

     

Acquisitions:

  

Aggregates

   $ 36,813       $ —     

Ready Mixed Concrete

     127,239         —     
  

 

 

    

 

 

 

Total Acquisitions

   $ 164,052       $ —     
  

 

 

    

 

 

 

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

 

     Three Months Ended
September 30, 2014
 
     Volume     Pricing  

Volume/Pricing Variance (1)

    

Heritage Aggregates Product Line (2):

    

Mid-America Group

     1.6     3.7

Southeast Group

     (0.3 )%      5.5

West Group

     5.2     8.3

Heritage Aggregates Operations(2)

     2.7     5.1

Aggregates Product Line (3)

     13.8     5.8

 

Page 46 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

     Three Months Ended
September 30,
 
     2014      2013  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Mid-America Group

     20,971         20,632   

Southeast Group

     4,953         4,972   

West Group

     14,764         14,027   
  

 

 

    

 

 

 

Heritage Aggregates Operations(2)

     40,688         39,631   

Acquisitions

     4,419         —     
  

 

 

    

 

 

 

Aggregates Product Line (3)

     45,107         39,631   
  

 

 

    

 

 

 
     Three Months Ended
September 30,
 
     2014      2013  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Tons to external customers

     38,981         38,109   

Internal tons used in other product lines

     1,707         1,522   
  

 

 

    

 

 

 

Total heritage aggregates tons

     40,688         39,631   
  

 

 

    

 

 

 

Acquisitions:

  

Tons to external customers

     3,174         —     

Internal tons used in other product lines

     1,245         —     
  

 

 

    

 

 

 

Total acquisition aggregates tons

     4,419         —     
  

 

 

    

 

 

 

 

(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.
(3) Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.

The average per-ton selling price for the heritage aggregates product line was $11.09 and $10.55 for the three months ended September 30, 2014 and 2013, respectively, and the average per-ton selling price for the acquired aggregates product line was $11.83 for the three months ended September 30, 2014.

Heritage aggregates product line shipments reflect growth in the three largest end-use markets. Shipments to the infrastructure market comprised 47% of quarterly volumes and increased 3%. Growth

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

was strongest in the West Group, notably in Texas and Colorado, which continue to benefit from strong state Department of Transportation programs. Highway awards in Texas are up approximately 26% for the trailing-twelve months through August. Infrastructure shipments in Colorado were up 21%, reflecting activity from the Responsible Acceleration of Maintenance and Partnerships, or RAMP, program as well as reconstruction efforts resulting from the historic flooding in 2013.

During the quarter, Congress passed an extension of the provisions of the Moving Ahead for Progress in the 21st Century, or MAP-21, through May 31, 2015, and authorized an additional $11 billion of transfers to maintain solvency of the Highway Trust Fund. The Corporation believes these are the first steps toward full reauthorization of a new multi-year federal highway bill.

The nonresidential market represented 30% of quarterly shipments and increased 3%, driven largely by energy-sector shipments. The Corporation continues to benefit from the nation’s increasing investment in shale energy, particularly in South Texas. The Corporation believes this trend will continue, driven by $100 billion of anticipated energy projects along the Gulf Coast, including a significant portion in Texas, as well as anticipated infrastructure repairs in South Texas. Proposition 1, a November 2014 constitutional ballot amendment in Texas, would authorize annual disbursements from the state’s oil and gas production tax collections to the State Highway Fund, with an estimated $1.7 billion transferred in the first year, if approved by voters.

The residential end-use market accounted for 14% of quarterly shipments, and volumes to this market increased 9%. The overall rate of residential growth has slowed, in part due to a reduction in available lot inventory. However, the Corporation continues to experience significant growth in certain markets and expects an increase in aggregates-intensive subdivision development. The ChemRock/Rail market accounted for the remaining 9% of volumes and decreased 9%, reflecting a reduction in ballast and agricultural lime shipments, principally in the West Group and Mid-America Group, respectively.

Geographically, heritage aggregates shipments for the West and Mid-America Groups increased 5% and 2%, respectively. As has been the trend in recent quarters, economic activity in the West Group is stronger than the other groups, with infrastructure, nonresidential and residential building each contributing to growing construction activity. Further, West Group shipments include the effect of facilities divested as part of the TXI acquisition; shipments would have increased over 9% excluding this effect. Mid-America growth was constrained by unseasonably wet weather in addition to slower economic recovery in certain areas of North Carolina. Volumes in the Southeast Group were relatively flat, with growth in North Georgia being offset by declines in Florida and Alabama. The improvement in North Georgia coincides with Atlanta’s metro area job growth ranking 8th in the country. Florida was recently ranked third in total job growth behind only Texas and California and should benefit from an increased emphasis on infrastructure, most visible in the TIFIA-supported I-4 Ultimate Project in central Florida, expected to begin in 2015.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Heritage aggregates product line pricing remains strong and increased in each reportable group, led by an 8.3% improvement in the West Group. The Mid-America Group and Southeast Group achieved pricing increases of 3.7% and 5.5%, respectively.

The Corporation’s aggregates-related downstream product lines include asphalt, ready mixed concrete and road paving businesses in Arkansas, Colorado, Texas and Wyoming. During the quarter, the Corporation exited the road paving business in Arkansas. Average selling prices by product line for the Corporation’s aggregates-related downstream product lines are as follows:

 

     Three Months Ended  
     September 30,  
     2014      2013  

Heritage:

     

Asphalt

   $ 41.24/ton       $ 41.76/ton   

Ready Mixed Concrete

   $ 94.72/yd3       $ 83.44/yd3   

Acquisitions:

     

Ready Mixed Concrete (4)

   $ 86.10/yd3         —     

Unit shipments by product line for the Corporation’s aggregates-related downstream product lines are as follows:

 

     Three Months Ended  
     September 30,  
     2014      2013  

Asphalt Product Line (in thousands):

     

Tons to external customers

     476         464   

Internal tons used in road paving business

     777         761   
  

 

 

    

 

 

 

Total asphalt tons

     1,253         1,225   
  

 

 

    

 

 

 

Ready Mixed Concrete (in cubic yards):

     

Heritage

     580         496   

Acquisitions(4)

     1,466         —     
  

 

 

    

 

 

 

Total cubic yards

     2,046         496   
  

 

 

    

 

 

 

 

(4) Ready mixed operations acquired by Martin Marietta on July 1, 2014. For comparative purposes, for the three months ended August 31, 2013, TXI shipped 1,134,000 cubic yards of ready mixed concrete. Assuming consistent classification of products included in ready mixed concrete sales, average selling price for the quarter ended September 30, 2014 was 4.5% higher compared with the three months ended August 31, 2013.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

The heritage ready mixed concrete product line reported volume and pricing improvements of 17% and 14%, respectively, leading to an 840-basis-point improvement in the heritage product line’s gross margin (excluding freight and delivery revenues). The heritage hot mixed asphalt product line reported a 13% increase in net sales.

Heritage aggregates product line production increased 4% in response to greater demand. Direct production cost per ton grew slightly as increased leveraging of fixed costs was offset by higher repair and supply costs and weather constraints in certain areas. Further, freight costs increased for transfers of materials within the Corporation’s long-haul distribution network, notably driven by rail inefficiencies, car availability and track congestion. The increased repair, supply and freight costs added $12.7 million increase in cost of sales for the quarter and limited margin expansion for the heritage Aggregates business.

The Aggregates business is significantly affected by erratic weather patterns, seasonal changes and other weather-related conditions. Production and shipment levels for aggregates, asphalt, ready mixed concrete and road paving materials correlate with general construction activity levels, most of which occurs in the spring, summer and fall. Thus, production and shipment levels vary by quarter. Operations concentrated in the northern and midwestern United States generally experience more severe winter weather conditions than operations in the Southeast and Southwest. Excessive rainfall, and conversely excessive drought, can also jeopardize shipments, production and profitability in all markets served by the Corporation. Because of the potentially significant impact of weather on the Corporation’s operations, current period and year to date results are not indicative of expected performance for other interim periods or the full year.

Cement Business

The cement business contributed $110 million of net sales and achieved gross profit of $27.9 million, excluding the impact of the fair value write up of acquired inventory. The gross margin was suppressed by a $3.7 million increase in cost of sales of acquired inventory, which was marked up to fair value as part of accounting for the TXI acquisition.

Cement shipments for the three months ended September 30, 2014 were (tons in thousands):

 

Tons to external customers

     1,272   

Internal tons used in other product lines

     253   
  

 

 

 

Total cement tons

     1,525   
  

 

 

 

For comparative purposes, for the quarter ended September 30, 2014, cement tons shipped or used in other product lines increased 16% compared with the three months ended August 31, 2013, a period prior to the Corporation’s ownership of these operations.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Average selling price per-ton for the cement operations for the three months ended September 30, 2014 was $85.95.

The cement business is operating in a sold-out market in Texas. Plant capacity varies between 75% and 85% for plants in Texas and 70% and 75% in California. The recently-assembled Cement group leadership team, in collaboration with the Corporation’s aggregates and ready mixed teams, has developed strategic plans regarding interplant efficiencies, as well as, tactical plans addressing plant utilization and efficiency, providing a road map for significantly improved profitability for 2015 and beyond.

Specialty Products Business

Specialty Products continued to deliver strong performance and generated third-quarter record net sales of $58.7 million, an increase of 5.2%. Growth was primarily attributable to steel utilization of 77%, continued growth in the chemicals product line and increased periclase sales. The business’ gross margin (excluding freight and delivery revenues) of 34.2% was negatively affected by higher natural gas costs and planned kiln outages. Third-quarter earnings from operations were $17.7 million compared with $17.3 million in the prior-year quarter.

Consolidated Operating Results

The heritage aggregates product line leveraged increased shipments and a higher average selling price to expand its gross margin (excluding freight and delivery revenues) by 70 basis points. On an overall basis, the Corporation’s consolidated gross margin (excluding freight and delivery revenues) was 21.3% for 2014 compared to 23.8% for 2013. The following presents a rollforward of consolidated gross profit (dollars in thousands):

 

Consolidated gross profit, quarter ended September 30, 2013

   $ 143,108   
  

 

 

 

Aggregates product line:

  

Volume strength

     45,187   

Pricing strength

     22,441   

Cost increases, net

     (56,517
  

 

 

 

Increase in aggregates product line gross profit

     11,111   

Aggregates-related downstream product lines

     18,149   

Cement

     24,194   

Specialty Products

     124   

Corporate

     (1,093
  

 

 

 

Increase in consolidated gross profit

     52,485   
  

 

 

 

Consolidated gross profit, quarter ended September 30, 2014

   $ 195,593   
  

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Gross profit (loss) by business is as follows:

 

     Three Months Ended  
     September 30,  
     2014     2013  
     (Dollars in Thousands)  

Gross profit (loss):

    

Heritage:

    

Aggregates

   $ 118,964      $ 108,166   

Asphalt

     7,356        7,322   

Ready Mixed Concrete

     8,958        3,124   

Road Paving

     6,897        4,286   
  

 

 

   

 

 

 

Total Aggregates Business

     142,175        122,898   

Specialty Products

     20,043        19,919   

Corporate

     (248     291   
  

 

 

   

 

 

 

Total Heritage

     161,970        143,108   
  

 

 

   

 

 

 

Acquisitions*:

    

Aggregates

     313        —     

Ready Mixed Concrete

     9,670        —     

Cement

     24,194        —     

Corporate

     (554  
  

 

 

   

 

 

 

Total Acquisitions

     33,623        —     
  

 

 

   

 

 

 

Total

   $ 195,593      $ 143,108   
  

 

 

   

 

 

 

 

* Gross profit for acquisitions reflects a $10.9 million one-time increase in cost of sales related to the write-up of acquired inventory at the acquisition date, which includes $7.2 million for aggregates product line and 3.7 million for cement.

The heritage gross margin (excluding freight and delivery revenues) for the quarter was 25.1%, a 130-basis-point improvement compared with the prior-year quarter for heritage.

Consolidated SG&A was 5.3% of net sales compared with 6.2% in the prior-year quarter. The reduction of 90 basis points reflects transaction synergies, lower pension expense, and the absence of information systems upgrade costs incurred in 2013.

During the quarter and in accordance with the Corporation’s agreement with the Department of Justice to obtain regulatory approval for the acquisition, the Corporation divested its North Troy aggregates quarry in Oklahoma and two rail yards located in Dallas and Frisco, Texas. The Corporation recognized a pretax gain on the divestiture which is included in Earnings (loss) from Operations Heritage West Group.

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

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations. For the third quarter, consolidated other operating income and expenses, net, was expense of $5.1 million in 2014 compared with income of $3.0 million in 2013. Third quarter 2014 included a nonrecurring pretax gain on a divestiture.

The Corporation currently expects its effective income tax rate for full-year 2014 to approximate 39%, which is higher than the Corporation’s historical rate. The estimated effective income tax rate, excluding the TXI transaction effects, would have been 29%. The rate change reflects the tax impact of the TXI transaction, including the limited deductibility of certain acquisition-related expenses and the non-deductibility of the goodwill written off as part of the required divestiture. These factors were partially offset by the income tax benefits resulting from the exercise of converted stock awards issued to former TXI personnel. As a result of the increase in the estimated annual income tax rate, the rate for the quarter ended September 30, 2014, which reflects the catch-up of the annual rate and TXI-related discrete items, was 45%. Cash taxes for the full year are expected to be $13.1 million after consideration of deferred taxes and the utilization of an estimated $84 million of TXI’s NOL carryforwards.

 

Page 53 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Nine Months Ended September 30

Significant items for the nine months ended September 30, 2014 (unless noted, all comparisons are versus the prior-year period):

 

    Adjusted earnings per diluted share of $2.74

 

Reported earnings per diluted share

   $ 1.70   

Add back:

  

Acquisition-related expenses, net, related to the TXI acquisition

     0.91   

One-time increase in cost of sales for acquired inventory

     0.13   
  

 

 

 

Adjusted earnings per diluted share

   $ 2.74   
  

 

 

 

Prior-year quarter earnings per diluted share of $1.84

  

 

    Consolidated net sales of $1.9 billion ($1.6 billion from heritage operations) compared with $1.5 billion

 

    Heritage aggregates product line pricing increase of 3.5%; heritage aggregates product line volume increase of 7.5%

 

    Specialty Products net sales of $177.9 million and earnings from operations of $55.0 million

 

    Heritage consolidated gross margin (excluding freight and delivery revenues) of 19.9%, up 180 basis points

 

    Consolidated selling, general and administrative expenses (SG&A) of $119.2 million, or 6.3% of net sales, a reduction of 150 basis points

 

    Adjusted consolidated earnings from operations of $248.3 million:

 

     (in millions)  

Reported consolidated earnings from operations

   $ 196.3   

Add back:

  

Acquisition-related expenses, net, related to the TXI acquisition

     41.1   

One-time increase in cost of sales for acquired inventory

     10.9   
  

 

 

 

Adjusted consolidated earnings from operations

   $ 248.3   
  

 

 

 

Prior year consolidated earnings from operations of $155.2

  

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, 2014 and 2013. 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 54 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

     Nine Months Ended September 30,  
     2014      2013  
     Amount     % of
Net Sales
     Amount     % of
Net Sales
 
     (Dollars in Thousands)  

Net sales:

         

Heritage:

         

Mid-America Group

   $ 569,545         $ 540,209     

Southeast Group

     194,148           171,456     

West Group

     684,350           572,588     
  

 

 

      

 

 

   

Total Heritage Aggregates Business

     1,448,043        100.0         1,284,253        100.0   

Specialty Products

     177,941        100.0         167,595        100.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Heritage Consolidated

     1,625,984        100.0         1,451,848        100.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Acquisitions:

         

Aggregates Business – West Group

     164,052           —       

Cement

     109,521           —       
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Acquisitions

     273,573        100.0         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 1,899,557        100.0       $ 1,451,848        100.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit (loss):

    

Heritage

    

Mid-America Group

   $ 149,975        26.3       $ 137,858        25.5   

Southeast Group

     4,836        2.5         (2,911     (1.7

West Group

     106,695        15.6         68,620        12.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Heritage Aggregates Business

     261,506        18.1         203,567        15.9   

Specialty Products

     62,192        35.0         60,784        36.3   

Corporate

     (291     —           (1,426     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Heritage Consolidated

     323,407        19.9         262,925        18.1   
  

 

 

   

 

 

    

 

 

   

 

 

 

Acquisitions:

       

Aggregates Business – West Group

     9,983        6.1         —          —     

Cement

     24,194        22.1         —          —     

Corporate

     (554     —           —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Acquisitions

     33,623        12.3         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 357,030        18.8       $ 262,925        18.1   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

     Nine Months Ended September 30,  
     2014      2013  
     Amount     % of
Net Sales
     Amount     % of
Net Sales
 
     (Dollars in Thousands)  

Selling, general & administrative expenses:

         

Heritage:

         

Mid-America Group

   $ 39,068         $ 40,236     

Southeast Group

     13,221           13,376     

West Group

     32,493           31,677     
  

 

 

      

 

 

   

Total Heritage Aggregates Business

     84,782        5.9         85,289        6.6   

Specialty Products

     7,294        4.1         7,602        4.5   

Corporate

     11,349        —           19,741        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Heritage Consolidated

     103,425        6.4         112,632        7.8   
  

 

 

   

 

 

    

 

 

   

 

 

 

Acquisitions:

         

Aggregates Business – West Group

     3,403        2.1         —          —     

Cement

     6,292        5.7         —          —     

Corporate

     6,119        —           —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Acquisitions

     15,814        5.8         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 119,239        6.3       $ 112,632        7.8   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (Loss) from operations:

         

Heritage:

         

Mid-America Group

   $ 116,703         $ 100,915     

Southeast Group

     (7,084        (14,949  

West Group

     118,160           39,829     
  

 

 

      

 

 

   

Total Heritage Aggregates Business

     227,779        15.7         125,795        9.8   

Specialty Products

     54,976        30.9         53,071        31.7   

Corporate

     (91,530     —           (23,709     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Heritage Consolidated

     191,225        11.8         155,157        10.7   
  

 

 

   

 

 

    

 

 

   

 

 

 

Acquisitions:

         

Aggregates Business – West Group

     6,909        4.2         —          —     

Cement

     18,278        16.7         —          —     

Corporate

     (20,112     —           —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Acquisitions

     5,075        1.9         —          —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 196,300        10.3       $ 155,157        10.7   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

Page 56 of 78


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Aggregates Business

Net sales by product line for the Aggregates business, which reflect the elimination of inter-product sales, are as follows:

 

     Nine Months Ended
September 30,
 
     2014      2013  
     (Dollars in Thousands)  

Net sales:

     

Heritage:

     

Aggregates

   $ 1,127,879       $ 1,016,238   

Asphalt

     59,998         52,231   

Ready Mixed Concrete

     146,864         103,347   

Road Paving

     113,302         112,437   
  

 

 

    

 

 

 

Total Heritage Aggregates Business

   $ 1,448,043       $ 1,284,253   
  

 

 

    

 

 

 

Acquisitions:

     

Aggregates

   $ 36,813       $ —     

Ready Mixed Concrete

     127,239         —     
  

 

 

    

 

 

 

Total Acquisitions

   $ 164,052       $ —     
  

 

 

    

 

 

 

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

 

     Nine Months Ended  
     September 30, 2014  
     Volume      Pricing  

Volume/Pricing Variance (1)

     

Heritage Aggregates Product Line (2):

     

Mid-America Group

     1.6%         3.7%   

Southeast Group

     6.6%         6.1%   

West Group

     15.5%         3.8%   

Heritage Aggregates Operations(2)

     7.5%         3.5%   

Aggregates Product Line (3)

     12.1%         3.8%   

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

     Nine Months Ended  
     September 30,  
     2014      2013  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Mid-America Group

     48,147         47,385   

Southeast Group

     13,930         13,064   

West Group

     42,204         36,536   
  

 

 

    

 

 

 

Heritage Aggregates Operations(2)

     104,281         96,985   

Acquisitions

     4,419         —     
  

 

 

    

 

 

 

Aggregates Product Line (3)

     108,700         96,985   
  

 

 

    

 

 

 
     Nine Months Ended  
     September 30,  
     2014      2013  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Tons to external customers

     100,117         93,512   

Internal tons used in other product lines

     4,164         3,470   
  

 

 

    

 

 

 

Total aggregates tons

     104,281         96,982   
  

 

 

    

 

 

 

Acquisitions:

     

Tons to external customers

     3,174         —     

Internal tons used in other product lines

     1,245         —     
  

 

 

    

 

 

 

Total aggregates tons

     4,419         —     
  

 

 

    

 

 

 

 

(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.
(3) Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.

The per-ton average selling price for the Heritage aggregates product line was $10.99 and $10.62 for the nine months ended September 30, 2014 and 2013, respectively. The improvement reflects pricing increases implemented in most areas.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Average selling prices by product line for the Corporation’s aggregates-related downstream product lines are as follows:

 

     Nine Months Ended  
     September 30,  
     2014      2013  

Heritage:

     

Asphalt

   $ 41.68/ton       $ 42.11/ton   

Ready Mixed Concrete

   $ 92.39/yd3       $ 82.59/yd3   

Acquisitions:

     

Ready Mixed Concrete(4)

   $ 86.10/yd3         —     

Unit shipments by product line for the Corporation’s aggregates-related downstream product lines are as follows:

 

     Nine Months Ended
September 30,
 
     2014      2013  
     (in thousands)  

Asphalt Product Line:

     

Tons to external customers

     1,182         1,072   

Internal tons used in road paving business

     1,347         1,257   
  

 

 

    

 

 

 

Total asphalt tons

     2,529         2,329   
  

 

 

    

 

 

 

Ready Mixed Concrete (in cubic yards):

     

Heritage

     1,539         1,261   

Acquisitions(4)

     1,466         —     
  

 

 

    

 

 

 

Total cubic yards

     3,005         1,261   
  

 

 

    

 

 

 

 

(4) Ready mixed operations acquired by Martin Marietta on July 1, 2014. For comparative purposes, for the three months ended August 31, 2013, TXI shipped 1,134,000 cubic yards of ready mixed concrete. Assuming consistent classification of products included in ready mixed concrete sales, average selling price for the quarter ended September 30, 2014 was 4.5% higher compared with the three months ended August 31, 2013.

Cement Business

The cement segment was acquired during the third quarter. Refer to the discussion of the cement operations for the three months ended September 30, 2014.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Specialty Products Business

For 2014, Specialty Products’ net sales of $177.9 million increased $10.3 million, or 6.2%, over the prior-year period. The growth is attributable to the chemicals product line. Earnings from operations were $55.0 million compared with $53.1 million.

Consolidated Operating Results

Consolidated gross margin (excluding freight and delivery revenues) was 18.8% for 2014 versus 18.1% for 2013. The following presents a rollforward of the Corporation’s gross profit (dollars in thousands):

 

Consolidated gross profit, nine months ended September 30, 2013

   $ 262,925   
  

 

 

 

Aggregates product line:

  

Pricing strength

     38,341   

Volume strength

     110,113   

Cost increases, net

     (108,154
  

 

 

 

Increase in aggregates product line gross profit

     40,300   

Aggregates-related downstream product lines

     27,622   

Cement

     24,194   

Specialty Products

     1,408   

Corporate

     581   
  

 

 

 

Increase in consolidated gross profit

     94,105   
  

 

 

 

Consolidated gross profit, nine months ended September 30, 2014

   $ 357,030   
  

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

Gross profit (loss) by business is as follows:

 

     Nine Months Ended
September 30,
 
     2014     2013  
     (Dollars in Thousands)  

Gross profit (loss):

    

Heritage:

    

Aggregates

   $ 229,158      $ 189,171   

Asphalt

     10,799        9,770   

Ready Mixed Concrete

     18,884        4,911   

Road Paving

     2,665        (285
  

 

 

   

 

 

 

Total Aggregates Business

     261,506        203,567   

Specialty Products

     62,192        60,784   

Corporate

     (291     (1,426
  

 

 

   

 

 

 

Total Heritage

     323,407        262,925   
  

 

 

   

 

 

 

Acquisitions:

    

Aggregates

     313        —     

Ready Mixed Concrete

     9,670        —     

Cement

     24,194        —     

Corporate

     (554     —     
  

 

 

   

 

 

 

Total Acquisitions

     33,623        —     
  

 

 

   

 

 

 

Total

   $ 357,030      $ 262,925   
  

 

 

   

 

 

 

Consolidated SG&A expenses were 6.3% of net sales, down 150 basis points compared with the prior-year period, reflecting transaction synergies, lower pension expense, and the absence of information systems upgrade costs incurred in 2013.

During the nine months ended September 30, 2014, the Corporation incurred $89.1 million of acquisition-related expenses, net.

For the nine months, consolidated other operating income and expenses, net, was expense of $0.3 million in 2014 compared with income of $5.5 million in 2013.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended September 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Third Quarter Ended September 30, 2014

(Continued)

 

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the nine months ended September 30, 2014 was $201.6 million compared with $165.6 million for the same period in 2013. The increase was primarily attributable to higher earnings before depreciation, depletion and amortization expense. Operating cash flow is primarily derived from consolidated net earnings before deducting depreciation, depletion and amortization, and the impact of changes in working capital. Depreciation, depletion and amortization were as follows:

 

     Nine Months Ended
September 30,
 
     2014      2013  
     (Dollars in Thousands)  

Depreciation

   $ 140,778       $ 122,129   

Depletion

     6,300         3,920   

Amortization

     7,001         4,048   
  

 

 

    

 

 

 
   $ 154,079       $ 130,097