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MARTIN MARIETTA MATERIALS INC - Quarter Report: 2014 June (Form 10-Q)

10-Q
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 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 July 25, 2014

Common Stock, $0.01 par value

   66,918,724

 

 

 


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

 

     Page  

Part I. Financial Information:

  

Item 1. Financial Statements.

  

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

     3   

Consolidated Statements of Earnings and Comprehensive Earnings -
Three and Six Months Ended June  30, 2014 and 2013

     4   

Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2014 and 2013

     5   

Consolidated Statement of Total Equity -
Six Months Ended June 30, 2014

     6   

Notes to Consolidated Financial Statements

     7   

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

     29   

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     57   

Item 4. Controls and Procedures.

     58   

Part II. Other Information:

     59   

Item 1. Legal Proceedings.

     59   

Item 1A. Risk Factors.

  

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

     59   

Item 4. Mine Safety Disclosures.

     59   

Item 6. Exhibits.

     60   

Signatures

     61   

Exhibit Index

     62   

 

Page 2 of 62


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

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

ASSETS

      

Current Assets:

      

Cash and cash equivalents

   $ 34,329      $ 42,437      $ 43,712   

Accounts receivable, net

     343,784        245,421        287,521   

Inventories, net

     348,168        347,307        348,873   

Current deferred income tax benefits

     72,413        74,821        79,104   

Other current assets

     78,007        45,380        47,275   
  

 

 

   

 

 

   

 

 

 

Total Current Assets

     876,701        755,366        806,485   
  

 

 

   

 

 

   

 

 

 

Property, plant and equipment

     3,970,472        3,976,884        3,843,806   

Allowances for depreciation, depletion and amortization

     (2,195,098     (2,177,643     (2,126,420
  

 

 

   

 

 

   

 

 

 

Net property, plant and equipment

     1,775,374        1,799,241        1,717,386   

Goodwill

     616,621        616,621        616,303   

Other intangibles, net

     46,896        48,591        48,668   

Other noncurrent assets

     40,451        40,007        42,277   
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 3,356,043      $ 3,259,826      $ 3,231,119   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

      

Current Liabilities:

      

Bank overdraft

   $ —        $ 2,556      $ —     

Accounts payable

     139,442        103,600        99,960   

Accrued salaries, benefits and payroll taxes

     17,393        18,114        16,259   

Pension and postretirement benefits

     2,356        2,026        4,616   

Accrued insurance and other taxes

     33,014        29,103        30,679   

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

     12,404        12,403        6,169   

Accrued interest

     7,386        7,349        7,709   

Other current liabilities

     32,730        35,398        27,141   
  

 

 

   

 

 

   

 

 

 

Total Current Liabilities

     244,725        210,549        192,533   

Long-term debt

     1,072,397        1,018,518        1,087,150   

Pension, postretirement and postemployment benefits

     82,662        78,489        184,849   

Noncurrent deferred income taxes

     275,279        279,999        235,505   

Other noncurrent liabilities

     113,981        97,352        90,415   
  

 

 

   

 

 

   

 

 

 

Total Liabilities

     1,789,044        1,684,907        1,790,452   
  

 

 

   

 

 

   

 

 

 

Equity:

      

Common stock, par value $0.01 per share

     463        461        461   

Preferred stock, par value $0.01 per share

     —          —          —     

Additional paid-in capital

     456,989        432,792        429,936   

Accumulated other comprehensive loss

     (42,141     (44,114     (106,257

Retained earnings

     1,149,388        1,148,738        1,077,998   
  

 

 

   

 

 

   

 

 

 

Total Shareholders’ Equity

     1,564,699        1,537,877        1,402,138   

Noncontrolling interests

     2,300        37,042        38,529   
  

 

 

   

 

 

   

 

 

 

Total Equity

     1,566,999        1,574,919        1,440,667   
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 3,356,043      $ 3,259,826      $ 3,231,119   
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 3 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  
    

(In Thousands, Except Per Share Data)

(Unaudited)

 

Net Sales

   $ 601,937      $ 507,332      $ 981,615      $ 851,390   

Freight and delivery revenues

     67,288        53,994        116,240        93,844   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     669,225        561,326        1,097,855        945,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

     466,335        400,336        820,177        731,573   

Freight and delivery costs

     67,288        53,994        116,240        93,844   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     533,623        454,330        936,417        825,417   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Profit

     135,602        106,996        161,438        119,817   

Selling, general & administrative expenses

     36,566        37,843        70,813        75,492   

Business development expenses

     3,338        275        12,850        582   

Acquisition integration expenses

     1,942        —          2,210        —     

Other operating income, net

     (2,485     (757     (4,779     (2,571
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Operations

     96,241        69,635        80,344        46,314   

Interest expense

     12,947        13,619        25,149        27,115   

Other nonoperating (income) and expenses, net

     (292     (544     3,171        78   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from continuing operations before taxes on income

     83,586        56,560        52,024        19,121   

Income tax expense

     23,906        15,098        15,482        6,700   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings from Continuing Operations

     59,680        41,462        36,542        12,421   

(Loss) Gain on discontinued operations, net of related tax (benefit) expense of ($24), $11, ($25) and ($65), respectively

     (56     105        (70     (183
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated net earnings

     59,624        41,567        36,472        12,238   

Less: Net earnings (loss) attributable to noncontrolling interests

     103        259        (1,432     (1,230
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

   $ 59,521      $ 41,308      $ 37,904      $ 13,468   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.:

        

Earnings from continuing operations

   $ 59,577      $ 41,203      $ 37,974      $ 13,651   

(Loss) Earnings from discontinued operations

     (56     105        (70     (183
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 59,521      $ 41,308      $ 37,904      $ 13,468   
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Comprehensive Earnings: (See Note 1)

        

Earnings attributable to Martin Marietta Materials, Inc.

   $ 60,124      $ 39,999      $ 39,877      $ 13,380   

Earnings (Loss) attributable to noncontrolling interests

     104        262        (1,430     (1,225
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 60,228      $ 40,261      $ 38,447      $ 12,155   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Earnings Attributable to Martin Marietta Materials, Inc.

        

Per Common Share:

        

Basic from continuing operations attributable to common shareholders

   $ 1.28      $ 0.89      $ 0.81      $ 0.29   

Discontinued operations attributable to common shareholders

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1.28      $ 0.89      $ 0.81      $ 0.29   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted from continuing operations attributable to common shareholders

   $ 1.27      $ 0.89      $ 0.81      $ 0.29   

Discontinued operations attributable to common shareholders

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 1.27      $ 0.89      $ 0.81      $ 0.29   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-Average Common Shares Outstanding:

        

Basic

     46,395        46,129        46,355        46,079   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     46,529        46,260        46,477        46,217   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash Dividends Per Common Share

   $ 0.40      $ 0.40      $ 0.80      $ 0.80   
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

Page 4 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Six Months Ended  
     June 30,  
     2014     2013  
    

(Dollars in Thousands)

(Unaudited)

 

Cash Flows from Operating Activities:

    

Consolidated net earnings

   $ 36,472      $ 12,238   

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

    

Depreciation, depletion and amortization

     86,147        85,992   

Stock-based compensation expense

     4,370        3,981   

Gains on divestitures and sales of assets

     (1,747     (422

Deferred income taxes

     (6,433     9,282   

Excess tax benefits from stock-based compensation transactions

     (1,922     (2,253

Other items, net

     3,227        (530

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

    

Accounts receivable, net

     (98,911     (65,165

Inventories, net

     (4,269     (15,838

Accounts payable

     35,842        16,423   

Other assets and liabilities, net

     17,587        4,764   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     70,363        48,472   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Additions to property, plant and equipment

     (84,737     (50,002

Acquisitions, net

     (117     (3,246

Proceeds from divestitures and sales of assets

     2,154        1,874   

Repayments from affiliate

     529        —     

Payment of railcar construction advances

     (14,513     —     

Reimbursement of railcar construction advances

     14,513        —     
  

 

 

   

 

 

 

Net Cash Used for Investing Activities

     (82,171     (51,374
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Borrowings of long-term debt

     100,000        295,500   

Repayments of long-term debt

     (46,417     (250,167

Payments on capital lease obligations

     (1,052     —     

Debt issuance costs

     (881     (510

Change in bank overdraft

     (2,556     —     

Dividends paid

     (37,254     (37,068

Purchase of remaining interest in existing subsidiaries

     (19,604     —     

Issuances of common stock

     9,542        11,212   

Excess tax benefits from stock-based compensation transactions

     1,922        2,253   
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

     3,700        21,220   
  

 

 

   

 

 

 

Net (Decrease) Increase in Cash and Cash Equivalents

     (8,108     18,318   

Cash and Cash Equivalents, beginning of period

     42,437        25,394   
  

 

 

   

 

 

 

Cash and Cash Equivalents, end of period

   $ 34,329      $ 43,712   
  

 

 

   

 

 

 

Supplemental Disclosures of Cash Flow Information:

    

Cash paid for interest

   $ 25,173      $ 25,868   

Cash paid (received) for income taxes

   $ 3,511      $ (6,103

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

    —          —          —          —          37,904        37,904        (1,432     36,472   

Other comprehensive earnings

    —          —          —          1,973        —          1,973        2        1,975   

Dividends declared

    —          —          —          —          (37,254     (37,254     —          (37,254

Issuances of common stock for stock award plans

    134        2        11,428        —          —          11,430        —          11,430   

Stock-based compensation expense

    —          —          4,370        —          —          4,370        —          4,370   

Purchase of subsidiary shares from noncontrolling interest

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

    46,395      $ 463      $ 456,989      $ (42,141   $ 1,149,388      $ 1,564,699      $ 2,300      $ 1,566,999   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. Significant Accounting Policies

Organization

Martin Marietta Materials, Inc., (the “Corporation”) is engaged principally in the construction aggregates business. The Corporation’s aggregates product line accounted for 69% of consolidated 2013 net sales and 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 vertically-integrated operations, which include asphalt products, ready mixed concrete and road paving construction services (and which accounted for 19% of consolidated 2013 net sales), are sold and shipped from a network of nearly 300 quarries, distribution facilities and plants to customers in 30 states, Canada, the Bahamas and the Caribbean Islands. The aggregates and vertically-integrated operations are reported collectively as the Corporation’s “Aggregates business”.

Effective January 1, 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 its Aggregates business through three reportable segments as follows:

AGGREGATES BUSINESS

 

Reportable Segments

  

Mid-America Group

  

Southeast Group

  

West Group

Operating Locations   

Indiana, Iowa,

northern Kansas,

Kentucky,

Maryland,

Minnesota,

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,

Missouri,

western Nebraska,

Nevada,

Oklahoma, Texas,

Utah and

Wyoming

 

Page 7 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

In addition to the Aggregates business, the Corporation has a Specialty Products segment, which accounted for 12% of consolidated 2013 net sales, that 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. 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 six months ended June 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. These consolidated financial statements do not reflect the Corporation’s acquisition of Texas Industries, Inc. (“TXI”) on July 1, 2014, which is discussed further in Note 11.

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.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

Revenue Recognition Standard

The FASB issued an accounting standard update that amends the accounting guidance on revenue recognition. The amendments in this accounting standard update are intended to provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices and improve disclosure requirements. The amendments are to be applied on a full retrospective or modified retrospective approach. The amendments in this accounting standard update are effective for interim and annual reporting periods beginning after December 15, 2016. The Corporation is currently evaluating the impact of the provisions of the accounting standard update, 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 9 has been reclassified to conform to the presentation of the Corporation’s current reportable segments.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 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 Materials, Inc. is as follows:

 

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

Net earnings attributable to Martin Marietta Materials, Inc.

   $ 59,521       $ 41,308      $ 37,904       $ 13,468   

Other comprehensive earnings (loss), net of tax

     603         (1,309     1,973         (88
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive earnings attributable to Martin Marietta Materials, Inc.

   $ 60,124       $ 39,999      $ 39,877       $ 13,380   
  

 

 

    

 

 

   

 

 

    

 

 

 

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
June 30,
     Six Months Ended
June 30,
 
     2014      2013      2014     2013  
     (Dollars in Thousands)  

Net earnings (loss) attributable to noncontrolling interests

   $ 103       $ 259       $ (1,432   $ (1,230

Other comprehensive earnings, net of tax

     1         3         2        5   
  

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive earnings (loss) attributable to noncontrolling interests

   $ 104       $ 262       $ (1,430   $ (1,225
  

 

 

    

 

 

    

 

 

   

 

 

 

 

Page 10 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 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 June 30, 2014  

Balance at beginning of period

   $ (44,267   $ 4,816      $ (3,293   $ (42,744
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings before reclassifications, net of tax

     (426     842        —          416   

Amounts reclassified from accumulated other comprehensive loss, net of tax

     8        —          179        187   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings, net of tax

     (418     842        179        603   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

   

 

 

 
     Three Months Ended June 30, 2013  

Balance at beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss before reclassifications, net of tax

     (2,278     (1,169     —          (3,447

Amounts reclassified from accumulated other comprehensive loss, net of tax

     1,971        —          167        2,138   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings, net of tax

     (307     (1,169     167        (1,309
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ (106,603   $ 4,154      $ (3,808   $ (106,257
  

 

 

   

 

 

   

 

 

   

 

 

 

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $276,000 and $1,490,000 for the three months ended June 30, 2014 and 2013, respectively.

 

Page 11 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

1. Significant Accounting Policies (continued)

 

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

 

     Pension and
Postretirement
Benefit Plans
    Foreign
Currency
    Unamortized
Value of
Terminated
Forward
Starting
Interest Rate
Swap
    Accumulated
Other
Comprehensive
Loss
 
     Six Months Ended June 30, 2014  

Balance at beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

 

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

     (430     1,756        —          1,326   

Amounts reclassified from accumulated other comprehensive loss, net of tax

     294        —          353        647   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings, net of tax

     (136     1,756        353        1,973   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30, 2013  

Balance at beginning of period

   $ (108,189   $ 6,157      $ (4,137   $ (106,169
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss earnings before reclassifications, net of tax

     (2,312     (2,003     —          (4,315

Amounts reclassified from accumulated other comprehensive loss, net of tax

     3,898        —          329        4,227   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive earnings, net of tax

     1,586        (2,003     329        (88
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ (106,603   $ 4,154      $ (3,808   $ (106,257
  

 

 

   

 

 

   

 

 

   

 

 

 

The other comprehensive loss before reclassifications for pension and postretirement benefit plans is net of tax of $280,000 and $1,512,000 for the six months ended June 30, 2014 and 2013, respectively.

 

Page 12 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 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 June 30, 2014  

Balance at beginning of period

   $ 29,016      $ 2,155      $ 31,171   

Tax effect of other comprehensive earnings

     271        (116     155   
  

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

 
     Three Months Ended June 30, 2013  

Balance at beginning of period

   $ 69,641      $ 2,600      $ 72,241   

Tax effect of other comprehensive earnings

     201        (108     93   
  

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30, 2014  

Balance at beginning of period

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

Tax effect of other comprehensive earnings

     89        (230     (141
  

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30, 2013  

Balance at beginning of period

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

Tax effect of other comprehensive earnings

     (1,039     (215     (1,254
  

 

 

   

 

 

   

 

 

 

Balance at end of period

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

 

 

   

 

 

   

 

 

 

 

Page 13 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 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
June 30,
    Six Months Ended
June 30,
    Affected line items in
     2014     2013     2014     2013    

the consolidated
financial statements

     (Dollars in Thousands)      

Pension and postretirement benefit plans

          

Amortization of:

          

Prior service credit

   $ (791   $ (695   $ (1,404   $ (1,403  

Actuarial loss

     804        3,955        1,889        7,852     
  

 

 

   

 

 

   

 

 

   

 

 

   
     13        3,260        485        6,449     

Cost of sales;

Selling, general & administrative expenses

Tax effect

     (5     (1,289     (191     (2,551  

Deferred income taxes

  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 8      $ 1,971      $ 294      $ 3,898     
  

 

 

   

 

 

   

 

 

   

 

 

   

Unamortized value of terminated forward starting interest rate swap

          

Additional interest expense

   $ 295      $ 275      $ 583      $ 544     

Interest expense

Tax effect

     (116     (108     (230     (215  

Deferred income taxes

  

 

 

   

 

 

   

 

 

   

 

 

   
   $ 179      $ 167      $ 353      $ 329     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

Page 14 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 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 Materials, Inc., reduced by dividends and undistributed earnings attributable to the Corporation’s unvested restricted stock awards and incentive stock awards. If there is a net loss, no amount of the undistributed loss is attributed to unvested participating securities. The denominator for basic earnings per common share is the weighted-average number of common shares outstanding during the period. Diluted earnings per common share are computed assuming that the weighted-average number of common shares is increased by the conversion, using the treasury stock method, of awards to be issued to employees and nonemployee members of the Corporation’s Board of Directors under certain stock-based compensation arrangements if the conversion is dilutive. For the three and six months ended June 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
June 30,
     Six Months Ended
June 30,
 
     2014     2013      2014     2013  
     (In Thousands)  

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

   $ 59,577      $ 41,203       $ 37,974      $ 13,651   

Less: Distributed and undistributed earnings attributable to unvested awards

     246        197         154        182   
  

 

 

   

 

 

    

 

 

   

 

 

 

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

     59,331        41,006         37,820        13,469   

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

     (56     105         (70     (183
  

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ 59,275      $ 41,111       $ 37,750      $ 13,286   
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic weighted-average common shares outstanding

     46,395        46,129         46,355        46,079   

Effect of dilutive employee and director awards

     134        131         122        138   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted weighted-average common shares outstanding

     46,529        46,260         46,477        46,217   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

Page 15 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Purchase of Noncontrolling Interest in Joint Venture

On April 2, 2014, the Corporation paid $19,604,000 for the remaining 50% interest in a joint venture.

 

3. Inventories, Net

 

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

Finished products

   $ 358,759       $ 368,334       $ 366,320   

Products in process and raw materials

     20,732         16,077         18,701   

Supplies and expendable parts

     65,287         61,922         59,437   
  

 

 

    

 

 

    

 

 

 
     444,778         446,333         444,458   

Less: Allowances

     96,610         99,026         95,585   
  

 

 

    

 

 

    

 

 

 

Total

   $ 348,168       $ 347,307       $ 348,873   
  

 

 

    

 

 

    

 

 

 

 

Page 16 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4. Long-Term Debt

 

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

6.6% Senior Notes, due 2018

   $ 299,006       $ 298,893       $ 298,783   

7% Debentures, due 2025

     124,485         124,471         124,457   

6.25% Senior Notes, due 2037

     228,165         228,148         228,130   

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

     242,350         248,441         240,000   

Revolving Facility, interest rate of 1.40% at June 30, 2014 and 1.89% at June 30, 2013

     40,000         —           50,000   

Trade Receivable Facility, interest rate of 0.75% at June 30, 2014; 0.77% at December 31, 2013; and 0.79% at June 30, 2013

     150,000         130,000         150,000   

Other notes

     795         968         1,949   
  

 

 

    

 

 

    

 

 

 

Total debt

     1,084,801         1,030,921         1,093,319   

Less: Current maturities

     12,404         12,403         6,169   
  

 

 

    

 

 

    

 

 

 

Long-term debt

   $ 1,072,397       $ 1,018,518       $ 1,087,150   
  

 

 

    

 

 

    

 

 

 

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. The proceeds from the offering were used to redeem $650,000,000 of 9.25% notes due in 2020 assumed with TXI plus a make-whole premium and accrued interest. 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 Senior 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.

 

Page 17 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4. Long-Term Debt (continued)

 

The Corporation, through a wholly-owned special purpose subsidiary, has a trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the facility from time to time (the “Trade Receivable Facility”). The Trade Receivable Facility is backed by eligible, as defined, trade receivables of $311,792,000, $213,386,000 and $253,020,000 at June 30, 2014, December 31, 2013 and June 30, 2013, respectively, which 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. At June 30, 2014, December 31, 2013 and June 30, 2013, outstanding borrowings under the Trade Receivable Facility were classified as long-term on the consolidated balance sheet as the Corporation has the intent and ability to refinance amounts outstanding using other long-term credit facilities. The Trade Receivable Facility contains a cross-default provision to the Corporation’s other debt agreements. On April 18, 2014, the Corporation extended the maturity of the Trade Receivable Facility to September 30, 2014. On July 1, 2014, the Trade Receivable Facility was amended to increase the borrowing capacity from $150,000,000 to $250,000,000.

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. The Corporation was in compliance with this Ratio at June 30, 2014.

 

Page 18 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

4. 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 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 June 30, 2014, December 31, 2013 and June 30, 2013, the Corporation had $2,507,000 of outstanding letters of credit issued under the Revolving Facility.

Accumulated other comprehensive loss includes the unamortized value of terminated forward starting interest rate swap agreements. For the three and six months ended June 30, 2014, the Corporation recognized $295,000 and $583,000, respectively, as additional interest expense. For the three and six months ended June 30, 2013, the Corporation recognized $275,000 and $544,000, 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.

 

5. Financial Instruments

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

Temporary cash investments are placed primarily in money market funds, money market demand deposit accounts and Eurodollar time deposits with the following financial institutions: Branch Banking and Trust Company, Comerica Bank, Fifth Third Bank, JPMorgan Chase Bank, N.A., Regions Bank and Wells Fargo Bank, N.A. The Corporation’s cash equivalents have maturities of less than three months. Due to the short maturity of these investments, they are carried on the consolidated balance sheets at cost, which approximates fair value.

 

Page 19 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

5. Financial Instruments (continued)

 

Customer receivables are due from a large number of customers, primarily in the construction industry, and are dispersed across wide geographic and economic regions. However, customer receivables are more heavily concentrated in certain states (namely, Texas, North Carolina, 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 $1,084,801,000 and $1,168,302,000, respectively, at June 30, 2014; $1,030,921,000 and $1,068,324,000, respectively, at December 31, 2013; and $1,093,319,000 and $1,141,592,000, respectively, at June 30, 2013. The estimated fair value of the Corporation’s publicly-registered long-term notes was estimated based on Level 1 of the fair value hierarchy using quoted market prices. The estimated fair value of other borrowings, which primarily represents variable-rate debt, approximates its carrying amount as the interest rates reset periodically.

 

6. Income Taxes

 

    Six Months Ended June 30,  
    2014     2013  

Estimated effective income tax rate:

   

Continuing operations

    29.8     35.0
 

 

 

   

 

 

 

Discontinued operations

    26.4     26.2
 

 

 

   

 

 

 

Consolidated overall

    29.8     35.2
 

 

 

   

 

 

 

 

Page 20 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6. Income Taxes (continued)

 

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

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:

 

     Six Months Ended
June 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

     (173

Gross increases – tax positions in current year

     961   
  

 

 

 

Unrecognized tax benefits at end of period

   $ 14,512   
  

 

 

 

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.

The Corporation anticipates that it is reasonably possible that unrecognized tax benefits may decrease up to $7,123,000, excluding indirect benefits, during the twelve months ending June 30, 2015 as a result of expected settlements with taxing authorities and the expiration of the foreign and domestic statute of limitations for the 2009 and 2010 tax years, respectively.

 

Page 21 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

6. Income Taxes (continued)

 

At June 30, 2014, unrecognized tax benefits of $7,939,000 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.

 

7. Pension and Postretirement Benefits

The estimated components of the recorded net periodic benefit cost (credit) for pension and postretirement benefits are as follows:

 

     Three Months Ended June 30,  
     Pension     Postretirement Benefits  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Service cost

   $ 3,092      $ 4,060      $ 51      $ 56   

Interest cost

     5,624        5,799        305        251   

Expected return on assets

     (6,677     (6,717     —          —     

Amortization of:

        

Prior service cost (credit)

     96        113        (887     (808

Actuarial loss (gain)

     877        3,949        (73     6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

   $ 3,012      $ 7,204      $ (604   $ (495
  

 

 

   

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30,  
     Pension     Postretirement Benefits  
     2014     2013     2014     2013  
     (Dollars in Thousands)  

Service cost

   $ 7,131      $ 8,060      $ 93      $ 113   

Interest cost

     12,971        11,512        559        506   

Expected return on assets

     (15,400     (13,335     —          —     

Amortization of:

        

Prior service cost (credit)

     223        224        (1,627     (1,627

Actuarial loss (gain)

     2,022        7,840        (133     12   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost (credit)

   $ 6,947      $ 14,301      $ (1,108   $ (996
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 22 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8. Commitments and Contingencies

Legal and Administrative Proceedings

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

Environmental and Governmental Regulations

The United States Environmental Protection Agency (“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.

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 line of credit expires in August 2014. 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 June 30, 2014 and December 31, 2013, the amount due from the affiliate related to this loan was $2,455,000 and $2,984,000, respectively.

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

 

Page 23 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9. Business Segments

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

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 expenses, unallocated corporate expenses and other nonrecurring and/or non-operational adjustments.

 

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

Total revenues:

  

Mid-America Group

   $ 240,526      $ 217,516      $ 356,235      $ 337,056   

Southeast Group

     75,168        60,442        134,988        116,184   

West Group

     286,811        222,024        477,598        370,420   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     602,505        499,982        968,821        823,660   

Specialty Products

     66,720        61,344        129,034        121,574   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 669,225      $ 561,326      $ 1,097,855      $ 945,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales:

        

Mid-America Group

   $ 218,703      $ 198,215      $ 325,236      $ 308,402   

Southeast Group

     70,725        55,261        126,106        106,584   

West Group

     250,589        197,224        411,004        324,603   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     540,017        450,700        862,346        739,589   

Specialty Products

     61,920        56,632        119,269        111,801   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 601,937      $ 507,332      $ 981,615      $ 851,390   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (Loss) from operations:

        

Mid-America Group

   $ 57,283      $ 47,717      $ 45,517      $ 33,753   

Southeast Group

     (1,302     (5,176     (7,413     (13,563

West Group

     30,873        16,395        32,954        8,270   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     86,854        58,936        71,058        28,460   

Specialty Products

     20,995        18,726        37,280        35,804   

Corporate

     (11,608     (8,027     (27,994     (17,950
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 96,241      $ 69,635      $ 80,344      $ 46,314   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 24 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9. Business Segments (continued)

 

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

Assets employed:

        

Mid-America Group

   $ 1,311,860       $ 1,242,394       $ 1,185,684   

Southeast Group

     606,933         611,906         588,094   

West Group

     1,084,291         1,030,599         1,077,477   
  

 

 

    

 

 

    

 

 

 

Total Aggregates Business

     3,003,084         2,884,899         2,851,255   

Specialty Products

     151,129         154,024         153,542   

Corporate

     201,830         220,903         226,322   
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,356,043       $ 3,259,826       $ 3,231,119   
  

 

 

    

 

 

    

 

 

 

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

 

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

Net sales:

    

Aggregates

   $ 421,974      $ 357,241      $ 685,858      $ 605,031   

Asphalt

     22,627        18,811        33,125        28,445   

Ready Mixed Concrete

     52,379        35,305        90,388        61,582   

Road Paving

     43,037        39,343        52,975        44,531   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     540,017        450,700        862,346        739,589   

Specialty Products

     61,920        56,632        119,269        111,801   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 601,937      $ 507,332      $ 981,615      $ 851,390   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss):

    

Aggregates

   $ 100,142      $ 78,942      $ 110,194      $ 81,003   

Asphalt

     4,869        4,903        3,443        2,448   

Ready Mixed Concrete

     6,982        1,869        9,926        1,788   

Road Paving

     (249     (284     (4,231     (4,571
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Aggregates Business

     111,744        85,430        119,332        80,668   

Specialty Products

     23,394        21,284        42,149        40,866   

Corporate

     464        282        (43     (1,717
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 135,602      $ 106,996      $ 161,438      $ 119,817   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 25 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10. Supplemental Cash Flow Information

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

 

     Six Months Ended  
     June 30,  
     2014     2013  
     (Dollars in Thousands)  

Other current and noncurrent assets

   $ (6,139   $ (3,729

Accrued salaries, benefits and payroll taxes

     (755     (5,366

Accrued insurance and other taxes

     3,911        1,996   

Accrued income taxes

     16,678        (430

Accrued pension, postretirement and postemployment benefits

     4,281        2,122   

Other current and noncurrent liabilities

     (389     10,171   
  

 

 

   

 

 

 
   $ 17,587      $ 4,764   
  

 

 

   

 

 

 

The change in accrued income taxes is primarily driven by an increase in the estimated tax provision for 2014. The change in other current and noncurrent liabilities is primarily attributable to estimated settlements with taxing authorities recorded in 2013.

Noncash investing and financing activities are as follows:

 

     Six Months Ended  
     June 30,  
     2014      2013  
     (Dollars in Thousands)  

Noncash investing and financing activities:

     

Acquisition of assets through capital lease

   $ 6,333       $ —     

 

Page 26 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11. Business Developments

TXI Business Combination

On July 1, 2014, subsequent to the end of the Corporation’s second quarter and 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 the right to receive 0.70 shares of the Corporation’s common stock, with cash paid in lieu of fractional shares. The Corporation issued approximately 20,300,000 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 approximately $2,680,000,000. Additionally, the fair value of outstanding TXI stock options and stock appreciation rights that were converted to the Corporation’s stock awards at the acquisition date will be a component of the total purchase price.

TXI is the largest producer of cement in Texas and a major cement producer in California. TXI is 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.

The Corporation is in the process of fair valuing assets acquired and liabilities assumed, and as of August 4, 2014, the initial accounting for the business combination has not been completed pending the determination of these values. However, the assets included are cash and cash equivalents; trade receivables; inventories (including finished goods, parts and supplies); deferred income tax assets and liabilities; real property; investments; property, plant and equipment; and intangibles. Liabilities to be assumed are accounts payable; workers’ compensation and property liability accruals; notes payables; defined benefit plans; and litigation accruals.

For the six months ended June 30, 2014, the Corporation incurred $12,781,000 of business development expenses and $2,210,000 of acquisition integration expenses related to this business combination.

 

Page 27 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11. Business Developments (continued)

 

Assets Held for Sale

On June 27, 2014, the Corporation announced that the U.S. Department of Justice (“DOJ”) completed its review of the Corporation’s business transaction with TXI and the Corporation reached an agreement with the DOJ. Under the terms of the agreement, the Corporation will divest an aggregates quarry in Oklahoma and two rail yards in Texas. Assets held for sale are inventory and property, plant and equipment. Liabilities to be transferred with the sale are asset retirement obligations. At June 30, 2014, these assets and liabilities are included with other current assets and other current liabilities, respectively, on the consolidated balance sheet.

 

Page 28 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

 

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

OVERVIEW Martin Marietta Materials, Inc., (the “Corporation”) is the nation’s second largest producer of construction aggregates. The Corporation’s annual consolidated net sales and operating earnings are predominately derived from its Aggregates business, which processes and sells granite, limestone, and other aggregates products, including asphalt, ready mixed concrete and road paving construction services, from a network of nearly 300 quarries, 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,

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,
Missouri, 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 Yards

   Quarries and

Distribution Yards

   Quarries and

Distribution Yards

Primary Modes of

Transportation for

Aggregates Product Line

   Truck and Rail    Truck, Rail and

Water

   Truck and Rail

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.

 

Page 29 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

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. There were no changes to the Corporation’s critical accounting policies during the six months ended June 30, 2014.

STRATEGIC INITIATIVES

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

TXI is the largest producer of cement in Texas and a major cement producer in California. TXI is also a major supplier of construction aggregates, 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.

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 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 six months ended June 30, 2014 and 2013 in accordance with GAAP and reconciliations of the ratios as percentages of total revenues to percentages of net sales:

 

Page 30 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Gross Margin in Accordance with GAAP

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2014     2013     2014     2013  
    

(Dollars in Thousands)

 

Gross profit

   $ 135,602      $ 106,996      $ 161,438      $ 119,817   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 669,225      $ 561,326      $ 1,097,855      $ 945,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     20.3     19.1     14.7     12.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross Margin Excluding Freight and Delivery Revenues

 

     Three Months Ended     Six Months Ended  
     June 30,     June 30,  
     2014     2013     2014     2013  
    

(Dollars in Thousands)

 

Gross profit

   $ 135,602      $ 106,996      $ 161,438      $ 119,817   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 669,225      $ 561,326      $ 1,097,855      $ 945,234   

Less: Freight and delivery

revenues

     (67,288     (53,994     (116,240     (93,844
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   $ 601,937      $ 507,332      $ 981,615      $ 851,390   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin excluding freight and delivery revenues

     22.5     21.1     16.4     14.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Margin in Accordance with GAAP

 

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

Earnings from operations

   $ 96,241      $ 69,635      $ 80,344      $ 46,314   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 669,225      $ 561,326      $ 1,097,855      $ 945,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin

     14.4     12.4     7.3     4.9
  

 

 

   

 

 

   

 

 

   

 

 

 

 

Page 31 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Operating Margin Excluding Freight and Delivery Revenues

 

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

Earnings from operations

   $ 96,241      $ 69,635      $ 80,344      $ 46,314   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 669,225      $ 561,326      $ 1,097,855      $ 945,234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Freight and delivery revenues

     (67,288     (53,994     (116,240     (93,844
  

 

 

   

 

 

   

 

 

   

 

 

 

Net sales

   $ 601,937      $ 507,332      $ 981,615      $ 851,390   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating margin excluding freight and delivery revenues

     16.0     13.7     8.2     5.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Impact of Business Development and Acquisition Integration Expenses

Adjusted consolidated earnings from operations and adjusted earnings per diluted share for the three and six months ended June 30, 2014, exclude the impact of business development and acquisition integration expenses related to the business combination with TXI, and represent non-GAAP financial measures. Management presents these measures for investors and analysts to evaluate and forecast the Corporation’s financial results, as these business development and acquisition integration expenses are nonrecurring costs (in thousands, except per share data).

The following calculation provides the impact of business development and acquisition integration expenses related to the business combination with TXI on the loss per diluted share for the three and six months ended June 30, 2014:

 

     Three Months
Ended
    Six Months
Ended
 

Business development and acquisition integration expenses related to the business combination with TXI

   $ 5,265      $ 14,991   

Income tax benefit

     (2,073     (5,905
  

 

 

   

 

 

 

After-tax impact of business development and acquisition integration expenses related to the business combination with TXI

   $ 3,192      $ 9,086   
  

 

 

   

 

 

 

Diluted average number of common shares outstanding

     46,529        46,477   
  

 

 

   

 

 

 

Per diluted share impact of business development and acquisition integration expenses related to the business combination with TXI

   $ (0.07   $ (0.20
  

 

 

   

 

 

 

 

Page 32 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

The following reconciles the earnings per diluted share in accordance with generally accepted accounting principles for the three and six months ended June 30, 2014, to adjusted earnings per diluted share, which excludes the impact of business development and acquisition integration expenses related to the business combination with TXI:

 

     Three Months
Ended
     Six Months
Ended
 

Earnings per diluted share in accordance with generally accepted accounting principles

   $ 1.27       $ 0.81   

Add back: per diluted share impact of business development and acquisition integration expenses related to the business combination with TXI

     0.07         0.20   
  

 

 

    

 

 

 

Adjusted earnings per diluted share

   $ 1.34       $ 1.01   
  

 

 

    

 

 

 

The following reconciles consolidated earnings from operations in accordance with generally accepted accounting principles for the three and six months ended June 30, 2014, to adjusted consolidated earnings from operations, which excludes the impact of business development and acquisition integration expenses related to the business combination with TXI:

 

     Three Months
Ended
     Six Months
Ended
 

Consolidated earnings from operations in accordance with generally accepted accounting principles

   $ 96,241       $ 80,344   

Add back: business development and acquisition integration expenses related to the business combination with TXI

     5,265         14,991   
  

 

 

    

 

 

 

Adjusted consolidated earnings from operations

   $ 101,506       $ 95,335   
  

 

 

    

 

 

 

 

Page 33 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

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

 

    Earnings per diluted share of $1.27 (includes a $0.07 per diluted share charge for business development and acquisition integration expenses related to TXI); adjusted earnings per diluted share of $1.34 compared with earnings per diluted share of $0.89

 

    Record consolidated net sales of $601.9 million compared with $507.3 million

 

    Aggregates product line volume increase of 12.7%; aggregates product line pricing increase of 5.0%

 

    Specialty Products record net sales of $61.9 million and earnings from operations of $21.0 million

 

    Consolidated gross margin (excluding freight and delivery revenues) of 22.5%, up 140 basis points

 

    Consolidated selling, general and administrative expenses (SG&A) of 6.1% of net sales, a reduction of $1.2 million or 140 basis points

 

    Consolidated earnings from operations of $96.2 million (includes $5.3 million of business development expenses related to the TXI acquisition); adjusted consolidated earnings from operations of $101.5 million compared with consolidated earnings from operations of $69.6 million

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 June 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 34 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

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

Net sales:

         

Mid-America Group

   $ 218,703         $ 198,215     

Southeast Group

     70,725           55,261     

West Group

     250,589           197,224     
  

 

 

      

 

 

   

Total Aggregates Business

     540,017        100.0         450,700        100.0   

Specialty Products

     61,920        100.0         56,632        100.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 601,937        100.0       $ 507,332        100.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit (loss):

         

Mid-America Group

   $ 68,593        31.4       $ 61,091        30.8   

Southeast Group

     3,053        4.3         (551     (1.0

West Group

     40,098        16.0         24,890        12.6   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Aggregates Business

     111,744        20.7         85,430        19.0   

Specialty Products

     23,394        37.8         21,284        37.6   

Corporate

     464        —           282        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 135,602        22.5       $ 106,996        21.1   
  

 

 

   

 

 

    

 

 

   

 

 

 

Selling, general & administrative expenses:

         

Mid-America Group

   $ 13,192         $ 13,462     

Southeast Group

     4,577           4,491     

West Group

     10,746           10,429     
  

 

 

      

 

 

   

Total Aggregates Business

     28,515        5.3         28,382        6.3   

Specialty Products

     2,468        4.0         2,529        4.5   

Corporate

     5,583        —           6,932        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 36,566        6.1       $ 37,843        7.5   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (Loss) from operations:

         

Mid-America Group

   $ 57,283         $ 47,717     

Southeast Group

     (1,302        (5,176  

West Group

     30,873           16,395     
  

 

 

      

 

 

   

Total Aggregates Business

     86,854        16.1         58,936        13.1   

Specialty Products

     20,995        33.9         18,726        33.1   

Corporate

     (11,608     —           (8,027     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 96,241        16.0       $ 69,635        13.7   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

Page 35 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Aggregates product line shipments reflect growth in all end-use markets, with overall volume increasing 12.7%. The nonresidential market represented 31% of quarterly shipments and increased 16%, reflecting growth in the energy and commercial sectors. The Corporation continues to benefit from the nation’s increasing investment in shale energy, particularly in South Texas. The residential end-use market accounted for 14% of quarterly shipments, and volumes to this market increased 20%. Growth was strongest in the Southeast and West Groups. The ChemRock/Rail market accounted for 10% of volumes and increased 13% over the prior-year quarter.

Shipments to the infrastructure market comprised the remaining 45% of the aggregates product line and increased 9% over the prior-year quarter. Growth was notable in Texas and Colorado, which each continue to show a commitment to securing alternative financing sources for infrastructure projects. Infrastructure shipments in Texas reflect the benefit of a robust state Department of Transportation program and the nearly $8 billion of projects awarded in 2013. Infrastructure shipments in Colorado also grew significantly reflecting an increased state-level budget as well as reconstruction efforts resulting from the historic flooding in 2013. Additionally, earlier this year, Colorado approved its first public-private partnership project to renovate and expand the U.S. 36 corridor.

The current federal highway bill, Moving Ahead for Progress in the 21st Century Act, or MAP-21, expires on September 30, 2014. While there is bipartisan support for renewing long-term investment in the country’s infrastructure system, Congress has historically authorized continuing resolutions to bridge funding until the passage of a new bill. The Corporation also continues to monitor the status of the Highway Trust Fund. Recently, the House of Representatives passed a plan to provide $10.8 billion to the Highway Trust Fund from a combination of general fund transfers and tax reform and extend MAP-21 under a continuing resolution until May 31, 2015. The Senate is expected to address highway legislation before Congress’ August recess. While the Corporation expects the current uncertainty in federal funding to be resolved, infrastructure shipments in the second half of the year and the first half of 2015 could be negatively affected if funding concerns persist.

As previously noted, aggregates shipments for the West Group increased 22% as compared with the prior year quarter. Aggregates shipments for the Mid-America and Southeast Groups increased 5.1% and 7.3%, respectively. Recovery in eastern states is being led by private sector construction combined with some meaningful infrastructure projects, particularly in North Carolina, Georgia and Florida, where employment growth has accelerated and the residential construction segment is showing signs of more widespread growth. As the eastern U.S. construction recovery strengthens, the Corporation believes it will follow a growth pattern similar to that seen in many western markets.

 

Page 36 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Aggregates product line pricing increased in each reportable group, led by a 10.3% improvement in the Southeast Group. Based on pricing trends through the first half of the year and mid-year price increases in many geographic areas, the Corporation is reaffirming its full-year aggregates product line pricing guidance.

The vertically-integrated product lines each reported growth in net sales. The ready mixed concrete product line achieved a 48% increase in net sales, which reflected volume and pricing improvement of 27% and 12%, respectively, and led to an 800-basis-point improvement in the product line’s gross margin (excluding freight and delivery revenues). The asphalt product line reported a 20% increase in net sales, due to increased shipments.

Aggregates product line production increased 10.3%, as operations responded to current demand. Production cost per ton declined slightly as increased leverage was partially offset by higher repair costs. In addition to increased production during the quarter, inventory on hand was utilized to meet demand, resulting in an increase in cost of goods sold of $9.3 million. The Aggregates business gross margin (excluding freight and delivery revenues) was 20.7%, a 170-basis-point improvement over the prior-year quarter.

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

 

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

Net sales1:

     

Aggregates

   $ 421,974       $ 357,241   

Asphalt

     22,627         18,811   

Ready Mixed Concrete

     52,379         35,305   

Road Paving

     43,037         39,343   
  

 

 

    

 

 

 

Total Aggregates Business

   $ 540,017       $ 450,700   
  

 

 

    

 

 

 

 

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

 

Page 37 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

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

 

     Three Months Ended
June 30, 2014
 
     Volume     Pricing  

Volume/Pricing Variance (1)

    

Heritage Aggregates Product Line (2):

    

Mid-America Group

     5.1     4.9

Southeast Group

     7.3     10.3

West Group

     22.2     4.6

Heritage Aggregates Operations(2)

     11.6     4.7

Aggregates Product Line (3)

     12.7     5.0
     Three Months Ended
June 30,
 
     2014     2013  
     (tons in thousands)  

Shipments

    

Heritage Aggregates Product Line (2):

    

Mid-America Group

     18,626        17,724   

Southeast Group

     4,586        4,273   

West Group

     15,371        12,576   
  

 

 

   

 

 

 

Heritage Aggregates Operations(2)

     38,583        34,573   

Acquisitions

     390        —     

Divestitures (4)

     1        1   
  

 

 

   

 

 

 

Aggregates Product Line (3)

     38,974        34,574   
  

 

 

   

 

 

 
     Three Months Ended
June 30,
 
     2014     2013  
    

(tons in thousands)

 

Shipments

  

Aggregates Product Line (3):

  

Tons to external customers

     37,417        33,286   

Internal tons used in other product lines

     1,557        1,288   
  

 

 

   

 

 

 

Total aggregates tons

     38,974        34,574   
  

 

 

   

 

 

 

 

(1) Volume/pricing variances reflect the percentage increase/(decrease) from the comparable period in the prior year.
(2) Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included in prior-year operations for the comparable period and exclude divestitures.
(3) Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.
(4) Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture.

 

Page 38 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

The average per-ton selling price for the aggregates product line was $11.00 and $10.48 for the three months ended June 30, 2014 and 2013, respectively.

The Corporation’s vertically-integrated operations include asphalt, ready mixed concrete and road paving businesses in Arkansas, Colorado, Texas and Wyoming. Average selling prices by product line for the Corporation’s vertically-integrated operations are as follows:

 

     Three Months Ended
June 30,
 
     2014      2013  

Asphalt

   $ 42.06/ton       $ 42.55/ton   

Ready Mixed Concrete

   $ 92.23/yd3       $ 82.29/yd3   

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

 

     Three Months Ended
June 30,
 
     2014      2013  
     (in thousands)  

Asphalt Product Line:

     

Tons to external customers

     458         382   

Internal tons used in road paving business

     492         461   
  

 

 

    

 

 

 

Total asphalt tons

     950         843   
  

 

 

    

 

 

 

Ready Mixed Concrete – cubic yards

     552         436   
  

 

 

    

 

 

 

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, first-half results are not indicative of expected performance for other interim periods or the full year.

 

Page 39 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Each of the Aggregates business’ three reportable segments leveraged net sales increases to achieve gross margin (excluding freight and delivery revenues) improvement over the prior-year quarter.

Asphalt and ready mixed concrete businesses continued to experience volume increases while ready mixed concrete improved its average selling price, ending the quarter with net sales of $52.4 million compared to $35.3 million. The slight decline in asphalt pricing is primarily due to a special project in the Central Texas Aggregate District in the Southwest Division during the prior-year quarter. The average selling price for this district was negatively affected by $11.03 due to the absence of the project.

The Specialty Products business continued its strong performance and generated record net sales of $61.9 million, an increase of 9.3%, over the prior-year quarter. Growth was primarily attributable to the chemicals product line. The business’ gross margin (excluding freight and delivery revenues) of 37.8% increased 20 basis points over the prior-year quarter’s gross margin of 37.6%. Second-quarter earnings from operations were $21.0 million compared with $18.7 million in the prior-year quarter.

Consolidated gross margin (excluding freight and delivery revenues) was 22.5% for 2014 compared to 21.1% for 2013. The following presents a rollforward of consolidated gross profit (dollars in thousands):

 

Consolidated gross profit, quarter ended June 30, 2013

   $ 106,996   
  

 

 

 

Aggregates product line:

  

Volume strength

     46,755   

Pricing strength

     17,978   

Cost increases, net

     (43,533
  

 

 

 

Increase in aggregates product line gross profit

     21,200   

Vertically-integrated operations

     5,114   

Specialty Products

     2,110   

Corporate

     182   
  

 

 

 

Increase in consolidated gross profit

     28,606   
  

 

 

 

Consolidated gross profit, quarter ended June 30, 2014

   $ 135,602   
  

 

 

 

 

Page 40 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Gross profit (loss) by business is as follows:

 

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

Gross profit (loss):

    

Aggregates

   $ 100,142      $ 78,942   

Asphalt

     4,869        4,903   

Ready Mixed Concrete

     6,982        1,869   

Road Paving

     (249     (284
  

 

 

   

 

 

 

Total Aggregates Business

     111,744        85,430   

Specialty Products

     23,394        21,284   

Corporate

     464        282   
  

 

 

   

 

 

 

Total

   $ 135,602      $ 106,996   
  

 

 

   

 

 

 

Consistent with expectations, consolidated SG&A declined $1.3 million, or 140 basis points as a percentage of net sales. Lower pension expense and the absence of information systems upgrade costs incurred in 2013 primarily account for the decrease in 2014. The Corporation incurred $5.3 million of business development and acquisition integration expenses related to the business combination with TXI. Excluding these business development and acquisition integration expenses, adjusted consolidated earnings from operations were $101.5 million. This compares with consolidated earnings from operations of $69.6 million in the prior-year quarter.

Among other items, other operating income and expenses, net, includes gains and losses on the sale of assets; recoveries and writeoffs related to customer accounts receivable; rental, royalty and services income; accretion expense, depreciation expense and gains and losses related to asset retirement obligations; and research and development costs. For the second quarter, consolidated other operating income and expenses, net, was income of $2.5 million in 2014 compared with income of $0.8 million in 2013. Second quarter 2014 included higher gains on the sale of assets compared with 2013.

 

Page 41 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Six Months Ended June 30

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

 

    Earnings per diluted share of $0.81 (includes a $0.20 per diluted share charge for business development and acquisition integration expenses related to the business combination with TXI); adjusted earnings per diluted share of $1.01 compared with earnings per diluted share of $0.29

 

    Consolidated net sales of $981.6 million, up 15.3%, compared with $851.4 million

 

    Aggregates product line volume up 10.9%; aggregates product line pricing up 2.4%

 

    Specialty Products net sales of $119.3 million and earnings from operations of $37.3 million

 

    Consolidated SG&A down 170 basis points as a percentage of net sales

 

    Consolidated earnings from operations of $80.3 million (includes $15.0 million of business development and acquisition integration expenses related to the business combination with TXI); adjusted consolidated earnings from operations of $95.3 million compared with $46.3 million

The following table presents net sales, gross profit, selling, general and administrative expenses and earnings from operations data for the Corporation and its reportable segments for the six months ended June 30, 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 42 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

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

Net sales:

         

Mid-America Group

   $ 325,236         $ 308,402     

Southeast Group

     126,106           106,584     

West Group

     411,004           324,603     
  

 

 

      

 

 

   

Total Aggregates Business

     862,346        100.0         739,589        100.0   

Specialty Products

     119,269        100.0         111,801        100.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 981,615        100.0       $ 851,390        100.0   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit (loss):

         

Mid-America Group

   $ 67,046        20.6       $ 59,015        19.1   

Southeast Group

     187        0.1         (5,456     (5.1

West Group

     52,099        12.7         27,109        8.4   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Aggregates Business

     119,332        13.8         80,668        10.9   

Specialty Products

     42,149        35.3         40,866        36.6   

Corporate

     (43     —           (1,717     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 161,438        16.4       $ 119,817        14.1   
  

 

 

   

 

 

    

 

 

   

 

 

 

Selling, general & administrative expenses:

         

Mid-America Group

   $ 26,126         $ 26,615     

Southeast Group

     8,785           8,970     

West Group

     21,680           21,257     
  

 

 

      

 

 

   

Total Aggregates Business

     56,591        6.6         56,842        7.7   

Specialty Products

     4,914        4.1         5,020        4.5   

Corporate

     9,308        —           13,630        —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 70,813        7.2       $ 75,492        8.9   
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings (Loss) from operations:

         

Mid-America Group

   $ 45,517         $ 33,753     

Southeast Group

     (7,413        (13,563  

West Group

     32,954           8,270     
  

 

 

      

 

 

   

Total Aggregates Business

     71,058        8.2         28,460        3.8   

Specialty Products

     37,280        31.3         35,804        32.0   

Corporate

     (27,994     —           (17,950     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 80,344        8.2       $ 46,314        5.4   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

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

 

     Six Months Ended
June 30,
 
     2014      2013  
     (Dollars in Thousands)  

Net sales1:

     

Aggregates

   $ 685,858       $ 605,031   

Asphalt

     33,125         28,445   

Ready Mixed Concrete

     90,388         61,582   

Road Paving

     52,975         44,531   
  

 

 

    

 

 

 

Total Aggregates Business

   $ 862,346       $ 739,589   
  

 

 

    

 

 

 

 

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

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

 

     Six Months Ended
June 30, 2014
 
     Volume     Pricing  

Volume/Pricing Variance (1)

    

Heritage Aggregates Product Line (2):

    

Mid-America Group

     1.6     3.7

Southeast Group

     2.7     7.1

West Group

     21.9     1.4

Heritage Aggregates Operations(2)

     9.7     2.2

Aggregates Product Line (3)

     10.9     2.4

 

     Six Months Ended
June 30,
 
     2014      2013  
     (tons in thousands)  

Shipments

     

Heritage Aggregates Product Line (2):

     

Mid-America Group

     27,176         26,753   

Southeast Group

     8,310         8,093   

West Group

     27,439         22,506   
  

 

 

    

 

 

 

Heritage Aggregates Operations(2)

     62,925         57,352   

Acquisitions

     667         —     

Divestitures (4)

     1         2   
  

 

 

    

 

 

 

Aggregates Product Line (3)

     63,593         57,354   
  

 

 

    

 

 

 

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

     Six Months Ended
June 30,
 
     2014      2013  
    

(tons in thousands)

 

Shipments

  

Aggregates Product Line (3):

  

Tons to external customers

     61,136         55,408   

Internal tons used in other product lines

     2,457         1,946   
  

 

 

    

 

 

 

Total aggregates tons

     63,593         57,354   
  

 

 

    

 

 

 

 

(1) Volume/pricing variances reflect the percentage increase / (decrease) from the comparable period in the prior year.
(2) Heritage Aggregates Product Line and Heritage Aggregates Operations exclude volume and pricing data for acquisitions that have not been included in prior-year operations for the comparable period and exclude divestitures.
(3) Aggregates Product Line includes all acquisitions from the date of acquisition and divestitures through the date of disposal.
(4) Divestitures include the tons related to divested aggregates product line operations up to the date of divestiture.

The per-ton average selling price for the aggregates product line was $10.93 and $10.67 for the six months ended June 30, 2014 and 2013, respectively.

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

 

     Six Months Ended
June 30,
 
     2014      2013  

Asphalt

   $ 42.11/ton       $ 42.51/ton   

Ready Mixed Concrete

   $ 90.97/yd3       $ 82.04/yd3   

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

 

     Six Months Ended
June 30,
 
     2014      2013  
     (in thousands)  

Asphalt Product Line:

     

Tons to external customers

     706         608   

Internal tons used in road paving business

     570         496   
  

 

 

    

 

 

 

Total asphalt tons

     1,276         1,104   
  

 

 

    

 

 

 

Ready Mixed Concrete – cubic yards

     959         765   
  

 

 

    

 

 

 

 

Page 45 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

For 2014, Specialty Products’ net sales of $119.3 million increased $7.5 million, or 6.7%, over the prior-year period. Earnings from operations were $37.3 million compared with $35.8 million.

Consolidated gross margin (excluding freight and delivery revenues) was 16.4% for 2014 versus 14.1% for 2013. The following presents a rollforward of the Corporation’s gross profit (dollars in thousands):

 

Consolidated gross profit, six months ended June 30, 2013

   $ 119,817   
  

 

 

 

Aggregates product line:

  

Pricing strength

     65,915   

Volume strength

     14,912   

Cost increases, net

     (51,636
  

 

 

 

Increase in aggregates product line gross profit

     29,191   

Vertically-integrated operations

     9,473   

Specialty Products

     1,283   

Corporate

     1,674   
  

 

 

 

Increase in consolidated gross profit

     41,621   
  

 

 

 

Consolidated gross profit, six months ended June 30, 2014

   $ 161,438   
  

 

 

 

Gross profit (loss) by business is as follows:

 

     Six Months Ended
June 30,
 
     2014     2013  
     (Dollars in Thousands)  

Gross profit (loss):

    

Aggregates

   $ 110,194      $ 81,003   

Asphalt

     3,443        2,448   

Ready Mixed Concrete

     9,926        1,788   

Road Paving

     (4,231     (4,571
  

 

 

   

 

 

 

Total Aggregates Business

     119,332        80,668   

Specialty Products

     42,149        40,866   

Corporate

     (43     (1,717
  

 

 

   

 

 

 

Total

   $ 161,438      $ 119,817   
  

 

 

   

 

 

 

 

Page 46 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Consolidated SG&A expenses were 7.2% of net sales, down 170 basis points compared with the prior-year period. Similar to the quarterly performance, the decline is primarily attributable to lower pension expense and the absence of the information systems upgrade in 2013.

During the six months ended June 30, 2014, the Corporation incurred $15.0 million of business development and acquisition integration expenses related to a business combination with TXI.

For the first six months, consolidated other operating income and expenses, net, was income of $4.8 million in 2014 compared with income of $2.6 million in 2013, due in part to higher gains on the sale of assets in 2014.

In addition to other offsetting amounts, other nonoperating income and expenses, net, are comprised generally of interest income and net equity earnings from nonconsolidated investments. Consolidated other nonoperating income and expenses, net, for the six months ended June 30 was an expense of $3.2 million in 2014 compared with expense of $0.1 million in 2013, primarily driven by increased losses from nonconsolidated affiliates and higher losses on foreign currency exchange.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities for the six months ended June 30, 2014 was $70.4 million compared with $48.5 million for the same period in 2013. The increase was attributable to higher earnings. 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:

 

     Six Months Ended June
30,
 
     2014      2013  
     (Dollars in Thousands)  

Depreciation

   $ 80,952       $ 81,097   

Depletion

     2,696         2,283   

Amortization

     2,499         2,612   
  

 

 

    

 

 

 
   $ 86,147       $ 85,992   
  

 

 

    

 

 

 

The seasonal nature of the construction aggregates business impacts quarterly operating cash flow when compared with the full year. Full-year 2013 net cash provided by operating activities was $309.0 million compared with $48.5 million for the first six months of 2013.

During the six months ended June 30, 2014, the Corporation invested $84.7 million of capital into its business. Full-year capital spending, exclusive of acquisitions, if any, is expected to be approximately $155.0 million in 2014. Comparable full-year capital expenditures were $155.2 million in 2013.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

On April 2, 2014, the Corporation paid $19.6 million for the remaining 50% interest in a joint venture.

The Corporation can repurchase its common stock through open-market purchases pursuant to authority granted by its Board of Directors or through private transactions at such prices and upon such terms as the Chief Executive Officer deems appropriate. The Corporation did not repurchase any shares of common stock during the six months ended June 30, 2014 and 2013. At June 30, 2014, 5,042,000 shares of common stock were remaining under the Corporation’s repurchase authorization.

The Corporation, through a wholly-owned special purpose subsidiary, has a trade receivable securitization facility with SunTrust Bank and certain other lenders that may become a party to the facility from time to time (the “Trade Receivable Facility”). The Trade Receivable Facility is backed by eligible, as defined, trade receivables, which are originated by the Corporation and then sold to the wholly-owned special purpose subsidiary by the Corporation. Although the Corporation expects to extend the facility beyond its current maturity, it has the intent and ability to refinance amounts outstanding using other long-term credit facilities. On April 18, 2014, the Corporation extended the maturity of the Trade Receivable Facility to September 30, 2014. On July 1, 2014, the Trade Receivable Facility was amended to increase the borrowing capacity from $150 million to $250 million.

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. The proceeds from the offering were used to redeem $650 million of 9.25% notes due in 2020 assumed with TXI plus a make-whole premium and accrued unpaid interest. 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. The Floating Rate Senior 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.

The Credit Agreement (which consists of a $250 million Term Loan Facility and a $350 million Revolving Facility) requires the Corporation’s ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation, depletion and amortization (EBITDA), as defined, for the trailing twelve month period (the “Ratio”) to not exceed 3.50x as of the end of any fiscal quarter, provided that the Corporation may exclude from the Ratio debt incurred in connection with

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

certain acquisitions for a period of 180 days so long as the Corporation, as a consequence of such specified acquisition, does not have its ratings on long-term unsecured debt fall below BBB by Standard & Poor’s or Baa2 by Moody’s and the Ratio calculated without such exclusion does not exceed 3.75x. Additionally, if there are no amounts outstanding under the Revolving Facility, consolidated debt, including debt for which the Corporation is a co-borrower, will be reduced for purposes of the covenant calculation by the Corporation’s unrestricted cash and cash equivalents in excess of $50 million, such reduction not to exceed $200 million.

The Ratio is calculated as debt, including debt for which the Corporation is a co-borrower, divided by consolidated EBITDA, as defined, for the trailing twelve months. Consolidated EBITDA is generally defined as earnings before interest expense, income tax expense, and depreciation, depletion and amortization expense for continuing operations. Additionally, stock-based compensation expense is added back and interest income is deducted in the calculation of consolidated EBITDA. Certain other nonrecurring noncash items, if they occur, can affect the calculation of consolidated EBITDA.

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 Ratio returns to the pre-amendment maximum of 3.50x for the December 31, 2014 calculation date.

The Corporation expects to make cash payments of approximately $195,000,000 during the second half of the year for business development expenses, acquisition integration expenses and the make-whole premium to redeem the publicly traded debt assumed with TXI.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

At June 30, 2014, the Corporation’s ratio of consolidated debt to consolidated EBITDA, as defined, for the trailing twelve months EBITDA was 2.49 times and was calculated as follows:

 

     Twelve Month
Period July 1, 2013 to
June 30, 2014
 
     (Dollars in thousands)  

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

   $ 146,409   

Add back:

  

Interest expense

     51,501   

Income tax expense

     52,759   

Depreciation, depletion and amortization expense

     171,578   

Stock-based compensation expense

     7,397   

Business development expenses related to the business combination with TXI

     14,182   

Acquisition integration expenses related to the business combination with TXI

     2,210   

Deduct:

  

Interest income

     (491
  

 

 

 

Consolidated EBITDA, as defined

   $ 445,545   
  

 

 

 

Consolidated debt, including debt for which the Corporation is a co-borrower, at June 30, 2014

   $ 1,108,248   
  

 

 

 

Consolidated debt to consolidated EBITDA, as defined, at June 30, 2014 for the trailing twelve months EBITDA

     2.49x   
  

 

 

 

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

Cash on hand, along with the Corporation’s projected internal cash flows and availability of financing resources, including its access to debt and equity capital markets, is expected to continue to be sufficient to provide the capital resources necessary to support anticipated operating needs, cover debt service requirements, meet capital expenditures and discretionary investment needs, fund certain acquisition opportunities that may arise and allow for payment of dividends for the foreseeable future. At June 30, 2014, the Corporation had $307 million of unused borrowing capacity under its Revolving Facility, subject to complying with the related leverage covenant. The Revolving Facility expires on November 29, 2018.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

The Corporation may be required to obtain financing to fund certain strategic acquisitions, if any such opportunities arise, or to refinance outstanding debt. Any strategic acquisition of size for cash would likely require an appropriate balance of newly-issued equity with debt in order to maintain a composite investment-grade credit rating. Furthermore, the Corporation is exposed to the credit markets, through the interest cost related to its variable-rate debt, which included borrowings under its Revolving Facility, Term Loan Facility and Trade Receivable Facility at June 30, 2014. The Corporation is currently rated by three credit rating agencies; two of those agencies’ credit ratings are investment-grade level and the third agency’s credit rating is one level below investment grade. The Corporation’s composite credit rating remains at investment-grade level, which facilitates obtaining financing at lower rates than noninvestment-grade ratings.

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

OUTLOOK

The Corporation is encouraged by various positive trends in its business and markets, notably:

 

    Nonresidential construction is expected to grow in both the heavy industrial and commercial sectors.

 

    Shale development and related follow-on public and private construction activities are anticipated to remain strong.

 

    The commercial building sector is expected to benefit from improved market fundamentals, such as higher occupancies and rents, strengthened property values and increased real estate lending.

 

    Residential construction should continue to grow, driven by historically low levels of construction activity over the previous several years together with low mortgage rates, higher multi-family rental rates and rising housing prices. Total annual housing starts are anticipated to exceed one million units for the first time since 2007.

 

    For the public sector, authorized highway funding from MAP-21 should increase slightly compared with 2013.

 

    Additionally, state initiatives to finance infrastructure projects are expected to grow and continue to play an expanded role in public-sector activity.

 

Page 51 of 62


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

Based on these trends and expectations, the Corporation anticipates the following, which excludes the impact of the TXI acquisition:

 

    Heritage aggregates end-use markets compared to 2013 levels: infrastructure shipments to increase slightly; nonresidential shipments to increase in the high single digits; residential shipments to experience double-digit growth; and ChemRock/Rail shipments to increase in the mid-to-high single digits.

 

    Heritage aggregates product line shipments to increase by 6% to 8% compared with 2013 levels.

 

    Heritage aggregates product line pricing to increase by 3% to 5% for the year compared with 2013.

 

    Heritage aggregates product line direct production cost per ton to decrease slightly compared with 2013.

 

    Heritage vertically integrated businesses to generate between $385 million and $405 million of net sales and $40 million to $45 million of gross profit.

 

    Heritage SG&A expenses as a percentage of net sales to decline compared with 2013, driven in part by $7.9 million of nonrecurring costs related primarily to the 2013 completion of the Corporation’s information systems upgrade, as well as lower pension costs.

 

    Net sales for the Specialty Products segment to be between $225 million and $235 million, generating $85 million to $90 million of gross profit.

 

    Interest expense to remain relatively flat compared with 2013.

 

    Estimated effective income tax rate to approximate 29%, excluding discrete events.

 

    Capital expenditures to approximate $155 million.

The full-year outlook includes management’s assessment of the likelihood of certain risk factors that will affect performance. The most significant risks to the Corporation’s 2014 performance will be Congress’ actions and timing surrounding the expiration of MAP-21 and uncertainty over the funding mechanism for the Highway Trust Fund. Further, additional government shutdown(s) and the impact of The Patient Protection and Affordable Care Act may further erode consumer confidence, which may negatively impact investment in construction projects. While both MAP-21 and The Transportation Infrastructure Finance and Innovation Act (TIFIA) credit assistance are excluded from the U.S. debt ceiling limit, this issue may have a significant impact on the economy and, consequently, construction activity. Other risks related to the Corporation’s future performance include, but are not limited to, both price and volume and include a recurrence of widespread decline in aggregates volume negatively affecting aggregates price; the termination, capping and/or reduction of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; a significant change in the funding patterns for traditional federal, state and/or local infrastructure projects; a reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in nonresidential construction, a decline in energy-related drilling activity resulting from certain regulatory or economic factors, a slowdown in the

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

residential construction recovery, or some combination thereof; a reduction in economic activity in the Corporation’s Midwest states resulting from reduced funding levels provided by the Agricultural Act of 2014 and declining coal traffic on the railroads; and the possibility that expected synergies and operating efficiencies in connection with the TXI acquisition are not realized within the expected time-frames or at all. Further, increased highway construction funding pressures resulting from either federal or state issues can affect profitability. If these negatively affect transportation budgets more than in the past, construction spending could be reduced. North Carolina, a state that disproportionately affects the Corporation’s revenue and profitability, is among the states experiencing these fiscal pressures, although recent statistics indicate that transportation and tax revenues are increasing. The Specialty Products business essentially runs at capacity; therefore any unplanned changes in costs or realignment of customers introduce volatility to the earnings of this segment.

The Corporation’s principal business serves customers in aggregates-related construction markets. This concentration could increase the risk of potential losses on customer receivables; however, payment bonds normally posted on public projects, together with lien rights on private projects, help to mitigate the risk of uncollectible receivables. The level of aggregates demand in the Corporation’s end-use markets, production levels and the management of production costs will affect the operating leverage of the Aggregates business and, therefore, profitability. Production costs in the Aggregates business are also sensitive to energy and raw material prices, both directly and indirectly. Diesel fuel and other consumables change production costs directly through consumption or indirectly by increased energy-related input costs, such as steel, explosives, tires and conveyor belts. Fluctuating diesel fuel pricing also affects transportation costs, primarily through fuel surcharges in the Corporation’s long-haul distribution network. The Specialty Products business is sensitive to changes in domestic steel capacity utilization and the absolute price and fluctuations in the cost of natural gas.

Transportation in the Corporation’s long-haul network, particularly the supply of rail cars and locomotive power to move trains, affects the Corporation’s ability to efficiently transport material into certain markets, most notably Texas, Florida and the Gulf Coast. The availability of trucks and drivers to transport the Corporation’s product, particularly in markets experiencing increased demand due to energy-sector activity, is also a risk. The Aggregates business is also subject to weather-related risks that can significantly affect production schedules and profitability. The first and fourth quarters are most adversely affected by winter weather. Hurricane activity in the Atlantic Ocean and Gulf Coast generally is most active during the third and fourth quarters.

Risks to the outlook include shipment declines as a result of economic events beyond the Corporation’s control. In addition to the impact on nonresidential and residential construction, the Corporation is exposed to risk in its estimated outlook from credit markets and the availability of and interest cost related to its debt.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

The Corporation’s future performance is also exposed to risks from tax reform at the federal and state levels.

OTHER MATTERS If you are interested in Martin Marietta Materials, Inc. stock, management recommends that, at a minimum, you read the Corporation’s current Annual Report and Forms 10-K, 10-Q and 8-K reports to the Securities and Exchange Commission (SEC) over the past year. The Corporation’s recent proxy statement for the annual meeting of shareholders also contains important information. These and other materials that have been filed with the SEC are accessible through the Corporation’s website at www.martinmarietta.com and are also available at the SEC’s website at www.sec.gov. You may also write or call the Corporation’s Corporate Secretary, who will provide copies of such reports.

Investors are cautioned that all statements in this Form 10-Q that relate to the future involve risks and uncertainties, and are based on assumptions that the Corporation believes in good faith are reasonable but which may be materially different from actual results. Forward-looking statements give the investor management’s expectations or forecasts of future events. You can identify these statements by the fact that they do not relate only to historical or current facts. They may use words such as “anticipate,” “expect,” “should be,” “believe,” “will”, and other words of similar meaning in connection with future events or future operating or financial performance. Any or all of our forward-looking statements here and in other publications may turn out to be wrong.

Factors that the Corporation currently believes could cause actual results to differ materially from the forward-looking statements in this Form 10-Q include, but are not limited to, Congress’ actions and timing surrounding the expiration of MAP-21 and uncertainty over the funding mechanism for the Highway Trust Fund; the performance of the United States economy and the resolution and impact of the debt ceiling and sequestration issues; widespread decline in aggregates pricing; the termination, capping and/or reduction of the federal and/or state gasoline tax(es) or other revenue related to infrastructure construction; the level and timing of federal and state transportation funding, most particularly in North Carolina, one of the Corporation’s largest and most profitable states, and Texas, Iowa, Colorado and Georgia; the ability of states and/or other entities to finance approved projects either with tax revenues or alternative financing structures; levels of construction spending in the markets the Corporation serves; a reduction in defense spending, and the subsequent impact on construction activity on or near military bases; a decline in the commercial component of the nonresidential construction market, notably office and retail space; a slowdown in energy-related drilling activity; a slowdown in residential construction recovery; a reduction in shipments due to a decline in funding under the domestic farm bill; unfavorable weather conditions, particularly Atlantic Ocean hurricane activity, the late start to spring or the early onset of winter and the impact of a drought or excessive rainfall in the markets served by the Corporation; the volatility of fuel costs, particularly diesel fuel, and the impact on the cost of other consumables, namely steel, explosives, tires and conveyor belts, and with respect to the Specialty Products business,

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

natural gas; continued increases in the cost of other repair and supply parts; transportation availability, notably the availability of railcars and locomotive power to move trains to supply the Corporation’s Texas, Florida and Gulf Coast markets; increased transportation costs, including increases from higher passed-through energy and other costs to comply with tightening regulations as well as higher volumes of rail and water shipments; availability and cost of construction equipment in the United States; weakening in the steel industry markets served by the Corporation’s dolomitic lime products; inflation and its effect on both production and interest costs; ability to successfully integrate acquisitions quickly and in a cost-effective manner and achieve anticipated profitability to maintain compliance with the Corporation’s leverage ratio debt covenant; changes in tax laws, the interpretation of such laws and/or administrative practices that would increase the Corporation’s tax rate; violation of the Corporation’s debt covenant if price and/or volumes return to previous levels of instability; downward pressure on the Corporation’s common stock price and its impact on goodwill impairment evaluations; reduction of the Corporation’s credit rating to non-investment grade resulting from strategic acquisitions; and other risk factors listed from time to time found in the Corporation’s filings with the SEC. Other factors besides those listed here may also adversely affect the Corporation, and may be material to the Corporation. The Corporation assumes no obligation to update any such forward-looking statements.

In connection with the business combination with TXI, the Corporation has filed with the SEC a Registration Statement on Form S-8 on July 2, 2014.

 

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Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Second Quarter Ended June 30, 2014

(Continued)

 

INVESTOR ACCESS TO COMPANY FILINGS Shareholders may obtain, without charge, a copy of Martin Marietta Materials, Inc.’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2013, by writing to:

Martin Marietta Materials, Inc.

Attn: Corporate Secretary

2710 Wycliff Road

Raleigh, North Carolina 27607-3033

Additionally, Martin Marietta Materials, Inc.’s Annual Report, press releases and filings with the Securities and Exchange Commission, including Forms 10-K, 10-Q, 8-K and 11-K, can generally be accessed via the Corporation’s website. Filings with the Securities and Exchange Commission accessed via the website are available through a link with the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system. Accordingly, access to such filings is available upon EDGAR placing the related document in its database. Investor relations contact information is as follows:

Telephone: (919) 783-4540

Website address: www.martinmarietta.com

Information included on the Corporation’s website is not incorporated into, or otherwise create a part of, this report.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Corporation’s operations are highly dependent upon the interest rate-sensitive construction and steelmaking industries. Consequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs.

Management has considered the current economic environment and its potential impact to the Corporation’s business. Demand for aggregates products, particularly in the infrastructure construction market, has already been negatively affected by federal and state budget and deficit issues and the uncertainty over future highway funding levels beyond the expiration of MAP-21. Further, delays or cancellations to capital projects in the nonresidential and residential construction markets could occur if companies and consumers are unable to obtain financing for construction projects or if consumer confidence continues to be eroded by economic uncertainty.

Demand in the residential construction market is affected by interest rates. The Federal Reserve kept the federal funds rate near zero percent during the six months ended June 30, 2014, unchanged since 2008. The residential construction market accounted for 14% of the Corporation’s aggregates product line shipments in 2013.

Aside from these inherent risks from within its operations, the Corporation’s earnings are also affected by changes in short-term interest rates. However, rising interest rates are not necessarily predictive of weaker operating results. In fact, since 2007, the Corporation’s profitability increased when interest rates rose, based on the last twelve months quarterly historical net income regression versus a 10-year U.S. government bond. In essence, the Corporation’s underlying business generally serves as a natural hedge to rising interest rates.

Variable-Rate Borrowing Facilities. At June 30, 2014, the Corporation had a $600 million Credit Agreement, comprised of a $350 million Revolving Facility and $250 million Term Loan Facility, and a $250 million Trade Receivable Facility. Borrowings under these facilities bear interest at a variable interest rate. A hypothetical 100-basis-point increase in interest rates on borrowings of $432.4 million, which was the collective outstanding balance at June 30, 2014, would increase interest expense by $4.3 million on an annual basis.

Pension Expense. The Corporation’s results of operations are affected by its pension expense. Assumptions that affect pension expense include the discount rate and, for the defined benefit pension plans only, the expected long-term rate of return on assets. Therefore, the Corporation has interest rate risk associated with these factors. The impact of hypothetical changes in these assumptions on the Corporation’s annual pension expense is discussed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013.

 


Table of Contents

MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

 

Energy Costs. Energy costs, including diesel fuel, natural gas, coal and liquid asphalt, represent significant production costs of the Corporation. The Corporation does not hedge its diesel fuel price risk. The Specialty Products business has fixed price agreements covering all of its 2014 coal requirements. A hypothetical 10% change in the Corporation’s energy prices in 2014 as compared with 2013, assuming constant volumes, would change 2014 pretax earnings by $19.9 million.

Item 4. Controls and Procedures

As of June 30, 2014, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2014. There were no changes in the Corporation’s internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

PART II-OTHER INFORMATION

 

Item 1. Legal Proceedings.

Reference is made to Part I. Item 3. Legal Proceedings of the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the year ended December 31, 2013.

Item 1A. Risk Factors.

Reference is made to Part I. Item 1A. Risk Factors and Forward-Looking Statements of the Martin Marietta Materials, Inc. Annual Report on Form 10-K for the year ended December 31, 2013.

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

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

   Total Number of
Shares Purchased
     Average Price
Paid per Share
     Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
     Maximum Number of
Shares that May Yet
be Purchased Under
the Plans or Programs
 

April 1, 2014 –April 30, 2014

     —         $ —           —           5,041,871   

May 1, 2014 – May 31, 2014

     —         $ —           —           5,041,871   

June 1, 2014 – June 30, 2014

     —         $ —           —           5,041,871   
  

 

 

       

 

 

    

Total

     —         $ —           —           5,041,871   

The Corporation’s initial stock repurchase program, which authorized the repurchase of 2.5 million shares of common stock, was announced in a press release dated May  6, 1994, and has been updated as appropriate. The program does not have an expiration date.

Item 4. Mine Safety Disclosures.

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this Quarterly Report on Form 10-Q.

 


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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

PART II-OTHER INFORMATION

(Continued)

 

Item 6. Exhibits.

 

Exhibit

No.

  

Document

31.01    Certification dated August 4, 2014 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02    Certification dated August 4, 2014 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01    Written Statement dated August 4, 2014 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02    Written Statement dated August 4, 2014 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95    Mine Safety Disclosures
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    MARTIN MARIETTA MATERIALS, INC.
    (Registrant)
Date: August 4, 2014     By:  

/s/ Anne H. Lloyd

          Anne H. Lloyd
              Executive Vice President and Chief Financial Officer

 

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MARTIN MARIETTA MATERIALS, INC. AND CONSOLIDATED SUBSIDIARIES

FORM 10-Q

For the Quarter Ended June 30, 2014

 

EXHIBIT INDEX

 

Exhibit No.

  

Document

31.01    Certification dated August 4, 2014 of Chief Executive Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02    Certification dated August 4, 2014 of Chief Financial Officer pursuant to Securities and Exchange Act of 1934 rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01    Written Statement dated August 4, 2014 of Chief Executive Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02    Written Statement dated August 4, 2014 of Chief Financial Officer required by 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
95        Mine Safety Disclosures
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase

 

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